-----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, A8xqcaTnT/YUhguKjZpG+S5J6eCgG2Gf8kGhHbcu6zkDgcN6yXqEdKlJHV6Sfk1O 8GYsDf0v9f0/ajuNBU3Wcg== 0000009548-00-000006.txt : 20000331 0000009548-00-000006.hdr.sgml : 20000331 ACCESSION NUMBER: 0000009548-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANGOR HYDRO ELECTRIC CO CENTRAL INDEX KEY: 0000009548 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 010024370 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10922 FILM NUMBER: 585408 BUSINESS ADDRESS: STREET 1: 33 STATE ST CITY: BANGOR STATE: ME ZIP: 04401 BUSINESS PHONE: 2079455621 MAIL ADDRESS: STREET 1: PO BOX 932 CITY: BANGOR STATE: ME ZIP: 04401 10-K 1 BANGOR HYDRO-ELECTRIC COMPANY 10K - 1999 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 1999 Commission File No. 0-505 ------------------ ----- BANGOR HYDRO-ELECTRIC COMPANY ------------------------------------------------- (Exact Name of Registrant as specified in its charter) MAINE 01-0024370 -------------------------- ------------------------ State of Incorporation) (I.R.S. Employer ID No.) 33 STATE STREET, BANGOR, MAINE 04401 ---------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 207-945-5621 --------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered COMMON STOCK, $5 PAR VALUE NEW YORK STOCK EXCHANGE -------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5 Par value (7,363,424 shares outstanding at March 20, 2000) ------------------------------------------------- 7% Preferred Stock, $100 Par Value ---------------------------------- 4 1/4% Preferred Stock, $100 Par Value ----------------------------------------- 4% Preferred Stock Series A, $100 Par Value ----------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value on March 20, 2000 of the voting stock held by non-affiliates of the registrant was $116.1 million. The information required by Part III Items 10, 11, 12 and 13 is incorporated by reference from the registrant's proxy statement which will be filed with the Securities and Exchange Commission within 120 days of the close of the registrant's fiscal year ended December 31, 1999. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 PAGE ---- Cover Page 1 Index 3 PART I: - ------ Items 1 through 2: Business; Properties 6 -General 6 -Certain Issues Facing the Company 8 -Construction Program 9 -Rates and Regulation 9 -Seabrook 10 -Joint Ventures 10 -Employees 12 -Power Supply Sources 12 -Company-owned Generation 12 -Power Purchase Contracts 12 -Maine Yankee 13 -Environmental Matters 18 Item 3: Legal Proceedings 18 Item 4: Submission of Matters to a Vote of Security Holders 19 PART II: - ------- Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6: Selected Financial Data 21 Item 7: Management's Discussion and Analysis of Results of Operations and Financial Condition 23 Item 8: Financial Statements & Supplementary Data 33 -Consolidated Statements of Income 33 -Consolidated Balance Sheets 34 -Consolidated Statements of Capitalizations 36 -Consolidated Statements of Cash Flows 37 -Consolidated Statements of Common Stock Investment 38 -Notes to Consolidated Financial Statements 39 1) Nature of Operations and Summary of Significant Accounting Policies 39 2) Income Taxes 41 3) Common and Preferred Stock and Earnings Per Share 43 4) Lending Agreements and Monetization of Power Sale Contract 44 5) Postretirement Benefits 45 6) Jointly Owned Facilities and Power Supply Commitments 48 7) Recovery of Seabrook Investment and Sale of Seabrook Interest 56 8) Unaudited Quarterly Financial Data 56 9) Fair Value of Financial Instruments 56 10) Industry Restructuring and Rate Regulation 57 11) Storm Damage 60 12) Construction of Facilities for Casco Bay Energy 60 13) Derivative Financial Instruments 60 14) Contingencies 61 Report of Independent Accountants 63 Item 7A: Quantitative and Qualitative Disclosures about Market Risk 64 Item 9: Changes in and Disagreements with Audit Firms on Financial Disclosures 64 PART III: - -------- Item 10: Directors and Executive Officers of the Registrant 64 Item 11: Executive Compensation 66 Item 12: Security Ownership of Certain Beneficial Owners and Management 68 Item 13: Certain Relationships and Related Transactions 69 PART IV: - ------- Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 70 Signatures 72 Report of Independent Accountants 73 Schedule VIII - Reserve for Doubtful Accounts 74 EXHIBIT INDEX: - ------------- Exhibits Filed Herewith 75 Exhibits Incorporated Herein by Reference 76 FORWARD LOOKING INFORMATION - In addition to the historical information contained herein, this report contains a number of statements that are "forward-looking" as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Factors that might cause such differences include, but are not limited to, future economic conditions, relationship with lenders, earnings retention and dividend payout policies, electric utility restructuring, developments in the legislative, regulatory and competitive environments in which the Company operates, and other circumstances that could affect revenues and costs. PART I - ------ ITEMS 1 THROUGH 2 BUSINESS; PROPERTIES - --------------------------------------- GENERAL - ------- The Company is a public utility primarily engaged in the transmission and distribution of electric energy, with a service area of approximately 5,275 square miles having a population of approximately 192,000 people. The Company serves approximately 107,000 customers in portions of the counties of Penobscot, Hancock, Washington, Waldo, Piscataquis and Aroostook. The Company also purchases energy at wholesale and sells energy to retail customers and to other utilities for resale. The Company owns approximately 600 miles of transmission lines and approximately 3,600 miles of distribution lines to serve its customers. The Company owns a variety of customer and business information systems used to manage its business operations. Other properties consist of office, garage and warehouse facilities at various locations in its service area. The Company has three material wholly-owned subsidiaries, Bangor Var Co., Inc. ("Bangor Var Co."), Penobscot Natural Gas Company, Inc. ("Penobscot Gas"), and Bangor Energy Resale, Inc. Bangor Var Co. was incorporated in 1990 to hold the Company's 50% interest in a partnership which owns certain facilities used in the Hydro-Quebec Phase II transmission project ("HQ-II") in which the Company is a participant. For a further discussion of Penobscot Hydro Co. and Bangor Var Co., see "Joint Ventures." Penobscot Gas is a corporation organized under Maine law in 1998. It was formed to be a general partner whose sole function is to own Bangor Hydro's interest in Bangor Gas Company, LLC ("Bangor Gas"). Bangor Gas is a limited liability company organized under Maine law in 1997. It was formed to be a local natural gas distribution company in the greater Bangor, Maine area. On March 7, 2000, the Company and Penobscot Gas entered into a Stock Purchase Agreement to sell the Company's interest in Penobscot Gas to SEMPRA Energy. For a further discussion of Penobscot Gas and Bangor Gas, see Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company - Bangor Gas Joint Venture". Finally, Bangor Energy Resale, Inc. was formed in 1997 as a special purpose vehicle to permit Bangor Hydro's use of a power sales agreement as collateral for a bank loan. For a further discussion of this transaction, see Note 4 to the Consolidated Financial Statements included in Item 8, below. In 1999, 30.4% of the Company's kilowatt hour ("KWH") sales were to residential customers, 31.1% were to commercial customers, 38.0% were to industrial customers and 0.5% were to other customers. For additional information concerning the Company's sales, see Item 6, "Selected Financial Data". The Company's KWH sales are generally higher during the winter months, with the winter peak electric demand usually 15% higher than the summer peak. During 1999, however, the Company experienced its maximum peak electric demand during the summer months, with the peak of approximately 293.08 megawatts ("MW") occurring on July 28, 1999. At that time the Company had approximately 267.72 MW of generating capacity and firm purchased power, comprised of 27.4 MW from Company-owned generating units, 44.3 MW from non-utility power producers, and 196.0 MW from short term contract purchases. The Company served the remainder of its peak demand though spot market purchases. The Company owns 7% of the common stock of Maine Yankee Atomic Power Company ("Maine Yankee"), which owns and, prior to its permanent closure in 1997, operated an 880 MW nuclear generating plant in Wiscasset, Maine. Maine Yankee, which had commenced commercial operation on January 1, 1973, is the only nuclear facility in which the Company has an ownership interest. The Company's equity ownership in the plant had entitled the Company to about 7% of the output pursuant to a cost-based power contract. Pursuant to a contract with Maine Yankee, the Company is obligated to pay its pro rata share of Maine Yankee's operating expenses, including decommissioning costs. In addition, under a Capital Funds Agreement entered into by the Company and the other sponsor utilities, the Company may be required to make its pro rata share of future capital contributions to Maine Yankee if needed to finance capital expenditures. See "Maine Yankee" and Note 6 to the Consolidated Financial Statements included in Item 8, below. The Company, along with the major investor-owned utilities of New England, has been a party to the New England Power Pool Agreement ("NEPOOL") since 1971. NEPOOL provides for joint planning and operation of generating and transmission facilities in New England, and governs generating capacity reserve obligations and provisions regarding the use of major transmission lines. The Company, as a member of NEPOOL, has a capability responsibility which involves carrying an allocated share of a New England capacity requirement which is determined for each period based on certain regional reliability criteria. On December 1, 1996, the members of NEPOOL, including the Company, entered into the 33rd Amendment to the NEPOOL Agreement which provided for a substantial restructuring of NEPOOL. This revised agreement, together with NEPOOL's Open Access Transmission Tariff were filed with the Federal Energy Regulatory Commission on December 31, 1996 and were subsequently approved. Pursuant to this restructuring, effective July 1, 1997 an independent system operator, ISO-New England, assumed oversight of the operations and integration of the NEPOOL transmission and generation with respect to reliability and market operations. The intent of these changes in NEPOOL is to increase competition in the market for electric generation. The Company is subject to the regulatory authority of the Maine Public Utilities Commission ("MPUC") as to retail distribution rates, accounting, service standards, territory served, the issuance of securities and various other matters. The Company is also subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") as to certain matters, including rates for wholesale purchases and sales of energy and capacity and transmission services. Maine Yankee is subject to extensive regulation by the Nuclear Regulatory Commission ("NRC"). See "Rates and Regulation." The principal executive offices of the Company are located at 33 State Street, Bangor, Maine 04401; telephone (207) 945-5621. CERTAIN ISSUES FACING THE COMPANY --------------------------------- CHANGES IN THE ELECTRIC UTILITY INDUSTRY AND IN REGULATION - Pursuant to "An Act to Restructure the State's Electric Industry", enacted in 1997 by the Maine Legislature, effective March 1, 2000, the Company is no longer permitted to engage directly in the generation and sale of electric energy unless designated by the Maine Public Utilities Commission to provide so- called "standard offer" service. For the period March 1, 2000 through February 28, 2001, the MPUC has ordered the Company to assume the responsibility for providing standard offer service. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company - Standard Offer Service" and Note 10 to the Consolidated Financial Statements included in Item 8, below. The Company will remain regulated as a provider of electricity transmission and distribution services. As part of the restructuring process, the Company completed the sale on May 27, 1999 of substantially all Company-owned generation assets to PP&L Global, Inc., a subsidiary of PP&L Resources, Inc. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company - Sale of Company's Generating Assets" and Note 10 to the Consolidated Financial Statements included in Item 8, below. RATES AND REGULATION - See "Rates and Regulation", below, together with Note 10 to the Consolidated Financial Statements included in Item 8, below, for a discussion of recent and pending regulatory proceedings affecting the Company's rates and revenues. YEAR 2000 ISSUE - See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company" for a discussion of the effect of the Year 2000 Issue on the Company. PERC POWER CONTRACT RESTRUCTURING - See Note 6 to the Consolidated Financial Statement included in Item 8, below, for a discussion of the effect on the Company of the restructuring of its power contract with Penobscot Energy Recovery Company ("PERC"). OTHER ISSUES - See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company" for a discussion of the effect of other significant issues and events on the Company. CONSTRUCTION PROGRAM -------------------- The Company's construction program consists of extensions and improvements of its transmission and distribution facilities, capital improvements to the Company's internal computer and information systems and other general projects within the Company's service area. The Company projects that capital expenditures will aggregate approximately $40-50 million in the period 2000 through 2002. RATES AND REGULATION -------------------- RATE MATTERS - The Company has been involved in rate proceedings with the MPUC since mid-1998 to determine its revenue requirement as a T&D utility starting March 1, 2000 and the recoverability of the Company's stranded costs. In February 2000, the Company received a final rate order from the MPUC setting its T&D and stranded cost rates effective March 1, 2000. The Company's total annual revenue requirement as set in the rate proceedings, including $40 million associated with stranded cost recovery, amounted to $ 103.2 million. The stranded cost recovery includes the decommissioning and other plant closure expenses for Maine Yankee. There were no write-offs of previously deferred costs based on the final rate order. In Maine, stranded costs are treated in the same manner as most other costs and may be included in calculations for prospective rate changes. Absent any rate proceedings, however, in 2003 and every three years thereafter until the stranded costs are recovered, the MPUC shall review and reevaluate the stranded cost recovery. Customers reducing or eliminating their consumption of electricity by switching to self-generation, conversion to alternative fuels or utilizing demand-side management measures cannot be assessed exit or entry fees. OTHER REGULATION - The MPUC regulates numerous other matters affecting the Company, including financing, construction of transmission facilities, credit and collection, conservation and demand side management programs, low income rate subsidies and purchases from non-utility power producers. Maine Yankee is subject to extensive regulation by the NRC. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, require modification of nuclear power generating units for which operating or nonoperating licenses have already been issued, or impose new conditions on such permits or licenses. The FERC regulates rates for transmission services and rates for sales of electricity to other utilities. SEABROOK -------- GENERAL - The Company was a participant in Seabrook from 1978 to 1986, with an ownership interest of 2.17%, or 25 MW, in each of the two 1150 MW units. Unit 2 was effectively canceled in 1984. In late 1984, following a lengthy MPUC investigation, the conclusion of which cast doubt on the wisdom of the Maine utilities' continued participation in Seabrook, the Company began efforts to sell its interest in the project. An agreement for the sale of Seabrook to EUA Power Corp. was reached in mid-1985 and was consummated in November 1986. In 1985, the MPUC approved an agreement among the Company, the MPUC Staff and the Public Advocate addressing the recovery through rates of the Company's investment in Seabrook ("Seabrook Stipulation"). Although implementation of the Seabrook Stipulation significantly improved the Company's financial condition, substantial write-offs were required. In August 1989, a comprehensive settlement agreement entered into by current and former joint owners of Seabrook became effective. Under the agreement, the signatories, representing virtually all of the ownership interests in Seabrook, relinquished claims against the lead owner, Public Service Company of New Hampshire, arising out of Seabrook. As a part of the settlement, former joint owners, including the Company, were relieved of certain contingent liabilities. JOINT VENTURES -------------- BANGOR GAS - In 1998 the Company formed Penobscot Gas, whose sole function was to be a 50% general partner in Bangor Gas Company, LLC (Bangor Gas), which is constructing a natural gas distribution system in the greater Bangor, Maine area. Sempra Energy, a joint venture of Pacific Enterprises and Enova Corporation, owns the other 50% interest in Bangor Gas. Gas service to Maine has become feasible for the first time because of the development of the Maritimes & Northeast Pipeline Project, extending from the Sable Offshore Energy Project near Sable Island, Nova Scotia, through the state of Maine and interconnecting with the Tennessee Gas Pipeline in Dracut, Massachusetts. The pipeline passes near the Bangor area. As the restructuring of the electric industry in Maine has developed, the Company has become increasingly cognizant of the need to focus on its core electric transmission and dis- tribution business. Consequently the Company has determined that it no longer desires to participate in the Bangor Gas joint venture. On March 7, 2000, the Company and Penobscot Gas entered into a Stock Purchase Agreement to sell the Company's interest in Penobscot Gas to SEMPRA Energy. Penobscot Gas' investment in Bangor Gas as of December 31, 1999 is approximately $328,000 and is recorded as an Other Investment on the Consolidated Balance Sheets. NEPOOL/HYDRO-QUEBEC - The Company is a 1.6% participant in the NEPOOL/Hydro- Quebec Phase 1 project (Phase 1), a 690 MW DC intertie between the New England utilities and Hydro-Quebec constructed by a subsidiary of another New England utility at a cost of about $140 million. The participants receive their respective share of savings from energy transactions with Hydro-Quebec, and are obliged to pay for their respective shares of the costs of ownership and operation whether or not any savings are realized. The Company is also a 1.5% participant in the NEPOOL/Hydro-Quebec Phase 2 project (Phase 2), which involves an increase to the capacity of the Phase 1 intertie to 2,000 MW. As in the Phase 1 project, the Company receives a share of the anticipated energy cost savings derived from purchases from Hydro-Quebec and capacity benefits provided by the intertie and is required to pay its share of the costs of ownership and operation whether or not any savings are obtained. In connection with the generation asset sale in May 1999, the Company sold its rights as a participant in the regional utilities agreement with Hydro-Quebec. See Note 6 to the Consolidated Financial Statements included in Item 8, below. The Company, though, is still required to pay its share of the costs of ownership and operation of the Hydro-Quebec intertie. Also in connection with the asset sale, PP&L Global (PP&L) has agreed to pay the Company $400,000 per year to partially offset the Company's on-going Hydro-Quebec support payments. Since the Company still has an obligation for the costs of the Hydro-Quebec intertie, but it has sold the rights to the benefits as a participant, a $7.5 million liability (included in Other Long-term Liabilities) and corresponding regulatory asset (included in Other Regulatory Assets) have been recorded as of December 31, 1999 on the Consolidated Balance Sheet representing the present value of the Company's estimated future payments (net of the $400,000 to be received from PP&L) for costs of ownership and operation of the Hydro-Quebec intertie. BANGOR VAR CO. - In 1990, the Company formed BVC, whose sole function is to be a 50% general partner in Chester, a partnership which owns a static var compensator (SVC), which is electrical equipment that supports the Phase 2 transmission line. A wholly-owned subsidiary of Central Maine Power Company owns the other 50% interest in Chester. Chester has financed the acquisition and construction of the SVC through the issuance of $33 million in principal amount of 10.48% senior notes due 2020, and up to $3.25 million in principal amount of additional notes due 2020 (collectively, the SVC Notes). The holders of the SVC Notes are without recourse against the partners or their parent companies and may only look to Chester and to the collateral for payment. The New England utilities which participate in Phase 2 have agreed under a FERC approved contract to bear the cost of Chester, on a cost of service basis, which includes a return on and of all capital costs. MEPCO - The Company owns 14.2% of the common stock of MEPCO. MEPCO owns and operates electric transmission facilities from Wiscasset, Maine, to the Maine-New Brunswick border. Information relating to the operations and financial position of Maine Yankee and MEPCO appears above. In connection with the Company's generation asset sale, the Company sold certain of its rights to MEPCO transmission capacity. See Note 10 to the Consolidated Financial Statements included in Item 8, below. EMPLOYEES --------- At December 31, 1999, the Company had 429 full time employees approximately 50% of whom were represented by a local union affiliated with the International Brotherhood of Electrical Workers (AFL-CIO). The present collective bargaining agreement with union employees expires December 31, 2004. The Company believes that its relations with its employees are satisfactory. POWER SUPPLY SOURCES -------------------- COMPANY-OWNED GENERATION - As part of the electric industry restructuring process in the State of Maine, on May 27, 1999, the Company completed the sale of most of its electric generating assets and certain transmission rights to PP&L Global, Inc. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company - Sale of Company's Generating Assets". The Company continues to own eleven internal combustion generation units located at three stations having a total capacity of 21 MW. These units are used to provide voltage support for the Company's local transmission and distribution system, as needed, and to provide generating capacity to serve the Company's power sales contract with UNITIL Power Corp., a New Hampshire based electric utility, with a contract term ending in the year 2003. POWER PURCHASE CONTRACTS - The following chart sets forth information concerning the Company's major power purchase contracts exclusive of Maine Yankee. CONTRACTED QUANTITY OF SELLER TERM OF CONTRACT CAPACITY OR ENERGY - ---------- -------------------- ------------------------- Bangor-Pacific August 21, 1986 through Total output of energy (Hydroelectric) May 31, 2024, at which from facility with name time Company can either plate rating of not more purchase the facility than 16 MW at its fair market value or extend the contract for an additional 15 years (if the West Enfield Project's FERC license is also extended) Penobscot Energy January 21, 1984 through Total output of firm Recovery Company February 28, 2018 energy; minimum annual ("PERC")(Refuse) delivery of 105,000,000 KWH up to a maximum of 166,440,000 KWH per calendar year As part of the electric industry restructuring process in the State of Maine, in late 1999, the Company entered into a contract to sell the output of these contracts to Morgan Stanley Capital Group, a subsidiary of Morgan Stanley Dean Witter & Company, for a two year period. Also a part of the transaction are all of the energy and capacity from several smaller agreements with Pumpkin Hill, Milo, Green Lake and Sebec Hydro. See Note 6 to the Consolidated Financial Statements included in Item 8, below. For the period March 1, 2000 through February 28, 2001, the MPUC has ordered the Company to assume the responsibility for providing standard offer service. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting The Electric Utility Industry And The Company - Standard Offer Service" and Note 10 to the Consolidated Financial Statements included in Item 8, below. The Company intends to meet its obligations through short term contracts and spot market purchases, a strategy that has been approved by the MPUC. MAINE YANKEE ------------ GENERAL - The Company owns 7% of the common stock of Maine Yankee, which owns and, prior to its permanent closure in 1997, operated an 880 MW nuclear generating plant in Wiscasset, Maine. Maine Yankee, which had commenced commercial operation on January 1, 1973, is the only nuclear facility in which the Company has an ownership interest. The Company's equity ownership in the plant had entitled the Company to about 7% of the output pursuant to a cost-based power contract. Pursuant to a contract with Maine Yankee, the Company is obligated to pay its pro rata share of Maine Yankee's operating expenses, including decommissioning costs. In addition, under a Capital Funds Agreement entered into by the Company and the other sponsor utilities, the Company may be required to make its pro rata share of future capital contributions to Maine Yankee if needed to finance capital expenditures. PERMANENT SHUTDOWN OF THE MAINE YANKEE PLANT - On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently cease power operations at its nuclear generating plant at Wiscasset, Maine (the "Plant") and to begin decommissioning the Plant. The Plant had experienced a number of operational and regulatory problems and did not operate after December 6, 1996. The decision to close the Plant permanently was based on an economic analysis of the costs, risks and uncertainties associated with operating the Plant compared to those associated with closing and decommissioning it. The Plant's operating license from the NRC was scheduled to expire in 2008. MAINE YANKEE RATE CASE SETTLEMENT - On November 6, 1997, Maine Yankee submitted to FERC for filing certain amendments to the Power Contracts (the "Amendatory Agreements") and revised rates to reflect the decision to shut down the Plant and to request approval of an increase in the decommissioning component of its formula rates. Maine Yankee's submittal also requested certain other rate changes, including recovery of unamortized investment (including fuel) and certain changes to its billing formula, consistent with the non-operating status of the Plant. By Order dated January 14, 1998, the FERC accepted Maine Yankee's new rates for filing, subject to refund after a minimum suspension period, and set for hearing Maine Yankee's Amendatory Agreements, rates, and issues concerning the prudence of the Plant shutdown decision that had been raised by intervenors. During 1998 and early 1999 the active intervenors, including among others the MPUC Staff, the Maine Office of the Public Advocate ("OPA"), the Company and other owners, municipal and cooperative purchasers of Maine Yankee power (the "Secondary Purchasers"), and a Maine environmental group (the "Settling Parties"), engaged in extensive discovery and negotiations, which resulted in the filing of a settlement agreement with the FERC on January 19, 1999. A separately negotiated settlement filed with the FERC on February 5, 1999, resolved the issues raised by the Secondary Purchasers by limiting the amounts they will pay for decommissioning the Plant and by settling other points of contention affecting individual Secondary Purchasers. Both settlements were found to be in the public interest and approved by the FERC on June 1, 1999. The settlements constitute full settlement of all issues raised in the FERC proceeding, including decommissioning-cost issues pertaining to the prudence of management, operation, and decision to permanently cease operation of the plant. The primary settlement provided for Maine Yankee to collect $33.1 million in the aggregate annually, effective August 1, 1999, including both decommissioning costs and costs related to Maine Yankee's planned on-site independent spent fuel storage installation ("ISFSI"). The 1997 FERC filing had called for an aggregate annual collection rate of $36.4 million for decommissioning and ISFSI, based on a 1997 estimate. Pursuant to the approved settlement the amount collected annually has been reduced to approximately $15.6 million, effective October 1, 1999, as a result of 1999 Maine legislation allowing Maine Yankee to (1) use for construction of the ISFSI funds held in trust under Maine law for spent-fuel disposal, and (2) access approximately $6.8 million held by the State of Maine for eventual payment to the State of Texas pursuant to a compact for low-level nuclear waste disposal, the future of which is in question after rejection of the selected disposal site in west Texas by a Texas regulatory agency. The settlement also provides for recovery of the unamortized investment (including Fuel) in the Plant, together with a return on equity of 6.50 percent, effective January 15, 1998, on equity balances up to maximum allowed equity amounts, which resulted in a refund of $9.3 million (including tax impacts) distributed to the sponsors on a pro rata basis on July 15, 1999. The Settling Parties also agreed not to contest the effectiveness of the Amendatory Agreements submitted to FERC as part of the original filing, subject to certain limitations including the right to challenge any accelerated recovery of unamortized investment under the terms of the Amendatory Agreements after a required informational filing with the FERC by Maine Yankee. In addition, the settlement contains incentives for Maine Yankee to achieve further savings in its decommissioning and ISFSI-related costs and resolves issues concerning restoration and future use of the Plant site and environmental matters of concern to certain of the intervenors in the proceeding. As a separate part of the settlement, the Company, the other two Maine utilities which own interests in Maine Yankee, the MPUC Staff, and OPA entered into a further agreement resolving retail rate issues and other issues specific to the Maine parties, including those that had been raised concerning the prudence of the operation and shutdown of the Plant (the "Maine Agreement"). Under the Maine Agreement, the Company is recovering its Maine Yankee costs in accordance with its most recent rate order from the MPUC. Finally, the Maine Agreement requires the Company and the other two Maine utilities, for the period from March 1, 2000, through December 1, 2004, to hold their Maine retail ratepayers harmless from the amounts by which the replacement power costs for Maine Yankee Board of Directors that served as a basis for the Plant shutdown decision, up to a maximum cumulative amount of $41 million. The Company's share of that amount would be $5.7 million for the period. Based on the results of the two-year entitlement auction already completed, the Company will not incur any liability for this provision in year 2000 and does not believe that it will incur any liability in 2001. The Company believes that the approved settlement, including the Maine Agreement, constitutes a reasonable resolution of the issues raised in the Maine Yankee FERC proceeding, which has eliminated significant uncertainties concerning and the Company's future financial performance. LOW-LEVEL WASTE DISPOSAL. The federal Low-Level Radioactive Waste Policy Amendments Act (the "Waste Act"), enacted in 1986, required states either alone or in multistate compacts to provide for the disposal of low-level radioactive waste generated within their borders. Subsequently, the states of Maine, Texas and Vermont entered into a compact for the disposal of low- level waste at a site in Texas. The compact provides for Texas to take Maine's low-level waste over a 30-year period for disposal at a then-planned facility in west Texas. In return, Maine would be required to pay $25 million, assessed to Maine Yankee by the State of Maine, payable in two equal installments, the first after ratification by Congress and the second upon commencement of operation of the Texas facility; or, as a possible alternative, the states could agree to a financing arrangement for the payment, in which case Maine Yankee's share, along with interest, could be paid out over an extended period of time. In addition, Maine Yankee would be assessed a total of $2.5 million for the benefit of the Texas county in which the facility would be located and would also be responsible for its pro-rata share of the Texas governing commission's operating expenses. The bill providing for ratification of the compact was before several sessions of the Congress before finally being approved in September, 1998. However, in October, 1998, the Texas Natural Resources Conservation Commission voted to deny a permit for the proposed west Texas site for the facility. Since the Maine Yankee Plant has permanently stopped operating, the compact is less beneficial to Maine Yankee than it would have been if the Plant had remained in operation, due to the new schedule for Maine Yankee's shipments and the uncertainty associated with the schedule for opening a Texas facility. Although other potential sites in Texas have been proposed by various parties, the Company cannot predict whether or when a facility in Texas will be licensed and built. Maine Yankee intends to utilize its on- site storage facility as well as dispose of low-level waste at an active South Carolina site or other available sites in the interim and continue to cooperate with the State of Maine in pursuing all appropriate options. NUCLEAR INSURANCE. The Price-Anderson Act is a federal statue providing, among other things, a limit on the maximum liability for damages resulting from a nuclear incident. Coverage for the liability is provided for by existing private insurance and retrospective assessments for costs in excess of those covered by insurance, up to $88.1 million for each reactor owned, with a maximum assessment of $10 million per reactor in any year. However, after appropriate exemptive action by the NRC Maine Yankee, and therefore its sponsors, are not responsible for retrospective assessments resulting from any event or incident occurring after January 7, 1999. SPENT FUEL - Maine Yankee's spent fuel is currently stored in the spent fuel pool at the Plant site. Federal legislation enacted in December 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also provided for the possible development of a Monitored Retrievable Storage ("MRS") facility and abandoned plans to identify and select a second permanent disposal site. An MRS facility would provide temporary storage for high-level waste prior to eventual permanent disposal. The DOE has indicated that the permanent disposal site is not expected to open before 2010, although originally scheduled to open in 1998. The United States Congress has been unable to agree on legislation to reform the federal spent nuclear fuel program. In 1994, several nuclear utilities other than Maine Yankee filed suit against the DOE. The utilities sought a declaration from the United States Court of Appeals for the District of Columbia Circuit that the Nuclear Waste Policy Act of 1982 required the DOE to take responsibility for spent nuclear fuel in 1998. In July 1996, the court held that the DOE was obligated "to start disposing of [spent nuclear fuel] no later than January 31, 1998". The DOE did not appeal the decision, but announced in December 1996 that it anticipated it would be unable to start accepting spent nuclear fuel for disposal by January 31, 1998. A large number of nuclear utilities and state regulators filed a new lawsuit against the DOE in January 1997 seeking to force the DOE to honor its obligation to store spent nuclear fuel and seeking other appropriate relief. In November 1997, the U.S. Court of Appeals for the District of Columbia Circuit confirmed the DOE's obligation. On February 19, 1998, Maine Yankee filed a petition in the same court seeking to compel the DOE to take Maine Yankee's spent fuel from the Plant site "as soon as physically possible," alleging that removing the spent fuel on the DOE's indicated schedule would delay the decommissioning of the Maine Yankee Plant indefinitely. On May 5, 1998, the Court dismissed Maine Yankee's lawsuit, as well as that of the other nuclear utilities and state regulators, saying that petitioners' failure to pursue remedies under the standard contract rendered their appeal not appropriate at that time for review. On June 2, 1998, Maine Yankee filed a claim for money damages in the U.S. Court of Federal Claims for the costs associated with the DOE's failure to begin to take fuel in 1998. On November 3, 1998, the Court granted summary judgment in favor of Maine Yankee, ruling that the DOE had violated its contractual obligations and leaving the amount of damages incurred by Maine Yankee for later determination by the Court. Maine Yankee expects the hearing on its claim to take place in late 1999. Maine Yankee intends to pursue its claim for damages vigorously, but as an alternative to DOE disposal is considering construction of an independent spent-fuel storage installation ("ISFSI") on the Plant site. HAZARDOUS SUBSTANCE SITE - Maine Yankee has been notified by the Maine Department of Environmental Protection ("DEP") that it is one of many potentially responsible parties under the Maine Uncontrolled Hazardous Substance Sites law for having arranged for the transport of hazardous substances to sites owned by the Portland Bangor Waste Oil Company that have been designated uncontrolled hazardous substance sites by the DEP. Under the Maine law, each responsible party is jointly and severally liable for costs associated with the abatement, cleanup or mitigation of the hazards at such a site. Since the investigations by the DEP and Maine Yankee are in their early stages and a large number of potentially responsible parties are involved, the Company cannot now predict the amount of costs that Maine Yankee will ultimately be required to assume. Environmental costs that are unrelated to the decommissioning and dismantlement of the Plant site could generally be considered to be operation and maintenance costs to be recovered through Maine Yankee's billing process. Site characterization work at the Plant site, an initial part of the decommissioning process, and related activities could give rise to additional environmental issues. ENVIRONMENTAL MATTERS - --------------------- The Company is regulated by the United States Environmental Protection Agency ("EPA") as to compliance with the Federal Water Pollution Control Act, the Clean Air Act, and several federal statutes governing the treatment and disposal of hazardous wastes. The Company is also regulated by the Maine Department of Environmental Protection ("MDEP") under various Maine environmental statutes. Although the Company is actively engaged in complying with these federal and state acts and statutes, the costs of which are significant, it has not, to date, encountered material difficulties in connection with such compliance. In 1992, the Company received notice from the Maine Department of Environmental Protection that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the United States Environmental Protection Agency placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act and will pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based upon currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 1999, the liability recorded by the Company for its estimated environmental remediation costs amounted to $331,000. The Company's actual future remediation costs may be higher as additional factors become known. The Company estimates that during 2000 it will spend approximately $373,465 in operations expenses and $55,500 in capital expenditures to comply with environmental standards for air, water and hazardous materials. Item 3 LEGAL PROCEEDINGS ----------------- See Note 14 to the Company's Financial Statements for a discussion of potential liabilities under the Comprehensive Environmental Response, Compensation, and Liability Act. Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- Not applicable. PART II - ------- ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------ --------------------------------------------------------------------- As of December 31, 1999, there were 5,768 holders of record of the Company's common stock. The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "BGR". The following table sets forth the high and low prices for the Common Stock as reported by the NYSE. The prices shown do not include commissions. Dividends Declared Fiscal Period High Low Per Share - ------------- ---- --- --------- 1998 - ---- First Quarter................ $8 5/8 $6 1/8 $.00 Second Quarter............... 9 1/8 7 11/16 .00 Third Quarter................ 10 15/16 7 15/16 .00 Fourth Quarter............... 12 13/16 9 .00 1999 - ---- First Quarter................ $14 5/16 $12 9/16 $.00 Second Quarter............... 16 3/8 11 7/8 .15 Third Quarter................ 16 15/16 15 3/4 .15 Fourth Quarter............... 17 5/16 15 .15 2000 - ---- First Quarter (through March 20, 2000).. $16 1/4 $14 1/8 $.20 Approximately 82% of the outstanding shares of common stock are registered in the "street names" of depositories and brokers for the benefit of their clients who are unknown to the Company. Therefore, the actual number of stockholders at any given time, including these "beneficial owners", is likely to be substantially greater than the number of holders shown on the Company's records. The Company's credit agreements with its lending banks and the Finance Authority of Maine contain a number of covenants keyed to the Company's financial condition and performance. One such covenant currently prohibits the Company from paying dividends on or make certain other defined payments with respect to its common stock, including repurchases of equity securities, of more than 60% of its earnings applicable to common stock during any calendar year. Item 6 Selected Financial Data BANGOR HYDRO-ELECTRIC COMPANY SIX-YEAR STATISTICAL SUMMARY (Unaudited)
1999 1998 1997 1996 1995 1994 - ----------------------------------------- --------- --------- --------- --------- --------- --------- Megawatt Hours (MWH) Generated And Purchased Hydro Generation (Company) 205,265 275,379 262,377 321,532 275,810 271,616 Nuclear Generation (Maine Yankee) - - - 348,719 13,606 456,871 Oil (Company) 69,026 96,476 69,580 26,912 50,706 35,759 Biomass/Refuse 137,384 156,051 159,990 163,279 177,558 190,218 NEPOOL/Other Purchases 1,629,643 1,522,125 1,583,093 1,359,116 1,540,530 958,363 --------- --------- --------- --------- --------- --------- Total Generated & Purchased 2,041,318 2,050,031 2,075,040 2,219,558 2,058,210 1,912,827 Less Line Losses and Company Use 143,198 139,028 147,298 141,426 140,128 136,908 --------- --------- --------- --------- --------- --------- Remainder-MWH sold 1,898,120 1,911,003 1,927,742 2,078,132 1,918,082 1,775,919 ========= ========= ========= ========= ========= ========= Classification of Sales-MWH Residential 533,566 522,836 533,161 536,490 513,076 516,470 Commercial 545,087 524,292 515,904 508,331 507,243 504,992 Industrial 667,059 662,382 687,365 652,087 690,863 614,169 Lighting 8,911 8,901 8,780 8,945 9,547 9,416 Wholesale 2,716 2,704 3,841 4,486 10,961 11,705 --------- --------- --------- --------- --------- --------- Total MWH Billed to Customers 1,757,339 1,721,115 1,749,051 1,710,339 1,731,690 1,656,752 Unbilled Sales-Net Increase (Decrease) 11,772 1,040 33,011 2,998 4,658 6,366 --------- --------- --------- --------- --------- --------- Total Delivered Sales (MWH) 1,769,111 1,722,155 1,782,062 1,713,337 1,736,348 1,663,118 (Less) Interruptible Sales 230,378 248,091 265,438 237,553 295,818 231,128 --------- --------- --------- --------- --------- --------- Total Firm Delivered Sales (MWH) 1,538,733 1,474,064 1,516,624 1,475,784 1,440,530 1,431,990 Off-System Sales 129,009 188,848 145,680 364,795 181,734 112,801 --------- --------- --------- --------- --------- --------- Total Energy Sales (MWH) 1,898,120 1,911,003 1,927,742 2,078,132 1,918,082 1,775,919 ========= ========= ========= ========= ========= ========= Electric Operating Revenues and Expenses (000's) Operating Revenues Residential $73,304 $71,396 $67,532 $66,805 $66,061 $64,008 Commercial 63,093 60,191 55,391 54,010 54,702 53,250 Industrial 43,560 42,645 41,930 39,105 40,257 37,200 Lighting 2,268 2,207 2,065 2,032 2,051 2,010 Wholesale 220 235 310 314 859 937 --------- --------- --------- --------- --------- --------- Total Revenue from Customers $182,445 $176,674 $167,228 $162,266 $163,930 $157,405 Unbilled Sales-Net Increase (Decrease) 2,042 481 2,375 408 210 1,450 --------- --------- --------- --------- --------- --------- Total Revenue $184,487 $177,155 $169,603 $162,674 $164,140 $158,855 (Less) Interruptible Revenue 10,049 11,064 11,215 9,537 11,149 8,450 --------- --------- --------- --------- --------- --------- Total Firm Revenue $174,438 $166,091 $158,388 $153,137 $152,991 $150,405 Off-System Revenue 12,947 14,630 13,615 18,384 14,098 12,750 --------- --------- --------- --------- --------- --------- Total Operating Revenues $197,434 $191,785 $183,218 $181,058 $178,238 $171,605 ========= ========= ========= ========= ========= ========= Operating Expenses Fuel for Generation and Purchased Power $80,748 $82,027 $92,792 $78,477 $98,684 $104,132 Operating and Maintenance Expense 36,492 34,448 32,471 32,441 35,711 33,498 Depreciation and Amortization 30,565 31,891 35,104 29,965 20,544 10,333 Taxes 14,032 11,642 3,168 10,249 6,306 8,803 --------- --------- --------- --------- --------- --------- Total Operating Expenses $161,837 $160,008 $163,535 $151,132 $161,245 $156,766 ========= ========= ========= ========= ========= ========= Summary of Operations (000's) Operating Revenue $197,994 $195,144 $187,324 $187,374 $184,914 $174,098 Operating Expenses 161,837 160,008 163,535 151,132 161,245 156,766 Other Income (including equity AFDC) 2,806 1,292 1,292 1,466 760 1,308 Interest Expense (net of borrowed AFDC) 20,683 24,963 25,467 26,425 20,092 11,183 --------- --------- --------- --------- --------- --------- Net Income (Loss) $18,280 $11,465 ($386) $11,283 $4,337 $7,457 Less Preferred Dividends 945 1,244 1,376 1,537 1,702 1,652 --------- --------- --------- --------- --------- --------- Earnings (Loss) on Common Stock $17,335 $10,221 ($1,762) $9,746 $2,635 $5,805 ========= ========= ========= ========= ========= ========= Selected Financial Data Total Assets (000's) $543,950 $605,688 $600,583 $556,629 $566,076 $381,250 Electric Plant (000's) Total Electric Plant $318,435 $372,782 $358,878 $341,526 $323,664 $303,637 Depreciation Reserve 84,825 101,633 96,595 87,736 81,934 75,667 --------- --------- --------- --------- --------- --------- Net Electric Plant $233,610 $271,149 $262,283 $253,790 $241,730 $227,970 ========= ========= ========= ========= ========= ========= Capitalization (000's) Short-Term Debt - $12,000 $34,000 $32,500 $35,000 $27,000 Long-Term Debt 183,300 263,028 221,643 274,221 288,075 116,367 Redeemable Preferred Stock - 7,604 9,137 10,670 12,070 13,740 Preferred Stock 4,734 4,734 4,734 4,734 4,734 4,734 Common Equity 132,722 118,864 106,558 108,321 103,192 105,658 --------- --------- --------- --------- --------- --------- Total $320,756 $406,230 $376,072 $430,446 $443,071 $267,499 ========= ========= ========= ========= ========= ========= Capital Structure Ratios (%) Short-Term Debt -% 3.0% 9.1% 7.5% 7.9% 10.1% Long-Term Debt 57.1% 64.7% 58.9% 63.7% 65.0% 43.5% Preferred Stock 1.5% 3.0% 3.7% 3.6% 3.8% 6.9% Common Stock 41.4% 29.3% 28.3% 25.2% 23.3% 39.5% --------- --------- --------- --------- --------- --------- Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= ========= ========= Miscellaneous Statistics Shares Outstanding (Average) 7,363,424 7,363,424 7,363,424 7,336,174 7,264,360 6,947,746 Shares Outstanding (Year End) 7,363,424 7,363,424 7,363,424 7,363,424 7,301,557 7,185,143 Number of Common Stockholders (Year End) 5,678 6,328 6,868 7,734 8,250 7,705 Basic Earnings (Loss) Per Common Share $2.35 $1.39 ($0.24) $1.33 $0.36 $0.84 Diluted Earnings (Loss) Per Common Share $2.08 $1.33 ($0.24) $1.33 $0.36 $0.84 Dividends Declared Per Common Share $0.45 - - $0.72 $0.87 $1.32 Book Value Per Common Share $18.02 $16.14 $14.47 $14.71 $14.13 $14.71 Return on Common Equity 13.81% 9.11% (1.64)% 9.09% 2.51% 5.55% Ratio of AFDC to Common Stock Earnings (4)% 11% (48)% 12% 48% 45% Ratio of Earnings to Fixed Charges 2.25% 1.59% 0.86% 1.50% 1.14% 1.49% Payout Ratio 26% -% -% 54% 242% 157% Percentage of Construction Expenditures Funded Internally 100% 100% 100% 100% 86% 72% ========= ========= ========= ========= ========= ========= Residential Customer Data Average Number of Customers 91,726 90,888 90,433 89,769 86,194 85,041 Kilowatt-Hours per Customer 5,817 5,753 5,896 5,976 5,953 6,073 Revenue per Customer $799.16 $785.54 $746.76 $744.19 $766.42 $752.67 Revenue per Kilowatt-Hour in Cents 13.74 13.65 12.67 12.45 12.88 12.39 ========= ========= ========= ========= ========= ========= Miscellaneous System Data Net System Capability at Time of Peak (MW) Firm* 273.72 381.54 344.44 373.04 330.01 340.45 System Peak Demand (MW) 293.08 281.63 277.06 274.32 267.98 275.84 Reserve Margin at Time of Peak** (6.6)% 35.5% 24.3% 36.0% 23.2% 23.4% System Load Factor 74.5% 75.4% 79.5% 77.0% 79.9% 73.5% ========= ========= ========= ========= ========= =========
