FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March, 1997
MAINE PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Maine 1-3429 01-0113635
(State, or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
209 State Street, Presque Isle, Maine 04769
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 207-768-5811
Current Report, Form 8-K for Date of Report:
Maine Public Service Company March, 1997
Item 5. Other Material Events - Amendments of Financial Instruments to
Avoid Violation of Interest Coverage Tests
In the Company's Form 8-K's dated January 31, 1997 and
February 14, 1997, the Company described events at Maine
Yankee and the potential impact on the Company's financial
condition. The Company owns 5% of the Common Stock of Maine
Yankee. The Company's short-term revolving credit agreement
and a letter of credit supporting its 1996 revenue bonds
contain interest coverage tests that the Company must satisfy
to avoid default. The Company further stated its belief that
it will likely be in violation of these interest coverage
tests for the twelve months ended March 31, 1997, based on
projected additional Maine Yankee expenses and replacement
power costs during the plant outage. The Company reported
that it will seek waivers of these requirements from the
Banks.
On March 28, 1997, the Company and the Banks agreed on
amendments to the revolving credit agreement and letter of
credit and reimbursement agreement which adjust the interest
coverage tests for Maine Yankee replacement power costs
through September 30, 1997. Under the amendment to the
revolving credit agreement, the Company is obligated to issue
a first mortgage bond of $11 million as collateral for the
maximum amount of Company obligations under the revolving
credit agreement. Both amendments are conditioned on the
issuance of the first mortgage bond on or before May 15, 1997,
or the amendments will be repealed. In that event, the
Company would not be able to satisfy the interest coverage
tests for the twelve-month period ending March 31, 1997, for
both instruments and would be in default. The issuance of the
first mortgage bond is subject to the approval of the Maine
Public Utilities Commission (MPUC). The Company expects that
the MPUC will approve the issuance of the first mortgage bonds
prior to May 15, 1997.
The Company has been incurring replacement power costs of
approximately $170,000 per week while the plant has been out
of service. In addition, the Company is responsible for
additional operating costs of $2.3 million associated with the
previously reported Independent Safety Assessment of the Maine
Yankee plant. Additional costs may also be expected, if the
complexity of the cable separation and associated issues of
the Maine Yankee plant require an extended period for their
resolution. These additional costs can be expected to
adversely impact the Company's 1997 financial results.
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company March, 1997
As mentioned above, the amendments to the Company's revolving
credit agreement and letter of credit and reimbursement
agreement only exclude Maine Yankee replacement power costs
through September 30, 1997. If Maine Yankee does not return
to service prior to September 30, 1997, interest coverage
tests for periods after September 30, 1997 would be required
to reflect any additional Maine Yankee replacement power costs
after that date.
Item 7. Exhibits
99(a) Excerpts from Maine Yankee Atomic Power Company's Annual
Report.
Appropriate sections of Maine Yankee's Annual Report are
normally attached to the Company's Form 10-K, which was filed
March 19, 1997. Because the Maine Yankee information was not
available at that time, the Company is now submitting the
attached sections of Maine Yankee's Annual Report for the year
ended December 31, 1996 under the captions "The Company", "The
Plant", "Regulation and Environmental Matters", "Plant
Regulation and Operational Issues", and "Effect of Extended
Outage on Sponsors".
MAINE PUBLIC SERVICE COMPANY
Registrant
Dated: March 31, 1997 /s/ Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance, Administration and Treasurer
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Excerpts from Maine Yankee Atomic Power Company Annual Report:
THE COMPANY
Maine Yankee Atomic Power Company (the "Company" or "Maine Yankee"),
incorporated under the laws of Maine on January 3, 1966, owns and
operates a pressurized-water nuclear-powered electric generating plant
at Wiscasset, Maine, with a current net capacity of approximately 860
megawatts electric (the "Plant"). The Company sells its capacity and
output to its ten sponsoring stockholder utilities. The Company's
principal office address is 329 Bath Road, Brunswick, ME 04011, and its
telephone number is (207) 798-4100. At December 31, 1996, the Company
had 453 regular full-time employees.
