-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, l8ALaxFK65O09Yl83gc+tzs4Gzb01vQg5rDzi7+zz/k9CX6UlBOJxi/4rhKyFCtB wMq9Jm7UPowOPIEwgLCbMQ== 0000061611-95-000022.txt : 19950814 0000061611-95-000022.hdr.sgml : 19950814 ACCESSION NUMBER: 0000061611-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAINE PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000061611 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 010113635 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03429 FILM NUMBER: 95561365 BUSINESS ADDRESS: STREET 1: 209 STATE ST CITY: PRESQUE ISLE STATE: ME ZIP: 04769 BUSINESS PHONE: 2077685811 MAIL ADDRESS: STREET 1: PO BOX 1209 CITY: PRESQUE ISLE STATE: ME ZIP: 04769-1209 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended June 30, 1995 Commission File Number 1-3429 MAINE PUBLIC SERVICE COMPANY (Exact name of registrant as specified in its charter) MAINE 01-0113635 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 209 State Street, Presque Isle, Maine 04769 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 207-768-5811 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___. (APPLICABLE ONLY TO CORPORATE ISSUERS:) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common Stock, $7.00 par value - 1,617,250 shares Form 10-Q PART 1. FINANCIAL INFORMATION Item 1. Financial Statements See the following exhibits - Maine Public Service Company and Subsidiary Condensed Consolidated Financial Statements, including an income statement for the quarter ended June 30, 1995 and for the corresponding period of the preceding year; a balance sheet as of June 30, 1995, and as of December 31, 1994, the end of the Company's preceding fiscal year; and a statement of cash flows for the period January 1 (beginning of the fiscal year) through June 30, 1995, and for the corresponding period of the preceding year. In the opinion of management, the accompanying unaudited condensed consolidated financial statements present fairly the financial position of the companies at June 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for the six months ended June 30, 1995. -2- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) (Dollars in Thousands Except Per Share Amounts) Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 Operating Revenues $12,471 $13,829 $28,027 $30,892 Operating Expenses Purchased Power 6,523 6,515 15,490 13,780 Other Operation and Maintenance 1,765 2,818 4,357 7,333 Depreciation and Amortization (Note 2) 1,070 1,054 2,140 2,108 Taxes Other Than Income 399 401 834 829 Provision for Income Taxes (Note 832 989 1,569 2,236 Total Operating Expenses 10,589 11,777 24,390 26,286 Operating Income 1,882 2,052 3,637 4,606 Other Income (Deductions) Equity in Income of Associated Cos. 88 90 176 180 Allowance for Equity Funds Used During Construction 2 1 2 3 Other Income Taxes (Note 3) (32) (22) (53) (37) Other - Net 5 33 0 (18) Total 63 102 125 128 Income Before Interest Charges 1,945 2,154 3,762 4,734 Interest Charges Long-Term Debt and Notes Payable 940 965 1,883 1,929 Less Allowance for Borrowed Funds Used During Construction (1) 0 (1) (1) Total 939 965 1,882 1,928 Net Income Available for Common Stock $1,006 $1,189 $1,880 $2,806 Average Shares Outstanding (000's) 1,617 1,617 1,617 1,620 Earnings Per Share of Common Stock $0.62 $0.74 $1.16 $1.73 Dividends Declared per Common Share $0.46 $0.46 $0.92 $0.92 The accompanying notes are an integral part of these financial statements. -3- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in Thousands) June 30, December 31, ASSETS 1995 1994 Utility Plant Electric Plant in Service $89,517 $89,625 Less Accumulated Depreciation 40,744 39,714 Net Electric Plant in Service 48,773 49,911 Construction Work-in-Progress 1,900 571 Total 50,673 50,482 Investment in Associated Companies Maine Yankee Atomic Power Company 3,479 3,391 Maine Electric Power Company, Inc. 65 65 Total 3,544 3,456 Net Utility Plant and Investments 54,217 53,938 Current Assets Cash and Temporary Investments 2,709 2,618 Deposits for Interest and Dividends 744 744 Accounts Receivable - Net 4,586 5,070 Unbilled Revenue 1,506 2,414 Deferred Fuel and Purchased Energy 2,713 535 Inventory 1,332 1,289 Prepayments 674 537 Total 14,264 13,207 Other Assets Recoverable Seabrook Costs 36,214 37,074 Regulatory Asset - SFAS 109 & 106 16,446 16,212 Other 3,886 1,986 Total 56,546 55,272 Total Assets $125,027 $122,417 CAPITALIZATION AND LIABILITIES Capitalization Common Shareholders' Equity Common Stock $13,071 $13,071 Paid-in Capital 38 38 Retained Earnings 40,245 39,853 Treasury Stock, at cost (5,714) (5,714) Total 47,640 47,248 Long-Term Debt (less current matur.) 