-----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, CDvCRIVAz62gJ8OHDptFxM9OPzRg0Vfkh/NYOz5xlByfKGv3ehXs70YcgK9UulRe hnFKcX9XGtUYeKErl/n78A== 0000061611-96-000027.txt : 19961113 0000061611-96-000027.hdr.sgml : 19961113 ACCESSION NUMBER: 0000061611-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 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: 96658454 BUSINESS ADDRESS: STREET 1: 209 STATE ST CITY: PRESQUE ISLE STATE: ME ZIP: 04769-1209 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 September 30, 1996 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 a statement of consolidated operations for the three and nine months ended September 30, 1996 and for the corresponding period of the preceding year; a consolidated balance sheet as of September 30, 1996, and as of December 31, 1995, the end of the Company's preceding fiscal year; and a statement of consolidated cash flows for the period January 1 (beginning of the fiscal year) through September 30, 1996, 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 September 30, 1996 and December 31, 1995, and the results of their operations for the three and nine months ended September 30, 1996 and their cash flows for the nine months ended September 30, 1996. -2- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY STATEMENTS OF CONSOLIDATED OPERATIONS (Unaudited) (Dollars in Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Operating Revenues $12,584 $12,265 $43,168 $40,591 Operating Expenses Purchased Power 8,250 7,970 24,198 23,460 Other Operation and Mainten 3,198 944 9,572 5,600 Depreciation and Amortization 959 1,070 3 018 3,210 Taxes Other Than Income 386 363 1,247 1,197 Provision for Income Taxes (345) 502 1,319 2,071 Total Operating Expens 12,448 10,849 39,354 35,538 Operating Income 136 1,416 3,814 5,053 Other Income (Deductions) Equity in Income of Associated Cos. 81 91 263 267 Allowance for Equity Funds Used During Construction 1 1 6 3 Other Income Taxes (64) (14) (85) (67) Other - Net 67 33 56 33 Total 85 111 240 236 Income Before Interest Charges 221 1,527 4,054 5,289 Interest Charges Long-Term Debt and Notes Pa 877 938 2,652 2,821 Less Allowance for Borrowed Funds Used During Construction (1) 0 (3) (1) Total 876 938 2,649 2,820 Net Income (Loss) Available for Common Stock ($655) $589 $1,405 $2,469 Average Shares Outstanding (000's) 1,617 1,617 1,617 1,617 Earnings (Loss) Per Share of Common Stock ($0.40) $0.36 $0.87 $1.53 Dividends Declared per Common Stock $0.46 $0.46 $1.38 $1.38 The accompanying notes are an integral part of these financial statements. -3- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) September 30 December 31, ASSETS 1996 1995 (Unaudited) Utility Plant Electric Plant in Service $88,790 $88,648 Less Accumulated Depreciation 41,377 39,674 Net Electric Plant in Service 47,413 48,974 Construction Work-in-Progress 2 457 427 Total 49,870 49,401 Investment in Associated Companies Maine Yankee Atomic Power Company 3,583 3,576 Maine Electric Power Company, Inc. 65 65 Total 3,648 3,641 Net Utility Plant and Investments 53,518 53,042 Current Assets Cash and Temporary Investments 1,541 976 Deposits for Interest and Dividends 805 744 Accounts Receivable - Net 4,443 6,226 Unbilled Base Revenue 1,195 1,472 Deferred Fuel and Purchased Energy 125 125 Current Deferred Income Taxes 159 232 Inventory 1,255 1,244 Prepayments 1,320 543 Total 10,843 11,562 Other Assets Restricted Investment 4,818 0 Recoverable Seabrook Costs 28,078 29,146 Regulatory Asset - SFAS 109 & 106 13,660 13,746 Deferred Fuel and Purchased Energy 3,607 2,575 Other 3,535 4,003 Total 53,698 49,470 Total Assets $118,059 $114,074 CAPITALIZATION AND LIABILITIES Capitalization Common Shareholders' Equity Common Stock $13,071 $13,071 Paid-in Capital 38 38 Retained Earnings 30,735 31,562 Treasury Stock, at cost (5,714) (5,714) Total 38,130 38,957 Long-Term Debt (less current maturities) 39,805 36,120 Current Liabilities Long-Term Debt Due Within One Year 1,315 1,315 Notes Payable 3,000 1,400 Accounts Payable 4,140 5,231 Dividends Declared 744 744 Customer Deposits 66 79 Interest and Taxes Accrued 611 1,124 Total 9,876 9,893 Deferred Credits Deferred Income Tax 24,665 24,997 Investment Tax Credits 739 795 Deferred Revenues 556 354 Miscellaneous 4,288 2,958 Total 30,248 29,104 Total Capitalization and Liabilities $118,059 $114,074 The accompanying notes are an integral part of these financial statements. -4- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY Statements of Consolidated Cash Flows (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 1996 1995 Cash Flow From Operating Activities Net Income $1,405 $2,469 Adjustments to Reconcile Net Income to Net Cash Provided by Operations Depreciation and Amortization 1,955 1,929 Amortization of Seabrook Costs 1,064 1,281 Income on Tax Exempt Bonds-Restricted Funds (68) 0 Deferred Income Taxes (317) 2,453 AFUDC (9) (3) Change in Deferred Fuel & Purchased Energy (1,031) 0 Change in Deferred Regulatory and Debt Issuance Costs 850 (1,976) Change in Deferred Revenues 202 213 Change in Benefit Obligation 1,038 201 Change in Current Assets and Liabilities (346) (4,215) Other 457 (65) Net Cash Flow from Operating Activities 5,200 2,287 Cash Flow From Financing Activities Dividend Payments (2,232) (2,232) Tax Exempt Bond Issuance Costs (399) 0 Issuance of Tax-Exempt Bonds 15,000 0 Drawdown on Tax Exempt Bonds Proceeds 250 0 Retirements on Long-Term Debt (11,315) (65) Short-Term Borrowings, Net 1,600 1,000 Net Cash Flow Provided By(Used For)Financing Activities 2,904 (1,297) Cash Flow Used For Investing Activities Investment in Electric Plant (2,539) (2,721) Investment in Restricted Funds (5,000) 0 Net Cash Used For Investment Activities (7,539) (2,721) Increase (Decrease) in Cash and Temporary Investments 565 (1,731) Cash and Temporary Investments at Beginning of Year 976 2,618 Cash and Temporary Investments at End of Period $1,541 $887 Change in Current Assets and Liabilities Providing Cash From Operating Activities Accounts Receivable $1,782 $364 Unbilled Revenue 277 546 Inventory (11) 12 Deferred Fuel and Purchased Energy Costs 0 (4,225) Other Current Assets (777) (664) Accounts Payable & Accrued Expenses (1,604) (242) Other Current Liabilities (13) (6) Total Change ($346) ($4,215) Supplemental Disclosure of Cash Flow Information: Cash Paid During the Year For: Interest $3,219 $3,353 Income Taxes $2,371 $396 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 1995 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 1995 Form 10-K. These statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of results for interim periods presented. All such adjustments are of a normal recurring nature. 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. For purposes of the statements of consolidated cash flows,the Company considers all highly liquid securities to be cash equivalents. 