UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5139
CENTRAL MAINE POWER COMPANY
(Exact name of registrant as specified in its charter)
Incorporated in Maine 01-0042740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
83 Edison Drive, Augusta, Maine 04336
(Address of principal executive offices) (Zip Code)
207-623-3521
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
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 the filing
requirements for at least the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Shares Outstanding
Class as of August 5, 1994
Common Stock, $5 Par Value 32,442,752
Central Maine Power Company
INDEX
Page No.
Part I. Financial Information
Consolidated Statement of Earnings for the
Three Months Ended June 30, 1994 and 1993 1
Consolidated Statement of Earnings for the
Six Months Ended June 30, 1994 and 1993 2
Consolidated Balance Sheet - June 30, 1994 and
December 31, 1993:
Assets 3
Stockholders' Investment and Liabilities 4
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II. Other Information 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Central Maine Power Company
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
For the Three Months Ended
June 30,
1994 1993
ELECTRIC OPERATING REVENUES $212,336 $198,953
OPERATING EXPENSES
Fuel Used for Company Generation 3,683 2,119
Purchased Power
Energy 91,778 85,609
Capacity 19,875 21,099
Other Operation 35,122 38,448
Maintenance 7,775 8,263
Depreciation and Amortization 13,916 13,098
Federal and State Income Taxes 9,131 5,048
Taxes Other Than Income Taxes 5,980 2,300
Total Operating Expenses 187,260 175,984
EQUITY IN EARNINGS OF ASSOCIATED COMPANIES 1,533 1,258
OPERATING INCOME 26,609 24,227
OTHER INCOME (EXPENSE)
Allowance for Equity Funds Used During
Construction 203 411
Other, Net 1,271 642
Income Taxes Applicable to Other Income
(Expense) (377) 350
Total Other Income (Expense) 1,097 1,403
INCOME BEFORE INTEREST CHARGES 27,706 25,630
INTEREST CHARGES
Long-Term Debt 11,386 10,611
Other Interest 1,137 1,556
Allowance for Borrowed Funds Used During
Construction (124) (239)
Total Interest Charges 12,399 11,928
NET INCOME 15,307 13,702
DIVIDENDS ON PREFERRED STOCK 2,628 2,092
EARNINGS APPLICABLE TO COMMON STOCK $ 12,679 $ 11,610
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 32,442,752 31,618,567
EARNINGS PER SHARE OF COMMON STOCK $0.39 $0.37
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.225 $0.39
The accompanying notes are an integral part of these financial statements.
-1-
Central Maine Power Company
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
For the Six Months Ended
June 30,
1994 1993
ELECTRIC OPERATING REVENUES $453,362 $434,974
OPERATING EXPENSES
Fuel Used for Company Generation 9,071 5,773
Purchased Power
Energy 214,710 194,802
Capacity 34,945 40,746
Other Operation 72,074 73,006
Maintenance 14,825 14,739
Depreciation and Amortization 27,797 26,205
Federal and State Income Taxes 17,459 15,355
Taxes Other Than Income Taxes 12,652 9,660
Total Operating Expenses 403,533 380,286
EQUITY IN EARNINGS OF ASSOCIATED COMPANIES 3,013 2,837
OPERATING INCOME 52,842 57,525
OTHER INCOME (EXPENSE)
Allowance for Equity Funds Used During
Construction 424 884
Other, Net (3,086) 1,560
Income Taxes Applicable to Other Income
(Expense) 1,135 (44)
Total Other Income (Expense) (1,527) 2,400
INCOME BEFORE INTEREST CHARGES 51,315 59,925
INTEREST CHARGES
Long-Term Debt 22,506 21,803
Other Interest 2,344 3,354
Allowance for Borrowed Funds Used During
Construction (258) (507)
Total Interest Charges 24,592 24,650
NET INCOME 26,723 35,275
DIVIDENDS ON PREFERRED STOCK 5,256 4,360
EARNINGS APPLICABLE TO COMMON STOCK $ 21,467 $ 30,915
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 32,442,058 31,484,191
EARNINGS PER SHARE OF COMMON STOCK $0.66 $0.98
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.45 $0.78
The accompanying notes are an integral part of these financial statements.
-2-
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
June 30, Dec. 31,
1994 1993
(Unaudited)
ASSETS
ELECTRIC PROPERTY, at Original Cost $1,561,873 $1,564,875
Less: Accumulated Depreciation 504,221 503,280
Electric Property in Service 1,057,652 1,061,595
Construction Work in Progress 16,431 19,689
Net Nuclear Fuel 1,372 1,822
Net Electric Property 1,075,455 1,083,106
INVESTMENTS IN ASSOCIATED COMPANIES, at Equity 47,864 47,452
Net Electric Property and Investments in
Associated Companies 1,123,319 1,130,558
CURRENT ASSETS
Cash and Temporary Cash Investments 63,157 1,956
Accounts Receivable, Less Allowances for
Uncollectible Accounts of $2,400 in 1994 and
$2,704 in 1993
Service - Billed 73,681 83,330
- Unbilled 51,304 67,022
Other Accounts Receivable 12,497 10,651
Prepaid Income Taxes - 1,335
Undercollected Retail Fuel Costs 55,144 84,708
Inventories, at Average Cost
Fuel Oil 3,410 6,939
Materials and Supplies 14,354 14,430
Funds on Deposit With Trustee 27,787 27,758
Prepayments and Other Current Assets 4,666 8,008
Total Current Assets 306,000 306,137
DEFERRED CHARGES AND OTHER ASSETS
Recoverable Costs of Seabrook 1 and Abandoned
Projects, Net 106,209 110,443
Regulatory Assets-Deferred Taxes 240,062 237,387
Yankee Atomic Purchased-Power Contract 30,254 32,775
Deferred Charges and Other Assets 182,573 187,562
Total Deferred Charges and Other Assets 559,098 568,167
TOTAL ASSETS $1,988,417 $2,004,862
The accompanying notes are an integral part of these financial statements.