* The net system capability was reduced in 1999 as a result of the generation asset sale. ** While the reserve margin at time of peak in 1999 was negative, the system requirements were met through spot market purchases. Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ------------------------------------------------ Recent Events Affecting the Electric Utlility Industry and the Company - ---------------------------------------------------------------------- Industry Restructuring - As discussed in the 1998 Form 10-K, in 1997, the Maine Legislation enacted "An Act to Restructure the State's Electric Industry", some of the principal provisions of which are as follows: (1) Beginning on March 1, 2000, all consumers of electricity have the right to purchase generation services directly from competitive electricity suppliers who will not be subject to rate regulation. (2) The Company must divest of most of its generation related assets and business functions. As discussed below, in 1999 the Company completed transactions to sell most of its generation related assets to PP&L Global (PP&L). (3) Billing and metering services will be subject to competition beginning March 1, 2002, but the legislation permits the Maine Public Utilities Commission (MPUC) to establish an earlier date, no sooner than March 1, 2000. There is currently activity within the legislature to extend the date one year to March 1, 2003 and limit the scope of the competitive billing and metering services to only the largest industrial customers. If such a change is enacted, the implementation of competitive billing and metering would not have a significant impact on the Company or its operations. (4) The Company will continue to provide transmission and distribution (T&D) services which will be subject to continued regulation by the MPUC. (5) Maine electric utilities will be permitted a reasonable opportunity to recover legitimate, verifiable and unmitigable costs that are otherwise unrecoverable as a result of retail competition in the electric utility industry (stranded costs). Under the restructuring law, the Company, as a transmission and distribution utility, is prohibited from engaging in the generation and sale of electric energy. The law permits the Company to establish an independent affiliate to engage in retail electricity marketing activities, but only on a limited basis and subject to stringent rules governing the relationship among the regulated utility, its independent marketing affiliate and other competitors. In light of those restrictions and except as it is required to provide standard offer service discussed below, the Company does not believe it will be involved in the generation and sale of energy after March 1, 2000 and that its basic business will continue to be as a regulated transmission and distribution utility. The Company may also pursue appropriate opportunities in other regulated or unregulated business activities that are compatible with the Compa- ny's basic business and are not burdened with the restrictions that will apply to electricity marketing activities. Much of the Company's focus and resources have been devoted to facilitating the implementation of the restructur-ing law. Many of the Company's basic business processes are being adapted to meet the requirements of the changed business environment. In addition, the MPUC has decided upon a number of issues relating to restructuring that will have an impact on the Company's future earnings, including the procedures for future rate regulation and the levels of stranded costs for which recovery will be allowed. Current Rate Proceedings - The Company has been involved in rate proceedings with the MPUC since mid-1998 to determine its revenue requirement as a T&D utility starting March 1, 2000 and the recoverability of the Company's stranded costs. In February 2000, the Company received a final rate order from the MPUC setting its T&D and stranded cost rates effective March 1, 2000. The Company's total annual revenue requirement as set in the rate proceedings, including $40 million associated with stranded cost recovery, amounted to $ 103.2 million. The stranded cost recovery includes the decommissioning and other plant closure expenses for Maine Yankee. There were no write-offs of previously deferred costs based on the final rate order. In Maine, stranded costs are treated in the same manner as most other costs and may be included in calculations for prospective rate changes. Absent any rate proceedings, however, in 2003 and every three years thereafter until the stranded costs are recovered, the MPUC shall review and reevaluate the stranded cost recovery. Customers reducing or eliminating their consumption of electricity by switching to self-generation, conversion to alternative fuels or utilizing demand-side management measures cannot be assessed exit or entry fees. Sale of Company's Generating Assets - On May 27, 1999, the Company completed most of the transaction for the sale of its electric generating assets and certain transmission rights to PP&L. The purchase price for the assets transferred was $79 million. The sale involved all but one of the Company's hydroelectric plants on the Penobscot, Piscataquis, and Union rivers and Bangor Hydro's 8.33% ownership interest in the Wyman Unit #4 oil-fired plant in Yarmouth, Maine-a total base load capacity of 83 megawatts. The sale also involved a transfer by the Company of rights to transmit power over the Maine Electric Power Company (MEPCO) transmission facilities connecting the New England Power Pool (NEPOOL) to New Brunswick Canada; the Company's rights as a participant in the regional utilities' agreement with Hydro-Quebec pursuant to an agency agreement; and the Company's rights to develop a second high voltage transmission line that will connect NEPOOL to New Brunswick, Canada. As discussed in the 1998 Form 10-K, the Company and other Maine utilities were required to sell their generation assets as a result of the comprehensive electric utility industry restructuring law adopted in Maine in 1997. The Company conducted an auction in 1998, which led to the signing of a purchase and sale agreement with PP&L in late September 1998. The purchase and sale agreement also included the Company's 50% interest in the 13 megawatt West Enfield hydro station on the Penobscot River. In late July 1999, the Company received $10 million in proceeds from the transfer of the economic interest in that project, and in late August 1999, the MPUC approved the sale to PP&L of Penobscot Hydro Company, Inc. (Penobscot Hydro), the Company's wholly-owned subsidiary which held the 50% interest in the West Enfield hydro station. The Company has utilized a significant portion of the net proceeds of the sale to reduce outstanding debt and preferred stock. The Company realized a net gain on the sale to PP&L of approximately $24.8 million, and $24.3 million of this amount has been recorded as a deferred liability at December 31, 1999 on the Consolidated Balance Sheets. Included in the determination of the deferred gain on sale is the accrual of carrying costs on the deferred gain balance, the selling and closing costs associated with the asset sale, the costs incurred related to the early retirement of debt and preferred stock through the utilization of asset sale proceeds, income tax expense impacts associated with the asset sale gain, and the net expense associated with the sale of its generating assets and the simultaneous purchased power buyback agreement with PP&L (see below for a discussion of the net expense). As specified in the previously discussed rate order from the MPUC, the deferred gain will be utilized over a 70 month period to reduce electric rates effective March 1, 2000. As discussed in Note 6, the other $.5 million of the gain on the sale of Penobscot Hydro, that is allocable to shareholders pursuant to orders of the MPUC, has been recorded as other income in 1999. As discussed in the 1998 Form 10-K, in September 1998, the Company sold certain property and equipment at its Graham Station site in Veazie, Maine, to Casco Bay Energy for $6.2 million. The Company realized a net gain from the sale of $5.1 million, which has been recorded as a deferred liability at December 31, 1999. Included in the determination of this deferred gain is the accrual of carrying costs on the deferred gain balance, the selling and closing costs associated with the asset sale, and the net savings associated with the sale of these assets (through reduced depreciation and property tax expense, and the return on these assets included in the Company's rates through March 1, 2000). Consistent with the deferred gain on sale of generating assets discussed above, this $5.1 million gain will also be utilized to reduce electric rates starting March 1, 2000. As discussed above, as a result of the sale of the Company's generation assets, the Company was required by the MPUC to defer all savings, for the period from the asset sale through February 29, 2000, associated with the sale of its generating assets and the simultaneous purchased power buyback agreement with PP&L. This included savings associated with the Casco Bay Energy sale in September 1998. Any net savings or expense for this period are to be flowed-back to/recovered from customers effective with new rates on March 1, 2000. As of December 31, 1999 the net expense recorded as a reduction of the deferred asset sale gain amounted to approximately $225,000. The reason for the net expense is due principally to unusually high purchased power costs during hot weather in early June and in July 1999 to replace generation lost from the asset sale to PP&L. Since these high costs would not have occurred if the Company had not sold these assets, the Company has recorded the net expense as a reduction of the deferred asset sale gain. Alternative Rate Plan Filing - In May 1999, the MPUC approved a portion of the Company's February 1999 request for rate adjustment under the so-called Alternative Rate Plan or ARP. Pursuant to the MPUC Order, the Company implemented an increase in its standard tariff of about 1.36% effective June 1, 1999. An ARP is a method of utility regulation intended to replace the costly, controversial periodic rate increase proceedings of the past. Under such a plan, utilities are permitted to adjust rates annually based on a formula tied to inflation minus a "productivity factor". Adjustments for certain specified categories of costs that are unrelated to inflation are also permitted. The MPUC implemented this plan for the Company in 1998. The 1999 increase was comprised entirely of the recovery of some of the specified categories of costs that are unrelated to inflation. This was made up mostly of the recovery of a portion (about $1.4 million, or about 25%) of the costs incurred in connection with the 1998 ice storm. The inflation component actually contributed to a reduction of the 1999 adjustment because the productivity factor offset of 1.2% exceeded the inflation rate of .9%. The ARP will not be in effect with the implementation of new rates on March 1, 2000, and the Company is uncertain if any alternative rate plan will be adopted in the future. Deferral of Restructuring Related Costs - Also as part of the restructuring law, employees, other than officers, displaced as a result of retail competition are entitled to certain severance benefits and retraining programs, and these costs are recoverable through charges collected by the regulated distribution company. In connection with this part of the law, the Company incurred approximately $840,000 in benefit costs associated with the employees terminated as a result of the generation asset sale. This amount has been deferred as a component of Other Regulatory Assets on the Consolidated Balance Sheets as of December 31, 1999. In 1999, the Company has also been incurring significant costs in connection with implementing various aspects of the electric industry restructuring. Consequently, the Company filed an accounting order request with the MPUC in 1999 to seek the deferral of certain incremental costs associated with this effort. In September 1999 the Company received an accounting order from the MPUC related to the Company's request which approved the deferral of certain incremental restructuring related costs. In connection with the accounting order, the Company has deferred, as a component of Other Regulatory Assets on the Consolidated Balance Sheets as of December 31, 1999, approximately $829,000 of restructuring costs. As a result of the current rate order received from the MPUC, the Company will start recovery of the deferred restructuring costs discussed above, amounting to $1.7 million, on March 1, 2000 over a three-year period. Based on the accounting order, the Company will also defer, for future recovery, certain additional incremental restructuring costs incurred from January 1, 2000 through the advent of retail competition on March 1, 2000. Standard Offer Service - The restructuring law also provided for a standard-offer service being available for all customers who do not choose to purchase energy from a competitive supplier starting March 1, 2000. The MPUC solicited bids from competitive energy suppliers to provide energy under the standard offer service, but all bids were rejected as too high. Consequently, as permitted by the Maine legislature, the MPUC has ordered the Company to assume the responsibility of being the standard offer service provider starting March 1, 2000 for a one-year period. The MPUC has established the schedule of rates that the Company may charge for the standard offer service. The Company must purchase the energy for these customers from third parties, and the MPUC has allowed the Company to defer the difference between the revenues realized from the standard offer sales and the costs incurred to provide this service. This deferred amount will be recovered from/returned to customers in a future rate proceeding. Bangor Gas Joint Venture-In 1998 the Company formed Penobscot Gas, whose sole function was to be a 50% general partner in Bangor Gas Company, LLC (Bangor Gas), which is constructing a natural gas distribution system in the greater Bangor, Maine area. Sempra Energy, a joint venture of Pacific Enterprises and Enova Corporation, owns the other 50% interest in Bangor Gas. Gas service to Maine has become feasible for the first time because of the development of the Maritimes & Northeast Pipeline Project, extending from the Sable Offshore Energy Project near Sable Island, Nova Scotia, through the state of Maine and interconnecting with the Tennessee Gas Pipeline in Dracut, Mass-achusetts. The pipeline passes near the Bangor area. As the restructuring of the electric industry in Maine has developed, the Company has become increasingly cognizant of the need to focus on its core electric transmission and distribution business. Consequently the Company has determined that it no longer intends to participate in the Bangor Gas joint venture and intends to sell its joint venture interest. Penobscot Gas' investment in Bangor Gas as of December 31, 1999 is approximately $328,000 and is recorded as an Other Investment on the Consolidated Balance Sheets. Management is currently unable to predict the financial statement impact of this decision. Common Stock Dividends-At a regularly scheduled board of directors meeting held on June 16, 1999, the board of directors of the Company declared a cash dividend on its common stock of $.15 per share, payable July 20, 1999 to shareholders of record on June 30, 1999. This was the first common stock dividend since the Company's board of directors voted not to declare a common dividend payments in March 1997 due to financial difficulties triggered by problems at the Maine Yankee nuclear generating plant. The Company has a 7% ownership interest in Maine Yankee, which was permanently shut down later in 1997 and is now in the process of being decommissioned. As a result of regulatory orders from the MPUC that provide certainty about Maine Yankee cost recovery, the Company's financial position became more secure. The Company also declared cash dividends on its common stock of $.15 per share at the end of each of the third and fourth quarters of 1999. Prior to the March 1997 vote, the Company had been paying quarterly dividends on its common stock of $.18 per share. The Year 2000 Issue-The Company has successfully transitioned into the Year 2000 (Y2K) without experiencing any material technological problems. All of the Company's electrical equipment and computer systems continue to function normally as the Company continues to monitor these systems for any abnormalities. The Company experienced minor problems which were quickly identified and corrected. These anomalies did not harm the Company's systems or data and did not have any significant impact on operations or customers. The successful rollover to the year 2000 was due, in large part, to the Company establishing a structured approach in connection with its Y2K compliance activities. The Company inventoried and prioritized its mission critical systems which included: - The entire electrical transmission and distribution system, - Telecommunications systems (phone and radio), - Computer networks including division offices, - Customer Information System (outage processing), - Geographical Information System, and - Key facilities devices (generators and uninterrupted power supply systems). The Company attained its goal of inventorying and prioritizing and completed testing of the systems and devices that support its mission critical operations as of June 30, 1999. The Company also identified and contacted the third parties with which it has a material relationship in order to establish their Y2K status. The Company will continue to monitor these relationships to ensure that key third parties are able to continue their expected level of services. The Company will continue to assess its systems and have contingency plans in place as part of normal operations to deal with any potential problems. With the assessment, testing, and transition into the year 2000 complete, the Company believes that the probability of encountering problems of a material nature with its systems or the systems of a third party has been substantially reduced. Through December 31, 1999, the cost to conduct testing, develop and modify contingency plans, and replace non-compliant technologies was approximately $1.8 million, which included both internal and external costs. Approximately $1 million of such expenditures were charged to expense, and the remaining $700,000 of costs were capitalized, since the costs related principally to investments in new equipment and technologies and not the modification of existing systems. During 1999, approximately $1.3 million was expended in connection with the Y2K, of which $400,000 was capitalized and $900,000 charged to expense. The Company charged approximately $100,000 to expense in January 2000 in connection with Y2K activities. Other-Management's discussion and analysis of results of operations and financial condition contains items that are "forward- looking" as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Factors that might cause such differences include, but are not limited to, future economic conditions, relationships with lenders, earnings retention and dividend payout policies, electric utility restructuring, developments in the legislative, regulatory and competitive environments in which the Company operates and other circumstances that could affect revenues and costs. Liquidity, Capital Requirements, and Capital Resources - ------------------------------------------------------ The Consolidated Statements of Cash Flows reflect events for the years ended December 1999, 1998 and 1997 as they affect the Company's liquidity. Net cash provided by operations was $47.4 million in 1999, $30.9 million in 1998, and $36.4 million in 1997. Positively impacting cash flows from operating activities in the 1999 period as compared to 1998 were the beneficial impacts of the 5.83% and 1.36% rate increases effective February 13, 1998 and June 1, 1999, respectively, $1.8 million received from the federal government in connection with service restoration costs associated with the major ice storm in January 1998 (see Note 11), a $1.75 million payment received in the first quarter of 1999 related to a terminated purchased power contract (see Note 6), a $2.9 million reduction in deferred Maine Yankee incremental costs in the 1999 period as compared to 1998, and a reduction in the Company's interest payments of $2.9 million in the 1999 period due principally to the long-term debt principal payments and reduction in borrowings on the Company's revolving credit facility in 1999. In addition, in the 1998 period, cash flows were reduced by $7.7 million in payments associated with restructuring the Penobscot Energy Recovery Company (PERC) purchased power contract as compared to $1.1 million in such payments in 1999 (see Note 6), were reduced by a $1.3 million due to the effect of a large customer who prepaid its electric usage for a one-year period in the third quarter of 1997, and were reduced by $4.2 million because of incremental costs incurred in 1998 in connection with the previously discussed ice storm. Offsetting the previously discussed cash flow enhancements in 1999 as compared to 1998 were an $8.2 million increase in state and federal income tax payments as a result of the gain on sale of generating assets for income tax purposes. In 1999 the Company recorded $5.3 million in cost deferrals associated with its generation asset sale as compared to $2.3 million of such costs in 1998 (see Note 10). The generation asset sale cost deferrals include the selling and closing costs associated with the sale, the costs incurred for the early retirement of long-term debt and preferred stock through the utilization of asset sale proceeds, income tax expense impacts associated with the asset sale gain, and the net expense associated with the sale of the generating assets and the simultaneous purchased power buyback agreement with PP&L. Also in 1999, the Company paid $3.3 million to holders of the PERC warrants in lieu of issuing shares of common stock (see Note 6). Negatively impacting cash flows from operations in the 1998 period as compared to 1997 were the approximately $7.7 million in costs incurred to restructure the PERC purchased power contract, the $4.2 million in incremental costs incurred in connection with the January 1998 ice storm, as well as the $2.3 million in deferred costs incurred to sell the Company's generation assets. Cash flows were also reduced by the effect of the large customer, which prepaid its electric usage for a one-year period in the third quarter of 1997. Finally, reducing cash flows from operations in the 1998 period was approximately $1.5 million in costs incurred associated with the new revolving credit facility, term loan and the $24.8 million in medium term notes. Offsetting these cash flow reductions were the beneficial impact of the 3.8% temporary rate increase on July 1, 1997, the 5.83% rate increase effective February 1998, and the reduction in Maine Yankee related costs incurred in 1998 as a result of the shutdown of the plant in 1997. Over the last three years, capital expenditures have been $20.3 million in 1999, $18.2 million in 1998 and $17.5 million in 1997. In 1999, approximately $8 million of the capital expenditures were related to the Company's electric distribution system, $5.6 million was associated with the electric transmission system and certain fiber optic equipment, $3.2 million was expended in connection with Y2K compliance and restructuring related activities, and the remainder related to other general property and equipment, software, and internal combustion facilities. In 1998, approximately $2.6 million of the capital expenditures were related to implementing new geographic and financial information systems, $.9 million were related to the Company's power production facilities, $7.3 million were for its distribution system, and $6.2 million were for its transmission system, with the remainder related to other general property and equipment and costs associated with the licensing of hydroelectric projects. The Company expects its capital expen- ditures to total between $40 and $50 million over the next three years (excluding capital expenditures related to the previously discussed gas fired power plant being developed by Casco Bay Energy, which will be reimbursed), although it may be necessary to adjust the budget for capital expenditures on a year-to-year basis. As previously discussed, the Company received approximately $79.6 million in proceeds related to its generation asset sale in late May 1999 and an additional $10 million in late July 1999 in connection with the sale of Penobscot Hydro. Also impacting cash flows from operations were the previously discussed Graham Station property sale proceeds. The full $6.2 million in sales proceeds were required to be deposited with a third party trustee in September 1998. In January 1999 the trustee released the $6.2 million to the Company, and the funds were utilized to repay outstanding medium term notes. The reduction in preferred dividends in 1999 as compared to 1998 resulted from the $1.5 million sinking fund payment made on the Company's 8.76% mandatory redeemable preferred stock in December 1998 and the final redemption of the remaining outstanding preferred stock in October 1999. The reduction in preferred dividends paid in 1998 as compared to 1997 resulted from a $1.5 million sinking fund payments made on the 8.76% preferred stock in December 1997. As previously discussed, the Company reinstated its common stock dividend in the second quarter of 1999, resulting in the increase in dividends on common stock in the 1999 period. No common dividends were paid in 1998, while in 1997 no common dividends were paid after the first quarter. In 1999 the Company made $85.8 million in repayments on long-term debt. The increase in repayments in 1999 was due principally to the utilization of generation asset sale proceeds. The Company made $3.7 million in principal repayments on the Company's 12.25% first mortgage bonds (which were fully repaid in August 1999); a $13.1 million principal payment at the end of June 1999 on the Finance Authority of Maine Revenue Notes; $4.7 million in payments on the $24.8 million medium term notes; principal repayments of $6.2 million and $38.8 million in January and June 1999, respectively, on the $45 million medium term notes which were issued on June 29, 1998; the full redemption of $15 million in outstanding 10.25% series first mortgage bonds in early July 1999; and the redemption of $4.2 million in outstanding variable rate Pollution Control Revenue Bonds in early September 1999. The Company made $1.8 million in sinking fund payments on its 12.25% first mortgage bonds in 1998. In the first quarter of 1998 the Company made the final $2.5 million payment on its 6.75% first mortgage bonds and made a $4 million principal repayment on its medium term notes. In June 1998 the Company made a $12.3 million principal payment on its Finance Authority of Maine Revenue Notes. Also, as previously discussed, in connection with the new credit agreement, the Company fully repaid its $30 million in outstanding medium term notes in June 1998. In 1998 the Company made $2.9 million in principal payments associated with the medium term notes issued in connection with the UNITIL Power Corp. (UNITIL) contract monetization (see Note 4). In connection with the monetization of the UNITIL contract, the Company issued $24.8 million in medium term notes on March 31, 1998. The Company's net proceeds from this issuance were $23.3 million, due to the requirement to deposit $1.5 million in a capital reserve fund for the final payment of principal and interest in 2002. Of the $23.3 million of proceeds received, the Company utilized $19 million to repay borrowings outstanding under its revolving credit facility. The remaining funds were utilized for the PERC purchased power contract restructuring transaction. Also, in June 1998 the Amended and Restated Revolving Credit and Term Loan Agreement provided a two-year term loan of $45 million. In 1997 the Company repaid $14 million of principal on its outstanding medium term notes and made $1.9 million in sinking fund payments on its 12.25% first mortgage bonds. In 1999, through the use of generation asset sale proceeds, the Company redeemed the remaining outstanding 90,000 shares of its 8.76% mandatory redeemable preferred stock amounting to $9 million. As discussed in more detail in Note 3 to the Consolidated Financial Statements, the Company also made approximately $563,000 in payments to the institutional holder of the 8.76% series preferred stock related to a "make whole provision" under the preferred stock purchase agreement. Of this amount approximately $320,000 was recorded as a reduction of the deferred asset sale gain, while approximately $243,000 was recorded as a reduction in the 8.76% preferred stock balance. In each of 1998 and 1997 the Company made sinking fund payment of $1.5 million on this preferred stock and $94,000 in make whole provision payments. Capital and operating needs in 1999, 1998 and 1997 were met through internally generated funds, the Company's revolving credit line, generation asset sale proceeds in 1999, and, for 1998, the new medium term notes. As a result of the Amended and Restated Revolving Credit and Term Loan Agreement in 1998, these facilities should provide adequate borrowing capacity for the Company's operation, maintenance and construction funding requirements. The Company has approximately $133 million of first mortgage bonds and other long-term debt maturities in the period 2000-2004. Results of Operations - --------------------- Earnings - Basic earnings (loss) per common share were $2.35, $1.39, and $(.24), for the years ended 1999, 1998 and 1997, respectively. Earned return on average common equity was 13.8% in 1999 and 9.1% in 1998. Results for 1999 compared favorably to those in 1998 in part because of several one-time benefits to earnings (of approximately $.52 per common share net of income taxes). The largest of these was a $1.5 million income tax benefit recorded in the fourth quarter of 1999 (approximately $.20 per common share) from the flow through of unamortized deferred investment tax credits and excess deferred income taxes associated with the 1999 sale of the Company's generation assets. Other one-time items for 1999 include a gain on the sale of a subsidiary as part of the mandatory divestiture of generation assets (approximately $.04 per common share after taxes) recorded in the third quarter of 1999. In the second quarter the Company recorded a one-time benefit of $896,000 ($.07 per common share after taxes) because of the settlement of a dispute related to the NEPOOL transmission rates, and in the first quarter the Company recorded a one-time benefit of $802,000 ($.07 per common share after taxes) due to the settlement, by the NEPOOL, of a contract dispute with Hydro-Quebec. Finally, in 1999 the Company participated in a major construction project for a third party unrelated to its core utility business. This activity, now completed, allowed the Company to charge some of its fixed costs directly to that third party and resulted in a benefit to 1999 earnings of $.14 per share after taxes. Aside from the above mentioned benefits, improvement in 1999 earnings is also attributable to improved energy sales and to the fact that the February 1998 rate increase authorized by the MPUC was in effect for the entire year. The improvement in 1998 earnings as compared to 1997 was attributable largely to the February 1998 rate increase, as well as increased costs incurred in 1997 related to the shutdowns of the Maine Yankee nuclear power plant (see Note 6). Revenues - Electric operating revenue for 1999 increased by $2.9 million as compared to 1998 due principally to the impact of the previously discussed rate increases on February 13, 1998 and on June 1, 1999, and an overall 2.7% increase in kilowatt-hour (KWH) sales (excluding off-system sales, which are sales related to power pool and interconnection agreements and resales of purchased power) in the 1999 period. The increase in KWH sales in 1999 was affected by service interruptions during the ice storm in January 1998, slightly colder weather in the winter and spring of 1999, and warmer weather during the summer months of 1999 as compared to 1998. The increased revenues were offset by a $1.7 million reduction in off-system sales in the 1999 period and a $1.8 million reduction in revenue sharing from the Company's largest industrial customer. Electric operating revenue for 1998 increased by $7.8 million as compared to 1997 principally due to a 3.8% temporary rate increase effective on July 1, 1997 and the additional 5.83% rate increase effective February 1998. Also benefiting 1998 revenues was a $1 million increase in off-system sales. Offsetting these positive factors somewhat was a 3.4% reduction in total KWH sales (excluding off-system sales) in 1998 as compared to 1997, due primarily to decreased usage by the Company's largest special contract customers and the fact that 1998 was the warmest year on record, which along with the January 1998 ice storm, resulted in reduced electricity sales. Also decreasing electric operating revenues in 1998 as compared to 1997 was the recording in 1997 of $335,000 in revenues from the sale of air emission allowances to a coal fired generating facility, and $350,000 in revenue recognized under a shared savings distribution agreement with another utility. Expenses - Fuel for generation and purchased power expense decreased $1.3 million in 1999 as compared to 1998. The decreased expense was a result of several factors. The previously discussed settlements of the disputes with Hydro-Quebec and NEPOOL resulted in $747,000 and $896,000 reductions in expense, respectively in 1999. The Company recorded a benefit of $2.9 million in 1999 as compared to $2 million for 1998 related to savings realized from the restructuring of the PERC purchased power contract in June 1998. The $1.7 million reduction in off-system sales in 1999 also impacted the decrease in fuel and purchased power expense. Excluding the impact of the unusually high replacement power costs incurred in June 1999, which are discussed below, there was a reduction in oil-related and other purchased power costs in the 1999 period as compared to 1998. A significant portion of the Company's power contracts are directly tied to the price of residual oil, which was 34% higher in 1999 as compared to 1998. However, the Company had hedged these purchases through its fuel risk management program with a fixed price about 13% lower in 1999 compared to 1998 (see Note 13 for a discussion of the Company's fuel risk management program). As a result, the Company received approximately $1.8 million in hedge settlements in 1999 as compared to paying out $5.1 million in hedge settlements in 1998. Any hedge settlement receipts/payments offset corresponding increases/decreases in purchased power costs. Also, prior to the generation asset sale at the end of May 1999, purchased power expenses were reduced by an increase in power generation by the Company's hydroelectric facilities. Purchased power expenses increased by about $3.2 million in the 1999 period due to the May 27th sale of the Company's hydroelectric facilities and subsequent buyback contract with PP&L for the power from the plants. Incremental replacement power costs for other entitlements in Wyman #4, Hydro-Quebec and MEPCO transmission were $3.6 million greater than the comparable 1998 expense. June 1999 replacement power costs were extremely high due to very unusual circumstances in NEPOOL, with record-breaking loads while many generators were still out of service on spring maintenance. Further, the NEPOOL new market rules resulted in on-peak power prices that were two to three times as great as would normally occur during June. Fuel for generation and purchased power expense decreased by $10.8 million in 1998 as compared to 1997. The prin-cipal reason for the reduction was lower expenses associated with the permanent shutdown of the Maine Yankee nuclear power plant in 1998, as compared to maintaining the plant in an operating mode in the first five months of 1997. Also, in connection with the Company's February 1998 rate order (see the 1998 Form 10-K for discussion of the rate order), the Company was ordered to defer, for future recovery, the excess of actual Maine Yankee related costs incurred during 1998 over the Maine Yankee costs included in the rate order. In the 1998 period, Maine Yankee related expenses, including the cost of replacement power, were approximately $7.3 million lower than in 1997. The Com- pany also recorded a $2 million benefit in 1998 related to savings realized from the previously discussed PERC contract restructuring. Also, in December 1997 the Company charged to expense $1.9 million of previously deferred Maine Yankee refueling costs, as a result of the Company's February 1998 rate order, which disallowed recovery of these deferred costs. The Company realized positive cash settlements under its fuel hedge program in 1997 as compared to negative cash settlements in 1998. This change was due principally to the spot price of residual oil decreasing significantly (over 25%) in 1998 as compared to 1997, increased hedge volume (covering replacement power for the Maine Yankee closure) in 1998, and the fact that the Company's hedge in 1998 was at a higher fixed cost than in 1997. Also offsetting the previously discussed decreases to some extent was the $1 million increase in off-system sales in the 1998 period, as well as the impact of the 3.4% reduction in KWH sales in 1998 as compared to 1997. Other operation and maintenance (O&M) expense increased by $2 million in 1999 as compared to 1998. Increasing other O&M expense in 1999 was a $1.7 million increase in postretirement and active medical costs (due principally to higher medical claims costs) and pension expense; the Company incurred approximately $826,000 of additional incremental non-labor expenditures in 1999 as compared to 1998 related to electric utility industry restructuring activities (net of the previously discussed deferral in 1999), costs associated with Y2K compliance, and an upgrade to the Company's customer information system; the Company recorded $671,000 of amortization expense associated with deferred ice storm costs for the period from June 1 through December 31, 1999; the Company incurred $497,000 in additional employee incentive bonus expense in 1999 as a result of attaining a greater level of targeted goals in 1999, and the Company incurred approximately $410,000 in increased outside legal services expense in 1999 as compared to 1998, with much of the increase attributable to Federal Energy Regulatory Commission and NEPOOL issues. Offsetting the increases in other O&M expense to some extent was a $1.7 million increase in overhead expenses allocated to capital projects in 1999 as compared to 1998. This increase was principally a result of major construction activ-ities being performed by the Company in connection with the Maine Independence Station, a new 520 megawatt gas fired generation facility in Veazie, Maine, coming online and connecting to the regional transmission power grid. The Company was reimbursed by the owner of the facility for the construction costs incurred, including overheads. Also,in 1999 there was a $730,000 reduction in hydroelectric and Wyman #4 non- labor O&M expenses as a result of the generation asset sale in late May 1999. Other O&M expense increased by $2 million in 1998 as compared to 1997. O&M payroll expense increased by $1.5 million due principally to significantly less payroll charged to the Company's capital program in 1998. The lower capital labor was primarily a result of service restoration efforts associated with the January 1998 ice storm. The Company was ordered by the MPUC to defer incremental non-capital costs related to the ice storm, but the non-incremental labor costs were charged principally to other O&M in the first quarter of 1998. The increase from 1997 to 1998 was also impacted by a 3% wage rate increase for union employees in 1998 and various nonunion wage rate increases. Also affecting the greater other O&M expense in 1998 was a $680,000 increase in postretirement medical and pension and active employee medical costs in 1998 as compared to 1997. Depreciation and amortization expense decreased $1.7 million in 1999 as compared to 1998 due principally to the sale of the Company's generation assets in May 1999. This reduction was offset somewhat by the impact of 1999 property additions. Depreciation and amortization expense decreased $438,000 in 1998 as compared to 1997. Effective February 1998, in connection with the Company's rate order, the Company lengthened the depreciable lives of its large information system capital projects from seven to ten years, and began amortizing its $3.6 million overaccumulated depreciation reserve ($1.6 million of amortization in 1998), thus reducing depreciation expense. These decreases were offset to some extent by the impact of 1998 property additions. The Company's expenses over the period 1997-1999 have been significantly affected by amortizations authorized by the MPUC and charged annually against earnings. The MPUC has specifically authorized the inclusion of these expenses in the Company's electric rates. Absent such regulatory authority, the expenses that gave rise to the amor-tizations would have been charged to operations when incurred. Instead, the recognition of such expenses has been deferred, and appear on the Consolidated Balance Sheets as assets on the strength of the regulatory authority to amortize them and to collect these amounts from customers (thus the term "regulatory assets"). Although there are a number of such authorized amortizations, the major ones are the allowable recovery of the Company's abandoned investment in the Seabrook nuclear project and the costs associated with the 1993 and 1995 purchased power contract terminations. The Company's recoverable investment in Seabrook Unit 1 is being amortized at a rate of $1.7 million per year, beginning in 1985, for a period of 30 years. Effective March 1, 1994, as authorized in the base rate order from the MPUC, the Company began amortizing the deferred costs associated with the Beaver Wood purchased power contract termination at a rate of $3.9 million annually over a nine-year period. With the July 1, 1997 temporary rate increase, the MPUC required the Company to accelerate the amortization of this deferred regulatory asset. Effective December 12, 1997, the MPUC ordered the amortization of this regulatory asset to be returned to the level before the temporary rate order. Effective with the latest rate order in February 1998, the amortization was reduced, so that the unamortized balance of the regulatory asset would be the same as under the original amortization schedule as of March 1, 2000. Consequently, as a result of the rate orders, amortization associated with this regulatory asset was $2.8 million in 1999, $2.9 million in 1998 and $6.1 million in 1997. The approximately $170 million of costs associated with the 1995 purchased power contract buy-back were deferred and recorded as a regulatory asset, to be amortized and collected over a ten-year period, beginning July 1, 1995. Amor-tization expense related to this contract buyout amounted to $17 million in each of 1999, 1998 and 1997. Also impacting amortization of contract buyouts and restructuring was the start of the amortization of the deferred PERC contract restructuring costs (see Note 6) on July 1, 1998, resulting in $1 million of amortization expense in 1999 and $500,000 in 1998. The decrease in property and other taxes in 1999 was due principally to reductions in property taxes as a result of the sale of the Company's generation assets. This reduction in property taxes was offset to some extent by increased electric plant additions in 1999. Property and other taxes were greater in 1998 due to increases in property taxes, as a result of increases in property levels and property tax rates, and due to the previously mentioned increase in O&M labor costs in 1998, associated payroll taxes increased in 1998. The increases in income taxes in each of 1998 and 1999 were due principally to greater earnings in each year. See Note 2 to the Consolidated Financial Statements for a reconciliation of the Company's effective income tax rate for each year. Other Income and (Deductions) and Interest Expense - Allowance for funds used during construction (AFDC) decreased $1.7 million in 1999 relative to 1998 due principally to $1.8 million in carrying costs being recorded on the previously discussed deferred asset sale gain. The increase in AFDC in 1998 as compared to 1997 was due primarily to recording carrying costs on deferred ice storm and incremental Maine Yankee related costs. AFDC related to construction work in progress was lower in 1998 due to reduced construction activity. The $2.3 million increase in other income in 1999 was principally a result of the previously discussed $1.5 million income tax benefit associated with the flow-through of unamortized investment tax credits and excess deferred income taxes related to generation assets sold to PP&L in May 1999; the Company recognized $.5 million in other income as a result of the previously discussed gain on sale of Penobscot Hydro; and the Company earned approximately $756,000 in interest income realized from invested generation asset sale proceeds. The decrease in other income in 1998 as compared to 1997 was due primarily to the write-off of costs associated with non-core business ventures by the Company. Long-term debt interest expense decreased $3.9 million in 1999 as compared to 1998 as a result of the previously discussed principal repayments in 1998 and 1999 on various long-term debt issues. The $268,000 increase in long-term debt interest expense in 1998 was due primarily to the previously discussed issuance of the $24.8 million of medium term notes on March 31, 1998 and the $45 million term loan issued in June 1998, offset by the previously discussed principal repayments in 1997 and 1998 on various long-term debt issues. Other interest expense decreased $1.4 million due principally to a $20 million reduction in weighted average short-term borrowings outstanding in 1999 as compared to 1998. The Company fully repaid the outstanding balance under its revolving credit line in April 1999, and no new borrowings have subsequently occurred. Other interest expense decreased in 1998 due principally to a $10.9 million reduction in the weighted average short-term borrowings in 1998 as compared to 1997, as well as a slight decrease in the weighted average interest rate (including fees) on the borrowings. These decreases were offset to some extent by a $337,000 increase in the amortization of debt issuance costs in 1998. Contingencies and Risk Management - --------------------------------- Environmental Matters-In 1992, the Company received notice from the Maine Department of Environmental Protection that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the United States Environmental Protection Agency placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act and will pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based upon currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 1999, the liability recorded by the Company for its estimated environmental remediation costs amounted to $331,000. The Company's actual future environmental remediation costs may be higher as additional factors become known. Risk Management - The Company's major financial market risk exposures are changing interest rates and changes in purchased energy prices. Changing interest rates will affect interest paid on variable rate debt and the fair value of fixed rate debt. The Company manages interest rate risk through a combination of both fixed and variable rate debt instruments and derivative financial instruments, including an interest rate swap (see Notes 4 and 13). The Company managed purchased energy price risk through the use of swaps (see Note 13). The Company does not hold or issue derivatives for trading purposes. New Accounting Pronouncement - ---------------------------- In May 1999, the Financial Accounting Standards Board voted to delay for one year the effective date of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The new effective date for implementing this pronouncement is for fiscal years beginning after June 15, 2000. The effects of the adoption on the Company's financial statements are currently not known. The Company's fuel hedge risk management program expires in February 2000, but the Company believes its interest rate swap agreement will qualify for hedge accounting treatment under SFAS 133. Item 8 Financial Statements & Supplementary Data BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------- ------------ ------------ ------------ Electric Operating Revenue (Note 1): $197,994,796 $195,144,007 $187,324,379 ------------ ------------ ------------ Operating Expenses: Fuel for generation and purchased power (Notes 1 and 3) $80,748,385 $82,026,860 $ 92,791,842 Other operation and maintenance (Notes 1 and 5) 36,491,666 34,448,324 32,471,149 Depreciation and amortization (Note 1) 8,063,939 9,749,229 10,187,102 Amortization of Seabrook Nuclear Project (Note 7) 1,699,050 1,699,050 1,699,050 Amortization of contract buyouts and restructuring (Note 6) 20,801,816 20,442,441 23,218,500 Taxes- Local property and other 5,059,140 5,549,049 5,124,146 Income (Note 2) 8,973,166 6,093,286 (1,956,303) ------------ ------------ ------------ $161,837,162 $160,008,239 $163,535,486 ------------ ------------ ------------ Operating Income $36,157,634 $35,135,768 $23,788,893 Other Income And (Deductions): Allowance for equity funds used during construction (Note 1) (326,026) 430,028 285,972 Other, net of applicable income taxes (Notes 1 and 2) 3,132,097 862,723 1,005,849 ------------ ------------ ------------ Income Before Interest Expense $38,963,705 $36,428,519 $25,080,714 ------------ ------------ ------------ Interest Expense: Long-term debt (Notes 4 and 13) $19,004,624 $22,906,021 $22,638,201 Other (Note 4) 1,393,547 2,750,863 3,392,169 Allowance for borrowed funds used during construction (Note 1) 284,933 (693,682) (562,966) ------------ ------------ ------------ $20,683,104 $24,963,202 $25,467,404 ------------ ------------ ------------ Net Income (Loss) $18,280,601 $11,465,317 ($386,690) Dividends On Preferred Stock (Note 3) 945,396 1,244,488 1,375,888 ------------ ------------ ------------ Earnings (Loss) Applicable To Common Stock $17,335,205 $10,220,829 ($1,762,578) ------------ ------------ ------------ Earnings (Loss) Per Common Share, based on the weighted average number of shares outstanding of 7,363,424 in 1999, 1998 and 1997 (Note 3): Basic $2.35 $1.39 ($0.24) Diluted 2.08 1.33 (0.24) ------------ ------------ ------------ Dividends Declared Per Common Share $0.45 - - ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998 - ------------------------------------------------------------------------------- ------------ ------------ Assets Investment In Utility Plant: Electric plant in service, at original cost (Notes 6, 10 and 12) $306,970,789 $352,975,549 Less-Accumulated depreciation and amortization (Notes 1, 6 and 10) 84,825,432 101,633,446 ------------ ------------ $222,145,357 $251,342,103 Construction work in progress (Note 1) 5,668,246 13,929,940 ------------ ------------ $227,813,603 $265,272,043 Investments in corporate joint ventures (Notes 1 and 6) Maine Yankee Atomic Power Company 5,266,697 5,438,520 Maine Electric Power Company, Inc. 529,630 438,753 ------------ ------------ $233,609,930 $271,149,316 ------------ ------------ Other Investments, at cost (Notes 6 and 9) $3,629,431 $5,881,986 ------------ ------------ Funds held by trustee, at cost (Notes 4, 9 and 10) $22,698,843 $29,867,605 Current Assets: ------------ ------------ Cash and cash equivalents (Notes 1 and 9) $15,691,166 $2,945,946 Accounts receivable, net of reserve ($1,075,000 in 1999 and 1998) 18,269,672 17,558,084 Unbilled revenue receivable (Note 1) 14,127,645 12,086,003 Inventories, at average cost: Materials and supplies 2,792,904 2,909,219 Fuel oil 45,310 16,233 Prepaid expenses 927,998 1,129,259 ------------ ------------ Total current assets $51,854,695 $36,644,744 Regulatory Assets and Deferred Charges: ------------ ------------ Investment in Seabrook Nuclear Project, net of accumulated amortization of $31,872,246 in 1999 and $30,173,196 in 1998 (Notes 7 and 10) $26,969,829 $28,668,879 Costs to terminate/restructure purchased power contracts, net of accumulated amortization of $100,860,518 in 1999 and $80,058,702 in 1998 (Notes 6 and 10) 118,565,234 136,979,490 Maine Yankee decommissioning costs (Notes 6 and 10) 46,041,644 50,054,620 Other regulatory assets (Notes 2, 5, 6, 10, 11 and 12) 36,925,665 42,773,542 Other deferred charges 3,655,009 3,750,861 ------------ ------------ Total deferred charges $232,157,381 $262,227,392 ------------ ------------ Total Assets $543,950,280 $605,771,043 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998 - ------------------------------------------------------------------------------------------------- Stockholders' Investment and Liabilities Capitalization (see accompanying statement): Common stock investment (Note 3) $132,721,895 $118,864,092 Preferred stock (Note 3) 4,734,000 4,734,000 Preferred stock subject to mandatory redemption, exclusive of sinking fund requirements (Notes 3 and 9) - 7,604,150 Long-term debt, net of current portion (Notes 4, 9 and 13) 183,300,000 263,027,692 --------------------------- Total capitalization 320,755,895 $394,229,934 -------------------------- Current Liabilities: Notes payable-banks (Note 4) - $12,000,000 --------------------------- Other current liabilities- Current portion of long-term debt and sinking fund requirements on preferred stock in 1998 (Notes 3, 4 and 9) $19,460,000 $27,109,119 Accounts payable 14,175,408 13,895,673 Dividends payable 1,170,942 294,593 Accrued interest 2,552,758 3,474,369 Customers' deposits 398,897 328,923 Current income taxes payable 4,125,696 85,685 --------------------------- Total other current liabilities $41,883,701 $45,188,362 --------------------------- Total current liabilities $41,883,701 $57,188,362 --------------------------- Commitments and Contingencies (Notes 6, 12 and 14) Regulatory and Other Long-term Liabilities (Note 2): Deferred income taxes-Seabrook $13,994,668 $14,880,241 Other accumulated deferred income taxes 55,826,890 63,774,505 Maine Yankee decommissioning liability (Note 6) 46,041,644 50,054,620 Deferred gain on asset sale (Note 10) 29,357,358 4,510,108 Other regulatory liabilities (Note 10) 9,872,188 9,701,375 Unamortized investment tax credits 1,591,727 1,720,708 Accrued pension and postretirement benefit costs (Note 5) 11,301,057 7,770,149 Other (Note 6 and 12) 13,325,152 1,941,041 --------------------------- Total deferred credits and reserves $181,310,684 $154,352,747 --------------------------- Total Stockholders' Investment and Liabilities $543,950,280 $605,771,043 ============== ============ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31, 1999 1998 - ----------------------------------------------------------------- --------------- --------------- Common Stock Investment (Notes 1 and 3): Common stock, par value $5 per share- Authorized-10,000,000 shares Outstanding-7,363,424 shares in 1999 and 1998 $36,817,120 $36,817,120 Amounts paid in excess of par value 58,890,342 59,054,203 Retained earnings 37,014,433 22,992,769 --------------- --------------- Total Common Stock Investment $132,721,895 $118,864,092 --------------- --------------- Preferred Stock, non-participating, cumulative, par value $100 per share, authorized 600,000 shares (Note 3): Not redeemable or redeemable solely at the option of the issuer- 7%, Noncallable, 25,000 shares authorized and outstanding $2,500,000 $2,500,000 4 1/4%, Callable at $100, 4,840 shares authorized and outstanding 484,000 484,000 4%, Series A, Callable at $110, 17,500 shares authorized and outstanding 1,750,000 1,750,000 --------------- --------------- $4,734,000 $4,734,000 --------------- --------------- Subject to mandatory redemption requirements- 8.76%, 150,000 shares authorized and 90,000 outstanding in 1998 - $9,198,064 Less-Sinking fund requirements - 1,593,914 --------------- --------------- - $7,604,150 Long-Term Debt (Notes 4, 9 and 13): --------------- --------------- First Mortgage Bonds- 10.25% Series due 2019 - $15,000,000 10.25% Series due 2020 30,000,000 30,000,000 8.98% Series due 2022 20,000,000 20,000,000 7.38% Series due 2002 20,000,000 20,000,000 7.30% Series due 2003 15,000,000 15,000,000 12.25% Series due 2001 - 3,742,897 --------------- --------------- $85,000,000 $103,742,897 Less-Sinking fund requirements - 1,675,205 --------------- --------------- $85,000,000 $102,067,692 --------------- --------------- Variable rate demand pollution control revenue bonds Series 1983 due 2009 - $4,200,000 --------------- --------------- Other Long-Term Debt- Finance Authority of Maine-Taxable Electric Rate Stabilization Revenue Notes, 7.03% Series 1995A, due 2005 $100,600,000 $113,700,000 Medium Term Notes, Variable interest rate-Libo rate plus 2%, due 2000 - 45,000,000 Medium Term Notes, Variable interest rate-Libo rate plus 1.125%, due 2002 17,160,000 21,900,000 --------------- --------------- $117,760,000 $180,600,000 Less: Current portion of other long-term debt 19,460,000 23,840,000 --------------- --------------- $98,300,000 $156,760,000 --------------- --------------- Total Long-Term Debt $183,300,000 $263,027,692 --------------- --------------- Total Capitalization $320,755,895 $394,229,934 ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------- ------------- ------------- ------------- Cash Flows From Operating Activities: Net income (loss) $18,280,601 $11,465,317 ($386,690) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 8,063,939 9,749,229 10,187,102 Amortization of Seabrook Nuclear Project (Note 7) 1,699,050 1,699,050 1,699,050 Amortization of costs to terminate/restructure power contracts (Note 6) 20,801,816 20,442,441 23,218,500 Other amortizations 2,590,725 2,035,505 1,784,625 Allowance for equity funds used during construction (Note 1) 326,026 (430,028) (285,972) Deferred income tax provision and investment tax credits, net (Note 2) (131,897) 5,876,874 (1,982,823) Flow-through of unamortized investment tax credits and excess deferred income taxes (Note 2) (1,485,131) - - Gain on sale of subsidiary (Note 10) (523,390) - - Changes in assets and liabilities: Costs to restructure purchased power contract (Note 6) (1,099,000) (7,704,185) - Exercise of PERC warrants-cash paid in lieu of issuing shares (Note 6) (3,321,710) - - Payment received related to terminated purchased power contract (Note 6) 1,750,000 - 1,000,000 Deferred incremental Maine Yankee costs 2,886,401 (793,608) (718,877) Deferred incremental ice storm costs (Note 11) 1,817,851 (4,200,423) - Deferred costs associated with generation asset sale (Note 10) (5,266,689) (2,317,688) - Deferred revenue and Maine Yankee refueling costs - (1,285,101) 1,172,497 Accounts receivable, net and unbilled revenue (2,759,315) (1,423,947) 1,700,647 Accounts payable (11,081) 724,721 (261,642) Accrued interest (921,611) (192,272) (52,746) Current and deferred income taxes 3,755,913 121,153 344,790 Accrued postretirement benefit costs (Note 5) 1,608,414 600,699 547,237 Other current assets and liabilities, net (356,034) (22,036) 906,745 Other, net (345,523) (3,413,741) (2,499,289) ------------ ------------ ------------ Net Increase in Cash From Operating Activities $47,359,355 $30,931,960 $36,373,154 ------------ ------------ ------------ Cash Flows From Investing Activities: Construction expenditures ($20,323,360) ($18,240,226) ($17,525,312) Receipt of asset sale proceeds (Note 10) 89,587,841 6,200,000 - Release (deposit) of Graham Station property sale proceeds held by trustee (Note 10) 6,200,000 6,200,000) - Allowance for borrowed funds used during construction (Note 1) 284,933 (693,682) (562,966) ------------- ------------- ------------- Net Increase (Decrease) in Cash From Investing Activities $75,749,414 ($18,933,908) ($18,088,278) ------------- ------------- ------------- Cash Flows From Financing Activities: Dividends on preferred stock ($1,127,882) ($1,216,434) ($1,349,620) Dividends on common stock (2,209,028) - (1,325,416) Payments on long-term debt (85,782,897) (53,478,554) (15,853,515) Payments on mandatory redeemable preferred stock (9,243,742) (1,593,914) (1,593,915) Issuance of long-term debt, net of capital reserve fund requirements (Note 4) - 68,300,000 - Short-term debt, net (Note 4) (12,000,000) (22,000,000) 1,500,000 ------------- ------------- ------------- Net Decrease in Cash From Financing Activities ($110,363,549) ($9,988,902) ($18,622,466) ------------- ------------- ------------- Net Increase (Decrease) in Cash and Cash Equivalents $12,745,220 $2,009,150 ($337,590) Cash and Cash Equivalents-Beginning of Year 2,945,946 936,796 1,274,386 ------------- ------------- ------------- Cash and Cash Equivalents-End of Year $15,691,166 $2,945,946 $936,796 ============== ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT
