-----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, ROLikZ63NpDYRdKE3jnCCeJ21BSruHgvmSr4HgwcucJ8SoRXo9WcdYxLjx0b4MU5 jn4ZB+IJhNJCGbyEJHb+LQ== 0000043704-97-000006.txt : 19970329 0000043704-97-000006.hdr.sgml : 19970329 ACCESSION NUMBER: 0000043704-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08291 FILM NUMBER: 97567845 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-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K _X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to __________________ For the fiscal year ended December 31, 1996 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 __________________________ Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of each exchange on which registered COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE $3.33-1/3 PER SHARE ________________________________________________________________________ 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 incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _X_ The aggregate market value of the voting stock held by non- affiliates of the registrant as of March 14, 1997, was $120,638,465.00 based on the closing price for the Common Stock on the New York Stock Exchange as reported by The Wall Street Journal. The number of shares of Common Stock outstanding on March 14, 1997, was 5,052,920. DOCUMENTS INCORPORATED BY REFERENCE The Company's Definitive Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 15, 1997, to be filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Form 10-K. PART I ITEM 1. BUSINESS THE COMPANY Green Mountain Power Corporation (the Company) is a public utility operating company engaged in supplying electrical energy in the State of Vermont in a territory with approximately one quarter of the State's population. It serves approximately 82,500 customers. The Company was incorporated under the laws of the State of Vermont on April 7, 1893. For the year ended December 31, 1996, the Company's sources of revenue were derived as follows: 33.3% from residential customers, 31.0% from small commercial and industrial customers, 20.1% from large commercial and industrial customers, 11.3% from sales to other utilities, and 4.3% from other sources. For the same period, the Company's energy resources for retail and requirements wholesale sales were obtained as follows: 50.4% from hydroelectric sources (7.4% Company-owned, 0.1% New York Power Authority (NYPA), 39.6% Hydro-Quebec and 3.3% small power producers), 27.9% from nuclear generating sources (the Vermont Yankee plant described below), 7.4% from coal sources, 3.7% from wood, 1.1% from natural gas, and 1.1% from oil. The remaining 8.4% was purchased on a short-term basis from other utilities and through the New England Power Pool (NEPOOL). In 1996, the Company purchased 96.7% of the energy required to satisfy its retail and requirements wholesale sales (including energy purchased from Vermont Yankee and under other long-term purchase arrangements). See Note K of Notes to Consolidated Financial Statements. A major source of the Company's power supply is its entitlement to a share of the power generated by the 531-MW Vermont Yankee nuclear generating plant owned and operated by Vermont Yankee Nuclear Power Corporation (Vermont Yankee), in which the Company has a 17.9% equity interest. For information concerning Vermont Yankee, see "Power Resources - Vermont Yankee." The Company participates in NEPOOL, a regional bulk power transmission organization established to assure the reliability and economic efficiency of power supply in the Northeast. The Company's representative to NEPOOL is the Vermont Electric Power Company, Inc. (VELCO), a transmission consortium owned by the Company and other Vermont utilities, in which the Company has a 30% equity interest. As a member of NEPOOL, the Company benefits from increased efficiencies of centralized economic dispatch, availability of replacement power for scheduled and unscheduled outages of its own power sources, sharing of bulk transmission facilities and reduced generation reserve requirements. The principal territory served by the Company comprises an area roughly 25 miles in width extending 90 miles across north central Vermont between Lake Champlain on the west and the Connecticut River on the east. Included in this territory are the cities of Montpelier, Barre, South Burlington, Vergennes and Winooski, as well as the Village of Essex Junction and a number of smaller towns and communities. The Company also distributes electricity in four noncontiguous areas located in southern and southeastern Vermont that are interconnected with the Company's principal service area through the transmission lines of VELCO and others. Included in these areas are the communities of Vernon (where the Vermont Yankee plant is located), Bellows Falls, White River Junction, Wilder, Wilmington and Dover. The Company also supplies at wholesale a portion of the power requirements of several municipalities and cooperatives in Vermont and one utility in another state. The Company is obligated to meet the changing electrical requirements of these wholesale customers, in contrast to the Company's obligation to other wholesale customers, which is limited to specified amounts of capacity and energy established by contract. Major business activities in the Company's service areas include computer assembly and components manufacturing (and other electronics manufacturing), granite fabrication, service enterprises such as government, insurance and tourism (particularly winter recreation), and dairy and general farming. During the years ended December 31, 1996, 1995 and 1994, electric energy sales to International Business Machines Corporation (IBM), the Company's largest customer, accounted for 13.2%, 12.9% and 13.7%, respectively, of the Company's operating revenues in those years. No other retail customer accounted for more than 1.0% of the Company's revenue. Under the present regulatory system, the loss of IBM as a customer of the Company would require the Company to seek rate relief to recover the revenues previously paid by IBM from other customers in an amount sufficient to offset the fixed costs that IBM had been covering through its payments. EMPLOYEES The Company had 344 employees, exclusive of temporary employees, as of December 31, 1996. In addition, subsidiaries of the Company had 45 employees at year end. 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 electric sales to occur in December, January or February. The Company's heaviest load in 1996 - 313.0 MW - occurred on December 31, 1996. The Company's retail electric rates are seasonally differentiated. Under this structure, retail electric rates produce average revenues per kilowatt hour during four peak season months (December through March) that are approximately 30% higher than during the eight off-season months (April through November). See "Energy Efficiency - Rate Design."
OPERATING STATISTICS For the Years Ended December 31 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Net System Capability During Peak Month (MW) Hydro (1)............................................ 193.8 152.1 179.0 174.9 160.6 Lease transmissions.................................. 0.6 0.3 2.1 3.9 5.7 Nuclear (1).......................................... 95.7 81.9 107.2 109.5 109.6 Conventional steam................................... 52.9 77.8 67.1 92.6 95.0 Internal combustion.................................. 60.7 62.0 60.2 71.0 47.4 Combined cycle....................................... 22.1 22.0 22.6 22.8 21.6 ---------- ---------- ---------- ---------- ---------- Total capability (MW).............................. 425.8 396.1 438.2 474.7 439.9 Net system peak...................................... 313.0 297.1 308.3 307.3 314.4 ---------- ---------- ---------- ---------- ---------- Reserve (MW)......................................... 112.8 99.0 129.9 167.4 125.5 ========== ========== ========== ========== ========== Reserve % of peak.................................... 36.0% 33.3% 42.1% 54.5% 39.9% Net Production (MWH) Hydro (1)............................................1,192,881 1,043,617 742,088 751,078 641,525 Lease transmissions.................................. -- -- -- 15,425 58,374 Nuclear (1).......................................... 680,613 682,814 763,690 598,245 665,034 Conventional steam................................... 705,331 673,982 651,105 748,626 762,451 Internal combustion.................................. 2,674 6,646 3,532 2,849 1,504 Combined cycle....................................... 51,162 92,723 37,808 40,966 60,138 ---------- ---------- ---------- ---------- ---------- Total production...................................2,632,661 2,499,782 2,198,223 2,157,189 2,189,026 Less non-requirements sales to other utilities....... 663,175 582,942 328,794 271,224 273,087 ---------- ---------- ---------- ---------- ---------- Production for requirements sales....................1,969,486 1,916,840 1,869,429 1,885,965 1,915,939 Less requirements sales & lease transmissions (MWH)..1,814,371 1,760,830 1,730,497 1,749,454 1,794,986 ---------- ---------- ---------- ---------- ---------- Losses and company use (MWH)......................... 155,115 156,010 138,932 136,511 120,953 ========== ========== ========== ========== ========== Losses as a percentage of total production............. 5.89% 6.24% 6.32% 6.33% 5.53% System load factor (2)................................. 69.7% 71.2% 67.7% 68.7% 68.5% Sales and Lease Transmissions (MWH) Residential - GMP.................................... 557,726 549,296 564,635 541,579 505,234 Lease transmissons................................... -- -- -- 15,425 58,374 ---------- ---------- ---------- ---------- ---------- Total Residential.................................. 557,726 549,296 564,635 557,004 563,608 Commercial & industrial - small...................... 630,839 608,688 604,686 593,560 582,594 Commercial & industrial - large...................... 584,249 556,278 521,400 529,372 539,665 Other................................................ 2,898 8,855 1,146 8,868 6,312 ---------- ---------- ---------- ---------- ---------- Total retail sales and lease transmissions.........1,775,712 1,723,117 1,691,867 1,688,804 1,692,179 Sales to municipals and cooperatives and other requirements sales........................... 38,659 37,713 38,630 60,650 102,807 ---------- ---------- ---------- ---------- ---------- Total requirements sales...........................1,814,371 1,760,830 1,730,497 1,749,454 1,794,986 Other sales for resale............................... 663,175 582,942 328,794 271,224 273,087 ---------- ---------- ---------- ---------- ---------- Total sales and lease transmissions................2,477,546 2,343,772 2,059,291 2,020,678 2,068,073 ========== ========== ========== ========== ========== Average Number of Electric Customers Residential.......................................... 70,198 69,659 68,811 67,994 67,201 Commercial and industrial - small.................... 11,828 11,712 11,611 11,447 11,245 Commercial and industrial - large.................... 25 24 24 25 24 Other................................................ 75 76 76 74 73 ---------- ---------- ---------- ---------- ---------- Total.............................................. 82,126 81,471 80,522 79,540 78,543 ========== ========== ========== ========== ========== Average Revenue per KWH (Cents) Residential including lease revenues................. 10.87 10.09 9.03 8.94 8.44 Lease charges........................................ -- -- -- 0.06 0.41 ---------- ---------- ---------- ---------- ---------- Total Residential.................................. 10.87 10.09 9.03 9.00 8.85 Commercial and industrial - small.................... 8.96 8.42 8.00 7.97 7.82 Commercial and industrial - large.................... 6.28 5.86 6.02 5.96 5.89 Total retail including lease revenues................ 8.72 8.36 7.96 7.86 7.56 Average Use and Revenue Per Residential Customer Kilowatt hours including lease transmissions......... 7,945 7,885 8,206 8,192 8,387 Revenues including lease revenues.................... $863 $796 $741 $733 $707 (1) See Note K of Notes to Consolidated Financial Statements. (2) Load factor is based on net system peak and firm MWH production less off-system losses.
STATE AND FEDERAL REGULATION General. The Company is subject to the regulatory authority of the Vermont Public Service Board (VPSB), which extends to retail rates, services, facilities, securities issues and various other matters. The separate Vermont Department of Public Service (the Department), created by statute in 1981, is responsible for development of energy supply plans for the State of Vermont (the State), purchases of power as an agent for the State and other general regulatory matters. The VPSB is principally responsible for quasi-judicial proceedings, such as rate proceedings. The Department, through a Director for Public Advocacy, is entitled to participate as a litigant in such proceedings and regularly does so. The Company's rate tariffs are uniform throughout its service area. The Company has entered into two economic development agreements, providing for reduced charges to large customers to be applied only to new load. A third economic development agreement with IBM was part of the rate settlement approved by the VPSB on May 23, 1996. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) - "Results of Operations - Operating Revenues and MWh Sales." The Company's wholesale rate on sales to three wholesale customers is regulated by the Federal Energy Regulatory Commission (FERC). Revenues from sales to these customers were approximately 0.9% of operating revenues for 1996. Late in 1989, the Company began serving a municipal utility, Northfield Electric Department, under its wholesale tariff. This customer increased the Company's electricity sales by approximately 23,350 MWh and peak requirements by approximately 6EMW. Revenues in 1996 from Northfield were $1,389,972. The Company provides transmission service to twelve customers within the State under rates regulated by the FERC; revenues for such services amounted to less than 1.0% of the Company's operating revenues for 1996. On April 24, 1996, the FERC issued Orders 888 and 889 which among other things required the filing of open access transmission tariffs by electric utilities. See Item 7. MD&A - "Transmission Issues - Federal Open Access Tariff Orders." NEPOOL has proposed a transmission tariff for certain transmission facilities, including certain facilities between New York and New England, that incorporates a load-based method of capacity allocation for NEPOOL transmission facilities. The proposal could reduce the amount of capacity available to the Company from such facilities in the future. See Item 7. MD&A - "Transmission Issues - Proposed NEPOOL Transmission Tariff." By reason of its relationship with Vermont Yankee, VELCO and Vermont Electric Transmission Company, Inc. (VETCO), a wholly owned subsidiary of VELCO, the Company has filed an exemption statement under Section 3(a)(2) of the Public Utility Holding Company Act, thereby securing exemption from the provisions of such Act, except for Section 9(a)(2) thereof (which prohibits the acquisition of securities of certain other utility companies without approval of the Securities and Exchange Commission). The Securities and Exchange Commission has the power to institute proceedings to terminate such exemption for cause. Licensing. Pursuant to the Federal Power Act, the FERC has granted licenses for the following hydro projects: Project Issue Date Period Bolton February 5, 1982 February 5, 1982 - February 4, 2022 Essex March 30, 1995 March 1, 1995 - March 1, 2025 Vergennes June 29, 1979 June 1, 1949 - May 31, 1999 Waterbury July 20, 1954 September 1, 1951 - August 31 ,2001 Major project licenses provide that after an initial twenty-year period, a portion of the earnings of such project in excess of a specified rate of return is to be set aside in appropriated retained earnings in compliance with FERC Order #5, issued in 1978. Although the twenty-year periods expired in 1985, 1969 and 1971 in the cases of the Essex, the Vergennes and the Waterbury projects, the amounts appropriated are not material. Department of Public Service Twenty-Year Power Plan. In December 1994, the Department adopted an update of its twenty-year electrical power-supply plan (the Plan) for the State of Vermont. The Plan includes an overview of statewide growth and development as they relate to future requirements for electrical energy; an assessment of available energy resources; and estimates of future electrical energy demand. The Company's Integrated Resource Plan (IRP) was published in June 1996. It was developed in a manner consistent with the Department's Plan. The Company's 1996 IRP calls for a greater emphasis on distributed utility approaches that can best use the Company's assets, maximize the benefit of energy efficiency programs, and provide customers with the highest quality service. RECENT RATE DEVELOPMENTS In early 1996, the Company entered into an agreement with Hydro- Quebec which enabled the Company to settle its rate case filed in September 1995. The settlement provided for an overall increase in retail rates of 5.25%, effective June 1, 1996, and a target return on equity for utility operations of 11.25%. For further information regarding recent rate developments, see Item 7. MD&A - "Liquidity and Capital Resources - Rates" and Note I.5 of Notes to Consolidated Financial Statements. COMPETITION AND RESTRUCTURING Electric utilities historically have had exclusive franchises for the retail sale of electricity in specified service territories. Legislative authority has existed since 1941 that would permit Vermont cities, towns and villages to own and operate public utilities. Since that time, no municipality served by the Company has established or, as far as is known to the Company, is presently taking steps to establish, a municipal public utility. In 1987, the Vermont General Assembly enacted legislation that authorized the Department to sell electricity on a significantly expanded basis. Before the new law was passed, the Department's authority to make retail sales had been limited. It could sell at retail only to residential and farm customers and could sell only power that it had purchased from the Niagara and St. Lawrence projects operated by the New York Power Authority. Under the law, the Department can sell electricity purchased from any source at retail to all customer classes throughout the state, but only if it convinces the VPSB and other state officials that the public good will be served by such sales. The Department has made limited additional retail sales of electricity. The Department retains its traditional responsibilities of public advocacy before the VPSB, and electricity planning on a statewide basis. Regulatory and legislative authorities at the federal level and among states across the country, including Vermont, are considering how to restructure the electric industry to facilitate competition for electricity sales at wholesale and retail levels. For further information regarding Competition and Restructuring, See Item 7. MD&A - "Future Outlook." In a recent order related to electric industry restructuring issued by the VPSB on December 31, 1996 (Final Order), the VPSB requested utilities to submit their initial utility restructuring plans to the VPSB by June 30, 1997. These plans will set forth the utility's plan for the structural changes required to implement functional separation or operational unbundling of the regulated transmission and distribution operations from the unregulated generation and retail competitive services operations. These filings will include plans for providing unbundled service rates and other elements to facilitate separation of regulated and unregulated activities. The Company is currently in the process of preparing its restructuring plan, including unbundled service tariffs, for submission to the VPSB in accordance with its Final Order. The Company's final restructuring plans will not be formulated until definitive restructuring legislation has been adopted by the Vermont General Assembly and such plans will be subject to approval by the VPSB. POWER RESOURCES The Company generated, purchased or transmitted 1,924,811.9 MWh of energy for retail and requirements wholesale customers for the twelve months ended December 31, 1996. The corresponding maximum one-hour integrated demand during that period was 313.0 MW on December 31, 1996. This compares to the previous all-time peak of 322.6 MW on December 27, 1989. The following tabulation shows the source of such energy for the twelve-month period and the capacity in the month of the period system peak. See also "Power Resources - Long-Term Power Sales." Net Generated and Net Generated and Purchased in Year Purchased in Month Ended 12/31/96 (a) of Annual Peak ___________________ ___________________ MWh %(b) KW %(b) WHOLLY OWNED PLANTS Hydro 150,586.2 7.4 35,300 8.3 Diesel and Gas Turbine 5,530.0 0.3 63,660 15.0 JOINTLY OWNED PLANTS Wyman #4 5,941.5 0.3 7,030 1.7 Stony Brook I 10,291.7 0.5 7,990 1.9 McNeil 15,252.9 0.8 6,470 1.5 OWNED IN ASSOCIATION W/OTHERS Vermont Yankee Nuclear 565,383.9 27.9 95,680 22.5 NYPA LEASE TRANSMISSIONS State of Vermont (NYPA) 1,520.0 0.1 620 0.1 LONG-TERM PURCHASES Hydro-Quebec 807,030.7 39.6 140,680 33.0 Merrimack #2 150,913.1 7.4 31,820 7.5 Stony Brook I 21,907.3 1.1 14,150 3.3 Small Power Producers 125,552.2 6.2 24,630 5.8 SHORT-TERM PURCHASES 167,343.5 8.4 0.0 0.0 ___________ ____ _______ _____ Less System Sales Energy (102,441.1) (2,260) (0.6) TOTAL 1,924,811.9 100.00 425,770 100.00 =========== ====== ======= ====== NOTE: (a) Excludes losses on off-system purchases, totaling 59,332 MWh. (b) Percentages may be adjusted to total 100%. Vermont Yankee. The Company and Central Vermont Public Service Corporation acted as lead sponsors in the construction of the Vermont Yankee nuclear plant, a boiling-water reactor designed by General Electric Company. The plant, which became operational in 1972, has a generating capacity of 531 MW. Vermont Yankee has entered into power contracts with its sponsor utilities, including the Company, that expire at the end of the life of the unit. Pursuant to its Power Contract, the Company is required to pay 20% of Vermont Yankee's operating expenses (including depreciation and taxes), fuel costs (including charges in respect of estimated costs of disposal of spent nuclear fuel), decommissioning expenses, interest expense and return on common equity, whether or not the Vermont Yankee plant is operating. In 1969, the Company sold to other Vermont utilities a share of its entitlement to the output of Vermont Yankee. Accordingly, those utilities had an obligation to the Company to pay 2.735% of Vermont Yankee's operating expenses, fuel costs, decommissioning expenses, interest expense and return on common equity. As a result of the bankruptcy of one of those utilities, a portion of the entitlement has reverted back to the Company. Accordingly, those utilities have an obligation to the Company to pay 2.338% of Vermont Yankee's operating expenses, fuel costs, decommissioning expenses, interest expense and return on common equity. Vermont Yankee has also entered into capital funds agreements with its sponsor utilities that expire on December 31, 2002. Under its Capital Funds Agreement, the Company is required, subject to obtaining necessary regulatory approvals, to provide 20% of the capital requirements of Vermont Yankee not obtained from outside sources. On April 27, 1989, Vermont Yankee applied to the Nuclear Regulatory Commission (NRC) for an amendment to its operating license to extend the expiration date from December 2007 to March 2012, in order to take advantage of current NRC policy to issue operating licenses for a 40- year term measured from the grant of the operating license. Prior NRC policy, under which the operating license was issued, called for a term of 40 years from the date of the construction permit. On August 22, 1989, the State, opposing the license extension, filed a request for a hearing and petition for leave to intervene, which petition was subsequently granted. On December 17, 1990, the NRC issued an amendment to the operating license extending the expiration date to March 21, 2012, based upon a "no significant hazards" finding by the NRC staff and subject to the outcome of the evidentiary hearing on the State's assertions. On July 31, 1991, Vermont Yankee reached a settlement with the State, and the State filed a withdrawal of its intervention. The proceeding was dismissed on September 3, 1991. In New England, five nuclear units are currently under orders from the NRC not to operate until shown to be in compliance with applicable safety provisions. In December 1996, a decision was made to retire one of these units, effective immediately, with several years remaining on its license. The NRC recently issued Vermont Yankee's Systematic Assessment of Licensee Performance scores for the period July 16, 1995 to January 18, 1997. Operations, engineering and maintenance were rated good, while plant support was rated superior. These scores are identical to Vermont Yankee's scores for the prior 18 month period. In 1996, Vermont Yankee elected to accelerate certain safety and management related projects intended to improve efficiency of the plant and assure compliance with NRC regulations and the facility's operating license. During periods when Vermont Yankee is unavailable, the Company incurs replacement power costs in excess of those costs that the Company would have incurred for power purchased from Vermont Yankee. Replacement power is available to the Company from NEPOOL and through special contractual arrangements with other utilities. Replacement power costs adversely affect cash flow and, absent deferral, amortization and recovery through rates, would adversely affect reported earnings. Routinely, in the case of scheduled outages for refueling, the VPSB has permitted the Company to defer, amortize and recover these excess replacement power costs for financial reporting and ratemaking purposes over the period until the next scheduled outage. Vermont Yankee has adopted an 18-month refueling schedule. On September 7, 1996, Vermont Yankee began a scheduled refueling outage which ended November 2, 1996. Vermont Yankee's next scheduled refueling is March, 1998. In the case of unscheduled outages of significant duration resulting in substantial unanticipated costs for replacement power, the VPSB generally has authorized deferral, amortization and recovery of such costs. Vermont Yankee's current estimate of decommissioning is approximately $366,000,000, of which $160,000,000 has been funded. At December 31, 1996, the Company's portion of the net unfunded liability was $36,000,000, which it expects will be recovered through rates over Vermont Yankee's remaining operating life. During 1996, the Company incurred $28,500,000 in Vermont Yankee annual capacity charges, which included $1,800,000 for interest charges. The Company's share of Vermont Yankee's long-term debt at December 31, 1996 was $13,800,000. During the year ended December 31, 1996, the Company utilized 565,383.9 MWh of Vermont Yankee energy to meet 27.9% of its retail and requirements wholesale (Rate W) sales. The average cost of Vermont Yankee electricity in 1996 was 4.8 cents per KWh. In 1996, Vermont Yankee had an annual capacity factor of 83.0%, compared to 85.0% in 1995 and 96.1% in 1994. The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8,900,000,000. Any liability beyond $8,900,000,000 is indemnified under an agreement with the NRC, but subject to Congressional approval. The first $200,000,000 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 $8,700,000,000 per incident by assessing retrospective premiums of $79,300,000 against each of the 110 reactor units in the United States that are currently subject to the Program, limited to a maximum assessment of $10,000,000 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 above insurance covers all workers employed at nuclear facilities prior to January 1, 1988, for bodily claims. Vermont Yankee has purchased a master worker insurance policy with limits of $200,000,000 with one automatic reinstatement of policy limits to cover workers employed on or after January 1, 1988. Vermont Yankee's estimated contingent liability for a retrospective premium on the master worker policy as of December 1996 is $3,000,000. The secondary financial protection program referenced above provides coverage in excess of the Master Worker policy. Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover the costs of property damage, decontamination or premature decommissioning resulting from a nuclear incident. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds available. The maximum potential assessment against Vermont Yankee with respect to NEIL losses arising during the current policy year is $13,300,000. Vermont Yankee's liability for the retrospective premium adjustment for any policy year ceases six years after the end of that policy year unless prior demand has been made. See Note B of Notes to Consolidated Financial Statements. HYDRO-QUEBEC Highgate Interconnection. On September 23, 1985, the Highgate transmission facilities, which were constructed to import energy from Hydro-Quebec in Canada, began commercial operation. The transmission facilities at Highgate include a 225-MW AC-to-DC-to-AC converter terminal and seven miles of 345-kV transmission line. VELCO built and operates the converter facilities, which are jointly owned by a number of Vermont utilities, including the Company. NEPOOL/Hydro-Quebec Interconnection. VELCO and certain other NEPOOL members have entered into agreements with Hydro-Quebec providing for the construction in two phases of a direct interconnection between the electric systems in New England and the electric system of Hydro- Quebec in Canada. The Vermont participants in this project, which has a capacity of 2,000 MW, will derive about 9.0% of the total power-supply benefits associated with the NEPOOL/Hydro-Quebec interconnection. The Company, in turn, receives about one-third of the Vermont share of those benefits. The benefits of the interconnection include access to surplus hydroelectric energy from Hydro-Quebec at a cost below that of the replacement cost of power and energy otherwise available to the New England participants; energy banking, under which participating New England utilities will transmit relatively inexpensive energy to Hydro- Quebec during off-peak periods and will receive equal amounts of energy, after adjustment for transmission losses, from Hydro-Quebec during peak periods when replacement costs are higher; and provision for emergency transfers and mutual backup to improve reliability for both the Hydro- Quebec system and the New England systems. Phase I. The first phase (Phase I) of the NEPOOL/Hydro-Quebec Interconnection consists of transmission facilities having a capacity of 690 MW that traverse a portion of eastern Vermont and extend to a converter terminal located in Comerford, New Hampshire. These facilities entered commercial operation on October 1, 1986. VETCO was organized to construct, own and operate those portions of the transmission facilities located in Vermont. Total construction costs incurred by VETCO for Phase I were $47,850,000. Of that amount, VELCO provided $10,000,000 of equity capital to VETCO through sales of VELCO preferred stock to the Vermont participants in the project. The Company purchased $3,100,000 of VELCO preferred stock to finance the equity portion of PhaseEI. The remaining $37,850,000 of construction cost was financed by VETCO's issuance of $37,000,000 of long-term debt in the fourth quarter of 1986 and the balance of $850,000 was financed by short-term debt. Under the Phase I contracts, each New England participant, including the Company, is required to pay monthly its proportionate share of VETCO's total cost of service, including its capital costs, as well as a proportionate share of the total costs of service associated with those portions of the transmission facilities constructed in New Hampshire by a subsidiary of New England Electric System. Phase II. Agreements executed in 1985 among the Company, VELCO and other NEPOOL members and Hydro-Quebec, provided for the construction of the second phase (Phase II) of the interconnection between the New England electric system and that of Hydro-Quebec. Phase II expands the Phase I facilities from 690EMW to 2,000EMW, and provides for transmission of Hydro-Quebec power from the Phase I terminal in northern New Hampshire to Sandy Pond, Massachusetts. Construction of Phase II commenced in 1988 and was completed in late 1990. The Phase II facilities commenced commercial operation November 1, 1990, initially at a rating of 1,200 MW, and increased to a transfer capability of 2,000 MW in July 1991. The Hydro-Quebec-NEPOOL Firm Energy Contract provides for the import of economical Hydro-Quebec energy into New England. The Company is entitled to 3.2% of the Phase II power-supply benefits. Total construction costs for Phase II were approximately $487,000,000. The New England participants, including the Company, have contracted to pay monthly their proportionate share of the total cost of constructing, owning and operating the Phase II facilities, including capital costs. As a supporting participant, the Company must make support payments under 30-year agreements. These support agreements meet the capital lease accounting requirements under SFAS 13. At December 31, 1996, the present value of the Company's obligation was $9,000,000. The Company's projected future minimum payments under the Phase II support agreements are $474,013 for each of the years 1997-2001 and an aggregate of $6,636,181 for the years 2002-2020. The Phase II portion of the project is owned by New England Hydro- Transmission Electric Company, Inc. and New England Hydro-Transmission Corporation, subsidiaries of New England Electric System, in which certain of the Phase II participating utilities, including the Company, own equity interests. The Company owns approximately 3.2% of the equity of the corporations owning the Phase II facilities. During construction of the Phase II project, the Company, as an equity sponsor, was required to provide equity capital. At December 31, 1996, the capital structure of such corporations was 39.0% common equity and 61.0% long-term debt. See Note J of Notes to Consolidated Financial Statements. At times, the Company requests