37,370 37,435 Current Liabilities Long-Term Debt Due Within One Year 65 65 Accounts Payable 3,826 4,080 Deferred Income Taxes Related to fuel 1,082 214 Dividends Declared 744 744 Customer Deposits 61 74 Taxes Accrued 593 92 Interest Accrued 1,015 1,021 Total 7,386 6,290 Deferred Credits Deferred Income Tax 28,727 28,036 Investment Tax Credits 898 937 Provision for Rate Refund 81 0 Miscellaneous 2,925 2,471 Total 32,631 31,444 Total Capitalization and Liabilities $125,027 $122,417 The accompanying notes are an integral part of these financial statements. -4- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Dollars in Thousands) Six Months Ended June 30, 1995 1994 Cash Flow From Operating Activities Net Income $1,880 $2,806 Adjustments to Reconcile Net Income to Net Cash Provided by Operations Depreciation and Amortization 1,286 1,254 Amortization of Seabrook Costs 854 854 Deferred Income Taxes 1,497 (462) AFUDC (3) (4) Change in Deferred Regulatory and Debt Issuance Costs (1,775) 747 Change in Refundable/Deferred Revenues 81 (80) Change in Benefit Obligation 118 229 Change in Current Assets and Liabilities (739) 2,379 Other 9 66 Net Cash Flow from Operating Activities 3,208 7,789 Cash Flow From Financing Activities Dividend Payments (1,488) (1,488) Purchase of Common Stock 0 (1,143) Drawdown of Tax-Exempt Bonds Proceeds 0 1,111 Retirements on Long-Term Debt (65) (65) Non Utility Property & Other 0 (1) Net Cash Flow Used For Financing Activities (1,553) (1,586) Cash Flow Used For Investing Activities Withdrawal of (Investment in) Restricted Funds 0 170 Investment in Electric Plant (1,564) (1,661) Net Cash Used For Investment Activities (1,564) (1,491) Increase (Decrease) in Cash and Temporary Investments 91 4,712 Cash and Temporary Investments at BOY 2,618 1,392 Cash and Temporary Investments at EOY $2,709 $6,104 Change in Current Assets and Liabilities Providing Cash From Operating Activities Accounts Receivable $484 $1,528 Unbilled Revenue 908 963 Inventory (43) 161 Deferred Fuel and Purchased Energy (2,177) 217 Other Current Assets (137) (47) Accounts Payable & Accrued Expenses 240 (422) Other Current Liabilities (14) (21) Total Change ($739) $2,379 Supplemental Disclosure of Cash Flow Information: Cash Paid During the Year For: Interest $1,753 $1,797 Income Taxes $282 $3,216 The accompanying notes are an integral part of these financial statements. -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned Canadian subsidiary, Maine and New Brunswick Electrical Power Company, Limited (the Subsidiary). The Company is subject to the regulatory authority of the Maine Public Utilities Commission (MPUC) and, with respect to wholesale rates, the Federal Energy Regulatory Commission (FERC). The accompanying unaudited consolidated financial statements should be read in conjunction with the 1994 Annual Report, an integral part of Form 10-K. Certain financial statement disclosures have been condensed or omitted but are an integral part of the 1994 Form 10-K. The Company's significant accounting policies are described in the Notes to Consolidated Financial Statements of the Company's Annual Report filed with the Form 10-K. For interim reporting purposes, these same accounting policies are followed. 2. RECOVERY OF THE SEABROOK INVESTMENT The Company was an investor in the Seabrook Nuclear Power Project Units 1 and 2 (the "Project") with a 1.46056% ownership interest through November 25, 1986. On November 25, 1986, the Company's investment of approximately $92.1 million was sold for proceeds of $21.4 million. The Company's remaining investment in Seabrook Units 1 and 2, net of disallowed costs and sale proceeds, is classified as Recoverable Seabrook Costs. These costs are principally being amortized over thirty years. Recoverable Seabrook Costs at June 30, 1995 are as follows: (Dollars in Thousands) Recoverable Seabrook Costs Accumulated (Net) In Rates Amortization Unit 1 - Retail $ 26,698 $ 37,141 $ (10,443) - Wholesale 6,315 8,018 (1,703) - Total 33,013 45,159 (12,146) Unit 2 - Retail 3,160 5,995 (2,835) - Wholesale 41 2,033 (1,992) - Total 3,201 8,028 (4,827) TOTAL $ 36,214 $ 53,187 $ (16,973) 3. INCOME TAXES A summary of Federal and State income taxes charged (credited) to income is presented below. For accounting and ratemaking purposes, income tax provisions included in "Operating Expenses" reflect taxes applicable to revenues and expenses allowable for ratemaking purposes. The tax effect of items not included in rate base is allocated as "Other Income (Deductions)". (Dollars in Thousands) Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 Current income taxes $ (72) $ 862 $ 125 $ 2,735 Deferred income taxes 955 168 1,535 (424) Investment credits (19) (19) (38) (38) Total income taxes $ 864 $ 1,011 $ 1,622 $ 2,273 Allocated to: Operating income $ 832 $ 989 $ 1,569 $ 2,236 Other income 32 22 53 37 Total $ 864 $ 1,011 $ 1,622 $ 2,273 -6- In 1993, the Company adopted the provisions of SFAS 109. The Company reported the