Amounts Paid Common in Excess of Retained Total Common Stock Par Value Earnings Stock Investment Balance December 31, 1996 $36,817,120 $56,969,428 $14,534,518 $108,321,066 Net loss - - (386,690) (386,690) Cash dividends declared on- Preferred stock - - (1,314,984) (1,314,984) Other (Note 3) - - (60,904) (60,904) ------------- ------------- ------------- ------------- Balance December 31, 1997 $36,817,120 $56,969,428 $12,771,940 $106,558,488 Net income - - 11,465,317 11,465,317 Cash dividends declared on- Preferred stock - - (1,183,584) (1,183,584) Issuance of warrants (Note 6) - 2,084,775 - 2,084,775 Other (Note 3) - - (60,904) (60,904) ------------- ------------- ------------- ------------- Balance December 31, 1998 $36,817,120 $59,054,203 $22,992,769 $118,864,092 Net income - - 18,280,601 18,280,601 Cash dividends declared on- Preferred stock - - (899,718) (899,718) Common Stock - - (3,313,541) (3,313,541) Exercise of warrants-cash paid in lieu of issuing shares (Note 3) - (410,052) - (410,052) Transfer of mandatory redeemable 8.76% preferred stock issuance costs to the deferred asset sale gain (Note 10) - 246,191 - 246,191 Other (Note 3) - - (45,678) (45,678) ------------- ------------- ------------- ------------- Balance December 31, 1999 $36,817,120 $58,890,342 $37,014,433 $132,721,895 ------------- ------------- ------------- ------------- The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Operations and Summary of Significant Accounting Policies - -------------------------------------------------------- Nature of Operations - Bangor Hydro-Electric Company (the Company) is a public utility engaged in the purchase, transmission, distribution and sale of electric energy and other energy related services, with a service area of approximately 5,275 square miles having a population of approximately 192,000 people. The Company serves approximately 107,000 customers in portions of the Maine counties of Penobscot, Hancock, Washington, Waldo, Piscataquis, and Aroostook. The Company's regulated operations are subject to the regulatory authority of the Maine Public Utilities Commission (MPUC) as to retail rates, accounting, service standards, territory served, the issuance of securities and other matters. The Company is also subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) as to certain matters, including rates for transmission services. The Company is a member of the New England Power Pool (NEPOOL), and is interconnected with other New England utilities to the south and with New Brunswick Power Corporation to the north. Basis of Consolidation - The Consolidated Financial Statements of the Company include its wholly- owned subsidiaries, Penobscot Hydro Co., Inc. (PHC) for the first seven months of 1999, Bangor Var Co., Inc. (BVC), Bangor Energy Resale, Inc. (BERI), Penobscot Natural Gas Co., Inc. (Penobscot Gas), and CareTaker, Inc. (CareTaker). The Company sold PHC in July 1999 in connection with its asset sale to PP&L Global. See Note 10 for a detailed discussion of this sale. The operations of PHC consisted solely of a 50% interest in Bangor-Pacific Hydro Associates (Bangor-Pacific), the owner and operator of the redeveloped West Enfield hydroelectric station. PHC accounted for its investment in Bangor-Pacific under the equity method. BVC was incorporated in 1990 to own the Company's 50% interest in the Chester SVC Partnership (Chester), a partnership which owns certain facilities used in the Hydro-Quebec Phase II transmission project in which the Company is a participant. BVC accounts for its investment in Chester under the equity method. BERI was formed in 1997 as a special purpose vehicle to permit Bangor Hydro's use of a power sales agreement as collateral for a bank loan (see Note 4 for a discussion of this financing arrangement). The operations of Penobscot Gas consist solely of a 50% interest in Bangor Gas Company, LLC, which is developing a natural gas local distribution company in the greater Bangor, Maine area. CareTaker was incorporated in 1997 and provides security alarm services on a retail basis to residential and commercial customers. See Note 6 for additional information with respect to these investments, excluding CareTaker. All significant intercompany balances and transactions have been eliminated. The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by the regulatory bodies having jurisdiction. Equity Method of Accounting - The Company accounts for its investments in the common stock of Maine Yankee Atomic Power Company (Maine Yankee) and Maine Electric Power Company, Inc. (MEPCO) under the equity method of accounting, and records its proportionate share of the net earnings of these companies as a reduction of fuel for generation and purchased power expense. See Note 6 for additional information with respect to these investments. Electric Operating Revenue - Electric Operating Revenue consists primarily of amounts charged for electricity delivered to customers during the period. The Company records unbilled revenue, based on estimates of electric service rendered and not billed at the end of an accounting period, in order to match revenue with related costs. Depreciation of Electric Plant and Maintenance Policy- Depreciation of electric plant is provided using the straight-line method at rates designed to allocate the original cost of properties over their estimated service lives. The composite depreciation rate (excluding intangible assets), expressed as a percentage of average depreciable plant in service, and considering the amortization of overaccumulated depreciation (discussed below), was approximately 2.1% in 1999, 2.5% in 1998, and 3.0% in 1997. A study conducted as of December 31, 1996 determined that the Company's reserve for depreciation was overaccumulated by approximately $3.6 million. In connection with the MPUC's rate order in February 1998, the Company was allowed to amortize this balance over a two-year period, starting in February 1998. The Company recorded approximately $2.4 million in amortization in 1999 and $1.6 million in 1998 which reduced depreciation expense. The 1999 amortization was increased by approximately $400,000 due to the impact of the sale of the Company's hydroelectric plant assets in May 1999. The Company follows the practice of charging to maintenance the cost of repairs, replacements and renewals of minor items considered to be less than a unit of property. Costs of additions, replacements and renewals of items considered to be units of property are charged to the utility plant accounts, and any items retired are removed from such accounts. The original costs of units of property retired and removal costs, less salvage, are charged to the depreciation reserve. Depreciation, local property taxes and other taxes not based on income, which were charged to operating expenses, are stated separately in the Consolidated Statements of Income. Rents, advertising and research and development expenses are not significant. No royalty expenses were incurred. Maintenance expense was $9.5 million in 1999, $7.0 million in 1998 and $5.7 million in 1997. Equity Reserve for Licensed Hydro Projects - The FERC requires that a reserve be maintained equal to one-half of the earnings in excess of a prescribed rate of return on the Company's investment in licensed hydro property, beginning with the twenty-first year of the project operation under license. As a result of the generation asset sale (see Note 10), the Company is seeking authorization from the FERC to reclassify the reserve for licensed hydro projects, classified as appropriated retained earnings, to unappropriated earnings. The Company expects to receive such authorization from the FERC in 2000. The reserve balance at December 31, 1999 amounted to approximately $3 million. Allowance for Funds Used During Construction (AFDC) - In accordance with regulatory requirements of the MPUC, the Company capitalizes as AFDC financing costs related to portions of its construction work in progress, at a rate equal to its weighted cost of capital, into utility plant with offsetting credits to other income and interest. This cost is not an item of current cash income, but is recovered over the service life of plant in the form of increased revenue collected as a result of higher depreciation expense and return. In addition, carrying costs on certain regulatory assets and liabilities, including the deferred asset sale gain (see Note 10), were also capitalized in 1999 and included in AFDC in the Consolidated Statements of Income. The average AFDC (carrying costs) rates computed by the Company were 9.5% in 1999, 9.1% for 1998 and 8.7% in 1997. Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Supplemental Disclosure of Cash Flow Information - Cash paid for interest, net of amounts capitalized was approximately $20.9 million, $23.8 million and $24.6 million in 1999, 1998 and 1997, respectively. Cash paid for income taxes was approximately $8.9 million, $655,000 and $545,000 in 1999, 1998 and 1997, respectively. Noncash operating activity: In 1998, the Company issued common stock warrants in connection with the Penobscot Energy Recovery Company (PERC) purchased power contract restructuring (see Note 6), which were recorded at a fair value of $2 million as a regulatory asset and additional paid-in capital. Risk Management and Derivative Financial Instruments - The Company's major financial market risk exposures are changing interest rates and changes in purchased energy prices. Changing interest rates will affect interest paid on variable rate debt and the fair value of fixed rate debt. The Company manages interest rate risk through a combination of both fixed and variable rate debt instruments and an interest rate swap (see Notes 4 and 14). The Company managed purchased energy price risk through the use of swaps (see Note 14). The Company does not hold or issue derivatives for trading purposes. The Company's accounting for derivatives used to manage risk is in accordance with Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts". Reclassifications-Certain prior year amounts have been reclassified to conform with the presentation used in the 1999 Consolidated Financial Statements. Note 2. Income Taxes - -------------------- The individual components of federal and state income taxes reflected in the Consolidated Statements of Income for 1999, 1998 and 1997 are stated in the table below. Year Ended December 31, 1999 1998 1997 - ---------------------------- ------------ ------------ ------------ Current: Federal $7,390,387 $725,466 $524,373 State 2,314,251 195,876 141,581 ------------ ------------ ------------ $9,704,638 $921,342 $665,954 ------------ ------------ ------------ Deferred: Federal-Other $89,444 $5,089,469 ($661,330) State-Other (375,468) 1,442,801 (690,829) Federal-Seabrook (341,917) (341,917) (341,917) State-Seabrook (72,173) (72,173) (72,173) ------------ ------------ ------------ ($700,114) $6,118,180 ($1,766,249) ------------ ------------ ------------ Investment Tax Credits, Net ($317,877) ($385,805) ($140,379) ------------ ------------ ------------ Total Provision $8,686,647 $6,653,717 ($1,240,674) Allocated to Other Income 286,519 (560,431) (715,629) Charged to Operating Expense $8,973,166 $6,093,286 ($1,956,303) ============ ============ ============ The table below reconciles an income tax provision (benefit), calculated by multiplying income (loss) before federal income taxes (as reported on the Consolidated Statements of Income) by the statutory federal income tax rate to the federal income tax expense (benefit) reported on the Consolidated Statements of Income. The difference is represented by the permanent and timing differences for which deferred taxes are not provided for ratemaking purposes.
1999 1998 1997 ---------------------------------------------- (Dollars in Thousands) Amount % Amount % Amount % - ------------------------------------------------------------------ ---------------------------------------------- Federal income tax provision at statutory rate $9,439 35.0% $6,342 35.0% ($569) 35.0% Less (Plus) permanent differences in tax expense resulting from statutory exclusions from taxable income: Dividend received deduction related to earnings of associated companies 253 .9 40 .2 29 (1.8) Equity component of AFDC 185 .7 151 .8 100 (6.2) Amortization of equity component of AFDC on recoverable Seabrook investment (160) (.6) (160) (.9) (160) 9.8 Other (29) (.1) (28) (.1) (80) 5.1 -------------- -------------- ------------- Federal income tax provision before effect of timing differences $9,190 34.1% $6,339 35.0% ($458) 28.1% Less (Plus) timing differences that are flowed through for rate- making and accounting purposes: Amortization of debt component of AFDC and capitalized overheads on recoverable Seabrook investment (151) (.6) (151) (.8) (151) 9.3 Book depreciation greater than tax depreciation (85) (.3) (88) (.5) (79) 4.8 Equity earnings in excess of (less than) dividends (276) (1.0) 201 1.1 217 (13.3) State income tax liability deducted for federal income tax purposes 673 2.5 498 2.8 (186) 11.4 Reversal of excess deferred income taxes 167 .6 124 .7 173 (10.6) Amortization of investment tax credits 350 1.3 241 1.3 217 (13.3) Investment tax credits and excess deferred taxes flowed through 1,485 5.5 - - (184) 11.3 Other 27 .1 282 1.5 46 (2.9) ------------- --------------- -------------- Federal income tax provision $7,000 26.0% $5,232 28.9% ($511) 31.4% ============= =============== ==============
Under the federal income tax laws, the Company received investment tax credits (ITC) on qualified property additions through 1986. ITC utilized were deferred and are being amortized over the life of the related property. In 1999 the Company utilized the remaining available ITC of about $3.2 million to reduce its federal income tax obligation. In 1999 the Company utilized its remaining tax net operating loss carryforwards of $66.6 million to reduce its regular income tax liability. Also in 1999, the Company utilized $4.2 million of federal and state alternative minimum tax credits to reduce its regular income tax liability. At December 31, 1999, the Company had federal alternative minimum tax credits remaining of approximately $3.6 million for the reduction of future tax liabilities. In 1998 and 1997 the Company utilized approximately $31.9 million and $21.5 million, respectively, of tax net operating loss carryforwards to reduce its regular income tax liability. These net operating losses were principally due to the Company deducting for income tax reporting purposes the costs of the purchased power contract terminations in 1995, which were deferred for financial reporting purposes (see Note 6). In accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FAS 109), the Company recorded net additional deferred income tax liabilities of approximately $16 million as of December 31, 1999 and $23 million as of December 31, 1998. These additional deferred income tax liabilities have resulted from the accrual of deferred taxes on temporary differences on which deferred taxes had not been previously accrued ($24.8 million and $32.6 million as of December 31, 1999 and 1998, respectively), offset by the effect of the 1987 change to lower income tax rates (reduced by the 1% increase in the federal income tax rate in 1993) that will be refunded to customers over time ($7.9 million and $8.6 million as of December 31, 1999 and 1998, respectively), and the establishment of deferred tax assets on unamortized investment tax credits ($900,000 as of December 31, 1999 and $1 million as of December 31, 1998). These latter amounts have been recorded in Other Regulatory Liabilities at December 31, 1999 and 1998. The accrual of the additional amount of deferred tax liabilities have been offset by regulatory assets which represent the customers' future payment of these income taxes when the taxes are, in fact, expensed. As a result of this accounting, the Consolidated Statements of Income are not affected by the implementation of FAS 109. The rate-making practices followed by the MPUC permit the Company to recover federal and state income taxes payable currently, and to recover some, but not all, deferred taxes that would otherwise be recorded in accordance with FAS 109 in the absence of regulatory accounting. The individual components of other accumulated deferred income taxes are as follows at December 31, 1999 and 1998: 1999 1998 - ------------------------------------------ ------------ ----------- Deferred Income Tax Liabilities: Costs to terminate purchased power contracts $42,793,031 $50,851,911 Excess book over tax basis of electric plant in service 35,395,877 53,209,720 Investment in jointly-owned companies 1,492,533 2,036,802 Deferred incremental ice storm costs 1,429,579 2,119,432 Deferred incremental Maine Yankee costs - 697,692 Deferred demand-side management costs 94,013 318,927 Other 906,506 287,215 ----------- ------------ $82,111,539 $109,521,699 ----------- ------------ Deferred Income Tax Assets: Deferred asset sale gain $12,121,099 - Deferred taxes provided on alternative minimum tax 3,627,596 7,314,289 Deferred state income tax benefit 3,317,437 2,881,091 Postretirement benefit costs other than pensions 3,090,544 2,362,537 Unamortized investment tax credit 941,134 1,017,397 Reserve for bad debts 719,981 719,981 Accrued pension costs 446,765 324,064 Deferred incremental Maine Yankee costs 453,414 - Net operating loss carryforward - 27,159,196 Reserve for Basin Mills investment - 2,835,939 Other 1,566,679 1,132,700 ----------- ----------- $26,284,649 $45,747,194 ----------- ----------- Total other accumulated deferred income taxes $55,826,890 $63,774,505 =========== =========== As a result of the Company's generation asset sale to PP&L Global (see Note 10), the Company realized $1.5 million in income tax benefits associated with flowing through the unamortized deferred ITC associated with the generation assets sold and the reversal of the excess deferred income taxes associated with these assets. These income tax benefits have been recorded as a component of Other Income in the Consolidated Statements of Income in 1999. Note 3. Common and Preferred Stock and Earnings Per Share - --------------------------------------------------------- Common Stock - Prior to 1992, stockholders had been able to invest their dividends and optional cash payments in common stock of the Company acquired by an independent agent in the open market through the Company's Dividend Reinvestment and Common Stock Purchase Plan (the Plan). In 1992 the Company amended the Plan to enable it to issue original shares in return for the reinvested dividends and optional cash payments. The common stock has general voting rights of one vote per twelve shares owned. In January 1997, the Company further amended the Plan to allow for the option of purchasing shares either on the open market or from newly issued shares sold by the Company. The Company anticipates that for the foreseeable future common stock will be purchased on the open market. Preferred Stock - Authorized but unissued shares of 552,660 (plus additional shares equal in number to such presently outstanding shares as may be retired) may be issued with such preferences, restrictions or qualifications as the board of directors may determine. Any new shares so issued will be required to be issued with per share voting rights no greater than that of the common stock. The callable preferred stock may be called in whole or in part upon any dividend date by appropriate resolution of the board of directors. The currently outstanding preferred stock has general voting rights of one vote per share. With re-gard to payment of dividends or assets available in the event of liquidation, preferred stock ranks prior to common stock. Redeemable Preferred Stock - On December 27, 1989, the Company issued to an institutional investor $15 million of nonvoting preferred stock carrying an annual dividend rate of 8.76%. These shares had a maturity of fifteen years with a mandatory sinking fund of $1.5 million per year starting in 1995. Through the utilization of generation asset sale proceeds, the Company redeemed the remaining outstanding 90,000 shares in October 1999 at a cost of $9.8 million, which included a call premium of $282,000 and $563,000 associated with the make whole provision, which is discussed below. The agreement to issue this series of preferred stock contained a provision whereby, if the Company paid a dividend that was considered a return of capital for federal income tax purposes, the Company was required to make a payment (make whole provision) to the stockholder in order to restore the stockholder's after-tax yield to the level it would have been had the dividend not been considered a return of capital. Since 100% of the dividends paid in 1990 and 1995 and 50% in 1993 were considered a return of capital, the Company became obligated to pay this stockholder approximately $939,000, on a pro-rata basis (10% per year) in conjunction with each sinking fund payment starting in 1995. With the redemption of the remaining outstanding shares in 1999, the Company was obligated to pay the remaining make whole provision amount of $563,000 at the time of the redemption. The make whole provision obligation was being recognized over the remaining life of the issue through a direct charge to retained earnings, which amounted to approximately $46,000 in 1999 and $61,000 in each of 1998 and 1997. In each of 1998 and 1997 the Company made $1.5 million sinking fund payments, as well as approximately $94,000 under the make whole provision. Exercise of Warrants - In 1999, 349,999 common stock warrants, which were issued in connection with the PERC purchased power contract restructuring, were exercised at market prices ranging from $16 1/16 to $16 3/4 per share. For a complete discussion of the PERC contract restructuring and the issuance of warrants, see Note 6. The Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $3.3 million. Since the common shares were not issued, and the Company had recorded the estimated fair value of these warrants when issued in June 1998 as an addition to additional paid-in capital, amounting to approximately $410,000, an adjustment has been made in connection with the cash payments option to reduce additional paid-in capital by the $410,000 as of December 31, 1999. Earnings Per Share - The following table reconciles basic and diluted earnings per common share assuming all outstanding common stock warrants were converted to common shares (see Note 6 for discussion of warrants issued in connection with the PERC purchased power contract restructuring):
1999 1998 1997 - --------------------------------------------- ------------- ------------ ------------ Earnings (loss) applicable to common stock $17,335,205 $10,220,829 $(1,762,578) ----------- ----------- ------------ Average common shares outstanding 7,363,424 7,363,424 7,363,424 Plus: incremental shares from assumed conversion of outstanding warrants 984,200 329,778 - ----------- ----------- ------------ Average common shares outstanding plus assumed warrants converted 8,347,624 7,693,202 7,363,424 ----------- ---------- ----------- Basic earnings (loss) per common share $2.35 $1.39 $(0.24) ----------- ----------- ------------ Diluted earnings (loss) per common share $2.08 $1.33 $(0.24) =========== =========== ============
Note 4. Lending Agreements and Monetization of Power Sale Contract - ------------------------------------------------------------------ On June 29, 1998, the Company entered into an Amended and Restated Revolving Credit and Term Loan Agreement with a new group of lenders that provided a two-year term loan of $45 million and a revolv-ing credit commitment of $30 million. The amended credit agreement is secured by $82.5 million of non-interest bearing First Mortgage Bonds. The revolving credit portion of the credit agreement has a term of three years. The Company may borrow, at its option, at rates, as defined in the agreement, based on the London Interbank Offered (LIBO) rate, or the base rate, which is the higher of the agent bank's defined base rate or one-half of one percent (1/2%) above the federal funds interest rate. The applicable risk premium based on the Company's corporate credit rating is added to the core interest rate, which results in the total combined interest rate for borrowing under the agreement. A required commitment fee, based on the Company's available revolving credit commitment, is also priced according to the Company's corporate credit rating. The maturity of the term loan was the earlier of two years or when the Company completed any portion of its generation asset sale (see Note 10). Interest on the term loan was determined similarly to the revolving credit portion of the new credit agreement but with a different risk premium. In January 1999 the Company utilized the $6.2 million in proceeds associated with the sale of property at its Graham Station in Veazie, Maine to Casco Bay Energy (see Note 10) to repay a portion of the outstanding medium term notes, and the remaining principal outstanding of $38.8 million was repaid at the end of May 1999 utilizing proceeds from the Company's generation asset sale to PP&L Global on May 27, 1999. The agreement allows the Company to incur, outside of the revolving credit facility, additional unsecured debt of $5 million, plus 50% of the aggregate amount of mandated or optional reductions to the $30 million revolving credit facility. The new credit agreement contains certain financial covenants related to the Company's debt ratio, fixed charge coverage, net worth, and limitation on the payment of common dividends. The Company was in compliance with all covenants associated with the new credit agreement during 1999 and 1998. The Company provided power directly to UNITIL Power Corp. (UNITIL), a New Hampshire based electric utility, at significantly above-market rates, with the contract term ending in the year 2003. On March 31, 1998, the Company completed a transaction with lenders and one of its wholly owned subsidiaries, BERI (see below) that provided a loan of approximately $23.3 million in net proceeds secured by the value of the UNITIL contract. As a requirement of the financing, the Company established BERI, a special purpose entity which holds the medium term notes and acts as a conduit between Bangor Hydro and UNITIL for the procurement of power under the terms of the original power sales contract between the two parties. The loan was comprised of $24.8 million in medium term notes, with a term of 53 months. BERI must maintain a capital reserve fund of $1.5 million, funded with proceeds from the loan, which will be used to pay the final installment of principal and interest due in 2002. The assets in the capital reserve fund are held by a third party trustee and invested in money market funds whose investments are limited to U.S. Treasury and Agency obligations, repurchase agreements and short-term bank and corporate obligations. Interest is payable, at the Company's option, under the agreement at the LIBO rate plus 1.125% or the base rate, which is the higher of (a) the lending bank's reported "base rate" and (b) one- half of one percent (1/2%) above the federal funds effective interest rate. To provide interest rate protection through the maturity date of the term loan, in April 1998, BERI entered into an interest rate swap agreement with one of the lending banks. The interest rate swap fixed the LIBO interest rate on the medium term notes at 5.72%. As a result of the interest rate swap agreement, BERI incurred additional interest expense in 1999 amounting to approximately $114,000. The agreement also contains certain financial covenants, with which BERI was in compliance during 1999 and 1998. In connection with financing the costs of the purchased power contract buyback accomplished in June 1995 (see Note 6), the Company entered into a Loan Agreement with the Finance Authority of Maine (FAME), a body corporate and politic and public instrumentality of the state of Maine. Pursuant to authorizing legislation in Maine, FAME issued $126 million of notes through a private placement, the repayment of which is the responsibility of the Company under the terms of the Loan Agreement. Of that amount, approximately $105 million was made available to the Company to finance a portion of the buyback and approximately $21 million was set aside in a capital reserve fund. The notes bear interest at an annual rate of 7.03%, mature on July 1, 2005 and are subject to a schedule of annual principal payments beginning on July 1, 1998. The amount held in the capital reserve fund will be used to pay the final installment of principal and interest due in 2005. The assets in the capital reserve fund are held by a third party trustee and invested in a guaranteed investment contract, earning interest at an annual rate of 6.51%. The interest earnings are utilized to offset the semiannual interest payments on the FAME notes. In order to secure the FAME notes, the Company executed a General and Refunding Mortgage Indenture and Deed of Trust establishing a lien on the Company's property junior to the lien under the Company's First Mortgage Bonds Indenture. The Company may not issue any additional First Mortgage Bonds in the future. The Company issued bonds to FAME under the new mortgage in the amount of $126 million. Certain information related to total short-term borrowings under the Credit Agreements and the lines of credit is as follows:
1999 1998 1997 - ---------------------------------------------------------- ------------ ------------ ------------ Total credit available at end of period $30,000,000 $30,000,000 $54,000,000 Letter of credit secured under the revolving credit facility - $4,200,000 $4,200,000 Unused credit at end of period $30,000,000 $13,800,000 $15,800,000 Borrowings outstanding at end of period - $12,000,000 $34,000,000 Effective interest rate (exclusive of fees) on borrowings -% 7.2% 8.3% outstanding at end of period Average daily outstanding borrowings for the period $2,802,740 $20,369,863 $31,236,301 Weighted daily average annual interest rate 6.7% 7.9% 8.1% Highest level of borrowings outstanding at any month-end during the period $13,000,000 $37,500,000 $36,500,000 =========== =========== ===========
Under the provisions of the first mortgage bond indenture, substantially all of the Company's plant and property has been mortgaged to secure the Company's first mortgage bonds. Current maturities of the first mortgage bonds and other long-term debt for the five years subsequent to December 31, 1999, amounting to $132,960,000, are $19,460,000 in 2000, $21,340,000 in 2001, $41,560,000 in 2002, $32,200,000 in 2003, and $18,400,000 in 2004. Note 5. Postretirement Benefits - ------------------------------- The Company has a noncontributory pension plan covering substantially all of its employees. Benefits under the plan are generally based on the employee's years of service and compensation during the years preceding retirement. The Company's general policy is to contribute to the funds the amounts deductible for federal income tax purposes. The Company also has an unfunded noncontributory supplemental non-qualified pension plan that provides additional retirement benefits to certain management employees. The following tables detail the funded status of the plan, the amounts recognized in the Company's Consolidated Financial Statements, the components of pension expense for 1999, 1998 and 1997 and the major assumptions used to determine these amounts (includes both the funded and unfunded plans). There were no employer contributions to the plan in 1999, 1998 or 1997. The plan's assets are composed of fixed income securities, equity securities and cash equivalents. The following table sets forth the plans' funded status at December 31, 1999 and 1998: 1999 1998 - ------------------------------------------ ------------ ------------ Change in Projected Benefit Obligation Balance as of December 31, 1998 and 1997 $48,215,365 $45,276,387 Service cost 1,439,047 1,208,393 Interest cost 3,295,172 3,107,258 Benefits paid (2,965,723) (3,013,719) Amendments 1,047,567 - (Gains) and losses (5,865,968) 1,637,046 ----------- ----------- Balance as of December 31, 1999 and 1998 $45,165,460 $48,215,365 ----------- ----------- Change in Plan Assets Balance as of December 31, 1998 and 1997 $49,495,200 $48,323,318 Employer contributions 40,000 40,000 Benefits paid (2,965,723) (3,013,719) Actual return, less expenses 5,265,253 4,145,601 ----------- ----------- Balance as of December 31, 1999 and 1998 $51,834,730 $49,495,200 ----------- ----------- Funded status $6,669,270 $1,279,835 Unrecognized net transition asset (1,322,500) (2,254,825) Unrecognized prior service cost 3,290,845 3,599,188 Unrecognized gain (11,178,648) (4,067,348) ----------- ----------- Accrued pension balance at December 31, 1999 and 1998 ($2,541,033) ($1,443,150) ============ ============ The accumulated benefit obligation for the unfunded supplemental pension plan with accumulated benefit obligations in excess of plan assets was $1,220,982 and $666,976 as of December 31, 1999 and 1998, respectively. (CAPTION> Total pension expense included the following components: 1999 1998 1997 - ------------------------------------------------------- ------------- ------------ ------------ Service cost-benefits earned during the period $1,439,047 $1,208,393 $1,064,129 Interest cost on projected benefit obligation 3,295,172 3,107,258 2,913,572 Expected return on plan assets (4,317,379) (3,737,267) (3,513,402) Total of amortized obligations and deferred net loss 252,043 (333,507) (333,060) ------------- ----------- ------------ Total pension expense $668,883 $244,877 $131,239 ============= =========== ============ 1999 1998 1997 - -------------------------------------------------------- ------------- ----------- ------------ Significant assumptions used were- Discount rate 6.75% 7.0% 7.5% Rate of increase in future compensation levels 4.0% 4.0% 5.0% Expected long-term rate of return on plan assets 9.0% 9.0% 9.0%
The discount rate and rate of increase in future compensation levels used to determine pension obligations, effective January 1, 2000, are 8% and 4%, respectively, and were used to calculate the plans' funded status at December 31, 1999. In addition to pension benefits, the Company provides certain health care and life insurance benefits to its retired employees. Substantially all of the Company's employees may become eligible for retiree benefits if they reach normal retirement age while working for the Company. The MPUC in 1993 issued a final accounting rule in connection with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which adopted this pronouncement for ratemaking purposes and authorized the Company to defer the excess of the net periodic postretirement benefit cost recognized under SFAS 106 over the pay-as-you-go amount in 1993 through February 28, 1994, and to include such excess as a regulatory asset pending inclusion in the new base rates, effective March 1, 1994. This regulatory asset, which amounted to $705,283 at February 28, 1994, is being recovered, beginning March 1, 1994, over a ten-year period. The Company, also in accordance with the final accounting ruling, is amortizing the unrecognized transition obligation of $10,023,200 over a 20-year period. In 1994 the Company established an irrevocable external Voluntary Employee Benefit Association Trust Fund (VEBA) to fund the payment of postretirement medical and life insurance benefits. Company contributions to the VEBA amounted to approximately $1.3 million in each of 1999 and 1998, and $1.1 million in 1997. The VEBA's assets are composed of United States Treasury money market funds. The Company's general policy is to contribute to the VEBA amounts necessary to fund claims and administrative costs. The following table sets forth the benefit plan's funded status at December 31, 1999 and 1998. 1999 1998 - ------------------------------------------------- ----------- ----------- Change in Accumulated Postretirement Benefit Obligation Balance as of December 31, 1998 and 1997 $19,073,629 $16,234,790 Service cost 583,385 401,856 Interest cost 1,518,092 1,060,671 Claims paid (1,301,239) (1,292,715) Gains and losses 846,966 2,669,027 ------------ ------------ Balance as of December 31, 1999 and 1998 $20,720,833 $19,073,629 Change in Plan Assets Balance as of December 31, 1998 and 1997 $321,408 $283,731 Employer contributions 1,347,000 1,338,027 Retiree contributions 47,152 45,757 Claims paid (1,301,239) (1,292,715) Actual return, less expenses (55,350) (53,392) ------------ ------------ Balance as of December 31, 1999 and 1998 $358,971 $321,408 ------------ ------------ Funded status ($20,361,862) ($18,752,221) Unrecognized net transition obligation 6,514,800 7,016,000 Unrecognized loss 5,087,038 4,760,198 Accrued postretirement benefit cost balance at ------------ ------------ December 31, 1999 and 1998 ($8,760,024) ($6,976,023) ============ ============ The actuarially determined net periodic postretirement benefit cost for 1999, 1998 and 1997 and the major assumptions used to determine these amounts are shown in the following tables:
1999 1998 1997 - ------------------------------------------- ---------- ---------- ---------- Service cost of benefits earned $583,385 $401,856 $342,739 Interest cost on accumulated postretirement benefit obligation 1,518,092 1,060,671 994,936 Actual return on plan assets (9,710) (10,608) (9,395) Amortization of unrecognized transition obligation 501,200 501,200 501,200 Other deferrals, net 405,834 (14,392) (11,605) ---------- ---------- ---------- Net periodic postretirement benefit cost $2,998,801 $1,938,727 $1,817,875 ========== ========== ==========
1999 1998 1997 - --------------------------------------- ------- ------ ------- Significant assumptions used were- Discount rate 6.75% 7.0% 7.5% Health care cost trend rate, employees less than age 65- Near-term 7.5% 8.0% 8.5% Long-term 4.5% 5.0% 4.5% Health care cost trend rate, employees greater than age 65- Near-term 7.5% 8.0% 6.8% Long-term 4.5% 5.0% 4.5% Rate of return on plan assets 5.0% 5.0% 5.0% The discount rate used to determine postretirement benefit obligations, effective January 1, 2000, and the Plan's funded status at December 31, 1999, was 8%. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effect: 1% Increase 1% Decrease - --------------------------------------------------- ----------- ----------- Effect on total of service and interest cost components $ 308,173 $ (392,320) Effect on postretirement benefit obligation 2,374,781 (2,904,741) In 1999 the Company incurred $469,000 and $175,587 in special termination benefits associated with enhanced pension and postretirement medical benefits, respectively, provided to employees who were displaced due to the asset sale to PP&L Global (see Note 10). The state of Maine electric utility restructuring legislation allows utilities to recover the costs of providing such benefits to the workers displaced due to the sale of the Company's generation assets, and consequently, the special termination benefits expense of $644,587 has been deferred as a regulatory asset at December 31, 1999. This regulatory asset will begin to be recovered starting March 1, 2000 over a three-year period as specified in the Company's most recent rate order from the MPUC. The estimates of the Company's accrued pension and postretirement benefit costs involve the utilization of significant assumptions. Any change in these assumptions could impact the liabilities in the near term. The Company also provides a defined contribution 401(k) savings plan for substantially all of its employees. The Company's matching of employee voluntary contributions amounted to approximately $331,000 in 1999, $330,000 in 1998 and $295,000 in 1997. Note 6. Jointly Owned Facilities and Power Supply Commitments - ------------------------------------------------------------- Maine Yankee - The Company owns 7% of the common stock of Maine Yankee, which owns and, prior to its permanent closure in 1997, operated an 880 megawatt (MW) nuclear generating plant (the Plant) in Wiscasset, Maine. Maine Yankee, which had commenced commercial operation on January 1, 1973, is the only nuclear facility in which the Company has an ownership interest. The Company's equity ownership in the plant had entitled the Company to about 7% of the output pursuant to a cost-based power contract. Pursuant to a contract with Maine Yankee, the Company is obligated to pay its pro rata share of Maine Yankee's operating expenses, including decommissioning costs. In addition, under a Capital Funds Agreement entered into by the Company and the other sponsor utilities, the Company may be required to make its pro rata share of future capital contributions to Maine Yankee if needed to finance capital expenditures. The entire output of the Plant had been sold at wholesale by Maine Yankee to ten New England electric utilities, which collectively own all of the common equity of Maine Yankee; a portion of that output (approximately 6.2%) was in turn resold by certain of the owner utilities to 28 municipal and cooperative utilities in New England (the Secondary Purchasers). Maine Yankee recovered, and since the shutdown decision has continued to recover, its costs of providing service through a formula rate filed with the FERC and contained in Power Contracts with its utility purchasers, which are also filed with the FERC. Pursuant to the FERC filing dated November 6, 1997, Maine Yankee submitted for filing certain amendments to the Power Contracts (the Amendatory Agreements), revised rates to reflect the decision to shut down the Plant, a requested approval of an increase in the decommissioning component of its formula rates, and certain other rate changes, including recovery of unamortized investment (including fuel) and certain changes to its billing formula, consistent with the non-operating status of the Plant. By Order dated June 1, 1999, the FERC approved an Offer of Settlement submitted by the various intervenors in the case. The Offer of Settlement provides for Maine Yankee to collect $33.6 million in the aggregate annually, effective January 15, 1998: (1) $26.8 million for estimated decommissioning costs, and (2) $6.8 million for interim spent fuel storage installation (ISFSI)-related costs. The original filing with FERC on November 6, 1997 called for an aggregate annual collection rate of $36.4 million for decommissioning and the ISFSI. The amount collected annually could be reduced to approximately $26 million if Maine Yankee is able to (1) use funds held in trust under Maine law for spent-fuel disposal in connection with the construction of the ISFSI, and (2) access approximately $6.8 million being held by the state of Maine for eventual payment to the state of Texas pursuant to a compact for low-level nuclear waste disposal, the future of which is now in question after rejection of the selected disposal site in west Texas by a Texas regulatory agency. Both required authorizing legislation in Maine, which was obtained pursuant to P.L. 173. The Offer of Settlement also provides for recovery of all unamortized investment (including fuel) in the Plant, together with a return on equity of 6.50%, effective January 15, 1998, on equity balances up to maximum allowed equity amounts. The Settling Parties also agreed in the proposed settlement not to contest the effectiveness of the Amendatory Agreements submitted to FERC as part of the original filing, subject to certain limitations including the right to challenge any accelerated recovery of unamortized investment under the terms of the Amendatory Agreements after a required informational filing with the FERC by Maine Yankee. As a separate part of the Offer of Settlement, the Company, the other two Maine owners of Maine Yankee, the MPUC Staff, and the Office of the Public Advocate entered into a further agreement resolving retail rate issues and other issues specific to the Maine parties, including those that had been raised concerning the prudence of the operation and shutdown of the Plant (the Maine Agreement). Under the Maine Agreement, the Company would continue to recover its Maine Yankee costs in accordance with its February 1998 rate order from the MPUC without any adjustment reflecting the outcome of the FERC proceeding. To the extent that the Company has collected from its retail customers a return on equity in excess of the 6.50% contemplated by the Offer of Settlement, no refunds would be required, but such excess amounts would be credited to the customers to the extent required by the Company's Alternative Rate Plan. The final major provision of the Maine Agreement requires the Maine owners, for the period from March 1, 2000, through December 1, 2004, to hold their Maine retail ratepayers harmless from the amounts by which the replacement power costs for Maine Yankee exceed the replacement power costs assumed in the report to the Maine Yankee board of directors that served as a basis for the Plant shutdown decision, up to a maximum cumulative amount of $41 million. The Company's share of that amount would be $5.74 million for the period. The Maine Agreement, which was approved by the MPUC on December 22, 1998, also sets forth the methodology for calculating such replacement power costs. The Company believes that the Offer of Settlement, including the Maine Agreement, constitutes a reasonable resolution of the issues raised in the Maine Yankee FERC proceeding, and eliminates significant uncertainties concerning the Company's future financial performance. Maine Yankee's most recent estimate of the total costs of decommissioning and plant closure, for the period from 1999 to 2008, excluding funds already collected, is $715 million (undiscounted). The Company's share of the estimated cost at December 31, 1999 is approximately $46 million and is recorded as a regulatory asset and decommissioning liability. The regulatory asset was recorded for the full amount of the decommissioning and plant closure costs due to the recent industry restructuring legislation (see Note 10) allowing the Company future recovery of nuclear decommissioning expenses related to Maine Yankee, as well as the Company being allowed a recovery mechanism in its February 1998 rate order for Maine Yankee non-decommissioning plant closure costs. Accumulated decommissioning funds at December 31, 1999 had an adjusted market value of $181.1 million of which the Company's share was approximately $12.7 million. Summary Financial Information for Maine Yankee and MEPCO
