Text

Central Maine Power Annual Rept,1985
	ML20206J033
Person / Time
Site:	Millstone, Seabrook, 05000000
Issue date:	12/31/1985
From:	Rowe J; CENTRAL MAINE POWER CO.
To:	;
Shared Package
ML20206H943	List: ML20206H948; ML20206H960; ML20206H979; ML20206J033; ML20206J040; ML20206J046; ML20206J052; ML20206J057; ML20206J067;
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	Download: ML20206J033 (48)
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J-

OUR REASON FOR BEING 1

I entral Alaine Power Company exists to provide our Customers electncity and i

j related services, in accordance with the public policies of the State of Alaine, at i

I co>ts which are consistent with the value and reliability that our Customers need I

and prefer; to provide our Shareholders returns which are competitiu and com-l mensurate with their nsks; and to provide our employees attractive and produc-tive career opportunities.

I I

C5!P's customers include the C.\\lP will conform with high stan-DEDICATION residential, commercial. mdustrial l

dards of etlucal behavior and social and wholesale customers to whom we dehver

{

, esponsibility and will act with integn:v in all

~

j electricity in the State of Alaine. While we our relations with the communities which we hile most of the infor-j have dealings with entities outside our ser-l serve and with our customers, investors, mation in this Annual Report relates to objectives vice territory. our primary function is to employees, vendors and the government.

i l and finances, Central Alaine i

I serve these customers.

The costs of our product vary with l Power Company, like all l

the value and reliability provided. The other institutions, is ulti-The core of CAIP's business is to provide our customers electncity.

j needs of our customers also vary. While mately dependent upon the We also supply related semees, such as con-holding overall costs as low as is practically i people who do the work. In servation programs, design or operation of l

possible, we will develop marketing concepts 1985, Hurricane Gloria

)

transmission or generation systems for which merease our customers' choices with created an extraordinary others, the development of alternative fuel respect to the quantity, cost and reliability challenge which was met, sources or development of our rights-of-way to the electrical service they prefer. We wilj with total commitment, by and other real estate. We assist our com-at all times strive to improve the efficiency the Company's field forces.

munities and state by working actively with l

of our operations. We will encourage innova.

To these, the hands which customers and local and state governments tion and sensitivity to changing customers-hold us together, we to attract and retain desired miustries and needs.

dedicate this Report.

by encouraging our employees to participate in meaningful public activities and CAIP's costs include returns to our l

organizations.

investors which are competitive.

Since public policy severely limits the oppor-l 3 CalP has a special obligation to acttunity for speculative returns, investors in accordance with the public policies demand that their risks be limited commen-of the State of Alaine, because our service surately and that their returns be relatively is vital and requires resources in which the predictable. The level of revenues allowed i

public has an interest. Public policies con-for the costs and risks incurred will deter-l tinuously evolve with respect to safety, mine the nature and extent of the invest-1 i where standards have often become more ments and commitments which CA!P can

'l s~ingent; reliability, where long-term com-undertake.

l mitments now require advance governm"nt l

l approval; and efticiency, which requires even i

To provide our employees attractive greater attention when costs are increasing.

I and productive career opportunities, CAIP will seek to assure the continued CAIP is committed to attracting men and safety, reliability and efficiency of our ser-l women, at allleveis, with stable employment vice in the future, in w..ys which are consis-prospects and the pctential to grow into tent with and constrained by those policies.

l greater responsiblities; to developing them i

through concerned leadership, with adequate i

l compensation and in a stimulating work at-J inosphere: and to recognizing and rewarding t

1

)

Ag them on the basis of demonstrated perfor-mance. People of the highest competence

=

h f

and integrity are of primary importance to us, i

i for such employees will best serve our l

j i

customers.

l t

C MP's 2,000 TABLE OF CONTENTS employees provide (lectric service to nearly President's Letter 2

- 425,000 customers in an Sening Customers 4

11,000-square-mile area in Securing Energy 10 southern and central Maine.