that portions of its power deliveries from Hydro-Quebec and other sources be routed through New York. The Company's ability to do so could be adversely affected by the proposed tariff that NEPOOL has filed with the FERC, which incorporates a load-based method of capacity allocation for transmission interfaces between NEPOOL and the New York Power Pool. A reduction of the Company's allocation of capacity on transmission interfaces with New York could adversely affect the Company's ability to import power to Vermont from outside New England which would impact the Company's power costs in the future. See Item 7. MD&A - "Transmission Issues" and Note J of Notes to Consolidated Financial Statements. Hydro-Quebec Power Supply Contracts. Under an arrangement negotiated in January 1996, the Company received cash payments from Hydro-Quebec of $3,000,000 in 1996 and will receive $1,100,000 in 1997. The Company will shift certain transmission requirements and make certain minimum payments for periods in which power is not purchased. In addition, in November 1996, the Company entered into a Memorandum of Understanding with Hydro-QuEbec under which Hydro-QuEbec will pay $8,000,000 in exchange for certain power purchase elections. See Item 7. MD&A - "Power Supply Expenses" and Notes J and K-2 of Notes to Consolidated Financial Statements. In 1996, the Company utilized 430,958.9 MWh under Schedule B, 300,359.7 MWh under Schedule C3, and 75,712.1 MWh under the tertiary energy contract to meet 39.6% of its retail and requirements wholesale sales. The average cost of Hydro-Quebec electricity in 1996 was 4.0 cents per KWh. New York Power Authority (NYPA). The Department allocates NYPA power to the Company which, in turn, delivers the power to its residential and farm customers. The Company purchased at wholesale 1,520.0 MWh to meet 0.1% of its retail and requirements wholesale sales of NYPA power at an average cost of 0.8 cents per KWh in 1996. Under the allocation currently made by NYPA of NYPA power to states neighboring New York, residential and farm customers in the Company's service territory will be entitled to 0.3 MW annually. Merrimack Unit #2. Merrimack Unit #2 is a coal-fired steam plant of 320.0 MW capacity located in Bow, New Hampshire, and owned by Northeast Utilities. The Company is entitled to 28.48 MW of capacity and related energy from the unit under a 30-year contract expiring May 1, 1998. During the year ended December 31, 1996, the Company utilized 150,913.1 MWh from the unit to meet 7.4% of its total retail and requirements wholesale sales. The average cost of electricity from this unit was 3.8 cents per KWh in 1996. See Note K-1 of Notes to Consolidated Financial Statements. Stony Brook I. The Massachusetts Municipal Wholesale Electric Company (MMWEC) is principal owner and operator of Stony Brook, a 352.0- MW combined-cycle intermediate generating station located in Ludlow, Massachusetts, which commenced commercial operation in November 1981. The Company entered into a Joint Ownership Agreement with MMWEC dated as of October 1, 1977, whereby the Company acquired an 8.8% ownership share of the plant, entitling the Company to 31.0 MW of capacity. In addition to this entitlement, the Company has contracted for 14.2 MW of capacity for the life of the Stony Brook I plant, for which it will pay a proportionate share of MMWEC's share of the plant's fixed costs and variable operating expenses. The three units that comprise Stony Brook I are primarily oil-fired. Two of the units are also capable of burning natural gas. The natural gas system at the plant was modified in 1985 to allow two units to operate simultaneously on natural gas. During 1996, the Company utilized 32,199.0 MWh from this plant to meet 1.6% of its retail and requirements wholesale sales at an average cost of 7.6 cents (purchased power). See Note I-4 and K-1 of Notes to Consolidated Financial Statements. Wyman Unit #4. The W. F. Wyman Unit #4, which is located in Yarmouth, Maine, is an oil-fired steam plant with a capacity of 620 MW. The construction of this plant was sponsored by Central Maine Power Company. The Company has a joint-ownership share of 1.1% (6.8 MW) in the Wyman #4 unit, which began commercial operation in December 1978. During 1996, the Company utilized 5,941.5 MWh from this unit to meet 0.3% of its retail and requirements wholesale sales at an average cost of 6.1 per kWh, based only on operation, maintenance, and fuel costs incurred during 1996. See Note I-4 of Notes to Consolidated Financial Statements. McNeil Station. The J. C. McNeil station, which is located in Burlington, Vermont, is a wood chip and gas-fired steam plant with a capacity of 53.0 MW. The Company has an 11% or 5.9 MW interest in the J. C. McNeil plant, which began operation in June 1984. During 1996, the Company utilized 15,252.9 MWh from this unit to meet 0.8% of its retail and requirements wholesale sales at an average cost of 5.4 cents per kWh, based only on operation, maintenance, and fuel costs incurred during 1996. In 1989, the plant added the capability to burn natural gas on an as-available/interruptible service basis. See Note I-4 of Notes to Consolidated Financial Statements. Small Power Production. The VPSB has adopted rules that implement for Vermont the purchase requirements established by federal law in the Public Utility Regulatory Policies Act of 1978 (PURPA). Under the rules, qualifying facilities have the option to sell their output to a central state purchasing agent under a variety of long- and short-term, firm and non-firm pricing schedules, each of which is based upon the projected Vermont composite system's power costs which would be required but for the purchases from small producers. The state purchasing agent assigns the energy so purchased, and the costs of purchase, to each Vermont retail electric utility based upon its pro rata share of total Vermont retail energy sales. Utilities may also contract directly with producers. The rules provide that all reasonable costs incurred by a utility under the rules will be included in the utilities' revenue requirements for ratemaking purposes. Currently, the state purchasing agent, Vermont Electric Power Producers, Inc. (VEPPI), is authorized to seek 150 MW of power from qualifying facilities under PURPA, of which the Company's current pro rata share would be approximately 32.7% or 49.1 MW. The rated capacity of the qualifying facilities currently selling power to VEPPI is approximately 74 MW. These facilities were all online by the spring of 1993, and no other projects are under development. The Company does not expect any new projects to come online in the foreseeable future because the excess capacity in the region has eliminated the need for and value of additional qualifying facilities. In 1996, the Company, through both its direct contracts and VEPPI, purchased 125,552.2 MWh of qualifying facilities production to meet 6.2% of its retail and requirements wholesale sales at an average cost of 10.7 cents per KWh. Short-Term Opportunity Purchases and Sales. The Company has made arrangements with several utilities in New England and New York under which the Company may make purchases or sales of utility system power on short notice and generally for brief periods of time when it appears economic to do so. Opportunity purchases are arranged when it is possible to purchase power from another utility for less than it would cost the Company to generate the power with its own sources. Purchases also help the Company save on replacement power costs during an outage of one of its base load sources. Opportunity sales are arranged when the Company has surplus energy available at a price that is economic to other regional utilities at any given time. The sales are arranged based on forecasted costs of supplying the incremental power necessary to serve the sale. The price is set so as to recover the forecasted fuel and capacity costs. During 1996, the Company purchased 167,343.5 MWh, meeting 8.2% of the Company's retail and requirements wholesale sales, at an average cost of 2.7 cents per kWh. NEPOOL. As a participant of NEPOOL, through VELCO, the Company takes advantage of pool operations with central economic dispatch of participants' generating plants, pooling of transmission facilities and economy and emergency exchange of energy and capacity. The NEPOOL agreement also imposes obligations on the Company to maintain a generating capacity reserve as set by NEPOOL, but which is lower than the reserve which would be required if the Company were not a NEPOOL participant. Company Hydroelectric Power. The Company wholly owns and operates eight hydroelectric generating facilities located on river systems within its service area, the largest of which has a generating output of 8.8 MW. In 1996, these plants provided 150,586.2 MWh of low-cost energy, meeting 7.4% of the Company's retail and requirements wholesale sales at an average cost of 2.9 cents per kWh, based on total embedded costs. See "State and Federal Regulation - Licensing." VELCO. The Company, together with six other Vermont electric distribution utilities, owns VELCO. Since commencing operation in 1958, VELCO has transmitted power for its owners in Vermont, including power from NYPA and other power contracted for by Vermont utilities. VELCO also purchases bulk power for resale at cost to its owners, and as a member of NEPOOL, represents all Vermont electric utilities in pool arrangements and transactions. See Note B of Notes to Consolidated Financial Statements. Long-Term Power Sales. In 1986, the Company entered into an agreement for the sale to United Illuminating of 23 MW of capacity produced by the Stony Brook I combined-cycle plant for a 12-year period commencing October 1, 1986. The agreement provides for the recovery by the Company of all costs associated with the capacity and energy sold. Fuel. During 1996, the Company's retail and requirements wholesale sales were provided by the following fuel sources: 50.4% from hydro (7.4% Company-owned, 0.1% NYPA, 39.6% Hydro-Quebec and 3.3% small power producers), 27.9% from nuclear, 7.4% from coal, 3.7% from wood, 1.1% from natural gas, and 1.1% from oil. The remaining 8.4% was purchased on a short-term basis from other utilities and through NEPOOL. Vermont Yankee has approximately $133,000,000 of "requirements based" purchase contracts for nuclear fuel needs to meet substantially all of its power production requirements through 2002. Under these contracts, any disruption of operating activity would allow Vermont Yankee to cancel or postpone deliveries until actually needed. Vermont Yankee has a contract with the United States Department of Energy (DOE) for the permanent disposal of spent nuclear fuel. Under the terms of this contract, in exchange for the one-time fee discussed below and a quarterly fee of 1 mil per KWh of electricity generated and sold, the DOE agrees to provide disposal services when a facility for spent nuclear fuel and other high-level radioactive waste is available, which is required by contract to be prior to January 31, 1998. The actual date for these disposal services is expected to be delayed many years. The DOE contract obligates Vermont Yankee to pay a one-time fee of approximately $39,300,000 for disposal costs for all spent fuel discharged through April 7, 1983. Although such amount has been collected in rates from the Vermont Yankee participants, Vermont Yankee has elected to defer payment of the fee to the DOE as permitted by the DOE contract. The fee must be paid no later than the first delivery of spent nuclear fuel to the DOE. Interest accrues on the unpaid obligation based on the thirteen-week Treasury Bill rate and is compounded quarterly. Through 1996, Vermont Yankee accumulated approximately $78,000,000 in an irrevocable trust to be used exclusively for defeasing this obligation at some future date, provided the DOE complies with the terms of the aforementioned contract. The Company does not maintain long-term contracts for the supply of oil for the oil-fired peaking unit generating stations wholly owned by it (80EMW). The Company did not experience difficulty in obtaining oil for its own units during 1996, and, while no assurance can be given, does not anticipate any such difficulty during 1997. None of the utilities from which the Company expects to purchase oil- or gas-fired capacity in 1997 has advised the Company of grounds for doubt about maintenance of secure sources of oil and gas during the year. Coal for Merrimack #2 is presently being purchased under a long- term contract from Balley Mine in western Pennsylvania and occasionally on the spot market from northern West Virginia and southern Pennsylvania sources. Wood for the McNeil plant is furnished to the Burlington Electric Department from a variety of sources under short-term contracts ranging from several weeks' to six months' duration. The McNeil plant used 221,529 tons of wood chips and mill residue and 23,340,000 cubic feet of gas in 1996. The McNeil plant is forecasting consumption of wood chips for 1997 to be 180,000 tons and gas consumption of 136,000,000 cubic feet. The Stony Brook combined-cycle generating station is capable of burning either natural gas or oil in two of its turbines. Natural gas is supplied to the plant subject to its availability. During periods of extremely cold weather, the supplier reserves the right to discontinue deliveries to the plant in order to satisfy the demand of its residential customers. The Company assumes for planning and budgeting purposes that the plant will be supplied with gas during the months of April through November, and that it will run solely on oil during the months of December through March. The plant maintains an oil supply sufficient to meet approximately one-half of its annual needs. Wind Project. The Company's 20 years of research and development work in wind generation was recognized in 1993 when the Company was selected by the DOE and the Electric Power Research Institute (EPRI) to build a commercial scale wind-powered facility. The Company was awarded $3,500,000 by the DOE and EPRI, to provide partial funding for the wind project. The overall cost of the project, located in the southern Vermont towns of Searsburg and Readsboro, is estimated to be $11,000,000. The eleven wind turbines have a rating of 6 MW and are expected to begin to generate electricity for the Company in 1997. The Company is a utility leader in wind power research. The CompanyOs extensive wind resource database shows that wind power is technically feasible and is becoming economically viable at other sites within Vermont. Several years of wind turbine operation at Mt. Equinox, Vermont, has provided the Company with valuable knowledge about the effects of icing and extreme cold on the performance of wind turbines, and the necessary adaptations for these conditions. The Searsburg wind project affords an opportunity to employ turbines that are of an advanced design and larger scale than the Mt. Equinox turbines. The economies of scale and advanced technology inherent in these turbines offers a more competitive and reliable source of power than earlier designs. First-hand knowledge about these turbines in Vermont's climatic conditions will enable the Company to make intelligent and timely decisions about this power resource, which can be installed in increments that closely match the need for power. Furthermore, the project's size and northerly location will boost the commercialization of wind power by deploying a new model of turbines in sufficient quantities to obtain statistically valid operations and maintenance data, which will be shared with other utilities. Finally, information related to the siting, permitting, and possible impacts on the natural environment will also be documented and shared with the industry and the public. The Company estimates that the wind project will cause rates to rise less than one-half of 1% in the first several years of the project. Early in the next century, however, the Company projects that electricity from wind energy will cost less than comparable power from other sources. Over the life of the project, the average cost of electricity from the wind farm, which provides electricity at times of peak demand for the Company, is expected to be competitive with the cost of alternatives in the market. ENERGY EFFICIENCY The Company develops and implements energy efficiency services, known as demand-side management (DSM) programs, as part of its long-term resource strategy. These programs are aimed at improving the match between customer needs and the Company's ability to supply those needs at a reasonable cost. Energy conservation, load management and efficient electric use are central to these program efforts and provide the means for controlling operating expenses and requirements for additional capital investment. With more efficient electric consumption, the use of existing resources can be optimized. DSM program components also provide customers with options and choices with respect to their use and cost of electric service. In 1996, the Company focused its energy efficiency services on lost opportunity programs that encourage customers to install energy efficient equipment when they are planning to replace or buy new equipment. This strategy has helped the Company to reduce its cost-per- kilowatthour-saved by 51% since 1992. The current cost of saving a kilowatthour is approximately 2.2 cents. In 1996, the Company's energy efficiency programs saved 10,399 megawatthours of energy, 14% above targeted savings for the year. During the past five years the Company's efficiency programs have achieved a cumulative annual savings of 64,047 MWh. One of the highlights of the Company's 1996 energy efficiency initiatives was the successful completion of the Mad River Valley Energy Project. The project reduced the peak demand in the Mad River Valley (Vermont) and helped postpone the need for a costly transmission upgrade. The Company is currently examining other areas of its distribution system that may need upgrading in the near future and is including energy efficiency as one of the options to help mitigate costs. In 1996, the Company spent approximately $2,400,000 on energy efficiency programs, approximately 1.5% of its retail revenue. Rate Design. The Company seeks to design rates to encourage the shifting of electrical use from peak hours to off peak hours. Since 1976, the Company has offered optional time-of-use rates for residential and commercial customers. Currently, approximately 2,500 of the Company's residential customers continue to be billed on the original 1976 time-of-use rate basis. In 1987, the Company received regulatory approval for a rate design that permitted it to charge prices for electric service that reflected as accurately as possible the cost burden imposed by each customer class. The Company's rate design objectives are to provide a stable pricing structure and to accurately reflect the cost of providing electric services. This rate structure helps to achieve these goals. Since inefficient use of electricity increases its cost, customers who are charged prices that reflect the cost of providing electrical service have real incentives to follow the most efficient usage patterns. Included in the VPSB's order approving this rate design was a requirement that the Company's largest customers be charged time-of-use rates on a phased-in basis by 1994. By year end December 31, 1996, approximately 1,350 of the Company's largest customers, comprising 48% of retail revenues, were successfully converted to time-of-use rates. In May 1994, the Company filed its current rate design with the VPSB. The parties, including the Department, IBM and a low-income advocacy group, entered into a settlement that was approved by the VPSB on December 2, 1994. Under the settlement, the revenue allocation to each rate class was adjusted to reflect class-by-class cost changes since 1987, the differential between the winter and summer rates was reduced, the customer charge was increased for most classes, and usage charges were adjusted to be closer to the associated marginal costs. Dispatchable and Interruptible Service Contracts. In 1996, the Company had interruptible/dispatchable power contracts with three major ski areas, interruptible-only contracts with five customers and dispatchable-only contracts with an additional twenty-four customers. The interruptible portion of the contracts allow the Company to control power supply capacity charges by reducing the Company's capacity requirements. During 1996, the Company did not request any interruptions due to the surplus capacity in the region. The dispatchable portion of the contracts allows customers to purchase electricity during times designated by the Company when low cost power is available at the energy only cost of the rate. The customer's demand during these periods is not considered in calculating the monthly billing. This program provides customers with discretionary use of portions of their load and the opportunity to maximize their energy value, while, at the same time, the Company is able to retain customer load requirements that might otherwise be met through alternative means. These programs are available by tariff for qualifying customers. CONSTRUCTION AND CAPITAL REQUIREMENTS The Company's capital expenditures for 1994 through 1996 and projection for 1997 are set forth in Item 7. MD&A - "Liquidity and Capital Resources-Construction." Construction projections are subject to continuing review and may be revised from time-to-time in accordance with changes in the Company's financial condition, load forecasts, the availability and cost of labor and materials, licensing and other regulatory requirements, changing environmental standards and other relevant factors. For the period 1994-1996, internally generated funds, after payment of dividends, provided approximately 60% of total capital requirements for construction, sinking fund obligations and other requirements. Internally generated funds provided 39% of such requirements for 1996, inclusive of an optional redemption of $7,200,000 of first mortgage bonds made by the Company. The Company anticipates that for 1997, internally generated funds will provide approximately 87% of total capital requirements for regulated operations, the remainder to be derived from bank loans. In January 1996, a portion of the proceeds from the sale of $24,000,000 of the Company's first mortgage bonds in December 1995 was used to refund $7,200,000 of the Company's 10.7% first mortgage bonds. In October 1996, the Company issued $12,000,000 of its 7.32%, Class E, Series 1, preferred stock. In November 1996, the Company sold $10,000,000 of its first mortgage bonds at an interest rate of 7.18% and in December 1996, the Company sold $4,000,000 of its first mortgage bonds at an interest rate of 7.05%. The proceeds from these transactions were used to repay short-term debt, to retire fixed income securities and for other general corporate purposes. In connection with the foregoing, see Item 7. MD&A - "Liquidity and Capital Resources." ENVIRONMENTAL MATTERS The Company has been notified by the Environmental Protection Agency (EPA) that it is one of several potentially responsible parties for clean up at the Pine Street marsh site in Burlington, Vermont. For information regarding the Pine Street Marsh and other environmental matters see Item 7. MD&A - "Environmental Matters" and Note I-2 of Notes to Consolidated Financial Statements. UNREGULATED BUSINESSES The Company has had a plan of diversification into unregulated businesses that complements the Company's basic utility operations. The diversification plan has involved the establishment of several subsidiaries, including Green Mountain Resources, Inc., which is engaged in the competitive marketing of energy products. For information regarding unregulated businesses, see Item 7. MD&A- "Future Outlook - Unregulated Businesses." EXECUTIVE OFFICERS Executive Officers of the Company as of March 28, 1997: Name Age Thomas C. Boucher 42 Vice President, Business Strategy and Development since May 1996. Vice President, Energy Resources and Planning from January 1995. Vice President-Corporate Planning from 1994 to 1995. Vice President, Financial Planning from 1992 to 1994. Assistant Vice President-Energy Planning from 1986 to 1992. Christopher L. Dutton 48 Vice President, Finance and Administration, Chief Financial Officer and Treasurer since January 1995. Vice President and General Counsel from 1993 to January 1995. Vice President, General Counsel and Corporate Secretary from 1989 to 1993. Robert J. Griffin 40 Controller since October 7, 1996. Manager of General Accounting from 1990 to 1996. Francis J. Heald 55 President of Green Mountain Propane Gas Company since June 1996. Prior to joining the Company, he was Executive Vice President and General Manager of Pico Ski Resort, Inc. Richard B. Hieber 58 Vice President, Electric Operations and Engineering since September 1, 1996. Prior to joining the Company, he was President and Chief Executive Officer of Stone & Webster Management Consultants, Inc. from 1992 to 1996 and Senior Vice President from 1991 to 1992. Douglas G. Hyde 54 President, Chief Executive Officer and Chairman of the Executive Committee of the Corporation since 1993. Executive Vice President, Chief Operating Officer and Director from 1989 to 1993. President of Green Mountain Resource, Inc. Donna S. Laffan 47 Corporate Secretary since December 1993. Assistant Secretary from 1986 to 1993. John J. Lampron 52 Assistant Treasurer since July 1991. Prior to joining the Company, he was employed by Public Service Company of New Hampshire as an Assistant Vice President from 1982 to 1990. Craig T. Myotte 42 Assistant Vice President-Engineering and Operations since 1994. Assistant Vice President-Operations and Maintenance from 1991 to 1994. Edwin M. Norse 51 Vice President and General Manager, Energy Resources and Sales since January 1995. Vice President, Chief Financial Officer and Treasurer from 1986 to January 1995. President-Green Mountain Propane Gas Company from October 1993 to June 1996. Walter S. Oakes 50 Assistant Vice President-Customer Operations since June 1994. Assistant Vice President-Human Resources from August 1993 to June 1994. Assistant Vice President- Corporate Services from 1988 to 1993. Karen K. O'Neill 45 Assistant Vice President-Organizational Development and Human Resources since June 1994. Assistant General Counsel from 1989 to 1994. Stephen C. Terry 54 Vice President and General Manager, Retail Energy Services since January 1995. Vice President-External Affairs from 1991 to January 1995. Jonathan H. Winer 45 President of Mountain Energy, Inc. since March 1997. Vice President and Chief Operating Officer from 1989 to March 1997. Robert C. Young 59 Assistant Vice President-Customer Operations since 1994. Assistant Vice President-Operations and Engineering from 1992 to 1994. Director of Engineering from August 1991 to December 1992. Director of Special Projects from August 1991 to March 1992. Prior to joining the Company, he was employed by the Burlington Electric Department for thirty-two years, including sixteen years as General Manager. Peter H. Zamore 44 General Counsel since January 1995. Prior to joining the Company, he was a partner at the law firm of Sheehey Brue Gray & Furlong, P.C. from 1984 to 1995. Officers are elected by the Board of Directors of the Company, Mountain Energy, Inc., Green Mountain Resources, Inc. or Green Mountain Propane Gas Company, as appropriate, for one-year terms and serve at the pleasure of such boards of directors. ITEM 2. PROPERTY GENERATING FACILITIES The Company's Vermont properties are located in five areas and are interconnected by transmission lines of VELCO and New England Power Company. The Company wholly owns and operates eight hydroelectric generating stations with a total nameplate rating of 36.4 MW and an estimated claimed capability of 35.7 MW. It also owns two gas-turbine generating stations with an aggregate nameplate rating of 63.0 MW and an estimated aggregate claimed capability of 73.2 MW. The Company has two diesel generating stations with an aggregate nameplate rating of 8.0 MW and an estimated aggregate claimed capability of 8.6 MW. The Company also owns 17.9% of the outstanding common stock, and is entitled to 17.6624% (93.8 MW of a total 531 MW) of the capacity of Vermont Yankee, a 1.1% (6.8 MW of a total 620 MW) joint-ownership share of the Wyman #4 plant located in Maine, an 8.8% (31.0 MW of a total 352 MW) joint-ownership share of the Stony Brook I intermediate units located in Massachusetts and an 11% (5.9 MW of a total 53 MW) joint- ownership share of the J.C.EMcNeil wood-fired steam plant located in Burlington, Vermont. See Item 1. Business - "Power Resources" for plant details and the table hereinafter set forth for generating facilities presently available. TRANSMISSION AND DISTRIBUTION The Company had, at December 31, 1996, approximately 1.5 miles of 115-kV transmission lines, 9.4 miles of 69 kV transmission lines, 5.4 miles of 44-kV and 265.4 miles of 34.5 kV transmission lines. Its distribution system includes about 2,384 miles of overhead lines, 2.4 kV to 34.5 kV, and about 432 miles of underground cable of 2.4 kV to 34.5 kV. At such date, the Company owned approximately 153,275 kVa of substation transformer capacity in transmission substations, 446,050 kVa of substation transformer capacity in distribution substations and 1,260,901 kVa of transformers for step-down from distribution to customer use. The Company owns 33.8% of the Highgate transmission intertie, a 225-MW converter and transmission line utilized to transmit power from Hydro-Quebec. The Company also owns 29.5% of the common stock and 30% of the preferred stock of VELCO which operates a high-voltage transmission system interconnecting electric utilities in the State of Vermont. PROPERTY OWNERSHIP The principal wholly-owned plants of the Company are located on lands owned in fee by the Company. Water power and floodage rights are controlled through ownership of the necessary land in fee or under easements. 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 which, in nearly all cases, 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 by state or municipal authorities. INDENTURE OF FIRST MORTGAGE The Company's interests in substantially all of its properties and franchises are subject to the lien of the mortgage securing its First Mortgage Bonds. GENERATING FACILITIES OWNED The following table gives information with respect to generating facilities presently available in which the Company has an ownership interest. See also Item 1. Business - "Power Resources." Winter Capability Type Location Name Fuel MW(1) ---- -------- ---- ---- ---------- Wholly Owned Hydro Middlesex, VT Middlesex #2 Hydro 3.3 Marshfield, VT Marshfield #6 Hydro 4.9 Vergennes, VT Vergennes #9 Hydro 2.1 W. Danville, VT W. Danville #15 Hydro 1.1 Colchester, VT Gorge #18 Hydro 3.3 Essex Jct., VT Essex #19 Hydro 7.8 Waterbury, VT Waterbury #22 Hydro 5.0 Bolton, VT DeForge #1 Hydro 7.8 Diesel Vergennes, VT Vergennes #9 Oil 4.2 Essex Jct., VT Essex #19 Oil 4.4 Gas Berlin, VT Berlin #5 Oil 57.1 Turbine Colchester, VT Gorge #16 Oil 16.1 Jointly Owned Steam Vernon, VT Vermont Yankee Nuclear 93.8(2) Yarmouth, ME Wyman #4 Oil 7.1 Burlington, VT McNeil Wood 6.6(3) Combined Ludlow, MA Stony Brook #1 Oil/Gas 31.0(2) _____ Total Winter Capability 255.6 (1) Winter capability quantities are used since the Company's peak usage occurs during the winter months. Some unit ratings are reduced in the summer months due to higher ambient temperatures. Capability shown includes capacity and associated energy sold to other utilities. (2) For a discussion of the impact of various power supply sales on the availability of generating facilities, see Item 1. Business - "Power Resources - Long-Term Power Sales." (3) The Company's entitlement in McNeil is 5.8 MW. However, the Company receives up to 6.6 MW as a result of other owners' losses on this system. CORPORATE HEADQUARTERS For a discussion of the Company's operating lease for its Corporate Headquarters building, see Note I-3 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS See the discussion Item 7. MD&A - "Environmental Matters" concerning a notice received by the Company in 1982, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Outstanding shares of the Common Stock are listed and traded on the New York Stock Exchange under the symbol "GMP". The following tabulation shows the high and low sales prices for the Common Stock on the New York Stock Exchange during 1996 and 1995: HIGH LOW 1996 First Quarter $29 1/8 $26 7/8 Second Quarter 27 7/8 22 7/8 Third Quarter 26 3/8 23 1/2 Fourth Quarter 25 1/8 22 3/4 1995 First Quarter 28 1/4 24 7/8 Second Quarter 27 24 3/4 Third Quarter 27 1/8 23 7/8 Fourth Quarter 28 5/8 27 3/4 The number of common stockholders of record as of March 14, 1997 was 8,716. Quarterly cash dividends were paid as follows during the past two years: First Second Third Fourth Quarter Quarter Quarter Quarter 1996 53 cents 53 cents 53 cents 53 cents 1995 53 cents 53 cents 53 cents 53 cents Dividend Policy -- The Company's current dividend policy is based on the continued validity of three assumptions: The ability to achieve earnings growth, the receipt of an allowed rate of return that accurately reflects the Company's cost of capital, and the retention of its exclusive franchise. There is a strong movement in Vermont to restructure the electric utility industry, to be implemented in 1998, in order to permit competition in the generation and retail sale of electricity. Such restructuring is expected, among other things, to lead to a loss of the Company's current exclusive franchise for selling electricity at retail, even though the Company currently expects that it would retain its exclusive franchise to provide distribution service. Also, a business operating in a competitive environment, including any unregulated activities by the Company, would by its nature engender a different type of earnings growth and volatility than is found in a regulated entity. Should restructuring be approved in Vermont, it is likely that the Company will reconsider its dividend policy and make appropriate changes so that anticipated payout levels are more commensurate with the risk of any new business activities to be undertaken and consistent with the capital needs of its businesses. See Item 7. MD&A "Future Outlook - Competition and Restructuring" and Note C of Notes to Consolidated Financial Statements for discussion of limitations on dividends.