2. IMPLEMENTATION OF MULTI-YEAR RATE PLAN As explained in the legal proceedings section of the Form 10-Q, item 1(b), the MPUC approved a four-year rate plan on November 13, 1995. The Company wrote off approximately $8,340,000, net of income taxes, in 1995. The write-offs consisted of $4,846,000, net of income taxes, of the Company's investment in the Seabrook nuclear power project previously allocated to the wholesale customers and $1,390,000, net of income taxes, of other wholesale plant and regulatory assets, classified as extraordinary items. In addition, $2,104,000, net of income taxes, of deferred retail fuel representing replacement power costs incurred during the 1995 Maine Yankee outage, were also charged to operations. Item 1(b) also details the significant accounting orders that became effective January 1, 1996 concerning the deferral of $902,000, net of income taxes, annually of Wheelabrator-Sherman purchases, the five year amortization of the Company's $1.3 million, net of income taxes, share of the Maine Yankee sleeving repair costs, the $638,000, net of income taxes, amortization over ten years of deferred post-retirement benefits other than pensions (SFAS 106). In addition, Item 1(b) discusses the five year amortization of the $139,000 deferral of pension expenses and $92,000 deferral of early retirement expenses, both net of income taxes, related to the lay-up of the Caribou Steam Units and the four year amortization of $300,000, net of tax, of deferred fuel from the December 31, 1995 balance. -6- The elimination of the fuel clause reconciliation with the associated fuel revenue accounting mechanism complicates quarter-to-quarter earnings comparisons for 1996 to 1995. The prior fuel revenue accounting mechanism smoothed the recognition of fuel expenses over the annual fuel reconciliation period. With higher winter rates for our commercial and industrial customers and the elimination of the fuel clause, earnings will be higher during the winter months than during the summer months when rates charged to those customers are approximately 25% lower. The recoverable Seabrook costs represent costs to be charged to retail customers, in accordance with previous rate orders. They are as follows: Retail $ 43,136 Accumulated Amortization 15,058 Retail, Net 28,078 Wholesale 10,051 Accumulated Amortization (3,826) Write-0ff (6,225) Wholesale, Net - Total $ 28,078 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Current income taxes $ (211) $ (440) $ 1,721 $ (315) Deferred income taxes (51) 976 (261) 2,511 Investment credits (19) (20) (56) (58) Total income taxes $ (281) $ 516 $ 1,404 $ 2,138 Allocated to: Operating Income $ (345) $ 502 $ 1,319 $ 2,071 Other income 64 14 85 67 Total $ (281) $ 516 $ 1,404 $ 2,138 The following summarizes accumulated deferred income taxes established on temporary differences under SFAS 109 as of September 30, 1996 and December 31, 1995. (Dollars in Thousands) September 30, December 31, 1996 1995 Seabrook $15,892 $16,071 Property 8,535 8,396 Regulatory expenses 1,125 915 Deferred fuel and purchased energy 990 1,027 Investment tax credits (528) (528) Pension and postretirement benefits (631) (262) Other (718) (622) Net accumulated deferred income taxes $24,665 $24,997 -7- 4. REFINANCING On April 4, 1991, the Maine Public Utilities Financing Bank (MPUFB) issued $10 million of tax-exempt bonds (the "1991 Series") on behalf of the Company. Pursuant to a letter of credit and reimbursement agreement, the Company caused a Direct Pay Letter of Credit for a term of five years to be issued by Barclays Bank PLC, New York Branch (Barclays Bank) for the benefit of the holders of such bonds. To secure the Company's obligations under the reimbursement agreement, the Company issued a second mortgage bond to Barclays Bank as collateral for the Company's obligation to repay Barclays Bank the $10 million principal amount of the bonds plus 195 days of interest on the bonds. The bonds had a coupon rate of 7.875% and, after considering the enhancement fees and other costs, the annual cost to the Company was approximately 8.725%. Barclays Bank notified the Company that it would not renew the Direct Pay Letter of Credit for this issue. With the expiration of the Direct Pay Letter of Credit on April 4, 1996, the entire $10 million principal amount of the bonds was redeemed at par on April 1, 1996 in accordance with the indenture. To meet its reimbursement obligation that resulted from the draw on the Barclays Direct Pay Letter of Credit prior to its expiration, the Company borrowed $10,000,000 under a refunding note from Fleet Bank of Maine with interest at LIBOR plus .75% and a facility fee of $25,000. For the term of the note, the effective interest rate was 7.27%. On June 19, 1996, the Maine Public Utilities Financing Bank (MPUFB) issued $15 million of its tax-exempt bonds due April 1, 2021 (the "1996 Series") on behalf of the Company. The proceeds of the new 1996 Series were used to refund the 1991 Series through the payment of the refunding note from Fleet Bank of Maine and provides $5 million for the acquisition of qualifying property, of which $4.8 million remains in trust as of September 30, 1996. Pursuant to the long-term note issued under a loan agreement between the Company and the MPUFB, the Company has agreed to make payments to the MPUFB for the principal and interest on the bonds. Concurrently, pursuant to a letter of credit and reimbursement agreement, the Company caused a Direct Pay Letter of Credit for an initial term of three years to be issued by the Bank of New York for the benefit of the holders of such bonds. To secure the Company's obligations under the letter of credit and reimbursement agreement, the Company issued a second mortgage bond to the Bank of New York, as Agent, under the reimbursement agreement, in the amount of $15,875,000. The Company has the option of selecting weekly, monthly, annual or term interest rate periods for the 1996 Series, and has initially selected the weekly interest period. After considering issuance costs and credit enhancement fees, the effective interest rates to date have ranged from 4.61% to 5.96% per annum. 