- ------------------------------------------------------------------------------------------------------------------ Maine Yankee MEPCO - ------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) - ------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 ---------- ----------- ---------- --------- --------- --------- Operations: As reported by investee- Operating Revenue $ 69,439 $ 110,608 $ 238,586 $ 2,738 $ 3,514 $ 24,473 - ------------------------------------------------------------------------------------------------------------------ Depreciation & decommissioning collections $ 55,286 $ 57,617 $ 33,625 $ 326 $ 364 $ 222 Interest and Preferred Dividends 14,079 15,958 18,031 72 77 67 Other expenses, net (4,789) 32,117 179,317 (969) 2,125 23,112 - ------------------------------------------------------------------------------------------------------------------ Operating expenses $ 64,576 $ 105,692 $ 230,973 $ (571) $ 2,566 $ 23,401 - ------------------------------------------------------------------------------------------------------------------ Earnings Applicable to Common Stock $ 4,863 $ 4,916 $ 7,613 $ 3,309 $ 948 $ 1,072 ================================================================================================================== Amounts Reported by the Company- Purchased power costs $ 4,368 $ 7,185 $ 16,764 $ - $ - $ - Equity in net income (83) (215) (524) (199) (123) (15) - ------------------------------------------------------------------------------------------------------------------ Net purchased power expense $ 4,285 $ 6,970 $ 16,240 $ (199) $ (123) $ (15) ================================================================================================================== Financial Position: As reported by investee- Plant in service $ 685 $ 687 $ 687 $ 23,493 $ 23,633 $ 23,510 Accumulated depreciation - - - (23,015) (22,899) (22,618) Other assets 1,091,265 1,182,611 1,367,456 7,589 4,781 3,470 - ------------------------------------------------------------------------------------------------------------------ Total assets $1,091,950 $ 1,183,298 $1,368,143 $ 8,067 $ 5,515 $ 4,362 Less- Preferred stock 15,000 16,800 17,400 - - - Long-term debt 54,000 68,433 143,665 - 220 420 Other liabilities and deferred credits 947,972 1,018,575 1,128,128 4,339 2,079 1,578 - ------------------------------------------------------------------------------------------------------------------ Net assets $ 74,978 $ 79,490 $ 78,950 $ 3,728 $ 3,216 $ 2,364 ================================================================================================================== Company's reported equity- Equity in net assets $ 5,248 $ 5,564 $ 5,527 $ 529 $ 457 $ 336 Adjust Company's estimated to actual 19 (125) 5 1 (18) (10) - ------------------------------------------------------------------------------------------------------------------ Equity in net assets as reported $ 5,267 $ 5,439 $ 5,532 $ 530 $ 439 $ 326 ==================================================================================================================
MEPCO - The Company owns 14.2% of the common stock of MEPCO. MEPCO owns and operates electric transmission facilities from Wiscasset, Maine, to the Maine-New Brunswick border. Information relating to the operations and financial position of Maine Yankee and MEPCO appears above. In connection with the Company's generation asset sale (see Note 10), the Company sold certain of its rights to MEPCO transmission capacity. Wyman 4 - The Company owned 8.33% (50 MW) of the oil-fired 600 MW Wyman Unit No. 4 in Yarmouth, Maine. In May 1999 the Company sold its interest in Wyman 4 to PP&L Global as part of its generation asset sale (see Note 10). The Company's proportionate share of the direct expenses of this unit, through the date of the sale, is included in the corresponding operating expenses in the Consolidated Statements of Income. Included in the Company's utility plant at December 31, 1998 and 1997 were the following amounts with respect to this unit: 1998 1997 - ------------------------------------------------------------------------- Electric plant in service $ 16,887,608 $ 16,886,776 Accumulated depreciation (9,851,639) (9,389,542) - ------------------------------------------------------------------------- $ 7,035,969 $ 7,497,234 ========================================================================= NEPOOL/Hydro-Quebec Project - The Company is a 1.6% participant in the NEPOOL/Hydro-Quebec Phase 1 project (Phase 1), a 690 MW DC intertie between the New England utilities and Hydro-Quebec constructed by a subsidiary of another New England utility at a cost of about $140 million. The participants receive their respective share of savings from energy transactions with Hydro-Quebec, and are obliged to pay for their respective shares of the costs of ownership and operation whether or not any savings are realized. The Company is also a 1.5% participant in the NEPOOL/Hydro- Quebec Phase 2 project (Phase 2), which involves an increase to the capacity of the Phase 1 intertie to 2,000 MW. As in the Phase 1 project, the Company receives a share of the anticipated energy cost savings derived from purchases from Hydro-Quebec and capacity benefits provided by the intertie and is required to pay its share of the costs of ownership and operation whether or not any savings are obtained. In connection with the generation asset sale in May 1999, the Company sold its rights as a participant in the regional utilities agreement with Hydro-Quebec (see Note 10). The Company, though, is still required to pay its share of the costs of ownership and operation of the Hydro-Quebec intertie. Also in connection with the asset sale, PP&L Global (PP&L) has agreed to pay the Company $400,000 per year to partially offset the Company's on-going Hydro-Quebec support payments. Since the Company still has an obligation for the costs of the Hydro-Quebec intertie, but it has sold the rights to the benefits as a participant, a $7.5 million liability (included in Other Long-term Liabilities) and corresponding regulatory asset (included in Other Regulatory Assets) have been recorded as of December 31, 1999 on the Consolidated Balance Sheet representing the present value of the Company's estimated future payments (net of the $400,000 to be received from PP&L) for costs of ownership and operation of the Hydro-Quebec intertie. Bangor Var Co. - In 1990, the Company formed BVC, whose sole function is to be a 50% general partner in Chester, a partnership which owns a static var compensator (SVC), which is electrical equipment that supports the Phase 2 transmission line. A wholly-owned subsidiary of Central Maine Power Company owns the other 50% interest in Chester. Chester has financed the acquisition and construction of the SVC through the issuance of $33 million in principal amount of 10.48% senior notes due 2020, and up to $3.25 million in principal amount of additional notes due 2020 (collectively, the SVC Notes). The holders of the SVC Notes are without recourse against the partners or their parent companies and may only look to Chester and to the collateral for payment. The New England utilities which participate in Phase 2 have agreed under a FERC approved contract to bear the cost of Chester, on a cost of service basis, which includes a return on and of all capital costs. Information relating to the operations and financial position of Chester appears on page 42. Penobscot Natural Gas Company - In 1998 the Company formed Penobscot Gas, whose sole function was to be a 50% general partner in Bangor Gas Company, LLC (Bangor Gas), which is constructing a nat-ural gas distribution system in the greater Bangor, Maine area. Sempra Energy, a joint venture of Pacific Enterprises and Enova Corporation, owns the other 50% interest in Bangor Gas. Gas service to Maine has become feasible for the first time because of the development of the Maritimes & Northeast Pipeline Project, extending from the Sable Offshore Energy Project near Sable Island, Nova Scotia, through the state of Maine and interconnecting with the Tennessee Gas Pipeline in Dracut, Massachusetts. The pipeline passes near the Bangor area. As the restructuring of the electric industry in Maine has developed, the Company has become increasingly cognizant of the need to focus on its core electric transmission and distribution business. Consequently the Company has determined that it no longer in- tends to participate in the Bangor Gas joint venture and intends to sell its joint venture interest. Penobscot Gas' investment in Bangor Gas as of December 31, 1999 is approximately $328,000 and is recorded as an Other Investment on the Consolidated Balance Sheets. Management is currently unable to predict the financial statement impact of this decision. At December 31, 1998, Penobscot Gas had approximately a $77,000 equity investment in Bangor Gas. Penobscot Gas recorded equity losses in Bangor Gas of approximately $249,000 and $98,000 for the years ended December 31, 1999 and 1998, respectively. Bangor Gas' total assets, principally construction work in progress, amounted to $12.5 million and $2.9 million at December 31, 1999 and 1998, respectively. Summary Financial Information for Bangor-Pacific and Chester
- ------------------------------------------------------------------------------------------------------ Bangor-Pacific Chester - ------------------------------------------------------------------------------------------------------ (Dollars in Thousands) - ------------------------------------------------------------------------------------------------------ 1999* 1998 1997 1999 1998 1997 --------- --------- --------- --------- --------- --------- Operations: As reported by investee- Operating Revenue $ 4,426 $ 7,309 $ 7,057 $ 4,406 $ 4,535 $ 4,642 - -------------------------------------------------------------------------------------------------------- Depreciation $ 511 $ 868 $ 870 $ 1,075 $ 1,075 $ 1,075 Interest expense 1,688 3,082 3,294 2,616 2,737 2,859 Other expenses, net 497 890 911 715 723 708 - -------------------------------------------------------------------------------------------------------- Operating expenses $ 2,696 $ 4,840 $ 5,075 $ 4,406 $ 4,535 $ 4,642 - -------------------------------------------------------------------------------------------------------- Net Income $ 1,730 $ 2,469 $ 1,982 $ - $ - $ - ======================================================================================================== Company's reported equity in net income $ 865 $ 1,235 $ 991 $ - $ - $ - ======================================================================================================== Financial Position: As reported by investee- Plant in service $ - $ 44,047 $ 44,047 $ 31,993 $ 31,993 $ 31,993 Accumulated depreciation - (9,031) (8,163) (9,598) (8,523) (7,447) Other assets - 3,308 3,129 2,907 3,008 3,087 - -------------------------------------------------------------------------------------------------------- Total assets $ - $ 38,324 $ 39,013 $ 25,302 $ 26,478 $ 27,633 Less- Long-term debt - 26,300 28,500 23,471 24,654 25,837 Other liabilities - 2,517 2,425 1,831 1,824 1,796 - -------------------------------------------------------------------------------------------------------- Net assets $ - $ 9,507 $ 8,088 $ - $ - $ - ======================================================================================================== Company's reported equity in net assets $ - $ 4,754 $ 4,044 $ - $ - $ - ========================================================================================================
*Financial information related to the operations of Bangor-Pacific is presented for the first seven months of 1999, prior to the sale of PHC. Small Power Production Facilities - As of the end of 1999, the Company had contracts with six in-dependent, non-utility power producers known as "small power production facilities." The West Enfield Project, described below, is one such facility. There are four other relatively small hydroelectric facilities, and a 20 MW facility fueled by municipal solid waste (see PERC discussion below). The cost of power from the small power production facilities is more than the Company would incur from other sources if it were not obligated under these contracts, and, in the case of the solid waste plant, substantially more. The prices were negotiated at a time when oil prices were much higher than at present, and when forecasts for the costs of the Company's long-term power supply were higher than current forecasts. The Company had been attempting to alleviate the adverse impact of high-cost contracts with small power production facilities. One method for doing so had been to pay a fixed sum in return for terminating the contract. The first such transaction was accomplished in 1993, and in 1995 the Company succeeded in accomplishing two more. These contract terminations have resulted in significant savings in purchased power costs, and the Company believes such savings will continue over the long term. In the 1993 transaction, the Company negotiated an agreement to cancel its long-term purchased power agreement with one of the biomass plants, the Beaver Wood Joint Venture (Beaver Wood), in June 1993. In connection with the cancellation, the Company paid Beaver Wood $24 million in cash and issued a new series of 12.25% First Mortgage Bonds due July 15, 2001 to the holders of Beaver Wood's debt in the amount of $14.3 million in substitution for Beaver Wood's previously outstanding 12.25% Secured Notes. The remaining outstanding principal of these First Mortgage Bonds was repaid in August 1999 through the utilization of generation asset sale proceeds. Also, in connection with the cancellation agreement, a reconstituted Beaver Wood partnership paid the Company $1 million at the time of settling the transaction and agreed to pay the Company $1 million annually for a six-year period beginning in 1994 in return for retaining the ownership and the option of operating the plant. The payments are secured by a mortgage on the property of the Beaver Wood facility. In each of the years from 1994 through 1997 the Company received its $1 million payment. The Company was entitled to receive the final two payments totaling $2 million in 1998 and 1999 from Beaver Wood. However, in July 1998, Beaver Wood indicated that it would not be making the payment due at that time and requested the Company agree to a lower payment. After assessing the potential costs and benefits of foreclosing on the mortgage, the Company determined that accepting a payment of $1.75 million would be a better alternative. This $1.75 million payment was received in February 1999. Management believes it is entitled to recover the $250,000 shortfall from its customers. In May 1993 the Company received an accounting order from the MPUC related to this purchased power contract buyout. The order stipulated that the Company could seek recovery of the costs associated with the buyout in a future base rate case, and could also record carrying costs on the deferred balance. Consequently, a regulatory asset of $40.3 million was recorded as of December 31, 1993. Effective with the imple- mentation of new base rates on March 1, 1994, the Company began recovering over a nine-year period the deferred balance, net of the additional $6 million anticipated from Beaver Wood. In connection with the temporary rate increase effective July 1, 1997, the MPUC required the Company to accelerate the amortization of this regulatory asset, and effective December 12, 1997, the MPUC authorized the Company to revert to the original amortization schedule. Effective with the rate order in February 1998, the amortization was reduced, so that the unamortized balance of the regulatory asset would be the same as under the original amortization schedule as of March 1, 2000. Effective March 1, 2000, this regulatory asset will be amoritized at an annual rate of $3.9 million through February 2003. The 1995 transactions involved a "buyback" of the contracts for the purchase of power from two biomass-fueled generating plants in West Enfield and Jonesboro, Maine, which are identical plants under common ownership. The buyback cost was approximately $170 million, including transaction costs. The buyback costs were deferred and recorded as a regulatory asset and are being amortized and collected over a ten-year period, beginning July 1, 1995. The cost of the buy-back was financed entirely by new debt instruments, thereby significantly increasing the Company's indebtedness (see Note 4). In June 1998 the Company successfully completed this major restructuring of its obligations under various agreements with PERC. It is anticipated that the restructuring will result in a substantial savings for the Company and will allow PERC to continue to meet the solid waste disposal needs of Maine communities. PERC owns a 20 MW waste-to-energy facility in Orrington, Maine, that provides solid waste disposal services to many communities in central, eastern, and northern Maine. The contract requires the Company to purchase the electricity output of the plant until 2018 at a price that is presently above the cost of alternative sources of power, and, in the Company's opinion, is likely to remain so. The Company's net purchased power under this contract was approximately $13.2 million in 1999 and is projected to be $15-16 million annually, net of revenues from the resale of power to another utility (these amounts are not reduced by the Company's pro rata share of PERC's net revenues discussed below). This major restructuring involved several separate components including the following: 1) PERC refinanced $45 million in existing bonds with a remaining five-year term over a twenty-year period using tax exempt bonds issued by the Finance Authority of Maine under its Electric Rate Stabilization Program. 2) PERC will share the net revenues generated by the facility on a pro rata basis with the Company and the Municipal Review Committee (MRC) which represents over 130 Maine municipalities receiving waste disposal service from PERC. In 1999 and 1998 the Company realized $2.9 million and $2 million, respectively, in savings associated with its share of PERC net revenues. The Company expects to realize approximately $3.6 million annually in such savings through the term of the PERC contract. 3) The Company made a onetime payment of $6 million to PERC in June 1998 and is making additional quarterly payments, starting in October 1998, of $250,000 for four years totaling $4 million. 4) The Company and PERC amended their existing power purchase agreement to include the MRC as a party. 5) The MRC's constituent municipalities extended their contracts with PERC by 15 years to supply solid waste to the facility through 2018. 6) The Company issued two million warrants to purchase common stock, one million each to PERC and the MRC. Each warrant entitles the warrant holder to acquire one share of the Company's common stock at a price of $7 per share. No warrants could be exercised within the first nine months after their issuance, and they are exercisable in 500,000 share blocks following the expiration of nine months, 21 months, 33 months, and 45 months from the closing date. Upon exercise, the Company has the option, instead of providing common stock, to pay cash equal to the difference between the then market price of the stock and the exercise price of $7 per share times the number of shares as to which exercise is made. The MPUC has established a cap on ratepayers' exposure to the cost of the warrants. Ratepayer costs are limited to the difference between the higher of $15 per share or the book value per share at the time the warrants are exercised and the $7 exercise price. The Company would not recover any costs above the cap from ratepayers. As previously discussed in Note 3, in 1999, 349,999 common stock warrants were exercised (at a market prices below the book value per common share at the time of the exercise), and the Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $3.3 million. Since the common shares were not issued, and the Company had recorded the estimated fair value of these warrants when issued in June 1998, amounting to approximately $400,000, as an addition to the PERC regulatory asset, an adjustment has been made in connection with the cash payments option to increase the PERC regulatory asset by approximately $2.9 million as of December 31, 1999. Depending upon a number of assumptions, including the ultimate cost of the warrants and markets for solid waste disposal, it is projected that the restructuring could result in cost savings to the Company over the next twenty years with a net present value of $16-$22 million. The refinancing by PERC was made possible by the Maine Legislature through an amendment to the Electric Rate Stabilization Program that allowed PERC to qualify for such financing. Under the Program, the state of Maine's "moral obligation" supports the new nonrecourse debt. As of December 31, 1999, the Company has deferred, as a regulatory asset, approximately $12.4 million in connection with the PERC restructuring. As discussed above, the Company is currently recovering the deferred PERC restructuring costs in rates. Effective with the implementation of new rates on March 1, 2000, the Company will be recovering the full amount of deferred PERC restructuring costs, including an estimate of the future value of warrants to be exercised and the additional $250,000 quarterly payments discussed above, amounting to an annual amortization of $1.6 million per year. The Company is not receiving a return on unexercised warrants, but may accrue carrying costs on the value of any warrants exercised until the amounts are included in the determination of new rates in the future. West Enfield Project - In 1986, the Company entered into a joint venture with a development subsidiary of Pacific Lighting Corporation for the purpose of financing and constructing the redevelopment of an old 3.8 MW hydroelectric plant which the Company owned on the Penobscot River in Enfield and Howland, Maine, into a 13 MW facility for the purpose of operating the facility once it was completed. Commercial operation of the redeveloped project began in April 1988. PHC was formed to own the Company's 50% interest in the joint venture, Bangor-Pacific. Bangor-Pacific financed the cost of the redevelopment through the issuance in a privately placed transaction of $40 million of fixed rate term notes and a commitment for up to $5 million of floating rate notes. The notes are secured by a mortgage on the project and a security interest in a 50-year purchased power contract, and the revenues expected thereunder, between the Company and Bangor-Pacific. In late July 1999, in connection with the generation asset sale, the Company sold PHC to PP&L and received $10 million in proceeds. The sale resulted in a gain of approximately $5.2 million, of which $4.7 million has been deferred as part of the deferred asset sale gain as of December 31, 1999 (see Note 10). The remaining $.5 million of the gain relates to the portion of the gain on sale of PHC which is allocable to shareholders (recorded as Other Income in the Consolidated Statements of Income for the year ending December 31, 1999). Under the purchased power contract with Bangor-Pacific, if the project operates as anticipated, payments by the Company to Bangor-Pacific are estimated to be about $7.5 million. It is possible that the Company would be required to make payments under the contract regardless of whether any power is delivered, in an amount of approximately $4 million per year. However, the Company has the right to terminate the contract if the failure to deliver power continues for a period of twelve consecutive months. Information relating to the operations of Bangor-Pacific appears on page 42. Other Power Supply Commitments - The Company had a contract, which started in June 1997, for the delivery of up to 60 MW of power from another utility, ending February 29, 2000. This contract was directly tied to the price of oil and the Company hedged this purchase through its energy risk management program (see Note 13 for a discussion of the Company's fuel hedge program). The Company's purchased power expense (including hedge settlements) under this contract was approximately $11.6 million in 1999. The Company also had a 40 MW purchase power contract tied directly to the price of oil. The term of this contract was January 1, 1999 through February 29, 2000. The Company also hedged this purchase through its energy risk management program, and the purchased power expense was approximately $6.9 million in 1999. As part of the generation asset sale to PP&L, the Company entered into a Transitional Power Sales Agreement with PP&L's subsidiary, Penobscot Hydro, to purchase the output from the Company's former hydroelectric facilities. This agreement became effective the day after the asset sale closing in May 1999 and expired on February 29, 2000. Purchased power expenses under the contract were approximately $3.2 million for 1999. In late 1999 the Company selected Morgan Stanley Dean Witter & Co., subsidiary Morgan Stanley Capital Group Inc., (Morgan Stanley) as the winning bidder for all of the capacity and energy from its six purchased power contracts being auctioned off pursuant to Chapter 307 of Maine's 1997 law restructuring the State's electric industry. The purchased power contracts provide 38 MWs of capacity and 218,000 MWHs of energy from hydro and biomass generation in Maine. The Morgan Stanley contract commenced March 1, 2000, the date when retail cus- tomer choice for power supply commenced in Maine, and will continue for a period of two years. This transaction has been approved by the MPUC. Included in the sale are 16 MWs of capacity and associated energy from the Company's contract with PERC and all the capacity and energy from the Company's 19 MW hydro contract with Bangor-Pacific. Also a part of the transaction are all of the energy and capacity from the Company's several smaller agreements with Pumpkin Hill, Milo, Green Lake and Sebec Hydro. In connection with the Company's current rate proceeding with the MPUC, the cost of energy and capacity associated with these agreements, net of the revenues to be realized from the resale to Morgan Stanley are being recovered from customers as stranded costs. Also being recovered as stranded costs are the Company's obligations under the regional utilities agreements with Hydro-Quebec. Basin Mills and Veazie Projects - As a result of increased uncertainty about the recoverability of amounts invested through 1993 in licensing activities for proposed additional hydroelectric facilities, the Company had established a reserve against those investments in the amount of $8.7 million as of December 31, 1993. Since 1993 the Company had charged to non-operating expense all amounts related to these licensing activities. The projects for which the reserve was established are a proposed 38 MW generating facility located at the so-called Basin Mills site on the Penobscot River in Orono and Bradley, Maine, and an 8 MW addition to the Company's existing dam and power station on the Penobscot River in Veazie and Eddington, Maine. As discussed in Note 10, the Company's investment in the Basin Mills and Veazie projects were included in the assets sold as part of its generation asset sale, and the $8.7 million reserve was reversed during 1999. Note 7. Recovery of Seabrook Investment and Sale of Seabrook Interest - ------------------------------------------------------------ The Company was a participant in the Seabrook nuclear project in Seabrook, New Hampshire. On December 31, 1984, the Company had almost $87 million invested in Seabrook, but because the uncertainties arising out of the Seabrook Project were having an adverse impact on the Company's financial condition, an agreement for the sale of Seabrook was reached in mid-1985 and was finally consummated in November 1986. During 1985, a comprehensive agreement was negotiated among the Company, the MPUC staff, and the Maine Public Advocate addressing the recovery through rates of the Company's investment in Seabrook (the Seabrook Stipulation). This negotiated agreement was approved by the MPUC in late 1985. Although the implementation of the Seabrook Stipulation significantly improved the Company's financial condition, substantial write-offs were required as a result of the determination that a portion of the Company's investment in Seabrook would not be recovered. In addition to the disallowance of certain Seabrook costs, the Seabrook Stipulation also provided for the recovery through customer rates of 70% of the Company's year-end 1984 investment in Seabrook Unit 1 over 30 years, and 60% of the Company's investment in Unit 2 over seven years, with base rate treatment on the unamortized balances. As of December 31, 1992, the Company's investment in Seabrook Unit 2 was fully amortized. Note 8. Unaudited Quarterly Financial Data - ------------------------------------------ Unaudited quarterly financial data pertaining to the results of operations are shown below Quarter Ended ------------------------------------------ Mar. 31 June 30 Sept. 30 Dec. 31 ------------------------------------------ 1999 DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - ---------------------------------------------------------------------- Electric Operating Revenue $ 50,222 $ 47,299 $ 51,452 $ 49,022 Operating Income 9,886 8,502 9,331 8,439 Net Income 4,212 3,452 5,037 5,580 Basic Earnings Per Share of Common Stock $ .53 $ .43 $ .65 $ .74 ====================================================================== 1998 - ---------------------------- Electric Operating Revenue $ 49,100 $ 46,601 $ 49,158 $ 50,285 Operating Income 8,410 8,006 9,087 9,633 Net Income (Loss) 2,408 2,267 2,949 3,841 Basic Earnings (Loss) Per Share of Common Stock $ .28 $ .27 $ .36 $ .48 ====================================================================== 1997 - ---------------------------- Electric Operating Revenue $ 48,176 $ 42,236 $ 47,557 $ 49,356 Operating Income 6,657 4,896 5,902 6,334 Net Income 716 (1,037) (188) 122 Basic Earnings Per Share of Common Stock $ .05 $ (.19) $ (.07) $ (.03) ====================================================================== Note 9. Fair Value of Financial Instruments - ------------------------------------------- The following represents the estimated fair value at December 31, 1999 of each class of financial instrument for which it is practical to estimate the value: Cash and cash equivalents: the carrying amount of $15,691,166 approximates fair value. Funds held by trustee-money market funds and U.S. Treasury Bills: the carrying amount of $2,240,714 approximates fair value. The fair values of other financial instruments at December 31, 1999 based upon similar issuances of comparable companies are as follows: In Thousands Carrying Amount Fair Value - ---------------------------------------------- --------------- ---------- Funds held by trustee-guaranteed investment contract $21,192 $21,038 First Mortgage Bonds 85,000 91,433 FAME Revenue Notes 100,600 98,340 Medium Term Notes-LIBO rate plus 1.125% 17,160 17,160 Note 10. Industry Restructuring and Rate Regulation - --------------------------------------------------- Industry Restructuring - As discussed in the 1998 Form 10-K, in 1997, the Maine Legislation enacted "An Act to Restructure the State's Electric Industry", some of the principal provisions of which are as follows: 1) Beginning on March 1, 2000, all consumers of electricity have the right to purchase generation services directly from competitive electricity suppliers who will not be subject to rate regulation. 2) The Company must divest of most of its generation related assets and business functions. As discussed below, in 1999 the Company completed transactions to sell most of its generation related assets to PP&L. 3) Billing and metering services will be subject to competition beginning March 1, 2002, but the legislation permits the MPUC to establish an earlier date, no sooner than March 1, 2000. There is currently activity within the legislature to extend the date one year to March 1, 2003 and limit the scope of the competitive billing and metering services to only the largest industrial customers. If such a change is enacted, the implementation of competitive billing and metering would not have significant impact on the Company or its operations. 4) The Company will continue to provide transmission and distribution (T&D) services which will be subject to continued regulation by the FERC and MPUC, respectively. 5) Maine electric utilities will be permitted a reasonable opportunity to recover legitimate, verifiable and unmitigable costs that are otherwise unrecoverable as a result of retail competition in the electric utility industry ("stranded costs"). Sale of the Company's Generating Assets - On May 27, 1999, the Company completed most of the transaction for the sale of its electric generating assets and certain transmission rights to PP&L. The purchase price for the assets transferred was $79 million. The sale involved all but one of the Company's hydroelectric plants on the Penobscot, Piscataquis, and Union rivers and Bangor Hydro's 8.33% ownership interest in the Wyman Unit #4 oil-fired plant in Yarmouth, Maine-a total base load capacity of 83 megawatts. The sale also involved a transfer by the Company of rights to transmit power over the MEPCO transmission facilities connecting NEPOOL to New Brunswick Canada; the Company's rights as a participant in the regional utilities' agreement with Hydro-Quebec pursuant to an agency agreement; and the Company's rights to develop a second high voltage transmission line that will connect NEPOOL to New Brunswick, Canada. The Company conducted an auction in 1998, which led to the signing of a purchase and sale agreement with PP&L in late September 1998. The purchase and sale agreement also included the Company's 50% interest in the 13 megawatt West Enfield hydro station on the Penobscot River. In late July 1999, the Company received $10 million in proceeds from the transfer of the economic interest in that project, and in late August 1999, the MPUC approved the sale to PP&L of PHC. The Company has utilized a significant portion of the net proceeds of the sale to reduce outstanding debt and preferred stock. The Company realized a net gain on the sale related to the PP&L sale of approximately $24.8 million, and $24.3 million of this amount has been recorded as a deferred liability at December 31, 1999 on the Consolidated Balance Sheets. Included in the determination of the deferred gain on sale is the accrual of carrying costs on the deferred gain balance, the selling and closing costs associated with the asset sale, the costs incurred for the early retirement of debt and preferred stock through the utilization of asset sale proceeds, income tax expense impacts associated with the asset sale gain, and the net expense associated with the sale of its generating assets and the simultaneous purchased power buyback agreement with PP&L (see below for a discussion of the net expense). As specified in the most recent rate order from the MPUC, which is discussed below, the deferred gain will be utilized over a 70 month period to reduce electric rates effective March 1, 2000. As discussed in Note 6, the other $.5 million of the gain on the sale of Penobscot Hydro that is allocable to shareholders, pursuant to orders of the MPUC, has been recorded as other income in 1999. As discussed in the 1998 Form 10-K, in September 1998, the Company sold certain property and equipment at its Graham Station site in Veazie, Maine, to Casco Bay Energy for $6.2 million. The Company realized a net gain from the sale of $5.1 million, which has been recorded as a deferred liability at December 31, 1999. Included in the determination of this deferred gain is the accrual of carrying costs on the deferred gain balance, the selling and closing costs associated with the asset sale, and the net savings associated with the sale of these assets (through reduced depreciation and property tax expense, and the return on these assets included in the Company's rates through March 1, 2000). Consistent with the deferred gain on sale of generating assets discussed above, this $5.1 million gain will also be utilized to reduce electric rates starting March 1, 2000. In connection with the sale, the $6.2 million in proceeds were deposited with a third party trustee, as a requirement under the Company's bond indenture. The $6.2 million was released by the trustee in January 1999 and was utilized to repay a portion of the Company's medium term notes. Also in connection with the sale, the Company deposited $400,000 with a third party trustee to be utilized for future environmental remediation at the site. As of December 31, 1999, approximately $383,000 of this amount had been expended on environmental remediation activities. Management does not expect the total environmental remediation costs to exceed $400,000. As discussed above, as a result of the sale of the Company's generation assets, the Company was required by the MPUC to defer all savings, for the period from the asset sale through February 29, 2000, associated with the sale of its generating assets and the simultaneous purchased power buyback agreement with PP&L. This included savings associated with the Casco Bay Energy sale in September 1998. Any net savings or expense for this period are to be flowed-back to/recovered from customers effective with new rates on March 1, 2000. As of December 31, 1999 the net expense recorded as a reduction of the deferred asset sale gain amounted to approximately $225,000. The reason for the net expense is due principally to unusually high purchased power costs during the hot weather in early June and in July 1999 to replace generation lost from the asset sale to PP&L. Since these high costs would not have occurred if the Company had not sold these assets, the Company has recorded the net expense as a reduction of the deferred asset sale gain. Current Rate Proceedings - The Company has been involved in rate proceedings with the MPUC since mid-1998 to determine its revenue requirement as a T&D utility starting March 1, 2000 and the recoverability of the Company's stranded costs. In February 2000, the Company received a final rate order from the MPUC setting its T&D and stranded cost rates effective March 1, 2000. The Company's total annual revenue requirement as set in the rate proceedings, including $40 million associated with stranded cost recovery, amounted to $103.2 million. The stranded cost recovery includes the decommissioning and other plant closure expenses for Maine Yankee. In 2003 and every three years thereafter until the stranded costs are recovered, the MPUC shall review and reevaluate the stranded cost recovery. Customers reducing or eliminating their consumption of electricity by switching to self- generation, conversion to alternative fuels or utilizing demand-side management measures cannot be assessed exit or entry fees. Deferral of Restructuring Related Costs - Also as part of the restructuring law, employees, other than officers, displaced as a result of retail competition are entitled to certain severance benefits and retraining programs, and these costs are recoverable through charges collected by the regulated distribution company. In connection with this part of the law, the Company incurred approximately $840,000 in benefit costs associated with the employees terminated as a result of the generation asset sale. This amount has been deferred as a component of Other Regulatory Assets on the Consolidated Balance Sheets as of December 31, 1999. In 1999, the Company had also been incurring significant costs in connection with implementing various aspects of the electric industry restructuring. Consequently, the Company filed an accounting order request with the MPUC in 1999 to seek the deferral of certain incremental costs associated with this effort. In September 1999 the Company received an accounting order from the MPUC related to the Company's request which approved the deferral of certain incremental restructuring related costs. In connection with the accounting order, the Company has deferred, as a component of Other Regulatory Assets on the Consolidated Balance Sheets as of December 31, 1999, approximately $829,000 of restructuring costs. As a result of the current rate order received from the MPUC, the Company will start recovery of the deferred restructuring costs discussed above, amounting to $1.7 million, on March 1, 2000 over a three-year period. Based on the accounting order, the Company will also defer, for future recovery, certain additional incremental restructuring costs incurred from January 1, 2000 through the advent of retail competition on March 1, 2000. Alternative Rate Plan Filing - In May 1999, the MPUC approved a portion of the Company's February 1999 request for rate adjustment under the so-called Alternative Rate Plan. Pursuant to the MPUC Order, the Company implemented an increase in its standard tariff of about 1.36% effective June 1, 1999. An alternative rate plan is a method of utility regulation intended to replace the costly, controversial periodic rate increase proceedings of the past. Under such a plan, utilities are permitted to adjust rates annually based on a formula tied to inflation minus a "productivity factor". Adjustments for certain specified categories of costs that are unrelated to inflation are also permitted. The MPUC implemented this plan for the Company in 1998. The 1999 increase was comprised entirely of the recovery of some of the specified categories of costs that are unrelated to inflation. This was made up mostly of the recovery of a portion (about $1.4 million, or about 25%) of the costs incurred to recover from the 1998 ice storm (see Note 11 ). The inflation component actually contributed to a reduction of the 1999 adjustment because the productivity factor offset of 1.2% exceeded the inflation rate of .9%. The Alternative Rate Plan will not be in effect with the implementation of new rates on March 1, 2000, and the Company is uncertain if any alternative rate plan will be adopted in the future. Regulatory Assets and Meeting the Requirements of SFAS 71- The Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71 allows the establishment of regulatory assets for costs accumulated for certain items other than the usual and customary capital assets, and allows the deferral of the income statement impact of those costs if they are expected to be recovered in future rates. As of December 31, 1999, the Company has regulatory assets, net of regulatory liabilities, of approximately $189 million. The Company continues to meet the requirements of SFAS 71 since the Company's rates are intended to recover the cost of service plus a rate of return on the Company's investment, as well as providing specific recovery of costs deferred in prior periods. The recent legislation enacted in Maine associated with industry restructuring specifically addressed the issue of cost recovery of regulatory assets stranded as a result of industry restructuring. Specifically, the legislation requires the MPUC, when retail access begins, to provide a "reasonable opportunity" for the recovery of stranded costs through the rates of the transmission and distribution company, comparable to the utility's opportunity to recover stranded costs before the implementation of retail access under the legislation. The final rate order from the MPUC effective March 1, 2000 did not result in the Company writing off any stranded costs, but if the Company had not been allowed full recovery of its stranded costs, it would be required to write-off any disallowed costs. As provided for in Emerging Issues Task Force Issue No. 97-4, "Deregulation of the Pricing of Electricity," the Company will continue to record regulatory assets in a manner consistent with SFAS 71 as long as future recovery is probable, since the Maine legislation provides the opportunity to recover regulatory assets including stranded costs through the rates of the T&D company. The Company anticipates, based on current generally accepted accounting principles, that SFAS 71 will continue to apply to the regulated T&D segments of its business. If the Company failed to meet the requirements of SFAS 71, due to legislative or regulatory initiatives, the Company would be required to revert to Statement of Financial Accounting Standards No. 101, "Regulated Enterprises- Accounting for the Discontinuation of Application of FASB No. 71" (SFAS 101). If, under SFAS 101, legislative or regulatory changes and/or competition result in electric rates which do not fully recover the Company's costs, a write-down of assets could be required. The Company does not anticipate any write-down of assets at this time. Standard Offer Service - The restructuring law also provided for a standard-offer service being available for all customers who do not choose to purchase energy from a competitive supplier starting March 1, 2000. The MPUC solicited bids from competitive energy suppliers to provide energy under the standard offer service, but all bids were rejected as too high. Consequently, as permitted by the Maine legislature, the MPUC has ordered the Company to assume the responsibility of being the standard offer service provider starting March 1, 2000 for a one-year period. The MPUC has established the schedule of rates that the Company may charge for the standard offer service. The Company must purchase the energy for these customers from third parties, and the MPUC has allowed the Company to defer the difference between the revenues realized from the standard offer sales and the costs incurred to provide this service. This deferred amount will be recovered from/returned to customers in a future rate proceeding. Note 11. Storm Damage - --------------------- As discussed in the 1998 Form 10-K, the Company suffered widespread damage throughout its service territory to its transmission and distribution equipment during a major ice storm in January 1998. The Company's incremental costs associated with the service restoration effort were approximately $4.5 million, and these had been deferred as of December 31, 1998. The MPUC issued an order authorizing the Company to defer incremental, non-capitalized storm damage expenses for future recovery through the rates charged to customers. As discussed in Note 10, the Company began recovering these deferred costs starting on June 1, 1999, over a four-year period, as part of its annual rate adjustment pursuant to its Alternative Rate Plan. In October 1999, the Company received approximately $1.8 million in funds from the state of Maine as its share of the state's federal assistance. The $1.8 million was recorded as a reduction of the deferred ice storm costs, and the deferred balance as of December 31, 1999, which amounted to $1.9 million, is included as a component of Other Regulatory Assets on the Consolidated Balance Sheets. In connection with the Company's recent rate order from the MPUC, the amortization and recovery of these deferred costs were adjusted to reflect the receipt of the federal funds. Note 12. Construction of Facilities for Casco Bay Energy - -------------------------------------------------------- The Company has an agreement with Casco Bay whereby the Company has agreed to construct various transmission facilities required to allow a generating facility being constructed in Veazie, Maine to interconnect with the Company's electrical system and deliver its output to the New England Power Pool Transmission Facility (PTF) grid. Under this agreement, Casco Bay has agreed to advance funds necessary to pay for such construction. In the event that the new facilities qualify as PTF and the FERC approves an amendment to the NEPOOL Agreement which provides for cost sharing of such construction costs, approximately 50% of the construction funds advanced would be refunded to Casco Bay by customers of NEPOOL over an approximately 30-year period. At the end of 1999, the Company had recorded $3.8 million for PTF facilities and a corresponding Long-term Payable subject to such potential treatment. These amounts are included on the Consolidated Balance Sheets as components of Electric Plant in Service and Other Long-term Liabilites, respectively. Note 13. Derivative Financial Instruments - ----------------------------------------- Interest Rate Caps - In 1995, the Company entered into interest rate cap agreements (the cap or caps) with three financial institutions related to its $60 million of medium term notes to manage its exposure to interest rate fluctuations. Under the caps, the LIBO rate was capped at 7.25% over the five-year term of the medium term notes for the full notional amount of $60 million. At the beginning of each calendar quarter the notional interest rate was set by the financial institutions based on the current LIBO rate. The Company was to be reimbursed for incremental interest expense incurred in excess of the 7.25% cap. During 1997, 1998 and 1999, through the date of the final repayment of the medium term notes in May 1999, the notional rate was not in excess of 7.25%. This interest rate cap is no longer providing interest rate risk management due to the repayment of this debt. Fuel Swaps - Through the advent of retail competition on March 1, 2000, the Company purchased, rather than generated itself, virtually all of the energy required to service its retail business. These purchased energy prices varied with changes in the price or availability of the underlying fuel sources, and the risk of such price volatility was not covered by a rate mechanism, such as a fuel adjustment clause. A significant portion of the Company's exposure to purchased energy price volatility had been closely matched to changes in residual oil prices. To manage the oil-related risk of energy price fluctuations, the Company had entered into agreements known as "swaps", essentially in which the Company agreed to pay a fixed price for a specific quantity of a specific commodity (residual oil in this case), for a given time period. This transferred the risk (or the benefit) of commodity price fluctuations to the other party to the agreement for the given period of time. These were strictly financial transactions, and no delivery of the underlying commodity was taken. Settlements occurred on a monthly basis and the cash receipts/payments arising from the "swap" transactions offset corresponding increases/decreases in the Company's purchased energy costs. The Company entered into "swap" transactions for 1999 and 1998 amounting to 1,600,000 and 1,180,000 barrels of residual oil, respectively. As a result of market movements in 1999 and 1998 the Company received cash payments of approximately $1.8 million in 1999 and made cash payments of $5.1 million in 1998 associated with the swap transactions. The cash paid/received from the "swaps" was recorded as an increase/reduction in fuel for generation and purchased power expense in the Consolidated Statements of Income. As a result of these hedging activities, the Company managed a substantial portion of the risk of energy price fluctuations, which allowed the Company to more accurately predict its future purchased energy costs and cash flow requirements. To ensure the Company maintained a hedging, and not a speculative position, the Company had established official policies, procedures and controls for its fuel hedging program. The Company managed the credit risk related to the fuel swaps through credit limits, collateral instruments, monitoring procedures, and diversification of counterparties. Basis risk was the risk that changes in the Company's costs did not move perfectly in tandem with the index/commodity specified in the swap. While basis risk existed with the residual oil swaps, the relationship between the Company's oil related purchased power costs and the index was highly correlated. As a result of the achievement of this high degree of correlation, the "swaps" were accounted for as hedges, and were not speculative financial instruments. At December 31, 1999, the Company was a party to "swaps" covering 265,000 barrels of residual oil for the first two months of the year 2000. With the advent of retail competition in the electric utility industry starting March 1, 2000, and the Company providing only standard offer service to customers in the retail market, the utilization of fuel swaps will no longer be required (see Note 10). The Company received approximately $2.1 million in cash payments associated with swap transactions in January and February 2000. Interest Rate Swap - As discussed in Note 4, in connection with the $24.8 million in BERI medium term notes, BERI entered into an interest rate swap arrangement with a major financial institution to provide interest rate protection through the maturity date of the term loan. The interest rate swap fixed the LIBO interest rate on the medium term notes at 5.72%. BERI will be reimbursed for incremental interest expense incurred in excess of the 5.72% and incurs additional expense for incremental interest expense below 5.72%. Market risk is the potential loss arising from adverse changes in interest rates. The fair value of the interest rate swap at December 31, 1999 is a negative $203,769 and represents the estimated payment that would be made to terminate the agreement. Note 14. Contingencies - ---------------------- Environmental Matters - In 1992, the Company received notice from the Maine Department of Environmental Protection that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the United States Environmental Protection Agency placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act and will pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based upon currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 1999, the liability recorded by the Company for its estimated environmental remediation costs amounted to $331,000. The Company's actual future environmental remediation costs may be higher as additional factors become known. PRICEWATERHOUSECOOPERS LLP Report of Independent Accountants To the Stockholders and Directors of Bangor Hydro-Electric Company: In our opinion, the accompanying consolidated balance sheets and statements of capitalization and the related consolidated statements of income, common stock investment and cash flows present fairly, in all material respects, the financial position of Bangor Hydro-Electric Company (the Company) and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. February 9, 2000 /s/ PRICEWATERHOUSECOOPERS LLP ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Contingencies and Risk Management" and Note 13 to the Consolidated Financial Statement included in Item 8, above, for a discussion of certain derivative financial instruments held by the Company. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH AUDIT FIRMS ON FINANCIAL - ------ ---------------------------------------------------------- DISCLOSURE - ---------- There have been no changes in or disagreements with audit firms on financial disclosure. PART III - -------- ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- -------------------------------------------------- The following table sets forth the nominees and the directors whose terms continue, their ages, other positions held by them with the Company, the date when they first became a director and their business experience during the last five years (including any other directorship held by them in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of that Act, or in any company registered as an investment company under the Investment Company Act of 1940 (referred to in the table as "Reporting Companies")): Name and Became Business Experience During Last 5 Years Position (Age) Director and Other Directorships - ----------------------------------------------------------------------------- CLASS II (NOMINEES FOR TERM EXPIRING IN 2000) Robert S. Briggs (56) Chairman of the Board, President & Chief Executive Officer 1985 Chairman of the Board; President and Chief Executive Officer of the Company; Director of Maine Yankee Atomic Power Company; Trustee of Eastern Maine Medical Center William C. Bullock, Jr. (63) Director 1982 Chairman of the Board and Director of Merrill Merchants Bancshares, Inc. (a reporting company) and its subsidiary, Merrill Merchants Bank; Director of Eastern Maine Healthcare Joseph H. Cyr (59) Director 1998 President of John T. Cyr & Sons, Inc., a school and charter bus company; Director of Merrill Merchants Bancshares, Inc. (a reporting company) and its subsidiary, Merrill Merchants Bank CLASS I (DIRECTORS WHOSE TERMS EXPIRE IN 2002) Marion M. Kane (55) Director 1996 President of the Barr Foundation, a not-for-profit charitable organization that manages a charitable trust; until December 31, 1999, President of the Maine Community Foundation, a not-for-profit charitable foundation that manages a pool of individual charitable funds; Director of Maine Bank and Trust Company Norman A. Ledwin (58) Director 1996 President and Chief Executive Officer and a Director of Eastern Maine Healthcare, a healthcare organization made up of not-for- profit and for-profit entities (including Eastern Maine Medical Center, a not-for-profit regional acute care hospital facility James E. Rier, Jr.(54) Director 1998 President of Rier Motors Co., an automobile dealership located in Machias, Maine CLASS III (DIRECTORS WHOSE TERMS EXPIRE IN 2001) Carroll R. Lee (50) Senior Vice President & Chief Operating Officer and Director 1991 Senior Vice President and Chief Operating Officer of the Company; Director of Maine Yankee Atomic Power Company; Director of Maine Electric Power Company, Inc.; President of the Board of Community Health and Counseling Service, a not-for- profit supplier of home and mental health care services David M. Carlisle (61) Director 1989 President, Prentiss & Carlisle Companies, a timberland management company; Director of Bangor Savings Bank; Director of Eastern Maine Healthcare Jane J. Bush (54) Director 1990 Vice President and co-owner of Coastal Ventures, a retailing company The Board of Directors has three standing committees: an Audit Committee, an Investment Committee and a Compensation Committee. The Audit Committee, consisting of Ms. Bush (Chair), Mr. Carlisle, Mr. Rier and Ms. Kane reviews with the independent public accountants the scope and results of their audit and other services to the Company, reviews the adequacy of the Company's internal accounting controls and reports to the Board as necessary. The Compensation Committee, consisting of Mr. Bullock (Chair), Mr. Cyr and Mr. Ledwin, reviews the Company's executive compensation and compensation policies in general, and makes recommendations to the full Board of Directors. The Investment Committee, consisting of Mr. Bullock (Chair), Mr. Carlisle, Ms. Kane, Mr. Briggs and other non-director members of management, oversees the investments of the Company's pension funds. The Board does not have a nominating or similar committee. Committee appointments will be reviewed after the Annual Meeting. Directors who are not employees of the Company appoint from their own number the members of the Audit Committee and the Compensation Committee. Other committee assignments are made by the Chairman of the Board. The following are the present executive officers of the Company with all positions and offices held. There are no family relationships between any of them nor are there any arrangements pursuant to which any were selected as officers. NAME AGE OFFICE AND YEAR FIRST ELECTED - ---- --- ---------------------------- Robert S. Briggs 56 President & Chief Executive Officer since January 1991 Carroll R. Lee 50 Senior Vice President and Chief Operating Officer since December, 1996 Frederick S. Samp 49 Vice President - Finance & Law since 1995; Chief Financial Officer since 1995 Paul A. LeBlanc 52 Vice President -Human Resources & Information Services since November, 1996 Each of the executive officers has for more than the last five years been an officer or employee of the Company. Mr. Briggs was Vice President and General Counsel from 1979 until 1987, Vice President-Law and Public Affairs from 1987 until 1988, Executive Vice President & Chief Operating Officer from 1988 until 1989 and President and Chief Operating Officer from 1989 until 1991. From 1983 through 1984, Mr. Lee was Vice President-Power Supply and Planning and he served as Vice President-Engineering and Operations from 1985 until 1987, Vice President-Planning & Development from 1987 until 1990 and Vice President-Operations from 1990 until 1996. Mr. Samp was Corporate Counsel, Corporate Secretary and Clerk from 1985 until 1988, General Counsel, Corporate Secretary and Clerk from 1988 until 1995, and Treasurer from 1995 until 1999. Mr. LeBlanc was Vice President- Administration from 1978 until 1987, Vice President-Customer Services from 1987 until 1988 and Assistant to the President from 1988 until 1996. ITEM 11 EXECUTIVE COMPENSATION - ------- ---------------------- The following table shows, for the fiscal years ending December 31, 1999, 1998 and 1997, the cash compensation paid by the Company to the Chief Executive Officer and to the other executive officers whose total salary and bonus exceeded $100,000: SUMMARY COMPENSATION TABLE - ANNUAL COMPENSATION Other Annual Name and Principal Position Year Salary Bonus Compensation* - ------------------------------------------------------------------------- Robert S. Briggs 1999 $207,549 $66,499 $3,200 Chairman of the Board, President 1998 $200,981 $41,726 $3,200 & Chief Executive Officer 1997 186,170 12,175 3,724 Carroll R. Lee 1999 $161,149 $37,968 $3,200 Senior Vice President & 1998 $153,645 $24,468 $3,200 Chief Operating Officer 1997 140,663 9,899 2,813 Frederick S. Samp 1999 $112,574 $21,457 $2,527 Vice President-Finance & Law 1998 $101,807 $14,337 $2,159 Paul A. LeBlanc 1999 $101,031 $19,197 $2,246 Vice President - Human Resources 1998 $ 94,961 $12,093 $1,984 & Information Services * For each named executive officer, Other Annual Compensation consists of the Company's matching contribution to a 401(k) Plan. The executive officers participate in a defined benefit pension plan that is also applicable to all employees. In addition, the executive officers are parties to Supplemental Benefit Agreements with the Company under which additional retirement benefits are to be paid. Said agreements define the total pension amount to be paid to the executive officer by the Company, with the supplemental amount defined as the difference between this total amount due and the amount due to the executive officer under the tax qualified pension plan. These supplemental benefits are not funded, although the Company maintains insurance policies on the lives of the executive officers that would reimburse the Company for the cost of the benefits upon the death of the covered officer. The total amount of pension benefit, as defined under the Supplemental Benefit Agreements, is a function of the executive officer's age at retirement and his average total compensation over a three year period. Under the Supplemental Benefit Agreements, no pension amount would be due until the executive officer reaches age 55. At age 55, the executive officer would be entitled to receive 50% of his or her average total compensation over a three year period. The total pension amount to be paid upon retirement would increase proportionately until a retirement age of 62, at which point the executive officer would be entitled to receive 75% of his or her average total compensation over a three year. The following table sets forth estimated annual benefit amounts payable upon retirement to the executive officers: Age at Retirement - ----------------------------------------------------------------------------- Average Total Compensation 55 56 57 58 59 60 61 62+ $100,000 $50,000 $53,000 $57,000 $60,000 $64,000 $68,000 $72,000 $75,000 $150,000 75,000 79,500 85,500 90,000 96,000 102,000 108,000 112,500 $200,000 100,000 106,000 114,000 120,000 128,000 136,000 144,000 150,000 $250,000 125,000 132,500 142,500 150,000 160,000 170,000 180,000 187,500 $300,000 150,000 159,000 171,000 180,000 192,000 204,000 216,000 225,000 Compensation covered by both the under the defined plan applicable to all employees and the Supplemental Retirement Agreements is total basic compensation exclusive of overtime, bonuses, and other extra, contingent or supplemental compensation, and inclusive of compensation deferred pursuant to the Company's Section 401(k) Plan. It is essentially the same as the amount shown as "Salary" in the Summary Compensation Table above. Compensation covered under the tax qualified pension plan is limited to the amount set forth in IRC Section 415. Compensation covered by the Supplemental Benefit Agreements is total compensation inclusive of bonuses, and other, contingent or supplemental compensation, and compensation deferred pursuant to the Company's Section 401(k) Plan. It is essentially the same as the amount shown as "Salary" and "Bonus" in the Summary Compensation Table above. "Average Total Compensation" for both plans is computed using the average of the total annual compensation actually paid by the Company to the Executive during the three (3) consecutive calendar years in which the Executive's total compensation from the Company was the highest. The total annual pension amounts shown in the Pension Plan Table above are payable for the remainder of the executive officer's life after retirement. If the executive officer's spouse survives the executive officer, the spouse will receive an annual benefit for the remainder of her life equal to 50% of the annual benefit to the executive officer. The total annual pension amounts shown in the Pension Plan Table are not subject to any deduction for Social Security or other offset amounts. The named executive officers are parties to agreements under which in the event 1) of a change of control of the Company as defined in the agreements and 2) the covered party leaves the employment of the Company within one year after the change of control, he would be entitled to receive a payment equal to two years' salary (three years' salary if he is not eligible for early retirement under the defined benefit pension plan at the time) based upon his average salary over the past five years. He would also be entitled to receive the Company's standard health, life insurance and disability benefits for a period of two years. The executive officers also participate in a long-term disability income plan which is also applicable to all employees. Under the plan, after 90 days of disability, employees are entitled to receive 66 2/3% of their basic monthly earnings up to a maximum monthly benefit of $5,000. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - ------- ----------------------------------------------- AND MANAGEMENT -------------- (a) Security Ownership of Certain Beneficial Owners The following table sets forth as of December 31, 1999 information with respect to persons known to management to be the beneficial owners of more than 5% of any class of voting securities of the Company: Title of Class: Common Stock Name and Address of Beneficial Owner: FMR Corp. 82 Devonshire Street Boston, Massachusetts 02109 Amount and Nature of Beneficial Ownership: 736,300 shares Percent of Class: 10.0% (b) Security Ownership of Management The following table sets forth as of February 28, 1999 information with respect to the beneficial ownership of equity securities by directors, nominees for the office of director and named executive officers: Title of Class Name of Beneficial Owner Beneficially Owned* - -------------------------------------------------------------------- Common Robert S. Briggs 5,244 Preferred Robert S. Briggs 28 Common William C. Bullock, Jr. 10,000 Common Jane J. Bush 300 Common David M. Carlisle 2,427 Common Joseph H. Cyr 1,683 Common Marion M. Kane 260 Common Paul A. LeBlanc 452 Common Norman A. Ledwin 180 Common Carroll R. Lee 1,930 Common James E. Rier, Jr. 300 Common Frederick S. Samp 349 Common Directors & Executive Officers as a group (11) 23,152 Preferred Directors & Executive Officers as a group (11) 28 * The directors and executive officers of the Company as a group own a beneficial interest in less than 1% of the Company's Common and Preferred Stock. (c) Changes in Control Not applicable. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ---------------------------------------------- COMPENSATION COMMITTEE INTERLOCKS - During 1999, Mr. Briggs, the Chairman of the Company's Board of Directors and its President and Chief Executive Officer, served as a Trustee of Eastern Maine Medical Center, a hospital facility located in Bangor, Maine. Mr. Ledwin, who serves on the Board's Compensation Committee, is President, Chief Executive Officer and a Director of Eastern Maine Healthcare, the organization that owns and operates Eastern Maine Medical Center. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - During 1999, the Company made payments to Eastern Maine Healthcare, its subsidiaries and affiliates, of $1,030,777. Mr. Ledwin, who serves on the Board of Directors and the Board's Compensation Committee, is President, Chief Executive Officer and a Director of Eastern Maine Healthcare. Eastern Maine Healthcare owns and operates Eastern Maine Medical Center, the second largest hospital in the State of Maine and the largest in the region served by the Company, as well as several other health care organizations in the region. The Company provides health care benefits to its employees through a self insured managed care plan. An independent plan administrator negotiates on behalf of the Company the rates for health care services paid to individual providers under the plan, including Eastern Maine Healthcare and its affiliates. PART IV - ------- ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS - ------- ---------------------------------------------------- ON FORM 8-K ------------- (a) Consolidated Financial Statements of the Company covered by the Report of the of Independent Auditors (See Item 8): Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Balance Sheets - December 31, 1999 and 1998 Consolidated Statements of Common Stock Investment for the Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Capitalization - December 31, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Report of Independent Accountants (b) Schedules Report of Independent Accountants Schedule VIII - Reserves for Doubtful Accounts and Insurance All other schedules are omitted as the required information is inapplicable or the information is presented in the Company's consolidated financial statements or related notes. (c) Exhibits See Exhibit Index, page (d) Reports on Form 8-K The Company has no current reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bangor Hydro-Electric Company /s/ Robert S. Briggs --------------------------- By: Robert S. Briggs President and Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Robert S. Briggs /s/ Marion M. Kane - ---------------------- --------------------- Robert S. Briggs Marion M. Kane President and Director Chairman of the Board /s/ William C. Bullock, Jr. /s/ Norman A. Ledwin - --------------------------- -------------------- William C. Bullock, Jr. Norman A. Ledwin Director Director /s/ Jane J. Bush /s/ James E. Rier, Jr. - ----------------- ----------------------- Jane J. Bush James E. Rier, Jr. Director Director /s/ David M. Carlisle /s/ Carroll R. Lee - --------------------- ------------------ David M. Carlisle Carroll R. Lee Director Director, Senior Vice President and Chief Operating Officer /s/ Joseph H. Cyr /s/ Frederick S. Samp - ----------------- ---------------------- Joseph H. Cyr Frederick S. Samp Director Vice President - Finance & Law (Chief Financial Officer) /s/ David R. Black ------------------- David R. Black Controller (Chief Accounting Officer) Each of the above signatures is affixed as of March 15, 2000. PRICEWATERHOUSECOOPERS LLP Report of Independent Accountants on Financial Statement Schedules To the Stockholders and Directors of Bangor Hydro-Electric Company: Our report on the consolidated financial statements of Bangor Hydro-Electric Company is included in Item 8 of the Form 10-K. In connection with our audits of such financial statements, we have also audited the financial statement schedule listed in the index in Item 14(b) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. February 9, 2000 /s/ PRICEWATERHOUSECOOPERS LLP SCHEDULE VIII RESERVES FOR DOUBTFUL ACCOUNTS AND INSURANCE -------------------------------------------- Additions ------------------------
Balance at Charged to Charged to Balance at Beginning Costs and Other End Of Period Expenses Accounts Deductions of Period ------- ------- ------- ------- ------- 1999 Reserve for Doubtful Accounts $ 1,075,000 $ 1,475,395 $ - $ 1,475,395 (A) $ 1,075,000 ----------- ----------- ---------- ----------- ----------- 1998 Reserve for Doubtful Accounts $ 1,450,000 $ 1,345,536 $ - $ 1,720,536 (A) $ 1,075,000 ----------- ----------- ---------- ----------- ----------- 1997 Reserve for Doubtful Accounts $ 1,450,000 $ 1,401,313 $ - $ 1,401,313 (A) $ 1,450,000 ----------- ----------- ---------- ----------- ----------- NOTE: (A) Accounts written off, less recoveries. For 1998 includes reduction in reserve for doubtful accounts of $375,000.
EXHIBIT INDEX Exhibits Filed Herewith ----------------------- Exhibit No. Description of Exhibit - ----------- --------------------- 10. Material Contracts ------------------ 10(a) Asset Purchase Implementation Agreement, dated as of May 27, 1999, by and among Bangor Hydro- Electric Company, Penobscot Hydro Co., Inc. and Penobscot Hydro, LLC 10(b) 33rd Amendment to the NEPOOL Agreement dated December 1, 1996 10(c) Form of Agreement with certain Executive Officers providing benefits upon a change of control 10(d) Form of Agreement with certain Executive Officers providing supplemental death and retirement benefits Exhibits Incorporated Herein by Reference ----------------------------------------- Exhibit No. Description of Exhibit Incorporated by Reference To: - ----------- ---------------------- ---------------------------- 3. Articles of Incorporation & By-Laws ----------------------------------- 3.1 Company's Certificate Form S-2, Reg. No. 33-39181, of Organization, together Exhibit 3.1 with all amendments thereto 3.2 Articles of Amendment Form S-2, Reg. No. 33-63500, increasing Company's Exhibit 4.3 authorized capital stock 3.3 Articles of Amendment Form 10-K, 1995, Exhibit 3(a) changing Corporate Clerk 3.4 By-Laws of the Company Form S-2, Reg. No. 33-63500, Exhibit 4.4 3.5 Articles of Amendment Form 10-K, 1998, Exhibit 3(a) Allowing Use of Similar Name 4. Instruments Defining the Rights of Security Holders --------------------------------------------------- 4.1 Mortgage and Deed of Form S-1, Reg. No. 2-54452, Trust dated as of Exhibit 4(b)(1) July 1, 1936, re First Mortgage Bonds 4.2 Supplemental Indenture Form S-1, Reg. No. 2-54452, dated as of December 1, Exhibit 4(b)(2) 1945, amending the Mortgage 4.3 Supplemental Indenture Form S-1, Reg. No. 2-54452 dated as of September 1, Exhibit 4(b)(4) 1969, re 8 1/4% Series Bonds, together with form of purchase agreement. (Supplemental indentures and purchase agreements with respect to prior issues are substantially identical in substantive content to the 8 1/4% Series documents). 4.4 Supplemental Indenture Form 10-K, 1975, Exhibit B dated as of November 1, 1975, re 10 1/2% Series Bonds, together with form of purchase agreement 4.5 Supplemental Indenture Form 8-K, 6/28/76, Exhibit A dated as of June 1, 1976, re 9 1/4% Series Bonds 4.6 Supplemental Indenture Form S-7, Reg. No. 2-61589, dated as of January 1, Exhibit 5(a)(7) 1978, re 8.6% Series Bonds, together with form of purchase agreement 4.7 Supplemental Indenture Form 10-Q, 3rd Quarter 1979, dated as of August 1, Exhibit A 1979, re 10.25% Series Bonds, together with form of purchase agreement Common Stock Purchase Plan 4.8 Supplemental Indenture Form 10-Q, 1st Quarter, 1981, dated as of April 1, Exhibit A 1981 re 15.25% Series Bonds, together with form of purchase agreement 4.9 Supplemental Indenture Form 10-Q, 2nd Quarter 1981, dated as of July 30, Exhibit (4) 1981 re 16.50% Series Bonds, together with form of purchase agreement 4.10 Bond Purchase Agreement, Form 10-K, 1983, Exhibit 4(a) including form of supplemental indenture, with respect to First Mortgage Bonds, 12.50% Series due 1998 4.11 Bond Purchase Agreement, Form 10-K, 1984, Exhibit 4(a) including form of supplemental indenture, with respect to First Mortgage Bonds, 17.35% Series due 1994 4.12 Bond Purchase Agreement Form 10-Q, First Quarter, dated as of March 1, 1989 1989, Exhibit 4.1 including form of supplemental indenture, with respect to First Mortgage Bonds, 10.25% Series due 2019 4.13 Bond Purchase Agreement Form 10-K, 1990, Exhibit 4(b) dated as of June 15, 1990 including form of supplemental indenture, with respect to First Mortgage Bonds, 10.25% Series due 2020 4.14 Loan Agreement by and Form 10-Q, 3rd Quarter 1995, Finance Authority of Exhibit 4.1 Maine and Bangor Hydro- Electric Company 4.15 Purchase Contract dated Form 10-Q, 3rd Quarter 1995, as of June 28, 1995 among Exhibit 4.3 the Finance Authority of Maine and Bangor Hydro- Electric Company and Prudential Securities Incorporated 4.16 General and Refunding Form 10-Q, 3rd Quarter 1995, Mortgage Indenture and Exhibit 4.4 Deed of Trust - Bangor Hydro-Electric Company to Chemical Bank, As Trustee, Dated as of June 1, 1995 4.17 Supplemental Indenture Form 10-Q, 3rd Quarter 1995, Dated as of June 15, 1995 Exhibit 4.5 to General and Refunding Mortgage Indenture and Deed of Trust dated as of June 1, 1995 (Bangor Hydro- Electric Company to Chemical Bank). 4.18 Supplemental Indenture as Form 10-Q, 3rd Quarter 1995, of June 29, 1995 to Mortgage and Deed of Trust dated as of July 1, 1936 (Bangor Hydro-Electric Company to Citibank, N.A. at Trustee). 4.19 Supplemental Indenture Form 10-K, 1995, Exhibit 4(a) Dated as of October 1, 1995 (Identified as Exhibit 10(a)) to General and Refunding Mortgage and Deed of Trust dated as of June 1, 1995 (Bangor Hydro-Electric Company to Chemical Bank). 4.20 TERM LOAN AGREEMENT Form 10-Q, First Quarter 1998, dated as of March 31, 1998 Exhibit 4(a) among BANGOR ENERGY RESALE, INC., BANKBOSTON, N.A. and the certain other lending institutions and BANKBOSTON, N.A., as Agent, including all Exhibits thereto 4.21 GUARANTY, dated as of March 31, Form 10-Q, First Quarter 1998, 1998, by BANGOR HYDRO Exhibit 4(b) -ELECTRIC COMPANY, in favor of (a) BANKBOSTON, N.A., as Agent, for itself and the other lending institutions which are or may become parties to a Term Loan Agreement, dated as of March 31, 1998 4.22 Warrant to Purchase Form 10-Q, Second Quarter 1998, Common Stock Granted to Exhibit 4(a) the Municipal Review Committee, Inc. on June 26, 1998 4.23 Warrant to Purchase Form 10-Q, Second Quarter 1998, Common Stock Dated Exhibit 4(b) Granted to PERC Management Company Limited Partnership on June 26, 1998 4.24 Warrant to Purchase Form 10-Q, Second Quarter 1998, Common Stock Granted to Exhibit 4(c) Energy National, Inc. on June 26, 1998 4.25 Supplemental Indenture Form 10-Q, Second Quarter 1998, Dated as of June 29, 1998 Exhibit 4(d) between the Company and Citibank, N.A. 10. Material Contracts ------------------ 10.1 New England Power Pool Form S-7, Reg. No. 2-69904, Agreement dated as of Exhibit 10(a)(3) September 1, 1971, with all amendments through December 1980 10.2 Copy of Twelfth Amendment Form S-7, Reg. No. 2-69904, dated as of June 16, 1980 Exhibit 10(a)(4) to the Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units 10.3 Participation Agreement Form S-1, Reg. No. 2-54452, dated June 20, 1969 Exhibit 13(a)(2)(a)-1 between Maine Electric Power Company, Inc. ("MEPCO") and the Company 10.4 Agreement dated June Form S-1, Reg. No. 2-54452, 29, 1969 among Maine Exhibit 13(a)(2)(a)-2 participants in MEPCO Participation Agreement 10.5 Power Contract dated Form S-1, Reg. No. 2-54452, May 20, 1968 between Exhibit 13(a)(3)(a) Maine Yankee Atomic Power Company ("Maine Yankee") and the Company and other utilities 10.6 Stockholder Agreement Form S-1, Reg. No. 2-54452, dated May 20, 1968 Exhibit 13(a)(3)(b) among stockholders of Maine Yankee, (including the Company). 10.7 Capital Funds Agreement Form S-1, Reg. No. 2-54452, dated May 29,1968 Exhibit 13(a)(3)(c) between Maine Yankee and sponsors, including the Company 10.8 Maine Yankee Transmission Form S-1, Reg. No. 2-54452, Agreement dated April 1, Exhibit 13(a)(3)(d) 1971 among the Company and other utilities 10.9 Modification of Maine Form S-1, Reg. No. 2-54452, Yankee Transmission Exhibit 13(a)(3)(f) Agreement of December 1, 1972 10.10 Agreement for Joint Form S-1, Reg. No. 2-54452, Ownership, Construction Exhibit 13(a)(4)(a) and Operation dated November 1, 1974 of Wyman Unit No. 4 among Central Maine Power Company, the Company and other utilities 10.11 Amendment No. 1 dated Form S-1, Reg. No. 2-54452, June 30, 1975 to Wyman 4 Exhibit 13(a)(4)(b) Agreement of November 1, 1974 10.12 Transmission Agreement Form S-1, Reg. No. 2-54452, dated November 1, 1974 Exhibit 13(a)(4)(c) re Wyman Unit No. 4 among Central Maine Power Company and other utilities 10.13 Employee Stock Ownership Form S-7, Reg. No. 2-59747, Plan, including related Exhibit 5(a)(2) trust agreements, dated June 1, 1977 10.14 Sample of binder relating Form S-7, Reg. No. 2-59747, to contingent liability Exhibit 5(a)(4) for nuclear incidents 10.15 Amendment No. 2 dated Form 10-K, 1976, Exhibit H(2) August 16, 1976 to Joint Ownership Agreement dated November 1, 1974 with Central Maine Power Company and others re Wyman Unit No. 4 10.16 Forms of contracts Form 10-Q, 2nd Qtr. 1982, concerning the Company's Exhibit 10 participation with other New England utilities in the proposed Quebec interconnection 10.17 Third Amendment dated Form 10-K, 1983, Exhibit 10.2 as of November 1, 1982 to Preliminary Quebec Interconnection Support Agreement 10.18 Second Amendment dated Form 10-K, 1983, Exhibit 10.3 as of November 1, 1982 to Agreement With Respect to Use of Quebec Interconnection 10.19 Amendment No. 2 dated Form 10-K, 1983, Exhibit 10.4 as of November 1, 1982, to Phase 1 Terminal Facility Support Agreement (Quebec Interconnection) 10.20 Amendment No. 2 dated Form 10-K, 1983, Exhibit 10.5 as of November 1, 1982 to Phase 1 Vermont Transmission Line Support Agreement (Quebec Interconnection) 10.21 Fourth Amendment Form 10-Q, 1st Quarter 1983, dated as of March 1, Exhibit 10.1 1983, to Preliminary Quebec Interconnection Support Agreement 10.22 Amendment dated as of Form 10-Q, 2nd Quarter 1983, September 1, 1981 Exhibit 10.3 to New England Power Pool Agreement 10.23 Amendment dated as of Form 10-Q, 2nd Quarter 1983, June 1, 1982 to New Exhibit 10.4 England Power Pool Agreement 10.24 Amendment dated as of Form 10-Q, 2nd Quarter 1983, June 15, 1983 to New Exhibit 10.5 England Power Pool Agreement 10.25 Amendment dated as of Form 10-Q, 3rd Quarter 1983, October 1, 1983 to Exhibit 10.1 New England Power Pool Agreement 10.26 Amendment No. 1 to the Form 10-K, 1983, Exhibit 10(b) Maine Yankee Power Contract 10.27 Amendment No. 2 to the Form 10-K, 1983, Exhibit 10(c) Maine Yankee Power Contract 10.28 Additional Power Con- Form 10-K, 1983, Exhibit 10(d) tract between Maine Yankee and its sponsors, including the Company 10.29 Preliminary Support Form 10-K, 1984, Exhibit 10(b) Agreement - Phase 2 of Hydro-Quebec Inter- connection 10.30 Amendment dated September 1, Form 10-K, 1985, Exhibit 10(b) 1985 to Agreement with respect to Use of Quebec Interconnection 10.31 Energy Contract dated Form 10-K, 1985, Exhibit 10(c) March 1983 between NEPOOL and Hydro-Quebec re: Hydro-Quebec Phase I interconnection project 10.32 Energy Banking Agreement Form 10-K, 1985, Exhibit 10(d) dated March 1983 between NEPOOL and Hydro-Quebec re Hydro-Quebec Phase I interconnection project 10.33 Interconnection Agreement Form 10-K, 1985, Exhibit 10(e) dated March 1983 between NEPOOL and Hydro-Quebec re: Hydro-Quebec Phase I interconnection project 10.34 Amendment dated September 1 Form 10-K, 1985, Exhibit 10(f) 1985 to NEPOOL Agreement re: Hydro-Quebec Phase II interconnection project 10.35 Firm Energy Contract dated Form 10-K, 1985, Exhibit 10(g) October 14, 1985 between New England utilities and Hydro-Quebec re: Hydro- Quebec Phase II interconnection project 10.36 Boston Edison AC Facilities Form 10-K, 1985, Exhibit 10(h) Support Agreement dated June 1, 1985 re: Hydro-Quebec Phase II interconnection project 10.37 Phase II New England Form 10-K, 1985, Exhibit 10(i) Power AC Facilities Support Agreement dated June 1, 1985 re: Hydro- Quebec Phase II interconnection project 10.38 Phase II Massachusetts Form 10-K, 1985, Exhibit 10(j) Transmission Facilities Support Agreement dated June 1, 1985 re: Hydro- Quebec Phase II interconnection project 10.39 Phase II New Hampshire Form 10-K, 1985, Exhibit 10(k) Facilities Support Agreement dated June 1, 1985 re: Hydro-Quebec Phase II interconnection project 10.40 First Amendment dated Form 10-K, 1985, Exhibit 10(l) March 1, 1985 and Second Amendment dated January 1, 1986 to Preliminary Quebec Interconnection Support Agreement - Phase II 10.41 Amendment No. 3 dated Form 10-K, 1985, Exhibit 10(m) October 1, 1984 to Maine Yankee Power Contract 10.42 Amendment No. 1 dated Form 10-K, 1985, Exhibit 10(n) August 1, 1985 to Maine Yankee Capital Funds Agreement 10.43 Amendments dated August 1, Form 10-K, 1985, Exhibit 10(o) 1985, August 15, 1985, and January 1, 1986 to NEPOOL Agreement 10.44 Third Amendment to Vermont Form 10-Q, 1st Quarter 1986, Transmission Line Support Exhibit 10.2 Agreement 10.45 First Amendment to Hydro- Form 10-Q, 1st Quarter 1986, Quebec Phase I Intercon- Exhibit 10.3 nection Agreement 10.46 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II Exhibit 10.1 Massachusetts Trans- mission Facilities Support Agreement 10.47 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II New Exhibit 10.2 Hampshire Transmission Facilities Support Agreement 10.48 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II New England Exhibit 10.3 Power AC Facilities Support Agreement 10.49 First Amendment to Form 10-Q, 2nd Quarter 1986, Hydro-Quebec Phase II Exhibit 10.4 Boston Edison Company AC Facilities Support Agreement 10.50 Amendment Number 3 to Form 10-Q, 3rd Quarter 1986, Hydro-Quebec Phase l Exhibit 10.1 Terminal Facility Support Agreement 10.51 Amendment Number 3 to Form 10-Q, 3rd Quarter 1986, Hydro-Quebec Phase I Exhibit 10.2 Vermont Transmission Line Support Agreement 10.52 Power Sale Agreement for Form 10-Q, 3rd Quarter 1986, sale of approximately Exhibit 10.3 31 MW of system power by Bangor Hydro-Electric Company to UNITIL Power Corp. 10.53 Purchase Agreement with Form 10-Q, 3rd Quarter 1986, respect to Wyman No. 4 Exhibit 10.4 between Bangor Hydro- Electric Company and Fitchburg Gas and Electric Light Company 10.54 Power Purchase Agreement Form 10-K, 1986, Exhibit 10(i) dated June 9, 1986 and Amendment No. 1 thereto dated January 14, 1987, between the Company and Bangor-Pacific Hydro Associates (formerly West Enfield Associates) 10.55 Power Sale Agreement dated Form 10-K, 1986, Exhibit 10(l) August 1, 1986, and First Amendment thereto, between the Company and Unitil Power Corp. re Wyman No. 4 10.56 Third Amendment to Pre- Form 10-K, 1987, Exhibit 10(a) liminary Quebec Intercon- nection Support Agreement - Phase II 10.57 Fourth Amendment to Pre- Form 10-K, 1987, Exhibit 10(b) liminary Quebec Intercon- nection Support Agreement - Phase II 10.58 Fifth Amendment to Pre- Form 10-K, 1987, Exhibit 10(c) liminary Quebec Intercon- nection Support Agreement - Phase II 10.59 Sixth Amendment to Pre- Form 10-K, 1987, Exhibit 10(d) liminary Quebec Intercon- nection Support Agreement - Phase II 10.60 Seventh Amendment to Pre- Form 10-K, 1987, Exhibit 10(e) liminary Quebec Intercon- nection Support Agreement - Phase II 10.61 Amendment to New England Form 10-K, 1987, Exhibit 10(f) Power Pool Agreement dated March 1, 1988 10.62 Second Amendment to Credit Form 10-K, 1987, Exhibit 10(h) Agreement, dated as of July 22, 1987, among the Company and the Banks named therein 10.63 Dividend Reinvestment and Form 10-K, 1987, Exhibit 10(i) Common Stock Purchase Plan Effective as of December 1, 1987 10.64 Ninth Amendment to Form 10-K, 1988, Exhibit 10(b) Preliminary Quebec Interconnection Support Agreement - Phase II 10.65 Tenth Amendment to Form 10-K, 1988, Exhibit 10(c) Preliminary Quebec Interconnection Support Agreement - Phase II 10.66 Second Amendment to Form 10-K, 1988, Exhibit 10(d) Massachusetts Trans- mission Facilities Support Agreement 10.67 Third Amendment to Form 10-K, 1988, Exhibit 10(e) Massachusetts Trans- mission Facilities Support Agreement 10.68 Fourth Amendment to Form 10-K, 1988, Exhibit 10(f) Massachusetts Trans- mission Facilities Support Agreement 10.69 Fifth Amendment to Form 10-K, 1988, Exhibit 10(g) Massachusetts Trans- mission Facilities Support Agreement 10.70 Sixth Amendment to Form 10-K, 1988, Exhibit 10(h) Massachusetts Trans- mission Facilities Support Agreement 10.71 Second Amendment to Form 10-K, 1988, Exhibit 10(i) New Hampshire Trans- mission Facilities Support Agreement 10.72 Third Amendment to Form 10-K, 1988, Exhibit 10(j) New Hampshire Trans- mission Facilities Support Agreement 10.73 Fourth Amendment to Form 10-K, 1988, Exhibit 10(k) New Hampshire Trans- mission Facilities Support Agreement 10.74 Fifth Amendment to Form 10-K, 1988, Exhibit 10(l) New Hampshire Trans- mission Facilities Support Agreement 10.75 Sixth Amendment to Form 10-K, 1988, Exhibit 10(m) New Hampshire Trans- mission Facilities Support Agreement 10.76 Second Amendment to Form 10-K, 1988, Exhibit 10(n) Phase II AC New England Power Facilities Sup- port Agreement 10.77 Third Amendment to Form 10-K, 1988, Exhibit 10(o) Phase II AC New England Power Facilities Sup- port Agreement 10.78 Fourth Amendment to Form 10-K, 1988, Exhibit 10(p) Phase II AC New England Power Facilities Sup- port Agreement 10.79 Fifth Amendment to Form 10-K, 1988, Exhibit 10(q) Phase II AC New England Power Facilities Sup- port Agreement 10.80 Second Amendment to Form 10-K, 1988, Exhibit 10(r) Phase II Boston Edison AC Facilities Support Agreement 10.81 Third Amendment to Form 10-K, 1988, Exhibit 10(s) Phase II Boston Edison AC Facilities Support Agreement 110.82 Fourth Amendment to Form 10-K, 1988, Exhibit 10(t) Phase II Boston Edison AC Facilities Support Agreement 10.83 Fifth Amendment to Form 10-K, 1988, Exhibit 10(u) Phase II Boston Edison AC Facilities Support Agreement 10.84 Letter of Assurances, Form 10-K, 1988, Exhibit 10(v) Consents and Agreements With Respect to Credit Facility Financing for Phase II Hydro-Quebec Financing 10.85 401 (k) Plan for Non- Form 10-K, 1988, Exhibit 10(x) Union Employees 10.86 Agreement for the Form S-2, Reg. No. 33-39181, Purchase and Sale of Exhibit 10.82 Electricity dated as of June 21, 1984 between Penobscot Energy Recovery Company and the Company 10.87 Amendment No. 1 as of Form S-2, Reg. No. 33-39181, March 24, 1986 to the Exhibit 10.83 Agreement for the Purchase and Sale of Electricity dated as of June 21, 1984 between Penobscot Energy Recovery Company and the Company 10.88 Partnership Agreement Form S-2, Reg. No. 33-39181, dated as of July 1, 1990 Exhibit 10.85 between NORVARCO and Bangor Var Co., Inc. 10.89 Purchase Agreement between Form 10-Q, 3rd Quarter 1995, Babcock-Ultrapower Exhibit 10.1 Jonseboro and Bangor Hydro- Electric Company 10.90 Purchase Agreement between Form 10-Q, 3rd Quarter 1995, Babcock-Ultrapower West Exhibit 10.2 Enfield and Bangor Hydro- Electric Company 10.91 ASSIGNMENT OF CONTRACTS Form 10-Q, 1st Quarter 1998, AND ENTITLEMENTS, made March Exhibit 10(a) 31, 1998 by and between Bangor Hydro-Electric Company and Bangor Energy Resale, Inc. 10.92 Rate Agreement made October 30, Form 10-Q, 1st Quarter 1998, 1997, by and between Bangor Exhibit 10(b) Hydro-Electric Company and Bangor Energy Resale, Inc. 10.93 Management and Support Services Form 10-Q, 1st Quarter 1998, Agreement made March 31, 1998 Exhibit 10(c) by and between Bangor Hydro- Electric Company and Bangor Energy Resale, Inc. 10.94 Surplus Cash Agreement Form 10-Q, 2nd Quarter 1998, dated as of June 26, 1998 Exhibit 10(a) among the Company, Penobscot Energy Recovery Company Limited Partnership and the Municipal Review Committee, Inc. 10.95 Guaranty Agreement dated Form 10-Q, 2nd Quarter 1998, as of June 1, 1998 Exhibit 10(b) between the Company and The Chase Manhattan Bank 10.96 Amendment No. 2 to Form 10-Q, 2nd Quarter 1998, Purchase Power Agreement Exhibit 10(c) dated as of June 26, 1998 between the Company and Penobscot Energy Recovery Company Limited Partnership 10.97 Amended and Restated Form 10-Q, 2nd Quarter 1998, Revolving Credit And Exhibit 10(d) Term Loan Agreement dated as of June 19, 1998 between the Company and BankBoston, N.A. and Fleet National Bank 10.98 Asset Purchase Agreement Form 8-K, September 25, 1998 dated as of September 25, Exhibit 2 1998 between Bangor Hydro- Electric Company and PP&L Global, Inc. (schedules and exhibits omitted). EX-27 2 FINANCIAL DATA SCHEDULE 1999
UT This schedule contains summary financial information extracted from Bangor Hydro-Electric Company's 10K - 1999 and is qualified in its entirety by reference to such 10K. 0000009548 BANGOR HYDRO-ELECTRIC COMPANY 1,000 12-MOS DEC-31-1999 DEC-31-1999 PER-BOOK 222,145 37,793 51,855 232,157 0 543,950 36,817 58,890 37,015 132,722 0 4,734 183,300 0 0 0 19,460 0 0 0 203,734 543,950 197,994 8,973 152,864 161,837 36,157 2,806 38,963 20,683 18,280 945 17,335 3,314 19,005 47,359 $2.35 $2.08
EX-10 3 EXH 10-A ASSET PURCHASE IMPLEMENTATION AGREEMENT Exhibit 10(a) ASSET PURCHASE IMPLEMENTATION AGREEMENT By and Among BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation, PENOBSCOT HYDRO CO., INC., a Maine corporation, PP&L GLOBAL, INC., a Pennsylvania corporation, and PENOBSCOT HYDRO, LLC, a Delaware limited liability company Dated as of May 27, 1999 ASSET PURCHASE IMPLEMENTATION AGREEMENT ASSET PURCHASE IMPLEMENTATION AGREEMENT ("Agreement"), dated as of May 27, 1999, by and among BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation ("BHE"), PENOBSCOT HYDRO CO., INC., a Maine corporation ("PHC"), PP&L GLOBAL, INC., a Pennsylvania corporation ("PPLG") and PENOBSCOT HYDRO, LLC, a Delaware limited liability company ("Penobscot"). WHEREAS, BHE, PHC and PPLG are parties to that certain Asset Purchase Agreement dated September 25, 1998 ("APA"), pursuant to which PPLG agreed to buy certain assets from BHE and PHC; WHEREAS, PPLG has assigned to Penobscot all its right, title and interest under the APA; WHEREAS, PHC, a wholly-owned subsidiary of BHE, owns the Bangor-Pacific Interest and the Bangor-Pacific Interest is a Purchased Asset under the APA; WHEREAS, on the date hereof, the Parties agreed to modify the manner in which the transactions contemplated by the APA are implemented so that, among other things, in lieu of a direct transfer of the Bangor-Pacific Interest to Penobscot, Penobscot will acquire the PHC Stock (as defined below) at the Second Closing (as defined below) and, pending certain approvals, at the First Closing, Penobscot will be assigned the economic benefits of the Bangor-Pacific Interest, all in accordance with this Agreement; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1 ARTICLE DEFINITIONS 1 1.1 Definitions. 1.2 (a) All capitalized terms appearing herein and not otherwise defined in this Agreement shall have the meanings ascribed to them under Article I of the APA. Capitalized terms in portions of the APA which are incorporated herein by reference shall have the meanings for such terms set forth in the APA. (b) (c) As used in this Agreement, the following terms have the meanings specified in this Section 1.1(b): (d) (1) "Agreement" means this Asset Purchase Implementation Agreement, as the same may be amended or supplemented from time to time, together with the schedules and exhibits hereto. (2) (3) "Bangor-Pacific Assignment" has the meaning set forth in Section 2.1 of this Agreement. (4) (5) "Bangor-Pacific Economic Interest" means that portion of the Bangor-Pacific Interest that constitutes all of the economic interest and economic rights of the holder of the Bangor-Pacific Interest, including without limitation, the rights to capital, profits and losses, surplus, distributions and liquidation proceeds. (6) (7) "Bangor-Pacific Management Interest" means that portion of the Bangor-Pacific Interest that constitutes the management rights of the holder of the Bangor-Pacific Interest. (8) (9) "First Closing" means the closing of the First Closing Transaction. (10) (11) "First Closing Date" or "First Closing date" means the date and time at which the First Closing actually occurs. (12) (13) First Closing Transaction" has the meaning set forth in Section 2.1 of this Agreement. (14) (15) "Lenders" shall mean the lenders referred to in clause (i) of the definition of "Lenders' Consent" in this Agreement. (16) (17) "Lenders' Consent" means (i) the written consent of the Lenders to the extent required under the Floating Rate Loan and Term Loan Agreement dated as of January 29, 1987 among Bangor-Pacific and the Prudential Insurance Company of America, First Colony Life Insurance Company, American Mayflower Life Insurance Company, The Ohio National Life Insurance Company, Kentucky Central Life Insurance Company and BankBoston, N.A. (as successor to Rhode Island Hospital Trust National Bank), as lenders, and (ii) the written consent of the Lenders to the extent required under the Capital Support Agreement dated as of January 29, 1987 among Bangor-Pacific, PHC, BHE, Pacific Penobscot Power Company and Indeck Penobscot Hydro, LLC (as successor to Pacific Lighting Energy Systems), to (a) the First Closing Transaction, and (b) the Second Closing Transaction. (18) (19) "Loan Agreement" means the Floating Rate Loan and Term Loan Agreement dated as of January 29, 1987 between Bangor-Pacific, as borrower, and The Prudential Insurance Company of America and other lenders. (20) (21) "MPUC Approval" means the supplemental order described in Section 6.11 of this Agreement. (22) (23) "PHC Balance Sheet" has the meaning set forth in Section 4.8 of this Agreement. (24) (25) "PHC Financial Statements" has the meaning set forth in Section 4.7 of this Agreement. (26) (27) "PHC Material Adverse Effect" means any change in or effect on the PHC Stock, the Bangor-Pacific Interest, the Bangor-Pacific Economic Interest, or PHC or Bangor-Pacific or their respective assets, business or condition (financial or otherwise) that is, individually or in the aggregate, materially adverse (including without limitation any change or effect resulting from governmental action), and which change or effect causes the value of any of such equity interests, entities, or assets, in the aggregate, to decrease by more than ten percent (10%), other than any such materially adverse change which is cured (including by the payment of money) by BHE before the First Closing Date or the Second Closing Date, as the case may be. (28) (29) "PHC Stock" means all of the issued and outstanding shares of capital stock of PHC. (30) (31) "PHC Stock Regulatory Approvals" has the meaning set forth in Section 4.3(b). (32) (33) "PHC Stock Required Consents" has the meaning set forth in Section 4.3(a). (34) (35) "Pre-Closing Periods" has the meaning set forth in Section 6.13(a)(i). (36) (37) "Post-Closing Periods" has the meaning set forth in Section 6.13(a)(iii). (38) (39) "Restricted Payments" has the meaning set forth in the Loan Agreement. (40) (41) "Second Closing" means the closing of the Second Closing Transaction. (42) (43) "Second Closing Conditions" has the meaning set forth in Section 3.1 of this Agreement. (44) (45) "Second Closing Date" or "Second Closing date" means the date and time at which the Second Closing actually occurs. (46) (47) "Second Closing Transaction" has the meaning set forth in Section 2.2(a) of this Agreement. (48) (49) "Tax Accrual" means the aggregate amount of the reserves, provisions and accruals for Taxes (other than Taxes based on or measured by net income) on the PHC Balance Sheet, up to but not to exceed $1,000. (50) (51) "Transaction Documents" means this Agreement, the Bangor-Pacific Assignment and the other documents and instruments referred to in Sections 3.5(a) and (d). (52) (53) (27) "West Enfield Project Documents" means those documents and agreements defined as such in Annex A to the Loan Agreement. (54) 2 ARTICLE IMPLEMENTATION 1.1 Transfer of Bangor-Pacific Economic Interest. 1.2 1.3 At the First Closing, PHC will assign, convey, transfer and deliver to Penobscot, and Penobscot will acquire from PHC, under the APA, as supplemented by this Agreement, the Bangor-Pacific Economic Interest for $10,000,000. PHC will retain the balance of the Bangor-Pacific Interest. The assignment and transfer to Penobscot of the Bangor-Pacific Economic Interest, and the assumption by Penobscot of the obligations of BHE or PHC with respect to the Bangor-Pacific Interest, will be effected by the execution and delivery of the Bangor-Pacific Assignment and Assumption Agreement in the form attached hereto as Exhibit A (the "Bangor-Pacific Assignment"). Subject to satisfaction of the First Closing Conditions, the obligation of Penobscot to make the $10,000,000 payment shall, pursuant to the APA, be a joint and several obligation of Penobscot and PPLG, and BHE shall be entitled to the benefits of the Equity Contribution Agreement. Notwithstanding anything to the contrary in the Assignment and Assumption Agreement or the APA, no portion of the Bangor-Pacific Interest or the obligations of BHE or PHC with respect thereto shall be deemed to have been transferred to or assumed by Penobscot pursuant to the Assignment and Assumption Agreement. The assignment, assumption and payment referred to in this Section 2.1 is sometimes referred to herein as the "First Closing Transaction." 1.4 1.5 Transfer of PHC Stock . 1.6 (a) As soon as practicable following the First Closing and upon the terms and subject to the satisfaction of the conditions contained in this Agreement (or waiver of such conditions as permitted by this Agreement), subject to Section 2.3, at the Second Closing but effective as of the First Closing BHE shall transfer and deliver to Penobscot all of the PHC Stock, free of any Encumbrances, for no additional consideration (the portion of the Purchase Price under the APA allocated therein to the Bangor-Pacific Interest being attributed, upon the occurrence of the Second Closing but effective as of the First Closing, to the PHC Stock). Such transfer and delivery of the PHC Stock is sometimes referred to herein as the "Second Closing Transaction." (b) (c) Immediately prior to the transfer of the PHC Stock to Penobscot at the Second Closing, all indebtedness of PHC to BHE shall be deemed contributed by BHE to the equity capital of PHC (without any right to receive additional shares of capital stock of PHC) and all indebtedness of PHC to any Affiliates of BHE shall be paid in full by BHE. Upon the transfer of the PHC Stock to Penobscot at the Second Closing, (i) the Bangor-Pacific Assignment shall become null and void ab initio, (ii) BHE and its Affiliates shall be deemed to have released, without further act or deed, PHC from any claim (known or unknown, absolute or contingent, matured or unmatured, asserted or unasserted, direct or indirect) of whatever nature except claims of BHE against PHC arising under Section 6.13 of this Agreement, and (iii) the terms "Sellers" or "Seller" as used in Article IX of the APA shall refer only to BHE and BHE agrees that it shall be deemed to have released, without further act or deed, all rights of contribution, indemnity, reimbursement or similar rights as against PHC under or in connection with the APA, the Ancillary Agreements, this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby, whether presently existing or arising hereafter. (d) 1.7 Certain Elections of Penobscot. 