SELECTED FINANCIAL DATA (In thousands except per share amounts) Results of operations for the years ended December 31 - ----------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- Operating Revenues........................$179,009 $161,544 $148,197 $147,253 $145,240 Operating Expenses........................ 162,882 146,249 133,680 132,427 128,828 --------- --------- --------- --------- --------- Operating Income........................ 16,127 15,295 14,517 14,826 16,412 --------- --------- --------- --------- --------- Other Income AFUDC - equity.......................... 175 27 263 273 186 Other................................... 3,055 3,607 3,418 2,360 2,073 --------- --------- --------- --------- --------- Total other income.................... 3,230 3,634 3,681 2,633 2,259 --------- --------- --------- --------- --------- Interest Charges AFUDC - borrowed funds.................. (468) (547) (539) (357) (202) Other................................... 7,866 7,973 7,735 7,185 7,021 --------- --------- --------- --------- --------- Total interest charges................ 7,398 7,426 7,196 6,828 6,819 --------- --------- --------- --------- --------- Net Income................................ 11,959 11,503 11,002 10,631 11,852 Dividends on Preferred Stock.............. 1,010 771 794 811 831 --------- --------- --------- --------- --------- Net Income Applicable to Common Stock..... $10,949 $10,732 $10,208 $9,820 $11,021 ========= ========= ========= ========= ========= Common Stock Data Earnings per share...................... $2.22 $2.26 $2.23 $2.20 $2.54 Cash dividends declared per share....... $2.12 $2.12 $2.12 $2.11 $2.08 Weighted average shares outstanding..... 4,933 4,747 4,588 4,457 4,345 Financial Condition as of December 31 - ------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- Assets Utility Plant, Net.......................$189,853 $181,999 $175,987 $171,411 $164,723 Other Investments........................ 20,634 20,248 20,751 22,528 21,700 Current Assets........................... 30,901 30,216 28,798 26,215 28,067 Deferred Charges......................... 43,224 42,951 35,659 33,893 19,012 Non-Utility Assets....................... 39,927 37,868 33,416 28,626 23,716 --------- --------- --------- --------- --------- Total Assets............................$324,539 $313,282 $294,611 $282,673 $257,218 ========= ========= ========= ========= ========= Capitalization and Liabilities Common Stock Equity......................$111,554 $106,408 $101,319 $97,149 $92,645 Redeemable Cumulative Preferred Stock.... 19,310 8,930 9,135 9,385 9,575 Long-Term Debt, Less Current Maturities.. 94,900 91,134 74,967 79,800 67,644 Capital Lease Obligation................. 9,006 9,778 10,278 11,029 11,950 Curent Liabilities....................... 21,037 32,629 40,441 37,925 30,099 Deferred Credits and Other............... 54,968 52,041 49,434 40,214 33,264 Non-Utility Liabilities.................. 13,764 12,362 9,037 7,171 12,041 --------- --------- --------- --------- --------- Total Capitalization and Liabilities....$324,539 $313,282 $294,611 $282,673 $257,218 ========= ========= ========= ========= =========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 annual 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 "Future Outlook - Competition and Restructuring" and "Risk Factors," lists some of the reasons why results could differ materially from those projected. EARNINGS SUMMARY Earnings per average share of common stock in 1996 were $2.22 as compared with $2.26 in 1995 and $2.23 in 1994. The 1996 earnings represent an earned return on average common equity of 10.0 percent. In both 1995 and 1994, the earned return on average common equity was 10.3 percent. The 1996 decrease in earnings was primarily due to increased mandatory purchases of power from independent power producers resulting from greater production from in-state hydroelectric plants and unusually warm weather in December that adversely affected the Company's electric operating revenues and sales of propane by the Company's wholly-owned subsidiary, Green Mountain Propane Gas Company. The principal factors contributing to the increase in 1995 earnings were higher retail revenues resulting from a 9.25 percent retail rate increase that went into effect in June 1995, increased sales of electricity to the Company's commercial and industrial customers, and a $557,000 increase in the earnings of Mountain Energy, Inc., the Company's wholly-owned subsidiary that invests in energy generation and efficiency projects. FUTURE OUTLOOK 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. To date, this competition has been most prominent in the bulk power market, in which non-utility generators have significantly increased their market share. Electric utilities historically have had exclusive franchises for the retail sale of electricity in specified service territories. As a result, competition for retail customers has been limited to (i) competition with alternative fuel suppliers, primarily for heating and cooling; (ii) competition with customer-owned generation; and (iii) direct competition among electric utilities to attract major new facilities to their service territories. These competitive pressures have led the Company and other utilities to offer, from time to time, special discounts or service packages to certain large customers. In states across the country, including the New England states, there has been an increasing number of proposals to allow retail customers to choose their electricity suppliers, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). Increased competitive pressure in the electric utility industry may restrict the Company's ability to charge prices high enough to recover embedded costs, such as the cost of purchased power obligations or of generation facilities owned by the Company. The amount by which such costs might exceed market prices is commonly referred to as "stranded costs". Regulatory and legislative authorities at the federal level and among states across the country, including Vermont, are considering how to facilitate competition for electricity sales at the wholesale and retail levels. On October 24, 1994, the Vermont Public Service Board (VPSB) and the Vermont Department of Public Service (the Department) convened a "Roundtable on Competition and the Electric Industry," consisting of representatives of utilities (including the Company), customers, environmental groups and other affected parties. On July 17, 1995, a subgroup of the Roundtable agreed on a set of 14 principles intended to guide the debate in Vermont concerning competition. These principles, among other things, call for exploration of the potential for retail competition, honoring of past utility commitments incurred under regulation, protection for low income customers, and continued exploration of renewable resources, energy efficiency and environmental protections. On September 14, 1995, Governor Dean of Vermont announced his desire to provide for competition and a restructuring of the electric utility industry. The Governor's announcement included proposed legislative adoption of restructuring principles, a VPSB proceeding to address the issue, the submission by Vermont electric utilities of detailed plans by May 1, 1996, and implementation of restructuring by the beginning of 1998. In response to a Department petition, the VPSB opened a proceeding on utility industry restructuring by order dated October 17, 1995. On December 29, 1995, the Company released its proposed restructuring plan, calling for corporate separation into a regulated company for transmission and distribution functions and an unregulated company for generation and sales functions. On October 16, 1996, the VPSB issued a Draft Report and Order which proposed the commencement of competitive retail sales of electricity in early 1998, while distribution and transmission functions would remain subject to regulation. The Company and other parties responded to the Draft Report and Order in November 1996, and the VPSB issued its Final Order on December 31, 1996. The Final Order requires that Vermont investor-owned utilities divide their competitive retail and regulated distribution and transmission functions into separate corporate subsidiaries in order to achieve a functional separation of regulated and unregulated businesses, and provides for competition for all customer classes to be completed by the end of 1998. In view of this change in structure as well as the unknown relative level of competition each corporation may face, the Company cannot predict the future cost or availability of capital for the new subsidiary corporations. Furthermore, most of the assets of the Company are encumbered by a lien of the Company's First Mortgage Indenture. The Company cannot predict with certainty at this time the cost and feasibility of obtaining approval from the existing bondholders, to the extent that it is determined that such approvals are necessary, in order to achieve functional separation. The Final Order proposes an approach that takes into account multiple factors that the VPSB believes will "create the opportunity for full recovery of stranded costs provided they are legitimate, verifiable, otherwise recoverable, prudently incurred and non- mitigable," but the Final Order also states the VPSB's belief that "an opportunity for full recovery must be explicitly tied to successful mitigation." The Final Order further provides that, where a utility has successfully mitigated its stranded costs, the opportunity should exist for substantial or full recovery of stranded costs when the magnitude of the post-mitigation stranded costs, among other things, allows for rates that are comparable to regional rates. The Final Order calls for a multi-step process that would involve (1) a rigorous estimate of stranded costs (which in turn would require an estimate of future power costs) and a determination of the extent to which stranded costs can be mitigated, (2) an adjustment of stranded costs based on mitigation of such costs and changes in the market price of power, and (3) a stranded cost reconciliation proceeding. The process would consider each utility's estimate of stranded costs and the success of its mitigation efforts on a case by case basis. The Final Order proposes that allowed stranded cost recovery be accomplished through the use of a non-bypassable access charge, or Competitive Transition Charge (CTC), collected by the regulated distribution company. The Final Order also endorses the securitization of stranded costs through the assignment of CTC receipts as a means of achieving lower-cost financing and the Final Order supports legislative action to achieve these savings. The Company, Central Vermont Public Service Corporation (CVPS), representatives of the Governor of Vermont and the Department are in the process of negotiating a Memorandum of Understanding (MOU) that would outline agreed-upon positions among the parties relative to the recovery of stranded costs, distribution company rates, corporate unbundling and societal benefit programs. The parties to the MOU mutually would support those provisions in connection with any proposed legislation before the Vermont General Assembly and in any regulatory proceeding before the VPSB. If all of the terms of the MOU are not included in final restructuring legislation and in an implementing VPSB Order, the MOU will be of no force or effect. Although not executed as of March 6, 1997, it is likely that the MOU will include the following financial terms: If the Company were able to reduce its power costs by $105 million (on a net present value basis assuming a 10% discount rate), then it would be conclusively deemed to have adequately mitigated stranded costs for the purpose of recovering its remaining stranded costs. The closer the Company is to the mitigation target, the greater the likelihood that the Company will recover all of its remaining stranded costs. The CTC would be fixed initially at $30/MWh for the first two years of retail competition. Any under-collections or over-collections of the CTC, respectively, would be added to or subtracted from the unrecovered stranded cost balance. The CTC would be adjusted annually thereafter to achieve recovery of stranded costs by the end of 2012. Unbundled distribution subsidiary rates would be frozen for 1998 and 1999 and adjusted by 70% of the change in the consumer price index for calendar years 2000 through 2004. Some portion of the frozen and subsequent rates would be dependent on achieving mutually agreed upon performance targets regarding quality of service. The distribution subsidiary would also be able to petition the VPSB for relief due to significant factors out of the control of the distribution subsidiary, such as, but not limited to, a change in income tax rates, the need for significant capital expenditures to meet material customer expansions, natural catastrophes or significant changes in load growth. Proposals are currently being debated before the Vermont General Assembly that would allow all classes of customers in Vermont to choose their power supplier beginning in 1998. The terms of most of the proposed legislation are generally consistent with the approach set forth in the Final Order regarding eligibility for stranded cost recovery, although some would permit less stranded cost recovery. There is no assurance that any restructuring legislation will be enacted by the Vermont General Assembly, or if legislation is enacted, that it will be consistent with the terms of the Final Order or the MOU. Risk Factors -- The major risk factors affecting the impact of electric industry restructuring upon the Company, including the recovery of stranded costs, are: (i) regulatory and legal decisions, (ii) the market price of power, and (iii) the amount of market share retained by the Company. There can be no assurance that a final restructuring plan ordered by VPSB, the courts, or through legislation will include a CTC that would allow for full recovery of stranded costs and include a fair return on those costs as they are being recovered. If laws are enacted or regulatory decisions are made that do not offer an opportunity adequately to recover stranded costs, the Company believes it has legal arguments to challenge such laws or decisions. The largest category of the Company's stranded costs are future costs under long-term power purchase contracts. The Company intends to pursue compliance with the steps outlined in the Final Order and aggressively to pursue mitigation efforts in order to maximize its recovery of these costs. The magnitude of stranded costs for the Company is largely dependent upon the future market price of power. The Company has discussed various market price scenarios with interested parties for the purpose of identifying stranded costs. Preliminary market price assumptions, which are likely to change, have resulted in estimates of the Company's stranded costs of between $330 million and $564 million, on a net present value basis, discounted at a rate of 10%. If retail competition is implemented in Vermont and elsewhere, the Company is unable to predict the impact of this competition on its revenues, on the Company's ability to retain existing customers and attract new customers, or on 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. Statement of Financial Accounting Standards (SFAS) 71, Accounting for Certain Types of Regulation, requires regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs and revenues that are expected to be realized in future rates. As described in Note A.2 in the Notes to Consolidated Financial Statements, the Company complies with the provisions of SFAS 71. In the event the Company determines that it no longer meets the criteria for following SFAS 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 71 include (1) increasing competition that restricts the Company's ability to establish prices to recover specific costs and (2) a change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. The Company believes that the provisions of both the Final Order and MOU, if implemented, would meet the criteria for continuing application of SFAS 71 as to those costs for which recovery is permitted. Because the Company is unable to predict what form enacted legislation will take, however, it cannot predict if or to what extent SFAS 71 will continue to be applicable in the future. SFAS 121, Accounting for the Impairment of Long Lived Assets, 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 121 requires that a rate-regulated enterprise recognize an impairment loss for regulatory assets which are no longer probable of recovery. As of December 31, 1996, based upon the regulatory environment within which the Company currently operates, SFAS 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. Thus, the Company cannot predict whether restructuring legislation enacted 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. Unregulated Businesses -- For several years, the Company has had a plan of diversification into unregulated businesses that complements the Company's basic utility operations. The following is a discussion of the Company's unregulated enterprises, including its newest subsidiary, which is engaged in the competitive retail marketing of energy products. Mountain Energy, Inc., which has invested in energy-related businesses, earned $1.32 million in 1996, a slight decrease from 1995's net income of $1.38 million. The 1996 results contributed 27 cents of earnings per share to the Company's consolidated results as compared to 29 cents in 1995. Since its formation in 1989, Mountain Energy has invested more than $17 million in nine operating energy projects, including two California wind projects, hydroelectric projects in California and New Hampshire, a gas cogeneration facility in Illinois and energy efficiency installations in Maine, New York, New Jersey, Massachusetts and Hawaii. In March 1997, Mountain Energy broadened its investment portfolio by acquiring a 35 percent ownership interest in Micronair, LLC, which owns certain patent rights to a wastewater treatment system that provides an innovative and efficient solution to the sludge disposal issues facing the United States. The Micronairr system enhances both the processing and energy efficiency at wastewater facilities, virtually eliminating sludge as a byproduct. This environmentally and economically desirable result has already been demonstrated in several commercial facilities. Green Mountain Propane Gas Company, which sells propane gas at retail in Vermont and New Hampshire, experienced a $335,000 loss in 1996 as compared to a $347,000 loss in 1995. The loss in 1996 was due primarily to strong competition, low margins due to significant wholesale price fluctuations, increased producer pipeline restrictions beginning in November 1996 and warmer than normal weather in December 1996. In 1995, the loss was due primarily to warmer than normal weather in the first quarter of 1995 and reduced margins due to strong competition. In both 1996 and 1995, the losses reduced the Company's consolidated earnings by 7 cents per share. The Company's unregulated rental water heater business earned $379,000 in 1996, an increase from 1995's net income of $308,000. The increase in income in 1996 was attributable to an increase in the rental rate charged to customers. The 1996 results contributed 8 cents of earnings per share to the Company's consolidated results as compared to 6 cents in 1995. Green Mountain Resources, Inc. (GMRI) was formed in April 1996 to explore opportunities in competitive retail energy markets. In 1996, GMRI, together with subsidiaries of Hydro-Quebec, Consolidated Natural Gas Corporation and Noverco, Inc., participated in the retail sales of energy in pilot programs in New Hampshire and Massachusetts through Green Mountain Energy Partners L.L.C. (GMEP). The State of New Hampshire has undertaken an experiment to provide retail customer choice in the purchase of electricity. The New Hampshire pilot program is one of the nation's first significant attempts to test the viability of retail electric competition. GMEP has been competing in New Hampshire since May 1996 with approximately two dozen other suppliers to serve 17,000 eligible customers. The pilot program will extend two years, with service that began in June 1996. The Commonwealth of Massachusetts authorized Bay State Gas Company's Pioneer Valley Customer Choice Residential Pilot Program (the Bay State Gas Pilot), in which GMEP is participating. The Bay State Gas Pilot permits the retail sale of natural gas to up to 10,000 eligible residential customers and will extend for two years with service that began in November 1996. GMRI experienced a $579,000 loss in 1996, its first year of operation. The loss experienced was consistent with the Company's expectation and reflects a limited number of pilot customers coupled with significant price competition on the part of energy providers participating in the retail pilots. The 1996 results reduced the Company's consolidated earnings by 12 cents per share. This loss was mitigated to a large extent by offsetting payments the Company received from GMEP for work performed on its behalf. The Company believes that participation in these pilot programs will enhance the capability of GMRI to compete in additional markets that are opened for retail electric and natural gas customer choice. GMRI may decide to participate in other retail energy programs that are developed through GMEP or other entities that may be formed in the future. RESULTS OF OPERATIONS Operating Revenues and MWh Sales--Operating revenues and megawatthour (MWh) sales for the years 1996, 1995 and 1994 consisted of: 1996 1995 1994 ---- ---- ---- (Dollars in Thousands) Operating Revenues: Retail . . . . . . . . . . . . . $ $154,916 $ 140,676 $ 131,444 Sales for Resale . . . . . . . . 20,667 17,541 13,521 Other . . . . . . . . . . . . . 3,426 3,327 3,232 ---------- --------- --------- Total Operating Revenues . . . . . $ 179,009 $ 161,544 $ 148,197 ========== ========= ========= MWh Sales: Retail . . . . . . . . . . . . . 1,775,711 1,723,117 1,691,867 Sales for Resale . . . . . . . . 701,835 620,655 367,424 --------- --------- --------- Total MWh Sales . . . . . . . . . 2,477,546 2,343,772 2,059,291 ========= ========= ========= Average Number of Customers: Residential . . . . . . . . . . 70,198 69,659 68,811 Commercial & Industrial . . . . 11,853 11,736 11,635 Other . . . . . . . . . . . . . 75 76 76 ------ ------ ------ Total Customers . . . . . . . . . . 82,126 81,471 80,522 ====== ====== ====== Differences in operating revenues were due to changes in the following: 1995 1994 to to 1996 1995 ---- ---- (In Thousands) Operating Revenues: Retail Rates . . . . . . . . . . . . . . . $ 9,654 $ 6,619 Retail Sales Volume . . . . . . . . . . . 4,586 2,613 Resales and Other Revenues . . . . . . . . 3,225 4,115 ------- ------ Increase in Operating Revenues . . . . . . . $17,465 $13,347 ======= ======= In 1996, total electricity sales increased 5.7 percent due principally to an increase in electricity consumption by the Company's commercial and industrial customers and regional market conditions that allowed the Company to buy electricity and to resell it to other utilities at prices slightly higher than the purchase price. Total operating revenues increased 10.8 percent in 1996 primarily due to retail rate increases of 9.25 percent and 5.25 percent that went into effect in June 1995 and June 1996, respectively, and the increase in electricity sales mentioned above. Total retail revenues increased 10.1 percent in 1996 primarily due to the retail rate increases mentioned above. Wholesale revenues increased 17.8 percent in 1996 primarily due to the regional market conditions mentioned above. In 1995, total electricity sales increased 13.8 percent due principally to an increase in electricity consumption by the Company's commercial and industrial customers and regional market conditions that allowed the Company to buy electricity and to resell it to other utilities at prices slightly higher than the purchase price. Total operating revenues increased 9.0 percent in 1995 primarily due to a 9.25 percent retail rate increase that went into effect in June 1995 and the increase in electricity sales previously mentioned. Total retail revenues increased 7.0 percent in 1995 primarily due to the 9.25 percent retail rate increase mentioned above. Wholesale revenues increased 29.7 percent in 1995 primarily due to the regional market conditions mentioned above. IBM, the Company's single largest customer, operates manufacturing facilities in Essex Junction, Vermont. IBM's electricity requirements for its main plant and an adjacent plant accounted for 13.2, 12.9 and 13.7 percent of the Company's operating revenues in 1996, 1995 and 1994, respectively. No other retail customer accounted for more than one percent of the Company's revenue. In February 1995, the Company and IBM entered into an Economic Development Agreement (EDA) that established the price to be paid by IBM at its Essex Junction facility for incremental electric usage during 1995, 1996 and 1997. The contract, which is intended to promote growth in IBM's operations and create jobs in the Company's service area, applies only to that portion of IBM's load that exceeds its 1994 consumption level. Most of IBM's electric usage is billed under the Company's tariff rate. The EDA price, although lower than the Company's tariff rate, exceeds the Company's marginal costs of providing this incremental electric service to IBM. The VPSB approved the EDA in June 1995. The Company believes that the EDA benefits the Company because it encourages the incremental purchase of electricity by IBM at a price above the Company's marginal cost of providing such incremental service. Power Supply Expenses -- Power supply expenses constituted 61.5 percent, 60.1 percent and 59.2 percent of total operating expenses for the years 1996, 1995 and 1994, respectively. These expenses increased by $12.3 million (14.0 percent) in 1996 and by $8.7 million (11.0 percent) in 1995. Power supply expenses increased in 1996 primarily due to higher costs for power purchased from Hydro-Quebec, increases in mandatory purchases from independent power producers and purchases of additional power to service increased electricity sales. Vermont Yankee's operating expenses for 1996 exceeded the level of such expenses incurred during 1995 by approximately $1.3 million, of which approximately $230,000 was allocated to the Company. In 1996, Vermont Yankee elected to accelerate certain safety and management related projects intended to improve efficiency of the plant and assure compliance with Nuclear Regulatory Commission regulations and the facility's operating license. Power supply expenses increased in 1995 as the Company produced and purchased additional power to service increased electricity sales. Under an arrangement negotiated in January 1996, the Company received cash payments from Hydro-Quebec of $3.0 million in 1996 and will receive $1.1 million in 1997. Consistent with allowed ratemaking treatment, the $3.0 million payment reduced purchase power expense by $1.75 million in 1996; the balance of the payment will reduce power costs in 1997. The $1.1 million payment will reduce purchase power expense ratably over the period beginning June 1997 and ending May 1998. In response, the Company will shift up to 40 megawatts of its Schedule C3 deliveries to an alternate transmission path, and use the associated portion of the NEPOOL/Hydro-Quebec interconnection facilities to purchase power for the period from September 1996 through June 2001 at prices that vary based upon conditions in effect when the purchases are made. The 1996 arrangement also provides for minimum payments by the Company to Hydro-Quebec for periods in which power is not purchased under the agreement. Although the level of benefits to the Company will depend on various factors, the Company estimates that the 1996 arrangement will provide a minimum benefit of $1.8 million on a net present value basis. In November 1996, the Company entered into a Memorandum of Understanding with Hydro-Quebec providing for the payment to the Company of $8.0 million in 1997 in exchange for Hydro-Quebec's right to elect, on or before September 1, 1997, one of two options to purchase power. Under the first option, for the period commencing November 1, 1997 and effective through the remaining term of the 1987 power supply agreement between the Company and Hydro-Quebec (the 1987 Agreement), which expires in 2015, Hydro-Quebec can exercise an option to purchase on an annual basis, at energy prices established in accordance with the 1987 Agreement, an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Agreement, delivered at up to an approximately 10.5 percent capacity factor, or 105,000 MWh. Under the second option, for the period commencing November 1, 1997 and effective through the remaining term of the 1987 Agreement, Hydro-Quebec can exercise an option to purchase on an annual basis, at energy prices established in accordance with the 1987 Agreement, an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Agreement, delivered at up to an approximately 5.25 percent capacity factor, or 52,500 MWh. Hydro-Quebec also would have the right under the second option to elect to purchase up to 600,000 MWh of power from the Company over the remaining term of the 1987 Agreement, commencing November 1, 1997, at the energy prices established in accordance with the 1987 Agreement, subject to certain annual and hourly volume limitations. On December 31, 1996, the Company received an accounting order from the VPSB that provides for recognition in 1997 revenues of the present value payment of $8 million. The accounting order also continues the limitation on the return on equity from utility operations of 11.25 percent which had been a part of the Company's last two rate settlements through December 31, 1997. The Company estimates that the future costs associated with the Memorandum of Understanding to be approximately $8.0 million on a net present value basis. Consistent with allowed ratemaking treatment, the $8.0 million payment will be recognized in income in the third and fourth quarters of 1997. Other Operating Expenses -- Other operating expenses decreased 2.8 percent in 1996 primarily due to a decrease in salaries resulting from a reduction in the workforce and to a decrease in medical insurance claims experienced by the Company. Other operating expenses increased 4.8 percent in 1995 primarily due to an increase in rent expense and expenses relating to customer- focused research. Transmission Expenses -- Transmission expenses increased 9.7 percent in 1996 primarily due to higher tariff rates under an interconnection agreement between CVPS and the Company discussed below. This increase was offset to a large extent by revenues generated by the same interconnection agreement. On August 28, 1996, the Company received a bill totaling approximately $1.9 million from CVPS for service at certain transmission interconnections that are the subject of a 1993 interconnection agreement between the Company and CVPS. The bill covered the period October 1993 through June 1996. In September 1996, the Company charged approximately $700,000 of the CVPS invoice to transmission rent expense. The Company disputes the amount of the CVPS billing and estimates its liability in the range of $1.0 million to $1.3 million, inclusive of amounts already expensed. The Company has submitted a bill totaling approximately $500,000 to CVPS for its services under the same interconnection agreement, and credited this amount to transmission services in September 1996. CVPS disputes approximately $100,000 of the amount billed by