The Company is sponsored by ten investor-owned New England utilities
(the "Sponsors" or the "Stockholders"), each of which is committed under
a Power Contract with the Company to purchase a specified percentage of
the capacity and output of the Plant and to pay therefor a like
percentage of amounts sufficient to pay the Company's fuel costs,
operating expenses (including a depreciation accrual at a rate
sufficient to fully amortize the investment in the Plant over the
operating life of the Plant and amounts estimated to be sufficient to
decommission the Plant), interest on its debt and a return on its
equity. The Company and its Sponsors have also executed Additional
Power Contracts for the purpose of extending the term of the Power
Contracts, as amended, from 2003 to the end of the useful life of the
Plant and the completion of its decommissioning and financial
obligations. Each Sponsor has also agreed, under a Capital Funds
Agreement with the Company, to provide a like percentage of the
Company's capital requirements not obtained from other sources, subject
to obtaining necessary authorizations of regulatory bodies in each
instance. All such obligations are subject to the continuing
jurisdiction of various federal and state regulatory bodies.
The obligations of the Sponsors to make payments under the Power
Contracts are unconditional, subject only to each Sponsor's right to
cancel its Power Contract if deliveries cannot be made to the Sponsor
because either (i) the Plant is damaged to the extent of being
completely or substantially completely destroyed, or (ii) the Plant is
taken by exercise of the right of eminent domain or a similar right or
power, or (iii) (a) the Plant cannot be used because of contamination or
because a necessary license or authorization cannot be obtained or is
revoked or the utilization thereof is made subject to specified
conditions which are not met, and (b) the situation cannot be rectified
to an extent which will permit the Company to make deliveries to the
Sponsor from the Plant. Notwithstanding the right to cancel, the
obligation to pay decommissioning costs continues until the Plant has
been fully decommissioned.
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THE PLANT
The Plant is located on tidewater on Bailey Point in Wiscasset, Maine,
on an 820-acre site that is owned in fee by the Company and is adequate
for the Plant and for all associated facilities, including the
associated switchyard facilities which are owned in part and operated by
Central Maine Power Company.
The Plant is a nuclear-powered electric generating plant, utilizing a
pressurized-water reactor, fueled with slightly enriched uranium oxide.
The nuclear steam supply system and certain other equipment were
designed and fabricated by Combustion Engineering, Inc. The turbine
generator was supplied by Westinghouse Electric Corporation. Stone &
Webster Engineering Corporation, as engineer and constructor, designed
and constructed the Plant. Construction of the Plant, which began in
1967, was completed in 1972 except for certain discharge temperature
control facilities designed to meet the requirements of the Maine Board
of Environmental Protection, which were completed in 1975.
The Plant was declared commercial on December 28, 1972, with regular
operation at approximately 570 megawatts electric (net) starting on
January 1, 1973. Hearings on the Company's application for a full
operating license were completed in 1972 and the license for full
operation to 2008 was granted by the Atomic Energy Commission, the
predecessor of the Nuclear Regulatory Commission ("NRC"), on June 29,
1973.
Since the Plant commenced operation, the Company has sought to improve
its safety and reliability through periodic upgrading of equipment and
facilities, along with regular training programs for Plant personnel.
Through 1994 the Plant was a leader in electrical production. Through
December 31, 1996, the Company had sold 118.7 billion KWH of electricity
at an average lifetime total cost per KWH of 2.5 cents (including the
cost of the 1995 extended shutdown discussed below).
In February of 1995, during a regular refueling-and-maintenance
shutdown, Maine Yankee discovered an extensive number of degraded steam-
generator tubes in the Plant. After evaluating its options, the Company
undertook a repair project that kept the Plant off-line until early
December 1995, when anonymous allegations of wrongdoing forwarded by the
Union of Concerned Scientists ("UCS") in connection with earlier license
amendments raised safety concerns that caused the Plant to remain out of
service until mid-January 1996. At that time Maine Yankee was allowed
to return the Plant to a level of 90 percent of its maximum operating
capacity pending final resolution of those concerns. Then, on
December 6, 1996, the Plant was taken off-line again, and it has
remained off-line pending resolution of those concerns and additional
issues. For a detailed discussion of the extended outage in 1995 and
subsequent events, including the Plant's being placed on the NRC's
"Watch List", see "Plant Regulatory and Operational Issues," below.
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The operation of existing nuclear units and the construction of nuclear
units in the United States have been subjects of public controversy.
Various groups have filed lawsuits and participated in administrative
proceedings claiming that nuclear technology presents risks to public
health and safety and to the environment. In addition, certain of these
groups have proposed restrictive legislation relating to nuclear power.