-3-
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
June 30,
1994 Dec. 31,
(Unaudited) 1993
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION
Common Stock Investment $ 561,166 $ 553,389
Preferred Stock 65,571 65,571
Redeemable Preferred Stock 80,000 80,000
Long-Term Obligations 580,326 581,844
Total Capitalization 1,287,063 1,280,804
CURRENT LIABILITIES AND INTERIM FINANCING
Interim Financing 48,000 68,500
Sinking-Fund Requirements 3,303 3,421
Accounts Payable 78,595 94,417
Dividends Payable 9,932 9,468
Accrued Interest 13,017 12,680
Accrued Income Taxes 6,799 -
Miscellaneous Current Liabilities 13,857 13,137
Total Current Liabilities and Interim
Financing 173,503 201,623
COMMITMENTS AND CONTINGENCIES
RESERVES AND DEFERRED CREDITS
Accumulated Deferred Income Taxes 346,720 341,349
Unamortized Investment Tax Credits 35,872 36,679
Regulatory Liabilities-Deferred Taxes 52,556 49,734
Yankee Atomic Purchased-Power Contract 30,254 32,775
Other Reserves and Deferred Credits 62,449 61,898
Total Reserves and Deferred Credits 527,851 522,435
TOTAL STOCKHOLDERS' INVESTMENT AND
LIABILITIES $1,988,417 $2,004,862
The accompanying notes are an integral part of these financial statements.
-4-
Central Maine Power Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
(Note 1)
For the Six
Months Ended
June 30,
1994 1993
CASH FROM OPERATIONS
Net Income $ 26,723 $ 35,275
Items Not Requiring (Providing) Cash:
Depreciation and Amortization 35,780 30,857
Deferred Income Taxes and Investment Tax
Credits, Net 3,843 2,027
Allowance for Equity Funds Used During (424) (884)
Construction
Changes in Certain Assets and Liabilities:
Accounts Receivable 23,521 10,332
Other Current Assets 3,313 (11,831)
Inventories 3,605 1,330
Retail Fuel Costs 29,564 29,070
Accounts Payable (12,114) (16,871)
Accrued Income Taxes and Interest 8,471 3,108
Miscellaneous Current Liabilities 720 1,353
Deferred Energy Management Costs (2,747) (3,215)
Maine Yankee Outage Accrual (4,178) (4,253)
Other, Net 5,043 (2,800)
Net Cash Provided By Operating Activities 121,120 73,498
INVESTING ACTIVITIES
Construction Expenditures (16,221) (23,363)
Changes in Accounts Payable - Investing (3,708) (4,994)
Activities
Net Cash Used by Investing Activities (19,929) (28,357)
FINANCING ACTIVITIES
Issuances:
Common Stock 927 12,298
Mortgage Bonds 25,000 125,000
Redemptions:
Short-Term Obligations, Net (25,500) (18,600)
Premium on Redemptions - (6,000)
Preferred Stock - (7,125)
Mortgage Bonds - (100,000)
Other Long-Term Obligations, Net (21,000) (21,508)
Dividends:
Common Stock (14,611) (24,453)
Preferred Stock (4,806) (4,599)
Net Cash Used by Financing Activities (39,990) (44,987)
Net Increase In Cash and Cash Equivalents 61,201 154
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,956 926
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 63,157 $ 1,080
The accompanying notes are an integral part of these financial statements.
-5-
Central Maine Power Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Certain information in footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted
in this Form 10-Q pursuant to the rules and regulations of
the Securities and Exchange Commission. However, the
disclosures herein, when read with the Annual Report on Form
10-K for the year ended December 31, 1993 (Form 10-K), are
adequate to make the information presented herein not
misleading.
The consolidated financial statements include the accounts of
Central Maine Power Company (the Company) and its 78
percent-owned subsidiary, Maine Electric Power Company, Inc.
(MEPCO). The Company accounts for its investments in
associated companies not subject to consolidation using the
equity method.
The Company's significant accounting policies are contained
in Note 1 of Notes to Consolidated Financial Statements in
the Company's Form 10-K. For interim accounting periods the
policies are the same. The interim financial statements
reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of results for the
interim periods presented. All such adjustments are of a
normal recurring nature. For purposes of the statement of
cash flows, the Company considers all highly liquid
instruments purchased having maturities of three months or
less to be cash equivalents.
Supplemental Cash Flow Disclosure - Cash paid for the six
months ended June 30, 1994 and 1993 for interest, net of
amounts capitalized, amounted to $22.1 million and $21.9
million, respectively. Income taxes paid amounted to $4.4
million and $11.3 million for the six months ended June 30,
1994 and 1993, respectively. The Company incurred no new
capital lease obligations in either period.