1.8 (a) After the First Closing and prior to the Second Closing, Penobscot shall have the right at any time and from time to time upon notice to BHE to require PHC, and BHE shall cause PHC, to transfer to Penobscot all or any portion of the Bangor-Pacific Interest then remaining held by PHC. (b) (c) If the First Closing has occurred but the Second Closing does not occur by December 31, 1999, then Penobscot shall have the right to notify BHE within five (5) Business Days thereafter that it elects to acquire all of the Bangor-Pacific Interest as originally contemplated in the APA effective as of the First Closing, BHE and PHC shall take whatever steps are reasonably necessary to effect such acquisition, including without limitation the withdrawal of any governmental or regulatory filings seeking approval of the transfer of the PHC Stock; BHE and PHC shall diligently pursue all governmental or regulatory approvals required for the transfer of all of the Bangor-Pacific Interest under the terms of the APA (including any approvals of FERC, MPUC and MDEP required due to the concern regarding a technical dissolution of Bangor-Pacific upon a transfer of all of the Bangor-Pacific Interest); and the representations and warranties, covenants, indemnities and other provisions of the APA applicable to the Bangor-Pacific Interest shall remain in effect as provided in the APA (except that any such provision which by its terms terminates at the Closing shall not terminate, to the extent applicable to the Bangor-Pacific Interest, prior to the consummation of the transfer of the Bangor-Pacific Interest to Penobscot). If Penobscot does not deliver such notice, BHE shall have the right, until January 30, 2000, to apply to a court of competent jurisdiction for a declaratory order to the effect that the transfer of the Bangor-Pacific Interest as originally contemplated in the APA would not cause a technical dissolution of Bangor- Pacific under applicable law. Penobscot shall reasonably cooperate with BHE in any such application, including if necessary serving as an adverse party in the judicial action constituting such application. If the relief requested in any such application is granted on or before April 30, 2000, the transfer of the Bangor-Pacific Interest shall occur as contemplated by the APA as soon as practicable thereafter. If BHE elects not to make such application, or the relief requested therein is not granted by April 30, 2000, the parties shall negotiate in good faith to arrive at an equitable adjustment of the purchase price paid at the First Closing in respect of the Bangor-Pacific Interest to reflect the retention by BHE of that portion of the Bangor-Pacific Interest not transferred to Penobscot at the First Closing (which, if required by law, may be transferred to a third party by BHE), and if such negotiations are not successful, then Penobscot shall return the Bangor-Pacific Economic Interest to BHE, shall be entitled to retain all economic benefits received by Penobscot in respect of the Bangor-Pacific Economic Interest prior to such date and shall receive a refund of the $10,000,000 purchase price paid in respect of the Bangor-Pacific Interest (without interest). (d) 1 ARTICLE THE FIRST CLOSING 1.1 Time and Place of First Closing. Upon the terms and subject to the satisfaction of the conditions contained in Sections 3.2, 3.3 and 3.4 of this Agreement (the "First Closing Conditions"), the First Closing will take place at the offices of Curtis Thaxter Stevens Broder & Micoleau LLC, Portland, Maine on such date as the parties may agree, which date shall be as soon as practicable, but no later than five (5) Business Days following the date on which all of the First Closing Conditions have been satisfied or waived, or at such other place or time as the parties may agree. 1.2 1.3 Conditions to Each Party's Obligations to Effect the Transactions. The respective obligations of each party to close the First Closing Transaction shall be subject to the fulfillment at or prior to the First Closing Date of the following conditions (any of which may be waived jointly by Penobscot, BHE and PHC): 1.4 (a) The waiting period under the HSR Act, if applicable to the consummation of the sale of the Bangor-Pacific Economic Interest contemplated hereby, shall have expired or been terminated; (b) (c) No preliminary or permanent injunction or other order or decree by any Federal or state court which prevents the consummation of the transfer of the Bangor-Pacific Economic Interest contemplated hereby shall have been issued and remain in effect (each party agreeing to use its best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or Federal government or governmental agency in the United States which prohibits the consummation of the transfer of the Bangor-Pacific Economic Interest; (d) (e) All Federal, state and local government consents and approvals (including but not limited to legislative and administrative consents and approvals) required for (i) the consummation of the transfer of the Bangor- Pacific Economic Interest, (ii) the ownership by Penobscot of the Bangor- Pacific Economic Interest, and (iii) the execution, delivery and performance by the parties thereto of the Transaction Documents, including, without limitation, the Interest Regulatory Approvals shall have been obtained, unless the failure to obtain such consent or approval would not result in a PHC Material Adverse Effect, and shall be Final; and (f) (g) All other consents and approvals for the consummation of the transfer of the Bangor-Pacific Economic Interest shall have been obtained, other than those which if not obtained, would not, in the aggregate, have a PHC Material Adverse Effect. (h) The Lenders' Consent shall have been obtained by BHE. (i) 1.5 Conditions to Obligations of Penobscot. The obligation of Penobscot to close the First Closing Transaction shall be subject to the fulfillment at or prior to the First Closing Date of the following additional conditions (all or any of which may be waived in whole or in part by Penobscot in its sole discretion): 1.6 (a) There shall not have occurred and be continuing a PHC Material Adverse Effect; (b) (c) (i) The representations and warranties of BHE set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the First Closing Date as though repeated at and as of the First Closing Date, and (ii) BHE and PHC shall have performed and complied with the covenants and agreements contained in this Agreement that are required to be performed and complied with by BHE and PHC on or prior to the First Closing Date except where the failure of such representations and warranties to be correct or such covenants and agreements to be performed and complied with would not result in a PHC Material Adverse Effect; (d) (e) The Bangor-Pacific Economic Interest shall be free and clear of Encumbrances other than Permitted Encumbrances; (f) (g) Penobscot shall have received certificates from authorized officers of BHE and PHC, dated the First Closing Date, to the effect that, to the best of such officers' Knowledge, the conditions set forth in Sections 3.3(a), (b) and (c) have been satisfied; (h) (i) The consents and approvals required to be obtained pursuant to Sections 3.2(c), (d) or (e) hereof shall not contain or be granted subject to terms or conditions which could reasonably be expected to have a PHC Material Adverse Effect when compared to the terms and conditions presently applicable to the Bangor-Pacific Interest; (j) (k) Penobscot shall have received an opinion from Maine counsel to BHE and PHC, as applicable, reasonably satisfactory to Penobscot, dated the First Closing Date, substantially to the effect that: (l) (1) each of BHE and PHC is a corporation organized, existing and in good standing under the laws of its state of incorporation and each state or other jurisdiction in which it is qualified to do business as a foreign corporation by virtue of owning the Bangor- Pacific Interest, and each of BHE and PHC has the corporate power and authority to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transfer of the Bangor-Pacific Economic Interest contemplated hereby have been duly authorized by all requisite corporate action taken on the part of BHE and PHC; (2) this Agreement and the Transaction Documents have been duly executed and delivered by BHE and PHC and (assuming that the Lenders' Consent is obtained) are valid and binding obligations of BHE and PHC, enforceable against BHE and PHC in accordance with their terms, except (A) that such enforcement may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights, (B) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and (C) that such enforcement may be subject to requirements of good faith, reasonableness and fair dealing; (1) the execution, delivery and performance of this Agreement and the Transaction Documents by BHE and PHC will not constitute a violation of the Articles of Incorporation or Bylaws, as currently in effect, of any of BHE and PHC; (1) the Bangor-Pacific Assignment is in proper form to transfer to Penobscot such title as PHC has to the Bangor-Pacific Economic Interest; and (1) no declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority or other third party is necessary for the consummation by BHE and PHC of the First Closing other than (i) such declarations, filings, registrations, notices, authorizations, consents or approvals which if not obtained or made, would not, in the aggregate, have a PHC Material Adverse Effect and (ii) the Lenders' Consent, all of which have been obtained. As to any matter contained in such opinion which involves the laws of any jurisdiction other than the Federal laws of the United States or the laws of the State of Maine, such counsel may rely upon opinions of counsel admitted in such other jurisdictions. Any opinions relied upon by such counsel as aforesaid shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon certificates furnished by BHE and PHC and appropriate officers and directors of BHE and PHC and by public officials; (a) All corporate and other proceedings to be taken by BHE and PHC in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Penobscot and its counsel, and Penobscot and its counsel shall have received all such certified or other copies of such documents as it or they may reasonably request; and (b) (c) BHE and PHC shall have delivered to Penobscot duly executed counterparts of each document or agreement contemplated to be delivered by BHE and PHC under Section 3.5 of this Agreement. (d) 1.2 Conditions to Obligations of BHE. The obligation of BHE and PHC to close the First Closing Transaction shall be subject to the fulfillment at or prior to the First Closing Date of the following additional conditions (all or any of which may be waived by BHE and PHC): (a) The representations and warranties of Penobscot set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the First Closing Date as though repeated at and as of the First Closing Date, and (ii) PPLG and Penobscot shall have performed and complied in all material respects the covenants and agreements contained in this Agreement which are required to be performed on or prior to the First Closing Date; (b) (c) The consents and approvals required to be obtained pursuant to Sections 3.2(c), (d) or (e) hereof shall not contain or be granted subject to terms or conditions which could reasonably be expected to have a material adverse effect on BHE; (d) (e) BHE shall have received a certificate from an authorized officer of PPLG and Penobscot, dated the First Closing Date, to the effect that, to the best of such officer's Knowledge, the conditions set forth in Section 3.4(a) have been satisfied; (f) (g) BHE shall have received an opinion from counsel for Penobscot reasonably satisfactory to BHE, dated the First Closing Date, to the effect that: (h) (1) Penobscot is a limited liability company organized, existing and in good standing under the laws of the State of Delaware, and has the limited liability company power and authority to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transfer of the Bangor- Pacific Economic Interest contemplated hereby have been duly authorized by all requisite limited liability company action taken on the part of Penobscot; (1) This Agreement and the Transaction Documents have been duly executed and delivered by Penobscot and (assuming that the Lenders' Consent is obtained) are valid and binding obligations of Penobscot, enforceable against Penobscot in accordance with their respective terms, except (A) that such enforcement may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to the creditors' rights, (B) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and (C) that such enforcement may be subject to requirements of good faith, reasonableness and fair dealing; and (1) The execution, delivery and performance of this Agreement and the Transaction Documents by Penobscot will not constitute a violation of the certificate of formation or operating agreement (or other similar governing documents), as currently in effect, of Penobscot. As to any matter contained in such opinion which involves the laws of any jurisdiction other than the Federal laws of the United States, the Commonwealth of Pennsylvania, the State of Delaware or the State of Maine, such counsel may rely upon opinions of counsel admitted to practice in such other jurisdictions. Any opinions relied upon by such counsel as aforesaid shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon certificates furnished by appropriate officers and directors of Penobscot and its respective Affiliates and by public officials. (a) PPLG and Penobscot shall have delivered to BHE the documents and agreements contemplated to be delivered by PPLG and Penobscot in Section 3.6. (b) 1.2 Deliveries By PHC and BHE. At the First Closing, subject to the express provisions of this Agreement PHC and BHE will deliver the following to Penobscot: 1.3 (a) The Bangor-Pacific Assignment, executed by BHE and PHC; (b) (c) All consents, waivers or approvals obtained by PHC and BHE with respect to the transfer of the Bangor-Pacific Economic Interest or the consummation of the transactions contemplated by this Agreement and the Transaction Documents; (d) (e) Opinions of counsel and officer's certificates (as contemplated by Sections 3.3(d) and 3.3(f)); (f) (g) All such other instruments of assignment or conveyance as, in the reasonable opinion of Penobscot and its counsel, shall be necessary or desirable to transfer to Penobscot the Bangor-Pacific Economic Interest in accordance with this Agreement; (h) (i) A copy of the resolutions of the Board of Directors of each of PHC and BHE authorizing and approving this Agreement and the consummation of the transactions contemplated hereby, in each case certified by its respective corporate secretary; (j) (k) Certificates by the corporate secretary of each of PHC and BHE as to the incumbency of each person executing this Agreement on behalf of PHC or BHE; (l) (m) Such other agreements, documents, instruments and writings as are required to be delivered by any of PHC and BHE at or prior to the First Closing Date pursuant to this Agreement or otherwise required in connection herewith. (n) 1.4 Deliveries by Penobscot. At the First Closing, subject to the express provisions of this Agreement Penobscot will deliver the following to BHE: 1.5 (a) Opinions of counsel and an officer's certificate (as contemplated by Sections 3.4(c) and 3.4(d)); (b) (c) Such other agreements, documents, instruments and writings as are required to be delivered by Penobscot at or prior to the First Closing Date pursuant to this Agreement or otherwise required in connection herewith; (d) (e) $10,000,000 in immediately available funds by wire transfer to an account designated by BHE; and (f) (g) The Bangor-Pacific Assignment executed by Penobscot. (h) 1 ARTICLE REPRESENTATIONS AND WARRANTIES OF BHE BHE represents and warrants to PPLG and Penobscot as follows as of the date hereof and as of the First Closing Date and the Second Closing Date: 1.1 Organization; Authority. Each of BHE and PHC is a corporation duly organized, validly existing and in good standing under the laws of the State of Maine and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. PHC's sole asset is, and has been from the inception of PHC's existence, the Bangor-Pacific Interest (and related cash proceeds thereof). PHC's sole business is, and has been from the inception of PHC's business, the ownership of such Bangor-Pacific Interest. PHC does not have and has never had any employees or "employee pension benefit plans" (as defined in Section 3(2) of ERISA) or "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) or any post-retirement benefit plans. PHC has no subsidiaries. PHC has made no advances to or investments in corporations, partnerships, joint ventures or other business entities or businesses other than Bangor-Pacific. 1.2 1.3 Authority Relative to This Agreement. Each of BHE and PHC has full corporate power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action required on the part of each of BHE and PHC. This Agreement has been duly and validly executed and delivered by each of BHE and PHC, and, assuming the accuracy of Penobscot's representations and warranties contained in Section 5.2, and subject to the receipt of the Lenders' Consent and, in the case of the Second Closing Transaction, the MPUC Approval, constitutes a valid and binding agreement of each of BHE and PHC, enforceable against them in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally or general principles of equity. The other Transaction Documents, when executed, will, assuming the accuracy of Penobscot's representations and warranties contained in Section 5.2, and subject to the receipt of the Lenders' Consent and, in the case of the Second Closing Transaction, the MPUC Approval, constitute valid and binding obligations of each of BHE and PHC party thereto, enforceable against such entity in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally or general principles of equity. 1.4 1.5 Consents and Approvals; No Violation. 1.6 (a) Except for obtaining the Lenders' Consent and the MPUC Approval, neither the execution and delivery of this Agreement or the Transaction Documents by BHE or PHC nor the transfer by BHE of the PHC Stock pursuant to this Agreement or the performance by each of BHE and PHC of its respective other obligations under this Agreement and the Transaction Documents to which it is a party will (i) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of BHE or PHC, each as amended or restated; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which BHE or PHC is a party or by which BHE or PHC or any of the PHC Stock may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been or by the Second Closing date will be obtained or which, in the aggregate, would not have a PHC Material Adverse Effect; or (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority or other Person, except where the failure to fulfill such requirement would not result in a PHC Material Adverse Effect; or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to PHC, or any of its assets, which violation would have a PHC Material Adverse Effect. (b) (c) Except for the MPUC Approval, no declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement or the Transaction Documents by BHE or PHC or the consummation by BHE or PHC of the transactions contemplated hereby or thereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made, will not, individually or in the aggregate, have a PHC Material Adverse Effect. (d) 1.7 Title and Capitalization. BHE has and at the Second Closing shall convey to Penobscot good, valid and marketable title to the PHC Stock, free and clear of all Encumbrances. 1.10 (a) The authorized, issued and outstanding capital stock of PHC is set forth in Schedule 4.4(b) attached hereto. All of the issued and outstanding shares of capital stock of PHC have been duly and validly authorized and issued and are fully paid and non-assessable and owned of record and beneficially by BHE. No shares of capital stock of PHC were issued in violation of any preemptive rights provided by applicable state or foreign laws or by contractual agreement, or issued or repurchased in violation of any applicable federal or state or foreign laws. There are no preemptive rights with respect to capital stock of PHC. There are no existing options, warrants, calls, commitments or agreements of any character whatsoever calling for the issuance of additional shares of capital stock or other securities of PHC or any voting trusts, voting agreements or similar agreements affecting any of the outstanding shares of capital stock of PHC or securities convertible into or exchangeable for capital stock of PHC. Except as set forth in the West Enfield Project Finance Documents, PHC is not subject to any obligations (contingent or otherwise) to issue or repurchase or otherwise acquire or retire any shares of its capital stock or other securities or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person. Any shares of capital stock presently held as treasury shares were acquired in a redemption accomplished in compliance with applicable law. (b) (c) Except for those Permitted Encumbrances which are permitted by definition to survive the First Closing Date, PHC shall have, and at the First Closing shall convey to Penobscot, good, valid and marketable title to the Bangor-Pacific Economic Interest which it purports to own, free and clear of all Encumbrances. (d) 1.11 Articles of Incorporation and Bylaws. The copies of the articles of incorporation of PHC and the bylaws of PHC, each as amended to date, as delivered to Penobscot prior to the Second Closing are true and correct copies of such documents. 1.12 1.13 Books and Records. The books and records of PHC set forth in all material respects the transactions to which such entity is a party or by which it or its properties are bound and such books and records have been properly kept and maintained in accordance with generally accepted accounting principles, consistently applied. The minute and other corporate books of PHC are complete, accurate and current in all material respects. 1.14 1.15 Financial Statements. BHE has furnished to Penobscot the balance sheets of PHC as of April 30, 1998 and 1999 ("PHC Financial Statements"). The PHC Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods specified, and present fairly the financial position of PHC on the respective dates specified and the results of its operations and changes in financial position for the respective periods specified except as noted therein. 1.16 1.17 Liabilities. PHC has no, nor are any of its assets or properties subject to any, liabilities or obligations (direct or indirect, absolute or contingent, matured or unmatured, asserted or unasserted, known or unknown) of whatever nature, whether arising out of contract, tort, statute or otherwise, whether or not such liability is normally reflected on a balance sheet prepared in accordance with generally accepted accounting principles, except (i) liabilities and obligations as and to the extent set forth or reserved against in the most recent balance sheet included in the PHC Financial Statements ("PHC Balance Sheet") or referred to in the related notes thereto, (ii) liabilities and obligations incurred in the ordinary course of business since the date of the PHC Balance Sheet and recorded on the books of PHC (not including within the meaning of "ordinary course of business" for purposes of this Agreement any tort liability or any liability arising out of a violation of law or breach of a contractual or other obligation) that are not material in amount either singly or in the aggregate and (iii) liabilities and obligations described on Schedule 4.8. Schedule 4.8 also includes a list of any accounts payable, advances payable and notes payable of PHC as of the date hereof (including accrued interest, if any), and the amount thereof. The amount of all Restricted Payments (other than those described in clause (a) or (d) of Section 9.4 of the Loan Agreement) received during the 12 month period preceding the date hereof by PHC from Bangor-Pacific is $1,125,000. The Restricted Payments described in clause (d) of Section 9.4 of the Loan Agreement received by PHC as of the date hereof is $0. 1.18 1.19 Bank Accounts. Schedule 4.9 correctly sets forth the names of all financial institutions which are depositories of the funds of PHC, the accounts established at such depositories, the names of all persons authorized to draw or sign checks or drafts upon the accounts established in such depositories, the name of any depositories or other organization in which PHC has a safe deposit box and the names of the persons having access thereto. 1.20 1.21 Guaranties. There are no contracts or commitments by PHC guaranteeing the payment or performance by others or whereby PHC or any of its assets or properties is, or will be, in any way liable with respect to the obligations of any other person, firm, corporation or other entity, except for PHC's obligations under the West Enfield Project Finance Documents. 1.22 1.23 Litigation. There are no actions, suits, claims, disputes, proceedings or investigations relating to PHC pending or, to the Knowledge of BHE or PHC, threatened against PHC or any of its shareholders, officers, directors or employees (in such capacities) or any of its properties or assets or which questions the validity of any action taken or to be taken pursuant to or in connection with this Agreement and the Transaction Documents, at law or in equity before or by any court, governmental or regulatory authority or body acting in an adjudicative capacity. There is no judgment, rule, order, writ, injunction, decree, assessment or other similar command of any court, governmental or regulatory authority or body acting in an adjudicative capacity relating to PHC outstanding against PHC or any of its shareholders, officers, directors, or employees (in such capacities) or any of its properties or assets. 1.24 1.25 Insurance. PHC has no policies of insurance. 1.26 1.27 No Claims. Neither BHE nor any officer, director or employee of BHE, PHC or any of BHE's other Affiliates, or any of their respective Affiliates, has any claims of any nature against PHC. 1.28 1.29 Certain Contracts and Arrangements. 1.30 (a) Except (i) for the West Enfield Project Documents, (ii) the letter agreement dated March 30, 1999 by and among BHE, PHC, PPLG, Penobscot, Pacific Penobscot Power Company, Ogden Power Pacific, Inc., Indeck-Penobscot Hydro, LLC and Indeck Energy Services, Inc. and (iii) for agreements entered into with Penobscot's consent under Section 6.3, PHC is not a party to any contract, agreement, personal property lease, commitment, understanding or instrument and BHE is not a party to any contract, agreement, personal property lease, commitment, understanding or instrument related to PHC or the Bangor-Pacific Interest. Complete and accurate copies of all such agreements, together with all amendments and supplements, have been delivered or made available to Penobscot prior to the execution of this Agreement. (b) (c) Each such agreement (i) constitutes a valid and binding obligation of PHC enforceable against PHC in accordance with its terms, (ii) is in full force and effect, and (iii) except for matters which are the subject of Lenders' Consent, may be transferred to Penobscot pursuant to this Agreement without breaching the terms thereof or resulting in the forfeiture or impairment of any rights thereunder. (d) (e) Except for matters which will be cured by the Lenders' Consent, there is not, under any of such agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of PHC or BHE, or, to the Knowledge of BHE or PHC, any other party thereto, except such events of default and other events as to which requisite waivers or consents have been obtained, or which would not, in the aggregate, have a PHC Material Adverse Effect. (f) 1.31 Permits. 1.32 (a) "Permits" means all material permits, licenses, franchises and other governmental authorizations, consents and approvals relating to PHC, its assets or business, or the ownership, operation or maintenance of its assets. PHC has all Permits required for PHC to own the Bangor-Pacific Interest, except where the failure to have any such permit would not have a PHC Material Adverse Effect. PHC has not received any written notification that PHC is in violation of any of such Permit, or any law, statute, order, rule, regulation, ordinance or judgment of any governmental or regulatory body or authority applicable to it. To the Knowledge of BHE and PHC, PHC is in compliance with all Permits, laws, statutes, orders, rules, regulations, ordinances, or judgments of any governmental or regulatory body or authority applicable to it except for violations which, individually or in the aggregate, do not have a PHC Material Adverse Effect. (b) (c) No Permits are required for PHC to own the Bangor-Pacific Interest except for the Permit issued by the MPUC disclosed in Schedule 4.15. Copies of the Permit issued by the MPUC have been provided or made available to Penobscot prior to the execution of this Agreement. (d) 1.33 Taxes. PHC is a member of an "affiliated group" within the meaning of Section 1504 of the Code. All Tax Returns of PHC required to be filed have been timely filed and are true, correct and complete, and all Taxes, including those shown to be due on such Tax Returns, have been timely paid. All Taxes that PHC is required by law to withhold and collect have been withheld and collected and timely paid over to the appropriate governmental authorities. No Tax audits or other administrative proceedings are presently pending or proposed or to the Knowledge of BHE or PHC threatened (in each case in writing) with regard to any Taxes or Tax Returns of PHC. Except to the extent set forth in Schedule 5.13 to the APA, there are no Encumbrances for Taxes on any property or assets of PHC other than Permitted Encumbrances. All deficiencies of Taxes asserted in writing or otherwise asserted with respect to PHC as a result of an audit, examination, investigation or similar proceeding have been paid or are being contested in good faith through appropriate proceedings, with adequate reserves booked for any adverse determination. There are no powers of attorney in effect relating to Taxes of PHC that relate to Taxes for any post-Closing period. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any items of Tax of PHC, and PHC has not requested any extension of time within which to file any Tax Return that has not yet been filed. PHC is not required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provision of state or local law), by reason of a change in accounting method nor does BHE or PHC have any Knowledge that it is using an erroneous method of tax accounting which would result in an adjustment to taxable income for a period following the First Closing. PHC has not filed a consent pursuant to Code Section 341(f) concerning collapsible corporations. PHC has not made any payments, is not obligated to make any payments, nor is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. No indebtedness of PHC is "corporate acquisition indebtedness" within the meaning of Code Section 279(b). PHC is the "Tax Matters Partner" of Bangor-Pacific. Neither BHE nor PHC is a foreign corporation within the meaning of Section 897 of the Code, and Penobscot is not required to withhold Tax on the Purchase Price by reason of Section 1445 of the Code or any other provision. 1.34 1.35 Conduct of Business. Since September 25, 1998, PHC has conducted its business only in the ordinary and usual course, and there has not been any material adverse change in the condition, financial or otherwise, of PHC. 1.36 1.37 No Default. PHC has not breached any provision of, nor is in violation of or in default with respect to (and no event has occurred which, with or without the lapse of time or notice or other action by a third party would result in any such violation or default), and the execution of this Agreement and the Transaction Documents and consummation of the transactions contemplated hereby or thereby will not constitute a breach of or default under, any term, provision, condition or covenant of any mortgage, indenture, contract, lease, license, agreement or other instrument or commitment to which it is a party or is subject or by which any of its assets or properties may be bound, or any provision of its articles of incorporation or bylaws or any statute, ordinance, regulation, permit, franchise, judgment, decree, writ, or order of any court, governmental or regulatory authority or body acting in an adjudicative capacity applicable to PHC, except in each case as to which requisite waivers or consents have been obtained, or which would not, in the aggregate, have a PHC Material Adverse Effect. 1.38 1.39 Incorporation of Representations and Warranties from the APA. The representations and warranties of BHE and PHC made in Section 5.5 (Environmental Matters), Section 5.13(b) (Taxes), Section 5.14 (Representations Regarding Bangor-Pacific), and Section 5.16 (Insurance) of the APA are hereby incorporated herein as fully as if repeated herein, provided that, for purposes of this Agreement, references therein to "Purchased Assets" shall be deemed to apply only to PHC, the PHC Stock and the Bangor-Pacific Interest (inclusive of both or either the Bangor-Pacific Economic Interest and the Bangor-Pacific Management Interest), references to the "Business" shall refer to the business of owning PHC or the Bangor- Pacific Interest, references to "Material Adverse Effect" shall refer to "PHC Material Adverse Effect" and references to "Ancillary Agreements" shall refer to "Transaction Documents." 1.40 1.41 2 ARTICLE REPRESENTATIONS AND WARRANTIES OF PENOBSCOT Penobscot represents and warrants to BHE, as of the date hereof and as of First Closing Date and as of the Second Closing Date, as follows: 1.1 Organization. Penobscot is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. Penobscot is duly authorized and qualified to do business as a foreign corporation in the State of Maine and is in good standing in the State of Maine. 1.2 1.3 Authority. Penobscot has full limited liability company power and authority to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary limited liability company action on the part of Penobscot, and no other proceedings on the part of Penobscot are necessary to authorize this Agreement and the Transaction Documents or to consummate the transactions contemplated hereby or thereby. This Agreement has been duly and validly executed and delivered by Penobscot, and assuming the accuracy of BHE's representations and warranties contained in Section 4.2, and subject to the receipt of the Lenders' Consent and the MPUC Approval, constitutes a valid and binding agreement of Penobscot, enforceable against Penobscot in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally or general principles of equity. The Transaction Documents, when executed, will, assuming the accuracy of BHE's representations and warranties contained in Section 4.2, and subject to the receipt of the Lenders' Consent and the MPUC Approval, constitute valid and binding agreements of Penobscot, enforceable against Penobscot in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally or general principles of equity. 1.1 Consents and Approvals; No Violation. (a) Other than obtaining the Lenders' Consent and the MPUC Approval, neither the execution and delivery of this Agreement or the Transaction Documents by Penobscot nor the acquisition by Penobscot of the Bangor-Pacific Economic Interest or the PHC Stock pursuant to this Agreement and the Transaction Documents will (i) conflict with or result in any breach of any provision of the certificate of formation or operating agreement (or other similar governing documents) of Penobscot, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, or (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Penobscot or any of its subsidiaries is a party or by which any of its assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained, or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Penobscot, and any assets of Penobscot. (b) (c) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental or regulatory body or authority is necessary for the consummation by Penobscot of the transactions contemplated by this Agreement or the Transaction Documents. (d) (e) 2 ARTICLE CERTAIN COVENANTS 1.1 Incorporation of Covenants from the APA. All covenants of BHE and PHC made in Section 7.1 (Conduct of Business of the Sellers), Section 7.2 (Access to Information), Section 7.3 (Expenses), Section 7.4 (Further Assurances), Section 7.5 (Public Statements), Section 7.6 (Consents and Approvals), Section 7.7 (Tax Matters), Section 7.11 (Confidential Information), Section 7.12 (Observation, Cooperation and Participation), and Section 7.13 (Delivery of Books and Records, etc; Removal of Property) of the APA are hereby incorporated herein as fully as if repeated herein, provided that references therein to "Purchased Assets" shall be deemed to apply, for purposes of this Agreement, only to PHC, the PHC Stock and the Bangor-Pacific Interest (inclusive of both or either the Bangor-Pacific Economic Interest and the Bangor-Pacific Management Interest), and references to the "Business" shall refer to the business of owning PHC or the Bangor-Pacific Interest. 1.2 1.3 Access to PHC Information. From the date of this Agreement and until the Second Closing, BHE and PHC will, and BHE will cause PHC to, afford to Penobscot or Penobscot's authorized agents or representatives full access during normal business hours, to all offices, property and books and records of PHC including such access as may be necessary to allow Penobscot or its agents or representatives to satisfy itself that the representations and warranties are true and that there has been no breach of the covenants. BHE and PHC will furnish to Penobscot or its agents or representatives such documents (certified, in the case of corporate documents, if requested) and all such other information concerning PHC and its business and properties as it may request. No investigation or inquiry made by Penobscot pursuant to this Agreement will in any way affect or lessen the representations and warranties made in this Agreement or the indemnity contained in Section 8.1. 1.4 1.5 Conduct of PHC Affairs. From the date of this Agreement and until the Second Closing (unless a different time period is specified), PHC will, and BHE will cause PHC to, carry on the affairs of PHC as follows unless otherwise agreed to in writing by Penobscot: 1.6 (a) PHC will maintain its corporate existence and good standing in the jurisdiction of its incorporation and in all jurisdictions in which it is qualified to do business as a foreign corporation and will not amend its articles of incorporation or bylaws. (b) (c) PHC will continue to carry on its business in a good and diligent manner consistent with prior practice and in the ordinary course, will preserve intact its business organization, will not introduce any new method of management or operation, and will use its best efforts to preserve the goodwill of and relationships with its customers, suppliers and others having business relationships with it so that its goodwill as a going concern shall be unimpaired. (d) (e) PHC will not change its authorized or issued capital stock or issue or agree to issue any shares of stock of any class, issue any securities convertible into, or any right to purchase, any shares of stock of any class, or issue any other securities. (f) (g) After the date of the First Closing and prior to the Second Closing, PHC will not declare, set aside, make or pay any Distribution or agree to do any of the foregoing. "Distribution" means: (a) the declaration or payment of any dividend (except dividends payable in common stock of PHC) on or in respect of any shares of any class of capital stock of PHC, (b) the purchase, redemption or other retirement of any shares of any class of capital stock of PHC and (c) any other distribution on, or in respect of, any equity interest of PHC or shares of any class of capital stock of PHC (including stock splits, reverse stock splits or stock dividends). (h) (i) PHC will not make any change affecting compensation to its directors, officers, employees and agents, will not modify or terminate any employee benefit plan, and will not pay or declare any bonuses, profit- sharing contributions or other non-salary compensation. (j) (k) Except as otherwise required under the West Enfield Project Finance Documents or by applicable law or regulation, PHC will not enter into or assume any mortgage, pledge, conditional sale or other title retention agreement, voluntarily permit any lien, encumbrance or charge of any kind (except liens for non-delinquent taxes or other statutory liens incurred in the ordinary course of business) to attach upon any of its assets whether now owned or hereafter acquired, create or assume any indebtedness for borrowed money or make any loans or advances to or assume, guaranty, endorse, or otherwise become liable with respect to the obligations of, any person, firm, association, or corporation (except by reason of endorsing checks in the ordinary course of business), make or commit to any capital expenditures or abandon or sell any capital assets or reduce any bank line of credit or the availability of funds under any other loan or financing agreement. (l) (m) PHC will not merge or consolidate with or into any corporation or other entity. (n) (o) After the date of the First Closing and prior to the Second Closing, PHC will exercise its rights, and perform its obligations, under the Bangor-Pacific Management Interest diligently, in good faith and in the best interests of Bangor-Pacific and Penobscot (in its capacity as the holder of the Bangor-Pacific Economic Interest). PHC will not (i) take any actions or omit to take any actions (ii) or cause or permit Bangor-Pacific to take any action or omit to take any actions, if such action or omission would have an adverse effect upon PHC or Bangor-Pacific or their respective business or assets provided that nothing contained herein shall require BHE or PHC to institute any litigation or to pay or agree to pay any sum of money in order to comply with this Section 6.3(h), except as otherwise agreed by BHE and PHC in writing. (p) (q) PHC will not enter into or modify any agreement, contract or commitment outside the ordinary course of business; PHC will not enter into or modify any agreement, contract or commitment within the ordinary course of business involving more than $1,000. (r) (s) PHC will pay all its indebtedness and Taxes as they become due, but will not pay or modify the terms of any of its indebtedness to shareholders, officers, directors or employees or their respective Affiliates. (t) (u) PHC will not make any election or give any consent under the Code or the tax statutes of any state or other jurisdiction or make any termination, revocation or cancellation of any such election or any consent or compromise or settle any claim for past or present Taxes due. (v) (w) PHC will comply in all respects with all applicable statutes, laws, ordinances, orders, rules and regulations and will do or cause to be done all things necessary to comply with all terms and provisions of each agreement or instrument to which PHC is a party. (x) (y) PHC will advise Penobscot promptly in writing of any adverse change in the financial condition or operations of PHC, Bangor-Pacific or any of their respective assets or business. (z) (aa) PHC will provide Penobscot with the same financial information it provides to BHE and at the same time, including at least a monthly balance sheet and statements of income, shareholder's equity and cashflow. (bb) 1.7 Consents. Each party hereto will use its respective best efforts to obtain, at the earliest practicable time after the date hereof, all consents and approvals of third parties that may be necessary or required in order to effect the First Closing Transaction and the Second Closing Transaction. 1.8 1.9 Certain Capacities. BHE agrees, promptly after the date of the First Closing, to appoint James S. Potter to serve as a director of PHC and agrees to cause James S. Potter to thereafter remain a validly elected director of PHC until the Second Closing. BHE and PHC agree that from and after the date of the First Closing James S. Potter shall also serve as a vice president of PHC, with rights to attend and participate in meetings of the Policy Committee of Bangor-Pacific. 1.10 1.11 Further Assurances. BHE shall from time to time and at any time after the date hereof execute and deliver such additional assignments, certificates, instruments and documents and take all additional actions reasonably requested by Penobscot to effectuate the purposes of this Agreement and to consummate and evidence the consummation of the First Closing Transaction and the Second Closing Transaction. 1.12 1.13 Bangor-Pacific Interest. Except as contemplated in this Agreement, unless and until this Agreement shall have terminated in accordance with its terms, BHE and PHC shall not transfer, sell, or encumber the Bangor-Pacific Interest. 1.14 1.15 Adverse Action. BHE shall not take any action or omit to take any action if such action or omission would have an adverse impact upon the PHC Stock, the Bangor-Pacific Interest, the Bangor-Pacific Economic Interest, the Bangor-Pacific Management Interest, PHC or Bangor-Pacific or their respective business or assets provided that nothing contained herein shall require BHE or PHC to institute any litigation or to pay or agree to pay any sum of money in order to comply with this Section 6.3(h), except as otherwise agreed by BHE and PHC in writing. 1.16 1.17 Notice of Certain Circumstances. BHE and PHC shall promptly give notice of the occurrence of any breach of a representation or covenant contained in this Agreement, or the existence and status of any pending or threatened litigation, investigation, inquiry, demand, notice or request made by any governmental or regulatory body or authority or other third party that, in the event of an unfavorable outcome, could have a PHC Material Adverse Effect. 1.18 1.19 Resignations. The officers and directors of PHC (other than James S. Potter) will tender their respective resignations from such offices and positions, at the Second Closing, effective at the close of business on the Second Closing Date. 1.20 1.21 MPUC Approval. BHE will use its best efforts to obtain an order from MPUC authorizing the Second Closing Transaction. Within 10 business days after the date hereof, BHE will provide Penobscot with a copy of BHE's draft of an application for a supplemental order from MPUC in connection with the transfer of the PHC Stock ("Application") for Penobscot's review. BHE will file the Application with MPUC within 5 Business Days after the date of the First Closing, and diligently prosecute the Application and receipt of the supplemental order. 1.22 1.23 Asset Purchase Treatment. 1.24 (a) Penobscot and BHE agree for Federal Income Tax purposes to treat the purchase and sale of the PHC Stock as a purchase and sale of the assets of PHC in accordance with the provisions of Code Section 338 generally and Section 338(h)(10) specifically. Penobscot and BHE agree to make timely all elections necessary to carry out the provisions of this section and to report the purchase and sale of the PHC Stock consistent with the preceding sentence and in accordance with the provisions of this Agreement. Penobscot and BHE further agree that, for state Tax purposes, the purchase and sale of the PHC Stock shall be treated as a purchase and sale of the assets of PHC to the greatest extent permitted by applicable law. (b) (c The fair market value of the assets, both tangible and intangible, of PHC for purposes of allocating the consideration to be paid for, and the amount realized on the sale of, the deemed sale of assets of PHC under Code Section 338(h)(10) shall be as provided for in Section 2.2(a). This determination shall be binding upon Penobscot and BHE for federal Tax purposes (including for purposes of Sections 338(h)(10) and 1060 of the Code) and for purposes of any state Tax laws and regulations. (d) (e) Penobscot and BHE shall not and Penobscot shall ensure that PHC shall not take a position in any Tax proceeding, Tax audit or otherwise inconsistent with the fair market value determinations described above. (f) (g) Penobscot and BHE agree to prepare and file and Penobscot shall ensure that PHC will prepare and file all Internal Revenue Service forms and the required schedules thereto and all requisite state and local forms and schedules required to be filed by any one or more of them providing for the treatment of the purchase and sale of the PHC Stock as a purchase and sale of the assets of PHC in accordance with the provisions of this Section. (h) 1.25 Tax Matters. This Section 6.13 is effective only if the Second Closing occurs. 