5. DISCONTINUANCE OF SFAS 71 FOR WHOLESALE BUSINESS SEGMENT The wholesale market for electric power is now competitive, as evidenced by the Company's loss of a major wholesale customer, Houlton Water Company. The rates that the Company is now charging its remaining wholesale customers are based on market pricing and not rate base/rate of return regulatory formulas. For this reason, the Company has discontinued the application of Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation," for its wholesale business jurisdiction. These write- offs taken in November, 1995 were classified as extraordinary items associated with the discontinuance. -8- 6. EARLY RETIREMENT PROGRAM In March 1996, the Company offered an early retirement program to selected employees. All eligible employees will participate in the program. As a result, in accordance with Statement of Financial Accounting Standards No. 88 (SFAS 88), "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the Company recognized a first quarter charge of $258,000, net of taxes. -9- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations Earnings (loss) per share and net income (loss) available for common stock for the three months ended September 30, 1996 along with the corresponding information for the previous year are as follows: Three Months Ended September 30 1996 1995 Earnings (loss) per share $(.40) $ .36 Net income (loss) available for Common Stock - in Thousands $(655) $ 589 For the third quarter of 1996 compared to the same quarter last year, the decrease in consolidated earnings per share (EPS) of $.76 is attributable to the following: EPS Increase (Decrease) Increase in fuel expenses $ (.60) Increase in Maine Yankee capacity expenses (.19) Decrease due to loss of Houlton Water Company (.14) Increase in retail revenues due to rate increases effective January 1, 1996 and a 1.5% increase in retail sales .16 Other .01 Total $ (.76) Under terms of a four-year rate plan approved by the Maine Public Utilities Commission (MPUC), the fuel clause was eliminated with the exception of the annual deferral of $902,000, net of income taxes, of the costs of its purchases from Wheelabrator-Sherman (WS), an independent power producer. The elimination of the fuel clause reconciliation with the associated fuel revenue accounting mechanism complicates quarter-to-quarter earnings comparisons for 1996 to 1995. The prior fuel accounting mechanism smoothed the recognition of fuel expenses over the annual fuel reconciliation period. With higher winter rates for our commercial and industrial customers -10- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) and the elimination of the fuel clause, earnings will be higher during the winter months than during the summer months when rates charged to those customers are approximately 25% lower. After considering the WS deferral and the effects of fuel accounting in 1995, fuel expenses for the third quarter of 1996 were $.60 per share more than for the same quarter in 1995. Maine Yankee capacity expenses, including the amortization of the 1995 resleeving expenses, increased in 1996 and further reduced earnings by $.19 per share. The loss of Houlton Water Company as a wholesale customer, due to competitive bidding, also reduced earnings for the third quarter of 1996 by $.14 per share compared to the same period in 1995. Partially offsetting these decreases was a $.16 per share increase as a result of the rate increase effective on January 1, 1996 and a 1.5% increase in retail sales. The January 1, 1996 increase in retail rates was approved by the Maine Public Utilities Commission (MPUC) under the terms of a four-year rate plan. Consolidated operating revenues for the quarter ended September 30, 1996 and 1995, are as follows: 1996 1995 (Dollars in Thousands) $ MWH $ MWH Retail 10,425 113,381 9,936 111,765 Sales for Resale 460 10,664 1,590 26,344 Total Primary Sales 10,885 124,045 11,526 138,109 Secondary Sales 1,118 49,699 163 5,603 Other Revenues/Rev. Adjust. 581 576 Total Operating Revenues 12,584 173,744 12,265 143,712 -11- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) Primary sales in the third quarter of 1996 were 124,045 MWH, a decrease of 14,064 MWH from the same period last year. Sales for resale decreased 15,680 MWH due to the loss of the Company's largest wholesale customer, Houlton Water Company (HWC). HWC began purchasing their energy from Central Maine Power on January 1, 1996, resulting from HWC's solicitation for competitive prices in late 1994. In 1995, HWC represented 11.1% of the Company's consolidated MWH sales and 8.4% of consolidated operating revenues. Secondary sales increased by 44,096 MWH, reflecting the availability of Maine Yankee for approximately one-half of the third quarter of 1996 and an increase in power marketing activities. Maine Yankee experienced an unscheduled six-week outage during the third quarter of 1996, while the plant was out of service for the entire quarter in 1995. Retail revenues for the third quarter of 1996 were $10,425,000 compared to $9,936,000 for the same period of 1995, reflecting the new retail rates effective January 1, 1996 and a 1.5% increase in retail sales. For 1995, an element of revenues was determined using seasonal fuel revenue accounting associated with the prior fuel clause, eliminated with the rate plan, which smoothed the recognition of fuel expenses and the element of revenues over the reconciliation period. Sales for resale revenues decreased in 1996 due to the loss of HWC as discussed above. As discussed above, during approximately one-half of the third quarter of 1996, 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, representing the Company's power marketing activities. Since Maine Yankee was not available for the same period in 1995, secondary sales for the quarter were limited to Wyman No. 4 entitlements. -12- PART 1. FINANCIAL INFORMATION FORM 10Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) For the third quarters ended September 30, 1996 and 1995, total operating expenses were $12,448,000 and $10,849,000, respectively. The changes in operating expenses and energy sources are as follows: Increase/(Decrease) (Dollars in Thousands) $ MWH Purchased Power Expenses Maine Yankee 668 42,646 Wheelabrator-Sherman 777 5,064 NB Power (1,286) (50,013) Other Purchases 121 8,275 280 5,972 Deferred Fuel 2,005 Generating Expenses (189) 22,889 Other Operation & Maint. Expenses 438 Depreciation and Amortization Expenses (111) Income Taxes (847) Taxes Other than Income 23 Total 1,599 28,861 Maine Yankee was out of service for all of the third quarter of 1995, while it operated at a 90- percent level of operation for approximately one- half of the third quarter of 1996. Reference is made to the Company's 1995 Annual Report, "Analysis of Financial Condition and Review of Operations - 1995, Maine Yankee", for further discussion of the 12-month outage for sleeving repairs to the plant's steam generator tubes. For an update on Maine Yankee, please see the following section titled, "Maine Yankee Status". The 42,646 MWH increase in Maine Yankee production, a 25,331 MWH increase in hydro production (144% of normal for the third quarter of 1996) and a 5,064 MWH increase in purchases from Wheelabrator-Sherman allowed the Company to reduce purchases from NB Power by 50,013 MWH. These increases also provided the energy for the 44,096 MWH increase in secondary sales mentioned above. During July and August of 1996, with cooler temperatures assisting their production, WS increased production over the comparable period for 1995, resulting in a decrease in 1996 -13- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) earnings of approximately $.16 per share compared to the same nine-month period of 1995. However, since WS will reach its contractual limit in early October, purchases then will be substantially lower than for the same month last year, and will result in a positive impact of $.16 per share for October earnings. With the implementation of the rate plan, the change