-----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, BdUCDJ1uHRcM0qd7fl7DFaruHFjY8kh2xqgsuc7TjNaj2Mnu4JcZIcSGXyv5SbRu Xef2v1CKTtWhGMclGKaijg== 0000061611-97-000017.txt : 19970513 0000061611-97-000017.hdr.sgml : 19970513 ACCESSION NUMBER: 0000061611-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 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: 97600431 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 March 31, 1997 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 quarter ended March 31, 1997, and for the corresponding period of the preceding year; a consolidated balance sheet as of March 31, 1997, and as of December 31, 1996, 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 March 31, 1997, 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 March 31, 1997 and December 31, 1996, and the results of their operations for the three months ended March 31, 1997 and their cash flows for the three months ended March 31, 1997. -2- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY STATEMENTS OF CONSOLIDATED OPERATIONS (Unaudited) (Dollars in Thousands Except Per Share Amounts) Three Months Ended March 31, 1997 1996 Operating Revenues $15,368 $15,756 Operating Expenses Purchased Power 10,694 7,504 Other Operation and Maintenance 2,837 3,385 Depreciation 627 631 Amortization 409 399 Taxes Other Than Income 446 443 Provision (Benefit) for Income Taxes (166) 1,099 Total Operating Expenses 14,847 13,461 Operating Income 521 2,295 Other Income (Deductions) Equity in Income of Associated Companies 110 92 Allowance for Equity Funds Used During Construction 4 2 Other Income Taxes (44) (10) Other - Net 3 (6) Total 73 78 Income Before Interest Charges 594 2,373 Interest Charges Long-Term Debt and Notes Payable 850 923 Less Allowance for Borrowed Funds Used During Construction (2) (1) Total 848 922 Net Income (Loss) Available for Common Stock (254) 1,451 Average Shares Outstanding (000's) 1,617 1,617 Earnings (Loss) Per Share of Common Stock ($0.16) $0.90 Dividends Declared per Common Share $0.25 $0.46 The accompanying notes are an integral part of these financial statements. -3- MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in Thousands) March 31, December 31, ASSETS 1997 1996 Utility Plant Electric Plant in Service $90,570 $91,224 Less Accumulated Depreciation 41,760 41,670 Net Electric Plant in Service 48,810 49,554 Construction Work-in-Progress 1,021 461 Total 49,831 50,015 Investment in Associated Companies Maine Yankee Atomic Power Company 3,672 3,585 Maine Electric Power Company, Inc. 95 74 Total 3,767 3,659 Net Utility Plant and Investments 53,598 53,674 Current Assets Cash and Temporary Investments 1,369 1,291 Deposits for Interest and Dividends 467 805 Accounts Receivable - Net 5,473 5,021 Unbilled Base Revenue 1,343 1,653 Deferred Fuel and Purchased Energy 125 125 Current Deferred Income Taxes 163 222 Inventory 1,310 1,194 Prepayments 772 959 Total 11,022 11,270 Other Assets Restricted Investment 3,650 4,055 Recoverable Seabrook Costs 27,367 27,722 Regulatory Asset - SFAS 109 & 106 12,671 12,713 Deferred Fuel and Purchased Energy 4,294 3,951 Other 3,268 3,329 Total 51,250 51,770 Total Assets $115,870 $116,714 CAPITALIZATION AND LIABILITIES Capitalization Common Shareholders' Equity Common Stock $13,071 $13,071 Paid-in Capital 38 38 Retained Earnings 30,039 30,697 Treasury Stock, at cost (5,714) (5,714) Total 37,434 38,092 Long-Term Debt (less current maturities) 39,780 39,805 Current Liabilities Long-Term Debt Due Within One Year 1,315 1,315 Notes Payable 1,800 1,400 Accounts Payable 5,148 5,475 Dividends Declared 404 744 Customer Deposits 58 62 Interest and Taxes Accrued 635 962 Total 9,360 9,958 Deferred Credits Deferred Income Tax 23,881 23,694 Investment Tax Credits 702 720 Deferred Revenues 691 630 Miscellaneous 4,022 3,815 Total 29,296 28,859 Total Capitalization and Liabilities $115,870 $116,714 The accompanying notes are an integral part of these financial statements. -4- MAINE PUBLIC SERVICE COMPANY Statement of Consolidated Cash Flows (Unaudited) (Dollars in Thousands) Three Months Ended March 31, 1997 1996 Cash Flow From Operating Activities Net Income (Loss) ($254) $1,451 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operations Depreciation 627 630 Amortization 54 45 Amortization of Seabrook Costs 355 355 Income on Tax Exempt Bonds-Restricted Funds (46) 0 Deferred Income Taxes 239 (252) AFUDC (6) (2) Change in Deferred Fuel & Purchased Energy (344) (344) Change in