1.26 (a) Tax Indemnities. (b) (1) Except as provided in Section 6.13(a)(ii), Penobscot shall be liable for, and agrees to defend, hold harmless and indemnify BHE from and against any and all Indemnifiable Losses with respect to any and all Taxes of, or attributable to, PHC with respect to any period, or portion thereof, ending on or before the First Closing date ("Pre-Closing Periods") up to the aggregate amount of the Tax Accrual. The indemnification obligations of Penobscot contained in this Section 6.13(a)(i) are separate from Penobscot's obligations in Article VIII. (1) BHE shall be liable for, and agrees to defend, hold harmless and indemnify Penobscot and its Affiliates (including, after the Second Closing date, PHC) from and against, any and all Indemnifiable Losses with respect to: (A) any and all Taxes of or attributable to PHC with respect to any Pre-Closing Period (including any Taxes incurred as a result of making the Section 338(h)(10) election), but only to the extent the aggregate amount of such other Taxes exceeds the Tax Accrual; and (B) any Taxes of any corporation or other Person, that is or was affiliated with PHC, with respect to any Pre-Closing Period, including, but not limited to, any such Taxes for which PHC is or may be or become liable for by contract, as transferor, transferee, or successor, or under any applicable law (including, but not limited to, Treasury Regulation Section 1.1502-6 or 1.1502-78(b)(2) or any similar provision under any applicable foreign, state or local law), or otherwise. The indemnification obligations of BHE contained in this Section 6.13(a)(ii) are separate from BHE's obligations in Article VIII. (1) In the case of any Tax described in Section 6.13(a)(ii)(A) that relates to any taxable period of PHC that begins on or before the First Closing Date but does not end on or before the First Closing Date (a "Straddle Period"), the portion of the Tax attributable to PHC or for which PHC may be liable for each of the Pre-Closing Period and the portion of such taxable period beginning after the First Closing Date (the "Post-Closing Period") shall be determined as follows: (A) In the case of any franchise or similar Tax that is not based upon or measured by net income and any ad valorem Tax, the portion attributable to the Pre-Closing Period shall be the amount of the Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the Pre-Closing Period and the denominator of which is the number of days in the entire taxable period. (B) In the case of any such Tax not described in Section 6.13(a)(iii)(A), the portion attributable to the Pre-Closing Period shall be determined on the basis of an interim closing of the books as of and including the First Closing date in accordance with the next two sentences. For purposes of this Section 6.13(a)(iii)(B), the portion of the Tax allocable to the Pre-Closing Period shall be the product of (x) the Tax for the entire taxable period, multiplied by (y) a fraction, the numerator of which is the hypothetical Tax for such Pre- Closing Period (determined on the basis of such interim closing of the books, without annualization) and the denominator of which is the sum of the numerator plus the hypothetical Tax for the Post-Closing Period (determined on the basis of such interim closing of the books, without annualization). The hypothetical Tax for any period shall in no case be less than zero. The amount of the Tax remaining after subtracting the portion attributable to the Pre-Closing Period (as determined in accordance with the preceding provisions of this Section 6.13(a)(iii)(B)) is the amount of the Tax attributable to the Post-Closing Period. (a) Cooperation. (b) (1) Penobscot will grant or cause to be granted to BHE or BHE's representatives access at all reasonable times to all of the information, books and records relating to PHC within its possession or control (including Tax work papers, Tax Returns and correspondence with Tax authorities), including the right to take extracts therefrom and make copies thereof at BHE's expense, to the extent reasonably necessary in connection with Taxes to which this Section 6.13 applies and shall furnish the assistance and cooperation of such personnel of Penobscot as BHE may reasonably request in connection therewith. (1) BHE will grant or cause to be granted to Penobscot or Penobscot's representatives access at all reasonable times to all of the information, books and records relating to PHC within its possession or control (including Tax work papers, Tax Returns and correspondence with Tax authorities), including the right to take extracts therefrom and make copies thereof at the expense of Penobscot, to the extent reasonably necessary in connection with Taxes to which this Section 6.13 applies and shall furnish the assistance and cooperation of such personnel of BHE as Penobscot may reasonably request in connection therewith. Without limiting the generality of the preceding sentence, and with respect to any Tax Return required to be filed by PHC after the Second Closing date with respect to any Pre-Closing Period of PHC, BHE agrees to furnish to Penobscot all information within BHE's control that may reasonably be necessary or appropriate to prepare any such Tax Return. (1) Without limiting the generality of the foregoing provisions of this Section 6.13(b), BHE and Penobscot shall cooperate and consult in good faith with each other during the course of the preparation of Tax Returns for Straddle Periods and to the extent appropriate shall use their commercially reasonable efforts to agree on the inclusion of items of income, deduction, gain, loss and credit for each such period so as to properly reflect such items attributable to such periods and shall mutually consent prior to the filing of any such Tax Return. (1) Any information obtained by a party or its Affiliates from another party or its Affiliates in connection with any Tax matters to which this Agreement applies shall be kept confidential, except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting an audit or other proceeding or otherwise as required by applicable law. (a) Tax Contests. (b) (1) If any Tax authority proposes any adjustment or questions the treatment of any item, which adjustment or question could, if pursued successfully, result in or give rise to solely a claim for indemnification against BHE by Penobscot under Section 6.13(a) (a "Seller Tax Claim"), solely a claim for indemnification against Penobscot by BHE under Section 6.13(a) (a "Buyer Tax Claim"), or both a Seller Tax Claim and a Buyer Tax Claim (a "Joint Tax Claim"), then the party first receiving notice of the adjustment or question (a "Tax Dispute") shall promptly notify the other party in writing of the Tax Dispute. (1) In the case of a Buyer Tax Claim, and subject to the provisions of this Section 6.13(c)(ii), Penobscot shall have the right, at its sole cost and expense, to control the defense, prosecution, settlement or compromise of the Tax Dispute underlying the Buyer Tax Claim; provided, that Penobscot will not, without BHE's prior written consent (which consent shall not be unreasonably withheld or delayed), enter into any settlement or compromise of the Tax Dispute that could affect the Tax liability of BHE or any of its Affiliates (including, without limitation, PHC) for any period ending on or before the First Closing Date; provided further, that if the Tax Dispute relates to a Tax Return of BHE or any of its Affiliates, BHE shall have the right, at any time and at its election, to have Penobscot and BHE treat the Tax Dispute as a Joint Tax Claim, in which case such Tax Dispute shall thereafter be subject to the provisions of Section 6.13(c)(iv) (other than the first sentence of Section 6.13(c)(iv)). (1) In the case of a Seller Tax Claim, BHE shall have the right, at its sole cost and expense, to control the defense, prosecution, settlement or compromise of the Tax Dispute underlying such Seller Tax Claim; provided, that BHE will not, without Penobscot's prior written consent (which consent shall not be unreasonably withheld or delayed), enter into any settlement or compromise of the Tax Dispute that could affect the Tax liability of Penobscot or any of its Affiliates (including, without limitation, PHC on or after the First Closing date) for any period ending on or after the First Closing date; provided, further, that if the Tax Dispute relates to a Tax Return of, or a taxable period of, any of PHC, Penobscot or any of their respective Affiliates, Penobscot shall have the right, at any time and at its election, to have Penobscot and BHE treat the Tax Dispute as a Joint Tax Claim in which case the Tax Dispute shall thereafter be subject to the provisions of Section 6.13(c)(iv) (other than the first sentence of Section 6.13(c)(iv)). (1) In the case of a Joint Tax Claim, Penobscot and BHE shall first attempt to separate the Joint Tax Claim into two, one involving the Buyer Tax Claim portion thereof (which shall be subject to the provisions of Section 6.13(c)(ii)), and the other involving the Seller Tax Claim portion thereof (which shall be subject to the provisions of Section 6.13(c)(iii)). If Penobscot and BHE are not successful in accomplishing the separation, Penobscot and BHE shall consult and cooperate in good faith with each other in controlling the audit, examination, investigation, or administrative, court, or other proceeding, shall not compromise or settle such Joint Tax Claim without the other's prior written consent (which consent shall not be unreasonably withheld or delayed) and shall share the costs and expenses associated with such Joint Tax Claim on such equitable basis as the parties shall mutually agree. If Penobscot and BHE cannot agree with respect to any matter involving any such Joint Tax Claim, Penobscot and BHE shall jointly engage independent tax counsel that is mutually acceptable to Penobscot and BHE to make its decision with respect to the matter, which decision shall be final and binding on Penobscot and BHE. Penobscot shall bear and pay one-half of the fees and other costs charged by that counsel and BHE shall bear and pay one-half of the fees and other costs charged by that counsel. (1) The party that controls a Tax Dispute under the provisions of Section 6.13(c)(ii), 6.13(c)(iii) or 6.13(c)(iv) shall keep the other party informed of all events and developments relating to the Tax Dispute, and the other party, or its authorized representatives, shall be entitled, at its own expense, to attend (but not control) all conferences, meetings and proceedings relating to such Tax Dispute. (a) Termination of Tax Sharing Agreements. Except as provided in this Agreement, any and all Tax allocation agreements, Tax sharing agreements, intercompany agreements, or other agreements or arrangements between PHC and BHE or any of BHE's Affiliates and relating to any Tax matters shall be terminated with respect to PHC as of the day before the First Closing date, and from and after the First Closing date will have no further force or effect for any taxable period (whether past, current, or future taxable periods). (b) (c) Preparation of Tax Returns. (d) (1) Penobscot will cause to be prepared each Tax Return covering a taxable period ending on or before the First Closing date (including any short taxable period Tax Return required or permitted to be filed for a short taxable period ending on the First Closing Date) which is required to be filed for, by, on behalf of or with respect to PHC after the First Closing Date; provided that BHE shall prepare any such return to the extent PHC is properly included in a consolidated Tax Return for such period filed by BHE. (1) Penobscot shall cause to be prepared each Tax Return covering a Straddle Period which is required to be filed for, by, on behalf of or with respect to PHC after the First Closing date. (1) If one party is responsible for preparing a Tax Return under this Section 6.13(e) and the other party is responsible in whole or in part for the Taxes reflected on the Tax Return, then that Tax Return shall be submitted to such other party at least 30 days before its due date (including any extension thereof), but in no event sooner than 15 days following the close of the taxable period covered by the Tax Return, and shall be subject to approval by such other party, which approval shall not be unreasonably withheld or delayed. (a) Payments. All Taxes of or with respect to PHC shall be paid to the appropriate Tax authority by the party that is responsible therefor under the applicable Tax law. Except as otherwise provided in this Section 6.13, any amount to which a party or parties is entitled under this Section 6.13 shall be promptly paid in immediately available funds to such party or parties by the party or parties obligated to make the payment within five business days after written notice to the party or parties so obligated stating that the Taxes to which such amount relates are due or have been paid and providing details supporting the calculation of such amount, but in no event shall the payment be required to be made earlier than five business days before the due date for payment of those Taxes. (b) (c) Nature of Payments. Except as otherwise provided by applicable law, any payment from Penobscot, PHC or any of their respective Affiliates to BHE or its Affiliates pursuant to this Section 6.13 shall be treated for Tax purposes as an increase in the Purchase Price, and any payment from BHE or any of its Affiliates to Penobscot or its Affiliates pursuant to this Section 6.13 shall be treated for Tax purposes as a decrease in the Purchase Price. (d) (e) Survival of Agreements. All covenants and agreements set forth in this Section 6.13 shall survive the Second Closing date until 60 calendar days after the expiration of all applicable statutes of limitation (including any and all extensions thereof). (f) (g) Conflict. In the event of a conflict between the provisions of this Section 6.13 and any other provision of this Agreement, the provisions of this Section 6.13 shall control. (h) 1.2 Cooperation regarding Lenders' Consent. Penobscot, PPLG, BHE and PHC will cooperate with each other, act reasonably in respect of, and use their respective best efforts to obtain, at the earliest practicable time after the date hereof, the Lenders' Consent. 1.3 1.4 2 ARTICLE THE SECOND CLOSING 1.1Time and Place of Second Closing. Upon the terms and subject to the satisfaction of the conditions contained in Sections 7.2, 7.3 and 7.4 of this Agreement (the "Second Closing Conditions"), the Second Closing will take place at the offices of Curtis Thaxter Stevens Broder & Micoleau LLC, Portland, Maine on such date as the parties may agree, which date shall be as soon as practicable, but no later than five (5) Business Days following the date on which all of the Second Closing Conditions have been satisfied or waived, or at such other place or time as the parties may agree. 1.2 1.3 Conditions to Each Party's Obligations to Effect the Transactions. The respective obligations of each party to close the Second Closing Transaction shall be subject to the fulfillment at or prior to the Second Closing Date of the following conditions (any of which may be waived jointly by Penobscot, BHE and PHC): 1.4 (a) The waiting period under the HSR Act, if applicable to the consummation of the sale of the PHC Stock contemplated hereby, shall have expired or been terminated; (b) (c) No preliminary or permanent injunction or other order or decree by any Federal or state court which prevents the consummation of the transfer of the PHC Stock contemplated hereby shall have been issued and remain in effect (each party agreeing to use its best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or Federal government or governmental agency in the United States which prohibits the consummation of the transfer of the PHC Stock; (d) (e) All Federal, state and local government consents and approvals (including but not limited to legislative and administrative consents and approvals), required for (i) the consummation of the transfer of the PHC Stock and the other transactions contemplated hereby, (ii) the ownership by Penobscot of the PHC Stock, and (iii) the execution, delivery and performance by the parties thereto of the Transaction Documents, including, without limitation, the MPUC Approval, shall have been obtained, unless the failure to obtain such consent or approval would not result in a PHC Material Adverse Effect, and shall be Final; and (f) (g) The PHC Stock Consents and all other consents and approvals for the consummation of the transfer of the PHC Stock and the other transactions contemplated hereby shall have been obtained, other than those which if not obtained, would not, in the aggregate, have a PHC Material Adverse Effect. (h) (i) The Lenders' Consent shall have been obtained by BHE. (j) 1.5 Conditions to Obligations of Penobscot. The obligation of Penobscot to close the Second Closing Transaction shall be subject to the fulfillment at or prior to the Second Closing Date of the following additional conditions (all or any of which may be waived in whole or in part by Penobscot in its sole discretion): 1.6 (a) There shall not have occurred and be continuing a PHC Material Adverse Effect; (b) (c) (i) The representations and warranties of BHE set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Second Closing Date as though repeated at and as of the Second Closing Date, and (ii) BHE and PHC shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement that are required to be performed and complied with by BHE and PHC on or prior to the Second Closing Date; (d) (e) The PHC Stock shall be free and clear of Encumbrances; (f) (g) Penobscot shall have received certificates from authorized officers of BHE and PHC, dated the Second Closing Date, to the effect that, to the best of such officers' Knowledge, the conditions set forth in Sections 7.3(a), (b) and (c) have been satisfied; (h) (i) The consents and approvals required to be obtained pursuant to Sections 7.2(c), (d) or (e) hereof shall not contain or be granted subject to terms or conditions which could reasonably be expected to have a PHC Material Adverse Effect when compared to the terms and conditions presently applicable to the PHC Stock; (j) (k) Penobscot shall have received an opinion from Maine counsel to BHE and PHC, as applicable, reasonably satisfactory to Penobscot, dated the Second Closing Date, substantially to the effect that: (l) (1) each of BHE and PHC is a corporation organized, existing and in good standing under the laws of its state of incorporation and each state or other jurisdiction in which it is qualified to do business as a foreign corporation by virtue of owning the PHC Stock, and each of BHE and PHC has the corporate power and authority to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transfer of the PHC Stock contemplated hereby have been duly authorized by all requisite corporate action taken on the part of BHE and PHC; (1) this Agreement and the Transaction Documents have been duly executed and delivered by BHE and PHC and (assuming that the MPUC Approval and the Lenders' Consent are obtained) are valid and binding obligations of BHE and PHC, enforceable against BHE and PHC in accordance with their terms, except (A) that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights, and (B) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (1) the execution, delivery and performance of this Agreement and the Transaction Documents by BHE and PHC will not constitute a violation of the Articles of Incorporation or Bylaws, as currently in effect, of any of BHE and PHC; (1) the stock power and other documents described in Section 7.5(a) are in proper form to transfer to Penobscot such title as BHE has to the PHC Stock; and (1) no declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority or other third party is necessary for the consummation by BHE and PHC of the Second Closing other than (i) the MPUC Approval, all of which have been obtained and are Final, (ii) such declarations, filings, registrations, notices, authorizations, consents or approvals which if not obtained or made, would not, in the aggregate, have a PHC Material Adverse Effect and (iii) the Lenders' Consent, all of which have been obtained. As to any matter contained in such opinion which involves the laws of any jurisdiction other than the Federal laws of the United States or the laws of the State of Maine, such counsel may rely upon opinions of counsel admitted in such other jurisdictions. Any opinions relied upon by such counsel as aforesaid shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon certificates furnished by BHE and PHC and appropriate officers and directors of BHE and PHC and by public officials; (a) All corporate and other proceedings to be taken by BHE and PHC in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Penobscot and its counsel, and Penobscot and its counsel shall have received all such certified or other copies of such documents as it or they may reasonably request; and (b) (c) BHE and PHC shall have delivered to Penobscot duly executed counterparts of each document or agreement contemplated to be delivered by BHE and PHC under Section 7.5 of this Agreement and the conditions to effectiveness of each such agreement (the Effective Date, if any, as defined therein) shall have been satisfied. (d) 1.2 Conditions to Obligations of BHE. The obligation of BHE to close the Second Closing Transaction shall be subject to the fulfillment at or prior to the Second Closing Date of the following additional conditions (all or any of which may be waived by BHE): (a) The representations and warranties of Penobscot set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Second Closing Date as though repeated at and as of the Second Closing Date, and (ii) PPLG and Penobscot shall have performed and complied in all material respects the covenants and agreements contained in this Agreement which are required to be performed on or prior to the Second Closing Date; (b) (c) The consents and approvals required to be obtained pursuant to Sections 7.2(c), (d) or (e) hereof shall not contain or be granted subject to terms or conditions which could reasonably be expected to have a material adverse effect on BHE; (d) (e) BHE shall have received a certificate from an authorized officer of PPLG and Penobscot, dated the Second Closing Date, to the effect that, to the best of such officer's Knowledge, the conditions set forth in Section 7.4(a) have been satisfied; (f) (g) BHE shall have received an opinion from counsel for Penobscot reasonably satisfactory to BHE, dated the Second Closing Date, to the effect that: (h) (1) Penobscot is a limited liability company organized, existing and in good standing under the laws of the State of Delaware, and has the limited liability company power and authority to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transfer of the PHC Stock contemplated hereby have been duly authorized by all requisite limited liability company action taken on the part of Penobscot; (1) This Agreement and the Transaction Documents have been duly executed and delivered by Penobscot and (assuming that the MPUC Approval and the Lenders' Consent are obtained) are valid and binding obligations of Penobscot, enforceable against Penobscot in accordance with their respective terms, except (A) that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to the creditors' rights and (B) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; and (1) The execution, delivery and performance of this Agreement and the Transaction Documents by Penobscot will not constitute a violation of the certificate of formation or operating agreement (or other similar governing documents), as currently in effect, of Penobscot. As to any matter contained in such opinion which involves the laws of any jurisdiction other than the Federal laws of the United States, the Commonwealth of Pennsylvania, the State of Delaware or the State of Maine, such counsel may rely upon opinions of counsel admitted to practice in such other jurisdictions. Any opinions relied upon by such counsel as aforesaid shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon certificates furnished by appropriate officers and directors of Penobscot and its respective Affiliates and by public officials. (a) PPLG and Penobscot shall have delivered to BHE the documents and agreements contemplated to be delivered by PPLG and Penobscot in Section 7.6. (b) 1.2 Deliveries By PHC and BHE. At the Second Closing, subject to the express provisions of this Agreement PHC and BHE will deliver the following to Penobscot: 1.3 (a) The stock certificates representing all of the PHC Stock, endorsed in blank or accompanied by duly executed stock powers executed in blank and otherwise acceptable to counsel for Penobscot; (b) (c) All consents, waivers or approvals obtained by PHC and BHE with respect to the transfer of the PHC Stock or the consummation of the transactions contemplated by this Agreement and the Transaction Documents; (d) (e) Opinions of counsel and officer's certificates (as contemplated by Sections 7.3(d) and 7.3(f)); (f) (g) All such other instruments of assignment or conveyance as, in the reasonable opinion of Penobscot and its counsel, shall be necessary or desirable to transfer to Penobscot the PHC Stock in accordance with this Agreement; (h) (i) A copy of the resolutions of the Board of Directors of each of PHC and BHE authorizing and approving this Agreement and the consummation of the transactions contemplated hereby, in each case certified by its respective corporate secretary; (j) (k) Certificates by the corporate secretary of each of PHC and BHE as to the incumbency of each person executing this Agreement on behalf of PHC or BHE; (l) (m) The books and records of PHC, including the minute books, stock books and seal of PHC; (n) (o) The written resignations of the directors and officers of PHC (other than James S. Potter); (p) (q) Copy of the articles of incorporation of PHC, as amended, certified by the Secretary of State of Maine as of a date not more than five days prior to the Second Closing Date; (r) (s) A certificate from the Secretary of State of the State of Maine, dated not more than five days prior to the Second Closing Date, certifying as to the good standing of PHC; (t) (u) Certificates from the Secretary of State of each State in which PHC is qualified to do business, dated not more than five days prior to the Second Closing Date, certifying as to the qualification of PHC as a foreign corporation in such State; and (v) (w) Such other agreements, documents, instruments and writings as are required to be delivered by any of PHC and BHE at or prior to the Second Closing Date pursuant to this Agreement or otherwise required in connection herewith. (x) 1.4 Deliveries by Penobscot. At the Second Closing, subject to the express provisions of this Agreement Penobscot will deliver the following to BHE: 1.5 (a) Legal opinions and an officer's certificate (as contemplated by Sections 7.4(c) and 7.4(d)); (b) (c) Such other agreements, documents, instruments and writings as are required to be delivered by Penobscot at or prior to the Second Closing Date pursuant to this Agreement or otherwise required in connection herewith. (d) (e) 2 ARTICLE INDEMNIFICATION 1.1 Indemnification. 1.2 (a) BHE will indemnify, defend and hold harmless PPLG and Penobscot and their affiliates (including, after the Second Closing, PHC) and their respective directors, officers, employees, agents and representatives ("Buyer Group") from and against any and all claims, demands or suits (by any Person), losses, liabilities, damages (but excluding, except to the extent claimed by third parties, any consequential, special, indirect, punitive or incidental damages, including without limitation lost profits), obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, penalties, fines, judgments, settlements and compromises relating thereto, reasonable disbursements in connection therewith, reasonable attorneys' and consultants' fees, and investigation costs) (each, an "Indemnifiable Loss"), asserted against or suffered by the Buyer Group relating to, resulting from or arising out of (i) any breach of any representation or warranty (without regard to any qualifications with respect to PHC Material Adverse Effect contained therein) of BHE contained in this Agreement or any schedule hereto, or any certificate delivered by or on behalf of BHE or PHC in connection herewith, (ii) any breach of any covenant or agreement of BHE or PHC contained in Sections 6.2, 6.3, 6.4, 6.5, 6.8, 6.9, 6.10 and 6.11 hereof or Sections 7.1, 7.2(a), 7.5, 7.6(a), 7.6(d) and 7.12 of the APA incorporated herein by Section 6.1 hereof, or (iii) any breach of any other covenant or agreement of BHE or PHC contained in this Agreement or any Transaction Document, any schedule hereto, or any certificate delivered by or on behalf of BHE or PHC in connection herewith, provided, however, that, in the case of any Indemnifiable Loss arising under Sections 8.1(a)(i) or (ii), (A) such indemnification shall be effective only with respect to claims written notice of which is received by BHE no later than eighteen months after the First Closing Date, (B) no amounts shall be due and payable to the extent that the sum of such Indemnifiable Losses plus all "Certain Indemnifiable Losses" and "Seller Indemnified Environmental Losses" under (and as defined in) the APA is equal to $500,000 or less, (C) in no event shall the aggregate amount of all payments made by BHE with respect to such Indemnifiable Losses plus all payments made by BHE with respect to Certain Indemnifiable Losses under the APA exceed ten percent (10%) of the Purchase Price, and (D) Indemnifiable Losses of Buyer Group under this Agreement shall constitute "Certain Indemnifiable Losses" under the APA for purposes of calculating any applicable limitations on Sellers' indemnity obligations under the APA. (a) Penobscot and PPLG will indemnify, defend and hold harmless BHE and its affiliates (except PHC) and their respective directors, officers, employees, agents and representatives ("Seller Group") from and against any and all Indemnifiable Losses asserted against or suffered by the Seller Group relating to, resulting from or arising out of (i) any breach of any representation or warranty of Penobscot contained in this Agreement or any Transaction Document, any schedule hereto, or any certificate delivered by or on behalf of Penobscot in connection herewith, (ii) any covenant or agreement of Penobscot set forth in Section 6.4 hereof or Sections 7.5, 7.6(a), 7.6(d) and 7.12 of the APA incorporated herein by Section 6.1 hereof, or (iii) any breach of any covenant or agreement of Penobscot contained in this Agreement or any Transaction Document, any schedule hereto, or any certificate delivered by or on behalf of Penobscot in connection herewith, provided, however, that in the case of any Indemnifiable Loss arising under Section 8.1(b)(i) or (ii), (A) such indemnification shall remain in effect only with respect to claims written notice of which is received by Penobscot no later than eighteen months after the First Closing Date, (B) no amounts shall be due and payable to the extent that the aggregate amount of such Indemnifiable Losses plus Indemnifiable Losses under Section 9.1(b)(i) and (ii) of the APA is equal to $500,000 or less, (C) in no event shall the aggregate amount of all payments made by Penobscot and PPLG with respect to such Indemnifiable Losses under the APA exceed ten percent (10%) of the Purchase Price, and (D) Indemnifiable Losses of Seller Group under this Agreement shall constitute "Indemnifiable Losses" under the APA for purposes of calculating any applicable limitations on Buyer's indemnity obligations under the APA. (b) (c) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") having a claim under these indemnification provisions shall make a good faith effort to recover all losses, damages, costs and expenses from insurers of such Indemnitee under applicable insurance policies so as to reduce the amount of any Indemnifiable Loss hereunder. The amount of any Indemnifiable Loss shall be reduced (i) to the extent that the Indemnitee receives any insurance proceeds with respect to an Indemnifiable Loss and (ii) to take into account any net Tax benefit recognized by the Indemnitee arising from the recognition of the Indemnifiable Loss and any payment actually received with respect to an Indemnifiable Loss. (d) (e) The expiration, termination or extinguishment of any representation, warranty, covenant or agreement shall not affect the parties' obligations under this Section 8.1 if the Indemnitee provided the person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) (g) Other than as provided in Section 9.2 hereof, the rights and remedies of BHE and Penobscot under this Article VIII are exclusive and in lieu of any and all other rights and remedies which BHE and Penobscot may have under this Agreement or otherwise for monetary relief with respect to any breach or failure to perform any representation, warranty, covenant or agreement set forth in this Agreement, any schedule hereto, or any certificate delivered by or on behalf of BHE or Penobscot in connection herewith. (h) (i) The rights and obligations of indemnification under this Section 8.1 shall not be limited or subject to set-off based on any violation or alleged violation of any obligation under this Agreement or otherwise, including but not limited to breach or alleged breach by the Indemnitee of any representation, warranty, covenant or agreement contained in this Agreement. (j) (k) Section 8.1 shall not apply to any matter for which indemnification is provided in Section 6.13. (l) 1.2 Defense of Claims. The provisions of Sections 9.2(a) through 9.2(e) of the APA are hereby incorporated herein by reference as fully as if repeated herein, except that the references therein to any paragraph or subparagraph of Section "9" shall be deemed for purposes of this Agreement to be referring to a paragraph or subparagraph of Section "8" of this Agreement. 1.3 1.4 2 ARTICLE TERMINATION 1.1 Termination. 1.2 (a) This Agreement may be terminated at any time prior to the Second Closing Date by mutual written consent of BHE and Penobscot. (a) This Agreement may be terminated by BHE if the First Closing shall not have occurred on or before October 15, 1999 as a result of the condition set forth in Section 3.2(e) not being satisfied. (b) (c) This Agreement may be terminated by BHE or Penobscot if the Second Closing shall not have occurred on or before December 31, 1999 ("Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(c) shall not be available to any party whose failure to fulfill any obligations under this Agreement has been the cause of, or resulted in, the failure of the Second Closing to occur on or before such date; and provided, further, that if on December 31, 1999, the conditions to the Second Closing set forth in Section 7.2(c) shall not have been fulfilled but all other conditions to the Second Closing shall be fulfilled or shall be capable of being fulfilled, then the date referred to above shall be April 30, 2000; provided further, that if the parties are taking the actions contemplated in the last sentence of Section 2.3(b), the date referred to above shall be July 31, 2000 and payments thereunder shall be not later than July 31, 2000. (d) 1.2 Procedure and Effect of Termination. In the event of termination of this Agreement and abandonment of the transactions contemplated hereby by either or both of the parties pursuant to Section 9.1, written notice thereof shall forthwith be given by the terminating party to the other party and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned to the extent not theretofore consummated, without further action by any of the parties hereto. If this Agreement is terminated as provided herein: 1.3 (a) none of the parties hereto nor any of their respective trustees, directors, officers or Affiliates, as the case may be, shall have any liability or further obligation to the other party or any of their respective trustees, directors, officers or Affiliates, as the case may be, pursuant to this Agreement, except in each case as stated in Sections 9.2 or 10.4 and except that provisions of the APA incorporated herein that provide for survival beyond termination shall survive, and Sections 2.3, 6.9 and 10.1 hereof shall survive; and (b) (c) all filings, applications and other submissions made pursuant to this Agreement, to the extent practicable, shall be withdrawn from the agency or other person to which they were made. (d) (e) Notwithstanding any other term or provision of this Agreement or the other documents delivered pursuant to this Agreement, each of the parties hereby agrees that no officers, directors, employees, agents or attorneys of such party shall be liable hereunder for any profit, loss of capital, consequential, special, indirect, punitive or incidental damages that may be incurred by any other party as a result of any action or inaction by any other party hereunder or in connection with this Agreement or any agreement contemplated to be executed in connection with this agreement, and hereby knowingly, voluntarily and intentionally waives the right to seek any such damages. (f) (g) 2 ARTICLE MISCELLANEOUS PROVISIONS 1.1 Reformation of Agreement. It is the intent of the parties to this Agreement that the transactions contemplated under this Agreement will, in accordance with Title 31 M.R.S.A. section 307, not cause the dissolution or termination of Bangor-Pacific. In the event that the transactions contemplated under this Agreement (including, without limitation, following the delivery by Penobscot of the notice referred to in Section 2.3(b)) will cause the dissolution or termination of Bangor-Pacific if performed, the parties agree to negotiate in good faith to modify this Agreement to the extent necessary so as to avoid dissolution or termination and, if the parties are unable to agree on modifications within 30 days after the request of either party, the parties shall submit to a court of competent jurisdiction which shall reform this Agreement only to the extent as not to cause the dissolution or termination of Bangor-Pacific. 1.1 Incorporation by Reference. The provisions of Sections 11.1 (Amendment and Modification), 11.2 (Waiver of Compliance; Consents), 11.4 (Notices), 11.5 (Assignment), 11.6 (Governing Law), 11.7 (Counterparts), 11.8 (Interpretation), 11.9 (Schedules and Exhibits), 11.10 (Entire Agreement), 11.11 (No Punitive or Consequential Damages) and 11.12 (Parties' Knowledge of Others' Breach) of the APA are hereby incorporated herein by reference as fully as if repeated herein, except that for purposes of this Agreement the terms "the Sellers" or "Sellers" shall be read as "BHE"; the terms "the Buyer" or "Buyer" shall be read as "Penobscot"; the term "Purchased Assets" shall be read as"PHC Stock" and as "Bangor-Pacific Interest (inclusive of both or either the Bangor-Pacific Economic Interest and the Bangor-Pacific Management Interest)"; the term "Ancillary Agreements" shall be read as "Transaction Documents"; references to Article "IX" or a paragraph or subparagraph of Section "9" shall be read as a reference to Article "VIII" or a paragraph or subparagraph of Section "8"; and references to a paragraph or subparagraph of Section "8" shall be read as a reference to a paragraph or subparagraph of Section "7". 1.2 1.3 No Survival. Subject to the provisions of Section 9.2, (i) each and every representation and warranty contained in this Agreement shall expire with, and be terminated and extinguished by, the consummation of the transfer of the PHC Stock pursuant to this Agreement and such representations and warranties shall not survive the Second Closing Date, except to the extent necessary to make effective a party's ability to make an indemnity claim with respect to such representations and warranties during the notice period and as otherwise provided in Section 8.1 and (ii) every covenant and obligation contained in this Agreement shall survive the Second Closing and the consummation of the transfer of the PHC Stock, except to the extent a party's ability to make an indemnity claim with respect to such covenant or obligation is expressly limited under Section 8.1. None of BHE, PHC, PPLG, Penobscot or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant upon and after the termination or expiration thereof. As used in this Agreement, the term "contained" includes items or provisions incorporated by reference. 1.4 1.5 Effect on APA. The parties agree that the Closing under the APA has occurred on the date hereof; provided that, for purposes of the Equity Contribution Agreement, the parties agree that the term "Closing" as used therein shall not be deemed to have occurred with respect to the Bangor- Pacific Interest and the purchase price payable at the First Closing. This Agreement is entered into to implement certain aspects of the transactions contemplated under the APA with respect to the Bangor-Pacific Interest. This Agreement is not intended, and shall not be construed, to modify or amend the APA except as contemplated in Article II of this Agreement. In particular and without limitation of the foregoing, this Agreement is not intended and shall not be construed to (i) affect the rights or remedies of any party hereto under the APA in respect of any obligations of the other party or parties under the APA, including with respect to the transfer of the Bangor- Pacific Interest, or (ii) modify or amend the Assumed Liabilities, the Excluded Liabilities or the indemnifications contained in the APA. 1.6 1.7 1.8 1.9 IN WITNESS WHEREOF, BHE, PHC, PPLG and Penobscot have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. BANGOR HYDRO-ELECTRIC COMPANY By: Name: Robert S. Briggs Title: President PENOBSCOT HYDRO CO., INC. By: Name: Robert S. Briggs Title: Vice President PP&L GLOBAL, INC. By: Name: Paul T. Champagne Title: President PENOBSCOT HYDRO, LLC By: Name: Paul T. Champagne Title: President Schedules to Implementation Agreement Schedule 4.4(b) (Capital Stock): PHC has authorized 5,000 shares of its common stock, of which one (1) share is issued and outstanding. Schedule 4.8 (Liabilities): PHC's liabilities and obligations under the West Enfield Project Documents. Schedule 4.9 (Bank Accounts): Fleet Bank of Maine Account #2192403 Persons authorized to draw upon the account: Robert S. Briggs Carroll R. Lee Frederick S. Samp Michael Whalen Schedule 4.15 (Permits): Maine Public Utilities Commission approval: Regarding Bangor Hydro- Electric Company, Docket No. 86-16, May 27, 1986. EXHIBIT A FORM OF BANGOR-PACIFIC ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of __________ __, 1999 (the "Agreement"), by and among BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation, PENOBSCOT HYDRO CO., INC., a Maine corporation (together, the "Sellers"), and PENOBSCOT HYDRO, LLC, a Delaware limited liability company (the "Buyer" and each a "Party"). W I T N E S S E T H: WHEREAS, the Sellers and the Buyer (as assignee of PP&L Global, Inc.) are Parties to that certain Asset Purchase Agreement dated September 25, 1998 (the "Asset Purchase Agreement") and that certain Asset Purchase Implementation Agreement dated as of May 27, 1999 (the "Implementation Agreement"); WHEREAS, pursuant to the Asset Purchase Agreement, the Buyer agreed to assume certain liabilities and obligations of the Sellers as are expressly described as being Assumed Liabilities in Section 2.3 of the Asset Purchase Agreement and the Sellers agreed to retain certain Excluded Liabilities described in Section 2.4 of the Asset Purchase Agreement; WHEREAS, pursuant to the Implementation Agreement the Parties agreed to enter into this Agreement at the First Closing in order to implement the sale of the Bangor-Pacific Interest contemplated by the Asset Purchase Agreement; WHEREAS, it is the Parties' intention to evidence the occurrence of the First Closing Transaction by, among other things, execution and delivery of this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Sellers and the Buyer hereby agree as follows: 1. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Implementation Agreement. 2. The Sellers hereby assign, sell, convey, transfer and set over to the Buyer, free and clear of all Encumbrances, other than the Permitted Encumbrances, all of the right, title and interest that the Sellers possess and have the right to transfer in, to and under the Bangor-Pacific Economic Interest, and the Sellers' Agreements listed in Schedule 5.10 to the Asset Purchase Agreement under the heading "West Enfield Agreements" (the "Assigned Assets") as described in the Asset Purchase Agreement, provided, however that it is the intent of the parties to this Agreement that the transactions contemplated hereby will not, in accordance with Title 31 M.R.S.A. section 307, cause the dissolution or termination of Bangor-Pacific. 3. The Buyer hereby assumes and agrees to pay, perform or discharge in accordance with their terms, to the extent not heretofore paid, performed or discharged and subject to the limitations contained in this Agreement, the Asset Purchase Agreement and the Implementation Agreement, all of Sellers' liabilities and obligations under those certain Sellers' Agreements listed in Schedule 5.10 to the Asset Purchase Agreement under the heading "West Enfield Agreements." Notwithstanding anything to the contrary herein, or in any other writing delivered in connection herewith, the Buyer will not assume or perform any liabilities or obligations not specifically contemplated by the Asset Purchase Agreement or the Implementation Agreement and, in particular, will not assume any of the Excluded Liabilities. 4. Sellers warrant and represent to the Buyer, its successors and assigns, that, as of the date hereof, Sellers are the true and lawful owners of the Assigned Assets; that the Sellers have the full right and power to assign and transfer the Assigned Assets to the Buyer; that the Assigned Assets are free from Encumbrances (except for those Permitted Encumbrances permitted by definition to survive after the Closing Date) and that the Assigned Assets have not been sold, assigned or transferred to any Person other than the Buyer. 5. Sellers hereby agree with the Buyer to execute and deliver to Buyer such further documents and instruments as may be necessary or reasonably requested by Buyer to further confirm and perfect the assignment and transfer of the Assigned Assets to Buyer. 6. The assumption by the Buyer of the Assumed Liabilities shall not be construed to defeat, impair or limit in any way the rights, claims or remedies of the Buyer under the Asset Purchase Agreement or the Implementation Agreement. 7. The Parties agree that nothing in this Agreement or in Section 2.3 of the Asset Purchase Agreement shall constitute a waiver or release of any claims arising out of the contractual relationships between the Sellers and the Buyer. 8. In the event that any provision of this Agreement shall be construed to conflict with a provision of the Asset Purchase Agreement or Implementation Agreement, as the case may be, the provision in the Asset Purchase Agreement or Implementation Agreement, as the case may be, shall be deemed controlling. 9. This Agreement shall bind and shall inure to the benefit of the respective parties and their assigns, transferees and successors. 10. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine (regardless of the laws that might otherwise govern under applicable Maine principles of conflicts of laws). 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this instrument under seal as of the date first above written. BANGOR HYDRO-ELECTRIC COMPANY By: ___________________________ Name: Robert S. Briggs Title: President PENOBSCOT HYDRO CO., INC. By: ___________________________ Name: Robert S. Briggs Title: Vice President PENOBSCOT HYDRO, LLC By: ___________________________ Name: Paul T. Champagne Title: President EX-10 4 EXH 10B-33 AGREEMENT AMENDING NEW ENG POWER POOL A Exhibit 10(b) THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT THIS THIRTY-THIRD AGREEMENT, dated as of the 1st day of December, 1996, is entered into by the signatory Participants for the amendment and restatement by them of the New England Power Pool Agreement dated as of September, 1, 1971 (the "NEPOOL Agreement"), as previously amended by thirty (30) amendments, the most recent of which was dated as of September 1, 1995. WHEREAS, the signatory Participants propose to restate the NEPOOL Agreement to provide for a restructured New England Power Pool and to include as part of such restated pool agreement a NEPOOL Open Access Transmission Tariff (the "Tariff"); NOW THEREFORE, the signatory Participants hereby agree as follows: SECTION I AMENDMENT AND RESTATEMENT OF NEPOOL AGREEMENT The NEPOOL Agreement as in effect on December 1, 1996 (the "Prior NEPOOL Agreement") is amended and restated, as of the effective dates provided in Section II, to read as provided in Exhibit A hereto (the "Restated NEPOOL Agreement"). SECTION II EFFECTIVENESS OF THE THIRTY-THIRD AGREEMENT This Thirty-Third Agreement, and the amendment and restatement provided for above, shall become effective as follows: (1) Parts One, Two, Four and Five, of the Restated NEPOOL Agreement and all of the provisions of the Tariff shall become effective, and Sections 1 to 8, inclusive, 10, 11, 13, 14.2, 14.3, 14.4 and 16 of the Prior NEPOOL Agreement shall cease to be in effect, on March 1, 1997 or on such other date as the Federal Energy Regulatory Commission ("Commission") shall provide that such portion of the Restated NEPOOL Agreement shall become effective (the "First Effective Date"); and (2) the remaining portions of the Restated NEPOOL Agreement shall become effective, and Sections 9, 12, 14.1, 14.5, 14.6, 14.7, 14.8 and 15 of the Prior NEPOOL Agreement together with the related exhibits and supplements to the Prior NEPOOL Agreement shall cease to be in effect, on July 1, 1997 or such other date on or before January 1, 1998 as the NEPOOL Management Committee may fix, after it has determined that the necessary detailed criteria, rules and standards and computer programs to implement such remaining portions of the Restated NEPOOL Agreement are in place, or on such other date or dates as the Federal Energy Regulatory Commission may fix, on its own or pursuant to the request of the Management Committee, (the "Second Effective Date"). SECTION III INTENT OF AGREEMENT This Thirty-Third Agreement is intended by the signatories hereto to effect a comprehensive amendment and restatement of the NEPOOL Agreement and to provide a regional open access transmission arrangement in accordance with the Restated NEPOOL Agreement and the Tariff, which is Attachment B to the Restated NEPOOL Agreement. Subject to the understandings expressed in the balance of this Section and in Section IV, the signatories agree to support the acceptance of the Thirty-Third Agreement by the Commission. Subject to the understandings expressed in Section IV of this Agreement, in entering into this Thirty-Third Agreement the signatories expressly condition their commitment on acceptance of this Thirty-Third Agreement, including the Restated NEPOOL Agreement and the Tariff, by the Commission and any other regulatory body having jurisdiction without significant conditions or modifications. If significant conditions are imposed or significant modifications are required, the signatories reserve the right to renegotiate the Thirty-Third Agreement as a whole or to terminate it. SECTION IV ALTERNATIVE AMENDMENTS The signatories have been unable to reach final agreement on two aspects of the transmission arrangements for a restructured NEPOOL which would be in effect after the five-year Transition Period provided for in the Tariff, as follows: (a) the continued treatment of "grandfathered contracts" as Excepted Transactions; and (b) the continuance and treatment of Participant Regional Network Service rates which differ from an average Regional Network Service rate. It is agreed that any Participant which signs this Agreement shall be entitled to take any position before the Commission that it deems best with respect to either of these two aspects of the transmission arrangements. However, Participants signing this Agreement are requested to consider the proposed treatment of these aspects of the transmission arrangements in the following Alternate A and Alternate B and to indicate, if they are willing, in the optional supplemental agreement on the signature page to this Agreement their position on these alternates. The alternates are as follows: Alternate A is as follows: 1. The introductory portion of paragraph (3) of Section 25 of the Tariff shall be amended to read as follows: (3) for the period from the effective date of the Tariff until the termination of the transmission agreement or the end of the Transition Period, whichever occurs first: 2. The description of the "Participant RNS Rate" in Schedule 9 to the Tariff shall be amended by modifying the proviso at the end of the second sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be less than 70% of the pre-1997 Pool PTF Rate until the end of Year Five, and thereafter shall be equal to the pre-1997 Pool PTF Rate for Year Six and thereafter. and by amending the proviso at the end of the third sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be greater than 130% of the pre-1997 Pool PTF Rate until the end of Year Five, and thereafter shall be equal to the pre-1997 Pool PTF Rate for Year Six and thereafter. Alternate B is as follows: 1. The introductory portion of paragraph (3) of Section 25 of the Tariff shall be amended to read as follows: (3) for the period from the effective date of this Tariff until the termination of the transmission agreement: 2. The description of the "Participant RNS Rate"in Schedule 9 to the Tariff shall be amended by modifying the proviso at the end of the second sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be less than 70% of the pre-1997 Pool PTF Rate until the end of Year Five, and thereafter shall be no less than 50% of the pre-1997 Pool PTF Rate for Year Six through Year Ten, and shall be equal to the pre-1997 Pool PTF Rate for Year Eleven and thereafter. and by amending the proviso at the end of the third sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be greater than 130% of the pre-1997 Pool PTF Rate until the end of Year Five and thereafter shall be no greater than 127% of the pre-1997 Pool PTF Rate for Year Six, 123% of the pre-1997 Pool PTF Rate for Year Seven, 118% of the pre-1997 Pool PTF Rate for Year Eight, 112% of the pre-1997 Pool PTF Rate for Year Nine, 105% of the pre-1997 Pool PTF Rate for Year Ten, and shall be equal to the pre-1997 Pool PTF Rate for Year Eleven and thereafter. SECTION V USAGE OF DEFINED TERMS The usage in this Thirty-Third Agreement of terms which are defined in the Prior NEPOOL Agreement shall be deemed to be in accordance with the definitions thereof in the Prior NEPOOL Agreement. SECTION VI COUNTERPARTS This Thirty-Third Agreement may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument and as if all the parties to all the counterparts had signed the same instrument. Any signature page of this Thirty-Third Agreement may be detached from any counterpart of this Thirty- Third Agreement without impairing the legal effect of any signatures thereof, and may be attached to another counterpart of this