in deferred fuel expenses reflects the elimination for 1996 of the fuel revenue accounting associated with the prior fuel clause, as discussed previously and in the "Legal Proceedings" section of this Form 10-Q, item 1(b). During the third quarter of 1996, under the same rate plan, the Company has deferred $375,000 ($1.5 million annually) of its Wheelabrator-Sherman purchased power costs. Generating expenses decreased by $189,000, primarily due to the Steam Units at Caribou being placed on inactive status on January 1, 1996. See "Caribou Units" below for further discussion. Other operation and maintenance expenses increased by $438,000 with $183,000 of the increase in wheeling expenses representing increased power marketing activities and an additional $131,000 in transmission and distribution expenses, primarily due to increased tree trimming activities. Maine Yankee Status Reference is made to the Company's 1995 Annual Report, "Analysis of Financial Condition and Review of Operations - 1995, Maine Yankee", for discussion of the 12-month outage for sleeving repairs to the plant's steam generator tubes and Maine Yankee's return to service at 90% of the plant's capacity on January 22, 1996. On June 7, 1996, the Nuclear Regulatory Commission (NRC) formally notified Maine Yankee that it planned to conduct an "Independent Safety Assessment" (ISA) of the Maine Yankee plant in conjunction with the State of Maine to provide an independent evaluation of the safety performance of Maine Yankee and as a "follow-up" to the NRC's Office of Inspector General (OIG) report. The NRC stated that the overall goals and objectives of the ISA were: "(a) provide an independent assessment of conformance to the design andlicensing basis; (b) provide an independent assessment of operational safety performance; (c) evaluate the effectiveness of license self- -14- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) assessments, corrective actions and improvement plans and; (d) determine root cause(s) of safety significant findings and conclusions." The NRC further informed Maine Yankee that the ISA would be carried out of a team of NRC personnel and contractors who were "independent of any recent or significant involvement with the licensing, regulation or inspection of Maine Yankee." On October 7, 1996, the NRC released the ISA report, which dealt with each of its stated goals. In evaluating Maine Yankee's conformance to its licensing basis, the report concluded that Maine Yankee was in general conformance with its licensing basis although significant items of nonconformance were identified. With respect to conformance to the plant's design basis, the ISA report found that the quality and availability of design-basis information were good overall. The report concluded that despite uncorrected and previously undiscovered design problems specified in the report, the design basis and compensatory measures adequately supported operation of the plant at a power level of 2440 MWth (the 90-percent operating level). The ISA team further stated in its report that because of issues relating to the containment spray pumps and the component cooling water system, it could not conclude that the design basis supported operation of the plant at 2700 MWth (the 100-percent operating level). Addressing its operational safety goal, the ISA report stated that overall, performance in the area of operations was very good. The report identified specific operational strengths in operator performance during routine and transient operating conditions, shift turnovers, use of risk Information, and the involvement of managers in day-to-day operations. Weaknesses noted involved the need for operators to work around certain problems with Maine Yankee equipment during shutdown and startup, manual actions under certain transient operating conditions required by compensatory measures intended to address design weaknesses, log-keeping, and reviews of events following a trip to one of Maine Yankee's instruments or systems. The report also concluded that Maine Yankee maintenance was good overall, but that testing was weak. -15- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) Particular maintenance strengths were described. The report stated that although the condition of Maine Yankee material was considered good overall, a decline in material condition following the 1995 outage for sleeving the steam-generator tubes and other significant material condition deficiencies were noted by the ISA team. With respect to testing, the report stated that the team identified inadequacies in the scope and rigor of testing and in the evaluation of test results. The ISA report also addressed the quality of engineering work, concluding that it was mixed, but good overall, and indicated specific strengths and weaknesses in that area. After evaluating Maine Yankee's self-assessments, corrective actions and improvement plans as part of the ISA, the ISA team identified weaknesses in the areas of problem identification and resolution. The report noted that while Maine Yankee self-assessments were generally good, they occasionally failed to identify weaknesses or incorrectly characterized the significance of the findings. Further, the report stated that some corrective actions were not timely and others were ineffective, leading to repetitive problems. The report recognized the general effectiveness of planning, but stated that some weaknesses in implementing improvement plans existed due to resource limitations. The ISA team report concluded that overall performance at Maine Yankee was adequate for operation of the plant, and that the deficiencies noted in the report stemmed from two closely related root causes. The report indicated that the root causes were: (1) that economic pressure to be a low-cost energy provider that limited available resources to address corrective actions and some improvements; and (2) that a questioning culture was lacking, which had re- sulted in a failure to identify or promptly correct significant problems in areas perceived by Maine Yankee to be of low safety significance. The ISA report also identified certain deficiencies and stated that they would be addressed as part of a separate NRC follow-up to clarify NRC expectations for the nuclear power industry. On October 10, 1996, Maine Yankee re- ceived from the NRC a -16- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) generic letter that had been sent to substantially all nuclear plant licensees in the United States requesting information to be used to verify compliance with the terms and conditions of the plant's operating license and NRC regulations, and that the plant's updated final safety analysis report properly describes the facilities, as well as to determine if other inspection activities or enforcement action should be taken. The written response must be under oath or affirmation and must be submitted within 120 days of receipt of the generic letter. Maine Yankee believes that it will submit a response satisfying