the Company. On December 31, 1996, the Company received an accounting order from the VPSB requiring that amounts deferred under the interconnection agreement be expensed over the remaining eleven years of the agreement. The interconnection agreement contains an arbitration clause for the settlement of disputes. The Company has requested arbitration and is unable to predict the ultimate outcome of that proceeding. Transmission expenses decreased 4.8 percent in 1995 primarily due to cost reduction measures implemented by Vermont Electric Power Company (VELCO), a corporation engaged in the transmission of electric power within the State of Vermont in which the Company has an equity interest. Maintenance Expenses -- Maintenance expenses increased 6.0 percent in 1996 due principally to a scheduled increase in plant maintenance. Maintenance expenses decreased 5.7 percent in 1995 primarily due to cost containment measures implemented by the Company. Depreciation and Amortization -- Depreciation and amortization expenses increased 15.3 percent in 1996 primarily due to the amortization of expenditures related to energy conservation programs and the Pine Street Marsh environmental matter (See Note I of the Notes to Consolidated Financial Statements) and to the depreciation of expenditures related to additional investment in the Company's distribution facilities. Depreciation and amortization expenses increased 32.1 percent in 1995 for the same reasons. Income Taxes -- The effective federal income tax rates for the years 1996, 1995 and 1994 were 27.2 percent, 25.3 percent and 25.1 percent, respectively. Other Income -- Other income decreased 11.1 percent in 1996 primarily due to a $579,000 loss experienced by GMRI. The impact of the GMRI loss on consolidated earnings was mitigated to a large extent by offsetting payments received by the Company from GMEP for work performed on its behalf. Other income decreased 1.3 percent in 1995 primarily due to a decrease in the allowance for equity funds used during construction resulting from lower average construction work in progress balances and an increase in short-term debt outstanding during the year and a $389,000 decrease in earnings experienced by Green Mountain Propane Gas Company. These decreases were partially offset by a $557,000 increase in earnings of Mountain Energy, Inc. Dividends on Preferred Stock -- Dividends on preferred stock increased 31.0 percent in 1996 primarily due to the issuance of 120,000 shares of the Company's 7.32 percent, Class E, Series 1 preferred stock in October 1996. Dividends on preferred stock decreased 2.9 percent in 1995 primarily due to the repurchase by the Company in 1994 of the following preferred stock: 450 shares of 4.75 percent, Class B; 450 shares of 7 percent, Class C, and 1,600 shares of 9.375 percent, Class D, Series 1. Interest Charges -- Interest charges were virtually unchanged in 1996. An increase in interest charges related to a higher amount of long-term debt outstanding during the year and a decrease in the allowance for funds used during construction were slightly more than offset by a reduction in interest charges related to a lower amount of short-term debt outstanding during the year. Interest charges increased 3.2 percent in 1995 primarily due to interest charges related to an increase in short-term debt outstanding during 1995. These charges were partially offset by a reduction in interest charges related to a decrease in the amount of long-term debt outstanding during 1995. TRANSMISSION ISSUES Federal Open Access Tariff Orders -- On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Orders 888 and 889 which, among other things, required the filing of open access transmission tariffs by electric utilities, and the functional separation by utilities of their transmission operations from power marketing operations. Order 888 also supports the full recovery of legitimate and verifiable wholesale power costs previously incurred under federal or state regulation. The Company is currently in the process of responding to the orders. On July 9, 1996, the Company filed with the FERC the non-discriminatory open access tariffs required by Order 888. The tariffs defined the Company's transmission system to include subtransmission facilities owned by the Company and the Company's entitlement to facilities owned by VELCO. The Company's tariffs included charges related to the use of the VELCO transmission system by customers. Other Vermont utilities required to make filings with the FERC under Order 888 followed the same course of action. VELCO, in turn, submitted to the FERC a request for waiver of its obligation to file a separate open access transmission tariff. On September 11, 1996, the FERC denied VELCO's waiver request. The Company is also in the process of modifying its tariff to comply with various orders of the FERC and in addition complying with the FERC's regulations relating to OASIS, the electronic bulletin board to be used to post availability of transmission capacity. In accordance with Order 889, the Company has also functionally separated its transmission operations and filed with the FERC a code of conduct for its transmission operations. The Company does not anticipate any material adverse effects or loss of wholesale customers due to the FERC orders mentioned above. Proposed NEPOOL Transmission Tariff -- Under an allocation agreement among VELCO, Northeast Utilities and New England Power Corporation, VELCO currently has 14 percent of the capacity of transmission facilities between New England, New York and Canada. VELCO's capacity for such transmission facilities is allocated among Vermont electric utilities, including the Company. NEPOOL has filed a proposed tariff with the FERC that incorporates a load-based method of capacity allocation for NEPOOL transmission facilities that would reduce the amount of capacity allocated to VELCO for such transmission facilities in the future. A reduction of VELCO's allocation of capacity on transmission interfaces with New York and Canada would adversely effect the Company's ability to import power to Vermont from outside New England which would impact the Company's power costs in the future. VELCO and the Company have filed comments with the FERC seeking to change the effect of the proposed NEPOOL capacity allocation procedures but the Company is unable to predict at this time the outcome of these proceedings before the FERC. 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 Marsh site described 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. The Federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the "Superfund" law, generally imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. The Company has been notified by the Environmental Protection Agency (EPA) that it is one of several potentially responsible parties (PRPs) for cleanup of the Pine Street Marsh site in Burlington, Vermont, where coal tar and other industrial materials were deposited. From the late 19th century until 1967, gas was manufactured at the Pine Street Marsh site by a number of enterprises, including the Company. In 1990, the Company was one of the 14 parties that agreed to pay a total of $945,000 toward the EPA's past response under a confidential Consent Decree. The Company remains a PRP for ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $47 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and its cost. The cost of any future cleanup plan, the magnitude of unresolved EPA cost recovery claims, and the Company's share of such costs are uncertain at this time. Since 1994, the EPA has established a coordinating council, with representatives of PRPs, environmental and community groups, the City of Burlington and the State of Vermont, presided over by a neutral facilitator. The council has determined, by consensus, what additional studies were appropriate for the site, and is addressing the question of additional response activities. The EPA, the State of Vermont and other parties have entered into two consent orders for completion of appropriate studies. Work is continuing under the second of those orders. On December 1, 1994, the Company and two other PRPs, New England Electric System (NEES) and Vermont Gas Systems (VGS), entered into a confidential agreement with the State of Vermont, the City of Burlington and nearly all other landowner PRPs under which, subject to certain qualifications, the liability of those landowner PRPs for future Superfund response costs would be limited and specified. On December 1, 1994, the Company entered into a confidential agreement with VGS compromising contribution and cost recovery claims of each party and contractual indemnity claims of the Company arising from the 1964 sale of the manufactured gas plant to VGS. In March 1996, the Company and NEES entered into a confidential agreement compromising past and future contribution and cost recovery claims of both parties relating to response costs. In December 1991, the Company brought suit against eight previous insurers seeking recovery of unrecovered past costs and indemnity against future liabilities associated with environmental problems at the site. Discovery in the case, which was previously subject to a stay, is proceeding and is largely complete. A trial in this litigation is scheduled for late 1997. The Company has reached confidential final settlements with two of the defendants in this litigation and has obtained summary judgment declaring one non-settling insurer's duty to defend. The Company has deferred amounts received, under confidential settlement, from third parties pending resolution of the Company's ultimate liability with respect to the site and rate recognition of that liability. The Company is unable to predict at this time the magnitude of any liability resulting from potential claims for the costs to investigate and remediate the site, or the likely disposition or magnitude of claims the Company may have against others, including its insurers, except to the extent described above. Through rate cases filed in 1991, 1993, 1994 and 1995, the Company has sought and received recovery for ongoing expenses associated with the Pine Street Marsh site. Specifically, the Company proposed rate recognition of its unrecovered expenditures incurred between January 1, 1991 and June 30, 1995 (in the total of approximately $8.7 million) for technical consultants and legal assistance in connection with the EPA's enforcement action at the site and insurance litigation. While reserving the right to argue in the future about the appropriateness of rate recovery for Pine Street Marsh related costs, the Company and the Department reached agreements in these cases that the full amount of Pine Street Marsh costs reflected in those rate cases should be recovered in rates. The Company's rates approved by the VPSB in those proceedings reflected the Pine Street Marsh related expenditures referred to above. Management expects to seek and (assuming recovery consistent with the previous regulatory treatment set forth above) receive ratemaking treatment for unreimbursed costs incurred beyond the amounts for which ratemaking treatment has been received. An authoritative accounting standard, Statement of Position (SOP) 96-1, has been issued by the accounting profession addressing environmental remediation obligations. This SOP is effective for years beginning in 1997, and addresses, among other things, regulatory benchmarks that are likely triggers of the accrual of estimated losses, the costs included in the measurement, including incremental costs of remediation efforts such as post-remediation monitoring and long-term operation and maintenance costs and costs of compensation and related benefits of employees devoting time to the remediation. After reviewing the Company's current accounting policies and ratemaking treatment, management does not believe that this SOP will have a material adverse effect on the Company's financial position or results of operations upon adoption. Clean Air Act -- Because the Company purchases most of its power supply from other utilities, it does not anticipate that it will incur any material direct cost increases as a result of the Federal Clean Air Act or proposals to make more stringent regulations under that Act. Furthermore, only one of its power supply purchase contracts, which expires in 1998, relates to a generating plant that is likely to be affected by the acid rain provisions of this legislation. Overall, approximately 10 percent of the Company's committed electricity supply (a contract to purchase coal-fired generation that expires in 1998) is expected to be affected by federal and State environmental compliance requirements. LIQUIDITY AND CAPITAL RESOURCES Construction -- The Company's capital requirements result from the need to construct facilities or to invest in programs to meet anticipated customer demand for electric service. If restructuring does occur, the Company will reassess its capital expenditures for generation and other projects and the terms of financing thereof. Capital expenditures over the past three years and projected for 1997 are as follows:
Total Net Actual Generation Transmission Distribution Conservation Other Expenditures (Dollars in thousands and net of AFUDC and Customer Advances For Construction) 1994 $2,540 $1,415 $7,902 $6,388 $1,815 $20,060 1995 2,696 1,067 8,935 4,152 2,824 19,674 1996 6,289* 528 8,422 3,090 3,394 21,723 Forecasted 1997 $2,680 $1,355 $8,591 $2,300 $7,504 $22,430 *Includes $4.978 million for wind project
Rates -- On September 26, 1994, the Company filed a request with the VPSB to increase retail rates by 13.9 percent. The increase was needed primarily to cover the rising cost of existing power sources, the cost of new power sources that the Company secured to replace power supply that will be lost in the near future, and the cost of energy efficiency programs that the Company implemented for its customers. The Company, the Department and the other parties in the proceeding reached a settlement agreement providing for a 9.25 percent retail rate increase effective June 15, 1995, and a target return on equity for utility operations of 11.25 percent. In the event that the target return on equity is exceeded, the Company would accelerate the amortization of certain demand side management expenditures in the next year for which rate recovery otherwise would have been sought. The agreement was approved by the VPSB on June 9, 1995. In September 1995, the Company filed a 12.7 percent retail rate increase application to cover higher power supply costs, to support additional investment in plant and equipment, to fund expenses associated with the Pine Street Marsh site, and to cover higher costs of capital. Early in 1996, the Company settled this rate case with the Department and other parties. The settlement became possible when the Company negotiated a new arrangement with Hydro-Quebec that will reduce the Company's net power- supply costs below the amounts anticipated in the rate increase request. The settlement provided: projected additional annual revenues of $7.6 million; an overall increase in retail rates of 5.25 percent effective June 1, 1996; target return on equity for utility operations of 11.25 percent (with a continuation of the amortization of any amount in excess of the target rate of return in the following year, as described above); and recovery of $1.3 million of costs associated with the Pine Street Marsh site, amortized over five years. The VPSB approved the settlement in an order dated May 23, 1996. In 1996, the rate of return on utility operations was 11.8% and in 1995 was 11.3%. An accounting order received from the VPSB on December 31, 1996 continues the limitation on return on equity from utility operations through December 31, 1997. Dividend Policy -- The Company's current dividend policy is based on the continued validity of three assumptions: The ability to achieve earnings growth, the receipt of an allowed rate of return that accurately reflects the Company's cost of capital, and the retention of its exclusive franchise. As discussed under "Future Outlook-Competition and Restructuring," there is a strong movement in Vermont to restructure the electric utility industry, to be implemented in 1998, in order to permit competition in the generation and retail sale of electricity. Such restructuring would, among other things, lead to a loss of the Company's current exclusive franchise for selling electricity at retail, even though the Company would retain its exclusive franchise to provide distribution service. Also, a business operating in a competitive environment, including any unregulated activities by the Company, would by its nature engender a different type of earnings growth and volatility than is found in a regulated entity. Should restructuring be approved in Vermont, it is likely that the Company will reconsider its dividend policy and make appropriate changes so that anticipated payout levels are more commensurate with the risk of any new business activities to be undertaken and consistent with the capital needs of its businesses. Financing and Capitalization -- For the period 1994 through 1996, internally generated funds, after payment of dividends, provided approximately 60 percent of total capital requirements for construction, sinking funds and other requirements. The Company anticipates that for 1997, internally generated funds will provide approximately 87 percent of total capital requirements for regulated operations. In January 1996, a portion of the proceeds from the sale of $24 million of the Company's first mortgage bonds in December 1995 was used to refund $7.2 million of the Company's 10.7 percent first mortgage bonds. In October 1996, the Company issued $12 million of its 7.32 percent, Class E, Series 1, preferred stock. In November 1996, the Company sold $10 million of its first mortgage bonds at an interest rate of 7.18 percent and in December 1996, the Company sold $4 million of its first mortgage bonds at an interest rate of 7.05 percent. The proceeds from these transactions were used to repay short-term debt, to retire fixed income securities and for other general corporate purposes. At December 31, 1996, the Company's capitalization consisted of 48.8 percent common equity, 42.8 percent long-term debt and 8.4 percent preferred equity. The Company has a comprehensive capital plan to increase the equity component of its capital structure. The rating of the Company's first mortgage bonds by Standard & Poor's remains at "BBB+." In 1996, a rating of "BBB" was assigned to the Company's preferred stock. Standard & Poor's "outlook" of the Company remains "stable." The rating of the Company's first mortgage bonds by Duff & Phelps was lowered in September 1996 from "A-" to "BBB+." The rating of the Company's preferred stock was also lowered from "BBB+" to "BBB." These ratings reflect Duff & Phelps' assessment that the electric utility industry in the region is becoming increasingly more competitive and that the Company is highly dependent upon purchased power agreements with escalating fixed payment obligations. Duff & Phelps, however, concluded that the Company has low cost structures, access to a good transmission system and a strong marketing-oriented focus. The rating of the Company's first mortgage bonds by Moody's Investment Services remains at "Baa2." In 1996, a rating of "baa3" was assigned to the Company's preferred stock by Moody's. Moody's "outlook" for the Company remains "stable." See Note F of the Notes to Consolidated Financial Statements for a discussion of bank lines of credit available to the Company. Effects of Inflation -- Financial statements are prepared in accordance with generally accepted accounting principles and report operating results in terms of historic costs. This accounting provides reasonable financial statements but does not always take inflation into consideration. As rate recovery is based on these historical costs and known and measurable changes, the Company is able to receive some rate relief for inflation. It does not receive immediate rate recovery relating to fixed costs associated with Company assets. Such fixed costs are recovered based on historic figures. Any effects of inflation on plant costs are generally offset by the fact that these assets are financed through long-term debt. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GREEN MOUNTAIN POWER CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Page Financial Statements Consolidated Statements of Income For the Years Ended December 31, 1996, 1995 and 1994 38 Consolidated Statements of Cash Flows For the Years Ended December 31, 1996, 1995 and 1994 39 Consolidated Balance Sheets as of December 31, 1996 and 1995 40-41 Consolidated Capitalization Data as of December 31, 1996 and 1995 42 Notes to Consolidated Financial Statements 43-61 Quarterly Financial Information 54 Report of Independent Public Accountants 62 Schedules For the Years Ended December 31, 1996, 1995 and 1994: II Valuation and Qualifying Accounts and Reserves 63 All other schedules are omitted as they are either not required, not applicable or the information is otherwise provided. Consents and Reports of Independent Public Accountants Arthur Andersen LLP 62 & 74
CONSOLIDATED STATEMENTS OF INCOME GREEN MOUNTAIN POWER CORPORATION For the Years Ended December 31 1996 1995 1994 ----------------- --------------- --------------- (In thousands, except amounts per share) Operating Revenues.............................................. $179,009 $161,544 $148,197 ----------------- --------------- --------------- Operating Expenses Power Supply Vermont Yankee Nuclear Power Corporation................... 30,596 30,222 30,300 Company-owned generation................................... 3,330 3,786 3,113 Purchases from others...................................... 66,320 53,915 45,777 Other operating............................................... 17,615 18,120 17,296 Transmission................................................. 10,833 9,874 10,374 Maintenance................................................... 4,463 4,210 4,465 Depreciation and amortization................................. 16,280 14,116 10,683 Taxes other than income....................................... 6,982 6,428 6,277 Income taxes.................................................. 6,463 5,578 5,395 ----------------- --------------- --------------- Total operating expenses................................... 162,882 146,249 133,680 ----------------- --------------- --------------- Operating Income......................................... 16,127 15,295 14,517 ----------------- --------------- --------------- Other Income Equity in earnings of affiliates and non-utility operations..................................... 2,880 3,513 3,112 Allowance for equity funds used during construction........... 175 27 263 Other income and deductions, net.............................. 175 94 306 ----------------- --------------- --------------- Total other income.......................................... 3,230 3,634 3,681 ----------------- --------------- --------------- Income before interest charges............................ 19,357 18,929 18,198 ----------------- --------------- --------------- Interest Charges Long-term debt................................................ 6,872 6,546 6,868 Other......................................................... 994 1,427 867 Allowance for borrowed funds used during construction............................................ (468) (547) (539) ----------------- --------------- --------------- Total interest charges...................................... 7,398 7,426 7,196 ----------------- --------------- --------------- Net Income...................................................... 11,959 11,503 11,002 Dividends on preferred stock.................................... 1,010 771 794 ----------------- --------------- --------------- Net Income Applicable to Common Stock........................... $10,949 $10,732 $10,208 ================= =============== =============== Common Stock Data Earnings per share............................................ $2.22 $2.26 $2.23 Cash dividends declared per share............................. $2.12 $2.12 $2.12 Weighted average shares outstanding........................... 4,933 4,747 4,588 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS GREEN MOUNTAIN POWER CORPORATION For the Years Ended December 31 1996 1995 1994 --------- --------- --------- (In thousands) Operating Activities: Net Income........................................................... $11,959 $11,503 $11,002 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 16,280 14,116 10,683 Dividends from associated companies less equity income........... 254 660 202 Allowance for funds used during construction..................... (643) (574) (803) Deferred purchased power costs................................... (5,917) (12,935) (536) Amortization of purchased power costs............................ 5,187 6,036 4,178 Deferred income taxes............................................ 1,937 3,715 1,585 Amortization of investment tax credits........................... (282) (283) (283) Environmental proceedings costs, net............................. (1,720) (1,351) 7,103 Conservation expenditures........................................ (3,207) (3,960) (6,388) Changes in: Accounts receivable............................................ 347 (2,841) (426) Accrued utility revenues....................................... (139) (510) 126 Fuel, materials and supplies................................... (309) 2 (473) Prepayments and other current assets........................... (354) 1,562 (1,982) Accounts payable............................................... 221 2,191 (2,327) Taxes accrued.................................................. 415 (871) 1,044 Interest accrued............................................... (465) (106) (117) Other current liabilities...................................... 1,065 (22) (65) Other............................................................ 1,738 (95) 2,383 --------- --------- --------- Net cash provided by operating activities.......................... 26,367 16,237 24,906 --------- --------- --------- Investing Activities: Construction expenditures.......................................... (17,541) (15,314) (13,536) Investment in non-utility property................................. (2,203) (6,121) (1,220) --------- --------- --------- Net cash used in investing activities............................ (19,744) (21,435) (14,756) --------- --------- --------- Financing Activities: Issuance of preferred stock........................................ 12,000 -- -- Reduction in preferred stock....................................... (1,620) (205) (250) Issuance of common stock........................................... 4,642 4,404 3,671 Short-term debt, net............................................... (7,400) (11,799) 1,198 Issuance of long-term debt......................................... 14,000 25,917 -- Reduction in long-term debt........................................ (16,201) (4,833) (1,800) Cash dividends..................................................... (11,455) (10,818) (10,504) --------- --------- --------- Net cash provided by (used in) financing activities.............. (6,034) 2,666 (7,685) --------- --------- --------- Net increase (decrease) in cash and cash equivalents............... 589 (2,532) 2,465 Cash and cash equivalents at beginning of year..................... 160 2,692 227 --------- --------- --------- Cash and Cash Equivalents at End of Year............................... $749 $160 $2,692 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS GREEN MOUNTAIN POWER CORPORATION December 31 1996 1995 --------- --------- (In thousands) ASSETS Utility Plant Utility plant, at original cost....................$248,135 $239,291 Less accumulated depreciation...................... 81,286 75,797 --------- --------- Net utility plant................................ 166,849 163,494 Property under capital lease....................... 9,006 9,778 Construction work in progress...................... 13,998 8,727 --------- --------- Total utility plant, net......................... 189,853 181,999 --------- --------- Other Investments Associated companies, at equity ................... 15,769 16,024 Other investments ................................. 4,865 4,224 --------- --------- Total other investments.......................... 20,634 20,248 --------- --------- Current Assets Cash............................................... 238 84 Accounts receivable, customers and others, less allowance for doubtful accounts............. 17,733 18,081 Accrued utility revenues........................... 6,662 6,523 Fuel, materials and supplies, at average cost...... 3,621 3,312 Prepayments........................................ 2,206 1,890 Other.............................................. 441 326 --------- --------- Total current assets............................. 30,901 30,216 --------- --------- Deferred Charges Demand side management programs.................... 16,409 18,367 Environmental proceedings costs.................... 7,991 7,893 Purchased power costs.............................. 9,163 8,433 Other.............................................. 9,661 8,258 --------- --------- Total deferred charges........................... 43,224 42,951 --------- --------- Non-Utility Cash and cash equivalents.......................... 511 76 Other current assets............................... 3,979 4,055 Property and equipment............................. 11,226 11,478 Intangible assets.................................. 2,555 2,580 Equity investment in energy-related businesses..... 12,494 10,999 Other assets....................................... 9,162 8,680 --------- --------- Total non-utility assets......................... 39,927 37,868 --------- --------- Total Assets...........................................$324,539 $313,282 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. GREEN MOUNTAIN POWER CORPORATION December 31 1996 1995 --------- --------- (In thousands) CAPITALIZATION AND LIABILITIES Capitalization (See Capitalization Data) Common Stock Equity Common stock..................................... $16,790 $16,168 Additional paid-in capital....................... 68,226 64,206 Retained Earnings................................ 26,916 26,412 Treasury stock, at cost.......................... (378) (378) --------- --------- Total common stock equity...................... 111,554 106,408 Redeemable cumulative preferred stock.............. 19,310 8,930 Long-term debt, less current maturities ........... 94,900 91,134 --------- --------- Total capitalization........................... 225,764 206,472 --------- --------- Capital Lease Obligation .............................. 9,006 9,778 --------- --------- Current Liabilities Current maturuties of long-term debt............... 3,034 7,833 Short-term debt.................................... 1,016 8,416 Accounts payable, trade, and accrued liabilities... 6,140 5,529 Accounts payable to associated companies........... 6,621 7,011 Dividends declared................................. 381 194 Customer deposits.................................. 689 816 Taxes Accrued...................................... 986 571 Interest accrued................................... 1,382 1,847 Other.............................................. 788 412 --------- --------- Total current liabilities...................... 21,037 32,629 --------- --------- Deferred Credits Accumulated deferred income taxes.................. 26,726 25,292 Unamortized investment tax credits................. 4,825 5,107 Other.............................................. 