Deferred Regulatory and Debt Issuance Costs (65) 391 Change in Deferred Revenues 62 92 Change in Benefit Obligation 197 606 Change in Current Assets and Liabilities (730) 295 Other 107 158 Net Cash Flow from Operating Activities 196 3,425 Cash Flow From Financing Activities Dividend Payments (404) (744) Redemption of Tax Exempt Bonds 0 (10,000) Drawdown of Tax Exempt Bonds Proceeds 450 0 Retirements on Long-Term Debt (25) (25) Tax Exempt Bond Refunding Note 0 10,000 Short-Term Borrowings, Net 400 (1,400) Net Cash Flow Provided By (Used In) Financing Activities 421 (2,169) Cash Flow Used For Investing Activities Investment in Electric Plant (539) (552) Net Cash Used For Investment Activities (539) (552) Increase in Cash and Temporary Investments 78 704 Cash and Temporary Investments at Beginning of Year 1,291 976 Cash and Temporary Investments at End of Period $1,369 $1,680 Change in Current Assets and Liabilities Providing Cash From Operating Activities Accounts Receivable ($452) $689 Unbilled Revenue 310 89 Inventory (115) (76) Prepayments 187 37 Accounts Payable & Accrued Expenses (655) (434) Other Current Liabilities (5) (10) Total Change ($730) $295 Supplemental Disclosure of Cash Flow Information: Cash Paid During the Period For: Interest $1,301 $1,601 Income Taxes (1997 is net of a $500,000 refund) ($390) $127 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 1996 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 1996 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 with a maturity, when purchased, of three months or less to be temporary equivalents. 2. IMPLEMENTATION OF MULTI-YEAR RATE PLAN A four-year rate plan, approved by the MPUC on November 13, 1995, provided retail rate increases of 4.4% on January 1, 1996 and 2.9% on February 1, 1997. The Company has the right to receive additional annual increases in retail rates of 2.75% on February 1, 1998 and February 1, 1999. Several significant accounting orders that became effective January 1, 1996 included 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 1995 sleeving repair costs, and the $638,000, net of income taxes, amortization over ten years of deferred post-retirement benefits other than pensions (SFAS 106). In addition, the plan allows 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. With higher winter rates for our commercial and industrial customers and the elimination of the fuel clause, revenues will be higher during the winter months than during the summer months when rates charged to those customers are approximately 25% lower. -6- 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 (benefits) 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 March 31, 1997 1996 Current income taxes $ (361) $ 1,361 Deferred income taxes 257 (233) Investment credits (18) (19) Total income taxes $ (122) $ 1,109 Allocated to: Operating Income $ (166) $ 1,099 Other income 44 10 Total $ (122) $ 1,109 The following summarizes accumulated deferred income taxes established on temporary differences under SFAS 109 as of March 31, 1997 and December 31, 1996. (Dollars in Thousands) March 31, December 31, 1997 1996 Seabrook $15,214 $15,273 Property 8,121 8,104 Regulatory expenses 1,402 1,201 Investment tax credits (478) (478) Pension and postretirement benefits (627) (670) Other 249 264 Net accumulated deferred income taxes $23,881 $23,694 4. AMENDMENTS OF INTEREST COVERAGE TESTS IN FINANCIAL INSTRUMENTS The Company owns 5% of the Common Stock of Maine Yankee Atomic Power Company (Maine Yankee). As a result of an extended Maine Yankee outage that began December 6, 1996 which may last through the summer of 1997, the Company has been incurring replacement power costs of approximately $170,000 per week. In addition, the Company is responsible for additional operating costs during 1997 of $2.3 million associated with an Independent Safety Assessment of Maine Yankee by the Nuclear Regulatory Commission. Further costs are being incurred as Entergy Corporation has begun providing management services to Maine Yankee. Additional costs may also be expected, if the complexity of cable separation and associated issues require an extended period for their resolution. These additional costs will adversely impact the Company's 1997 financial results. -7- The Company's short-term revolving credit agreement and a letter of credit supporting its 1996 revenue bonds contain interest coverage tests that the Company must satisfy to avoid default. On March 28, 1997, the