ML20199C579
| ML20199C579 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 11/14/1997 |
| From: | Feigenbaum T NORTH ATLANTIC ENERGY SERVICE CORP. (NAESCO) |
| To: | Collins S NRC (Affiliation Not Assigned) |
| References | |
| NYN-97113, NUDOCS 9711200061 | |
| Download: ML20199C579 (22) | |
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i Nordi Noah ^ti a'ic i:aerry Senue corvoration s
P.O. !!os 300 yh Atlantic se oroa,NiiO3874 (603)474 9521 The Nonheast Utilities System November 14,1997 heket No. 50-443 NYN-97113 AR #97018404 Samuel J. Collins, Director Omce of Nuclear Reactor Regulation United States Nuclear Regulatory Commission Washington, DL 20555 0001 Seabrook Station Iransmittal of BayCorp lloldings. Ltd. Ti itdDuaner 1997 Finaugja[J{ cpg 11 t
As part of the temporary extension of Great llay Power Corporation's (Great Day) exemption from the Nuclear Regulatory Commission's (NRC) decommissioning regulations', the NRC imposed certain conditions. One of those conditions required the transmittal of the next four quarterly financial repons within 45 days of the close of the calendar quaner. Attached to this letter is a copy of the Securities and Exchange Commission Form 10-Q Report for llayCorp lloldings, Ltd. which provides the requested information for the third calende ouarter of 1997.
Should you required further infomiation regarding this matter, please contact Mr. Terry L. Ilarpster, Director of Licensing Services, at (603) 773 7765.
Very truly yours, NORTil ATLANTIC ENERGY SERVICE CORP.
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Ted C. Feigenbaun[
f fh LgC Executive Vice President
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and Chief Nuclear Omcer
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' Letter dated July 23,1997, U. S. NRC to Nonh Atlantic Energy Service Corporation, Extension of Temi.orary Exemption from Certain Requirements of 10CFR50.75," Reporting and Recordkeeping for Decommissioning Planning," Seabrook Station, Unit I (TAC Nos. M98049 and M99072) 9711200061 971114' PDR ADOCK 05000443 I
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U. S. Nucle:r Regul: tory Commission NYN 97113/P:ge 2
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- 11. J. Miller, Region i Administrator A. W. De Agazio, NRC Project Manager, Seabrook Station l
R. K. Lorson, Senior Resident inspector, Seabrook Station Document Control Desk U. S. Nuclear Regulatory Commission Washington, DC 20555 cc w/o enc:
Mr. John Tillinghast Great Bay Power Corporation Cocheco Falls Millworks 100 Main Street, Suite 201 Dover, Nil 03820
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W ENCLOSUJtE_TO NYN 97113
s UNITED STATES SECURITIES AND EXCilANGE COMMISSION WASillNGTON, D.C. 20549 FORM 10-Q (Mark one)
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QUARTERIN REPORT PURSUANT TO SECTION 13 OR 15(d) OF Tile SE EXCilANGE ACT OF 1934 September 30.1997 For the quarterly period ended OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIIE SECURIT l }
EXCilANGE ACT OF 1934 to For the transition period from 112521 Commission file number BAYCORP llOLDINGS, LTD.
Exact name of recistrant as specified in its chaner) 02 0488443 Delaware (1.R.S. Employer (State or otherjurisdiction of Identification No.)
incorporation or organization)
Cocheco Falls Millworks,100 Main Street, Suite 201 03820-3835 Dover, New Ilampshire (Address of principal executive office-)
(Zip Code)
Registrant's telephone number, including area code: (603) 742 3383 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 suc requirements for the past 90 days.
Yes X No indicate by check mark whether the registrant has filed all documents required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securit es under a plan confirmed by a court.
i Yes X No Outstanding at November 7,1997 Class Common Stock, $0.01 Par Value per Share 8,277.748
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HAYCORP IIOLDINGS, LTD.
INDEX PART 1 - FINANCIALINFORMATION:
Item 1 - Financial Statements:
Consolidated Statements ofincome and Loss Three and Nine Months Ended September 3 0, 199 7 and 199 6.............................................................
Consolidated Balance Sheets at September 30,1997
.......................................................................45 and December M,1996.....
Consolidated Statements of Cash Flows - Nine Months Ended September 3 0, 199 7 and 1996............................................................
N ote s to F in an c ial Stat em ents....................................................
Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations:.....................................................................................
PART 11 - OTI!ER LNFORMATION:
item 1 Le gal Proc e edin gs....................................................
Item 6 - Exhibits and Reports on Form 8.K...............................................
Signature..........................................................................................................................I8 Exhibit i nde x..........................................................