23,417 21,642 --------- --------- Total deferred credits......................... 54,968 52,041 --------- --------- Non-Utility Current liabilities................................ 1,752 1,124 Other liabilities.................................. 12,012 11,238 --------- --------- Total non-utility liabilities.................. 13,764 12,362 --------- --------- Total Capitalization and Liabilities...................$324,539 $313,282 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED CAPITALIZATION DATA GREEN MOUNTAIN POWER CORPORATION December 31 Issued and Outstanding CAPITAL STOCK Authorized 1996 1995 1996 1995 ----------- ---------- ---------- --------- --------- (In thousands) Common Stock,$3.33 1/3 par value (Note C).......................... 10,000,000 5,037,143 4,850,496 $16,790 $16,168 ========= ========= ----------------------------------------------------------------------------------------------------------------- Outstanding Authorized Issued 1996 1995 1996 1995 ---------- ----------- ---------- ---------- --------- --------- (In thousands) Redeemable Cumulative Preferred Stock, $100 par value (Note D) 4.75%,Class B, redeemable at $101 per share........................................ 15,000 15,000 2,850 3,000 $285 $300 7%,Class C, redeemable at $101 per share........................................ 15,000 15,000 4,650 5,100 465 510 9.375%,Class D,Series 1, redeemable at $101 per share.......................... 40,000 40,000 9,600 11,200 960 1,120 8.625%,Class D,Series 3, redeemable at $103.835 per share...................... 70,000 70,000 56,000 70,000 5,600 7,000 7.32%,Class E,Series 1,................................. 200,000 120,000 120,000 -- 12,000 -- --------- --------- Total Preferred Stock...................................... $19,310 $8,930 ========= ========= LONG-TERM DEBT (Note E) 1996 1995 --------- --------- (In thousands) First Mortgage Bonds 5 1/8% Series due 1996........................................................................................$ -- $3,000 6.84% Series due 1997 - Cash sinking fund,$1,333,000 annually.................................................................................................. 1,334 2,667 7% Series due 1998............................................................................................ 3,000 3,000 10.7% Series due 2000......................................................................................... -- 9,000 5.71% Series due 2000......................................................................................... 5,000 5,000 6.21% Series due 2001......................................................................................... 8,000 8,000 6.29% Series due 2002......................................................................................... 8,000 8,000 6.41% Series due 2003......................................................................................... 8,000 8,000 10.0% Series due 2004 - Cash sinking fund,$1,700,000 annually.................................................................................................. 13,600 15,300 7.05% Series due 2006......................................................................................... 4,000 -- 7.18% Series due 2006......................................................................................... 10,000 -- 6.7% Series due 2018.......................................................................................... 15,000 15,000 9.64% Series due 2020......................................................................................... 9,000 9,000 8.65% Series due 2022 - Cash sinking fund,commences 2012...................................................... 13,000 13,000 --------- --------- Total Long-term Debt Outstanding................................................................................ 97,934 98,967 Less Current Maturities (due within one year)................................................................. 3,034 7,833 --------- --------- Total Long-term Debt, Net....................................................................................... $94,900 $91,134 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements A. SIGNIFICANT ACCOUNTING POLICIES 1. The Company. Green Mountain Power Corporation (the Company) is an investor-owned energy services company located in Vermont that serves one- quarter of its population. The most significant portion of the Company's net income is derived from its regulated electric utility operation, which purchases and generates electric power and distributes it to 82,500 retail and wholesale customers. Two of the Company's wholly-owned subsidiaries (which are not regulated by the Vermont Public Service Board (VPSB)) are Green Mountain Propane Gas Company, which supplies propane to 10,000 customers in Vermont and New Hampshire, and Mountain Energy, Inc., which invests in energy generation and efficiency projects across the United States. In 1996, the Company's wholly-owned, unregulated subsidiary, Green Mountain Resources Inc., was created to participate, along with the wholly-owned subsidiaries of three energy companies -- Hydro-Quebec, Consolidated Natural Gas Company, and Noverco, Inc. - in pilot programs in New Hampshire and Massachusetts to test the viability of retail electric competition through a limited liability company (Green Mountain Energy Partners L.L.C.). The results of these subsidiaries, the Company's unregulated rental water heater program and its other unregulated wholly-owned subsidiaries (GMP Real Estate Corporation and Lease-Elec, Inc.) are included in earnings of affiliates and non-utility operations in the Other Income section of the Consolidated Statements of Income. Summarized financial information is as follows: For the years ended December 31, -------------------------------- 1996 1995 ---- ---- (In thousands) Revenues . . . . . . . . . . . . . . . $11,997 $11,905 Expenses. . . . . . . . . . . . . . . . 11,207 10,416 ------- ------- Net Income . . . . . . . . . . . . . . $ 790 $ 1,489 ======= ======= The Company carries its investments in various associated companies -- Vermont Yankee Nuclear Power Corporation (Vermont Yankee), Vermont Electric Power Company, Inc. (VELCO), New England Hydro-Transmission Corporation, and New England Hydro-Transmission Electric Company -- at equity. 2. Basis of Presentation The Company's utility operations, including accounting records, rates, operations and certain other practices of its electric utility business, are subject to the regulatory authority of the Federal Energy Regulatory Commission (FERC) and the VPSB. The accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for Certain Types of Regulation. Under SFAS 71, the Company is permitted to account for certain transactions in accordance with permitted regulatory treatment. As such, regulators may permit incurred costs, typically treated as expenses, to be deferred and recovered in future revenues. Criteria that give rise to the discontinuance of SFAS 71 include (1) increasing competition that restricts the Company's ability to establish prices to recover specific costs, and (2) a change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. In the event that the Company no longer meets the criteria under SFAS 71, the Company would be required to writeoff related regulatory assets and liabilities. SFAS 121, Accounting for the Impairment of Long Lived Assets, which became effective for the Company January 1, 1996, requires that any assets, including regulatory assets, which are no longer probable of recovery through future revenues, be revalued based upon future cash flows. SFAS 121 requires that a rate-regulated enterprise recognize an impairment loss for regulatory assets which are no longer probable of recovery. As of December 31, 1996, based upon the regulatory environment within which the Company currently operates, SFAS 121 did not have a material impact on the Company's financial position or results of operations. Competitive influences or regulatory developments may impact this status in the future. See Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of electric utility restructuring which may impact the Company's application of SFAS 71 and 121. 3. Statements of Cash Flows. The following amounts of interest (net of amounts capitalized) and income taxes were paid for the years ending December 31: 1996 1995 1994 ---- ---- ---- (In thousands) Interest . . . . . . . . . . . . . . . . $8,104 $7,940 $7,714 Income Taxes (Net of refunds) . . . . . $3,727 $2,949 $3,088 4. Utility Plant. The cost of plant additions includes all construction- related direct labor and materials, as well as indirect construction costs, including the cost of money (Allowance for Funds Used During Construction or AFUDC). The costs of renewals and betterments of property units are capitalized. The costs of maintenance, repairs and replacements of minor property items are charged to maintenance expense. The costs of units of property removed from service, net of removal costs and salvage, are charged to accumulated depreciation. 5. Depreciation. The Company provides for depreciation on the straight- line method based on the cost and estimated remaining service life of the depreciable property outstanding at the beginning of the year and adjusted for salvage value and cost of removal of the Company's retirements. The annual depreciation provision was approximately 3.6 percent of total depreciable property at the beginning of each year 1996, 1995 and 1994. 6. Operating Revenues. Operating revenues consist principally of sales of electric energy. The Company records accrued utility revenues, based on estimates of electric service rendered and not billed at the end of an accounting period, in order to match revenues with related costs. 7. Deferred Charges. In a manner consistent with authorized or expected ratemaking treatment, the Company defers and amortizes certain replacement power, maintenance and other costs associated with the Vermont Yankee nuclear plant. In addition, the Company accrues and amortizes other replacement power expenses to reflect more accurately its cost of service to better match revenues and expenses consistent with regulatory treatment. The Company defers and amortizes certain purchased power costs related to its obligations under the Hydro-Quebec contracts. At December 31, 1996, other deferred charges totaled $9.7 million, consisting of repair costs for the Essex and Vergennes hydroelectric facilities, regulatory deferrals of storm damages, rights-of-way maintenance, regulatory proceedings expenses, unamortized debt expense, preliminary survey and investigation charges, transmission interconnection charges and various other projects and deferrals. 8. Earnings Per Share. Earnings per share are based on the weighted average number of shares of common stock outstanding during each year. 9. Major Customers. The Company had one major retail customer, IBM, metered at two locations, that accounted for 13.2, 12.9 and 13.7 percent of operating revenues in 1996, 1995 and 1994, respectively. 10. Pension and Retirement Plans. The Company has a defined benefit pension plan covering substantially all of its employees. The retirement benefits are based on the employees' level of compensation and length of service. The Company's policy is to fund all pension costs accrued. The Company records annual expense based on amounts funded in accordance with methods approved in the rate-setting process. Net pension costs reflect the following components and assumptions: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Service cost-benefits earned during the period . $ 689 $ 687 $ 768 Interest cost on projected benefit obligations . 1,912 1,671 1,633 Actual return on plan assets . . . . . . . . . . (4,383) (6,447) (1,296) Net amortization and deferral . . . . . . . . . . 1,756 4,232 (906) Effect of voluntary retirement program . . . . . 416 765 --- Adjustment due to actions of regulator . . . . . (366) (878) (174) ------- ------- ------- Net periodic pension cost funded and recognized . $ 24 $ 30 $ 25 ======= ======= ======= Assumptions used to determine pension costs and the related benefit obligation in 1996, 1995 and 1994 were: Discount rate . . . . . . . . . . . . . . . . 8.0% 8.0% 7.5%* Rate of increase in future compensation levels 5.0% 5.0% 5.0% Expected long-term rate of return on assets . 9.0% 9.0% 9.0% *The discount rate used to determine the accumulated benefit obligation was 8.0%. The following table sets forth the plan's funded status as of December 31: 1996 1995 1994 ---- ---- ---- (In thousands) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $21,146, $19,107 and $18,184, respectively . . . . ($21,376) ($19,431) ($18,479) ========= ======== ======== Projected benefit obligations for service rendered to date . . . . . . . . ($25,615) ($21,974) ($21,363) Plan assets at fair value . . . . . . . . . . 31,286 28,685 24,171 --------- --------- --------- Assets in excess of projected benefit obligations . . . . . . . . . . . . 5,671 6,711 2,808 Unrecognized net gain from past experience different from that assumed . . (4,734) (5,188) (285) Prior service cost not yet recognized in net periodic pension cost . . . . . . . . . . . 1,474 1,506 1,642 Unrecognized net asset at transition being recognized over 16.47 years . . . . . (1,477) (1,706) (1,934) Adjustment due to actions of regulator . . . . (934) (1,323) (2,231) -------- -------- ------- Prepaid pension cost included in other assets $ --- $ --- $ --- ======== ======== ======== The plan assets consist primarily of cash equivalent funds, fixed income securities and equity securities. The Company also has a supplemental pension plan for certain employees. Pension costs for the years ended December 31, 1996, 1995 and 1994 were $494,000, $397,000 and $381,000, respectively, under this plan. This plan is funded in part through insurance contracts. 11. Postretirement Health Care Benefits. The Company provides certain health care benefits for retired employees and their dependents. Employees become eligible for these benefits if they reach normal retirement age while working for the Company. The Company accrues the cost of these benefits during the service life of covered employees. Accrued postretirement health care expenses are recovered in rates if those expenses are funded. In order to maximize the tax deductible contributions that are allowed under IRS regulations, the Company amended its pension plan to establish a 401-h subaccount and established separate VEBA trusts for its union and non-union employees. The plan assets consist primarily of cash equivalent funds, fixed income securities and equity securities. Net postretirement benefits costs for 1996 reflect the following components and assumptions: 1996 1995 1994 ---- ---- ---- (In thousands) Accumulated postretirement benefit obligation: Current retirees . . . . . . . . . . . . ($ 4,563) ($ 4,594) ($ 3,497) Participants currently eligible . . . . (772) (681) (1,863) All others . . . . . . . . . . . . . . . (3,837) (3,384) (3,785) Total accumulated postretirement benefit obligation . . . . . . . . . . . . . . . (9,172) (8,659) (9,145) Plan assets at fair value . . . . . . . . . 6,327 5,465 3,433 Accumulated postretirement benefit obligation in excess of plan assets . . (2,845) (3,194) (5,712) Unrecognized prior service cost . . . . . . (867) (929) --- Unrecognized transition obligation . . . . 5,630 5,982 6,485 Unrecognized net gain . . . . . . . . . . . (1,879) (1,687) (1,777) -------- ------- -------- Prepaid (accrued) postretirement benefit cost . . . . . . . . . . . . . . . . . . $ 39 $ 172 ($1,004) ======= ======= ======== Net periodic postretirement benefit cost for 1996 includes the following components: 1996 1995 1994 ---- ---- ---- (In thousands) Service cost . . . . . . . . . . . . . . . . $ 247 $ 224 $ 407 Interest cost . . . . . . . . . . . . . . . 698 697 864 Actual return on plan assets . . . . . . . . (870) (586) (127) Deferred asset loss/(gain) . . . . . . . . . 407 264 (107) Recognition of transition obligation, net of amortization . . . . . . . . . . . 245 234 361 ------- ----- ------- Total net periodic postretirement benefit cost . . . . . . . . . . . . . $ 727 $ 833 $ 1,398 ======= ====== ======= Assumptions used to determine postretirement benefit costs and the related benefit obligation were: 1996 1995 1994 ---- ---- ---- Discount rate to determine postretirement benefit costs . . . . . . . . . . . . . . 8.0% 8.5% 7.5% Discount rate to determine postretirement benefit obligation . . . . . . . . . . . . 8.0% 8.5% 8.5% Expected long-term rate of return on assets 8.5% 7.5% 7.5% For measurement purposes, a 6.0 percent annual rate of increase in the per capita cost of covered benefits was assumed for 1996; the rate was assumed to decrease gradually to 5.0 percent by the year 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1996 by $1.4 million and the aggregate of the service and interest components of net periodic postretirement benefit cost for the year ended December 31, 1996 by $211,000. 12. Fair Value of Financial Instruments. If the first mortgage bonds and preferred stock outstanding at December 31, 1996 were refinanced using new issue debt rates of interest, which, on average, are lower than the Company's outstanding rates, the present value of those obligations would differ from the amounts outstanding on the December 31, 1996 balance sheet by 3 percent. In the event of such a refinancing, there would be no gain or loss, inasmuch as under established regulatory precedent, any such difference would be reflected in rates and have no effect upon income. 13. Deferred Credits. At December 31, 1996, the Company had other deferred credits and long-term liabilities of $23.4 million, consisting of operating lease equalization, reserves for damage claims and environmental liabilities and accruals for employee benefits. 14. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect assets and liabilities, the disclosure of contingent assets and liabilities, and revenues and expenses. Actual results could differ from those estimates. 15. Reclassification. Certain items on the prior years' financial statements have been reclassified for consistent presentation with the current year. B. INVESTMENTS IN ASSOCIATED COMPANIES The Company accounts for investments in the following companies by the equity method: Percent Ownership Investment in Equity at December 31, 1996 December 31, -------------------- -------------------- 1996 1995 ---- ---- (In thousands) VELCO - Common . . . . . . . . . 29.5% $ 1,834 $ 1,811 - Preferred . . . . . . . 30.0% 1,118 1,278 ----- ----- Total VELCO . . . . . . . . . . 2,952 3,089 Vermont Yankee - Common . . . . 17.9% 9,768 9,631 New England Hydro-Transmission - Common . . . . . . . . . . 3.18% 1,205 1,296 New England Hydro-Transmission Electric - Common . . . . . 3.18% 1,891 2,008 ------- ------- $15,816 $16,024 ======= ======= Undistributed earnings in associated companies totaled $714,000 at December 31, 1996. VELCO. VELCO is a corporation engaged in the transmission of electric power within the State of Vermont. VELCO has entered into transmission agreements with the State of Vermont and other 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. The Company's purchases of transmission services from VELCO were $7.7 million, $7.6 million and $7.9 million for the years 1996, 1995 and 1994, respectively. Pursuant to VELCO's Amended Articles of Association, the Company is entitled to approximately 30 percent of the dividends distributed by VELCO. The Company has recorded its equity in earnings on this basis and also is obligated to provide its proportionate share of the equity capital requirements of VELCO through continuing purchases of its common stock, if necessary. Summarized financial information for VELCO is as follows: December 31, ------------------------- 1996 1995 1994 ---- ---- ---- (In thousands) Company's equity in net income . . . . . . . $ 383 $ 377 $ 386 ======= ======= ======= Total assets . . . . . . . . . . . . . . . . $74,065 $71,668 $69,724 Less: Liabilities and long-term debt . . . . . 64,159 61,238 58,850 ------- ------- ------- Net assets . . . . . . . . . . . . . . . . . $9,906 $10,430 $10,874 ======= ======= ======= Company's equity in net assets . . . . . . . $2,952 $ 3,089 $ 3,232 ======= ======= ======= Vermont Yankee. The Company is responsible for 17.3 percent of Vermont Yankee's expenses of operations, including costs of equity capital and estimated costs of decommissioning, and is entitled to a similar share of the power output of the nuclear plant, which has a net capacity of 531 megawatts. Vermont Yankee's current estimate of decommissioning costs is approximately $366 million, of which $160 million has been funded. At December 31, 1996, the Company's portion of the net unfunded liability was $36 million, which it expects will be recovered through rates over Vermont Yankee's remaining operating life. As a sponsor of Vermont Yankee, the Company also is obligated to provide 20 percent of capital requirements not obtained by outside sources. During 1996, the Company incurred $28.5 million in Vermont Yankee annual capacity charges, which included $1.8 million for interest charges. The Company's share of Vermont Yankee's long-term debt at December 31, 1996 was $13.8 million. The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.9 billion. Any liability beyond $8.9 billion is indemnified under an 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 retrospective premiums of $79.3 million against each of the 110 reactor units in the United States that are currently subject to the Program, 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 above insurance covers all workers employed at nuclear facilities prior to January 1, 1988, for bodily injury claims. Vermont Yankee has purchased a master worker insurance policy with limits of $200 million with one automatic reinstatement of policy limits to cover workers employed on or after January 1, 1988. Vermont Yankee's estimated contingent liability for a retrospective premium on the master worker policy as of December 1995 is $3.0 million. The secondary financial protection program referenced above provides coverage in excess of the Master Worker policy. Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover the costs of property damage, decontamination or premature decommissioning resulting from a nuclear incident. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds available. The maximum potential assessment against Vermont Yankee with respect to NEIL losses arising during the current policy year is $13.3 million. Vermont Yankee's liability for the retrospective premium adjustment for any policy year ceases six years after the end of that policy year unless prior demand has been made. Summarized financial information for Vermont Yankee is as follows: December 31, ------------------------- 1996 1995 1994 ---- ---- ---- (In thousands) Earnings: Operating revenues . . . . . . . . . . . $181,715 $180,437 $162,757 Net income applicable to common stock . 6,985 6,790 6,588 Company's equity in net income . . . . . 1,232 1,171 1,143 Total assets . . . . . . . . . . . . . . . $565,000 $531,293 $512,142 Less: Liabilities and long-term debt . . . . . 510,202 477,350 457,669 -------- -------- -------- Net assets . . . . . . . . . . . . . . . . $ 54,798 $ 53,943 $ 54,473 ======== ======== ======== Company's equity in net assets . . . . . . $ 9,768 $ 9,631 $ 9,766 ======== ======== ======== C. COMMON STOCK EQUITY The Company maintains a Dividend Reinvestment and Stock Purchase Plan (DRIP) under which 509,139 shares were reserved and unissued at December 31, 1996. The Company also funds an Employee Savings and Investment Plan (ESIP). At December 31, 1996, there were 149,900 shares reserved and unissued under the ESIP. During 1995, the Company's Board of Directors, with subsequent approval of the Company's common shareholders, adopted the Compensation Program for Officers and Certain Key Management Personnel. Participants are entitled to receive cash and restricted and unrestricted stock grants in predetermined proportions. Participants who receive restricted stock are entitled to receive dividends and have voting rights but assumption of full beneficial ownership is contingent upon two restrictions of a five year duration, including no transferability and forfeiture of the stock upon termination of employment with the Company. Participants who receive unrestricted stock assume full beneficial ownership upon grant and may retain or sell such shares. During 1996, 7,035 shares of common stock were awarded under this program. At December 31, 1996, there were 31,039 shares reserved and unissued under the Compensation Program. Changes in common stock equity for the years ended December 31, 1994, 1995 and 1996 are as follows:
Common Stock Treasury Stock ------------------------ Paid-in Retained ------------------------ Stock Shares Amount Capital Earnings Shares Amount Equity ------ ------ ------- -------- ------ ------ ------ (Dollars in thousands) BALANCE, December 31, 1993............... 4,536,042 $15,120 $57,178 $25,229 15,856 ($378) $97,149 Common Stock Issuance: DRIP................................... 109,959 367 2,472 2,839 ESIP................................... 31,511 105 728 833 Net Income............................... 11,002 11,002 Cash Dividends on Capital Stock: Common Stock -$2.12 per share..... (9,713) (9,713) Preferred Stock -$4.75 per share..... (18) (18) -$7.00 per share..... (38) (38) -$9.375 per share.... (131) (131) -$8.625 per share.... (604) (604) ------------------------------------------------------------------------------------ BALANCE, December 31, 1994............... 4,677,512 15,592 60,378 25,727 15,856 (378) 101,319 Common Stock Issuance: DRIP................................... 125,046 417 2,731 3,148 ESIP................................... 36,012 120 829 949 Compensation Program: Restricted Shares.................... 8,100 27 182 209 Stock Grant.......................... 3,826 12 86 98 Net Income............................... 11,503 11,503 Cash Dividends on Capital Stock: Common Stock -$2.12 per share..... (10,047) (10,047) Preferred Stock -$4.75 per share..... (15) (15) -$7.00 per share..... (36) (36) -$9.375 per share.... (116) (116) -$8.625 per share.... (604) (604) ------------------------------------------------------------------------------------ BALANCE, December 31, 1995............... 4,850,496 16,168 64,206 26,412 15,856 (378) 106,408 Common Stock Issuance: DRIP................................... 149,968 500 3,188 3,688 ESIP................................... 29,644 99 668 767 Compensation Program: Restricted Shares.................... 2,392 8 59 67 Stock Grant.......................... 4,643 15 105 120 Net Income............................... 11,959 11,959 Cash Dividends on Capital Stock: Common Stock -$2.12 per share..... (10,445) (10,445) Preferred Stock -$4.75 per share..... (14) (14) -$7.00 per share..... (35) (35) -$9.375 per share.... (101) (101) -$8.625 per share.... (543) (543) -$7.32 per share..... (317) (317) ------------------------------------------------------------------------------------ BALANCE, December 31, 1996............... 5,037,143 $16,790 $68,226 $26,916 15,856 ($378) $111,554 ====================================================================================