implementation of the standard as a change in accounting principle with no cumulative effect on prior earnings. The adoption of SFAS 109 increased deferred income taxes by $17.3 million and also resulted in the establishment of a net regulatory asset of $17.3 million. The following summarizes accumulated deferred income taxes established on temporary differences under SFAS 109 as of June 30, 1995 and December 31, 1994. (Dollars in Thousands) 1995 1994 Seabrook $20,066 $20,214 Property 9,098 8,985 Regulatory expenses 904 142 Investment tax credits (622) (622) Pension and postretirement benefits (268) (251) Other (451) (432) Net accumulated deferred income taxes $28,727 $28,036 4. POSTRETIREMENT HEALTH CARE BENEFITS In 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"(SFAS 106), which requires the accrual of postretirement benefits, such as health care benefits, during the years an employee provides service to the Company. The MPUC has adopted a rule which adopts SFAS 106 for ratemaking. The rule requires the Company to establish and make payments to an independent external trust fund for the purpose of funding future postretirement health care costs at such time as customers are paying for these costs in their rates. The MPUC has issued an accounting order that allows the Company to account for the implementation of SFAS 106 by deferring these expenses until the Company's next base rate proceeding. Based on this accounting order, the Company has established a regulatory asset of approximately $934,000, representing deferred postretirement benefits subject to future ratemaking. The Company provides certain health care benefits to eligible employees and retirees. All employees share in the cost of their medical benefits, approximately 12% per year. Effective with retirements after January 1, 1995, only retirees with at least twenty years of service will be eligible for these benefits. In addition, eligible retirees will contribute to the cost of their coverage starting at 60% for retirees with twenty years of service with the contribution phasing out over the next ten years of service so that retirees with thirty or more years of service do not contribute toward their coverage. -7- Item 2. Management's Analysis of Quarterly Income Form 10-Q Statements Results of Operations Earnings per share and related information for the second quarter and six months ended June 30, 1995 along with the corresponding information for the previous year are as follows: Second Quarter Six Months June 30, Ended June 30, 1995 1994 1995 1994 Earnings per share $ .62 $ .74 $1.16 $1.73 Net income available for Common Stock - in Thousands $1,006 $1,189 $1,880 $2,806 For the second quarter of 1995 compared to the same quarter last year, the decrease in consolidated earnings per share of $.12 is attributable to the following: Increase (Decrease) Decreased base revenues due to decreased power marketing sales $ (.11) Decrease in retail base revenues principally due to 5,397 MWH decrease in sales. (.10) Decrease in base revenues-sales for resale (.06) Decrease in Maine Yankee capacity expenses .17 Other (.02) Total $ (.12) -8- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) Consolidated operating revenues for the quarter ended June 30, 1995 and 1994, are as follows: 1995 1994 (Dollars in Thousands) $ MWH $ MWH Retail: Base 7,597 7,950 Fuel 2,959 2,745 Total 10,556 116,510 10,695 121,907 Sales for Resale: Base 862 1,071 Fuel 781 516 Total 1,643 28,028 1,587 26,507 Total Primary Sales 12,199 144,538 12,282 148,414 Secondary Sales 196 6,719 1,099 65,762 Other Revenues/Rev. Adjust. 76 448 Total Operating Revenues 12,471 151,257 13,829 214,176 Primary sales for the second quarter of 1995 of 144,538 MWH were 3,876 MWH (2.6%) less than sales for the same period in 1994. The closing of Loring Air Force Base (Loring) in September, 1994 represents 5,186 MWH of the total decrease of 5,397 (4.4%) MWH in retail sales. The Company began to experience the impact of the closing of Loring in mid-1994 when the aircraft and associated support personnel were relocated to other air force bases. The loss of the economic benefits of the air force base also contributed to a decrease in residential sales of 1,250 MWH (2.9%). Offsetting these decreases were a 1,039 MWH (3.4%) increase in sales to our large commercial and industrial customers and a 1,521 MWH (5.7%) increase in sales for resale. Retail base revenues for the second quarter of 1995 were $7,597,000 compared to $7,950,000 for the same period of 1994, reflecting the decrease in retail sales discussed in the previous paragraph. Although sales for resale for the quarter increased, as previously mentioned, base revenues decreased from $1,071,000 for the second quarter of 1994 to $862,000 for the second quarter of 1995. The Company has fixed