2. Commitments and Contingencies
Legal and Environmental Matters - The Company is a party in
legal and administrative proceedings that arise in the normal
course of business. As discussed in Note 4 of Notes to
Consolidated Financial Statements in the Company's Form 10-K,
in connection with one such proceeding, the Company has been
named a potentially responsible party and has been incurring
costs to determine the best method of cleaning up an Augusta,
Maine, site formerly owned by a salvage company and
identified by the Environmental Protection Agency (EPA) as
containing soil contaminated by polychlorinated biphenyls
(PCBs) from equipment originally owned by the Company.
-6-
Initial tests on the site have been completed and more
complex technological studies are still in progress. Prior
to the April 1994 change in the cleanup standard discussed
below, the Company believed that its share of the remaining
costs of the cleanup would total between $7 million and $11
million, depending on the level of cleanup ultimately
required and other variable factors. Such estimate was net
of an agreed partial insurance recovery and considered the
court-ordered contributions of 41-percent from Westinghouse
Electric Co. and 12.5 percent from the former owners, but
excluded contributions from the other insurance carriers the
Company has sued, or any other third parties. As a result,
the Company recorded an estimated liability of $7 million and
an equal regulatory asset, reflecting the anticipated
ratemaking recovery of such costs when ultimately paid.
Approximately $1.8 million of costs incurred from August 9,
1991, to date have been deferred.
On April 8, 1994, the EPA announced changes to the remedy it
had previously selected, the principal change being to adjust
the soil cleanup standard to ten parts per million from the
one part per million established in the EPA's 1989 Record of
Decision, on the part of the site where PCBs were found in
their highest concentration. The EPA stated that the purpose
of adjusting the standard of cleanup was to accommodate the
selected technology's current inability to eliminate PCBs and
other chemical components on the site to the original
standard. On July 11, 1994, the EPA formally approved the
previously announced changes.
Because of the changes, the Company believes it is now more
probable that its share of the remaining cleanup costs will
total near the lower end of its previously estimated range of
$7 million to $11 million, based on the selected cleanup
method and the new standard, and considering the same third-
party contributions as described above. The Company cannot
predict with certainty the level and timing of the cleanup
costs, the extent they will be covered by insurance, or the
ratemaking treatment of such costs, but believes it should
recover substantially all of such costs through insurance and
rates. The Company also believes that the ultimate
resolution of the legal and environmental proceedings in
which it is currently involved will not have a material
adverse effect on its financial condition.
Power Purchase Contract Suit - In December 1992, the Company
terminated a 30-year power-purchase contract with Caithness
King of Maine Limited Partnership (Caithness) for the
purchase of approximately 80 megawatts of electric power from
a cogeneration project proposed for construction by Caithness
at Topsham, Maine. On March 17, 1993, after legal action was
threatened against the Company by Caithness, the Company
instituted a declaratory-judgment action against Caithness
and certain affiliated entities in the United States District
Court for the District of Maine seeking a judicial
confirmation of its right to terminate the contract. On
-7-
April 15, 1993, Caithness filed its response to the action,
including counterclaims alleging a breach of the contract by
the Company, among other claims, and seeking damages
estimated by Caithness to be in excess of $100 million or, in
the alternative, reformation of the contract, and other legal
relief.
In January 1994, a termination-and-settlement agreement was
reached between the parties, whereby Caithness would
terminate the project and release all rights, claims,
interests and entitlement thereunder, and the Company would
pay Caithness $5 million in consideration.
On April 4, 1994, the Maine Public Utilities Commission
(MPUC) approved a stipulation in which the Company agreed not
to seek recovery in rates of the costs incurred pursuant to
the termination and buy-out of its purchased-power contract
with Caithness. As a result, $4.5 million of costs not
previously charged to expense were reflected as a reduction
in other income (expense) during the first quarter of 1994.
See Note 3, "Regulatory Matters - Maine Public Utilities
Commission," for further discussion of the stipulation.
3. Regulatory Matters
Maine Public Utilities Commission - Refer to Note 3 of Notes
to Consolidated Financial Statements in the Company's Form
10-K for background on the Company's 1993 base-rate
proceeding.
On April 4, 1994, the MPUC approved a stipulation supported
by the Company and other parties to an earlier proceeding on
independent-power-producer contracts and the Company's 1993
base-rate case. In the stipulation, the Company agreed to
write-off $5 million in purchased-power costs, to be
implemented through a one-time reduction in its deferred fuel
cost balance, and further agreed not to seek recovery in
rates of the approximately $5.5 million (of which $4.5
million was deferred) in costs incurred in pursuing the
termination and buy-out in January 1994 of its purchased-
power contract with Caithness. The Company also agreed to
withdraw its appeal to the Maine Supreme Judicial Court (Law
Court) of the MPUC's October 1993 order in its power-contract
investigation, which will have the effect of increasing the
Company's annual base revenues by approximately $4 million,
the amount of the stayed one-half percent return-on-equity
penalty previously imposed by the MPUC, and to withdraw its
appeal to the Law Court of the MPUC's December 1993 decision
in the Company's base-rate case.
In return, the stipulation provided that the Company would be
subject to no further prudence investigation, penalties or
disallowances resulting from any actions prior to March 1,
1994, in any respect in connection with the two contracts
that were the subject of the MPUC's October 28, 1993
imprudence finding and the Caithness contract. In the
-8-
stipulation the parties also agreed that any further prudence
investigation by the MPUC of the Company's administration of
purchased-power contracts before April 4, 1994, would
conclude with the issuance of a final MPUC order no later
than October 1, 1994. In addition, the stipulation provided,
in the event any such further investigation occurs and the
Company is found imprudent in the administration of
purchased-power contracts, in no event would the Company be
subject to a "disallowance or other financially adverse
consequences" if the Company's financial condition is
impaired to the extent such consequence, if imposed in 1994,
would result in the Company's earned rate of return on common
equity for the calendar year 1994 falling 325 basis points
below the 10.05-percent rate of return on common equity found
reasonable by the MPUC in its December 1993 base-rate
decision, regardless of when such disallowance or adverse
financial consequence is determined by the MPUC. The
stipulation also provided that the Company would not be held
imprudent for any action necessary to conform to a standard
of "commercial reasonableness" in contract administration.