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l PARTI FINANCIALINFORMATION
-Item f. Finandal Statements 8AYCORP llOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME (UN AUDITED)'
(Dollers la Thousands, escept shores sed per share deta)
Three Mont%s Nine Months Ended September 30 Ended September 30, 1997 1996 1997 1996 Operating Revenues
$8,508
- $8,102
$20,500
$22,298 Operating Expe. scs:
Production 5,290 4,081 1 4,71,7 11,524 Transmission 221 172 659 660 5,088 Adrainistrativs & General 2,030 1,864 Depreciation & Amortization 862 814 2,622 3,075 Taxes other than income 1,065 997
_ 22,969 Total Operating Expenses 9,468 7.988 Operating Loss (960)-
114 -
(6,247)
(671)
Other (Income) Deductions:
Interest and Dividend income (303)
.(363)
(941)
(833)
Decommitsloning Cost Accretion 666 565 1,997 1,696 Decommis?loning Trust Fund Income (116)
(56)
(327)
(218)
Unit 2 Saks and Other (income) 0_
(7,051) 3 (7,048)
' Total Other Deductions 247 (6.905) 732 (6,403)
Income (Loss)Defore income Taxes (1,207) 7,019 (6,979) 5,732 Income Ta. et 0
0 0
0 Net income (Loss)
($1,2071__ $7,019
($6,979)
$5,731 Weighted Average Number of Shares Outstanding 8,277,748 7,965,146 8.297,571 7,987,971 Earnings (Loss)Per Share
($0.15)
$0.88
($0.84)
$0.72 (The accompanying notes are an integral part of these conscNdated statements) 3 a.
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CONSOLIDATI h BALANCE SilEETS (UNAUDITLD)
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(Dol:ss s in Thousaadt)
S September 30, Decanber 31, 1997 1996 ASSETS:
Current Assets:
$3,752
$16,412 Cash & Cash equivalents 17,163 12,361 Short term Investments, at market 2,476 2,927 Accounta Receivabh 4,200 4,121 Materials & Supplies, net 3,454 434_
Pinayments&Other Assets 3134,$_
36,257 Totre Outrent Assets Property, Plant, & Equipment:
108,676 106,656 Utility Plant (9,341)
(7,152)
Lets: A;cumuhtedDepreciation 99,335 99,504 Net Utility Plant 14,900 20,091 Nuclear Fuct (6,295)
(9.692)
Less: Accumulated Amorti20 tion 8,605 10,399 Net Nuclear Fuel 107,')40 109,903 Net Property, Plant & Equipment Other Assets-7,463 6,234 Decommissioning Trust Fund 42 24 D:ferred Debits & Other 7,505 6.258 TotalOther Assets
$146,490
$152,418 TOTAL ASSETS (The accompanying notes art an integral pa. of thess e mantida:ed steementa) 4
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CONSOLIDATED BALANCE SHEETS (UNAUDi'l ED)
(Dollars in Thousands) sepumber 30, December 31, 1997 1996 LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
$120
$129 Accounts Payable and Accmed Expenses 3,633 1,504 Taxes Accrued 1.037 4.072 Miscellaneous Current Liabilities Total Current Liabilities 4,790 5,705 Operating Resents:
55,187 53,215 Decommissioning Liability 621 621 Miscellaneous Other 55,808 53,836 TotalOperating Reserves 3,580 3,252 Other Liabilities & Deferred Credits 0
0 Commitments & Contingc..cies Stockholders' Equity:
Conunon stock, $.01 par alue, 84 84 Au.horized - 20,000,000 shares, Issued - 8,417,748 Less: Treasury Stock - 140,000 and 78,045 shares, respectively, at cost (1,133)
(633) 92,100 92,100 Additionalpaid-in capital 18 (149)
Holding Gain (Loss) on Investments (8,757)
(1,777)
Aceumulated Deficit 82,312 89.625 Total Stockholders' Equity TOTAL LLABILITIES AND STOCKHOLDERS' EQUITY
_ $ 146,490._
$152,418 Ghe accompanying notes are an integral part of these consolidated statements)
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BAYCORP llOLDINGS, LTD, CONSOLIDATED STATEMENTS OF CASil FLOWS (UNAUDITED)
(Dottars in Thovisads)
Nine Months Nine Months Ended Ended September 30,1997 September 30,1996 Net cash flow from operating activities:
($6,979)
$5,732 Netincome (Loss)
Adjustments to reconcile net income (lass) to net essh provided by (used in) operating activities:
2,588 2,619 Depreciation 3,083 3,022 Amortization of nuchar ftu:1 1,997 1,696 Decommissioning; trust accretion (327)
(247)
Decommissionhg trust interest 0
(7,050)
Gain on Transfer of Assets 452 (1,158)
(Increase) decrease in accounts receivable (215)
(54)
Increase in materials & supplies (3,038)
(1,208)
Increase in prepaids and other assets Decrease in accounts payable (9)
(103) 2,129 (833)
Increase (decrease) in taxes accrued (2,708) 857 Other (3,027) 3,273 Net cash (used in) provided by operating activities Net cash news used in investing activities:
(2,191)
(730)
Utlility plant additions (1,289)
(1,280)
Nuclear fuel additions (829)
(723)
Payments to decommissioning fund 0
7,050 Proceeds from Sale of Fixcd Assets (11) 0 Holding Gain (Loss)
(4,813)
(6,145)
Short term investments, net (9,133)
(1,828)
Net cash used in investing activities Net cash provided by (used in) financing activities:
0 4,074 Warrnts Exercise (500)
(335)
Reaquired Capital Stock (500) 3,739 Net cash provided by (used in) 11nancing activities Net increase (decrease) in cash and cash equivalents (12,660) 5,184 16,412 8,874 Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period
$14,058_.