rate contracts with its three customers served in the United States, representing 70% of these sales. Revenues collected -9- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) from these customers are first allocated to the recovery of fuel costs. With the extended outage of Maine Yankee which continued during the second quarter of 1995, fuel revenues collected in the quarter were $265,000 higher than last year, reflecting the collection of the additional replacement power costs. As previously reported by the Company in its 1994 Annual Report and Form 10-K, Houlton Water Company (Houlton), the Company's largest customer and a sales for resale customer, will not be served by the Company starting on January 1, 1996. For the second quarter of 1995, Houlton represented 10.7% of total MWH sales and 8.8% of total operating revenues. During the second quarter of 1994, secondary sales of the Company's Wyman Unit No. 4 and Maine Yankee entitlements for varying lengths of time were made at prevailing market rates. Since Maine Yankee was not available for the second quarter of 1995, secondary sales for the quarter were limited to Wyman No. 4 entitlements. For the second quarter ended June 30, 1995 and 1994, total operating expenses were $10,589,000 and $11,777,000, respectively. The changes in operating expenses and energy sources are as follows: Increase/(Decrease) (Dollars in Thousands) $ MWH Purchased Power Expenses Maine Yankee (899) (82,941) Wheelabrator-Sherman 228 565 NB Power 640 24,670 System Purchases 39 503 8 (57,203) Deferred Fuel ( 790) Generating Expenses 72 (8,635) Other Operation & Maint. Expenses (335) Depreciation and Amortization Expenses 16 Income Taxes (157) Taxes Other than Income (2) Total (1,188) (65,838) -10- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) Maine Yankee was out of service for the entire second quarter of 1995. After experiencing problems with its steam generators starting in early January of 1995, Maine Yankee started its scheduled refueling and maintenance outage. In late March, Maine Yankee reported an increased rate of degradation of the plant's steam generator tubes. After reviewing several options, Maine Yankee has chosen to sleeve all the steam generator tubes. While this sleeving is done, Maine Yankee has reduced normal operating expenses. Maine Yankee is expected to return to normal operations by late 1995. As discussed in the next section, "Maine Yankee", the Company is deferring these sleeving costs as an element of its five-year rate plan. Hydro generation decreased by 11,572 MWH due to abnormally low rain fall. These decreases were partially offset by a 3,237 MWH increase in production from Wyman Unit No. 4. Wyman is dispatched by the New England Power Exchange (NEPEX) and, therefore, is out of the operating control of the Company. Although Maine Yankee was out of service, the Company was able to limit additional purchases from NB Power to 24,670 MWH, compared to the second quarter of 1994. Deferred fuel expenses decreased by $790,000, since fuel costs, principally Maine Yankee replacement power costs, exceeded collected fuel revenues. The increase in generating expenses reflect increased fuel for generation of Wyman. The reduction in other operation and maintenance expenses reflects a decrease of $334,000 in transmission and distribution expenses. Maine Yankee Reference is made to the Company's Form 10-K dated March 29, 1995, Part I, "Subsidiaries and Affiliated Companies," in which the Company reported that Maine Yankee was experiencing degradation of its steam generator tubes in the form of circumferential cracking. During the refueling-and- maintenance shutdown that started in early February of 1995, Maine Yankee detected an increased rate of degradation of the Plant's steam generator tubes in excess of the number expected and started evaluating several courses of action. The Company owns 5% of the Common Stock of Maine Yankee. In 1994, Maine Yankee provided 43.3% of the Company's power requirements. -11- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) On May 22, 1995, the Maine Yankee Board of Directors approved a plan to repair these tubes using welded sleeves. Sleeving involves the inserting of a tube of slightly smaller diameter into the defective tube. The sleeve is welded in place and acts as a new tube. Sleeving is a proven technology and has been used at other nuclear facilities. In addition to the extensive technical analysis on the steam generators performed by the Maine Yankee technical staff, two independent studies on the overall condition of the plant were also undertaken. Both studies concluded that the overall mechanical condition of the plant was very good. The sleeving of the steam generator tubes is estimated to cost approximately $40 million, with the Company's share