Working in Maine 14 The Company owns or has Your Investment (Management's Analysis) 18 an interest in hydroelectric, Statement of Earnings 23

. nuclear and oil generating Balance Sheet 24 stations and supplements its Statement of Capitalization 26 own generation of electricity Statement of Changes in Common Stock Investment _ 27 with power purchases from outside the state as well ac Statement of Sources of Funds

___ 2 8 from local independent pro.

Notes 29 ducers. CMP has provided Eleven-Year Statistical Review 42 dependable service to its customers for more than 85

. years and is supported by an i interconnection with Canada SU3 DIARY DATA and membership m the New England Power Pool.

1%S 1984

% Change Electnc Operating Revenues

$536.0 million

$515.4 million 4.0 Service Area Kilowatt-hour Sales 7.8 billion 7.7 billion 1.9 Net income

$12.4 million

$51.0 milbon (75.7)

Earnings per Common Share S.08

$1.99 (96 0)

Earnings per Share Denved from AFC

$1.22

$1.73 (29.5)

Dividends Declared per Share

$1.40

$1.68 (16.7)

KILOWATT-IIOURS o,vidends Paid per Share

$1.40

$1.82 (23.1)

Retur i on Equity

.5%

12.3 %

(95 9)

Common Shares (weighted average) 22.0 millon 20.2 million 9.0 Book Value per Share (year end)

S14.59

$16.17 (9.8) g Total Assets

$1,152.9 million

$1,195 8 milhon (3.6)

-M U N

( ) Mes % M vabe 6 e HI 1

~

L CO3DION SHAREHOLDERS g

g As of December 31,1985 2

M Q srare<>oers sr a,es Maine 14,944 7,495.264 0

81

'82 83 84 85 Other New England States 10.206 2,366,892 Atlantic 12.092 9,548,055 Central 5,382 1,650,974 COTHER Western 5,110 1,448,638 C COMMERCIAL O INDUSTRIAL Forergn 99 28,527 O RESIDENTIAL Total 47,833 22,538.350 1

1

l P*

IB TO OUR SHAREHOLDERS:

l r

here are times when prices 7

energy conservation programs, including a must be paid: 1985 was such l

$1 million effort to insulate the homes of low-a time. Cental Maine Power income electric heat customem. CMP signed entered 1985 with more than and submitted to the MPUC for approval a three-quarters ofits equity in-f second New England-wide agreement to pur-vested in cancelled power plants and in the chase electricity fmm liydm-Quebec. Our budgeting effort has been impmved, our data often troubled Seabrook 1. Uncertainty con-cerning the recovery of those investments

,y processing capability increased and our had battered the market price of your shares, management diversified and deepened. In escalated interest costs to the detriment of September, CMP employees cleaned up the our customers and undermined the financial Nothing is certain, havoc of IIurricane Gloria, the worst storm foundations of the Company. In 1985, CMP but we believe in 30 years. The cover of this report reflects and its customers paid the price of resolving energy requirements our thanks to the many employees who that uncertainty. That payment was the first can be met with responded to this challenge.

quarterly loss m CMP's history and very Price increases lower Because much has been resolved, we are small earnings for the year. For customers, the price was a base rate increase averaging than inflation now in a position to set goals by which our 7.3 percent, which was partially offset by a through most of the performance can be judged. For 1986, those fuel clause rate reduction. As a result of these next decade.

g 1s appear here. They reflect CMP's pdgpaMe s

e mmnu men payments CMP can: fist, continue to provide This would be a direct and

"" # *E #

reliable electric service at prices which are substantial benefit to our responsiveness to their needs and to among the lowest in the Northeast; and se-customers which ought to cond, make plans to restore its earnings over alleviate pressure on our the next several years to levels you will find income. These efforts to in order to meet these impemtives, we acceptable. We have begun the process of control cost increases will be have requested a base rate increase of ap-rebuilding the Company on an equity base most affected by the outcome proximately $59 million, required in large part l

which is somewhat smaller, but much more of our negotiations with by our investment in Millstone 3, which is $110 sound than before.