$3,752 (The scompanying notes are an integral part of these consolidated statements) 6 l
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h0TES TO FINANCIAL STATEMENTS NOTE A-THE COMPANY BayCorp Holdings, Ltd. ("BayCorp" or the " Company") serves as a holding company for Bay Power Corporation (" Great Bay"). Great Bay is a public utility whose principal asset is joint ownership interest in the Seabrook Nuclear Power Project in Seabrook, New Hampsb "Seabrook Project") meat Bay is an exempt wholesale generator ("EWG") under the Public Util Holding Company Act of 1935 ("PUHCA").
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate reorganization ' h involved a merger of a newly-formed wholly-owned subsidiary of BayCorp with and into Great Ba The consolidated assets and liabilities of Great Bay and its subsidiaries immediately January 24,1997.
before the reorganization were the same as the consolidated assets and liabilities of BayCorp an subsidiaries immediately after the reorganization. Currently, Great Bay is the sole subsidiary of BayCorp. BayCorp's principal asset is its 100% equity interest in Great Bay. The new corporate structure enables BayCorp, either directly or through subsidiarks other than Great Bay, to engage in businesses that Great Bry would be prohibited from pursuing due to its status as an EWG under the PUHCA. BayCorp may in the future enter into new businesses or acquire existing businesses energy related fields and possibly in unrelated fields.
BayCorp was incorporated in Delaware in March 1996. Great Bay was ir.corporated in Ne Hampshire in 1986 and was formerly known as EUA Power Grporation. Great Bay sells i ciectricity output of the Seabrook Project in the wholesale electricity market, primarily in the no United States. Neither BayCerp nor G-at Bay has operat:enal responsibilities for the Seabrook Pro t capacity is approximately 140 megawatts ("MW"). Great Bay Great Bay's share of the Geabrook 1 currently sells all but 10 MW of its st.are of the Seabrook Project capacity in the short-term ma NOTE B -
SUMMARY
OF SIGNIFICANT ACCOUNTING FOLICIES The unaudited financial statements included herein have been prepared on behalf of the Company, without audit, purruant to the rules and regulations of the Secarities and Exchange Commission ("SEC") and include, in the opinion of managemtat, all adjustments, consisting of no recurring adjustments, necessary for a fair presentation ofinterim period results. Certain inform and footnote disclosures normally included in financial statements prenared in accordance with gene accepted accounting principles have been omitted or condensed pursuant to such ruler and The Company believes, however, its disclost.res herein, when read in conjunction with the Co a. 'ited financial statements for the year ended December 31,1996, are adequate to make the infonn presented not misleading. The results for the interim periods are not necessa to be expected for the full fiscal year.
In March 1997, _ m Financial Accounting Standards Board issued SFAS No.128, Earnim Per Share. SFAS No.128 establishes standards for computing and presenting earnings per share I
to entities with publicly held common stock. This statement is effective for fiscal years ending a December 15,1997 and early adoption is not permitted. The Company will adopt this statem l
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IIAYCORP 110131NGS,IJD.
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fiscal year ending December 31,1997 and does not believe that the effect of the a would be materially different from the amounts presented in the accompanying statements ofi NOTE C COMMITMENTS AND CONTINGENCIES Nuclear Power. Eneruv and Utility Regulatim The Seabrook Pro.)cet and Great Day, as part owner of a licensed nuclear facility, are hi the broad jurisdiction of the Nuclear Regulatory Commission ("NRC"), which is empower f
the siting, construction and operation of nuclear reactors after consideration of public h environmental and antitrust matters. Great Bay has been, and will be, affected to the exten proportionate share by the cost of any NRC requirements applicable to the Seabrook Great liay is also subject to the jurisdiction of the Federal Energy Regulatory Comm
("FERC") under Parts 11 and 111 of the Federal Power Act and, as a result, all contractr for the sale of electricity. FERC has the authority to suspend the rates at proposes to sell power, to allow such rates.o go into effect subject to refund di i l
existing rate if FERC determines that such rate is not "just and reasonable." FERC'sjuris c includes, among other things, the sale, lease, merger, consolidation or other disposition o interconnection of certain facilities, accounts, service and property records.
Because it is an EWG, Great Bay is not subject to the jurisdiction of the SD. under PU orOr to maintain its EWG status, Great Bay mut continue to engage exclusively in se bu owning and/or operating all or part of one or more " eligibl for the generation of electric energy exclusively at wholesale or used for the generatio and leased to one or more public utility companies. The term " facility" may include a portion facility. In the case of Great Bay, its 12.1% joint ownership interest in the Seabrook Pr i
an"cligible facility" Great Bay is subject to regulation by the New ilampsh!;e Public Utilities Commission
("NHPUC") in many respects, including the issuance of securities, the issuancc o affiliates, forma of accounts, transfers of utility properties, mortgaging of utility property and o matters. The NHPUC does not regulate rates charged for sales of electricity at wholesale Utility Derceulation: Public Controversv Concernine Nuclear Power Plants f
The NHPUC and the regulatory authorities with jurisdiction over utilities in New Hamps l
state legislatures of several other states in which Great Bay sells electricity are consid proposals relating to the deregulation of the utility industry, it is not possible to pr 1
be taken by these authorities and legislatures or their impact on Great Bay.