being $2 million. Maine Yankee projects that the plant will return to service by the end of 1995. While Maine Yankee is being repaired, the Company estimates that the additional costs for replacement power can be as high as approximately $500,000 to $600,000 per month. These replacement power costs have traditionally been subject to collection under the fuel adjustment clause. On May 1, 1995, the Company filed its five-year rate plan with the Maine Public Utilities Commission (MPUC). As an element of that rate plan, the Company proposes the elimination of the fuel adjustment clause except for the cost of power purchased from the Wheelabrator-Sherman Energy Company, an independent power producer. As proposed, the rate plan also defers the replacement power costs associated with this Maine Yankee extended outage. The rate plan also proposes a mechanism to handle similar unexpected Maine Yankee outages during the rate plan period. In addition, the rate plan proposes the amortization of the sleeving expenses over a five-year period. Caribou Units to be Inactivated Reference is made to the Company's Form 8-K dated July 13, 1995 in which the Company reported that, at a regular meeting on July 7, 1995, the Board of Directors authorized placing on inactive status Steam Units 1 and 2 of the Company's Caribou Generating Facility in Caribou, Maine. The Company will lay- up the Units by January 1, 1996 and expects that they will remain inactive for five years or longer. These two units, -12- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) which represent 23 MW of capacity, have become surplus to the Company's needs due to the closure of Loring Air Force Base and the loss in 1996 of the Company's largest customer, the Houlton Water Company. During the Units' inactive period, the plant equipment will be protected and maintained by the installation of a dehumidification system that will permit the plant to return to service in approximately six months. Placing Steam Units 1 and 2 on inactive status will save the Company approximately $3.5 million over the next five years. These savings result primarily from a savings in operation and maintenance expense. The Company will be eliminating 12 positions at the plant and has also announced a voluntary early retirement program that may avoid involuntary termination of some of the employees whose positions at the units have been eliminated. Steam Unit No. 1 went into operation in the early 1950s and Unit No. 2, in the mid 1950s. The Company still has a diesel generation station of approximately 7 MW and a hydro facility of approximately 1 MW and will continue to employ 11 employees at the Caribou facility. Financial Condition The accompanying Statements of Consolidated Cash Flows reflect the Company's liquidity and the net cash flows generated by or required for operating, financing and investing activities. For purposes of the Statements of Consolidated Cash Flows, the Company considers all highly liquid securities to be cash equivalents. Net cash flows from operating activities were $3,208,000 for the first six months of 1995. For the period, $1,564,000 was invested in electric plant, $1,488,000 was paid in dividends and $65,000 was used to reduce long-term debt. Although cash flows for 1995 have been impacted by the reduction in earnings and the previously mentioned replacement power purchases during the Maine Yankee outage, the Company's cash flows have been sufficient to cover its activities. For the six months ended June 30, 1994, net cash flows from operating activities were $7,789,000 and the remaining -13- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) $1,111,000 was withdrawn from its tax-exempt bond escrow account. For the first six months of 1994, the Company invested $1,661,000 in electric plant, paid $1,488,000 in dividends, reduced long term debt by $65,000 and purchased 43,000 shares of common stock for $1,143,000 as the Company resumed the stock repurchase program. On May 1, 1995, the Company filed a proposed increase in rates of approximately $5 million, and as an alternative, a five- year rate plan with the Maine Public Utilities Commission (MPUC). See "Legal Proceedings", paragraph (e) for a more complete description of the plan. If approved by the MPUC, the proposed rate plan will assist the Company in dealing with the economic uncertainties that lay ahead with the loss of Loring and Houlton. The Plan provides stable, predictable rates for our customers, economic development rates to encourage investment in our service territory, and competitive returns for our shareholders. -14- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings (a) Maine Public Service Company, Application for Fuel Cost Adjustment, MPUC Docket No. 95-001 On January 3, 1995, the Company submitted an application to the