Dividend Restrictions. Certain restrictions on the payment of cash dividends on common stock are contained in the Company's indenture relating to long-term debt and in the Restated Articles of Association. Under the most restrictive of such provisions, $20.5 million of retained earnings were free of restrictions at December 31, 1996. The properties of the Company include several hydroelectric projects licensed under the Federal Power Act, with license expiration dates ranging from 1999 to 2025. At December 31, 1996, $302,000 of retained earnings had been appropriated as excess earnings on hydroelectric projects as required by Section 10(d) of the Federal Power Act. D. PREFERRED STOCK The holders of the preferred stock are entitled to specific voting rights with respect to certain types of corporate actions. They are also entitled to elect the smallest number of directors necessary to constitute a majority of the Board of Directors in the event of preferred stock dividend arrearages equivalent to or exceeding four quarterly dividends. Similarly, the holders of the preferred stock are entitled to elect two directors in the event of a default in any purchase or sinking fund requirements provided for any class of preferred stock. Certain classes of preferred stock are subject to annual purchase or sinking fund requirements. The sinking fund requirements are mandatory. The purchase fund requirements are mandatory, but holders may elect not to accept the purchase offer. The redemption or purchase price to satisfy these requirements may not exceed $100 per share plus accrued dividends. All shares redeemed or purchased in connection with these requirements must be canceled and may not be reissued. The annual purchase and sinking fund requirements for certain classes of preferred stock are as follows: Purchase and Sinking Fund 8.625%, Class D, Series 3 . . September 1 14,000 Shares 4.75%, Class B . . . . . . . . December 1 450 Shares 7%, Class C . . . . . . . . . December 1 450 Shares 9.375%, Class D, Series 1 . . December 1 1,600 Shares Under the Restated Articles of Association relating to Redeemable Cumulative Preferred Stock, the annual aggregate amount of purchase and sinking fund requirements for the next five years are $1,650,000 for the years 1997-1999, $1,640,000 for 2000 and $235,000 for 2001. Certain classes of preferred stock are redeemable at the option of the Company or, in the case of voluntary liquidation, at various prices on various dates. The prices include the par value of the issue plus any accrued dividends and a redemption premium. The redemption premium for Class B, C and D, Series 1, is $1.00 per share. The redemption premium for the Class D, Series 3, is $2.877 per share until September 1, 1997; $1.919 per share from September 1, 1997 to September 1, 1998; and $0.916 per share from September 1, 1998 to September 1, 1999, after which there is no redemption premium. In October 1996, the Company issued $12.0 million of its 7.32 percent, Class E, Series 1, preferred stock. E. LONG-TERM DEBT Utility. Substantially all of the property and franchises of the Company are subject to the lien of the indenture under which first mortgage bonds have been issued. The annual sinking fund requirements (excluding amounts that may be satisfied by property additions) and long-term debt maturities for the next five years are: Sinking Funds Maturities Total ------- ---------- ----- (In thousands) 1997 . . . . . . . . . . . . . . $1,700 $1,334 $3,034 1998 . . . . . . . . . . . . . . 1,700 3,000 4,700 1999 . . . . . . . . . . . . . . 1,700 --- 1,700 2000 . . . . . . . . . . . . . . 1,700 5,000 6,700 2001 . . . . . . . . . . . . . . 1,700 8,000 9,700 Non-Utility. At December 31, 1996, Green Mountain Propane Gas Company, the Company's propane subsidiary, had long-term debt of $2,900,000, which was secured by substantially all of the subsidiary's assets, and Mountain Energy, Inc., the Company's subsidiary that invests in energy generation and efficiency projects, had unsecured long-term debt of $1,749,103. The annual sinking fund requirements and maturities for the next four years are: Sinking Funds Maturities Total ------- ---------- ----- (In thousands) 1997 . . . . . . . . . . . . . $1,167 $ --- $1,167 1998 . . . . . . . . . . . . . 1,167 --- 1,167 1999 . . . . . . . . . . . . . 167 900 1,067 2000 . . . . . . . . . . . . . 83 1,166 1,249 F. SHORT-TERM DEBT Utility. At December 31, 1996, the Company had lines of credit with six banks totaling $40.0 million, with borrowings outstanding of $1.0 million. 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 lines of credit ranging from 1/8 to 1/4 percent and no compensating balance requirements. These lines of credit are subject to periodic review and renewal during the year by the various banks. The weighted average interest rate on borrowings outstanding on December 31, 1996 and December 31, 1995 was 5.7 percent and 6.3 percent, respectively. Non-Utility. At December 31, 1996, Green Mountain Propane Gas Company, the Company's propane subsidiary, had a line of credit with a bank for $1.5 million, with $275,000 outstanding. G. INCOME TAXES Utility. The Company accounts for income taxes using an asset and liability approach. This approach accounts for deferred income taxes by applying statutory rates in effect at year end to the differences between the book and tax bases of assets and liabilities. The regulatory assets and liabilities represent taxes that will be collected from or returned to customers through rates in future periods. As of December 31, 1996 and 1995, the net regulatory assets were $1,194,000 and $690,000, respectively. The temporary differences which gave rise to the net deferred tax liability at December 31, 1996 and December 31, 1995, were as follows: At December 31, At December 31, 1996 1995 --------------- --------------- (In thousands) Deferred Tax Assets Contributions in aid of construction $ 7,094 $ 6,361 Deferred compensation and post-retirement benefits . . . . . . 2,944 2,931 Alternative minimum tax credit . . . (552) (661) Excess deferred taxes . . . . . . . . 1,891 1,990 Unamortized investment tax credits . 2,025 2,151 Other . . . . . . . . . . . . . . . . 2,719 2,982 ------- ------- $16,121 $15,754 ------- ------- Deferred Tax Liabilities Property-related and other . . . . . $30,553 $28,009 Demand side management costs . . . . 5,856 6,685 Deferred purchased power costs . . . 3,716 2,901 Reversal of previously flowed-through tax depreciation . . . . . . . . . 2,133 2,816 AFUDC equity basis adjustment . . . . 589 635 -------- --------- 42,847 41,046 -------- --------- Net accumulated deferred income tax liability . . . . . . . . . . . . . ($26,726) ($25,292) ========= ========= The following table reconciles the change in the net accumulated deferred income tax liability to the deferred income tax expense included in the income statement for the period: Year Ended December 31, -------------------------- 1996 1995 1994 ---- ---- ---- (In thousands) Net change in deferred income tax liability per above table . . . . . . . . . $1,434 $3,210 $1,080 Change in income tax related regulatory assets and liabilities. . . . . . . . . . . 504 503 505 Change in alternative minimum tax credit . . 109 168 (1,578) IRS audit adjustment, 1989 - 90 . . . . . . . -- 255 -- ------ ------ ------ Deferred income tax expense for the period . $2,047 $4,136 $ 7 ====== ====== ====== The components of the provision for income taxes are as follows: Year Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- (In thousands) Current state income taxes . . . . . . . $ 990 $ 365 $1,205 Deferred state income taxes . . . . . . 459 897 70 Current federal income taxes . . . . . . 3,708 1,359 4,466 Deferred federal income taxes . . . . . 1,588 3,239 (63) Investment tax credits -- net . . . . . (282) (282) (283) ------- ------- ------- Income taxes charged to operations . . . $6,463 $5,578 $5,395 ======= ======= ======= Total federal income taxes differ from the amounts computed by applying the statutory tax rate to income before taxes. The reasons for the differences are as follows: Year Ended December 31, --------------------------- 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Income before income tax . . . . . . . $18,422 $17,081 $16,398 Federal statutory rate . . . . . . . . 34% 34% 34% Computed "expected" federal income taxes . . . . . . . . . . . . $ 6,263 $ 5,808 $ 5,575 Increase (decrease) in taxes resulting from: Tax versus book depreciation . . . . 327 327 327 Dividends received and paid credit . (524) (616) (499) AFUDC - equity funds . . . . . . . . (59) (9) (89) Amortization of ITC . . . . . . . . (282) (282) (283) State tax benefit . . . . . . . . . (493) (429) (433) Excess deferred taxes . . . . . . . (60) (60) (60) Taxes attributable to subsidiaries . (140) (401) (268) Other . . . . . . . . . . . . . . . (18) (22) (150) ------- ------- ------- Total federal income taxes . . . . . . $5,014 $4,316 $4,120 ======= ======= ======= Effective federal income tax rate . . 27.2% 25.3% 25.1% Non-Utility. The Company's non-utility subsidiaries had accumulated deferred income taxes of $4.7 million on their balance sheets at December 31, 1996, largely attributable to property-related transactions. The components of the provision for income taxes for the non-utility operations are: Year Ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- (In thousands) State income taxes . . . . . . . . . . $154 $165 $123 Federal income taxes . . . . . . . . . 207 613 444 Investment tax credits . . . . . . . . (45) (45) (45) ----- ----- ----- Income taxes charged to operations . . $316 $733 $522 ===== ===== ===== Total federal income taxes differ from the amounts computed by applying the statutory rate to income before taxes, primarily attributable to state tax benefits. The effective federal income tax rates for the non-utility operations were 22.4 percent, 29.7 percent, and 29.0 percent for the years ended December 31, 1996, 1995 and 1994, respectively. H. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following quarterly financial information, in the opinion of management, includes all adjustments necessary to a fair statement of results of operations for such periods. Variations between quarters reflect the seasonal nature of the Company's business and the timing of rate changes. 1996 Quarter Ended ------------------ March June Sept. Dec. Total ----- ---- ----- ---- ----- (Amounts in thousands, except per share) Operating Revenues . . . . . . $48,415 $40,467 $44,423 $45,704 $179,009 Operating Income . . . . . . . 5,073 1,859 4,419 4,776 16,127 Net Income . . . . . . . . . . 4,065 1,024 3,474 3,396 11,959 Net Income Applicable to Common Stock . . . . . . . . 3,875 834 3,315 2,925 10,949 Earnings per Average Share of Common Stock . . . . . . . . $0.80 $0.17 $0.67 $0.58 $2.22 Weighted Average Number of Common Shares Outstanding . 4,860 4,911 4,959 5,003 4,933 1995 Quarter Ended ------------------ March June Sept. Dec. Total ----- ---- ----- ---- ----- (Amounts in thousands, except per share) Operating Revenues . . . . . . $40,023 $37,127 $39,781 $44,613 $161,544 Operating Income . . . . . . . 4,482 2,770 3,826 4,217 15,295 Net Income . . . . . . . . . . 3,227 1,992 3,071 3,213 11,503 Net Income Applicable to Common Stock . . . . . . . . 3,033 1,798 2,877 3,024 10,732 Earnings per Average Share of Common Stock . . . . . . . . $0.65 $0.38 $0.60 $0.63 $2.26 Weighted Average Number of Common Shares Outstanding . 4,680 4,721 4,771 4,815 4,747 I. COMMITMENTS AND CONTINGENCIES 1. Industry 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. On December 31, 1996, the VPSB issued an Order which proposed the commencement of competitive retail sales of electricity in early 1998. The Vermont General Assembly is debating proposals that would allow retail competition in Vermont in 1998. The Company, Central Vermont Public Service Corporation, representatives of the Governor of Vermont and the Department are in the process of negotiating a Memorandum of Understanding that would outline agreed-upon positions among the parties relative to the numerous issues involving the industry restructuring. For a complete discussion, see Management's Discussion and Analysis of Financial Condition and Results of Operations - "Future Outlook". 2. 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 Marsh site described 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. The Federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the "Superfund" law, generally imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. The Company has been notified by the Environmental Protection Agency (EPA) that it is one of several potentially responsible parties (PRPs) for cleanup of the Pine Street Marsh site in Burlington, Vermont, where coal tar and other industrial materials were deposited. From the late 19th century until 1967, gas was manufactured at the Pine Street Marsh site by a number of enterprises, including the Company. In 1990, the Company was one of the 14 parties that agreed to pay a total of $945,000 of the EPA's past response costs under a Consent Decree. The Company remains a PRP for ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $47 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and its cost. The cost of any future cleanup plan, the magnitude of unresolved EPA cost recovery claims, and the Company's share of such costs are uncertain at this time. Since 1994, the EPA has established a coordinating council, with representatives of PRPs, environmental and community groups, the City of Burlington and the State of Vermont presided over by a neutral facilitator. The council has determined, by consensus, what additional studies were appropriate for the site, and is addressing the question of additional response activities. The EPA, the State of Vermont and other parties have entered into two consent orders for completion of appropriate studies. Work is continuing under the second of those orders. On December 1, 1994, the Company, and two other PRPs, New England Electric System (NEES) and Vermont Gas Systems (VGS), entered into a confidential agreement with the State of Vermont, the City of Burlington and nearly all other landowner PRPs under which, subject to certain qualifications, the liability of those landowner PRPs for future Superfund response costs would be limited and specified. On December 1, 1994, the Company entered into a confidential agreement with VGS compromising contribution and cost recovery claims of each party and contractual indemnity claims of the Company arising from the 1964 sale of the manufactured gas plant to VGS. In March 1996, the Company and NEES entered into a confidential agreement compromising past and future contribution and cost recovery claims of both parties relating to response costs. In December 1991, the Company brought suit against eight previous insurers seeking recovery of unrecovered past costs and indemnity against future liabilities associated with environmental problems at the site. Discovery in the case, which was previously subject to a stay, is proceeding and is largely complete. A trial in this litigation is scheduled for late 1997. The Company has reached confidential final settlements with two of the defendants in this litigation and has obtained summary judgment declaring one insurer's duty to defend. The Company has deferred amounts received, under confidential settlement, from third parties pending resolution of the Company's ultimate liability with respect to the site and rate recognition of that liability. The Company is unable to predict at this time the magnitude of any liability resulting from potential claims for the costs to investigate and remediate the site, or the likely disposition or magnitude of claims the Company may have against others, including its insurers, except to the extent described above. Through rate cases filed in 1991, 1993, 1994 and 1995, the Company has sought and received recovery for ongoing expenses associated with the Pine Street Marsh site. Specifically, the Company proposed rate recognition of its unrecovered expenditures incurred between January 1, 1991 and June 30, 1995 (in the total of approximately $8.7 million) for technical consultants and legal assistance in connection with the EPA's enforcement action at the site and insurance litigation. While reserving the right to argue in the future about the appropriateness of rate recovery for Pine Street Marsh related costs, the Company and the Department reached agreements in these cases that the full amount of Pine Street Marsh costs reflected in those rate cases should be recovered in rates. The Company's rates approved by the VPSB in those proceedings reflected the Pine Street Marsh related expenditures referred to above. Management expects to seek and (assuming recovery consistent with the previous regulatory treatment set forth above) receive ratemaking treatment for unreimbursed costs incurred beyond the amounts for which ratemaking treatment has been received. An authoritative accounting standard, Statement of Position (SOP) 96-1, has been issued by the accounting profession addressing environmental remediation obligations. This SOP is effective for years beginning in 1997, and addresses, among other things, regulatory benchmarks that are likely triggers of the accrual of estimated losses, the costs included in the measurement, including incremental costs of remediation efforts such as post- remediation monitoring and long-term operation and maintenance costs and costs of compensation and related benefits of employees devoting time to the remediation. After reviewing the Company's current accounting policies and ratemaking treatment, management does not believe that this SOP will have a material adverse effect on the Company's financial position or results of operations upon adoption. 3. Operating Leases. The Company has an operating lease for its corporate headquarters building and two of its service center buildings, including related real estate. This lease has a base term of 25 years, ending June 30, 2009, with renewal options aggregating another 25 years. The annual lease charges will total $983,000 for each of the years 1997 through 2008 and $574,000 for 2009. The Company has options to purchase the buildings at fair market value at the end of the base term and at the end of each renewal period. 4. Jointly-Owned Facilities. The Company had joint-ownership interests in electric generating and transmission facilities at December 31, 1996, as follows: Ownership Share of Utility Accumulated Interest Capacity Plant Depreciation --------- -------- ------- ------------ (In %) (In MW) (In thousands) Highgate . . . . . . . . . . 33.8 67.6 $ 9,734 $3,056 McNeil . . . . . . . . . . . 11.0 5.9 $ 8,633 $3,323 Stony Brook (No. 1) . . . . . 8.8 31.0 $10,039 $5,919 Wyman (No. 4) . . . . . . . . 1.1 6.8 $ 2,384 $1,309 Metallic Neutral Return (1) . 59.4 --- $ 1,563 $ 368 (1) Neutral conductor for NEPOOL/Hydro-Quebec Interconnection The Company's share of expenses for these facilities is reflected in the Consolidated Statements of Income. Each participant in these facilities must provide for its own financing. 5. Rate Matters. 1994 Retail Rate Case - On September 26, 1994, the Company filed a request with the VPSB to increase retail rates by 13.9 percent. The increase was needed primarily to cover the rising cost of existing power sources, the cost of new power sources that the Company secured to replace power supply that will be lost in the near future, and the cost of energy efficiency programs that the Company implemented for its customers. The Company, the Department and the other parties in the proceeding reached a settlement agreement providing for a 9.25 percent retail rate increase effective June 15, 1995, and a target return on equity for utility operations of 11.25 percent. In the event that the target return on equity is exceeded, the Company would accelerate the amortization of certain demand side management expenditures in the next year for which rate recovery otherwise would have been sought. The agreement was approved by the VPSB on June 9, 1995. 1995 Retail Rate Case - In September 1995, the Company filed a 12.7 percent retail rate increase to cover higher power supply costs, to support additional investment in plant and equipment, to fund expenses associated with the Pine Street Marsh site, and to cover higher costs of capital. Early in 1996, the Company settled this rate case with the Department and other parties, enabling the Company to conduct its business and achieve satisfactory financial results without the drain on human resources and the additional costs that rate litigation imposes. The settlement became possible when the Company negotiated a new arrangement with Hydro-Quebec that will reduce the Company's net power-supply costs below the amounts anticipated in the rate increase request. The settlement provided: projected additional annual revenues of $7.6 million; an overall increase in retail rates of 5.25 percent effective June 1, 1996; target return on equity for utility operations of 11.25 percent (with a continuation of the amortization of any amount in excess of the target rate of return in the following year, as described above); and recovery of $1.3 million of costs associated with the Pine Street site, amortized over five years. The VPSB approved the settlement in an order dated May 23, 1996. In 1996, the rate of return on utility operations was 11.8% and in 1995 was 11.3%. An accounting order received from the VPSB on December 31, 1996 continues the limitation on return on equity from utility operations through December 31, 1997. 6. Other Legal Matters. The Company is involved in legal and administrative proceedings in the normal course of business and does not believe that the ultimate outcome of these proceedings will have a material effect on the financial position or the results of operations of the Company. J. OBLIGATIONS UNDER TRANSMISSION INTERCONNECTION SUPPORT AGREEMENT Agreements executed in 1985 among the Company, VELCO and other NEPOOL members and Hydro-Quebec provided for the construction of the second phase (Phase II) of the interconnection between the New England electric systems and that of Hydro-Quebec. Phase II expands the Phase I facilities from 690 megawatts to 2,000 megawatts and provides for transmission of Hydro-Quebec power from the Phase I terminal in northern New Hampshire to Sandy Pond, Massachusetts. Construction of Phase II commenced in 1988 and was completed in late 1990. The Company is entitled to 3.2 percent of the Phase II power- supply benefits. Total construction costs for Phase II were approximately $487 million. The New England participants, including the Company, have contracted to pay monthly their proportionate share of the total cost of constructing, owning and operating the Phase II facilities, including capital costs. As a supporting participant, the Company must make support payments under thirty-year agreements. These support agreements meet the capital lease accounting requirements under SFAS 13. At December 31, 1996, the present value of the Company's obligation is $9.0 million. Projected future minimum payments under the Phase II support agreements are as follows: Year ending December 31, 1997 . . . . . . . . . . . $ 474,013 1998 . . . . . . . . . . . 474,013 1999 . . . . . . . . . . . 474,013 2000 . . . . . . . . . . . 474,013 2001 . . . . . . . . . . . 474,013 Total for 2002-2020 . . . 6,636,181 ---------- $9,006,246 ========== The Phase II portion of the project is owned by New England Hydro- Transmission Electric Company and New England Hydro-Transmission Corporation, subsidiaries of New England Electric System, in which certain of the Phase II participating utilities, including the Company, own equity interests. The Company holds approximately 3.2 percent of the equity of the corporations owning the Phase II facilities. K. LONG-TERM POWER PURCHASES 1. Unit Purchases. Under long-term contracts with various electric utilities in the region, the Company is purchasing certain percentages of the electrical output of production plants constructed and financed by those utilities. Such contracts obligate the Company to pay certain minimum annual amounts representing the Company's proportionate share of fixed costs, including debt service requirements (amounts necessary to retire the principal of and to pay the interest on the portion of the related long-term debt ascribed to the Company) whether or not the production plants are operating. The cost of power obtained under such long-term contracts, including payments required to be made when a production plant is not operating, is reflected as "Power Supply Expenses" in the accompanying Consolidated Statements of Income. Information (including estimates for the Company's portion of certain minimum costs and ascribed long-term debt) with regard to significant purchased power contracts of this type in effect during 1996 follows: Stony Vermont Merrimack Brook Yankee --------- ----- ------- (Dollars in thousands) Plant capacity . . . . . . . . . . . 320.0 MW 352.0 MW 531.0 MW Company's share of output . . . . . 9.5% 4.0% 17.3% Contract period . . . . . . . . . . 1968-1998 (1) (2) Company's annual share of: Interest . . . . . . . . . . . . . $ 650 $ 232 $ 1,829 Other debt service . . . . . . . . 365 307 --- Other capacity . . . . . . . . . . 1,953 319 26,697 ------ ------ ------- Total annual capacity . . . . . . . $2,968 $ 858 $28,526 ====== ====== ======= Company's share of long-term debt . $ 907 $4,538 $13,845 ====== ====== ======= (1) Life of plant estimated to be 1981 - 2006. (2) License for plant operations expires in 2012. 2. Hydro-Quebec System Power Purchases. Under various contracts, the details of which are described in the table below, the Company purchases capacity and associated energy produced by the Hydro-Quebec system. Such contracts obligate the Company to pay certain fixed capacity costs whether or not energy purchases above a minimum level set forth in the contracts are made. Such minimum energy purchases must be made whether or not other, less expensive energy sources might be available. These contracts are intended to complement the other components in the Company's power supply to achieve the most economic power-supply mix reasonably available. The Company's current purchases pursuant to the contract with Hydro- Quebec entered into December 4, 1987 (the 1987 Contract) are as follows: (1) Schedule B -- 68 megawatts of firm capacity and associated energy to be delivered at the Highgate interconnection for twenty years beginning in September 1995; and (2) Schedule C3 -- 46 megawatts of firm capacity and associated energy to be delivered at interconnections to be determined at any time for 20 years, which began in November 1995. During 1994, the Company negotiated an arrangement with Hydro-Quebec that reduces the cost impacts associated with the purchase of Schedules B and C3 under the 1987 Contract, over the November 1995 through October 1999 period (the July 1994 Agreement). Under the July 1994 Agreement, the Company, in essence, will take delivery of the amounts of energy as specified in the 1987 Contract, but the associated fixed costs will be significantly reduced from those specified in the 1987 Contract. As part of the July 1994 Agreement, the Company is obligated to purchase $3 million (in 1994 dollars) worth of research and development work from Hydro-Quebec over the four-year period, and made a $7.5 million (in 1994 dollars) cash payment to Hydro-Quebec in 1995. The Company has exercised an option to purchase $1 million worth of additional research and development work and the $7.5 million cash payment was reduced accordingly. Hydro-Quebec retains the right to curtail annual energy deliveries by 10 percent up to five times, over the 2000 to 2015 period, if documented drought conditions exist in Quebec. During the first year of the July 1994 Agreement (the period from November 1995 through October 1996), the average cost per kilowatt-hour of Schedules B and C3 combined was cut from 6.4 to 4.2 cents per kilowatt-hour, a 34 percent (or $16 million) cost reduction. Over the four-year period covered by the arrangement, combined unit costs will be lowered from 6.4 to 5.3 cents per kilowatt-hour, reducing unit costs by 17 percent and saving $34.1 million in nominal terms. All of the Company's contracts with Hydro-Quebec call for the delivery of system power and are not related to any particular facilities in the Hydro- Quebec system. Consequently, there are no identifiable debt-service charges associated with any particular Hydro-Quebec facility that can be distinguished from the overall charges paid under the contracts. A Summary of the Hydro-Quebec contracts, including the July 1994 Agreement, but excluding the January and November 1996 agreements (described below) including historic and projected charges for the years indicated, follows: The 1987 Contract Schedule B Schedule C3 ---------- ----------- (Dollars in thousands) Capacity Acquired . . . . 68 MW 46 MW Contract Period . . . . . 1995-2015 1995-2015 Minimum Energy Purchase (annual load factor) . . 75% 75% Annual Energy Charge . . $10,584 $7,190 (1996) (1996) $15,100 $10,416 (1997-2015)* (1997-2015)* Annual Capacity Charge . $9,637 $1,712 (1996) (1996) $17,124 $10,892 (1997-2015)* (1997-2015)* Average Cost per KWH . . 4.7 cents 3.0 cents (1996) ** (1996)** 7.0 cents 6.4 cents (1997-2015)*** (1997-2015)*** * Estimated average. ** Excludes amortization of payments to Hydro-Quebec for the July 1994 Agreement. ***Estimated average in nominal dollars, levelized over the period indicated. Includes amortization of payments to Hydro-Quebec for the July 1994 Agreement. Under an agreement negotiated in January 1996 (the January 1996 Agreement), Hydro-Quebec provided a cash payment to the Company of $3.0 million in 1996 and will provide a cash payment of $1.1 million in 1997. In return, the Company has agreed, under certain circumstances, to shift up to 40 megawatts of the Schedule C3 deliveries from the NEPOOL/Hydro-Quebec interconnection facilities to an alternate transmission path, using the freed- up transmission path for an incremental purchase. The Company will purchase an annual minimum quantity of energy for the Company's use or resale for the period of September 1996 through June 2001. The purchase price will vary based upon conditions in effect when the purchases are made, or on the resale conditions at the time. Should the Company not satisfy its obligation to purchase the quantity of energy in any calendar year, it must pay a cancellation fee or rollover its residual purchase obligation into the succeeding calendar year period. Although the level of benefits to the Company will depend on various factors, the Company estimates that the January 1996 Agreement will provide a minimum benefit of $1.8 million on a net present value basis. During 1996, the Company purchased or sold to others, 87.8% of the minimum purchase obligation for that year. The remainder of the requirement has been rolled over into the 1997 calendar year energy purchase obligation. Under a Memorandum of Understanding negotiated in November 1996, Hydro- Quebec will provide cash payments of $8.0 million to the Company in 1997. In return for this payment, the Company is providing Hydro-Quebec with the choice of selecting one of two alternatives, described below: Alternative A: For the period commencing November 1, 1997 and effective through the remaining term of the 1987 Contract, which expires in 2015, Hydro- Quebec can exercise an option to purchase up to 105,000 MWh on an annual basis, at energy prices established in accordance with the 1987 Contract, for an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Contract. The cumulative amount of energy purchased over the remaining term of the 1987 Contract shall not exceed 1,900,000 MWh. Hydro- Quebec may not exercise its annual rights to purchase power in the amounts specified under the November 1996 Agreement during those years in which Hydro- Quebec exercises its rights to curtail energy deliveries in accordance with the July 1994 Agreement. Alternative B: For the period commencing November 1, 1997 and effective through the remaining term of the 1987 Contract, Hydro-Quebec can exercise an option to purchase up to 52,500 MWh on an annual basis, at energy prices established in accordance with the 1987 Contract, for an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Contract. The cumulative amount of energy purchased over the remaining term of the 1987 Contract shall not exceed 950,000 MWh. Unlike Alternative A, Hydro-Quebec's option to curtail energy deliveries pursuant to the July 1994 Agreement can be exercised in addition to the purchase option under Alternative B. Finally, for the period commencing January 1, 1998 and effective though the remaining term of the 1987 Contract under Alternative B, Hydro-Quebec can exercise an option on an annual basis to purchase up to 600,000 MWh at the 1987 Contract energy price. Hydro-Quebec can purchase no more than 200,000 MWh in any given year. Consistent with allowed ratemaking treatment, the $8.0 million payment will be recognized in income in the third and fourth quarters of 1997. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Green Mountain Power Corporation: We have audited the accompanying consolidated balance sheets and capitalization data of Green Mountain Power Corporation (a Vermont corporation) as of December 31, 1996 and 1995, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Mountain Power Corporation as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts January 31, 1997
Schedule II GREEN MOUNTAIN POWER CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1996, 1995 and 1994 Additions Balance at ------------------------------- Balance at Beginning of Charged to Charged to End of Description Period Cost & Expenses Other Accounts Deductions Period - ----------------------------------- ------------- -------------- -------------- ------------- ------------- Pine Street Marsh (1) 1996................................. $0 $ -- $ -- $ -- $0 1995................................. $0 $ -- $ -- $ -- $0 1994................................. $684,430 $ -- $ -- $684,430 $0 Injuries and Damages 1996................................. $103,301 $572,000 $ -- $437,409 $237,892 1995................................. $513,720 $38,000 $ -- $448,419 $103,301 1994................................. $105,660 $35,000 $394,430 $21,370 $513,720 Bad Debt Reserve (3) 1996................................. $417,684 $677,272 $72,344 (2) $669,276 $498,024 1995................................. $402,923 $371,564 $48,696 (2) $405,499 $417,684 1994................................. $639,853 $243,974 $53,076 (2) $533,980 $402,923 (1) See Note I-1 of the Notes to Consolidated Financial Statements. (2) Represents collection of accounts previously written off. (3) Includes non-utility bad debt reserve.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10, 11, 12 & 13 Certain information regarding executive officers called for by Item 10, "Directors and Executive Officers of the Registrant," is furnished under the caption, "Executive Officers" in Item 1 of Part I of this Report. The other information called for by Item 10, as well as that called for by Items 11, 12, and 13, "Executive Compensation," "Security Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions," will be set forth under the captions "Election of Directors," "Board Compensation, Other Relationship, Meetings and Committees," "Section 16(a) Beneficial Ownership Reporting Compliance," "Executive Compensation," "Compensation Committee Report on Executive Compensation," "Performance Graphs," "Pension Plan Information" and "Securities Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement relating to its annual meeting of stockholders to be held on May 15, 1997. Such information is incorporated herein by reference. Such proxy statement pertains to the election of directors and other matters. Definitive proxy materials will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in April 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Filed Herewith On Page Item 14(a)(1). The financial statements and financial 37 statement schedules of the Company are listed on the Index to financial statements set forth in Item 8 hereof.