Thirty-Third Agreement identical in form thereto but having attached to it one or more signature pages. IN WITNESS WHEREOF, each of the signatories has caused a counterpart signature page to be executed by its duly authorized representative, as of the 1st day of December, 1996. COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Boston Edison Company (Participant) By: Name: Title: Address: 800 Boylston Street Boston, MA 02199-8001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Boston Edison Company (Participant) By: Name: Title: Address: 800 Boylston Street Boston, MA 02199-8001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Boylston Municipal Light Department (Participant) By: Name: Title: Address: Paul X. Tivnan Road Boylston, MA 01505-0753 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Boylston Municipal Light Department (Participant) By: Name: Title: Address: Paul X. Tivnan Road Boylston, MA 01505-0753 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Central Maine Power Company (Participant) By: Name: Title: Address: 83 Edison Drive Augusta, ME 04336-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Central Maine Power Company (Participant) By: Name: Title: Address: 83 Edison Drive Augusta, ME 04336-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Central Vermont Public Service Corporation (Participant) By: Name: Title: Address: 77 Grove Street Rutland, VT 05701-3400 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Central Vermont Public Service Corporation (Participant) By: Name: Title: Address: 77 Grove Street Rutland, VT 05701-3400 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Chicopee Municipal Lighting Plant (Participant) By: Name: Title: Address: 725 Front Street Chicopee, MA 01021-0405 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Chicopee Municipal Lighting Plant (Participant) By: Name: Title: Address: 725 Front Street Chicopee, MA 01021-0405 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Connecticut Municipal Electric Energy Cooperative (Participant) By: Name: Title: Address: 30 Stott Avenue Norwich, CT 06360-1535 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Connecticut Municipal Electric Energy Cooperative (Participant) By: Name: Title: Address: 30 Stott Avenue Norwich, CT 06360-1535 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Fitchburg Gas and Electric Light Company (Participant) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03842-1720 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Fitchburg Gas and Electric Light Company (Participant) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03842-1720 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hingham Municipal Lighting Plant (Participant) By: Name: Title: Address: 19 Elm Street Hingham, MA 02043-2518 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hingham Municipal Lighting Plant (Participant) By: Name: Title: Address: 19 Elm Street Hingham, MA 02043-2518 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. New Hampshire Electric Cooperative, Inc. (Participant) By: Name: Title: Address: RFD 4, Box 2100 Tenney Mountain Highway Plymouth, NH 03264-9420 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. New Hampshire Electric Cooperative, Inc. (Participant) By: Name: Title: Address: RFD 4, Box 2100 Tenney Mountain Highway Plymouth, NH 03264-9420 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Paxton Municipal Light Department (Participant) By: Name: Title: Address: 578 Pleasant Street Paxton, MA 01612-1365 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Paxton Municipal Light Department (Participant) By: Name: Title: Address: 578 Pleasant Street Paxton, MA 01612-1365 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. The Narragansett Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. The Narragansett Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. The United Illuminating Company (Participant) By: Name: Title: Address: 157 Church Street New Haven, CT 06506-0901 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. The United Illuminating Company (Participant) By: Name: Title: Address: 157 Church Street New Haven, CT 06506-0901 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Bangor Hydro-Electric Company (Participant) By: Name: Title: Address: 33 State Street Bangor, ME 04402-0932 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Bangor Hydro-Electric Company (Participant) By: Name: Title: Address: 33 State Street Bangor, ME 04402-0932 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. EASTERN UTILITIES ASSOCIATES COMPANIES Blackstone Valley Electric Company Eastern Edison Company Montaup Electric Company Newport Electric Company (Participants) By: Name: Title: Address: 750 West Center Street West Bridgewater, MA 02379-0543 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. EASTERN UTILITIES ASSOCIATES COMPANIES Blackstone Valley Electric Company Eastern Edison Company Montaup Electric Company Newport Electric Company (Participants) By: Name: Title: Address: 750 West Center Street West Bridgewater, MA 02379-0543 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. NEW ENGLAND ELECTRIC SYSTEM OPERATING COMPANIES Granite State Electric Company Massachusetts Electric Company New England Power Company (Participants) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. NEW ENGLAND ELECTRIC SYSTEM OPERATING COMPANIES Granite State Electric Company Massachusetts Electric Company New England Power Company (Participants) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. NORTHEAST UTILITIES SYSTEM COMPANIES The Connecticut Light and Power Company Holyoke Power and Electric Company Holyoke Water Power Company Public Service Company of New Hampshire Western Massachusetts Electric Company (Participants) By: Name: Title: Address: 107 Selden Street Berlin, CT 06037-1616 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. NORTHEAST UTILITIES SYSTEM COMPANIES The Connecticut Light and Power Company Holyoke Power and Electric Company Holyoke Water Power Company Public Service Company of New Hampshire Western Massachusetts Electric Company (Participants) By: Name: Title: Address: 107 Selden Street Berlin, CT 06037-1616 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. VERMONT UTILITIES Barton Village, Inc. City of Burlington Electric Department Central Vermont Public Service Company Citizens Utilities Company Green Mountain Power Corporation Rochester Electric Light & Power Company Town of Readsboro Electric Light Department Vermont Electric Cooperative, Inc. Vermont Electric Generation & Transmission Cooperative, Inc. Vermont Electric Power Company, Inc. Vermont Marble Company Vermont Public Power Supply Authority Village of Enosburg Falls Water & Light Department Village of Hardwick Electric Department Village of Hyde Park, Inc. Village of Jacksonville Village of Johnson Electric Light Department Village of Ludlow Electric Light Department Village of Lyndonville Electric Department Village of Morrisville Water & Light Department Village of Northfield Electric Department Village of Orleans Electric Department Village of Stowe Water & Light Department Village of Swanton Washington Electric Cooperative, Inc. (Participants) By: Vermont Electric Power Company, Inc. By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. VERMONT UTILITIES Barton Village, Inc. City of Burlington Electric Department Central Vermont Public Service Company Citizens Utilities Company Green Mountain Power Corporation Rochester Electric Light & Power Company Town of Readsboro Electric Light Department Vermont Electric Cooperative, Inc. Village of Hyde Park, Inc. Village of Jacksonville Village of Johnson Electric Light Department Village of Ludlow Electric Light Department Village of Lyndonville Electric Department Village of Morrisville Water & Light Department Village of Northfield Electric Department Village of Orleans Electric Department Village of Stowe Water & Light Department Village of Swanton Washington Electric Cooperative, Inc. (Participants) By: Vermont Electric Power Company, Inc. By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. UNITIL CORPORATION PARTICIPANT COMPANIES Concord Electric Company Exeter & Hampton Electric Company UNITIL Power Corp. (Participants) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03833-4547 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. UNITIL CORPORATION PARTICIPANT COMPANIES Concord Electric Company Exeter & Hampton Electric Company UNITIL Power Corp. (Participants) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03833-4547 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. COMMONWEALTH ENERGY SYSTEM COMPANIES Cambridge Electric Light Company Canal Electric Company Commonwealth Electric Company (Participants) By: Name: Title: Address: 2421 Cranberry Highway Wareham, MA 02571-1002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. COMMONWEALTH ENERGY SYSTEM COMPANIES Cambridge Electric Light Company Canal Electric Company Commonwealth Electric Company (Participants) By: Name: Title: Address: 2421 Cranberry Highway Wareham, MA 92571-1002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Granite State Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Granite State Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Massachusetts Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Massachusetts Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Massachusetts Municipal Wholesale Electric Company (Participant) By: Name: Title: Address: Moody Street Ludlow, MA 01056-0426 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Massachusetts Municipal Wholesale Electric Company (Participant) By: Name: Title: Address: Moody Street Ludlow, MA 01056-0426 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Vermont Electric Power Company, Inc. (Participant) By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Vermont Electric Power Company, Inc. (Participant) By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. New England Power Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. New England Power Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. AGF, Inc. (Participant) By: Name: Title: Address: 816 Elm Street Manchester, NH 03101 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. AGF, Inc. (Participant) By: Name: Title: Address: 816 Elm Street Manchester, NH 03101 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. AIG Trading Corporation (Participant) By: Name: Title: Address: One Greenwich Plaza Greenwich, CT 06830 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. AIG Trading Corporation (Participant) By: Name: Title: Address: One Greenwich Plaza Greenwich, CT 06830 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Alternate Power Source, Inc. (Participant) By: Name: Title: Address: 200 Clarendon Street Boston, MA 02116 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Alternate Power Source, Inc. (Participant) By: Name: Title: Address: 200 Clarendon Street Boston, MA 02116 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. ANP Energy Direct Company (Participant) By: Name: Title: Address: 108 National Street Milford, MA 01757 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. ANP Energy Direct Company (Participant) By: Name: Title: Address: 108 National Street Milford, MA 01757 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Aquila Power Corporation (Participant) By: Name: Title: Address: 10700 East 350 Highway Kansas City, MO 64138 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Aquila Power Corporation (Participant) By: Name: Title: Address: 10700 East 350 Highway Kansas City, MO 64138 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Ashburnham Municipal Light Plant (Participant) By: Name: Title: Address: 86 Central Street Ashburnham, MA 01430-0823 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Ashburnham Municipal Light Plant (Participant) By: Name: Title: Address: 86 Central Street Ashburnham, MA 01430-0823 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Belmont Municipal Light Department (Participant) By: Name: Title: Address: 450 Concord Avenue Belmont, MA 02178-0907 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Belmont Municipal Light Department (Participant) By: Name: Title: Address: 450 Concord Avenue Belmont, MA 02178-0907 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Berkshire Power Development, Inc. (Participant) By: Name: Title: Address: 50 Rowes Wharf, Suite 400 Boston, MA 02110 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Berkshire Power Development, Inc. (Participant) By: Name: Title: Address: 50 Rowes Wharf, Suite 400 Boston, MA 02110 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Cincinnati Gas & Electric Company (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45201 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Cincinnati Gas & Electric Company (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45201 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Citizens Lehman Power Sales (Participant) By: Name: Title: Address: 530 Atlantic Avenue Boston, MA 02110 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Citizens Lehman Power Sales (Participant) By: Name: Title: Address: 530 Atlantic Avenue Boston, MA 02110 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. CNG Power Services Corporation (Participant) By: Name: Title: Address: One Park Ridge Center Pittsburgh, PA 15244-0746 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. CNG Power Services Corporation (Participant) By: Name: Title: Address: One Park Ridge Center Pittsburgh, PA 15244-0746 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Concord Municipal Light Plant (Participant) By: Name: Title: Address: 135 Keyes Road Concord, MA 01742-1601 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Concord Municipal Light Plant (Participant) By: Name: Title: Address: 135 Keyes Road Concord, MA 01742-1601 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Danvers Electric Department (Participant) By: Name: Title: Address: 2 Burroughs Street Danvers, MA 01923-2702 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Danvers Electric Department (Participant) By: Name: Title: Address: 2 Burroughs Street Danvers, MA 01923-2702 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Duke/Louis Dreyfus Energy Services (New England) L.L.C. (Participant) By: Name: Title: Address: 10 Westport Road Wilton, CT 06897 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Duke/Louis Dreyfus Energy Services (New England) L.L.C. (Participant) By: Name: Title: Address: 10 Westport Road Wilton, CT 06897 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Eastern Power Distribution, Inc. (Participant) By: Name: Title: Address: 2900 Eisenhower Avenue Suite 300 Alexandria, VA 22314 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Eastern Power Distribution, Inc. (Participant) By: Name: Title: Address: 2900 Eisenhower Avenue Suite 300 Alexandria, VA 22314 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Electric Clearinghouse, Inc. (Participant) By: Name: Title: Address: 13430 Northwest Freeway Suite 1200 Houston, TX 77040-6095 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Electric Clearinghouse, Inc. (Participant) By: Name: Title: Address: 13430 Northwest Freeway Suite 1200 Houston, TX 77040-6095 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Energy Choice, L.L.C. (Participant) By: Name: Title: Address: 6000 Ocean Boulevard Ocean Ridge, FL 33435 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Energy Choice, L.L.C. (Participant) By: Name: Title: Address: 6000 Ocean Boulevard Ocean Ridge, FL 33435 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Enron Capital & Trade Resources (Participant) By: Name: Title: Address: 1400 Smith Street Houston, TX 77002-7361 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Enron Capital & Trade Resources (Participant) By: Name: Title: Address: 1400 Smith Street Houston, TX 77002-7361 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Federal Energy Sales, Inc. (Participant) By: Name: Title: Address: 3222 North Ridge Road Elyria, OH 44035 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Federal Energy Sales, Inc. (Participant) By: Name: Title: Address: 3222 North Ridge Road Elyria, OH 44035 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Georgetown Municipal Light Department (Participant) By: Name: Title: Address: Moulton & West Main Streets Georgetown, MA 01833 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Georgetown Municipal Light Department (Participant) By: Name: Title: Address: Moulton & West Main Streets Georgetown, MA 01833 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Global Petroleum Corporation (Participant) By: Name: Title: Address: 800 South Street Waltham, MA 02154 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Global Petroleum Corporation (Participant) By: Name: Title: Address: 800 South Street Waltham, MA 02154 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Great Bay Power Corporation (Participant) By: Name: Title: Address: 20 Ladd Street, Suite 202 Portsmouth, NH 03801-4080 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Great Bay Power Corporation (Participant) By: Name: Title: Address: 20 Ladd Street, Suite 202 Portsmouth, NH 03801-4080 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Groton Electric Light Department (Participant) By: Name: Title: Address: 23 Station Avenue Groton, MA 01450 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Groton Electric Light Department (Participant) By: Name: Title: Address: 23 Station Avenue Groton, MA 01450 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Holden Municipal Light Department (Participant) By: Name: Title: Address: Reservoir Street Holden, MA 01520 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Holden Municipal Light Department (Participant) By: Name: Title: Address: Reservoir Street Holden, MA 01520 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Holyoke Gas and Electric Department (Participant) By: Name: Title: Address: 70 Suffolk Street Holyoke, MA 01040 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Holyoke Gas and Electric Department (Participant) By: Name: Title: Address: 70 Suffolk Street Holyoke, MA 01040 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Houlton Water Company (Participant) By: Name: Title: Address: 21 Bangor Street Houlton, ME 04730 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Houlton Water Company (Participant) By: Name: Title: Address: 21 Bangor Street Houlton, ME 04730 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hudson Light and Power Department (Participant) By: Name: Title: Address: 49 Forest Avenue Hudson, MA 01749 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hudson Light and Power Department (Participant) By: Name: Title: Address: 49 Forest Avenue Hudson, MA 01749 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hull Municipal Lighting Plant (Participant) By: Name: Title: Address: 15 Edgewater Road Hull, MA 02045-2714 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hull Municipal Lighting Plant (Participant) By: Name: Title: Address: 15 Edgewater Road Hull, MA 02045-2714 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Indeck-Pepperell Power Associates, Inc. (Participant) By: Name: Title: Address: 212 Carnegie Center, Suite 206 Princeton, NJ 08540 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Indeck-Pepperell Power Associates, Inc. (Participant) By: Name: Title: Address: 212 Carnegie Center, Suite 206 Princeton, NJ 08540 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Ipswich Municipal Light Department (Participant) By: Name: Title: Address: 272 High Street Ipswich, MA 01938-0151 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Ipswich Municipal Light Department (Participant) By: Name: Title: Address: 272 High Street Ipswich, MA 01938-0151 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. KCS Power Marketing, Inc. (Participant) By: Name: Title: Address: 379 Thornall Street Edison, NJ 08837 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. KCS Power Marketing, Inc. (Participant) By: Name: Title: Address: 379 Thornall Street Edison, NJ 08837 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. KOCH Power Services, Inc. (Participant) By: Name: Title: Address: 600 Travis Street Houston, TX 77002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. KOCH Power Services, Inc. (Participant) By: Name: Title: Address: 600 Travis Street Houston, TX 77002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. LG&E Power Marketing Inc. (Participant) By: Name: Title: Address: 12500 Fair Lakes Circle, Ste #350 Fairfax, Virginia 22033 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. LG&E Power Marketing Inc. (Participant) By: Name: Title: Address: 12500 Fair Lakes Circle, Ste #350 Fairfax, Virginia 22033 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Littleton Electric Light & Water Department (Participant) By: Name: Title: Address: 39 Ayer Road Litteton, MA 01460-3406 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Littleton Electric Light & Water Department (Participant) By: Name: Title: Address: 39 Ayer Road Littleton, MA 01460-3406 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Mansfield Municipal Electric Department (Participant) By: Name: Title: Address: 50 West Street Mansfield, MA 02048-2404 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Mansfield Municipal Electric Department (Participant) By: Name: Title: Address: 50 West Street Mansfield, MA 02048-2404 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Marblehead Municipal Light Department (Participant) By: Name: Title: Address: 80 Commercial Street Marblehead, MA 01945-0369 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Marblehead Municipal Light Department (Participant) By: Name: Title: Address: 80 Commercial Street Marblehead, MA 01945-0369 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Merrimac Municipal Light Department (Participant) By: Name: Title: Address: 2 School Street Merrimac, MA 01860-1915 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Merrimac Municipal Light Department (Participant) By: Name: Title: Address: 2 School Street Merrimac, MA 01860-1915 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Middleborough Gas and Electric Department (Participant) By: Name: Title: Address: 32 South Main Street Middleborough, MA 02346 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Middleborough Gas and Electric Department (Participant) By: Name: Title: Address: 32 South Main Street Middleborough, MA 02346 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Middleton Municipal Electric Department (Participant) By: Name: Title: Address: 197 North Main Street Middleton, MA 01949-0168 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Middleton Municipal Electric Department (Participant) By: Name: Title: Address: 197 North Main Street Middleton, MA 01949-0168 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Milford Power Limited Partnership (Participant) By: Name: Title: Address: c/o ENRON Capitol & Trade 1400 Smith Street, Suite 2834 Houston, TX 77002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Milford Power Limited Partnership (Participant) By: Name: Title: Address: c/o ENRON Capitol & Trade 1400 Smith Street, Suite 2834 Houston, TX 77002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Morgan Stanley & Co., Inc. (Participant) By: Name: Title: Address: 1585 Broadway New York, NY 10036 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Morgan Stanley & Co., Inc. (Participant) By: Name: Title: Address: 1585 Broadway New York, NY 10036 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Multi-Energies USA, Inc. (Participant) By: Name: Title: Address: c/o KPMG 2000 McGill College Avenue Suite 1000 Montreal, Quebec H3A3N4 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Multi-Energies USA, Inc. (Participant) By: Name: Title: Address: c/o KPMG 2000 McGill College Avenue Suite 1000 Montreal, Quebec H3A3N4 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Natural Resources Group (Participant) By: Name: Title: Address: 111 Broadway New York, NY 10006 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Natural Resources Group (Participant) By: Name: Title: Address: 111 Broadway New York, NY 10006 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. North American Energy Conservation Inc. (Participant) By: Name: Title: Address: 280 Park Avenue Suite 2700 West New York, NY 10017 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. North American Energy Conservation Inc. (Participant) By: Name: Title: Address: 280 Park Avenue Suite 2700 West New York, NY 10017 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. North Attleborough Electric Department (Participant) By: Name: Title: Address: 275 Landry Avenue North Attleborough, MA 02761-0790 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. North Attleborough Electric Department (Participant) By: Name: Title: Address: 275 Landry Avenue North Attleborough, MA 02761-0790 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Norwood Municipal Light Department (Participant) By: Name: Title: Address: 206 Central Street Norwood, MA 02062-3567 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Norwood Municipal Light Department (Participant) By: Name: Title: Address: 206 Central Street Norwood, MA 02062-3567 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PacifiCorp Power Marketing, Inc. (Participant) By: Name: Title: Address: 70 West Red Oak Lane White Plains, NY 10604-3602 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PacifiCorp Power Marketing, Inc. (Participant) By: Name: Title: Address: 70 West Red Oak Lane White Plains, NY 10604-3602 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PanEnergy Power Services, Inc. (Participant) By: Name: Title: Address: 5400 Westheimer Court Houston, TX 77056 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PanEnergy Power Services, Inc. (Participant) By: Name: Title: Address: 5400 Westheimer Court Houston, TX 77056 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Pascoag Fire District - Electric Department (Participant) By: Name: Title: Address: 55 South Main Street Pascoag, RI 02859-0107 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Pascoag Fire District - Electric Department (Participant) By: Name: Title: Address: 55 South Main Street Pascoag, RI 02859-0107 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Peabody Municipal Light Plant (Participant) By: Name: Title: Address: 70 Endicott Street Peabody, MA 01960-4208 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Peabody Municipal Light Plant (Participant) By: Name: Title: Address: 70 Endicott Street Peabody, MA 01960-4208 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Phibro Inc. (Participant) By: Name: Title: Address: 500 Nyala Farms Westport, CT 06880-6262 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Philbro, Inc. (Participant) By: Name: Title: Address: 500 Nyala Farms Westport, CT 06880-6262 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Plum Street Enterprises, Inc. (Participant) By: Name: Title: Address: P.O. Box 5001 Syracuse, NY 13250-5001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, theosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. North Attleborough Electric Department (Participant) By: Name: Title: Address: 275 Landry Avenue North Attleborough, MA 02761-0790 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Norwood Municipal Light Department (Participant) By: Name: Title: Address: 206 Central Street EX-10 5 EXC 10-C EXECUTIVE AGREEMENT Exhibit 10(c) EXECUTIVE AGREEMENT AGREEMENT made effective as of the ____ day of December, 1999 between BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation (the "Company"), and __________________ (the "Executive"). WHEREAS, the Executive is presently employed by the Company as __________________________; and WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company has been substantial, and the Board desires to reinforce and encourage the continued attention and dedication to the Company of the Executive as a member of the Company's management, in the best interests of the Company and its shareholders; and WHEREAS, in order to effect the foregoing, the Company and the Executive wish to enter into an agreement setting forth the severance compensation which will be provided if the Executive's employment terminates under certain circumstances subsequent to a "change of control of the Company," as hereinafter defined; and WHEREAS, the Company and the Executive are parties to an existing executive agreement which the parties intend to replace in its entirety with this Agreement; NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Position and Duties The Executive shall have such responsibilities and authority as may from time-to-time be assigned to the Executive by the Board or the President of the Company. 2. Termination The Executive's employment hereunder may be terminated at any time by the Company or Executive without any breach of this Agreement. Any termination by the Company or the Executive shall be communicated by a written notice to the other party, and for purposes of this agreement, the "date of termination" shall be the date specified in the notice of termination. 3. Change of Control For purposes of this Agreement, a "change in control of the Company" shall mean (i) approval by the stockholders of the Company of a reorganization, merger, consolidation (in each case with respect to which such stockholders do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company's then-outstanding voting securities) or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company; (ii) the occasion upon which any "person" (as such term is sued in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any person who on the date hereof is a director or office of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, or (iii) the occasion upon which, during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. 4. Willful Misconduct For purposes of this agreement, "willful misconduct" shall mean only fraud, theft, or embezzlement on the part of the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for willful misconduct unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose after reasonable notice to the Executive and opportunity for the Executive, together with Executive's counsel, to be heard before the Board, finding that in the good faith opinion of the Board the Executive was guilty of the willful misconduct as defined in this Agreement, and specifying the particulars thereof in detail. 5. Termination Following Change in Control (a) In the event that, within one year following a change in control of the Company, the Executive's employment with the Company terminates, voluntarily (including by early retirement pursuant to the provisions of the Company's qualified defined benefit pension plan or any supplemental benefit plan maintained by the Company applicable to the Executive) or involuntarily, other than by reason of Executive's death, disability as defined in the Company's disability plan, willful misconduct as defined herein, or retirement (other than early retirement) under the Company's qualified defined benefit pension plan, the Company shall pay as severance pay to the Executive, an amount equal to two (2) times the average of the aggregate annual compensation paid to the Executive by the Company during the three calendar years preceding the date of termination. For this purpose, "aggregate annual compensation" shall mean the Executive's base salary plus any bonuses earned for the year in question pursuant to Company short-term or long-term bonus incentive programs. In addition, for two (2) years after the date of termination, the Company will maintain for the Executive's benefit the same or substantially equivalent health, disability and life insurance coverage as were applicable to the Executive and his eligible dependents prior to the date of termination. Following such two (2) year period, the Company shall provide to the Executive and his eligible dependents the retiree group health insurance coverage that is otherwise available to retirees of the Company, at a cost to the Executive at the time coverage is provided that is no greater than the cost to a retiree at that time with the same years of service as the Executive; provided, however, that if the Executive was not eligible for early retirement under the Company's qualified defined benefit pension plan at the time of his termination of employment, such retiree coverage shall not commence until the later of the Executive's attainment of age 55 or two (2) years after his date of termination. (b) The severance payment shall be made in a lump sum payment within thirty (30) days following the date of termination, unless the Executive has, at least twelve (12) months prior to the Date of Termination, elected to receive the payment in installments. Such election shall be in writing, addressed to the Company in the manner provided for the giving of notice pursuant to this Agreement. If the Executive has elected to receive the payment in installments, such payment shall be made in two equal installments, with the first installment payable within thirty (30) days following the date of termination. All payments shall be subject to applicable deduction of federal and state taxes. (c) The Executive's benefits under this section shall be considered severance pay in consideration of his past service and in consideration of his continued service from the date of this Agreement. The Executive shall not be required to mitigate the amount of any payment provided herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided herein be reduced by any compensation earned by the Executive as the result of other employment after the date of termination, or otherwise. (d) Executive's participation in any terminating distributions and vested rights under any applicable Company pension plan, profit sharing plan, life insurance or stock option plan shall be determined as of the date of termination and shall be in addition to the rights hereunder and shall be governed by the terms of those respective plans. Except as may be provided in any such plan, the arrangements provided by this Agreement shall constitute full settlement and satisfaction of any claim the Executive might otherwise have against the Company or account of termination of his employment. 6. Additional Payments By the Company (a) Anything to the contrary in this Agreement notwithstanding, if any payment by the Company to or for the benefit of the Executive (whether paid or payable pursuant to this Agreement or otherwise, and determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, including whether and when a Gross- Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by one of the major internationally recognized certified public accounting firms designated by the Executive and approved by the Company (which approval shall not be unreasonably withheld) (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of the claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. (e) If in connection with a change in control of the Company the Company has established an irrevocable "rabbi trust" for the purpose of funding the benefits provided under a supplemental benefit agreement with the Executive, and subsequently the amounts deposited and held in such trust are determined by the Internal Revenue Service to be retroactively taxable to the Executive without regard to whether any distributions to the Executive or his spouse have occurred, then any interest and penalties, but not income taxes, incurred by the Executive as a result of such retroactive determination shall be considered an "Excise Tax" for purposes of this Section 6 and the Executive shall be entitled to receive a Gross-Up Payment with respect to such amounts subject to compliance with the requirements of this Section 6. 7. Successors: Binding Agreement (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment following a change in control of the Company, except that for purposes of implementing the foregoing, the date as of which any such succession becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as heretofore defined and any successor to its business and/or assets which expressly assumes this Agreement as required by this Section 7 or which otherwise become bound by all of the terms and provisions of this Agreement by operation of laws. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there is no such designee, to the Executive's estate. 8. Notice For the purposes of this Agreement, notices, demands and all other communication provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: ______________________ BANGOR HYDRO-ELECTRIC COMPANY 33 State Street Bangor, ME 04402-0932 If to the Company: BANGOR HYDRO-ELECTRIC COMPANY Attention: General Counsel 33 State Street Bangor, ME 04402-0932 or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of addresses shall be effective only upon receipt. 9. Miscellaneous No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and either a more senior executive officer of the Company or by the Chairman of the Compensation Committee of the Company's Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall not supersede or in any way limit any rights, duties, or obligations the Executive may have under any Company employee benefit plan or any other written agreement with the Company, other than the previous executive agreement between the Company and the Executive which is hereby replaced and superceded in its entirety by this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maine. 10. Validity The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Arbitration Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, in Maine, in accordance with the rules of the American Arbitration Association then in effect. Judgement may be entered on the arbitrator's award in any court having jurisdiction. The expense of such arbitration shall be borne by the Company IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. BANGOR HYDRO-ELECTRIC COMPANY By _____________________, Chairman of the Compensation Committee of the Board of Directors Name EX-10 6 EXCH 10-D SUPPLEMENTAL BENEFIT AGREEMENT Exhibit 10(d) SUPPLEMENTAL BENEFIT AGREEMENT THIS AGREEMENT, made and entered into effective as of the 1st day of January, 1999, between Bangor Hydro-Electric Company (hereinafter referred to as the "Company"), a Corporation organized and existing under the laws of the State of Maine, and _____________ (hereinafter referred to as the "Executive"). WHEREAS, the Executive has been employed by the Company since _____________ in the capacity of __________________________________ and since ______ in other executive capacities; and WHEREAS, the Executive has performed the Executive's duties in a capable and efficient manner, resulting in substantial contributions to the growth and progress of the Company; and WHEREAS, the Company desires to continue to retain the services of the Executive, and realizes that if the Executive were to leave the Company it could suffer a substantial financial loss; and WHEREAS, the Executive is more likely to continue in the employ of the Company if the Company will agree to pay to the Executive or the Executive's designees certain benefits in accordance with the provisions and conditions hereinafter set forth; NOW, THEREFORE, for value received and in consideration of the mutual covenants contained herein, the parties covenant and agree as follows: ARTICLE 1 BENEFITS ON DEATH OR RETIREMENT A. If the termination of the Executive's employment with the Company first occurs on or after the Executive's 55th birthday, the Executive shall be entitled to receive from the Company an annual retirement benefit in an amount determined in accordance with this Paragraph A. 1. The Executive shall be entitled to an annual benefit payable for the remainder of his life with a survivor annuity payable to his spouse (if any) equal to fifty percent (50%) of the Executive's annual benefit. Subject to the offset described in subparagraph 2, below, the annual benefit payable during the Executive's life shall be equal to the following percentage of his Average Total Compensation, based on the Executive's age as of the date he terminates employment with the Company: Age at termination of employment Percentage of Average Total Compensation 55 50% 56 53% 57 57% 58 60% 59 64% 60 68% 61 72% 62 or older 75% 2. The annual benefit payable to the Executive during his life, determined in accordance with subparagraph 1, above, shall be reduced by the amount of the benefit payable to the Executive from the Company's qualified defined benefit pension plan. The amount of this reduction shall be determined as if the Executive were commencing his qualified plan benefit in the form of a single life annuity at the same time he is commencing his supplemental benefit under this Agreement. 3. For purposes of this Agreement, "Average Total Compensation" shall mean the average of the total annual compensation actually paid by the Company to the Executive during the three (3) consecutive calendar years in which the Executive's total compensation from the Company was the highest. For this purpose, "total compensation" shall mean the Executive's base salary plus any bonuses earned for the year in question pursuant to Company short-term or long-term bonus incentive programs. B. If the Executive is not married at the time his benefit is scheduled to commence under this Agreement, his benefit shall be paid in the form of a single life annuity. The annual benefit shall be the actuarial equivalent of the amount determined in accordance with Paragraph A. C. If the Executive is married at the time his benefit is scheduled to commence under this Agreement, his benefit shall be paid in the form of a joint and survivor annuity that is determined in accordance with Paragraph A. Such joint and survivor annuity shall provide for an annual benefit payable during the life of the Executive, with an annual benefit payable to his surviving spouse after the Executive's death equal to 50% of the annual benefit payable to the Executive. Notwithstanding the foregoing, the Executive shall be permitted to elect to receive his benefit in the form of a 100% joint and survivor annuity or a single life annuity (with no survivor benefit) that is the actuarial equivalent of the amount determined in accordance with Paragraph A. D. The annual benefit payable to the Executive or his surviving spouse under this Agreement shall be paid in twelve (12) equal monthly installments beginning on the first day of the first month following the date of termination of the Executive's employment, and on the first day of each month thereafter. E. The determination of any actuarial equivalent forms of benefit payment under this Agreement shall be made using the actuarial assumptions used for such purposes under the Company's qualified defined benefit pension plan at the time of such determination. F. If the termination of the Executive's employment with the Company first occurs before he has reached his 55th birthday, the Executive shall not be entitled to receive any benefits under this Agreement. Notwithstanding the foregoing, if a Change in Control of the Company has occurred prior to the Executive's termination of employment, the Executive shall have a fully vested and nonforfeitable right to receive the benefit under this Agreement commencing on or after his attainment of age 55, at the time and in the manner otherwise specified in this Agreement. Solely for purposes of calculating the amount of the Executive's annual benefit under subparagraph 1 of Paragraph A, if the Executive is less than 55 years of age at the time of his termination of employment following a Change in Control of the Company, the Executive shall be treated as having attained age 55 immediately prior to his termination of employment. For purposes of this Agreement, "Change in Control of the Company" shall mean the occurrence of one of the following events: 1. Approval by the stockholders of the Company of a reorganization, merger, consolidation (in each case with respect to which such stockholders do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company's then-outstanding voting securities) or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company; 2. Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any person who on the date hereof is a director or office of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or 3. During any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. G. If the Executive dies after his 55th birthday but while employed by the Company and while this Agreement is in effect, his surviving spouse (if any) shall receive an annual survivor annuity benefit equal to the annual benefit the spouse would have received had the Executive elected a 100% joint and survivor annuity form of benefit and retired on the day prior to his death. H. The Executive shall file with the Company, in writing on a form acceptable to the Company, a designation of his spouse for purposes of the survivor benefits described in Paragraph A, C and G, as well as any election of an optional form of benefit permitted by this Agreement. ARTICLE II TERMINATION OF THE AGREEMENT Notwithstanding anything in Article I to the contrary, this Agreement may be terminated, and in such event the Company shall have no further obligations under this Agreement, upon a majority vote of the Board of Directors of the Company if the Executive ceases to be employed by the Company in his present capacity. Absent such a vote by the Board of Directors, this Agreement shall remain in full force and effect so long as the Executive continues to be employed by the Company. Notwithstanding the foregoing, following the occurrence of a Change in Control of the Company (as defined in Paragraph F of Article I), this Agreement shall not be terminated without the express written consent of the Executive. ARTICLE III MISCELLANEOUS PROVISIONS A. This Agreement may be altered, amended or revoked by a written instrument signed by the Company and the Executive. This Agreement represents the entire Agreement of the parties, and supercedes all prior agreements of the parties, with respect to the subject matter hereof. B. This Agreement shall be governed by the laws of the State of Maine. C. It is agreed that neither the Executive nor the Executive's spouse shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder without the written consent of the Company. Such payments and the right thereto are expressly declared to be non-assignable and non-transferable. D. Except as provided in Paragraph A of this Article III, the benefits under this Agreement shall be independent of, and in addition to, any other agreement that may exist from time to time between the parties hereto, or any other compensation payable by the Company to the Executive, whether as salary, bonus or otherwise. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Company to discharge the Executive, or restrict the right of the Executive to terminate the Executive's employment. E. The rights of the Executive under this Agreement and of any spouse of the Executive shall be solely those of an unsecured creditor of the Company. Any insurance policy or any other asset acquired or held by the Company in connection with the liabilities assumed by it hereunder shall not be deemed to be held under any trust for the benefit of the Executive or the Executive's spouse or to be security for the performance of the obligations of the Company, but shall be, and remain, a general, unpledged, unrestricted asset of the Company. F. The benefits under this Agreement will be paid by the Company from its general assets. To cover all or part of its potential liabilities under the Plan, the Company may, but need not, purchase life insurance policies on the life of the Executive, but the Executive shall not have any preferred claim against the policies or any beneficial ownership in the policies under this Agreement. The Company makes no representation that it will use any life insurance policies acquired by it and insuring the life of the Executive only to provide benefits under this Agreement or that any such policies shall, in any way, represent security for the payment of the benefits provided for in this Agreement. The Executive's right to a benefit under this Agreement shall not, except as may be provided below, be limited or governed in any way by the amount of insurance proceeds received by the Company. G. The Executive agrees to take whatever actions may be necessary to enable the Company to timely apply for and acquire insurance on the life of the Executive and to fulfill the requirements of the insurance company relative to the issuance thereof. H. If the Executive is required by this Agreement to submit information to an insurance company and if the Executive has made a material misrepresentation in an application for any insurance that is used by the Company to cover any part of its liabilities to the Executive under this Agreement, and if as a result of that material misrepresentation the insurance company is not required to pay all or any part of the benefit provided under that insurance, the Executive's right to a benefit under this Agreement shall be reduced by the amount of the benefit that is not paid by the insurance company because of such material misrepresentation. I. Notwithstanding any provision in this Agreement to the contrary, prior to the effective time of any Change in Control of the Company (as defined in Paragraph F of Article I), the Company shall cause to be established an irrevocable "rabbi trust" for the purpose of funding the benefits provided under this Agreement. The trustee of such trust shall be a bank, trust company or other financial institution with experience in such matters. The trust shall comply with the requirements of the Internal Revenue Service for ensuring that the Executive and his spouse are not taxed on any amounts contributed to the trust until and to the extent they receive a distribution of benefits from such trust. Immediately prior to the effective time of the Change in Control of the Company, the Company shall contribute to the trust an amount of cash or other assets having a fair market value equal to the present value (determined on a lump sum actuarial equivalent basis) of the annual benefit payable to the Executive and his spouse under this Agreement. On or prior to the January 31st following each calendar year that ends after the Change in Control of the Company, the Company or its successor shall cause to be determined, as of December 31st for the year then ended, the fair market value of the trust assets and the present value (determined on a lump sum actuarial equivalent basis) of the annual benefit payable to the Executive and his spouse under this Agreement, and shall make such additional contributions to the trust as are necessary to cause the fair market value of the trust assets to equal or exceed such present value of the Executive's and his spouse's benefit. All asset valuations and present value determinations required by this Paragraph I shall be made by the independent actuarial or accounting firm that the Company uses to value its qualified defined benefit pension plan. The Company may elect to establish one "rabbi trust" to fund the benefits under this Agreement and similar agreements with other executive officers of the Company, in which case the funding obligations under this Paragraph I shall be determined on an aggregate basis for all such executives. J. The Company agrees that it will not merge or consolidate with any other corporation or organization, or permit its business activities to be taken over by any other organization, unless and until the succeeding or continuing corporation or other organization agrees to assume the rights and obligations of the Company herein set forth. The Company further agrees that it will not cease its business activities or terminate its existence without having made adequate provisions for the fulfilling of its obligations hereunder. IN WITNESS WHEREOF, the said Company has caused this Agreement to be signed in its corporate name by its duly authorized officer, and impressed with its corporate seal, and the said Executive has hereto set his hand, all as of the day and year first written above. BANGOR HYDRO-ELECTRIC COMPANY By: Its: -----END PRIVACY-ENHANCED MESSAGE-----