MPUC for an increase of approximately $1.4 million for the twelve month period ended March 31, 1996. This increase will result in a total increase in the Company's retail rates of 3% effective April 1, 1995. In order to limit the increase to 3%, the Company proposed to defer recovery of approximately $1.5 million in the cost of power purchased from the Wheelabrator-Sherman Energy Company. The deferred amount would be combined with the additional deferrals of these costs as proposed under the Company's rate plan (see item (c) below). On March 15, 1995, the Company and the MPUC Staff signed a Stipulation that embodied the Company's proposal. This Stipulation was approved by the MPUC on March 27, 1995. (b) Houlton Water Company's Application for Certificate of Public Convenience and Necessity for Purchase of Firm Requirements Service from Central Maine Power Company, MPUC Docket No. 94-476 Reference is made to the Company's Form 8-K of February 13, 1995, in which the Company reported that its largest wholesale customer, the Houlton Water Company (HWC), had executed a long-term power contract with Central Maine Power Company (CMP) for HWC's power requirements beginning January 1, 1996 and that HWC was therefore terminating its contract with the Company effective December 31, 1995. -15- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued On December 29, 1994, HWC filed with the MPUC for approval of the purchase from CMP. This proceeding was given the MPUC Docket No. 94-476. On January 12, 1995, the Company requested permission to intervene in this proceeding. This request was granted on February 1, 1995. The Company contended that the MPUC should not grant HWC's requested approval. The Company based its contention on CMP's intention to serve HWC's load from a facility that CMP acquired using State financing. The Company believed that State energy and regulatory policy should prohibit CMP from using a facility supported by State financing to the detriment of the retail customers of any other utility. On March 30, 1995, the MPUC issued its decision on the Company's argument. The MPUC concluded that the statutes granted it the authority to approve the contract between CMP and HWC did not confer upon the MPUC authority to consider the effects of that contract upon the Company and its customers. The MPUC also found that the statute granting CMP the right to use State funds to acquire the facility did not give the MPUC any authority to establish conditions concerning the operation of the facility. As a result, the MPUC declined to take into account, in considering its approval of the CMP-HWC contract, the effect of that contract upon the Company and its customers. (c) Maine Public Service Company Re: Proposed Increase in Retail Rates, MPUC Docket No. 95-052 On May 1, 1995, Maine Public Service Company filed with the Maine Public Utilities Commission a proposed increase in the rates it charges its retail customers. The Company at the same time filed a five-year rate plan which, if approved, will result in new rates beginning in January, 1996 as detailed below. The Company has taken a number of measures to delay this action as long as possible but is faced with a period of declining sales and escalating power costs. In 1996, when the proposed rates would begin, the Company anticipates a 10.5% reduction in sales to its primary customers, compared to 1994 sales, principally Loring Air Force Base and the Company's largest Wholesale Customer, -16- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued Houlton Water Company. In December of 1994, Houlton selected a competing offer from Central Maine Power Company to be served from its newly acquired subsidiary located in the Company's service territory (see item (b) above). The 5% contractual annual increase in the cost of power from the Wheelabrator-Sherman facility also must be collected from the Company's customers through future rate increases. Using traditional ratemaking principles, the Company's general rate case filing supports an increase in annual base revenues of approximately $5.0 million, or a 10.8% increase in total retail rates. However, as an alternate under such traditional principles, the Company also proposes a five-year rate plan, which covers the years 1996 to 2000. The rate plan provides the Company with the rate setting mechanism to meet growing competition in the electric utility industry while providing stable and predictable rates to customers without competitive options. This plan will also eliminate the need to file for annual rate increases and saves the expenses associated with such filings. The general elements of this plan are described below. Total average retail rates, including fuel, will increase from 1995 levels in accordance with the following schedule: 1996 4.5% - $2.2 million 