ITEM 14(a)(3). EXHIBITS Incorporated by Reference from Exhibit SEC Docker or Number Exhibit Page Filed Herewith - ------- ---------------------------------------------- ------- ------------------- 3-a Restated Articles of Association, as certified 3-a Form 10-K 1993 June 6, 1991. (1-8291) 3-a-1 Amendment to 3-a above, dated as of May 20, 1993. 3-a-1 Form 10-K 1993 (1-8291) 3-a-2 Amendment to 3-a above, dated as of October 11, 1996. 3-a-2 Form 10-Q Sept. 1996 (1-8291) *3-b By-laws of the Company, as amended February 10, 1997. 4-b-1 Indenture of First Mortgage and Deed of Trust 4-b 2-27300 dated as of February 1, 1955. 4-b-2 First Supplemental Indenture dated as of 4-b-2 2-75293 April 1, 1961. 4-b-3 Second Supplemental Indenture dated as of 4-b-3 2-75293 January 1, 1966. 4-b-4 Third Supplemental Indenture dated as of 4-b-4 2-75293 July 1, 1968. 4-b-5 Fourth Supplemental Indenture dated as of 4-b-5 2-75293 October 1, 1969. 4-b-6 Fifth Supplemental Indenture dated as of 4-b-6 2-75293 December 1, 1973. 4-b-7 Seventh Supplemental Indenture dated as 4-a-7 2-99643 August 1, 1976. 4-b-8 Eighth Supplemental Indenture dated as of 4-a-8 2-99643 December 1, 1979. 4-b-9 Ninth Supplemental Indenture dated as of 4-b-9 2-99643 July 15, 1985. 4-b-10 Tenth Supplemental Indenture dated as of 4-b-10 Form 10-K 1989 June 15, 1989. (1-8291) 4-b-11 Eleventh Supplemental Indenture dated as of 4-b-11 Form 10-Q Sept September 1, 1990. 1990 (1-8291) 4-b-12 Twelfth Supplemental Indentrue dated as of 4-b-12 Form 10-K 1991 March 1, 1992. (1-8291) 4-b-13 Thirteenth Supplemental Indenture dated as of 4-b-13 Form 10-K 1991 March 1, 1992. (1-8291) 4-b-14 Fourteenth Supplemental Indenture dated as of 4-b-14 Form 10-K 1993 November 1, 1993. (1-8291) 4-b-15 Fifteenth Supplemental Indenture dated as of 4-b-15 Form 10-K 1993 November 1, 1993. (1-8291) 4-b-16 Sixteenth Supplemental Indenture dated as of 4-b-16 Form 10-K 1995 December 1, 1995. (1-8291) 4-b-17 Revised form of Indenture as filed as an Exhibit 4-a-17 Form 10-Q Sept. 1995 to Registration Statement No. 33-59383. (1-8291) 10-a Form of Insurance Policy issued by Pacific 10-a 33-8146 Insurance Company, with respect to indemnification of Directors and Officers. 10-b-1 Firm Power Contract dated September 16, 1958, 13-b 2-27300 between the Company and the State of Vermont and supplements thereto dated September 19, 1958; November 15, 1958; October 1, 1960 and February 1, 1964. 10-b-2 Power Contract, dated February 1, 1968, between 13-d 2-34346 the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Amendment, dated June 1, 1972, to Power Contract 13-f-1 2-49697 between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Amendment, dated April 15, 1983, to Power 10-b-3(a) 33-8164 (a) Contract between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Additional Power Contract, dated 10-b-3(b) 33-8164 (b) February 1, 1984,between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-4 Capital Funds Agreement, dated February 1, 13-e 2-34346 1968, between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-5 Amendment, dated March 12, 1968, to Capital 13-f 2-34346 Funds Agreement between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-6 Guarantee Agreement, dated November 5, 1981, 10-b-6 2-75293 of the Company for its proportionate share of the obligations of Vermont Yankee Nuclear Power Corporation under a $40 million loan arrangement. 10-b-7 Three-Party Power Agreement among the Company, 13-i 2-49697 VELCO and Central Vermont Public Service Corporation dated November 21, 1969. 10-b-8 Amendment to Exhibit 10-b-7, dated June 1, 1981. 10-b-8 2-75293 10-b-9 Three-Party Transmission Agreement among the 13-j 2-49697 Company, VELCO and Central Vermont Public Service Corporation, dated November 21, 1969. 10-b-10 Amendment to Exhibit 10-b-9, dated June 1, 1981. 10-b-10 2-75293 10-b-12 Unit Purchase Contract dated February 10, 1968, 13-h 2-34346 between the Company and Vermont Electric Power Company, Inc., for purchase of "Merrimack" power from Public Service Company of New Hampshire. 10-b-14 Agreement with Central Maine Power Company et 5.16 2-52900 al, to enter into joint ownership of Wyman plant, dated November 1, 1974. 10-b-15 New England Power Pool Agreement as amended to 4.8 2-55385 November 1, 1975. 10-b-16 Bulk Power Transmission Contract between the 13-v 2-49697 Company and VELCO dated June 1, 1968. 10-b-17 Amendment to Exhibit 10-b-16, dated June 1, 1970. 13-v-i 2-49697 10-b-20 Power Sales Agreement, dated August 2, 1976, as 10-b-20 33-8164 amended October 1, 1977, and related Transmission Agreement, with the Massachusetts Municipal Wholesale Electric Company. 10-b-21 Agreement dated October 1, 1977, for Joint 10-b-21 33-8164 Ownership, Construction and Operation of the MMWEC Phase I Intermediate Units, dated October 1, 1977. 10-b-28 Contract dated February 1, 1980, providing for 10-b-28 33-8164 the sale of firm power and energy by the Power Authority of the State of New York to the Vermont Public Service Board. 10-b-30 Bulk Power Purchase Contract dated April 7, 10-b-32 2-75293 1976, between VELCO and the Company. 10-b-33 Agreement amending New England Power Pool 10-b-33 33-8164 Agreement dated as of December 1, 1981, providing for use of transmission inter- connection between New England and Hydro-Quebec. 10-b-34 Phase I Transmission Line Support Agreement 10-b-34 33-8164 dated as of December 1, 1981, and Amendment No. 1 dated as of June 1, 1982, between VETCO and participating New England utilities for construction, use and support of Vermont facilities of transmission interconnection between New England and Hydro-Quebec. 10-b-35 Phase I Terminal Facility Support Agreement 10-b-35 33-8164 dated as of December 1, 1981, and Amendment No. 1 dated as of June 1, 1982, between New England Electric Transmission Corporation and participating New England utilities for construction, use and support of New Hampshire facilities of transmission interconnection between New England and Hydro-Quebec. 10-b-36 Agreement with respect to use of Quebec 10-b-36 33-8164 Interconnection dated as of December 1, 1981, among participating New England utilities for use of transmission interconnection between New England and Hydro-Quebec. 10-b-39 Vermont Participation Agreement for Quebec 10-b-39 33-8164 Interconnection dated as of July 15, 1982, between VELCO and participating Vermont utilities for allocation of VELCO's rights and obligations as a participating New England utility in the transmission inter- connection between New England and Hydro-Quebec. 10-b-40 Vermont Electric Transmission Company, Inc. 10-b-40 33-8164 Capital Funds Agreement dated as of July 15, 1982, between VETCO and VELCO for VELCO to provide capital to VETCO for construction of the Vermont facilities of the transmission inter-connection between New England and Hydro-Quebec. 10-b-41 VETCO Capital Funds Support Agreement dated as 10-b-41 33-8164 of July 15, 1982, between VELCO and partici- pating Vermont utilities for allocation of VELCO's obligation to VETCO under the Capital Funds Agreement. 10-b-42 Energy Banking Agreement dated March 21, 1983, 10-b-42 33-8164 among Hydro-Quebec, VELCO, NEET and parti- cipating New England utilities acting by and through the NEPOOL Management Committee for terms of energy banking between participating New England utilities and Hydro-Quebec. 10-b-43 Interconnection Agreement dated March 21, 1983, 10-b-43 33-8164 between Hydro-Quebec and participating New England utilities acting by and through the NEPOOL Management Committee for terms and conditions of energy transmission between New England and Hydro-Quebec. 10-b-44 Energy Contract dated March 21, 1983, between 10-b-44 33-8164 Hydro-Quebec and participating New England utilities acting by and through the NEPOOL Management Committee for purchase of surplus energy from Hydro-Quebec. 10-b-45 Firm-Power Agreement dated as of October 5, 1982, 10-b-45 33-8164 between Ontario Hydro and Vermont Department of Public Service. 10-b-46 Sales Agreement, dated January 20, 1983, between 10-b-46 33-8164 Central Maine Power Company and the Company for excess power. 10-b-48 Sales Agreement, dated February 1, 1983, 10-b-48 33-8164 between Niagara Mohawk and Vermont Electric Power Company for purchase of energy. 10-b-50 Agreement for Joint Ownership, Construction and 10-b-50 33-8164 Operation of the Highgate Transmission Interconnection, dated August 1, 1984, between certain electric distribution companies, including the Company. 10-b-51 Highgate Operating and Management Agreement, 10-b-51 33-8164 dated as of August 1, 1984, among VELCO and Vermont electric-utility companies, including the Company. 10-b-52 Allocation Contract for Hydro-Quebec Firm Power 10-b-52 33-8164 dated July 25, 1984, between the State of Vermont and various Vermont electric utilities, including the Company. 10-b-53 Highgate Transmission Agreement dated as of 10-b-53 33-8164 August 1, 1984, between the Owners of the Project and various Vermont electric distribution companies. 10-b-54 Lease and Sublease Agreement dated June 1, 1984, 10-b-54 33-8164 between Burlington Associates and the Company. 10-b-55 Ground Lease Agreement dated June 1, 1984, 10-b-55 33-8164 between GMP Real Estate Corporation and Burlington Associates. 10-b-56 Assignment of Lease and Agreement, dated June 1, 10-b-56 33-8164 1984, from Burlington Associates to Teachers Insurance and Annuity Association of America. 10-b-57 Mortgage dated June 1, 1984, from GMP Real Estate 10-b-57 33-8164 Corporation, Mortgagor, to Teachers Insurance and Annuity Association of America, Mortgagee. 10-b-58 Lease and Operating Agreement dated June 28,1985, 10-b-58 33-8164 between the State of Vermont and the Company. 10-b-59 Service Contract dated June 28, 1985, between the 10-b-59 33-8164 State of Vermont and the Company. 10-b-61 Agreements entered in connection with Phase II 10-b-61 33-8164 of the NEPOOL/Hydro-Quebec + 450 KV HVDC Transmission Interconnection. 10-b-62 Agreement between UNITIL Power Corp. and the 10-b-62 33-8164 Company to sell 23 MW capacity and energy from Stony Brook Intermediate Combined Cycle Unit. 10-b-63 Sales Agreement dated as of June 20, 1986, 10-b-63 33-8164 between the Company and UNITIL Power Corp. for sale of system power. 10-b-64 Sales Agreement dated as of June 20, 1986, 10-b-64 33-8164 between the Company and Fitchburg Gas and Electric Light Company for sale of 10 MW capacity and energy from the Vermont Yankee plant. 10-b-65 Sales Agreement dated September 18, 1985, 10-b-65 Form 10-K 1991 between the Company and Fitchburg Gas and (1-8291) Electric Light Company for the sale of system power. 10-b-66 Sales Agreement dated January 1, 1987, between 10-b-66 Form 10-K 1991 the Company and Bozrah Light and Power (1-8291) Company for sale of power. 10-b-67 Sales Agreement dated August 31, 1987, amending 10-b-67 Form 10-K 1992 the agreement dated June 20, 1986, between (1-8291) the Company and UNITIL Power Corp. for sale of system power. 10-b-68 Firm Power and Energy Contract dated December 4, 10-b-68 Form 10-K 1992 1987, between Hydro-Quebec and participating (1-8291) Vermont utilities, including the Company, for the purchase of firm power for up to thirty years. 10-b-69 Firm Power Agreement dated as of October 26, 1987, 10-b-69 Form 10-K 1992 between Ontario Hydro and Vermont Department of (1-8291) Public Service. 10-b-70 Firm Power and Energy Contract dated as of 10-b-70 Form 10-K 1992 February 23, 1987, between the Vermont Joint (1-8291) Owners of the Highgate facilities and Hydro- Quebec for up to 50 MW of capacity. 10-b-70 Amendment to 10-b-70. 10-b-70(a) Form 10-K 1992 (a) (1-8291) 10-b-71 Interconnection Agreement dated as of 10-b-71 Form 10-K 1992 February 23, 1987, between the Vermont Joint (1-8291) Owners of the Highgate facilities and Hydro-Quebec. 10-b-72 Participation Agreement dated as of April 1, 1988, 10-b-72 Form 10-Q between Hydro-Quebec and participating Vermont June 1988 utilities, including the Company, implementing (1-8291) the purchase of firm power for up to 30 years under the Firm Power and Energy Contract dated December 4, 1987 (previously filed with the Company's Annual Report on Form 10-K for 1987, Exhibit Number 10-b-68). 10-b-72 Restatement of the Participation Agreement filed 10-b-72(a) Form 10-K 1988 (a) as Exhibit 10-b-72 on Form 10-Q for June 1988. (1-8291) 10-b-73 Agreement dated as of May 1, 1988, between 10-b-73 Form 10-Q Rochester Gas and Electric Corporation and the Sept. 1988 Company,implementing the Company's purchase of up (1-8291) to 50 MW of electric capacity and associated energy. 10-b-74 Agreement dated as of November 1, 1988, between 10-b-74 Form 10-Q for the Company and Fitchburg Gas and Electric Light Sept. 1988 Company,for sale of electric capacity and (1-8291) associated energy. 10-b-74 Amendment to Exhibit 10-b-74. 10-b-74(a) Form 10-Q (a) Sept 1989 (1-8291) 10-b-75 Allocation Agreement dated as of March 25, 1988, 10-b-75 Form 10-Q between Ontario Hydro and the State of Vermont, Sept. 1988 for firm power and associated energy from (1-8291) Ontario Hydro. 10-b-77 Firm Power and Energy Contract dated December 29, 10-b-77 Form 10-K 1988 1988, between Hydro-Quebec and participating (1-8291) Vermont utilities, including the Company, for the purchase of up to 54 MW of firm power and energy. 10-b-78 Transmission Agreement dated December 23, 1988, 10-b-78 Form 10-K 1988 between the Company and Niagara Mohawk Power (1-8291) Corporation (Niagara Mohawk), for Niagara Mohawk to provide electric transmission to the Company from RochesterGas and Electric and Central Hudson Gas and Electric. 10-b-79 Lease Agreement dated November 1, 1988, between 10-b-79 Form 10-K 1988 the Company and International Business Machines (1-8291) Corporation (IBM) for the lease to IBM of the gas turbines and associated facilities located on land adjacent to IBM's Essex Junction, Vermont, plant. 10-b-80 Sales Agreement dated January 1, 1989, between 10-b-80 Form 10-K 1988 the Company and Public Service of New Hampshire (1-8291) (PSNH)for PSNH to purchase electric capacity from the Company. 10-b-81 Sales Agreement dated May 24, 1989, between 10-b-81 Form 10-Q the Town of Hardwick, Hardwick Electric Department June 1989 and the Company for the Company to purchase (1-8291) all of the output of Hardwick's generation and transmission sources and to provide Hardwick with all-requirements energy and capacity except for that provided by the Vermont Department of Public Service or Federal Preference Power. 10-b-82 Sales Agreement dated July 14, 1989, between 10-b-82 Form 10-Q Northfield Electric Department and the Company June 1989 for the Company to purchase all of the output (1-8291) of Northfield's generation and transmission sources and to provide Northfield with all- requirements energy and capacity except for that provided by the Vermont Department of Public Service or Federal Preference Power. 10-b-83 Power Purchase and Operating Agreement dated as 10-b-83 Form 10-Q of April 20, 1990, between CoGen Lime Rock, June 1990 Inc., and the Company for the production of (1-8291) energy to meet customer needs. 10-b-84 Capacity, Transmission and Energy Service 10-b-84 Form 10-K 1992 Agreement dated December 23, 1992, between (1-8291) the Company and Connecticut Light and Power Company (CL&P) for CL&P to supply power to Bozrah Light and Power Company. Management contracts or compensatory plans or arrangements required to be filed as exhibits to this form 10-K pursuant to Item 14(c). 10-c Contract dated as of October 15, 1983, between 10-c 33-8164 the Company and Thomas V. O'Connor, Jr. 10-c-1 Amendment dated as of March 31, 1988, to an 10-c-1 Form 10-Q agreement between the Company and March 1988 Thomas V. O'Connor, Jr (1-8291) 10-d-1b Green Mountain Power Corporation Second Amended 10-d-1b Form 10-K 1993 and Restated Deferred Compensation Plan for (1-8291) Directors. 10-d-1c Green Mountain Power Corporation Second Amended 10-d-1c Form 10-K 1993 and Restated Deferred Compensation Plan for (1-8291) Officers. 10-d-1d Amendment No. 93-1 to the Amended and Restated 10-d-1d Form 10-K 1993 Deferred Compensation Plan for Officers. (1-8291) 10-d-1e Amendment No. 94-1 to the Amended and Restated 10-d-1e Form 10-Q Deferred Compensation Plan for Officers. June 1994 (1-8291) 10-d-2 Green Mountain Power Corporation Medical Expense 10-d-2 Form 10-K 1991 Reimbursement Plan. (1-8291) 10-d-3 Green Mountain Power Corporation Management 10-d-3 Form 10-K 1991 Incentive Plan. (1-8291) 10-d-4 Green Mountain Power Corporation Officer 10-d-4 Form 10-K 1991 Insurance Plan. (1-8291) 10-d-4a Green Mountain Power Corporation Officers' 10-d-4a Form 10-K 1990 Insurance Plan as amended. (1-8291) 10-d-5a Severance Agreements with D. G. Hyde, E. M. Norse, 10-d-5a Form 10-K 1990 C. L. Dutton, S. C. Terry and T.C. Boucher. (1-8291) 10-d-6 Severance Agreements with W. S. Oakes, 10-d-6 Form 10-K 1988 and J. H. Winer. (1-8291) 10-d-6a Restatement of 10-d-6 above. 10-d-6a Form 10-K 1990 (1-8291) 10-d-7 Severance Agreement with K. K. O'Neill. 10-d-7 Form 10-K 1990 (1-8291) 10-d-8 Green Mountain Power Corporation Officers' 10-d-8 Form 10-K 1990 Supplemental Retirement Plan. (1-8291) 10-d-9 Severance Agreement with C. T. Myotte. 10-d-9 Form 10-Q June 1991 (1-8291) 10-d-10 Severance Agreement with J. J. Lampron. 10-d-10 Form 10-K 1991 (1-8291) 10-d-13 Severance Agreement with M. H. Lipson. 10-d-13 Form 10-K 1994 (1-8291) 10-d-14 Severance Agreement with D. G. Whitmore. 10-d-14 Form 10-K 1994 (1-8291) 10-d-15a Green Mountain Power Corporation Compensation Program 10-d-15a Form 10-Q for Officers and Key Management Personnel as amended Sept. 1995 August 8, 1995 (1-8291) 10-d-16 Severance Agreement with R. C. Young 10-d-16 Form 10-Q March 1995 (1-8291) 10-d-17 Severance Agreement with P. H. Zamore 10-d-17 Form 10-Q March 1995 (1-8291) *10-d-18 Severance Agreement with R. B. Hieber 10-d-18 *10-d-19 Severance Agreement with R. J. Griffin 10-d-19 *10-d-20 Severance Agreement with K. W. Hartley 10-d-20 *21 Subsidiaries of the Registrant *23-a-1 Consent of Arthur Andersen LLP *24 Power of Attorney *27 Financial Data Schedule ____________________ * Filed herewith ITEM 14(b) A report on Form 8-K was filed on December 11, 1996 setting forth the computation of the Company's ratio of earnings to fixed charges and preferred stock dividends. 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. GREEN MOUNTAIN POWER CORPORATION By: /s/ Douglas G. Hyde Douglas G. Hyde, President and Chief Executive Officer Date: March 28, 1997 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. SIGNATURE TITLE DATE /s/ Douglas G. Hyde President and Director March 28, 1997 Douglas G. Hyde (Principal Executive Officer) /s/ Christopher L. Dutton Vice President, Treasurer and March 28, 1997 Christopher L. Dutton Chief Financial Officer (Principal Financial Officer) /s/ Robert J. Griffin Controller March 28, 1997 Robert J. Griffin (Principal Accounting Officer) *Thomas P. Salmon Chairman of the Board *Robert E. Boardman ) *Nordahl L. Brue ) *William H. Bruett ) *Merrill O. Burns ) *Lorraine E. Chickering ) *John V. Cleary ) Directors *Richard I. Fricke ) *Euclid A. Irving ) *Martin L. Johnson ) *Ruth W. Page ) *By: /s/ Christopher L. Dutton_ March 28, 1997 Christopher L. Dutton (Attorney - in - Fact) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Green Mountain Power Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Green Mountain Power Corporation included in this Form 10-K and have issued our report thereon dated January 31, 1997. 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 on page 37 of this Form 10-K 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 consolidated 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 financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Boston, Massachusetts January 31, 1997 /s/ Arthur Andersen LLP
EX-1 2 Exhibit 3-b BYLAWS OF GREEN MOUNTAIN POWER CORPORATION (As Amended Through February 10, 1997) ARTICLE I Stockholders Section 1. Annual Meeting. The annual meeting of the stockholders shall be held at such place within the State of Vermont as is designated in the notice of the meeting, on the third Thursday in May in each year, if it be not a legal holiday, and if it be a legal holiday, on the next succeeding day not a legal holiday; provided, however, that a majority of the board of directors, acting at a regular or special meeting of such board, may specially determine an alternative time for the holding of any annual meeting. (Amended December 4, 1975 and August 31, 1982.) Section 2. Special Meetings. Special meetings of the stockholders may be called, to be held at such place within or without the State of Vermont as is designated in the notice of the meeting, by the chairman of the board of directors, the chief executive officer, the president or a majority of directors, and, subject to the provisions of law and of the articles of association, as amended, shall be called by the secretary, or in case of the death, absence, incapacity or refusal of the secretary, by any other officers of the Corporation, upon writ-ten application of stockholders who are entitled to vote and who hold at least thirty-three percent of all the shares at the time issued and outstanding and entitled to vote at the meeting, stating the time, place and purpose of the meeting. (Amended May 13, 1981, and September 8, 1988.) Section 3. Notice of Meeting. A written or printed notice of each meeting of stockholders, stating the place, day and hour thereof and, in case of a special meeting, the purpose for which the meeting is called, shall be given by the secretary, at least 10 days and not more than 60 days before such meeting, to each stockholder entitled to vote thereat, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid and addressed to such stockholder at his address as it appears upon the books of the Corporation. In the absence or disability of the secretary, such notice may be given by a person designated either by the secretary or by the person or persons calling the meeting or by the board of directors. No notice of the time, place or purpose of any regular or special meeting of the stockholders shall be required if every stockholder entitled to notice thereof is present in person or is represented at the meeting by proxy or if every such stockholder, or his attorney thereunto authorized by a writing which is filed with the records of the meeting, waives such notice. Notwithstanding the above, if the purpose for such a special meeting of stockholders requested by written application of stockholders under Section 2 of Article I of these bylaws relates to or involves in any way a merger or consolidation of the corporation or a sale, lease, exchange, pledge or other disposition of all, or substantially all, the property and assets of the Corporation not made in the usual and regular course of business, such notice must be given at least 30 days and not more than 60 days before such special meeting. (Amended September 8, 1988 and March 7, 1994.) Section 4. Quorum. At any meeting of the stockholders, a majority of interest of all stock issued and outstanding and entitled to vote upon a question to be considered at the meeting shall constitute a quorum for the consideration of such question, but a less interest may adjourn any meeting from time to time, and the meetings may be held as adjourned without further notice. When a quorum is present at any meeting, a majority of the stock represented thereat and entitled to vote shall, except where a larger vote is required by law, by the articles of association, or by these bylaws, decide any question brought before such meeting. Section 5. Proxies and Voting. Stockholders who are entitled to vote shall have one vote for each share of stock owned by them. Stockholders may vote either in person or by proxy in writing dated not more than 11 months before the meeting named therein, which shall be filed with the secretary of the meeting before being voted. Such proxies shall entitle the holders thereof to vote at any adjournment of such meeting, but shall not be valid after the final adjournment of such meeting. ARTICLE II Directors Section 1. Powers. The board of directors shall have, and may exercise all the powers of the Corporation, except such as are conferred upon the stockholders by law, by the articles of association, and by these bylaws. Section 2. Election. The board of directors shall consist of eleven members and shall be elected at the annual meeting of the stockholders or at a special meeting held in place thereof. Subject to law, to the articles of association and to the other provisions of these bylaws, each director shall hold office until his or her term of office expires and until his or her successor shall have been elected and qualified. The directors shall be divided, with respect to the terms for which they severally hold office, into three classes, hereby designated as Class I, Class II and Class III. Each class shall have at least three directors and the three classes shall be as nearly equal in number as possible. The initial terms of office of the Class I, Class II and Class III directors, elected at the 1995 annual meeting of shareholders, shall expire at the next succeeding annual meeting of shareholders the second succeeding annual meeting of shareholders and the third succeeding annual meeting of shareholders, respectively. At each annual meeting of shareholders after 1995, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders to be held in the third year following the year of their election. No director may be removed from office prior to the expiration of his or her term of office except for cause. For purposes of this Section, the term "cause" means a willful and continued failure to perform the duties of a director (other than failure resulting from incapacity due to physical or mental illness) or conduct which is demonstrably and materially injurious to the corporation, monetarily or otherwise. Such removal from office can be effected only upon the affirmative vote of three quarters of the remaining membership of the board of directors. The board of directors shall elect from its members a chairman of the board of directors who will serve as such for one year or during the balance of his or her term as a director, whichever is less, and until a successor is elected and qualified. (Amended May 18, 1995, and February 10, 1997.) Section 3. Duties of the Chairman. The chairman of the board of directors shall, when present, preside at all meetings of the stockholders and at all meetings of the board of directors. He shall perform such other duties as may be from time to time delegated to him by the board of directors. (Amended May 13, 1981.) Section 4. Regular Meetings. Regular meetings of the board of directors may be held at such places and at such times as the board may by vote from time to time determine, and if so determined, no notice thereof need be given. A regular meeting of the board of directors may be held without notice immediately after, and at the same place as the annual meeting of the stock-holders, or the special meeting of the stockholders held in place of such annual meeting. Section 5. Special Meetings. Special meetings of the board of directors may be held at any time and at any place when called by the chairman of the board of directors, chief executive officer, president, treasurer, or two or more directors, reasonable notice thereof being given to each director, or at any time without call or formal notice, provided all the directors are present or waive notice thereof by a writing which is filed with the records of the meeting. In any case it shall be deemed sufficient notice to a director to give him personal notice or to send notice by mail or telegram at least forty-eight hours before the meeting addressed to him at his usual or last known business or residence address. Section 6. Quorum and Participation. (a) A majority of the board of directors shall constitute a quorum for the transaction of business, but a less number may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority of the members in attendance thereat shall decide any question brought before such meeting. (b) Members of the board of directors and any 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 for all purposes. (Amended September 21, 1973, and May 13, 1981.) ARTICLE III Executive and Other Committees Section 1. Executive Committee. The board of directors may, by vote of a majority of their entire number, elect from their own number an executive committee of not less than three members, which committee may be vested with the management of the current and ordinary business of the Corporation, including the declaration of dividends, the fixing and altering of the powers and duties of the several officers and agents of the Corporation, the election of additional officers and agents, and the filling of vacancies other than on the board of directors, and with power to authorize purchases, sales, contracts, offers, conveyances, transfers and negotiable instruments except as otherwise provided by law. A majority of the members of the executive committee shall constitute a quorum for the transaction of business, but a lesser number may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. The executive committee may make rules not inconsistent herewith for the holding and conduct of its meetings. The chief executive officer shall at all times be ex officio a member of the executive committee. The executive committee shall elect from its members a chairman of the executive committee who shall preside at meetings of the executive committee, when present, and, in his or her absence, the chief executive officer of the Corporation shall preside. The chairman shall also perform such other duties as may be from time to time delegated to him or her by the executive committee, and will serve as such for one year or during the balance of his or her term as a member of the executive committee, whichever is less, and until a successor is elected and qualified. In the absence of a quorum at any meeting of the executive committee, its chairman or, in his or her absence, the chief executive officer, may designate a director of the Corporation who is not a member of the executive committee temporarily as a member of the executive committee to act as such during such meeting. Any action taken by the executive committee will require the unanimous vote of all members of the executive committee present and voting at any meeting. (Amended March 20, 1974; June 13, 1974; June 12, 1975; February 28, 1980; May 13, 1981, and March 1, 1985.) The executive committee shall report its action to the board of directors. The board of directors shall have the power to rescind any vote or resolution of the executive committee, but no such rescission shall have retroactive effect. Section 2. Other Committees. The board of directors may, by majority vote at any meeting, create any other commit-tees and delegate to such committees any powers, duties and responsibilities as may be consistent with the laws of the State of Vermont and the articles of association of the Corporation. The resolutions creating such committees or electing its members may provide for a chairman of the committee or such selection may be left to the committee itself. The compensation, if any, to be paid members of the committees for committee services shall be established by the board of directors or its executive committee. (Amended August 17, 1976.) ARTICLE IV Officers and Agents Section 1. Election and Appointment. The officers shall be a chief executive officer, a president, a secretary, a treasurer, and such other officers and agents as the board of directors and executive committee may elect. The chief execu- tive officer, president, treasurer and secretary shall be elected annually by the board of directors after its election by the stockholders and will hold office for one year and until their successors are elected and qualified. Any two or more offices may be filled by the same person except the offices of president and secretary. The other officers and agents shall hold office during the pleasure of the board of directors or for such terms as the board of directors or executive committee shall prescribe. Each officer shall, subject to these bylaws, have in addition to the duties and powers herein set forth such duties and powers as are commonly incident to his office, and such duties and powers as the board of directors or executive committee shall from time to time designate. (Amended March 20, 1974, and May 13, 1981.) Section 2. (Repealed March 20, 1974.) Section 3. (Repealed March 20, 1974.) Section 4. Chief Executive Officer, President and Vice Presidents. The chief executive officer shall have all powers and perform all duties incidental to such office and, in the absence of the chairman of the board of directors, he shall preside at all meetings of the stockholders and the board of directors, and in the absence of the chairman of the executive committee, at all meetings of the executive committee. The president shall be the chief administrative officer of the Corporation and shall have all powers and perform all duties incidental thereto. He shall have custody of any treasurer's bond. Any vice president shall have such powers as the board of directors or executive committee shall from time to time designate. (Amended March 20, 1974; February 28, 1980, and May 13, 1981.) Section 5. Secretary. The secretary shall record all votes and proceedings of the stockholders and of the directors or any executive committee thereof and shall have custody of the corporate seal and of the corporate records and keep such records at the principal office of the Corporation. He shall keep a record book containing the names of the stockholders, their addresses and the number of shares held by each, the time when they respectively acquired the shares and the time of any transfer thereof unless a majority of the stockholders approves a transfer agent to keep such record book, rather than the secretary. He shall procure and file in his own office certified copies of all documents required to be filed with the secretary of state, except the annual report of the company. In the absence of the secretary at any meeting, a temporary secretary shall be chosen to record the proceedings of such meeting. (Amended May 13, 1976.) Any assistant secretary will have such powers as the board of directors or executive committee shall from time to time designate, except those powers set forth in Sec. 1894 of Title II of the Vermont Statutes Annotated. Section 6. Treasurer. The treasurer shall, subject to the direction and under the supervision of the board of directors and executive committee, have general charge of the financial concerns of the Corporation and the care and custody of the funds and valuable papers of the Corporation, except his own bond, and he shall have power to endorse for deposit or collection all notes, checks, drafts, etc., payable to the Corporation or its order, and to accept drafts on behalf of the Corporation. He shall keep, or cause to be kept, accurate books of account, which shall be the property of the Corporation. If required by the board of directors, he shall give bond for the faithful performance of his duty in such form, in such sum, and with such sureties as the board of directors or executive committee shall require. Any assistant treasurer shall have such powers as the board of directors or executive committee shall from time to time designate. Section 7. Removals. The board of directors may remove from the executive committee any member thereof and remove from office any officer or agent of the Corporation whenever in its judgment the best interests of the Corporation will be served thereby. Section 8. Vacancies. If the office of any director or member of the executive committee or of any officer or agent, one or more, becomes vacant by reason of death, resignation, removal, disqualification or otherwise, the directors or the remaining directors, though less than a quorum, may choose by a majority vote of their entire number a successor or successors, who shall hold office for the unexpired term, subject to the provisions of the articles of association and Section 1 of this Article IV. The executive committee shall have like power to fill any such vacancy in any office to which the executive com- mittee has power to appoint, unless such vacancy shall