Some of the claims made by such groups, if they should prevail, or the
existence of the controversy itself, could cause substantial
modifications to or extended shutdowns of plants presently in operation.
Events in 1979 at the Three Mile Island Nuclear Unit No. 2 in
Pennsylvania ("TMI") caused increased concern about the safety of
nuclear generating plants. This prompted a rigorous reexamination of
safety-related equipment and operating procedures in all nuclear
facilities and caused the NRC to promulgate numerous requirements in
response to TMI, including both near-term modifications to upgrade
certain safety systems and instrumentation and longer-term design
changes, ranging from equipment changes to operational support. The
Company made the modifications required by the NRC. The NRC is
continuing its safety reviews under both long-standing and new
regulations and may at any time issue orders that could materially
affect the Company's affairs and financial condition and the operation
of the Plant.
Public and regulatory attention has also focused on the disposal of both
low- and high-level nuclear wastes. Certain aspects of the disposal of
nuclear wastes and the decommissioning of nuclear generating facilities
have been regulated under federal and Maine law, and further regulation
is likely in this area. Public concern about the operation of nuclear
generating facilities and the disposal of nuclear wastes has sometimes
resulted in public campaigns to close such facilities. Although
affecting various nuclear generating facilities in varying degrees, such
events, as well as other problems of the industry, have had, and will
continue to have, a direct effect on the affairs and financial condition
of the Company.
There have been three unsuccessful state referenda attempting to close
the Plant since 1980. The last referendum occurred on November 3, 1987,
when the Maine electorate defeated an initiated bill intended to close
the Plant on July 4, 1988, by a margin of 59 percent to 41 percent. In
late 1996, a Maine-based group announced its intention to gather
signatures for a referendum to close the Plant in 2008, when the Plant's
operating license is scheduled to expire. In the event such a
referendum takes place, no prediction can be made as to the outcome. If
(contrary to the history of unsuccessful referenda on the Plant) such a
referendum or a referendum to close the Plant early were to pass in
Maine, the Company believes that such referendum would be vulnerable to
a challenge on the basis of fundamental legal principles and that the
Company would have substantial rights and remedies available to it.
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REGULATION AND ENVIRONMENTAL MATTERS
The Plant is subject to extensive regulation by the NRC, which is
empowered to authorize the siting, construction and operation of nuclear
reactors after consideration of public health, safety, environmental and
antitrust matters. The Company and several of its Sponsors are
subsidiaries of registered holding companies and, as such, are subject
to regulation by the Securities and Exchange Commission ("SEC") under
the Public Utility Holding Company Act of 1935 with respect to various
matters, including the issuance of certain securities. The Company is
also subject to regulation by the SEC under other federal securities
laws.
In addition, the Company is subject to regulation by the Federal Energy
Regulatory Commission ("FERC") as to its rates (including the Power
Contracts and Additional Power Contracts) and various other matters, and
is subject to regulation by the Maine Public Utilities Commission
("MPUC") as to some aspects of its business, including the issuance of
securities.
The United States Environmental Protection Agency ("EPA") administers
programs established under the Federal Water Pollution Control Act and
the Clean Air Act, as amended in 1990, which affect the Plant. The
former Act establishes a national objective of complete elimination of
discharges of pollutants into the nation's water and creates a rigorous
permit program designed to achieve this objective. The latter Act
empowers the EPA to establish clean air standards which are implemented
and enforced by state agencies.
In addition, pursuant to the Federal Resource Conservation and Recovery
Act of 1976, the EPA regulates the generation, transportation,
treatment, storage and disposal of hazardous wastes. The EPA has broad
authority in administering these programs, including the ability to
require installation of pollution control and mitigation devices.
The National Environmental Policy Act of 1969 ("NEPA") requires that
detailed statements of the environmental effects of major federal
actions be prepared by federal agencies. Major federal actions can
include licenses or permits issued to the Company by the NRC and other
federal agencies for construction or operation of generation and
transmission facilities. NEPA requires that federal licensing agencies
make an independent evaluation of the environmental impact of, and
alternatives to, the proposed action. Future construction modifications
or other activities at the Plant could require federal licenses or
approvals that involve NEPA requirements.
The Company is also subject to regulation as to environmental matters
and land use by various state and local authorities in Maine.
