ML19323C538
| ML19323C538 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 02/14/1980 |
| From: | CENTRAL MAINE POWER CO. |
| To: | |
| Shared Package | |
| ML19323C536 | List: |
| References | |
| NUDOCS 8005160255 | |
| Download: ML19323C538 (350) | |
Text
-~
7 "M," -b. - , - ' ~ ~
~~ ~' 'y~mm.[hyj n. mg, as e,[
~
hu, gig ~ esw
^
0 kcps&ft:d:g rl -
y: e>,:1
/ g A,jtapand 4.xqy 9 jh*7
,f a
?
p e
i h
pf 6
$a 5 i
- \
6hh$h2fl 4 g'
4
) Ih_Y }g - e-,y
'N j
- th," s L.
Y:,^ :: ; ,
l t, (m;'4p $V.%Q. h*2 ,' ,
z ,
- A e? %z t' y .
<* z n ,f" W >
/
k
-Q, x
m.
.k'f
- N.
- n
( '*%w Y ~,..
~
d g.
f
&^
h a
- v. -
J t a p, .
t ,,
1 -
b[ +
' p$$w, ?;,i ;M , .,.a
>~.n>
la> i , \
I ,.
res (pwa%m vu d
g-p4
'txt y ,>
g, -
s - <
i . 9 ,.
f)( '
, s - _
, , s '
,i
,y'r_p,gcp.i' y/9 4
g, 2iJ f
- ' l^ '
l -
Y' c 4 gneg%" '#! $ . ,. ,. 3 j -
g_ :-
.. s
. ,q ,, . &:i:,
h e ,
l l l' . :; ::::,
i 7' y;g y I
fj ao p - .,
uht, g;n ., ,
4 l4
,1 . ,
.,...."n..,,, ,
g ,
a%. . g ,
.e
'=
. . ..s m ; e-
' "~
'b et:
[
- wn , *L
=
o
- M .'
m T. l(B- .
s-o N'
l p' '
=,
l AQ${f,[t fl
- di?%$$ .
- m
~~.T :QD ," '~ip w W ^e s % l y 3;gg
,3 f'~9%.Qf$ nyus q .n, pr-c,- y ,#~ ^' Q;
> q:x'"UmM.g}r s m ' ;.~ y ,sy gh.y c%a.utra d,p J. ,~w!- % ,4.xp&c>w.w;,.3 g . -:r m ?q x*.. ;p..>g w , A.
.x.';m.-mgL) w.- & y m.n-.;y.?:jl . ,---
sv m w M, Wm%;b,
!, ;N hb kNdh. '
5Es'dr/
p[. .%m*. M!*o d I , h.bM;. [y-] , s, ' + 5..' , m-i.
.q.m .- ~.c . . -. . , . A. ,y "- m.,
Ah.3'fy;.<;:?:hd' 4g 4 m.cl+ wty kha . m
,., w 3. . -3s.-L -
s.
N.+;,~'.
,~,
&a *** m? }Dg ,m gh,. .~ * , . .f.~ c,y.
v .~ . -
- l W..; .',,e- :.,. .m v
%.s;':,'3, y b'.* . -
. . ,. 3,,3 %. m. :y9 w- . %. f p%e@4g~
.. q ,:. g
, .. . . . ;b e ' '
^ .I '
.,,~.9.. '
' y ,t W.~ i i. . : $, ., : .
, _ ,.' S*r ,. -'.e- 7. ..-. ~., w.,, x -- gl
,74,, .
e,:
.b,).. 4 r?
. ,: . m a<y u .~ n d., m s . . .. . ;:. . .
. ,,d, .. '. .p' m h' 'o{.
+A h, s , yo on - - e - .
y
,,n.wu m, . 2%
., .. 7 .
en '
$$$kN I
.a . .' - .
[...' .yt. .th. . )Q;g;& 6 . ,
.[ 's gg W
4 did2*Q MMj/4g% (' . - - - CMP 589 Wides 49eeMe SetVles to M englenpra le touthern and eSirtil Maine, a R$00 squese enge servies aren. In ite 00 geer testosy i
1,1%m.44 /,'?
30 the cornpeny has aiorges sim aiose men ta0 stmuse se deveop a m .. n n n. -
4
(^ '
5 e " , . ,
']t R4+"girMi$'dd : ; i ' mix of .hydroelectrie, ca fuele$ and nucteer fueled generating
. g g y~ .
seamene cafP90 mesterehlp in me Isew England Pouer Pool and no co ene with Canede provide for added esRahulty and economy in
- {. g n .p'?c.. , ,c . 3 . '
' " h; . -
fnee5ngear clatseners' needs, yg(([., f . Our sever synabellage the Company's setpostatione of a heetthy and meneseeMe grows in me demand ter elastrie power in the styse of QA '9Q n U..MhId M . , <
Ilaine. For the 2000 men and scenen of CRIP, providing eteenent i
, . (pMy Th 9 ewer essvlos to Blaine people het become a proud tradition--e
(
A9 wm%m'.v . ..s,; . - .. tremos wow redemoniedio me sos.
s ., ,.u,*,i p.;i.11 ;4,C fiu ' , L .s
'z -
w 4
A
+(
. . . + '
1,_. . .
- + .;
,e '
n "F.., 9"
. 7 .
T
.. . . .- g g
,e , ', . a . :- ,
I .
+
5 .; aq q. . , q w
g..-
138 _
- m ~ m ~; # w , _
=--'t--,.p l . s .. , 3 s. f. .
[, ,. 2
.. ;~cm .)f d NYIh
', %:.' O - N h(, m.n- 4) a m n% ble,4%.c,. 4w. . ;
n< -
y . wn
- . . e-
\ -
, 4 43+%?f } v 17.m M
- N S,]t. h,;; ir*.'- i e~ . s e
w ;" e - h/p :vmp M, ,,t31,., . p y,gj . . ., Lo .i >~w w
- m ;,;
y 9 ,,,yg g pgan.-+-we e 4,3,%N.. , . , .
d1y *; : xg.e;, C.
~s ~m h .}Jw w % y# U.p.svf m ,...y'vy.e gp g;y a4 ._
h
- r. y~ .,=..:, ) r - - -
4,G;.,~
I
\
_ m .=w .A b-,.,y
,R.- , f.
f,- bh []4
% u% e4 ar
-'l N -
~
I QY
~ a !
- m. . .m.wmvppm.L ;fg L I L . e n; .gg_c p . ;.<gn,
- xy _- - -
-^
.m. -.-#
l w - _.
t
^g"
, 5 f NEYd , iwd h kWl af m
- , o
,.1
_ 4n.
~ -
a d s sfaa ,u _m a .
\
r
-. x.g..q ;, w- (. x. ; w.r,u.;'
l ',r..
- T*j(g y'$un;N'Y b - , , ,.. m . .
.x-_ , , ... , s w
,p.I / ly;, u ,,, ; , / ,_ .
. f[ ,
pV 3.,3,,,y I p $.p,C. m j g,
. rM,' . ' '
' S ' '
..,,s
- + w w . NQ t ,
. . .: . - . i, , . . A y > . ,, . e, , v' A 'b4' >
m.- nJ, o. +nt L- w > . , ~ . h.J.
..s -%,. , .;+me.% .w'4 ,w. . w-
.-;, ,r ., U.~y#-.. xw m~ m. m+ ,:" g3,,m yw+n4 ~ . e n,
. .g-e., ,,i, -.. w:
> a.m.m . .
. q
,- r , . s ,, c w- .&, - 3 . , w.s
.-~.#.,.j - . , s . (, *e.
t
. ,mp ,I 'sc-S.?[
a iy.. yy,. W: ' kW D A- .',;'.)e +ee '
'D: UJ.t',*h-a w. < '? .i .1 ' ' '.# . .
-y 1
. . - w e. s . _ , . +.".t .
7 .~
'@ i.\ ' ~ \ ' ' . +N t+ 3 ?
W . (ygj,. p P UAg s'~ "
-Q . 004 4-7 \ b .'W "~
i
+:.;;&a:y.3.4h U%[Tw;&l7 ( Mys.)R M d;X M M N Q& a %w &,ylp,ng[Q.'*.c:.@;m
- v. - ~ q ,2 4 9.,w p.. . g. ,,,:,y, ,gi.w v., ,' -yp .a g* "g%+kfW
.* C '.,
,Q wh7R C . . ~G x pifu_M ~. m ;.*;f j.. y & f,A g R.,}
O ' *f *3 .. y. y 'gM,f A
,m, l Je~
~
, .:f ~G yf Q ,&,. ,,
. Ww. %'@W, W ,
B W m"
- 4. , ,cd a ,;.p y n ,. , m .,e i.
3 a i
,e*ge, i...We @
. .> M. .
, &~GR.
.. .m r
a m.
e,
. J W ? M.%b, s.4. . . e. . e., ; m , . , .
wm&g8 ...
g s..
g
.,a w 3
un - . . . .. . .
y? ~ %.
A, 43.,4. s ..
- 4. ? ' ? l b ? . j '4
,$'.1
.,i.r.
g
.7.,7
- "$;.. ?%f ,.
,t l e * ',j* :-' % *'%'b_pe,..$ '
a
- ( - { 4 A ';y..g .. w f 6 ,
."',1.+,'(ssp /s c.. . 4 t ,(
s
. t - i i ;
,,*-. 3*c,), wh.) , l. . . . .
- *E i, r
. . , . ,,m.
, < ,'g
-'C
- ,sy% '
, y n , va .
x a' ' t i * *
. 4lti .
,y 4.' A]jM.
g *D L
4e/ ,
t
"(-
7-g yQ W'
, * .s ,e ,.. - ,* f. y ~q f.... ..
g
~ . d.,8 J., IO [f4.id
- l t
3 t
9
( .-
t .
( , ,
m~
f
- A g
me ,
%, Ewe'* a o- ,
) g *k'. . gg g 9
- 5 I 5 4 3 % ,,-
'C* , j., J-
,_[->
i 7
e,, t z, . .
r g ,, C (( ,
- 3y---
g - # .: ' ' i, '
. '5If' I '.. :g ; . [' -[ e - -*,
! '3 r
.4
. e i. .
, -- 3 4 o,
. g,
%* . ,.' c, r " , - r
' .4 : >-
b or . -: [. '
4 ,.- ,, - ; g g @t ,*, ,'j ,.,
4 . &#- .J 4, *..., *
. w" * 'd .? '.~. s ,.
0 1 ,559 'N ,' , :- td.[ 8, *?*.; I I- ~.
. rk [
+ - \E .D<+ ,FMT l
,; d49
$ "Q: WiQ?-!G C O N.f . W l O rg; d .
. . t.
e, . . e - 4s '. Q, -8 Q... g1% ;s . p-ge.m- 'hf .w C W n. 4.. p: 2,n
-- .Pr4 m.
v< @w,e [ ms i y. Og. e.! Q- M .
j
'+i>.x' 5, , . j. ..
3cs 4 1.w m
. ;n -
.m .
. s,
'f jj. & [ $. Q$,..jfr f AN5
- t g $..g .$$"0"hYW. $ff $ h j 4 p
}
a "
% ,, i .. - '.**# .
.,- m~
T- -_
j - . . . ,
y - . , .
. <. .;s.J 1 . M. . y .
. a.
v.'wi,,,
3 2 '
+ v e+* Abr/ pummem mega;p.yesk s h<,%M W NN.ee _
A n .- n .a -
4 y y [ ? ,Q ." Q K \ k' 7
' C, gpfgMg- -
.x .' '
i e s _b ': . __
- e. <. . -
s
.. ', f s-
,%, severity of the incident, the safety features of the l ~ ;
- plant did contain the problem. No one was injured and the long-term health impact on the general l .- l
,s
.. . 4 + public has been termed insignificar.t.
I 1.; . ; ..
Yes, the 1970's turned out to be an eventful 4
i, --
=
. y .
period in our nation's history-ending with the
! 4.'% . ..
s - ~ ,
highest inflation rate in over three decades, a pat-l
~
( ,
- - . tern of rising unemployment and lower produc-tivity, all-time high interest rates and promise of l . .. A an impending recession. Yet, despite these rather
_4 ' 5. :
~
l . _ : g- .
sour economic factors, your Company begins the
_ ,-. , c. . . .
1980's in a sound financial position.
$( ,
~
Sales and Earnings 7',.f, l' '
d- Kilowatt-hour sales increased 1.8 percent in
.'= 1979, well below prior years. Contributing to this :
es t> J~
~ '
J lower rate of growth was a continued effort by
- . ..f .x ~ .. 1 ". ' .; .. , Maine consumers to conserve, an extended strike involving one of the largest industrial customers i l and a most unusual weather pattern in the North- !
cast over the fourth quarter and extending into l 19S0. Few people can recall a time in Maine when
, To Our Shareholders: the State was virtually snowless through January l The year 1970 rnarked CMP's 80th year of ser. with temperatures much warmer than normal. ,
vice to Maine people. It also marked the end of These factors combined to hold net income flat at
$ another decade, A decade that began in an atmos. 1978's level. However, earnings per share of com-phere of optimism and national confidence but mon stock dropped from $2.19 in 1978 to $2.10 in i i
ended in uncertainty and concern. Energy became 1979 reflecting an increase in the number of com-l l a household word as the price of foreign oil in, mon shares outstanding.
creased 1500 percent with no end in sight and the ,
nation finally realized that oil imports might be Dividend increase '
The Board of Directors voted a three cent in-l our Achilles heel. T his came as no great surprise to the electric utility industry in New England. It crease in the common stock dividend for the had been foreseen back in the 1950's when the fourth quarter, bringing the annual dividend rate l decision was made to move New England into a to $1 M per share. This increase is consistent with
- leadership role in nuclear energy development. CMP's long-standing objective of providing ,
i I hat decision to go nuclear by CMP and other moderate but steady growth of dividends to our i New England companies has proven to be a very common shareholders. The financial health of the wise and timely one. It has increased the relia. Company depends on our ability to attract new ,
I bility of power supply in the region and has saved equity capital which makes it doubly important t f Maine and New England consumers hundreds of that our dividend policy include prompt recogni-I millions of dollars. tion of the value of investor funds.
The very unfortunate incident at the Three Mile Island (TMI) nuclear plant in Pennsylvania, the Industrial Expansion first serious occurrence in over 20 years of nuclear The pulp and paper industry, a key factor in j plant operations, represented a severe setback to Maine's economy, continues to thrive. Hoise
- nuclear development efforts. Ilowever, out of TMI Cascade is nearing completion of a maior expan-came much good and useful information that will sion at its Rumford facility and Madison Paper l
j make future nuclear plant operation better and Corporation is embarking on an equally large addi-safer. Lost somewhere in the mass of media tion at its Madison plant. These follow on the reporting is a most important fact. Despite the heels of a huge capital program totalling some i
2
590 million completed in the last several years by We have agreed to reduce the Company's owner-such firms as International Paper, Scott Paper and ship share in the project from 80% to a minimum St. Itegis Paper. The Maine economy was given an of 55% and have extended the project completion extra boost in 1979 with the addition of Digital date to 1989.
I quipment Corporation in Augusta and the Pratt 2% Whitney Aircraft (.roup ef Umted Technologies Nuclear Power in North flerwick. These two facilities will pro. Utilities involved in the nuclear power m. dustry vide approximately 3,000 new job oppmtunities in suffered a public confidence crisis in 1979 and Maine. CMP was no exception. While it is true that more people today are concerned about the potential Meeting Future Growth risks of nuclear power, it is also true that the Commercial and industrial development and a maiority of people are much more aware of the growing number of residential customers, combine benefits of nuclear power and the fragile state of to impose a heavy responsibility on CMP to plan our entire energy structure.
well ahead to meet the ever increasing need for The Three Mile Island incident pointed up the electricity. Paranmunt in our effort to meet new frailty of the human el<. ment in the nuclear scene demands is our aim to lessen dependence on ex- both from the standpcmt of the reactor operator pensive foreign oil. CMP is in a much better posi- who made errors in ?idgment to the bureaucracy tion than most oil- dependent utilities because of in Washington which has proliferated complicated our strong mix of nuclear and hydro power which and unnecessary regulations. These regulations has produced about 60 percent of our customers' have often diverted attention and energies away energy requirements in recent years and has kept from guarding against the obvious, focusing in-CMP's electric bills among the lowest in the stead on highly unlikely events.
northeast and below the national average. Despite At Maine Yankee, we have retrained our plans to add some hydro electric generation and operators to apply the lessons learned at TMI and nuclear capacity, the company anticipates an even have begun to modify and improve controls, equip-heavier reliance on oil-fueled generating stations ment and operating procedures to prevent a similar in the immediate future. Although we are limited accident from occurring.
in our ability to control growth, we do have op-portunities to manage loads, and we intend to ae. Cautious Optimism celerate our efforts in that regard in the coming Looking into the 1980's I hope to see a better years. understanding of our business among the general Coal Plant Delayed public and the government agencies that regulate us. The 1970's will be remembered as the decade Plans to add a large coal-fueled power plant to of regulations, a time when more controls, laws, CMP's generation mix by 1987 were clouded by a rules, regulations and regulatory agencies were Maine Public Utilities Commission order issued created than in any comparable period in our on the last day of 1979. In 1977 we filed with the history. We have seen the frustrations of the PUC for the first of some 40 federal, state and 1970's as the public has become more aware of local permits needed to construct a 568,000 real energy shortages and escalating energy costs.
kilowatt coal station. After lengthy hearings in 1979, the three member Commission voted two- The next few years will be a period of challenge, but Central Maine Power Company has the finan-to-one to deny our application. This decision was cial and organizational strength to meet those a disappointment, especially in the face of national challenges and to continue its energy leadership efforts to reduce dependence on expensive foreign role in the State of Maine.
oil and to rely more on the United States' vast Sincerely, coal reserves.11ecause we feel a coal-fueled power
,_p?
facility is needed as soon as possible we have peti-tioned the PUC, and they have agreed, to reopen '
g, (MQ the hearings. We are optimistic that the Commis- .
sion will approve a modification of our original President proposal in the light of changing circumstances. February 14,1980 3
l a i i ~1 * ;i g , *j
- i. '. ! ! ' si- ? '
t ! llf r -t. ' '[.
, r, 'm.
- !e '
'l Revenues and sales sI ( ou; e ou .! -r me
!i i e i a: 1 < ~ tis, i
.r. a: J u. :L s , ,;;
- , ,, , ,1 g
- iarJ i 'J :n' . tur o:o t 1:n 1ti. o o,o < u i .h ! r i - h
- IL' ' ' ' ! '!" l" L' '
- t. l .!ho ci :n ; at i, ' d' J': ! ' '! ' h4' Ki" l'"I
.i..! i %( ' s i ij i ;;, j' l! It '! l L I; ' \I .l . L !' 'I l '
l i ' < 11 !
4 'II j
ll .t ' s jiri>\j,!s 't I'i ' ' llI' i a n ., , u, i .u n o Earnings and dividends
. , . ,< r
.i , , iu im m , m a,: w a u h all i !c, n ,< u nlu ies t urs <
imts JuimC
.e i ~ , oi> ; i o'o wirc.nh( rsi k .iht< t < il bx tht lucin st .u m u.il !
u n' ,, <.un,u,"o: !:ic i i .u ( i o mil.u n m m t h. 'ast i t s c.u s I kpt css ( J hs ito! t ; .i: o c n ri r< i;to, <s Iht se r.ij'ulls lih i t as tlit 1 ints .it n iligs appli .lbh (
!' i- iifl! i II ' i n ( !i ! .lli uit Itl t t illlllli lli s ! ' 't b ! * ) t .l l l c t ! % .' ' 1111 l l 151I1 \littl.Ill\ l
' i. '1: ii! t .! i .I i i i ! ! 1.11 : t Ilt' saillt .1 % ill l 'I ' % O lt fl .11 ) .l \ t'I .l Cc ill
- i. r, .in !' u iiic
i i a h. o appo n u n.it cis u H i i li it t u n o i . i min o m s h.u i s
- i.ia ,
i.li :ro'< tis i,n n i ho iiu t st.u alnic sh u inc t h( s c.u t his t inst.u n li s t I s it r ili !.
i t ' ' ' . t: <>') i ,1 ! \( i .i t Ili t t l t i t i l l .' ( .l!!llllCs j'T i ttllit( 61 .I s!!CIll!\ ltiw i [ ( .ll ll lllM s }'t 'l
- u- I i ( .u p o n lii ; < u i<s s h.u c 3 .' 1
- 1 m l' 'o as i n n p.m J t o 5.' lo in
.ii o' e .n i r .u i .u m u.il lo's i:t a i p pi . , s m i .e i l t s F . uni pi.J \ t hict cnt Jn ntend un n .ist
< tuon N to I l i.
t! ti ! I his i,1 e n i i; h>u huJ pt r sh.u c. w as Jti 1.u ca m t in ti o u t h sj u.u t ci
.o :n i t; ul n o ni '
iln un icasmc t h( .umual Jn iJcnd r aic tii v i 01
( '.i: 4: .!it , i f i t 111 < f s { 'i s .llist :t a l!} Iit } }' ti ds t il.l! dl\ idt 11(I s paltl pc! s!).il t' ilt t ( 61111114 11 sl s h k M1h '!n oiJho >st u ! n ia n. i . .unt i s ( n Jiir un; Io'o tin.illed v I Ibc v Jn uit ud i fis fi.Io' ill !!1t flif ti! !!1( I c.lsc 111 l .ll e } V 'o Ici t icill.'cd (lle llecd til
. . \. , ,c.
e n %
4 +
,n- : 4 .- _.
'j '-' I '. * ,
'N 7 f yg g+97lpbgy g
- h..*-
g g; = %
',We ph w eggM7 gge;g$wd Tf or, w o iP" -
MhMydd,WAQ9@
3 %n e [ w -
m c , -
j maintain a fair return on investors' funds required
- for continued operations. Cash dividends have j been paid on CMP's common stock ever since Common Sic
- k j 1946 when it was first publicly held.
1 52 ~
S35 million rate increase filed - m .,
The significant impact of prolonged high levels r- ; T '" i '.m.,_,, ;
of inflation, the necd to maintain financial 7"'~j gq;{~j{g gyj integrity and the need to carn a fair return for its i
c -
a .
I..=
investors were the primary factors in the y:[]}.f d
$.]'
.. .hM] I 5h'jy h-Company's decision to seek rate relief early in g3- ' ' ' p'*.hh) ).
J .
f %j,*!
1980. On February 1,1980 the Company filed with the Maine Public Utilities Commission '75 '76 '77 '78 '79
- new rates designed to increase revenues by $35 1 Earnings per share milnon. Pending decision on the full increase [d**--- ' 'Dividends paid per share ,
! request, the Company has asked that an $11 I million temporary increase be granted and bl ,
j implemented as soon as possible. CMP's last rate I Net electric property and investments in associated companies l l
5600 000.000 1 e
- [ m -y 3 ye--, ~al l 500.000.000 h- i i p .vg .t; i i
l'
fj j S j 1 P'"~~~'j [
.q {]
j Y. "
400.000.oco' ~ *T gy.Wq '
-d S~ f;f 1
_p m :q ] p <4 m ;
g ,
4 ! ;y , !300,000.000 " 'F d m
s md ;o-
, h. . . . @#-l :
r j s
.x ,
[- % -
le, A. c -l p t; c ,a J A
t.
o-c d. , p[g z r 3 c. s- "9 -~ 1
- J .. %w 10 :200.000.000 : <
'n t
- b. r .
O i-
} +
Y L. 1 b. .. ;: #e +
4 u ! 0.000.000 10 n + g b
h'-
.l f .
g g:: m:;;;;:7
.}s ih7 3
.m'Il t
E-
- r .: m p-j.
.n 1
ir 1
'75 '76 '77 '78 '79 l i
Electric operating revenues 1
$300.000.000 i
l p:qa
- s. I 200.000.000 y* 41 l M: .i
-,' '"'WW e rm-w)j.::. 1 e ?
p l- .y ?q) t100.000,000 o C --
i? s.V
. y , R ./ 1 3_ . A kw' ~ m'jI M fi wm t ,
- , w+ 1a
[ .
'75 '76 '77 '78 '79 i
i 3 I l
O
,k.-i s;
"f C"!.y .N..
g ,wp s t "p?
!.h, 4 p
, - h {7 ,f $ g?yk G4 4
,$ A ye'g.
Y
(
c,a m' :
- . kAg i
, J. n sr .
a rutl* Y ?
',yf M '
6 ,, u
[ is #
I
~~
P..>y' r ,
.;;,q _
9c y
U,
.) 1 4 4 ha
~
i s
io a' opt i ,1 1ot J onnnnitJ <tju.pna nt ni met : un ti asme t h t ti; .il I t t ,1 ! !Ih,t l' r (!t Il;,lliti a l!! J!' i lll!!T!'ll tti p}Jt t Ilt'd \ \ f i n ,lli t l 11 l' .' t Mi < \',p?t ): l::si: i It qi 't Illt 11 t s s ti ? !1( ( (
> lll p.lli t ll f i 'l1 J h t 'il! I i
( ML .o ip;b .dti' un !"u) s
( MPs m.maa 1 a w 11! iin: a u n .i s
' l: i i }.i t.t' ,t L t Ns t !\ .is jb is s i }'it '
' st t h l'llj':t l \ t. s l s~s i i e, m, 4 t rt :.n i o s nh t' anJm mJ s';ppio: o in s it -
t lpJil s :l t t t!s .llitI ! fit '
1 pi ) f i .ll!-.t i '!
1.1 : J 1!1111 J p ! i l j'i I !'. l ! . i ll s t lb wtt ! <ils i it !N r t t. t!s .Iiis! < s i s I( .li ( !1t 1) s i 1 a Financing
'L i lit inip nuit < in st r ut t am r( .p n n on n t s in
, ' ( '
t i n nl p.In \ In I'l J! f dllC( t}'t) r .1 h Il l 'llllllt in t
i'i ( i'
!!Ildllt inC t h fi'llCII J hiillt! s.l!t J11t} ! li sed .llliit }lt i l' i .li .t' t
.tl' it $A ' 1111111 0 6 '? iT t t illlI!)i lll sit u k sJles } ht ):i I! pc!( ( Ilt \cIlt s ( ( it Ilci dI .llh! N t illntlilld Mt t!((J Ct
\l i h(ifltis W( ft st ilt} ti .I Qf()tip i t! I n s t !! J Ilt t i t iill[J nlt s t
'i .l!'.! t i 111 .1 futi p.ll t t *J11 sat ! !i ill } !)t I r wt !lc til $2 i lilllllii!) w .ls ( tullpItItd lil(hitihcl l 'l ) alh! !!lt l It in.IIIl nig N l f' '
ni iInin :n IJn thlr \ lVN) In
] ' 1 ' ') Illt q t i11J[1 ,'i H l ! Il H I s h J I c s t if ( t imillt ill st t 4 k l '. ,r, W crt siihl t h ri41Cl! tht ( t ullp.in \ s Il \ l hlen !
as of Decemt>er 31.1979 R"t""'"""d"""""""'kh"' haw Pbn I his plan w hh h w as in st It ut t J In i V's has p r t iV hicJ L .ipit al t uihis riit.illin c nt ar k v 4 .' m lli n o Share Num t>e r o f t ho ntth t }u sak < d in ct 2VijHH1 Ancs in hoders Shares t imumn % k M'E Id'* ' ' En h l 5 W l M aine 17 777 3.597.203
( MPs Ant !nilM s m pit wiptine In this l Other New ,
E ngla nd states 12 478 3.003 828 f " ' C ' '"" I" #'"' "'un of* Iniist sus 1 t sc i,i At antu 10 980 3.772 946 it in \ t st in t 1H p i.In s .n t ht ut il:t s ilhlustri
(' e nt r M 7,754 1.582.709 AJJ1t n in.lll\ nc.n h '4 i H u i sh.ir t s w t it i s s u cti in Western 4.044 800 101 1CV t hn, ugh t he i mplia cc Yot k () . m ship l'!an F or eig n 112 13,910 1 M )P n &J H WM tax bu I ht i M )U Totat 53 745 12.770.697 plan po n ido anicia \ altiahic siun t c io nt u
( apnal as w eh as c. t inonut par t u lp.u n in m t ht l 'i till pa n \ h\ Vi t ' llaI } \ a } } ' 111 pit a t e s I
1
\'
t 4 h[
e i -
' wW
+ -
- 2+ gg .
a x" y -
,+
/. ,l
-l$f7,j'
.v ,:.
3-. ,. .;
.,.,_}.
. . . ,s: 1.
/.rL i i 'apn' f ;! y f_'.,,f.'fQ,
/
f f?( ' jf j,- '
Capital needs fh> :1 p - K '
se
.i!' ri :t ir >
i ?/ -
i '.1 <i
- / r. th.c, **
t.in 1979 1979 i L'n
__ 11'_s t.
i 5108 5 ! 14 / 2.353 <
. i 1240 JM 3.470 u'.' 24 o 79 .
5.1 0 50 T otal T ernton il Sales 240 0 : 6 .~ 5.952 8
'a ni 8.5 h5 52 in ,
m T otiil E nergy Sales 248.5 5'i 7 6.004 12h
.r> ,, ,4 1 23 3 /0 -
T otal Operating Revenues $271.8 5tu h ' '
.I' l
1979 1078 F' o; .e : P i: er i
1.104.956.607 1.134 485.726
' ' i' I ' i le 208.771.044 173 387.801
( f r" .i"-
150.679.371 143.557.7UB T. .:n. 138.826.078 140.720 3(X!
F,1 ,! P- . ev.ina 108.865.843 105 424E49
!u"*, a n, t n ,mt. ,nkmq 109.725.875 98988933 B , >t , a nd Shao- 74.193.484 78.212 756 !
sn.;tuc.:.na 40.967.010 37.747280
Financial objectives Im ! ., u n , t ,1 n u n n i ii r ( s i s Rt o inc ule m.n un csont n Jo n.u s .u t !
jr i ( \ll' 'l , 1: s. l.II ir tii '
.l f t 11t' i s s.ll i Iti s ir < i lli t lllii( w ! \ lile t illi
.t- ' t !it li s 1 t }lt ( sia i }'.lil s s i !!> it : s t i . lls: ,111t is , t Il t ! ' 'i .i t 111 \ t st ii i 1tls .1111 t il bl t
, i'i t i 7
- is i i it is \l.III.t c t illt I;' t l c ill,Ill d t d litti ' it })t r 111l1st [k ,l t ! ! .It i cd
- i. 't t ??: i iii fcs l'lt ;1tt i ' i fit S t .l's 111 ll1,1 c t :11 c !) { u ;ia t ilit ill t R tii .lg;I t ssl\ t l\ s t t b .111
\l . i i.is .! >I: .t w i .t h 1111.t i;- 1,1 ) Ill; p !i i', cil [( gl;laitif\ c fl\ lit illnit lit u !11t l1 I c s pi illt! s I ni r , si n 1 : hi n ' h.n 'tiu , ul.n n in ni t h s ni < J Ratt se t :in.e t ce olat or '. a ct nt ics oust
- .it i ! ! ,i t t t it
' !( ( fiist +il 1 !!i,'s it s t t k ,1 !Lilalh t [4 : b et n t tistiin1t i s I cqltli c!11t n t
.I' .1 I 1:i , sit J1', .i c t It ssl\t .i t i .l s t f i i! ! c Il.tl'} t sci \ 1s t , Int} In \ t sii ni s Icq llli c l11t !11 til! .I ut ! o l' p . n .h \ n! nJ piih, \ it t ur n u lut h s t on;n custa.ut u it h t he risk of i' '.
i t pt ..nct i n ! Lu n in (i. : m e ' ht pm hen un t st mt ot \\ c hope ni t stabhsh a t le.n j
'iir 1.i su n ss e a i li .is it n st '<it ,indt i s t a nJin g . it .u1J .nl a s st i t n c r esponsi to l i 1. l
.q. ,o i t i i < t J in i % . u:is n' r .i n < a st prot ecJing
' i.it i i:t '!,ts i n ) p.i t itJ i n all iists i
l iii ( i ii n p.u; a ill alsi, t iilit ln tic t ii st c k
. 1. 'Il'i, t .lj'; i d ! ! ll'a i' .tlit! [ c c l ! ),l t i ,1 % ,lppI t it .1 [ i s t ( ,l r I1; t 1 C .1 ( asl1 [( t il!!1 t il' lt s 1 i 'A i 2 ( \ll' 1111i s .tl'st if l !i1C }1t 1 i i s t - s i!
i 111 \ t silllt !){ 11) t ill s t f ilt t Jiill p ! i il t. t I }lls u t illlsi
.1 - u t. i I, . ustiin a : s 1n .i t n::t ni hcip unpni\ < t hi quaht \ cit t u tunes and .n t ht
! i ' i l ! 1. t ! t i;t '! a!( }.lc til i ll't .t lil lil d !) t u sa ti!( l 111 ( uti ills! pri >\ It{t 111t il t i t,lli s t it t 11c t [\
iit'i 11 ; t t i sli s !!it .ll';l;! \ fii ( .t f il : lli p r it t s i g il,Il s t i i I ,l t t p,1 \ c t s a, _
%" ,o v ,
.. M.3
,. . -M'C25e,SM,jg s
Sin * .,
j fy. , 4
): T "
j M~bp. 1 (;y;t 9
l l
i l
l 1
rf
+
n SG.' e
.rq <
l
- g? .m,>.
t s-
- i
servmx Mame s puwer nectis with an aticoate and reliable supplv of electricity at reasonable pr!L e s i s a f rOIllHin at ( 'MI'- an Nll Vt'ar Ital l11H >H.
TetlvtllCaf et) (t * ( ll t ' 'hlis l l
A growing need (
orwA More than 2(I new mdustrles began operations in N'
MalIle in Iv N and 44 cxist nix tirms matic manir
' f,' C N p.i n s h in s I hc htisiness griiwth nicant .in
.lddit ninal k u n) itihs t<ir Mame reiiple and heavv h UCh requiremCnt s ttir Clect rlC Uncrgv 'I hc pulp y alid paper tildust f \ t aintlnlled cXpanshnis k It h
- t.f; planncJ additions at Boise ( ~asCade and Madison
[ [} Paper (' tit piirat Hin t tit.ll} lng lutire t han 54(H)
(4 ] IH11 hon I he Pratt and Whitner Aircraf t group p M hcg.In pr< RlllCing let Ungine blades at its new Nor tli i herh ick plant .Ind hv the end of the vCar
'"""'"""d Pl " " ' ' " ' " F " " I I " '" ' ' P " " ' ' " " " " d "
3iiM"i pruitCted work tt uce of 2(H H ) And lhglial h q tllpil1 CHI ( 'tirpt ir.lt liin is L t in .t rur t llig J lilige new ct >H1puttr pait s pl. int In Allgttst.1 whlCh I' CXpCCted til Cinphiv in t \tess tit l(H H) wit hin a te v vetits
()ther t.rms .i miitinting inanir expansu, is last vcar inClildCd liCHCral I lCCIMC in Auburn I h. mond lilternatlollal in ()akland and (Ild I oh D, Ihe IICCCC ('t)TTNir lillin In l itirha ni, M artn1<in t (llr ptir.lt h)H In Satti, l' l Ilatlutu av l'Einlpany in
, , , Waterville W } } Nlt hiils l'iimpiinv in Piirtland and lirav, li } } hass In Wilitin, Ptiland Spring hottlme m Poland Spring, and Blut }{lhhon Sports h [k In %.lC6) Amiing the new indtistries were IIUCittidvnt in htarhoril, IICniv I. Ilanstin, Inc in ih (;orh.im,1)M(' Metals in Portland. Flampshire N Manu'aCluring l'ompany m Blddtford, and Marint
,g St rilCilliC' h.1,1 In hi unswic k .
[(f#
Meanw hde si.lphutidmg ordCis at hath Iron Works reached a new peacetime high of SNH1
%a
[3$7 million last vCar Advances were made m the
- Q . wtuid prt>dLICts Indtlstrv am(ing hiirvesters.
~
PrinduCCrs .ind finishers tii add more value tii l k prtidtlCis helng shippCd tuit of st;ite In addition tti 2Ah%k%
Industrial growth, signitiCant Commercial growth tiCCllrred dttring t he N C;11. highlightCd hv .i new luulti-nllllion dollar shopping mall m Auburn and pl. Ins f or m.llor .lddit uins tti the large shopping mall m South Portland Maior downt wn rCvltallZ.ltlon pit)1CCis in Portland, I Cwlston Atihtirn, BiddCtiird and Santord wCr.: undCrtaken 9
1 i
N. l
. -+
I <
l /
/
- 6. .
N (j i. /
s ,.
j u., ,
r I gw I
t- .
Sears Island Coal Plant i w %
al' 1" t s
l 1
b
. c
' * ~ '
Qg Be N
fj f gng.4,;,g. -
mm .
v.
( ~7 4
N EB '
^
gj - - -
3
. S..EJEI .
wW. ;. ppw .z. . . . , .7 , ,- , ., ...
qm -- ' e y
.- r
. .yy ..m: ,. ' ..
+
n; t ?.-- ,
- , M. . ";. . .; c ' ,
- s. .. . , I "
-3 L: anau , . . ww'
~ 4 l'. ; 1,. ..
- &QQ ~
j'*d*." E ~+; *assessomewrimesmymywssee yg;; q; ' . i ~ l .';. _
- ; - w %..~ y -z'
- n. ga. . -e:%m. n
- sa . . .
- c. -
J'"
s
, I., ,
f.s^, # substantial savings 1 i,* ,
i s ;,p
\: : !u s.u m n . a ni r.n m unns .u n a i
. ' 'J,1 i
' j't f .li t J I i t .l! 6$ 1 l ,' l '. ' t tilIC !( . t i ! .1 :
i' i :( li.llit t }$ t 1 J s i. Il i .l f i i . iijk it
.ia s -
u':.h 1 x:n: i , sh ,,'s .,'o ;;n r.it u n .n a!
j ,
s n .c 4 ;u<s.urt : la - .ut suh. .> ma x;M < n i i a a .: s 's.. :lu til: n:us' ,i i in k h.n t cni u.:i1
.;,'.l. i ' r ' ! 1. l ' j% J h fli it st '4 i i:ll;st !1. l ( (
NEPOOL-Sharing the benefits " ' ' ' ' ' "' "'" " '
"'h'"'"i"",
i , ,e :
< >;'t t.n t ,! b ; t si b 's n st : s < ap.h it n u .: n t I
$.! \ \ l ' ai( .I tl! .Il ! {' l[ $ L 1[] iIf (s f4II l's .lsi( ' s f'( ,l
'I ' '
s ! t ! I,1:', t ! s !( jw !11!i 1.' 4i:1 !!;t I; ; : lit ! ,l:1s! s;. t t i!
\j ' ' 'l. l.' - ' 1, .~-I 1 al \\ u i: l a i h k i. r u t \ a t i .1, h ,i
, s
- a : .i nl.: u:-
'l \; i : l i j 'i '.:li' :7. I
\ l l.g g )[ ;j i
,j, ,J;, ,,,, ,
s k .k ' k. s L. \ ]( l k$ s f ,l( (g ( h ,k ( f(s(fk I_ .f ,l
'! N '! I L si;{ 3,,. 7 , m : 13] s ; ,n._ , ,s t s;,i;;;( ys l ii; ( \j]' 3:3,{ ,; s
' I' ' ' ' 'I' '
s!;att hin,h r s a s ,;t ,tns a ni.t f ICstI\t ik Ut!
n l
' h' h >' !
t h < n t. n a low < t ms s: nn i it gun nn n l
!k j 'i ' ' t ' ' lj ; } \ 7,, ,, } ;( , ( . , , , ,,g jq ,;t.j ;7 , , .)( s j;g .1 ; t
. '= f II H 'I i +'
0,3 ; . . s
,,;s, j , ; g ,;; , , , ;3, ,w ( , l}g 3. ; t 3l ,,p 7 3;;.
s ! ! lit i .l' *
, 3 s ; .,, ,e ;, qj ;, og)g l ,7 , ,5 .
,3 ; ,, ,, { , j . g , , ,9 ; , , , ,
' 'I' t l' ' ' '
i 4
p,gg. 3 ;), ,. } ;t , jt st . ,1 ; 3
,i.. 7 ,,, 3 . g i ' <.ni < (1 :
J i iie i
- n s im ! Ihid 1
hs pc .u i sh ! <
l
} L 't,=- I 6 'k I,a '
' t i I
, , , ; .s g;g g g'. \ l l'( }( }l
,s g y ,,,7 ); s . ,
'!' ' ' ' t lb li' a ;}3
,,;q 7 3: 1, , , 3 1, p ;. t ; ; t g ,i g; (3, ,s
! . i '. u. '. t s it i ( s
.!ii!i 1
. ! li l$;1' .' ! ( . : i. ;j'j' '
- s t ii , t p: il..
t o ap n ti i ;'s ' ,3+ ', .1 : ,!
ll
J 3
,k , . . - ,
w
~. *%
g , .
j .
\ - %;
.o
, r
- I
' . - l o ,
, A .p
.e 1 - ..
.~ s.
throuchout New I neland Ihr su h s m hiw<t ah max m,ur hliab:h' of
- .; ( ost s t iinsist em l
[
- g. .
~. st n u w u hom r e au J t o u h a h < omp.un at t ualk f.
owns the unu !
+ '
g
- 7 bD,, ,g j p, .s w. [j . .
.A- .: r+.. Greater reliability l
- = ,- , m lricatel I cllablllt \ t i! t ll t t ilt st i \ li. c ls J T '
.f A., t
- -" tunJ.unental obiet t n t and benctit of pow et
>-ys, .
M4 pol ih n e T his bcnt tit n m st :t.iJik ex pl.u ned m z- ,
)
. s
.% terms ut an cmt r ecnt \ It ont . it t ht 1 I ' ^- - .
4 In t t I t t ilinct It d t t >m pan it s sllddenlV hiscs t he
+
7 i,t hei compamcs
,y ..
4 '
i nut put of a m.not et nt iat mc umt mstant h make up t he tt mpor.u \ Jet h it I nct uV is
'L >
!~ t t illst a n t l\ IIIIcIc b all(l'd anlt illd illcllllTc! i T, - 4 -
l ga '
t om ranics w it h 1.1.n n n u m he n c t it t o t h t
. < ust omei
+' k .M .
I tir t her r eli.ibilit \ benctit s ii t NI P( )( )I arisc
. qr .-.*~ trom the t oordm.ned x hdulme of autliu in tiu s
.' ( .I '.. If * ' .,,
f ,
' ~
Blalu t ch.Ince ind I cp.llT t it ut ncl at illt Ullit s Ji d t r.unnnwion rat ihtics ()per.u ion of t ht poi d
' ).
.- . o,. . ..
4 g y J. - ,g . , -.
4..
allow s t uohhnat hin of this diu nt unc' so t hat e.
" "F e w scf \ h e Icll.lbi l lt \ Iti t usttHucts til a[l t s u npanics is
.A j ,
g { f - Ilt it t hicat encd b\ t hc ciull( Idental lina \ lliabilit \
M'ql Li f- q
- - F.'Y .' . , .. . .
e / % .
of bulk pow ci tacihtics y
','W' .. ,. .,
p, s-
. . . . s4-
, ,. ' x ,
"'--e.,-(.s.. ,, . .
_ ,( cp . .
.wv .~._ L, . ,. ,
," (I .
- .- ~g - ..-
t >
< ' ' ' ... .. . . 1
"( ' ' " , h,1[, .I 'd
~v.y _.. ,g e
u
% 1
+ , ,
j m, ,
? '- -
- f. -
a;: [Q.A- .; 3:43g -
- m. -g . . . . .
- s' -
=. -,
, y
~
O. - .. . .,
. j%- .. -
.M.amer s Mtoemahog<nti.ustry hasr - 9 3.(3.; ,
s .
7-4_
- n
- .a. comMnedmodem technategies of i ~ ' -
e , . , .
. z .
" ~ -
q-4 W. V s . , .
.)c ..'-
49, y mputet aperations wi,ththe , ,. .
~
kaMienAlenteHen& oTI$ame, '- -
a 4
4
- t .a,2 wc
.m
_Je.- . ,
cafismanhfp - -
4 y ,4,. 3 '
's,
.._-~
p.; l
.s ,
p* '
G
_- g. * ...,,,.
, ' .-. . [-
t .
g .
. h., " - '- '
'i s .. s .
.2 ,- . s . -% ~
t
- - 4 . .c -
.g n -
I
- 3r .e
~
s (
+ . , - .
,g '- - , g- g -y f f
. 4 e . 3 w
we .
e a '+
4
, , q g_
m
(( 1; ' ' #
[ }
~
.c <
, , - .-- y.
,.. . y
. :. s c-
. s
- v. - u,,
' ~
w l. . , '
. . . ~ .
,4..~ ~'Y'
~
Maine Yankee replacement power
.g . . ,A. -
N[p()()L membership priived particularlv
- * (p %
..e+ . t v M m bit- tii (:N1P W (>ur t mt(innrs in l v'o when t
it helped provide larxe amounts of power for a
, 0 ?. .
f; ;. u s three-month period while the N1aine Yankee .
t
. nuclear station m W1scasset was shut down The l
, ..
- p ' c. dB- .
4
.g.-
Nticlear Regulatory Commission ordered Mame 4
~
~ : ..
- Yankee closed March 13 pendmg studies to g
- a . i deternline its Capahi}ity t(i %1thstand carthquake
, f f.
st ress. hlDCe CM P (>wns and reCelves D percent ot F
the s h),0(li) kilow att racihtv's output, t he l4 .
- +
Compans h.id to seek unscheduled replacement w -- , 3 ptiwer (ti nicet Custainier demahds 1 ,
- .- .. , ., , j } tif tunatelv ptiwer was available trt:m the potil.
? .
althiitigh it was virtually all inl-produced energv
.s. t - C
.Ind t()n%quently much miire expensive than the y ,
. low-cost nuclear power it rep l aced Although all
- e L, . f uel costs or power ; produced or purchasedi are f, -
ncirmal}v et)llected th:iiugh the (iimpanv's tuel
. yj 9 .
admstmem charge, the Pl h' has altered UMl"s l
Yr. '; . f ( % , rates to s? read c(1ectMin (it the Maine Yankee I
' . replacement power costs through December 1980 I ~ ' * ^ -
rather than (>ver the n(irmal three-month
. 7 .
f c(i}}cct hin perl(id The Company has appealed that ((' , ,-
' ' ' interim order, and PU(' pr()Cetdings on the 9 '- ' '
apprtipriatenC% of the replacement piiwer charges p ,N q7.I. k .; -. . l [ (" * *. - e' are expected to conclude m April while CMP [ . . . .. helleves the NRC sl'utdown i>t Maine Yankee was g
-?: . .
.. . . UDnecessarv and tintorttinate, the Company also UCle y .< -
eg . -
; takes the position that replacement power costs mtist be absorbed bv consumers of that power. iust
[xe,.. . ' f. - as the run savmgs ettect of lower cost nuclear power is passed on as a direct benetit to
=
?27%d27%W25%d 6. cousumers
.q"dg5'gp3:n 228)Ggg#g; I c
&m Tvn_ M > %.c + ekeMm .3 b ew - %q , ,
Maine Yankee savings still substantial U.. hM,$/k 3(. . : Ilespite the NR('-(>rdered shutd(iwn, Maine faN{3 Nh. lo wh % d h.'iD [ M h' M N' h, JN m w w;w &- Ma M wp,w A consumers still received substantial electric bill _ gy :;j &c p , m.s,M savmgs f rom the nuclear plant m W,iscasset Maine Yankee produced 4 ; bilhon kdowatt-hours I in 19'v. the eqtuvalent or ' 4 million barrels of oil Net tuel savings to Mame customers alone, l 13 1
M
' '?'- ts jr, j #1L 11:( [ f;t sa n n p,,a ( ,
f lit n' o n nis u ,,'y'lE b b() g g ,, j )It >ll ,s ,
' 'I 'I:< g 3, y j' di : .n ; j g, ' "Mulburn,n ,g; g ,
r,
'"itu n n r s a j,,g ' ha\< ox,mm<d
, ( m an mo.,m d 4 , Mhlha >n haircis m
, ,, ' " tt: ,g I
Mternativeg y, st oj gpg,n
' '- *, i,
~ ' uLa ; Ic,,-.,
[ I i: n ,, ' I II h's in rlk ;NH4 ;{ j j
. - '\ h l n y ;,'. h ' lIhllisf y x ) heen
.m i
It
, ' ' ' \t als ej N.a : n ,n'd '.\L hh 'll} \ ,,y ti OM e '~ ;K*
;p#
!E 6; S]$$*iQ e- .
I
,s ' It< ' li f l q 7,;'a' dtheresu b m a
'"s:; n t s ,,, g t h >n s t n( ," "Pf h >ns Ju . j," lun it .n and dl jh tw cy , k
' .il l,t y ,( ' " o n <s th,y 'd" m ccr
'<Js o ,, g " "c u s t m u ! \. init} I Il h >l t . g jk,
.h ai'<n nn<lAU\ lila p ,7 ' ' 'll{ f lh t j j UI I U ll11
). 17 , ' !,g ff \( <ll .'l } l c ) ' . ' ' " IIh'u.ch m g. t
\ilic 11, ,, I""" d z o a n , cgg llatri, sI AI\ c\ ll7 p yp p
%. < w ( ' llI \\( z,,gy ' I'a h 'T (7 j(. 7 r, c,, ' Ilc \( [3 ,
JI' [9 t u , 7 sh (f r sig; as he.< min n g , ( 3, tih l' a h. u n 4,, ""c,~
'<~enhsdm,g"syoomn, w ,,;, g "m < m m , I and plans
,. ', '"cro s'oute , jm 1 . f, c"\ e t , c.,, h ,
f , o , s ,g g ; m o m ,,h m ,"'P ns hcKan '
," ' '" 'I t ! ' e n ;' k d"w a n h s d ' tJf hMI In n:o a and P(! (il 'c\'cr a f g fr' fcasihdu
- _
' .i f f t h/ f, ' ould lea (f g, f E3Iule (fcgg.jf ulell{s _
- s[ n([ g "M i bc jy pss,p ; , of toncer ing i \; p a'N
'f f t s t;[ ' "dl " ses c r al < 'ider C( ocr at mK lilll(s ,g
\t u,,n s 'n m it lh .twe t
?
5 U s i
'6 9 14
t d'. % 1 ,r ( L\11' %h, i m r n , . r. , u ~ t .m c r ~ a!i,nsol m n, rc , < 1. ' a< w<>> <, y n l o 't 'l 21< M l11. i s !! 'il e ' ! !)* A 11 < l t i!':le * ( .\$5' i!t 'i sillf' I' r <
, < n w n .n < >n Irn;'t al e nc r :ctncn! + l1 l nnfucs a: , ne /,os
/ t, , < mit !n s!zer ener << sts l
A mi t< > w n , , ,u r u s t e inc r ~ ^ , n > ci t < in t!1c Mt h y
- More consumers I bc ( ompans prii :J ed scrs u e t< 1 h m ort 9
l iit.l! lillin he r ill t ( li s t i illi c i s !!1 } 'l ' V t ll all !!) l 'l ' % L llst t illlcI s w as s'$ 2VV last s t. a ! Lip IItin) 2V; 5 % J Jet ide agii .ind w litic i C> sile s ith r t ased iin!s 1% tis ci ld % t bt 's u (It lip lle.l!ls %( ! ' 61ttl e l 'IliV klt hlitieh r e siJt n t i.il < iistiiine r s tised ;; l I - J:- Illl}Ilon kilow at t hota s more last vcar than the [ 4. ' s cilr CriIll ,ll{ I ll' .lIlI.l(C .Inlltl l (6sl
- I droppt d shcht h f rom ' t il ; to ' (112 ki i>w l at t l hiiurs \\ armer '\ ( .it hci, t (in scl s .:lli)n alhl h e.l v ie r
}[' 3 e t usromer rehant t on u oud hc.it mg systems all L; ' ( iln tilhllted til t his li, cr .istrage tisc c\ l ibiir I-st rike w hit b :dled < >iit iit t .\ll' s !arecs- t tis . itil e r s wa i f or six w eeks also i ont ributed to hohhng dow n t he Mrilu't h f att ii! Menti.ll sei s lcc %lles Iti 2 l' Looking ahead
> [. l '.\ll' pla n ne r s flid as t m plits (im ptl! tis .Ind t
Liilllpit ht nsis t m Jt is tii riit t t .ist f ut tit t piiw c r nt t ds. !!nli ke cJI } h l stars w hcil cncrev gri>w th t ollld esscot i. ills nt prillet it J ahcaJ hased on h i s t i ii h .ii t re nd, Btit .ili,ne u it h mi>Jern tet hnigtics it anals c:nc itit ure criiw tii has ti>ine ar> cs cll t hitidlet } Hit lJtill < >f enc! Cs u nt t i t.lln t ics tin t cl t.lln t ics .lht illt it il c igil ill suppls . Iedcidl I encr es piilles t t ist cliet t till t listiiluct Llw t listillner llse ill alt ernails e Tc si n n t es hmit s iit titilsers lt hin ciintinlicJ tiw iit n ut !t ar piiu ci . Ctiintinllt Ict culiin i st bl M iln alhl mant tit l1cis l ' \ll' s t ur!"m vlCw m!o t he ttit ut e picJh ts an
.l n n u.ll R!tiu t h r at e iit .thiiut ;2' in hi.id
,kih.w atts' and about ;N m ener.us kdow att - 1 hiitir- iis et t he ilext it) s cars I his tcJtiction triim previittis gitiw I II estlnlat es 1.lkes .n t i t insidelatHin a planned proutam hs the ('ompans to hold 4rtiu th Jiiw n tii inanaecabli Irs cis t hrt>tigh encrxs Illan tRenlent t< chnlques I ht t tirrent tiirccast alsii t etlet t s t esult s of t ustumt r surs es s conducted m recent vcars Dt spite t onsumer conservation ettorts alreadv under w ay or planned. a lv'V 15
,h ! ( . L . .
g { ,k g g ( '*. f a kI k \k k a op2 1 am ( w ag . , . , , m31m %; a mn , ;.
\ fl' : t ls .t!' lit .
pt 7,( ;;; i ,,, is ;( g tjt,tr :( ,g t ;[ j s t 3 } l,), ig;s
'I '
,i! t l '( ;Ils ( iii 't s' i i:1 as {% L , , s il;f t s (t>
't
'l I si;;'; s ]Ilt t]! u.ii ;t .It ;!) g s\ si t Ills T st }%1t ,lt t s 1 li < i! !( sl(!( !; s (1 s t s 1111 t is u lt 1: ( l( t( ! !s }}( .11 Shif t to wood u i m J t h.n son t om t h u d < vc< t < J t o u st w ood 1
t- .!i.i, .I'c s ! ' } ; 11 \l.Illlt i+:Isi;i ( !s .l!( }lt .i t !iil IIli is i .l!l ( ' 1.1 t 1 r }]( ,lt ;n g Icq t t lic t11c tit s
< rti m ourt o i n, n i , sm< : ms a mtcr rm - . . - -
. hg. & %;f % ;& X & g V.psmervegg\ , ,y 9 .. i .:,_ 'f> - l 3 WQy 5 % _t . ..
c ' 4 l 9l? -Mg 7 ' ;,
, ' } .p ' k
. . % , l,hl -!}r , .x%x 4
- 3 J l.
[w }n . 3 :' %. e . 7,' *' w' ' , +%gQ; eQ
- ' y;! . \I
; . .+
i
'1 .' .
- .&; 3. .t Ap4 g
g 3
, i ,'
b ., L w"W M.y .s , 5: l . xn %m;w wmw;
..y s a vs , dn ,
a
- m. , ,<-
s, e 3.fg.v w.s
, 7. .G. .;- . Mg. .gj . .w
- .3 ...,.
.r
~
sa
g ~.*,.
f-
- ,. ' x :t ,' 4, . . . ,
.'-...g 3 ;i a g - ;.
q y ,. , . ~ y ,
;y. .: :. > '. . . _ x- , - '..
n-, . 1 x .
.: J .4 e
.. , c ,!- .
~
+-
f . ay*- . L. '-. ' .
- wW %. .
4%-
. cg - ,A
- r. . ? , .' '
p ,
- g. ,,
%. ,S '
t . ,. % [j - (., ' .j.. r . , _v
' ' ~
c _, +
' g: '- .
4 p . -; .: n; , f f
*e r '. 4
' p7 .
"5 7 .
- s. . ; - -
. . . ._1 p . ; _. 4 ,1
.. - .:. , .y e (y
.s. -
~ ,
3, _ .
- g. ~ . ; w .-. .~ ;. .. . p.
{' (h- .o %
%,' g [g$l . $.M_
t
?
,'?,, .
f, h, &sf [j- mf -
. .- . -; g. + . ;
#/
' y,k .I i . s . .
g
. -. ,- . . _ . ~ ~ _ am .
.. \ . g .' . ;, .
1 .s.- -
=* .m w ns, : w. n._a[~Ile: .
wa..a .. %.wq, m
. *, ? .
* ' E ,D h. e * ; - i
)s w : w:5 ^
;i< ,y +.( qlW. M' *h'%s 4 .~ .- $
- . -.1,, .,. , . .w. : k, <
3 M. 4,r .lC"eSM
;;p' .'
yc ."
* .- g- 8- 4 g. . ,; 1 : y Ng JC> ,f g .= v i l, .
a
? . ,.
- n' Qf %w&&,e%q$p p- .
- g. A, v I. ,..s- g.e.p,c:yy9 ,g g g.
y , s> - ,, .....
- 3 s
1 y
.s ;- . u. .,e.<. .
- m. ,u -
,.n.., _,ewr. m, .s ..m.n ,
, o yw 7j .
.m jn w m' ~ . ,m wm:r.m ~
,a .en;
.& g.) a g aw wam y,.~.
-w m .h*4n p
, tw, c , +_.
ou, 0- e wm . m, mt :
?
,- n. n
..) .;4s
~ .:p . -
u~?&nd. W L , QF 3%j, Qn:m s", m; %
~w g 3 w'*3. am%:w<-a~ > ~ ,Jf a Wy,s;W, L
'+ u::n.m. M wev.w;%m ~ 7f%e i:n, e ..
- s. -s s
.<z z M%M& . &y l s
&a& NQ4).& n%%ngg .nUQgx ;%Wn^;Q,q~&q
? ,% , , W;+M Wp xW %i e Mm
- em &e pQ2 w Wy b<MPW*WW+w- n% <0; % 2 N %@S @M
.WNe Wp[ WW. hy.h6 h-N . y w.y . #
e- c c
. ~
s .s %>r p.
~.e.. wsn.1,.w; s3 m. pn n~u n
_.= w s rim a 4n.ge; .m n v h- mddh +wmnnm.3;
- e -. m s ~r g h emu Ihk mg,o hnyo.,,w a i
, As n 7 .,
. ;; .- c, .
agademaMnM @metidenWpyteesce@000Jtentsi
' ~
. - ~ ('
' ~. . .
. papesa4ayinHn mttonst#aperGessa dofsytantatday.
..' I .
ital ##. Already[$U,etWest44$WWpu_ lp end,papet. - . - . - ~ s
- # . -company 44ansion#will requhe: eves nyere j,
f, # . . . elemateenerginDmyp4
. : c >
.., y . - ' , . . , , ,,.,
n 4
,. , a
-1 a
g.
. .. f i g
'gg
. . e s.
4 g
' ~
5' i # ~
, j .
. 4
., . . a e.
f Conservation counts customers voluntarily reduce power use to avoid ! excessively high and costly peaks. KST is During 1979 CMP continued to encourage announced through the news media only on cold l strong conservation measures by customers as well and windy winter dcys when a new peak demand as withm, Company operations. Television and is liable to be reached. Also designed to help avoid newspaper advertising was used to explain costly new faci *ks is the Company's thermal l conservation programs such as Kilowatt Saving energy storage study in which residential Time, time-of-day electic rates, water heater customers are using lower cost off-peak electricity insulation tips and a thermal energy storage to store heat energy in ceramic bricks for
- research project in which lower cost off-peak controlled release as needed. Implementation of -
electricity is used for home heating. The offering time-of-day rates in 1979 added a new dimension of a free energy-saving water restrictor drew an to energy management and by year-end 6,000 overwhelming response from customers wh customers had requested detailed information requested 90,000 of the devices which are designed about the rate. Of these more than 300 time-of-day to cut in half the amount of hot water used while meters were installed for customers who chose showering. The Company also changed its bill this rate alternative to shift power use from peak format to give customers a " conservation periods and save money. comparison" of their energy use for the current period compared with the same period 12 months earlier. An energy management system was installed at CMP's general office to improve Management changes . } efficiency, a number of diesel vehicles were added A number of major management changes were i to the fleet of line vehicles, and an employee announced during 1979 and in January of 1980 vanpool program was initiated. Halsey Smith was elected to the Board of Directors. Mr. Smith, former chairman of the Commission on Maine's Future and past director . Help for customers of Public Service and The Center for Research and Because of potential financial hardship for some Advanced Study at the University of Maine, customers, especially during the winter . onths Portland-Gorham, is presidene and chief executive when heating costs are higher, Ct/.s publicized a officer of the Northeast Bankshare Association in l special payment arrangement plan last fall through Lewiston. His earlier banking career includd , newspaper ads and a bill insert. The plan offers more than 20 years of service with the Casco bank those customers whose income is at the poverty and Trust Company in r'ortland where he level, an opportunity to make payment advanced from vice pre sident to chairman of the arrangements with the Company to avoid credit board of directors and chief executive officer. action and possible loss of service during cold Thomas C. Webb was promoted to Senior Vice , wea'.her. The Company is again participating in a President, Finance and John B. Randazza to Vice i federal fuel assistance program with eligible President, Special Projects. Mr. Webb has served customers and is making every effort to notify as Vice President, Finance, since August 1977 needy customers of appropriate social service when he joined the Company after previously agencies, serving 13 years with the Wisconsin Power and Light Company where he was treasurer. Mr. Randazza who had served as assistant vice Managing growth president, nuclear services since 1974, is former While meeting growing customer needs, CMP is superintendent of the Maine Yankee Atomic also initiating energy management techniques Power Station. designed to control growth in the face of rapidly Other management promotions included Patrick rising costs of energy facilities. Energy S. Lydon to manager of central division, Robert C. management programs are not new to CMP. Matheson 11 to manager of materials and fuels and Several years ago the Company initiated its highly Wilbert D. Whitney, to manager of customer successful K" .v'att Saving Time program in which services. i 17
C:ntral Mains Powsr Company Statement of Earnings (Dollars in Thousands Except Per Share Amounts) Year Ended December 31, 1979 1978 Electric Operating Revenues (Notes 1 and 3) $271,764 $?OR 176 Operating Expenses Fuel Used for Company Generation 29,691 19,470 Purchaser' Pow,.:r (Note 4) Fuel 71,961 43,369 Other 28,054 28,594 Other Operation 36,572 32,736 Maintenance 14,121 11,363 Depreciation (Note 1) 20,160 15,% 2 Taxes Federal and State income (Note 2) 16,882 13.229 Local Property and Other 9,688 9,194 227,129 173,917 Equity in Earnings of Associated Companies (Note 5) 3,595 3,376 Operating Income 48,230 37,635 Otherincome(Expense) Allowance for Other Funds Used During Construction (Note 1) 723 6,250 Other, Net 218 (300) Income Before Interest Charges 49,171 43,585 Interest Charges Long-Term Debt (Note 8) 19,823 17,514 Other 5,289 2,147 Allowance for Borrowed Funds Used During Construction (Note 1) (5,584) (5,687) 19,528 13,974 Notincome 29,643 29,611 Dividends or Preferred Stock 4,599 4,642 Eamings Applicable to Common Stock $ 25,044 $ 24,969 Weighted Average Numberof Shares of Common Stock Outstanding 11,899,435 11,378,432 Eamings Per Share of Common Stock $ 2.10 $ 2.19 Dividends Per Share of Common Stock $ 1.55 $ 1,46 T he accompanying notes are an integral part of these financial statements. 18 l
Central Maine Power Company Binc3 Sheet (Dollarsin Thousands) 1979 1978 Assets Ele ctric Property, at Original Cost (Notes 4,8 and 14) $661,491 $630,413 Less: Accumulated Depreciation (Note 1) 179,995 165,404 481,496 465,009 Construction Work in Progress (Note 12) 70,888 48,161 552,384 513,170 investment in Associated Companies, at Equity (Note 5) 36,741 36,129 Net Electric Property and Investments in Associated Companies 589,125 549,299 Current Assets Cash (Note 7) 1,528 1,017 Accounts Receivable, Less Allowances for Uncollectible Accounts of $371 in 1979 and $380 in 1978 Service-Billed 23,299 20,482
-Unbilled (Notes 1 and 6) 34,459 20,274 Other 6,067 13,711 Inventories,at Average Cost FuelOil 14,984 7,124 Materials and Supplies 9,805 8,076 Prepayments and Other Current Assets 3,783 2,456 Total Current Assets 93,925 73,140 Deferred Charges and Other Assets (Note 12) 11,787 11,602
$694,837 $634,041 Stockholders' investment and Liabilities Capitalization (See Separate Statement)
Common Stock Investment $214,022 $203,600 Preferred Stock 35,571 35,571 Redeemable Preferred Stock (Note 9) 33,690 34,075 Long-Term Debt (Note 8) 254,699 221,863 Total Capitalization 537,982 495,109 Current Liabilities interim Financing (See Separate Statement) 60,T,02 55,919 Other Current Liabilities-Sinking Fund Requirements 553 562 Accounts Payable 23,220 21,609 Accrued Interest 5,506 4,897 Accrued Income Taxes 7,834 3,729 Other 2,830 4,880 39,943 35,677 Total Current Liabilities 100,535 91,596 Commitmcats and Contingencies (Notes 3,4 and 12) Reserves and Deferred Credits Accumulated Deferred Income Taxes (Note 2) 27,913 23,058 Unamortized Investment Tax Credits 26,349 22,709 Other 2,058 1,569 Total Reserves and Deferred Credits 56,320 47,336
$694,837 $634,041 The accompanying notes are an integral part of these financial statements.
19
Cantral Mains Pow:r Company St:t:: ment cf C pitaliz: tion cnd Int: rim Fin:ncing (Dollars in Thousands) December 31, 1979 g Amount % Amount % Capitalization Common Stock investment: Common Stock, Par Value $5 Per Share Authorized 15.000,000 Shares, Outstanding - 12,074.234 Shares in 1979 and 11,805.844 Shares in 1978 $ 60,371 $ 59,029 Other Paid-in Capital 77,445 74,931 Retamed Earnings (Note 10) 76.206 69,640 214.022 35.8 % 203,600 36.9 % Cumulative Preferred Stock: Par Value $25 Per Share-Authorized ~2,000,000 Shares. Outstanding- None - - Par Value $100 Per Share-Noncallable, Voting,6 %- Authorized a nd Outstanding -5,713 Shares 571 571 Davidend Series, Callable-Authorized-1,300.000 Shares Current Current Rate Outstanding Shares Redemotion Price 3.50 % 220,000 $101.00 22,000 22,000 4 60 30,000 101.00 3,000 3.000 4.75 50,000 101.00 5,000 5.000 5.25 50,000 102.00 5,000 5,000 Preferred Stock 35,571 5.9 35,571 a.5 8 40 250,000 108.40 25,000 25,000
$11.25 90.750 in 1979 94,600 in 1978 108.44 9.075 9,460 34,075 34,460 Less: Current sinking f und requirement of $11.25 Series 385 385 Redeemable Pref erred Stock (Note 9) 33.690 5.6 34.075 6.2 Long-Term Debt (Note 8):
1 Series interest Rate Maturity First and General Mortgage Bonds: R 3 % March 1,1979 - 4 260 S 2-7/8 November 1,1979 - 4.268 T 3-5/8 November 1,1981 5,933 6,057 U 35/8 March 1,1983 8,630 8,630 V 3-3/8 April 1,1985 10,513 10.501 W 4-7/8 May 1,1987 15,966 15,971 X 5 114 November 1,1990 5,389 5,417 Y 7 112 May 1,1999 28,392 28,460 2 9.30 August 1,1995 33,215 33,530 AA 7.70 July 1,1997 24,080 24,115 BB 10.65 August 15,
- 34 20,000 20.000 General and Ref unding Mortgage Bonds:
A 95/8 May 1,2000 35,000 35.000 8 95!8 October 1,2003 25,000 15,000 C 10-1/2 October 15,1999 23,500 - 235,618 211,299 Unamortized premiums 100 112 235,718 211,411 Other: Serial Notes 10 */. December 15,1979 - 6,000 Lease Obligation 11.5 2021 (in installmer ts) 7,899 7,907 Installment Notes-Polktion Control Facilities 6-3/4 2002 2003 11,250 11,250 19,149 25,157 Less: Sinking f und requirements and current maturities 168 14.706 254,699 42.6 221,863 40.3
- Total Capitalization 537,982 89.9 495,109 89.9 Interim Financing, Amounts to be Ref manced (Note 7)
Notes Payable to Banks 150 - Commercial Paper 60,442 41,391 Current Maturities of Long Term Debt - 14.528 60,592 10.1 55.919 10.1 Total Capitalization and lnterim Financing $598,574 100.0 % $551,028 100.0 % The accompanying notes are an integral part of these financial statements. 20
Central Maina Power Company Statement of Changes in Common Stock Investment (Dollars in Thousands) Other Amount at Paid-in Reiained Shares Par Value Capital Earnings Total Balance-December 31,1977 10,077,071 $50,385 $56,605 $60,964 $167,954 Add (Deduct) Reclassification of Equity Hydro Reserve 807 807 Net income 29,611 29,611 Cash dividends-Common Stock (17,100) (17,100) Preferred Stock (4,642) (4,642) Sale of Common Stock 1,728,773 8,644 18,310 26,954 Capital stock expense 16 16 Balanoe-December 31,1978 11,805,844 59,029 74,931 69,640 203,600 Add (Deduct) Net income 29,643 29,643 Cash dividends-Common Stock (18,478) (18,478) Preferred Stock (4,599) (4,599) Sale of Common Stock 268,390 1,342 2,397 3,739 Capital stock expense 117 117 Balance-December 31,1979 12,074,234 $60,371 $77,445 S76,206 $214,022 The accompanying notes are an integral part of these financial statements. Price Range and Dividends of Voting Stock 1979 1978 Market Price Market Price Common Stock Traded N.Y.S.E. High Low Dividends High Low Dividends 1st Quarter $16 $14 7/8 $ .38 $16-7/8 $15-5/8 $ .36 2nd Quarter 1 5-114 13 114 .38 16-3/8 15-1/8 .36 3rd Quarter 15 13 5/8 .38 16-1/4 15-1/8 .36 4th Quarter 14-3/4 12-3/8 .41 1 6-114 14-1/2 .38 6% Preferred Traded O.T.C. 1st Quarter $1.50 $1.50 2nd Quarter 1.50 *
- 1.50 3rd Quarter 1.50 *
- 1.50 4th Quarter 1.50
- 1.50
- There have been no quotations since June 1974.
21
Crntral Mains Powar Company Statement of Sources of Funds for Construction (Dollars in Thousands) Year Ended December 31, 1979 1978 Funds Provided internal Sources From operations Net income $29,643 $29,611 Depreciation 20,160 15,962 Deferred income taxes and investment tax credit, net 8,495 12,892 Allowance for oiher funds used during construction (723) (6,250) 57,575 52,215 Less: Sinking f und requirements of long-term debt and $11.25 Preferred Stock 1,046 917 Dividends declared 23,077 21,742 Other-net (430) (687) 23,693 21,972 (Increase) decrease in working capital, exclusive of interim financing and sinking fund requirements Cash and receivables (9,869) (21,953) Other current assets (10,916) 1,065 Other current liabilities 4,275 5,341 (16,510) (15,547) Internal Sources, Net 17,372 14,696 dxternal Sources Common Stock 3,739 26,954 Long term debt 33,500 16,000 Increasein short term borrowings 19,201 10,318 Long-term debt refunded (14,528) (4,293) Changesin advances and investments 61 57 Extornal Sources, Net 41,973 49,036
$59,345 $63,732 Funds Used for Construction Wyman Unit No.4 $ 7,768 $22,707 Other jointly-owned projects 17,344 13,393 Other construction and plant additions 34,956 33,882 Allowance f or other f unds used during construction (723) (6,250)
$59,345 $63,732 The accompanying notes are an integral part of these financial statements.
l I I 22
Central Maine Power Company Not:s to Fin:nci:1 St:tements Dec:mber31,1979 and 1978
- 1. Summary of Significant Accounting Policies Allowance for Funds Used During Construction (AFC): The Regulation: The Company's rates, operations, accounting Company includes as an element of the cost of construc-and certain other oractices are subject to the regulatory tion of electric property an allowance for funds (including authority of the Public 1"ilities Commission of the State of common equity funds) employed during periods of con-Maine (PUC) and the F. Jeral Energy Regulatory Commis- struction. The debt component of AFC is reflected as a sion (FERC). reduction of interest expense while the balance, or equity Depreciation: Depreciation of electric property is provided component, is recorded as Other income. The amount of using the straight line method. The effective composite AFC recorded as determined by multiplying the average rates were 3.30% for 1979 and 3.33% for 1978. monthly dollar balance of construction work in progress (CWIP) by a rate reflecting the current month's average Electric Operating Revenues: Electric operating revenues short-term borrowing rate and, to the extent the amount in-include amounts billed to customers, estimated unbilled vested in CWIP exceeds outstanding short-term borrow-sales and unbilled fuel costs at the end of each reporting ings, the weighted cost of other capital at the beginning of period.
the year. The average AFC rate produced by the Com-Under a 1978 Maine statute revising electric utility fuel pany's monthly computations was 11.22% in 1979 and clauses, the PUC was directed to implement regulations to 9.27% in 1978. provide for current recovery of the cost of fuel consumed in While the AFC recorded does not provide funds currently, j Companyowned generatir.g stations and the fuel compo- when the constructed property is placed in service, the nent of power purchased for use in Maine. Company is permitted under applicable rate-making prac-Under new PUC regulations that are expected to be im- tices to recover these amounts in revenue over the useful , piemented in April 1980, unbilled fuel costs outstanding on life of the property. Further, the unrecovered cost of elec-
! the effective date of the new fuel clause will be amortized tric property, including AFC,is an element of rate base on over a future period. which the Company is permitted to earn a return. , 2. Income Taxes The components of Federal and state income taxes The rate-making practices currently followed by the PUC reflected in the Statement of Earnings are as follows: permit the Company to recover Federal and state income Year Ended December 31, taxes payable currently and to recover deferred taxes only when the tax law,in effect, requires such treatment. In the 1979 1978 Company's most recent rate decision (October 1978), the (Dollars in Thousand3) PUC recognized only the deferred Federal income tax ex-Federal: pense arising from the use of accelerated tax depreciation Current S 6,596 $ (661) of expansion property added subsequent to 1969. The in-Deferred 4,857 3,712 come tax effects of other timing differences are flowed Investment tax credit. net 3,640 8.826 through for ratemaking and accounting purposes. The 15,093 Company expects that these unrecorded costs will be 11'877 recovered in the future when taxes deferred become State: payable.
Current 1,791 1,369 Deferred (2) (17) The following table reconciles the statutory Federal in-1,789 1,352 come tax rate to a rate determined by dividing the total Federal income tax expense by income before that ex-Total Federaland state pense. income taxes $16,882 $13.229 1979 1978 Amount % Amount % (Dollars in Thousands) Statutory Federalincome tax rate $20,579 46.0 % $19,914 48.0 % Permanent reductions in tax expense resulting f rom statutory exclusions from taxable income Dividend received ceduction related to eamingsof associatedcompanies (1,405) (3.1) (1,377) (3.3) Allowance for of her funds used during construction (333) (.8) (3,000) (7.2) Other (861) (1.9) (563) (1.4) 17,980 40.2 14,974 36.1 Ef fect of timing dif ferences for which deferred taxes are not recorded (flow through) Deduction of removal costs (743) (1.7) (578) (1.4) Allowance for borrowed funds used during construction (2,569) (5.7) (2,730) (6.6) Depreciation of replacement property added subsequent to 1969 (410) (.9) (708) (1.7) Depreciation differences flowed through in prior years 1,139 2.5 936 2.2 Other (304) (.7) (17) - Calculated rate $15,093 33.7 % $11,877 25 %
=: =.
23 i l
- 3. Rate Making Matters Company made effective new rates desigred to produce in October 1978, the PUC authorized the Company to file additional annual revenues of approximately $880.000. The retail rates designed to increase annual gross revenues by PUC is seeking review by the United Siates Supreme Court.
approximately 7.6% or $15,500,000. In arriving at its deci-sion, the PUC disallowed, among other items, depreciation On February 1,1980, the Company filed with the PUC for a on a portion of the Company's plant assumed by the PUC $35.000.000 increase in gross revenues. The PUC was re-to be financed by deferred income taxes. In response to quested to allow temporary rates to be implemented pen-the Company's appeal, the Maine Supreme Judicial Court ding a decision on the full increase request. The temporary held, among other things, that the PUC had erred on that rates would provide approximately $11,000,000 of the issue. As a result of the court decision,in August 1979, the $35,000.000 total.
