-----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, PXmKLbs3dcymBa1hxCr2zaztdO1kzAvfjqeR8ueZLU/6HxaYMcO92r8/8nNvEDXF 4EpXPunZrRrLW4i1qEZ29w== 0000009548-03-000008.txt : 20030509 0000009548-03-000008.hdr.sgml : 20030509 20030509085934 ACCESSION NUMBER: 0000009548-03-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030509 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10922 FILM NUMBER: 03689076 BUSINESS ADDRESS: STREET 1: 33 STATE ST CITY: BANGOR STATE: ME ZIP: 04401 BUSINESS PHONE: 2079455621 MAIL ADDRESS: STREET 1: 33 STATE STREET CITY: BANGOR STATE: ME ZIP: 04401 10-Q 1 q10q0303.txt BANGOR HYDRO-ELECTRIC COMPANY 10-Q 03/31/03 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2003 Commission File No. 1-10922 -------------- ------- BANGOR HYDRO-ELECTRIC COMPANY ----------------------------- (Exact Name of Registrant as specified in its Charter) Maine 01-0024370 ----- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 33 State Street, Bangor, Maine 04401 ------------------------------ ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code 207-945-5621 ------------ None ---- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Securities registered pursuant to Section 12(g) of the Act: Title of each class ------------------- 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 ____ ---- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 PAGE ---- Cover Page 1 Index 2 PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets - March 31, 2003 And December 31, 2002 4 Consolidated Statements of Capitalization 6 Consolidated Statements of Cash Flows 7 Consolidated Statements of Common Stock Investment 8 Notes to the Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Item 4. Controls and Procedures 26 PART II - OTHER INFORMATION - --------------------------- Item 5 - Other Information 27 Item 6 - Exhibits and Reports on Form 8-K 27 Signature Page 28 Certifications 29 BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME 000's Omitted Except Per Share Amounts (Unaudited) Three Months Ended Mar. 31, Mar. 31, 2003 2002 --------------------- Operating Revenues: Electric operating revenue $ 31,477 $ 29,532 Off-system sales 7,195 6,907 Standard offer service 2 12,206 --------------------- $ 38,674 $ 48,645 --------------------- Operating Expenses: Purchased power and fuel for generation $ 14,418 $ 11,233 Standard offer service purchased power - 11,890 Other operation and maintenance 7,612 9,715 Depreciation and amortization 2,499 2,676 Regulatory amortizations 2,029 3,649 Taxes - Local property and other 1,260 1,345 State and federal income 3,256 1,845 --------------------- $ 31,074 $ 42,353 --------------------- Operating Income $ 7,600 $ 6,292 Other Income: Allowance for equity funds used during construction $ 98 $ 114 Other, net of applicable income taxes 236 83 --------------------- Income Before Interest Expense $ 7,934 $ 6,489 --------------------- Interest Expense: Long-term debt $ 2,808 $ 3,378 Other 199 192 Allowance for borrowed funds used during construction (75) (109) --------------------- $ 2,932 $ 3,461 --------------------- Net Income $ 5,002 $ 3,028 Dividends On Preferred Stock 48 66 --------------------- Earnings Applicable To Common Stock $ 4,954 $ 2,962 ===================== Weighted Average Number of Shares Outstanding 7,363 7,363 ===================== Earnings Per Common Share $ .67 $ .40 ===================== Dividends Declared Per Common Share $ - $ - ===================== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 000's Omitted (Unaudited) Mar. 31, Dec. 31, Assets 2003 2002 ----------- ----------- Investment In Utility Plant: Electric plant in service, at original cost $ 334,379 $ 333,410 Less - Accumulated depreciation and amortization 99,725 97,473 ------------ ------------ $ 234,654 $ 235,937 Construction work in progress 6,082 5,934 ------------ ------------ $ 240,736 $ 241,871 Investments in corporate joint ventures: Maine Yankee Atomic Power Company $ 3,788 $ 4,034 Maine Electric Power Company, Inc. 1,049 1,004 ------------ ------------ $ 245,573 $ 246,909 ------------ ------------ Other Investments, at cost $ 3,560 $ 3,591 ------------ ------------ Funds held by trustee, at cost $ 21,537 $ 21,192 ------------ ------------ Current Assets: Cash and cash equivalents $ 827 $ 989 Accounts receivable, net of reserve of $1,206 for 2003 and $1,085 for 2002 21,113 21,027 Unbilled revenue receivable 8,534 8,319 Inventories, at average cost: Material and supplies 2,430 2,467 Fuel