Nuclear units in the United States have been subject to widespread criticism and opp which has led to construction delays, cost overruns, licensing delays and other difficulties grcups have sought to prohibit the corr.pletion and operation of nu. lear t. nits j
waste by litigation, legislation and participation in administrative proceedings. The S 3j N
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BAYCORP IIOLDINGS,LTD.
was the subject of significant public controversy during its construction and licensing and rema controversial. An increase in public concerns regarding the Seabrook Project or nuclear pow could adversely affect the operating license of Seabrook Unit 1. While Great Bay cannot predict ultimate effect of such controversy, it is possible that it could result in a premature shutdown of th In the event of a permanent shutdown of any unit, NRC regulations require that the unit be completely decontaminated of any residual radioactivity. While tne owners of the Seabroo accumulating a trust fund to pay decommissioning costs, if these costs exceed the amount of fund, the ovaers, including Great Bay, will be liable for the excess.
Decommissionine Liability Based on the Finanaial Accounting Standards Board's ("FASB") tentative conclusions, Great Day has recognized as a liatility its proportionate share of the estimated Seabrook Project decommissioning. The initial recognition of this liability was capitalized as part of the fair value of The current estimated cost to decommission the Seabrook Seabrook plant at November 23,1994.
Project, t>ased on a study ya formed for the lead owner of the Plant, is approximately $45 1997 dollars and $2.3 billion in future year dollars in years in which decommissioning will occur, assuming a 36-year life for the facility and a future escalation rate of 5%. During the first quarter 1996, Great Bay began to accrete its share of the Seabrcok Project's Decommissioning Liabil accretion is a non-cash charge which recognizes Great Bay's liability related to the closure and decommissioning ofits nuclear plant in current year dollars over the period through 2026, during w the Seabrook Project is licensed by the NRC to operate, As a result of this accretion and based on current estimate, Great Bay's share in 1997 dollars is approximately 555.2 million, which has been recorded as a liability on the September 30,1997 balance sheet.
The Seabrook Project's decommissioning estimate and fundmg schedule is subject to review each year by the New Ilampshire Nuclear Decommissioning Finance Committee ("NDFC"). Th estimate is based on a number of assumptions. Changes in assumptions based on factors such as labo and material costs, technology, inflation and timing of decommissioning could cause these estimates to change in tbc future.
The StafTof the SEC has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decc.nmissioning c nuclear generating stations and joint owners in the financial statements of these entities. In response to these questions, the FASB has agreed to review the accounting for nuclear decommissioning cos 1996, the FASB issued an Exposure Draft entitled " Accounting for Certain Liabilities Related to Clo and Removal of Long-Lived Assets." No specific date has been set for the issuance of either a redraf proposal or a final standard by the FASB. The Company's accounting for decommissioning wa the FASB's original tentative conclusions. If the current exposure dratt is adopted or accounting practices for nuclear power plant decommissioning are changed, the Company's decommissionin liability and annnat provision for decommissioning could change relative to amounts reflected in the financial statements. The Company is unable to predict the impact, if any, changes in the current accounting will have on the Compa y's financial statements.
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4 Although the owners of Seabrook are accumulatinc, funds in an external trust to defray decommissioning costs, these costs could substantially exceed the value of the trust fund, and the owners, including Great Bay, would remain liable for the excess. The amount that is required to be deposited in the trust fund is subject to periodic review and adjustment by the NDFC, which could result in material increases in such amounts. Under a November 1992 settlement agreement with Eastern Utilities Associates ("EUA"), a former parent of Great Bay, EUA reaftirmed its guarantee of up to $10 million of Great Bay's future decommissioning costs of Seabrook Unit 1.
On January 22,1997, the NRC issued a temporary exemption to Great Bay in which the NRC staff stated that it believed that Great Bay did not then satisfy the NRC definition of
" electric utility." The temporary exemption granted Great Bay six months to establish itself as an " electric utility" as defmed in the NRC's regulations or obtain a surety bond or other allowable decommissioning funding mechanism. In Febmary 1997, Great Bay requested that the NRC reconsider the staff's finding that Great Bay does not meet the NRC definition of" electric utility." Great Bay also requested that the NRC consider granting an extension to the temporary exemption as an alternative to making a final determination as to whether Great Bay is an electric utility under the NRC definition. On July 23,1997, the NRC staff reaffirmed its finding that Great Bay is not an " electric utility."
On July 23,1997, the NRC issued a one year exemption to Great Bay from the obligation of Great Bay to comply with the NRC's regulations applicable to an owner of an interest in a nuclear power plant that is not an " electric utility" under the NRC's regulations.