- 4. Capacity Arrangements Power Agreements: The Company owns directly or in- 345 KV inter- connection of Maine Electric Power Com-directly a portion of the generating capacity and energy pany, Inc. (M EPCo.). The connection is providing up to 400 production of certain generating plants operated by megawatts of base load power from another electric associated utility companies and is obligated to pay its system for ten years, which began in 1976. All of MEPCols proportionate share of the generating costs, including costs, including depreciation and a return on invested depreciation and a return on invested capital. In addition, capital, not met by transmission revenues, are paid by the the Company has an entitlement percentage (currently participating utilities. Pertinent data related to these power 10.3%) of the capacity and energy obtained through the agreements are as follows:
Maine Yankee Vermont Yankee Connecticut Yankee Yankee Atomic MEPCo. Contract Expiration Date 2002 2002 1998 1991 1986 Plant Capacity (MW) 830 528 580 176 400 Company's Share of Capacity (MW) 311 19 35 17 41 (Dollars in Thousands) Estimated AnnualCosts-(1979 Costs) Depreciation 5 3,101 $ 298 $ 384 $ 211 $ 50 Interest and Preferred Dividends 4,391 343 439 157 1,526 Other Costs 18.310 1.724 3.208 2.146 5.760
$25.802 $2,365 $4,031 $2,514 $7,336 Company's Share of Debt and Preferred Stock-December 31.1979 $60,112 S4,398 $5,243 S2,328 $8,768 December 31,1978 $54.693 $4.294 $4.890 $2.033 $9.284 The costs are included in purchased power on the Statement of Eamings.
W.F. Wyman Unit No. 4: The 600 megawatt oil-fired Wyman depreciation attributable to the Unit are as follows: Unit No. 4 operated by the Company began commercial at December 31, operation on December 1.1978. The Company's nearly 60 % ownership of the new unit added about 360 1979 1978 megawatts to its generating capability. The Company's (Dollars in Thousands) share of operating costs is included in the appropriate ex-Plantin Service $112,300 $105.000 pense categones on the Statement of Earnings. Accumulated Depreciation S 3,492 $ 271 The Company % plant in service and related accumulated
- 5. Associated Coinpanies The Company's advances to and ownership interests in the common stock of joint corporate generating companies and other associated companies, accounted for using the Investment at Percent December 31, equity method, are as fcilows:
Ownership 1979 1978 Joint corporate nuclear generating companies: (Dollars in Thousands) Maine Yankee Atomic Power Company 38.0 % $25,3% $25,386 Vermont Yankee N uclear Power Corporation 4.0 2,328 2.332 Connecticut Yankee Atomic Power Company 6.0 3,042 2,796 Yankee Atomic Electric Company 9.5 1,962 1,967 32,728 32,481 Other associated companies: Maine Electric Power Company,Inc. 78.2 974 1,035 Central Securitles Corporation 100.0 1,070 668 Cumberland Securities Corporation 100.0 1,783 1,806 The Union Water-Power Company 100.0 186 139 SW,741 $36.129 24
i P Conden ied fin:ncialinformition of Miina Yankee Atomic Power Company and Maina Electric Pow r Cornpany,Inc., , is as fo; ows: 1 Maine Yankee M EPCo. 1979 1978 1979 1978 (Dollarsin Thousands) l Eam.mgs i Operating revenues s 68,867 $ 70,373 $98,122 $59.860 l Eam'ngs applicable to Common Stock
, $ 6,650 $ 6,702 S 155 $ 164 Company's equity share of net earnings S 2,527 $ 2.547 5 121 $ 128 investment Totalassets 3287,105 $265,955 $22,804 $20,812 Less:
Preferred Stock 13,070 13,6 % - - Long-term debt 139,373 128,818 10,560 11,220 Other liabilities and deferred credits 67,830 56.634 10,997 8.267 Net assets S 66,832 5 66,807 $ 1.247 $ 1.325 Company's equityin net assets S 25,396 $ 25,386 $ 974 5 1,035 Complete financial statements for Maine Yankee and M EPCo. are included in the Company's Annual Report to the Securities and Exchange Commission on Form 10 K.
- 6. Maine Yankee Shutdown ings relating to an investigation of questions pertaining to The Maine Yankee nuclear generating plant, ordered shut the justness and reasonableness of these increased power down by the Nuclear Regulatory Commission (NRC) on costs.
March 13,1979, returned to operation on June 5 after the At December 31,1979, approximately $6,600,000 of the ad-NRC terminated its shutdown order. During the shutdown ditional costs had not been billed to customers. The PUC period the Company incurred additional costs of approx- further ordered that recovery of tr.e unbilled amount at imately $15.200,000 for replacement power, which the PUC December 31,1979 be extended to the end of 1980, which ordered be billed over a twelve month period instead of the the Company has appealed to the Maine Supreme Court. normal three month period to minimize the impact on the Recovering those costs over the extended periods in-Company's customers. The PUC is currently holding hear. creases the Company's working capitai requirements.
- 7. Interim Financing The Company uses short- term borrowings under lines of and other corporate purposes. The Company intends credit with commercial banks, the majority of which re- ultimately to repay these borrowings with the proceeds
, quire an annual fee of 1/2 to 5/8 of 1 % of the line, and com- f rom sales of long-term debt or equity securities. Certain in-mercial paper to initially provide financing for construction formation related to borrowings is as follows: 1979 1978 (Dollars in Thousands) Totallines of bank credit $66,450 $52,700 Unused lines of bank credit at year end 66,300 52,700 Borrowings outstanding at yearend Notes payable to banks 150 - Commercial paper 60.442 41,391 Total 60,592 41,391 Weighted average interest rate on borrowings outstanding at year end Banks 16.78 % - Commercial paper 14.20 % 10.71 % Average daily net outstanding borrowings Banks 15 169 Commercial paper 44,915 25.168 Total foryear 44,930 25,337 Weighted daily average annualinterest rate Banks 12.75 % 8.59 % Commercial paper 11.68 % 8.35 % Highest level of borrowings outstanding at any time during the year $62,645 $41,391 The Company's Articles of Incorporation limit Unsecured Borrowings that may be outstanding to 20% of Capitalization, as defined ($105,410,000 as of December 31,1979). Unsecured Borrowings, as defined, amounted to $71,842,000 as of December 31.1979. 25
i I ! 8. Long-Term Debt 9. Redeemable Preferred Stocks G*neral Provision: Under the terms of the Indenture secur- Sinking fund provisions of the $11.25 and 8.40% Series j ing the First and General Mortgage Bonds, substantially all Preferred Stock require the Company to redeem all shares of the Company's electric utility propoty is subject to a at par plus an amount equal to dividends accrued to the
- first mortgage lien. Bonds issued under the General and redemption date on the basis of 3,850 shares annually for Refundmg Mortgage Indenture are subject to the prior lien the $11.25 Series and 13,750 shares annually beginning in of the First and General Mortgage Indenture until the First 1982 for the 8.40% Series. The Company also has the non-j Mortgage Bonds have been retired. cumulative right to redeem up to 13,750 additional shares of the 8.40% Series annually beginning in 1982 at the same
) Alt or any part of each outstanding series of First and price. Subject to certain refunding limitations, the
, General Mortgage Bonds and General and Refunding Mort.
i gage Bonds may be redeemed by the Company at any time Redeemable Preferred Stocks are redeemable for other I at established redemption prices plus accrued interest to than sinking funds at current redemption prices of $108.40 the date of redemption, except that the Series BB Bonds for the 8.40% Series and $108.44 for the $11.25 Series at are subject to certain refunding limitations until August 15, December 31,1979. The annual sinking fund requirements 1 are as follows: 1980 and 1981-$385,000; 1982 through > 1980, the Series A Bonds until May 1,1986, the Series B Bonds until October 1,1988 and the Series C Ponds until 1984-$1,760,000. i
; October 15,1989.
j 10. Reta.ined Eamings Bond Financing: The Company sold through private place- Under terms of the indentures securing the Company's ment $25 m;llion of its General and Refunding Mortgage Bonds, Series B 9-5/8% Due 2003. The sale of $15 million of Martgage Bonds and the Company's Articles of Incorpora-
- tion no dividend may be paid on the common stock of the the Bonds was completed in October 1978 and the balance Company if such dividend would reduce retained eamings t of $10 million in January 1979. -
below $29,604,000. At December 31,1979 $46,602.000 of re-
- . The Company sold through private placement $40 million tained earnings was not so restricted.
1 of its General and Refunding Mortgage Bonds. Series C i 10-1/2% Due 1999. The sale of $23.5 million of the Bonds 11. Retirement Plans was completed in October 1979 and the balance of $16.5 The Company has two noncontributory retirement income million in January 1980. plans covering substantially all of its employees. The Com-Sinking Fund Requirements and Maturing Debt: The an- pany's policy is to fund pension costs accrued, including . nual sinking fund requirements for First and General Mort- amounts sufficient to amortbe unfunded prior service 1 gage Bonds (1% of maximum principal amount of series costs ($8,647,000 as of January 1,1979) over 30 years. outstanding) may be met by payment in cash or repur- Pension expense amounted to $2,420,000 in 1979 and i chased bonds or, up to one-half of their amounts, by the $2,273,000 in 1978. As of January 1,1979, the date of the
! certif tcation of additional property. The Series A General latest actuarial review, the market value of the assets of I and Refunding Mortgage Bonds have no sinking fund. The each of the plans exceeded the actuarially-computed value Senes B General and Refunding Mortgage Bonds have a of vested benefits.
l five percent mandatory cash sinking fund commencing in l 1984, and a non<umulative or,tional five percent cash sink- 12. Commitments and Contingencies ing fund, limited to one-third of the aggregate principal Construction Program: The Company's load forecasts and l amount of Series R Bonds issued, also commencing in ' l lans for the construction of additional generation and pur-1984. The Series C General and Refunding Mortgage chase of power are under continuing review and revision. Bonds have a six and one-quarter percent mandatory cash l The Company's current forecasted construction expen-j sinking fund commencing in 1984, and a non-cumulative ditures amount to $100,300,000 for 1980 and $391,600.000 optional cash sinking fund, not to exceed the amount of
- for 1981 through 1984 exclusive of AFC but including the mandatory cash sinking fund and limited to thirty one estimates for nuclear fuel costs where applicable. These and one-quarter percent of the aggregate principal amount 4
expenditures include $182,200,000 for major generating of Series C Bonds issued, also commencing in 1984. facilities as shown below and $42,900,000 for transmission, The Company intends to meet one-half ($715,000) of the $119,600,000 for distribution and $147,200,000 for other '. 1980 sinking fund requirements by the certification of addi* capital projects. l tional property. Sinking fund requirements and maturing The cost estimates and completion dates for the jointly-debt issues (exclusive of $682,000 purchased in advance) owned plants reflect the latest information made available ' for the five years ending December 31,1984 are as follows: by the lead participant in each project. Year Sinking Fund Maturing Debt Total (DollarsIn~ Thousands)
~
1980 $ 883 $ -
$ 883
, 1981 1.298 5,898 7,196 j 1982 1,3 71 - 1,371 i 1983 1,272 8,402 9,674 i 1984 5,023 20,000 25,023 j 26 '
The Compiny's Shirs of Gtn: ration Facilitits Expenditures Estimated Expenditures Estimated Net -(including AFC) (excluding AFC) Percent Capability Through Total Unit-Estimated in Service Date Ownership MW December 31,1979 1980-1984 Project (Dollars in Thousands) Boston Edison Company Pilgrim No.2
- 2.85 % 33 $10,517 $ 21,000 $ 45,100 j Public Service Co.of NH Seabrook Nos.1 & 2-1983 and 1985 139 24.285 111,500 132,200 y Northeast Utilities Millstone No.3-1986 2.50 29 18,404 18,800 41,200 Montague Nos.1 & 2 " 3.00 69 1.517 3,600 **
Central Maine Power Co. Brunswick Topsham Hydro-1982 100.00 12 2.404 17,200 19,500 Sears Island Coal-1989 341 8,712 10,100 441,800
$65,839 $182.200
- Middle to latter part of 1980's.
"No firm schedule provided by lead participant.
4
'*As of December 31,1979, the Company had a 2.54178% interest in the Seabrook units. Certain proposed transfers and ad-justments of the ownership interests in the units would ultimately result in a 6.04178% ownership interest for the Company.
The estimated expenditures and estimated net capability for the project reflect the proposed increased ownership percentage.
'"
- As of December 31,1979, the Company had an 80.8227% interest in the Seals Island Coal Unit, which it is planning to reduce through partial sales to approximately 60%. The estimated expenditures and estimated net capability for the project reflect thelower ownership percentage.
Abandoned Nuclear Project Costs Deferred: At December Seabrook: The construction of the two nuclear generating 31,1979, Deferred Charges and Other Assets include cer- units at Seabrook, New Hampshire, in which the Company tain costs incurred in connection with the Company's is participating as part owner, has been plagued by lengthy Sears Island Nuclear project abandoned in 1977. These delays in obtaining approvals and permits which have costs include $4.5 million for a nuclear fuel enrichment resulted in greatly increased costs for the project. One contract with the Federal Energy Research and Develop- court appeal from Federal regulatory approvals is pending i ment Administration. The Company has been unsuc- and further appeals are possible. cessful to date in its efforts to obtain recovery from either DOE or through the sale or transfer of its contract rights. Public Service Company of New Hampshire ("PSNH"), the These costs also include $3.5 million for site evaluations lead participant in the Seabrook plant continues to ex-and for nuclear plant design in connect,on i with that pro- perience financial difficulties. As a resul't, PSNH proposed posed plant which costs were treated as deferred charges and has agreed to an adjustment whereby its ownership in-for accounting purposes based on the Company's intent t terest in the plant would be reduced and the ownership in-build a nuclear plant at an alternate site, in light of the terests' of other utilities would be increased commen-Company s inability to obtain recovery of the enrichment surately. The adjustment was to have originally involved contract costs and the current political climate causing 22% of the total plant ownership interest but now involves uncertainty as to the future of nuclear power development' only 15% due to the inability of Massachusetts Municipal the Company currently intends to seek regulatory appual Wholesale Electric Company to obtain commitments from for recovery of part o all of these costs through rates its constituent utilities for all of the share that it originally charged to its customers over a five- year period. While the agreed to assume and the decision of two Vermont utilities Company believes these costs should be recovered, no not to participate. Various regulatory approvals are still re-prediction can be made as to the amount of any recovery quired before the 15% adjustment can be accomplished. through rates or Otherwise or the time penod over which On the present schedule, proceedings now pending before recovery will take place. If any of these amounts are deter- the Massachusetts Department of Public Utilities concern-mined not to be recoverable they would be charged, net of ing certain of these approvals, which will include con-related income taxes, against earnings in the period such a sideration of the financial viability of the project, among l determ,i nation is made. other matters, may not be concluded until January 1981, or later. As a result of delays in the proposed reduction of its Sears Island Coal. Fired Plant: By order dated December 31, 50% ownership interest and serious difficulties in obtain-1979, the PUC denied the issuance of a certificate of public ing the external financing required by that interest, PSNH convenience and necessity for the Company's proposed has sought and obtained, under bond, emergency rate Sears Island coal fired plant. The decision was based on. relief from the New Hampshire Public Utilities Commission findings that the Company's need for base. load power in ("NHPUC") comprising a portion of PSNH's permanent the late 1980's did not justify construction of a 568-MW retail rate request currently pending before the NHPUC. f acility. The Company petitioned for a rehearing before the PSNH has taken the position that adequate permanent - PUC based on a smaller ownership interest, a commercial rates as well as timely approvals for a reduction of its , operation date in 1989 instead of 1987, and other known ownership Interest in the Seabrook plant by not significant-changes in circumstances. The petition for rehearing was ly less than a 15% interest and continued availability of ex-granted by the PUC. The Company expects the hearing to ternal financing are all essential to enable PSNH to finance commence in the spring of 1980. 27
its share of the plant and avoid suspension of construction Maine is located within such territory, although the Com-or other measuras which might adversely affect the com- pany's proposed Sears Island coal unit and related pletion and cost of the two units. The Company cannot transmission f acilities may be located in such tarritory. predict what effect financing problems or further ad- The Attomey General of the United States has obtained a ministrative or court decisions may have on completion of stay of the proceedings to permit development of a com-the project, the cost of the project, or on the Company. prehensive legislative proposal for resolving the problems Indian Claims: Two actions have been brought in the underlying the litigation and var:ous extra-judicial settle-United States District Court for the District of Maine, North, ment proposals are being explored by the parties. em Division, by the United States of America against the At least until legislation is introduced or the United States State of Maine,one on behalf of the Passamaquoddy Tribe has decided whether to proceed with the Indian claims, it and the other on behalf of the Penobscot Nation of Indians. is not possible to assess the validity of such claims as may Each seeks damages of $150 million for alleged wrongs by be advanced by or on behalf of the Indians or to determine the State in respect of Indian lands. It is possible that the the extent to which the Company and its properties may be complaints may be amended to assert claims with respect involved. to the fand itself, or to seek damages, including damages f rom the present owners of the land, or both. At December Rents and Leases: The Company leases certain facilities 31,1979, approximately 5% of the Company's electric pro- and equipr ent used in its operations. Rents charged to ex-perties were located in the territory which may be involved pense in 1979 were $1,967,000 and in 1978, $1,930,000. in the claims. None of the Company's existing generating Rentals under noncapitalized financing leases and under stations or Maine Yankee's generating plant at Wiscasset, noncancellable leases are not significant.
- 13. Unaudited Quarterly Financial Information Unaudited quarterly financial data pertaining to the results of operations f or 1979 and 1978 is shown below:
Three Months Ended March June September Decemoer 1979 1978 1979 1978 1979 1978 1979 1978 (Dollars in Thousands Except Per Share Amounts) Electric Revenues $76,001 $51,445 $63,536 $41,715 $64,437 $55,558 $67,790 $59,458 Operating income 14,007 11,116 10,676 7,507 10,729 8,153 12,818 10,859 Net income 9,472 8,992 5,957 6.076 6,027 6,677 8,187 7,866 Eamings per Common Share .70 .76 .41 .42 .41 .47 .59 .57 The major fluctuations between quarters in any given year ganerally are caused by the seasonal nature of the Com-pany's business. Historically, larger KWH sales have occurred during the winter months.
- 14. Supplementary information to Disclose through the operation of the fuel adjustment clause to ac-tual costs. For this reason fuel inventories are effectively The Effects of Changing Prices (Unaudited) monetary assets.
The following supplementary information is supplied in accordance with the requirements of the Statement of Depreciation is determined by applying the Company's Financial Accounting Standardt No. 33 for the purpose of composite depreciation rate for 1979 to the indexed providing certain information about the effect of changing depreciable plant amounts. prices. It should be viewed as an estimate of the approx- Since only historical costs are deductible for income tax imate eflect of inflation, rather than as a precise measure. purposes, the income tax expense in the historical cost Constant dollar amounts represent historical costs stated financial statements is not adjusted. in terms of dollars of equal purchasing power, as Under the rate-making practices prescribed by the measured by the Consumer Price Index for All Urban Con- regulatory commissions to which the Company is subject, sumers (CPI-U). Current cost amounts reflect the changes only the depreciation of historical cost of utility property is in specific prices of plant from the date the plant was ac- included in the cost of service used to establish the Com-quired to the present, and differ from constant dollar pany's rates. Therefore, the cost of plant stated in terms of amounts to the extent that specific prices have increased constant dollars or current cost that exceeds the historical more or less rapidly than the general rate of inflation. The cost of plant is not presently recoverable in rates, and is current cost of electric generating and transmission plant reflected as a reduction to net recoverable costs. While the is estimated based on engineering studies of the current rate-making process gives no recognition to the current cost (per megawatt) of replacing the present mix of hydro, cost of replacing property, plant, and equipment, based on oil-fired, and gas turbine generating plants and the current past practices the Company believes it will be allowed to cost of replacing existing transmission facilities. The cur- cam on and recover the increased cost of its net invest-rent cost of remaining plant is determined primarily by in- ment when replacement of facilities actually occurs. dexing surviving plant by the Handy-Whitman Index of To properly reflect the economics of rate regulation in the Public Utility Construction Costs. Since the utility plant is Statement of income from Operations Adjusted for Chang-not expected to be replaced precisely in kind, current cost ing Prices, the reduction of utility plant to net recoverable does not represent the replacement cost of the Company's cost should be offset by the gain from the decline in pur-productive capacity. chasing power of net amounts owed as shown below. Dur-Fuel inventories and the cost of fossil fuel used in genera- ing a period of inflation, holders of monetary assets suffer tion have not been restated from their historical cost in a loss of general purchasing power'while holders of nominal dollars. Regulation limits the recovery of fuel monetary liabilit;es exper'ence a gain. The gain from the 28
declina in purchasing powcr of nst amounts owed is amounts based on historical costs, the Company does not primarily attributable to the substantial amount of debt have the opportunity to realize a holding gain on debt and which has been used to finance property, plant, and equip- is limited to recovery only of the embedded cost of debt ment. Since the depreciation on utility plant is limited to capital. Statement ollncome from Operations Adjusted for Changing Prices For the Year Ended December 31,1979 Constant Dollar Current Cost (Dollars in Thousands) Conventional Average 1979 Average 1979 Historic Cost Dollars Dollars Operating Revenues $271,764 $271,764 $271,764 Operation and Maintenance (including Purchased Power) 180,399 180,399 180.399 Depreciation 20,160 40,800 50,900 Taxes 26,570 26,570 26,570 Interest Charges 19,528 19,528 19,528 Other, Net (4.536) (4,536) (4,536) income f rom Operations (excluding reduction to net recoverable amount ) $ 29.643 $ 9,003* $ (1,097) increase in specific prices (current cost)of plant held during the year" $120,000 Reduction to net recoverable amount $ (50,700) (61,900) Effect of increase in general price level (98cS00) Net S(40,500) Gain f rom decline in purchasing power of net amounts owed 45,100 45,100
$ (5.600) $ 4,600
- Including the reduction to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been $41,700.
'At December 31,1979, current cost of property, plant and equipment, net of accumulated depreciation, was $843.700, while historical cost or net cost recoverable through depreciation was $481,496.
Five Year Comparison of Selected Supplementary Financial Data Adjusted for Elfects of Changing Prices Years Ended December 31, (in Thousands of Average 1979 Dollars) 1975 1976 1977 1978 1979 Operating Revenues $197,439 $197,643 $225,556 $231,614 $271,764 HistoricalCost information Adjusted for Generallnflation Income f rom operations excluding reduction to net recoverable amount S 9,003 Income from operations per common share (af ter preferred dividend requirements) $ .37 Current Cost information Loss f rom operations excluding reduction to net recoverable amount $ (1,097) Loss f rom operations per common share (af ter preferred dividend requirements) $ (.48) Excess of increase in general price level over increase in specific prices af ter reduction to net recoverable amount $ 40,500 GeneralInformation Net assets at year end at recoverable amount $202,400 Gain f rom decline in purchasing power of net amounts owed $ 45,100 Cash dividends per share $ 1.81 $ 1.73 $ 1.69 $ 1.62 $ 1.55 Market price per share at year end $ 18.30 $ 20.58 $ 19.13 $ 15.94 $ 12.29 Average consumer priceindex 161.2 170.5 181.5 195.4 217.4 Report of Independent Public Accountants To the Board of Directors CENTRAL MAINE POWER COMPANY We have examined the balance sheet and statement of capitalization and interim financing of CENTRAL MAINE POWER COMPANY (a Maine corporation) as of December 31,1979 and 1978, and the related statements of earnings, changes in common stock investment and sources of funds for construction for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements present fairly the financial position of CENTRAL MAINE POWER COMPANY as of December 31,1979 and 1978, and the results of its operations and its sources of funds for construction for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Boston, Massachusetts ARTHUR ANDERSEN & CO. February 6,1980. 29
Central Maine Power Company Summcry cf Operntions For Yccrs 1975 -79 (Dollars in Thousands Except per Share Amounts) Year Ended December 31, 1979 1978 1977 1976 1975 El:ctric Operating Revenues $271,764 $208,176 $188,309 $155,005 $146,399 Operating Expenses Fuel Used for Company Generation 29,691 19,470 15,595 17,S14 27,056 Purchased Power Fuel 71,961 43,369 38,083 19,357 15,906 Other 28,054 28,594 30,799 26,835 22,430 Other Operation 36,572 32,736 29,687 25,559 22,076 Maintenance 14,121 11,363 11,535 9.687 7,939 Depreciation 20,160 15,962 14,736 13,268 12,301 Taxes Federal and State locome 16,882 13,229 10.290 9,076 8,258 Local Proporty and Other 9,688 9,194 8,783 8,158 7,770 227,129 173,917 159,508 128,954 123,736 Equityin Eamings of Associated Companies 3,595 3.376 3,367 3,287 3.251 Operating income 48,230 37,635 32,168 29,338 25,914 Otherincome(Expense) Allowance for Other Funds Used During Construction 723 6,250 3,750 2,231 378 0ther, Net 218 (300) 142 159 (99) Income Before Interest Charges 49,171 43,585 36,060 31,728 26,193 Interest Charges Long Term Debt 19,823 17,514 17,983 16,441 12,360 Other 5,289 2,147 1,111 502 1,280 Allowance for Borrowed Funds Used During Construction (5,584) (5,687) (4,035) (2,155) (1,254) 19,528 13,974 15,059 14,788 12,386 income Before Cumulative Effect of a Changein Accounting Principle 29,643 29,611 21,001 16,940 13,807 Cumulative Effect Prior to January 1,1975, of a Changein Accounting Principle, Netof ApplicableincomeTaxesof $922 - - - - 864 Nnt income 29,643 29,611 21,001 16,940 14,671 Dividends on Preferred Stock 4,599 4,642 2,726 2,630 2,613 Ermings Applicable to Common Stock $ 25,044 $ 24,969 $ 18,275 $ 14,310 $ 12,058 Wrighted Average Numberof Shares of Common Stock Outstanding 11,899,435 11,378,432 9,748,304 8,163,930 7,082,622 Ermings Per Share of Common Stock: Income Before Cumulative Effect of a Changein Accounting Principle . $ 2.10 $ 2.19 $ 1.87 $ 1.75 $ 1.58 Cumulative Effect of a Changein Accounting Principle - - - -
.12 Earnings Applicable to Common Stock $ 2.10 $ 2.19 $ 1.87 $ 1.75 $ 1.70 Dividends Declared Per Share of Common Stock $ 1.55 $ 1.46 $ 1.41 $ 1.35% - $ 1.34 30
Central Maine Power Company Management Discussion of Summary of Operations Electric Operating Revenues Allowance for Funds Used Electric operating revenues increased 563.6 million During Construction and 519.9 million during 1979 and 1978 The amount of allowance for funds used during respectively. Iloth periods reflect a $15.5 million construction is related to the amount of annual rate increase granted late in 197S.1979 construction work in progress and the rate applied also includes a port, m of an additional SSSO,000 during the period. See Note 1 of Notes to Financial rate increase eticctive in August 1970 resulting Statements. f rom a favorable court ruling. Kilowatt-hour sales increased 1 S% in 1979 and I 9% in 197S. Revenues, which were affected by the Company's ' Interest on Long Term Debt f uel foi generation clause, include fuel cost and Other Interest increases (or decreases) in the period the costs are The rise in interest charges reflects the issuance of incurred. This fuel expense increased $3S S securities to meet construction requirements and million in 1979 and 59.2 million in 1978. the refunding of maturing debt issues at higher Resenues also include the sale of 100 menswatts rates. Interest expense also includes additional of power from W.F. Wyman Unit No. 4 to Public borrowings to finance the delayed recovery of fuel Service Company of New Hampshire (contract costs of replacement power during the "NRC" period was from December 1,1978 through ordered shutdown or Maine Yankee and higher October 11, 1979). rates during the 1979 period. See Notes 6 through 8 of Notes to Financial Statements. Operating Expenses operating expenses increased substantially during Preferred Dividend Requirements the periods The largest increases are related to The increase of $1.9 million in 1978 results from fuel expense primarily due to the increasing cost the issuance of $25 million of 8.40% Redeemable of oil which continues to escalare rapidly. Also Preferred Stock in December 1977 contnhuting to the increase was the replacement ot nuclear- generated energy with higher cost oil-generated energy due to the shutdown of the Earnings per Share of Common Stock Maine Yankee plant by the Nuclear Regulatory Earnings per share declined in 1979 and increased Commission (NRC) from March 15,1979 through in 1978. The earnings levels were affected by the l May 24,1979. Other operation, maintenance and categories discussed above. In addition. they depreciation expense increased during the period include the dilutive effect of an increasing average i due primarily to the commercial operation of W.F. number of common shares outstanding which I Wyman Unit No. 4 in December 1978 and higher reflect a sale of 1,600,000 shares in 1978 and sales wage levels. The increases in income taxes in 1979 through dividend reinvestment and employee and 1978 were dtte to higher pre tax income in stock ownership plans of 268,000 shares in 1979 both years. and 129,000 shares in 1978. l 31
-- N N4 - ,
6_, s s
. , J l , , , ,-r ~.,
,o / g -
f,r -
, ',of --g
[. . , - '. . . ;.
.m.e __-
**'"-'g ,
y, . %. 1111111llj 7 t
%a117 "
ii, i e - s
'- mgyy l Wm m'" -
t W e - c.; p.-
"..,;gnx
&h
'"Y .
IE E "' ' 5 '. ' sfbll -
.' h - .:- .%.. ..' -.:-w.g e .p j ... X'!T Maine's healthy economy J m
[9 I k Y d' +cw_
.- y ag .
is reHected in recent 4.ylbo ,..
- MEf{d%h$k7*
.e . pp Y. ,._
4....
+[;, -
business e xpansions in v3 , _ - - -
..m .- - -
. Portland.
2' - L, c: Y {y3,y.x::,MS a[Q MJQt.
- f 2? .g . o *$
- L. ;*,.
.v Q
. : */
~
%.c%s <r.gg-<y;
-4 t
.3 a_m g . .,Qq t ,, *.- e -3,, . ; _ _ .
I Service area t hC larxCst poh er Comp.mv in .\laine. UMI' sertCs more Illdll 'll }M.!CCilt of Ille st alC's CLillslin1 cts--t hCir businCssCs, milustriCs anti ht inlts- - ill D CitiCs .llhl R Q1+f f t! < t ou Ils l'Ml"s mCIllbCrship in t he NCw I ilgl.lthi PtiwCr l'tuil dihl its TIC-!111C Wit}} E F PE DE HtCTON ('.in.hlJ hC!p 1%stllt g Itll.ththt v .nhl CConomy in Tfy nlCCiln.g (1H T Clist tilllC! s' m >~ I M *.e r s.f : , Clet t ric power DCCtls. ] f, f.g ; *
.t f^ .s.
.Q N' ' T.)
r-a . E s l {E To udd-i
> -a k: w onn .wo iJa muovos i
Ih t* ) ?? a d s (?! 'i fr 10 0 f dte
?'a '" S D W3 'w r s,estb'Ons I#
b J f- Iy P J b'D f D Q dL }v% fJ YJ 'P P N G 4 '<2 0 1 y V t ( **[J f OD G 'P
- 0 nh* ", Tem Jones Brunssock vyine E "4 r w e* Y C64 A
I w
"I
+
4$*JtJf
. . . ws ; -- at W' *'8 " ar w
* ~
((, pn.d fM'gA +_ d[. @m . . ww e,n:.x -~ v .w w - .. -m . ~ M,
. w h%ff g . : 0l h -~
E '.,e 'Nm (&. w
. @- u =%.
fh.w 5: . -~g: n.og*%W. - a, - af kY ?-fk. ** me k,
? g N W*%.2-h Q 't- * % + 31 "'"
d@ . . k % n@ bj k, . k .:.'
~ W n$MmkW%%g' ??YY f?< s..%gg4: h;. -DJ ~j'
*#%y& Q.$gqpK
? ' 3
*& ~ -QC M. 62*
eq ', <q-
%+ e y ~
- ~ w l vs ~ v : . b sa .
l Board of Directors ( As of December 31.1979) Officers ( As of December 31.1979)
. n e m . .. - m , ,
~m a l-f4 iL - [, ; \\ Ii 1 <
l': sah: an i( haiiu< it ( P!u t ' lu :- ' 1.1 ( , s [ \ 1, wn - \ t P oh n-
'f* !: P: [ ti t t : a [ j': n! ;
- \ 1. , - \,F R ot :: I w st:i t s N
\\ :a: : l': s t s <
t s a: i R.e t s t: R- 1s ; gg y ,g p us ( , i li- \la v a f . .m i <i' I f, % B 1::L
- t. s
\ , ; ; ,
p, s
, : \l i p \- s i: ![c .c - % s
\ 1. 5 't u !i. 't! l'! ( siit :
.1 i. - \la. \j > s .c . t st 1 is b \\ l id ! N V ' s l, , , ppg; . 3 (, ji, s q7 , 3)l>,. , s F :p:: ! Bt an ' \ss v a:: \ o t Pr<s.Jt il I; s \la:-
U, t : s i 1. m 1 0 ( t ,t
!'a.. s , .t R ! ! \ ( i tt I ' . t s . i f t. !
6
-! 'l \ i \1 i 1,. , p. : p . ,. ! ,
t Ni p N u 1:d B '4 t t ' N tt i i !t
- l
\\ ' .a:'l \I f: + '\ s s s '. a : l ' \ ts :( ' 1: T
\s' s L i :( ?"
}; j ( p g;, l 1.1 \ !l \' a s
_ '\ s s s ' .l!: I It a' < a :, P: s!h I: B.e< t <:
' 1
!' s < \\ ,u: \la::n l
v :, t., . < t Division Managers l 1 R s P. a: i \la1 1 T1dm fi kt i 6 ' l i e- m t. _ u, : n- 1 e t miws n 1~ l l
- i x \.. s i \1a,:a I Una i \1. , s t .1 s< <i: t s 4
i s :nt : % <s a nd R.m s i \11' No hl 1 I hs is ,m \\ a:t : i't Ibr a I R ip.t i
- \\ \ia s:a \la mt s i :J ( Iw :s t t M: < t \l P \\ t s:t r :lb s It ua i
, 11 i m: sa::' i \1.u n t- Pa: < kN i d. '
i a- 1 ,i- !. ;Jtis T N k:- :n \: nt ss (< :a!I) s :s A u a . < .1 l Ni, + r i i u it t ,t
Centr:1 M.:ine Power Company Edicon Driva, Auguste, M in304336 Stock Transfer Stock transfers will be made at the Company's I of fice in Augusta, Maine or at Manufacturers
! Hanover Trust Company,4 New York Plaza, ! New York, N.Y.
Registrars of Stock Depositors Trust Company, Augusta, Maine Manufacturers Hanover Trust Company, New York, N.Y. Annual Meeting Third Thursday each May 1 J Too many Annual Reports? You may receive extra CMP Annual Reports due to multiple stock EcCoents in your household.To stop unwanted coptes please w rite to CMP, Stock Transfer Dept., and enclose rviling labels from the extra riporta.
I SECatITIES AND EXCHANGE CO-
- ISSION Washington, DC 20549 i FCAN 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Tor the fiscal year ended Commission file number December 31, 1979 1-5139 CZYNAI, MADTE pct.IR CCMPANY (Exact name of reststrant as specified in its cuarter) e Maine 01-0042740 (State or other jurisdiction of (I.3.S. f.tployer incorporation or organization) Identification No.)
Edison Drive, Aususta, Maine 04336 (Address of principal executive offices) (Zip Coce) Registesat's telephone number, including area code 207 623-3521 Securities registered pursuant to Section 12(b) of the Act: l' Common Stock New York Stock Exchanse (Iitle of eacn class) IName of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Preferred Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate the number of shares outstanding of each of the issuer's classes of Cceman Stock, as of the close of the period covered b7 this report. Shares outstanding Class as of Decembe - 31, 1979 Coenen Stock 12,074,134 l
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company PART I Ites 1. Business. General The Company, a Maine corporation organized in 1905, is an electric utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in the southern and central part of Maine. It has its jrincipal executive offices at Edison Drive, Augusta, Maine 04336, and its telephone number is (207) 623-3521. The Company is the largest electric utility in Maine serving about 375,000 customers in a 10,600 square-mile area in so thern and central Maine. No other electric utility operates in competition with the Company in the territory which it serves. This area, in which most of the State's industry is located, includes the industrial centers of Portland, South Portland, Vestbrook, Lewiston, Auburn, Rumford, Bruns-vick, Bath, Biddeford, Saco, Sanford, Gardiner, Augusta, Waterville, Fairfield, Skowhegan, Belfast and Rockland. The population of the service area is about 700,000, approximately 70 percent of the total population of the State. The more important industries served are pulp and paper products, cotton and wool textiles, metal trades, chemicals, plastics, electronic components, food processing, lumber and woodworking, footwear and shipbuilding. Problems Affecting the Industry The electric utility industry in general is, and for several years has been, experiencing common problems, including those of obtaining timely and adequate cate increases, increased costs and delays in con-struction projects attributable to regulatory requirements and environ-mental considerations, financing large construction programs during an inflationary period, uncertainties caused by increasing political involvement in utility regulation, availability and high cost of fuel for gene ra tion, effects of energy conservation and general economic conditions. These problems are being experienced in varying degrees by different compacies in different regions. Events at the Three Mile Island Nuclear l'ait No. 2 in Pennsylvania (TMI") caused increased concern about the safety of nuclear generating pla nts . The Company has interests in four operating nuclear generating plants and in four other nuclear generating plants which are planned or under construction in New England. See Item 3. " Properties - Existing Facilities and Planned Facilities". The Company's interests in the four operating plants represent approximately 25*. of the Company's present generating capacity. The Ccapt.ny cannot predict what effect the events at TMI, which have precipitated increased opposition to nuclear power, may ultimately have upon the completion or the cost of completion of the nuclear units planned or under construction or upon the continued operation of the existing nuclear generating plants in which the Com-pany has interests. The TMI incident has prompted a rigorous reexamination of safety related equipment and operating procedures in all nuclear facilities. 2
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company On October 30, 1979, President Carter's Commission on TMI issued its final report which, among other things, contained extensive recommenda-tions on aspects of nuclear power. On December 7, 1979, the President, while reaffirming his support for continued inclusion of nuclear power in his national energy policy, announced his agreement with the spirit and intent of those recommendations and his initiation of steps toward their implementation. On January 13, 1980, the Nuclear Regulatory Com-rission's ("NRC") Special Inquiry Group publicly released its Report on TMI which contained recommendations similar to those of the Presidential Commission. The NRC and its staff are currently reviewing this latter report. Meanshile, the NRC has promulgated numerous requirements in response to TMI, including both near-term modifications to upgrade cer-tain safety systems and instrumentation and longer-ter's design changes whi,ch affect about 25 items, ranging from equipment changes to operat-icnal support. Maine Yankee and the other plants in which the Ccapany has an interest are being reviewed by their owner-operators, and those plants and all other nuclear facilities are being reexamined by the NRC, to determine the scope of modifications necessary to comply with these new requirements. Maine Yankee has informed the Company that Maine Tankee has made the near-ters modifications required by the NRC during the period from January 11, 1980 to March 15, 1980 when Maine Yanzee was shut down for a scheduled reloading of its nucl' ear fuel. The Company has been informed by the owner-operators of the other nuclear plants in which it has interests that those companies have made the near-term modifications required by the NRC. Maine Yankee and the other owner-operators are still in the process of evaluating the impact of the long-term improvements suggested by the NRC staff. However, until the scope of those latter improvements, as they apply to particular reac-tors, has been defined by the NRC, the cost of any modifications and their effect, if any, on the operations of those companies cannot be quantified. See Item 3. " Properties - Existing Facilities". While the ultimate effect of these reexaminations, studies and proposals -annot be specifically predicted, they could cause delays in constructiou and costly modifications of both the operating and planned nuclear plants in which the Company has interests. For a further discussion of certain of these problems as they have affected the Company, see the remaining material under Item 3. " Proper-ties" and Item 5. "I.egal Proceedings - Regulation a'2d Rates". Employee Relations Operating and maintenance employees in each of the Company's four operating divisions, and office and clerical employees in two divisions, are represented by a local union affiliated with the International Brotherhood of Electrical '4orkers ( AFT.-CIO) . At December 31, 1979, the Company had 2,000 employees. The current union contracts extend to May 1,1980, and thereaf ter from year to year unless "_ther party shall give at least 60 days' notice prior to an anniversary date. The union has given such notice to the Ceepany and negotiations as to wages, hours, fringe benefits, working conditions and other areas of concern have begun. The present j contracts provide for wage increases which, with adjustments and fringe
- benefits and increases to non-union employees, will result in increased payroll costs of approximately $2,700,000 during the year ending May 1, 1980. About 75% of this increase is chargeable to operating expenses and the balance to construction.
3
- 7
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company Ites 2. Summary of overstions. (Dollars in Thousands Except per Share Amounts) Year Ended December 31, 1979 1978 1977 1976 1975 EI.ECTRIC OPERATING REVENUES $271,764 $20s,176 $188,309 $155,005 $146,399 OPERATING EXPENSIS Fuel Used for Company Generation 29,691 19,470 15,595 17,014 27,036 Purchased Power Fuel 71,961 43,369 38,083 19,357 15,906 Other 28,054 23,594 30,799 26,835 22,430 Other Operation 36,572 32,736 29,687 25,559 22,076 Maintenance 14,121 11,363 11,535 9,687 7.939 Depreciation 20,160 15,962 14,736 13,268 12,301 Taxes Federal and State Income 16,582 13,229 10,290 9,076 8,258 Local Property and 9,688 9,194 S,733 8,158 7,770 Other 227,129 173,917 159,508 128,954 123,736 EQUITY IN EARNINGS OF 3,595 3,376 3,367 3,287 3,251 A330CIATED CCMPANIES OPERATING INCOME 48,230 37,635 32,168 29,338 25,914 OTHER INCCME (EXPENSE) Allowance for Other Funds Used During Construction 723 6,250 . 3,750 2,231 378 Other, Net 218 (300) 142 159 (99) INCOME BEFORE INTEREST CHARGES 49,171 43,585 36,060 31,723 26,193 INTEREST CHARGES Long-Ters Debt 19,823 17,514 17,983 16,441 12,360 Other 5.239 2,147 1,111 502 1,280 Allowance for Borrowed Funds Used During Construction JS,584) (5,687) (4,035) _ (2.155) (1,254) 19,528 13,974 15,059 14,788 12,386 INCOME BEFCRE CLTUIATIVE EFFECT OF A CHANGE IN ACCCUNTING PRINCIPLE 29,643 29,611 21,001 16,940 13,807 Cumulative Effect Prior to Januar 1, 1975 of a Change in Accou. ting Principle. Net of Applicable Income
- - 864 Taxes of $922 - -
NET INCCME 29,6 3 29,611 21,001 10,940 14 o71 Dividends on Preferred 2,613 Stocs 4,599 4,642 2,726 2,630 EARNINGS APPLICABLE TO
$ 25,044 $ 24,969 $ 18,275 $ 14.310 $ 12,058 CCMMON STOCK 4
Central Maine Power Company Fors 10-K - 1979 Central Maine Power comoany Year Ended December 31, 1979 1978 1977 1976 1975 WEIGHTED AVERAGE NUMBER OF SHARIS OF COMMON STOCK CUTSTANDING 11,899.435 11,378,432 9.748,304 8,163,930 7,082,622 EARNINGS PER SHARI CF COMMON STOCK: Income Before Cumulative Effect of a change in Accounting Principle $ 2.10 $ 2.19 $ 1.87 $ 1.75 $ 1.58 Cumulative Effect of a Change in Accounting Principle - - - - - .12 Earnings Applicable to Common Stock $ 2.10 $ 2.19 $ 1.87 $ 1.75 $ 1.70 DIVIDENDS CECLAPID PER SHARE OF COMMON STOCK $ 1.55 $ 1.46 $ 1.41 $ 1.35\ $ 1.34 MANAGEMENT DISCUSSION OF
SUMMARY
OF CPERATIONS Electric Operating Revenues. Electric operating revenues increased
$63.6 million and $19.9 at111on during 1979 and 1978 respectively. Both periods reflect a $15.5 million annual rate increase granted late in 1978, 1979 also includes a portion of an additional $880,000 rate in-crease effective in August 1979 resulting from a favorable court ruling.
See Ites 5. "T.egal Proceedings - Rates". Kilowatt-hour sales increased 1.8% in 1979 and 4.9*. in 1978. Revenues, which were affected by the Company's fuel for generation clause, include fuel cost increases (or decreases) in the period the costs are M ered. This fuel expense increased $38.S million in 1979 and $9.2 million in 1978. Revenues also include the sale of 100 megawatts of power from V. T. Wyman Unit No. 4 to Public Service Company of New Hampshire (contract period was from December 1, 1978 through October 31, 1979). Operating Expenses. Operating expenses increased substantially during the pe riods . The largest increases are related to fuel expense pri-marily due to the increasing cost of oil which continues to escalate rapidly. Also contributing to the increase was the replacement of nuclear generated energy with higher cost oil-generated energy due to the shutdown of the Maine Tankee plant by the Nuclear Regulatory Com-sission (NRC) from March 15, 1979 through May 24, 1979. See Ites 3.
" Properties Existing Facilities - Maine Yankee". Other operation, maintenance and depreciation expense increased during the period due primarily to the commercial operation of V. F. *4yman Unit No. 4 in December 1978 and higher wage levels. The increases in income taxes in 1979 and 1973 were due to higher pre-tax income in both years.
Allowance for Funds Used Durine Construction. The amount of allowance for funds used during construction is related to the amount of construc-tion work in progress and the rate applied during the period. See Note 1 of Notes to Financial Statements of the Company. Interest on Lont-Ters Debt and Other Interest. The rise in interest charges reflects the issuance of securities to meet construction 5
Central Maine Power Company Torm 10-K - 1979 Central Maine Power comoany requirements and the refunding of maturing debt issues at higher rates. Interest expense also includes additional borrowings to finance the delayed recovery of fuel costs of replacement power during the "NRC" ordered shutdown of Maine Yankee and higher rates during the 1979 period. See Item 5. "I.egal Proceedings - Rates" and Notes 6 through 8 of Notes to Tinancial Statements of the Company. Preferred Dividend Req 2irements. The increase of $1.9 million in 1978 results from the issuance of $25 million of S.40% Redeemable Preferred Stock in December 1977. Earnings per Share of Ccamen Stock. Earnings per share declined in 1979 and increased in 1978. The earntngs levels were affected by the cate-gories discussed above. In addition, they include the dilutive effect of an increasing average number of common shares outstanding which re-flect a sale of 1,600,000 shares in 1978 and sales through dividend reinvestment and employee stock ownership plans of 268,000 shares in 1979 and 129,000 shares in 1978. Item 3. Properties. Existi'og Facilities The electric properties of the Company form a single integrated system which is connected at 345 KV and 115 r with the lines of Public Service Company of New Hampshire at the sout! y end and at 115 KV with Bangor Hydro-Electric Company at the nort .y end of the Company's system. The Company's system is also connt ad with the system of The New Brunswick Electric Power Cocznission Canada, and with Bangor Hydro-Electric Company through the 345 KV inter-connection constructed by Maine Electric Power Ccmpany. Inc. ("MEPCo."), a 78% owned subsidiary o f the Company. As of December 31, 1979, the Company had about 2,223 circuit-miles of overhead transmission lines,15,314 pole-siles of over-head distribution lines and 386 circuit-miles of underground and sub-marine cable. The maximum one-hour firm system net peak load experienc-ed by the Company was 1,206,710 T4 on December 19, 1979. As of that date the Company's net capability was 1,526,490 rJ, including 45,320 r4 of purchases. At the time of the 1979-1980 peak, the New England Power Pool had 21,503,500 r4 of installed capacity to meet the New England Power Pool peak load of 15,169,000 KW. See "NEP00L" under this caption below. The Company operates 23 hydro-electric generating stations, of which 21 are owned and two are leased, with an estimated net capability of 299,850 rd, and owns all or part of, and operates, two oil-fired steaa-electric generating stations with an estimated net capability of 748,160 rd (con-sist 9 : ,,f 593,590 r4 at Wysan Station exclusive of 251,432 r4 attribut-able to the 40.857, ownership interests of other utilities in Wyman Unit No. 4, and 154,570 rd at Mason Station). These oil-fired stations are located on tidewater, permitting waterborne delivery of fuel. The Com-pany also has five internal cembustion generating facilities with an estimated net capability of 50,350 rd. The Company owns varying portions of four operating nuclear plants located in New England. It owns a 38% interest in Maine Yankee Atomic Power Company (" Maine Yankee") and is entitled to the same percentage of the power produced by Maine Yankee's generating plant at Wiscasset, 1 Maine. In addition, the Company owns a 9.5% interest in Yankee Atomic j Electric company, a 6*, interest in Connecticut Tankee Atomic Power Com- l pany, and a ,** interest in Vermont Yankee Nuclear Power Corporation. > I l l l l l 1 l 1 l I
Central Maine Power Company Form 10-K - 1979 Central Maine power Comeany The Company is entitled to the same respective percentage of the power produced in each generating company's plant. As of December 31, 1979, the Company's share of the capacity of the four plants amounted to the following: Maine Yankee . 310,850 rd Connecticut Yankee . 34,800 r4 Yankee Atomic. . 16,700 rd Vermont Yankee . . . 18,960 T4 See Ites 1. " Business - Problems Affecting the Industry" for a discuss-ion of the possible impact of the TMI incident on the above operating nuclear plants. The Company is obligated to pay its proportionate share of the operating expenses, including depreciation and a return on invested capital, of Maine Yankee and each of the other generating companies referred to above for periods of 30 years expiring at various dates frca 1991 through 2002. The stockholders of Maine Yankee and Vermont Yankee, including the Company, have agreed to resell a small portion of their power entitlements from the Maine Yankee and Vermont Yankee plants to other utilities in New England. Under the Powerplant and Industrial Fuel Use Act of 1978, a "new" electric powerplant is prohibited from using oil as a primary energy source and is required to be constructed with the capability to burn coal or alternate fuels. An " existing" oil-fired powerplant may be required by the Department of Energy ("COE") to convert to the use of coal or an alternate energy source, provided such plant has the capabil-ity to utilize coal or such alternate source or could have that capabil-ity, if financially feasible, without being subject to substantial phys-ical modification or substantial reduction in rated capacity. The Com-pany believes that all of the oil-fired units at its three existing plants qualify as " existing" powerplants. All such units except Units Nos. 3, 4 and 5 at Mason station have the capability to burn oil only and all units would require substantial physical modification in order to burn coal. In view of the lack of experience to date under the Powerplant and Industrial Fuel Use Act, no assurances can be given as to the ultimate status and treatment of the Company's existing oil-fired units under the new Act. The DOE is considering proposing legislation which in its present form would require approximately fif ty specific oil-fired power plants throughout the country, including three of the units at Mason Station, to convert to the use of coal. The Company has commencea engineering studies to determine the feasibility of converting Units Nos. 3, 4 and 5 at that station. Under the legislation being considered, the expenses of conversion would be partly borne by the federal government. The effect on other units of the Company of possible legislation in this area cannot now be predicted. MEpco. owns and operates a 345 rl transmission interconnection, completed in 1971, extending from the Company's substation at Wiseasset to the Canadian border where it connects with a line of The New Bruns-wick Electric Power Commission (the "Cosmission") under a 25-year inter-connection agreement. Approximately 69% of this transmission intercon-nection may be located within the territory involved in the claims filed on behalf of the Penobscot Nation under the civil actions des-cribed under " Indian Claims". The Commission is providing up to I.00,000 rd of base load power for 10 years which began in 1976, of which the Company's share is 10.3%. 7 l { l
Central Maine Power Company Form 10-K - 1979 Centrs! Maine Power Cospany
..s part of its power planning, the Company periodically enters into agreements of varying durations with other New England utilities for the purchase of unit power.
Maine Yankee. Maine Yankee's nuclear generating planc, which had besa tesporarily shut down along with four other nuclear units through-out the United States pursuant to a March 13, 1979 order of the NRC staff, was restored to power production on June 5,1979 af ter the order was lifted on May 24. The order was based on the discovery by the NRC of an allegedly improper analysis technique in a computer code used by the architect-engineering firm which designed the plant in predicting the stress loads which would be placed on some safety-related piping systems of the plant in the event of a major earthquake. During the shutdown Maine Yankee perfor: sed reanalyses of the piping systems in accordance with the order, and the plant was returned to comercial operation with-out modification of the systems. For the effect of the shutdown on the Company's operating revenue, see Item 5. " Legal Proceedings - Rates". The Maine Yankee unit was shut down . on January 11, 1980 for a scheduled reloading of its nuclear fuel and restored to power produc-tion on March 15, 1980. During the shutdown Maine Yankee also made . certain modifications required by the NRC as a result of the TMI inci-dent. See Item 1. " Business - Problems Facing the Industry". A petition calling for termination of the production of electricity by nuclear fission due to alleged safety and economic reasons, and the consequent shutdown of the Maine Yankee nuclear plant, was circulated by certain groups in Maine. The petition was signed by more than the required number of voters and was presented to the Maine Legislature in February 1980. I'nder Maine law, the Legislature mest enact .he proposed legislation at its 1950 session or refer it to a vote of th electorate. The Company is presently unable to predict the ultimate resolution of the petition drive, including the result or validity of any legislative action or referendum vote, which would be held in the late summer or fall of 1980 pursuant to a gubersatorial proclamation after adjournment of the legislature. The Company believes that the Maine Yankee plant is both a safe and the most economical source of base load electric power, and intends to take all reasonable steps necessary to provide for the continued cperation of the plant. NEP00L. The Ccapany is a member of the New England Power Pool ("NEP00L"), which is open to all investor-owned, municipal and coopera-tive utilities in New England, under an agreement in effect since 1971 which provides for coordinated planning of future facilities and opera-tion of approxisately 98% of existing generating capacity in New England and of related transmission facilities. The NEP00L Agreement imposes obligations concerning generating capacity reserve and the use of major transmission lines, and provides for central dispatch of the region's facilities. Because of the NEPCOL requirement that che most efficient generating facilities in the region be dispatched first, the Company's operating revenues and costs are affected to some extent by the opera-tions of other participants in those arrangements. Planned Facilities Construction Program. The Company is engaged in a continuous cen-struction program to accommodate existing and estimated future loads on its electric system. During the five-year period ended December 31, 1979, tha Company's constructica expenditures amounted to $297,800,000 8 l 1
s Central Maine Power Company Form 10-K - 1979 Central Maine Power comoany (including investment in jointly owned projects), not including allow-ance for funds used during construction of $32,047,000 ("AFC"). Plant retirements during the period amounted to $23,966,000. The Company's construction program for the period 1980 *.hrough 1984, shewn below, is currently estimated at approximately $491,900,000 (not including AFC estimated at $97,047,000, but including estimates for nuclear fuel costs of $16,656,000 where applicable). The Company estimates that construc-
- tion expenditures for each of the years 1980 through 1984 will be ap-proximately $100,300,000, $100,600,000, $121,100,000, $31,000,000, and
$38,900,000 respectively.
Total Type of Facilities 1980 1981-84 1980-84 (Millions of Dollars) Generation Central Maine Power Company Projects Brunswick-Topsham (Hydro) $ 5.9 $ 11.3 $ 17.2 Sears Island (Coal) 2.1 8.0* 10.l* Projects Sponsored by Cthers Seabrook Nos. I and 2 (Nuclear) 43.6 67.9** 111.5** Millstone No. 3 (Nuclear) 2.5 16.3 18.3 Pilgrim No. 2 (Nuclear) 1.3 19.1 21.0 Montague Nos. I and 2 (Nuclear) - 3.6 3.6 Transmission 8.9 34.0 42.9 Distribution 21.6 98.0 119.6 Other Capital Projects 13.8 133.4 147.2
$100.3 $391.6 $491.9 Based upon an assumed annual ccepound growth rate of approximately 3.2* in the Company's peak capacity requirements and anticipated growth rates throughout New England, the Company believes that its generating capacity, including and assuming timely additions to generation to be provided by certain of the jointly owned projects described belcw coupled with power purchased from other utilities with excess capacity, will be sufficient to meet such requirements and its reserve require-ments under the New England Power Pool .hrough the 1980's. Changes in the estimated rate of load growth, as well as general econcaic and political conditions, conditions imposed by regulatory agencies, possible licensing delays and problems, difficulties of plant participants in financing large construction programs or other factors which might a'fect projects in which the Company is involved could significantly alter the nature, timing and estimated cost of the construction program of the Company.
*For a description of the status of this project, see " Sears Island Coal Plant".
=* Assumes consummation of a proposed acquisition by the Ccapany of an additional 2.5% interest in this project in 1980 and a pecposed adjustment over the course of roughly two years resulting in a further 1% interest for the Company. For a description of the proposed trans-actions and the status of the project, see "Seabrook".
~ 9
l l l i Central Maine Power Company Fors 10-K - 1973 Centesl Maine Power Company Financias Considerations. The nature and timing of the Company's future financing will be determined in light of future market condit-ions, earnings and other relevant factors. At the present time, the Company plans to issue preferred and cocmon stock in 1980 in the approxi-mate aggregate amount of $55,000,000, in addition to $16,500,000 princi-pal amount of Series C Bonds sold in January 1980. The Company's plan to issue up to $45,000,000 principal amount of mortgage bonds in early 1980 was postponed due to extremely unfavorable conditions in the public bond market. In order to replace the funds to have been raised by such mortgage bond financing, the Company sought and received a coamaitment from several banks to make available to the Company a two-year revolving credit in the amount of $40,000,000 with interest floating with the prime rate. At the end of the revolving credit term, the Company will have the election to convert the amount then outstanding into a three-year term loan with interest during the first and second year at 102% of the prime rate and 104% of the prime rate during the third year, and amortized by six equal semi-annual installments. Such credit arrangement is subject to regulatory approv-als and the execution of formal loan documentation. The loan is to be secured by a pledge of the Company's 38% equity interest in Maine Tankee Atomic Power Company. At December 31, 1979 the Company had short-term borrowings through issuance of coamercial paper and bank notes of $60,592,000 and had available lines of credit of $66,450,000. Under the Ccepany's capital stock provisions, at December 31,1979 the Company's unsecured borrowing limitation was $105,410,000. The ccatinu-ation of the Company's 1980-1984 construction program at planned levels depends upon the Company's ability to finance a substantial portica of the program from the issuance of debt and equity securities and other financing arrangements. In addition to funds required to finance its construction progras during the period 1980-1984, funds aggregating $50,197,000 must be pro-vided for preferred stock and mortgage bond sinking fund requirements and debt maturities. See Notes 8 and 9 of Notes to Financial Statements of the Company and Statement of Capitalization and Interim Financing of the Company. Sears Island Coal Plant. The Company plans to construct a 568,000 r4 coal-fired plant on Sears Island, to be jointly owned with other electric utilities. The Company's previcus plan to build a nuclear generating plant on Sears Island was cancelled 16 'tuary 1977. The Company filed a petition for a certificate of public convenience and necessity for the Sears Island coal-fired plant with the Public Utili-ties Commission of the State of Maine ("PUC") in June 1977. The PUC hearing on the Company's petition was concluded in July 1979 and in December 1979 the PCC issued its order denying the issuance of a cer-tificate of public convenience and necessity based on findings that the Company's need for base load power in 1987 does not justify construction of a 568 MW facility of which the Company's proposed share was 459 W or approximately 80%. ~ The Company petitioned for a rehearing before the PUC on January 18, 1930 and such petition has been granted. In its petition for rehearing the Company changed the estimated date of ccanner-cial operation of the proposed plant frca 1987 to 1981 and stated its intention to change its ownership share of the plant Iron approximately 80% to between 55% and 607.. The PUC has not yet a6eduled hearings c,n the Company's petition for rehearing. The Comp..ny believes that the Sears Island plant is the most reasonable and reliable means of meeting its capacity obligations in the late 1980's but cannot predict the out-come of the PUC proceedings. 10
I Central Maine Power Company Form 10-K - 1979 Centesl Maine Power Company The Company presently estimates that the cost of the Company's share (based upon a 60% ownership interest and a commercial operation date of 1989) will be approximately $441,800,000, excluding AFC of ap-proximately $143,100,000. As of Cecember 31, 1979 the Company's share of Sears Island expenditures (not including AFC) was approximately
$6,108.000.
In addition, the Company is participating or expects to partici-pate as a part owner with other New England utilities in several other ' major electric generating plants now planned or under construction. Such participation would be on a tenancy-in-ccamon basis. The Compacy's actual expenditures through December 31, 1979 and estimated expenditures for jointly-owned generating facilities (not including AFC or nuclear fuel costs, which will be substantial) are set forth in the following table (see also Note 12 of Notes to Finsn-cial Statements of the Company): Company's, Share Estimated Estimated Expenditures Total Construc-Date of Through Estimated tion Energy Commercial Capacity Capacity December 't, Construction Cost t' nit Source Oceration(1) (W) (W) 1979 Costsf5) Per KW(5) (Dollars in Thousands) Seabrook Nos. 1 Tm 2 Nuclear 1983; 1985 2,300 139(6) $19,021 $116,000(6) $ 834(6) Pilgrim No. 2 Nuclear 1987(2) 1.150 33 8,101 42,200 1,279 Nuclear 1,150 29 15,154 36,000 1,241 Millstone No. 3 1986 1,296(4) Sears Island Coal 1989 568 341(4) 6,106 441,300(4) Montague Nos. 1 & 2 Nuclear (3) 2,300 69 902 (3) (3) (1) The completion dates of these units have been deferred from time to time and additional deferrals may occur due to licensing delays, economic and political conditions and other factors. Deferrals have the effect of significantly increasing the cost of a unit. As to the status of the Sears Island plant see the discussion above. (2) The scheduled date for coesnercial operation of this unit had pre-viously been set for 1985. Due to delays in licensing and regula-tory proceedings as a result of the recent events at TMI, the operation date has been deferred until 1987. (3) The Sponsor of these units is not at this time actively seeking a construction license for these units. Accordingly, there is no firm schedule for construction and no estimates of construction expenditures currently available. (4) The Company's ownership share of this unit has recently been changed from approxinately 80% to between 55% and 60%. The amounts shown above assume a 60% ownership. (5) Estimated construction expenditures relating to the jointly-owned units shown above are based upon information furnished by the utility responsible for the construction of such unit. The Com-pany has been advised by each of the sponsoring utilities that 11 1 l
Central Maine Power Company Form 10-K - 1979 Central Maine Power Ccepany construction budgets are continuously under review in light of increased costs due to deferrals, delays and other factors. Boston Edison Company, the utility responsible for construction of Pilgrim No. 2 has announced that due to uncertainties resulting from the TM1 incident and the timing of construction of the plant, it has not recently prepared revised estimates of constructi.on expenditures. Public Service Company of New Hampshire, the utility responsible for tr. construction of the seabrook plant has indicated that it is in the process of reviewing the construction budget for the Seabrook project and expects to complete the review in the first quarter of 1980. See "Seabrook" under this caption below. The estimated expenditures, completion dates and completion of all the above units say also be affected by the various factors referred to below and other events and conditions which cannot now be predicted. (6) As of December 31, 1979 the Company had a 2.S418% interest in Sea-b rook. Certain proposed transfers and adjustments of the ownership interests in the units would ultimately result in a 6.0418% owner-ship interest for the Company. See "Seabrook" under this caption below. Due to the time required for the construction of generating f acilities and the completion of licensing and regulatory proceed q s relating thereto, substantial investments in the above units will be required prior to the completion of licensing and regulatory proceedings. There is no assurance that all necessary approvals, permits or lhenses will be obtained, or if obtained, will not be modified or revoked. Seabrook. The necessary approvals and permits for the construction of the Seabrook plant have been consistently opposed by a number of groups. This has resulted in significant project delays (including the suspension of construction in both 1977 and 1978 for periods of seven months and three weeks, respectively) and greatly increased costs. Although all of these approvals and permits for construction of the Seabrook units have been obtained and construction is currently in progress, regulatory proceedings and one court appeal therefrom are still pending and further proceedings and appeals are possible. In addition, further proceedings before the NRC relating to the licensing of the units will be required for operation, and other proceedings and appeals are possible. Currently pending before the United States Court of Appeals for the First Circuit is an appeal by intervenors f rom a decision of the NRC challenging the NRC's refusal in 1976 to suspend the Seabrook construction permits. Following the announcement in March 1979 by Public Service Compsny of New Hampshire ("PShT) , the lead participant in the project, of a proposed reduction in its ownership interest in the project as described below, an intervenor filed a request with the NRC staff for issuance of a show cause order as to why the construction permits should not be suspended or revoked because of PSNH's alleged lack of financial qualifications and the NRC's lack of review of financial qualifications of the other participants whose ownership interests are proposed to be increased. The same intervenor has also filed a request with the NRC staff for issuance of a show use order as to why the construction permits should not be suspended t tvoked due to the NRC's failure to considar evacuation plans for certain areas surrounding the plant and the consequences of certain types of accidents including the pusibility of such evacuation. The Company is unable to predict the outcome of any of the above proceed-ings or what effect these proceedings and further administrative or court decisions relating to licenses and approvals for the project may IC
Central Maine Power Company Torm 10-K - 1979 Central Maine Power Company r have on the completion of the project, the cost of the project, or the Company. A New Hampshire statute prohibiting the inclusion of construction work in progress ("CWIP") in rate base resulted in the exclusion of CWIP from PSNH's cate base in May 1979. At that time PS H took the position that without the inclusion in rate base of CWIP or an eqcivilent effect on revenues it would be unable to continue to finance it) construction program, including its 50% share of the Seabrook project. Therefore, in . March 1979, PSH proposed an adjustment whereby its ownership interest in the Seabrook plant would be reduced and the ownership interests of other utilities would be increased commensurately. The adjustment was initially anticipated to involve 22% of the total plant ownership interests but subsequent thanges resulting from the inability of Massa-chu',etts Municipal kholesale Electric Company to obtain commitments froe its constituent utilities for all of the share that it originally agreed to assume, the decision of two Vermont utilities not to partici-pate and the increase by other utilities have resulted in a final pro-posed adjustment of about 15% of the plant interests. Various regula-tory and stockholder approvsis are still required before the 15% adjust-ment can be accomplished and the commitments of two participating utilities aggregating approximately 8.2% of ownership interests are contingent upon obtaining satisfactory financing. On the present schedule, proceedings now pending before the Massachusetts Department of Public Utilities concerning certain of these approvals, which will include consideration of the financial viability of the project among other satters, may not be concluded until January 1981, or later. The comeitsents of two participating utilities aggregating approximately 2.6% of ownership interests may be terminated by either the utility or PSE if the adjustment of ownership interests has not connenced by January 1, 1981. In September 1979 PSNH filed a permanent retail rate request of 8.4% or $18,500,000 per annus with the New Hampshire Public Utilities Comeission ("HPUC"). Subsequently, as a result of delays in the proposed reduction of its 50% ownership interest and serious diffi-culties in obtaining the external financing required by that interest, PSNH has sought and obtained, under bond, eme rgency rate relief of 5.5% or $11,970,000 per annum from the HPUC. PSNH has takan the posi-tion that adequate permanent rates as well as timely approvals for a reduction in its ownership interest in the Seabrook plant by not signi-ficantly less than a 15% interest and continued availability of external finaccing are all essential to enable PSNH to finance its share of the plant and avoid suspension of construction or other seasures which might adversely affect the completion and cost of the two units under con-struction, such as the possible deferral for up to four years of the completion of Unit 2 or a reduction in the overall level of Seabrook construction. Such actions would reduce the immediate cash needs of PSNH and the other participants but would result in deferral of the ccepletion dates of both Units and would result in substantially greater construction costs. On March 20, 1980, PSNH announced that due to the unsettled state of the capital markets and the very high cost of external funds it would substantially reduce the overall level of construction of the Seabrook project in order to lessen PSE's external financing requirements for 1980. PSNH plans to continue construction on those items considered essential over the next few months to maintain the earliest possible completion dates for the units, now scheduled for 1933 and 1985. The reduction of the level of construction will have the effect of increas-i ing the costs of the units and, if the reduction were to continue for 13
Central Maine Power Cespany Form 10-K - 1979 Central Maine Power Cospany more than a few months, would cause the scheduled completion dates to be deferred. It is anticipated that the reduction will continue until the necesaary regulatory approvals for reduction of PSNH's interest in the plant have been obtained and the capital markets have stabilized. In addition to the Company's present 2.5418% ownership interest in the Seabrook units (adjusted to reflect the sale of July 31, 1979 of a minor interest in the units in accordance wits the original project agreements) and the proposed adjustaent of a 1*. interest involving PSNH, the Company has contracted to purchase, subject to regulatory approvals and other conditions, an additional 2.5% ownership interest in the Sea-brook units free The United Illuminating Company, which has of fered for sale a portion of its interesta in the unit in accordance with recosmien-dations of the Division of Public Utility Control of the Connecticut Department of Business Regulation. Hydro. The Company is reconstructing, for commercial operation in 1982, tes Brunswick-Topsham hydro station to increase its capacity frca 2,300 rd to 12,000 r4 at an estimated cost of $19,500,000, excluding AFC of 32,154,000. Indian Claims An action entitled United States of knerica v. The State of Maine (U. S. District Court for tne District of Maine, Northern Dtytston, Civil Action No. 1966-N.D.) has been brought by the United States on behalf of the Passasaquoddy Tribe seeking an award of $150 million in dama ges for wrongs in respect of Tribal lands done by the defendant State of Maine in violation of the Indian Trade and Intercourse Acts, the first of which was enacted in 1790. A similar action (Civil Action No. 1969-N.D.) bearing the same caption has been brought by the United States on behalf of the Penobscot Nation seeking an award of 5150 mil-lion in damages. At December 31, 1979, approximately 5*. of the Company's electric properties were located in the territory involved. None of the Com-pany's existing generating stations or Maine Yarkee's generating plant at Wiscasset, Maine is located within such territory, but approximately 69*. of MEPCo. 's facilities may be located within such territory. The Company's proposed Sears Island coal unit and the transmission facili-ties relating to the unit may also be within such territory. The Attorney General of the United States has obtained a stay of the proceedings to permit development of a comprehensive legislative proposal for resolving the problems underlying the litigation and var-tous extra-judicial settlement proposals are being explored by the parties. . At least until legislation is introduced or the United States has decided whether to proceed with the Indian claims, it is not possible to assess the validity of such claims as may be advanced by or on behalf of the Indians or to determine the extent to which the Company and its properties may be involved. Tuel Supply The Company's kilowatt-hour output by energy source for each of the last two years and as estimated for 1980 is shown below: 14 r l L __ J
Central Maine Power Company Torm 10-K - 1979 Central Maine Power Ccapany Actual Estimated Source 1973 1979 1980 Nuclear (principally frem Maine Tankee) 38% 33% 37% Hydro 21 19 18 011 la 16 32 Purchased (principally from oil-fired sources) 27 32 13 100% E. 100% The 1980 estimated kilowatt-hour output for oil and purchased power may vary depending upon the relative costs of Company-generated power versus power purchased through NEP00L. 011. The Company's steam electric and internal combustion generst-ing units and a substantial number of other generating units within NEPOOL are oil-fired. The Company has a contract which expires on Dec-ember 1, 1980 for the supply of essentially all of the Company's oil requirements at world market prices. I'nder the contract, the Company retains the right to purchase 25% of its quarterly requirements in the open market. The average cost per barrel of fuel oil purchased by the Company during the past five calendar years was $10.44, $10.38, $12.17, $12.22 and $17.06, respectively. Most of the fuel oil burned by the Company and the other member utilities of NEP00L is imported. The availability and cost of oil to the Company, both under any contrai.t and in the open market, could continue to be adversely affected by policies and svents in oil-producing nations, other factors affecting world supplies and domestic goverr. mental action. It is impossible to predict the impact on the Company's operations of possible action by the President or Con-gress with respect to import fees, duties or quotas on oil, or restric-tiona on the use of oil for generating electricity. The Company's electric sales are subject to fuel adjustment clauses which enable the Company to pass on to customers its fuel costs and the fael component of purenased power. l Nuclear. As described above, the Company has interests in a number of nuclear generating units. The cycle of production and utilization of nuclear fuel for such units consists of (1) the mining and nilling or uranium ore, (2) the conversion of the resulting concentrate to uranium hexafluoride, (3) the enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblies. (5) the utilization of the nuclear fuel and (6) the disposition of spent fuel. The Company has been advised by Maine Yankee that it has contracted for the purchase of all of its uranium concentrate requirements through 1983. In addition, Maine Yankee has contracted with a supplier for the purchase of up to 1,300,000 pounds of uranium con *entrates, deliveries . of which, although contingent upon the coussercial operation of a proces-sing facility currently under construction, are scheduled for 1981 to 1992 and would fulfill nuclear fuel requirements through 1986. Maine Yankee has a conversion contract through 1983 and has a contract with DOE for enrichment services through 2002. Maine Yankee's fabrication requirements are covered through 1983, with a contract option for two , additional y*ars. As is the case throughout the nuclear industry, Maine ) l l I 15 t l l l
Central Maine Power Company Tora 10-K - 1979 Central Maine power Company Yankee has no contractual arrangements for the final disposition of spent fuel. In September 1979, Maine Tankee filed with the NRC a proposed change to its operating license relating to increasing its existing spent fuel stor se capacity by providing more compact fuel rod storage. On Octo-ber 24, 1979, the NRC published notice of the proposed issuance of a license amendment implementing the change and providing an opportunity for interested persons to petition for leave to intervene and request a hearing. A timely petition and request was filed by Sensible Maine Power, a non profit corporation, and the Attorney General of Maine filed a notice of his intent to participate in any hearing. The NRC has established an Atomic Safety and Licensing Board to preside over the proceeding. The Company anticipates that a prehearing conference to designate issues will be scheduled in May 1980 and that the adjudica-tory hearing will follow within about 90 days thereaf ter. The Company cannot predict the scope of the proceeding, its duration or its outcome. The present capacity of the spent fuel pool at the Company's plant will be filled in 1987 and after 1983 would n.t acconnodate a full core removal. The modification of this capacity proposed by the Company dif fers from designs heretofore implemented at other nuclear facilities but is essentially the same basic concept of more compact storage in the existing spent fuel pool. If the proposed :nodification is not approved, the company will have to develop alternative plans which would involve further approval by the NRC. The Company has been advised by the companies operating or planning nuclear generating stations in which the Company has or expects to have an interest that they have contracted for certain segments of the nuclear fuel production cycle through various dates. Contracts for other segments of the fuel cycle will be required in the future, but their availability, prices and terms cannot now be predicted. Coal. Although the Company currently does not have a contract for coal supply, it has started to explore possible arrangements for a supply at the Sears Island unit presently scheduled for commercial operation in 1989. Item 4. Parents and Subsidiaries. No person holds one percent or more of the voting stock of the Company. The following is a list of subsidiaries of the Company, indicating the percentage of voting securities owned by the Company: Percentage of Voting Securities Owned by Name of Subsidiarv the Company Central Securities Corporation 100.000% Cumberland Securities Corporation 100.000% The Union Vater-Power Company 100.000% Maine Electric Power Company, Inc. 7S.150% All of the subsidiaries of the Company are incorporated under the laws of Maine.
' 16 l
l 1 l I l l
Central Maine Power Company Torm 10-K - 1979 Central Maine Power Comeany Ites 5. Legal Proceedines. Regulation The Company is subject to the regulatory authority of the Public Utilities Commission of the State of Maine ("PUC") as to retail rates, accounting, service standards, territory served, the issuance of secur-ities and various other matters. The Company is also subject as to some phases of its business, including licensing of its hydro-electric stations, accounts, rates relating to wholesale sales (which constitute less than l'. of operating revenues) and to interstate transmission and
)
sales of energy and certain other matters, to the jurisdiction of the TERC under Parts I, II and III of the Tederal Power Act. Other activit-ies of the Company from time to time are subject to the jurisdiction of various other state and federal regulatory agencies. The nuclear generating facility of Maine Tankee and the other nuclear facilities in which the Company has or will have an interest are subject to extensive regulation by the NRC. The NRC is empowered to authorize the siting, construction and operation of nuclear reactors af ter consideration of public health, safety, environmental and anti-trust matters. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, requite modification of units for which con-struction permits or operating licenses have already been issued, or impose new conditions on such permits or licenses, and may require that the operation of a unit cease or that the level of operation of a unit be temporarily or permanently reduced. See Item 1. " Problems Affecting the Industry" for a discussica of the impact of the TMI incident on Maine Tankee and the other nuclear facilities in which the Company has or will have an interest. The EPA administers programs established under the Federal Vater Pollution Control Act and the Clean Air Act which affect all of the Company's thermal generating facilities, as well as the nuclear facilit-les in which it has an interest. 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 these effluent limitations. The latter Act empowers EPA to establish clean air standards which are implemented and enforced by state agenc-tes. EPA has broad authority in administering these programs, includ-ing the ability to require installation of pollution control and miti-gation devices. The CompaL? is also subject to regulation with regard to environmental matters and Dad use by various state and local author-ities. Electric utilities are subject to recent federal legislation con-cerning the supply and use of energy. Under the National Energy Con-servation Policy Act of 1978, regulated utilities, including the Com-pany, are required to inform their residential customers periodically about possible energy conservation measures and to help implement cer-tain conservation measures. Under a companion law, the Public Utility Regulatory Policies Act, the structure of utility rates, including the Company's are to be reviewed in light of such standards as cost-of-ser-vice pricing, time-of-day, seasonal and interruptible rates, a prohibi-tion on declining block rates, a prohibition on master-metering in new apartment buildings, and automatic fuel adjustment clauses which pro-vide incentives for efficient fuel use. The Act does not require adoption of these standards, but does empower the DOE to intervene in state regulatory proceedings in order to further consideratisa of one 17 I I l
Central Maine Power Company Tors 10-K - 1979 Centest Maine Power Company or more of that standards. The Act also describes various circumstances under which tse FERC say require various forms of power sharing. The effect of this recent legislation on the Compary cannot be predicted at this time. The Price-Anderson Act is a federal statute providing, among other things, that the maximum liability for damages resulting from a nuclear incident would be $560 million, to be provided by private insurance and govercsental sources. As required by the NRC regulations, prior to operation of a nuclear reactor, the licensee of the reactor is required to insure against this exposure by purchasing the maximum available pri-vate insurance (presently $160 million), the remainder to be covered by the recently implemented retrospective premium insurance and by an indemnity agree >ent with the NRC. Under amendments to that Act, owners of operating nu tlear f acilities may be assessed a retrospective premium of up to $5 mi. lion for each reactor owned in the event of any one nuclear incident occurring at any reactor in the United States, with a maximum assessment of $10 million per year per reactor owned. As a part owner of Maine Yankee and other operating New England nuclear facili-ties, the Company would be obligated to pay its proportionate share of any such assessments, which presently amounts to a maximum of $2.375,0C) per incident. It is not fet possible to evaluate the claims being asserted as a result of the TMI incident or whether any assessments may be levied under these provisions as a result of that incident. ] Under the Federal Power Act, the Company's hydro-electric projects on navigable waters of the United States are required to be licensed by
*he FERC. Twenty projects, some of which include more than one generat-ing unit, have been licensed to date. The licenses so far granted to the Company's projects do not in any instance expire before 1987; most expire in 1993; and two expire af ter the year 2000. The United States has the right upon or af ter expiration of a license to take over and thereaf ter saintain and operate a project upon payment to the licensee of the lesser of its " set investment" or the fair value of the property taken, and any severance damages, less certain amounts earned by the licensee in excess of specified rates of return. If the United States does not exercise its statutory right, the TERC is authorized to issue a new license to the original licensee, or to a new licensee upon pay-ment to the original licensee of the amount the United States w>uld have been obligated to pay had it taken over the project.