oil 73 45 Prepaid expenses 84 285 ------------ ------------ Total current assets $ 33,061 $ 33,132 ------------ ------------ Regulatory Assets and Deferred Charges: Goodwill-EMERA Acquisition $ 82,537 $ 82,537 Investment in Seabrook nuclear project 21,448 21,873 Costs to terminate/restructure purchased power contracts 67,795 72,676 Maine Yankee decommissioning costs 30,083 31,101 Above-market purchased power contract obligations - 63,341 Other regulatory assets 56,684 57,844 Other deferred charges 5,670 6,535 ------------ ------------ Total regulatory assets and deferred charges $ 264,217 $ 335,907 ------------ ------------ Total Assets $ 567,948 $ 640,731 ============ ============ See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 000's Omitted (Unaudited) Mar. 31, Dec. 31, 2003 2002 Stockholders' Investment and Liabilities ----------- ----------- Capitalization: Common stock investment $ 210,734 $ 206,266 Preferred stock 628 4,734 Long-term debt, net of current portion 117,613 118,059 ------------ ------------ Total capitalization $ 328,975 $ 329,059 ------------ ------------ Current Liabilities: Notes payable - banks $ 11,000 $ 16,000 ------------ ------------ Other current liabilities - Current portion of long-term debt $ 34,213 $ 34,137 Accounts payable 15,769 20,282 Dividends payable 33 66 Accrued interest 3,278 2,093 Customers' deposits 598 572 Current income taxes (refundable) payable 3,420 (355) ------------ ------------ Total other current liabilities $ 57,311 $ 56,795 ------------ ------------ Total current liabilities $ 68,311 $ 72,795 ------------ ------------ Regulatory and Other Long-term Liabilities: Deferred income taxes - Seabrook $ 11,119 $ 11,338 Other accumulated deferred income taxes 48,933 48,947 Maine Yankee decommissioning liability 30,083 31,101 Deferred gain on asset sale 7,631 9,889 Above-market purchased power contract obligations - 63,341 Other regulatory liabilities 9,244 11,265 Unamortized investment tax credits 1,162 1,186 Accrued pension and postretirement benefit costs 51,394 50,494 Other long-term liabilities 11,096 11,316 ------------ ------------ Total regulatory and other long-term liabilities $ 170,662 $ 238,877 ------------ ------------ Total Stockholders' Investment and Liabilities $ 567,948 $ 640,731 ============ ============ See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION 000's Omitted (Unaudited) Mar. 31, Dec. 31, 2003 2002 -------------------- Common Stock Investment Common stock, no par value, stated value $5 per share $ 36,817 $ 36,817 -Authorized--10,000,000 shares -Outstanding--7,363,424 shares Amounts paid in excess of par value 164,866 165,352 Accumulated other comprehensive loss (2,033) (2,033) Retained earnings 11,084 6,130 -------------------- Total common stock investment $ 210,734 $ 206,266 -------------------- Preferred Stock Non-participating, cumulative, par value $100 per share, authorized 600,000 shares, not redeemable or redeemable solely at the option of the issuer- 7%, Noncallable -Authorized - 25,000 shares -Outstanding - 6,277 shares in 2003 and 25,000 shares in 2002 $ 628 $ 2,500 4.25%, Callable at $100 -Authorized - 4,840 shares -Outstanding - 4,840 shares in 2002 - 484 4%, Series A, Callable at $110 -Authorized - 17,500 shares -Outstanding - 17,500 shares in 2002 - 1,750 -------------------- $ 628 $ 4,734 -------------------- Long-Term Debt First Mortgage Bonds- 10.25% Series due 2020 $ 30,000 $ 30,000 8.98% Series due 2022 20,000 20,000 7.30% Series due 2003 15,000 15,000 -------------------- $ 65,000 $ 65,000 -------------------- Other Long-Term Debt- Finance Authority of Maine - Taxable Electric Rate Stabilization Revenue Notes, 7.03% Series 1995A, due 2005 $ 55,400 $ 55,400 Municipal Review Committee Note, 5%, due 2008 11,412 11,781 Senior Unsecured Note, 6.09%, due 2012 20,000 20,000 Other Miscellaneous Notes Payable, 3.90%, due 2006 14 15 -------------------- $ 86,826 $ 87,196 Less: Current portion of long-term debt 34,213 34,137 -------------------- $ 52,613 $ 53,059 -------------------- Total Long-Term Debt $ 117,613 $ 118,059 -------------------- Total Capitalization $ 328,975 $ 329,059 ==================== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS 000's Omitted (Unaudited) Three Months Ended Mar. 31, Mar. 31, 2003 2002 --------------------- Cash Flows From Operating Activities: Net income $ 5,002 $ 3,028 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,499 2,676 Amortization of Seabrook nuclear project 425 425 