The exemption gives Great Bay until the earlier of July 23,1998 or 90 days following the effective date of any revisions to the NRC's definition of" electric utility" to obtain a surety bond or other allowable decommissioning funding assurance mechanism for Great Bay's decommissioning liability related to its ownership in Seabrook. On September 10,1997, the NRC publisht.d in the Federal Register proposed amendments to its regulations regarding the definition of" electric utility." Under this revised definition, it is unlikely that Great Bay would be considered an " electric utility" under NRC regulations. The proposed rule alto suggests that accelerating funding of decommissioning over fewer years may be an acceptable method of funding assurance. The NRC is seeking comments or. the proposed rule by November 24,1997.
The Company cannot pre &t when, or if, the proposed rule might become final or what form it might take. A decision by the NRC to impose a requirement that Great Bay obtain a surety bond or other allowable decommissioning funding mechanism may adversely affect Great Bay's liquidity, possibly materially. Great Bay is investigating acceptable methods of decommissioning funding assurance in an attempt to minimize any adverse affects to the Company's liquidity.
Liauidity and Canital Exnenditures BayCorp anticipates that its share of the Seabrook Project's capital expenditures for the 1997 fiscal year will totai approximately $4.3 million, primarily for nuclear fuel and varicus capital projects. This estimated amount is based on the latest projections provided by the Managing Agent of the Seabrook Project.
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BAYCORP HOLDINGS, LTD.
A scheduled refueling outage for the Seabrook Project began May 10,1997 and lasted approximately fifty days. The Seabrook plant resumed operations on June 28,1997 and reached 100%
power on July 3,1997. An increased scope of work was performed during this refueling following Seabrook's record 463 continuous days on-line, in addition to refueling the reactor, this refueling outage included major plant maintenance.
During outage periods at the Seabrook Project, BayCorp has no electricity for sale and consequently no revenues. Great Bay accrues for the incremental costs of the Seabrook Project's scheduled outages over the periods between those outages. However, Great Bay continues to expense the normal Seabrook operating and maintenance expenses as incurred. Therefore, the Company incurs losses during scheduled outage periods as a result of the combination of the lack of revenue, the recognition of normal recurring operation and maintenance costs, and the continuing depreciation of the Seabrook plant. The impact of refueling and other outages on the Company's results of operations and financial position is naterially adverse. The Seabrook Project's 1997 refueling outage cost approximately $35 million. Great Bay's share of these outage related expenses was approximately $4.3 million.
For each of the tax years 1994,1995 and 1996, Great Bay filed property tax abatement applications with the three New Hampshire towns in which the Seabrook Project is located. Great Bay paid its 1994,1995 and the first half of its 1996 property taxes billed by the Towns of Seabrook, Hampton and Hampton Falls, New Hampshire (collectively, the " Towns") and withheld payment of the second half ofits 1996 property taxes based on the Company's position that the portion of 1996 property taxes paid to the Towns exceeds the amount of the total 1996 property taxes appropriately payable by Great Bay to the Towns. Great Bay also withheld the first half of its 1997 property taxes to the Towns.
Under New Hampshire law, Great Bay is required to pay an interest penalty computed at an annual rate of 18% (or 12% for periods until a Town placed a lien on the Seabrook Project) on all unpaid taxes ifit is unsuccessful in its tax abatement proceedings against the Towns. The full amount of property taxes was accrued and reflected by Great Bay in its 1997 and 1996 income statements. As a result of Great Bay's withholding of its property tax payrnent for the second half of 1996, two of the three Towns exercised their right to place a lien on the Seabrook Project. The Town of Seabrook placed a lien on the Seabrook Project on April 18,1997 and the Town of Hampton Falls placed a lien on the Seabrook Project on April 21,1997. Under New Hampshire law, Seabrook and Hampton Falls could not take any action pursuant to their liens until two years after the execution of the liens.
On October 8,1997 and October 9,1997, as a result of the decision in the arbitration proceeding among Great Bay and certain of the other Joint Owners, as discussed in more detail in Part II. Item 1 I enal Proceedinns. Great Bay paid under protest $3,168,903 in property taxes and accrued interest to the Towns. The Towns have advised the Company that they are removing the tax liens placed on the Seabrook Project.
Proposed NRC regulations and a review of Great Bay's status as an " electric utility" by the NRC are currently in process and may adversely effect BayCorp's and Great Bay's liquidity, possibly materially. See Decommissionine Liability.
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NOTE D - EQUITY On January 27,1997 Great Bay announced that it had received all necessary shareholder and regulatory approvals for the formation of a holding company structure for Great Bay, As a result of the restructuring, Great Bay became a wholly-owned subsidiary of BayCorp.
Shareholders of Great Bay common stock received one share of BayCorp common stock for each share of Great Bay common stock which they owned. The new BayCorp conimon stock began public trading on the American Stock Exchange under the symbol"MWH" on January 28,1997.
On October 9,1997, the Board ofi a. ors of BayCorp adopted a resolution authorizing BayCorp to rep trehase up to an aggregate of 100,000 shares of BavCorp common stock on the open market or in negotiated transactions. Separately, BayCorp coi..,,.med a repurchase of 140,000 shares in June 1997 at a total cost of $1,133,223, or an average price of approximately $8.09 per share. BayCorp his approximately 8.3 million shares of common stock outstanding. The shareholder groups controlled by Omega Advisors,Inc. and ?,lliot Associates, L.P., the owners of approximately 57% of the Company's shares outstanding in aggregate, have advised the Compr.ny that they do not intend to seli shares in the open market or in negotiated transactions which would be subject to repurchase by the Company under this repurchase program.