Company and the Banks agreed on amendments to the revolving credit agreement and letter of credit and reimbursement agreement which adjust the interest coverage tests to exclude Maine Yankee incremental replacement power costs through September 30, 1997. Under the amendment to the revolving credit agreement, the Company was obligated to issue a first mortgage bond of $11 million as collateral for the maximum amount of Company's obligations under the revolving credit agreement. Both amendments required the issuance of the first mortgage bond on or before May 15, 1997. On April 28, 1997 the Maine Public Utilities Commission approved the issuance of the first mortgage bonds, and the Company issued the bonds on May 5, 1997. Without the amendments, the Company would have been in violation of the interest coverage tests for the twelve months ended March 31, 1997 and would have been in default on these instruments. As mentioned above, the amendments to the Company's revolving credit agreement and letter of credit and reimbursement agreement only exclude Maine Yankee incremental replacement power costs through September 30, 1997. If Maine Yankee does not return to service prior to September 30, 1997, interest coverage tests for periods after September 30, 1997 would be required to reflect any incremental Maine Yankee replacement power costs after that date. The Company cannot predict whether or not these tests will be met for the fourth quarter of 1997. -8- Item 2. Management's Analysis of Quarterly Income Form 10-Q Statements Results of Operations Earnings (loss) per share and net income (loss) available for common stock for the three months ended March 31, 1997 along with the corresponding information for the previous year are as follows: Three Months Ended March 31, 1997 1996 Earnings (loss) per share $(.16) $ .90 Net income (loss) available for Common Stock - in Thousands $(254) $1,451 For the first quarter of 1997 compared to the same quarter last year, the decrease in consolidated earnings per share (EPS) of $1.06 is attributable to the following: EPS Increase (Decrease) Increase in operating expenses resulting from extended Maine Yankee outage in 1997: Replacement Power Costs $(.77) Capacity Expenses (.26) Total (1.03) Increase in purchase power expense associated with independent power producer- Wheelabrator-Sherman ( .11) Decrease in retail revenues: 2.9% rate increase effective 2/1/97 $ .10 Unbilled revenue adjustment in 1996 and volume variance ( .09) Load retention discounts ( .06) ( .05) 1996 voluntary early retirement program expense charged in 1996 .16 Other ( .03) Total $(1.06) -9- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) The additional replacement power and capacity expenses associated with the unscheduled Maine Yankee outage that began on December 6, 1996 and continued through the entire first quarter of 1997 had material impact on the Company's earnings and cash flows for the first quarter of 1997. For the first quarter of 1997, Maine Yankee replacement power costs reduced earnings by $.77 per share, while additional capacity expense to address issues identified in the ISA further reduced earnings by $.26 per share. In addition, a 5% contractual price increase and a 2% production increase at Wheelabrator-Sherman (WS), an independent power producer, also decreased earnings by $.11 per share. Load retention contract discounts to several large customers and unbilled revenue adjustments were partially offset by rate increases effective February 1, 1997, resulting in a $.05 decrease in earnings per share. Partially offsetting these decreases were the March 1996 recognition of expenses related to an early retirement program of $.16 per share. Consolidated operating revenues for the quarter ended March 31, 1997 and 1996, are as follows: 1997 1996 (Dollars in Thousands) $ MWH $ MWH Retail 14,442 131,531 14,360 131,690 Sales for Resale 643 18,448 611 18,101 Total Primary Sales 15,085 149,979 14,971 149,791 Secondary Sales 93 1,876 396 22,051 Other Revenues/Rev. Adjust. 