Finally, in addition to agreement on procedural matters, the
stipulation contained an agreement that the Company would be
subject to no further investigation, disallowance or other
financially adverse consequence with respect to its
administration of its "Capacity Deficiency Fund" and would
not be required to flow through to ratepayers any amounts
previously recorded to that fund. That provision allowed the
Company to reverse the $4.1 million reserve previously
credited against its deferred fuel-cost balance.
On July 5, 1994, the MPUC approved a further stipulation that
provides that the Company will not be subject to any further
investigations, disallowances, or other financially adverse
consequences with respect to its administration prior to
March 22, 1994, of the Company's larger NUG contracts (over
ten megawatts) totalling approximately 398 megawatts in the
aggregate, that were then being investigated by the MPUC. In
the approved stipulation the Company also agreed to provide
regular reports to the PUC on the status of renegotiation of
its high-cost NUG contracts and to postpone current recovery
of $.5 million associated with earned 1991 demand-side-
management incentives. The Company further agreed that it
would not seek recovery of such deferred incentives if its
earned rate of return on common equity exceeds 6.8% in 1994.
The Company believes that the PUC's approval of this
stipulation resolves another of the complex issues that have
been posing risks to the Company since the PUC's initiation
of a general investigation of the Company's administration of
NUG contracts by its order of October 28, 1993.
In connection with the Company's 1993 base-rate proceeding,
on July 21, 1993 the Company filed with the MPUC an
alternative rate proposal designed to promote stability in
the Company's rates. The proposal consisted of a combination
of pricing and regulatory changes that would, among other
-9-
things, base future rate increases on annual changes in the
rate of inflation and on mandated costs, and revise existing
regulatory rules and policies to allow the Company to adjust
prices more rapidly in response to customer needs and
competitive factors.
In its December 14, 1993, base-rate order, the MPUC ordered
that a follow-up proceeding be held to implement by mid-1994
a rate-stability plan along the lines discussed in the order.
The MPUC encouraged the Company and the parties electing to
participate in the proceeding to work together to develop a
five-year plan containing price-cap, profit-sharing, and
pricing-flexibility components. The MPUC concluded that such
a plan would be likely to provide a number of benefits that
would outweigh the potential costs. The Company had been
engaged in discussions with the MPUC staff and other
interested parties in an effort to reach a consensus on such
a plan.
On June 15, 1994, having been unsuccessful in reaching
agreement on some of the substantive issues, the Company
filed a proposed rate stability plan with the MPUC pursuant
to a new schedule established by the MPUC calling for a
decision on such a plan in late November of 1994. The
Company's plan contains a price-setting mechanism, pricing
flexibility, and an annual review procedure, and would have
an initial term of five years.
The price-setting mechanism in the Company's plan is based on
a recognized consumer price index and excludes certain
mandated costs. It would be subject to a productivity offset
commencing in mid-1997 and an earnings-sharing formula
between shareholders and ratepayers outside a certain
bandwidth of annual earnings. In addition, the Company's
proposal would adopt a total-rate approach, governing both
base rates and the current fuel and purchased power
adjustment, and was based on the assumption that an adequate
revenue increase would result from the Company's April 1994
fuel-clause filing.
The fuel-clause revenue increase was resolved on July 18,
1994, when the MPUC approved a stipulation entered into by
the Company and other parties providing for an annual
increase of $23.3 million. The increase is composed
primarily of the fuel cost adjustment, except for $.8 million
for recovery of non-utility generator contract buyout or
restructuring costs and $.6 million in unrecovered 1991
demand-side management incentives pursuant to the July 5,
1994 purchased-power contract prudence stipulation discussed
above.
In addition, the approved fuel-related stipulation provides
for an expedited approval process for the Company to
implement new special-rate contracts with individual
customers. The expedited treatment is limited to contracts
totaling in the aggregate not more than 45 megawatts of
-10-
demand and is subject to other eligibility criteria, but the
Company believes the new approval process will provide
significant flexibility and more rapid price adjustments in
meeting the increased competition affecting its customer
base. The July 18 stipulation approval also resolved other
ratemaking and accounting matters that had been pending
before the MPUC.
Federal Energy Regulatory Commission - Refer to Note 3 of
Notes to Consolidated Financial Statements in Company's Form
10-K for background information on the Federal Energy
Regulatory Commission (FERC) order requiring the Company to
revise its rates to a level reflecting the filed cost of
service associated with each of 14 contracts for non-
territorial sales, rather than the negotiated market-based
levels.
The utility that had received the major share of the amount
refunded by the Company pursuant to the original FERC refund
order requested reconsideration of the later FERC rescission
order. In April, 1994, the FERC approved a settlement
agreement filed by the Company and the utility that received
the major share of the original amount refunded by the
Company, that required the Company to make cash payments of
$.4 million and sales of system power at a discount to that
utility. A similar proposal was negotiated with another
party and approved by the FERC in July 1994. As a result of
these negotiations the Company reflected approximately $.6
million as a reduction in Electric Operating Revenues during
the first quarter of 1994.