Amortization of contract buyouts and restructuring 4,881 5,411 Amortization of deferred asset sale gain (2,258) (2,042) Other amortizations (882) 274 Allowance for equity funds used during construction (98) (114) Deferred income tax provision and amortization of investment tax credits (251) (46) Changes in assets and liabilities: Costs to restructure purchased power contract - (250) Deferred standard-offer service costs 2 (2,176) Deferred special rate contract revenues 303 (613) Employee transition costs (237) - Accounts receivable, net and unbilled revenue (301) 6,953 Accounts payable (4,276) (4,238) Accrued interest 1,185 836 Current income taxes 3,776 (1,500) Accrued pension and postretirement benefit costs 1,482 1,169 Other current assets and liabilities, net 236 409 Other, net (615) (664) -------------------- Net Increase in Cash From Operating Activities: $ 10,873 $ 9,538 -------------------- Cash Flows From Investing Activities: Construction expenditures $ (1,230)$ (3,124) Proceeds from redemption of Maine Yankee common stock 314 - Allowance for borrowed funds used during construction (75) (109) -------------------- Net Decrease in Cash From Investing Activities $ (991)$ (3,233) -------------------- Cash Flows From Financing Activities: Dividends on preferred stock $ (82)$ (66) Redemption of preferred stock (4,592) - Payments on long-term debt (370) (2,081) Short-term debt, net (5,000) (4,000) -------------------- Net Decrease in Cash From Financing Activities $ (10,044)$ (6,147) -------------------- Net (Decrease) Increase in Cash and Cash Equivalents $ (162)$ 158 Cash and Cash Equivalents at Beginning of Period 989 885 -------------------- Cash and Cash Equivalents at End of Period $ 827 $ 1,043 ==================== Cash Paid During the Period for: Interest (Net of Amount Capitalized) $ 1,586 $ 2,411 Income Taxes - 4,100 ==================== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT 000's Omitted (Unaudited)
Accum. Amounts Other Total Paid in Compre- Common Common Excess of Retained hensive Stock Stock Par Value Earnings Loss Investment ----------- ------------ ---------- ------------ ------------ Balance December 31, 2001 $ 36,817 $ 165,352 $ 3,435 $ (47) $ 205,557 Net income - - 3,028 - 3,028 Other comprehensive loss net of taxes: Unrealized gain on interest rate swap - - - 27 27 ----------- Total comprehensive income 3,055 ----------- Cash dividends declared on- Preferred stock - - (66) - (66) Common stock - - - - 0 ----------- ----------- ----------- ----------- ----------- Balance March 31, 2002 $ 36,817 $ 165,352 $ 6,397 $ (20) $ 208,546 =========== =========== =========== =========== =========== Balance December 31, 2002 $ 36,817 $ 165,352 $ 6,130 $ (2,033) $ 206,266 Net income - - 5,002 - 5,002 Other comprehensive loss net of taxes: Minuimum pension liability - - - - - ----------- Total comprehensive income 5,002 ----------- Loss on redemption of preferred stock - (486) - - (486) Cash dividends declared on- Preferred stock - - (48) - (48) Common stock - - - - - ----------- ----------- ----------- ----------- ----------- Balance March 31, 2003 $ 36,817 $ 164,866 $ 11,084 $ (2,033) $ 210,734 =========== =========== =========== =========== =========== See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 ------------- (Unaudited) (1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES: --------------------------------------------- Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Bangor Hydro-Electric Company (the Company), the disclosures contained in this Form 10-Q are adequate to make the information presented not misleading. The year end condensed balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements, footnotes and all other information included in the 2002 Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of March 31, 2003 and the results of operations and cash flows for the periods ended March 31, 2003 and 2002. The Company's significant accounting policies are described in the Notes to the Consolidated Financial Statements included in its 2002 Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows these same basic accounting policies but considers each interim period as an integral part of an annual period. Accordingly, certain expenses are allocated to interim periods based upon estimates of such expenses for the year. (2) INCOME TAXES: ------------ The following table reconciles a provision calculated by multiplying income before federal income taxes by the statutory federal