Rates On January 16, 1978 the Company filed a request with the PUC for an increase in revenues of approximately 12.5%, or $24,700,000 a year based on a 1977 test year adjusted for known changes, primarily changes relat-ing to the scheduled commencement of commercial operation of Wyman Unit No. 4 in late 1978. The Company sought an overall return of 10.13% on total capitalization, including a 14.25% return on connon equity. In addition, the Company requested inclusion of construction work in prog-ress in rate base. On October 13, 1978, the PUC authorized the Company to file retail rates designed to increase annual gross tevenues by approximately 7.6%, or $15,500,000. About $6,300,000 of the increase became effective on November 1, 1978 on meter readings on or af ter November 16,1978, and the remaining $9.200,000 was ordered effective on December 5,1978 on j readings on or after December 20, 1978. The new rates were designed to provide the Coepany with an overall return of 9.43% including a return la
Central Maine Power Company Form 10-K - 1979 Central Maine Power Cocmany of 12.50% on common equity, assumed by the PUC to be 35%, although in fact 36.3*., of total capitalization. ne PUC order had the practical effect of excluding construction work in progress from the Company's rate base. However, the order did include Wyman Unit No. 4 in the rate base by making effective 39,000,000 of the rate increase at the time commercial operation of that unit began in December 1978. The order also included an attrition allowance of about $1,300,000 to offset inflation subsequent to the test year, but disallowed, among other items, depreciation on a portion of the Company's plant which the PCC assumed to be financed by deferred federal income taxes, ne Cr.,apany appealed the partial disallowance of depreciation to the Maine Suprese Judicial Court, along with the use by the PCC of an assumed umson equity ratio and the disallovence of the Ccepany's elec-tric service' discount for employees. On August 6, 1979, the Court decided in the Company's favor on two of the three issues appealed by the Company. He Court ruled that the PUC had erred in disallowing the depreciation expense and the esployee discount, but upheld the PUC's use of an assumed common equity ratio for ratemaking purposes. As a result of the decision, the Company has made effective new rates designed to produce additional revenues of approximately $880,000 per year. ne PUC is seeking review of the decision on depreciation expense in the United States Supreme Court. On February 1, 1980, the Company filed with the Public Utilities Coannission for a $35,000,000 increase in gross revenues, ne Public Utilities Coassission was requested to allow temporary rates to be implemented pending a decision on the full increase request. *he tem-porary rates would provide approximately $11,000,000 of the $35,000,000 request. He interim rate increase requested would provide the Company with the 12.5% return on evity granted in the 1978 rate case ani. is designed to carry forward certain features of that increase including normalization of non-recurring or abnormal events in revenue and expense items that occurred in 1979. ne permanent rate increase is based on a 1979 test year. He Coe-pany is seeking an overall return of 11.23*. on total capitalization and a 15% return on common equity. Other major items included in the case include an attrition adjustment, provision for other known and measurable changes to the test year, and inclusion of a portion of con-struction work in progress in rate base. In addition, the Company is asking for recovery of the costs described in the succeeding paragraph. In connection with a pr, posed nuclear plant for Sears Island, which was abandoned in 1977, the Coepany incurred costs of $4.5 million for a nuclear fuel enrichment contract with the Federal Energy Research and Development Administration (now part of the Department of Energy 1 ("*.,0E") ] . He Company has been unsuccessful to date in its efforts to obtain recovery of these costs both from DCE and through the sale or transfer of its contract rights. Also in connection with that proposed plant, the Company incurred $3.5 million for site evaluations and for nuclear plant design, which costs have been treated, for accounting and ratemaking purposes, as deferred charges relating to another preposed nuclear plant at one of the alternative sites. In light of the Coa-pany's lack of success to date is obtaining recovery of the enrichment contracts and the current political climate causing uncertsinty as to the future of nuclear power development, the Company has sought, in the rate case described in the preceding paragraph, regulatory approval for re-covery of part or all of these costs through rates charged to its custo-mers over a five-year period. While the Company believes that such 19
Centr:1 Maine Power Company Torm 10-K - 1979 Centesl Maine Power Coseany costs should be recovered, no predictions can be made as to the amount of any recovery through rates or otherwise or the time period over which recovery will take place. If any of these amounts are determined not to be recoverable, they would be charged, net of related income taxes, against earnings in the period in which such a determination is made. During the shutdown of the Maine Tankee nuclear plant froe March 15, 1979 to June 5,1979, it was necessary for the Company to purchase more expensive replacement power (principally oil-fired) fece the New England . Power Pool. On May 5 the PUC ordered that for each month during which the plant was shut down the amount by which the cost of replacement power exceeded the cost of power which would otherwise have been gene-
- rated by Maine Yankee be billed by the Company in twelve equal monthly amounts, instead of over three months, in order to minimize the impact on the Company's customers. On December 31, 1979, the PUC ordered that any remaining unbilled replacement power costs as of that date be re-covered over the calendar year 1980 with approximately 86% being recov-ered in the first 9 months. The Company has appealed this order to the Maine Supreme Judicial Court. The excess replacement power costs amounted to approximately $15,200,000, of which at December 31, 1979 approximately 56,600,000 had not been billed to custemers. Recovering those costs over the longer period has the effect of increasing the Company's working capital requirements, thus necessitating a higher level of borrowing with resulting increased interest costs. The PUC has initiated an investigation of questions relating to the justness and reasonableness of such replaces:ent power costs and hearings are current-ly being held. Although the Company believes that it is entitled under Maine law to recover the full rep 1. cement power costs, the Company can-j not predict the outcome of this proceeding.
The PUC is conducting an investigation into the design of and alter-1 native structures for the conusercial and industrial rate structures of the Company. On July 30, 1979, the Company filed with the TERC for an increase in rates to it+ wholesale customers amounting to approximately $*30,000 annually. In March 1980 an agreement in principle was reached with the intervenors in the proceeding, subject to TERC approval, that would provide increased revenues of approximately $150,000 annually. Under the voluntary Wage and Price Standards administered by the Federal Council on Wage and Price Stability, annual increase: in wage and benefit payments made, and prices charged, by American businesses should not exceed certain percentage limitations. Regulatory agencies, including the agencies ragulating the Company's wholesale and retail rates, are asked to ascure compliance to the fullest extent possible. There is uncertainty as to how the price limitations apply to rates charged by the Company, and the Company is unable to predict what effect these standards will have upon its future operations. Tuel Adjustment Clauses The Company has a uniform fuel adjustment clause for all classes of retail customers. Under Maine law currently applicable to the Company, the cost of all fuel used by an electric utility in governing or supply-ing electricity (rather thin only the excess of such cost over a base cost) is required to be included in an itemized fuel charge wnich is 20
Central Maine Power Company Torm 10-K - 1979
' central Maine Pwer Company ,
billed at a single uniform rate per kilowatt-hour used by all customers. The amount of such fuel costs (in:luding the fuel component of purchased power) arising each month is included catably in billings over a three-month perted beginning one full month after these costs are incurred. Under a 1978 Maine statute expected to be implemented with respect to the Company in April 1980, the Company will be entitled to recover currently, based on projected rather than historical fuel costs, the cost of fuel consumed in its own generating stations and the fuel com-ponent of power purchased for use in Maine at a single unifora rate per kilowatt-hour for all customers. Upon implementing the new fuel adjust-ment clause, the Cospany will be able to amortize unbilled fuel costs outstanding under the old fuel clause at that time over a future period. Under the recently adopted federal Public Utility Regulatory Polic-Les Act, the Company's fuel adjustment clause may be subject to periodic review by the PVC to ensure that the clause provides incentives for ef ficient use of fuel and for maximum economies in operations and pur-chases that affect utility rates. Environmental Matters The application of federal, state and local standards to protect the environment, including but not limited to those hereinafter des-cribed, involves or may involve review, certification or issuance of permits by various federal, state and local authorities. Such stan-dards, particularly in regard to emissions into the aar and water, thermal sizing zones and water temperature variations, may halt, limit or prevent operations, or prevent or substantially intresse the cost of construction and operation of installations and may require substantial investments in new equipment at existing installations. They may also require substantial investments above the figures stated under " Opera-tions - Properties and Power Supply - Planned Tac 111 ties" for proposed new projects. Water Quality Control. As of late 1979 the Company held all dis-charge perstts required under the Federal '4ater Pollution Control Act Amendments of 1972 (the "Act") for its existing plants. Some of these permits have since expired by their terms, and the Company has made timely applications for renewal while continuing to operate under the terms and conditions of the expired permits. Although, as is the case throughout the industry, applications have not yet been acted upon, the Company has no reason to believe that the licenses will not be renewed upon essentially the same terms and conditions. The Company has also received all persits required under the Rivers and Harbors Act of 1899 for its existing plants. In general, these water quality control permits as well as siting permits issued by the Maine Department of Environmental Protection ("DEP") require the subject plant to meet pre-scribed environmental quality standards in its ongoing operations and impose monitoring requirements on the Company intended to insure com-pliance with the standards. With respect to effluent discharges, including heat, from e.isting plants, the Act, as amended in December 1977, requires the application of the "best practicable control technology currently available' by July 1, 1977 and the "best available technology economically achievable' by July 1,1984 In addition, the Act also requires that cooling water intake structures must reflect the "best technology available for mini-aizing adverse environnental impact". Regulations promulgated under the 21 v
Central Maine Power Compeuy Form lo-K - 1979 Central Maice Power comoany Act, unless waived, require non-exempt generating units to use closed-cycle cooling systems sach as cooling towers by July 1, 1981. Certain of these regulations have been remanded for further deliberation by the EPA, and further administrative hearings and court proceedings are expected. In addition, the December 1977 amendments to the Act call for the promulgation of additional pollution control technology require-seats relating t'o matters such as toxit pollutants and waste management practices. The Company believes that it is in compliance with the July 1, 1977 guidelines referred to above. Although the Company is pre-sently unable to determine with certainty whether changes in cooling water intake structures or the installation of closed-cycle cooling systems will be required, it does not believe that the guidelines will materially affect the operations of its generating units. Ifoveve r, if changes were required, the Company's expenditures could be substantial. Air Quality Control. Pursuant to the federal Clean Air Act of 1970, the CEP has issued preliminary and secondary ambient air quality standards with respect to certain air pollutants inclading particulates, sulphur oxides and nitrogen oxides. One of the effects of these regula-tions is to restrict the sulphur content of the fuel oil which the Com-pany as permitted to burn. Under regulations adopted by the DEP, the sulphur content of fuel oil burned in the Company's generating plants may not exceed 2.5%. All oil burned at Wyman Unit No. 4 is required to have a sulphur content of not in excess of 0.7% and the other three units at Wyman Station are required to have a sulphur content of not in excess of 1.5% while Vyman Unit No. 4 is in operation. The Company believes that it will be able to arrange for supply of sufficient oil with the required sulphur contents, subject to unforeseen events and the factors influencing the availability of oil discussed under " Operations - Tuel Supply. The operation of the Company's present fuel adjustment clause permits it to pass on the additional cost of such fuel to its customers. See " Fuel Adjustment Clauses". The Clean Air Act Amendments of 1977, among other things, require the Administrator of EPA to promulgate revised New Source Performance Standards. The amendments also provide that state implementation plans 4 contain emission limitations and such other measures as may be necess-ary, as determined under regulations to be promulgsted by the EPA, to prevent "significant deterioration" of air quality, prescribe new classifications of non-degradation areas and permit a redesignation of areas under certain conditions. In addition, the asendments limit l maximum allowable increases in concentrations of sulphur oxides and particulates in the various areas and require the promulgation of regu-lations with respect to certain other pollutants. The effect of the amendments en the existing regulations or on the Company cannot present-ly be determined. other. On February 13, 1979, the Maine Board of Environmental Protection ("3EP") held a public hearing to investigate the causes of excessive noise emanating from Wyman Unit No. 4 during operation. To minimize the effect on the surrounding area, the BEP ordered that the unit be operated only on weekdays between the hours of 6 AM and 11 PM, except in the case of emergencies. This restriction required the Com-pany to buy additional replacement power frem time to time f rom NEPOOL. The Company has completed the installation of new sound-attenuating mufflers which are expected to make possible full comercial operation. The BEP has recently initiated a suit against the Company seeking pay-mest of a civil penalty and alleging that the excessive noise constitut-ed a violation of the siting per nit for Wyman Unit No. 4 The Company 22
Central Maine Power Company Form 10-K - 1979 Central Maine Power Cemeant does not believe that substantial civil penalties will be imposed as a result of the suit. Proceedings before the EPA, CEP and other entities for approval of the site for the Ceepany's proposed cost-fired plant on Sears Island in Penobscot Bay will be required but have not yet been scheduled. The Company estimates that its capital expenditures for environmen-tal purposes for the five years 1975 through 1979 totalled approximately $21,200,000. Capital expenditures for such purposes for 1980 and 1981 are presently expected to total approximately $1,900,000 and $1,600,000, respectively. Such expenditures are based upon the assumption that no substantial additional expenditures will be required in 1980 and 1981 in order to comply with the Act or the Clean Air Act Amendments of 1977. Item 6. Increases and Decreases in Outstanding Securities and Indebted-ness. On October 30, 1979 the Company delivered to four institutional purchasers $23,500,000 aggregate principal amount of a new series of its General and Refunding .".ortgage Bonds designated Series C 10% Due 1999, and on January 9,1980 the $16,500,000 balance of the $40,000,000 authorized principal amount was delivered againit payment therefor to eight institutional purchasers including one which had also purchased Series C Bonds in October. The issuance of $23,500,000 aggregate prin-cipal amount of Bonds in October increased the Company's outstanding long-term debt from $241,762,000 at September 30 to $265,262,000, and the issuance of $16,500,000 principal amount in January 1930 increased such debt from $254,767,000 at December 31, 1979 to $271,267,000, both amounts exclusive of sinking fund requirements and current maturities. The Company received aggregate cash proceeds of $40,000,000 and paid Kidder, Peabody & Co. Incorporated and Lehman Brothers Kuhn Loeb Incor-porated an aggregate fee of $140,000 for their services as agents in placing the issue. The proceeds were used to pay an equal amount of the Company's outstanding short-term bortcwings incurred primarily to finance construction expenditures. The Series C Bonds were not registered under the Securities Act of 1933 since the Bonds were sold at private sale for investment. Kidder, Peabody & Co. Incorporated and Lehman Brothers Kuhn Loeb Incorporated (the only persons or firm authorized or esplayed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Bonds or any similar security of the Company) represented to the Company that they did not offer any of the Bonds or any similar security of the Company for sale to, or solicit offers to buy any there-of from, or otherwise approach or negotiate with respect thereto with any prospective purchaser other than the institutional purchasers of the Bonds and not more than 48 other financial institutions, each of which was offered a portion of the Bonds at private sale for investment. The Company agreed in Section 2.14 of the Bond Purchase Agreement dated October 18, 1979, that neither the Company nor anyone acting on its be-half will offer the Bonds or any part thereof or any similar securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Bonds within the provisions of Section 5 of the Securities Act of 1933, as amended. The purchasers represented to the Company in Section 1.3 o f the Bond Purchase Agreement that they purchased the Bonds for their own accounts for investment and with no present intention of distributing 23
Central Maine Power Company Form 10-X - 1979
- Central Maine Power Company or reselling the Bonds or any part thereof. The purchasers further agreed that none of the Bonds purchased by them will be transferred on the bond register of the Trustee under the Company's General and Refund-ing Mortgage Indenture prior to the receipt by the Company of an opinion of counsel reasonably satisf actory to the company to the effect that such transfer will not be in contravention of the registration provis-ions of the Securities Act of 1933, as amended.
The Company has an Employee Stock Ownership Plan ("ESOP") funded by an additional one percent investment tax credit created pursuant to the Tax Reduction Act of 1975 (now section 409A of the United States i Internal Revenue Code) under which substantially all of the Company's ~ esployees are beneficial owners of shares of the Company's common stock held for a period of years by a corporate trustee. Under the plan the shares are allocated to the esployees' accounts based on their pro rata compensation up to $20,000 per year. During 1979 the Company issued 64,726 additional shares of common stock under the ESCP. The Company also has a Dividend Reinvestment and Common Stock Purchase Plan under which holders of the Company's common and preferred stock and eligible erployees can purchase additional shares of the Coe-pany's common stock through reinvestment of dividends and optional cash . payments. During 1979 the Company issued 203,o64 additional shares of its common stock under the plan. Ites 7. Changes in Securities and Changes in Security for Retistered Securities. Not applicable. Item 3. Defaults upon Senior Securities. Not applicable. Ites 9. Aporoximate Number of Eouity Security Holders. The following is the approximate number of holders of record of each class of equity securAties as of December 31, 1979: (1) (1) Number of Title of Class Record Holders co mon Stock 48,015 6% Preferred Stock 286 Dividend Series Preferred Stock 3,944 Preferred Stock, $25 par value None Ites 10. Sabaission of Matters to a Vote of Secucity Holders. Not applicable. Ites 11. Inder:nification of Directors and Officers. Section 7 of the Company's By-I.aws provides as follows: (a) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investi-gative, other than an action by or in the right of the Company, by 24
i l Central Maine Power Company Tora 10-K - 1979 i Central Maine Power Company reason of the fact that be is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of $ the Company as a Director, officer, esployee or agent of another i corporation, partnership, joint venture, trust or other enter-prise, shall be indemnified by the Company against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any crimi-nal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by j ud gment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not i opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful, { i (b) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Company or is or was serving at the request of the Company as a Director, officer, employee or .[ agent of another corporation, , partnership, joint venture, trust or other enterprise shall be indemnified by the Company against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense or settlement of suen action or suit if he acted in good faith and in a manner he l reasonably believed to be in or not opposed to the best interests of the Compaey except that no indemnificatica shall be made in
- respect of any clais, issue or satter as to which such person shall have been adjudged to be liable for negligence or misconduct i in the performance of his duty to the Company unless and only to
; the extent that the Supreme Court or the court in which such action or suit was brought shall determine upon application that.
4 despite the adjudication of liability but in view of all the cir-cumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Superior Court
- or such other court shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the Company has been successful on the merits or other-vise in defense of any action, suit or proceeding referred to in subparag aphs (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses includ-i ing attorneys' fees actually and reasonably incurred by him in con-nection therewith. Any such person say enforce the right of indes-l' nification granted by this subparagraph (c) by a separate action against the Company, if an order for indemnification is not entered by a court in the action, suit or proceeding in which he was success-ful on the scrits. (d) 'Any indemnification under subparagraphs (a) and (b) unless ordered by a court shall be made by the Company o-ly as authorized in the specific case upon a determination that indemni-fication of the Dire: tor, officer, employee or agent is proper in 25 l l I r i a , - .
Central h ine Power Ccspany Tors 10-K - 1979 Central S ine Power Company the circumstances because he has aet the applicable standard of conduct set forth in subparagraphs (a) and (b). Such determina-tion shall be made by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or if such a quorum is not obtainable, or even if obtainable if a quorum of disinterested Directors so directs, by indepennent legal counsel in a written opinion, or by the stockholders. (e) Expenses incurred in defending a civil or criminal ac-tion, suit or proceeding may be paid by the Coarpany in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided in subparagraph (d) upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be detersiced that he is entitled to be indemnified by the Company as authorized in this Section 7. (f) The indemnification provided by this Section 7 for any person shall not be deemed exclusive of any other rights to which such person may be entitled under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, oath as to action in his official capacity and as to action in another espac-ity, while holding any office, and shall continue as to any such person who has ceased to be a Director, officer, employee or agent + and shall inure to the benefit of the heirs, executors and admini-strators of such person. (g) The Company shall ha se power to purchase and saintain insurance on behalf of any person who is or was a Director, officer, e sployee or agent of the Company, or is or was serving at the request of the Company as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him incurred by him in any such capacity, or arisin? out of his status as such, whether or not the Company would havs the power to indemnify him against such liability under the pro tsions of this Section 7. The Cospa.f . Board of Directors has taken action to implement .the provisions of tw 'y-Laws. Insofar as ification for liabilities arising under the decurities Act of .s t may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provis-ions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnificacica against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connectica with the securities being rygistered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue, i ! :s t
Central Maine Power Company Form 10-K - 1979 Central Maine Power Cocoany Itee ItA. Executive Of ficers of the Retistrant. The following are the present exact.tive officers of the Company with all positions and offices held. There are no family relationships between any of thes nor are there any arrangements pursaant to which any were selected as officers. Name Age Office and year first elected Charles F. Phillips 69 Chairman of the Board of Directors - 1966 Elwin V. Thurlow 56 President, Chief Executive officer and Director - 1972 Charles E. Monty 53 Senior Vice President, Engireering and Production, and Director - 1971 Robert F. Scott 50 Senior Vice President, Customer Services and Rates, and Director - 1974 Thomas C. *4 ebb 45 Senior Vice President, Finance - 1977 Norman J. Temple 58 Vice President, Public Affairs and Information Services - 1967 Matthew Hunter 45 Vice President, Administrative Services - 1978 John B. Randazza 51 Vice President, Special Projects - 1979 Robert S. Howe 40 Comptroller - 1975 Richard A. Crabtree 33 Treasurer - 1978 Seward B. 3rewster 52 Secretary and Clerk - 1963 Each of the executive officers has for the past five years been an officer or employee of Central Maine Power Company, except for Mr. Webb. Mr. Vebb was elected to the position: of Vice President, Financial, and Treasurer, in 1977 af ter having been Treasurer (from 1974) and Assistant Treasurer (1972-1974) of Wisconsin Powes and Light Company. The execu-tive officers are elected at the Board if Directors meeting follewing the Annual Meeting of Stockholders and ho.d office until their success-ors are elected or qualified. Ites 12. Financial Statements. (a) Financial statements: ! The financial staterents, including supporting schedules, are listed La ti e Index to Pinancial Statements filed as part of this annual report . (b) No reports an Form S-K were filed for the three months ended December 31, 1979. PART II Not filed per General Instruction H since the Company files a prory statement no t later than 120 days af ter the close of the fiscal year. l 27 i I
1 . Central Maine Power Company 7 Pors 10-K - 1979 1 Central Maine Power Company SIGNAT13E i Pursuant to the requirements of Section 13 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.
Date: March 25, 1980 CENTRAL MAINE P0hT.R COMPA.Ti By /S/ Robert S. Howe Cooptrolle r a 1 i 9 J
} }
1 4 I i i ] I d a I i 28 l l i l
Central Maine Power Company Tors 10-K - 1979 Central Maine Power Coreany INDEX TO FINANCIAI, STATE.V.1TS
- 1. Central Msine Power Company A. Financial Statements of the Company Report of independent public accountants Statement of earnings for the years ended December 31, 1979 and 1978 Eslance sheet as of December 31, 1979 and 1978 Statement of capitalization and interim financing as of December 31, 1979 and 1978 Statement of changes in common stock investment for the years ended December 31,1979 asd 1978 Statement of sources of funis for construction of electric property for the years ende6 December 31, 1979 and 1978 Notes to financial Statements Schedules l III Investments in, Equity in Earnings of, and Dividends Received from Associated Companies for the years ended December 31, 1979 and 1978.
V Property, Plant and Iquipment for the years ended December 31, 1979 and 1978. VI Reserves for Depreciation of Property, Plant and Equipment for the years ended December 31, 1979 and 1973 XII Reserves Exclusive of Reserves for Depreciation for the years ended December 31, 1979 and 1978. All other schedules are omitted ss the required information is inapplicable or the information is presented in the financial statements or related notes. B. Exhibits of the Company - None
- 2. Sienificant Subsidiaries Financial statements and schedules of significant subsidiaries are listed in the following annual reports attached hereto:
Maine Yankee Atomic Power Company Ites 12 - Tinancial Statements and Exhibits ( Maine Electric Power Company, Inc. Index to Financial Statements and Schedules l l 19
-, ., y
Central Maine Power Company Form 10-K - 1979 Central Maine Power C_ompany REPORT OF IEEPIEENT PU3IJC ACCCLTIANTS To Central Maine Power Company: Ve have examined the balance sheet and statement of capitalization and interim financing of CINTRAL MAINE POWER COMPANT (a Maine corporation) as of December 31,1979, and 1978, and the related statements of earn-ings, changes in conson stock investment and sources of funds for con-struction for the years then ended, and the related schedules as listed on the accompa1ying index. Cut examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of ihe accounting records and such other auditing procedures as we consideret. necessary in the circumstances. . In our opinion, the financial statements referred to above present fairly the financial position of Central Maine Power Company as of December 31, 1979, and 1973, and the results if its operations and its sources of funds for construction for the years then ended, and the supporting schedules presest fairly the information required to be set forth therein, all in conformity with generally accepted accounting principles applied on a consistent basis. ARTHUR ANDERSEN & CO. Boston, Massachusetts, February 6, 1980.
- 30 I
L e
s Central Maine Power Ccepany Torn 10-K - 1979 Central Maine Power Cospany STATEMENT OF EARNINGS (Dollars in Thousasos Except Per Share Amounts) Year Ended December 31, 1979 1978 ELECTRIC OPERATING REVENLTS (Notes 1 and 3) $271,764 $208,176 t OPERATING EIPENSES 4 Fuel Used for Company Generation 29,691 _ 19,470 Purchased Power (Note 4) Fuel 71,961 43,369
- other 28,054 28,594 otter operation 36,572 32,736 Maintenance 14,121 11,363 i
Depreciation (Note 1) 20.160 15,962 Taxes Federal and State Income (Note 2) 16,882 13,229 Local Property and Other 9,688 o,194 227,129 173,917 EQUITT IN EARNINGS OF ASSCCIATED COMPANIES (Note 5) (Sch. III) 3,595 3,376 OPERATING INCCME 48,230 37,635
, OTHER INCOME (IIPENSE)
Allowance for Other Funds Used j During Construction (Note 1) 723 6,250
- Other, Net 218 (300)
INCOME BET 0RE INTEREST CHARGES 49,171 43,585 I.VIEREST CHARGES I Long-Ters Debt (Note 5) 19,823 17,514 other 5,289 2,147 Allowance for Borrowed Funds Used During Construction (Note 1) (5,584) (5,687) 19,528 13,974 NET INCCME 29,643 29.011 Dividends on Preferred Stock 4,599 4,642 EARNINGS APPLICABLE TO C0!Df0N STCCK $ 25,044 $ 24,969 VEIGHTED AVERACE NUMBER OF SHARES
- 0F COMMCN STOCK OUTSTAADING 11,899,435 '11.378,432 EARNINGS PER SHARE OF CCM!!CN STOCK $ 2.10. $ 2.19 DIVIDENDS PER SHARE OF CCMMON STOCK $ 1.55 $ 1.46 The acccupanying notes are an integral part of these financial statements.
l l a 31 l
._ . . ~. _
Central Maine Power Company form 10-K - 1979 Centesl Maine Power Company 1 BAIRICE SHEET (Dollars in Thousands) December 31, 1979 1978 ASSETS EEECTRIC PROPERTT, at Original Cost (r.otes 4, 8 and 14) (Sch. V) $661,491 $630,413 Lesr4 Accumulated Depreciation (Note 1) 179,995 165,404 (Sch. VI) 441,496 465,009 i Construction Werk in Progress (Note 12) 70,838 48,161 (Sch. V) 552,384 513,170 INVESTMENTS IN ASSOCIATED COMPANIES, at Equity (Note 5) (Sch. III) 36,741 36,129 i Net Electric Property and Investments in Associated Campanies 589,125 549,299 I C1,"dRENT ASSETS Cash (Note 7) 1,528 1,017 Accounts Peceivable, Eess Allowances for Uncollectible Accounts of $371 in 1979 and $380 in 1978 (Sch. XII) 20,482 i Service - Billed 23,299
- Unbilled (Notes 1 and 6) 34,459 20,274 other 6,067 13,711
- Inventories, at Average Cost Tuel 011 14,984 7,124 Materials and Supplies 9,305 8,076 Prepayments and Other Current Assets 3,783 2,456 Total Current Assets 93,925 73,140 CEFERRED CHARGES AND OTHER ASSETS (Note 12) 11,787 11,602
$694,837 $634,041 Ihe accespanying notes are an integral part of these financial statements.
f 32 O v - e
Central Maine Power Company Torm 10-K - 1979 Central Mair.e Power Ceooany . l 4 BAIANCE SHEET (Dollars in Thousands) Cecember 31, 1979 1978 STOCIHOLDERS' INVESTMENT AND LIABILITIES CAPITALIZATION (See Separate Statement) Common Stock Investment $214.022 $203,600 Preferred Stock 35,571 35,571 Redeemable Preferred Stock (Note 9) 33,690 34,075 Long-Ters Debt (Note 8) 254,699 221,863 Total Capitalization 537,982 495,109 C'NtE.VI LIABILITIES Interim Financing (See Separate Statement) 60,592 55,919 Other Current Liabilities - Sinking Fund Requirements $53 562 Accounts Payable 23,220 21,609 Accrued Interest 5,506 4,397 s Accrued Income Taxes 7,834 3,729 Cther 2,330 4,880 39,743 35,677 Total Current Liabilities 100,535 91,596 COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 12) i RESERVES AND DEFERRED CREDITS Accumulated Deferred Income Taxes (Note 2) 27,913 23,058 Unamortized Investment Tax Credits 26,349 22,709 Cther 2,058 1,569 Total Reserves and Deferred Credits $6,320 47,336
$694,837 $634.041 The accespanying notes are an integral part of these financial statements.
33 T 4
Central Maine Power Company Form 10-K - 1979 c.enrA m M La=un stArcert er CartAL :Attou me tr: tam ruAmCno (nettare ta neemas4a) tee.meer n.
'.975 1975 fE!3M Jr dE!*H . a.
CAPITALIZATION Cm stees !seestment: Causse Stoca. Par Satue 13 Per share a Antaertase 13.00d.000 Shares. Ostataedtag*12.076.234 $ hares La 1979 and 11.305,844 Shares ta 1978 3 60.371 $ 59.029 Other Pete+ta Capital 77.6el 74.931 Retataed 14ratate (Nota 10) 74.204 6 u.au .ga. Ib@. e* Et Cusada two Preferred Steek Par votee $15 Per Share-Asthettae4=1.C09,400 Shares. Outatsadiag-tene Per Value $100 Per Share-Neocalistle. Settag. 61 Authertand and Outs
- madias-5.713 shares 571 371 alvidend sortes. Caltable-Asthertred-1.J00.000 $ nares Carrest Carrent neeempates ta t e outstandgts sharee Price ~
M 12J.v00 $10b.00 22,000 12.000
*.60 30.000 101.00 3.000 3.000
' . 75 50.000 101.00 5.000 5.000 5.23 50.000 102.00 000 SCO Preferred Stoca 4 &O 150,000 10g.40 e 5,,
,e
]
$11.25 90.750 La 1979 96.600 ta 1978 104.s4 9 07 9.460 4 3 ..e0 1.esa s Current stamaag fuse retwarement af $11.23 Series 185 785 Redemasale Preferred Stack (Wete 9) 13.ee0 W MS 3
!aaga7ers Debt (Note 8):
9ert es Interest Rate 'faturity first ase General 3ertgese Senas R 3 % narch 1.1979 . 4. 60
$ 27/3 se,emmer 1.1979 . 6.164 7 35/8 sewemmer 1.1941 5.933 6.057 tl 33/8 Marca 1.1993 8.430 8.630 7 33/8 Apet! 1,1995 10.313 10.391 W 67/8 May 1.1947 13.964 15.97t I $ 1/4 sevemaer 1.1990 S.389 5.417 Y 7 1/2 May 1.1999 28.292 28.6e4 2 9.30 Aessat 1.1995 33.213 33.330 AA 7.70 July 1.1997 24.040 24.113 83 10.6$ Anquet 13, 1944 20.000 20.000 General and Refundtag Mertgage landet A 9 S/8 May 1. 2004 31.000 ?$ 000 3 93/8 October 1. 2003 15.000 13.000 C 10 1/2 October 15. 1999 ~ 3. 500 135.e14 O 11aamertised pressume othe rt sersal Metes 13 % Decommer 15. 1979 . 4.0C0 Lasse ot1&sattes 11.3 1021 (La taata11mesta) 7.399 7.907 In. aliment Detee.
Fea4sttaa Castrel l Teetlaties 6 3/4 2002 - 2003 1 150 11,30 1 19.17 13. 37 i Less: Staates fund regstrements and currest naturtties 164 14,70}
;3. , e *9 13L78%
y J'. ,.1 121.ee)
*M
- 3 total Ca9ttalizattee J.id 13* TRIM T!NANC30. Ameesta te be Bettaanced (3ete 7):
150 * < Moses Petable te Sassa 04mmeretal Paper 64,442 41.391 ) Carrest 3starttles of Laag-fers Debt
- TAL CAP!!ALI:ATION MS IY! DIN r3ANCU4 3 D 4,,,Ma 00.C% 5$ $ 1. H 4 @.
The acessonettag setse are as tategral part of taase fiamattal statmeesta. 3/s
' central Maine Power Company Torm 10-K - 1979 Central Maint Power Company
, STATEMENT OT C M GES IN C0tet0N STOCK INVESTMENT l Tor the Two Tests Ended December 31, 1979 (Dollars in Thousands) Other Amount at Paid-in Retained Shares Per value . Capital Earnings Tocal 3alance-December 31, 1977 10,077,071 $50,385 $56,605 $60,964 $167,954 Add (Deduct) Reclassification of Equity Hydro Reserve (Sch. XII) 807 807 Net income 29,611 29,611 Cash dividends-Common Stock (17,100) (17,100) Preferred Stock (4,642) (4,642) Sale of Common Stock 1,728,773 8,644 18,310 26,954 Capital stock erpense 16 16 Balance-December 31, 1978 11,805,544 59,029 74,931 69,640 203,6C0 Add (Deduct) Net income 29,643 29,643 Cash dividends-Common Stock (18,478) (18,4T8) Preferred Stock (4,599) (4,599) Sale of Common Stock 268,390 1,342 2,397 3.739 Capital stock erpense 117 117 Balance-December 31, 1979 12,074,214 $60,371 $77,445 $76,206 $214,022 The accompanying notes are an integral part of these financial statements. e 35
=
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company STATEMENT OF SOURCIS OF FUNDS FCR CONSTRUCTICN (Dollars in Thousands) Year Ended December 31, 1979 1978 FUNDS PROVIDED Internal Sources From operations Net income $29,643 $29,611 Depreciation 20,160 15,962 Deferred income taxes and investment tax credit, net 8,495 12,892 Allowance for other funds used during construction ('2r (6,250) 57,575 52,215 Less: Sinking fund requirements of long-tars debt and $11.25 Preferred Stock 1,046 917 Dividends declared 23,077 21,742 Other, set (130) (687) 23,693 21,972 (Increase) decrease in working capital, exclusive of interim financing and sinking fund requirements Cash and receivables (9,869) (21,953) Other current assets (10,916) 1,065 Other current liabilities 4,275 5,341 (16,510) (15,547) Internal Sources Net 17,372 14,096 External Sources Common Stock 3,739 26,954 Long-ters debt 33,500 16,000 Increase in short-term borrowings 19,201 10,318 Long-term debt refunded (14,528) (4,293) Changes in advances and investments 61 57 External Sources, Net 41,973 49,0 %
$59,345 $63,732 FUNDS USED FOR CONSTRUCTION Wyman Unit No. 4 $ 7,768 $22,707 other jointly-owned projects 17,344 13,393 Other construction and plant additions 34,956 33,882 Allowance for other funds used during construction (723) (6,250)
$59,345 $63,732 The accewpanying notes are an integral part of these financial statements.
36
Central Maine Power Company Tors 10-K - 1979 . Central Maine Power Comnany NOTES TO TINANCIAY. STATEFENTS
- 1. SUMMART 07 SIG3ITICANT ACCO.INTING POLICIES Reaulation: The Company's rates, operations, accounting and certain other practices are subject to the regulatory authority of the Pub-lic Utilities Comeission of the State of Maine (PUC) and the Federal Energy Regulatory Commission (TIRC).
Depreciation: Depreciation of electric property is provided using the straight-line method. The effective composite rates were 3.30% for 1979 and 3.33% for 1978. Electric Ooerstint Revenues: Electric operating revenues include amounts btlleo to customers, estimated unbilled sales and unbillet fuel costs at the end of each reporting period. Under a 1978 Maine statute revising electric utility fuel clauses, the PUC was directed to implement regulations to provide for current recovery of the cost of fuel consumed in Company-owned generating stations and the fuel component of power purchased for use in Maine. Under new PUC regulations that are expected to be implemented in - April 1980, unbilled fuel costs outstanding on the effective date of the new fuel clause will be amortized wer a future period. Allowance for Funds Used During Construc* ion (AFC): The Company in-cludes as an element of the cost of construction of electric property an allowance for funds (including common equity funds) employed dur-ing periods of construction. The debt component of ATC is reflected as a reduction of interest expense while the balance, or equity com-ponent, is recorded as Other Income. The amount of ATC recorded is determined by multiplying the average monthly dollar balance of con-struction work in progress (CVIP)~ by a rate reflecting the current month's average sho rt-te r: borrowing rate and, to the extent the amount invested in CVIP exceeds outstanding short-ters borrowings, the weighted cost of other capital at the beginning of the year. The average AFC rate produced by the Company's monthly computations was 11.22% in 1979 and 9.27% in 1978. Wile the AFC recorded does not provide funds currently, when the constructed property is placed in service, the Company is permitted under applicable rate-saking practices to recover these & mounts in revenue over the useful life of the property. Further, the un-recovered cost of electric property, including ATC, is an element of rate base on which the Company is permitted to earn a return.
- 2. INCCME TAXES The components of Tederal and state income taxes reflected in the Statement of Earnings are as follows:
Year Ended December 31, _ 1979 1973 (Dollars in Thousands) Tederal: Current $ 6,596 3 (661) Deferred 4,357 3,712 Investment tax credit, net 3,640 9.326 15,093 11,877 37
1 Central Maine Power Company Torm 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAL STATE.INTS
- 2. INCCME TAXE3 (continued)
State: Carrent 1,791 1,369 Deferred (2) (17) 1,789 1,35 2 Total Tederal and state income taxes $16,882 $13,229 The rate-saking practices currently followed by the PUC permit the Company to recover Federal and state income taxes payable currently and to recover deferred taxes only when the tax law, in effect, requires such treatment. In the Cospany's most recent rate decision (October 1978), the PUC recognized only the deferred Federal income tax expense arising from the use of accelerated tax depreciation of expansion property added subsequent to 1969. The income tax effects of other timing differences are flowed t arough for rate-saking and accounting purposes. The Company expect: that these unrecorded costs will be recovered in the future when taxes deferred become payable. The following table reconciles the statutory Federal income tax rate, to a rate determined by dividing the total Federal income tax ex-pense by income before that expense. . 1979 1978 Amount i Amount 1 (Collars in Thousands) Statutory Federal income tax rate $20,579 46.0 % $19,914 43.0 % Permanent reductions in tax expense resulting from statu-tory exclusions free taxable income Dividend received deduction related to earnings of associated companies (1,405) (3.1) (1,377) (3.3) Allowance for other funds used during construction (333) (.8) (3,000) (7.2) Other (961) (1.9) (563) (1.4) 17,980 40.2 14,974 36.1 Effect of timing differences for which deferred taxes are not recorded (flow through) Deduction of removal costs (743) (1.7) (578) (1.4) Allowance for borrowed funds , used during construction (2,569) (5.7) (2,730) (6.6) Depreciation of replacement property added subsequent to 1969 (410) (.9) (708) (1.?) Depreciation differences flowed through in prior years 1,139 2.5 . 936 2.2 Other (304) (.7) (17) - Calculated rate $15,093 33.7 % $11.377 28.6 % 38
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company NOTES TO TINANCIAL STATEMENTS
- 3. RATE-MAKING MATTERS In October 1978, the PUC authorized the Company to file retail rates
! designed to increase annual gross revenues by approximately 7.6%, or
$15,500,000. In arriving at its decision, the PUC disallowed, among other items, depreciation on a portion of the Compacy's plant assus-ed by the PUC to be financed by deferred income taxes. In response to the Ceepany's appeal, the Maine Suprese Judicial Court held, among other things, that the PUC had erred on that issue. As a
' result of the court decision, in August 1979, the Company made effective new rates designed to produce additional annual revenues of approxiestely $880,000. The PUC is seeking review by the United
' States Supreme Court.
! On Tebruan 1, 1930, the Company filed with the PUC for a
$35,000,000 increase in gross revenues. The PUC was requested to allow temporan rates to be implemented pending a decision on the
; full increase request. The temporary rates would provide approxi-mately $11,000,000 of the $35,000,000 total.
4 4 CAPACITT ARRANGEMENTS Power Aareements: The Company owns directly or indirectly a portion j of the generating capacity and energy production of certain generat-ing plants operated by associated utility companies and is obligated to pay its proportionate share of the generating costs, including depreciation and a return on invested capital. In addition, the Company has an entitlement percentage (currently 10.3%) of the capacity and energy obtained through the 345 KV inter-connection of Maine Electric Power Company, Inc. (MEPCo.). The connection is j providing up to 400 megawatts of base-load power from another elec-
- tric system for ten years, which began in 1976. All of MEPCo.'s costs, including depreciation and a return on invested capital, not 4 set by transmission revenues, are paid by the participating utilities.
Pertinent data related to these power agreements are as follows: Maine Vermont Connecticut Yankee Yankee Yankee Yankee Atanic MEPCo. Contract Expiration Date 2002 2002 1998 1991 1986 Plant capacity (W) 830 52S $30 176 400 j Company's Share of Capacity (W) 311 19 35 17 41 (Dollars in Thousands) Estimated Annual Costs-(1979 Costs) Depreciation $ 3,101 $ 29$ $ 384 5 211 5 50 Interest and Pre-ferred Dividends 4,391 343 439 157- 1,526 Other Costs 18,310 1,724 3,208 2,146 5,760
$25,802 $2,365 $4,031 $2,514 S 7,336 Company's Share of Debt and Preferred Stock -
Cecember 31, 1979 $60,112 $4,398 $5,243 $2,328 $ 8,768 December 31, 1978 $54,693 .$4,294 $4,646 $2,033 $9,234 l 39 l
Central Maine Power Company Tors 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAL STATEMENTS , 4 CAPACITT ARRANGEMENTS (continued)
^
The costs are included in purchased power on the Statement of Earn-ings. W. 7. Wyman Unit No. 4: The 600 megawatt oil-fired Wyman Unit No. 4 operated by the Company began consercial operation on December 1, 1978. The Company's nearly 607, owne rship of the new unit added about 360 megawatts to its generating capability. The Company's share of operating costs is included in the appropriate expense categories on the Statement of Earnings. Th Ccapany's plant in service and related accumulated depreciation
.ttributable to the Unit are as follows:
at December 31, 1979 1978 (Dollars in Thousands) Plant in Service $112,300 $10$,000 Accumulated Depreciation $ 3,492 $ 271
- 5. ASSOCIATED CCMPANIES The Company's advances to and ownership interests in the common stock of joint corporate generating companies and other associated companies, r aunted for using the equity method, are as folicws: (
Investment at Percent December 31, , Ownersbis 1979 1978 (Dollars in Thousands) Joint corporate nuclear gecerating companies: Maine Yankee Atomic Power Company 3 8. C*. $25,396 $25,386 Vermont Yankee Nuclear Power Corporation 4.0 2,328 2,332 Connecticut Yankee Atcaic Power Company 6.0 3,042 2,796 Yankee Atomic Electric Company 9.5 1,962 1,967 32,72S 32,481 Other assceiated companies: ~ Maine Electric Power Company, tacs, 78.2
~
974 1,035 Central Securities Corporation 100.0 1,070 668 Cumberland Securities Corporation 100.0 1,783 1,306 The Unica Water-Power Company 100.0 _ LS,66 139
$36,741 $36,129 Condensed financial information of Maine Yankee Atomic Power Coe-pany and Maine Electric Power Company, Inc., is as folicws:
40 l I
Central Maine Power Company Form 10-K - 1979 Centesl Maine Power Comeany NCTES TO FINANCIAL STATEMS
- 5. ASSOCIATED COMPANIES (continued)
Maine Yankee MEPS. 1979 1973 1979 1978 (Dollars in Thousands) Earnings Operating revenues $ 68,867 $ 70,373 $98,122 $59,860 Earnings applicable to Common Stock $ 6,650 $ 6,702 $ 155 $ 164 Company's equity share of net earnings $ 2,527 $ 2,547 $ 121 $ 128 Investment Total assets $287,105 $265,955 $22,804 $20,812 . Less: Preferred Stock 13,070 13,696 - - Long-term debt 139,373 128,818 10,560 11,220 other liabilities and deferred credits 67,830 56,634 10,997 8,267 Net assets $ 66,332 $ 66,807 $ 1,247 $ 1,325 Company's equity in net assets $ 25,396 $ 25,386 $ 974 $ 1,035 Complete financial statements for Maine Yankee and MEPCo. are in-cluded elsewhere in this report.
- 6. MAINE TANKEE SRUrDOW The Maine Yankee nuclear generating plant, ordered shut down by the Nuclear Regulatory Ccamission (NRC) on March 13, 1979, returned to operation on June 5 af ter the NRC terminated its shutdown order.
During the shutdown period the Company incurred additional costs of approximately $15,200,000 for replacement power, which .the ?CC ordered be billed over a twelve-menth period instead of the normal three-month period to minimize the 1::rpact on the Company's cus-tosers. The PUC is currently holding hearings relating to an in-vestigation of questions pertaining to the justness and reasonable-ness of these increased power costs. At December 31, 1979, approxi:sately $6,600,000 of the additional costs had not been billed to customers. The PUC further ordered that recovery of the unbilled amount at December 31, 1979 be exten-ded to the end of 1980, which the Company has appealed to the Maine Supreme Court. Recovering those costs over the extended periods in-creases the Company's working capital requirements.
- 7. INTERIM FINANCING The company uses short-term borrowings under lines of credit with commercial banks, the majority of which require an annual fee of 1/2 to 5/S of 1*. of the line, and commercial paper to initially provide financing for construction and other corporate purposes. The Con-pany intends ultimately to repay these borrowings with the proceeds from sales of long-tern debt or equity securitic Certain informa-tion related to borrowings is as follows:
41
Central Maine Power Ccapany Form 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAL STATEMENTS
- 7. INTERIM FINANCING (continued) 1979 1978 (Dollars in Thousands)
Total lines of bank credit $66,450 $52,700 Unused lines of bank credit at year end 66,300 52,700 Borrowings outstanding at year end Notes payable to banks 15 0 - Commercial paper 60,442 41,391 Total 60,592 e1,391 Veighted average isterest rate on borrowings outstanding at year end . Backs 16.78% - Comuercial paper 14.20% 10.71% Average daily net outstanding borrowings Banks 15 169 4 Commercia*. paper 44,915 25,168 Total for year 44,930 25,337 Veighted daily average annual interest rate Banks 12.75% 8.59% Cosmercial paper 11.68% 8.35% Eighest level of borrowings outstanding at any time during the year $62,645 $41,391 The Com.uy's Articles of Incorporation limit Unsecured Borrowings that may be outstanding to 20% of Capitalization, as defined ($105,410,000 as of Decemoer 31, 1979). Unsecured Borrowings, as defined, amounted to $71,342,000 as of December 31, 1979.
- 8. LONG-TERM DEST Ceneral Provision: Under the terms of the Indenture securing the i First and General Mortgage Bonds, substantially all of the Com-pany's electric utility property is subject to a first mortgage lien. Bonds issued under the General and Refunding Mortgage Inden-ture are subje .t to the prior lien of the First and General Mortgage Indenture until the First Mortgage Bonds have been retired.
All or any part of each outstanding series of First and General Mortgage Bonds and General and Refunding Mortgage Bonds may be redeemed by the Company at any time at established redemption prices plus accrued interest to the date of redemption, except that the Series BB Bonds are subject to certain refunding limitations until August 15, 1980, the Series A Sonds until May 1,1986, the Serius S Bonds until October 1, 1938 and the Series C Sonds until October 15, 1989. Bond Financina: The Company sold through private placement $25 mil-Lion of its General and Refunding Mortgage Bonds, Series B 9-5/S% l Due 2003. The sale of $15 million of the Bonds was completed in l October 1978 and the balance of $10 million in .7anuary 1979. l l The Company sold through private placement $40 million of its Gen- l eral and Refunding Mortgage Bonds, Series C 10-1/2% Oue 1999. The i 42 l l
Central Maine Power Company Tors 10-K - 1979 Central Maine Power C_oc_reany NOTES To f!NANCIAL STATIMENTS
- 8. LONG-TERM CEBT (continued) sale of $23.5 million of the Bonds was completed in October 1979 and the balance of $16.5 million in .7anuary 1980.
Sinkina Fund Requirements and Maturing Debt: The annual sinking fund requirements for first and General Mortgage Bonds (1% of maxi-aum principal amount of series outstanding) may be sat by payment in cash or repurchased bonds or, up to one-half of their amounts, by the certification of additional property. The Series A General and Refunding Mortgage Bonds have no sinking fund. The Series B General
*nd Refunding Mortgage Bonds have a five percent mandatory cash sinking fund commencing in 1984, and a non-cumulative optional five percent cash s faking fund, limited to one-third of the aggregate principal amount of Series B Bonds issued, also commencing in 1984.
The Series C General and Refunding Mortgage Bonds have a six and one quarter percent mandatory cash sinking fund commencing in 1984, and a non-cumulative optional cash sinking fund, not to exceed the amount of the mandatory cash sinking fund and limited to thirty-one and one-quarter percent of the aggregate principal amount of Series C Bonda issued, also coenencing in 1984. The Company intends to meet one-half ($715,000) of the 1980 sinking fund requirements by the certification of additional property. Sinking fund requirements and naturing debt issues (exclusive o'
$682,0C0 purchased in advance) for the five years ending December ?
1984 are as follows: Tear Sinkina Fund Maturing Debt Total (Dollars in Thousands) 1980 $ $83 $ - S 883 1981 1,298 5,898- 7,196 1082 1,371 - 1,371 1983 1,272 8,402 9,674 1984 5,023 20,000 25,023
- 9. REDEEMABLE PREFERRED STCCIS Sinking fund provisions of the $11.25 and 8.40% Series Preferred Stock require the Cespany to redeem all shares at par plus an amount equal to dividends accrued to the redemption date on the basis of 3,850 shares annually for the $11.25 Series and 13,750 shares annu-ally beginning in 1982 for the 8.407, Series. The Company also has the non-cumulative right to redeem up to 13,750 additional shares of the 8.40% Series annually beginning in 1982 at the same price. Sub-ject to certain refunding limitations, the Redeemable Preferred Stocks are redeemable for other than sinking funds at current redesp-tion prices of $108.40 for the 8.40% Series and $108.44 for the
$11.25 Series at December 31, 1979. The annual sinking fund require-ments are as follows: 1980 and 1931 - $385,000; 1982 through 1984 -
$1.760,000.
- 10. RETAINED EARNINGS Under terms of the indentures securing the Company's Mortgage Bonds and the Company's Articles of Incorporation no dividend may be paid on the common stock of the Company if such dividend would reduce retained earMngs below $29,604,000. At December 31, 1979 l
$46,602,000 of retained earnings was not so restricted. ,
43 ) l
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAL STATE.'fENTS
- 11. RETIRE.w.ENT PI.ANS The Company has two noncentributory retirement income plans covering substantially all of its employees. The Company's policy is to fund pension costs accrued, including amounts sufficient to amortize unfunded prior service costs ($8,647,000 as of January 1, 1979) over 30 years. Pension expense amounted to $2,420,000 in 1979 and 32,273,000 in 1978. As of January 1,1979, the date of the latest actuarial review, the market value of the assets of each of the plans exceeJed the actuarially-computed value of vested benefits.
, 12. COMMITMENTS AND CCNTINGENCIIS -
Construction Program: The Company's load forecasts and plans for the construction of additional generation and purchase of power are under continuing review and revision. The Company's current fore-casted construction expenditures amount to $100,300,000 for 1980 and
$391,600,000 for 1981 through 1984 exclusive of AFC but including estimates for nuclear fuel costs where applicable. These expendi-tures include $182,200,000 for major generating facilities as shown below and $42,900,000 for transmission, $119,600,000 for distribution and $147,200,000 for other capital projects.
The cost estimates and completion dates for the jointly-owned plants reflect the latest information made available by the lead partici-pant in each project. The Cemoany's $ bare of Generation Facilities Expenditures (including Estimated AFC) Estimated Expenditures Net Through (excluding AFC) Unit-Estimated Percent Capability December 31, Total In Service Date ownership MW 1979 1980-1984 Project (Dollars in thousands) Boston Edison Company Pilgrim No. 2-* 2.85% 33 $10,517 3 21,000 $ 45,100 Public Service Co. of NH Seabrook Nos. 1 & 2-1983 and 1985 *** 139 24,285 111,500 132,200 Northeast Utilities Millstone No. 3-1986 2.50 29 13,404 18,800 41,200 Montague Nos. 1 & 2 ** 3.00 69 1,517 3,600 ** Central Maine Power Co. Brunswick-Topsham Hydro-1982 100.00 12 2,404 17,200 19,500 Sears Island Coal-1989 **** 341 8,712 10,100 441,300
$65.839 $182,200 l
- Middle to latter part of 1980's.
**No firm schedule provided by lead participant.
- l l
44
i p Central :faine Power Company Form 10-K - 1979 Central Maine Power Company NCTES TO TINANCIAI. STATEMENTS
- 12. COMitITMENTS AND CONTINGENCTES (continued)
***As of December 31, 1979, the Company had a 2.54178% interest in the Seabrook units. Certain proposed transfers and adjustments of the ownership interests in the units would ultimately result in a 6.04178% ownership interest for the Company. The estimated expendi-tures and estimated net capability for the project reflect the pro-posed increased ownership percentage.
****As of December 31, 1979, the Company had an 80.8227% interest in the Sears Island Coal unit, which it is planning to reduce through partial sales to approximately 60%. The estimated expenditutes and estimated net capability foe the project reflect the lower ownership percentage.
Abandoned Nuclear Profeet Costs Deferred: At December 31, 19f9, De-ferred Charges and Other Assets include certai:a costs incurred in connection with the Company's Sears Island Nuclear project abandoned in 1977. These costs include $4.5 million for a nuclear fuel en-richment contract with the Tederal Energy Research and Development Administration. The Company has been unsuccessful to date in its efforts to obtain recovery from either DOE or through the sale or transfer of its contract rights. These costs also include $3.5 , aillion for site evaluations and for nuclear plant design in connec-tion with that proposed plant which costs were treated as deferred charges for accounting purposes based on the Company's intent to build a nuclear plant at an alternate site. In light of the Com-pany's inability to obtain recovery of the enrichment contract costs and the current political climate causing uncertainty as to r the future of nuclear power development, the Company currently i intends to seek regulatory approval for recovery of part or all of 1 these costs' through rates charged to its custceers over a five-year I period. While the Company believes these costs should be recovered, j no prediction can be made as to the amount of any recovery through l rates or otherwise ne the time period over which recovery will take place. If any of these amounts are determined not to be recoverable they would be charged, net of related income taxes, against estnings { in the period such a determination is made. Sears Island Coal-Fired Plant: By order dated December 31, 1979, the PUC denied the issuance of a certificatt of public convenience and necessity for the Company's proposed dears Island coal-fired i plant. The decision was based on findings that the Company's need for base-load power in the late 1980's did not justify construction of a 568-MW facility. The Company petitiened for a rehearing before the PUC based on a smaller ownership interest, a commercial opera-tion date in 1989 instead of 1987, and other known changes in cir-cuestances. The petition for rehearing was granted by the PUC. The Company expects the hearing to commence in the spring of 1980. Seabreek: The construction of the two nuclear generating units at
. Seatrook, New Hampshire, in which the Company is participating as part owner, has been plagued by lengthy delays in obtaining approvals and permits which have resulted in g eatly increased-costs for the project. One court appeal from Teieral regulatory approvals is pending and further appeals are possible.
Public Service Company of New Hampshire ("PSNH"), the lead partici- - pant in the Seabrook plant, continues to experience financial 45 w-r- e , - , . . -- --, , , - - , , ~ - - - - - , e- -
Central Maine Power Company Torm 10-K - 1979 Central Maine Power Cemeany NOTES TO FIN 5NCIAL STATEMENTS
- 12. COMMITMENTS AND CONTINGENCIES (continued) difficulties. As a result, PSNH proposed and has agreed to an adjustment whereby its ownership interest in the plant would be reduced and tha ownership interests of other utilities would be increased commensurately. The adjustment was to have originally involved 22% of the total plant ownership interest but new involves only 15% due to the inability of Massachusetts Municipal Wholesale Electric Company to obtain commitments from its constituent utilit-ies for all of the share that it originally agreed to assume and the decisica of two Vermont utilities not to participate. Various regulatory approvals are still required before the 15% adjustment can be accomplished. On *the present schedule, proceedings now pending before the Massachusetts Department of Public Utilities concerning certain of these approvals, which will include considera-tion of the financial viability of the project, among other matters, may not be concluded until January 1981, or later. As a result of delays in the proposed reduction of its 50% ownership interest and serious difficulties in obtaining the external financing required by that interest, PSNH has sought and obtained, under bond, emerg-ency rate relief from the New Hampshire Public Utilities Commis-sica ("NHPUC") comprising a portion of PSNH's permanent retail rate request currently pending before the NHPUC. PSNH has taken the position that adequate permanent rates as well as timely approv-als for a reduction of its ownership interest in the Seabrook plant by not significantly less than a 15% interest and continued avail-ability of external financing are all essential to enable PSNH to finance its share of the plant and avoid suspension of construction or other measures which might adversely affect the ccepletion and cost of the two units. The Corspany cannot predict what effect financing problems or further administrative or court decisions may have on completion of the project, the cost of the project, or on the Company.
i. Indian Claims: Two actions have been brought in the United States District Court for the District of Maine, Northern Division, by the United States of America against the State of Maine, one on behalf of the Passanaquoddy Tribe and the other on behalf of the Penobscot Nation of Indians. -Each seeks damages of $150 million for alleged wrongs by the State in respect of Indian lands. It is possible that the complaints may be amended to assert claims with respect to the land itself, or to seek damages, including damages from the present owners of the land, or both. At December 31, 1979, approxi-mately 5% of the Company's electric properties were located in the territory which may be involved in the claims. None of the Coa-pany's existing gene rating stations or Maine Tankee's generating plant at Viscasset, Maine is located within such territory, although the Company's proposed Sears Island coal unit and related transmis-sion facilities may be located La such territory. The Attorney General of the United States has obtained a stay of the proceedings to permit development of a comprehensive legislative proposal for resolving the problems underlying the litigation and various extra-judicial settlement proposals are being explored by the parties. i At least umt legislation is introduced or the United States has 1 decided whether to proceed with the Indian claims, it is not pos-sible to assess the validity of such claims as may be advanced by l l 46 l ! l l l \
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company
." ES TO TINANCIAI, STATEMENTS
- 12. CCMMITMEE S AND CC.E "l' ~ P m + ad) or on b* halt of the Indians or to detensine the extent to which the Company and its properties may be involved.
Rents and I. eases: The Company leases certain facilities and equip-ment used in its operations. Rents charged to expense in 1979 were
$1,967,000 and in 1978, $1.930,000. Rentals under noncapitalized financing leases and under noncancellable leases are not significant.
- 13. UNAUDITED QUARTERI.T TINANCIAI, DTORMATION
, Unaudited quarterly financial data pertaining to the results of operations for 1979 and 1978 is shown below:
Three Months Ended "la rch June September Decesoer 1979 1978 _ _ _1979 1978 1979 1978 1979 1978 (Dollars in Thousands Except Per Share Amounts) Electric Revenues $76,001 $51,445 $63,536 $41,715 $64,437 $55,553 $67,790 $59,458 operating Income 14,007 11,116 10,676 7,507 10,729 S,153 12,818 10,359 Net Income 9,472 8,992 5,957 6,076 6,027 6,677 8,187 7,866 Earnings Per Common Share .70 .76 .41 .42 .41 .47 .59 .57 The major fluctuations between quarters in any given year generally are caused by the seasonal nature of the Company's business. His-torically, larger KiiH sales have occurred during the winter months.
- 14. SUPPLEMENTART INFORMATICN TO DISCLOSE THE EFFECTS OF CHANGING PRICES (U! AUDITED)
The following supplementary information ,is supplied in accordance j with the requirements of the Statement of Financial Accounting 1 Standards No. 33 for the purpose of providing certain information I about the effect of changing prices. It should be viewed as an i esti:nate at the apormede effect of inflation, rather than as a l precise measure. Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by The Consumer Price Index for All Urban Consumers (CPI-U). Current cost amounts reflect the changes in specific prices of plant from the date the plant was acquired to the present, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than the general rate of inflation. The current cost of electric generating and transmission plant is estimated based on engineering studies of the current cost (per messvatt) of replacing the present six of hydro, oil-fired and gas turbine generating plants and the current cost of replacing existing transmission facilities. The current cost of remaining plant is determined pri- , marily by indexing surviving plant by the Handy-Whitman Index of l Public Utility Construction Costs. Since the utility plant is not expected to be replaced precisely in kind, current cost does not represent the replacement cost of the Company's productive capacity. Tuel inventories and the cost of fossil fuel used in gersrr: ion have not been restated from their historical cost in nomiu'. dollars. 47
Central Maine Power Ccepany Form 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAI,STATEF.ENTS
- 14. SUPPIIMENTARY INTCRMATION TO DISCI,0$E THE EFFECTS CF CHANGING PRICES (UNAUDITED) (continued)
Regulation limits the recovery of fuel through the operation of the fuel ao;ustment clause to actual costs. For this reason fuel inven-tories ar6 effectively monetary assets. Depreciation ?s determined by applying the Company's composite de-preciation rate for 1979 to the indexed depreciable plant amounts. Since only historical costs are deductible for income tax purposes, the income tax expense in the historical cost financial statements is not adjusted. Under the rata-saking practices prescribed by the regulatory cessais-sions to which the Ccepany is subject, only the depreciation of his-torical cost of utility property is included in the cost of service used to establish the Company's rates. Therefore, the cost of plant stated in terms of constant dollars or current cost that exceeds the historical cost of plant is not presently recoverable in races, and is reflected as a reduction to net recoverable costs. Wile the rate-making process gives no recognition to the current cost of re-placing preperty, plant, and equipment, based on past practices the Company believes it will be allowed to earn on and recover the in-creased cost of its net investment when replacement of facilities actually occurs. To properly reflect the economics of rate regulation in the State-ment of Irmae from Operations Adjusted for Changing Prices, the ,re-duction of utility plant to net recoverable cost should be offset by the gain from the decline in purchasing power of net amounts owed as shown below. During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant, and equipment. Since the depreciation on utility plant is limited to amounts based on historical costs, the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital. l l i 48 l
Central Maine Power Company Form 10-K - 1979 Central Maine Power Company NOTES TO FINANCIAL STATEMENTS
- 14. SUPPI.IMENTARY INFCRMATICN TO DISCLCSE TE ETTECTS OF CHANGING PRICIS (CNAL:DITED) (continaed)
STATIMENT OF INCCME FROM OPERATICNS ADJUSTID TOR CHANGING PRICIS-For the Year Ended Decesber 31, 1979 (Dollars In Thousands) Constant Dollar Current Cost Conventional Average 1979 Average 1979 Historie Cost Dollars Dollars operating Revenues $271,764 $271,76 $271,764 Operation and Maintenance (including Purchased-Power) 180,399 180,399 180,399 Depreciation 20,160 40,800 50,900 Taxes 26,570 26,570 26,570 Interest Charges 19,52S 19,528 19,528 Other, Net (4,536) (4,536) (4,536) Income from Operations * (excluding reduction to cet recoverable amount) $ 29,643 $ 9,003* $ (1,097) Increase in specific prices (current cost) of plant held during the year ** $120,000 Reduction to net recoverable amount $(50,700) (61,900) Effect of increase in general price level (98,600) Net $ (40,5r.0) Gain from decline in 6 purchasing power of net amounts owed 45,100 45,100
$ (5,600) $ 4,600
- Including the reduction to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been
$41,700.
**At December 31,19*9, current cost of property, plant and equipment, net of accumulated depreciation, was $343,700, while historical cost or net cost recoverable through depreciation was $481,496.
. 49
l l Central Maine Power Company l Torm 10-K - 1979 ) l l Central Maine Power Company NOTES TO TINANCIAL STATEMENTS
- 14. SUPPLE'.f.NTARY INFORMATION TO DISCEOSE THE ETTECTS OF CHANGING PRICES (UNAUDITED) (continued)
TIVE YEAR COMPARISON OF SELEC"7.D SUPPLEMENTART TINANCIAL DATA ADJUSTED TOR ETTECTS OF CHANGING PRICES (In Thousands of Average 1979 Dollars) Tears Ended December 31. 1975 1976 1977 1978 1979 Operating Revenues $197,439 $197,643 $225,556 $231,614 $271,764 Historical Cost Information Adjusted for General Inflation Income from operations excluding reduction to net recoverable amount $ 9,003 Income from operations per common share (after preferred dividend requirements) $ .37 Current Cost Information Loss from operations excluding reduction to net recoverable amount $ (1,097) Loss free operations per common share (after preferred dividend requirements) $ (.48) Excess of increase in general price level over increase in specific prices after reduction to net recoverable amount $ 40,500 General I2 formation Net assets at year end at recoverable amount $202,400 Gain free decline in purchasing power of net amounts owed S 45,100 Cash dividends per share $ 1.31 $ 1.73 $ 1.69 $ 1.62 $ 1.55 Market price per share at year end 5 18.30 $ 20.58 $ 19.13 $ 15.94 $ 12.29 Average consumer price incex 161.2 170.5 131.5 195.4 217.4 50 I a ..
Central Maine Power Company For:s 10-K - 1979 Schedule III Page 1 of 2 11: 2~*
*21} I : I a q .l.1
2 3- d Ji.y ;j _ d j A 2 1
4 2 3 a 1 I J 4 1 4 p:4 22 I
\
*
- E'* '
* '*' - ' #'2' -"t**a'
~ #.
s ax; 8 S_ **'.: 3 :":'*::' 13 - *'*! = = :; ::
.i t 11
- i, g
1; e
.ii e H2 H de id i:l 2H l :: H i i si .
l.:.
*'ils.g t :: . . . . . .
.: 2 s 4 a g i e::: l - -
_ _ _i
- 2;.- ::
I.- I.- 3 Ix.:y:i i i
- a
.. g I
3 21 si - ll li : ll l i *_ t*:._.
- t
'*! ll l i :_.l 6
- r. *!.8'
-.1 T ;1 11 2
I w:4 : 12._ .. T'.%t
-i :: t' := :::: ::::
l
.t i ::'l 2 l..i.s .:l .
lt _._l 8 ~-l 1 J lI i. I l ::t I2 i :: 11
-a
.I. .fl gl .
1, I, ii I, ll l! a t i l lii ..* :'l 1 l. 2_'l f I' u.' j-1: J:: T:;: .S w' :: *:
-.~
- :: ..::l ..
a'al <r*t
,.I g: 2 4.j i t ii :! i1 4:4: 6 ll lt ii 4l :l
*.- I ~E_ ;. ,
3 . . 3
- 2. .: ...~g...,.g-,.-...,,.,.,,:.__.... :... .. i
_. .: . :I li 0 ;;;21 _ = ;;. : . 3 2:P 8 ".: :: ;; ;;. ; 3: r. ;;.: l C :::: ::! .
- *:}. i;gt.: ji. J ..:: 4 14'9- ;4. . J 'A.
i.;: i
.: :.:: 2l i . f::
;. ,i. . . .. f 3: 21 ,_.
*2 i *'; 4
.:::s i; a 9 9 9 -
9 9
- 2 .: 1. 3 : * * *
- 2 S E
3 m T: i
- 1' ' .:
I jg6 i
- I,i.j;2:
,E E 3 3- a i !
E
! 2 3 a
2
}
* ~ ~ ~ ~
. ii. .,t E
~.
3
- F j 1
-t- .
i t b i X 3
=
- J * -
1;
- I I "
t!: J : } _F r[ : _ . . . _,, ,l s: y . 1 t J .:
-L 1-t .t -
w '
-. : :. s. . . . . . l
- F ]
ll : !
- jF: .IF F F * ! 1
; i : - 3.jF .
- 3. . F :
Ii: .: ..: 2 :
- ..: L.
a I j .: 1.:: F: - l
!; g r .2 ::: 2:- *s.g :i -
- rg : *- -
f
. . ui :: jas .a a saa:
3
;= J<.= 1 .= :.m 1 4= A 4
*:aa: :a2 :a.a s-la g 4m i T : :: 2; * : : :: :: J = = 2 l: : .:
- 5
p' *lA 1. 3. .I .E . F.I l . .T .E _g , .C .E ... 5 .E : e1. .I.
m }.&. ~.
.2. . [.E -
J =t =
=
a
. l u o =
31 1 i 1 m
Can:ral Maine Power Company Form 10-K - 1979 Schedule III Page 2 of 2 1. i 1. .: u I
.J - je:. :
. g. j .s 3; ,,
j j { j g { .
., l
- .: ;4 2
- a.:
.a a re; e ie : 2r-
.-iz: astm ---, g:c:l g; c.;
2
-:2 s c --; : er -:rgi : --,
t:: 1:, . i-t - M . h. :-r. n -r !I - -'lI *:: . ca
.$li 4 2
2
- x
=
2 3 e e a w.:.i,u: ,! - - -
- li! :: -
=
a
=
= .- .
i i i a I', :a:} h:1i l ..i i 5,
, , x.. y . . . . ~ ,
3, I,, 11 Il l in
, - ,~ l.i -
n i~: -:i
- -J::- si -
< _w] .:: ::, ..-.
-~
tr ...l 2,2 _, .... ,, i.' ..l El
! :a.. :: 3. : :::: l
.! 's. .1 . . ':::: Ii 1' ti 44 1 i,l tI i .::I ii.l
- i. :-
- - i
! .: si i l.i i! lI ll 3. ....:: ! .,, . I .i..
I .t. j- ;i .::: : $$ 5 bb b$! kkI h$! k$f ;! Il$!l
! l& i. ie i4 ll 44 i: i i i 41
=a. ,
- ss .
E. -
, *: a f". ': - 3 0*!~ *2EE C'
**;aj
'7 I *J -""; 0; -;!
- ', 13:
. .24_
- w. Ji . . 2 R3:* 3H;:.-f:**
- ~ -d.* . f4 ]1 n**.l'3:" .c :3 i: *15l.. .
- c. ,
a j2 %g
- r. x s . . . -
-.- :: . ; s s- q g g
_: 7_.:
..: k!
> i.
! 2 ;
5 I i i i 5
" I Y..E R} $..
~
i i i i i . I - a J 1 1 t ie .
- i i
- ?:: i ! E 3
- y -
y: - t t 2: . 2
- : .: 1: o y - t. - o l
J; :: : . is :: : - -
.: :: :a :
32 ::as:3:- y:
- : . .e 1 :
, ,2i .:, ...
- : ::. . . . J.:. <_..:
- q
- t.. :
s
- z :s:-as :sm a.: :::: ::: s:s .g :-
.l!::u. :::: !-as !a-2 sma .. : i 4. a 4. 1 i
- r. : :
- : : f:: .
f . i
.5 -
.: _3 . a a ly.:s 5 -1 1 :- ' 3*1i: 5
- :: :: .: _ae"' "
; a.: 2: :
- *" - 3 ~5 ' " ' '
I" 3. 5 3~5 -
.h. i 1 2 " 3 " 3 '5 a a o a 52
S'"t83 I U3 8! '". El'E'E $_**T*l'Y l'HOltHff, ll. ANT AND EfjUllHENT Far the Year EndcJ Decesilier 31, 1979 (Dollars in Thousands) balante Other Chan8es Balance at Beginning AJJitions Hetirements Hiscellaneous at EnJ
- Classification of PeriuJ at Cost orSaleJM _Aj ustments_ of Period Electric Department 285 $ $ $ 285 intangible Prop.esty $ $
172,235 8,379 (2,832) (336) 177,446 Generating Plant - Steam Generating Plant - Hydro 68,716 370 (155) (17) 68,914 Cenerating Plant - Internal 4,246 Comisustion 4,245 1 129,775 5,132 (429) 134,478 U Transmission 228,259 20,038 (2,905) 1 245,386 Distribution ottier Property and ikguipment 26,708 3,914 (74) (2) 30,546 Electric Plant Acquisition 190 190 Adjustment 1 888 Unfinistied Const uction (R) Jgl61 222 727 Total Electric Department 678,574 60,554 (6,395) (354) 732,379 Th Histellaneous Psoperties (C) Sy 68 j 6) 919 7EU"g gg
- Total Property, Plant and [
Equipment $6D,4]l $63 622 $(h408) $(354) $U3,298 m y ay
- .. ~ .:
l Notes: (A) Includes LanJ Hetirements of $18. l (8) Refer to Note 12 of Notes to Financial Statements for Jiscussion of the status of several major projects. }p (C) Included in Deferred Char 8cs and Ottier Assets on Salance Sheet. s
Central Maine Pouer Company PROl'ENTY, PLANT AND EQUlitlENT For the Year Ended December 31, 1978 (Dollars in Thousanda) Other Changes Balance Balance tilscellaneous at End at Beginning AJJitions Retirements of Period at Cost _ or Salej Q J justments of Per M Classiffration Electric Department
$ $ 285 285 $ $
latangible Property $ (14) 172,235 Generating Plant - Steam 67,686 104,563 , (38) (18) 68,716 68,395 377 Ceneratina Plant - Ilydro Cenerating Plant - Inte rsial 3 4,245 Coalius t ions 4.244 (270) 129,775 111,365 18,680 Transmission (2,468) (6) 228,259 211,287 19,446 Distribution (1,497) 26,708 other Property and Equipmeut 23,190 5.085 Electric Plant Acquisitten (7) 190 h, AJjustment 197 r 48,I68 ,, y Unlinished Construction (hl 125,858 G6,997) uoO 611,807 71,085 (4,287) (31) 678,574 5nc {: tsgf Total Electric Department
- J 61) (57) 857 ga Miscellaneous Propertles (C) _l ,]75, "
U.E Total Prog.erty, Plant and $679,43 3"
$613,182 $ y ,085 $(4,748) $(88) !?
Equipment d Notes: (A) luctudes Land Retirements of $17. $ (H) Refer to Note 9 of Notes to Financial Statements for discussion of the status of several major projects. " (C) included in Deferred Charges and Other Assets on Balance Sheet.
Central Maine Power Company Form 10-K - 1979 Schedule VI Page 1 of 2 1 'S
'! : 6 *)
!U 21 1
'- l3:
3:2i -
* .3 0 I 1
. ja.
.- l3!7; I3 I
. :! s aj 2 i,: J J=
2l . [!
-t T} 3!{
1
;41 35 J
g
. . .i .
4: . : n B. 2' * .11 2 2 l !! 3.
! [2:
a. P.
- lTT I
- g. .e.
' E -. 3 J s . h .."
- 2. W. . i s;1 :
3 2 ES 2:1 -L. ll :* - g 3 -:
! d a .]. ,l.".
a.
" I c}
T I
. .I "
$ a a: , *:
1l 1 . g 3 2.2 ; ;l . L 2: !" I *:I : 2. 2 4
-"] : :4
- 3 .
).
i i . - al di i
- a
;T ua , ,: i .
Ji S : I : 1 4 5* . , , ,
. 2 ; k ?
* - 3 A* 2" L C ji ;:t .l 23 2 a
a 2 .: 6.:: *; I, - . A :: L** ?.J 2 *. ! - 31 2 .i I '::. . - . 2, ;
. 3 J* 2" 3 i i l l.a: C: .
IF 0
- .!I
. g.* - . *. .7 - .. 24 .,
- T'
,6 2,1,j ;
. 133
. . .T
. "i! *3 "8 C; *: .**
I
;*. J j.i J};! dO. O i *S; 1 1**
2 =*.: . 3l1
. 2. : 'l
==-
g, 1 23G
~~~
2* 2: L 3 i i* i' 4
\
\ l 53 i l I a
Central .W ine Power Company Form 10-K - 1979 Schedule VI Fage 2 of 2 l a C: !!
*t
.1 f. l ,*2, s.
e, o i 2:
....I.
g a
- 2 2 a
d';;; *!! m c;[ i
; o, lg lit .- e
- l. .
En
* =
!! F 1 : F U 3
- s gi: .lJ
- 2: * *)
..I
- af.*
21 :? :" J . gi. t .1 *2. :_ 3, ::
-. -.~ ..
Oi :.; .: &- !" :3 . l'
, ll $$ b5 5AA bI bE $5 g :=.~ .i.
4: . s i 4 :
-5 J:3 .I 2
- i 'l ~211 :*
d 8 t. i
+ n. 4*I I 4.I I>
3 1l
.i-i.