Non-utility Generators - On April 15, 1994, the Governor of
Maine signed into law a bill allowing the Finance Authority
of Maine (FAME) to borrow up to $100 million to lend to
electric utilities for financing buy-outs or other changes in
NUG contracts that would save money for customers. The State
agency's bonds, which do not pledge the full faith and credit
of the state, would nevertheless, with similar terms, be
likely to bear lower interest rates than the bonds of the
Company with its down-graded credit rating. All agreements
under the new law must be approved by the MPUC and must be
completed by May 1, 1995. The new law became effective July
14, 1994.
On June 9, 1994, the Company announced that it had agreed to
buy out a NUG contract for a 33-megawatt wood-fired
generating plant in Fort Fairfield, Maine. The Company
agreed to pay $76 million by October 1, 1994, to buy out the
contract and $2 million to acquire the generating plant, and
anticipated savings of approximately $44.5 million based on
the future payments that would have been required over the
remaining eight-year life of the contract.
The buyout is part of the Company's plan to stabilize its
rates and improve its competitive position by reducing its
-11-
own expenses, cutting NUG costs, and achieving pricing
reforms from the MPUC.
On June 14, 1994, the Company filed an application with the
MPUC for a certificate of approval for the Fort Fairfield
buyout and expects by mid-August to apply to FAME to finance
the buyout through the newly authorized bond program.
Several parties, including the Town of Fort Fairfield,
intervened in the MPUC proceeding in opposition to the
Company's application, based largely on the adverse local
impacts of the contemplated closing of the plant. On August
3, 1994, the MPUC voted its approval of the buyout by
approving a stipulation entered into by the Company with the
Town of Fort Fairfield and other intervenors. In approving
the stipulation the MPUC granted its certificate of approval
with the statutory findings required for the FAME financing,
and provided for recovery in rates of the Company's
contractual cost of the buyout. In its negotiated settlement
with the Town of Fort Fairfield, incorporated in the
stipulation, the Company agreed to continue operation of the
plant for a minimum of three years, provided that certain
plant efficiency criteria can be met, and the Town agreed to
support the Company's efforts to obtain the necessary
regulatory and financing approvals, among other
considerations.
The Company has initiated discussions with fuel suppliers and
potential purchasers of the output of the plant in an effort
to develop the most cost-effective plan for continuing
operation of the plant. The MPUC's approval of the
stipulation provided for recognition in the Company's future
rates of costs expected to be incurred by the Company in the
operation of the plant, as well as estimated purchased-power
cost savings. The Company is pursuing consummation of the
financing of the buyout through the new FAME bond program by
October 1994.
Wholesale Customer - As previously reported, on July 28,
1993, the Town of Madison Electric Works (Madison), a
wholesale customer of the Company, announced that it had
selected a competitive bid from Northeast Utilities (NU) and
was entering negotiations for NU to become its wholesale
electric supplier for a period of up to ten years. NU, a
Connecticut-based holding company with substantial excess
generating capacity, had submitted a bid to provide up to 45
megawatts of capacity at a rate that would initially be well
below the Company's existing rates. Substantially all of the
45 megawatts would supply the large paper-making facility of
Madison Paper Industries (MPI) in Madison's service territory
that has been served directly by the Company under a special
service agreement with Madison during the last 12 years.
Madison proposed to start taking power from NU in late 1994
for that portion required to serve MPI and in late 1996 for
its remaining requirements.
-12-
On May 16, 1994, the Company, Madison and NU entered into a
settlement agreement that resolved, subject to regulatory
approvals, all issues in dispute among the parties relating
to Madison and MPI. Under the agreement, which was filed
with the MPUC as part of a stipulation among the parties to
the agreement and other intervenors in the MPUC proceeding,
the related MPUC and FERC regulatory proceedings were deemed
to be settled among the parties, and the Company withdrew its
request for compensation for stranded investment. In return,
NU agreed to pay the Company $8.4 million over a seven-year
period, MPI agreed to pay the Company $1.4 million over a
three-year period, a transmission rate was agreed upon for
the Company's transmission service to Madison commencing
September 1, 1994, and the parties agreed that Madison would
be supplied by NU through 2003, with Madison having an option
for an additional five years. In addition, NU and the
Company agreed to a five-year capacity exchange arrangement
designed to achieve significant replacement power cost
savings for the Company when the Company's largest source of
generation, the Maine Yankee Atomic Power Company plant, is
off-line. On May 26, 1994, the MPUC approved the
stipulation. The agreement must also be approved by the
FERC. The agreement provides more economic benefit to the
Company than if it had under-bid NU for Madison's business,
but less than if Madison stayed on the Company's system at
the former rates.
The Company will record the amounts received under this
contract as the amounts are received. As discussed above,
the MPUC, in its July 1994 Order in the Company's Fuel Cost
Recovery proceeding, required the Company to allocate the
cash payments, the capacity exchange savings and the
transmission revenues 60% to base non-fuel revenues and 40%
to fuel revenues.
Madison is the largest of the Company's three wholesale
customers. The Company has reached agreement with its other
two wholesale customers to continue to supply them at
negotiated prices and margins that are lower than the
previous averages.