income tax rate to the federal income tax provision: Three Months Ended March 31, --------------------------- 2003 2002 ---- ---- Amount % Amount % ------ - ------ - (Dollars in Thousands) Federal income tax provision at statutory rate $2,984 35.0 $1,743 35.0 Plus permanent reductions in tax expense resulting from statutory exclusions from taxable income 81 .9 42 .8 ------ ---- ------ ---- Federal income tax provision before effect of temporary differences and investment tax credits $3,065 35.9 $1,785 35.8 Less temporary differences that are flowed through for rate- making and accounting purposes (302) (3.5) (188) (3.8) Less utilization and amortization of investment tax credits (24) (.3) (32) (.6) ------ ---- ------ ---- Federal income tax provision $2,739 32.1 $1,565 31.4 ====== ==== ====== ==== (3) INVESTMENT IN JOINTLY OWNED FACILITIES: -------------------------------------- Condensed financial information for Maine Yankee Atomic Power Company (Maine Yankee) and Maine Electric Power Company, Inc. (MEPCO) is as follows: MAINE YANKEE MEPCO ------------ ----- (Dollars in Thousands - Unaudited) Operations for Three Months Ended -------------------------------------- Mar. 31, Mar. 31, Mar. 31, Mar. 31, 2003 2002 2003 2002 OPERATIONS: -------- -------- -------- -------- As reported by investee- Operating revenues $ 14,534 $ 15,045 $ 865 $ 1,079 ======== ======== ======== ======== Earnings applicable to common stock $ 882 $ 1,011 $ 320 $ 426 ======== ======== ======== ======== Company's reported equity- Equity in net income $ 62 $ 71 $ 45 $ 60 Add(Deduct)-Effect of adjusting Company's estimate to actual 8 4 3 (6) -------- -------- -------- -------- Amounts reported by Company $ 70 $ 75 $ 48 $ 54 ======== ======== ======== ======== MAINE YANKEE MEPCO ------------ ----- (Dollars in Thousands - Unaudited) Financial Position at ---------------------------------------- Mar. 31, Dec. 31, Mar. 31, Dec. 31, 2003 2002 2003 2002 FINANCIAL POSITION: --------- --------- --------- -------- As reported by investee- Total assets $ 657,034 $ 679,975 $ 7,838 $ 7,680 Less- Long-term debt 19,200 21,600 - - Other liabilities and deferred credits 586,734 600,656 470 608 ---------- ---------- -------- -------- Net assets $ 51,100 $ 57,719 $ 7,368 $ 7,072 ========== ========== ======== ======== Company's reported equity- Equity in net assets $ 3,577 $ 4,040 $ 1,046 $ 1,004 Add (deduct) effect of adjusting Company's estimate to actual 210 (6) 3 - ---------- ---------- -------- -------- Amounts reported by Co. $ 3,787 $ 4,034 $ 1,049 $ 1,004 ========== ========== ======== ======== (4) NEW ACCOUNTING PRONOUNCEMENT: ---------------------------- In June 2002, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company implemented the provisions of this Statement on January 1, 2003. The implementation of this Statement did not materially impact the Company's financial position, earnings or cash flows, principally as a result of the regulatory accounting utilized by the Company. The Company recorded asset retirement obligations and associated long-lived assets in the first quarter of 2003 principally associated with certain property and equipment where certain regulations require removal of these assets at a future date. The following represents a reconciliation of the beginning and ending aggregate carrying amounts of asset retirement obligations (Dollars in Thousands). Asset Retirement Obligation - January 1, 2003 $393 Liabilities Incurred in the Current Period - Liabilities Settled in the Current Period - Accretion Expense in the Current Period 8 Revisions in Estimated Cash Flows - ---- Asset Retirement Obligation - March 31, 2003 $401 ==== (5) ABOVE MARKET PURCHASED POWER CONTRACT OBLIGATIONS: ------------------------------------------------- As discussed in Note 12 to the 2002 Form 10-K, the Company had two power contracts (one purchase and one sale) that qualified for derivative accounting under Statement of Financial Accounting Standards No. 133 (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. The power sales contract ended in the first quarter of 2003, and hence there was no longer any SFAS No. 133 applicability at March 31, 2003. In connection with the power sales contract, certain criteria that resulted in the contract qualifying for derivative accounting under SFAS No. 133 were determined to no longer be applicable at March 31, 2003. As a result, the fair value of the above-market portion of these contracts, which represented a liability of approximately $63.3 million at December 31, 2002, was adjusted to zero at March 31, 2002. (6) RECLASSIFICATIONS: ----------------- Certain 2002 amounts have been reclassified to conform with the presentation used in Form 10-Q for the quarter ended March 31, 2003. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's Discussion and Analysis of the Results of Operations and Financial Condition contained in Bangor Hydro-Electric Company's (the Company) Annual Report on Form 10-K for the year ended December 31, 2002 (2002 Form 10-K) should be read in conjunction with the comments below. EARNINGS For the quarters ended March 31, 2003 and 2002 basic earnings per common share were $.67 and $.40, respectively. Principally as a result of the Company's workforce reductions in 2002, labor expense was approximately $1.4 million lower in first quarter of 2003 as compared to the first quarter of 2002 ($.11 increase in earnings per common share). Also, primarily attributable to cold weather in the first quarter of 2003, increased energy sales to customers resulted in greater electric operating revenues in the first quarter of 2003 in comparison to the first quarter of 2002. For non- large special rate contract customers, as a result of increased sales, electric operating revenues were approximately $1.5 million higher in the first quarter of 2003 than in the 2002 period ($.12 increase in earnings per common share). Earnings were also benefited in the first quarter of 2003 by other non-labor cost reductions associated with the Company's restructuring efforts. REVENUES Electric operating revenues are as follows for each of the quarters ending March 31, 2003 and 2002: ($ in 000's) 2003 2002 Change ---- ---- ------ Residential $14,489 $13,373 $1,116 Commercial 11,132 9,363 1,769 Industrial 3,273 2,667 606 Other 475 473 2 ------------------------------ Subtotal $29,369 $25,876 $3,493 Large Special Contracts 1,224 1,979 (755) ------------------------------ Total Related to Energy Sales $30,593 $27,855 $2,738 Other Miscellaneous Revenues 884 1,677 (793) ------------------------------- Total Electric Operating Revenue $31,477 $29,532 $1,945 ------------------------------- Energy sales volume in megawatt hours is as follows for each of the quarters ending March 31, 2003 and 2002: 2003 2002 Change ---- ---- ------ Residential 161,177 147,171 14,006 Commercial 151,601 145,763 5,838 Industrial 47,685 47,156 529 Other 2,896 2,907 (11) ------------------------------- Subtotal 363,359 342,997 20,362 Large Special Contracts 47,887 66,417 (18,530) -------------------------------- Total Energy Sales 411,246 409,414 1,832 -------------------------------- Electric operating revenue increased by approximately $1.945 million in first quarter of 2003 as compared to the first quarter of 2002. The increase was principally the result of the previously discussed 6.54% rate increase associated with stranded cost recovery. Also impacting the increased revenues in 2003 was a 6% increase in energy sales, which excludes certain large special contract customers. The increased energy sales were positively impacted by much colder weather in the first quarter of 2003 as compared to the 2002 quarter. Electric operating revenues associated with large special contract customer decreased by approximately $755,000 in the first quarter of 2003 due mostly to the effect of a special rate contract with a large industrial customer. Effective July 1, 2001, the Company entered into a special rate contract with a large industrial customer to provide fully bundled electric service (both T&D and energy) to this customer. Formerly, the Company was only providing T&D service to this customer. The Company entered into a power purchase contract to procure the power necessary to serve this customer under this contract. Principally as a result of the new contract, which ended in March 2002, the Company recognized approximately $829,000 in greater electric operating revenues associated with this customer in the first quarter of 2002 as compared to the 2003 quarter. Other miscellaneous revenues were lower in the 2003 quarter as a result of an approximately $671,000 reduction in certain stranded cost related revenue deferrals. The decrease is due to the implementation of new stranded cost rates on March 1, 2002. Off-system sales, which are sales related to power pool and inter- connection agreements and resales of purchased power, were approximately $288,000 greater in the 2003 quarter in relation to 