J ul
='3 la i I'i .~.~3 lii :: : - s:
- :: -::i:8 Iji Hc:d (- Jl .*
i s<
~ ~
II. ~y .
,;' I gg
]A,. .i
- 4 Bj l: . .
g - I
-.il 3 ~
il ki i T ;::: .!! '
- ., u2 a. .. :
=. .
EI f5 .. I.!. 5 yl ' s? *i 1 = . 3 : I: : s 21 !! , 3! I.. , ! T $.5 i. .y [.
}.
e i: :t :-
*1 a :.
e x 3 :: *: ,-t. .. . &. 2. 1 . _. 8 i si" a
! .: i 3! la!t 21 Ja a 2
~*
;* }4 3 e
<s g, j-'Ii hI e: .
- h. N
-i
" J ,! :
- A 2: $ .!!
N f!!.i::-
'l:
I. 12 23
~~
2 :
- tr :
I 5 $5 1 36
Cent ral liaine Power Cuspany itESERVES EXCLt!SIVE OF RESERVES FOR DEPitECIATION For the Year En. led Decesher 31, 1979 (Dollars in ThousanJs) Balance at Charged Charged Deductions Balance Beginning to to Ollier From at Close DescripMon of Perid Incoac Accounts Reserves of Period Beserve for casualty and insurance $1,000 $380 $105 $485 $1,000 Heserve for uncollectible accounts 380 923 - 932 371 P. D t' 2' W
% if U if rtGE o.A*
" nsf. 2'
.n
, 2 4 e
, l Central tlaine Iover Cy pany kESERVES EXCLt!SIVE OF RESERVES FGH DEPHECIATION For the Year Ended Deces.lser 31, 1978 (Dollars in Thousands)
Hatance at Charged Charged Deductions Balance Beginning to to Other From at close Description of Period Income Arcusinta keserves_ of PerioJ Hemerve for casualty and insuraace $307 $726 $ 226 $259 $l.000 365 779 - 164 380 Reserve for uncollectible accounts Equity reserve - licensed Igara - projects (Note) 798 9 (807) - m Nute: As required by order 5 of the FERC, the Equity Reserve provided for certain licensed hydro projects a has been reclassified inom Other keserves and lieferred Credits to Retained Earnings. R
.u m 3';!
*eQ~
- R. J "oono f 'P it
~ M ' 2' "2
3" 9 41
Maine Yankee Atomic Power Company Form 10-I-1979 SECURITIES AND EXCHANGE CCMMISSION Vashington, DC 20549 TORM 10-K Annual Report under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended. Commission file number December 31, 1979 1-6554 i i MAINE YANKEE ATOMIC PCWER CCSANY (Exact name of registrant as specified in its charter) Maine 01-0278125 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Idantification No.) Edison Drive, Augusta, Maine 04336 (Address of principal executive (Zip Code) offices) i Registrant's telephone number including area code 207-623-3521 Securities registered pursuant to Section 12(b) of the Act:
- Name of each exchange Title of each class on which registered First Morttate Sonds, Series A (Sinking Fund) 9.10% Due 2002 New York Stock Exchange First Mortgage Bonds, Series 3 (Sinking Fund) 8 1/2% Oue 2002 New York Stock Exchange First Mortsate Bonds, Series C
[SinkinaFund) 7 5/8% due 2002 New York Stock Exchange 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 Commission Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes c/ No Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the period covered by this report. Shares outstanding Class as of December 31, 1979 Common Stock 500,000 59
Maine Tankee Atomic Power Company Torm 10-K-1979 4 PART I ITEM 1 - BUSINESS (a) General. The Company, incorporated under the laws of Maine on January 3,1966, owns and operates a pressurized water nuclear powered electric generating plant at Wiseasset, Maine, with a current net capa-bility of approximately 830 megawatts electric (the " Plant"). The Coe-pany sells its capacity and output to its eleven sponsoring utilities. The Company's principal office is located on Edison Drive, Augusta, Maine 04336, and its telephone number is (007) 623-3521. The Company is sponsored by eleven investor-owned New England utilities (the " Sponsors"), each of which committed itself under a Power Contract with the Company to purchase a specified pere:ntage of the capacity and output of the Plant and pay therefor, beginning on January 1,1973, a like percentage of amounts sufficient to pay its fuel costs, operating q i expenses (including a depreciation accrual at a rate sufficient to fully ' amortize the investment in the Plant over a period ending May 1, 2002), interest on its debt and a composite return of 9.8% on its capital stock equity. However, due to limitations imposed by the Federal Power Com-mission (now the Federal Energy Regulatory Ccamission ("FERC"]) on the return on the Company's common equity, the actual composite return is somewhat le.s s . Each sponsor has also agreed under a Capital Funds Agreement with the Company to provide a like percentage of the Coe-pany'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 jurisdic-tion of various Federal and state regulatory bodies. (b) Problems Affectine the Industry and the Company. Events at the Three Mile Island Nuclear Unit No. 2 in Pennsylvania ("TMI") caused ! increased concern about the safety of nuclear generating plants. The Company cannot predict what effect the events at DI, which have pre-cipitated renewed opposition to nuclear power, may ultimately have upon the continued operation of the Company's nuclear generating f acility. The TM1 incident has prompted a rigorous reexamination of safety related equipment and operating procedures in all nuclear facilities. On Octo-1 ber 30, 1979, President Carter's Commission on TMI issued its final report which, among other things, contained extensive reco.-=adations on aspects of nuclear power; on December 7, 1979, the President, while reaffirming his support for continued inclusion of nuclear power in his national energy policy, announced his agreement with the spirit and in-tent of those recommendations and his initiation of steps toward their y implementation. On January 13, 1930, the Nuclear Regulatory Cocais-sion's ("NRC") Special Inquiry Group publicly released its Report on TMI which contained recommendations similar to those of the Presidential Commission. The NRC and its staff are currently reviewing this latter report. Meanwhile, the NRC has promulgated numerous requirements in re-sponse to TMI, including both near-term modifications to upgrade certain safety systems and instrumentations and longer-tera design changes which affect about 25 items, ranging free equipment changes to operational support. The Company's nuclear facility and all other nuclear facili-ties are being reexamined by the NRC to determine the scope of modifica-tions necessary to comply with these new requirements. The Company has made the near-ters modifications required by the NRC during the period from January ll, 1980 to March 15, 1980 when its nuclear plant was shut down for a scheduled reloading of its nuclear fuel. The Company is still in the process of evaluating the inrpact of the icos-ters improve-ments suggested by the NRC staff. However, until the scope of those 60
Maine Yankee Atomic Power Company Form 10-K-1979 latter improvements, as they apply to particular reactors, has been de-fined by the NRC, the cost of any modifications and their effect, if any, on the operations of the Company cannot be quantified. While the ultimate effect of these reexaminations, studies and proposals cannot be specifically predicted, they could result in costly modifications of the Company's nuclear plant. A petition calling for termination of the production of electricity by nuclear fission due to alleged safe;y and econcaic reasons, and the con-sequent shutdown of the Company's nuclear plant, was circulated by cer-tain gros.ps in Maine. The petition was signed by more than the required number of voters and was presented to the Maine Legislature in February, 1980. Under Maine law, the Legislature must enact the proposed legisla-tion at its 1980 session or refer it to a vote of the electorate. The Company is presently unable to predict the ultimate resolution of the petition drive, includits the result or validity of any legislative action or referendum vote, which would be held in the late su: veer or fall of 1980 pursuant to a gubernatorial proclamation after adjournment of the Legislature. The Company believes that the Maine Yankee plant is both a safe and the most economical source of base load electric power, and intends to take all reasonable steps necessary to provide for the continued operation of the plant. (c) Regulation and Environmental Matters. The nuclear generating facil-ity of Maine Yankee is subject to extensive regulation by the NRC. The NRC is empowered to authorize the siting, construction and operation of nuclear reactors af ter consideration of public health, safety, environ-mental and antitrust matters. The United States Environmental Protection Agency (" EPA") administers programs established under the Federal Vater Pollution Control Act and the Clean Air Act 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 espowers EPA to establish clean air standards which are implemented and enforced by state agen-cies. The EPA has broad authority in administering these programs, including the ability to require installation of pollution control and mitigation devices. The Company is also subject to regulation with regard to environ:sental matters and land use by various state authori-ties. Under their continuing jurisdiction, the NRC and one or more of the EPA and the state authorities having jurisdiction over the Company's f acili-ties may modify permits or licenses which have already been issued, or impose new conditions on such permits or licenses, and say require additional capital expenditures or require that the level of the opera-tion of a unit be temporarily or permanently reduced or ceased. See
" Problems Af fecting the Industry and the Company". Hewever, since the eleven Sponsors of the Company hr.ve agreed to provide the required capital not otherwise available, to take the total output of the Plant, and to pay all costs including capital costs, statutory requirements with respect to environmental quality, although they could necessitate significant cash outlays, will not materially affect the earning power of the Company or cause material changes in the registrant's business or intended business.
(d) Nuclear Fuel. The Company has contracted for the purchase of all of its uranium concentrate requirements through 1983. In addition, the Cespany has contracted with a supplier for the purchase of up to 61
Maine Tansee Atomic Power Company Torm 10-K-1979 1,300,000 pounds of uranium concentrates, deliveries of which, although , contingent upon the commercial operation of a processing f acility cur-rently under construction, are scheduled for 1981 to 1992 and would fulfill nuclear fuel requirements through 1986. na Company has a con-version contract through 1983 and has a contract with DCK for enrichment services through 2002; its fabrication requirements are covered through 1983, with a contract option for two additional years. As is tne case throughout the nuclear industry, the Company has no contractual arrange-ments for the final disposition of spent fuel. In September 1979, the Company filed with the NRC a proposed change to its operating license relating to increasing its existing spent fuel storage capacity by providing more compact fuel storage. On October 24, 1979, the NRC published notice of the proposed issuance of a license amendment implementing the change and providing an opportunity for interested persons to petition for leave to intervene and request a hearing. A timely petition and request was filed by Sensible Maine Power, a non-Drofit corporation, and the Attorney General of Maine filed a notice of his intent to participate in any hearing. ne NRC has established an Atomic Safety and Licensing Board to preside over the proceeding. The Company anticipates that a prehearing conference to designate issues ' sill be scheduled in May 1980 and that the adjudi-catory hearing will follow within about 90 days thereafter. The Company cannot predict the scope of the proceeding, its duration or its outcome. The present capacity of the spent fuel pool at the Company's plant will be filled in 1987 and af ter 1983 would not accommodate a full core re-soval. The modification of this capacity proposed by the Company differs from designs heretofore amplemented at other nuclear facilities , but is essentially the same basic concept of more compact storage in the existing spent fuel pool. If the proposed modifiestion is not approved, the Company will have to develop alternative plans which would involve further approval by the NRC. Maine Yansee does not currently utilize a net salvage value for spent fuel in its nuclear fuel cost calculations. Maine Yankee's nuclear fuel in the reactor is amortized on the basis of original cost plus the estimated cost of disposition of that fuel. (e) Esolovees. At December 31, 1979, the Cor pany had 130 employees. ITEM 2 - SIMMARY CF CPERATIONS In accordance with the Power Contracts with the Sponsors, the Cespany bills out an amount, each month, equal to the total costs for that month, including a return on invested capital, regardless of the level of operation of the plant. The Plant was placed in conusercial operation for billing purposes on January 1,1973. 62
Maine Yankee Atomic Power C:spany Form 10-K-1979 Maine Yankee Atomic Power Comeany
~
STATE M 0F INCOME (Dollars in Thousands Except Per Share Amounts) 1979 1978 1977 1976 1975 Electric Operating Revenues $68,867 $70,373 $65,659 $58,860 $61,731 Operating Expenses Fuel 15,319 17.411 14,863 11,686 14,538 Operation 14,193 10,684 8,394 6,884 7,230 Maintenance 2,544 4,496 3.556 1,433 1,917 Depreciation and Amortization 8,279 8,173 8,087 8,029 7,736 Taxes Federal and State Income 7,864 8,703 9,058 8,578 8,192 Local Property 3,750 4,094 4,222 3,800 2,839 Total Operating Expenses 51,949 53,561 48,180 40,410 42,452 Operating Income 16,918 16,812 17,479 18,450 19,279 Other Income (Expenses) Allowance for other Funds Used: During Construction 76 50 50 31 114 For Nuclear Fuel 1,547 1,341 1,047 1,136 844 Other (168) (6') (31) (15) (33) Incese Before Interest Charges 18,373 18,140 18,545 19,602 20,204 Interest Charges Long-Tera Debt 13,307 11.534 11,502 11,616 12,527 other 15 0 (8) 23 781 441 Allowance for Borrowed Funds L' sed: During Construction (133) (90) (90) (59) (193) For Nuclear Fuel (2,602) (1,023) (674) (561) (373) Total Interest Charges 10,722 10,413 10,761 11,777 122197 Net Income 7,651 7,727 7,784 7,825 7,307 Dividends on Preferred Stock 1,001 .12ggi 1,083 1,122 1,122 Earnings Applicable to Common Stock $ 6,650 $ 6,702 $ 6,701 $ 6,703 $ 6,685 Shares of Common Stock Outstanding 500,000 500,000 500,000 500,000 500,000 Earnings per Share of Common Stock $13.300 $13.404 $13.402 $13.406 $13.370 Dividends Declared per Share of Common Stock $13.250 $13.400 $13.404 $13.405 $13.380 63
Maine Yankee Atomic Power Company Form 10-K-1979 MANAGEMENT'S DISCUSSICN AND ANALTSIS CT THE SDDtARY CT OPERATIONS Tor a period of thirty years, ccamencing on January 1,1973 in accord-ance with the Power Contracts, each participant receives its entitlement percentage of plant output and is obligated to pay its entitlement per-centage of the Company's total costs, including a return on invested capital, regardless of the level of operation of the plant. The following is management's discussion and analysis of certain sig-
, nificant factors which have affected the Company's costs during the comparative periods 1979 versus 1973, and 1978 versus 1977.
A sumusary of the significant period to period changes in the principal cost items is shown below: Comoarison of 1979 1978 Versus 1978 Versus 1977 [ThousEs of DolNisl(IncreE or (DNiease)] Tuel Expense (2,092) (12.0) 2,548 17.1 Operation Expense 3,509 32.8 2,290 27.3 Maintenance Expense (1,952) (43.4) 940 26.4 Long-Ters Debt Interest Expense 1,773 15.4 - - Allowance for Funds Used for the Purchase of Nuclear Tuel 1,785 75.5 643 37.4 Fuel Expense The decrease in fuel expense was primarily the result of (1) the plant being ordered to shut down by the NRC from March 13 through May 24, 1979 and (2) an outage during the scnth of September 1979. The plant operat-ed during most of the 1978 period except for a major saintenance and refueling outage which occurred free July la through August 24, 1978. ,
. s :.
Tuel expense increase:! in 1978 due to (1) a higher amortization rate, which was caused by (A) 72 new assemblies being inserted in August 1978 at a higher cost in comparison to the assemblies inserted in June 1977 (3) a full year's effect of the change in the assumptions regarding the cost of spent fuel disposal made in July 1977 and (2) an increase in generation of 209 million K7d. Operation and Maintenacce Expense Significant increases in Operation Expenses in 1979 were prinarily the result of expenses associated with the shut down ordered by the NRC and to a lesser degree due to costs of renting a transformer, outside ser-vices employed and increases in insurance premiums. The increase in Operations Expenses in 1978 reflect the increased cost of outside services, rental of a transformer and general labor increases. The Company did not have a refueling shutdown in 1979. The level of maintenance activity performed in 1979 when the plant was not operating were below those experienced in 1978 during the refueling. The increase in Maintenance Expenses in 1978 reflects expenditures which included work on the Reactor Coolant System, Turbo generator unit and the Condenser Systens. 64 i I
Maine Yankee Atomic Power Cczpany Form 10-I-1979 . Lont-Ters Debt Interest Expense and Allowance for Funds Used to Purchase Nuclear Fuel (AFN) The increase in Interest Expense and AFN in 1979 and the increase of AFN in 1978 were the result of higher levels of investment in nuclear fuel to meet current and future refueling requirements and to higher interest rates incurred on corporate borrowings. ITEM 3 - PROPERTIES The Plant is located on tidewater on Bailey Point in Viscasset, Maine, on a 740-acre site which is owned in fee by the Company and is adequate for the Plant and for the associated switchyard facilities (which are owned in part and operated by Central Maine Power Company). It is a nuclear-powered electric generating plant, utilizing a pressurized water reactor, fueled with slightly enriched uranium dioxide. The nuclear steam supply system and certain other equipment were designed and fabricated by Combustion Engineering, Inc. The turbine generator was supplied by Vestinghouse Electric Corporation. Stone & Webster Engineering Corporation, as engineer and constructor, designed and constructed the Plant. The nuclear design and construction of the Plant was supervised by the Nuclear Services Division of Yankee Atomic Electric Company, which supervised and is supervising the design and construction of several nuclear generating plants in New England. Con-struction 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 Matse Board of Environmental Protection, which were completed in 1975. ITEM 4 - PARENTS A.DT SLTSIDIARIES The names of the Sponsors and the percentage of voting securities owned by each are as follows: Name of Soonsor Percentage Central Maine Power Company 38% New England Power Company 20 The connecticut Light & Power Company 8 Bangor Hydro-Electric Company 7 Maine Public Service Company 5 Public Service Company of New Hanpshire 5 Cambridge Electric Light Company 4 Montaup Electric Company 4 The Hartford Electric Light Ccepany 4 Western Massachusetts Electric Company 3 Central Vermont Public Service Corporation _2 3.3EI The Cospany has no subsidiaries. ITEM 5 - LEGAL PROCEIDINGS The operation of existing nuclear units and the construction of nuclear units presently planned in the United States continue to be a subject of public controversy. Various groups have filed law suits and participat-ed in administrative proceedings claiming that the present state of 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 65
Maine Yankee Atomic Power Company Form 10-K-1979 controversy itself, could cause substantial modifications to or extended shutdowns of plauts presently in operation. See Item 1. " Problems Affecting the Industry and the Company". The Price-Anderson Act is a Federal statute providing, among other things, that the maximum liability for damages resulting from a nuclear incident would be $560 million, to be provided by private insurance and governmental resources. As required by the NRC regulations, prior to operation of a nuclear reactor, the licensee of the reactor is required to insure against this exposure by purchasing the maximum available private insurance (presently $160 million), the remainder to be covered by the recently implemented retrospective premium insurance and by an indemnity agreement with the EC. Under amendments to that Act, owners of operating nuclear facilities may be assessed a retrospective premium of up to $5 million for each reactor owned in the event of any one nuclear incident occurring at any reactor in the United States, with a maximum assessment of $10 million per year per reactor owned. It is not yet possible to evaluate the claims being asserted as a result of the TMI incident or whether any assessments may be levied under these provisions as a result of the incident. See Ites 1. "Probless Affecting the Industry and the Company". The Maine Yankee Plant was declared commercial December 28, 1972, with regular operation at approximately 570 messwatts electric (net) starting on January 1,1973, in accordance with the Power Contract. Nearings on the Company's application for a forty year license at full operation were completed in 1972 and the license for full operation at approxi-mately 790 megawatts electric (net) was granted by the Atomic Energy Commission ("AEC"), the predecessor of the EC, on June 29, 1973. Dur-ing 1978 the EC authorized an increase in the output rating of the plant to approximately 850 megawatts electric (net). The Company's nuclear generating plant, which had been temporarily shut down along with four other nuclear units pursuant to a March 13, 1979 order of the NRC staff, was restored to power production on June 5,1979 af ter the order was lifted on May 24. The order was based on the dis-coven by the EC of an allegedly improper analysis technique in a com-puter code used by the architect-engineering firm which designed the plant in predicting the stress ' loads which would be placed on some I safety-related piping systens of the plant in the event of a major j earthquake. During the shutdown the Company performed reanalyses of the l piping systems in accordance with the order, and the plant was returned to commercial operation without modification of the systems. 1 The Company's plant was shut down on January 11, 1980 for a scheduled l reloading of its nuclear fuel and was restored to power production on March 15, 1980. During the shutdown the Company also made certain sodi-fications required by the NRC as a result of the TMI incident. See Item 1. " Problems Affect ng the Industry and the Company. The Power contracts between Maine Yankee and its sponsors require % sponsors to continue to make monthly payments thereunder through 2002 wnether or not the plant is in operation except under circumstances not now applicable which would entitle the sponsors to cancel the Power Contracts. The Sponsors are also obligated under the Capital Funds Agreements with Maine Tankee to pay their respective shares of the capi- l tal requirements of Maine Yankee, not otherwise obtainable, which would I include the cost of any modifications to the Plant that ray be required pursuant to an R C Order. l 1 66 l
Maine Tankee Atomic Pever Cerpany Torm 10-K-1979 ITEM 6 - INCREASES AND DECREASES IN OUTSTANDING SECL"AITIES AND INDESTEDNESS None ITEM 7 - CHANGES IN SECL"dITIES AND C'IANGES IN SECURITT FCR REGISTE* LED SECURITIES Not Applicable ITEM 8 - DEyAUI.TS UPON SENIOR SECURITIES Not Applicable. ITEM 9 - APPROXIMT! NLMBER OF ECUITY SECURITY HOI.DERS (1) (2) Title of class Number of Record Holders Common Stock 11 (Sponsors) Cumulative Preferred Stock, 7.48?, Series (Sinking Fund) 77 ITEM 10 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOI.DERS Previously reported in Form 10-Q for quarter ended June 30, 1979. ITEM 11 - INDEMNIFICATION OF DIRECTORS AND OFTICERS Section 9 of the Company's By-laws provides as follows: Section 9. Indemnification of Officers, Directors, Employees and Agents (a) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Company, by reason of the fact that he is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a Director, officer, employee or agent of another corporation, partnersnip, joint venture, trust or other enterprise, shall be indemnified by the Company against expensee, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good f aith and in a man-ner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termi-nation of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself, create a presumption that the person did not act in good faith and in a sanner which he reasonably believed to be in or not orposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit "ay or .a the right of the Company to procure a judgment in its favor by reason , of the fact that he is or was a Director, officer, employee or agent of ! the Company or is sr was serving at the request of the Ccapany as a 1 l l
- 67
\ l l ( l l l
Maine Yankee Atomic Power Company Tora 10-K-1979 Director, officer, employee or agent of another corporation, partner-ship, joint venture, trust or other enterprise shall be indemnified by the Company against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit. if he acted in gosd faith and in a sanner he reasonably believed to be in or not opposed to the best interests of the Company except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the Superior Court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Superior Court or such other court shall dees proper. (c) To the extent that a Director, officer, employee or agent e,f the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subparagraphs (a) and (b) above, or in defense of any claia,' issue or matter therein, he shall be indemnified against expenses including attorneys' fees actually and reasonable incurred by him in connection therewith. Any such person may enforce the right of indemnification granted by this subparagraph (c) by a separate action against the Company, if an order for indemni-fication is not entered by a court in the action, suit or proceeding in which he was successful on the merits. (d) Any indemnification under subparagraphs (a) and (b) unless ordered by a court shall be made by the Company only as authorizad in the specific case upon a determination that indemnification of the Director, o f fic.er, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subparagraphs (a) and (b). Such determination shall be made by the Board of Direc-tors who were not parties to such action, suit or proceeding, or if such quorum is not obtainable, or even if obtainable, or even if obtainable if a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final dispnsi-tion of such action, suit or proceeding as authorized by the Board of Directors in the sanner provided in subparagraph (d) upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Sec-tion 9. (f) The indemnification provided by this Section 9 for any person shall not be deemed exclusive of any other rights to which such person may be entitled under any By-Law, agreement, vote of stockholders or disinter-ested Directors or otherwise, both as to action in his official capacity and as to action in another capacity, while holding any office, and shall continue as to any such person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. (g) The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, of ficer, employee or agent of the Company, or is or was serving at the request of the Company as a Director, officer, employee or agent of another corporation, part-nership, joint venture, trust or other enterprise against any liability 68
/
Maine Yankee Atomic Power Ccapany Tora 10-K-1979 asserted against him incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indear.ify him against such liability under the provisions of this Section 9. The Company's Soard of Directors has taken action to implement the pro-visions of the By-laws. Insof ar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public polic/ as expressed in the Act and is, therefore, unenforceable. In the event that s' clais for indamstification against such li,tbilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by . such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the satter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such t indemnification by it is against public polic/ as expressed in the Act and will be governed by the finai adjudication of such issue. ITEM 12 - TINANCIAI. STATD'ENTS AND EXHI3ITS TII.ED, AND REPORTS ON TORM
$.*.5 (A) Financial statements and exhibits filed as a part of this report:
- 1. Financial Statements:
Report of Independent Public Accountants. Statement of Incona for the five years ended December 31, 1979. Balance Sheet at December 31, 1979 and 1978. Statement of Capitalization at December 31, 1979 and 1978. Statement of Changes in Conanon Stock Investment for the five years ended December 31, 1979. Statement of Sources of Funds for Acquultion of Nuclear Tuel and Construction of Electric Pr.perty for the five years ended December 31, 1979. Schedules: V Electric Property and Nuclear Fuel. VI Accumulated Provision for Depreciatica and Amortization of Electric Plant and Nuclear Tuel. All other schedules are omitted as the required information is inapplicable or the information is presented in the Financial Statements or related notes.
- 2. Exhibits - None (B) No reports on Torms 8-K were filed during the last quarter of 1979.
69
Maine Tankee Atesic Power Ccapany Torm 10-K-1979 REPCRT CT INDEPEEENT Pt:BLIC ACCCtNTANTS To Maine Tankee Atomic Power Company: We have examined the balance sheet and statement of capitalization of Maine Tankee Atomic Power Company (a Maine corporation) as of Deces-ber 31, 1979, and 1978, and the related statements of income, changes in common stock investment and sources of funds for acquisition of nuclear fuel and construction of electric property for the years then ended, and the supporting schedules as listed on the accompanying index. .Our exaa-inations were made in accordance with generally accepted auditing stan-dards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of Maine Tankee Atomic Power Company as of December 31, 1979, and 1978, and the results of its operations and its sources of funds for acquisition of nuclear fuel and construction of electric property for the years then ended, and the supporting schedules present fairly the information required to be set forth therein, all in conformity with generally accepted accounting principles applied on a consistent basis. ARTHUR ANDERSEN & CO. Boston, Massachusetts, February 6,1930. l 70 l l l
MaLne Yankee Atomic Power Company Tore 10-K-1979 Maine Tankee Ateste Power Company STATEMENT OF INCOME Tor the Tive Years Ended December 31, 1979 (Dollars in Thousands escept Per Share Amounts) Year Ended December 31, 1979 1975 1977 1976 1975 Electric Operating Revenues $68,367 $70,373 $65,659 $58,860 $61,731 Operating Expenses Tual (Notes 1 and 11) 15,319 17,411 14,863 11,686 14,538 operation . 14,193 10,684 8,394 6,884 7,230 Maintenance (Note 1) 2,544 4,496 3,556 1,433 1,917 Depreciation and Amortization (Notes 1 , and 11) 8,279 8,173 8,087 S,029 7,736 Taxes Tederal and State Income (Note 2) 7,864 8,703 9,058 8,578 S.192 Local Property 3,750 4,094 4,222 3,800 2,839 Total Operating Expenses 51,949 53,561 48,150 40,410 42,452 Cperating Income 16,918 16,812 17,.79 18,450 19,279 Other Income (Erpenses) Allowance for Other Tunds Used-Tor Nuclear Tuel (Note 1) 1,547 1,341 1,047 1,136 S44 l During Construction t (Note 1) 76 50 50 31 114 j Other (168) (63' (31) (15) (33) Income Before Interest Charges 18,373 18.14C 18,545 19,602 20,204 Interest Charges Long-Ters Debt (Notes 4 and 5) 13,307 11,534 11,502 11,616 12.527 l Other 150 (8) 23 781 441 { Allowance for Borrowed l Funds Used - l Tor Nuclear Tuel i (Note 1) (2,602) (1,023) (674) (561) (378) During Construction (Note 1) (133) (90) (90) (59) (193) 10,722 10,413 10,761 11,777 12.397 Net Income 7,651 7,727 7,784 7,825 7,807 Dividends on Preferred . Stock 1,001 1,025 1,083 1,122 1,122 Earnings Applicable to Common Stock $ 6,650 $ 6,702 $ 6,701 $ 6,703 $ 6,685 Shares of Common Stock Outstanding 500,000 500,000 500,000 500,000 500,000 Earnings per Share of Common Stock $13.300 $13.404 $13.402 $13.406 $13.370 Dividends Declared per Share of. Common Stock $13.250 $13.400 $13.404 $13.405 $13.380 The accompanying notes are an integral part of these financial statements 71
Maine Tankee Atomic Power Company Tors 10-K-1979 Maine Yankee Atomic Power Corgany BAIANCE SHEET December 31, 1979 and 1978 (Dollars in Thousands) ASSETS December 31, 1979 1973 Electric Property, at Original Cost (Notes 4 & 11) (Sch. V) $240,061 $237,884 Less: Accumulated Depreciation (Notes 1 & 11) 54,105 46,448 (Sch. VI)
- 185,956 191,436 Construction Work in Progress 8,951 3,275 Net Electric Property 194,907 194,711 Nuclear Tuel, at Original Cost (Notes 1 & 11)
(Sch. V) . Nuclear Puel in Reactor 52,564 52,564 Nuclear Tuel-Spent 42,557 42,557 Nuclear Tuel-Stoci 35,6), 4,924 130,800 100,045 Less: Accumulated Amortization (Note 1) (Sch. VI) 91,844 76,525
. 38,956 23,520 l
Nuclear Tuel in Process 40,394 35,905 Net Nuclear Tuel 79,350 59,e25 Net Electric Property and Nuclear Tuel 274,257 254,136 Current Asseta Cash (Note 3) 139 25 0 Accounts Receivable 6,474 6,788 Materials and Supplies, at Average Cost 3,503 2,859 Prepayments 949 1,127 Total Current Assets 11,065 11,024 Deferred Charges and Other Assets 1,783 795
$287,105 $265,955 + The accompanying notes are an integral part of these financial statements.
I t 72 1 l
Maine Yankee Atomic Power Company Torm 10-K-1979 Maine Yankee Atomic Power Company BAIANCE $1(EET December 31, 1979 and 1978 (Dollars in Thousands) STOCIHOLDERS' IN' <STMEY. T AND LIABILITIES December 31, 1979 1978 Capitalization (See Separate Statement) Common Stock Investment $ 66,357 $ 66,784 Redeemable Preferred Stock 13,070 13,696 Long-Tern Debt 105,923 111,168 Notes Payable to .WA Tuel Company 33,450 17,650 Total Capitalization 219,300 209,298 Current Liabilities Notes Payable to Banks (Note 3) 3,9 25 - Current Sinking Fund Requirements (Note 4) 1,822 1,414 Accounts Payable 3,412 3.758 Dividends Paysble 1,919 1,956 Accrued Interest and Taxes 2,739 2,893 Other Current Liabilities 47 43 Total Current Liabilities 13,864 10,064 Deferred Credits Accumu1*ated Deferred Incese Taxes and Unamortized Investment Tax Credits, Net (Note 2) 52,570 45,652 Unamortized Gains on Reacquired Debt (Note 1) 1,371 941 Total Deferred Credits 53,941 46,593 Commitments and Cantingencies (Note 8)
$287,105 $265,955 The accespanying notes are an integral part of these financial statements.
l ' 73 { l l
Maine Yankee Atomic Power Ccepany Toen 10-K-1979 Maine Yankee Atesic Power Comeany STATEMLYT OF CAPITALI2ATICN December 31, 1979 and 1978 (Dollars La Thousands) December 31, 1979 1978 Common Stock Investment Common Stock, $100 Par Value Authorized and outstanding 500,000 Shares $ 50,000 $ 50,000 Other Paid-in Capital 16,805 16,805 Capital Stock Expense . (281) (303) Cain on Cancellation of Preferred Stock 110 75 Premiums on Preferred Stock - 196 205 Retained Earnings 27 2 66,857 66,784 3 Redeemable Preferred Stock - 7.48% Series,
$100 Par Value Authorized 170,000 Shares, Outstanding 130,700 at December 31, 1979 and 136,960 at December 31, 1973 (Note 6) 13,070 13.696 Long-Tern Debt (Note 4)
Tirst and General Mortgage Bonds Series A - 9.10 % due May 1, 2002 58,161 60,575 Series B - S 1/2% due May 1, 2002 38,911 40,075 Series C - 7 5/8% due May 1, 2002 10,842 12,114 Less: Current Sinking Tund Requirements (1,822) (1,414) Unamortized Cebt Discount, Net of Premium (169) (182) 105,923 111,168 Notes Payable to NYA Tuel Company (Note 5) 33,450 17,650 Total Capitalization $219,300 $209,298 The accompanying notes are an integral part of these financial statements. l l l 74 i
Maine Yankee Atomic Power Company Torm 10 K-1979 t Maine Yankee Atemic Power Company STATE.TTT OF CHANGES IN COMMON STOCK IETSTMENT Tor the Tive Years Ended December 31, 1979 (Dollars in Thousands) Amount at Other Paid Retained Shares Psr value in Capital Ea rnines Total Balance December 31, 1974 500,000 $50,000 $16,653 $ 5 $66,658 Add (Deduct) Net Income - - - 7,808 7,808 Cash Dividends Declared on - Common Stock - - - (6,690) (6,690) Preferred Stock . - - - (1,122) (1,122) Capital Stock Expense - - 14 - 14 Balance December 31, 1975
- 500,000 50,000 16,o67 1 66,604 Add (Deduct)
Net Income - - - 7,325 7,$25 Cash Dividends Declared on - Common Stock - - - (6,703) (6,703) Preferred Stock - - - (1,122) (1,122) Capital Stock Ernense - - 14 - 14 Balance December 31 is76 500,000 50,000 16,681 1 66,682 Add (Deduct) Net Income - - - 7,784 7,784 Cash Dividends Declared on - Common Stock - - - (6,702) (6,702) Preferred Stock - - - (1,083) (1,083) Redemption of Preferred Stock - - 75 - 75 Capital Stock Expense - - 13 - 13 Balance December 31, 1977 500,000 50,000 16,769 - 66,769 Add (Deduct) Net Income - - - 7,727 7,727 Cash Dividsads Declared . ' - Common Sto,? - - - (6.700) (6,700) Preferred Stock - - - (1,025 ) (1,0 25 ) Capital Stock Expense - - 13 - 13 Balance December 31, 1978 500,000 50,000 16,782 2 66,78. Add (Deduct) Net Income - - - 7,651 7,651 Cash Dividends Declared on - Common Stock - - - (6,625 ) (6,625) Preferred Stock - - - (1,001) (1,001) R-demption of Preferred Stock - - 35 - 35 Capital Stock Expense - - 13 - 13 Balance December 31, 1979 500,000 $50,000 51o.330 $ 27 $6o,857 The acrospanying notes are an integral part of these financial statements. 75
Maine Yankee Atomic Power Company Tors 10-E-1979 Maine Tankee Atomic Power Company STATEMENT CT SCURCIS OF TUNDS TOR ACCUISITICN CT NUCLEAR TLT1 AND CONSTRUCTICN OF ELICTRIC PROPERTT (Dollars in Thousands) 1979 1978 1977 1976 1975 Tunds Provided Internal Sources From operations Net Income $ 7,651 $ 7,727 5 7,784 $ 7,825 $ 7,807 Amortization of Nuclear Tuel 15,319 17,411 14,863 13,240 15,029 Tuel settlement credit - - - (1,554) (491) Depreciation and Amortization 8,279 8,173 8,087 8,029 7,736-Deferred Income Tax and Investment Tax credits, Net 6,918 7,583 8,868 8,413 8,192 Allowance for Other Tunds Used for Nuclear
~
Tuel and During Cons truction (1,623) (1,391) (1,097) (1,167) (958) 36,544 39.503 38,505 34,786 37,315 Less: Sinking Tund Requirements: Long-Ters Debt 4,850 5,555 5.626 4,483 4,172 Preferred Stock 626 - 1,304 - - Dividends on Preferred Stock 1,001 1,025 1,083 1,122 1,122 Dividends on Common Stock 6,625 6,700 6,702 6,703 6,690 Other, Net 505 46 (139) (1,208) (463) 22,937 26,177 23,929 23,o86 25,794 (Increase) Decrease in
'dorking Capital, Exclusive of Notes Payable to Banks and Sinking Fund Require-ments Cash and Receivables 4 25 (616) (1,054) 1,519 994 Other Current Assets (466) (66) (587) (598) (618)
Other Current Liabilities (533) (7,776) 12,075 (4,354) (6,173) (574) (S,458) 10,434 (3,433) (5,802) Net Available from Internal Sources 22,363 17,719 34,363 20,253 19,992 External Sources Increase (Decrease) in Notes Payable to MTA Tuel Company 15,800 8,750 (11,950) 20,850 - Increase (Decrease) in Notes Payable to Sanks 3,925 - (2C0) (5,700) (3,100) Series A Debentures - - - (15,000) - Net Available free External Sources 19,725 8,750 (12,150) 150 (3,100)
$42,088 $26,469 $ 22,213 $20,403 $16,892 Tunds Used for Acquisition of Nuclear Tuel and Construction of Electric Property Acquisition of Nuclear Tuel $35,244 $25,732 $20,968 $19.543 $12,786 Allowance for Cther Tunds Used for Nuclear Tuel (1,547) (1,341) (1,047) (1,136) (844)
Construction of Electric Property 8,467 2,123 2,342 2,027 5.064 Allowance for Other Funds Csed During Construction. (76) (50) (50) (31) (114)
$42,088 $26,469 522,213 $20,103 $16,392 The accompanying notes are an integral part of these financial statements. l 76
)
1 1 1
Maine Tankee Atcaic Power Cespany Tors 10-K-1979 Maine Yankee Atemic Power Company NOTES TO TINANCIAL STATEMENTS
- 1. SLW.ARY OT SIGNITICAh7 ACCCCNTING POLICIES The Company: The Company owns and operates a pressurized-water nuclear-powered electric generating plant with a current net capac-ity of approximately 830 messwatts electric. The plant commenced commercial operation on January 1,1973. The following New England electric utilities own all of the Cospany's common stock:
Ownership Sponsor / Participant Interest Central Maine Power Compa'yn 38% New England Power Company 20 The Connecticut Light and Power Ccapacy S Bangor Hydro-Electric Company 7 Maine Public Service Company 5 Public Service Company of New Hampshire 5 Cambridge Electric Light Company 4 Montaup Electric Company 4 The Hartford Electric Light Company 4 Vestern Massachusetts Electric Company 3 Central Vermont Public Service Corporation j Total 100% Tor a period of thirty years, commencing on January 1, 1973, in accordance with the Power Contracts, each participant shall receive its entitlement percentage of plant output and is obligated to pay its entitlement percentage of the Company's total costs, including a return on invested capital regardless of the level of operation of the plant. Retulation: The Company is subject to the regulatory authority of the Tedaral Energy Regulatory Commission (TERC), the Nuclear Rege-latory Cennission (NRC) and the Public Utilities Commission of the State of Maine (PUC) as to accounting, operations and other satters. Depreciation and Maintenance: Depreciation is provided using a re-maining life method designed to fully depreciate electric plant on a straight-line basis over the period ending May 1, 2002. Because of econcaic and regulatory uncertainties, the Company does not presently provide for nuclear plant decommissioning costs. The Company is currently studying the many alternative methods of decem-missicning and the various funding options but cannot now predict what method of decommissioning will be adopted or its cost, which could be significant using present technology. Minor renewals and betterzents are charged to maintenance expense unless the ites constitutes a retirement unit, in which case the new unit is charged to electric plant. At the time depreciable preper-ties are retired, the original cost, plus cost of removal, less sal-vage, of such property is charged to the accumulated provision for 1 depreciation. ) 77 1 l i i I
l aine
. Yankee Atomic Power Company Form 10-K-1979 Matee Yankee Atomic Power Company l
NOTES TO FINANCIAL STATE m*IS
- 1. SU* MARY CT SIGNITICANT ACCCUNTING POLICIIS (continued)
Amortization of Nuclear Tuel The cost of nuclear fuel in the reactor, plus the estimated cost of disposition of that nuclear fuel, is amortized to fuel expense based on the ratio of energy produced during the period to the estimated total core capability with a corresponding credit to Accumulated Amortization. Prior to June 10, 1977, the Company's estimated cost of disposition of nuclear fuel was based on estimates of the cost of reprocessing, less salvage. Through May 1976, nuclear fuel salvage values and reprocessing costs were based on the estimated market values and costs of reprocessing at the time that the fuel was expected to be removed free the reactor. From June 1,1976 through June 9,1977, nuclear fuel salvage values and reprocessing costs were based on the estimated market values and reprocessing costs at the time of reprocessing. This modification for estimating the cost of re-processing, net of salvage, had no material effect on the cost of power because the increases in each component were approximately of equal magnitude. As a result of federal energy proposals and other indications of a developing national policy with respect to the disposition of nuclear fuel, the Company changed its estimate of the cost of dis-position of nuclear . fuel. Commencing June 10, 1977, the Company began providing for permanent storage rather than reprocessing of spent fuel. The Company's estimate of the cost of permanent stor-age is based on a study by the NRC. This estimate of cost is sub-ject to a number of uncertainties including the timing of available storage capacity, the extent of future inflation, regulatory require-ments and the cost of future services, all of which may require periodic revisions in future nuclear fuel amortization rates. The original cost of Nuclear Tuel-Spent has been fully amortized. Amounts for the final disposition of fuel have been collected total-Ling $15.401,000 at December 31, 1979 and $11,365,000 at December 31 1973. These amounts are reported under the caption " Accumulated Amo rtization in the attached financial statements. Spent fuel discharged prior to June 10, 1977 has not been revalued to reflect permanent storage. Management will revalue its spent fuel inven-tories beginning in 1980 to reflect an estimate of the cost of permanent disposal. Costs of revaluation will not affect net income of the Company as such costs are recoverable under the terms of the power contracts. Allowance for Funds Used Durine Construction and Allowance for Tunds Used for Nuclear fuel (AFC): The Company records the set cost of borrowed funds and a reasonable return on other funds used to fin-ance construction and nuclear fuel acquisition programs. The amount of the allowance recorded is determined by multiplying the average monthly dollar balance of Construction Work In Progress (CWIP) and Nuclear Tuel In Process and Stock (NTIPS) by rates related to the cost of the capital used to finance the respective additions. The following table contains the weighted average rates used during the most recent five annual periods: 78
~
~
Maine Yankee Atomic Power Company Torm 10-K-1979 Maine Yankee Atoste Power Company NOTES TO FINANCIAL STATEMLNTS
- 1. SQ! MARY OF SIGNITICANT ACC01:NTING PCI.ICIES (continued)
AFC ATC on CWIP on NTIPS 1979 7.68% 7.40% 1978 7.60 7.00 1977 7.87 6.98 1976 8.07 7.21 1975 8.46 7.35 Unamortized Cain or Loss on Reacquired Debt: Gains and losses on bonds reacquired to satisfy singing fund requirements of Tirst Mortgage Bonds have been deferred and are being amortized to incore over the remaining original terms of the applicable series as pre-scribed by the Uniform System of Accounts of the TERC.
- 2. INCOME TAX EXPENSE The components of Tederal and state inecae taxes reflected in the statements of income are as follows:
Year Ended December 31, 1979 1978 1977 1976 1975 (Dollars in Thousands) Federal: Current S 602 $ 625 $ 134 $ - Deferred and Investment Tax Credits, Net 6,076 6,831 7,594 7,410 7,042 6,673 7,456 7,728 7,410 7,042 i State: Current 344 495 56 165 - Deferred 842 752 1,274 1,003 1,150 1,186 1,247 1,330 1,168 1,150 Total Federal and State Income Taxes $7,364 $8,703 $9,058 $8,578 38,192 The Company provides deferred taxes for the tax effects of timing differences between pre-tax accounting income and taxable income. Prior to 1975 the Company did not provide fully for the tax effect of timing differences and beginning in 1976 is providing additional deferred taxes to recognize the tax effect of these differences. These additional deferred taxes are recoverable under the terms of the power contracts described in Note 1. The table below reconciles a provision calculated by multiplying income before Federal income taxes by the statutory Tederal income tax rate to the above provision for Tederal income taxes: 79
m Maine Tankee Atcaic Power Ccspany Form 10-K-1979 Maine Yankee Atomic Power Company NOTES To FINANCIAI. STATDfENTS
- 2. INCCtfE TAX EXPENSE (continued)
(Dollars in Thousands) 1979 1978 1977 1976 1975 Amount i Amount i Amount i Amount i Amount i Federal income tax provision at statutory rate $6,591 46.0% $7,288 48.0% $7,446 48.0% $7,313 48.0% $7,123 48.0% (Jacrease) Reductions to axes resdting from: Deferred taxes not }tovided on cettain timing dif-ferences 411 2.9 429 2.8 429 2.7 143 .9 - - Amortization of invest-sent tax . credit (678) (4.7) (573) (3.8) (456) (2.9) (331) (2.2) (293) (2.0) Other 354 2.4 312 2.1 309 2.0 2S5 1.9 207 1.4 Federal income tax provisions $6,678 f.6.6% $7,456 49.1% $7,728 49.8% $7.410 48.6% $7,042 M% Investment tax credits are deferred and amortized over the life of the assets giving rise to the credits. At December 31, 1979, the Company had available approximately $5,800,000 of investment tax credits which may be used to reduce Federal iccome taxes which would otherwise be payable. Available net operating loss and investment tax credit carryforwards have been utilized to the extent possible to eliminate current taxes payable in each period. The Company has provided for, and deducted for tax purposes, certain costs associated with nuclear fuel reprocessing and storage. In the examination of the Company's Federal income tax returns for years 1973 through 1977, the Internal Revenue Service (" IRS") has disallow-ed the current deduction of these ' sts. If the IRS prevails, the
- Company will be required to fully 'i;ize the 55,800,000 of invest-ment tax credit available as of Dect or 31, 1979 and to pay Federal and state income taxes of approximately $1,375,000 to meet the cumu-lative income tax assessments through 1979. However, these assess-ments will have no effect on incese tax expense because the Company provides income taxes for the effects of all timing differences.
- 3. NOTES PAYABI.E TO BANKS The Company had lines of credit at the periods ended December 31, 1979 and 1973 totaling $14,000,000. With respect to $13,000,000 of 80 i
l
Maine Tankee Atomic Power Ccapany Torm 10-K-1979 Maine Yankee Atomic Power Comoany NOTES TO TINANCIAL STATEMENTS
~
- 3. NOTES PATABLE TO BANES (continued) the line, the compensating balance requirement is 15% of average outstanding borrowings. The compensating balance requirement for the remaining $1,000,000 is 10% of the line or 20% of outstanding borrowings, whichever is greater. Certain information related to these lines is as follows for the years ended December 31:
1979 1978 (Dollars in Thousands) Total lines of credit $14,000 $14,000 Borrowings outstanding 3,925 - Aveu ge daily outstanding borrowings 1,148 97 Highest level of borrowings 9. .JO 3,900 Annual interest rate at year end 15.25 % Average annual interest rate 15.40% 7.79% 4 FIRST MORTGACE BONDS The annual sinking fund requirements of the First Mortgage Bonds currently outstanding amount to $4,775,000 for each of the years 1980 through 1984. Bonds repurchased amounted to $3,436,000 at Decenter 31, 1979 and $3,361,000 at December 31, 1978. Under the terms of the Indenture securing the First Mortgage Bonds, substantially all electric plant of the Company is subject to a first mortgage lien.
- 5. MYA TUEL CCMPANT on August 26, 1976, the Company entered into a Loan Agreement cov-ering the issuance of up to $35,000,000 principal amount of promis-sory notes to MYA Tuel Company, a subsidiary of BSC Holdings, Inc.
BSC is owned by a partnership composed of partners of Goldman, Sachs & Co. Certain information related to this loan arrangement is as follows for the years ended December 31,: 1979 1978 (Dollars in Thousands) Promissory notes outstanding $33,450 $17,650 Average daily outstanding borrowings 28,252 16,002 Highest level of borrowings 34,250 25,100 Annual interest rate at year end 14.18% 10.61% Effectiva average annual interest rate 13.33% 10.11% The Loan Agreement provides that, in the absence of an Event of Default (as defined) or occurrence of a Terminating Event (as defined) the arrangement will extend to May 1, 2002, unless terminated by either party upon proper notice. The Company must provide 90 days written notice while MYA Tuel Company must give at least three years written notice. In order for the arrangement to extend beyond August 26, 1981, the PUC must extend its present approval of the arrangement. i 81 l
Maine Yankee Atomic Power Company Form 10-K-1979 Maine Yankee Atoeie Power Coepany NOTES TO TINANCIAL STATEMENTS t
- 6. RECEEMABLE PRITERKID STOCK The Company say redeem, in whole or in part, any of the 7.48*. Series Preferred Stock upon not less than thirty nor more than fif ty days' notice at $107.11 per share on or before December 31, 1982, and at amounts decreasing to $100.00 thereafter; in each case plus accrued dividends.
Beginning in 1978, 6,000 shares must be redecaed and cancelled annually, at par, and at the election of the Company an additional 6,000 shares may be redeemed and cancelled, at par, on each redeep-tion date. The optional provision is not cumulative. Preferred Stock repurchased and not cancelled amounted to 7,3C0 shares at December 31, 1979 and 7,040 shares at December 31, 1978.
- 7. RETIREMENT INCOME PLAN The Company has a noncentributory retirement income plan which covers substantially all full-time esployees. The Company's policy is to fund pension costs accrued, including amounts sufficient to amortize unfunded prior service costs of $155,598 as of December 1, 1978 over 30 years.
The Plan expense approximated $182,000 for the year 1979, $130,000 for the year 1978, $121,000 for the year 1977, $36,000 for the yetr 1976 and $72,000 for the year 1975. As of December 1, 1978, the date of the last actuarial review, the market value of the assets exceeded the actuarially computed value of vested benefits by
$532,092.
- 8. COMMITMENTS AND CONTINGENCIES c, Nuclear Fuel The Company anticipates nuclear fuel expenditures of $26,749,000 for 1980 (exclusive of AFC) and 585,144,000 for the period 1981 through 1984 (exclusive of AFC).
The Company has contracted for the purchase of all of its uranium concentrate requirements through 1983. In addition the Company has a contract with a uranium supplier for the purchase of up to 1.3 million pounds of uranium concentrates. Deliveries of these concentrates are scheduled to begin in 1981 and end in 1992, but delivery is contingent upon the comercial operation of a processing facility which is currently under construction. The Company, has not included fuel expenditures or deliveries for this contract in . the inforsation presented above. The impact on expenditures for l the 1981 through 1984 period could amount to $25,422,000 and the l uranium concentrate requirements would be fulfilled through 1986 if l contracted deliveries are fulfilled. The Company has conversion contracts through 1983 and has a contract with the Department of Enerry for enrichment services through 2002. Its fabricatios requirements are covered through 1983, with a cur-rent conteset option for two additional years. It has no contrac- . tual arrangements for reprocessing or permanent storage of spent l l s2 )
Maine Yankee Atomic Power Ccmpany Tors 10-K-1979 Maine Yankee A g e, power cosoinv , NOTES TO FINANCIAL STATE. TITS
- 8. COMt.ITEVTS AND CCNTINGENCIES (continued) fuel. The Company is expanding its on-site spent fuel storage facility to provide capacity to store such fuel through 1983 while maintaining a full core discharge capability. In addition, in September 1979 the Company filed with the NRC a proposed change in its operating license relating to increasing its existing spent fuel storage capacity by providing more compact fuel storage. An inter-venor has requested a hearing, which the Company expects will be held af ter the first quarter of 1980. The company cannot predict the scope of that proceeding, its duration or its outcome. If the proposed change is not approved, the Company will have to develop alternative plans which would involve further approval by the NRC.
Construction The Company anticipates construction erpenditures to amount to
$13,000,000 for 1980 including $3,000,00J towards a $6,300,000 con-tract commitment for the purchase of a spare turbine rotor.
Price-Anderson The 1975 amendments to the Pei;e-Anderson Act changed the public liability insurance requirements for the nuclear industry. Since August 1, 1977, each reactor licensee is required to carry $160 mil-lion of primary public liability insurance, supple:sented by a . mandatory industry-wide program of self insurance. Under the pro-gram, in the event of a nuclear incident at any operating reactor in the United States, each licensee could be assessed up to $5 mil-lion with a limit of two assessments per resctor owned per calendar year in the event of more than one incident. Three Mile Island The events during the spring of 1979 at the Three Mile Island Nuclear Unit No. 2 in Pennsylvania ("TMI") resulted in damage to the TMI plant and release of radioactivity into the environ-ment and caused widespread concern about the safety of nuclear generating plants. The incident also prompted a rigorous reexamination of safety-related equipment and operating procedures in all nuclear facilities by their owners and the NRC. The commission formed by President Carter to investigate and report on the causes of the TMI incident issued its report on October 30, 1979, recomeending a number of changes in NRC organization and practices, . licensing of nuclear plants, plant operating practices, operator training and other safety-related matters and on Jacuary 13, 1980, an NRC-commissioned report containing similar recommendations was released. As a re-sult, the NRC has promulgated numerous requirements, including both near-term modifications and longer-ters design changes. The Company has made the modifications required to date by the NRC, but cannot predict what further modifications will be required, their cost, or their effect on the operation of the Maine Yankee plant.
- 9. ANTI-NUCLEAR PETITION DRIVE A petition calling for termination if the production of electricity by nuclear fission due to alleged safety and economic reasons, and l
1 83 l l
Maine Yankee Atomic Power Company Fors 10-K-1979 Maine Yankee Atomic Power Compan'v NOTES TO TINA!.CIAL STATEMENTS
- 9. ANTI-NUCLEAR PETITICN DRIVE (continued) the consequent shutdown of the Ccepany's nuclear plant, was circu-lated by certain groups in Maine. The petition was signed by more than the required number of voters and was presented to the Maine Legislature in February, 1980. Under Maine law, the Legislature must enact the proposed legislation at its 1980 session or refer it to a vote of the electorate. The Company is presently unable to predict the ultimate resolution of the petition drive, including the result or validity of any legislative action or referendum vote, which would be held in the late summer or fall of 1980 pursuant to a gubernatorial proclamation after adjournment of the Legislature.
The Company believes that the Maine Yankee plant is both a safe and the most economical source of base load electric power, and intends to take all reasonable steps necessary to provide for its continued operation of the plant.
- 10. UNAUDITED QUARTERLY TINANCIAL DATA Unaudited quarterly financial data pertaining to the results of operations is shown below:
1979 Quarter Ended Mar. *,1 June 30 Sept. 30 Dec. 31 (Dollars in Thousands Except Per Share Amounts) Electric Operating Revenues $16,592 $15,324 $17,686 $19,265 Operating Income 4.334 4,234 4,145 4,204 Net Income 1,933 1,929 1,876 1,912 Earnings Per Share of Common Stock _ 3.35 3.35 3.26 3.34 n 1978 Quarter Ended Mar. 31 June 30 Sect. 30 Dec. 31 (Dollars in Thousands Except Fer Share Amounts) Electric Operating Revenues $17,082 $17,179 $17,160 $18,952 Operating Income 4,219 4,052 4,148 4,393 Net Income 1,932 1,930 1,931 1,934 Earnings Per Share of Common Stock 3.35 3.35 3.35 3.35
- 11. SUPPLEMENTARY DTOR".ATICN TO DISCLOSE ~1fE ETIECTS OF CHANGING PRICES (UNAUDITED)
The following supplementary information is supplied in accordance with the requirements of the Statement of Financial Accounting Stan-dards No. 33 for the purpose of providing certain information about the effect of 7 - .ng prices. It should be viewed as an estimate of the approxiate effect of inflation, rather than as a precise measure. Constant dallar-amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumer 34 I 1
Maine Yankee Atcaic Power Company Form 10-K-1979 Maine Yankee Atomic Power comoant NOTES TO TINANCIAI. STAITTTS
- 11. SUPPI.EMENTARY INTCRMATION TO DISCI.CSE THE ETTECTS CT CHANGING PRICES (UNAUDITED) (continued)
Price Index for All Urban Consumers (CPI-U). Current cost amounts reflect the changes in specific prices of pl nt from the date the plant was acquired to the present, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than the general rate of inflation. The current cost of nuclear generating plant is estimated based on an engineering study of the current cost (per megawatt) of replacing the present generating plant. Nuclear fuel used in generation has been restated from historical cost using current market prices of uranius, ccaversion, enrich-set.t and fabrication. Nuclear fuel expense wss developed by divid-ing the estimated current cf e.t of the in-reactor fuel by the expected generation of the cor~ times the actual generation produced during the year 1979. Depreciation expense for the current cost of productive capacity was developed by applying the depreciable rate to the current cost value adjusted by the ratio of average historical cost to year-end historical cost. Since only historical costs are deductible for income tax purposes, the income tax expense in the historical cost financial statements is not adjusted. Under the rate-making practices prescribed by the regulatory com-missions to which the Company is subject, only the depreciation of historical cost of utility property is included in the cost of ser-vice used to establish the Company's rates. Therefore, the esst of g plant and nuclear fuel stated in terms of constant dollars or cur-rent cost that exceeds the historical cost of plant is not presently recoverable in rates, and is reflected as a reduction to net recov-etable costs. Wile the rate-making process gives no recognition to the current cost of replacing property, plant and equipment, based on past practices the Company believes it will be allowed to earn ca and recover the increased cost of its cet investment when replace-ment of facilities actually occurs. To properly reflect the economics of rate regulation in the State-ment of Income frea Operations Adjusted for Changing Prices, the reduction of utility plant and nuclear fuel to net recoverable cost should be offset by the gain from the decline in purchasing power of net amounts owed as shown below. During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain frem the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant, equipment and nuclear fuel. Since the depreciation on utility plant and amortization of nuclear I fuel is limited to amounts based on historical costs, the Company 35
daine Yankee Atomic Power Ceepany Form 10-K-1979 Maine Yankee Atomic Power Coe9anv. NOTES To FINANCIAL STATE.ENTS
- 11. SUPPIIMENTARY INTCR.w.ATION TO DISCLCSE THE ETTECTS OF CHANGING PRICIS (UNAUDITED) (continued) does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital.
Statement of Income and Operations Adjusted for Changing Prices for the Year Ended December 31, 1979 (Collars in Thousands) Cons tant Current Dollar Dollar Conventional Average Average Historical 1979 1979 Cost Dollars Dollars Operating Revenues $68,867 $68,867 3 68.867 Operation & Maintenance 16,737 16,737 16,737 Tuel Expense 15,319 18,147 28,518 Depreciation & Amortization 8,279 13,692 26,299 Taxes 11,614 11,614 11,614 Interest Charges 10,722 10,722 10,722 Other, Net (1,455) (1,455) (1,455) Income (Loss) from i Operations (excluding reduction to net recoverable amount) $ 7,651 $ (590) $(23,568) Increase in specific prices (current cost) of plant and Nuclear Tuel held dur-ing the year * $ $ 92,831 Reduction *,o net recov-erable .wount (24,833) (11,875) Effect af increase in general price level (32,811) Net (1,855) Gain free decline in pur-caasing power of cet amounts owed 24,666 24.666
$ (167) $ 22,811
*At December 31, 1979 current cost of Plant and Nuclear Tuel, net of accumulated dapreciation and amortization was $704,512, while histori-cal costs or net cost recoverable through rates was $274,257.
l 36 G
Maine Tankee Atomic Power Company Tore 10-K-1979 Maine Yankee Atomic Power comoany NOTES TO TINANCIAL STATEMENTS
- 11. SUPPLEMENTARY IhTCRF.ATION TO DISCLCSE THE EITECTS CT CHANGING PRICES (CNAtDITED) (continued)
Five Year Comparison of Selected Supplementary Tinaneral Data Adjusted for Effects of Changing Prices (Dollars in Thousands, Average 1979 Dollars) Years Ended December 31, 1979 1978 1977 1970 1975 Operating Revenues $68,867 $78,296 $78,646 $75,051 $83,253 Historical Cost Information Adjusted for General Inflation Loss from operations excluding reduction to net recoverable amount $ (590) Loss from operations per common share (after preferred dividend requirement) $ (3.18) Current' Cost Information Loss from operations excluding reduction to net recoverable amount $(23,568) Loss froa operations per common share (after preferred dividend requirement) $(49.14) Excess of increase in general price level over increase in specific prices after reduction to net re-coverable amount $(1,355) General Information Net assets at year end at recoverable amount $ 63,222 Cain from decline in purchasing power of net amounts owed 924,666 Cash dividends per conson share $13.250 $14.909 $16.055 $17.092 $18.045 Average Consumer Price Index 217.4 195.4 181.5 170.5 161.2 37 i I l
Maine Yankee Atomic Power Ccepany Torm 10-K-1979 Schedule V Maine Yankee Ateele Pever Ceepany EUCTRIC PROPERTT AND NUC1. EAR TLT.L Tor The Year Ended December 31, 1979 (Dollars in Thousands) Balance at Balance Beginning Additions Retirements Transfers and at End of Period at Cost or Sales other Chartes of Period Electric Property Organization $ 7 $ - $- $
$ I Miscellaneous Intangible Plant - 601 - - 601 Land and land rights 522 - - - 522 Structures and improvements 56,025 1,505 3 -
57.527 Reactor plant equipment 101.189 280 1
- 101,468 Turbogenerator units 57,605 - 608 - 56,997 Accessory electric equipment 14,498 - - - 14,498 l
I Miscellaneous l power plant equip. 4,725 405 2 - 5,128 ! Substation equip. 3,239 - - - 3,239 Miscellaneous electric property 74 - - - 74 Unfinished construction 3,275 5,676 __
- 8,951 Total Electric Property $241.159 $ 8,467 $614 $ - $249,012 Nuclear Fuel Nuclear tuel in reactor S 52,564 $ -
3- 3 - $ 52,564 Nuclear fuel in process 35,905 35,167 - (30,678) 40,394 Nuclear fuel - spent 42,557 - - - 42,557 Nuclear fuel - stock 4,924 77 _, 30,678 35,679
$135,950 $35,244 $_, 3 - $171,194
( 88 y
Maine Yankee Atemic Power Company Tors 10-K-1979 Schedule V (continued) Maine Yankee Ateetc Power Company EII.CTRIC PROPERTY AND NUCLEAR TLTL Tor The Year Ended December 31, 1978 (Dollars in Thousands) Balance at Balance Beginning Additions Retirements Transfers and at End of Period at Cost or Sales other Charaes of Period Electric Property organization $ 7 $ -
$- 3
- S 7 Land and land rights 522 - - - 522 Structures and improvements 55,861 166 2 - 56,025 Reactor plant equipment 101,084 126 21 - 101,139 Turbogenerator units 56,658 947 - - 57,605 Accessory electric equipment - 14,477 21 - - 14,498 Miscellaneous power plant equip. 4,607 130 12 - 4,725 Substation equip. 3,229 - - - 3,239 Miscellaneous electric property 74 - - - 74 Unfinished construction 2,537 738 - - 3,275 Total Electric Property $239,066 $ 2,128 $3 $ - $241,159 Nuclear Fuel Nuclear fuel in reactor 5 39,812 3 -
$- $ 12.752 $ 52,564 Nuclear fuel in process 33,t40 25,665 - (22,900) 35,905 Nuclear fuel -
i spent 33,202 - - 9.355 42,557 Nuclear fuel - stock 4,065 66 - 793 4,924
$110,219 $25,731 $- 3
- $135,950 89
l, 21aine Yankee Atomic Power Ccapany Tore 10-K-1979 Schedule VI Maine Yankee Atomic Power Company ACCLW LATED PROVISION TOR DEPRICIATION AND AMORTIZATION OF ELECTRIC PLANT AND NUCIlut RIL Tor The Years Ended December 31, (Dollars in Thousands) Additions Balance at Charged Balance Beginning to Costa Other at End 1973 of Period and Expenses Retirements Chantes of Period Electric Property $38,313 $ 8,173 4
$ 34, 3 (4) $46,448 .
Nuclear Tuel $59.114 $17,411 $- $ , $76,525 1979 Electric Property $46,448 $ 8,279 $614 $ (8,) $54,105 Nuclear Tuel $76,525 $15,319 $- $ - $91,S44 See Note 1 of " Notes to Financial Statements" for the Company's depreciation and amortization policies. 90
Maine Yankee Atemic Power Company Tors 10-X-1979 PART II Ites 13 - SEC13ITY CWERSHIP 0F CIRTAIN 3ENEFICIAL CWERS AND MANAGEMENT The following table shows the ownership of the ccepany's 500,000 shares of $100 par value Common Stock, all of which is issued and outstanding and all of which is held of record and beneficially. None is held by management. Amount Percentage Name and Class owned of Class Central Maine Power Company 190,000 shares 38% Edison Drive Augusta, MaLne 04336 .
. New England Power Company 100,000 20 20 Turnpike Road (Route 9)
Westboro, Massachusetts 05181 The Connecticut Light and Power Company 40,000 8 PO Box 2010 Hartford, Connecticut 06101 Bangor Hydro-Electric Company 35,000 7 33 State Street Bangor, Maine 04401 Maine Public Service Company 25,000 5 209 State Street Presque Isle, Maine 04769 Public Service Company of New Hampshire 25,000 5 PO Box 330 Manchester, New Hampshire 03105 Cambridge Electric Light Company 20,000 4 675 Massachusetts Avenue Cambridge, Massachusetts 02139 Montaup Electric Company 20,000 4 PO Box 2333 Boston, Massachusetts 02107 The Hartford Electric Light Company 20,000 4 PO Box 2370 Hartford, Connecticut 06101 Western Massachusetts Electric Company 15,000 3 174 Brush Hill Avenue ! West Springfield, Massachusetts 01089 Central Versent Public Service Corporation 10,000 2 77 Grove Street Rutland, Vermont 05701 __- 500,000 shares 10g% 91
Maine Tankee Atomic Power Company Tors 10-K-1979 ITEM 14 - DIRECTORS AND EXECLTIVE OTTICIRS 07 THE RIGISTRANT A. Directors The directors of the Company and their principal occupations and all positions and offices with the Company are as follows: Name, Age and Year Tirst Elected Director Principal occupation Elwin V. Thurlow, 56, 1973 President and Chief Executive President and Director officer, Central Maine Power Company Thomes C. Webb, 45, 1977 Senior Vice President, Tinance Vice President and Director Central Maine Power Company Charles E. Monty, 53, 1971 Senior Vice President Engineering Vice President and Director and Production, Central Maine Tower Company John B. Randazza, 51, 1975 Vice President, Central Maine Vice President and Director Power Company Joan T. Bok, 50, 1977 Vice Chairman, New England Electric Director System Villiam T. Burt. 54, 1978 Assistant to the President, New Director England Gas and Electric Association Ralph A. Brown, 62, 1968 President and Chief Executive Officer, Director Maine Public Service Cespany John T. G. Eichorn, Jr. , 56, President, Eastern Utilities 1971, Director Associates utiliam B. Ellis, 39, 1976 President, Northeast Utilities Director Thomas A. Greenquist, 51, 1973 President, Sangor Hydro-Electric Director Company James E. Griffin, 52, 1973 President and Chief Executive Director Officer, Central Vermont Public Service Corporation Carrol R. Lee, 30, 1979 Assistant to the President, Director Bangor Hydro-Electric Company Guy V. Nichols, 54, 1978 Chairman, President and Chief Director Executive Officer, New England Electric Systes Robert T. Scott, 50, 1976 Senior Vice President, Customer Director Services and Rates, Central Maine Power Company Donald C. Switzer, 63, 1971 Vice Chairman, Northeast Utilities Director ! Villiam C. Tallman, 59, 1966 President (Chier Executive), Public l Director Service Company of New Hampshire l l l 92 t
Maine Tankee Atomic Power Company Torm 10-K-1979 Each of the Directors, other than Mr. Webb, has fot the past five years been and is now an officer or esplayee of one of the Sponsors or an associate company thereof. Mr. Webb joined Central Maine Power Company as Vice President, Financial and Treasurer in 1977 af ter having served as Treasurer (free 1974) and Assistant Treasurer (1972-1974) of Wisconsin Power and Light Company. Each of the Sponsors is represented on the Company's Board of Directors, but there is no formal understanding with respect to sach representa-tion. The Directors are elected at the annual seeting of stock-holders and hold office until their successors are elected and qualified. B. Executive Officers The following are the executive officers of the Company with all positions and offices held:
- Name Age Office and Year ytrst Elected Elwin W. Thurlow 56 President and Director - 1975 Charles E. Monty 53 Vice President and Director - 1971 John B. Randazza 51 Vice Presideas and Director - 1975 Thomas C. Webb 45 Vice President and Director - 1977 Donald G. Vandenburgh 56 Vice President - 1974 Wendell P. Johnson 57 Vice President - 1972 Richard A. Crabtree 33 Treasurer - 1977 Seward B. Brewster 52 Secretary and clerk - 1963 Each of the executive of ficers other than Mr. Webb, whose business experience is' given under paragraph A above, has for the past five years been and is now an officer or employee of one of the sponsors or an associated company thereof. The executive officers are elect-
. ed annually by the Board of Directors and hold office until their successors are elected and qualified.
There are no family relationships between any director or executive officer nor any arrangements pursaant to which any sere selected as officers or directors. ITDf 15 - MANAGE.wENT REEMRATION AND TRANSACTIONS The Company has paid no remuneration to its officers or directors, but, complying with regulatory requirements, has reimbursed Central Maine Power Company for services rendered by its employees. l During the construction period, no return was paid to Sponsors on the money paid by them for Common Stock, but a return (at the rate of 7% per annum through November 30, 1970 and at the rate of 10% per annus there-after) was charged to plant in a manner stallar to that followed by , utility companies in recording plant construction costs. The amounts f so charged were recorded as paid-in capital. This practice terminated as of December 31, 1972, the last day of the last nooth of the con-l i struction period. These amounts are to be paid to the Sponsors on the I redemption of Commoo Stock. The Company's yirst Mortgage Indenture and l l l 93 l I
Maine Yankee Atomic Power Conpany Torm 10-K-1979 the provisions of its Articles o.' Incorporation relating to its capital stock contain various limitations on redemption. During 1979 and 1978, the Company paid $3,123,255 and $2.462,917, respectively, to Yankee Atomic Electric Company, an associata of sev-eral of the Sponsors, for services at cost of its engineering and nuclear services department. Prior to the execution of the Capital Funds Agreements and Power Contracts, Central Maine Power Company, one of the Sponsors, advanced necessary construction funds to the Company at cost. Subsequent to that time, Central Maine has furnished the Company certain engineering, administrative and legal services, and furnished certain facilities, at cost a04 electric service at its filed rates. During 1979 and 1978, Central Maine vae reimbursed in the amount of $3,090,156 and $1,689,901, respectively, for such services. It is expected that Tankee and Central haine will continue to perform such services for the Company in the future, for which they will be reimbursed by the Company. o SIGNATt:RES Pursuant to the requirements of Section 13 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. MAINE YANIEE ATCMIC PCWER COMPANT March 15, 1980 By /S/ R. A. Crabtree Treasurer By /S/ R. S. Howe Chief Accounting Officer 94 l 1 l
Maine Electric Power Company, Inc. 1979 MAINE EI.ECUIC PCbTR CCtfPANT, INC. Indes to yinancial Statements and Schedules Financial Statseents: Report of Independent Public Accountants. Statement of Income for the five years ended December 21, 1979. Balance Sheet at December 31, 1979 and 1978. Statement of Changes in Common Stock Investment for the five years ended December 31, 1979. Statement of Changes in Financial Position for the five years ended December 31, 1979. Schedules: V Electric Property for the years ended December 31, 1979 and 1978. VI Accumulated Provision for Depreciation of Electric Property for the years ended December 31, 1979 and 1973. All other schedules are omitted as the required it'ormation is inapplic-able or the information is presented in the ti.ancial statements or related notes. 95 l l l
Maine Electric Power Company, Inc. 1979 RIPCRT CF I.%:EPENDM PL'BLIC ACCOMA.NTS To Maine Electric Power Company, Inc.: Ve have emanined the balance sheet of Maine Electric Power Company. Inc. (a Maine corporation) as of December 31, 1979 and 1978, and the related statements of income, changes in conson stock investment and changes in financial position for the years then ended, and the support-ing schedules as listed on the accompanying indes. Our emaninations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing p rocedures as we considered necessary in the circum-stances. In our opinion, the financial statements referred to above present fairly the financial position of Maine Electric Power Company, Inc., as of December 31, 1979, and 1978, and the results of its operations and its changes in financial position for the years then ended, and the supporting schedules present fairly the information required to be set forth therein, all in conformity with generally accepted accounting principles applied on a consistent basis. ARTHt1t ANDERSEN & CD. Boston, Massachusetts, February 6. 1930. 96
I I I Maine Electric Power Company, Inc. 1979 Maine Electric Power Company, Inc., STATEMENT OF INCOME Tor the Tive Years Ended December 31, 1979 (Dollars in Thousands Except per Share knounts) Year Ended December 31, 1979 1978 1977 1976 1975 Electric Operating Revenues $98,122 $59,860 $72,758 $35,144 $16,242 Operating Expenses Purchased Power (Note 1) 95,368 57,181 69,936 32,134 13,327 Operation 206 182 195 192 159 Maintenacce (Note 1) 153 44 45 203 103 Depreciation (Note 1) 735 736 735 735 730
. Taxes Federal and State Income 162 197 221 214 212 (Note 2)
Local Property and Other 217 229 239 258 245 Total operating Expenses 96,341 58,569 71,371 33,736 14,776 Operating Income 1,281 1,291 1,387 1,408 1,466 Other Income and Deductions, Net 112 74 51 23 37 Income Before Interest Charges 1,393 1,365 1,438 1,431 1,503 Interest Charges Long-Term Debt (Note 3) 1,056 1,127 1,192 1,224 1,298 Other IS2 74 73 25 la Total Interest Charges 1,238 _1,201 1,265 1,2a9 1,312 Net Income $ 155 $ 164 $ 173 $ 182 $ 191 i Weighted Average Number of Shares of Common Stock Outstanding 12,923 13,677 14,413 15,149 15,885 Earnings per Share of Common Stock $ 12.00 $ 12.00 $ 12.00 5 12.00 $ 12.00 Dividends Declared per Share of Common Stock $ 12.00 $ 12.00 $ 12.00 $ 12.00 $ 15.10 The accompanying notes are an integral part of these financial statements. 97 l l l
l 1 Maine Electric Power Company, Inc. 1979 Maine Electric Power Company, Inc. BALANCE SHEET (Dollars in Thousands) ASSETS December 31, 1979 1978 ELECTRIC PROPERTY, at Original Cost (Notes 1 and 3) (Sch. V) $18,617 $18,617 Less: Accumulated Depreciation (Nite 1) (Sch. VI) 6,482 5,747 12,135 12,870 CL M ASSETS Cash (Note 4) 129 144 Temporary Investments, at Cost which approximates market value 275 1,600 Accounts Recein ale Associated Companies 1,165 802 Other 8,852 5,145 other Current Assets 154 147 Total Current Assets 10.575 7,838 OETERRED CHARGES 94 104
$22,804 $20,812 STOCKE0 LEERS' INVESTMEh7 AND LIABILITIES CAPITALI2ATION Consson Stock Investment Coannon Stock, $100 Per value, Authorized 20,000 Shares, Outstanding 12,467 in 1979 and 13,248 in 1978 $ 1,247 $ 1,325 Retained Earnings - -
Total Common Stock Investment 1,247 1,325 Series A 9 W Tirst Mortgage Sonds due in Annual Installments through August 1, 1996-Less Sinking Fund Requirements (Note 3) 10,5 t.0 11,220 Total Capitalization 11,807 12,545 l CURRENT LIABILITIES Cur ent Sinking Fund Requirements (Note 3) 660 660 Accounts Payable Associated Companies 90 25 Other 468 - Dividends Payable 37 40 Accrued Purchased Power 7,547 5,494 Accrued Interest and Taxes 466 468 Total Current Liabilities 9,268 6,691 DEFIRRED CREDITS Accumulated Deferred Income Taxes (Note 2) 1,696 1,556 Unamortized Investment Tax Credits (Note 2) 10 10 Unamortized Gain on Reacquired Debt (Note 1) 23 10 Total Deferred Credits 1,729 1,576 COMMITMEhTS AND CONTINGENCIIS (Note 5)
$22,804 $20,312 The accompanying notes are an integral part of these financial statements.
98
Maine Electric Power Company, Inc. 1979 Maine Electric Power Company, Inc. STATEMENT OF CHANGES IN COMMON STCCI INVESTMD*T Tor the Tive Years Ended December 31, 1979 (Dollars in Thousands) Amount Capital at Par Stock Retained Shares value Expense Ea rnings Total Balance December 31, 1974 16,192 $1,619 $(3) $ 49 $1,665 Add (Deduct) Net Income 191 191 Dividends Declared (240) (240) Redemption of Stock (736) (74) ___ (74) Balance December' 31,1975 15,456 1,545 I3T 1,542 Add (Deduct) Net Income 182 IS2 Dividends Declared (182) (182) Redemption of Stock (736) (73) ___ ___ (73) Balance December 31, 1976 14,720 1,472 (3) 1,.o9 Add (Deduct) Net income 173 173 Dividends Declared (173) (173) Redemption of Stock (736) (74) (74) Capital Stock Expense 3 3 Balance December 31, 1977 13,984 1,398 1,398 Add (Deduct) Net income 164 164 Dividends Declared (164) (164) Redemption of Stock (736) (73) ___ ___ (73) Balance December 31, 1978 13.243 1,325 1,325 Add (Deduct) Net Income 155 155 Dividends Declared (155) (155) Redemption of Stock (781) (78) ___ ___ (78) Balance December 31, 1979 12,667 $1,247 $___ $ ___ $1,247 The accompanying notes are an integral part of these financial statements. 4 99 l t l _ ~ .