Residents of several small areas in the Company's service
territory have publicly expressed interest in investigating
the feasibility of organizing local electric utility
districts for the purpose of providing their own electric
service with power purchased from a selected supplier. Such
investigations are in their early stages. The Company
believes that such actions are not in the best interests of
either its customers or its investors and will strongly
oppose such action. The Company further believes that
formidable obstacles would be encountered by any group in
attempting to create such districts, including obtaining
appropriate authorizing legislation and economically
acquiring or constructing the necessary facilities for a
local utility system. The Company cannot, however, predict
the ultimate results of such investigations.
-13-
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results
Operating revenues increased by $18.4 million or 4.2 percent to
$453 million in the first half of 1994 from $435 million in the
first half of 1993. Operating revenues for the second quarter of
1994 of $212 million were 6.7 percent more than the second
quarter of 1993. Revenues reflect rate increases as a result of
the 1993 base rate case, fuel and Electric Revenue Adjustment
Mechanism (ERAM) decisions and a stipulation approved by the
Maine Public Utilities Commission (MPUC) in April 1994.
Net Income for the second quarter of 1994 was $15.3 million
compared to $13.7 million for the second quarter of 1993. Year-
to-date Net Income in 1994 was $26.7 million compared to $35.3
million for the corresponding period in 1993. Earnings
applicable to Common Stock were $12.7 million or $0.39 per share
for the three months ended June 30, 1994 and $11.6 million or
$.37 per share for the comparable period in 1993. Year-to-date
earnings applicable to Common Stock in 1994 were $21.5 million or
$0.66 per share and $30.9 million or $.98 per share in 1993.
Weak sales due to economic and competitive pressures, the impact
of a disappointing rate case decision in December 1993 and the
April 1994 stipulation discussed below, are the primary factors
affecting the decline in year-to-date earnings.
Average shares outstanding increased due to the issuance of .7
million shares since June 1993 through the Company's Dividend
Reinvestment and Common Stock Purchase Plan. Effective January
1994, the Company elected to purchase shares pursuant to the plan
on the market, rather than issue new shares.
The combination of weak sales due to economic and competitive
pressures and an inadequate rate case decision in December 1993,
cannot provide the Company any reasonable opportunity to achieve
a level of 1994 earnings near the 1993 level or its currently
allowed rate of 10.55 percent on common equity. The reduction in
the Company's earnings capacity for the near term takes into
account the significant reductions in previously planned 1994
operation, maintenance and capital expenditures.
The Company's financial objectives for 1994 continue to be
seeking cost reductions and cost control, risk reduction
associated with purchased-power contract review proceedings,
restructuring prices, achieving price flexibility to enhance its
ability to compete for sales and seeking rate recovery of the
costs of providing electric service. The Company's ability to
restore earnings to competitive levels and to improve overall
financial health depends significantly on meeting these
challenges.
As discussed further in Note 3 to Consolidated Financial
Statements "Regulatory Matters - Maine Public Utilities
Commission," on April 4, 1994, the MPUC unanimously approved a
-14-
negotiated settlement of a two-year-old dispute over the
Company's administration of contracts with non-utility generators
(NUGs). The stipulation required a one-time $5 million write-off
of unrecovered fuel costs, precluded recovery of $4.5 million of
the costs of terminating the Caithness King NUG contract and
permitted retention of $4.1 million of payments associated with
the capacity deficiency fund. As a result, earnings for the six
months ended June 30, 1994 reflect a net reduction of $3.5
million before taxes, or approximately $2.0 million or $0.06 per
share after taxes. Over the remainder of 1994, settlement of the
one-half percent NUG penalty will provide about $1.9 million of
additional revenues. Cumulatively, the stipulation will result
in a net reduction in earnings of $1.5 million before taxes, or
approximately $900,000 or $0.03 per share after taxes.
The Company believes that the approval of the stipulation by the
MPUC resolves or limits a number of complex issues that were
posing significant risks to the Company and will permit it to
continue its efforts to restructure high-cost power purchase
contracts and work with the MPUC and other parties to formulate
an appropriate rate-stability plan.
Service-area sales of electricity totaled approximately 4.7
billion kilowatt-hours for the six-month period ended June 30,
1994, an increase of 1.0% compared to the first half of 1993.
Service-area sales for the second quarter of 1994 totaled
approximately 2.2 billion kilowatt-hours were 2.0 percent more
than the secmnd quarter of 1993.
Service Area Kilowatt-hour Sales (Millions of KWHs)
Period Ended June 30,
Three Months Six Months
%
1994 1993 % Change 1994 1993 Change
Residential 664.3 667.4 (0.5)% 1,542.7 1,545.9 (0.2)%
Commercial 573.9 547.0 4.9 1,220.7 1,176.6 3.7
Industrial 945.4 927.5 1.9 1,861.7 1,858.3 0.2
Other 36.7 35.9 2.2 79.1 77.6 1.9
2,220.3 2,177.8 2.0 % 4,704.2 4,658.4 1.0 %
The changes in service area kilowatt-hour sales reflect the
following:
Kilowatt-hour sales to residential customers decreased by
0.5% in the second quarter and 0.2% for the six months
ended June 30, 1994 compared to 1993; usage per customer
was down 1.9 percent, and a decline in the space and water
heating subclass usage contributed to this decrease during
the first half of 1994.
-15-
Commercial sales increased by 4.9% in the second quarter
and 3.7% for the six months ended June 30, 1994 from 1993
due primarily to increases in the service, retail and
wholesale sectors' usage while sales in the other sectors
increased also. Sales to the service sector comprise
approximately 33% of the Company's commercial sales.