the requirements of the NRC's request within the allotted time period. A letter to Maine Yankee from Shirley Ann Jackson, the Chair of the NRC, accompanying the ISA report noted that overall performance at Maine Yankee was considered adequate for operation, but that a number of significant weaknesses and deficiencies identified in the report would result in violations. The letter directed Maine Yankee to provide to the NRC its plan for addressing the root causes of the deficiencies identified by the ISA and stated that the NRC's Region I and Office of Nuclear Reactor Regulation will be responsible for overseeing corrective actions relating to issues identified in the ISA report and for taking any appropriate enforcement actions against Maine Yankee. The NRC held a public meeting on October 10, 1996, in Wiscasset, Maine, at which it discussed the conclusions of the ISA and responded to questions. The current allowed operating level for Maine Yankee may be limited to 90% of capacity until completion of the plant's next planned refueling outage, which is now scheduled for September, 1997. The Company cannot predict, however, whether or when Maine Yankee will attain a 100-percent operating level, or the results of the ongoing NRC and U.S. Department of Justice investigations and reviews. On July 20, 1996, Maine Yankee brought the plant off line to add pressure relief capacity to the primary component cooling system ("PCCS"). The need to add this relief capacity was determined during a comprehensive review by Maine Yankee of plant systems and equipment. During this review, Maine Yankee -17- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) found a possible inadequacy in the ability of the PCCS to allow sufficient pressure to be relieved from the PCCS under design-basis postulated accident conditions. The plant remained shut down following the discovery that a high pressure safety injection pump would not auto-start from the stand-by mode in response to a safety injection actuation signal. A relay was found missing, which led to an expedited review of safety-related logic circuits to determine if there was any other testing that was re- quired before start-up. On September 2, 1996, the plant returned to service, attaining the 90 percent capacity limit. Purchase power replacement costs are approximately $500,000 to $600,000 per month while the plant is out of service. Caribou Units 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 inactivated the Units on January 1, 1996 and expects that they will remain inactive for five years or longer. These two units, 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 eliminated 12 positions at the plant and conducted a voluntary early retirement program that avoided involuntary termination of employees whose positions at the units have been eliminated. The expenses of the voluntary early retirement plan of approximately $231,000, net of income taxes, as well as the expenses to lay-up the Steam Units will be amortized over five years in accordance with the rate plan. The rate plan allows the Company to -18- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) continue rate base treatment for unrecovered plant costs and depreciation on the Caribou Steam Units, which had a net book value of approximately $718,000 as of January 1, 1996. 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 $5,200,000 for the first nine months of 1996. The $2,913,000 increase in net cash flow from operating activities reflects the additional replacement power costs required in 1995 due to the extended resleeving outage at Maine Yankee. In 1991, $10,000,000 of tax-exempt bonds were issued and in June, 1996, were refinanced with a new $15,000,000 issue, with the remaining $5,000,000 deposited with the trustee to be withdrawn based on qualified property additions and for issuance costs of $250,000. See "New Financing" below for further discussion. For the period, $2,539,000 was invested in electric plant, $2,232,000 was paid in dividends and $1,315,000 was used to reduce long-term debt. Short-term borrowings increased by $1,600,000 for working capital and construction requirements. A draw down from the tax-exempt bond proceeds of approximately $2 million based on qualifying property is expected between late November and early January to offset these short-term borrowings. For the nine months ended September 30, 1995, net cash flows from operating activities were $2,287,000. For the first nine months of 1995, the Company invested $2,721,000 in electric -19- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) plant, paid $2,232,000 in dividends, and reduced long term debt by $65,000. Short-term borrowings of $1 million were required to fund the previously mentioned replacement power purchases during the Maine Yankee outage. See "Legal Proceedings", paragraph 1(b) of this Form 10-Q for a description of the multi-year rate plan approved by the Maine Public Utilities Commission in November, 1995, effective January 1, 1996. The 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 share- holders. New Financing On June 19, 1996, the Maine Public Utilities Financing Bank (MPUFB) issued $15 million of its tax-exempt bonds due April 1, 2021 (the "1996 Series") on behalf of the Company. The pro- ceeds of the new 1996 Series were used to refund the $10 million 1991 tax-exempt Series through the payment of a refunding note from Fleet Bank of Maine and provides $5 million for the acquisition of qualifying property. Pursuant to the long-term note issued under a loan agreement between the Company and the MPUFB, the Company has agreed to make payments to the MPUFB for the principal and interest on the bonds. Concurrently, pursuant to a letter of credit and reimbursement agreement, the Company caused a Direct Pay Letter of Credit for an initial term of three years to be issued by the Bank of New York for the benefit of the holders of such bonds. To secure the Company's obligations under the letter of credit and reimbursement agreement, the Company issued a second mortgage bond to the Bank of New York, as Agent, under the reimbursement agreement, in the amount of $15,875,000. The Company has the option of selecting weekly, monthly, annual or term interest rate periods for the 1996 Series. The initial interest period selected by the Company was weekly and, after considering issue costs and credit enhancement fees, the effective interest rates to date have ranged from 4.61% to 5.96% per annum. Please see further -20- PART 1. FINANCIAL INFORMATION Form 10-Q Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) discussion in Footnote 4 of the financial statements accompanying this Form 10-Q. -21- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings (a) Maine Public Utilities Commission, Re: Electric Utility Industry Restructuring Study, Docket No. 95-462. In 1995, the Maine Legislature passed Resolve 89 "To Require a Study of Retail Competition in the Electric Utility Industry" (the "Resolve"), to begin a process for developing