2002. Effective March 1, 2002, the Company was no longer responsible for being the standard-offer service provider. The Company, though, still has a standard-offer related power supply commitment with a third party through February 2004 amounting to approximately $54 million. The power delivered under this contract is being resold to one of the new standard-offer service providers, with estimated revenues to be realized of approximately $40 million. The difference between the cost of the power and the resale revenues are being recovered in the Company's stranded cost rates starting March 1, 2002. The power resales associated with this contract were approximately $3.7 million higher in the first quarter of 2003 as compared to the 2002 quarter. Also, one of the Company's other power sale contracts ended in February 2003, and as a result, associated revenues were approximately $3.4 million lower in the first quarter of 2003. The Company's stranded cost rates that were set on March 1, 2002 were adjusted to take into consideration the end of this long-term power sales contract. The $12.1 million decrease in standard-offer service revenues in 2003 is due mostly to the Company no longer being the standard-offer provider effective March 1, 2002. EXPENSES Purchased power and fuel for generation expense, excluding the cost of standard-offer service purchased power, increased $3.2 million in the first quarter of 2003 as compared to 2002. The largest item affecting the increased expense was an approximately $5 million increase in costs in the first quarter of 2003 associated with the previously discussed former standard-offer power contract obligation. Offsetting this increase to some extent was the previously discussed special rate contract with a large industrial customer. In the first quarter of 2002, the Company incurred approximately $897,000 of purchased power expense associated with serving the customer. Standard-offer purchased power expense decreased by approximately $11.9 million in the first quarter of 2003 relative to the first quarter of 2002. The decrease was due principally to the Company no longer being the standard offer service provider on March 1, 2002. Other O&M expense decreased by approximately $2.1 million in the first quarter of 2003 in comparison to the first quarter of 2002. Principally as a result of the workforce reductions in the second quarter of 2002, O&M payroll expense was approximately $1.4 million lower in the first quarter of 2003 relative to the 2002 quarter. This decrease was also impacted by increased overtime pay in the first quarter of 2002 in connection with electric service restoration efforts as a result of a major winter storm in January 2002. Bad debt expense was approximately $418,000 lower in the first quarter of 2003 due principally to standard-offer service related bad debt write-offs in the 2002 quarter, and in 2003 the bad debt reserve was reduced by $149,000 primarily due to reduced loss exposure associated with customers with bad debt reserves previously established in 2002. Due principally to a refocus of the Company's line clearance program (tree trimming) starting in the second half of 2002, the associated expense was approximately $343,000 lower in first quarter of 2003 in comparison to the 2002 quarter. Also, as a result of the previously discussed major storm in January 2002, non-labor service restoration costs were approximately $313,000 higher in the first quarter of 2002 than in the 2003 first quarter. These decreases in other O&M expense were offset somewhat by a $389,000 increase in pension and other postretirement benefit costs in the 2003 quarter. The increased expense is principally attributable to decreases in the discount rate used to actuarially compute the expense as well as reduced expected returns on pension plan assets as a result of poor stock market performance. Depreciation and amortization expense was lower in the first quarter of 2003 due principally to the impact of certain electric plant retirements made in 2002. These reductions were offset to some extent by the effect of plant additions in 2003. Regulatory amortizations represent current amortizations allowed in the Company's distribution and stranded cost rates as allowed by the Maine Public Utilities Commission in prior rate orders. These include the amortization of purchased power contract buyouts/restructurings, Seabrook investment, deferred asset sale gain, and other regulatory amortizations. Effective