Industrial kilowatt-hour sales increased by 1.9% in the
second quarter and 0.2% for the six months ended June 30,
1994 over 1993. Sales to the pulp and paper industry
increased by 2.2% for the second quarter but decreased by
0.4% year-to-date 1994. Despite the quarterly increase,
the decline in sales on a year-to-date basis to this
industry was due primarily to higher than normal purchases
in January 1993, and the addition of 10 megawatts of
generation by one customer in March 1993. The pulp and
paper industry accounts for approximately 60% of the
industrial sales category. A sales increase of 1.4% over
the first half of 1993 occurred to all other industrial
customers as a group.
The components of the change in electric operating revenues for
the six-months ended June 30, 1994, as compared to the same
period in 1993, are as follows:
Three Six
Months Months
(Dollars in Millions)
Revenues from Kilowatt-hour Sales:
Total Service-Area Base Revenue $ 7.5 $ 14.9
Fuel Cost Recoveries 7.8 17.7
Non-Territorial Base Revenue 0.8 1.2
Revenues from Kilowatt-hour Sales 16.1 33.8
Other Operating Revenues:
Electric Revenue Adjustment
Mechanism Including
Revenue Adjustment- Tax Flowback (2.8) (14.4)
Other, including Maine Electric
Power Company, Inc. 0.1 (1.0)
Total Change in Electric Operating
Revenues $13.4 $ 18.4
-16-
Total service-area base revenues increased for the second quarter
and first half of 1994 reflecting slightly higher kilowatt-hour
sales, the July 1993 increase in rates to continue collection of
accrued ERAM revenue and the increase of $26.2 million pursuant
to the MPUC's base rate case decision effective December 1, 1993.
Fuel Revenue increases reflect the increase discussed below
relating to Fuel Used for Company Generation and Purchased-Power
Energy expense. Other revenues reflect the elimination of ERAM
accruals, effective December 1, 1993.
The Company's Fuel Used for Company Generation and Purchased
Power-Energy expenses are recoverable through approved fuel
tariffs while Purchased Power-Energy incurred by Maine Electric
Power Company, Inc. (MEPCO) is billed to MEPCO's Participants.
The Company's Fuel Used for Company Generation, which consists
primarily of Company-owned oil-fired generation, increased by
$1.5 million in the second quarter of 1994 over the second
quarter of 1993 and by $3.3 million for the six-month period
ended June 30, 1994. Compared to 1993, total oil-fired
generation increased by 115% in the second quarter of 1994 and by
93% year-to-date 1994. The cost of this generation on a per
megawatt-hour basis was 15% lower for both the second quarter and
six months ended June 30, 1994, as a result of decreases in the
price of oil purchased.
The Company's Purchased Power-Energy expense increased by $6.2
million in the second quarter and by $19.9 million for the six
months ended June 30, 1994 due primarily to purchases from non-
utility generators. Total megawatt-hours purchases increased by
9 megawatt-hours and 128 megawatt-hours over the prior year
quarter and prior year-to-date. The cost of this energy on a per
megawatt-hour basis increased by 4.3% for the second quarter and
by 4.7% for the first half of 1994, respectively, primarily due
to pre-set price increases.
Other Operation and Maintenance expenses decreased by $3.8
million and $0.8 million compared to the second quarter and first
half of 1993. Despite reflecting severance costs associated with
restructuring plans in early 1994 which eliminated 225 full-time
equivalent positions, increases in expenses of the Electric
Lifeline Program (the MPUC-mandated low-income energy assistance
program) and other planned cost increases, ongoing cost control
activities directed toward limiting growth in this area are
continuing.
Federal and state income taxes fluctuate with the level of pre-
tax earnings and the regulatory treatment of taxes by the MPUC.
Interest on long-term debt increased $0.8 million for the second
quarter of 1994 and $0.7 million for the six months ended
June 30, 1994 while other interest expense decreased by $0.4
million and $1.0 million for the second quarter and year-to-date
period ended June 30, 1994 as a result of lower levels of short-
term borrowing outstanding combined with lower short-term
interest rates.
-17-
Liquidity and Capital Resources
Approximately $65.9 million of cash was provided during the first
half of 1994 from net income before non-cash items, primarily
depreciation and amortization. During such period, approximately
$55.2 million of cash was provided by fluctuations in certain
assets and liabilities and from other operating activities.
For the six months ended June 30, 1994, the Company reduced the
level of short-term borrowing outstanding by $25.5 million and
reduced the level of other long-term obligations by $21.0
million. Dividends paid on common stock were $14.6 million,
while preferred-stock dividends utilized $4.8 million of cash.
Investing activities, primarily construction expenditures,
utilized $19.9 million in cash during the first half of 1994 for
generating projects, transmission, distribution, and general
construction expenditures.
In order to accommodate existing and future loads on its electric
system the Company is engaged in a continuing construction
program. The Company's plans for improvements and expansions,
its load forecast and its power resources are under a process of
continuing review. Actual construction expenditures will depend
upon the availability of capital and other resources, load
forecasts, customer growth and general business conditions.
In April 1994 the Company issued $25 million of Series U 7.54%
(Adjustable Rate) General and Refunding Mortgage Bonds, Due 1998,
through a private placement. The Series U Bonds do not have a
sinking fund requirement and are redeemable at the option of the
Company under certain circumstances.