Under their continuing jurisdiction, the NRC and one or more of the EPA
and the state authorities having jurisdiction over the Company's facil-
ities may modify permits or licenses that have already been issued, or
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impose new conditions on such permits or licenses, and may require ad-
ditional capital expenditures or require that the level of operation of
a unit be temporarily or permanently reduced. The Sponsors of the
Company have agreed, however, subject to certain exceptions including
regulatory approval, (i) to provide the required capital not otherwise
available, (ii) to take the total output of the Plant, and (iii) to pay
all costs of the Plant, including capital and decommissioning costs.
Prior to 1995, the Maine Yankee unit, like other pressurized-water
reactors, had been experiencing degradation of its steam generator
tubes, principally in the form of circumferential cracking, which, until
early 1995, was believed to be limited to a relatively small number of
steam generator tubes. In the past, the detection of defects had
resulted in the plugging of those tubes to prevent their subsequent use.
During the refueling-and-maintenance shutdown that commenced in early
February of 1995, the Company detected through new inspection methods
substantially increased degradation of the Plant's steam generator tubes
to the extent that approximately 60 percent of the Plant's 17,000 steam
generator tubes appeared to have defects to some degree, which
eliminated mitigating the problem by plugging the tubes with indicated
defects.
Following a detailed analysis of the safety, technical and financial
considerations associated with repair of the degraded steam generator
tubes, Maine Yankee elected to repair the tubes by inserting and welding
short reinforcing sleeves of an improved material in substantially all
of the Plant's steam generator tubes. Similar repairs had been
completed at other nuclear plants in the United States and abroad, but
not on the scale of the Maine Yankee project. With Westinghouse
Electric Corporation as the general contractor, the sleeving project
started in early June of 1995, after approval of the Westinghouse
sleeving process by the NRC, and was essentially complete in early
December. The project caused Maine Yankee to incur costs of
approximately $27 million during 1995.
On December 4, 1995, when the sleeving project was substantially
complete, Maine Yankee obtained a copy of a letter from the Union of
Concerned Scientists, an organization with a history of opposing nuclear
power, to a State of Maine nuclear safety official based on
documentation from an anonymous employee or former employee of Yankee
Atomic Electric Company ("Yankee"), an affiliate of the Company that has
regularly performed nuclear engineering and related services for the
Company and other nuclear plant operators. The letter contained
allegations that Yankee had knowingly performed inadequate analyses to
support two license amendments to increase the rated thermal power at
which the Maine Yankee Plant could operate. It was further alleged in
the letter that Maine Yankee deliberately misrepresented the analyses to
the NRC in seeking the license amendments. The allegedly inadequate
analyses related to the operation of the Plant's emergency core cooling
system ("ECCS") and the calculation of the Plant containment's peak
postulated accident pressure, both under certain assumed accident
conditions. The analyses were used in support of license amendments
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that authorized Plant power uprates from 2440 megawatts thermal, a level
equal to approximately 90 percent of the maximum electrical capability
of the Plant, to its current 100 percent rated level of 2700 megawatts
thermal.
In response to technical issues raised by the allegations, the NRC
initiated a special technical review of the safety analyses performed by
Yankee relating to Maine Yankee's license amendment applications for the
power uprates. At the same time, Maine Yankee and Yankee initiated
intensive internal investigations of the allegations and provided
responsive information and documentation to the NRC. Subsequently, the
NRC informed Maine Yankee that the allegations would be the subject of
investigations by the NRC's Office of Investigations ("OI") and the
Office of the Inspector General ("OIG").
On January 3, 1996, the NRC issued a "Confirmatory Order Suspending
Authority For And Limiting Power Operation And Containment Pressure
(Effective Immediately) And Demand For Information" (the "Order"). The
Order limited the power output of the Maine Yankee Plant to
approximately 90 percent of its rated maximum until the NRC had reviewed
and approved a Plant-specific ECCS analysis and ordered that internal
containment pressure be limited until the NRC had reviewed the design-
basis analysis of containment pressure. The Order further contained a
request for information prior to restart, which the Company satisfied.
On January 10, 1996, Maine Yankee filed with the NRC information
specified in the Order that it believed supported operation of the Plant
at up to 90 percent of the Plant's capability, and the Plant began
normal operation at the 90 percent level on January 24, 1996. On April
25, 1996, Maine Yankee submitted the ECCS analysis requested in the
Order.