190 389 Total Operating Revenues 15,368 151,855 15,756 171,842 Primary sales, including retail and sales for resale, in the first quarter of 1997 were 149,979 MWH, approximately the same as last year. Secondary sales decreased by 20,175 MWH, reflecting a decrease in power marketing activities. During the first 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. As previously mentioned, since Maine Yankee was not available for -10- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) the same period in 1997, secondary sales for the quarter were limited to Wyman No. 4 entitlements. Retail revenues for the first quarter of 1997 were $14,442,000 compared to $14,360,000 for the same period of 1996, reflecting the 2.9% increase in retail rates effective February 1, 1997 offset by load retention discounts to certain large industrial customers that were approved by the Maine Public Utilities Commission. For the first quarters ended March 31, 1997 and 1996, total operating expenses were $14,847,000 and $13,461,000, respectively. The changes in operating expenses and energy sources are as follows: Increase/(Decrease) (Dollars in Thousands) $ MWH Purchased Power Expenses Maine Yankee 454 (64,386) Wheelabrator-Sherman 303 719 NB Power 2,171 63,769 Other Purchases 262 8,173 3,190 8,275 Generating Expenses (145) (29,625) Other Operation & Maint. Expenses (403) Depreciation (4) Amortization 10 Income Taxes (1,265) Taxes Other than Income 3 Total 1,386 (21,350) As previously mentioned, Maine Yankee was out of service for all of the first quarter of 1997, while it operated at a 90- percent level of operation for all but 24 days of the first quarter of 1996, resulting in a decrease in production of 64,386 MWH. For an update on Maine Yankee, please see the following section titled, "Maine Yankee". Hydro production decreased by 25,061 MWH because of abnormally high generation during the first quarter of 1996. To offset the loss of Maine Yankee and lower hydro production, purchases from NB Power increased by 63,769 MWH to meet the Company's energy requirements. Although energy purchased from Maine Yankee -11- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) decreased resulting in a reduction in fuel costs of $240,000, capacity expenses increased by $694,000 due to expenses to address issues identified in the ISA, resulting in a net increase of $454,000. Other operation and maintenance expenses decreased by $403,000 primarily due to the recognition of $402,000 in expenses related to an early retirement program in 1996. Generating expenses decreased by $145,000 because of reduced activity at the Caribou Steam Plant following Steam Units 1 and 2 placement on inactive status effective January 1, 1996. Maine Yankee The Company owns 5% of the Common Stock of Maine Yankee Atomic Power Company (Maine Yankee). As a result of an extended Maine Yankee outage that began December 6, 1996 and may last through the summer of 1997, the Company has been incurring replacement power costs of approximately $170,000 per week. In addition, the Company is responsible for additional operating costs of $2.3 million associated with an Independent Safety Assessment of Maine Yankee by the Nuclear Regulatory Commission. Further costs are being incurred as Entergy Corporation has begun providing management services to Maine Yankee. Additional costs may also be expected, if the complexity of cable separation and associated issues require an extended period for their resolution. These additional costs will adversely impact the Company's 1997 financial results. Maine Yankee believes the Plant will be out of service at least until August 1997, but cannot predict when or whether all of the regulatory and operational issues will be satisfactorily resolved or what effect the ultimate total of the repair and improvements to the Plant will have on the economics of operating the Plant. For additional information regarding Maine Yankee, reference is made to the Company's 1996 Annual Report, "Analysis of Financial Condition and Review of Operations- 1996, Maine Yankee", for discussion of the Nuclear Regulatory Commission's Independent Safety Assessment results issued October 7, 1996, and the current shutdown that began on December 6, 1996, to review and resolve cable separation and cable routing issues. -12- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) Financial Condition Net cash flows from operating activities were $196,000 for the first three months of 1997. The $3,229,000 decrease in net cash flow from operating activities reflects the additional replacement power costs and capacity expenses totalling approximately $1.7 million required in 1997 due to the unscheduled Maine Yankee outage that began on December 6, 1996 and continues until Maine Yankee is able to restart. For the period, $539,000 was invested in electric plant, $404,000 was paid in dividends and $25,000 was used to reduce long-term