Canadian producers and by million as of December 31,1985. Millstone Since the 1985 rate order, CMP has the continued performance of 3 is the last of the Company's nuclear in-reached an agreement with Eastern Utilities Maine Yankee.

vestments requiring consideration by the Associates (EUA) whereby a new subsidiary MPUC. While we expect challenges to the of EUA would acquire CMP's interest in cost of Millstone 3, that pmject is signifk2ntly Seabrook for an amount estimated at approx.

cheaper and far less vexed than Seabrook 1.

i imately $98 million as of June 30,1986. If ap.

We have pmposed that the requested increase proved by the Maine Public Utilities Commis, be considered on a two year basis, in order sion (MPUC), agencies in other jurisdictions to demonstrate to our customers that the re-and the other Seabrook owners, this sale cent annual base rate cases are not inevitable.

would reduce the rate increases othemise re-Like other utilities, CMP is seeking ways quired in 1986 and 1987. As presented to the to proside economical electricity in a future MPUC, the sale would also return to the fraught with uncertainty. Maine Yankee pro-i Company all of its investment in Seabrook 1 vided nearly one-quarter of the Company's I

not previously provided for in rates or writ-energy in 1985, at costs to customers far ten off. (See Page 31).

lower than alternatives. If successful, re-While these events dominated your Com.

new"! proposals to shut down that plant could pany's financial news in 1985, we continued lead to severe economic consequences to our other efforts to assure efficient and CMP, its customers and the State of Maine.

reliable electric service. In accordance with While our existing steam and hydroelectric state energy policy, CMP signed 15 new plants provide large savings to the Company cogeneration contracts and amended 11 ex-isting contracts. Our Customer Services department developed a variety of pilot 2

CENTRAL 31AINE POWER CO31PANY CORPORATE GOALS - 198G

{ future mtomer demands fo Enhance our capability to meet and its customers every year, the construc-tricity at the lowest cost achievable with tion of such successful facilities cannot now acceptable nsks through the optimum use be repeated. Our largest planned generating and development of our existing addition is the 25 51W Irwiston Falls hydro-resources and through increased conser-electric development. Given the state of law vation, cogeneration and Canadian and technology, building large new generating purchases.

plants would increase the cost of electricity to our customers and also increase risks to

] and distribution plans and imple Develop up-to-date transmission our shareholders. Accordingly, encouraging conservation is an important part of our plans.

C51P's forecasts assume 700 51W of savings All in all, our ment, to the extent possible with existing from this source by the end of the century.

success in the next financial resources, those projects which Cogenemtion has become increasingly impor-decade will depend are priorities for customer service tant, and willlikely provide 25 to 30 percent upon our ability:

reliability or pay back in energy or other of our energy supply by the year 2000.

savmgs.

C51P has signed two New England-wide

1. to reach sound decisions agreements to purchase energy from flydro-concerning future energy 3intenifyeer ervice end predect Quebec and makes both spot and longc r-term

supplies, development efforts toward satis-purchases from The New Bamswick Electric

2. to establish sound finan-fying customer needs more responsively, Power Commission. The Canadian provinces rapidiv, and creatively, as well as increas-ci I goals and commen-S dmbnNmh have the capability, to the extent they wish mte risk allocations, to use it, to supply much of the cheapest elec-tricity available to 5!aine. In the next year, grams and employee efforts in all C5!P, along with the AfPUC, the State Office

3. to reach a consensus departments, of Energy Resources and the Public Advocate with the government of will be making difficult and far-reaching our state concerning judgments about the extent to which require-these objectives.

4 "eet re e>r"i"x* '

'e'e *'ic" ments, beyond those met by energy manage-Your management is commit-pl n f r future improvements in financial ment, should be supplied from Canadian ted to these ends.

sources, increasing oil consumption, or even perfonnance to provide our shareholders returns which are more competitive and more cogeneration than planned at prices which may be significantly higher.

