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: June, 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 June, 1997
Item 5. a) Other Material Events - Restructuring of Maine's Electric
Utility Industry
In the Company's Form 10-K for December 31, 1996 as well as
the form 10-Q for the quarter ended March 31, 1997, the
Company described electric utility restructuring efforts in
Maine, including the Maine Public Utilities Commission's
(MPUC) recommendation to the legislature. After months of
hearings and deliberations, the Maine legislature passed L.D.
1804, "An Act to Restructure the State's Electric Industry",
which the Governor signed into law on May 29, 1997.
The principal provisions of the new law are as follows:
(1) Beginning on March 1, 2000, all consumers of electricity
have the right to purchase generation services directly from
competitive electricity suppliers who will not be subject to
rate regulation.
2) By March 1, 2000, the Company, Central Maine Power
Company (CMP) and Bangor Hydro-Electric Company (BHE) must
divest of all generation related assets and business functions
except for:
(a) contracts with qualifying facilities, such as the
Company's power contract with Wheelabrator-Sherman (W/S),
and conservation providers;
(b) nuclear assets, namely, the Company's investment in
the Maine Yankee Atomic Power Company, however, the MPUC
may require divestiture on or after January 1, 2009;
(c) facilities located outside the United States, i.e.,
the Company's hydro facility in New Brunswick, Canada;
and
(d) assets that the MPUC determines necessary for the
operation of the transmission and distribution services.
The MPUC can grant an extension of the divestiture deadline if
the extension will improve the selling price. For assets not
divested, the utilities are required to sell the rights to the
energy and capacity from these assets. The Company shall
submit to the MPUC its divestiture plan no later than January
1, 1999.
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company June, 1997
Item 5. a) Other Material Events - Restructuring of Maine's Electric
Utility Industry - Continued
3) Billing and metering services will be subject to
competition beginning March 1, 2002, but permits the MPUC to
establish an earlier date, no sooner than March 1, 2000.
4) The Company, through an unregulated affiliate, may market
and sell electricity both within and outside its current
service territory, without limitation. Both CMP and BHE are
limited to 33% of the load within their respective service
territories, but may sell an unlimited amount outside their
service territories. Consumer-owned utilities are allowed to
market and sell within their service territories, but the MPUC
can limit or prohibit competition in their service territory,
if the tax-exempt status of the consumer-owned utility is
threatened.
5) The Company, through a regulated affiliate, will continue
to provide transmission and distribution services which will
be subject to continued regulation by the MPUC.
6) Maine electric utilities will be permitted a reasonable
opportunity to recover legitimate, verifiable and unmitigable
costs that are otherwise unrecoverable as a result of retail
competition in the electric utility industry. The MPUC shall
determine these stranded costs by considering:
a) the utility's regulatory assets related to
generation, i.e., the Company's unrecovered Seabrook
investment;
b) the difference between net plant investment in
generation assets compared to the market value for those
assets; and
c) the difference between future contract payments and
the market value of the purchased power contracts, i.e.,
the W/S contract.
By July 1, 1999, the MPUC will have estimated the stranded
costs for the Company and the manner for the collection of
these costs by the transmission and distribution company.
Customers reducing or eliminating their consumption of
electricity by switching to self-generation, conversion to
alternative fuels or utilizing demand-side management measures
cannot be assessed exit or entry fees. The MPUC shall include
in the rates charged by the transmission and distribution
utility decommissioning expenses for Maine Yankee. In 2003
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company June, 1997
Item 5. a) Other Material Events - Restructuring of Maine's Electric
Utility Industry - Continued
and every three years thereafter until the stranded costs are
recovered, the MPUC shall review and revaluate the stranded
cost recovery.
7) All competitive providers of retail electricity must be
licensed and registered with the MPUC and meet certain
financial standards, comply with customer notification
requirements, adhere to customer solicitation requirements and
are subject to unfair trade practice laws. Competitive
electricity providers must have at least 30% renewable
resources in their energy portfolios, including hydro-electric
generation.
8) A standard-offer service will be available, ensuring
access for all customers to reasonably priced electric power.
Unregulated affiliates of CMP and BHE providing retail
electric power are prohibited from providing more than 20% of
the load within their respective service territories under the
standard offer service, while any unregulated affiliate of the
Company does not have a similar restriction.
9) Unregulated affiliates of CMP and BHE marketing and
selling retail electric power must adhere to specific codes of
conduct, including, among others:
a) employees of the unregulated affiliate providing
retail electric power must be physically separated from
the regulated distribution affiliate and cannot be
shared;
b) the regulated distribution affiliate must provide
equal access to customer information;
c) the regulated distribution company cannot
participate in joint advertising or marketing programs
with the unregulated affiliate providing retail electric
power;
d) the distribution company and its unregulated
affiliated provider of retail electric power must keep
separate books of accounts and records; and
(e) the distribution company cannot condition or tie the
provision of any regulated service to the provision of
any service provided by the unregulated affiliated
provider of electricity.