In December 1995 the OIG and OI initiated separate investigations of the
anonymous allegations of wrongdoing by Maine Yankee and Yankee. On
May 9, 1996, the OIG, which was responsible for investigating only the
actions of the NRC Staff and not those of Maine Yankee or Yankee, issued
its report on its investigation. The report found deficiencies in the
NRC Staff's review, documentation, and communications practices in
connection with the license amendments, as well as "significant
indications of possible licensee violations of NRC requirements and
regulations." Any such violations by Maine Yankee or Yankee are within
the purview of the OI investigation. Maine Yankee was advised on
September 19, 1996, that the NRC had asked the U.S. Department of
Justice to review the OI investigation report. Maine Yankee cannot
predict the outcome of that review. An internal assessment by Maine
Yankee and Yankee noted several areas that could have been improved,
including regulatory communications, definition of responsibilities
between Maine Yankee and Yankee, and documentation and tracking of
regulatory compliance. A separate internal investigation of issues
raised by the anonymous allegations commissioned by the boards of
directors of Maine Yankee and Yankee and conducted by an independent law
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firm found no wrongdoing by Maine Yankee, Yankee or any of their
employees.
On June 7, 1996, the NRC formally notified Maine Yankee that it would
conduct an "Independent Safety Assessment" ("ISA") of the Plant as a
"follow-on" to the OIG report and to provide an independent evaluation
of the safety performance of Maine Yankee by a team of NRC personnel and
contractors who were "independent of any recent or significant
involvement with the licensing, regulation or inspection of Maine
Yankee," with State of Maine involvement. The NRC conducted the ISA in
the summer of 1996 and released its report on October 7, 1996.
The detailed ISA report identified both deficiencies and strengths in
Maine Yankee's performance, and concluded that overall performance at
Maine Yankee was "adequate" for operation of the Plant. The ISA team
stressed that the deficiencies noted in the report stemmed from two
closely related root causes, specifically, (1) that economic pressure to
be a low-cost energy provider had limited available resources to address
corrective actions and some improvements, and (2) that a questioning
culture was lacking at Maine Yankee, which had resulted in a failure to
identify or promptly correct significant problems in areas perceived by
Maine Yankee to be of low safety significance. In a letter to Maine
Yankee accompanying the ISA report, Chairman of the NRC Shirley Ann
Jackson noted that although overall performance at Maine Yankee was
considered adequate for operation, a number of significant weaknesses
and deficiencies identified in the report would result in NRC
violations. The letter also directed Maine Yankee to provide to the NRC
its plans for addressing the root causes of the deficiencies noted in
the ISA and identified the NRC offices that would be responsible for
overseeing corrective actions and taking appropriate enforcement actions
against Maine Yankee.
On December 10, 1996, Maine Yankee filed its formal response to the ISA
report with the NRC. In the response Maine Yankee indicated that it
would spend substantial sums on improvements in several areas in 1997 to
address the root causes and associated deficiencies noted in the report,
and that the improvements would include physical and operating changes
at the Plant, along with a 10 percent increase in staffing, primarily in
the engineering and maintenance areas, and other changes. In a release
accompanying the response, Maine Yankee stated that a "fundamental shift
in corporate culture" would accompany the changes and that Maine Yankee
would not seek to return the Plant to the 100 percent power level from
its authorized 90 percent level until it had also reviewed the margins
on all the key safety systems at the Plant, which had been another
matter of concern to the NRC.
The December 1995 allegations caused the Plant's extended tube-sleeving
outage to be further extended into January 1996, and the Plant returned
to the 90 percent operating level on January 24. The Plant operated
substantially at that level until July 20, 1996, when it was taken off-
line after a comprehensive review by Maine Yankee of the Plant's systems
and equipment revealed a need to add pressure-relief capacity to a
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section of the Plant's primary component cooling system. On August 18,
1996, while the Plant was in the restart process, Maine Yankee conducted
a review of its electrical circuitry testing procedures pursuant to a
generic NRC letter to nuclear-plant licensees that was intended to
ensure that the electrical logic features of safety systems be routinely
tested. During the expanded review, Maine Yankee found a deficiency in
an electrical circuit of a safety system and therefore elected to
conduct an intensified review of other safety-related circuits to
resolve immediately any questions as to the adequacy of related testing
procedures. The Plant returned to the 90 percent operating level on
September 3, 1996.