Maine Electric Power Ccspany, Inc. 1979 Maine Electric Power Company, Inc. STATE 22NT OF CHANGES IN TINANCIAI. POSITION - Tor the Tive Years Ended December 31, 1979 (Dollars in Thousands) Year Ended December 31, 1979 1978 1977 1976 1975 Tunds Provided Trom operations Net Income $ 155 $ 164 $ 173 $ 182 $ 191 Depreciation 735 736 735 735 730 Deferred Incese Taxes and Investment Tax credit, Net 140 186 213 ,,132 159
$1,030 $1,086 $1,121 $11149 $1,080 Tunds Used Plant Construction and Replacement - - 9 23 87 Sinking Tund Requirements of Long-Term Debt 660 660 600 720 660 Dividends on Common Stock 155 164 173 182 240 Redesption of Common Stock 78 73 74 73 74 Other (23) (5) (11) (12) (29) 870 892 845 986 1,032 Increase (Decrease) in Working Capital, exclusive of sinking fund requirements 3 160 $ 194 $ 276 $ 63 $ 48 Increase (Decrease) in Vorking Capital, exclusive of sinking fund requirements-Cash, Receivables and Temporary Investments $2,730 $ (421) $1,058 $4,982 $(1,076)
Other Current Assets 7 4 (4) 44 13 Notes Payable - - 65 (65) - Other Current Liabilities (2,577) 611 (843) (4,898) 1,111
$ 160 $ 194 $ 276 6 63 $ 48 The accompanying notes are an integral part of these financial statements.
100 l l i
Mairo Elsetric P4wir Compiny, Inc. 1979 Maine Electric Pewer Comeany, Inc. NOTES TO FINANCIAL STATEMENTS December 31, 1979 and 1978
- 1. Summary of Significant Accounting Policies The Company: The Company owns and operates a 345,000 volt transmis-ston interconnection, completed in 1971, extending from Viscasset, Maine to the Canadian border at Orient, Maine, where it connects with a line of The New Brunswick Electric Power Commission (New Brunswick) under a 25-year Interconnection Agreement. Under a Par-ticipation Agreement which terminates in 1996, all costs of the Coe-pany (including a return on invested capital), to the extent not met by transmission revenues, are paid by the participating utilities (Participar.ts), which include most of the larger companies in New England and a group of publicly-owned systems. Under a Power Pur-
- chase Agreement, New Brunswick is providing to the Participants over the interconnection up to 400,000 kilowatts of base load power for a ten year period ending October 31, 1986.
The following is a list of those companies that are taking power under the Power Purchase Agreement and their respective entitlements: Percent of Participant Entitlement Bangor Hydro-Electric Company 2.395% Boston Edison Company 16.250 Boylston Municipal Light Department .030 Central Maine Power Company 10.274 Danvers Municipal Light bepartment .371 Eastern Maine Electric Co-operative, Inc. 2.583 Fitchburg Gas and Electric Company .770 Maine Public Service Company . 8I 4 Marblehead Municipal Light Department .170 Middleborough Municipal Light Department .769 Middleton Municipal Light Department .056 Montaup Electric Company 5.792 New England Power Company 22.500 Newport Electric Corporation 2.260 Peabody Municipal Light Department .546 Public Service Company of New Hampshire 26.250 Shrewsbury Municipal Light Department .275 Union River Co-op .005 Vermont Electric Power Ccmpany, Inc. 7.509 Vakefield Municipal Light Department .268 Vest Boylston Municipal Lighting Department .083 Total 100.000% The following Maine electric utilities own all of the Company's Common Stock: Ownership Sponsor Interest Central Maine Power Company 78.15% Bangor Hydro-Electric Compan) 14.19 Maine Public Service Company 7.49 Voodland Water and Electric Cenpany .17 Total 100.00% 101
Maine Electric Power Company, Inc. 1979
- 1. Susumary of Significant Accounting Policies (continued)
Resulation: The Company is subject to the regulatory authority of the Federal Energy Regulatory Commission and the Public Utilities Commission of the State of Maine as to operations, accounting and other satters. Depreciation and Maintenance: Depreciation is p rovided using the straight-line method at rates designed to fully depreciate all prop-erties over the period ending July 1, 1996. Minor renewals and betterments are charged to maintenance expense, unless the ites constitutes a retirement unit, in which case the new unit is charged to electric plant. At the time depreciable properties are retired, the original cost, plus cost of removal, less salvage, of such property is charged to the accumulated provis-ion for depreciation. Unamortized Cains and Losses: Gains and losses on bonds reacquired to satisfy sinxing fund requirements are deferred and amortized over the remaining original ters of the Series A Bonds.
- 2. Income Tax Expense The ccaponents of Federal and State income taxes reflected in the statement of income are as follows:
Year Ended December 31, 1979 1978 1977 1976 1975 (Dollars in Thousands) Federal: Current $ 21 3 10 $ 8 $ 71 3 45 Deferred 121 162 183 112 131 Investment Tax Cretit, Net 1 2 8 _ _(1.) 142 171 192 185 184 State: Current 1 1 11 S Deferred 19 25 29 IS 20 20 26 29 29 28 Total Income Taxes $162 $197 $221 $214 f212 The Company provides deferred Federal and state income taxer for the tax ef fects of timing dif ferences between pre-tax accou-J. tag income and income subject to tax. The deferred provision tepresents prin-cipally the tax effects arising from the use of accelerated deprec-iation for income tax purposes which currently exceeds the amounts provided in the accounts. Investment tax credits are deferred and amortized over the lives of the related properties. The table below reconciles a provision calculated by multiplying income before Federal taxes by the statutory Federsi income tax rate to the above provision for Federal income taxes: l 102 l
Maine Electric Power Company, Inc. 1979
- 2. Income Tax Expense (continued) 1979 1978 1977 1976 1975 Amount *
, Amount ; Amount } Amount i Amount }
(Dollars in Thousands) . Federal income tas provis-ion at statutory rate $137 46 . C'. $161 48.0% $175 48.0% $176 48. 0*. $180 43.0% Difference in tax expense: Depreciation and Amor-tization for accounting purposes not allowed for tax purposes 22 7.6 22 6.7 23 6.2 22 5.9 22 5.3 Other Q)(5.8) D 2) (3.6) 3 ) (1.6) g 3,) 3 (3.5) G8) (4.7) Tederal income tax provision $142, 47. 8*. $121, 51.1% $192 52.6% $185 50.4* $184 49 .1*.
- 3. First Mortgage Bonds Under the terms of the indenture securing the First Mortgage Bonds substantially all electric property of the Company is subject to a first sortgage lien.
The snnual sinking fund requirement for First Mortgage Bonds is
$660,000.
- 4. Compensating Balances The Company had lines of credit at year-end 1979 totaling $8,400,000.
With respect to $1,400,000, the average compensating balance is 15% of outstanding borrowings. The average compensating balance require-ment for $2,500,000 is 10' of the line or 20*. of outstanding borrow-ings, whichever is greater. With respect to $1,500,000 the compen . sating balance requirement is 2*. of the line plus 13% of outstanding borrowings. The remaining $3,000,000 has no compensating balance requirement but has an annual fee of 5/8 of 1*. of the line with interest at 115". of prime. The Company had lines of credit at year-end 1978 totaling $8,400,000. With respect to $4,400,000, the average compensating balance require-ment is 15% of outstanding borrowings. The average compensating balance requirement for $2,500,000 is 10*. of the line or 20*. of out-standing borrowings, whichever is greater. With respect to the remaining $1,500,000 the compensating balance requirement is 2*. of the line plus 13% of outstanding borrowings. Certain information related to these lines is as follows: 1979 1978 (Dollars in Thousands) Total lines of credit at end of periods $8,400 $8,400 Borrowings outstanding at end of the periods Average daily outstanding borrowings for the twelve sonths ended 1,179 765 Averste annual interest rate for the twelve months ended 13.65*. 9 . 02*. Highest level of borrowing at any time during the twelve months periods S.15 0 5,300 1 103 i l l
l aine Electric Power Company, Inc. 1973
- 5. Coesitaents and Contingencies Two actions have been brought in the United States District Court for the District of Maine, Northern Division, by the United States of America against the State of Maine, one on behalf of the Passa-maquoddy Tribe and the other on behalf of the Penobscot Nation of Indians. Each seeks damages of $150 million for alleged wrongs by the State in respect of Indian lands. It is possible that the com-plaints may be amended to assert claims with respect to the land itself or to seek damages, including damages from the present owners of the land, or both. Approximately 69*. of the Company's electric properties are located in the territory which may be in-volved in the claims.
The Attorney General of the United States has obtained a stay of the proceedings to permit development of a comprehensive . legislative proposal for resolving the probless underlying the litigation and various extra-judicial settlement proposals are being explored by the parties. At least until legislation is introduced or the United States has decided whether to proceed with the Indian claims, it is not possible to assess the validity of such claims as may be advanced by or on behalf of the Indians or to determine the extent to which the Coa-pany and its properties may be involved. 104 l l l l
Maine Electric Power Company, Inc. 1979 Schedule V Maine Electric M J Company, Inc. Electric Property For the Years Ended December 31, 1979 and 1978 (Dollars in Thousands) Balance at End Classification of Periods Intansible plant Orgsnization $ 4 I.anchises and consents 4 Miscellaneous intangible plant 25 Total intangible plant 33 T-ransmission plant Land and land rights 914 Structures and improvements 180 Station equipment 3,040 Towers and fixtures 6 15 Poles and fixtures 9,029 Overhead conductors and devices 4,563 Total transmission plant 18,341 General plant Land and land rights 4 Structures and improvements 9 Tools, shop and garage equipment 14 Communicacian equipment 216 Total general plant 243 To*ai electric property $18,617 t 105 t
Maine Electric Pcwer Company, Inc. 1979 4 Schedule VI Maine Electric Power Company, Inc. Accumulated Provision for Depreciatica of Electric Property For the Years Ended December 31, 1979 and 1978 (Dollars in Thousands) Additions Balance at Charged Balance Beginning to Costs Retire- Other at End of Period and Erpenses senes Changes of Period 1978 Electric property $5,011 $736 $ -
$ - $5,747 1979
. Electric property $5,747 $735 $
$ - $6,482 See Note 1 of " Notes to Financial Statements" for the Company's depreciation policy.
106 ! l i 1 l l
Central Maine power Com:any Request for Additional Financial Infor=ation - April 2, 1980 Seabrook Station Item 2(d) Question: Provide copies of the most recent Officer's Certificate or Net Earnings Certificate prepared in conjunction with the issuance of mortgage bonds or debentures and showing interest coverage calculations using the tests set forth in the applic-able indenture. Explain bondable property addition provisions as they relate to restrictions on the issuance of new long-term debt. Provide copies of the portions of the indenture relating to interest coverage tests or alternative earnings tests and bondable property additions. Provide calculations of net earn-ings and interest coverage for the most recent 12-month period using the definitions of net earnings and annual interest requirements (ou debt presently cutstanding) using the most restrictive test set forth in the mortgage bond indenture. Assuming a range of interest rates considered realistic by the utility, state the additional a= cunt of first mortgage bonds which could be issued under the most restrictive test based on net earnings as defined by the indenture for the most recent 12-month period. Response: See /ttachment A for Item 2(d) for a copy of the most recent Officers' Certificate prepared in conjunction with the issu-ance of mortgage bonds. There has been no change in the definition of Bondable Prop-erty Addition Provisions for the General and Refunding Mortgage since the Company responded to the July 17, 1979 recytest . There has been no change in the portion of the Indenture defin-ing inter st cc7erage tests since the Compar/ responded to the July 17, J79 request. See Attachment B for Item 2(d) for the calculation of net earn-ings and interest coverage for the 12-month period ending March 31, 1979, using the definitions set forth in the Mortgage Indenture. See Attachment B for Item 2(d) for the additional amount of Mortgage Bonds which could be issued assuming a range of inter-est rates, e 1 l
ccntral Maina Power Comcar:y Attach =ent A - Itsm 2(d) Officers' and Accountant's Certificate re Net Eamings ISection 5.01(f)1 ? The undersigned Vice President and Treasurer and the Ccmp- . troller (who is an accountant as defined in the Indenture referred to below) of Central Maine Power Ccmpany (the "Ccmpany"), pursuant to Section 5.01(f) of the General and Refunding Mort-
- gage Indenture dated as of April 15,1976 between the Company and The First National Bank of Boston, Trustee, as amended and i supplemented (the " Indenture"),,hereby certify that:
- 1. Attached hereto as Schedule A and made a part hereof is a true statement of the Net Earnings of the Company for the period of twelve consecutive calendar months ending November 30, 1979;
- 2. As shown in reasonable detail in Schedule 3 attached hereto and tdde a part hereof, the Net Earnings of the Ccmpany for said period have been at least equal to twice the interest'for one year upon:
(a) all the bonds outstanding under the In-denture'at the date hereof (excluding any bonds for the retirement of which provision in compliance with any requirement thereof has been made); (b) $16,500,000 principal amount of General and Refunding Mortgage Bonds, Series C 10 1/27. Due 1999 of the Company, the authentication and delivery of which has been requested by written application of even date herewith; and (c) all other indebtedness for borrowed money secured'by a lien equal or superior to the lien
- of the Indenture on any part of the Company's property (excluding any such indebtedness the evidence of which is held, in any sinking fund or otherwise, by the Trustee under the provisions of.the Indenture or by the trustee or mortgagee under any instrument constituting a lien equal or superior to the lien of the Indenture on any
l- Central Maina Power Cc=ra w Attach =2nt A - Item 2(d) - l part of the Company's property, and any such indebted- 1 J ness for the payment or redemotion of which the necessary moneys have been de{:osited with the trustee ' or mortgagee under the =ortgage securing the same); and -
- 3. The terms used in this certificate which are defined in the Indenture are used as therein defined.
The undersigned hereby state that they have read the cov-enants and conditions in the Indenture relating to the authentica- f tion and delivery of bonds and the otner matters certified hereUI, and the definitions contained in the Indenture relative thereto; that they have become familiar with the matters herein i certified by them by reason of their respective offices in the j I l Ccmpany, their familiarity with and knowledge of its business and affairs, and an evam4"ation of its records and accounts; that in their opinion they have made such ev=mination or l investigation as is necessary to enable them to express an informed opinion as to whether or not such covenants and conditions have been ecmplied with; and that in their opinion I such covenants and conditions have been complied with. Thomas C. Webb 5enior Vice President, Finance of Central Maine Power Company R. A. Crabtree Treasurer of Central Mainc Power Company R. S. Howe Comptroller of Central Maine 1 Power Company l 1 Dated: January 9, 1980 l ah
. Attachment A - Item 2(d) l Schtdals A ) Central Maine Power Company Statement of Earnings j For the Twelve Month Period Ending November 30, 1979 ; l Electric Operating Revenue $ $ $272,723,066 Expenses: ; Operation Steam and internal combustion generation 33,749,786 Hydro generation 2,591,082 Purchased power 98,769,460 Transmission 2,171,261 Distribution 8,761,135 Customer accounting and collecting 6,455,634 General and administrative 14,313,341 Provision for uncollectible accounts 955,703 Allocation to construction (credit) (2,299,288) 165,468,114 Maintenance Steam and internal combustion generation 4,038,855 Hydro generation 1,735,313 Transmission 1,832,739 Distribution 6,196,793 General 344,563 14,148,263 Depreciation 20,146,435 Taxes-other than income 9,707,179 Total Expenses 209,469,991 63,253,075 Equity in earnings of associated companies 3,424,417 Other Income and Deductions Allowance for funds used during construction 5,766,486 Gain from debt repurchase 62,750 Other - net (271,551) 5,557,685 Adjusted Income before Federal and State Income Taxes 72,235,177 Other Adjustments Amort. Excess Acquisition Adj. 19,252 Gain from sale of property (24,215) Loss from sale of property 118,562 Premium on debt 12,407 126,006 Net Earnings for Twelve Consecutive Calendar Months Ending November 30, 1979 $ 72,361,183
, Central Maina Power ComeaW Attachm:nt A - Item 2(d)
Schndulo 3 . l f l
- 1. Interest for one year on the outstanding First and General Mortgage -
Bords of Central Maine Power Company, being all of the indebtedness of the Company for borrowed money secured by a lien equal or superior to the lien of the General and Refunding Mortgage Indenture dated as of April 15, 1976, as amended and supplemented, on any part of the Company's property, is $11,153,594, computed as follows: Annual Principal Interest Amount Charges Title of Series 5,933,000 $ 215,071 Series T 3 5/8% due 1981 $ 312,838 Series U 3 5/8% due 1983 8,630,000 Series V 3 3/8% due 1985 10,545,000 355,894 15,966,000 778,343 Series W 4 7/8% due 1987 5,389,000 282,923 Series X 5 1/4% due 1990 Series Y 7 1/2% due 1999 28,422,000 2,131,650 Series Z 9.30% due 1995 33,255,000 3,092,715 Series AA 7.70% due 1997 24,080,000 1,854,160 Series BB 10.65% due 1984 20,000,000 2,130.000
$152,220,000 $11.153.594
- 2. Interest for one year on the outstanding General and Refunding Mortgage Bonds of Central Maine Power Company is $8,242,500, computed as follows:
Annual Principal Interest Title of Series Amount Charges Series A 9 5/8% due 2006 $35,000,000 $3,368,750 Series B 9 5/8% due 2003 25,000,000 2,406,250 Series C 10 1/2% due 1999 23,500,000 2.467,500
$83,500,000 $8.242,500
- 3. Interest for one year on $16,500,000 principal amount of General and Refunding Mortgage Bonds, Series C 10 1/2 due 1999 of the Company is
$1,732,500.
! 4. The total interest charges shown above in Items 1, 2 and 3 are $21,128,594 and twice such total interest charges are $42,257,188.
- 5. The Net Earnings of the Company for the period of twelve consecutive calendar months ending November 30, 1979 of $72,361,183, as shown in the accompanying Schedule A, are at least equal to twice such total interest charges as shown in Item 4.
l
\
. I
_ , . . - - - --,7-
Attachment 3 - Item 2(d) (April 2, 1980 R quest) Central Jr.ine Power Comeany General and Refunding Mortgage Indenture General and Refunding Mortgage Coverage Annual Interest Charges Annual Interest Expense at Series Coupon Rate March 31, 1980 First and Ger.eral Mortgage Bonds-S 278 $ T 358 215,071 U 358 312,838 V 3 8 352,789 W 478 776,051 X 514 281,400 Y 712 2,115,525 Z 9 30 3,080,439 AA 7.70 1,839,915 BB 10.65 2,130,000 General and Refunding Mortga6e Bonds A 9 625 3,368,750 B 9,625 2,406,250 C 10.50 4,200,000 Total Annual Interest Charges $21,079,028 12 Months to Date at March 31, ic80 Het Earnings Income Before Interest Charges $48,293,422 AFC - Borrowed Funds 6,681,176 State and Federal Income Taxes 13,710,926 Ncn Qualifying Items: Gain and Loss on Sale of Property 31,954 Premium on Debt 12,407 FERC Licensed Hydro Projects - Equity Reserve Excess Acquisition Adjustments 18,072 Net Earnings $68,748,857 Coverage Ratio 3.26 i Computation of Maxi::rm Amount of Mortgage Bonds Available to be l Issued under Indenture Restrictions (Dollars in Thousands) Mt Earnings $ 68,749 Max 1=um Interest Charges equal to 1/2 of Net Earnings $34,374 Annual Interest Charges at March 31, 1980 21,079 Available Increase in Interest Charges $ 13.295 Mortgage Bends Available for Issue
@ 131, $ 102,000
@ 15if, $ 88,000 '
Central Maine Power Comtacy Request for Additional Financial Infor=ation - April 2,1980 Seabrook Station l Item 2(e) Question: If the corporate charter contains a preferred stock I coverage requirement, provide copies of that portion l of the charter. Assuming a range of dividend yields considered realistic by the utility, state the addi-tional amount of preferred stock that could be issued by applying the most restrictive test for preferred dividend coverage for the most recent twelve-month period. Response: There has been no change in the preferred stock covera 6e requirements in the corporate charter since the Co=pany responded to the July 17, 1979 request. See Attachment A for Item 2(e) (April 2, 1980 Request) for a copy of the computation of the Preferred Stock Coverage for the 12-months ended March 1980 as defined in the Corporate Charter and for a computation of the additional amount of Preferred Stock that could be issued under the coverage requirement. I
Attachment A - Item 2(o) (April 2, 1980 aaquast) C;ntral Main 7 Power Comoany Preferred Stock Coverage Ratio 12 Months to Date March 31, 1980 Coverage Comentation Income Before Interest Charges $48,293,422 Add: State Income Taxes 1,354,191 Amortization of Debt Premium 12,407 AFC - Borrowed Funds 6,681,176 Earnings Available for Fixed Charges $56,341,196 Jixed Charges and Preferred Dividends Interest on long-Term Debt $20,525,120 Other Interest 6,357,735 A=ortization of Debt Discount and Expense 125,883 Preferred Dividends k,563,216 Total Fixed Charges $31,571,954 Coverage Ratio 1.78 Comentation of ~*H m amount of Preferred Stock available to be issued under coverage restrictions (Dollars in Thousands) Earnings Available for Fixed Charges $ 56,341 Maximum Fixed Charges and Preferred Dividends equal to Earnings e 1.5 $37,561 Fixed Charges and Preferred Dividends at March 31, 1980 31.572 Available Increase in Fixed Charges and Preferred Dividends $ _ 5,989 Preferred Stock Available for Issue
@ 15% $ 39,000
CENTRAL MAINE POWER COMPANY General and Financial Information Seabrook Units No. 1 and No. 2 Question 2(f): Provide a detailed explanation of all other restrictions or constraints on the issuance of short and long-term debt, preferred stock, preference stock and common stock. Short-term debt should include bank lines of credit and commercial paper, if any. Indicate com-pensating balance requirements for bank loans. Response: The Company currently has bank lines of credit totaling $67,950,000. See Attachments A - Bank lines of credit See Attachments B - Explanation of restrictions or constraints on the issuance. of short and long-term debt, preferred stock, preference stock and common stock. l
Attachmsnt A CENTRAL MAINE POWER COMPANY Bank Lines of Credit at April 30, 1980 Compensation Amount , Bank of Maine Balances: 15% of loan S 450,000 outstanding. Canal National Bank Balances: 5% of line plus 1,000,000 10% of loan outstanding. Casco Bank & Trust Co. Balances: 2% of line plus 2,000,000 13% of loan outstanding. Continental Illinois National Balances: 1% of line. 5,000,000 Bank & Trust Co. of Chicago Annual fee: 5% of prime. Interest at 105% of prime. Depositors Trust Company Balances: 15% of loan out- 2,000,000 standing. First National Bank of Boston Annual fee: 5/8 of 1% of 25,000,000 the line. Interest at 115% of prime. Irving Trust Company Balances: 10% of line plus 5,000,000 10% of loan outstanding. Annual fee: 5/8 of 1% of the 5,000,000 line. Interest at 108% of prime. Manufacturers Hanover Trust Co. Balances: 10% of line plus 5,000,000 10% of loan outstanding. Annual fee: 8% x prime x 5,000,000 line. Interest at 108% of prime. Merrill Trust Company Annual fee: 6.5% x prime 5,000,000 x line. NE Merchants National Bank Annual fee: i of 1% of line. 5,000,000 Interest at 115% of prime. Northeast Bank of Lewiston Balances: 15% of loan out- 1,000,000 and Auburn standing. Maine National Bank Balances: 5% of line plus 1,500,000 10% of loans outstanding. l
$67,950,000 l
At taciulen t B - page 1 PROSPECTUS , 1,600,000 Shares Central Maine Power Company . Common Stock (Par Value SS) . l Outstanding shares of Common Stock are, and the shares offered hereby will be, listed on the New York Stock Exchange. On 3Iarch 15,1978 the last reported sale price for the Common Stock on ths. New York Stock Exchange was $16 per share.
. - ~
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE - - - SECLTdTIES AND EXCHANGE CO3BHSSION NOR HAS THE CO3EIISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. - ANY REPRESENTATION TO THE CONTRARY IS A CTJ31INAL OFFENSE. t
' Underwriting .
Proceedsto i l Price to - Diseoants and
' Puhuc Commissions (1) Company (2) {,
Per S hare . . . . . . . . . . . . . . . . . . . . . . . . . $16.125 $.52 $15.605 To tal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,800,000 $832,000 $24,968,000 (1) The Company has agreed to indemnify the several Underwriters against certain civilliabilities, i including liabilities under the Securities Act of 1933. (2) Before deduction of expenses payable by the Company, estimated at $141,280. l . The shares of Common Stock are offered by the several Underwriters when, as and if issued by the Company and accepted by the Underwriterr ind subject to their right to reject orders in whole or in part. It is expected that certificates for .st.ch 6 ares will be available for delivery at the of!!ce of , Kidder, Peabody & Co. Incorporated,10 Hanser Square, New York, New York 10005, on or about l Starch 23,1978. Kidder, Peabody & Co. Paine,Webber, Jackson & CurtiS l 18Porsted Incorpornied , l
- The date of this Prospet tus is 3Iarch 16,1978.
~.
*= ,
, _ . - -r
Attachment B - page 2 L Liquidation Righu
. > =
The holders of the Common Stock are entitled to share ratably in all net assets of the Company remi-ing after payment to tha holden of the Preferred Stock of the full preferential a=ounts to which they are entitled. - Preemptive Rights . Holders of the Common Stock and Preferred Stock have no preemptive or preferential right to , subscribe to or purchase any shares of any class of the Company, or any security convertible into or exchangeable for any such shares. Conversion Rights . The Common Stock is not convertible into or exchangeable for any shares of any other class or ~ 'r any other securities of the Company. Liability to Assessmens . - ' - j -
, The presently outstanding shares of the Common Stock are, and the Additional Common Stock ,
will be, fully paid and non assessable. ,,
^
Listing -- The outstanding Common Stock is listed on the New York Stock Eschange, and the Additional ',,
; Common Stock will.be listed on such M' ge. - 2 Transfer Agenes and Registrars
-~
The transfer agents for the Common Stock are the Company and Manufacturers Hanover Trust *
~ --
Company, New York, New Yode. ,
'The registram for the Common Stock are Depositom Trust Company, Augusta,3Iaine, and 3Ianu- ,
fr.eturers Hanover Trust Company, New York, New York. .'
- CERTAIN LDIITATIONS ON ISSUANCES OF SECURITIES ,
The Company's First Mortgage and its General 3Iortgage provide that no additional First Mortgage Bonds may be issued so long as any General Mortgage Bonds are outstanding. The Com- 2-: v:. x-
. pany has decided that future mortgage bonds shall be issued only under the General Mortgage, -- - - . { .
which will be subject to the prior lien of the First Mortgage until the outstanding First Mortpge , Bonds have been retired. The latest scheduled maturity for outstanding Fint Mortgage Bonds is g May 1,1999. The. General Mortgage prohibits the issue of bonds thereunder, unless for a recent ;
. twelve-month period, Net Earnings of the Company (as deaned) are at least equal to two times the * ;
annual interest requirements on (1) all bonds then outstanding (other than those to be retired), (ii) , the bonds to be issued and (iii) other indebtedness for money borrowed secured by a lien equal or - - superior to the lien of the General Mortgage, including First Mortgage Bonds. Such limitations will - I, i t - l 1 s y - . a
. e. .c ,. - -
i .
~ '
, l
Attachment B - gge 3 ; l
. .a.
not apply to the issuance of bonds issued in connection with the refunding of First 3fortgage Bonds, bonda issued under the General 3fortgage or Underlying P,onds which in any such case mature within two years before or after the date of issue of tho bonds to be so issued or which bear interest at a rate higher than the rate of interest to be borne by the bonda to be so issued. The coverage (based on bonds outstanding at the end of such periods) computed under the General 3fortgage for the years 1973 through 1977 would have been 3.16,2.98,2.95,2.84 and 3.37, respectively. The amount of addi-
- tional property at December 31,1977 would permit (and such Net Earnines test would not prohibit) ,
the issuance of at least $~20,000,000 ptincipal amount of, General 3Iortpge Bonds (9%% annual interest rate assumed). The Company's Articles of Incorporation provide that additional shares of preferred stock rank- . ing on a parity with the outstanding preferred stock may not be issued without the consent of the
. . _ _ holders of a majority of the shares of preferred stock thenoutstanding, and in certain circumstances - - -
without the separate consent of the holders of at least two. thirds of the shares of the Preferred Stock,
$11.25 Series, and the simihr consent of the Preferred Stock,8.40% Series unless various tests are met.
Presently the most restrictive of such tests is that income available for fixed charges and preferred stock dividends for a recent twelve. month period be at least 1.50 times the sum of such fixed charges ~~ ~
~
and dividend requirements on preferred stock to be outstanding. Such ratio (based on securities outstanding at the end of such periods)- for the years 1973 through 1977 was 2.06,1.71, L76,1.78 and -- '~- # 1.70, rupecthely. At December 31,1977, the Company could have issued at least $41,000,000 of such parity preferred stock (9%-annual dividend rate assumed) pursuant to the most restrictive of such- - tests.
. The Articles of Incorporation and a note purchase agreement relating to 10% Notes due in 1979 ! issued to certain institutions provide that, without the consent of the holders of a majority of the pre' 2 #7 -
( ferred stock outstanding and the holders of two. thirds of such Notes, the issuance of unsecured ~ debt " " (other than unsecured debt issued to retire unsecured securities or bonds) is limited to 20% of the aggregate of all secured indebtedness, capital and surplus of the Company. As of December 31,1977, after giving effect to the issuance of the Additional Common Stock, the total amount of unsecured debt (other than unsecured debt issued to retire unsecured securities or bonds) which the Company could have incurred (including the $47,323,000 of such debt outstanding at December 31,1977) would have been approximately $94,400,000. Such note purchase agreement also provides that, without similar , consent of the holders of such Notes, unsecured funded debt may not be issued unless net earnings for '
~
a recent twelve. month pe fod are at least 1.50 times the annualinterest requirements on allsecured an'd r unsecured funded debt, .ncluding any debt to he issued. The coverage for the twelve months ended December 31,1977 was 2.64 times.
. LEGAL OPINIONS The validity of the Additional Common Stock will be passed upon for the Company by 3fessrs.
Ropes & Gray, Boston,3fassachusetts and by William-3I. Finn; Esquire, counsel for the Company, and ~ for the Underwriters by 3fessrs. Choate, Hall & Stewart, Boston, 3Iassachusetts. Certain matters involving Connecticut law will be passed upon for the Company by 3Iessrs. Day, Berry & Howard, - Hartford, Connecticut. 3Iessrs. Ropes & Gray and 3fessrs. Choate, Hall & Stenurt may rely upon the opinions of William 3I. Finn, Esquire, and 3Iessrs. Day, Berry & Howard =s to all legal conclu-sions (including the organization and existence of the Company) affected by the laws of 3faine and ~ -~ s Connecticut, respectively. , i
'1
< 1 l .o
# * .* * ,e
Central Maine Power Company l Request for Additional Financial Information - April 2, 1980 - Seabrook Station l Item 2 (g) - Describe the nature and amount of the Company's most recent rate relief action and the anticipated effect on revenues. Provide copies of the rate order and opinion. In addition, indicate the nature and amount of any pend-ing rate relief action (s). Use the attached form to pro-vide this information. Provide copies of the submitted, financially-related testimony and exhibits of the staff and company in the most recent rate relief action or pend-ing rate relief request. Describe aspects of the Company's regulatory environment including, but not necessarily limited to, the following: prescribed treatment of allowance for funds used during construction and of construction work in progress (indicate percentage and amount included in rate base); form of rate base (original cost, fair value, other); accounting for deferred income taxes and investment tax credits; and fuel adjustment clauses in effect or proposed. Response: With respect to the Company's most recent rate relief action this information was provided in response to data requested on March 21, 1979. In addition the Company was awarded an additional $880,000 in contested items by the Maine Supreme Judicial Court. A copy of the rate order is supplied as Attachment A - Item 2 (g). The nature and amount of pending rate relief actions are supplied on Attachment B - Item 2 (g), pages 1 and 2. Copies of submitted, financially related testimony and exhibits of the Company in the most recent pending rate relief request are attached. Aspects of the Maine regulatory environment were previously described in response to Item 2 (g) (March 21, 1979 request). Since then, the Maine Public Utilities Commission has devel-oped new regulations regarding the operation of fuel adjust-ment clauses as required by a law enacted in 1978. It is the intent of the law to reduce the fluctuations of the fuel adjustment clauses of the state's electric utilities and to that end several changes have been adopted by the MPUC: (1) uniform state wide computational guidelines including a 12 month application period, (2) use of a projected period to forecast data, (3) transfer from the clause rate to base rates of a substantial amount further reducing the likelihood of dramatic swings in fuel adjustment billings and (4) the requirement that all changes in the fuel cost adjustment be approved by the MPUC. These regulations were implemented for the Company effective April'1, 1980 following a hearing and deliberations by the MPUC.
D Attachn2nt A - Item 2 (g) a@a m CEuRMAN COMMISSIONERS ( Ralph H. Gelder Diantha A. Canism Lincoln Smith STATE OF MAINE PUBLIC UTILITIES COMMISSION 242 State Street Augusta, Maine 04333 August 14, 1979 Seward B. Brewster, Esq. Central Maine Power Company Edison Drive Augusta, ME 04336
Dear Mr. Brewster:
Enclosed herewith is an attested copy of F.C. #2332 and F.C. #2336, Kenneth R. Gifford, et als. v. Central Maine Power Conpany. Sincerely, I. 7 l.% lq ..Q/ ~[ '- - Michael K. Feener Secretary ja Enclosure I l l l l l
l I i STATE OF MAINE PUBLIC UTILITIES COMMISSION , 1 Central Maine Power Company Ra: Proposed Increase in Rates. F.C.#2332 Kenneth R. Gifford, et als. V. Central Maine Power Company F.C.#2336 August 14, 1979 ORDER ON REMAND OF THE SUPREME JUDICIAL COURT 4 f I GELDER, Chairman; SMITH and CARRIGAN, Commissioners On August 6, 1979, the Maine Supreme Judicial Court issued a decision thereby completing judicial review of this Commission's October 13, 1978 order in F.C.#2332 and F.C.#2336. The Court opinion required that Central Maine Power be allowed to file rates designed to produce addi-tional annual revenue of $641,500 bceause of the Commission's disallow-I h ance of depreciation expense on plant financed bf deferred taxes. The Court opinicu also found the Commission's treatment regarding Central l l Maine's employee discount was not substantiated by the record evidence. The-Commission decree reduced net operating income by $121,000. The Commission now increases net operating income by that amount. ' ing the
F.C.#2332 F.C.#2336 ( current 46% federal corporate income tax rate, a $121,000 increase in net operating income requires an annual increase in Maine jurisdictional gross revenue of $238,326. This order pursuant to the August 6, 1979 decisis.: of the Maine Suprene Judicia1 Court, thus authorizes Central Maine to file rate schedules which increase its annual gross operating revenues by $880,000. While the Comission does not require a particular rate design at this point, it does favor an equal percentage increase to all classes of service with no increase in the current residential class customer charge. The rate schedules to be filed will be reviewed by the Comission and will be effective for service rendered after Commission approval. Accordingly, it is ORDERED that Central Maine Power Company is authorized to file revised rate schedules which increase its annual gross revenue by no more than~$880,000. Said schedules shall be reviewed by the Commission and if they are approved they shall be effective for service thereafter rendered. Dated in Augusta, Maine, this 14th day of August, A.D., 1979. BY ORDER OF THE COMMISSION Iff'- t 'y -L m
\
Michael K. Feener Secretary
\
F.C.#2332 F.C.i/2336 ( COMMISSIONERS VOTING FOR: Smith , Carrigan -! COMMISSIONER ABSENT: Gelder ( i Review of this Order by the Commission may be requested under l Section 6(N) of the Comission's Rules of Practice and Procedure within 20 days of the date of this Order by filing a petition with the Comission stating the grounds upon which reconsideration is sought. Review by the Law Ccurt may be requested by filing, within 30 days of the date of this Order, a Notice of Appeal with the Secretary of the Commission, pursuant to 35 M.R.S.A. 5303, Maine Rules of Civil Procedure, 73 et seq., and Rule 4.12 of the Commission's Rules of Practice and
, Procedure.
Additional court review may be had by filing a complaint with the Clerk of the Law Court and with the Secretary of the Commission, both within 30 days of the date of this Order, pursuant to 35 M.R.S.A. 5305. l
' Attechment B - Itca 2(g) paga 1 ATTACHMENT FOR ITEM NO. 23 j RATE DEVELOPMENTS Electric Pending Requests Test year utilized 1979 Average Amount (000's) $35.0 million (Original Filing)
Percent increase 11.1% Oate petition filed February 1, 1980 Date by which decision must be issued November 1, 1980 Rate of return on rate base requested 11.23%
- Rate of return on common equity requested 15.00%
Amount of rate base requested $530,698,855 Amount of construction work in progress requested for inclusion in rate base $9.1 million i i 02 l
-l
Attechment B - Itea 2(g) ptgn 2 1 ATTACHMENT FOR ITEM NO. 2A RATE DEVELOPMENTS Electric Pending Requests Test year utilized 1978 Average Amount (000's) $230,451 Percent increase . 10.5%
- Date petition filed July 30, 1979 Date by which decision must be issued None Rate of return on rate base requested 10.33%
Rate of return on common equity requested 14.25% Amount of rate base requested $4,964,411 Amount of construction work in progress requested for inclusion in rate base None I I ] l l 01 l l l l I
I t i l I 1 1 ' PETITIONER'S PREPARED DIRECT TESTIMONY OF THOMAS C. WEBB l SENIOR VICE PRESIDENT, FINANCE i a ' CENTRAL MAINE POWER COMPANY d il C 4 i
\
1 Q. Please state your name and address. 2 3 A. Thomas C. Webb. I reside in Manchester, Maine. My 4 business address is Edison Drive, Augusta, Maine. 5 6 Q. By whom are you employed and in what capacity? 7 8 A. I am employed by Central Maine Power Company as Senior Vice 9 President, Finance. I have responsibility for financial, 10 accounting, treasury, internal audit and data processing 11 activities of the Company. 12 13 Q. Mr. Webb, would you please state your education and. 14 business experience? 15 16 A. I am a graduate of the University of Minnesota receiving a 17 Bachelor's Degree in Business Administration in 1957. I 18 have taken graduate work at the University of Michigan and 19 have participated in numerous seminars in the areas of 20 accounting and finance. I was elected Senior Vice 21 President, Finance, for Central Maine Power Company in May 22 1979. Prior to my employment as Vice President, Finance, 23 with Central Maine, in August, 1977, I was Treasurer for 24 Wisconsin Power and Light Company with responsibilities 25 including investor relations, bank relations, financial l i 1 i Webb - 1 1
1 1 planning and implementation, treasury operations and all i 2 data processing functions. I have testified as a financial 3 and cost of capital witness before this Commission and the L 4 Wisconsin Public Service Commission. I was elected i 5 Treasurer of Wisconsin Power and Light Company in 1974, 6 having previously served as Assistant Treasurer for two
;- 7 years.- Prior to 1972, I was in charge of the corporate 8 data processing function of the Company and had performed
! 9 various functions including special assignments responsible 10 for the design of major accounting, financial and 11 management information systems. After graduation from the 12 University of Minnesota in 1957, I worked for the Standard 13 Register Company as a systems analyst and then as a senior
~
;, 14 systems analyst for the Sheaf fer Pen Company until joining 15 Wisconsin Power and Light ComprTy in-1964.
16 17 Q. Mr. Webb, what will be the scope of your testimony in this 18 proceeding? 19 20 A. My testimony and supporting exhibits will develop the i 21 overall financial position of Central Maine Power Company. 22 Specifically, I will state the reasons why we are 23 requesting rate relief at this time, develop the changing 24 investment risks of the Company including the measures and 25 importance of financial integrity and the overall rate of l l Webb - 2
1 return, and discuss the Company's perceptions and proposed 2 resolution of issues regarding rate making treatment of the 3 costs of the Company's construction program (CWIP). 4 5 Q. How will your testimony be structured? 6 7 A. This section of my testimony will: (1) summarize the 8 significant issues comprising the revenue requirement; (2) 9 discuss the recent financial condition of the electric 10 utility industry and Central Maine Power Company; (3) 11 discuss the measures of financial integrity and the need 12 for financial strength; (4) discuss the changing investment 13 risk of the e.lectric utility industry and Central Maine 14 Power Company: (5) develop the overall rate of return i 15 necessary for Central Maine Power Company to maintain an 16 adequate level of financial integrity; and (6) present the 17 Company's position regarding the rate making treatment of 18 construction work in progress (CWIP). 19 20 Q. Why are you requesting rate relief at this time? 21 22 A. Since our last rate increase request was submitted in 23 January 1978 we have witnessed the effect of increasing 24 costs of labor, materials and services with the resulting 25 impairment of our ability to earn a reasonable return for l l l l Webb - a l l 1 l !
1 the common shareowners. Despite this Commission's attempt 2 to recognize the devastating ef fect of inflation on our 3 ability to realize the allowed rate of return, in the form 4 of an attrition adj ustment, the Company continues to 5 experience significant erosion of its financial integrity. 6 Based upon unaudited financial results for 1979, common 7 stock earnings per share were $2.10 down from $2.19 in 8 1978, and return on common equity was 11.99% down from 9 13.4% in 1978 and below the 12.50% allowed by this 10 Commission in its most recent decision. Overall rate of 11 return was 9.1% down from 9.4% in 1978 and below the rate 12 most recently allowed by this Commission. The 1979 overall 13 . rate of return is also well belou the Company's current 14 cost of capital. 15 - 16 Q. What is the amount of rate relief Central Maine Power 17 Company is requesting? 18 19 A. We are requesting total rate relief of approximately 20 $35,000,000 which represents an overall increase of 11% , 21 based on the 1979 test year, as adjusted. 22 23 Q. Mr. Webb, does your rate relief request include an 24 attrition adjustment or reflect in whole or in part a 25 request for inclusion of CWIP in rate base? t l Webb - 4 l L
1 A. In this proceeding, we are asking that this Commission give 2 particularly careful consideration to our arguments that 3 the impact of the construction program on the Company's 4 financial integrity must be recognized and that both the 5 customers' and the Company's interests may be well served 6 by moving toward including construction work in progress in 7 the rate base. We are recommending that the impact of 8 recognizing CWIP be phased into the rate structure by 9 including only a portion of the construction expenditures 10 at this time ($1.9 million revenue requirement) . 11 12 This filing requests that the continuing effect of 13 inflation on our operations be recognized in the form of an 14 attrition adjustment which adds $6.5 million to the 15 requested amount. Attrition is, by definition, the 16 reduction in earnings and rate of return caused by expenses and rate base increasing faster than revenues. Attrition 17 18 is an economic reality which must be considered by this 19 Commission if Central Maine Power Company is to have rates 20 which provide a reasonable opportunity for the Company to 21 recover its operating expenses. Unless this requested 22 attrition allowance is granted, rapidly increasing costs 23 will continue to absorb dollars originally allowed for 24 return on common equity thus denying the common equity l 25 investor a reasonable opportunity to earn his allowed rate ! l l Webb - 5
1 of return. 2 3 We are requesting that this Commission recognize as 4 elements of this rate increase the effect of several 5 accounting policies which will commence with the 6 implementation of the rates requested in this proceeding. 7 8 Q. Mr. Webb, specifically, what are these accounting policies? 9 10 A. The first request relates to costs associated with the 11 cancelled Sears Island nuclear plant. 12 13 Q. Mr. Webb, please describe the nature of the request for 14 nuclear plant related adjustments. 15 16 A. In 1974 Central Maine Power announced that it intended to 17 construct a nuclear power plant on Sears Island in 18 Searsport, Maine for operation in 1984. At that time a 19 10-year time schedule was considered realistic. 20 Preliminary engineering, environmental and site related 21 activities were undertaken to prepare for construction with 22 the related expenses being charged to the project. Also, 23 to insure the availability of fue,1 enrichment services, it l 24 was necessary to contract for and make a prepayment for 25 those services far in advance. Mr. Howe will discuss in l Webb - 6 ; l l
1 his testimony the cost detail, accounting treatment and 2 amortization schedule Central Maine Power is requesting. 3 4 Q. Mr. Webb, will you describe the circumstances requiring the 5 cancellation of this intended nuclear plant at Sears Island? 6 7 A. Environmental and site studies for the project began id 8 June of 1974. Preliminary geologic and seismological 9 evaluation reports of the proposed Sears Island site had 10 been prepared which revealed no nearby major faults. 11 However, on March 31, 1975, further data revealed for the 12 first time the existence of an ancient, tectonic geologic 13 fault at Sears Island within 2,000 feet of the proposed 14 location of the reactor containment. The fault was 15 uncovered by tr'enching. While it is estimated the fault is 16 260 million years old, there were certain features 17 revealing that slight surf ace movement had occurred about n 18 12,500 years ago. 19 20 All geologists who viewed the f ault concurred that it would 21 not be considered " capable" within the normal meaning of 22 that word in accepted technical usage. However, a literal 23 reading of the NRC's regulations,10 C.F.R. Part 100, 24 Appendix A, left open the possibility that fault movement 25 for any reason and of any magnitude during the last 35,000 Webb - 7 l
1 years could result in a classification of the fault as 2 " capable." The NRC has never approved a site that included 3 a capable fault, and NRC's policy disfavoring sites with 4 capable faults was expressed in NRC Staff guidelines and 5 the NRC Standard Review' Plan. 6 7 Faced with long delays in investigating and resolving the 8 fault issue and uncertain site approval--compounded by the 9 threat of environmental and anti-nuclear litigation even if 10 a NRC permit were granted--the Company made the decision to 11 cancel the nuclear facility in favor of a coal plant. 12 13 Q. Why are you asking f or an adjustment to recover the nuclear 14 plant costs at this time? 15 16 A. The expenses incurred in the nuclear plant venture were 17 allocated and transferred to either the proposed Sears 18 Island coal project or to the probosed Richmond nu: lear 19 plant, then planned for completion in the early 1990's. 20 Nearly all the environmental and site related costs 21 totaling $6,200,000 were allocated to the Sears coal plant 22 and preliminary engineering costs tutaling about $3,500,000 23 were allocated to the relocated nuclear project proposed 24 for the Richmond site. 25 1 i Webb - 8 1
1 We are asking for a five-year amortization recovery through 2 rates of the $3,500,000 nucler.r costs because it has now 3 become obvious the construction of a new nuclear poeer 4 plant is no longer a viable option for the foteseeable 5 future. Furthermore, changing NRC criteria riigarding 6 nuclear plant desigc have outdated the completed 7 eng.' eering work' so that it is virtually worthless. 8 9 Q. Mr. Webb, are there other costs related to the Sears Island 10 nuclear facility? 11 12 A. Yes, we are also requesting a write-off of expense 13 connected with an associated uranium enrichment contract. 14 15 Q. Mr. Webb, describe reasons surrounding your request for a 16 write-off of expenses associated with uranium enrichment. 17 n 18 A. On June 13, 1974, Central Maine Power entered into a l 19 contract with the Uni':ed States Government (then 20 represented by the Acomic Energy Commission) to obtain 21 enriched uranium to be used at the proposed Sears Island 22 nuclear generating facility. Central Maine had no 23 reasonatie alternative to entering into the contract tha t 24 many years in advance of the need for uranium enrichment 25 service because the Government was a monopoly supplier with ! Webb - 9
1 limited production capacity. 2 3 As required by the contract, Central Maine Power made 4 prepayments totaling $4,009,500 to the Government. 5 Additional allowance for funds used during construction 6 ( AFC) of approximately $500,000 has been charged to this 7 ,, account. Central Maine Power has made every reasonable 8 ef f ort to recover the $4,009,500 of advance payments and 9 maintain legal claim to them. In addition, the Company has 10 attempted to market the contract. Our efforts in both 11 respects have proved unsuccessful. Our only alternative 12 would appear 1.o be to terminate the contract to avoid 13 further financial exposure. 14 15 Q. Mr. Webb, are there other expense items which you would 16 like to discuss here? 17 18 A. Yes, I would like to briefly discuss Maine Yankee 19 t'ecommissioning expense and replacement power insurance 20 relative to lost nuclear generation. 21 l 22 Q. Mr. Webb, please explain Central Maine's request to provide revenues through rates for Maine Yankee nuclear facility ! 23 24 decommissioning? l
\
25 Webb - 10
\
1 A. All large industrial facilities have a finite useful life, 2 and a nuclear generating unit is no different in that 3 regard. It is currently estimated that a nuclear unit such 4 as Maine Yankee has a useful life of approximately 39 5 years. Maine Yankee began commercial operation in 1972, 6 and barring any unusual mechanical, regulatory or 7 legislative circumstances, should continue in operation 8 until at least the year 2002. 9 10 Q. Who is responsible for the decommissioning of a nuclear 11 generating facility? 12 13 A. The owners of the nuclear generating facility are 14 ultimately responsible for safe disposition, and it is a 15 matter of public and regulatory policy that those receiving the benefit should bear the cost. Therefore, the costs 16 17 associated with decommissioning should be collected over 18 the plant's useful life as part of the cost of power 19 Produced. 20 ! 21 Q. Mr. Webb, what is the anticipated method and cost of 22 decommissioning Maine Yankee? 23 24 A. Complete dismantling and removal of the f acility f rom the 25 site appears to be the most accepted approach to i i Webb - 11 l
1 decommissioning, both from a public acceptance and 2 regulatory viewpoint at this time. It is possible the 3 dismantling process would be deferred for several years 4 after the unit is shut down in order to allow for reduced 5 radiation of components to more easily workable levels. 6 The cost of decommissioning in this manner is estimated to 7 be over $50 million (1979 dollars). This conservative 8 figure should be used as a base and reconsidered every five 9 years. 10 11 Maine Yankee is studying the methodology and costs of 12 decommissioning. After evaluation of the study, Maine 13 Yankee will begin billing its customers for decommissioning 14 costs during 1980. Central Maine will be billed a minimum 15 of $800,000 annually for its 38% share of the capacity of 16 Maine Yankee to cover decommissioning costs of 17 approximately $50 million to be collected over the 18 remaining estimated life of 22 years. Central Maine has 19 asked for revenues of $800,000 in this proceeding to cover 20 these costs. 21 22 Q. Mr. Webb, please explain more fully the losses that may be ; 23 insured against due to outages of nuclear power generating 24 units. 1 25 Webb - 12 l
1 A. Utility companies within the electric utility industry are 2 in the process of organizing a mutual insurance company to , 3 provide insurance coverage against the extra expense 4 incurred in obtaining replacement pcwer during prolonged 5 accidental outages of nuclear powered generating units. ) 6 Membership in the Company, Nuclear Electric Insurance 7 Limited (NEIL) is available to all United States electric 8 utilities which have an insurable interest in a nuclear T 9 unit. 10 i 11 Centtal Maine Power is eligible for membership in this 12 company (NEIL) since its entitlement in the power output of i 13 four nuclear units constitutes an insurable interest for 14 purpose of this program. Insurance policies will be issued 15 for a one-year term and provide for a weekly indemnity 16 payment of a maximum of $2 million (or the insured's pro 17 rata share) for any one generating unit. The policy will 1' 18 include a deductible period of 26 weeks f ollowing an 19 insurable incident during which outages will not be 20 covered. The policy limit for any outage will be 52 weeks
- 21 at 100% and additional 52 weeks at 50% of the weekly 22 indemnity amount. Insurable outages are for causes due to 23 radioactive contamination and direct physical loss, subject ,
24 to certain exclusions. Coverage is not available for 25 shutdown due to legislative or regulatory reasons. Webb - 13 l i
l 1 The annual premium for Central Maine based upon its i 2 entitlements to the power output of four nuclear generating j 3 units is $862,500 and for the first year an additional 4 $112,125 reserve premium (13% of the annual premium). 5 Details of the premium calculation are included in 6 Petitioner's Exhibit Webb-1. Members of the mutual 7 insurance company will also be liable for a retrospective 8 premium adjustment of up to five times the annual premium 9 in the event that losses exceed the accumulated funds 10 available to the company. Central Maine proposes to 11 reserve against this contingent liability by continuing to 12 collect 13% of the annual premium. 13 't
.4 The mutual insurance company intends to begin insurance 15 operations as soon after March 31, 1980, as it obtains 16 necessary regulatory approvals and aggregate premiums of at 17 lea st $50 million. At the present time, 28 utilities have 18 requested application forms.
19 20 Q. Would you describe the Company's approach in this 21 proceeding to nonrecurring charges experienced during the 22 test year and to other known changes in revenue and l 23 expense levels? 24 25 We have normalized the test year for nonrecurring gharges l Webb - 14
1 1 and for known changes in the Company's revenue and expense - 2 levels. For example, a pro forma adjustment has been made 3 to reflect the effect of several new programs and related 4 expenses which are pending or will commence with the 5 implementation of rates approved in this proceeding. 6 7 Q. Mr. Webb, do you intend to offer testimony regarding the 8 financial integrity of Central Maine Power Company and the 9 electric utility industry? 10 11 A. Yes. I do. 12 13 Q' . Mr. Webb, why is it important to review the history of 14 Central Maine Power and the electric utility industry in terms of financial integrity and investment risk? 15 16 I 17 A. The purpose of this review is to identify the financial 18 deterioration which the industry and Central Maine Power 19 Company have experienced in recent years and a precipitous 20 drop in financial integrity coincident with significant 21 increases in business and financial risk. The electric 22 utility industry which is essential to the economic health 23 of this nation has become more and more dependent on 24 external capital markets at a time when it has become less 25 and less capable of meeting the demands of those markete. Webb - 15
l l 1 This industry and the public it serves has asked the 2 investor to assume risks disproportionate to his rewards. 3 This trend must be arrested or the investor's ultimate 4 dissatisfaction will manifest itself by an abandonment of 5 the industry as an acceptable investment alternative. In 6 such event the industry in general and Central Maine in 7 particular will not be able to meet the electric energy 8 needs of their customers. 9 10 Q. Could you more specifically discuss this adverse trend l 11 which you describe? 12 13 A. Yes. The financial stability of the electric utility 14 industry was rarely questioned during the period of the 15 1950's and 1960's. Economic growth and the need for 16 electricity were increasing while advancing technology was 17 reducing cost. Utility common stocks were selling well 18 above book value and financial integrity was generally 19 high. Utilities as a group were perceived by investors to 20 be less risky than other types of business because their 21 financial future was more p edictable and they tended to be 22 less susceptible to fluctuations in the general level of 23 business activity. 24 25 If one observes some of the key determinants of financial Webb - 16
1 integrity and compares their levels during this period to 2 the levels which exist today, an adverse trend becomes very 3 visible. 4 5 Q. Mr. Webb, what specific indicators are you using to track 6 the financial integrity of the industry and Central Maine 7 Power Company? 8 9 A. Financial integrity is a term which essentially refers to a 10 Company's ability to raise capital, provide an adequate 11 return on invested capital, to preserve invested capital 12 and to absorb adverse economic events. Securities are 13 purchased for the cash flows which they provide to their 14 owners. The indicators of risk, the converse of financial 15 integrity, wh'ich I have selected, are various mathematical 16 expressions which reflect a company's ability to produce 17 the.t cash flow for the investor. Specifically, we wili 18 look at the debt / equity ratio, pretax coverage ratios, 19 Allowance For Funds Used During Construction (AFC) as a 20 percent of earnings, cash flow to construction and the rate 21 of return on common equity. 22 23 Q. Would you discuss the debt / equity ratio, Mr. Webb? 24 25 A. The debt / equity ratio is a critical ratio especially for a 1 l I Webb - 17
1 capital intensive industry such as the electric utility 2 indus try . This ratio expresses the " financial leverage" 3 being applied in the corporation. A proportionately large i 4 amount of debt in the capital structure (high leverage) 5 increases financial risk. This risk can be viewed from l 6 both the debt holder's position and the equity holder's 7 position. First from the debt holder's point cf view, a 8 high equity component (low leverage) provides earnings 9 potential, and if adequate earnings occur , protection (coverage) for his interest payments. This coverage 10 11 reduces the risk that sudden adverse conditions will impact 12 the bondholder's anticipated cash flow (total return on investment). From the equity holder's puint of view a high l l 13 14 equity component (lov leverage) means that fewer senior
~
15 securities stand aheati of him with first call on the 16 earnings of the Company. In which case, the equity 17 investor is less susceptible to having his anticipated 18 total return on investment impacted by sudden adverre 19 operating conditions. To summarize, "high leverage," 20 increases financial risk. 21 i 22 Q. Mr. Webb, what has happened to the debt / equity ratio of the 23 electric utility industry and Central Maine Power in recent 24 years? l 25 . l l Webb - 18 l
1 A. Petitioner's Exhibits Webb-2 and Webb-3 show the capital 2 structure ratios of Central Maine Power and Moody's 24 3 Electric Utilities for the period 1960 to 1978/79. In 4 addition, Petitioner's Exhibit Webb-4 shows the common 5 equity ratios of Central Maine Power and the investor-owned 6 electric utility industry for the years 1965 through 1978. 7 Reference to these exhibits indicates that the electric 8 utility industry and Central Maine Power significantly 9 increased its financial leverage in the late 1960's, peaked 10 in the 1974-1976 period and has begun to recover since that 11 time. At year-end 1979, the average common equity 12 component for the electric utility industry is estimated to 13 be approximately 37% and Central Maine's common equity 14 component was 35.7% . 15 16 Q. Mr. Webb, what is the significance of this trend in Central, 17 Maine Power's and the electric utility industry's capital
. 18 structure?
19 20 A. There are several significant points to be observed here. 21 22 1. High leverage is an indicator of high financial 23 risk. Business risk and financial risk should have an 24 inverse relationship, as business risks increase the 25 investor seeks a higher return and/or less financial l Webb - 19
1 risk. As I will demonstrate later in this testimony, 2 the business risks associated with the electric 3 utility industry and this Company have increased 4 substantially during the decade of the seventies. As 5 indicated by the increased leverage which exists in 6 the industry and Central Maine Power, financial risk 7 has also increased during this period. This condition 8 cannot continue if we are to maintain a financially 9 sound investor-owned electric utility company. 10 Central Maine Power must move toward a 38%-40% common 11 equity component of total capital structure and must 12 earn an adequate return on that equity. 13 14 2. Low leverage provides a company the financial 15 flexibility essential to effective and reasoned 16 participation in the capital markets. Central Maine 17 Power Company has a continuous need for new capital, 18 if we are to raise that capital in the best mix and on 19 reasonable terms then we need the flexibility to move 20 between markets and around poor market conditions - 21 low leverage provides that necessary flexibility. The 22 Company and its customers cannot afford to be hostages i 23 of the capital markets and must, therefore, work to 24 increase the common equity component of Central Maine l 25 Power Company's capital structure. I Webb - 20
1 3. In the last two years, the industry and Central , l 2 Maine Power Company have attempted to bolster their : 3 financial integrity by reducing leverage, but in this l 4 Company's last rate case, F.C. #2332, this Commission 5 negated Central Maine Power's efforts in this regard 6 by imposing a hypothetical 35% common equity ratio. 7 Reduced leverage is of no value to the investor as a i 8 means of reducing financial risk if it does not 9 produce equity earnings. It is imperative that 10 Central Maine Power be allowed to earn an adequate 11 rate of return on the total common equity component of 12 its capital structure. For this Commission to 13 approve, as being in the public interest, those 14 security issuances which create the Company's capital 15 structura and subsequently forbid the Company to earn 16 on a portion of that capital structure, is a deceptive 17 and grossly unfair practice. 18 19 Q. Mr. Webb, would you discuss pretax coverage ratios? 20 21 A. Coverage ratios are a mathematical expression of the 22 relationship between income available to pay fixed interest l 23 commitments and those same commitments. Simply stated, it 24 is a measurement of a company's ability to make interest 25 payments in full and on time if any of a number of possible l # ebb - 21
i , 1 adverse operating events were to occur. There are several 2 iterations of this ratio used for various purposes. 3 However, the most commonly used are the pretax earnings 4 ratios both including and excluding Allowance for Funds 5 Used During Construction. 1 6 i 7 Q. How are these ratios used as a measure of credit worthiness? 8 9 A. Coverage ratios are used both as an absolute and a relative measure of financial integrity. The investor's required 10 11 ratio (degree of protection necessary) varies with time and 12 is directly related to the investor's perception of the 13 business risk associated with the industry in which he is s 14 contemplating investing. Coverage ratios are affected by 15 every item on the income statement, regulatory lag and 16 earned rates of return, but .the potential for adequate 17 coverage ratios is primarily determined by the amount of 18 leverage existing in the corporation. 19 20 Q. Mr. Webb, what has been the trend in coverage ratios for 21 the investor-owned electric utility industry and Central 22 Maine Power? 23 24 A. The trend has been downward. Petitioner's Exhibit Webb-4
- 25 shows pretax coverage ratios of investor-owned electric Webb - 22 i
1 utilities and Central Maine for the years 1965 through 2 1978. The industry's pretax coverage was over 5.0 times in 3 1965, then trended downward to a low of 2.5 times in 1974 4 before increasing to 2.9 in 1978. 5 6 Q. Would you please discuss Central Maine Power's coverage 7 ratios, Mr. Webb? 8 9 A. Again by referring to Petitioner's Exhibit Webb-4, we can 10 observe the downward trend in the Company's pretax coverage 11 ratio. From an average coverage in excess of 5.0 times 12 during the late 1960's, the Company's coverage declined to 13 a low of 2.4 times in 1974, before recovering to 3.2 times 14 in 1978. Central Maine's pretax coverage ratio was 15 somewhat higher than the industry's in 1978 only because of the Company's high AFC contribution during that year. In 16 17 1979 the Company again experienced a decline as pretax 18 coverages dropped to 2.9 times. If we compute the 19 coverage, excluding non-cash AFC, the decline has been more 20 pronounced as AFC has become a more significant component 21 of earnings. Petitioner's Exhibit Webb-5 shows such coverages since 1974. This decline in coverage is 22 - t 23 primarily the result of excess leverage, insufficient 24 earned rates of return and regulatory lag. 25 Webb - 23
1 Q. What is the significance of this trend in coverage ratios? 2 3 A. Coverage ratios represent a margin of protection to the 4 debt investor. The amount of insurance he requires is a 5 function of the risk he perceives. If we observe the 6 coverage ratios which existed at a tim'e when business risk 7 was thought to be minimal and compare those to the coverage 8 ratios of today, a time when business risk is much grea%e , l 9 we have little difficulty in understanding why investors 10 perceive that the general credit worthiness of the industry and Central Maine Power has declined in recent years. Not 11 12 only are current coverages low in comparison to the five 13 times and higher ratios achieved in the past, but this 14 comparatively higher degree of financial risk exists at a 15 time when business risk is also much greater. 16 17 Q. Mr. Webb, do you think that Central Maine's pretax coverage 18 ratios should be higher? 19 20 A. Yes. It is important that Central Maina increase its 21 coverage ratios because of its extensive need for capital 22 if it is to meet the electric energy needs of its 23 customers. If we are to meet that need, this Company must 24 acquire and maintain the ability to issue "A" rated bonds. 25 The Company -must be in a position where its operable t Webb - 24
i I mortgage carries a strong "A" rating because a strong "A" 1
, 2 rating is the minimum level of credit worthiness which will 3 provide the necessary borrowing reserve and financial 4
4 insurance. Borrowing reserve refers to a company's ability
- 5 to increase debt without losing its bond rating, and 6 financial insurance refers to the maintenance of an
' 7 adequate quality so that if a. company's bond rating does i 8 slip it will still have financial respectability. The 9 Company's current Baa/BBB bond rating provides minimal 10 borrowing reserve and no financial insurance. Central ; 1 11 Maine's General and Refunding Mortgage bonds currently 12 carry a Baa rating. This rating is unacceptable and < l 1 s 13 carries the stigma o.f a credit worthiness applicable to a 14 low grade utility security. In fact, approximately 80% of 15 outstanding investor-owned electric utility bonds carry 16 higher ratings. A Baa rating places the Company in the } 17 untenable position where further credit reduction would in 18 all probability eliminate its access to the capital 19 markets. Further, a Baa rating means that Central Maine 20 must pay an excessively high price for its capital. Over 21 the past five years, the average " spread" between Baa/BBB 22 bonds and A rate.d bonds has been approximately 86 basis 23 points. We cannot allow the energy future of this State to 24 be based on so weak a financial foundation, nor can our I 25 customers afford to pay an excessively high price for 4 Webb --25
1 investors' funds.
~
2 3 Q. ifhat level of coverage ratios would provide the Company a 4 strong "A" rating on its operable mortgage? 5 6 A. Because the General and Refunding Mortgage legally carries 7 a lien junior to the First and General Mortgage, the rating 8 agencies have taken the position that the Ger.eral and i 9 Refunding bonds must carry a rating lower than the First 10 and General. Therefore, in order for our operable mortgage 11 (G & R) to attain a strong "A" rating, the senior First and 12 General Mortgage must carry an "AA" rating. We believe 13 that over the intermediate term, Central Maine must 14 consistently demonstrate pretax ratios of at least 4.0 15 times in order to progress towards the attainment of an 16 "AA" status on the First and General Mortgage Bonds. 17 18 Q. Mr. Webb, would you now discuss Allowance for Funds Used . 19 During Construction (AFC) as it impacts financial integrity?
~
20 21 A. In the final analysis, it is earnings that create financial i 22 , integrity, and to the extent that those earnings are 23 comprised of a non-cash component (AFC), the quality of the 24 earnings is reduced and, therefore, the contribution which 25 those earnings make to financial integrity is less than the h l Webb - 26
1 contribution made by full cash earnings. Allowance for 2 Funds Used During Construction increases financial risk. 3 To the extent that investors perceive incremental risk, 4 they will demand additional compensation for taking that 5 risk. Petitioner's Exhibit Webb-13 shows that AFC has 6 become an ever-increasing component of total earnings for 7 both Central Maine Power and the electric utility 8 industry. In these days of financial difficulty and in the 9 face of an uncertain future, it is reasonable to believe 10 that the investor would look more f avorably on cash in hand 11 than a promise to pay in the future. The additional risk 12 which is introduced by the existence of high amounts of AFC 13 in Central Maine's earnings has not been accompanied by 14 additional return--another reason why this Company's credit 15 worthiness has declined significantly in recent years. 16 17 Q. Mr. Webb, how is the relationship of cash flow to 18 construction an indication of financial integrity? 19 20 A. The relationship of cash flow to construction is an 21 indication of the extent to which a company must access the 22 capital markets regardless of economic conditions in those { 23 markets. Petitioner's Exhibit Webb-4 shows this 24 relationship for Central Maine Power Company and the 25 electric utility industry, as well as the Standard 4 Poor's Webb - 27
1 400 for the period,1965-1978. During the five-year period 2 ending 1978, Central Maine's average percentage of 3 construction requirements generated internally was 35% as 4 compared to the utility industry's 36% and the industrial 5 sector's 98%. The levels for Central Maine Power and the 6 utility industry are well-below historic levels and also 7 below a level necessary to restore the industry's financial 8 integr ity . Internal funds should provide approximately 50% 9 of a utility's construction requirements in order for the 10 industry to build the f acilities which are needed to 11 satisfy the increasing demand for its product. Recent 12 volatile markets accentuate this necessity. The problem i; i 13 compounded for utilities because they are much more capital 14 intensive than industrials as a whole and have been unable 15 to provide common equity returns sufficient to attract institutional investors. Full normalization, adequate 16 17 rates of return and cash returns on CWIP are the vehicles 18 which will restore this indicator of financial integrity to 19 a level consistent with its relative importance. 20 21 Q. Mr. Webb, you have indicated that the credit worthiness of 22 the investor-owned electric utility industry and Central 23 Maine Power has declined in recent years. Wha t , in your 24 opinion, has caused this decline? 25 l l Webb - 28
l 1 1 1 A. In a free-acting competitive marketplace decisions can be 2 based solely on economic criteria. On the other hand, a 3 regulated monopoly, such as Central Maine Power, exists in 4 an economic environment which by its very nature introduces 5 non-economic criteria into the decision-making process. 6 Regulation, for whatever reason, has failed to adjust its l 7 traditional approach to the ratemaking process to reflect 8 and cope with the inflationary climate of the seventies. 9 As a result, the financial integrity of Central Maine Power 10 and the utility industry in general has severely declined. 11 This decline has been especially damaging because it 12 occurred during a period when the business risk associated 13 with Central Maine has increased dramatically and financial 14 integrity is much more essential during periods of high 15 business risk. 16 17 Q. Mr. Webb, you have indicated that the business risk 18 associated with the investor-owned electric utility 19 industry and Central Maine Power has increased in recent 20 years. Could you discuss why you believe it has increased? 21 12 A. Yes. The primary reasons why business risk has increased 23 are the following: 24 25 1. Inflation. Petitioner's Exhibit Webb-6 shows l Webb - 29
i I I 1 rates of inflation as measured by the Consumer Price j 2 Index (CPI) and the Gross National Product Deflator. 3 Reference to this exhibit clearly demonstrates .he dramatic escalation in inflation in recent years. The 4 5 inflation rate for December 1979 (over December 1978) 6 skyrocketed to 13.3% as measured by the Consumer Price 7 Index. Inflation has a devastating impact on Central 8 Maine Power and the electric utility industry. The 9 inflation risk of rising prices properly belongs to 10 the ratepayer. Central Maine incurs costs on an 11 inflation adjusted basis and yet because of 12 overreliance on historic data in the rate setting 13 process and regulatory lag, the prices it charges are 14 not inflation adjusted. Therefore, inflation risks 15 which should properly be borne by the ratepayer are 16 being placed squarely on the shoulders of the 17 shareowner. 18 19 This same level of risk does not exist during periods 20 of economic stability. 21 22 2. Uncertainty concerning fuel cost and , l 23 availability. The heavy dependence which Central 1 24 Maine Power and other New England utilities have on l l 25 oil as a fuel source adds business risk regarding both ( Webb - 30 l l
1 supply and price, but up to this point in time, 2 primarily regarding price. Rapidly increasing fuel 3 prices have added significantly to the cost of 4 electr icity . Petitioner's Exhibit Webb-7 shows the 5 percent af total sales generated from oil fired 6 sources, the average price per barrel of oil and the 7 percent of the average residential consumer's bill 8 related to fuel for the years 1973 through 1979. 9 Reference to this exhibit demonstrates the impact 10 which escalating fuel prices have had on the 11 consumer's electric bill. To the extent that 12 increased fuel prices absorb the consumer's dollar, 13 the risk of obtaining rate relief in order to earn the 14 cost of capital increases. This same level of risk 15 did not exist prior to 1973. 16 17 3. Forecasting uncertainty. Back in the days when 18' the economy was growing and electric rates were 19 decreasing, it was relatively easy to forecast future 20 demand. But now with the uncertain economy, 21 conservation and rapidly escalating electric rates, 22 forecasting is a much more risky proposition. This 23 situation is compounded by the long lead times now 24 necessary in order to add new generating capacity 25 which has significantly lengthened the necessary Webb - 31
i i forecasting horizon. 2 3 4. Nuclear uncertainty. The nuclear question has 4 been with us for some time now, but recent events 5 surrounding Three Mile Island, Seabrook and the 6 shutdown of various operating reactors by the NRC have 7 certainly highlighted the risk of owning or 8 constructing a nuclear generating plant. 9 10 5. Increased government regulation. Increased 11 government regulation, particularly in the are2s of 12 rates, nuclear licensing and pollution control, have 13 added significantly to the business risk associated 14 with investment in the electric utility industry. To 15 the extent which inc.reased government regulation has 16 increased the cost of new facilities and, therefore, 17 the future cost of electricity, it increases the risk 18 that the investor will not earn an adequate return on 19 his investment in the future. 20 21 Q. Mr. Webb, you have described a prolonged condition of 22 decreasing financial integrity and increasing business and 23 financial risks. What impact has this had on Central Maine 24 Power Company? 25 4 I Webb - 37. t
~
I 1 A. The impact has been substantial and negative. Of primary 2 concern has been the reaction of the common stock investor, 3 the lack of positive action by regulation and the resulting 4 defensive action which the management of Central Maine 5 Power Company has been forced to take. 6 7 Q. Mr. Webb, what has been the reaction of the common stock 8 investor ? 9 10 A. Because of his junior position regarding the earnings of 11 the Company, the negative impact of all of the problems we 12 have discussed falls squarely on the shoulders of the 13 common stockholdsr. This condition of significantly 14 increased risk has not been accompanied by a commensurate 15 increase in earned return. Petitioner's Exhibit Webb-4 16 shows that the earned returns of Central Maine Power 17 Company and the electric utility industry are lower today 18 than they were during most of the 1960's. The common stock 19 investor has reacted to this situation by driving the 20 market price of Central Meine's stock down to a level where 21 he achieves his investment objective. But this is not an 22 acceptable long run solution for the investor because of 23 the dilution which investors experience when a company , 24 continually sells common stock at prices below book value. 1
- 25 There is a point somewhere in the long run when the i
l : l Webb - 33 1
~
l l 1 investor will abandon a company continually in this 2 position. Petitioner's Exhibit Webb-4 shows that Central 3 Maine Power Company's common stock has traded at levels 4 below book value since 1074. Petitioner's Exhibit Webb-8 5 shows the monthly market to book ratios for Central Maine 6 Power during 1979, a year in which market prices dropped 7 dramatically ending the year,at approximately 78% of book 8 value. 9 10 Q. Mr. Webb, how has regulation been deficient in meeting this 11 investor concern? 12 13 A. Regulation has failed to recognize and deal with the 14 economic environment in which utilities must operate. The 15 risks that I spoke of and the investors' required return 16 are realities which cannot be ignored. In the long run, 17 the investor will not allow risk to be shifted to him 18 without an accompanying increase in return. If this 19 Company is to remain a financially viable entity, then this 20 Commission must allow a fair and reasonable return on total 21 common equity and provide a regulatory framework within 12 which that return can be earned. ( 23 24 Q. Mr. Webb, what defensive action has the management of 25 Central Maine Power Company been f orced to take in an Webb - 34
1 attempt to deal with this situation? 2 3 A. As business risk increases, financial risk (leverage) 4 should be reduced. Yet in this industry in recent years, 5 we have seen exactly the opposite take place. As business 6 risk has increased, utility managements have been forced to 7 increase leverage to avoid issuing, as much as possible, 8 common stock at prices below book value. 9 10 Q. What is the effect of issuing common stock at prices below 11 book value, Mr. Webb? 12 13 A. The sale of additional common shares below book value 14 results in dilution of the present shareholder's equity. 15 Essential?y it takes from the present shareholder a portion 16 of his equi'.y and gives it to the new shareholder. In 17 addition, it has a negative impact on the ratepayer in that 18 revenue requi rements are higher than would have been 19 necessary if the stock had sold at a price which produced 20 net proceeds to the Company at least equal to book value 21 per share. 22 23 Q. Can you demonstrate this eff ect on the ratepayers and 24 shareholders? 25 l l l l I Webb - 35 l
- 1 A. Petitioner's Exhibit Webb-9 uses Central Maine's last three 4
2 common stock issues to show the adverse effect on both the ! 3 shareholder and ratepayer ,,nen common stock is sold below 4 book value. Line 9 of this exhibit shows that in order to 5 raise the needed capital, a total of 401,000 additional 6 shares had to be sold because each of the three issues sold 7 below book value. Line 4 shows that successive sales below 8 book value created a cumulative dilution to existing 9 shareholders of $.67 per share on book value. Line 6 shows 10 that the necessary sale of additional shares created a 11 cumulative dilution of $.24 per share on earnings. i 12 1 13 Equally important was the negative impact on the 14 ratepayer. Line 14 of this exhibit shows that if we assume 15 the current dividend of $1.64 per share and a 75% payout 16 ratio, the sale of a total of 401,000 additional shares 17 means that approximately $1,746,000 of additional revenues 18 per year must be collected from the ratepayer just to 19 maintain the same relative earnings position of the Company. 20 21 Q. Mr. Webb, must the Company continue to sell new common 22 stock below book value in spite of this adverse impact? 23 24 A. Yes, we -have no choice. If Central Maine Power is to i 25 survive as a corporate entity, it must accomplish its i E Webb - 36 l 1 - .. - . . _ - . . - _ - .
I 1 purpose, namely, to provide electric energy to the people 2 in its service territory. If the Company is to accomplish that purpose it must raise capital. Because capital cannot 3 4 be demanded, but rather must be attracted, if the Company 5 is to raise capital, it must meet acceptable investment 6 crite'ia r established by the marketplace. The market 7 requires the maintenance of an adequate debt / equity ratio. 8 If the Company does not maintain that ratio, it will 9 ultimately lose financial respectability and its ability to 10 accomplish its corporate purpose. Selling common stock 11 below book value cannot continue without serious financial 12 harm to the Company. If this Commission is not responsive 13 to the needs of the Company in meeting the requirements of 14 its customers, the ability of the Company to attract is necessary capital to serve those needs will be lost. 16 17 We can no longe continue to make short-run decisions aimed 18 at holding electric rates at an unrealistically low level 19 with no regard to the future viability of this industry or 20 this Company. In my opinion, it is only the investor's 21 underlying faith in the essential nature of this industry 22 and the system within which it exists that has led him to i 23 stick with us in recent times. If the approach of 24 regulation at every opportunity is to chip away at this ? 25 basic underlying f aith, we will surely have to bear the l Webb - 37 I 1
1 consequences. Recent evidence indicates that " regulatory 2 environment" has become the number one concern of utility 3 investors. This would indicate to me that investors are 4 very much aware of the depressed conditions of this 5 industry and are looking to regulation for some hope for 6 the future. Regulators must recognize this investor 7 concern and must provide that hope. To do otherwise is to 8 accept a risk which :his State cannot afford. 9 10 Q. Mr. Webb, you have briefly reviewed the financial condition 11 of the elec tric utility industry. Would you please 12 describe your perception of the industry's future.