Sincerely, commensurate with their risks within the constraints imposed by the cost of In making such energy supply decisions we resources, competition and regulation.

must, in conjunction with the state govern-p ment, constantly assess the relative advan-5 '*nd satisfaction by an increased "r 'e "*"' '"" ""<' <=""<e tages of long-term commitments and short-term flexibility, attempting to develop plans John W. Rowe

N ""NW N'

which offer economies while retaining ap-p,,,ident and chief Executive otrrer dequate authority, supervisory support, propriate margins for contingencies. The March 1.1986 troubled projects of the 1970s mandate cau, and needed resources along with ade-tion; the continuing benefits of far-sighted quate compensation, recognition, and per-decisions in earlier decades remind us that sonal and professional growth wisdom does not always lie in hedging. When opportunities.

we make new commitments for very large quantities of energy, we must also begin t Increase the efficiency and effec-define the risks to which our equity is sub-tiveness of our work in law and ject and to obtain appropriate compensation

[//

public affairs, while continuing to stress for those risks. We are exploring various y 95 both externally and internally our commit-alternatives which would provide such com-ment to corporate responsibility in all of pensation for particular projects.

centramaine Powr our public affairs.

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and t cr eiltinuing se treh f< >r spend :c33 n < clev oti e:cctricity. ()ver t).t H wi new appT(stches C U ',t < !nier cu str >!ners d;rectly henefitted [rtin) (h))s satisfactitin depend 4 tlist.ind energ\\ Inanadentent prtigr;Uns during 19N3.

fiirent')3t (lil a ci nsistent *Upply <i[ electric Thest cu sti ";crs did n4 >t sacritice ci>nven-service at a reaminah!c n est. Ti> rnect thi3 ience in the:r hi:nies or protits in their need, yt)ur Ciernpany, d3 It has fier decadc3 busnt>ses. They did use p<>wer inore efti-r:aintains its :aci:: ties and equiprnent.

ciently. P,y helping custoniers n;anage their det elops new s ou rc e s of energ) 5 pl use of energv. C.\\ll' can delay or avoid the operates cost-e::iciently..\\t the same tune, need for bunng expensn e new generating cu3tomers inu3t he provided with a3 niany p: ants. keepind future rate increases to a

% ays 33 p()sslh!t' i d c(>ntrf'!Ilna their t lectrici-nanunun).

ty ciists.ind tilust recel\\ t-help [UI. perscinal a ssistailce in these ef[t art s. I<l int *ct Ihls t qu.diy prt swind 'ict d, C.\\ll' prf >v1 des it -

Custoniers With a s ariety < d < < nse rs ati< rn an l energy I!!anagenient prt)nra!Ils.

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3frs. Elsie Herrick of, h Working with the staffs of the.\\laine Pubhc Gorham was the 6fty-M.

Utilities Commission t. lPUC). State Office

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thousandth C3fP customer to of Energy Resources (GER) and Public Ad-i bene 5t from the Company's vocate. C.\\lP developed several pi!ot pro-l I

" Bundle-Up" program, by '

grams in 1985 to furtacr encourage effective receiving insulation for her j

energv management in electric.dly heated l

electdc water heater, having homes. The programs include:

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fer specific energy improvement i

heater, and receidng two D

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measures at a cost lower than that which

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low-dow faucet aerators and J.,

is normally available:

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Energy '\\lanagement Rehates to a low-dow shower head. Her savings should amount to customers who install energy manage-about $80 annually. The

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Company has now wrapped RESIDENTIAL PROGRAMS (u

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pays up front for energt saving im-over 60,000 residential elec-IIELP TO LOWER tric water heaters.