On December 6, 1996, Maine Yankee took the Plant off-line again to
resolve cable-separation and other operational and design issues. On
January 3, 1997, Maine Yankee announced that it would use the
opportunity presented by that outage to inspect the Plant's 217 fuel
assemblies, since daily monitoring had indicated evidence of minor
leakage in a small number of the Plant's 38,000 fuel rods. As a result
of the inspection, Maine Yankee determined that all of the assemblies
manufactured by one supplier and currently in the reactor core
(approximately one-third of the total) would have to be replaced before
the Plant could be restarted. Maine Yankee will therefore keep the
Plant off-line for refueling, which had previously been scheduled for
late 1997. In addition, Maine Yankee will make use of the outage to
conduct a thorough inspection of the Plant's steam generators,
commencing approximately April 1, 1997, for deterioration beyond that
which was repaired during the extended 1995 outage. Degradation of
steam generators of the age and design of those in use in the Plant has
been identified at other plants. If major repairs to, or replacement of,
the steam generators were found to be necessary for continued operation
of the Plant, Maine Yankee would review the economics of continued
operation before incurring the substantial capital expenditures that
would be required. The Company cannot predict the results of the
inspection.
On January 29, 1997, the NRC announced that it had placed the Plant on
its "watch list," in "Category 2," which includes plants that display
"weaknesses that warrant increased NRC attention," but which are not
severe enough to warrant a shut-down order. Plants in Category 2 remain
in that category "until the licensee demonstrates a period of improved
performance." The Plant is one of fourteen nuclear units on the watch
list announced that day by the NRC, which regulates over 100 civilian
nuclear power plants in the United States.
On February 13, 1997, Maine Yankee and Entergy Nuclear, Inc.
("Entergy"), which is a subsidiary of Entergy Corporation, a Louisiana-
based utility holding company and leading nuclear plant operator,
entered into a contract under which Entergy is providing management
services to Maine Yankee. At the same time, officials from Entergy
assumed management positions, including President, at Maine Yankee.
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While the Plant is out of service Maine Yankee, in addition to
successfully completing the refueling and the inspection of the steam
generators, must resolve the cable-separation issues and other known
regulatory issues, as well as any additional issues that are discovered
during the outage. The Company must obtain the approval of the NRC
staff to restart the Plant, following a mandated NRC process that
includes an NRC-approved restart plan and opportunities for public
participation. Maine Yankee submitted its Restart Readiness Plan
("RRP") to the NRC on March 7, 1997. The NRC has scheduled the initial
public meeting for review of the RRP on April 3, 1997. Maine Yankee
estimates that its operations and maintenance costs will increase by up
to approximately $47 million in 1997, net of refueling costs. The
Company believes the Plant will be out of service at least until August
1997, but cannot predict when or whether all of the regulatory and
operational issues will be satisfactorily resolved or what effect the
ultimate total of the repairs and improvements to the Plant will have on
the economics of operating the Plant.
EFFECT OF EXTENDED OUTAGE ON SPONSORS
The additional costs associated with the Maine Yankee Plant outages,
when combined with the Sponsors' own replacement-power costs, are
adversely affecting the financial condition of the Sponsors. Central
Maine Power Company, which is responsible for 38 percent of Maine
Yankee's operating costs, has stated that sustained nuclear-unit outages
"will be a major obstacle to achieving satisfactory results in 1997."
Bangor Hydro-Electric Company, a 7 percent Sponsor, has cited its
"deteriorating" financial condition and on March 19, 1997, eliminated
its first-quarter common-stock dividend; and Maine Public Service
Company, a 5 percent Sponsor, cited problems in satisfying financial
covenants in loan documents and substantially reduced its common-stock
dividend in early March 1997. Other Sponsors are affected in varying
degrees. Northeast Utilities (a 20 percent Sponsor through three
subsidiaries), which is also adversely affected by the substantial
additional costs associated with the three shut-down Millstone nuclear
units and the permanently shut-down Connecticut Yankee unit, as well as
an unfavorable utility deregulation plan in New Hampshire currently
under appeal, announced on March 24, 1997, that its management was
planning to recommend a suspension of its second-quarter common-stock
dividend to its board of trustees. A default by a Sponsor of the
Company in making payments under its Power Contract or Capital Funds
Agreement could have a material adverse effect on the Company, depending
on the magnitude of the default, and would constitute a default under
the Company's First Mortgage Indenture and its two other major credit
agreements unless cured within applicable grace periods by the
defaulting Sponsor or other Sponsors.
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