have been filled by the board of directors. Any directorship to be filled by reason of an increase in the number of directors, however, shall be filled by election at an annual meeting or at a special meeting of the stockholders called for that purpose. Section 9. Indemnification. This corporation shall indemnify any person threatened with or made a party to any action, suit or proceeding, civil or criminal, by reason of the fact that he, his testator or intestate, is or was a director or officer of this corporation or of any corporation which he served as such at the request of this corporation, against judgments, fines or penalties, and the reasonable cost and expenses, including but not restricted to attorney's fees, actually and reasonably incurred by him in connection with the defense of such action, suit or proceeding or in connection with any appeal therein, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director or officer is liable for gross negligence or misconduct in the performance of duty to the Corporation; provided, however, that as to any matter disposed of by compromise by such person, pursuant to a consent decree or otherwise, no indemnification either for a compromise payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the Corporation after notice that it involves such indemnification: (a) by a disinterested majority of the directors then in office; or (b) by a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such person, his testator or intestate, as the case may be, appears not to be liable for gross negligence or misconduct in the performance of duty to the Corporation; or (c) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. Expenses reasonably incurred by any such person in connection with the defense or disposition of any such action, suit or other proceeding shall be paid from time to time by this corporation in advance of the final determination thereof upon receipt of a written undertaking from such person to repay the amounts so paid by the Corporation if it is ultimately deter-mined that indemnification for such expenses is not required under this section. The foregoing right to indemnity shall not be deemed exclusive of any other rights to which such director or officer may be entitled apart from the provisions of this paragraph. (Amended March 9, 1978, and March 2, 1983.) ARTICLE V Capital Stock Section 1. Certificates. Each stockholder shall be entitled to a certificate or certificates signed by the president and the treasurer or secretary and separately by the chief executive officer, if that position is not held by the president, and which shall certify the number and class of paid-up shares held by him in the Corporation. These signatures may be facsimiles if the certificate is countersigned by a transfer agent or registered with and signed by a registrar other than the Corporation or an employee thereof. Such certificate shall be in such form, consistent with the articles of association and Vermont law, as may be prescribed by the board of directors or the executive committee, duly numbered and sealed with the corporate seal of this corporation or a facsimile thereof. No certificate for any share of this corporation shall be issued until it is fully paid. The board of directors or the executive committee may appoint one or more transfer agents and/or registrars for its stock of any class or classes and may require stock certificates to be countersigned and/or registered by one or more of them. In case any officer or officers who shall have signed or whose facsimile signature shall have been used or printed on any certificate or certificates for shares shall cease to be such officer or officers of the Corporation before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates shall nevertheless be conclusively deemed to have been adopted by the Corporation by the use and delivery thereof and shall be as effective in all respects as though signed by a duly elected, qualified and authorized officer or officers and as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures had been used thereon had not ceased to be such officer or officers of this corporation. (Amended March 4, 1982.) Section 2. Transfer Books. The secretary or an assistant secretary appointed by the board of directors shall keep the stock and transfer books of the Corporation and a record of all certificates of stock issued and of all transfers of stock and a register of all the stockholders, their addresses, the number of shares held by each, the time when they acquired the shares and the time of any transfers thereof in books provided and approved by the board of directors or executive committee for that purpose, except that such books may be kept by a transfer agent rather than the secretary when such transfer agent is approved by the vote of a majority of the stockholders. The transfer books of the capital stock of the Corporation may be closed for such period from time to time in anticipation of stockholders' meetings or the declaration or payment of dividends, as the board of directors or executive committee may determine but such period shall not exceed 60 days, and, if the transfer books are closed for the purpose of determining stock- holders entitled to notice of or to vote at a meeting of stock- holders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books as provided in the preceding paragraph, the board of directors or the executive committee may fix in advance a date preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date fixed shall be entitled to such notice of and to vote at such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid, but such record date shall not in any case be more than 60 days and, in the case of a meeting of stockholders, shall not be less than 10 days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. (Amended March 7, 1994.) Section 3. Transfer of Shares. Subject to the restrictions, if any, imposed by the articles of association, title to a certificate of stock and to the shares represented thereby shall be transferred only by delivery of the certificate properly endorsed, or by delivery of the certificate accompanied by a written assignment of the same, or a written power of attorney to sell, assign, or transfer the same or the shares represented thereby, properly executed; but the person registered on the books of the Corporation as the owner of shares shall have the exclusive right to receive dividends thereon and to vote thereon as such owner, shall be held liable for such calls and assessments, if any, as may lawfully be made thereon, and except only as may be required by law, may in all respects be treated by the Corporation as the exclusive owner thereof. It shall be the duty of each stockholder to notify the Corporation of his post office address. Section 4. Loss of Certificates. In case of the alleged loss or destruction, or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such reasonable terms as the board of directors may prescribe. ARTICLE VI Seal The seal of the Corporation shall, subject to alteration by the board of directors or executive committee, consist of a flat-faced circular die with words Green Mountain Power Corporation: Corporate Seal 1893, cut or engraved thereon. ARTICLE VII Execution of Papers Except as the board of directors or executive committee may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Corporation, shall be signed by the chairman of the board, chief executive officer, president, a vice president or the treasurer, or such other officer or employee as designated in writing by the president. (Amended May 13, 1981, and May 15, 1986.) ARTICLE VIII Fiscal Year Except as from time to time otherwise provided by the board of directors, the fiscal year of the Corporation shall be the calendar year. ARTICLE IX Amendments These bylaws may be amended, altered or repealed by the board of directors or at any meeting of the stockholders, by the holders of a majority of all stock issued, outstanding and entitled to vote, provided notice of the proposed amendment, alteration or repeal is given in the notice of said meeting. EX-2 3 Exhibit 10-d-18 PERSONAL AND CONFIDENTIAL September 2, 1996 Mr. Richard B. Hieber Vice President - Electrical Operations and Engineering Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Rich: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corpora- tions, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1996; provided, however, that commencing on January 1, 1997 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least twenty-four (24) months beyond the month in which such change in control occurred. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities (a "25% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board or nomination for election by the Company's share- holders was approved by a vote of at least two- thirds (2/3) of the directors then still in of- fice who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the sharehold- ers of the Company approve a merger or consoli- dation of the Company with any other corpora- tion, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by re- maining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a change in control of the Company shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 25% Holder or to the 25% Holder's relationship to the Company, including, without limitation, the acquisition by the 25% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new "change in control of the Company" for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a change in control of the Company (as defined in this Agreement), you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such change in control of the Company, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company en- ters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential change in control of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(i), or (iii) the occur- rence of a change in control of the Company. 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your em- ployment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or other- wise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportu- nity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Vice President, Electrical Operations and Engineering of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time-to-time except for across-the- board salary reductions similarly affect- ing all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the change in control of the Company, or the closing thereof, or the Company's requiring you to be based any- where other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing sub- stitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, savings and thrift, group life insurance, medical, dental or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employ- ment which is not effected pursuant to a Notice of Termination satisfying the re- quirements of Subsection (iv) below (and if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termina- tion of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accor- dance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the ter- mination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except to the extent otherwise provided in paragraph (E) of Subsection 4(iii). 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under any other plan in effect during such period, until this Agreement is terminated pursuant to Section 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs, or under any other agreements between you and the Company providing for the payment of similar benefits. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company, or under any other agreements between you and the Company providing for the payment of similar benefits at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be ter- minated (a) by the Company other than for Cause, Retirement or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company, or under any other agreements between you and the Company providing for the payment of similar benefits at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code and based upon the advice of the tax counsel referred to in paragraph (C), below. (C) The Severance Payment shall be reduced by the amount of any other payment or the value of any benefit received or to be received by you in connection with a change in control of the Company or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, agreement or arrangement with the Company, any person whose actions result in a change of control, or any person affiliated with the Company or such person) unless (i) you shall have effectively waived your receipt or enjoyment of such payment or benefit prior to the date of payment of the Severance Payment, (ii) in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you, and who may rely, without independent examination, upon the report of an independent consultant (Compensation Consultant) engaged in the practice of preparing compensation studies and rendering advice concerning compensation issues, such other payment or benefit does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or (iii) in the opinion of such tax counsel who may rely upon any Compensation Consultant's report, the Severance Payment (in its full amount or as partially reduced under this paragraph (C), as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as a deduction by reason of section 280G of the Code. The value of any non-cash benefit or any deferred payment or benefit shall be determined by the Company's independent auditors in accor- dance with the principles of sections 280G(d)(3) and (4) of the Code. (D) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent at- tributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (E) below, or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (E) The payments provided for in paragraphs (B) and (D), above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in paragraph (C) above, cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (F) In the event that any payment or benefit received or to be received by you in con- nection with a change in control of the Company or the termination of your employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control or any person affiliated with the Company or such person) (collectively with the Severance Payments, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the Severance Payments shall be reduced until no portion of the Total Payments is not deductible, or the Severance Payments are reduced to zero. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which you shall have ef- fectively waived in writing prior to the date of payment of the Severance Payments shall be taken into account, (ii) no por- tion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. (G) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwith- standing the good faith of you and the Company in applying the terms of this Subsection 4(iii), the aggregate "parachute payments" paid to or for your benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by reason of section 280G of the Code, then you shall have an obligation to pay the Company upon demand an amount equal to the sum of (1) the excess of the aggregate "parachute payments" paid to or for your benefit over the aggregate "parachute payments" that could have been paid to or for your benefit without any portion of such "parachute payments" not being deductible by reason of section 280G of the Code; and (2) interest on the amount set forth in clause (1) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of your receipt of such excess until the date of such payment. (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a twenty-four (24) month period after such termination, the Company shall arrange to pro- vide you with group life, disability, medical and dental insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you during the twenty-four (24) month period following your termination, and any such benefits actually received by you shall be reported to the Company. If the benefits provided to you under this Subsection shall result in a decrease, pursuant to paragraph (E) of Subsection 4(iii), in the Severance Payments and such benefits are thereafter reduced pursuant to the immediately preceding sentence, the Company shall, at the time of such reduction, pay to you the lesser of (a) the amount of such decrease in the Severance Payments or (b) the maximum amount which can be paid to you without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, or any other agreements between you and the Company providing for payment of such benefits or similar benefits, the Company shall pay you in cash at the time and in the manner provided in paragraphs (E), (F) and (G) of Subsection 4(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, or any other agreements between you and the Company providing for the payment of similar benefits without regard to any amendment to the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, or any other agreements between you and the Company providing for the payment of similar benefits made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) twenty-four (24) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, or any other agreements between you and the Company providing for the payment of similar benefits. For the purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan and Supplemental Retirement Plan immediately prior to the change in control of the Company. (vi) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. (vii) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substan- tially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in ac- cordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provi- sion of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or repre- sentations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the valid- ity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: _________/s/__________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to as this 2nd day of September, 1996. ________/s/__________________ Richard B. Hieber Mr. Richard Hieber September 2, 1996 EX-3 4 Exhibit 10-d-19 PERSONAL AND CONFIDENTIAL October 14, 1996 Robert J. Griffin, Controller Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Bob: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1998 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least twenty-four (24) months beyond the month in which such change in control occurred. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities (a "25% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a change in control of the Company shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 25% Holder or to the 25% Holder's relationship to the Company, including, without limitation, the acquisition by the 25% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new "change in control of the Company" for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a change in control of the Company (as defined in this Agreement), you are the beneficial owner of two percent or more of the then outstanding equity securities of the Company, or its succes- sor in interest, a majority of the Continuing Directors may elect, within five business days after such change in control of the Company, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for pur- poses of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential change in con- trol of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accor- dance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Controller of Green Mountain Power Corporation or a substantial adverse alter- ation in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across the board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the change in control of the Company, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across the board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, savings and thrift, group life insurance, medical, dental or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full- time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except to the extent otherwise provided in paragraph (E) of Subsection 4(iii). 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under any other plan in effect during such period, until this Agreement is terminated pursuant to Section 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 1.00 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code and based upon the advice of the tax counsel referred to in paragraph (C), below. (C) The Severance Payment shall be reduced by the amount of any other payment or the value of any benefit received or to be received by you in connection with a change in control of the Company or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, agreement or arrangement with the Company, any person whose actions result in a change of control, or any person affiliated with the Company or such person) unless (i) you shall have effectively waived your receipt or enjoyment of such payment or benefit prior to the date of payment of the Severance Payment, (ii) in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you, and who may rely, without independent examination, upon the report of an independent consultant (Compensation Consultant) engaged in the practice of preparing compensation studies and rendering advice concerning compensation issues, such other payment or benefit does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or (iii) in the opinion of such tax counsel who may rely upon any Compensation Consultant's report, the Severance Payment (in its full amount or as partially reduced under this paragraph (C), as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as a deduction by reason of section 280G of the Code. The value of any noncash benefit or any deferred payment or benefit shall be determined by the Company's independent auditors in accor- dance with the principles of sections 280G(d)(3) and (4) of the Code. (D) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (E), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (E) The payments provided for in paragraphs (B) and (D), above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in paragraph (C) above, cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (F) In the event that any payment or benefit received or to be received by you in connection with a change in control of the Company or the termination of your employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control or any person affiliated with the Company or such person) (collectively with the Severance Payments, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the Severance Payments shall be reduced until no portion of the Total Payments is not deductible, or the Severance Payments are reduced to zero. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which you shall have effectively waived in writing prior to the date of payment of the Severance Payments shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. (G) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of you and the Company in applying the terms of this Subsection 4(iii), the aggregate "parachute payments" paid to or for your benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by reason of section 280G of the Code, then you shall have an obligation to pay the Company upon demand an amount equal to the sum of (1) the excess of the aggregate "parachute payments" paid to or for your benefit over the aggregate "parachute payments" that could have been paid to or for your benefit without any portion of such "parachute payments" not being deductible by reason of section 280G of the Code; and (2) interest on the amount set forth in clause (1) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of your receipt of such excess until the date of such payment. (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a twelve (12) month period after such termination, the Company shall arrange to provide you with group life, disability, medical and dental insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you during the twelve (12) month period following your termination, and any such benefits actually received by you shall be reported to the Company. If the benefits provided to you under this Subsection shall result in a decrease, pursuant to paragraph (E) of Subsection 4(iii), in the Severance Payments and such benefits are thereafter reduced pursuant to the immediately preceding sentence, the Company shall, at the time of such reduction, pay to you the lesser of (a) the amount of such decrease in the Severance Payments or (b) the maximum amount which can be paid to you without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraphs (E), (F) and (G) of Subsection 4(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) twelve (12) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the change in control of the Company. (vi) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. (vii) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly owned subsidiary, this Agreement shall apply to an executive of any wholly owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly owned subsidiary of the Company, or from any wholly owned subsidiary to the Company, or from one wholly owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days of your receipt of it (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: _____________/s/__________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this 18th day of October, 1996: __________/s/_____________________________ Robert J. Griffin Controller Green Mountain Power Corporation EX-4 5 Exhibit 10-d-20 PERSONAL AND CONFIDENTIAL October 14, 1996 Kevin W. Hartley, Managing Director of Marketing Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Kevin: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1998 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least twenty-four (24) months beyond the month in which such change in control occurred. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities (a "25% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a change in control of the Company shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 25% Holder or to the 25% Holder's relationship to the Company, including, without limitation, the acquisition by the 25% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new "change in control of the Company" for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a change in control of the Company (as defined in this Agreement), you are the beneficial owner of two percent or more of the then outstanding equity securities of the Company, or its succes- sor in interest, a majority of the Continuing Directors may elect, within five business days after such change in control of the Company, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for pur- poses of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential change in con- trol of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accor- dance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to sub- stantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Managing Director of Marketing of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across the board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the change in control of the Company, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across the board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, savings and thrift, group life insurance, medical, dental or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full- time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except to the extent otherwise provided in paragraph (E) of Subsection 4(iii). 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under any other plan in effect during such period, until this Agreement is terminated pursuant to Section 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 1.00 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code and based upon the advice of the tax counsel referred to in paragraph (C), below. (C) The Severance Payment shall be reduced by the amount of any other payment or the value of any benefit received or to be received by you in connection with a change in control of the Company or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, agreement or arrangement with the Company, any person whose actions result in a change of control, or any person affiliated with the Company or such person) unless (i) you shall have effectively waived your receipt or enjoyment of such payment or benefit prior to the date of payment of the Severance Payment, (ii) in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you, and who may rely, without independent examination, upon the report of an independent consultant (Compensation Consultant) engaged in the practice of preparing compensation studies and rendering advice concerning compensation issues, such other payment or benefit does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or (iii) in the opinion of such tax counsel who may rely upon any Compensation Consultant's report, the Severance Payment (in its full amount or as partially reduced under this paragraph (C), as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as a deduction by reason of section 280G of the Code. The value of any noncash benefit or any deferred payment or benefit shall be determined by the Company's independent auditors in accor- dance with the principles of sections 280G(d)(3) and (4) of the Code. (D) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (E), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (E) The payments provided for in paragraphs (B) and (D), above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in paragraph (C) above, cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (F) In the event that any payment or benefit received or to be received by you in connection with a change in control of the Company or the termination of your employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control or any person affiliated with the Company or such person) (collectively with the Severance Payments, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the Severance Payments shall be reduced until no portion of the Total Payments is not deductible, or the Severance Payments are reduced to zero. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which you shall have effectively waived in writing prior to the date of payment of the Severance Payments shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. (G) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of you and the Company in applying the terms of this Subsection 4(iii), the aggregate "parachute payments" paid to or for your benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by reason of section 280G of the Code, then you shall have an obligation to pay the Company upon demand an amount equal to the sum of (1) the excess of the aggregate "parachute payments" paid to or for your benefit over the aggregate "parachute payments" that could have been paid to or for your benefit without any portion of such "parachute payments" not being deductible by reason of section 280G of the Code; and (2) interest on the amount set forth in clause (1) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of your receipt of such excess until the date of such payment. (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a twelve (12) month period after such termination, the Company shall arrange to provide you with group life, disability, medical and dental insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you during the twelve (12) month period following your termination, and any such benefits actually received by you shall be reported to the Company. If the benefits provided to you under this Subsection shall result in a decrease, pursuant to paragraph (E) of Subsection 4(iii), in the Severance Payments and such benefits are thereafter reduced pursuant to the immediately preceding sentence, the Company shall, at the time of such reduction, pay to you the lesser of (a) the amount of such decrease in the Severance Payments or (b) the maximum amount which can be paid to you without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraphs (E), (F) and (G) of Subsection 4(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty five) which you would have accrued under the terms of the Company's Retirement Plan and Supplemental Retirement Plan without regard to any amendment to the Company's Retirement Plan and Supplemental Retirement Plan made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) twelve (12) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan and Supplemental Retirement Plan. For the purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan and Supplemental Retirement Plan immediately prior to the change in control of the Company. (vi) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. (vii) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly owned subsidiary, this Agreement shall apply to an executive of any wholly owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly owned subsidiary of the Company, or from any wholly owned subsidiary to the Company, or from one wholly owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days of your receipt of it (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: _________________/s/___________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this 18th day of October , 1996: ______________/s/_______________________ Kevin W. Hartley Managing Director of Marketing Green Mountain Power Corporation EX-5 6 Exhibit 21 GREEN MOUNTAIN POWER CORPORATION SUBSIDIARIES OF THE COMPANY The sole significant subsidiary of the Company as defined in Rule 1-02(w) of Regulation SX is Mountain Energy, Inc., a corporation formed under the laws od the State of Vermont. EX-6 7 EXHIBIT 23-a-1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 31, 1997 included in this Form 10-K into the Company's previously filed Registration Statements on Form S-3, File Nos. 33-58411 and 33-59383, and into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-58413 and 33-60511. Boston, Massachusetts March 25, 1997 /s/ Arthur Andersen LLP EX-7 8 Exhibit 24 POWER OF ATTORNEY We, the undersigned directors of Green Mountain Power Corporation, hereby severally constitute Douglas G. Hyde, Christopher L. Dutton and Peter H. Zamore, and each of them singly, our true and lawful attorney with full power of substitution, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K of Green Mountain Power Corporation for the fiscal year ended December 31, 1996, and generally to do all such things in our name and behalf in our capacities as directors to enable Green Mountain Power Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, all requirements of the Securities and Exchange Commission, and all requirements of any other applicable law or regulation, hereby ratifying and confirming our signatures as they may be signed by our said attorney, to said Annual Report. SIGNATURE TITLE DATE _/s/ Douglas G. Hyde ___ President and Director February 10, 1997 Douglas G. Hyde (Principal Executive Officer) _/s/ Thomas P. Salmon______ Thomas P. Salmon Chairman of the Board February 10, 1997 _/s/ Robert E. Boardman____ Robert E. Boardman Director February 10, 1997 _/s/ Nordahl L. Brue_______ Nordahl L. Brue Director February 10, 1997 _/s/ William H. Bruett_____ William H. Bruett Director February 10, 1997 ___________________________ Merrill O. Burns Director _/s/ Lorraine E. Chickering Lorraine E. Chickering Director February 10, 1997 _/s/ John V. Cleary________ John V. Cleary Director February 10, 1997 _/s/ Richard I. Fricke_____ Richard I. Fricke Director February 10, 1997 _/s/ Euclid A. Irving______ Euclid A. Irving Director February 10, 1997 _/s/ Martin L. Johnson_____ Martin L. Johnson Director February 10, 1997 _/s/ Ruth W. Page__________ Ruth W. Page Director February 10, 1997 EX-27 9
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of December 31, 1996 and the related Consolidated Statements of Income and Cash Flows for the twelve months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 189,853 20,634 30,901 43,224 39,927 324,539 16,790 67,848 26,916 111,554 6,560 12,750 94,900 1,016 0 0 3,034 0 9,006 0 85,719 324,539 179,009 6,463 156,419 162,882 16,127 3,230 19,357 7,398 11,959 1,010 10,949 10,445 6,872 26,367 2.22 2.22
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