debt. Short-term borrowings increased by $400,000 for working capital and construction requirements. The Company drew down $450,000 in 1997 from the 1996 tax-exempt revenue bond proceeds based on qualifying property. For the three months ended March 31, 1996, net cash flows from operating activities were $3,425,000. For the first three months of 1996, the Company invested $552,000 in electric plant, paid $744,000 in dividends, reduced long term debt by $25,000, and reduced short-term borrowings by $1.4 million. In March 1996, the Company borrowed $10,000,000 under a refunding note from Fleet Bank of Maine to retire the 1991 tax-exempt bonds. In June, 1996, the refunding note was repaid using proceeds from the issuance of new tax-exempt bonds. The previously mentioned rate plan, approved by the MPUC on November 13, 1995 and effective January 1, 1996, 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. Reduction of Dividend As reported on the Company's March 7, 1997, Form 8-K, the Company's Board of Directors declared a quarterly dividend of $.25 (annualized rate of $1.00 per share) on the Company's Common Stock, payable April 1, 1997, to holders of record at the close of business March 14, 1997. This represents a -13- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) reduction of 46% from the Company's previous quarterly level of $.46 (annualized rate of $1.84) per share. This reduction was in response to the impact on the Company's earnings and cash flows of the ongoing outage at Maine Yankee. Amendments of Interest Coverage Tests in Financial Instruments The Company's short-term revolving credit agreement and a letter of credit supporting its 1996 tax-exempt revenue bonds contain interest coverage tests that the Company must satisfy to avoid default. As previously mentioned, the extended outage at Maine Yankee has adversely impacted the financial results for the first quarter of 1997. On March 28, 1997, the Company and the Banks agreed on amendments to the revolving credit agreement and letter of credit and reimbursement agreement which adjust the interest coverage tests to exclude Maine Yankee incremental replacement power costs through September 30, 1997. Under the amendment to the revolving credit agreement, the Company was obligated to issue a first mortgage bond of $11 million as collateral for the maximum amount of Company's obligations under the revolving credit agreement. Both amendments required the issuance of the first mortgage bond on or before May 15, 1997. On April 28, 1997 the Maine Public Utilities Commission approved the issuance of the first mortgage bonds, and the Company issued the bonds on May 5, 1997. Without these amendments, the Company would have been in violation of its interest coverage tests for the twelve months ended March 31, 1997 and would have been in default on these instruments. As mentioned above, the amendments to the Company's revolving credit agreement and letter of credit and reimbursement agreement only exclude Maine Yankee incremental replacement power costs through September 30, 1997. If Maine Yankee does not return to service prior to September 30, 1997, interest coverage tests for periods after September 30, 1997 would be required to reflect any incremental Maine Yankee replacement power costs after that date. -14- Form 10-Q PART 1. FINANCIAL INFORMATION Item 2. Management's Analysis of Quarterly Income Statements Results of Operations (Continued) 1997 Earnings As previously mentioned, Maine Yankee is not expected to return to service until later in the summer of 1997. The related replacement power and additional capacity expenses to address the cable separation issues and items addressed in the Independent Safety Assessment will adversely impact 1997 earnings, as demonstrated in this quarterly report. For 1997, based on the current estimate of Maine Yankee's return to service and replacement power costs, the Company estimates a small operating loss for the year. Under the Company's multi- year rate plan, described in the Company's 1996 Annual Report, the Company has the right to receive specified retail rate increases through 1999. This plan also includes provisions for additional cost recovery in certain extraordinary situations such as very low earnings or in the event of a Maine Yankee plant outage exceeding six consecutive months. The Company will continue to assess whatever options it may have to recover any additional costs and, in addition, is making every effort