recommendations on the future structure of the electric utility industry in Maine. The process included the appointment of a Work Group on Electric Utility Restructuring to develop a plan for the orderly transition to a competitive market for retail purchases and sales of electricity. The Company participated in this Work Group, which was unable to reach a consensus on a recommended plan by its reporting deadline. The Resolve also directed the Maine Public Utilities Commission (MPUC) to conduct a study to develop at least two plans for the orderly transition to retail competition in the electric utility industry in Maine and to submit a report of its findings by January 1, 1997. One plan would be designed to achieve "... full retail market competition for purchases and sales of electric energy by the year 2000" and the other to achieve a more limited form of competition. The Resolve also stated that the MPUC's findings would have no legal effect, but would "... provide the Legislature with information in order to allow the Legislature to make informal decisions when it evaluates these plans." On December 12, 1995, the MPUC issued a Notice of Inquiry (the "Notice") initiating its study. In the Notice, the MPUC solicited detailed proposals and plans for achieving retail competition in Maine by the year 2000 and requested the proposals include specific plans for an orderly transition to a more competitive market. The Notice required that plans and proposals be filed with the MPUC by interested parties no later than January 31, 1996, and outlined a schedule calling for submittal of a final report to the Legislature in December, 1996. On January 30, 1996, the Company filed its restructuring proposal with the MPUC. The major elements of this proposal are: -22- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued (a) The separation of the Company's generation assets (including contracts and entitlements) from its transmission and distribution assets. The Company suggested this separation could be accomplished by either a functional separation of generation from distribution and transmission within the Company's existing corporate structure or by separating generation, on the one hand, and distribution and transmission, on the other, into two wholly-owned subsidiaries. The Company strongly opposes any recommendation that it be required to divest itself of its generation assets. (b) The economic and resource planning regulation of generation would cease. The FERC would continue to regulate transmission, and distribution would remain a franchised monopoly subject to continued regulation by the MPUC. The owner of the distribution system would be obligated to connect all willing customers. (c) If certain necessary changes in the operation and management of the regional transmission grid are in place, all retail customers in Maine would, by the year 2000, be entitled to purchase electric energy directly from any entity that wished to supply it to them. (d) The Company would be entitled to full recovery of all its stranded costs. This recovery would be accomplished by a charge on the distribution system that would apply to all retail customers. In its filing, the Company estimates that its stranded costs could be as high as $68 million. This amount consists primarily of the above-market costs of the Company's contract with Wheelabrator-Sherman, a non-utility generator, estimated at $44 million and deferred regulatory assets, such as its Seabrook investment of $24 million. The Company's proposal, however, was only one of over a dozen received by the MPUC in response to its Notice, some of which take positions on these matters that vary substantially from the Company's. On July 19, 1996, the MPUC issued its Draft Plan in this matter, which, in its own terms, represents the MPUC's "preliminary view" on how to restructure Maine's electric -23- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued utility industry. The Draft Plan recommends the following: . As of January, 2000, all Maine consumers would have the option to choose an electric power supplier. . As of January, 2000, Maine would not regulate, as public utilities, companies producing or selling electric power. . Regulated public utilities would continue to provide electric transmission and distribution services. . As of January, 2000, the Company, Central Maine Power Company (CMP) and Bangor Hydro-Electric Company (BHE), the State's three largest electric utilities, would be required to structurally separate their generation assets and functions from transmission and distribution functions. CMP and BHE would be required to fully divest themselves of their generation assets by 2006. The Draft Plan does not recommend generation divestiture for the Company. Instead, the MPUC requested additional comment "on whether MPS should be required to divest its generation assets as described [in this Draft Plan], by another method, or not at all." . All contracts between the utilities and any qualifying facilities under PURPA will remain with the transmission and distribution companies. . The utilities should be provided a reasonable opportunity to fully recover its generation-related stranded costs. All of the Company's anticipated stranded costs are generation-related. The MPUC has received numerous comments on its Draft Plan. These comments could result in the MPUC's modification of its preliminary recommendations. Moreover, because the MPUC's final recommendation will not have any binding legal effect, this issue must ultimately be resolved by the Maine Legislature. Many parties to this proceeding have taken positions that vary -24- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued substantially from those set forth in this Draft Plan and those parties can be expected to advocate their positions before the Legislature. The Company cannot, therefore, predict what form the restructuring of Maine's electric utility industry will ultimately take or what effect that re- structuring will have on the Company's business operations or financial results. (b) Multi-year Rate Plan is Approved for the Company by the MPUC in 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 in- crease in the rates it charges its retail customers. The Company at the same time filed a five-year rate plan requesting new rates beginning in January, 1996 as detailed below. Reference is made to the Company's Form 10-Q for the quarter ended June 30, 1995 for a complete description of the Company's filed rate plan. After extensive negotiations, the Company, the MPUC Staff and the Public Advocate filed a Stipulation with the Commission on November 6, 1995, which established a four-year rate plan for the Company. The one remaining party to this proceeding, McCain Foods, Inc., opposed this Stipulation. After a hearing on November 13, 1995, the MPUC approved this Stipulation over the objection of McCain Foods, Inc. Under the terms of the Stipulation, the Company has the right to receive the following increases: January 