March 1, 2002, in connection with the implementation of new stranded cost electric rates, the Company began amortizing stranded cost related regulatory assets and liabilities that had been previously deferred on the Company's balance sheet. Also, certain existing stranded cost related amortizations were modified effective March 1, 2002 in connection with the stranded cost rate change. The following summarizes the components of the regulatory amortizations for the first quarter of 2003 as compared to the first quarter of 2002 (in 000's): 2003 2002 ---- ---- Seabrook investment $ 425 $ 425 Contract buyouts and restructuring 4,881 5,411 Deferred asset sale gain (2,258) (2,042) Other stranded cost related regulatory assets and liabilities (1,496) (435) Distribution related regulatory assets and liabilities 281 290 Employee transition costs 196 - ----------------------- Total Regulatory Amortizations $ 2,029 $ 3,649 ----------------------- The reduction in property and other taxes is due mostly to decreased payroll taxes in the first quarter of 2003 resulting principally from the previously discussed decrease in payroll costs in 2003. The increase in total federal and state income taxes was principally a function of higher earnings in the first quarter of 2003 as compared to the 2002 quarter. See Footnote 2 to the Consolidated Financial Statements for a reconciliation of the Company's effective income tax rate. OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENS Other income, net of income taxes increased by $153,000 in the first quarter of 2003 principally as a result of $384,000 expense in the first quarter of 2002 in connection with a contractual arrangement associated with a retiring officer of the Company. Long-term debt interest expense decreased $570,000 in the first quarter of 2003 relative to 2002 due primarily to a $16.1 million principal payment on the Company's Finance Authority of Maine (FAME) Revenue Notes at the end of June 2002, the final repayment of the $24.8 million medium term notes in July 2002, the retirement of the $20 million in 7.38% first mortgage bonds at the end of July 2002, and quarterly principal payments on the $13.7 million note with the Municipal Review Committee in connection with the exercise of common stock warrants. These decreases were offset to some extent by interest expense in the 2003 quarter resulting from the issuance of $20 million in 6.09% senior unsecured notes in December 2002. Other interest expense increased $7,000 due principally to borrowings under the Company's revolving credit facility in the first quarter of 2003. Weighted average borrowings outstanding were approximately $9.6 million higher for the first quarter of 2003 than in the 2002 quarter. This was offset to some extent by a reduction in the amortization of debt issuance costs in the first quarter of 2003. The amortization decrease was primarily attributable to the end of the amortization period of certain deferred debt issuance costs. LIQUIDITY AND CAPITAL RESOURCES The Consolidated Statements of Cash Flows reflect events in the first quarters of 2003 and 2002 as they affect the Company's liquidity. Net increase in cash from operating activities was $10.9 million in the first quarter of 2003 as compared to $9.5 million in the 2002 quarter. Increased cash flows from operations in the 2003 quarter as compared to 2002 were impacted by a $4.1 million increase in income tax payments in the first quarter of 2002 relative to 2003. Operating cash flows are also impacted in the first quarter of 2002 by the standard-offer service. In the 2002 quarter, the Company's standard-offer service costs exceeded revenues by approximately $2.2 million. Changes in accounts receivable and accounts payable in the statement of cash flows are also greatly impacted by the standard-offer related revenues and purchased power obligations. Construction expenditures were approximately $1.9 million lower in the 2003 quarter as compared to 2002 due principally to the financing of a major transmission line project being constructed for the benefit of a third party. These construction costs are currently being financed by the third party in the first quarter of 2003. Upon the completion of certain contractual agreements in 2003, the Company will reimburse the third party for these construction costs. The cost of the transmission line plus a return will be paid by the third party under the Company's transmission rate tariff over a 15-year period