FAMILIES'IIILLS provements and the custon5er repays half I

of this cost from the savings they realize i

inety percent of C.\\lP.s 475.000 on their monthly electric bill; and i

cu3tomers are resdential and home

Energy.\\lanage[nent Assistance Program energy audits form the foundation for C.\\1P s

( E.\\l A P) to provide insulation and conservation and energy management pro-ab stion wsm m hv-hw grams. In 1%. L.\\1P performed more thjm households.

10.000 of the3e in-depth surveys, identity-i l

ing specific measures by which customer, These and other programs are being test-marketed through direct mail. telemarketing could reduce actual kilowatt-hours con.

sumed. In addition. the results of home and Commumty Action outreach to deter-j energy audits are often. red in evaluating mine their success. They will be evaluated bad on cost-effectiveness and level of con-chgibthty for other Company conservation programs. In 19n5. customers received cash sumer interest and participation. Through rebates when purchasing certain energv_

these pilot programs. C.\\1P is able to focus efficient major apphances. C.\\lP wrapped on the actual energy saved, rather than 27.016 home electric water heaters in 1985 estimates. The most successful of the pilots and ;)rovided other energy-saving mea 3ures wiU be made widely available in 1987.

connected with hot water u3 age. Since this

'llundle-Up" program began two years ago, more than 50 percent of customers' residen-tial electric water heaters have been wrapped.

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TIIE WORST STOR.Tl IN 30 YEARS.. GI.ORIA i un., -:.m:n.H t he a-tern u rrt e

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Executive Director of Oxford 4, $ '. '. '.

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County Community Services j;

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i After C3fP audited his :

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THE FRONT LINES -

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DISTRICT OPERATIONS i

identined insulation projects yWy_-

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for oil savings and re-lamping ivision and District Operations main-for kilowatt-hour sanngs, tained service to customers with five Charles P. O'Brien, dght,

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percent fewer employees than in 1984. This (shown here with Jackman w',

is particularly significant as the nun.oer of District 3fanager, Charles !

I residential customers in 1985 increased by Dillihunt) of 3 fountain Coun-9.182.

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try Supermarket in Jackman A study of Division and District Opera-wrote, "..how very much I y

tions, in response to a management audit appreciate your time and A"

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finding, has produced several recommenda-effort in preparing an energy

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tions designed to put more of CMP's i audit on the store. The infor-resources closer to its customers. In 1986, l and valuable toward conserv-mation will be very useful 7%;,,,

the current four divisions will be consolidated l

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into three, and district offices will be s

ing energy and cutting reorgamzed to serve customers more effi-i overhead costs. I am sure sD,%.

s ciently in both routine business matters and that we uill bene /It from the energy emerger.cies.

j knowledge afforded us by The three new divisions will be Northern,

i your expertise, and wish to }

Western and Southern, with the reassign-thank you once again for !

ment of district offices presently in the Cen-coming and for sharing your tral Division. There will be at least as many knowledge with us. "

field locations as there have been, and some resources now in the General Office will be l

placed in the divisions, closer to the customers.

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Hydro-Quebec labove Ic.ft)

Phase 11 trill supply some i billion K1f*H of Canadian

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x hydrofuncer to Netc England

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bcginning in 1990. Bclote, 4

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CSIP tire President, Donald F. Kelly and Hydro-Quebec

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Guarmnd.

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l DOING BUSINESS IN TIIE NORTII ydro-Quebec and New England utilities formally agreed to bring seven billion KWil per year of Canadian hydropower into New England by 1990 with Phase II of the New England-Quebec interconnec-4 5m j

tion. The agreement should

.he ~'f?

net New England utility con-h i

sumers savings over the 10-year contract. Phase I of

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O the contract will bring up to Y

three billion KWH per year of IIydro-Quebec power into avoid the need New England beginning in W

for approximately 1986. The Company's 7 per-f 700,000 kilowatts of capa-cent share of the IIydro-city and 2 billion kilowatt-Quebec Phase 11 purchase i

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'g hours of energy annually by the will amount to 105,000 year 2000. These reductions in power kilowatts of capacity begin-requirements are now being reflected in ning in 1990. NEP00L CMP's load forecasts. Nevertheless, CMP utilities chose CMP's Vice I

expects to require 400,000 to 600,000 kilo-President, Power Supply, watts of additional capacity by the turn Donald F. Kelly to lead the of the century.

negotiating team for this To increase its sources of supply, major purchase.