The Company has never declared or paid cash dividends on its common stock and currently does not anticipate paying a dividend in the foreseeable future, item 2. Manacement's Discussion and Analysis of Financial Condition and Results of Operations Overview As a result of a corporate restructuring that occurred in January 1997, BayCorp s principal asset is its 100% equity interest in Great Bay. Great Bay is a public utility whose principal asset is a 12.1%
joint ownership interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire. Unless the context requires otherwise, references to hyCorp for events and time periods before January 1997 reflect treatment of BayCorp as the succmar to Great Bay.
A scheduled refueling outage for the Seabrook Project began on May 10,1997 a id lasted approximately fifty days. The Seabrook plant resumed operations on June 28,1997 and reached 100%
power on July 3,1997. In addition to refueling the reactor, this refueling outage included major plant maintenance. For the nine months ended September 30,1997, the Company has reported a loss of approximately F,979,000 due to decreased revenues and higher than budgeted outage costs resulting from the 1997 refueling cutage coupled with continuing operating and maintenane: expenses and depreciation, as discussed above. See " Liquidity and Capital Expenditures."
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v, BAYCORP HOLDINGS,1TD.
Kesults of Operatims: Third Ouarter of Fiscal 1997 Compared to the Third Ouarter of Fiscal 1996 Operating Revenues Operating Revenues increased by approximately $406,000, or 5%, to $8,508,000 in the third quam of 1997 as compared to $8,102,000 in the third quarter of 1996. His increase in revenues was primarily due to higher average sales prices in the third quarter of 1997 as compared to the third quarter of 1996. Higher average ' ales prices were primarily due to increases in the spot market price of electricity in New England. During the third quarter of 1997 the average sales price per kilewatt hours
("kWhs")(determined by lividing total sales revenue by the total number of kWhs sold in the applicable perioo) increased 9% to 2.78 cents per kWh as compared with 2.60 cents per kWh in the third quarter of 1996. For the third quarter of 1997, the capacity factor at the Seabrook plant was 98.5% versus a capacity factor of 100% for the third qua ter of 1996. De capacity factor for the third quarter of 1997 waa affected by the 1997 refueling outage, with the plant resuming operation on June 28,1997 and reaching 100% power on July 3,1997. There was no scheduled refueling outage during 1996. Sales of electricity decreased by approximately 1.9% to 305,447,700 kWh in the third quarter of 1997 as compared to 311,424,130 kWhs in the third quarter of 1996.
BayCorp's cost of power (determined by dividing total operating expenses by BayCorp's 12.1%
share of the power produced by the Seabrook Project during the applicable period) increased 21.1% to j
3.10 cents per kWh in the third quarter of 1997 as compared to 2.56 cents per kWh in the th' d quarter of l
1996. This increase was the result of the scheduled refueling outage and its associated costs that were j
incurred in the third quarter of 1997 and the lower capacity factor at the Seabrook Project during the third quarter of 1997 as compared to the third quarter of 1996. Scheduled and unscheduled outage time increa :s BayCorp's cost of power because Seabrook costs are spread over fewer kWhs.
Expenses Production and Transmission expenses for the third quarter of 1997 increased approximately
$1,258,000, or 29.6%, as compared to the third quarter of 1996. This increase was primarily the result of actual outage related costs incurred in the third quarter of 1997. There was no scheduled refueling outage during 1996.
During the third quarter of !997, there was an overall increase of approximately $222,000, or 5.9%, in depreciation and amortization, taxes, and administrative and general expenses, from $3,735,000 in the third quarter of 1996 to $3,957,000 in the third quarter of 1997. This increase was primarily attributable to an increase in general and administrative expenses due to the refueling outage.
i Other (income) Deductions Decommissioning Cost Accretion increased $100,500, to $665,700 during the third quarter of 1991 as compared to $565,200 during the thi-d quarter of 1996. This increase is primarily due to the revised decommissioning funding schedule for the Seabrook Project approved by the New Hampshire Nuclear Decommissioning Financing Committee on October 30,1996. The new study increased the
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3 present value of utal decommissioning costs as of January 1,1997 and increased the cost escalation rate from 4.25% to 5%. This accretion is a non-cash charge and recognizes Great Bay's liability related to 1
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3 the closure and decommissioning of its nuclear plant in current year dollars over the over the period during which the Seabrook Project is licensed by the NRC to operate.
During the third quarter of 1996, the Company reported $7,051,000 in miscellaneous other income as compared to no miscellaneous other income reported for the third quarter of 1997 Other income in ly96 was primarily due to the receipt by the Company of $7,036,792 from the proceeds of the sale by the joint owners of the Seabrook Project of four unused steam generators from Seabrook Unit 2.
Net Loss As a result of the above f ators, during the third quarter ended September 30,1997, the Company recorded a net loss of $1,207,000, or approximately $,15 per share, as compared to net income of $7,019,000, or approximately $.88 per share, during the third quarter ended September 30,1996.