to reduce its 1997 cash expenditures. These efforts will include a review of the level of dividends on the Company's Common Stock. Forward-Looking Statements The above discussion may contain "forward-looking statements", as defined in the Private Securities Litigation Reform Act of 1995, related to expected future performance or our plans and objectives. Actual results could potentially differ materially from these statements. Therefore, there can be no assurance that actual results will not materially differ from expectations. Factors that could cause actual results to differ materially from our projections include, among other matters, electric utility restructuring; future economic conditions; changes in tax rates, interest rates or rates of inflation; developments in our legislative, regulatory, and competitive environment; and the results of safety investigations, the cost of maintenance or the operating performance of Maine Yankee. -15- Form 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings and Regulatory Matters (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 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 were: (a) The separation of the Company's generation assets (including contracts and entitlements) from its -16- Form 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings and Regulatory Matters (Continued) 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. On December 31, 1996, the MPUC issued its Recommended Plan on how to restructure Maine's electric utility industry. The 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. -17- Form 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings and Regulatory Matters (Continued) * Regulated public utilities would continue to provide electric transmission and distribution (T&D) 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 Plan does not recommend generation divestiture for the Company, but instead proposed to allow the Company to retain its generation assets in a separate, but wholly-owned, subsidiary. In making this recommendation, the MPUC relied upon MPS's relatively small size, its isolation from the rest of New England and concerns about the Company's Canadian Subsidiary. The Plan further stated that the MPUC would "periodically review whether divestiture [of the Company's generation assets] would be required". * The T&D utilities would retain their ownership interests in Maine Yankee, but would be required to transfer the rights to the output to an affiliated generation company. After 2005, BHE and CMP, but not the Company, would be required to sell the rights to the output to the highest bidder. * All contracts between the utilities and any qualifying facilities under PURPA will remain with the T&D 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. Because the MPUC's Recommended Plan does 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 substantially -18- Form 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings and Regulatory Matters (Continued) from those set forth in this 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 restructuring will have on the Company's business operations or financial results. (b) 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. On May 31, 1996, the FERC issued Order 888, a final rule on open transmission access and stranded cost recovery. As a result the Company has refiled its tariff to comply with the Order. A decision by the FERC regarding the fees under the Company's tariff is not expected until later in 1997. The Company cannot predict the FERC's ultimate decision in this matter. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None -19- Form 10-Q PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none. (b) A Form 8-K was filed on: January 31, 1997, under Item 5, Other Events; February 14, 1997, under Item 5, Other Events; March 7, 1997, under Item 5, Other Events; and March 31, 1997, under Item 5, Other Events, and Item 7, Exhibits. 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: May 12, 1997 /s/ Larry E. LaPlante Larry E. LaPlante, Vice President Finance, Administration and Treasurer -20- \TEXT> /DOCUMENT> EX-27 2 FINANCIAL DATA SCHEDULE FOR THREE MONTHS ENDED MARCH 31, 1997
UT 1,000 3-MOS DEC-31-1997 MAR-31-1997 PER-BOOK 49831 3767 11022 51250 0 115870 7357 38 30039 37434 0 0 39780 1800 0 0 1315 0 0 0 35541 115870 15368 (166) 15013 14847 521 73 594 848 (254) 0 (254) 404 766 196 .157 .157
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