CMP can build new generating facili-CMP is also considering ties or develop other altematives. The substantial additional Cana-Company is redeveloping its own hydro-dian contracts to meet and leading electric resources wherever cost-efficient.

energy requirements in the economists expect elec-But, while large steam generating plants used

1990s, trical energy use in CMP's service to be an economical way to meet customer territory to increase at an average rate of 2 demand this is no longer the case, due in part to 3 percent per year through the year 2000, to increasing emironmental and safety re-a total increase of 35 to 55 percent compared quirements and the additional financing costs to today's use. Over the last ten years, use brought atx>ut by the long periods needed for of electrical energy has grown at an average licensing and building such plants. The Com-of 5 percent per year, and customers have pany is, therefore, pursuing purchases from increased their peak demand on electrical cogenerators and small power producers, and capacity at an average of 4.1 percent per year.

from adjoining utilit;es and power pools, in-Customers set new peak load demands dur-cluding those in Canada. Through utilization ing the severe cold of January,1986, not-of a combination of these alternatives, CMP withstanding intensified conservation efforts.

plans to meet its capacity and energy needs If conservation and load management pro-through the year 2000, without new baseload grams are as successful as hoped, they will plant construction.

11

- - - - * - _.. - ~. _ -. - _ _ _ -,.,, + _,,,

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y ported by ses cral communities will burn the waste collected by the towns, using some of the by-product steam to generate electrici-

-Q g ty. This process will not only provide alter-rative electricity sources for the Company, but will reduce the requirement for landfills

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as well.

The Itith-llrunswick Refuse Ihsposal Ib

} T%s' _ 4 m trict Regional Waste Systems of Portland

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project in Iliddeford, are waste-to-energy l

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en projects scheduled to begin producing power l

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in the next two to three y ears. Whde not free

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trom difficulty, it is expected these three l

j plants will burn a total of 1.217 tons of mumcipal waste dady, producing 28.000 l

kdowatts of capacity and 171 million KWil l

annually for C.\\1P customers.

h h

\\l ilYDROELECTRIC POWER r

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An opor house at niram 31EETING THE NEEDS Hydro october lei,1985, care I

0F TlIE SYSTE31

\\

local re<idaits an opportunity l

to tour the station. Lc.tt to n Januarv 1,1985, the Iliram l' nit 2 l

right, ll' alter TuitchclI, Leslic

'I hydroelectric project came on line l

three months ahead of schedule and $1.6 Xctson, Francis Lmns and mi!! ion below budgeted cost.

C31P's John /Gnncdy follorc J

C3/P Assistant iice Prcsi.

-3 The Company has filed applications at L

dent, Grrald Poulin through Federal Energy Regulatory Commission for the plant.

'y the Lewiston Falls hydro project and expects to file with the.\\lPl'C this year. This hydroelectric plant, when completed, will provide 25.000 kdowatts of capacity and pro-LOCALLY PRODUCED duce 125 mulion KWII of energy annually.

POWER SERVES C31P CUSTO31ERS i

ifteen new coge neration and small l

l l

power purchase contracts were i

signed in 1985 and 1I others were renego-ll tiated, bringing our total purchase commit-ment to 2.8 billion KWH per year by 1988.

With these additions, C.\\1P has a total of 78 l

l projects under contract. Cogenerators and l

small power producers are located throughout C.\\lP's service territory, as shown on the map on page 11. Sources in-clude, not only private power companies sell-ing energy to C.\\tP, but also businesses such i

as pulp and paper, textile and lumber mills burning waste products to produce electricity.