1997 4.5% - $2.3 million 1998 3.5% - $1.9 million 1999 3.0% - $1.7 million 2000 3.0% - $1.7 million As part of the Plan, the Company proposes to eliminate the annual fuel adjustment clause except for the cost of power purchased from the Wheelabrator-Sherman Energy Company, an independent power producer. During the years 1996-2000, MPS will defer up to $3 million annually of its power costs from the Wheelabrator-Sherman facility. In addition, any uncollected fuel costs under the present fuel clause, designated as Wheelabrator-Sherman costs based on the Stipulation approved in the fuel clause proceeding, Docket 95-001 (see item (a) above), will also be deferred starting with the effective date of the rate plan. After the current contract with Wheelabrator- Sherman expires at the end of 2000, the Company will -17- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued begin to collect this deferral, along with carrying charges, when the price for comparable power is expected to be lower than under the existing contract. MPS also proposes to write-off and not collect in retail rates approximately $4.9 million, net of income taxes, of its remaining investment in the Seabrook project previously supported by its wholesale customers, principally Houlton Water Company. The Plan also includes a sharing mechanism based on the proposed allowed return on equity (ROE) at 12%. As part of an annual review process, the allowed ROE will be adjusted annually based on an index by averaging over a twelve-month calendar year the dividend yields on Moody's group of 24 electric utilities and Moody's utility bond yields. The plan proposes the following sharing: If earned ROE exceeds the target ROE by more than 200 basis points, 50% of the excess earnings will be retained by the shareholders and 50% will be used to reduce any Wheelabrator-Sherman deferral with any remaining excess to reduce rates on the next rate implementation date. If earned ROE exceeds the target ROE by less than 200 basis points, 50% of the excess earnings will be retained by the shareholders and 50% will be used to reduce any Wheelabrator-Sherman deferral with any remaining excess to be retained by the shareholders. If earned ROE is less than 200 basis points below the target ROE, shareholders will bear the loss. If earned ROE is more than 200 basis points below target ROE, shareholders will share 50% of the loss and 50% of the loss will be reflected in customer rates at the next rate implementation date. If earned ROE is more than 400 basis points below target ROE for three consecutive months using updated twelve month calculations, and if the annual review is more than two months away, the Company has the right to request a general rate increase. Until the general rate increase is approved, the Company will preserve its right to an -18- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued annual rate adjustment under the provisions of this plan. The plan also includes provisions for an unscheduled Maine Yankee outage. The rate plan will also provide the Company with flexible pricing provisions under which the Company can offer discounts to individual or to selected rate classes with only minimum review by the MPUC. These provisions will enhance its ability to compete with other suppliers of retail fuel. In addition, the Company will propose economic development rates for new commercial and industrial activities. An adjustment to any element of the plan could require adjustments to other elements of the plan. On July 31, 1995, the MPUC approved a Stipulation by the Company, the MPUC Staff and the Public Advocate that would permit the Company the ability to offer reduced prices to industrial customers or targeted customer classes. The Company is now preparing a reduced rate for residential space heat customers and special economic development rates for new industrial and commercial load. The Company anticipates that it will offer additional special rates in the future. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information Maine Yankee -19- FORM 10-Q Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none. (b) Reports on Form 8-K. A Form 8-K was filed on May 24, 1995, under Item 5, Other Material Events, and on July 13, 1995, under Item 5, Other Material Events. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAINE PUBLIC SERVICE COMPANY (Registrant) Date: August 11, 1995 Larry E. LaPlante Larry E. LaPlante, Vice President Finance and Treasurer -20- EX-27 2 FINANCIAL DATA SCHEDULE FOR THREE MONTHS ENDED JUNE 30, 1995
UT 1,000 6-MOS DEC-31-1995 JUN-30-1995 PER-BOOK 50673 3544 14264 56546 0 125027 7357 38 40245 47640 0 0 37370 0 0 0 65 0 0 0 39952 125027 28027 1569 22821 24390 3637 125 3762 1882 1880 0 1880 1488 1716 3208 1.162 1.162
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