1, 1996 4.4% $2.1 million February 1, 1997 2.9% 1.4 million February 1, 1998 2.75% 1.4 million February 1, 1999 2.75% 1.4 million These increases will be subject to increases or decreases resulting from the operation of the profit-sharing mechanism, as well as the mandated costs and plant outage provisions described below. The Company agreed that it will seek no other increases, for either base or fuel rates, except as provided under the terms of the rate -25- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued plan. There will be no fuel clause adjustments during the term of the plan. The Company also agreed to write off, in 1995, and not collect in retail rates the following amounts: (a) $4,845,812, net of income taxes, of its investment in Seabrook previously allocated to wholesale sales. (b) $1,390,000, net of income taxes, in other plant investment, i.e. rate base, except transmission plant, previously associated with the wholesale customers. (c) $3,500,000 ($2,104,000, net of income taxes) in deferred fuel. The total amount of the write-offs, net of income taxes, in 1995 are approximately $8,340,000, or approximately $5.16 per share of common stock. As a condition of the Stipulation, the Company requested waivers for interest coverage tests under its revolving credit arrangement and the Letter of Credit supporting the public utility revenue bonds, 1991 series. Unless these write-offs were considered extraordinary for purposes of the interest coverage tests, the Company would have been in violation of these interest coverage tests. The waivers were received from the various lenders prior to the MPUC's issuance of its order in this proceeding. The Company will also be permitted to defer an amount of $1.5 million annually of the costs of the Wheelabrator- Sherman (WS) purchases over the term of the rate plan. The approved rate plan provides that the Company can seek recovery of this deferred amount (up to a total of $6 million) in rates beginning in the year 2001, after the current term of the WS contract has expired. The Company will further amortize over the four years of the rate plan, $300,000, net of income taxes, in deferred fuel with the remainder, approximately $1.3 million, net of income taxes, being deferred until the year 2000. -26- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued The approved rate plan further provides for the following treatment of the Maine Yankee steam generator sleeving costs: the Company will amortize its share of these costs in equal amounts over a five-year period beginning on January 1, 1996. At the expiration of the rate plan, the remaining one-fifth of the costs will be amortized in 2000 subject to rate treatment at that time. The approved rate plan contains a profit-sharing mechanism based upon a target return of equity (ROE) of 11%, calculated according to retail ratemaking mechanisms. This profit-sharing mechanism will apply only to the last two rate increases scheduled to occur on February 1, 1998 and February 1, 1999. As part of this review process, the target ROE will be subject to adjustment based on an index by averaging over a twelve-month period the dividend yields on Moody's group of 24 electric utilities and Moody's utility bond yields. The profit-sharing mechanism works as follows: If the Company's ROE exceeds the target ROE by less than 300 basis points, this gain accrues entirely to shareholders. Similarly, any deficiency of up to 300 basis points below the target ROE is borne entirely by the shareholders. All deficiencies of 300 or more basis points below the target ROE will be shared equally by share-holders and customers. All earnings of 300 or more basis points above the target ROE must first be applied to reduce any of deferred WS costs described above. Any re- maining excess earnings will be shared equally by customers and shareholders. The plan also allows the Company to terminate the rate plan and file for rate increases under traditional rate application procedures if its earnings fall 500 or more basis points below the target ROE during any twelve- month period during the term of the plan. The method agreed to by the parties for measuring earned ROE for the purpose of the profit-sharing mechanism and rate termination provision described above, allocates various revenues and expenses between the wholesale and retail jurisdictions using allocators that, in part, -27- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued reflect the Company's 1994 allocations. With the loss of sales to Houlton Water Company in 1996, the Company estimates that the use of the agreed-upon allocators will produce a calculation of earnings for the profit- sharing and termination mechanisms that could be as much as 400 basis points above the Company's actual financial ROE. Because of this disparity, the Stipulation provides that the agreed-upon allocation methodology will not apply if the use of those allocators will require the Company to write off any additional assets in accordance with Generally Accepted Accounting Principles (GAAP). In that event, the parties have agreed to develop a different method for calculating profit-sharing and termination that will not require the Company to write off any additional assets. The plan also provides that if either Maine Yankee or WS cease operation for more than six months, the Company shall be allowed to adjust its allowed rate increases by 50% of the net costs or net savings resulting from the outage, together with any carrying costs on the balance deferred. Any net costs or net savings during the first six months of the outage would accrue entirely to shareholders. The plan further contains a mechanism for allocating the savings resulting from any restructuring of the WS contract during the term of the plan. Any savings would be allocated first to the WS deferred costs accumulating at $1.5 million annually, then to the deferred fuel balance as of December 31, 1995 being deferred until 2000, next to eliminate any on-going WS deferrals and finally, any savings that remain will be allocated 95% to customers and 5% to shareholders. The plan provides that the Company can flow through to customers at the time of the scheduled rate increases, increases or decreases resulting from certain mandated costs, such as tax or accounting changes, but not costs resulting from natural disasters. To qualify, a mandated cost must receive MPUC approval, must be beyond the control of the Company's management, must effect the Company specifically or the electric utility generally and must exceed $300,000 in annual revenue requirements. -28- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued The Stipulation also provides for a number of accounting orders. Among these are orders: permitting the Company to amortize deferred post-retirement benefits other than pension (SFAS 106) expenses in equal amounts over a ten-year period beginning January 1, 1996, along with the recovery of current year SFAS 106 costs; permitting the Company to continue rate