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company June, 1997
Item 5. a) Other Material Events - Restructuring of Maine's Electric
Utility Industry - Continued
The MPUC shall determine the extent of separation
required in the case of the Company to avoid cross-
subsidization and shall consider all similar relevant
issues as well as the Company's small size.
10) Employees, other than officers, displaced as a result of
retail competition will be entitled to certain severance
benefits and retraining programs. These costs will be
recovered through charges collected by the regulated
distribution company.
11) Other provisions of the new law include provisions for:
a) consumer education;
b) continuation of low-income programs and demand side
management activities;
c) consumer protection provisions;
d) new enforcement authority for the MPUC to protect
consumers.
The MPUC will conduct several rulemaking proceedings
associated with the new restructuring law. The Company is
presently reviewing its business operations and the
opportunities that the new restructuring law presents. The
Company cannot predict the value of the Company's stranded
investment that the MPUC will determine.
b) Other Material Events - Maine Yankee Owners Cut Spending
and Consider Closure of Maine Yankee
In the Company's Form 10-K for December 31, 1996 as well as
the Form 10-Q for the quarter ended March 31, 1997, the
Company described the significant regulatory and operational
issues at the Maine Yankee Atomic Power Plant (Maine Yankee),
of which the Company is a 5% owner. Previously, the Company
reported that the unscheduled Maine Yankee outage that began
on December 6, 1996 had materially impacted the Company's
earnings and cash flows for the first quarter of 1997, and the
adverse impact would continue until the plant restarted.
After considering the financial implications of the Maine
Yankee outage, at a regular meeting on March 7, 1997, the
Company's board of directors reduced the quarterly dividend to
$.25 per share (annualized rate of $1.00 per share) from $.46
per share (annualized rate of $1.84 per share).
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company June, 1997
Item 5. b) Other Material Events - Maine Yankee Owners Cut Spending
and Consider Closure of Maine Yankee - Continued
The Company's short-term revolving credit agreement and letter
of credit supporting its 1996 tax-exempt revenue bonds contain
interest coverage tests that the Company must satisfy to avoid
default. The Company and the Banks agreed on amendments to
the revolving credit agreement and letter of credit and
reimbursement agreement which adjust the interest coverage
tests to exclude Maine Yankee incremental replacement power
costs through September 30, 1997. Without these amendments,
the Company would have been in violation of its interest
coverage tests for the twelve months ended March 31, 1997, and
would have been in default on those instruments. Under the
amendment to the revolving credit agreement, the Company was
obligated to issue a first mortgage bond of $11 million as
collateral for the maximum amount of the Company's obligation
under the revolving credit agreement. On April 28, 1997, the
Maine Public Utilities Commission approved the issuance of the
first mortgage bonds, and the Company issued the bonds on May
5, 1997.
On May 27, 1997, the Board of Directors of Maine Yankee
announced that it is considering permanent closure of Maine
Yankee based on the economics of the facility as well as
uncertainty regarding the operation of the plant. No final
decision was made but spending levels will be reduced
immediately to a level that will preserve the option of
restarting the 810-megawatt facility or closing it. The
preservation plan for the plant reduces spending by $41
million from June through December of 1997, a reduction of $2
million for the Company. However, the Company will be
incurring replacement power costs during the period that the
plant is not operating. The Maine Yankee Board of Directors
has also had preliminary discussions with Peco Energy Company
regarding the sale of Maine Yankee but no agreement has been
reached. The Company cannot predict whether Maine Yankee will
return to service or whether Maine Yankee will be sold.
Without a change in ownership of Maine Yankee or other
significant changes in relevant circumstances, the Company
believes it is unlikely that Maine Yankee will return to
service.
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Current Report, Form 8-K for Date of Report:
Maine Public Service Company June, 1997
Item 5. b) Other Material Events - Maine Yankee Owners Cut Spending
and Consider Closure of Maine Yankee - Continued
As mentioned above, the amendments to the Company's revolving
credit agreement and letter of credit and reimbursement
agreement allow only the exclusion of Maine Yankee incremental
replacement power costs through September 30, 1997. Interest
coverage tests for periods after September 30, 1997 will
reflect incremental Maine Yankee replacement power costs after
that date, presently estimated to be approximately $170,000
per week. The Company's rate plan contains a provision for
additional rate increases in the event of a Maine Yankee plant
outage exceeding six consecutive months. After the six month
period, 50% of the replacement power costs can be recovered in
rates with the annual rate increase. In addition, the profit-
sharing mechanism allows additional rate increases if earnings
are more than 300 basis points below the target return on
equity, currently 11%, with 50% of the earnings deficiency
recoverable from customers with the annual rate increase. The
Company believes that the rate plan provisions will be
triggered in 1997. If the Company's earnings provided under
the rate plan are not sufficient to satisfy its interest
coverage tests and the Company is unable to restructure its
purchase power contract with Wheelabrator-Sherman, the Company
will likely seek an emergency rate increase in advance of any
possible violation of the previously mentioned interest
coverage tests.
MAINE PUBLIC SERVICE COMPANY
Registrant
Dated: June 4, 1997 /s/ Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance, Administration and Treasurer
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