beginning upon completion of the construction project. In the first quarter of 2003, the Company received $314,000 in proceeds from Maine Yankee Atomic Power Company (Maine Yankee) in connection with the redemption of common stock. The Company is a 7% owner of the Maine Yankee nuclear plant. Maine Yankee, starting in 2001, began a program of systematically redeeming its common stock from its owners in connection with the decommissioning of the plant. As discussed in the 2002 Form 10-K, in the first quarter of 2003, the Company completed the redemption of a significant portion of its outstanding preferred stock, at a total cost of $4.6 million. As a result of the decrease in preferred shareholders, the Company has filed with the Securities and Exchange Commission for de-registration of its preferred stock. The decrease in payments on long-term debt is due principally to the monthly principal payments on the $24.8 million medium term notes in the 2002 quarter. This long-term debt was fully repaid in July 2002. 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 (DEP) under various Maine environmental statutes. The Company is actively engaged in complying with these federal and state acts and statutes, and it has not, to date, encountered material difficulties in connection with such compliance. In 1992, the Company received notice from the DEP 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 EPA placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act and would 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 on currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. In addition, 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, and possible effects of future legislation or regulation and the possible effects of technological changes. At March 31, 2003, the liability recorded by the Company for its estimated environmental remediation costs amounted to $380,000. The Company's actual future environmental remediation costs may change as additional factors become known. The Company estimates that during 2003 it will incur approximately $188,000 in operations expense to comply with environmental standards for air, water and hazardous materials. This amount may change based on facts and circumstances that occur in 2003. FORWARD LOOKING STATEMENTS 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, the Company's merger with Emera, future economic conditions, relationships with lenders, earnings retention and dividend payout policies, developments in the legislative, regulatory and competitive environments in which the Company operates and other circumstances that could affect revenues and costs. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's major financial market risk exposure is changing interest rates. Changes in 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. Item 4. CONTROLS AND PROCEDURES During the 90-day period prior to the filing date of this report, management, including the Company's Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon, and as of the date of that evaluation, the Principal Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. PART II. OTHER INFORMATION Item 5. OTHER INFORMATION None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits - None. Reports on Form 8-K - None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BANGOR HYDRO-ELECTRIC COMPANY ----------------------------- (Registrant) Dated: May 9, 2003 /s/ David R. Black ------------------ David R. Black Chief Financial Officer CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Bangor Hydro-Electric Company (the Company) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on May 9, 2003, we, the undersigned, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David R. Black - ------------------ David R. Black Chief Financial Officer May 9, 2003 /s/ Raymond R. Robinson - ----------------------- Raymond R. Robinson Principal Executive Officer May 9, 2003 This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. I, David R. Black, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bangor Hydro- Electric Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ David R. Black - ------------------ David R. Black Chief Financial Officer I, Raymond R. Robinson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bangor Hydro- Electric Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Raymond R. Robinson - ----------------------- Raymond R. Robinson Principal Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----