~
13 14 A. Our industry has experienced many difficulties in recent 15 years, but despite these problems we have continued to 16 grow. Although growth may very well be slower than 17 experienced in the past, our industry, the key to modern 18 life, will continue to grow in the future. Kilowa tthour 19 sales for the top 100 electric utilities increased by 20 approximately 4 1/4% !.n 1978 which is slower than in recent 21 years but clearly growth. Our industry's share of the 22 energy market increases year by year, requiring massive 23 investment in order to construct the facilities necessary 24 to meet this demand. Petitioner's Exhibit Webb-10 shows 75 that over the last ten years electric utility capital i I I r Webb - 38 l
1 expenditures have risen from 7-8% of total business capital 2 expenditures to today's level of approximately 14%. 3 Projected Capital Expenditures of all U. S. industry and 4 of the Electric Utility Industry indicates that we can 5 expect this trend to continue. Electric utilities will 6 continue to be in a very competitive environment for 7 available capital dollars. 8 9 The near term future will encompass many challenges of the 10 recent past. The battle will continue uphill with such 11 hurdles as inflation (projected to average between 7% and 12 8% over the next decade), fuel supply, fuel cost, 13 ~ overregulation in plant licensing, and a growing public 14 concern for environmental protection as well as their 15 continued resistance to the increased cost of electricity. 16 These coupled with the challenge of raising large amounts 17 of needed capital will continue to increase'the risks of 18 our industry substantially over that cf years past. 19 ' 20 Q. Mr. Webb, how does this relate to the cost of capital for . 21 electric utilities and even more specifically, to that of 22 Central Maine Power Company? 23 24 A. It is relevant because required return is a function of 25 risk. Investors. tha lenders of capital, expect higher Webb - 39
1 returns if they are to take greater risks. The electric 2 utility industry today, by any standard, encompasses more 3 risk. Investors have recognized this risk, evidence the 4 market value of utility stocks. Rating agencies have 5 recognized this risk, evidence the wholesale downgrading of 6 utility securities. Regulation must also, by allowing 7 utilities the opportunity to earn the higher returns which 8 investors in utilities require today, without sacrificing 9 financial integrity or the ability to attract capital. 10 11 Q. Mr. Webb, do you intend to offer testimony regarding 12 Central Maine Power's required rate of return? 13 14 A. Yes, I do. 15 16 Q. Mr. Webb, what are the components of Central Maine's 17 capital structure which comprise the required rate of 18 return to which you are testifying? 19 20 A. The components are mortgage bonds, pollution control bonds, 21 capitalized lease, short-term debt, preferred stock and 22 common equity. 23 24 Q. Since the cost of common equity normally requires a 25 significant portion of the testimony, would you please l Webb - 40
1 discuss this component first. 2 3 A. Yes. 4 5 Q. Mr. Webb, what general approach and method (s) did you 6 consider in arriving at your return on equity 7 recommendation? 8 9 A. My approach was to first examine some basic facts 10 concerning the financial integrity of the electric utility 11 industry and Central Maine Power Company to which I have 12 already testified. Secondly, tu assess the relative 13 attractiveness and performance of electric utilities and 14 Central Maine in relation to other investment opportunities 15 and finally to examine Centra 1 Maine's individual position 16 relative to the electric utility industry and other 17 alternative investments. 18 19 My methodology will consist of several tests designed to 20 reflect the guidelines established by the U. S. Supreme 21 Court and the realities of the economic environment in 22 which Central Maine Power Company must operate. 23 24 Q. Mr. Webb, would you discuss the guidelines established by 25 the U. S. Supreme Court regarding the derivation of cost of Webb - 41 1 l
1 capital? 2 3 A. Two U. S. Supreme Court decisions are commonly cited as < 4 establishing the criteria for determining the cost of 5 capital for a public utility. The two landmark decisions 6 are the Bluefield c .se in 1923 and the Hope case in 1944. 7 In the Bluefield decision, the Supreme Court held: 8 9 "What annual rate. will constitute just compensation 10 depends upon many circumstances and must be determined 11 by the exercise of a fair and enlightened judhtent 12 having regard to all relevant facts. A public sttility i 13 is entitled to such rates as will permit it to earn a 14 return on the value of the property which it employs 15 f or the honvenience of the public equal to that 16 generally being made at the same time and in the same 17 general part of the country on investments in other 18 business undertakings which are attended by " 19 corresponding risks and uncertainties; but it has no 20 constitutional right to profits such as realized or 21 anticipated in highly profitable enterprises or 22 specul ative ventures." 23 24 Bluefield goes on to point out: 25 l Webb - 42 l
1 "The return should be reasonably sufficient to assure 2 confidence in the financial soundness of the utility, 3 and should be adequate, under efficient and economical 4 management, to maintain and support its credit and 5 enable it to raise the money necessary for the proper 6 discharge of its public duties." (Bluefield Water 7 Works and Improvement Company v. Public Service 8 Commission of West Virginia, 262 U.S. (1923)) . 9 10 and further, the Court states in Bluefield: 11 12 "A rate of return may be reasonable at one time, and 13 become too high or too low by changes affecting 14 opportunities for investment, the money market and 15 business conditions generally". 16 , 17 With reference to the determination of a just and 18 reasonable rate, speaking for the court, Justice Douglas 19 stated in the Hope opinion: 20 21 "From the investor or company point of view it is 22 important that there be enough revenue not only for 23 opera ting expenses but also for the capital costs of 24 the business . These include service on the debt and 25 dividends on the stock. By that standard the return i i l - Webb - 43
1 to the equity owner should be commensurate with 2 returns on investments in other enterprises having 3 corresponding risks. That return, moreover, should be 4 sufficient to assure confidence in the financial I 5 integrity of the enterprise, so as to maintain its credit and to attract capital." (Federal Power 6 7 Commmission v. Hope Natural Gas Company, 320 U.S. 591 8 (1944)) 9 10 Q. Mr. Webb, please summarize the crit'eria set forth in these 11 two U. S. Supreme Court decisions with regard to the 12 setting of rate of return. 13 14 A. Basically the court found that the rate of return allowed a 15 public utility should be sufficient: 16 17 1. to permit it to earn a return on the value of its 18 property equal to that of other . nterprises of 19 corresponding risks and uncertainties; 20 21 2. to assure confidence in the financial integrity of 22 the enterprise; and 23 24 3. to maintain its credit and attract capital. 25 Webb - 44
1 Q. Do you intend to use the Discounted Cash Flow formula (DCF) 2 as a basis for determining your recommended rate of return 3 on common equity? 4 5 A. This Commission has, it would appear, in recent proceedings 6 involving Central Maine relied heavily on the DCF 7 methodology in its determination of an allowed rate of return on common equity. For that reason, while I am not 8 9 an advocate of DCF, I have used that approach as one of my 10 tests in developing Central Maine Power's required rate of 11 return on connon equity. 12 13 Q. Mr. Webb, why do you not favor the use of DCF in 14 determining the cost of common equity? 15 16 A. DCF is touted by its supporters as a mathematical formula 17 which sets forth the exact relationship between easily 18 defined variables and which when solved will establish 19 "the" cost of common equity. However, the DCF method is 20 nothing more than a set of judgments expressed 21 algebraically. A common application of this method uses 22 current dividend yield plus the growth expectation in 23 dividends per share. The formula can be expressed 24 mathematically as follows: 25 Webb - 45
1 K=D+G F 2 where: 3 4 K = required return on common equity 5 D = current per share dividend 6 p = current market price per share 7 G = expected rate of growth in dividends per share 8 9 There can be wide disagreement concerning all but one of 10 the required inputs in "DCF". Of the three factors only 11 ' current per share dIividends escape the judgment of the 12 user. Both market price and growth are subject to 13 substantial areas of disagreement, of which estimating the 14 appropriate growth rate is most commonly noted. 15 Furthermore, the derivation of the DCF formula assumes that 16 book value, dividends, earnings and market price will grow 17 at the same rate, certainly an assumption which has not 18 been the case for electric utilities during the last 19 decade. I suggest that investor expectations are not so 20 easily packaged and that the results derived from the use 21 of formula approaches 'such as "DCF" can vary widely due to 22 Further, I the wide range of inputs which can be utilized. 23 suggest that past reliance on the "DCF" method as sole 24 evidence of cost of equity, especially as set forth by 25 Webb - 46
I witnesses in recent testimony before this Commission, has 2 resulted in allowed returns substantially below those 3 required, depressing utility earnings and stock prices, the 4 ill-effects of which has accrued to the ratepayer in the 5 form of higher rates. 6 7 Q. What recommended rate of return have you developed using 8 "DCF"? 9 10 A. My overall recommendation will be based on various tests of 11 which DCF is part. Employment of the "DCF" methodology , 12 alone indicates that the " bare bones" cost of common equity } ! 13 is 144%. 14 15 Q. Mr. Webb, would you explain how you derived your " bare 16 bones" cost using the DCF approach? 17 , 18 A. Yes, but first it is important to state my objective. 19 Through use of the DCF approach I have attempted to develop 20 the " bare bones" cost of common equity for the period in 21 which these rates will most likely be in effect. Inherent i l 22 in my approach are several assumptions which must be l 23 clearly stated and understood. 24 25 1. I have assumed that these rates will be in effect Webb --47
l 1 from November of 1980 through late 1982. This 1 2 assumption is based on past Commission practice, 3 effective filing regulations, future inflation 4 expectations, and a favorable Commission ruling on 5 this request; 6 7 2. I have assumed that during this period Central 8 Maine Power will be an average or better than average 9 risk as regards regulatory climate, business risk and 10 financial risk; and, lastly 11 12 3. I have assumed that because of the recent dramatic 13 changes in this nation's economy, only the immediate 14 past is reflective at all of the foreseeable future 15 (defined as that period during which these rates are 16 likely to be in effect). 17 18 Q. Mr. Webb, what dividend yield and growth rate did you 19 employ in your "DCF" computation? - 20 21 A. Dividend yield and growth rate are obviously matters of 22 judgment, the selected values of which must be reflectiva 23 of investor expectations during the time in which these 24 rates will be in effect. The impact of a witness' informed 25 judgment as to the appropriate values can vary the results Webb - 48
- 1 significantly. Since in using the formula we must use 2 history as a guide, the key is to select that period of 3 history which has the best chance of being informative 4 regarding the foreseeable future. This is a most important 5 point and must be carefully justified because period 6 selection has a significant impact on the result of the 7 f ormula. The wide range of results which alternative 8 historic period selection can produce is precisely why one 9 needs to examine other evidence, especially when formula 10 approaches are involved. Review of the facts must be 11 coupled with informed judgment to determine the required 12 return. 13 14 While precise projections of the future are very rare 15 indeed, insight as to trends in fundamentals are quite 16 available amd realistic. Most economists project the near 17 term future to encompass many of our economy's current 18 problems. The electric utility outlook is also for more of 19 the same. Expectations for the future can therefore most 20 realistically be determined by reference to the recent 21 past. The period most representative of investors'
,22 immediate future requirement for yields is 1977 79.
23 Petitioner's Exhibit Webb-11 shows the average dividend 24 yield on Central Maine's common stock for the periods 25 1977-1979 and 197 4-1979. Based on Central Maine Power's Webb - 49
i 1 average yield of 9.60% during 1977-79, and giving 2 appropriate weight to the 1979 yield of 10.75%, as well as 3 Central Maine Power's current yield in excess of 12%, it is i 4 my judgnent that a range from 9.50% to 10.25% is just and 5 reasonable. As an aside, it is interesting to note that 6 this range is also appropriate if one looks at the yields 7 during the period 1974-1979. Although recent yields have 8 been much higher, the expected downturn ahead should 9 favorably impact interest rates, dropping required yields 10 somewhat from their current high levels. 11 12 Q. Mr. Webb, what growth rate have you used? 13 14 A. Again, I must emphasize we are developing a rate of return 15 on common equity for the near term future, not historical 16 c6st, nor some average cost which, if earned for infinity, 17 would produce the desired result. Further, investor 18 requirements for yield compensation commensurate with the 19 levels of interest rates does not in itself, as some would 20 argue, create a corresponding willingness to accept minimal 21 growth in dividends. 22 23 Again using the period 1977-1979 as being instructive of 24 the f oreseeable future, Petitioner's Exhibit Webb-12 shows ! 25 the growth rates in dividends for Central Maine Power and l l Webb - 50
1 the electric utility industry during that period. Central 2 Maine's growth in annual dividendu paid per share in 1979, 1978 and 1977 was 6.2%, 3.6% and 4.1%, respectively. The 3 4 growth in Central Maine Power's annualized dividend rate 5 for this same time period was 7.9%, 5.6% and 2.9%, 6 re sp ect iv ely. The industry's average growth in dividends 7 paid per share was 6.3%, 6.5% and 6.4% during this same 8 time period. Based on this data, it is reasonable to 9 assume that the investor would expect Central Maine's 10 dividend to grow in the range of 4-5% per year. 11 12 Q. Mr. Webb, utilizing this data, what " bare bones" cost of 13 common equity does the DCF formuia produce? 14 15 A. Utilizing a 9.75% dividend yield plus a growth rate of 16 4.50%, the DCF formula produces a " bare bones" cost of 17 common equity for Central Maine of 14.25%. Obviously, a n 18 " bare bones" cost of equity is not acceptable, however, the 19 DCF formula does not lend itself to a determination of the 20 cost of equity adequate for capital attraction or 21 maintenance of an effective secondary stock market. We 22 will have to look to other tests for determination of a 23 just and reasonable cost of common equity as opposed to a 24 " bare bones" cost. This difference between " bare bones" 25 and just and reasonable is particularly important to Webb - 51
1 Central Maine in 1980 because the Company anticipates the 2 sale of up to 2,000,000 additional shares of common stock 3 this year. 4 5 Q. Mr. Webb, do you f avor using the comparable earnings 6 approach? 7 8 A. Again, this is a method which should be evaluated but 9 should not be relied on as a sole criteria for cost of 10 equity determination. 11 12 Q. Would you discuss this approach and explain how you utilize - 13 it in your de' termination of Central Maine Power's cost of 14 common equity capital? 15 16 A. The comparable earnings app ~ roach consists of examining 17 earnings on common equity for other businesses of 18 corresponding risk and uncertainties. An extension of this 19 approach is to also examine enterprises with different 20 risks and then make an allowance (" risk premium") for this 21 difference. This approach is based on the premise that the 22 cost of equity is an opportunity cost. In order to satisfy 23 its cost- of equity, a company must earn a return at least 24 equal to that which an investor could earn in an , 25 alternative investment of corresponding risk. i Webb - 52
1 Q. Isn't a disadvantage of this method the difficulty in 2 selecting companies having corresponding risks? 3 4 A. No. We must remember that in Bluefield the court stated a 5 return should be equal to that of "other business 6 undertakings which are of corresponding risks and 7 uncertainties". This language does not infer " identical", 8 nor does it restrict comparability to other utilities. In 9 fact, it is clear in Bluefield the court's intent was to . 10 define comparability very broadly by excluding only " highly 11 profitable enterprises or speculative ventures". Investors 12 have a wide erray of investments from which to choose and 13 are interested in obtaining the highest possible return 14 given a defined level of risk. Utilities must not only compete among themselves for investor dollars, but with all
^
15 16 others who seek such funds. Limiting comparison to only 17 other regulated utilities, as other witnesses have done in 18 proceedings before this Commission, ignores the 19 alternatives available to investors and falls prey to the 20 circular reasoning so vividly described in a 1972 Federal 21 Power Commission decision, when the Commission stated: 22 23 "These standards of comparison may include both 24 regulated and unregulated companies. Indeed, this 25 Commission has never advocated basing allowed rates of
~
l Webb - 53 i
1 return solely on what other regulated companies have 2 been allowed in the past. Such a process, rather like 3 observing an endless series of duplicate images in 4 multiple mirrors, would be hopelessly circular . . . 5 (Re. Union Electric Co., 94 PUR 3d 87, at 100 (1972)) 6 7 Comparing one sick company to others surely will not cure 8 the disease. 9
~
10 Q. Have you used the comparable earnings' approach to evaluate 11 Central Maine Power's required rate of return on common 12 equity? 13 14 A. Yes. The courts have clearly stated that the process of 15 determining a utility's rate of return should consider 16 comparable earnings of other enterprises. 17 18 Q. What companies have you chosen for comparison to Central 19 Maine Power? 20 21 A. Since no two companies are exactly alike and investors are 22 free to select whom they will provide capital, it is 23 necessary to obtain a broad perspective in examining 24 comparable earnings. Therefore, my approach was to examine 25 the earnings of Standard 5 Poor's 400 Industrials, which is Webb - 54
\
l 1 a valid appt ach even though it contains companies of l 2 varying levels of risk, simply because this group is 3 followed by the investment community and is considered to 4 be representative of the industrial sector. For the same 5 fundamental reasons, I have also selected Moody's 24 6 Elec tr ics . Finally, to supplement this data, I have 7 examined returns of various specific industries. 8 9 Q. Mr. Webb, did you make any other comparisons? 10 11 A. Yes. I have examined earned returns on equity for both the 12 electric utility industry and Central Maine Power plus 13 returns on long-term U. S. Treasury obligations and those 14 of utility bonds. 15 16 Q. What were the results of your examination of these earned 17 re turns ? 18 19 A. Petitioner's Exhibit Webb-13 reflects the earned return on 20 average common equity for the S 4 P 400, the electric 21 utility industry and Central Maine Power. It is clear from 22 this exhibit that returns of electric utilities have not 23 even kept pace with industrials, let alone increasing 24 proportionately to the increase in business risk in the utility sector during the last ten years. In fact, dur. 25 Webb - 55
1 the five-year period 1965-69 when business risks were 2 substantially less than today for electric utilities, the average return on common equity was 12.5%. During this 3 4 same time period, industrials averaged 12.7% while Central 5 Maine Power trailed the group with an averas. of only 6 10.8%. Both the electric utility industry and Central 7 Maine Power have continued to underperform industrials in 8 recent years. Once again, reference to Petitioner's 9 Exhibit Webb-13 shows that during the five-year period 10 1974-78, the average return for the S 4 P 400 increased 11 from the 1965-69 level to 13.9%. The electric utility 12 industry experienced a decline to 11.2% and Central Maine Power Company remained relatively constant at 11.0%. Thus 13 14 the spread between industrial and utility earned returns 15 has increased from an average of 20 basis points in favor 16 of industrials during 1965-69 to an average of 17 approximately 270 basis points during the period 1974-78. c 18 Clear evidence that during a period of significantly higher 19 risks, investors in utilities have been asked to be 20 satisfied with both absolutely and relatively lower 21 returns. It is no wonder the market value of utility 22 common stocks have taken such a beating in recent years 23 with returns such as these. Further examination reveals 24 that not only has the absolute and relative level of 25 electric utility earnings declined, but the quality of I Webb - 56
1 those earnings has also suffered considerably. 2 Petitioner's Exhibit Webb-13 shows the earned returns for 3 the S S P 400, the electric utility industry and Central 4 Maine Power, excluding non-cash AFC credits. Once the 5 adjustment for non-cash AFC earnings is made, an even wider 6 spread develops in f avor of industrials. Petitioner's 7 Exhibit Webb-13 shows the return on equity, excluding 8 non-cash AFC, for the electric utility industry was 12.0% 9 in 1965. By 1978 AFC accounted for 42% of utility 10 earnings, resulting in an average return on equity, 11 excluding non-cash AFC, of only 6.6%. In 1978 the return 12 f or industrials was 14.6%, utilities coming up short by 800 13 basis points. Central Maine Power's earnings quality has 14 experienced the same erosion. In 1965 non-cash AFC 15 accounted f or less than 3% of Central Maine Power's 16 earnings available for common equity. In fact, the average 17 during the five years 1965-69 was 2% which resulted in an 18 average return on equity, excluding AFC, of 10.6%. The 19 1970's brought about a dramatic change with the percent of 20 AFC peaking in 1978 at 48%. During the five-year period 21 1974-78, Central Maine Power's return on equity, excluding 22 AFC, was a very low 7.8%. 23 24 Q. Mr. Webb, what is the significance of this trend regarding ! 25 the earned return on industrials versus electric utilities l Webb - 57
1 and Central Maine Power? 2 3 A. Central Maine Power Company and other electric utilities 4 must compete with industrials for available investor 5 dollars. On a total return basis Central Maine Power is 6 simply not meeting the corp 3;i. ion and, therefore, is not 7 an attractive investment alternative unless the investor 8 can buy the stock at a price well below its book value and
'then only as a short-term income producing investment. For 9
10 reasons discussed earlier in this testimony it is not 11 acceptable for this Company's stock to continually trade at a 12 levels significantly below book value. Further, this 13 evidence clearly indicates that Central Maine's recent 14 allowed rates of return are well-below those which derive 15 from the criteria established in Hope and Bluefield. If 16 investors perceive .that the foreseeable future in terms of 17 the economy and risk of utility investment is going to be c. 18 similar to the recent past then this evidence indicates 19 that Central Maine's stock will continue to sell at levels 20 well-below book value unless it earns a higher return on 21 common equity. 22 23 Q. Mr. Webb, how would you describe the foreseeable future for 24 electric utilities and their relative risk as compared to 25 industrials? - Webb - 58
1 A. As I stated earlier in my testimony, the near term outlook 2 for electric utilities will, in all probability, reflect 3 the risks and uncertainties which have plagued the industry 4 and the economy in the recent past and which currently 5 cloud its future. The most significant concerns will be: 6 7 1. Inflation and the general state of the economy 8 2. Regulatory climate 9 3. Interest Rates 10 4. Capital Requirements
- 11 5. Fuel costs and supply 12 6. Consumer resistance to the overall cost of 13 electricity, coupled with a growing public concern for 14 environmental protection 15 7. Forecasting demand and providing supply 16 17 Q. Would you care to elaborate on any of these items?
6 18 19 A. Yes, I would like to add to my earlier testimony with 20 regard to inflation and regulatory climate. During the 21 years 1975-79 inflation as measured by the Consumer Price 22 Index averaged 8.1% an'd is currently in excess of 13%. 23 Most economists project inflation will continue at double 24 digit levels through 1981, and may well average 8% or more 25 for the next decade. In fact, the consensus forecast of 42 Webb - 59
1 private economists, as compiled by Eggert Economic 2 Enterprises, Inc., projects an inflation rate of 11% for 3 1981. According to a recent article in the Wall Street 4 Journal (Monday, January 14th 1980) President Carter is 5 also forecasting double digit inflation for 1981. 6 7 Q. Would you care to comment on the overall economic outlook 8 and its consideration in setting rates of return? 9 i. 10 A. The current economic outlook is rather bleak. Most 11 economists, including those of the current Administration, 12 are f orecasting a further downturn in 1980. Although many 13 of these economists disagree on its severity, its sxact 14 definition 'or its timing, the consensus is that the general economic outlook for the foreseeable future will in all i 15 16 Probability include a recognizable downturn. It is common 17 knowledge that most economists expect the near term future u to encompass many of the problems which we face today. The 18 19 major concerns will be that of high rates of interest and 20 inflation, rising unemployment, the problem of dependency 21 on foreign oil, the need for energy legislation, 22 uncertainty due to the problems in the Middle East, 23 particularly the current crises in Iran and Afghanistan, 24 all of which will contribute to an overall decline in GNP 25 for 1980. Further, it is generally agreed that these l J Webb - 60
1 Problems are not limited to 1980, as their solutions are 2 obviously not a matter of routine. It has taken a long 3 time to get the economy in its current state of disruption 4 and it will more than likely take a long time to get it 5 out. The courts have recognized the need to consider such In 6 conditions in the determination of rate of return. 7 Bluefield the decision stated: , 8 9
"A rate of return may be reasonable at one time, and 10 become too high or too low by changes affecting 11 opportunities for investment, the money market and 12 business conditions generally."
13 14 Ignoring anticipated near term future economic conditions 15 when setting rates of return can seriously underestimate 16 the cost of equity capital resulting in, as has been the 17 case for Central Maine Power, a depressed market for the 18 utility common stock. Future economic factors are going to 19 have an impact on this Company and its ability to serve the 20 Pe0Ple of this State; ignoring those economic f actors in 21 the rate making process will only serve to worsen the 22 impact. i 23 24 Q. Mr. Webb, please define " regulatory climate". 25 Webb - 61
1 A. Regulatory climate is a term used to describe the , 2 investment communities' perception of policies and 3 philosophy of the Commission within a specific jurisdiction 4 as well as the State statutes which govern regulation. 5 Risk due to an unfavorable regulatory climate is of prime 6 importance to both rating agencies and investors. Its 7 importance to rating agencies is made clear by Standard 6 8 Poor's Corporation in its publication " Corporate Bond Ratings--An Overview" (Petitioner's Exhibit Webb-14). In 9 . 10 regard to regulatory climate S S P stated: 11 , 12 "The ability of a utility to satisfactorily fund its 13 construction program and to meet current and future
; 14 service requirements is closely related to the
~
l 15 earnings and cash flow levels allowed (although not l 16 guaranteed) by the jurisdictional regulatory body. In l 17 addition to being familiar with the basic legislative 18 statutes and mandated court interpretations which l 19 spell out the ground rules under which a regulatory 20 agency must operate, we follow most of the important 21 general rate case decisions for guidance as to ;
! commission policies and precedents. In recent years, 22 23 a wealth of information has become available in this 24 area, although, unfortunately, there is a lack of 25 up-to-date court rulings regarding the reasonableness i
l l l Webb - 62 l l
I 1 of commission decisions under inflationary conditions. ~ 2 3 Combining management assessments of its company's rate 4 increase needs and strategies with information and 5 philosophy gleaned from past commission actions and 6 our own conversations with regulatory authorities, we 7 develop a judgment as to future rate case outcomes and 8 timings thereof. This evaluation is f undamental to 9 our own projections of future debt' safety margins." 10 11 In the same publication Standard 4. Poor's states that: 12 " . . . important regulatory considerations include": 1s 14 "- Findings on rates of return and rate base 15 - Extent of regulatory lag, which might constrain 16 companies from earning the return allowed 17 - Accounting and rate making procedures prescribed, 18 which significantly influence the ' quality' of 19 earnings and resultant cash flow projection 20 - The availability of interim and/or emergency rate 21 relief, and preconditions for approval 22 - Attitudes evidenced toward company arguments 23 based on interest coverage requirements and the 24 need to maintain credit standing 25 Webb - 63
1
- The presence or absence of short-term utility 2 protection against volatile fuel and purchased i 3 pcwer fluctuations 4 - Any particular utility regulatory problems with 5 respect to the adequacy of communications, 6 cooperativeness and credibility."
7 8 From an investor's perspective " regulatory risk" is higher 9 for those companies operating in an unf avorable regulatory 10 climate. Petitioner's Exhibit Webb-15 shows the ranking 11 assigned to Maine regulation by five separate rating 12 services. These rankings signify a below average 13 environment, clearly demonstrating a perception of above average " regulatory risk" f or Central Maine Power. This 14 15 State, whether we like it or not, cannot aff.ord that kind 16 of image in the capital markets - not if we value the 17 promise of a viable energy future. 18 19 Q. Mr. Webb, do you have any additional evidence of the 20 importance investors assign to a utility's regulatory 21 climate? 22 23 A. Yes. Paine Webber Mitchell Hutchins, Inc., surveys 24 institutional investors concerning investor attitudes 25 towards the electric utility industry. In its most recent Webb - 64
1 survey, Paine Webber asked investors to indicate "the five 2 most important investment considerations in selecting among 3 electric utility common stocks." The consideration chosen 4 most frequently was " regulatory environment" chosen by 89% 5 of the respondents. The survey was sent to the 100 largest 6 U.S. equity investing institutions and 68 others for a 7 total population of 168. 8 9 Q. Mr. Webb, based on your examination of returns on 10 alternative equity investments and your expectations for 11 the immediate future relative to such returns, what return 12 on common equity does this test indicate for Central Maine 13 Power Company? 14 1 15 A. Again, a precise mathematical calculation is not possible. 16 Considering the returns available from investment in the 17 industrial sector, the relatively higher risk associated 18 with investment in utilities and the market / book ratio of 19 Central Maine's stock, I believe that a range of 15.0% to 20 16.5% is both j ust and reasonable. 21 22 Q. Mr. Webb, you stated earlier that one of your tests would 23 examine earned returns on equity for the electric utility 24 industry and Central Maine Power versus returns on U.S. 25 Treasury and utility bonds. What purpose would be served 1 i Webb - 65 1
1 through such a comparison? 2 3 A. The purpoca of this approach is to obtain insight 4 concerning the level of " risk premium" required by 5 investors in equity securities. 6 7 Please define " risk premium". Q. 8 9 A. Risk premium is the component of return which compensates 10 an investor for the risk and uncertainty in an investment. 11 12 Q. Why have you chosen U.S. Treasury bonds as a comparison? 13 14 A. U.S. Treasury obligations are considered as the best 15 measure of " risk free" securities. By comparing such 16 returns to those available on debt and equity securities of 17 electric utilities, we can obtain a range of " risk 18 premiums" required by investors as compensation for 19 subjecting their f unds to a higher level of risk. 20 21 Q. How does your approach utilize returns available on 22 electric utility bonds? 23 24 A. Utility bonds, because they are senior securities, have 25 first call on the utilities earnings and assets. The l Webb - 66 l
1 capital structure of a typical electric utility includes 2 mortgage bonds, preferred and common equity. Common equity 3 is at the end of the line when it comes to any distribution ' 4 of earnings or assets and, therefore, is at greater risk. 5 Since the cost of mortgage bonds can quite readily be 6 computed and since basic investment fundamentals tell us 7 investors use a risk reward analysis when choosing an 8 inves tment , an analysis of historic differentials between 9 U.S. Treasury or " Risk Free" bonds and public utility bonds 10 will assist in the development of a " risk premium" on 11 utility securities. 12 13 Q. What historical periods did you examine in developing your 14 " risk premium"? 15 16 A. The peTiod selected for examination was 1960 through 1978. 17 In developing my risk prenium I examined returns on book 18 equity and, therefore, must examine not only recent years, 19 but years during which allowed returns were actually 20 earned. The 1960's cover a period when earned returns were 21 at least equal to those which were allowed. During recent
- 22 years earned returns have clearly been inadequate 23 compensation for risk, and investors have shown their 24 dissatisfaction in the market,' driving utility stock prices 25 down to levels which meet their investment objective.
l l l 1 Webb - 67 { l
1 Q. Mr. Webb, what conclusions have you drawn from reviewing 2 this data? 3 4 A. Petitioner's Exhibit Webb-16 shows the yields on Long Term 5 U.S. Treasury Bonds, Moody's Composite Yield for 6 Outstanding Public Utility Bonds and earned returns on 7 common equity for the electric utility industry. In order 8 to evaluate the risk premium applicable to electric utility 9 common stocks, I first computed the return spread between U.S. Treasury Bonds and public Utility Bonds. During the 10 11 1960's a spread of approximately 70 basis points over the 12 average yield on U.S. Treasury bonds was required by public 13 utility bond investors as compensation for risk. During 14 this same time period, the return on equity earned by 15 public utilities provided equity investors a premium o'f 1.6 approximately 740 basis points as compensation for risk. 17 The risk measurement is the return earned in excess of that 18 which was available in risk free securities, defined here 19 as U.S. Treasury bonds. The 1970's were a period in which 20 interest rates increased dramatically. Yields on U.S. 21 Treasury bonds rose from around 4.0% in the early sixties 22 to well-over 8.0% in 1978 before soaring to well over 11.0% 23 in 1980. Yields on public utility bonds increased even 24 more dramatically. Electric utilities were no longer the 25 premier investment as in the 1960's. The environment for Webb - 68 l
1 the electric utility industry changed considerably 2 increasing risk for investors. Investors' requirement for 3 returns commensurate with the increased risk in public 4 utilities is clearly demonstrated by the increased yield 5 spread between U.S. Treasury and public utility bonds. 6 During the period 1970-78, the average spread increased by 7 over 100% to an average of approximately 150 basis points. 8 The average returns during this period were 7.3% on U.S. 9 Treasury bonds and 8.7% on public utility bonds. One would 10 expect a similar increase in earned returns on equity if 11 equity owners in utilitics were to be adequately 12 compensated for increases in risk and " pure" rates of 13 interest. But, this increase did not occur. In fact, the 14 direct opposite occurred. The industry's average earned 15 return on common equity was approximately 12.0% during the 16 1960's. For the period 1970-78, a period of substantially 17 higher inflation and risk, the industry's earned return on 18 common equity decreased to an average of approximately 19 11.4%. The investor was asked to be satisfied with a risk 20 premium of about 410 basis points, or approximately 45% , 21 less than the 740 basis points during the 1960's. 22 23 Q. Mr. Webu, how did equity investors react to such low 24 returns on book equity. 25 Webb - 69
1 A. As ! stated earlier in my testimony, the market price for 2 utility stocks was reflective of investor displeasure. 3 Prices dropped to levels where the returns earned were 4 commen.surate with the risk. 5 6 Q. Mr. Webb, are you suggesting utilities be allowed earned 7 returns on common equity in excess of 700 basis points over 8 yields on risk f ree securities? 9 10 A. No, not necessarily, earlier in my testimony I referred to 11 a survey which Paine Webber Mitchell Hutchins conducts on a 12 regular basis. Institutional investors were surveyed and 13 one of the questions in the survey is: 14 15 " Assuming that a double A, long-term utility bond 16 currently yields about 9-1/2%, the utility common 17 stock for the same company would be attractive to you 18 relative to the bond if its expected total return was 19 at least:" 20 21 The survey then provides 'a wide range of total returns and 22 risk premiums from which to choose. The survey results 23 indicate that as of August, 1979, "most investors would 24 require a 14 to 15% total return or 500 basis points over 25 the bond alternative." These are the returns required by l 1 l Webb - 70 l 1
1 investors before they would be willing to invest in the 2 common stock of a utility whose bonds carry a double A 3 rating. Central Maine Power's General and Refunding bonds 4 are rated BAA, a rating two full grades below double A. 5 Companies with a BAA rating are considered to be a greater 6 investment risk. Petitioner's Exhibit Webb-17 shows the 7 yield spreads between the various ratings for Moody's 8 Outstanding Public Utility Bonds since 1960. Since 1975 9 the spread or " risk premium" between Moody's double A rated 10 bonds versus its BAA rated bonds averaged 86 basis points. 11 The current average spread, January 1980, is approximately 12 112 basis points. 13 14 Therefore, if investors require a 500 basis point " risk 15 Premium" between the common equity and mortgage bonds of a 16 double A rated utility, and we agree that a reasonable 17 spread between BAA and AA rated bonds is 75 to 125 basis 18 Points, then we can logically conclude that as regards a 19 BAA rated utility investors would require a common equity 20 risk premium in the range of 575 to 625 basis points. 21 22 Q. Mr. Webb, have you determined the appropriate " risk f ree" 23 capital cost to be used in this analysis ? 24 25 A. Yes. Again, I think that yields on U.S. Treasury bonds l l l Webb - 71 i I f (. i l - -
1 during the period 1977-1979 will be instructive in l 2 determining the appropriate " risk free" component. For the l l 3 years 1977, 1978 and 1979 long Treasury bond yields were 4 7.6%, 8.4% and 9.2%, respectively, with the average for the 5 period being 8.4%. Currently, these yields are 6 significantly higher, in fact, on January 25, 1980, U.S. 7 Treasury 10-3/8% of 2009 were yielding approximately 11%. 8 Giving appropriate consideration to recent yields, current 9 yields and the prospects for some downturn in interest i 10 rates in the foreseeable future I believe that a " risk 1 11 free" component in the range of 9% to 9.75% is 12 appropriate. l 13 14 Q. Mr. Webb, what required return does this analysis produce? 15 16 A. Combining my " risk premium" of 575 to 625 basis points with 17 my " risk f ree" component of 9% to 9.75%, produces a range 18 of required return on common equity of 14-3/4% to 16.0% for 19 Central Maine Power Company. 20 , i 21 Q. Mr. Webb, you have discussed the "DCF" method, the 1 22 comparable earnings approach and made comparisons between , 23 earned returns on bonds and equities. Do you have any 24 additional testimony tc offer with regard to an appropriate 25 allowed return on common equity for Central Maine Power? l Webb - 72
- - -- ~ .~ ,,.--
1 A. Yes, I would like to discuss the market-to-book test. 2 3 Q. What level above book value do you deem appropriate for 4 Central Maine Power Company? 5 6 A. It is my judgment that Central Maine Power should be 7 allowed a level of earnings sufficient to provide a 8 reasonable opportunity to improve the quality of its stock 9 by providing investors their required return at a minimum 10 market level of 120% on book value. This is necessary in 11 order to compensate for costs of issuing new equity and to 12 provide a reasonable provision for market pressure. 13 Without such a margin, Central Maine would have less than a 14 reasonable opportunity to consistently earn its cost of 15 capital. 16 17 Q. Mr. Webb, what cost of common equity would provide a 18 reasonable opportunity for Central Maine's common stock to 19 attain a market level 120% above its book value? 20 21 A. Given this Company's existing economic and regulatory 22 envi ronment a rate of return on total common equity in the 23 range of 15.22% to 16.40% should provide a reasonable 24 opportunity for our stock to trade at a level between 100% i 25 and 120% of book value. i Webb - 73 ;
1 Q. What is the basis for this range of required cost equity? 2 3 A. My first step using a market-to-book approach was to 4 determine an appropriate dividend yield. Currently the 5 dividend yield on Central Maine's common stock is in excess 6 of 12% but we must remember the return being developed 7 herein is that which will be required during the time these 8 rates will be in effect. For reasons stated earlier in my 9 testimony, it is my judgment that a dividend yield in the 10 range of 9.50 to 10.25% is reasonable and appropriate. 11 12 Q. Based on your range of yields, would you please explain how 13 you arrived at your range of required return on equity? 14 15 A. The f ollowing computations indicate a return of between 16 15.22% and 16.40%: 17 18 Dividend Yields 19 9.50% 10.25% 20 Required dividend = Book Value ($17.54) 21 Times 120% Times Yield $2.00 $2.16 22 Required Earnings = Dividend 1 payout ratio $2.67 $2.88 23 (75%) 24 Required rate of return on book equity = 25 Earnings 1 Book Value 15.22% 16.40% i i i l Webb - 74
1 Q. Mr. Webb, what is your recommended rate of return on common 2 equity for Central Maine Power Company? 3 4 A. Before stating my recommendation, I would like to summarize 5 the testimony which has been discussed here. First, I 6 testified to the erosion of Central Maine Power Company's 7 financial integrity which clearly indicates that present 8 allowed and earned rates of return are not sufficient to 9 meet the financial integrity criteria established in Hoge 10 and Bluefield. Secondly, I testified that Central Maine's 11 current credit rating is clearly unacceptable and does not 12 meet the capital attraction criteria established by the 13 U.S. Supreme Court and that this Commission's unreasonably 14 low allowed rate of return on common equity, use of a 15 hypothetical capital structure and regulatory lag are the 16 reasons for that poor credit rating. And, lastly,'I have 17 testified to three recognized tests that support my 18 contention that Central Maine's cost of common equity 19 capital ranges from a cost of 14.75% to 16.50%. 20 21 There are many factors which effect the most appropriate 22 cost of equity for Central Maine Power Company from within 23 that range. I believe that if Central Maine Power Company 24 is successful with respect to many of the other items 25 included in this filing then 15% is an appropriate cost of 1 l l Webb - 7 5
1 equity and we have, therefore, filed this petition on that i 2 basis. If, however, this Commission is not responsive to 3 the needs of this Company, its investors and its customers, 4 then the cost of conson equity to this ' Company will be 5 substantially higher. 6 - 7 Q. Mr. Webb, does that conclude your testimony on cost of 8 common equity? 9 10 A. Yes. 11 12 Q. Mr. Webb, what is the annual effective cost of mortgage 13 bonds to Central Maine? 14 15 A. Petitioner's Exhibit Webb-18 shows Central Maine's cost of 16 long-term and intermediate-term mortgage bonds at December 17 31, 1979, adjusted to reflect 1980 sinking fund 18 requirements of $232,000 and a proposed bond issue of 19 $40,000,000 in 1978. In summary, this exhibit shows the 20 annual effective cost of mortgage debt to be 8.96%. 21 l 22 Q. What is tho annual effective cost of pollution control 23 bonds? 24 l 25 A. The annual effective cost of the pollution control bonds is l Webb - 76 l l
1 6.96%, as shown on Petitioner's Exhibit Webb-19. 2 3 Q. What is the annual effective cost of the capitalized le_se 4 on the General Office building? 5 6 A. The annual effective cost of the lease is 11.54%. 7 8 Q. Mr. Webb, does your capital structure include short-ters 9 debt? 10 11 A. Yes. Petitioner's Exhibit Webb-21 shows the short-term 12 component to be $32,400,000 with an effective rate of 13%. 13 _ 14 Q. Mr. Webb, what is the annual effective cost of preferred 15 stock? 16 17 A. Petitioner's Exhibit Webb-20 shows preferred stock 18 outstanding proformed for the $11.25 Series sinking fund of
$385,000 and a proposed issue of $25,000,000 in 1980. The 19 20 annual effective cost is 8.27%
21 22 Q. Mr. Webb, given these elements of capital, what is the 23 total cost of capital? 24 25 A. The total weighted cost of capital or rate of return is l Webb - 77 -
1 11.23%, as shown on Petitioner's Exhibit Webb-21. 2 i 3 Q. Do you have any further testimony to present on rate of a 4 return? 5 6 A. I have nothing further on rate of return. 7 . 8 Q. Mr. Webb, do you intend to offer testimony on the 9 rate-making treatment of Construction Work in Progress 10 (CWIP)? 11 12 A. Yes. I do. 13 14 Q. Mr. Webb would you state the company's perception 15 of the issues regarding the. rate making treatment 16 of the financial costs of an on-going construction 17 program in today's economic environment? 18 19 A. The company believes that there are three principal
- 20 issues regarding the rate making treatment of the 21 financial cost of a construction program:
22 1) the value to the customer of the assurance of 23 future electric service availability, 24 2) generation of cash flow and 25 3) investors' perceptions of the relative risks Webb - 78 l
1 borne by both themselves and the rate payers. 2 In this testimony I will develop each of these 3 issues in greater detail. I will also discuss the 4 impact on the Company, its customers and the invest-5 ment community of the various methods of treating 6 these financial costs. 4 7 - 8 We strongly recommend that the Commission include 9 at least a portion of construction work in progress 10 (CWIP) in rate base and allow a full cash return 11 currently as a means of equitably recognizing the 12 implications of this major issue. While we recog-13 nize there are many facets to this issue and that 14 there have been differences of opinion in the past 15 between the company and the Commission on this a j 16 issue, we feel strongly'that CWIP remains critic-17 ally important. < 6 18 19 We recognize that the implementation of a policy 20 which includes construction work in progress in rate 21 base can ?tve a significant impact on rate levels. 22 Therefore, to moderate the impact on rates we are 23 recommending in this rate proceeding that only one 4 24 quarter of the expenditures made through the end of 25 1979 on certain designated construction projects be Webb - 79 i
\
included in rate base. These projects and the corres-1 2 Ponding amounts of CWIP to be included in rate base 3 are presented in Petitioner's Exhibit Webb-22. We are 4 recommending that about $9 million of CWIP be included 5 in rate base with a current return. We would antici-6 Pate that over the coming years, additional amounts 7 of construction work in progress might also be added to the rate base to recover currently, increasing 8 9 amounts of the financial costs of the construction 10 Program. 11 12 Q. Mr. Webb, would you please explain why the company's 13 construction program is necessary? 14 15 A. The construction program provides for the replace-ment or retirement of existing plant as well as con-16 17 struction of additional facilities to serve the 18 growing requirements of existing customers and the 19 needs of new customers. All of the generating plants and other facilities which are furnishing the 20 21 requirements of our customers are becoming function-22 ally and economically obsolete and ultimately will 23 have to be replaced. Last year Cape Steam and Bruns-24 wick Hydro-electric Stations were retired and Farm-25 ingdale Gas Turbine will be retired this April. I Webb - 80
I have prepared Petitioner's Exhibit Webb-23 to show 2 As these and any the ages of our existing plants. 3 other property investments are retired they will 4 have to be replaced with new facilities. 5 0 Our customers contribute to the need for new plants 7 in two ways. First, the needs of many of our pres-8 ent customers are increasing. We know that the 9 number of certain appliances is growing and is 10 expected to continue increasing. Many of our exist-11 ing general service customers are expanding their 12 operations. We recognize and support the conserva-13 tion effort of our customers and realize that the 14 growth in demand is to some extent offset by this 15 effort. There is a limit, however, to the amount 16 that can be conserved. In addition, we are experien-17 cing a continuiag growth in the number of new customers 18 takinghervicefromthesystemeachyear. The demands 19 of these customers obviously increase the Company's 20 requirement to provide service and therefore impact on 21 the construction program. 22 23 Mr. Webb what is the value of the construction program Q. 24 to the customer? 25 Webb - 81
A. We feel that the construction program, by assuring 1 the availability of electric service in the future, 2 3 benefits both the current customer and the customer who will be coming into our service territory, by 4 5 providing an assurance of an energy sufficient future, 6 just the same way as social Security or a retirement 7 plan or an insurance policy provides the assurance of 8 a cash sufficient future for an individual. Just as 9 these types of protection provide current value in the f rm of an assured future so does the construction pro-10 11 gram. Just as these types of individual protection have a current cost so does the construction program. 12 13 None of us like to spend money today for something 14 which we will not be able to touch or see or feel until some point in the future but we do it because 15 ur individual future well being is at stake. As 16 individuals we know that if we do not do something 17 today the future will arrive and we will not be pre-18 pared to deal with it. A reliable source of elec-19 tric energy is no different. 20 I
' 21 l
\
Q. Are there any other benefits which accrue to your 22 l customers, both existing and future, because of the
, 23 construction program?
24 25 l l l Webb - 82 l < l ' l o __
1 Yes, although I would phrase it differently. The A. 2 benefits associated with the continued economic growth 3 of the State of Maine would be jeopardized if the 4 Company were not planning to meet the associated 5 electrical requirements. The Company's construction 6 program is designed to meet these needs. 7 8 Q. Is the value of future service assurance different 9 for the existing customers than for new customers? 10 11 A. Not really. It is clear that construction necessary 12 for the replacement of existing plant produces a 13 benefit to present rate payers since it merely replaces 14 facilities currently being used in rendering service 15 to them. Existing customers will also share in the 16 use of this future plant and also will share in the 17 benefits of it, including any cost advantages that 18 may be created. In addition, the benefits to new 19 customers who may be moving into the territory or 1 20 who may already exist here and not be taking 21 service, such as the younger generations of exist-22 ing families, are provided through the construction 23 program with assurance of an energy future at a l 24 time when their requirements will be adding to the 25 Company's load. Both the existing and future 1 Webb _ _ _ _ _ _ - _ - --. __
i customers can be assured that their present standard 1 f living will not decline due to a lack of energy. 2 3 Q. Mr. Webb, you mentioned that there are costs asso-4 ciated with the assurances of a future energy supply. 5 Could you define these costs? 6 7 8 A. Yes. The process of implementing a construction pro-g gram involves expending money over a period of years to build large facilities. As these funds are spent 10 11 they are accumulated in an account called construc-tion work in progress (CWIP). This balance repre-12 13 sents the accumulated expenditures made on projects 14 which have not yet become operational or placed "in service." 15 16 17 The types of costs properly includable in the accumu-lated expenditure balance consist principally of the 18 following: direct and indire . labor, materials and 19 20 transportation, engineering and supervision, and taxes. 21 22 23 Q. Mr. Webb, are there any other costs associated with the construction program? 24 25
)
l l l i
- l Webb - 84 l
l 1
1 A. Yes, it is universally recognized that the complet-2 ed construction cost of facilities by public utilities, 3 non-regulated businesses or an individual not only 4 include actual expenditures for materials, supplies 5 and labor, but also actual or imputed cost of funds 6 tied up during the construction period. These capitalized financial charges are known as an " Allow-8 ance for Funds Used During Construction" (AFC). 9 10 Is recovery of these financial charges a significant Q. 11 issue in dealing with the construction program? 12 13 A. The principal question surrounding the CWIP issue 14 centers not on whether these costs should be 15 recovered but when should they be recovered and who 16 should pay them. The traditional argument in favor 17 of capitalizing these financial charges or, in 18 effect, adding them to rate base to be recovered 19 over the operating life of the facility is that 20 "present" customers should not pay tl e carrying 21 costs for construction projects which will serve ! 22 " future" customers. We believe that in the earlier 23 stages of utility development when capital was raised 24 primarily to finance facilities related to the attachent of new customers as utility companies l l webb - 85
y expanded.into new territories, it was easier to dif-ferentiate between the interests of "present" and 2
" future" customers interests. Today, however, the 3 1 construction requirements of utilities result, as 4
men ned earlier, from the replacement of existing l 5 facilities and the increasing demands of present 6 7 customers as well as attachment of new customers. It is clear that the proportion attributable to each 8 g cannot be easily measured and may not even be sig-nificant when viewed in light of the " assurance of 10 an energy future to all customers" argument. It is 3 incumbent on the utility to engage in long term 12 planning and construction programs. This effort 13 g produces a substantial value to the customers which must be recognhed and paid for. 15 16 Q. Mr. Webb, what is the cash impact of the construc-17 tion program? 18 19 A. Funding the construction budget requires large sums of money. High inflation rates are further raising 3 these requirements. To the extent possible, internal 22 sources of cash are used to meet these requirements. 23 g However, they are not always sufficient. Historic-ally, as shown in Petitionar's Exhibit Webb-4, the 25 l ! Webb - 86 l
l 1 Company's internal sources of cash have provided any-2 where from 117% to 26% of the company's construction 3 requirements. During the W. F. Wyman Unit No. 4 4 construction period (1975-1978), the percent of con-5 struction requirements that were provided from 6 internal funds ranged from 43% to 26%. The reason 7 I point out the Wyman project is that it is recent 8 and representative of a period of heavy construction 9 requirements. 10 11 12 Since the company's construction requirements cannot 13 all be provided from internal sources, some funds 14 must be derived externally through the issuance of 15 stocks and bonds. Over the last five years, the Com-16 pany has realized about $200 million of its capital 17 requirements from security issues. Over the next 18 five years we are forecasting the need for over $450 19 million in construction requirements, excluding AFC. 20 Internal generation of 50% of these requirements is a 21 prerequisite to a successful financing program. 22 23 Debt and equity securities are the external sources 24 of cash. The owners of each of these types expect 25 a cash return on their investment. Bond holders i Webb - 87
l
)
1 expect regular interest payments, normally starting 2 within six months after issuance. The equity 3 owners expect a fair return on their investment in the ! forn of a steady stream of earnings. They further 4 5 expect that a portion of these earnings will be paid 6 currently as dividends. Both interest and dividends 7 must be paid in cash. They are real cash requirements. 8 9 Q. Mr. Webb, how are these additional cash requirements 10 supplied? 11 12 A. Normally interest costs and the return on common equity . are considered current revenue requirements for rate 13 making purposes. That is, our customers pay them as 14 a part of their rates. Howev9r, in the case of fin-15 16 ancing done to support constre: tion of new facilities, the MPUC has historically required that the financial 17 18 costs (AFC) be capitalized since the plant was not 19 yet in commercial operation and supplying energy to 20 our customers. Although the MPUC recognizes the , 21 validity of these costs, it has held the opinion 22 that they should be recovered from the customers 23 only at such time as the facility is providing 24 usefulness. Consequently the MPUC has ruled that 25 these AFC costs should be recovered over the Webb - 88 , 1 l l
1 operating life of the facility. Thus, they are 2 accumulated during construction and included in 3 rate base when the facility becomes operational. 4 The AFC is recovered over the life of the facility 5 through depreciation. Since the interest and divi-6 dends which comprise AFC are paid as they occur and 7 are not recovered through current rates, they reduce 8 the internal sources of cash and further increase 9 the need for external financing. Thus, the combination 10 of large construction requirements and capitalization 11 of AFC help to create a situation where the Company is 12 relatively cash poor. That is, a larger portion of its 13 cash requirements must be met with additional borrowing 14 and additional sales of equity. 15 16 How can this situation be improved? Q. 17 18 A. As we have discussed previously it is important that 19 the financing charges on construction. program be 20 earned currently in the form of cash earnings. It 21 is appropriate that the existing customer pay these 22 charges since he principally is receiving the assur- j 23 ances of the future energy supply. 24 l 25 g ,. Mr. Webb, earlier in your testimony you discussed the l i ( - Webb - 89
1 impact of investors' perceptions of financial integ-2 rity on the cost of money to the Company. Is finan-3 cial integrity impacted by the construction program 4 and is it impacted by the current treatment of CWIP 5 and AFC?
! 6 A. Yes it is. The construction program and its corres-7 8
Ponding capital requirements and the current treatment 9 of AFC for rate making purposes have a very real im-f 10 Pact on our investors' perceptions of our financial l integrity. Both fixed inccme and equity investors 11 i are concerned with the impact of AFC. Fixed income l 12 I investors are concerned with receiving their interest
; 13 14 Payments on a regular basis. Two of the many factors 15 investors and security analysts use in evaluating fixed income securities and the risk of not receiving 16 their interest payments are directly affected by the 17 18 treatment of CWIP and AFC. These are pre-tax coverage j i
19 of fixed charges excluding AFC and regulatory climate. Petitioner's Exhibits Webb-14 show the importance of 20 these items to the rating agencies in their evaluation 21 of a company's bonds. 22 23 24 The pre-tax coverage of fixed charges excluding AFC for Central Maine Power Company as shown in Petitioner's 2 25 b i Webb - 90 l
Exhibit Webb-5 for the period 1974 through 1979 has been 2 In contrast, it was over 3 times during below 3 times. the preceeding period of 1967 through 1973. In fact it 4 was as high as 6 times in 1967. The impact of the AFC 5 associated with the W. F. Wyman Unit No. 4 project is 6 evident in the 1974 to 1978 figures. 7 8 How does regulatory climate effect bond ratings? Q. 9 10 The impact of regulatory climate on bond ratings A. 11 cannot be over emphasized and is a major factor in 12 assessing the financial intei.nity of a utility. Inclusion of CWIP in rate base without a correspond-14 ing AFC offset is considered to be one of the key 15 indicators of a positive regulatory climate. It 16 indicates the willingness of a commission to recog-17 nize and deal with the utility's cash problems. 18 19 Mr. Webb, what are equity investors' concerns with Q. 20 respect to the impact of the rate making treatment of AFC on financial integrity? 22 23 There are several measures of financial integrity A. 24 which can be affected by the rate making treatment 25 They all relate to cash. The first of of AFC. l 1 1 Webb - 91 1
these is the amount of the construction require-1 2 ments which are funded from internal sources. As 3 I p inted out earlier the company has been able to fund its construction requirements with internal 4 5 sources to a lesser and lesser extent. This problem has been exacerbated by the current treatment of AFC 6 which in effect has created ancillary requirements 7 ' f r cash. 8 9 10 Q. What other aspects of financial integrity are im-11 Pacted by the current method of treating AFC? i 12 13 A. Quality of earnings is also impacted in an adverse 14 way by the current treatment of AFC. Pre-tax coverage of fixed charges excluding AFC, AFC as a percent 15 J of net income, the effective income tax rate and the 16 17 percent of construction funds generated internally are all indicators of earnings quality and they are 18 19 all impacted by the construction program and the rate making treatment of AFC. A recent history of 20 21 these indicators is shown on Petitioner's Exhibits Webb-5, Webb-24, Webb-25 and Webb-4. All of these l 22 23 have been adversely affected by the W. F. Wyman Unit i No. 4 construction program and by the current treat-
~ 24 25 ment of AFC.
t Webb - 92
a I l 1 Investors must also be concerned with a Company's 2 ability to support its dividends. Net income 3 supports dividends and, to the extent that net 4 income is made up of AFC, the current real cash 5 requirements cannot be supported with current net 6 income. In effect, a portion of the money to pay dividends must be borrowed. AFC as a percent of 8 total earnings has been increasing in recent years. Petitioner's Exhibit Webb-26 shows the impact of this 10 on dividend coverage. For the period 1976-1978 11 earnings per share excluding AFC were not sufficient 12 to cover dividends per. share. This trend during 13 periods of construction would obviously be perceived 14 as a higher risk situation and therefore less desir-15 337,, 16 17 Also, as with fixed income investors, regulatory 18 climate is one of the prime considerations in assess-19 ing the financial integrity of a Company and hence is 20 a measure of the desirability of its stock. 21 22 Mr. Webb, would you please summarize the impact on Q. the investor and his reactions to the current 4 treatment of AFC? 25 1 l Webb - 93 , l
A. Investors are concerned with obtaining a return on 1 2 their investment and with the associated risk. The ability of a company to meet its c- require-3 4 ments with internal sources of funds is taken as a 5 key measure of the company's riskiness as an invest-6 ment. The higher the requirements and the lower the 7 internal generation the higher the risk. The higher 8 the risk the higher the premium the investor requires 4 9 to compensate him for taking that risk. Shifting some of the risk to the cust'omer, who ultimately 10 receives all of the benefits anyway, could be prop-11 12 erly expected to be perceived by the investor as a 13 p sitive action. Allowing CWIP in rate base without an offset would increase the cash generation and 14 15 1 wer the perceived risk. That will in turn lower 16 the cost of money to the company and be reflected in a lower the cost of electricity. 17 l 18 ; Q. Mr. Webb, are there any other financial considera- ! 19 20 tions which you feel germane to this discussion of l 1 21 AFC? j l l 22 1 23 A. Yes. As I have stated earlier, achieving and main- l 24 taining financial flexibility is one of the Com-pany's primary objectives. The ability to attract 25 i a Webb - 94 l
.. . . .- . - a
l l 1 capital of varying forms when required is essential. l 2 To the extent that the current treatment of AFC 3 reduces financial integrity it retards our efforts 4 toward achieving financial flexibility. 5 6 Does the current treatment of AFC have any impact Q. 7 on the property taxes paid by the Company? 8 9 Since the tax base for property taxes gener-A. Yes. 10 ally includes AFC, more AFC ' creates higher property 11 Allowing AFC as a current expense would re-taxes. 12 duce the total tax property value associated with a 13 given plant and correspondingly would reduce property 14 taxes throughout its life. 15 - 16 Does the construction program and the Commission's Q. 17 current treatment of AFC have any other impact on 18 the cash position of the Company. 19 20 To the extent that interest payments are made that A. 21 are associated with AFC there are corresponding in-22 come tax deductions. Currently these tax benefits, 23 which are generated by the construction program, are 24 considered as a current expense for rate making pur-4 poses. So that although current rate payers are Webb - 95
l l l l 1 1 not required to pay any of the costs of the construc- l i 2 Si n program during the construction period, they are all wed to take advantage of the reduced income taxes 3 4 related to AFC. The flowing-through of these tax bene-fits in effect increases the cash requirements of the 5 6 Company and is inconsistent regulatory practice. 7 8 Q. Mr. Webb, you've discussed how current and' future 9 customers have created the need for new construction. 10 You have pointed out that this construction program 11 requires capital which in part must be supplied by investors. You have described how the current treat-12 13 ment of AFC impacts cash requirements and you have 14 discussed the reaction of the investors to all of 15 this. You have also outlined several other tax 16 effects associated with the current treatment of AFC. After all of this, what is the impact on the 17 customer? What do the various methods of treating 18 19 AFC mean to them? 20 A. Of course, the impact on the customer is an import- ! 21 l 22 ant consideration and we have evaluated the effect ' 23 of AFC on the customer and considered it in the I 24 decision as to the best treatment of AFC. To do this we calculated the total revenue requirements l 25 l l l l l Webb - 96 l
1 1 associated with a typical plant for three different 2 treatments of CWIP and AFC. In determining the 3 revenue requirements we included all of the revenue 4 ^ requirements during the construction period and all 5 of the revenue requirements over its operating life. 6 The assumptions and detail results are shown on 7 Petitioner's Exhibits Webb-27. The three cases are 8 summarized as follows: (1) capitalize AFC; (2) in-9 clude AFC as a current expense (CWIP in rate base); 10 (3) capitalize AFC but normalize the tax benefits 11 associated with it. 12 13 Are there any differences between the cases other Q. 14 than the accounting and rate making differences
-15 that you have already sited?
16 17 A. Yes. We have tried to reflect the impact on property 18 taxes. To do this we used the same property tax rate 19 in each case but since the tax base was equal to the 20 sum of the construction expenditures including capi-21 talized AFC, lowered AFC produced lower property 22 taxes. 23 24 What were the results? Q. 25 l l l l l l Webb - 97 1
A. The total revenue requirements over the entire life 2 including its construction period, of a plant costing 31,000 would be $4,744 under the current treatment 3 where AFC is capitalized. If AFC were recovered as 4 5 a cunent expense, de cost would be $3,927 or 1 4 lower. This is significant. Remember also that this 6 7 comparison does not reflect any effect on the cost of 8 m ney or the implications on integrity. 9 Q. Mr. Webb, would you please explain the reason why 10 including CWIP in rate base with no AFC offset pro-11 duces lower revenue requirements. 12 13 A. Yes. Most of the savings are due to reduced carrying 14 15 costs. To the extent that CWIP is in rate base and e AFC is not capitalized, the pre-comm'rcial carrying 16 charges are reduced. Since AFC is recovered current-17 ly and not capitalized it does not go into rate base. 18 Therefore the future return requirements associated 19 with capitalized AFC are avoided. The income taxes 20 21 associated with that return are also avoided. Also, as I mentioned earlier the property taxes are lower. 22 23 Q. What about the case where you capitalized AFC but 24 normalized the tax effect? 25 i l Webb - 98 l I l
1 A. First, let me explain what is meant by normaliza-tion of the tax benefits. Remember that part of AFC is current interest and that as far as the 4 Internal Revenue Service is concerned it is a valid 5 current deduction for income tax purposes. Presently, 6 the reduction in taxes due to this is passed on to 7 current rate payers in spite of the inherent incon-8 sistency of requiring future rate payers to pay the 9 capitalized interest cost while giving the tax 10 advantage of such interest costs to the current rate 11 payer. Under tax normalization the customer would 12 be allowed these same benefits but they would be 13 given out over the commercial life of the plant. The 14 way we accomplished this was to compute AFC and the 15 corresponding tax effect each year during construction. 16 Then the balance'of AFC capitalized was reduced by the 17 amount of the tax benefit. In essence the AFC capi-18 talized and subsequently recovered through depreciation 19 was reduced by an amount equal to the tax reduction 20 associated with AFC. When we did this we found that 21 the total revenue requirement associated with this 22 alternative was $4,519 for the same plant. 1 23 I 24 Mr. Webb, in performing this analysis did you Q. 25 consider the time value of money and the impact Webb - 99 ;
}
1 of your customers' opportunity cost of capital 2 on the costs as perceived by the customer? 3 4 A. Yes, we did. However,.this is a very difficult 5 and nebulous area. Ideally one would discount 6 each of the annual revenue requirements with the 7 customers' opportunity cost of capital. The prob-8 lem comes in trying to determine this opportunity 9 cost. First of all, we are not trying to determine
-10 the opportunity cost of a single customer. We 11 must instead find one which is representative of 12 all of our customers. These customers include 13 large and small businesses, non-profit organizations, 14 governmental agencies, and residential customers.
15 Even if we could determine the opportunity cost for 16 each of our customers combining these into a single 17 number for discounting purposes would be very difficult. 18 19 Recognizing this, we chose a range of discount rates 20 and discounted the annual revenue requirements i 21 associated with each case using those rates. 22 23 Q. And what were the results of that analysis? l 24 25 A. We found that with a discount rate of 8% the present Webb - 100 i i
1 worth of the revenue requirements associated with 2 allowing AFC as a current expense, Case 2, would be 3 slightly lower than with the current treatment where 4 AFC is capitalized. 5 6 The reverse was true with a discount rate of 10%. 7 Capitalizing AFC is slightly less expensive in 8 present worth terms than allowing AFC as a current 9 expense. 10 11 Q. Mr. Webb, earlier you stated that the treatment of 12 CWIP and AFC could have an impact on the cost of 13 money to the Company and that this would also 14 impact the customer. Have you attempted to evaluate 15 this impact in terms of revenue requirements? 16 17 A. Yes, we did. Although we believe that allowing 18 CWIP in rate base without a corresponding offset 19 for AFC would lower the cost of money, we cannot 20 precisely determine the amount by which it would 21 be lowered. So we evaluated the revenue require-22 ments over a range of costs. 23 24 Q. And what did you find? 25 Webb - 101
1 A. We found if one assumed that allowing AFC as a cur-2 rent expense lowered the cost of money to the Com-3 pany by 50 basis points, that the corresponding 4 revenue requirements would be reduced by $118 to i 5 $3,809. 6 7 Q. What was the impact in present worth terms? 8 9 A. We found that even with a discount rate of 10% 10 lowering the cost of money 50 basis points would 11 make the present worth of the revenue requirements 12 associated with allowing CWIP in rate base lower 13 than those associated with the current practice of 14 capitalizing AFC. 15 16 Q. What conclusions have you drawn from your evalua-b 17 tion of the CWIP issues? 18 19 A. In looking at the overall picture and upon reflect-20 ing on all the relevant issues, I believe that in-21 cluding CWIP in rate base without a corresponding 22 offset to AFC can have a beneficial effect on both 23 the Company and the customers. It gives the inves-24 tor a less risky investment by providing more cash. 25 It gives the company better financial integrity and i Webb - 102 l
1 flexibility and allows the customers who create the 2 need for the plant to share equitably in the costs 3 as well as the benefits. It reduces the total cost 4 the customers will eventually pay for energy. It 5 sends out early price signals to customers so that 6 they can anticipate price increases and adapt to 7 them appropriately in an organized fashion. Over 8 time it will help produce a smoother trend in the 9 price of electricity. 10 11 Q. What then is your ,roposal? 12 13 A. I would propose that, to the extent necessary, CWIP 14 be placed in rate base without an AFC offset. We 15 are proposing to include $9 million of CWIP in rate 16 base without the offset which will provide about 17 $1.9 million of additional revenue requirements. 18 To derive the $9 million balance, we have used 25% 19 of the 13 month average of expenditures made on the 20 construction of the Brunswick-Topsham Redevelopment 21 Project and the Company's ownership share of the 22 Seabrook Nuclear Plants and the Millstone III 23 Nuclear Plant. We strongly urge the Commission to 24 move in the direction of allowing a full return on 25 the CWIP balance in this proceeding. l l Webb - 103 f I
1 Q. Mr. Webb, does this conclude your testimony? 2 3 A. Yes, it does. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Webb - 104 l
l
\
PETITIONER'S PREPARED DIRECT TESTIMONY OF Robert S. Howe Comptroller
D1 RECT TESTIMONY OF ROBERT S. HOWE I 1 Q. W uld you state your full name and address please? 2 A. Robert S. Howe. I live in Augusta, Maine and my 3 business address is Edison Drive, Augusta, Maine. 4 5 6 Q. By whom are you employed and in what capacity? 7 8 A. I am the Comptroller of Central Maine Power Company. 9 10 Q. Mr. Howe, please state your education and business 11 experience. 12 13 A. I graduated from the University of Maine, Orono, Maine with a degree in accounting in 1961. Follow-14 15 ing graduation, I began employment with Central Maine Power Company as an Accountant. I was appoin-16 17 ted Control Supervisor in 1965, Revenue Audit Super-visor in 1967 and Assistant to the Comptroller in 18 1971. I was elected Assistant Comptroller in 1973 19 20 and Comptroller in 1975. 21 22 Q. Are you familiar with the books and records of the ; I 23 Company? 24 25 A. Yes, they are maintained under my supervision. i l
1 Q. Mr. Howe, what will be the scope of your testimony 2 in this proceeding? 3 4 My testimony and supporting exhibits will develop A. 5 the 1979 test year net operating income and rate 6 base of the Company and will also discuss the 7 methods used in the computation and preparation 8 of these items. 9 0 Q. On what basis is the test year data presented? 11 12 A. In this proceeding, we are using a 1979 test year. 13 1979 operating income is based on 8 months actual 14 experience and 4 months estimated data. The 1979 15 rate base is based on 13 months average data includ-16 ing 4 months of estimated data. The test year data 17 will be updated with actual figures as soon as they 18 become available. Both the operating income and the 19 rate base have been adjusted to reflect 1) the nor-20 malization of non-recurring events which occurred in 21 1979, and 2) the annual effect of known and measurable 22 changes which are expected to take place before the 23 proposed rates may be placed in effect. In addition, 24 an attrition adjustment has been made in order to , 25 partially offset anticipated erosion in earnings Howe - 2 l
1 which will occur subsequent to the test year. 2 3 Q. Mr. Howe, I show you Petitioner's Exhibit Howe-1, 4 consisting of 13 pages. Was this exhibit prepared 5 under your supervision and direction? 6 7 A. Yes it was. 8 9 Q. Please describe page 1 of this exhibit. 10 11 A. Page 1 of Exhibit Howe-1 shows the components used 12 in determining the 1979 test year adjusted net 13 operating income. It consists of eight columns. 14 The first column shows the 1979 operating revenues, 15 expenses and adjusted net operating income in the 16 manner generally prescribed for reporting to,this 17 Commission. The second column summarizes the 18 normalization of non-recurring or abnormal events 19 in revenue and expense items that occurred during 20 1979. The third column combines the first two 21 columns and shows the 1979 adjusted net operating 22 income. 23 24 The fourth and fifth columns summarize the adjust-25 ments made to the test year for." attrition" and Howe - 3
1 other known changes. I'll discuss these columns 2 in detail later in this testimony. Column 6, the 3 total of columns 3, 4 and 5 represents the 1979 4 test year adjusted for all changes and shows adjus-5 ted net operating income of $41,745,000. Column 7 6 shows the effect of 12 months of additional income 7 as provided from the proposed rates of $35,025,000. 8 The last column is the total of columns 6 and 7 9 and shows full effect of the proposed rates on 10 net operating income. 11 12 Q. Returning now to column 1 of Petitioner's Exhibit 13 Howe-1, page 1, what is shown under the caption of 14 Operating Revenues? 15 16 A. That portion of column lu totalling $279,262,000 17 shows the breakdown of 1979 estimated operating 18 revenues into base revenues, fuel revenues and 19 other electric operating revenues. 20 21 Q. What are the major expense categories shown in l 22 column 1? 23 24 A. The operating expenses shown in column 1 of 25 $233,283,000 consist of fuel for generation and the Howe - 4 l 1 l
1 fuel component of purchased power, the capacity 2 portion of purchased power,other operation and 3 maintenance, taxes (income and property) and 4 depreciation expense. 5 6 Q. Mr. Howe, what is the net operating income for 7 1979 as shown on Petitioner's Exhibit Howe-1, page 1? 8 9 A. As shown in column 1, the 1979 eight months actual 10 and 4 months estimated total operating revenues of 11 $279,262,000 less the total operating expenses of 12 S233,283,000 and including $3,525,000 of equity in 13 earnings of associated companies, previd-= net 14 operating income of $49,504,000. 15 16 Q. Referring again to Petitioner's Exh$ bit Howe-1, page 1, please explain column 2 headed " Normal-17 18 izing Adjustments?" 19 20 A. Certain non-recurring adjustments or changes in 21 revenue and expense levels occurred at various. 22 times during 1979. Principally, these were 1) items 23 which have no continuing impact on income and should 24 be removed from the operating results and 2) items 25 which commenced during the test year and will continue Howe - 5
into the future, which should be normalized to recog-1 nize a full year's effect. Column 2 to which you 2 3 refer, shows that the effect of these adjustments is 4 to reduce test year income by S3,949,000. The detail 5 f these adjustments is shown on pages 2 through 13 6 of Petitioner's Exhibit Howe-1. 7 8 Q. Mr. Howe, referring now to page 2 of Petitioner's g Exhibit Howe-1, would you please explain column (A) labeled " Payroll Adjustment"? 10 11 12 A. This adjustment annualizes a 7 % contract wage increase effective May 1, 1979 by increasing wages 13 14 in the first four months of 1979 to the level estab-lished on that date. This adjustment was computed 15
,; 16 in two steps. First, the weekly payroll for the 17 P3riod January 1, 1979 to April 30, 1979 was determined ($6,890,083). 7 % of this amount yields 18 a total payroll increase of $499,531. The second 19 20 step was to calculate the FICA tax on the wage 21 adjustment using the 1979 tax rate of 6.13% ($30,621).