base treatment for unrecovered plant costs and depreciation on the Caribou Steam Units as well as the deferral and amortization over five years of the reduction in force expenses (including pension expenses under SFAS 88) resulting from the closing of those units; and continued deferral and amortization of replacement power and capacity costs associated with Maine Yankee scheduled outages. Finally, the Stipulation clarifies that the rate plan is not deregulation for accounting purposes and provides for the continuing recovery in rates of certain "regulatory assets", such as the retail portion of the Company's Seabrook investment, previously allowed by the MPUC. On January 2, 1996, McCain Foods, Inc., which had objected to the Stipulation, appealed the MPUC's approval of the rate plan to the Maine Supreme Judicial Court. This action was docketed as PUC 96-13. On March 20, 1996, the Company and McCain Foods filed with the Commission a Power Purchase Agreement under which McCain agreed to purchase all its electrical requirements from the Company through 2000. On April 29, 1996, the MPUC approved the Agreement and McCain dismissed its appeal shortly thereafter. In addition to the four-year rate plan, the MPUC, under this docket, also approved the Company's proposal to develop flexible rates to retain or attract new customers. On October 23, 1995, the Company implemented a reduced Rate AH for residential electric space heat. Customers who have a permanent electric space heat system that supplies at least 50% of their heating requirements have been offered a discount up to 40% from October to April. On November 27, 1995, the MPUC approved two new rates that became effective December 1, 1995. The first, Rate F, provides farmers with a discounted price for electricity used in storage facilities, reducing their -29- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued winter electric rate ten percent from November through March. The second, Rate EDR, an economic development rate, provides a multi-year discount in the cost of electric service for large commercial and industrial customers who create new electrical load. This reduced rate should encourage development in our electrical service territory by providing an incentive rate while a new business gets established or an existing business, meeting certain criteria, completes expansion. Depending on eligibility, the discount offered will range from 20% the first year to 5% in the fourth year. After the four- year period, EDR customers will be billed under the Company's standard electric rates. (c) Peoples Heritage Bank v. Maine Public Service Company U.S. District Court (D. ME) Civil Action No. 95-0180-B On September 18, 1995, Peoples Heritage Bank filed against the Company a civil action for declaratory and monetary relief seeking recovery for response costs, damages and attorneys fees incurred because of the release of hazardous substance at a site in Presque Isle, Maine. In 1992, Peoples Heritage purchased the property and shortly thereafter discovered that the soil at the site was contaminated with polychlorinated biphenyls (PCBs) which it now alleges originated with two electrical transformers placed on the site by the Company. Peoples Heritage claims to have spent in excess of $250,000 to remove the PCB contaminated soil and seeks reimbursement of this amount. The suit is brought pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Federal Declaratory Judgment Act and under common law grounds of strict liability for abnormally dangerous activities, negligence and trespass. The Company has denied liability in this matter but cannot predict the outcome of this action. -30- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued (d) Maine Public Service Company, Request For Open Access Transmission Tariff, FERC Docket No. ER 95-836-000. On March 31, 1995, the Company filed an open access transmission tariff with the Federal Energy Regulatory Commission (FERC). This tariff provides fees for various types and levels of transmission and transmission-related services that are required by transmission customers. The tariff, as filed, substantially increases some of the fees for transmission services and provides separate fees for various transmission-related services. On May 31, 1995, the FERC approved the filed tariff, subject to refund. The filing has been vigorously contested by the Company's wholesale customers. In April, 1996, the FERC issued Order 888, a final rule on open transmission access and stranded cost recovery. As a result, the Company refiled its tariff on July 9, 1996 to comply with the Order. Utilities are required to file tariffs under which they would provide transmission services, comparable to that which they provide themselves, to third parties on a non-discriminatory basis. A decision by the FERC is not expected until later in 1996. The Company cannot predict FERC's ultimate decision in this matter. (e) Maine Public Service Company, Proposed Increase in Rates (Rate Design), MPUC Docket No. 95-052. On June 15, 1995, the MPUC issued an order bifurcating the Company's request for rate design from the revenue re- quirement portion of this docket (see item (b) above). Based upon marginal cost of service principles, the Company has proposed a substantial redesign of its current rates. For example, under the Company's proposed rates for large industrial customers would have decreased from their current level by nearly 8%, while rates for residential customers would have increased by over 8%. The Company's proposals were vigorously contested by the MPUC Staff and the Public Advocate, who propose only a small decline for large industrial customers and a very minor increase for residential. Hearings were held on this matter before the MPUC on March 14 and 15, 1996. -31- FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings - Continued On June 26, 1996, the MPUC issued its Order in this matter. The MPUC found that, despite some infirmities in the Company's supporting data, the Company was en- titled to a more substantial reallocation of its rates than advocated by the MPUC Staff and Public Advocate. As a result, rates for large industrial customers will decrease by approximately 4.5%, while rates for residential and commercial customers will increase by approximately 1% and 3%, respectively. These changes became effective June 29, 1996. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none. (b) Reports on Form 8-K - none. 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: November 12, 1996 Larry E. LaPlante Larry E. LaPlante, Vice President Finance, Administration and Treasurer -32- \TEXT> /DOCUMENT> EX-27 2 FINANCIAL DATA SCHEDULE FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
UT 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 49870 3648 10843 53698 0 118059 7357 38 30735 38130 0 0 39805 3000 0 0 1315 0 0 0 35809 118059 43168 1319 38035 39354 3814 240 4054 2649 1405 0 1405 2232 2314 5200 .87 .87
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