Results of Operatione First Nine Months of Fiscal 1997 Comnated to the First Nine Months of Fiscal 1996 Operating Revenues Operating Revenues decreased by approximately $1,798,000, or 8.1%, to $20,500,000 for the nine month period ending September 30,1997 as compared with $22,298,000 for the nine month period ended September 30,1996. This decrease in revenues was primarily due to the 1997 refueling outage.
The refueling outage lasted from May 10,1997 though June 28,1997, with the plant returning to full power on July 3,1997. Refueling outages take place approximately every eighteen to twenty months.
There was no scheduled refueling outage during the comparable period in 1996. During outage periods at the Seabrook plant, the Company has no electricity for sale and consequently no revenues. For the first nine months of 1997, the capacity factor at the Seabrook plan; was 80.7% as compared to 95.6% for the first nine months of 1996.
Sales of electricity decreased by approximately 16% to 742,633,200 kWhs during the first nine months of 1997 as compared to 883,652,600 kWhs during the first nine months of 1996. During the first nine months of 1997 the average sales price per kWh (determined by dividing total sales revenue by the total number of kWhs sold in the applicable period) increased 9.5% to 2.76 cents per kWh as compared with 2.52 cents per kWh during the first nine months of 1996. Higher average sales prices were primarily due to increases in the spot market price of electricity in New England. BayCorp's cost of power (determined by dividing total operating expenses by BayCorp's 12.1% share of the power produced by the Seabrook Project during the applicable period) increased 38.5% to 3.60 cents per kWh during the first nine months of 1997 as compawl to 2.60 cents per kWh during the first nine months of 1996. This increase was the result of the 1997 scheduled refueling outage and its associated costs and the resultant lower capacity factor at the Seabrook Project during the first nine months of 1997 as j
compared to the first nine months of 1996. Scheduled and unscheduled outage time increases BayCorp's
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cost of power because Seabrook costs are spread over fewer kWhs.
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2 Expenses Production and Transmission expenses for the first r.ine months of 1997 increased approximately
$3,222,000, or 26.4%, as compared to the first nine months of 1996. This increase was primarily the result of an increase in the actual outage related costs reported for the first nine months of 1997 as compared to the budgeted costs for this outage which were accrued for during the first nine months of 1996. T he increase in outage related expences was due to the increased scope of work perfortred during the 1997 scheduled refueling outage.
During the first nin* months of 1997, there was an overall increase of approximately $556,000, or 5.2%,
in depreciation and amortization, administrative and general expenses and taxes other than income from
$10,785,000 during the first nine months of 1996 to $11,341,000 during the first nine months of 1997.
Other (income) Deductions Decommissioning Cost Accretion increased $301,000, to $1,997,000 during the first nine months of 1997 as compared to $1,696,000 during the first nine months of 1996. Tnis increase is primarily due to the rey' sed decommissioning funding schedule for the Seabrook Project approved by the New Hampshire Nuclear Decommissioning Financing Committee on October 30,1996. The new study increased the present value of total decommissioning costs as of January 1,1997 and increased the cost escalation rate from 4.25% to 5%. This accretion is a non cash charge and recognizes Grnt Bay's liability related to the closure and decommissioning of its nuclear plant in current year dolla., over the period during which the Seabrook Pri:ct is licensed by the NRC to operatt..
Interest (Income) Expense and Decommissioning Trust Fund Income increased 20.6%, or
$217,000, during the first nine months of 1997 as compaied to the first nine months of 1996. This increase in interest income primarily reflects the Company's higher average cash and investment balances during the first nine months of 1997 as compared to the first nine months of 1996. During the first nine months of 1996, the Company seported $7,048,000 in miscellaneous other income as compared to $3,000 in miscellaneous other expense reported for the first nine months of 1997. Other income in 1996 was primarily due to the receipt by the Company in the third quarter of 1996 of $7,036,792 from the proceeds of the sale by thejoint owners of the Seabrook Project of four unused steam generators from Seabrook Unit 2.
Net Loss As a result of the above factors, during the nine months ended September 30,1997, the Corr.pany recorded a net loss of 56,979,000, or approximately S.84 per sham, as compared to net income of
$5,732,000, or approximately S.72 per share, during the nine months ended September 30,1996.
Net Operating Losses For federal income tax purposes, as of December 31,1996, the Company had net operating loss carry forwards ("NOLs") of approximately $184 million, which de scheduled to expire between 2003 and 2011. Because the Company has experienced one or more ownership changes, within the meaning of Section 382 of the Intemal Revenue Code of 1986, as amended, an annual limitation is imposed on the 15
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ability of the Company to use $136 million of these carryforwards. The Company's best estimate at this time is that the annual limitation on the use of $136 million of the Company's NOLs is approximately
$5.3 million per year. Any unused portion of the $5.5 million annual limitation applicable to the Company's restricted NOL's is available for use in future years until such NOL's are scheduled to expire. 'ihe Company's other $48 million of NOLs are not currently.:.oject to such limitations.