The sum of these two amounts is $530,152. Since about 22 23 75% of payroll costs are applicable to operation and 24 maintenance, the normalizing amount for 1979 is $397,614. The effect of this adjustment, after recognizing state 25 Howe - 6 l l
1 and Federal taxes on income, amounts to a reduction in 2 net operating income of $196,024. It should be noted 3 that for this adjustment, 100% of FICA taxes are tax 4 deductible in the test year. (For detail of this 5 adjustment, see Petitioner's Exhibit Howe-1, page 3.) 6 7 In this adjustment, as in all other adjustments on 8 page 2 of Petitioner's Exhibit of Howe-1, we have 9 computed the income tax effect at the currently 10 effective state tax rate of 6.93% and the Federal 11 income tax rate of 46%, a composite rate of 49.7422%. 12 13 Q. Would you please explain the adjustment made in 14 column (B) entitled " Unit Sale Adjustment"? 15 16 A. Central Maine Power Company sold to Public Service 17 Company of New Hampshire 100 MW of its share of 18 W. F. Wyman Unit No. 4 during the first ten months 19 of the test year. The adjustment for this non-recur-20 ring event removes the sale from the test year. From 21 our billing records it was determined that the capacity 22 portion of that sale was $6,612,374 and the energy or 23 fuel portion was $3,241,429. Also associated with this 24 sale were miscellaneous revenues in the form of wheeling 25 and support charges. These items amounted to $142,865 t Howe - 7
i 1 and $376,797 respectively. Thus, the total adjustment 2 to revenues was $10,373,465. Operating expenses were 3 reduced by the amount of fuel used for generation 4 associated with the sale which amounted to $3,241,429. 5 The net effect of this adjustment, after taxes, was to 6 decrease net operating income by $3,584,404 (for detail 7 of this adjustment, see Petitioner's Exhibit Howe-1, 8 page 4). 9 10 Q. Mr. Howe, the next column (C) is labeled "NEPEX 11 Capacity Responsibility Adjustment." Could you 12 detail this adjustment? 13 14 A. In 1979, Central Maine Power Company recorded $253,875 15 of expense billed by NEPEX for a capacity responsibility 16 deficiency during the power period November 1, 1978 17 to April 30, 1979. This adjustment removes the non-18 recurring payment from the year 1979 and increases 19 net operating income by $127,592 (for detail of this 20 adjustment, see Petitioner's Exhibit Howe-1, page 5). 21 22 Q. Would you please explain the next column (D) en-23' titled " Interest Expense on Maine Yankee Replace-24 ment Energy Costs"? 25 Howe - 8
e 1 A. The Nuclear Regulatory Commission ordered the Maine 2 Yankee plant to shut down beginning on March 15, 1979. 3 The plant remained shut down until June 9, 1979. 4 During the shutdown period Central Maine Power 5 Company bought power to replace the generation lost 6 from the Maine Yankee plant. By Commission order, 1 7 now under appeal by the Company, the fuel costs associ-8 ated with this replacement power which were in excess . 9 of Maine Yankee's fuel costs, were required to be 10 recovered over a considerably extended period. The 11 Company has incurred additional non-recurring interest 12 expenses as a result of the deferred collection of 13 these fuel costs. This adjustment removes from the 14 1979 test year the tax effect of the additional interest 15 expense used to finance the purchase of the replacement 16 power. In making the interest computation, weighted 17 average short term debt rates were used where avail-18 able as well as estimates for the last four months 19 of the year. This adjustment reduces short term 20 interest expense by $948,687. It increases tax expense, 21 and reduces net operating income, by S471,897. (For 22 detail of this adjustment, see Petitioner's Exhibit 23 , Howe-1, page 6.) 24 25 Q. Mr. Howe, please explain the adjustment in the Howe - 9
I 1 next column (E) entitled "St. Regis Strike Adjust-2 ment"? 3 4 A. Sales of electric energy to the St. Regis Paper Com-5 pany were curtailed during a strike at its mill in 6 Bucksport between May 15, 1979 and June 22, 1979. 7 This adjustment increases 1979 revenues from KWH 8 sales to reflect the volume of kilowatt hours the Company would have sold if the strike had not l 9 10 occurred. The actual revenues from St. Regis for 11 the strike period were compared to the 1979 pro-12 jected revenues for the same period. The differ-13 ence (S264,529) was added to test year revenues 14 increasing income taxes by $131,583 and increasing 15 net operating income by $132,946. (For detail of 16 this adjustment, see Petitioner's Exhibit Howe-1, t 17 page 7). 18 19 Q. Please describe the next column entitled " Equity l 20 Earnings Adjustment." 21 22 A. As stated earlier in my testimony, the Company has 23 included in adjusted net operating income the equity
- 24 in earnings of associated companies. However, the
! 25 equity earnings are lower than a full allowed return Howe - 10
t 1 due to "below the line" charges on the books of cer-2 tain of the associated companies. This adjustment I i 3 increases the level of equity earnings by the com-4 pany's share of these charges for each Company ensur-l 5 ing that none of the "below the line" charges by i
- 6 associated companies become "above the line" charges l 7 for Central Maine Power Company rate payers. This l 8 adjustment increases adjusted net operating income I
9 by $21,372 (for detail, see Petitioner's Exhibit i l 10 Howe-1, page 8). l 11 12 Q. Mr. Howe, would you please explain how this amount 13 was determined? 14 15 A. The major portion, a $21,346 adjustment for Maine ! 16 Yankee Atomic Power Company, was principally assoc-17 iated with advertising expenditures incurred by 18 Maine Yankee during the recent nuclear power petition l 19 drive. Other amounts reflect the balances in FERC 20 Account 426 on each of the associated company's 21 books. 22 23 Q. Mr. Howe, please explain the next columr *illed 24 " Maine Yankee Station Service Adjustment"? 25 ! Howe - 11
,r, , * -
1 A. This adjustment normalizes the effect of non-recur-2 ring 1979 station service transactions between the 3 Company and Maine Yankee. During the shutdown 4 ordered by the Nuclear Regulatory Commission, the 5 plant purchased station service energy from the Com-6 pany in order to maintain necessary facilities. 7 Adjusting these sales to the level which would have 8 existed with Maine Yankee operating at a 70% capac-9 ity factor, rather than that actually experienced, 10 reduces revenues by $786,466. 11 12 In addition miscellaneous revenues were reduced by 13 $38,010 representing non-recurring amounts billed 14 to Maine Yankee for wheeling power while its sta-15 tion service transformer was out of service. Thus, 16 the total adjustment to revenues is $824,476. 17 18 Since this amount was recorded as operation and 19 maintenance expenses on Maine Yankee's books and 20 was subsequently billed to the sponsors as part of 21 the capacity charge, it is necessary to also adjust 22 the company's test year purchased power expense. 23 Purchased capacity expenses were thus reduced by the 24 Company's share (3 7.456%) of S824,476 or $308,815. 25 In addition, the Company's share of the amount of Howe - 12
1 fuel billed as part of this transaction was removed 2 from expense. This amounted to $785,310 x 37.456% 3 or $294,146. The net effect of this adjustment is 4 to reduce net operating income by $111,329 (for 5- detail, see Petitioner's Exhibit Hows-1, page 9). 6 7 Q. The next column (H) is labeled " Storm Damage Adjust-8 ment." Would you please explain? 9 10 A. A severe ice storm in January 1979 and high winds 11 in September 1979 caused Central Maine Power Com-12 pany's storm damage expense to be ab.armally high. 13 This adjustment normalizes 1979 for these costs. 14 The 1979 storm damage of $1,355,797 was compared 15 to the average storm damage for the last five years 16 indexed to current levels for both payroll and other 17 expenses. One fifth of the difference between the 18 1979 experience and the historic average was amor-19 tized in this adjustment to the test year while the l l 20 remainder was removed. The net effect of this l 21 adjustment is to increase net operating income by 22 S230,809 (for detail of this adjustment, see Peti-23 tioner's Exhibit Howe-1, page 10). 24 25 Q. Mr. Howe, please explain the next column (I) l l Ecwe - 13
1 entitled "Unbilled Revenue Adjustment." 2 3 A. This adjustment normalizes the year 1979 for that 4 portion of unbilled revenues which were charged 5 to income in 1979 due to a change in the method 6 of estimating unbilled amounts, but which is 7 applicable to prior years. If the Company had 8 made this change previously, or retroactively, 9 this amount would not have affected 1979 income. 10 Therefore it is appropriate to remove the non-11 recurring amount of $974,000 from revenue and 12 $489,511 from net operating income. (For detail 13 of this adjustment, see Petitioper's Exhibit Howe-1, 14 page 11.) 15 16 Q. Mr. Howe, please explain the next column (J), 17 entitled " Remand Rate Adjustment"? 18 19 A. This adjustment normalizes the year 1979 for new 20 rates that became effective August 22, 1979 upon 21 approval of the Maine Public Utilities Commission' 22 in supplemental order number 4. Rates producing 23 additional revenues to the Company were approved on 24 that date as the result of a remand to the.Commis- : 25 sion from the Maine Supreme Judicial court. The l Howe - 14 l l
l 1 net effect of this a41justment is to increase net 2 operating income by $424,694. (For detail, see 3 Petitioner's Exhibit Howe-1, page 12.) 4 5 Please explain the next column (K), entitled Q. 6 uProforma Interest Expense"? 7 I 8 A. Since the amount of interest resulting from the 9 use of the capital structure as applied to test 10 year rate base, when used for income tax computa-11 tion purposes, is less than the amount'of interest 12 included as the basis for income taxen in test year 13 operating expenses, this adjustment has been devel-14 oped to normalize income taxes for the proforma re-15 duction in interest expense. The net effect of this 16 adjustment is to reduce net operating income by 17 $32,615. (For detail, see Petitioner's Exhibit Howe-1, 18 page 13.) 19 20 Mr. Howe, does the " Pro Forma Interest Expense" in-Q. 21 clude an adjustment to reflect the tax benefits which 22 are generated by the portion of Construction Work in 23 Progress (CWIP) not being included in rate base as 24 part of this proceeding? 25 Howe - 15
i I 1 A. No. It is correct that interest payments associated 2 with funds borrowed for the construction program are 3 deducted currently for income tax purposes. To the 4 extent that "CWIP" has been requested in this pro-l 5 ceeding, appropriate adjustment has been made to 6 " Pro Forma Interest Expense" in the rate base upon 7 which it is computed. However, since current rate 8 payers are not required to pay any of the costs of *- 9 the remaining balanc.e of the construction program, 10 it does not appear to be consistent regulatory 11 practice to flow through the tax benefits associated 12 with it. Thus, no adjustment has been made to reflect 13 ., this. It would be our' recommendation that the tax 14 savings associated with this portion of the construc-15 tion program be deferred and flowed through to the 16 customer over the life of the construction facility. 17 If this concept were to be accepted in this proceed-18 ing, appropriate adjustment would have to be made to 19 rate base to reflect the projected average 13 months 20 balance during the test year of establishing the 21 reserve. 22 23 Q. What are the total adjustments to net operating 24 income included in column 2 of Petitioner's Exhibit 25 Howe-1? Howe - 16
A. As can be seen on Petitioner's Exhibit Howe-1, page 1 2 2, column (L), the total adjustment to operating revenues is ($11,062,380). The total adjustment 3 4 to operating expenses is ($7,092,641) and the 5 edjustment to equity in earnings of associated com-6 panies is $21,372. This results in a net decrease to 7 adjusted net operating income of ($3,948,367). 8 9 Q. Referring again to Page 1 of Petitioner's Exhibit 10 Howe-1, would you please explain the adjustments to 11 the test year as shown in column 4? 12 13 A. Yes, this column shows the results of my study of the effects of attrition on the test year. .Mr. Webb has 14 testified as to the definition of attrition and why it 15 should be considered in this proceeding. My approach 16 17 was to analyze the effects of growth in revenues, < 18 expenses and rate base from the period of the 1979 test i 19 year to the end of 1980 (the approximate time period 20 when the new permanent rates might be expectec'. to be-21 come effective). The details of my analysis are in-22 cluded on pages 1 through 5 of Petitioner's Exhibit 23 Howe-2. 24 25 Q. Would you describe page 1 of Petitioner's Exhibit Howe - 17
1 Howe-27 2 3 A. Column 1 shows the components of the 1979 test 4 year. Column 2 contains the growth assumptions 5 included in my analysis. Column 3 is the result of 6 applying the growth assumptions to the test year 7 amounts. 8 9 With reference to the growth assumptions for operat-Q. 10 ing revenues, would you explain the basis for the 11 1.7% increase in base revenues? 12 . 13 A. Yes. The 1.7% increase in base revenues was derived 14 from the expected 1980 revenue levels forecast by 15 Company personnel with planning, economic and rate 16 responsibilities. These individuals closely monitor 17 customer usage patterns and are most familiar with 18 expected growth patterns for residential, commercial 19 and industrial customers. The forecast of total 20 electric energy use was made by projecting energy 21 consumption for each customer class and then aggre-22 gating the class results. 23 24 Would you please describe the general assumptions Q. 25 . used in determining the short term KWH sales Howe - 18 l
l l i 1 forecast for 1980. 2 3 A. In general, projected 1980 KWH sales were developed 4 by considering national and regional economic fore-l 5 casts, the employment and housing start outlook for 6 the state of Maine, prices for fossil heating fuels 7 and electricity and proposed and existing government 8 policies, regulations and legislation. 9 10 The forecast also included information provided by 11 each of the Company's 17 district offices in the 12 fall of 1979, from a review of state and national 13 housing starts forecasts and additionally, with 14 respect to commercial, industrial and wholesale 15 customers, from customer contacts and requests for 16 future electric service delivery. 17 18 The price forecast for electricity in 1980 was 19 based on rates for base revenue currently in 20 effect. 21 22 Q. Please explain the methods used to calculate the 23 base revenue portion of the 1980 revenue budget. 24 25 A. The base revenues included all revenue from filed Howe - 19
1 rates except for short-term charges. The kilowatt-2 hour sales forecast and other billing determinants 3 for each rate were priced using applicable current 4 rate schedules and yielded the attrition adjustment 5 of $2,600,000 included on Petitioner's Exhibit 6 Howe-2, page 1. 7 8 Q. Would you please discuss the amounts included in 9 your attrition adjustment for fuel revenues and 10 expenses on Petitioner's Exhibit Howe-2, page 1? 11 12 A. These amounts represent ou- forecasted amounts for 13 1980. Fuel revenue of $40,800,000, when adjusted 14 to include $200,000 of fuel included in base rates 15 for the wholesale class of customer, is an exact off-16 set to the two fuel expense items ($55,800,000 less 17 $14,800,000). Thus, these components of the 18 adjustment have no impact on net operating income. 19 I simply have presented their effect to complete 20 my overall analysis. 21 22 Q. Moving down Petitioner's Exhibit Howe-2, page 1, 23 would you please explain the approach used for 24 projecting the growth factor of 8.0% for other 25 revenues? Howe - 20
1 A. Preliminary estimates for 1980 indicate an 8% growth 2 in these revenues. Applying this growth factor, I 3 have computed an attrition adjustment of $700,000. 4 5 Q. Looking now at purchased power-capacity, how did 6 you arrive at the 8.0% growth rate for this compon-7 ent? 8 9 A. This component of operating expenses includes 10 amounts billed to the company for capacity by the 11 four " Yankee" nuclear plants and Maine Electric 12 Power Company (MEPCo.). I reviewed our projections 13 for Maine Yankee costs for 1980 in arriving at my 14 growth factor for this component. The 1979 test 15 year amount for the Company's share of Maine Yankee 16 expenditures is about $18,800,000. Estimates for 17 1980 indicate a level of between $20,300,000 and 18 $20,800,000 or an 8-10% increase. For purposes of 19 this analysis, I used an 8% figure. I applied a l 20 similar growth rate to the other " Yankees" and MEPCo. 21 capacity costs. The result of the computation yiel-22 ded an attrition adjustment of $2,100,000. ; 23 l 24 Q. Turning now to other operation and maintenance, 25 would you please explain how a growth factor of 8% Howe - 21
was derived for use in your analysis of attrition? l I 2 A. A 1980 escalation rate for other operation and 3 maintenance expenses was derived from a comparison 4 of historical rates of growth for these expenses 5 and general inflation indicators. Petitioner's 6 7 Exhibit Howe-2, page 2 shows a comparison of average 8 annual compound growth rates for operation and 9 maintenance expenses, the Gross National Product 10 (GNP) deflator and the wholesale price index. The GNP deflator, a measure of the national inflation 11 rate, reflects price increases of all goods and ser-12 13 vices produced for sale and includes price-changes 14 experienced by individuals, business and Federal, state and local governments. The wholesale price 15 16 index, a measure of general commodity price trends, is used widely in budgeting. 17 18 In general, it appears that during the period 1968-19 20 1978, operation and maintenance expenses grew at an 21 annual rate that was approximately 3 percentage points faster than the rate of growth of the GNP deflator and 22 23 2 percentage points faster than the wholesale price 24 index. For the period 1974-1978, operation and mainten-25 ance expenses grew at an annual rate that was approximate 3 Howe - 22 C
1 2.5 percentage points faster than the rate of growth of 2 the GNP deflator and the wholesale price.index. It is 3 reasonable to assume that operation and maintenance 4 expenses have increased faster than inflation (as 5 measured by the above indices) since not only have 6 price increases occurred, but the operations of the 7 Company have expanded to serve an increasing cus-8 tomer base. 9 10 A November 1979 forecast from the Wharton Annual 11 Model indicates that the GNP deflator will increase 12 by 9.1% in 1980 and that the wholesale price index i 13 will increase by 13.2% for the same period. By apply-l 14 ing an adder of 2.5% to these 1980 Wharton estimates, 15 a reasonable range for a 1980 escalation rate for 16 operation and maintenance expenses is 11.6% to 15.7%. 17 We chose to use a more conservative growth rate of 8%. 18 Applying the 8.0% growth rate to the 1979 normalized 19 year total yields an attrition adjustment of $4,000,000. 20 21 Q. Referring to property taxes, what is the basis for 22 your growth assumption of 1.0%? 23 A. I have used a nominal growth assumption of 1% or 24 $100,000, for purposes of this adjustment to 25 reflect our outlook for the growth in property Howe - 23
1 taxes in 1980. In recent years, Maine communities 2 have become particularly conscious of the need to 3 keep taxes down. Although some communities still 4 experience increases in their tax rates we expect 5 a levelling of the growth rate. 6 7 Q. Turning now to depreciation, what is the basis for 8 the 5.5% growth assumption used in the attrition 9 adjustment. 10 11 A. 1979 normalized depreciation expense is expected to 12 be $20,219,000. In computing this growth estimate, 13 I reiiewed the projected 1979 Depreciable Plant Base 14 together with our best estimate of 1980 additions. 15 By applying the Company's estimated 1979 composite 16 depreciation rate of 3.3% to the projected deprec-17 iable base, depreciation expense is expected to grow 18 to someghere between $21,350,000 and S21,405,000 or a 19 5.5%-5.b% increase. For purposes of this analysis, I 20 used 5.5% and assumed this to be appropriate for the 21 attrition adjustment. This produced $1,100,000. The 22 details of my anal'Jsis are included on Petitioner's 23 Exhibit Howe-2, page 3. 24 25 Q. Please describe your adjustment for income taxes? Howe - 24
I 1 A. This is the amount derived by applying the current 2 state and Federal tax rates to the adjustments for 3 operating revenues, operating expenses and rate 4 base. The details of the adjustment of $2,400,000 5 are included on Petitioner's Exhibit Howe-2, page 4. 6 7 Q. Turning now to the rate base computation on page 1 8 of Petitioner's Exhibit Howe-2, how did you arrive at 9 your growth estimate? 10 11 A. As will be shown in Petitioner's Exhibit Howe-4, 1979 12 test year rate base is $516,598,000. I have evaluated
~
13 the impact of attrition on four distinct components 14 of this amount as shown on page 1 of Petitioner's 15 Exhibit Howe-2. 16 17 With respect to Property Held for Future Use and 18 Investment in Associated Companies, I assumed no 19 growth. These two amounts are fairly fixed determi- i 20 nants. Construction Work in Progress was held at a f i 21 constant level so as to not distort the " phase in" 22 approach being requested in this proceeding. The 23 growth factor estimate for other rate base is based 24 on an analysis of net electric property. Petitioner's 25 Exhibit Howe-2, page 5, shows the details of this l Howe - 25
analysis. Net electric property is expected to increase 1 2 by approximately 3.8% in 1979. Based upon projections of 3 Plant additions and retirements for 1980, net electric 4 Property will increase by 3.0%-3.4% for the period. I 5 used 3% for purposes of this adjustment. This yields an attrition adjustment of $14,100,000. 6 7 Q. Mr. Howe, referring back"to Petitioner's Exhibit 8 9 Howe-2, page 1, would you please summarize the re-sults of your attrition adjustment? 10 11 12 A. Yes. I have projected that test year rate base will 13 grow by $14,100,000 while test year net operating income will be reduced by $1,800,000 as a result of 14 the attrition adjustment. These amounts appear on 15 Petitioner's Exhibit Howe-1, page 1, column 4 and 16 Petitioner's Exhibit Howe-2, page 1, column 3. 17 18 Q. Referring back to Petitioner's Exhibit Howe-1, page 19 1, would you please describe the items included 20 in column 5 entitled " Normalizing Adjustments for j 21 Other Known Changas"? 22 23 A. At various times in 1980, certain known changes 24 are expected to occur which will have a clear and 25 Howe - 26
4 definite impact on operating income. Column 5 is a 1 2 summary of the normalization of these changes which 3 reduce net operating income by S2,010,000. Details 4 f these changes are included in Petitioner's Exhibit 5 Howe-3. 6 7 Q. Referring to column (A) of Petitioner's Exhibit 8 HoweJ 3 , please describe the adjustment entitled
" Boise Cascade Adjustment"?
9 10 11 A. This adjustment reflects the estimated annual in-12 crease in sales due to the expansion of the Boise 13 Cascade Paper Mill in Rumford, Maine. Net operating 14 income is expected to increase by be $1,120,000 as 15 a result of the increased sales to this customer. 16 17 Q. W uld you now discuss columns (B) and (C) entitled 18
" Decommissioning Adjustment" and " Replacement Power Insurance Adjustment"?
19 20 21 A. These adjustments are discussed by Mr. Webb in his 22 testimony. TPe effect of the adjustment to provide 23 for decommissioning of the Maine Yankee Nuclear Plant is to reduce adjusted net operating income by l 24 25
$402,000. The adjustment to net operating income l
Howe - 27 l i r
l h d of S490,000, column (C), reflects Central Maine 2 Power Company's cost of the insurance for its share 3 of each operating nuclear plant in which it has an 4 interest. 5 6 Q. Please explain column (D) labeled "MPUC Assessment 7 Adjustment".
~
8 9 A.. Pursuant to Section 17 of 35 MRSA, each utility f 10 subject to regulation by the Maine Public Utilities 11 Commission is subject to an assessment to pay cer-i 12 tain expenses of the commission. This adjustment 13 increases test year operating expenses to reflect an 14 estimated full year's assessment or an after tax 15 effect of a $30,000 decrease to operating income. 16 i 17 Q. Mr. Howe, would you please described column (E) 18 entitled " Thermal Energy Storage Program Adjustment"? 19 20 A. This adjustment reprecents the first year's costs of 21 an information program to encourage the conversion of 22 existing electric resistant heat customers to storage 23 heat. This adjustment reduces net operating income-24 by $188,000. 25 t I Howe - 28 i i 4
1 Q. Please explain column (F) entitled " National Energy 2 Conservation Poiicy Act Adjustment". 3 4 A. This adjustment represents the estimated cost of the residential conservation service program which 5 6 is part of the National Energy Conservation Policy 7 Act. This adjustment reduces net operating income 8 by $955,000. 9 10 Q. Mr. Howe would you please explain column (G) entitled 11
" Maine Hydro Contract Adjustment"?
12 13 A. Central Maine Power Company has entered into a con-tract with the Maine Hydro-Electric Development Cor-14 15 poration to purchase all of the electric output to 16 be produced by its hydro-electric facility located 17 on the Little Androscoggin River in Auburn, Maine. 18 The purchase price of the energy has been estimated to be $330,000 for the first year of operation. This 19 cost should be allowed in this proceeding as stated 20 in the advisory ruling from the Maine Public Utilities 21 Commission dated July 10, 1979. Therefore, we have 22 included this expense in the test period. 23 24 25 Q. Would you please describe columns (H) and (I) labeled Howe - 29
1 uNuclear Fuel Enrichment Contract Adjustment" and " Sears
- 2 Island Nuclear Adjustment"?
3 4 A. The basis for these adjustments are described in 5 detail by Mr. Webb in his testimony. The Company, 6 for accounting and rate making purposes is recommend-7 ing a five year amortization period for these amounts 8 resulting in increased expenses of $901,000 (1/5 x 9 $4,506,000) and S699,000 (1/5 x S3,497,000), respect-10 ively. The tax treatment for these two items is some-11 what different than the other adjustments included on 12 Petitioner's Exhibit Howe-3, since the portion of the 13 accumulated balances applicable to " Allowance for Funds 14 Used During Construction" and " Payroll Taxes" were 15 taken as tax deductions in the year incurred. Includ-16 ing adjustments to taxes for these items decreases 17 net operating income by $507,000 and $393,000, 18 respectively. 19 20 What is the total effect on net operating income result-Q. 21 ing from the adjustments shown on Petitioner's 22 Exhibit Howe-3? 23 1 24 A. The sum of these adjustments amount to a net decrease 25 of S2,010,000 to net operating income. This amount Howe - 30
1 also appears in column 5 of Petitioner's Exhibit 2 Howe-1, page 1. 3 4 Q. Mr. Howe, I now show you Petitioner's Exhibit 5 Howe-4, consisting of two pages. Was this prepared 6 under your supervision and direction? 7 8 A. Yes it was. 9 10 Q. What does this exhibit show? 11 12 A. Page 1 of Petitioner's Exhibit Howe-4 develops the 13 rate base for the test year based on actual data 14 through August 31, 1979 and estimatc4 data for the 15 remainder of the year. The rate base consists of 16 (1) net electric operating property, (2) property 17 held for future use, (3) investment in associated 18 companies, (4) a portion of construction work in 19 progress and (5) working capital requirements, 20 less appropriate deductions from net investment. 21 22 Q. Mr. Howe, how was test year rate base computed? 23 24 A. The test year rate base was computed using a 13 25 month average approach. Howe - 31
1 What is the amount of gross operating property Q. 2 included in rate base? 3 4 A. Gross operating property amounts to $638,825,000. 5 It is comprised of the 13 month average of produc-6 tion plant of $244,616,000, transmission plant of 7 $129,225,000, distribution plant of $235,899,000 8 and other plant of $29,085,000. 9 10 Would you please explain the item " Net Electric Q. 11 Operating Property"? . 12 13 A. Yes. Net electric operating property is the 14 amount remaining after deducting from gross 15 operating property the accumulated provisions 16 for depreciation. The 13 month average for the 17 net electric operating property is S467,808,000 18 for the 1979 test year. 19 20 Would you please discuss the item labeled Q. 21 " Property Held for Future Use." 22 23 In order to provide service in the future, A. Yes. 24 the Company must obtain title to land in advance 25 This ensures the continued ability of its needs. Howe - 32
1 to construct facilities in the future as well as to reduce land acquisition costs. This policy of 2 3 buying property in advance of need is in the best intcrest of our customers during such uimes as the 4 5 Present when land costs are rising and land needed 6 for future construction is difficult to obtain. 7 Q. Mr. Howe, is tile amount of property held for future 8 g use consistent with that allowed in Central Maine Power Company's last rate case? 10 11 . 12 A. In the Company's last rate case the commission required that a definite plan exist for the use-of 13 14 Property held for future use investments to permit inclusion in the rate base. We have included parcels 15 that we believe meat this standard as shown in page 2 16 of Petitioner's Exhibit Howe-4. In addition, we 17 18 have included investments in land at Richmond and 19 Stockton Springs. We bel. ave that the Richmond 20 Property remains a viable site for a future generat-21 ing plant. The Company's forecast indicates the need in the 1990s for additional generating facilit-22 23 ies which could use this site. The Stockton 24 Springs property remains as attractive developable land. We believe that the Commission's standard, 25 Howe - 33 l l
1 if broadened to properly reflect the opportunities 2 to be realized from the early acquisition of prime 3 property, would include this site. 4 5 Q. Would you please explain what is included in the 6 item called " Investment in Associated Companies" 7 totalling $35,813,000? 8 9 Investments in Associated Companies represents A. 10 Central Maine Power Company's investment in elec-11 tric. operating facilities which are used or required 12 to be used by the Company in its service to the 13 public, but title to which is held by a subsidiary 14 or affiliated corporation rather than directly by 15 the Company. 16 17 Would you please describe the facilities involved? Q. 18 19 A. There are eight associated companies included in 20 this caption. They are Maine Electric Power Com-21 pany, Inc., a transmission company, four nuclear 22 plants; Yankee Atomic Electric Power Company, 23 Connecticut Yankee Atomic Power Company, Maine 24 Yankee Atomic Power Company and Vermont Yankee 25 Nucler- Power Corporation and three subsidiaries; Howe - 34
1 Cumberland Securities Corporation, Central Secur-2 ities Corporation and The Union Water-Power Com-3 pany. 4 5 By including the investment in rate base and elimi-6 nating the contract return through the inclusion of 7 equity earnings in net operating income there is no 8 duplication in the request made. This inclusion 9 has historically been allowed by the Maine Public 10 Utilities Commission. 11 12 Q. Have you included any construction work in progress 13 in your rate base? 14 15 A. Yes, we have included $9,100,000 of construction 16 work in progress in the 1979 test year rate base. 17 Mr. Webb's testimony discusses our rationale for 18 inclusion of this item. 19 20 Q. Mr. Howe, what is the amount of the net investment 21 in rate base? 22 23 A. The net investment as shown on page 1 of Petitioner's 24 Exhibit Howe-4 is $515,706,000. 25 Howe - 35
i 1 1 For purposes of computing the Company's rate base, Q. o what deductions did you make from net investment? 3 i 4 A. Referring to Petitioner's Exhibit Howe-4, the net 5 investment of $515,706,000 has been reduced by the 6 average balance of the following items: consumer 7 deposits of $309,000, customer advances of $414,000, 8 allowance for injuries and damages of $990,000 and 9 accumulated deferred income taxes of $25,536,000. 10 Subtracting these amounts from net investment yields 11 total investment of $488,457,000. 12 13 Mr. Howe, the next item is labeled " Working Capital Q. 14 Requirements." How is this amount derived? 15 16 A. The test year working capital requirements of 17 $28,141,000 are discussed by Mr. Stevenson in 18 his testimony. 19 20 What have you determined to be the test year rate Q. 21 base? 22 23 A. Adding working capital requirements to total invest-24 ment gives us the test year rate base of $516,598,000. 25 - Howe - 36
I 4 l 1 Q. Mr. Howe, have you developed the 1979 test year net 2 operating income and rate base giving effect to all 3 of the normalizing adjustments and the attrition 4 adjustment? How do you relate these to the need for 5 the additional revenue sought in this proceeding? 6 7 A. I have shown in Petitioner's Exhibit Howe-5 the compu-8 tation of the 1979 test year revenue requirement 9 which brings together all of the aspects of the Com-10 pany's financial data in this proceeding. As shown 11 in the exhibit, the total required return is derived 12 by applying the requested rate of return, 11.23%, to 13 the rate base of $530,698,000. Deducting test year 14 operating income from the required return yields a 15 revenue deficiency of $17,852,000, $17,603,000 16 of which is allocable to the retail class of customer. 17 Adjusting this deficiency for the additional income 18 taxes that will be due on the increased income pro-19 vided by the proposed rates, produces the net revenue
- 20 requirement of $35,025,000.
21 22 Q. Mr. Howe, does this conclude your testimony? 23 24 A. Yes it does. 25 Howe - 37 l
l PETITIONER'S PREPARED DIRECT TESTIMONY OF , Douglas Stevenson ~ Assistant to the Comptroller
DIRECT TESTIMONY OF DOUGLAS STEVENSON 1 Please state your name and address. Q. 2 3 A. Douglas Stevenson. My business address is Edison 4 Drive, Augusta, Maine. 5 6 By whom are you employed and in what capacity? Q. 7 8 I am employed by Central Maine Power Company as an A. 9 Assistant to the Comptroller. 10 11 Please describe your educational and professional Q. 12 experience. 13 14 A. I was born in Lewiston, Maine and educated in the 15 public schools of Wayne and Winthrop. I attended 16 Union College in Schenectady, New York and Babson 17 College in Wellesley, Massachusetts receiving a 18 Bachelor of Science Degree in Business Administra-19 tion from Babson in 1970. I have participated in 20 various Company sponsored educational programs and 21 other educational opportunities available through 22 industry sources. 23 24 While at Babson College I worked during the summers 25 in the Accounting Department of Central Maine Power O
Company. I returned to the Company in 1971 as an 1 Internal Auditor and shortly became involved in 2 3 systems analysis work. In 1973 I was appointed 4 Supervisor of the Staff Studies section of the 5 Accounting Department which included coordination of various financial studies and preparation of 6 7 rate case and financial documenta. In 1975 I was 8 named Supervisor of General Accounting and during 9 the four years in this position I was responsible f r uaintaining the Company's general ledger, pre-10 11 paring internal and external reports and accounting 12 for ger$eral transactions including the fuel charge. 13 In February 1979 I was appointed Assistant to the 14 Comptroller where I am presently responsible for the 15 Payroll, Staff Studies and Accounting Applications 16 Development Sections of the Accounting Department 17 including coordination of the operating budget. 18 19 I am presently a member and officer of the Financial 20 and General Accounting Committee of the Electric Council of New England, a regional association of 21 22 investor owned electric utilities. l j 23 Q. Are you generally familiar with the books, records 24 and accounting practices of the company? j 25 ' l % I l Stevenson - 2 1
- l
1 A. Yes. 2 3 What is the scope of your testimony in this proceeding? Q. 4 5 A. My testimony and supporting exhibits will develop 6 the working capital requirements portion of rate 7 base and explain the methodology used to determine 8 these requirements. 9 10 Would you please describe the necessity of working Q. 11 capital requirements? 12 13 A. Working capital can generally be described as the 14 input of investor supplied capital which is needed 15 to operate the utility business in excess of the 16 amount used to provide.for net utility plant. This 17 input is necessary to cover the lag from the time 18 when costs are incurred by the Company to the time 19 when payment is received through rates charged to 20 Working capital must include amounts customers. 21 sufficient to cover payments of operating expenses 22 and to provide inventories of materials and fuel 23 that must be kept on hand for purposes of permitting 24 Inclusion of a properly com-efficient operations. puted allowance for working capital in the rate base Stevenson - 3
l is a reasonable method for providing compensation to 1 2 investors for the capital which they have provided f r these purposes. 3 4 5 Q. Mr. Stevenson, I show you Petitioner's Exhibit Steven-son-1 consisting of two pages. Was this prepared 6 under your direction? 7 8 9 A. Yes. 10 11 Q. What does this exhibit show? 12 13 A. Page 1 of Stevenson-1 shows the total working c,apital 14 requirements of $28,141,331 in its component parts: 15
- 1) Purchased power of $1,891,445, 2) fuel expense 16 of $3,661,066, 3) other operation and maintenance of $2',542,919, 4) state and municipal taxes of 17 18
$120,502, 5) state and Federal income taxes of 19
($719,169), 6) fuel inventories of $11,613,836 and
- 7) raterials and supplies inventories of $9,030,732.
20 21 22 Q. W uld you please describe the methods used in deter-23 mining the working capital requirements? 24 A. All of the working capital requirements except those 25 Stevenson - 4
1 related to income taxes and inventories were based 2 upon a detailed lag study conducted in a manner con-3 sistent with those previously used by the Company. 4 The lag study measured the interval, in days, that operating expenses were paid by the Company in E advance of the collection of revenues from customers.
?
When applied to various components of expense these 8 days of cash lag yield the. amount of money required 9 to be put forth by the investor for Company opera-10 tions. 11 12 The working capital requirement for income taxes 13 ' was computed using the method accepted by the com-14 mission in the Company's most recent rate case. 15 The amounts used to provide working capital to 16 support the Company's inventories were based on 13-17 month average balances which is consistent with past 18 Commission practices. 19 20 Q. What periods did you use in developing the lag study l 21 ' and other working capital requirements? 22 23 A. The lag study used data from the most recent 12 month l 24
- period for which data was readily available i.e. 12 25 The cash receipt and months ending June 30, 1979.
I l l Stevenson - 5
1 disbursement experience of the company during the lag 2 study period is representative of current practices 3 and no significant differences in revenue and expense 4 lags could be expected frcm use of a period ending December 31, 1979. l 5 6 7 The cash working capital requirements were developed 8 by applying the results of the lag study to the nor-malized test year. The working capital requirements 9 f r inventories were computed using the 13 monthly 10 11 balances ending December 1979 including four months 12 of estimated data. 13 14 Q. I show you page 2 of Petitioner's Exhibit Steven-son-1. What does this page show? 15 6 16 17 A. Page 2 summarizes the results of the lag study by 18 showing the computed revenue lag and the lags assoc-iated with each component of operating expense. The 19 20 net working capital requirement for each component 21 is computed in column 2 as being the difference between the revenue lag and the expense lag. 22 23 24 More specifically, column 1 shows, for revenues, the 25 average elapsed time between the date that service Stcvenson - 6
l I was rendered and the date that cash payments were 2 received and available to the Company. We Dave 3 Shown for the computed that lag to be 45.0 days. 4 various expense categories is the average interval l 5 between the date that expenses were incurred and 6 the date company funds were disbursed from our bank 7 account. 8 C' Q. Mr. Stevenson, in determining the revenue lag, what 10 components of revenue did you consider? 11 12 A. There were two major revenue items considered in the 13 lag study: electric service billing and sundry bill-14 ing. These were evaluated separately since they had 15 different service and payment characteristics. 16 n 17 How did you determine,the appropriate time interval Q. 18 for the electric service revenue lag? 19 20 A. We examined electric service bil. ling in two segments. 21 The interval between the date service is rendered 22 and the meter reading date was determined separately 23 from the interval between the meter reading date and 24 the receipt of payment and deposit of cash in the 25 Company's bank account. Stevenson - 7 l l l
We first determined the average interval between the 1 2 rendering of service and the meter reading date. central Maine Power Company bills its customers 3 4 m nthly on a cycle billing basis, thus, only a por-tion of all of the customer meters are read each day. 5 6 over the ccurse of a month all meters are read and bills subeitted. From our billing records we com-7 y puted the elapsed daysi between readings for each 8 9 cycle of each month. Aggregated for each month, the 10
" average elapsed days" were applied to the associated month's electric service billings yielding total 11
" dollar-days" of cervice receivables. Totalled for 12 13
. the year, these values produced the annual dollar-14 days associated with the interval between average 1
15 rendering of service and meter readings. ) 0 16 17 The second step determined the average interval between 18 the meter reading and the receipt and deposit of cash in the Company's bank accounts. By developing a daily 19 20 receivable ledger with billings debited to the ledger on the date of the meter readings and daily cash 21 22 receipts posted as credits, a daily summary of these 23 transactions producad the Company's billed receivable balance for each of the 365 days of the year. Totall-24 1 25 ing these values produced the annual dollar-days l Stevenson - 8 l
associated with the interval between the meter read-ing date and the receipt and deposit of cash. i 2 A Q. How were the other revenue items treated? 5 E A. A study of billing fc: other than electric service 7 was completed also using data from the company's 8 billing records. For this study, the mid point of 9 the rendering of service was compared to the date 1C cash was received, yielding the days of lag for each 11 invoice. Applying the lag days to the invoiced 12 amounts yielded receivable dollar-days. 13 14 Q. How was the composite revenue lag determined from this data? 16 17 A. The annual dollar-days associated with each compon-18 ent of the study were totalled and divided by the 19 total billings for the year providing a 44.3 day 20 lock up of revenues. 21 22 In previous studies we assumed that it took two 23 days from the time payment was received to the time 24 cash was credited to Central Maine Power Company's 25 We have found that account in the depository bank. Stevenson - 9
)
with centralized' cash processing in the General 1 office we have reduced the length of time necessary 2 for cash receipts to be available to the Company to 3 one day. The 44.3 day value reflects the use of a 4 one day lag. However, several of our major customers 5 obtain their corporate banking services out of state. 6 7 For these customers we determined that one additional 8 day was required for the cash to be credited to Central Maine Power Company's account. Therefore, we g 10 adjusted the lag period by one additional day for five major customers. This adjustment raises the revenue 11 12 lag to 45.0 days. 13 14 Q. Turning now to the categories of expense, would you 15 please describe the methodology used to determine the intervals between receipt of services and their 16 17 payment? 18 19 A. Beginning with the expense category purchased power, we evaluated all transactions for the year ending 20 June 1979.' As purchased power is invoiced monthly, 21 the date service was rendered to the company was 22 assumed to be the mid point of the billing month. 23 24 Each months' expense was lagged to the date of dis-25 bursement. Stevenson - 10
1 2 Were any additional adjustments made to the pur-Q. 3 chased power lag? 4 5 A. Yes. Additional days were added to the purchased 6 power lag to recognize the time required b/ the 7 recipients and their banks to process and clear 8 - checks drawn on Central Maine Power Company. All 9 payments, except for those to NEPEX, Maine Yankee, 10 Maine Electric Power Company and Public Service 11 Company of New Hampshire were given an additional 12 Since funds paid to NEPEX are wire three days. 13 transferred the same day as the disbursement, no 14 additional lag was added for NEPEX. It was deter-1 mined that only one additional day should be added 16 for MEPCo. transactions and two days for Maine 1 Yankee and PSCo. of NH. The total lag for purchased 18 power, reflecting these adjustments, is 36.8 days. 19 When subtracted from the revenue lag (45.0 days) a 20 working capital requirement for purchased power of 8.2 days is established. 22 23 Would you please explain how Q. The next item is fuel. 24 this lag was determined? 25 i 1 1 l l Stevenson - 11
i A. All receipts of fuel additives, No. 2 oil and No. 6 1 2 il were analyzed and lagged from the date of receipt 3 to the date of disbursement. To the lag for No. 2 oil and fuel additives three days were added to recog-4 nize clearing of checks. No adjustment was made to 5 6 the lag for No. 6 oil as payments are made by wire transfer. The total lag for fuel is 17.1 days and 7 8 requires a working capital allowance of 27.9 days. 9 10 Q. W uld you please explain the methodology used in determining the working capital requirements for 11 12 ther operation and maintenance? 13 14 A. The major components of oth er operation and mainten-ance were summarized into four homogenous subject 15 areas, payroll, services and supplies, transporta-16 17 tion and other. These components have been chosen because the incurrence of expense and payment prac-18 14 tices for each of these items are similar and data is available to evaluate these as separate groups. 20 The disbursement lag associated with these items 21 22 was computed and when aggregated provided the net 23 w rking capital requirements for these items. 24 25 Q. How was the disbursement lag for payroll determined? Stevenson - 12 l l
l l l 1 A. All payroll amounts charged to operation and mainten-2 ance accounts were used in this study. These amounts 3 were analyzed in two parts: (1) amounts paid directly 4 to employees and (2) amounts withheld and paid to C
~
governmental agencies. First, the average elapsed 6 days between the mid point of each payroll period 7 and the associated date of payment to the employee 8 was determined. Applying this lag to payroll trans-9 actions produced a composite lag for the year. 1C Similarly, for portions of salaries withheld for 11 payment to governmental agencies, the average elap-12 sed days between the mid point of each payroll period 13 and the date of the payment to governmental agencies 14 was determined and applied to these payroll transac-15 tions developing a composite lag for the year. Pay-16 roll overhead amounts were analyzed individually and 17 ~ then combined to arrive at a composite 1ag. These 18 items include hospitalization, life and disability l 19 insurance, as well as length cf service and pension 20 costs. All information was aggregated yielding a 21 25.2 day disbursement lag. 22 23 How was the lag for services and supplies developed? Q.- 24 25 A. All expense vouchers charged to operation and maintenance i l t . ; l l Stevenson - 13 , l l ! _ l
accounts were used in this study. The disbursement 1 2 lag was computed from the invoice date to the date 3 of disbursement. The average lag during the year for this category was 24.0 days. 4 5 . 6 Q. Were transportation expenditures analyzed similarily? - 7
". Yes, the major items included in this analysis were 8
auto registrations and excise taxes, payments to 9 10 leasing companies and the expense vouchers for repairs to vehicles. The composite lag was 8.4 days. 11 12 Q. How were "other" expenditures processed? 13 14 15 A. Primarily this category included amounts which were 16 accrued on the books monthly but paid upon receipt of a less frequent invoice. Among the types of 17 18 expenditures involved were insurance, auditing fees and pole rental expense. The average lag for all 19 "other" expenditures was 16.4 days. 20 21 22 Q. Were any adjustments made to the lags computed for 23 other operation and maintenance? l l 24 1 25 A. Yes. To all of these lags we have added an additional Stevenson - 14 e-
1 three days to recognize the delay in the check clearing 2 process, as none of these snounts are paid by wire 3 transfer. 4 5 What did you determine to be the overall lag for Q. 6 other operation and maintenance? - 7 8 The overall lag for other eteration and maintenance A. 9 was determined to be 26.1 days lag or a composite 10 working capital requirement of 18.9 days. 11 12 How was the lag for property taxes determined? Q. 13 14 Property taxes were lagged from the date of payment A. 15 to the municipal body to the mid point of the tax 16 The average lag for property taxes was com-year. 17 puted to be 37.4 days. To this lag we added three 18 days for the processing of checks. The working 19 capital requirement for state and municipal taxes 20 is 4.6 days. 21 l 22 l Q. On what basis was the income tax accrual calculated? 23
~I Based on the methodology used in our last two rate A.
25 cases before this commission it has been determined l 1 5 l l l Stevenson - 15
l that the Company has a 90 day lag in tax payments. 1 2 APP l ying a 45.0 day revenue lag to the tax lag results in a net expense lead of 45 days. Therefore, 12.33% 3 4 (45.0 t 365) of income tax expense must be subtracted fr n total working capital requirements. 5 6 7 Q. Referring back to page 1 of Petitioner's Exhibit 8 Stevenson-1, would you please explain how the net 9 days lag is used to determine working capital 10 requirements? 11 12 A. For the categories of purchased power, fuel, other 13 Peration and maintenance and state and municipal taxes, the 1979 normalized expense (column 1) was 14 divided by 365 to determine the average daily 15 16 expense (column 2). This amount was then multi-17 Plied by the applicable number of days of working capital requirement determined on page 2 of 18 Petitioner's Exhibit Stevenson-1. The result of 19 this calculation is the working capital requirement 20 21 in dollars. The state and Federal income taxes were
-multiplied by 12.33%, as determined on page 2, to 22 yield the working capital requirement for this item.
23 As noted on page 1 of the exhibit, several of the 24 2 ,., normalized 1979 amounts have been adjusted for purposes Stevenson - 16
- 0
i l I 1 of the working capital compatation. 2 3 Mr. Stevenson, on what basis did you determine your Q. 4 fuel inventory requirements? 5 6 A. Fuel inventory requirements of $11,613,836 represent 7 the 13 month average of the monthly balances in the 8 test year. 9 10 Would you next describe the methodoloy used for Q. 11 determining the working capital requirements for 12 materials and supplies inventory? 13 14 A. The amount of $9,030,732 represents the 13 month 15 average of the balances in the test year. 16 17 What have you. determined to be the total working Q. 18 capital requirements for the test period? 19 20 A. As shown on Petitioner's Exhibit Stevenson-1, page 1, 21 the total working capital requirements for the test 2' period are $28,141,331. 23 24 Mr. Stevenson, have you made any other changes in Q. 25 the computation of working capital requirements Stevenson - 17 l l 9 .. .
s 1 from the last case? 2 3 A. Yes. I have, for present purposes, omitted the 4 w rking capital requirements associated with the 5 balance of unbilled fuel since the new fuel cost 6 adjustment computation filed with this Commission 7 is designed to provide for the recovery of fuel 8 costs on a forward looking basis with a more current g collection of expenses. In addition, the ftel cost 10 adjustment computation includes recovery through the 11 reconciliation factor of the unbilled fuel balance 12 that is expected to have accumulated at March 31, 13 1980. With the operation of the anticipated n'ew 14 fuel clause, the continuing balance of unbilled 15 fuel is expected to be reduced and has been eliminated 16 from the computation. 17 18 Q. Mr. Stevenson, does this conclude your testimony? 19 20 A. Yes it does. 21 , 22 23 24
'S l l
~ l Stevenson - 18 l 1
Petitionsr's Exhibit Wsbb-1 l Central Maine Power Company Insurable Outages - Nuclear Powered Generating Units Annual Insurance. Costs
' Reserve Premium @ @ 13%
Sl.500.000/Yr. of Prem. Maine Yankee '(38%) $570,000 $ 74,100 Conn. Yankee (6.0%)~ 90,000 11,700 Vermont Yankee (4%) 60,000 7,800 Rowe Yankee (9.5%) 142.500 18.525 S862.500 $112.125 Total Regular Premium $862,500 Reserve Premium 112.125 ) Total Premium $974.625 i l i
Petition:r's Exhibit Wabb-2 Central Maine Power Campany CAPITAL STRUCTURE RATIOS 1960 THROUGH 1979 Equity Year Debt (1) Preferred Common Total 1960 50.6% 16.5% 32.9% 49.4% 1961 50.0 16.2 33.8 50.0 1962 49.4 16.1 34.5 50.6 1963 48.9 16.0 35.1 51.1 1964 48.2 15.7 36.1 51.8 1965 47.9 15.2 36.9 52.1 1966 46.8 15.0 38.2 53.2 1967 46.1 14.7 39.2 53.9 1968 48.3 13.9 37.8 51.7 1969 51.7 12.7 35.6 48.3 1970 52.6 12.2 35.2 47.4 1971 54.4 11.6 34.0 45.6 1972 54.4 11.4 34.2 45.6 1973 54.7 11.0 34.3 45.3 1974 56.4 12.9 30.7 43.6 1975 55.9 12.1 32.0 44.1 1976 56.9 10.7 . 32.4 43.1 1977 51.9 14.2 33.9 48.1 1978 50.4 12.7 36.9 49.6 1979 52.7 11.6 35.7 47.3 (1) Includes short-term debt.
Petitionsr's Exhibit Webb-3 i CAPITAL STRUCTURE RATIOS MOODY'S 24 ELECTRIC UTILITIES 1960 - 1978 Equity Year Debt (1) Preferred Common Total 47.2% 1 1960 52.8% 10.1% 37.1% 1961 52.9 9.8 37.3 47.1 1962 52.1 10.0 37.9 47.9 1963 51.7 9.4 38.9 48.3 1964 51.5 8.8 39.7 48.5 1965 51.6 8.8 39.6 48.4 1966 52.8 9.3 37.9 47.2 1967 53.5 9.6 36.9 46.5 1968 54.4 9.9 35.7 45.6 1969 55.8 9.7 34.5 44.2 1970 55.8 10.9 33.3 44.2 1971 54.8 11.7 33.5 45.2 1972 53.8 12.4 33.8 46.2 1973 53.8 12.4 33.8 46.2 1974 55.0 12.7 32.3 45.0 1975 53.5 12.8 33.7 46.5 1976 52.4 12.9 34.7 47.6 1977 50.9 13.1 36.1 49.2 1978 50.5 12.9 , 36.6 49.5 l l (1) Includes short-term debt. Source: Moody's Public Utility Manual 1 l
.s3 f-
,44 v
- g '
f_, *Y'b /[ ,
q, //p
\
V" IMAGE EVALUATION NY TEST TARGET (MT-3) 1.0 "" " at - - - - i 1 7 36 E .m pu2o I.l t lil4 l 1.25 IA i.6 l l
- 6" > l I
MICROCOPY RESOLUTION TEST CHART l l I 4%4 +%p /// m, a a % y u
++ a nz //A e Ns O '
- ' Estk '
,1] se#(NkO8'1
- .;:3 '
4%
,;. _ :;) . 1 L __.._2.________ . _ _. .7l1 ..
STANDARD & POOR'S 400 INDUS'11tIALS AND ElICTRIC POWER INDUSTRY FINANCIAL INDICATORS 1965-1978 st Coverage Conanon E ty Ratio Return on A Conanon Equity Price to ok Va*ue Casta Flow Construction Pretax Int Standard Electric Standard Electric Standard Electric Standard Electric Standard Electric Power & Poor's Power & Poor's Power
& Poor's Power & Poor's Power & Poor's Industry 400 Industry Industry
- 400 CHP Industry 400 CEP. Industry 400 QE fEt Yer 400 CHP ,
371 14.6% 13.4% 11.37, 0.8X 98%(E) 43% 397. 7.7X 3.2X 2.9X 73% 37% 1978 1.2X 0.9X 2.9 34 37 14.1 11.9 11.4 1.0 0.9 99 26 38 8.0 2.6 71 1977 1.3 4 2.8 71 33 36 14.1 10.9 11.5 0.9 107 30 40 8.2 2.5 1976 1.5 0.8 70 32 35 12.2 9.5 11.1 0.7 92 33 37 7.2 2.6 2.7 1975 .3# '0. 8 2.5 71 31 34 14.6 9.1 10.6 1.3 0.8 0.7 92 44 27 8.3 2.4 1974 2.8 7L 34 35 14.3 10.9 11.5 1.1 1.0 106 73 28 8.8 3.1 1973 1.9 3.0 71 34 35 11.8 10.8 11.7 1.2 1.1 98 92 27 8.3 3./ 1972 2.1 2.9 71' 34 35 11.0 9.5 11.6 1.2 1.3 87 48 27 7.5 3.1 1971 1.9 3.1 72 35 35 10.4 11.0 11.8 1.1 1.2 76# 50 29 7.2 3.7 1970 1.7 3.7 69 36 36 12'.0 10.1 12.2 y 1.3 1.6 83# 30 35 9.9 4.7 1969 2.1 39 12.0 5.9 4.3 71 38 36 12.6 10.3 12.3 $ 1968 2.1 1.4 1.7 90# 54 r.
. 81# 102 45 12.3 6.3 4.7 72 39 37 12.1 11.2 12.7 g 1967 2.1 1.4 1.9 53 14.1 5.8 5.0 76 3'l 38 13.4 11.2 12.7 0 1.4 2.0 82# 117 1966 2.0 5.3 37 39 13.5 11.4 12.5 M, 1.6 1.2 92# 93 62 16.8 5.7 77 1965 2.1 m eq (1) Average of high and low market price / year end book value per share, H (2) Deferred taxes, depreciation expense and additions to retained car,ings D' (aess AFC)/ construction expenditures (less AFC @
Cross income plus federal and state incoine taxes /) total interest cry p. ' Total consson shareholders' equity / total capitalization. rt Earnings for conunon stock / average of beginning and year-end cosanon equit. [+
- Hoody's 24 - 1979 Hanual cr (E) Es tine % o' I
# S&P 425 D Sourcza: EEI 1978 Statistical Year Book, CMP, Cosapustat Services, Inc.
Petitioner's Exhibit Webb-5 CENTRAL MAINE POWER COMPANY COVERAGE RATIOS . 1974 1979 LEGEND:
---- PRE-TAX INTEREST EXCLUDING AFC PRE-TAX INTEREST INCLUDING AFC
- - - AFTER-TAX INTEREST EXCLUDING AFC AFTER-TAX INTEREST INCLUDING AFC TIMES COVERAGE 3.25-3.00- -2.97 2.75" ,~ 2.74 2.50- ,A , y,e , ,
,s ,,'
2.25) {,s.",* *. 2.22 2.00 S , . . . * * * ' ' * * ' * * * * * * * *
- I,99 1.75- ,__.
- .. s , * .~ . ,,e
- j ,e - ' " *. .
l.50-1974 '1975 1976 1977 I978 I979
+ ESTIM ATED 12 /31/ 7 9 .
I
, - - , --m =
l l Petitioner's Exhibit Wobb-6 l ANNUAL INCREASES IN IhTIATION 1965 - 1979 Gross
' Consumer National Price Product Index Deflator 1965 1.77. 2 .27.
1966 2.8 3.3 1967 2.9 3.0 1968 4.2 4.5 1969 5.3 5.1 Five Year Average 3.4% 3.67.
)
1 1970 5.9% 5.3% l 1 1971 4.3 5.1 l 1972 3.3 ,, 4.1 1973 6.2 5.8 1974 11.0 9.6 Five Year Average 6.1% 6.07, 1975 9.1% 9.6% 1976 5.8 5.2 1 1977 6.4 5.9 i 1978 7.7 7.4 I 9.0 1 1979 11.3 Five Year Average 8.1% 7.4% ( I i 4 1 Source: Survey of Current Business l l l 1 1 I
Petitionsr's Exhibit Wsbb-7 Central Maine Power Comeanv PERCENT OF SALES FROM OIL FIRED SOURCES AVERAGE PRICE PER BARREL - OIL PERCENT OIL COMPONENT TO AVERAGE RESIDENTIAL BILL 1973 - 1978
% Average %
Oil Generate Price per Fuel to to Sales Barrel Residential Bill 1973 45.6 $ 3.03 .3% 1974 32.6 10.29 11.6 1975 27.4 10.24 18.2 1976 19.5 10.48 11.9 1977 31.3 11.71 24.0 1978 33.5 11.01 24.9 1979 43.0 20.13 31.2 i
Petitioner's Exhibit Unbb-8 Central Maine Power Company MARKET TO BOOK RATIOS MONTHLY, 1979 Market Average to Book Market Book Month Value Price Ratio January 17.25 15.375 .89 February 17.37 15.5625 .90 March 17.48 15.4375 .88 April 17.57 14.4375 .82 May - 17.58 13.9375 .79 June 17.60 14.4375 .82 July 17.58 14.25 .81 August 17.55 14.4375 .82 September 17.57 14.375 .82 1 October 17.60 13.50. . .77 November 17.63 13.5625 .77 December 17.64 13.6875 .78 I
Central Maine Power Company EFFECT OF SELLING COMMON STOCK BELOW BOOK CMPCo Issues 4-27-/6 3-17-77 3-16-78 Total Line Number of Shares No. , 900,000 1,600,000 1,600,000
- 1. Net proceeds per share $14.51 $15.41 $15.51
- 2. Book value per share at time of issuance $16.52 $16.89 $17.14
- 3. Book value per share after issuance $16.30 $16.66 $16.92
- 4. Shareholders' dilution / share $.22 $.23 $.22 $.67
- 5. Total common equity $ dilution (shares outstanding x dilution per share) $1,854,000 $2,318,000 $2,569,000 $6,741,000
- 6. Cumulative dilutive effect upon earnings per share (in calendar year of issue) $.06 $.08 $.10 $.24
- 7. Number of shares sold 900,000 1,600,000 1,600,000 4,100,000
- 8. Number of shares to raise required capital y if[ net proceeds = book value 791,000 1,460,000 1,448,000 3,699,000 p, n
- 9. Additional shares necessary due to sale if
! below book value 109,000 140,000 152,000 401,000 g
- 10. Additional costs per year .
M Annual Basis
- 11. - Based on current dividend rate of $1.64/ share $179,000 $230,000 $249,000 5-
$E
- 12. Revenue requirements based on 75% payout r-ratio $475,000 $610,000 $661,000 I
Cumulative Basis
- 13. Based on current dividend rate of $1.64/ share $179,000 $409,000 $658,000 8:
1
- 14. Revenue requirement based on 75% payout ratio $475,000 $1,085,000 $1,746,000
Pctitioner' Exhibit U;bb-10 CAPITAL OUTLAYS TOTALS FOR U.S. INDUSTEIES & INVESTOR - OWNED ELECTRIC UTILITIES 1964 - 1978 (Billions of Dollars) Total Investor - Owned Investor - Owned U.S. Electric Util. as % of Year Industries Utilities
- Total U.S. Industries 1964 $ 47 0 $ 3.6 7.75 1965 54.4 4.0 7.4 1966 63 5 4.9 77 6.1 1967 65.8 93 1968 67.8 71 10 5 75.6 8.3 11.0 1969 1970 79 7 10.1 12.7 1971 81.2 11 9 14.7 1972 88.4 13 4 15 2 1973 99 7 14.9 14 9 i
1974 112.4 16.4 14.6 1975 112.8 15 1 13 4 1976 120 5 17 0 14.1 1977 135.8 19.8 14.6 1978 153.8 22.4 14.6
- Electric utility plant only Source: U.S. Department of Commerce, Bureau of Economic Analysis 1971 Business Statistics; Survey of Current Business May 1974, September 1977 and April 1979; Edison Electric Institute.
I Central Maine Power Company COMMON STOCK DATA (Per Share Basis) Average (s) 1974 1975 1976 1977 1978 1979 1974-79 1977-79 Average Monthly Market Price $13.42 $13 12 $15 07 $16.35 $15.69 $14.42 $14.68 $15.49 Average Monthly Book Value $16.27 $16.40 $16.30 $16.51 $16.98 $17.56 $16.67 $17 02 '% - Market Price 99% 92% 82% 88% 91%. to Book Value 82% 80% 92% Average Dividend $ 1.47 Rate $ 1.34 $ 1 34 $1 355 $ 1.41 $ 1.46 $ 1.55 $ 1.41 Average Dividend g ct Yield on Market 10 75% 9.60% 9.49% !? Price 9 99% 10.23% 8.99% 8.62% 9 31%
' S Un i;
f b
Petitioner's Exhibit Webb-12 GROWTH RATES IN DIVIDENDS 1975-1979 Indus try CMP Moody's 24- Growth Growth Growth Rate Year Rate Rate (1) 1975 -0 7. 3.31% 4.7%/33 1976 1.12 5.21 5.3/56 t 1977 4.06 8.19 - 6.4/62 1978 3.55 5.28 6.5/65 1979 6.16 4.01(2) 6.3/66 (1) Average dividend increase frca preceding year from companies which increased their dividend / number of companies. [ (2) Seven months ended July 31, 1979 Sources: Moody's 1979 Public Utility Manual, First ' Boston Electric Utilities Dividend Record 1969-1979 (February 1,1980), CMP data.
~
m g $ e- ]4 a s y
- D J
*K<H'O'cI W L 0
0 o4 '
% ) ) ) ) ) f C. P ) ) ) ) ) ) ) ) )
) P1 4 3 0 3 3 1 0 6 0 3 5 3 6 !
S. C P A M. . 3 2 2 ( ( 1 ( 2 2 0 2 ( ( ( ( ( 1 ( 3 6 ( 3 6 (7 7 ( ( ( h'. Cs v l c x R ( 0 l0 d i4 a t % ) ) ) ) ) ) ) ) e UP ) ) ) ) ) ) 3 5 0 9 9 0 0 r & 5 4 3 6 6 0 S. p .S S c. e l s 1 ( 1 ( 0 ( 1 ( 1 ( 1 ( 2 ( 3 ( 6 ( 8 4 ( 6 (7 8( ( ( f 6 Ev 0 0 o4 %
% ) ) ) )
) C. P ) ) ) ) ) ) ) ) ) l 9o C 1 2 9 3 9 6 5 0 4 5 7 2 2 2 F P. S & 13 A 2 2 ( 0 2( 1 0 1 1 3 5 2 3 2 1, M. . ( ( ( ( ( ( ( ( ( ( ( f Cs l v
- c n
. I o 0 (l0 C. i4 d t % %
YT P. a UP ) ) ) ) ) ) ) ) ) ) f e & 0 7 6 3 2 4 6 1 8 0 1
. 262 7 3 27, IUH. r .S 3 o2 QC p c 1 0 o 0 0( 1 0 0 (2 4( (
1 ( ( ( ( f E/ S e. ( ( Y ls it ri Ev oT MS
- MU OI CN8 . - I7 % .
E 9 P. . 1 1 1 1 7 1 9 8 7 6 9 6 8 o. 68 c GY1 o . . n AT M. C 1 1 1 0 9 0 8 o 0 81 8 1 7 6 7 07 1 I t t T. - C 1 1 1 1 1 EI s VI5 AP6 e T I 9 C c P i N 1 . oC A l v I iy r il s tr % % e ui e Ut 0 0 8 0 4 4 7 3 8 6 3 6 1 6 S l T 4. o. UC .su d T u 2 2 1 1 0 9 8 8 7 6 7 7 7 6 17 t n ElE. l cd 1 1 1 1 1 1 t a o 4 E c en s 1 1/ Do x lI E E u c t Eo p e Nh ( o m s l AP ) % % C l E P1 5 4 1 6 0 4 0 8 3 6 2 1 1 6 79 a
& ( .
23
, i
. r
& 3 3 2 2 2 0 1 1 4 4 2 4 4 4 11 t S 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 P. s S0 u 4 M. d C n i
e 4 2 2 3 1 0 5 8 9 1 5 9 9 4 80 k P. . o h o 1 1 1 0 0 1 9 0 0 9 9 0 1 3 01 o t M. C 1 1 1 1 1 1 1 1 1 1 1 11 b C r ot a e Y e l C l b F . A l a a iy c c s tr % % i i t e Ut 5 7 7 3 2 8 6 7 5 6 1 5 4 3 52 l d s . a p u .u 2 2 2 2 2 1 1 1 1 0 1 1 1 1 21 t p l cd 1 1 1 1 1 1 1 1 1 1 1 1 1 1 11 t a c en a n lI t t I E S o I n E C
) E F P1 % % A
( 5 4 1 6 0 4 0 8 3 6 2 1 1 6 79 8 )
& . 7 n 3 31 2 12 21 01 1 1 4 4 1
2 4 4 4 1 1 1 1 23 9 1 11 1 ( Soi l 1 1 1 1 1 s e98 : g6 7 e s a- - c r 2 3 4 5 6 ( 8 r54 ir 659 696796899690 69 7 1 a e 7 7 7 7 7 7 7 7 9 9 9 9 9 19 9 9 v99 e6 7 to Y 1 1 1 1 1 1 1 1 1 1 1 1 1 A11 !
t ' e Petitioner s b Webb-14 -
,, .e
~
<* < /
OIp01.E1: 43. .;.;
)
Bond - Ratings ' sp . An . Overview STANDARD & POOR'S CORPORATION
Pstitioncr's Exhibit Webb-14 o Paga 2 of 10 STANDARD & POOR'S CORPORATE BOND RATINGS: AN OVERVIEW The ccncept of a rating is simple-wnat is the relative probability of timely payment of interest and repay-ment of princical? It's in the implementation of the concept that things get complicated primarily because of the number. diversity, and ccmplexity of the variables involved. Our purpcse in preparing this document is to provice an overview of Standard & Poor's ccrporate bond rating process, including the fundamcntal factors of the evaluation. Our objective to cast as much light as cossible on the rating process but it is C0-vicusly impcssible to list and ciscuss all facters that might enter into an evaluation of all issues we may rate. Suen a list woulo ce diff erent fcr finance companies, industrials. utilities, etc. Moreover, within these broad categories, the factors would be different for chemical concems, metals companies, and so on. What we nave attemeted to do is to illustrate the key general areas of analysis that are indigenous to most corporate ratings, to highlight such areas as utilities and mortgage-backed bonds, and to provide copies (in the exhibits) of scme of the internal tools we empicy. It is hoped that this will result in the user of this document having better insight into the rating process. We have not attempted in this paper to address the specifics of our rating cntena for commercial paper. However, many of the factors in the analysis are. of course, the same. i
Petitioncr'c Exhibit W1bb-14 Paga 3 of 10 l i 1 TABLE OF CONTENTS i
- l. INTRODUCTION . . . .. . .
Table of Contents Listing of Exhibits 1
- 11. ORGANIZATiONALSTRUCTURE .
Analytical Responsibilities Pating Scard Rating Critena Committee Organization Chart 6 111. RATING PROCESS . . Types et Obligations Rated Fee Structure Bond Rating Schecule IV. MAJO. MCTORS IN THE INDUSTRIAL SOND RATING PROCESS . 9 indenture Provisions and Legal Framework Earnings Power and Leverage Licuidity Management 12 V. PUBLIC UTILITIES . . .. ... Coverage as an AnalyticalTcci Primary Analytical Consideraticns . 17 VI. BANKS AND BANK HOLDING COMPANIES-FINANCIAL ANALYSIS . Purpose of Financial Statement Analysis Ratios and Other Measurements of Financial Statement Analysis Profitability Measures Capital Ratios Liquidity Measures Asset Risk Measures ii
P titionsr's Exhibit W;bb-1.4 Pegs 4 of 10 Vll. SAVINGS AND LOAN HCLCING CCMPANIES , . . 24 Industry Considerations Financial Condition and Operating Reccrd Scope of Operation Market Area Management Rating Presentaticn Outline Rating Recuirements
.. 30 Vill. MORTGAGE 8ACKED 80NDS ... .. .
Information Requirements Major Rating Factors Quality of Mortgages Interest Rate Prctection Liquidityof Mortgages importance of Issuer incenture Terms 35 IX. MORTGAGE PASS-THROUGH CERTIFICATES. . The Rating Process The Nature of the Pcci Capabilitias of the Servicer Level and Nature of the insurance or Equity Reserve Capacilities of the Mortgage insurance Ccmpany information Requirements APPENDICES Exhibit A . 41 .. .. Standard & Pocr's Corporate and Municipal Bond Rating Definitions Exhibit B . 43 .
. Standard & Peer's Commercial Paper Rating Defini-
. tions Exhibit C .. . . 44 .
. Standard & Pecr's Preferred Stcck Rating Cefinitions iii
Petition:r's Exhibit Wsbb-14 Pago 5 of 10
. Excerpt from Stancarc & Pcct's 1977 Eank and Bank 46 . Earnit'gs Exnibit O ..
Hcicing Ccmpany Financial Cata Report: and Profitability Recs
. Corporate Credit Analysis (CCA) Statistical Recert:
47 Exhibit E . . . Utilities incustrial Rating Presentation Detail 49 Exhibit F . . . .
. Scerpts from Corporate Credit Analysis (CCA) Statis-51 .
Exhibit G tical Report: industrials -
-Anaiytical Summary
-Comcarative incustry Summary Mortgage-Backed Bonds Review Report 54 ...
Exhibit H .
. . Insurance Company Analysis of Financial Condition Exhibit i 60 .. .
l I iv
Pctitioncr's Exhibit Wbb-14 Paga 6 of 10 PUBLIC UTILITIES . Introduction In evaluating utility credit nsks. cur starting point is an analysis cf the varying operating and financial risks that may be facing the electric. gas and telecncre incustnes in the years ahead under diffenng eco-nomic scenarics. Fcr the elecinc utility industry. this invcives the development of sa!es and financial forecasts for a five-year pericd using estimates and economic assumptions and the derivaticn of a wide numcer of operating and financial measurements whicn are used to make compansons. 'Norking with tnese ~ indicatcrs, we assess industry tolerances to worst-case conditions, such as the cotential impact cf cngoing double-digit inflation, of lack of access to the capital markets. cf recession-induced kwn sales declines cr fast-paced Icad growth, and of sericusly adverse develocments in such areas as fuel supply, environmental requirements and telecommunications peticy changes. This type of analysis provides a backdrop for evaluating long-term general industry risk?nd draws attention to sub industry sectors with particular risk Charactenstics. - In this context, we compare the relative coerating and financial positions of individual utilities in the vancus enteria areas, the relative cperating advantages and disadvantages of each, particular sources cf instacility or uncertainty. and debt safety paramoters that should prevail in future years, given a reascnable accraisal Of econcmic and regulatcry climates. While the analysis relates to the future when the dect is to be cutstancing strong censideration is given to the track reccrd of the past several years in that this reflects management's relative success in meeting goals and dealing with prcblem areas. Furthermcre, integral inputs into the analysis are tne current cacital structure position, stated cacitalization goals and their reascnacieness. anc. in tne regulatcry area, the constramts of state laws. PSC colii:ies and precedents and indicated future decisions. In cur view one of the strongest forms cf protecti,cn of interest payments and timely recayment of prin-cical is a reliacle stream of healthy earnings. backec uo by cash flows that are satisfactory in relatien to ~ capital and dect service recuirements. We Icck for decreciation rates to be at realistic levels, based on engineering and economic gauges. Standarc & Pccr's has little interest in becoming emcroiled in the theoretical argument cf whether cr nct present custcmers should pay for needs of future custcmers. Mcwever, the rating crccess recognizes that the practical effect of inflationary ccnditions is that the rate-making procecures cf flow-through acc0unting and accrual of AFOC (allowance for funds used dunng construchen) exacercate alreacy sencus cash flow prcblems for growing, capital-intensive companies. resulting in deteneration in dect safety parameters and credit ratings. Coverage as an AnalyticalTool The pnmary eamings adequacy tests are those centering on fixed charge coverage, notwithstanding the fact that differences in coverage levels have narrowed significantly in the past decade. Nevertheless, these tests. if evaluated in the procer framework, still provide the most direct indication of a company's ability to carry its present debt Icad as well as to incur additional dect. %dard & Accr's cresertiv uses five coverace tests of total interest charces tne mest imccr' ant of wHen are cre'ax and cretax evetuding AFCC fce **a mere cacital inteneive elec*nc and ma utilities The ethers are after 'ax. after tax exc'udino ACDC. and succlemental coverace corncutations recuired bv the SEC. We believe that after-tax coverage still ments sericus consideration in analyzing long-term histcrical trends, because of the greater volatility of present day tax rates, as compared with historical levels. In addition in analyzing telephone utilities the after-tax coverage ratio is an important analytical toci in analyzing capital accumulation pctential. Ccm-putations are all on total interest charges. Inasmuch as all charges have to be met. Less attention is given to pro forma coverage. with more emphasis given to projected coverage based on a full set of ec0ccmic and rate case assumcticns. Lccking at pretax coverage alone, and discussing rating guidelines fcr electric utilities in the br0adest of terms, we find it extremely difficult to maintain a "AA" long term credit rating on most electric utilities if coverage is substandard and does nct show reascnably firm proscects for improvement to the minimum 12
d Petition *,r's Exhibit Wcbb-14 Pagm 7 of 10 3.0-3.5 times level. For varying reasons, we usually icok for higher coverage ratics on tele::nene and gas utilities. Correspondingly, for a medium-quality "A" crecit rating on an electric utility, we would have to Oe l aware of compelling reasons to maintain the rating within that categcry if coverage could not be excected to improve to at least tne 2.50-2.75 times level in a reasonacle time frame. If pretax coverage is only 2.0 times cr less on botn an actual and a orcjected basis. we would sencusly cuestion wnether the lower mecium grade "888" investment category is apprcpriate for that issuer's debt issues, or wnether debt safety cushions are so inacequate that only a relatively speculative grade "88" ratmg can ce assigned to a long-term issue. It should be emphasized that these minimum ccverage levels assume that the electric utility industry is i at an unfavorable cyclical point and is exceriencing Sencus eamings ercsion and financial stress. Thus, the long-term character t I cur rating system requires that we look for nigher minimum coverage levels at a mcre favorable point in the business cycle. In addition, a ccmcany's attainment of strong coverage levels for a higner rating category i only one precondition for consicering a rating uograding on its debt issues. While such coveraga guidelines are an important analytical tcol, they could be misleadirig if used without a comprehensive Icpraisal of fundamental operating and financial risks. of sources of volatility and stability. of asset and c sh ficw protection and of regulatory and management prerogatives. For example. we would prceably r.ct deviate from those guidelines even if there were indications that future trends in regulatcry treatment might be favorable. Moreover, wnere a utility has particular problems the guidelines might be higher. Furthermore. there are many instances where differing types of coverage ratios are more suitable in measunng long-term eamings and cash flow protection and at least as many cases where fixed charge coverage tests must be given only mccest weight in the credit-evaluaticn prccess. The former case is typified by natural gas utilities with sericus succly problems, where increased attention must be given dect service coverages. A prime example of the latter situation is a fast-growing electric utility which expects to trJole or quadruple its cacitalization in the next five years. The projected corresponding growth of the dect burden and the earnings requirements make risk appraisal all the more dependent en the nature of regula-tory climate. financial flexibility, and ability to carry risk in clants uncer construction. Finally, as a tool measunng eamings protection. fixed charge coverage analysis is succlemented by cash-flow analysis and safety-margin analysis which take into consiceration vulnerability to sales declines. cost escalations and potential volatility facters. . Primary Analytical Considerations The utility rating process does nct lirrit its analytical sccpe to eamings Orctection alene. The more irm pcrtant analytical considerations entering into utility ratings are the fcilowing: Company size e.id type of operations The poternial benefits to a large-sized company can no more be igncred than the possible drawbacks to small utilities serving limited areas. The case is far from clearcut, hcwever, a: evicenced by Ccn Edison's 1974 problems and the excellent records chalked up by many moderate-sized utilities. It was mentioned above that we lock for higher coverages on most gas and telephone utilities. For ccmbination utilities cr diversified ccmpanies. we assess the creditworthiness of each business individually. and then
!cck for any advantages cr disadvantages that result from their combination. While mcst companies under the Bell System umbrella clearly benefit in many ways from their association with the parent.1974 demonstrated that in a financial pinch individual debt-issuing subsidiaries can also be imcacted by prob-lems that affect the parent holding company.
The mix of a company's revenues, eamings, and assets and the growth thereof provide basic measurements by which one can gauge relative exposure to normal operating. economic and financial risks. Industrial sales versus resicential and commercial. higher priority gas sales versus lower pncnty usage toll versus local pnene revenues, wholesale relative to retail business, earnings subject to regula-tien, and breakdowns of investments and earnings by regulaterf jurisdictions are most funcamental. The service area of the utility provides the underlying financial support for utility operations. Fartly because customer er demand growth is new mere often a burden than a positive attribute. we 13
Pctition r'e Exhibit Wbb-14} Page 8 of 10 evaluate the varying tyces of growin and
- heir implications. Also important are customer ability anc willing-ness to pay. degree of economic diversity in the area. and the implications of the utility 5 gecgrachical !cca-tion. such as its rural / urban compositicn environmental considerations. climate. and fuel scurce proximity.
Also taken into the ana6ysis are local political and scciceccncmic attitudes towards growth and private in-dustry. The quality of service provided and the adequacy of customer and public relations are keys to ascertaining how well a utility is meeting its franchise obligations. Inadecuacies in these areas (esceciaily fcr telechone comcanies) threaten achievable earnings levels from botn an econcmic anc a requiatory standcoint. Reliability of fuel and power supply, excesure to environmental problems. ocerating efficiencies. level cf plant modemizaticn. gas system safety, and the adequacy cf maintenance cractices are considered for pctential problems and shortcomings. For the electric and gas utilities, analyses as to the cost and availability of fuel succly are im. portant. However, the trend to nationwide energy policy-setting and tne now very hazy cut!cck regarding mcst fuels make it difficult to evaluate risk in this area. The ovemding intra-industry economic risks are, as we see them,(1) detericrating wellhead gas supply and uncertainties as to alternative sources of supply for the gas utilities. (2) the long-term implica-tions of competition and technological enange in scme of the more profitable areas of the te!epnene in-dustry. (3) the substantial difficulties involved in ccmpleting generating facilities in the electric utility in-ductry, anc (4) the risk of not being able to earn a retum or reccup the full investment in a majcr unused, unfinisned. cr unusable plant. Evaluation of the company's five-year construction program The larger the size of the program relative to capitalization. the more important are favorable ccerating and financial parameters. Our largest cencems here are whether the basis of the program rests on high or low esti, mates Of demand growth, whether there is sufficient flexibility (3 adjust the program upwards er downwards in future years and wnether reasonaDle cost escalaticn factors are empicyed. Breakdown of the crogram into major elements inc!uding revenue versus non-revenue-croducing projects is revealing, wnile adjustments are made for possibly omitted projects or contingent expenditures. The track record of adecuacy, cuality, and sncrtfalls of past planning is scrutinized for indications of potential future prcolems. Regulatory climate, including prescribed rate-making and accounting treatment The ability of a utility to satisfac!cniv fund its ccnstruction crocram and to meet current and fu-ture service reCuirements is closely related !c the earn'ncs and cas*t New leve89 ?!!cweO f aith0T" "Of cuaranteec) by the iunsdic!!cnal reculaterv bedv. In addition to being familiar with the basic legislative statutes and mandated court interpretations which spell cut the ground rules under which a regulatcry agency must operate we folicw mcst of the important general rate case decisicns for guidance as to ccm-mission acticies and crecedents. In recent years, a wealth of information has beccme available in this area. although, unfertunately, there is a lack cf up-to-date court rulings regarding tne reasonaoleness of comi mission decisions under current inflationary conditions. Ccmbining management assessments of its ccm-pany's rate increase needs and strategies with information and philcscphy gleaned from past commission actions anc cur cwn conversations with regulatory authorities we develop a judgment as to future rate case outcomes and timing thereof. This evaluation is fundamental to cur own projections of future debt safety margins. Evaluation cf regulatory climate is often the mest difficult as'pect of the utility bcnd rating process. particularly since impcriant changes in commission membership occur with regulanty, and funda-mental changes in the governing legislative statutes are being made with increasing frequency. Accord-
'ngly, we are interested in pclitical and consumer attitudes toward utilities. private enterprise and govern-ment in the jurisdictional area to which a utility belongs. The degree of competence, sophistication and general adequacy of the commission staff is important. In addition to being the workhcrse of regulation, the staff is also able to provide independent judgments that often reflect a long term understanding cf particular utility problems and help assure continuity of policy.