In June 1994, the Company entered into an agreement with a large
institutional investor under which the investor agreed to
purchase from the Company up to $25 million of additional General
and Refunding Mortgage Bonds on or before April 15, 1995, subject
to certain terms and conditions. Bonds issued pursuant to the
agreement must be due on or before April 15, 1998.
The ultimate nature, timing and amount of financing for the
Company's total construction programs, refinancing and
energy-management capital requirements will be determined in
light of market conditions, earnings and other relevant factors.
To support its short-term capital requirements, the Company
maintains lines of credit now totaling $63 million and has an
unsecured $50-million revolving credit agreement with several
banks that can be used to support commercial paper borrowing or
as short-term financing. However, access to commercial paper
markets has been substantially reduced, if not eliminated, as a
result of the downgrading of the Company's credit ratings during
1993. Borrowing under lines of credit may be subject to more
stringent terms and conditions in the future. The amount of
outstanding short-term borrowing will fluctuate with day-to-day
-18-
operational needs, the timing of long-term financing, and market
conditions.
The Company is in the process of reviewing its lines of credit
and revolving credit agreements which could result in changes in
the borrowing capacity and terms of the agreements. However, the
Company believes any such changes will not have a material impact
on its liquidity.
On April 6, 1994, Standard & Poor's Corp. (S&P) revised its
outlook on the Company's securities from "negative" to "stable"
and affirmed its ratings on the Company's senior secured debt at
"BB+", its senior unsecured debt at "BB-", its preferred stock at
"B+" and its commercial paper at "B". S&P cited the MPUC's April
4, 1994 approval of the stipulation resolving uncertainty
relating to purchased-power contract investigations as reasons
for the revision.
-19-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters. For a discussion of administrative
and judicial proceedings concerning cleanup of a site
containing soil contaminated by PCB's from equipment
originally owned by the Company, see Note 2, "Commitments
and Contingencies," "Legal and Environmental Matters,"
which is incorporated herein by reference.
Regulatory Matters. For a discussion of certain other
regulatory matters affecting the Company, see Note 3,
"Regulatory Matters," which is incorporated herein by
reference.
Item 2. and 3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was
held on May 25, 1994. Proxies for the meeting were
solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There was no solicitation in
opposition to the management's nominees as listed in the
proxy statement, and all of such nominees were elected.
Three matters were voted on at the meeting. One was the
election of three directors to Class I of the Company's
Board of Directors for a three-year term. All three
nominees were elected, with the following vote
tabulations:
Charles H. Abbott:
Votes for - 2,393,695
Votes withheld - 147,032
Abstentions - 579,906
Broker nonvotes - 235,365
Carlton D. Reed, Jr.:
Votes for - 2,399,535
Votes withheld - 141,192
Abstentions - 579,906
Broker nonvotes - 235,365
Kathryn M. Weare:
Votes for - 2,388,543
Votes withheld - 152,196
Abstentions - 579,894
Broker nonvotes - 235,365
-20-
Two other matters voted on at the meeting were:
1. Approval of the Company's Long-Term Incentive Plan,
under which certain "key employees" of the Company may
receive incentive compensation in the form of shares of
the Company's Common Stock, with the following vote
tabulations:
Votes for - 2,003,257
Against - 413,728
Votes withheld - 579,321
Abstentions - 124,327
Broker nonvotes - 235,365
2. Approval of the appointment of Coopers & Lybrand,
Boston, Massachusetts, as the Company's auditors for the
year 1994. The appointment was approved, with the
following vote tabulations:
Votes for - 2,437,639
Against - 34,436
Votes withheld - 579,986
Abstentions - 68,572
Broker nonvotes - 235,365
Item 5. Other Events Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company filed the
following reports on Form 8-K during the second quarter
of 1994 and thereafter to date:
Date of Report Items Reported
May 16, 1994 Item 5
(a) Settlement With Wholesale Customer Leaving Company
System. On May 16, 1994, the Company, Madison and NU
entered into a settlement agreement that resolved,
subject to regulatory approvals, all issues in dispute
among the parties relating to Madison and MPI. On May
26, 1994, the PUC approved the stipulation.
(b) Buyout of Non-Utility Generator ("NUG") Contract.
On June 9, 1994, the Company announced that it had
agreed to buy out a NUG contract for a 33-megawatt wood-
fired generating plant in Fort Fairfield, Maine. On
June 14, 1994, the Company filed an application with the
PUC for approval of the buyout.
(c) Filing of Rate Stability Plan. On June 15, 1994,
having been unsuccessful in reaching agreement on some
substantive issues, the Company filed a proposed rate
stability plan with the PUC.
-21-
Date of Report Items Reported
July 5, 1994 Item 5
(a) Approval of Stipulation in Power Contracts Prudence
Investigation. On July 5, 1994 the PUC approved a
stipulation that provided that the Company would not be
subject to any further investigations, disallowances, or
other financially adverse consequences with respect to
administration prior to March 22, 1994, of its
administration of its large non-utility generator
contracts that were being investigated.
(b) Approval of Fuel Cost Adjustment Stipulation. On
July 18, 1994, the MPUC approved a stipulation entered
into by the Company and other parties providing for an
annual fuel revenue increase of $23.3 million.
In addition, the approved fuel-related stipulation
provides for an expedited approval process for the
Company to implement new special-rate contracts with
individual customers.
-22-
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.
CENTRAL MAINE POWER COMPANY
(Registrant)
Date: August 9, 1994 /S/R. S. Howe
R. S. Howe, Comptroller (Chief Accounting
Officer and duly authorized officer)
-23-