Liquid!ry BayCorp's cash and short term investments decreased approximately $7,860,000 during the first nine months of 1997. Principal factors afacting liquidity during the first nine months ended September 30,1997 included the operating loss of $6,979,000 discussed above and cash expenditures of approximately $2,191,000 for capital plant adc%ons, $1,289,000 for nuclear fuel purchases and
$829,000 for decommissioning trust fund payments. An increase in prepaids and other assets of approximately $3,038,000 and a decrease in other working capital items of $2,708,000 primarily reflect payments to the Seabrook Project. These payments were for nuclear fuel of $4,600,000 and for 1996 accruals for Seabrook personnel employee benefits of approximately $680,000. The Company's liquility was also impacted by BayCorp's prepayment in 1997 of a three year Directors and Officers liability insurance policy and the purchase of 61,955 shares of BayCorp common stock for $500,400.
Offsetting these cash charges were non-cash charges to income which included $2,588,000 for
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depreciation, $3,083,000 for nuclear fuel amortization and decommissioning trust fund accretion of l
$1,997,000, an increase in Taxes Accrued of $2,129,000 and a decrease in accounts receivable of l
$452,000.
l This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of rish tad uncertt.inties. Any statements contained herein (including without limitation statements to the effect iat the Company, Great Bay or their management " believes"," expects", " anticipates"," plans" and similar expressions) that are not statements of historical fact should be considered forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are the factors set forth in the Company's Annual Report t
l on Form 10-K under the caption Management's Discussion and Analysis of Financial Condition and Results of Operation - Certain Factors That May Affect Future Results, which are incorporated by j
reference herein.
i PART II-OTHER INFORMATION.
Item 1. Legal Proceedings l_
For each of the tax years 1994,1995 and 1996, Great Bay has filed property tax abatement applications with the three New Hampshire towns in which the Seabrook Project is located. Great Bay paid its 1994,1995 and half of the 1996 property taxes billed by the Towns of Seabrook, Hampton and Hampton Falls, New Hampshire (collectively, the " Towns") and withheld payment of the second half of its 1996 property taxes to the Towns, based on Great Bay's position that the portion of 1996 property taxes paid to the Towns exceeds the amount of the total 1996 property taxes appropriately payable by Great Bay to the Towns. Great Bay also withheld the first half of its 1997 property taxes to the Towms.
Under hew Hampshire law, Great Bay is required to pay an interest penalty computed at an annual rate of 18% (or 12% for periods until a Town placed a lien on the Seabrook Project) on all unpaid taxes if it is 16
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unsuccessful in its tax abatement proceedings against the Towns. The full amount of property taxes has been accrued and reflected by Great Bay on its 1997 and 1996 income statements. As a result of Great Bay's withholding of its property tax payment for the second laif of 1996, two of the three Towns exercised their right to place a lien on the Seabrook Project. The Town of Seabrook placed a lien on the Seabrook Project on April 18,1997 and the Town of Hampton Falls placed a lien on the Seabrook -
Project on April 21,1997. Under New Hampshire law, Seabrook and Hampton Falls cannot take any action pursuant to their liens until two years after the execution of the liens.
In December 1996. eight of the Joint Owners of the Seabrook Project (the " Demanding Joint Owners") served a demand on Great Bay for arbitration of a dispute between Great Bay and the Demanding Joint Owners concerning the allo:atic,n among the joint owners of real property taxes assessed by the Towu against the Seabrook Project. Great Bay claimed that the Joint Ownert Agreement does not provide for allocation of real estate tax liabilities in proportion to each joint owner's ownership interest in the Seabrook Project. The Demanding Joint Owners claimed that real estate taxes should be allocated in accordance with ownership shares, in September 1997, the arbitrator issued a decision requiring Great Bay to pay its share of all property taxes assessed upon the Seabrook Project in a single tax bill in accordance with Great Bay's percentage ownership in the Seabrook Project. Accordingly, on October 8,1997 and October 9,1997, Great Day paid under protest $3,168,903 in prcperty taxes and accrued interest to the Towns. The Towns have advised the Company that they are removing the tax liens placed on the Seabrook Project.
The arbitrator's decisi<m does not affect the tax abatement htigation pending against the Towns for tax years 1994 through 1996, nor does it affect Great Bay's ability to assert that it is entitled to a separate tax bill and assessment from the Towns. In addition, on February 28,1997, North Atlantic Energy Service Company, the current managing agent for the Seabrook Project, filed a tax abatement application on behalf of all the Joint Owners for the 1996 tax year.
Item 6. Exhibits and nenorts on Form 8-K (a) See Exhibit Index 4
(b) There were no reports on Form 8 K submitted for the three months ended September 30, 1997.
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BAYCORP llOLDINGS, LTD.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HayCorp IIoldings, Ltd.
November 13,1997 By:
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/[ John A.Tillinghast
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4sident, Treasurer and Chief F/c utive Officer (Principal Accounting Offide a
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- EXHIBIT INDEX Exhibit No.
Dsicription
- 27.1.
Financial Data Schedule =
99.1-Pages 18 21 of the Company's Annual Report on Form 10-K for the perk -
ended December 31,1996. Such Form 10-K sha:1 not be deemed to be filed
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except to the extent that portions thereof are expressly incorporated by reference herein.
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