While we have frequent contact with regulators, we do not testify in rate cases inasmuch as any i l participaticn in a case cculd impair our objectivity in rating cecisions. In addition, Standard & Poor's re-trains from taking pct.itions en varicus contrcversial regulatory issues. Imecrtant reculaterv censiderations l 14 l l
Patitioncr's Exhibit Wbb-14 Pags 9 of 10 include:
-Findings on rates of return and rate base
-Extent of regulatcry lag, wnica mignt ecnstrain companies from earning the return alicwed
-Accountinc and rate-makiro crocedures crescribed. whien sienificantly int'uence the "cuality" cf earnings and resultant casn ficw cretectico
-The avaitacility of intenm anc/cr emergency rate relief. and preconcitions for accreval
-Attitudes evidenced towarcs company arguments based on interest coverage recuire-ments and the need to maintain credit stancing
-The presence or absence of snort-term utility protection against volatile fuel and purchased pcwer fluctuaticns
-Any particular utility regulatcry problems with rescect to the adequacy of communica-tions, cooperativeness and credibility Financing requirements, capitalization, and asset protection Having assessed the facters of regulation in terms of possible future eamings and cash ficw pctential for individual companies, we then evaluate their adequacy relative to constructicn needs. debt service requirements. company financing plans, and management's capital structure objectives. Most im-portant are the percentage of cash requirements that may be financed frem internal sources, and the im- .
plications of the program for continuing eamings protection (as measured by debt to capitalization and cebt to net plant asset ratics). The latter is regarded as less important en its own than it is in relation to its ef-rect on probable and pctential earnings protection under the ccnstraints of regulatory pclicy. Thus. Certain compensating facters might allow some utilities to live with a higner cebt ratio than ctherwise wculd be the Case. Financing flexibility The industry's experiences in 1974 clearly demonstrated what many ceservers had !cng suscected, that the capital markets are not necessanly ccen for most of the cecple mcst of the titre. and that tne public utility industries, with their huge capital demancs, can be seriously imoacted when the cccrs are closed for some ef the people some of the time. Particularly in an uncertain inflationary environment, it is be-ccming increasingly imocrtant that utilities have good financing flexibility if they are to retain medium anc higner-grace credit ratings en their cebt issues and ment favorable c0nsideration with regard to ccm-mercial pacer ratings. The analysis in this area invcives an evaluation of:
-An ability to finance through preferred stock. preference stock, or commen equity, the lat-ter at reasonable market value to bcCk value ratios
-Present and potential bank credit available and backuc on ccmmercial pacer issues
-Flexibility to issue funded and unsecured debt and preferred stock under the varicus restnctive covenants
-Vulnerability to shcrt-term coerating and economic risks
-Swings in short-term debt usage and future pclicy in this regard. Higher average use of snort-term dect between permanent financings is recognized as little more than maintenance cf permanent debt in the cacital structure
-Relative use of cff-balance-sheet financing ard flexibility to lease er sell the mere liquid company assets in emergenc es
-FlexibiliN to reduce the cvstruction and maintenanco program without sericusly endangering service er to have cther parties contribute to future cacital requirements
-Two-year forward analysis of projected "largely unceferrable" external capital require-ments as related to capitalization size and contingently available sources
-Policies and practice as to sale of long-term securities, including the degree of conser-vatism evidenced in preparing for upcoming refundings
-Wcrst-case contingency plans including consideration of how management views its prerogatives and pricrities under such conditions Evaluation of management We make judgments and evaluations based cn:
-The Icng-term track record: how successful management has been in meeting l
15
Petition r'a Exhibit W:bb-14 Pago 10 of 10 sharehcider ccjectives and wnether sucn successes cr failures can be attnbuted to management or to other consideraticns
-Evidence of sopnisticated and well-reasoned clanning fer the future anc the flexibility that management builds into major policy decisions
-Cemonstration of conservatism in ccth cperations anc planning. and aggressiveness and leadership in tackling er taking positions en industry preelem areas
-Management's views towards balancing of public and pnvate pncnties and its awareness of the importance of the dectcr-creciter relationship and resconsibilities towards meeting contractual obligations on time
-A demenstrated record of credibility and successful relations with the financial ccm-munity, the public, the media. and of course, the regulatcry agencies, upon all of whom the company must rely issuing Documents These documents. and particularly the trust indenture (which spells out the contract between issuer and bondholder) are examined as to both the covenants agreed to and th,e remedies specified for lack of compliance. The standard provisions are. cf course, looked for ano differentiations made where more er less protection is afforded the bondholder. or wnere unduly restrictive provisions hamper cpera-tiens and flexibility. Liberalizations in the indenture are questioned with particular sericusness as to justification and reasonableness and whether they may lead to increased credit risk. Attemots by ccm-panies to circumvent restnctive covenants wnich are not unreasonable most often do entail higher risks for bondholders.
Conclusion . The sum of our analysis serves as the basis on which we regularly evaluate credit risks for about 300 utility issuers. We review utility rating cnteria annually and are willing to ecnsicer specific criteria er ap-
- proact'es in lignt of new develocments or information.
l t l 16
Petitioner's Exhibie Webb-15 Central Maine Power Company REGULATORY CLIMATE RANKING COMPARISON BY 5 RATING AGENCIES Maine Jurisdiction Rating Agency Rating Duff & Phelps V Below Average - Salomon Brothers C- Average (minus) Merrill Lynch 2 Below Average Argus Research BA Below Average Paine Webber 3 3elow Average Sources: Duff & Phelps State Regulatory Commission Rankings, Utility Research Service December 17, 1979; Salomon Brothers, Electric Utility Regulation Quality and Earnings (August 21, 1979), Stock Research; Merrill Lynch Institutional Report, November l l 1979; Argus Utility Scope Regulatory Service, Special Report - State Regulatory Ratings, October 1, 1979; Paine Webber Fixed Inccme Research Department, August 20, 1979. i
Petitioncr's Exhibit Webb-16 LONG TERM U.S. TREASURY BONDS MOODY'S COMPOSITE YIELDS ON OUTSTANDING PUBLIC UTILITY BONDS EARNED RETURNS ON COMMON EQUITY - ELECTRIC UTILITY INDUSTRY Spread Yields U.S. Treasury U.S. Treasury Long-Term Return Bonds vs. Bonds vs. U.S. Treasury Moody's on Equity Moody's Electric Bot:ds Composite Electric Bonds ROE 1960 4 . 17. 4.7% 11.0% .6% 6.9% 1961 3.9 4.6 10.9 .7 7.0 1962 4.0 4.5 11.7 .5 7.7 1963 4.0 4.4 11.7 .4 7.7 1964 4.2 4.5 12.2 .3 8.0 1965 4.2 4.6 12.5 .4 8.3 1966 4.7 5.4 12.7 .7 8.0 1967 4.9 5.8 12.7 .9- 7.8 1968 5.4 6.5 12.3 1.1 6.9 1969 6.3 7.5 12.2 1.2 5.9 1970 6.8 8.7 11.8 1.9 5.0 1971 6.0 8.1 11.6 2.1 5.6 1972 5.8 7.7 11.7 1.9 5.9 1973 7.0 7.8 11.5 0.8 4.5 1974 7.9 9.3 10.6 1.4 2.7 1975 8.0 9.9 11.1 'l . 9 3.1 1976 7.9 9.2 11.5 1.3 3.6 1977 7.6 8.6 11.4 1.0 3.8 1978 8.4 9.2 11.3 .8 2.9 Averages: 1960-69 4.6% 5.3% 12.0% 0.7% 7.47. 1970-78 7.3 8.7 11.4 1.5 4.1 1975-78 8.0 9.2 11.3 1.3 3.4 Sources: Salomon Brothers Bond Yields Moody's Public Utility Manual Edison Electric Institute
Petitioner's Exhibit Wobb-17 YIELD SPREADS M00bY'S OUTSTANDING PUBLIC UTILITY BONDS SINCE 1960 Spreads Moody's Average Yields Aa vs. A vs. Aa vs . Aaa Aa A Baa A Baa Baa Year 1960 4.47% 4.53% 4.78% 4.97% .25% .19% .44% 1961 4.37 4.46 4.62 4.83 .16 .21 .37 1962 4.35 4.41 4.54 4.75 .13 .21 .34 1963 4.27 4.32 4.39 4.67 .07 .28 .35 1964 4.42 4.44 4.52 4.74 .08 .22 .30 1965 4.50 4.52 4.58 4.78 .06 .20 .26 1966 5.19 5.25 5.39 5.60 .14 .21 .35 1967 5.58 5.66 5.87 6.15 .21 .28 .49 1968 6.22 6.35 6.51 6.87 .16 .36 .52 1969 7.12 7.34 7.54 7.93 .20 .39 .59 1970 8.31 8.52 8.69 9.18 .17 .49 .66 1971 7.72 8.00 8.16 8.63 .16 .47 43 1972 7.46 7.60 7.72 8.17 .12 .45 .57 1973 ~.60 7.72 7.84 8.17 .12 .33 .45 1974 8.71 9.04 9.50 9.84 .46 .34 .80 l 1975 9.03 9.44 10.09 10.96 .65 .87 1.52 I 1976 8.63 8.92 9.29 9.82 .37 .53 .90 i 1977 8.19 8.43 8.61 9.06 .18 .45 .63 1978 8.87 9.10 9.29 9.62 .19 .33 .52 1979 9.86 10.22 10.49 10.96 .27 .47 .74 , 4 Average 1975-79 8.92% 9.22% 9.55% 10.08% .33% .53% .86% 1 l l l 1
l l Potitioner's Exhibit Wobb-18 l Central Maine Power Company ANNUAL EFFECTIVE COST OF LONG AND LNTERMEDIATE TEILM MORTGAGE BONDS Effective Principal Effective Cost Rate Outstanding Annual Interest to at Interest Series /Due Date Rate Maturity 12/31/79 Cost First and General Mortgage Bonds T 11/1/81 3 5/8% 3.61% $ 5,982,000 $ 215,950 U 3/1/83 3 5/8 3.64 8,630,000 314,132 V 4/1/85 3 3/8 3.38 10,500,000 354,900 W 5/1/87 4 7/8 4.81 15,941,000 766,762 X 11/1/90 5 1/4 5.22 5,389,000 281,306 Y 5/1/99 7 1/2 7.59 28,350,000 2,151,765 Z 8/1/95 9.30 9.41 33,250,000 3,128,825 AA 7/1/97 7.70 7.80 24,000,000 1,872 000 BB 8/ 15 /84 10.65 10.82 20,000,000 2,164,,000 General and Refunding Mortgage Bonds A 5/1/06 9 5/8 9.76 35,000,000 3,416,000 B 10/1/03 9 5/8 9.69 25,000,000 2,422,500 10 1/2 10.56 '40,000,000 4,224,000 C 10/15/99 Sub Total 8.51 252,042,000 21,312,140 Plus Proposed Issue 12.17 40,000,000 4,868,000
$292,042,000 $26,180,140 Annual Effective Race 8.96%
l Note: Proformed for 1980 sinking fund requirements of $232,000 l and a proposed $40,000,000 issue of General and Refunding Bonds in 1980.
- t
Central Maine Power Company INSTALLMENT SALES AGREEMENT, TOWN OF YARMOUTH, MAINE POLLUTION CONTROL REVENUE BONDS
% of Principal Amount Net Principal Embedded Outstanding Annual Issue of Issue Expense Proceeds Amount coat 12/31/79 Cost 6 3/4% 6.94% $10,250,000 $711,350 Due 6/1/2002 $10,250,000 $275,000 $ 9,975,000 97.32%
6 3/4% 7.14 1,000,000 71,400 Due 12/1/2003 1,000,000 54,000 946,000 94.60
$11,250,000 $329,000 $10,921,000 97.08% 6.96% $11,250,000 $782,750 Total p.
g 8 R ur . Y E E a f 2 b.
Petitionsr's Exhibit Webb-20 Central Maine Power Company ANNUAL COST OF PREFERRED STOCK Annual Composite Amount Net Dividend Cost Series / Par Value Outstanding Proceeds Recuirement Rate 6.0 07. $100 $ 571 300 $ 571,300 $ 34,278 3.50% 100 22,000 000 17,884,000(1) 770,000 4.60% 100 3,000 000 2,981,000 000 4,961,000 138,500 237,
- 4. 5% 100 5,000 000
- 5. 3% 100 5,000 000 4,950,000 262,500 100 8,690 000(2) 8,583,187 977,625
$11.25 24,845,000 2,100,000 8.40% 100 25,000,000 Sub Total 69,251,300 64,775,487 4,519,903 6.98% 11.50% (Proposed 25,000,000 24,687,500(3) _,875,000 Issue) $100 Total $94,261,300 $89,462,987 $7,394,903 8;j1%
~
n
- 1. Includes $4,011,000 embedded costs.
- 2. Proformed for the 1980 " Mandatory Sinking Fund" require-ment of $385,000 on November 1.
- 3. Assumes sale at par with expenses of $312,500. Effective cost rate of 11.65%.
Petitioncr's Exhibit Wabb-21 Central Maine Power Company WEIGHTED COST OF CAPITAL Weighted Composite Balance Percent Cost Outstanding of (Col. 2 x 12/31/79 Cost Total Col. 3) Mortgage Bonds $292,042,000 8.96% 42.51% 3.81% Installment Sale Agreement Town of Yarmouth, Maint, Pollution Control Revenue Bonds 11,250,000 6.96 1.64 .11 Capitalized Lease 7,891,000 11.54 1. 15 .13 Short-Term Debt 32,400,000 13.00 4.72 .61 Preferred Stock 94,261,000 8.27 13.72 1.13 Common Equity 249,044,072 15.00 36.26 5.44 Total $686,888,072 100.00% 11.23% Notes: 1. Long-term debt is proformed for 1980 sinking fund requirement of $232,000 and a proposed new issue of bonds in 1980.
- 2. Preferred stock has been proformed for the mandatory sinking fund of the Series $11.25 and reflects a proposed 11.50% issue in 1980.
- 3. Common equity has been proformed for a proposed issue at $15.50 net proceeds per share in 1980.
- 4. Data is based on 10 months actual 2 months estimate.
P&titioner's Echibit W bb-22 Central Maine ?cwer Cc=cacy Ccmponents of Ccustrnetion Work in Progress 13 Month Aversse 2% Seabrock Unita Fo. 1 8 2 $19,415,140 $4,853,785 Millstone Unit No. 3 15,938,723 3,984,681 Brunswick Topsham Fydro Redevelopment 1,045,192 261,2o8 Total $36,399,055 $9,0c9,76h Note: Average of 13 =enth's balances, 9 months actual, 4 =enths esti=ated e i e 9 l
Petition 2r's Exhibit Wsbb-23 Page 1 of 2 Central >'.aine ?cwer Cc= a:"I Age of Existing Generating Plants Plant Name/ Unit Year Censtructed Ag Hydro Stations Andresceggin #3 1928 52 Ear Mills 1956 24 Benney Eagle 191o 7o Brunswick Units A 19o8 72 B 19o8 72 c 1908 72 D 19n 69 Cataract 1937 43 Continental Mill 1920 60 Deer Rips Units 1 1903 77 2 1903 r 3 19c6 iL 4 19n 69 5 1913 67 Guit Island 1926 54 Harris Units 1 1954 26 2 1954 26 3 1955 25 4 1955 25 Hiram 1917 63 Milstar 1918 62 Messalonskee #2 1924 56
#3 1918 62
#4 1924 56
#5 1922 58 North Gorham 1925 55 Fort Halifax 1908 72 Shaw at Units 1 1913 67 2 1913 -
67 3 19 2 67 4 1918 62 5 1915 65 6 1921 59 Skelton 19h8 32 Tcpsham 1920 60 West Buxton Unit l 5 1904 76 4 19o7 73 3 1920 60 6 1927 53 l l t
Petitioncr's Exhibit Webb-23 Paga 2 of 2 Plant Name/ttit Year Constructed AE Weston Unit 2 1920-21 59
- 1 1920-21 59-
'3 1920-21 59 4 1923 57
'444a=s Unit i 1939 41 2 1950 30 Wyman Unit 3 1940 40 2 1931 49 1 1930 50 Steam Stations .
Mason Ltit 1 1941-42 38 2 1947 33 3 1952 28 4 1952 28 5 1955 25 Cape Unit 1 1922 58 2 1922 58 3 1924 56 W. F. Wy=an Unit 1 1957-58 22 2 1957-58 22 3 1965 15 4 1978 2 Internal Cembustion Stations Fa.~.J.n6 dale 1950 30 Reckland 1948 32 Islesbore Unit 1 1963 17 2 1966 14 Feaks Island Unit - i 1940 40 2 1948 32 3 1942 38 Cape 1970 10 Nuclear Stations Maine Yankee 1973 7 Connecticut Yankee 196 8 12 Vermont Yankee 197F 8 Massachusetts Yankee 196 1 19 l L s
Patitientr's Exhibit WIbb-2f+ Central Maine Dower Company AFC as a Percent of Earnings Applicable to Common (Dollars in Thousands) (1965-1979) AFC Applicable AFC Year Dollars to Common of Earnings 1965 $ 261 $ 9,634 2.7% 1966 53 9,889 .5
~
1967 61 10,389 .6 1968 139 9,863 1.4 1969 429 9,958 4.3 1970 921 11,132 8.3 1971 590 9,797 6.0 1972 67- 11,457 .6
, 1973 213 11,827 1.8 1974 641 10,108 6.3 1975 1,632 12,058 13.5 1976 4,386 14,310 30.6 1977 7,785 18,275 42.6 1978 11,937 24,969 47.8 1979 6,307 25,044 25.2
\
Pr.titionsr's Exhibit Wtbb-25 4 Central Maine Power Company Effective Tax Rate , (1965-1979) Effective Year Tax Rate 1965 42% 1966 .43 1967 44 1968 47 1969 47 1970 42 1971 40 1972 44 1973 38 1974 33 1975 36 1976 35 1977 33 1978 31 1979 36
)
l
- 1 e
1
Patitionsr's Exhibit Wsbb-26 Central Maine Fewer Cc:=a:rf Dividend Fayout Ratics (1965 - 1979) Earnings Earnings Per Share Per Chare Dividends Fayout Faycut Including Excluding Per Including Excluding Year AFUDC AFUDC Share AFUDC AFtTDC 1979 $2.lo $1.57 $1.55 73.8% 98.7% 1978 2.19 1.15 1.46 66.7 127 0 1977 1.87 1.08 1.41 75.4 130.6 1976 1.75 1.22 1.355 77.4 " ' .1 1975 1.58 (1) 2.35 1.34 84.8 99 3 1974 1.48 1.39 1.34 90 5 96.4 1973 1.73 1.70 1.28 74.o 75.3 1972 1.68 1.67 1.215 72.3 72.8 1971 1.44 1.35 1.20 83.3 88 9 1970 1.63 1.50 1.17 71.8 78.o 196 9 1.46 1.40 1.13 77.4 80 7 196 8 1.45 1.42 1.09 75.2 76.8 1967 1.52 1.51 1.02 67 1 67.6 1966 1.45 1.44 97 66.9 67.4 1965 1.43 1.39 90 62 9 64.7 (1) Excludes $.12 per share - cumulative effect of a change in accounting principle.
Potitionsr's Exhibit Webb-27 Pags 1 of 5 Central Maine Power comoany Comparison of Revenue Requirements
- For Alternative Treatments of AFC Assumptions
- 1. The following assumptions were made for a single unit of plant.
The cost shown includes labor and materials but does not include AFC. Total cost $1,000 Construction period 5 years Start of construction 1/1/80 Commercial operation 1/1/85 Book life 32 years Salvage value 0
- 2. The annual construction budget for this project was assumed to be as follows:
Construction Year Reauirements 1980 $ 10 ; 1981 190 1982 300 1983 330 1984 170 Total $1,000
- 3. The property tax base was assumed to be equal to the sum of the accumulated construction expenditures including AFC. The property tax base was depreciated by one 32nd of its original (1985) value esch year until it reached 75% of its original value. From that i point on the tax base was held constant at that level. The tax rate was assumed to be $.015 for every dollar if tax base.
- 4. The cost of money assumptions are as follows:
Percent of Weighted
)
Total Cost Cost 1 i Debt 50.02% 9.32% 4.56% Preferred 13.72 8.27 1.13 Equity 36.26 15.00 5.44 Total 100.00% 11.23%
Petitionsr's Exhibit Wobb-27 Pago 2 of 5
- 5. The cost of AFC was assumed to be 11.23%.
- 6. The federal income tax rate was assumed to be 46% and the state income tax rate was assumed to be 6.93%. The investment tax credit rate was assumad to be 10%. Accelerated taxes were calculated for the first two years using a double declining balance method and then the method was switched to sum-of-the-years-digits. The guideline life was 28 years and the ADR life was 23 years. The half year con-vention was used in determining the first years tax depeciation.
- 7. The average beginning and ending rate base was used to determine equity return and bond interest.
Alternative Treatments of AFC Case 1. CWIP is excluded from rate base and the corresponding AFC is
~
capitalized. Case 2. CVIP is included in rate base and the corresponding AFC is allowed as a current expense for rate making purposes.
! Case 3. CWIP is excluded from rate base and the income tax effect of AFC is normalized. AFC less any tax benefits is capitalized.
Results The annual revenue requirements associated with each al'ternative are shown on the following pages. Case 1. CWIP excluded from rate base $4,743.Pf2 Case 2. CWIP included in rate base $3,926.148 Case 3. CWIP excluded with tax normalization $4,519.485 ( l i I
Central Maine Power Company Comparison of Revenue Reg.iirements for Alternative Treatments of AFC Annual Revenue Requirements for Case I CWIP Encluded from Rate Base and AFC Capitattaed lacune Taxes ITC Froperty Total Book Bond Eguity Deferred (Flow) Tea Eevenue Year Deprec, latercat Return (AlulC) Liabilty . Fre-Commercial Revenue Beguirementa -0.213 1980 $ $ 0.215 $ 0.306 $ 0.521 $ -0.283 $ $ $ $ 6.531 11.119 -4.541 -4.548 1988 4.584 -16.367i 1982 16.536 23.537 40.073 -86.367 80.899 -33.048 -33.048 1983 33.381 47.586 -49.014 1984 49.588 , 70.450 119.998 -49.080 Commercial Revenue Requirements 290.100 St.426 84.873 11.786 3.125 18.789 1985 39.844 57.204 260.237 54.599 77.713 51.851 28.832 3.125 18.202 1986 39.844 17.615 249.382 39.144 51.817 73.752 50.916 19.263 3.125 1987 17.028 234.778 39.144 46.832 69.932 49.064 17.603 3.125 1988 16.441 228.470 39.144 46.526 66.222 47.320 15.943 3.125 1989 218.459 43.996 62.621 45.686 14.283 3.125 15.853 1990 39'.144 208.744 41.544 59.131 44.160 12.623 3.125 15.266 1991 39.144 199.326 39.144 39.170 55.752 42.744 10.9f 3 3.125 14.679 1992 14.092 190.204 39.144 36.872 52.432 41.437 9.303 3.125 1993 181.967 1994 39.344 34.653 49.322 40.238 7.643. 3.125 14.092 39.149 5.982 3.125 14.092 174.025 1995 39.344 32.510 46.273 43.334 38.169 4.322 3.125 14.092 166.388 1996 39.144 30.445 159.033 Nd 28.458 40.505 37.297 2.662 3.125 14.092 8997 39.144 151.981 m 26.547 37.786 36.535 1.002 3.125 14.092 1998 39.144 145.226 f' 24.784 35.177 35.882 -0.658 3.125 14.092 1999 39.144 14.092 134.768 hI 39.144 22.959 32.678 35.334 -2.318 3.125 2000 14.092 132.606 F6 39.l44 21.281 30.290 34.902 -3.978 3.125 2001 14.092 326.743 C) 2002 39.144 19.680 28.018
- 34.576 -5.638 3.325 25.843 34.359 -7.298 3.125 14.092 121.172 ed l 2003 39.144 18.157 23.785 34.251 -8.958 3.125 34.092 115.900 p Pl i 2004 39.144 16.783 og -
21.437 34.252 -80.618 3.125 14.092 110.924 2005 39.844 15.342 n> un 20.000 34.362 -12.278 3.125 34.092 106.245 2006 39.844 14.053 18.272 34.584 -13.934 3.825 14.092 101.863 ta m 2007 39.144 12.837 g 16.655 34.909 -15.599 3.125 14.092 97.777 2008 39.l44 11.708 14.092 93.779 0 pr . 39.14% 10.623 15.120 34.354 -16.429 3.125 2009 14.092 89.721 Fhy% 39.144 9.564 33.633 32.862 -16.429 3.125 2010 14.092 85.663 39.544 8.505 12.105 38.378 -16.429 3.125 (n pu 2013 14.092 81.605 39.144 7.446 10.594 29.879 -16.429 3.125 rt 2012 14.092 93.158
-8.214 3.125 20l3 2014 39.144 39.844 6.195 4.562 8.818 6.493 36.'247 42.076 0. 3.125 14.092 103.243 jf 39.144 2.737 3.896 39.506 0. 3.125 14.092 96.25G cr 2015 14.092 89.257 Cf 39.144 0.982 1.299 36.935 0. 3.125 2016 I Total $1,252.630 $905.694 $1,298.188 $252.610 $1,176.909 $ 0.000 $l00.000 $472.077 $4,743.792 (j Numbera may not add to totals due to rounding.
a Central Plaine Power Way Comparison of Revenue Requirementa For Alternative Treatments of AFC Annual Revenue Requirements for Case 2 CWIP Included from Rate Base suJ AFC as a Current Espense Equit y laceae Tames ITC Property Total Book Bond Liabilty Deferred (Flow) Tau Revemme Year Deprec. Interest Return {AFupC} Pre-Casanarcial Sevenue Sequirescals 0.824
- 0. 3c4 $ 0.30 3 $ $ $
1980 $ $ 0.215 $ $ 0. $ 87.583 1981 4.580' 6.538 c. 6.464 63.368 1982 16.536 23.537 0. 23.295 47.028 527.927 1983 33.383 47.516 0.
- c. 69.757 189.755 1984 49.518 70.480 a
Commercial Revenue Requirementa 64.926 60.729 11.786 3.125 15.003 226.188 1985 31.250 45.616 197.827 43.375 68.737 28.226 21.832 3.125 14.538 1986 31.250 14.063 188.528 31.250 40.960 58.300
- 27.809 19.263 3.125 1987 379.445 38.644 55.004 26.475 17.603 3.125 13.594 1988 31.250 170.666 36.405 58.817 25.250 15.943 3.125 13.125 1989 31.250 12.656 162.183 34.250 34.244 48.748 24.134 14.283 3.125 1990 12.188 153.997 31.250 32.160 45.774 23.127 12.623 3.125 1991 346.104 42.918 22.229 10.963 3.125 11.719 1992 38.250 30.153 138.585 28.224 40.172 28.440 9.303 3.825 13.250 1993 31.250 138.687 31.250 26.372 37.537 20.761 7.643 3.125 II.250 1994 11.250 125.856 38.250 24.598 35.081 20.190 5.982 3.125 1995 hd 1996 38.250 22.908 32.596 19.728 4.322 3.I25 II.250 138.922 nD 30.290 11.375 2.662 3.125 11.250 112.984 31.250 21.281 1997 1998 33.250 19.739 28.095 19.131 1.002
-0.658 3.125 3.125 II.250 11.250 107.343 101.998
(( l999 31.250 18.274 26.010 18.996 rt 24.035 18.978 -2.388 3.125 11.250 96.950 FA 2000 31.250 16.887 C) 22.171 19.054 -3.978 3.I25 II.250 92.193 2001 31.250 15.577 ng ll 20.416 19.246 -5.638 3.125 13.250 87.743 2002 31.250 14.344 18.772 19.547 -7.298 3.125 15.250 83.583 p3 pg 2003 38.250 13.189 09 - 37.238 19.958 -8.958 3.125 18.250 79.723 2004 31.250 12.111 ne un 15.814 20.477 -10.618 3.125 18.250 76.353 2005 31.250 13.130 14.500 21.105 -12.278 3.125 18.250 72.889 33 m 2006 31.250 10.187 9.341 13.296 21 343 -13.934 3.125 11.250 69.917 H 2007 31.250 67.248 C) DF 8.573 12.202 22.689 -15.599 3.125 18.250 2008 31.250 11.250 64.653 33.250 7.863 13.193 22.653 -16.429 3.125 "%{" 2009 11.2$0 62.006 31.250 7.172 10.208 21.680 -16.429 3.125 (fi gu 2040 59.358 6.481 9.224 20.706 -16.429 3.125 11.250 rt 2011 31.250 56.710 19.733 -16.429 3.125 ll.250 2012 2013 38.250 31.250 5.790 4.907 8.241 6.985 26.620 -8.214 3.125 11.250 69.673 jf 31.250 3.642 5.184 32.967 c. 3.125 11.250 41.168 cr 20C' 11.250 15.585 Cr 31.250 2.185 3.350 30.915 0. 3.125 20s. 70.003 0.728 1.037 28.863 .. 3.125 II.25u , 2086 31.250 '
$911.474 $ 0.000 $100.000 $176.875 $ 3,926.548 Total $1,000.000 $717.276 $1,020.922 $_ 0.
------ -- - W ar) CEG aJJ to_ totals due to ronudius.
l I Cent ral Itaine l'e er C,mpany Comparison of Revenue Requirements l l For Alternative Treatments of AFC Assuual Newenue Requireocuts for Case 3 I CWIP Escluded f rom Rate Base an.1 Normalizatles at the Tas Benefits Associated witti AFC \ Equity Income Taxes ITC Property Total . Sock SonJ Revenue Return hierred (Flowl Tan Year ggsce. Interest {AFils c) Liabilty Pre-commercial Revens*e Sequirements P. 1980 $ $ 0.215 $ 0.306 $ 0.525 $ 0. $ $ $ w 1981 4.583 6.522 11.105 0. . , O. 1982 16.407 23.353 39.760 0. 79.487 O. 1983 32.801 46.687 0. O. 1984 47.991 64.307 116.298 0. Commercial Revenue Requirements 77.332 78.882 11.786 3.125 17.849 274.24l 1985 37.185 54.332 244.737 51.884 73.749 45.989 28.832 3.125 17.291 1986 37.185 16.733 234.281 1987 37.185 49.123 69.918 45.183 19.263 3.125 66.228 43.459 17.603 3.125 16.176 224.056 1988 37.185 46.530 44.015 62.648 41.844 15.943 3.125 15.618 234.128 1989 37.185 15.060 204.496 1990 37.185 41.577 59.177 40.339 14.283 3.125 55.817 38.942 12.623 3.125 14.502 195.168 1991 37.185 39.246 52.567 37.654 10.963 3.125 13.945 186.122 1992 37.185 36.933 49.428 36.475 9.303 3.125 13.387 177.380 1993 37.185 34.727 46.398 35.406 7.643 3.125 13.387 169.492 1994 37.885 32.598 168.900 N 1995 37.185 30.547 43.479 34.445 5.982 3.825 13.387 8 28.573 40.669 33.593 4.322 3.125 13.387 154.606 37.185 1996 1997 37.185 26.677 37.970 32.858 2.662 3.125 13.387 147.607 h 24.858 35.381 32.217 1.002 3.125 13.387 140.906 rt 1994 37.185 134.501 ' F' 1999 37.185 23.116 32.902 31.692 -0.658 3.125 13.387 2000 37.185 23.452 30.534 38.277 -2.3th 3.125 13.387 128.392 'O 2001 37.185 19.866 28.275 30.970 -3.978 3.125 13.387 122.580 me 30.773 -5.638 3.125 13.387 117.065 50 H-2002 37.185 14.356 26.127 00 16.924 24.089 30.684 - 7. 2'J 8 3.125 13.387 188.846 *" 2003 37.185 106.924 2004 37.185 15.570 22.161 30.705 -8.958 3.125 13.387 2005 37.385 14.292 20.343 30.834 -10.618 3.125 13.387 102.298 uy 18,635 31.073 -12.278 3.125 13.387 97.969 M 2006 37.185 13.092
-13.938 3.125 13.387 93.93; O7 11.970 17.037 31.420 2007 2008 37.885 37.185 10.925 15.550 31.877 -15.599 3.125 13.387 90.208 86.553 h
u p. 37.885 9.9M 14.145 31.454 -16.429 3.125 13.387 2009 82.845 rt 2010 37.185 8.970 12.768 30.088 -16.429 3.125 13.387 8.003 28.725 -16.429 3.125 13.387 79.336 20l5 17.145 II.390 75.428 2012 37.185 7.035 10.083 27.368 -16.429 3.125 13.387 e 33.859 -8.214 3.125 13.387 8 7.3'll Cf 20l3 37.185 5.876 8.363 & 4.334 6.168 39.816 0. 3.125 13.387 97.766 20l4 2015 , 37.185 37.885 2.600 3.708 37.3)4 34.932
- 0. 3.125 3.125 13.387 13.387 98.123 84.480 k
q 20l6 37.185 0.867 l.234 0. Total $1,189.934 $856.703 $1,219.378 $247.171 $1,152.190 $ 0.c00 $100.000 $448.456 $h519.485 Numliers may not edit to totale due to roun.I!ns.
Cent ral Haine Power Coogiany 1979 Test Year Operating Income 8 Honti,s Actual - 4 H.enths Estimate (Dallars i,a TI,ousands) A.lditional Normalizing 1979 Revenue Adjustments Adjusted Under 1979 1979 Operating Normalizing 1979 Attrition For other Test Year Proposed Test Year Normalized Adjustments Known Changes Income Rates Insome inc ome Adj ust a,ent s ll) (2) (3) (4) (5f- ~ ~l5I ()I ~ 7 8I~~~ Pfetatia8 Revena** Base Revenues _ $15,569 $ 92,453 Res tilent ial $ 75,098 $ 518 $ 75,609 $ l.275 $ $ 76,884 74,613 (200) 74,413 922 2,230 77,565 18,910 96,475 Ceneral Service 4,422 546 4,968 Street Lighting 4,326 12 4,338 84 1,703 1,703 119 2,022 2,022 kesale Other _ 6,612 (6,682) 162,352 (6,289) 156,063 2,600 2,230 160,893 35,025 195,988 Total 137,143 537,143 Fuel Billed 90,784 (3,241) 87,543 49,600 16 224 16 224 (8 800) 7 424 7 424 Fuel Unbilled ill,.Sfi Total I6),,608 13,241) I63,,Idi 46,,566 14%,,55) _9,902 {l,532) 8,]70 700 9,070 9,070 Other Revenues Total Electric Operating (11,062) 44 t100 2,230 314,530 35,025 349,555, Revenues 279,267 9 268d00 Ogic ra t i ng __Es pensy 102,725 50,166 (3,248) 46,925 55,800 102,725 Fuel for Generation _43,004 Purchased Power - Fuel _57,474 57,474 (14,800) 330 43,004 107,640 (_3,2U) 104,399 41,000 330 145,729 145,729 27,575 (857) 26,718 2,I00 800 29,618 29,618 Purchased Power - Capacity 49,978 (61) 49,980 4,000 4.910 58,820 58,820 ott cr operation and Maintenance 9,662 State and Hunicipal Taxes 9,562 9,562 100 9,662 18,3I6 (2,933) 85,383 (2,400) 12,983 17,422 30,405 State and Federal Income Taxes 19,519 llepreciation and Amortization _20,219 20,219 _l,800 (1,800) _I9,589 Total Operating Expenses 23},283 (7,092) 226,191 45,900 4,240 276,3]l S 422 293,751 45,979 (3,970) 42,009 (1,800) (2,010) 38,199 17,603 55,802 Net Operating Income Equity in Earnings of AssociatrJ 3,9 Companies j ,525 28 3,546 3,546 AdjustcJ Net Operating Income $_49,50_4 $ Q,249) $ 3 ,555 $ {l,800) $(2,0jo) $ 3 ,73 $p,603 $_59,33
- Petit ioner's Esl ibit blowe-1, Page I
l Cent ral Maine Power Cosspany Detail of Normalizing Adjustments (Column 2, Exhibit Howe-1, l' age 1) laterest
- Espense en NY ,
NEITE Replace- HV Cap. ment St. Regis Equity Station Store Unbilled Nemand Proforma Resp. Energy Strilie Earnings Service Damage Revenue Rates laterest Payroll Unit Sale
~gense Total Adj. AJ Costs AJJ ~. AJJ. AJJ. AJJ. Adj. AJj. Eu
- AJJ. 3)~
7A ~(J . 8 ~lC) (D) (E) l i) ~ ~ld) (NE 71)~ (K) l!.T Operating Revenues base Revenues $511,355 $ $ 511,355 Residential $ $ $ $ $ (186,466) 321,555 (200,382) Ceneral Service 264,529 12,l22 12.122 Street i.18 hting Resale {@,682,174) Otlie r (6,612,374) 16,iii,5))) {&,$U,ji{} 2 3 5_29 {its,465) 545g oJ Total (3,241,429) Essel Billed (3,248,429) Fuel Unfailled IK241,429) Total Fuel $i41,429) (974,000) (I,531,672) j519 T38 Uti,er Elect ric Mcvenues (I6 Hj,,362)f55) 264,529 (iM,010)
,1)E) (974,000) 845,032 (ll,642,jed)
Total _ 9PM8Iing_E._xpgses (3,248,429) Fuel for Generation (3,241,429) Purri,ased Power - Fuel ~ (3,248,429) (3}4T433) Piirthased Power - (856,836) Capacity , (253,875) (602.961) Other Operation and (459,250) (65,636) Haintenance 397,614 State and Municipal Tames e State and Federal (1l0,186) 228,441 (484,489) 420,338 32,615 (2,932,740) inreme Taxes (208,590) (3,547,632) 126,283 475.,897 131,583 Depreciatson and __ Amustizatton __ __ Total Operating {1,092;645) Expenses 196,024 {6,789,061) (g],592) 475,897 131,5!3 (7 Del 47) (230,809) (484,489) 420,334 32,6_15_ (196,024) (3,584,404) 127,592 (471,897) 132,946 (118,329) 230,809 (489,518) 424,694 (32,6127 (3,969,739) Net operating income Equity in Earnings of 21,3M AssociatcJ Companies , _ 21,3M AdjustcJ liet Operating INCO*C $f3!k92$)$ a 58ba5)$ 4 I3ldN $ a!!!) $!32.alb$ $2I 3II I I3:3.)))$ 330,80) $({8g,My ${]{3{3{ $(}},g[5,)$ Q,jj8,3g{) a Petitioner's Enhibit Howe-1, Page 2
Central Maine Power Company PAYROLL ADJUSTMENT This adjustment annualizes the effect of the 7k% contract wage increase effective May 1, 1979. Operating Expeuses Adjustment for increase in base wages January 1,1979 to April 30, 1979 $499,531 FICA taxes on above increase at 6.13% 30,621 Total Payroll Adjustment 530,152 Operation and maintenance component 75% Adjustment to Operation and Maintenance $397,614 Income Taxes
- State @ 6.93% $ (28,085)
Federal @ 46% (173,505) Total $(201,590) Summary Operating Expenses $ 397,614 Income Taxes (201,590) Adjustment to Net Operating Income $(196,024)
- Income taxes were computed using 100% of FICA t. axes as a current deduction.
Petitioner's Exhibit Howe-1, Page 3 o 9
Central Maine Power Company UNIT SALE ADJUSTFINT This adjustment normalizes the test year for the sale of 100 MW of capacity from W. F. W'yman Unit #4 to Public Service Company of New Hampshire, from January 1, to October 31, 1979. Operating Revenues Non-territorial sales $(9,853,803) Miscellaneous revenues (519,662) Total Revenues $(10,373,465) Operating Expenses Fuel for Generation $ (3,241,429) Income Taxes State @ 6.93% $ (494,250) Federal @ 46% (3,053,382)
$ (3,547,632)
~ Total Summary Operating Revenues $(10,373,465) Operating Expenses (3,241,429) Income Taxes (3,547,632) Adjustment to Net Operating Income $ (3,584,404) Petitioner's Exhibit Howe-1, Page 4
Central Maine Power Company NEPEX CAPACITY RESPONSIBIEITY ADJUSTMILNT This adjustment normalizes the test year for a non-recurring NEPEX Capacity Responsibility payment made in 1979. Operating Expenses Purchased Power - Capacity $(253,875) Income Taxes State @ 6.93% $ 17,594 Federal @ 46% 108,689 Total $ 126,283 Summary Operating Expenses $(253,875) Income Taxes 126,283 j Adjustment to Net Operating Income $ 127,592 Petitioner's Exhibit Howe-1, Page 5 l l l
Central Maine . ,wer Company INTEREST EXPENSE ON MAINE YANKEE REPLACEMENT ENERGY COSTS This adjustment normalizes the test year for the tax effect of interest expense used to finance the replacement energy costs due to the Maine Yankee shutdown from March 15, 1979 to June 9, 1979. Interest Expense $(948,687) Income Taxes State @ 6.93% $ 65,744 rederal @ 46% 406,153 Total $471,897 Summary Income Taxes 471,897 Effect on Net Operating Income $(471,897) Petitioner's Exhibit Howe-1, Page 6
I Central Maine Power Company , l ST. REGIS STRIKE ADJUSTMENT This adjustment normalizes the test year for inst revenues during a strike against St. Regis Paper Company from May 15, 1979 to , June 22, 1979. 0;arating Revenues Increase base revenues $264,529 Income Taxes State @ 6.93% $ 18,332 Federal @ 46% 113,251 Total $131,583 Summary Operating Revenues $264,529 Income Taxes 131,583 Adjustment to Net Operating Income $132,946 Petitioner's Exhibit Howe-1, P' age 7 l l l
Central Maine Power Company EQUITY EARNINGS ADJUSTMENT I This adjustment increases test year operating income by the amount of Central Maine Power Company's share of expenses incurred by j associated companies which are not allowable for rate making purposes ; in Maine. The amount of adjustment for each company is shown net of applicable income taxes. Equity in Earnings of Associated Companies Maine Yankee Atomic Power Company $21,346 Yankee Atomic Electric Company 14 Connecticut Yankee Atomic Power Company 143 Vermont Yankee Nuclear Power Corporation (131) Increase in Equity Earnings $21,372 , Income Taxes This adjustment has no effect on in ome taxas Summary Equity in Earnings of Associated Companies $21,372 Income Taxes Adjustment to Net Operating Income $21,372 Petitioner's Exhibit Howe-1, Page 8
Central Maine Power Company MAINE YANKEE STATION SERVICE ADJUSTMENT This adjustment normalizes the test year for station service power sold to Maine Yankee during the 1979 test year. Operating Revenues
' Decrease sales of electric energy $(786,466)
Decrease wheeling revenue (38,010) Total adjustment to Operating Revenues $(824,476) Operating Expenses Purchased Power - Capacity $(602,961) Income Taxes State @ 6.93% $(15,351) Federal @ 46% (94,835) ,, Total $(110,186) Sanmary Operating Revenues $(824,476) Purchased Power (602,961) Income Taxes (110,186) Adjusted Net Operating Income $(111,329) 1 Petitioner's Exhibit Howe-1, Page 9
Central Maine Power Company STORM DAMAGE ADJUSTMENT This adjustment normalizes the test year for abnormally high storm damage expenses due to storms in January and September of 1979. Operating Expenses Stora damage 1979 $1,355,797 5-year average 781,735 Excess storm damage 574,062 1/5 to be amortized in test year 114,812 Reduce Distribution Maintenance $(459,250) Income. Taxes State @ 6.93% $ 31,826 Federal @ 46% 196,615 Total $ 228,441
~
Summary Operating Expenses $(459,250) Income Taxes 228,441 Adjustment to Net Operating Income $ 230,809 Petitioner's Exbibit Howe-1, Page 10 s' I l
Central Maine Power Company UNBILI.ED REVENUE ADJUSTMENT This adjustment normalizes the test year for that portion of unbilled revenue which was charged to income sa the test year due to a current change in method of computation but which is properly applicable to prior years. Operating Revenues Remove portion of revenues applicable to prior years $(974,000) Income Taxes State @ 6.93% $ (67,498) Federal @ 46% (416,991) Total $(484,489) Summary . ' Operating Revenues .,
$(974,000)
Income Taxes (484,489) Adjustment to Net Operating Income $(489,511) Petitioner's Exhibit Howe-1, Page 11 1 i i 1 l
Central Maine Power Company REMAND RATES ADJUSTMENT This adjustment normalizes test year base revenues for rates effective August 22, 1979 as approved by MPUC Supplemental Order No. 4. Operating Revenues Increase base revenues to reflect new rates $845,032 Income Taxes State @ 6.93% $ 58,561 Federal @ 46% 361,777 Total $420,338 Summary Operating Revenues .
$845,032 Income Taxes 420,338 Adjustment to Net Operating Income $424,694 Petitioner's Exhibit Howe-1, Page 12
1 Centra 1_ Maine Power Company PROFORMA INTEREST EXPENSE This adjustment normalizes test year income tax. expense for the difference between the test year actual interest expense and the proforma interest i expense, which is calculated by applying the debt component of the capital
~
structure to the adjusted rate base. Interest Expense 1979 Test Year Rate Base (Petitioner's Exhibit Howe-4, Page 1) $516,597,972 Composite cost of debt 4.66% Proforma interest expense $ 24,073,465 Test year interest expense 24,139,032 Adjustment to Interest Expense $ (65,567) Income Taxes State @ 6.93% $ 4,544 Federal @ 46% 28,071 Total $ 32,615 Summary Income Taxes $ 32,615 Adjustment to Net Operating Income $ (32,615) Petitioner's Exhibit Howe-1, Page 13 i
~
\
Central Maine Power Company Attrition Adjustment Summary (Column 4, Exhibit Howe-1, Page 1) (Dollars in Thousands) 1979 Normalized Growth Attrition Year Assumptions Adjustment (1) (2) (3) Operating Revenues Base $156,063 1.7% $ 2,600 Fuel 103,767 40,800 Other 8,370 8.0 700 Total 268,200 44,100 Operating Expenses Fuel for Generation 46,925 55,800 Purchased Power - Fuel 57,474 (14,800) 104,399
- 41,000 Purchased Power - Capacity 26,718 8.0 2,100 Other Operation & Maintenance 49,910 8.0 4,000 State and Municipal Taxes 9,562 1.0 100 State and Federal Income Taxes 15,383 (2,400)
Depreciation and Amortization 20,219 5.5 1,100 Total Operating Expenses 226,491 45,900 Equity Earnings 3,546 Adjusted Net Operating Income $ 45,555 % $ (1,800) Rate Base Property Held for Future Use $ 2,985 % $ Investment in Associated Companies 35,812 CWIP 9,100 Other 468,701 3.0 14,100 Total Rate Base $516,598 % $14,100 l i-l Petitioner's Exhibit Howe-2, Page 1 l l l
Central Maine Power Company Attrition Adjustment Other Operation and Maintenance I. Historical Growth Rates for Operation and Maintenance Expenses (Dollars in Thousands) Average. Annual Compound Rate of Growth Expense Item 1968 1974 1978 1968-1978 1974-1978 Other Operation $13,174.6 $22,592.2 $32,735.5 9.5% 9 7% Maintenance 4,599.3 7,959.3 11,362.5 9.5 9.3 l II. Historical Growth Rates for Selected Price Indices Average Annual Compound Rate of Growth Index (1972=100) 1968 1974 1978 1968-1978 1974-1978 GNP Deflator 82.6 116.0 152.0 6.3% 7.0% Wholesale Price Index 102.5 160.1 209.3 7.4 6.9 Petitioner's Exhibit Howe-2, Page 2
Central Maine Power Coreany Attrition Adjustment Depreciation (Dollars in Thousands) Estimated Depreciable Base - December 31, 1979 $620,0c0 $621,000 1979 Composite Depreciation Rate 3.3% 3 3% Sub-Total Depreciation Expense $ 20,460 $ 20,500 1980 Net Depreciable Additions ( 2 x .o33) 32,000 + 2 x .033 53o 33,000 2 x .o33 545 Amortization Expense at 1979 Levels 360 360 1980 Estimated Depreciation Expense $ 21,350 $ 21,405 1979 Test Year Depreciation $ 20,219 $ 20,219 Growth Rate 5.5% 59% Petitioner's Exhibit Kowe-2, Page 3 l
Central Maine Power Cecrany , I Attrition Adjustnent l Insc=e Taxes I (Dollars in Thcusands) Oeerating Revenues $ 44,100 Coerating Expenses Fuel for Generation 55,800 Purchased Power - Fuel (14,800) Purchased Power - Capacity 2,100 Other 0 &'M 4,000 Property Taxes 100 Depreciation 1,100 Net $ (4,200) Less: Interest Extense Rate Base 14,100 x .0466 650 Net Adjustment Eefore Taxes $ (4,850) Income Taxes State Tax 6 93% (330) Federal Tax 46% (2,070) Total $ (2,400) Petitioner's Exhibit Howe-2, Paga 4
Centrr.1 Maine Power Com;an't Attrition Adjustment Rate Base - other (Dollars in Thousands) Gross Operating !*eumulated Net Electric Property Depreciation Property Balance December 31, 1978 $ 623,300 $ 162,100 $ 461,200 Estimated Balance - December 31, 1979 659,500 180,500 479,000 Growth Rate - 1979/1978 3.4 Estimated Balance - December 31, 1980 692,000 - 197,500 - 493,500 - 693,000 198,500 495,500 Growth Rate - 1980/1979 30%-3.4 l
. Petitioner's Exhibit Ecwe-2, Page 5
Ces. tral Maine Power C_ompany Detail of Normalizina Adjustments f or Other Knewis Changes (Columu 5, Eahibit Blowc-I, Page l) (Dollars in Thousands) National Replace- Thermal Energy , Nuclear Energy Conservation Maine Fuel Sears ment HPtk . Boise Decnamis- Power Assess- Storage Policy Hydro Entirtueent Island Program Act Contract Contract Nuclear Cascade sionimig insurance ment Adj. Total Adj. AJJ. Adj. Adj. Adj. AJj ~. Ad L. AJJ. 7 I) (B) (C) (D) (E) (F) -(d) (II) ll) (J) Operating itevenues $ $ $ $ $ 2,230
$2,230 $ $ $ $
Base Fuel other Total 2 a 2M [ ] [
~
_ [ [ _~ [ {2}5 Operating Espenses Fuel for Generation 330 330 Purchased Power-Fue! 800 Purchased Power-Capscity 800 4,980 60 375 1,900 901 699 Other Operation & Halutenance 975 State and flunicipal Tsaes State and Federal Income (945) (165) (394) (306) (1,800) Taaes 1,110 (398) (485) (30) (187) Depreciation and Amortizations @ Total Operating Espenses 3.110 43 @5 33 [85 5 @ @ Q45 Equity Earnings _ _ _ _ _ _ Adjusted Net $(507) $(393) $(2,010) Operating Incr.see $1,12_0 $(402) $(490) $(30) $(188) $(955) $(165) _ Petitioner's Eahibit Howe-3
Central Maine Power Company - 1979 TEST YEAR RATE BASE 13 MONTH AVERAGE 9 MONTHS ACTUAL 4 MONTHS ESTIMATED (Dollars in Thcusands) Investment in Propertv, Gross Operating Property $638,825 Less: Reserve for Depreciation 171,017 Net Electric Operating Property 467,808 Property Held For Future Use 2,985 Investment in Associated Companies 35,813 Construction Work in Progrers 9,100 Net Investment 515,706 Less: Consumer Deposits 309 Customer Advances-Refund.ulu 414 Allowance for Injuries and Damages 990 Accumulated Deferred Income Taxes 25,536
- 27,249 Total Investment 488,457 Working Capital Requirements Total Working Capital Requirements 28,141 1979 Test Year Rate Baer $516,598 Petitioner's Exhibit Howe-4, Page 1 c-,- r
Central Maine Power Company Property Held for Future Use Expected Year in Service Production Property: Moxie Gore - Cold Stream Development Property 1990 Plymouth (MA) - Pilgrim #2 Switchyard 1985 Prospect - Sears Island Fresh Water Supply 1987 Seabrook (NH) - Land 1985 Sears Island - Coal Project Land 1989 Sears Island - Ash Disposal Site 1989 Topsham - Brunswick Hydro Redevelopment 1982 Yarmouth - Ash Disposal Site 1980 Transmission Line Property: Auburn - Sec. 75 to Crowley's Substation 1980 Augusta to Farmingdale 1980 Bridgton - South out of Substation 1985 Bucksport - Sec. 86 Right-of-Way 1980 Gray - Sawyer Lot 1985 Guilford to Greenville - Sec. 216 - 1985 Harris Station to Wyman Station 1985 Kennebunk to Wells 1985 Lewiston - Crowley's Substation to Hotel Road Substation 1980 Lewiston - Sec. 75 to Sec. 202 1980 Newcastle - Right-of-Way - Sec. 28 1985 Newcastle - Sec. 204A Out of Proposed Substation 1980 Parkman - North Out of Guilford Substation 1985 Portland - Sewall Street Substation to Cape Station 1985 Rockland to Thomaston 1985 Saco to Factory Island 1985 Sears Island Project - Transmission Lines 1989 Searsport to Future Northern Chemical Substation 1985 South Berwick to York Harbor - Sec. 118 1983 Winslow'- Keyes Fibre - Sec. 221 1985 W nslow - Waterville Right-of-Way ' 1985 Wiscasset - Out of Mason Station 1985 Yarmouth - 345 KV Right-of-Way to W. F. Wyman 1980 115 KV Tap to Scott Paper - Sec. 83C 1985 l Transmission Substation Property: Benton - 345/115 KV Substation Land 1986 Gorham - 345 KV Substation Land 1981 Greenville - 115/34.5 KV Sulntation Land 1987 i Newcastle - Sheepscot Road Land 1980 Rockport - 115/34.5 KV Substation Land 1980 ~ Petitioner's Exhibit Howe-4, Page 2
Central Maine Power Company Property Held for Future Use Expected Year in Service Distribution Substation Property: Augusta - Land Near Civic Center 1980 General Property: Portland - Land on Can o Road 1985 j i. Petitioner's Exhibit Howe-4, Page 3
1 1 i I Central Maine Power Company 1979 Test Year Revenue Requirement 8 Months Actual - 4 Months Estimated (Dollars in Thousands)
- 1. Test Year Rate Base Exhibit Howe-4, Page 1 $516,598 $
Exhibit Howe-2, Page 1 14,100 530,698
- 2. Test Year Weighted Cost of Capital Exhibit Webb-21 11.23%
- 3. Required Return $59,597
- 4. Test Year Operating Income Exhibit Howe-1, Page 1, Column 3 $45,555 Exhibit Howe-1, Page 1, Column 4 (1,800)
Exhibit Howe-1, Page 1, Column 5 (2,010) $41,745
- 5. Return Deficiency (3-4) $17,852
- 6. Portion Applicable to Resale Class $249
- 7. Jurisdictional Return Deficiency (5-6) $17,603 c.
- 8. Additional Net Revenue Requirement (Revenue Deficiency) $35,025 Petitioner's Exhibit Howe-5
f \ Central Maine Power Company 1979 Test Year Working Capital Average Working Capital 1979 Daily Requirement Normalized Expense Days Dollars (1) (2) (3) (4) Purchased Power $84,192,298 $230,664 8.2 $ 1,891,445 Fuel for Generation 47,895,846 (A) 131,221 27.9 3,661,066 Other Operation and Maintenance 49,109,238 (B) 134,546 18.9 2,542,919 8,095,430 State and Municipal Taxes 9,561,646 26,196 4.6 120,502 State and Federal Income Taxes 5,832,673 (C) - (12.33)% (719,169) Fuel Inventory 11,613,836 Materials and Supplies Inventory 9,030,732 Total Working Capital $28,141,331 (A) Fuel for Generation of $46,925,093 less $785,310 for the Maine Yankee Station Service Adjustment plus $1,756,063 for the St. Regis Strike Adjustment. These adjustments to fuel expense are used only in the calculation of working capital. (B) Other Operation and Maintenance of $49,910,056 less uncollectible revenues expense of $784,371 and interest expense on customer deposits
, of $16,447.
(C) Current portion of State and Federal Income Taxes. Petitioner's Exhibit Stevenson-1, Page 1 i y - v -
Central Maine Power Company Lag Study Summary (Based on 12 Months Ending June 30, 1979) Days Lag Net Days Lag (1) (2) Revenues -45.0 Expenses Purchased power (36.8) 8.2 Fuel (17.1) 27.9
- Other operation and maintenance Payroll-including overheads (28.2) 16.8 Services and supplies (27.0) 18.0 Transportation (11.4) 33.6 Other, net (19.4) 25.6 Total other operation and maintenance 18.9 State and municipal taxes (40.4) 4.6 State and Federal income taxes (90.0) (45.0) or (12.33)2 Petitioner's Exhibit Stevenson-1, Page 2 l
l General and Financial Information Seabrook Units #1 and #2 1980 - 1985 Question 2(h): Provide a list of generating units, transmission and distribution facilities and general plant projects to be constructed during the period of construction of the subject nuclear power plant, showing the type of facility, net capacity of each generating unit, the dollar amounts to be expended for each facility during each of the years involved, and in-service date of each fac-ility. Response: See attached schedule. 1 1
CcItral Maine Power Compy y Construction Expenditures 1980 - 1985* Net In Service FACILITT Capacity (MW) Date 1980 1981 1982 1983 1984 1985 Steam W. F. Wyman No. 4 355 12/78 $ 1.7 $ - $ - $ - $ - $ - Sears Island coal 341 11/89 1.6 (.6) 2.5 3.7 6.6 26.0 Mason Coal 108 4/83 .8 14.5 32.1 1.0 - - Total Steam 4.1 13.9 34.6 4.7 6.6 26.0 Hydig Bruns /Topsham 12 3/82 5.9 6.9 4.3 .I - - Other Hydro Redevelopment - 5.4 17.2 18.4 19.7 _15.4 Total Hydro 5.9 12.3 21.5 18.5 19.7 15.4 Nuclear Hillstone No. 3 29 5/86 3.7 3.9 4.4 4.0 3.8 3.2 Pil8 rim No. 2 33 5/87 1.9 2.5 5.2 5.5 5.7 7.2 Nontague No. 1&2 69 N/A - - - - - - Seabrook No. 1&2 139 4/83 & 2/85 46.0 39.1 20.5 14.6 8.8 .7 Total Nuclear 51.6 ~45.5 30.1 24.1 18.3 11.1 Other Generation 1.2 1.3 1.3 1.1 4.5 4.9 Total Generation 62.8 73.0 87.5 48.4 49.1 57.4 Transmission 8.2 13.8 6.0 4.5 9.4 14.2 Distribution 21.9 21.7 23.5 25.3 27.4 29.6 General 6.6 4.3 4.4 4.7 4.9 5.3 Total Construction $ 99.5 $112.8 $121.4 $ 82.9 $ 90.8 $106.5 Samnary Nuclear Power Plants 51.6 -45.5 30.1 24.1 18.3 11.1 Other 47.9 67.3 91.3 58.8 72.5 95.4 Total Construction $ 99.5 $112.8 $121.4 $ 82.9 $ 90.8 $106.5
- Excludes AFC gl
Central Ms.ine Power Cemeany Request for Additional Financial Infor: nation - April 2,1980 Seabrook Station Item 2(1) Question: Complete'the attached form entitled, " Financial Statistics" for the most recent 12-month period and for the years end-ing December 31, 1978 and Dece=ber 31, 1979 Response: See attachments for Item 2(1), i I I
Ccntral Maina Power Comcacy Attachment for Iten No. 2 (i) Financial Statistics 12 Months Ended March 31, 1980 (Dollars in Millious) Earnings available to common equity $ 23.4 Average common equity $211 9 Rate of return on average ccmmon equity 11.0% Times total interest earned before FIT: Gross income (incl. AFC) + current and deferred . FIT t total interest charges + amortization of debt discount and expense 2.49 Ti=es long-term interest earned before FIT: Gross income (incl. AFC) + current and deferred FIT e long-term interest charges + amortization of debt discount and expense 3.26 Bond ratings (end of period) (4) Standard and Poor's BBB Moody's BAA Times interest and preferred dividends earned after FIT: Gross income (incl. AFC) e total interest charges + amortization of debt discount and expense + preferred dividends 1.74 AFC $ 7.5 Nat income after preferred dividends $ 23.4
% 32.1%
Market price of ccmmon $ 11.50 Book value of common -
$ 17.86 Market-book ratio (end of period)* .64 Earnings available for common less AFC + depreciation i and amortization, deferred taxes and investment tax credit adjustment. - deferred (1) $ 45.6 Common dividends $ 18.9 Ratio 2.41 Short-termdebt(2) ,
Bank loans - Ccmmercial paper $ 64 9 Capitalization (3) (Amount & Percent) Long-term debt $270.8 48.7% Preferred stock $ 69.6 12.5% Common equity $215 9 38.8% CIf subsidiary company, use parent's data. (1) Includes State taxes - deferred. (2) At March 31. (3) Includes current maturities. (4) General and Refimd4"E Mortgage Bonds
Crntral Maine Power Company i Attachment for Item No. 2 (i) Financial Statistics 12 Months Ended December 31, 1978 1979 (Dollars in Millions) Earnings available to comon equity $ 25.0 $ 25.0 Average comon equity $185.8 $208.8 Rate of return on average comon equity 13.4% 12.0% Times total interest earned before FIT: Gross income (including AFC) + current and deferred FIT t total interest charges + amortization of debt discount and expense 3 09 2.78 Times long-term interest earned before FIT: Gross income (including AFC) + current and deferred FIT t long-term interest charges + amortization of debt discount and expense . 3.47 3.52 Bond ratings (end of period) (4)
- Standard and Foor's BBB BBB Moody's BAA BAA Times interest and preferred dividends earned after FIT
Gross income (including AFC) t total interest charges + amortization of debt discount"and expense
+ preferred dividends 2.02 1.84 AFC $ 11 9 $ 6.3 Net income after preferred dividends $ 25.0 $ 25.0 % 47.6% 25.2%
Market price of common $ 14.875 $ 13.00 Book value af comon $ 17.25 $ 17.73 Market-book ratio (end of period)* .86 .73 Earnings available for comon less AFC + deprecia-tion and amortization, deferred taxes and invest-ment tax credit adjustment - deferred (1) $ 41.5 3 47.4 Common dividends $ 17.'. $ 18.5 Ratio 2.43 2.56 Short-term debt (2) Bank loans $- $ 0.2 Canme cial paper $ 41.4 $ 60.4 [ Capitalization (3) (Amount & Fercent) ! Long-term debt $236.6 45.4% $254 9 47.3% Preferred stock $ 70.0 13 7% $6p.6 12 9% Common equity $203.6 39 9% $214.0 39.8%
*If subsidiary company, use parent's data.
(1)IncludesStatetaxes-deferred. (2) Year-end. l (3 Includes current maturities. l (4)) General and Refunding Mortgage Bonds.
2 (a) FITCIIBURG GAS AND ELECTRIC LIGHT COMPANY Statement of Sources of Funds Used For Construction
/.nillions of dollars)
~
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Security Issues and Other Funds Common Stock $ - $ 2.65 $2.13 $ - $ - $ - $ - $ - $ - $ - Preferred Stock - 1.50 - 1.00 - - - - - - Long-term Debt - 5.00 4.00 4.00 - 6.00 - - - - Notes Payable 4.12 (.03) (2.58) (2.01) 2.41 (2.10) .50 .25 (.10) .51 Contributions from parent-net - - - - - - - - - - Other Funds (.31) (.31) (.52) (.52) (.52) (3.48) (.47) (.47) (.47) (.47) Total $3.81 $ 8.81 $3.03 $2.47 $1.89 $ .42- S .03 $(.22) $(.57) $ .04 Internal Funds Retained Earnings: Net Income $2.37 $ 2.72 $4.02 $5.03 $4.17 $4.72 $4.01 $4.60 $4.21 $4.04 Less: preferred dividends .28 .36 .45 .46 .55 .54 .53 .52 .52 .51 common dividends .87 1.39 1.74 1.99 2.13 2.28 2.43 2.60 2.79 2.98 Retained Earnings $1.22 $ .97 $1.83 $2.58 $1.49 $1.90 $1.05 $1.48 $ .90 $ .55 Deferred Taxes .49 .32 .32 .34 .66 .66 .71 .78 .75 .70 Investment Tax Credit .33 .86 .61 .51 .79 .40 .41 .49 .41 .45 Depreciation and Amortization 1.94 2.12 2.10 1.71 1.80 2.08 2.37 2.78 3.04 3.18 Working Capital Requirements and Others (3.60) (.83) 2.03 .91 .75 1.44 .82 (.99) (.78) (1.16) Less: AFUDC (.61) (.97) (1.94) (2.70) (1.69) (2.14) (1.32) (1.30) (.73) (.39) Total $(.23) $ 2.47 $4.95 $3.35 $3.80 $4.34 $4.04 $3.24 $3.59 $3.33 TOTAL FUNDS $3.58 $11.28 $7.98 $5.82 $5.69 $4.76 $4.07 $3.02 $3.02 $3.37 Construction Expenditures ** Nuclear Power Plants * $1.02 $ 7.92 $5.87 $3.96 $3.57 $2.80 $1.60 $ .86 $ .63 $ .59 Other 2.56 3.36 2.11 1.86 2.12 1.96 2.47 2.16 2.39 2.78 Total $3.58 $11.28 $7.98 $5.82 $5.69 $4.76 $4.07 $3.02 $3.02 $3.37 . . _ - Seabrook Nuclear Plant-? $ .57 $ 7.63 $5.38 $3.21 $2.85 $2.03 $1.12 $ .22 $ - $ -
- Assumes the purchase by Fitchburg Gas and Electric Light Company of an additional 8 megawatts of capacity in each of the two Seabrook Units.
** Exclusive of Allowance for Funds Used During Construction (AFUDC).
- Request # 2D
! INDENTURE COVERAGE d
AT DECEMBER 31,-1979 l Earnings Available j For Interest
^
Gross Income $3,592,832
^
Taxes on Income !
~
- Federal $957,846 i State 112,348 Taxes on non-operating
< Income Federal (123,736) State 1,529 947,987 ; i Deferred Income Taxes , Federal $715,030
- Federal non-operating 44,692 State 66,293 826,015 4
Amort. of Investment 3 Tax Credit (89,049) + 1 i Allowance for Borrowed Funds used During Construction 512,381-5,790,166 1 Annual Interest Requirement Funded Debt Outstanding $1,493,596 Short-term Notes Payable 830,886 $2,324,482
! Coverage Ratio 2.49 4
). ., -
Request # 2D Restrictions related to the issuance of Funded D'bt, e as appearing in the 4-7/8% Purchase Agreement (Sections 6.4 and 6.5): 6.4 Not create, issue, incur, assume or guarantee, nor in any other manner become liable in respect of: (a) Any Funded Debt if (i) the aggregate principal amount of all Funded Debt of the Company to be outstanding immediately thereafter shall ' exceed 55% of the Company's Capital Account computed immediately thereafter or (ii) Earnings Available for Interest shall not have been equal, for at least twelve consecutive months out of the fifteen months next preceding the creation of such Funded Debt, to at least 200% of all amounts of interest for which the Company will annually thereafter be obligated on account of all Debt to be outstanding immediately thereafter; or (b) any Debt if the aggregate principal amount of all Debt of the Company to be outstanding immediately thereafter shall exceed 65% of the sum of (a) the Company's Capital Account, plus (b) Debt which is not Funded Debt, computed immediately thereafter; provided, however, that notwithstanding the foregoing provisions of this Section 6.4, the Company may, except in connection with the consummation of a merger or consolidation, create, issue, incur, assume or guarantee, or in any other manner become liable in respect of Funded Debt issued to pay, other than pursuant to any sinking fund, serial maturity, periodic installment or amortization payments, a like principal amount of other Funded Debt. 6.5 Certain Definitions. For the purposes of this Agreement, the terms " Capital Account" " Debt", " Funded Debt" and " Earnings Available for Interest" shall, except where the context requires some other meaning, ; have the following meanings: The term " Capital Account" shall mean the aggregate of I the amounts reflected on the books of the Company on l account of its capital stock, premiums on its capital l stock, its Funded Debt, and plus any balance, or minus I any deficit, in its earned surplus, all as determined in accordance with generally accepted accounting practice. The term " Debt" shall mean all obligations for the payment of money borrowed, all amounts secured by purchase money mortgages, conditional sales agreements and other title retention devices securing the unpaid purchase price of property, and all amounts secured by security interests of any kind existing on any property at the time of acquisition by the Company, whether or not assumed by the Company. i
The term " Funded Debt" shall mean all Debt maturing more than one year after the date as of which Funded Debt is to be determined, and all Debt maturing within such year which the Company has the right to renev or extend beyond such year, but there shall be excluded sinking fund, serial maturity, periodic installment and amortization payments on account of Debt which are required to be made within such year. The term " Earnings Available for Interest" shall mean the excess of the operating revenues received in the ordinary course of business over the sum of all operating expenses, including taxes and adequate and reasonable allowances for maintenance, depreciation and retirement of properties as charged by the Company (not in any case less than the amounts required to be charged therefor pursuant to Section 6.8), and provision for depletion, obsolescence or amortization of properties (including the amortized cost of converting customers' appliances and equipment to the use of so-called "high BTU gas" and of natural gas), but excluding, however, any allowance.for federal and state taxes on income or portions for the period for which earnings are being computed. Request # 2D Restrictions related to the issuance of Preferred Stock, as appearing in the By-Laws of the Company ( Article XII Section F (2): a So long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not. without the vote at a meeting called for that purpose of the ho!ders of at ! cast a maiority of the total number of shares of the Cumulative Preferred Stock of all series the:: outstariding, s oting as a si:gie class: (a) issue any shares of Cumulative Preferred Stock, or of any class of stack ranking prior to or on a parity with the Cumulative Preferred Stock in respect of cither the payment of dividends i or the distribution of assets (except for the purpose of retiring Cumulative Preferied Stock or stock so prior to or so on a parity with the Cumulative Preferred Stock and then only if the shares issued are on y shares of Cumulative Pieferred Stock or shares of a class of stock ranking on a parity with or junior to the Cumulative Preferred Stock in respect of both the payment of divi-dends and the distribution of assets, provided the ag;regate par or stated value of any shares so issued shall not exceed the aggregate par or stated value of the shares to be retired) unless, after giving eff ect thereto, (i) net income of the Corporation for any period of twelve months within the next pre-ceding fifteen months shall have been at least equal to two (2) times the sum of the annual daidend requirements on the Cumulatise Preferred Stock and on all shares of stock ranking prior to or on a parity with the Cumulatise Preferred Stock in respect of either the payment of dividends or the distribution of assets which are to be outstanding after giving eficct to such issue, including the shares to be issued but ewiuding any shares of Cumulative Preferred Stock or of such prior or parity stock to be retired in connection with such issue; and O w or
-(ii) net income of the Corporation fcr any period of twelve months within the next preceding fif teen months (after adding back interest charges on funded debt of the Corpc, ration deducted in the computation) shall have been at least equal to one and one-half (IG) times the sum of the annual interest charges on funded debt of the Corporatien to be outstanding at the date of such issue plus the annual dividend requirements on the Cumulatise Preferred
~
Stock and on all sha:es of stock ranking prior to or on a parity with the Cumulative Puferred Stock in revpect of either the payment of dividends or the distribution of assets u hich are to be outstanding aft r giving sfiect tc such i< sue, including the shares to be issued but ew!uding any fundcd debt or shares of Cumulatne Puferred Stock or of such prior or parity stock to be retired in connecticn with such issue; and (iii) the aggregate amount of capital represented by the Comrnon Stock and any other stock ranting jur.ict to the Cumuhtise Preferred Stock in respect of the distribution of arcts plus the surn of the capital surp!"s, wned :urplus end premiums paid cr. capital stock of all classes of the Corporation would be t.t least equal f o the aggregate amount payable upon frnolunury Itquidation, dissolution or winding up of the a!Tairs of the Corporation on all shares of the Cumulatise Preferred Stock and on all shares of stock ranking prior to or on a parity with the Cumulatise Preferred Stuck in respect of the distribution of assets which are to be outstanding after giving effect to such issue, ine!uding the shares to be issued but excluding any shares of Cumulative Preferred Stock or of such prior or parity stock to be retired in connection with such issue; or (b) merge into or conso!!date with any other corporation unless such merger or consolidation shall have been approved by order of the Massachusetts Department of Pubi e Utilities or other regu!atory authority having jurisdiction in the premises, and unless this Corporation shall itself be the successor corpceation; or (c) sell or transfer its assets as, or substantially as, an entirety. The term " sell or transfer", as used herein, includes a lease or eschange but does not include a mortgage or p? edge. The term " funded debt", as used i this subsection F. shall mean all indebtadness, other than indtbtedness incurred in the ordinary course of business, maturing more than twehe months from the date en which it was incurred, escept that there shall not be inc!nded in funded debt any indebted-ness for the payment or redemption of which at maturity or on a redemption date sums sufEcient for the pay ment thereof have been deposited :n trust. The term " net inecme". as used in this subsection F. shall mean the net incorne of the Corpom-tion. after provision for al! federal and state taxes, d. termined in accordance with gmerally acccpted principles of accountir g. subbet to any applicable requirements imposed by the Massachusctts De partment of Public Uti.'ities or other reguktory body having jurisdiction. 1
i 2 (f) Restrictions or constraints on the issuance of, short and long-term debt, preferred stock and common stock. Short term debt is maintained through four banks and provides for total line of credit of $10,700,000. The comper sating balance required is as follows: Bank Line of Credit Compensating Balance New England Merchants $3,500,000 10% of Line or 20% of loan, whichever is greater Worcester County National Bank 3,500,000 5% of Line, 10% of loan First National Bank of Boston 3,000,000 None First Safety Fund National Bank 700,000 10% of Line, 5% of loan Long-term debt restriction - See Financing requirements in the Preliminary Prospectus for Common Stock. Preferred Stock restriction - See Financing requirements in the Preliminary Prospectus for Common Stock. Common Stock - The authorized number of shares has to be approved by the shareholders and any new issuance has to be approved by the Department of Public Utilities. e
< ~
t
, t i-2 (g) Regulation & Rate
. The Company is subject to regulation by the DPU with respect to
-retail rates, adequacy of service, issuance of securities,_ accounting l and other matters. The Company is also subject to regulation by the i FERC with respect to certain matters,' including NEP00L interchanges and other wholesale sales of electricity.
l The Company's retail electric and gas sales are made pursuant to rate schedules on file with the DPU at rates which call for lower 1 unit prices as monthly usage increases. ; Until 1972 the Company had not requested a general rate increase - in 52 years and during that period had made several voluntary rate
, reductions. During recent years the Company has sought rate relief '
I designed to cover the impact of increased' costs. , The electric rate schedules of the Company for all retail sales
- are subject to a. cost of fuel adjustment by which rates are modified
- to reflect changes in the cost of fuel used for generation and the
} cost of purchased energy. With the approval of the DPU, the current i cost of fuel adjustment schedule has been in effect since September 27, i 1974. The Company's total fuel costs are determined on an estimated j quarterly basis, subject to review and approved by the DPU. ,Toward the end of each quarter the Company. compares actual fuel expenses incurred with the actual fuel adjustment revenues collected and adds 4 or subtracts that amount from the estimated fuel costs for the next i quarter. i
- The gas rate schedules of the Company for all retail sales are
; subject to a cost of gas adjustment by which the r.*.es are modified
- to reflect changes in the cost of purchased pipeline natural gas and l supplemental gas. The current cost of gas adjustment schedule, which j was approved by the DPU, has been in effect since January 1,-1974.
- Changes in the cost of pipeline natural gas are reflected immediately in customer billing; however, there is~a two-month delay before cus-tomer billings reflect changes in the cost of supplemental gas.
Time-of-day rates, a pricing system that reflects the varying costs of .providing electric energy at.different times of the day
- and/or during different seasons of the_ year were filed with the DPU in early 1979. The intent of time-of-day rates is to shift demand energy use from on peak to off peak periods thereby reducing the amount of new generating capacity required to serve peak loads.
The rates filed by the Company are applicable to residential and commercial customers on an optional basis. In addition, the Company recently filed proposed senior citizen rates which would provide optional reduced rates to certain of the Company's residen-tial customers. The Company does not anticipate that any of these optional rates will have a significant impact on the Company's finan-
;_ cial condition.
2 J
.l - - - . . . - . . . - -. . , < _ --.--%, , , .--.
2 (g) (continued) Nuclear Licensing Nuclear plants require various construction and operating permits from state regulatory authorities, including the DPU and the NFC. These regulatory authorities extensively investigate all proposed nuclear plants in relation to safety, financial viability, and other factors. In addition to the individual safety reviews of each nuclear generating Unit which are conducted by the NRC in connection with construction permit and operating license applications, the NRC may require modificaticns in Units which already have a construction permit or operating licenst:, or in the fuel for such Units, to take account of new standards or technological developments. Where such modifications are rcquired, it may be necessary to reduce or cease operations of a particular Unit, either on a permanent basis or until the modifications can be effected. The expanding development of nuclear power plants in the United States continues to be a subject of public controversy. Various groups have published articles and reports, filed lawsuits and participated in administrative proceed-
-ings such as those described above, claiming that the prolifer tion of nuclear power plants under the present state of nuclear technology presents unacceptable risks to public health and safety and to the environment. In addition, certain of thse groups have proposed restrictive legislation in Massachusetts, Connecticut and New Hampshire, and others have participated in demonstrations, including demon-strations at the Seabrook Units, and raised questions in public hearings regarding the ultimate cost of energy produced by nuclear plants as opposed to other fuels.
Since the events at TMI, these efforts have substantially intensified (see "The Company - Problems of the Utility Industry and the Company" and " Business - Joint Projects and Other Plans"). It is possible that some of the claims made by such groups, if they should prevail, or the existence of the controversy itself, will cause delays in, or prevention of, the construction of nuclear plants presently planned or under construction, or substantial modifications to or extended shut-downs or plants presently in operation, any of which could have an adverse impact on the results of operations of the Company. Allowance For Funds Used During Construction Interest on construction is determined by applying 1/12 of the yearly rate (14.0%) on a monthly basis to the total in account 107 less prior months' interest . In June and December, the interest to date is compounded at the applicable rate. The ate is determined at the end of the year based on the year's actual figures by using the FPC Order No. 561 issued February 2, 1977. Per the Order, the AFUDC associated with borrowed funds is shown as a credit to " Income Deductions" and the portion of AFUDC associated with other funds under "Non-Operating Income". The AFUDC in account 107 is not included in rate base, but as the pro-perty is added to accounts 106 and 101, the AFUDC is included in finished construction which will make up the rate base at the next rate case. Rate Base: Theoretically,-rate br.se is determined by the original cost of total Utility Plant in Service less the Reserve for Depreciation plus certain Materials and Supplies, certain Prepayments and certain Cash Working Capital, less pre 1970 unamortized, ITC, customer advances and deposits and reserve for Deferred Federal Income Taxes. t
~
(g) (Continued) . Per authority of the DPU, December 1976, deferred taxes 'are calculated on the difference between tax and book depreciation, on certain overheads
.and timing differences between book and tax calculations.
The deferred taxes are being amortized at a rate determined from the tax-return by dividing the year-end depreciable basis into the tax deprecia-tion taken. The half year convention is followed. The Company normalizes the investment tax credit by reducing the tax liability in the year incurred and amortizing the balance over the weighted life. Any costs the Company incurs for fuel or for energy charges for electric power are classified as unbilled revenue and are eventually billed back to the customer. ! The gas charges that eventually get billed back to the customer are made
- up of all gas production and purchased costs reduced by the amount allowed in t
. base rates and by the average cost of off-system sales.
1 1 i 1 e
, l . . -- , ._.. , , , 4~. .. -, ,}}