Voters m nuny.\\laine communities, in 19M5, supported the development of and par-ticipation in municipally-owned waste-to-energy projects. These projects, each sup-I 12

vt gr.

NUCLEAR ENERGY 1985 ENERGY MIX

- SOURCES OF 1

ELECTRICflY l

AS A SOURCE Y our Company strives to mamtain a (K4.OWATTHOURS N BwOtG diverse energy mix to protect against aine Yankee Atomic Power Com-pany, of which CMP owns 38 per-the impairment of any one source. Given the e

cent, generated more than 5.3 billion KWII risk factors of various energy supplies, it in 1985. The Company received approx-makes sense to have more dependence on E E l

imately 2 billion KWII of power from Maine some sources than on others. One of the e

Yankee, or 23.7 percent of its energy re-goals adopted by CMP's Board of Directors quirement for the year. Maine Yankee is to, " Enhance our capability to meet future F

produced this power at a total cost of 2.6 customer demands for electricity at the 4

cents per kilowatt-hour, at a time when lowest cost achievable with acceptable risks system energy purchased from Canada cost through the optimum use and development approximately 3.9 cents per kilowatt-hour of our existing resources and through in-2 and electricity produced in 1985 at Central creased conservation, cogeneration and Maine's W.F. Wyman oil-powered plant cost Canadian purchases."

l an average of 7.2 cents per kilowatt-hour.

0 8

a; 83 84 es

4 At normal capacity factors over the remain-Consistent with that goal, CMP has ing 22-year life of the plant, Maine Yankee adopted the following energy supply would produce over 115 billion kilowatt-hours strategy:

- g local NON-UTluTY -

1 of the most cost-efficient electricity available.

Implement efficiency improvements, con-

' Do ",,", p,Df" 1

The Millstone 3 nuclear generating plant servation programs and energy manage-g m Connecticut, of which the Company owns ment programs to hold energy use growth 2.5 percent, is scheduled to begin commer-to an annual rate of 2 to 3 percent through

' E Oit.

cial operation by May of 1986. CMP will the year 2000.

(Cornpany owned and Pucam receive 29 megawatts of capacity and the

Continue with current hydroelectric E NUCLEAR '

associated energy from Millstone 3.

redevelopment plans.

p,,,,,ny m,,

o,n,,,,.

Attempt to negotiate cogenerators'/small in Fou, Ncear Pfarte power producers' contribution to CMP's

. E HYDRO-

""a"

PROJECTED ENERGY USE energy mix to between 25 and 30 percent 00LOWATTHOURS IN MwONS) by the year 2000, by means consistent with the state's Small Power Producer's Act.

r.

a te000 Negotiate long-term contracts with Cana-a dian sources to provide 20 to 30 percent im of the energy needs for the year 2000.

CMP believes this combination of steps will

~~-

best meet the goals of reliable energy at the 8000 lowest possible cost for the rest of the j

century.

^

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198s 1990 1995 2000 0 CONSERVATION SAVINGS j

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- THE UTILITY AND THE STATE.

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the MPUC in 1985 tras a

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J'.:2 study of the effects of a pro-M 1: ! ~

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posed consolidation of CMP

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teith Maine Public Service

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Company.

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l entral Maine Power is one of a highly controversial referendum on the the largest investor-owned in-disposal of low-level nuclear waste; I

stitutions in the State of

a Maine Public Utilities Commission Maine. Its actions, decisions, (MPUC) investigation of the desirability l

practices and values have an of a merger with a smaller electric utility; immediate and direct impact upon the protracted media coverage of the Com-e resources, upon the economy and upon most pany's response to Hurricane Gloria; of the people of this state. By its very nature, and above all, the highly-charged Sea-CMP can never be free of controversial brook cancellation, recovery and sales issues.

issues.

Just this year, CMP has had to deal with:

a legislative investigation of the political activities of utilities:

a major manufacturer seeking public relief from rate increases as a condition for con-tinuing to do business in Maine; I

11

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N MAINE l

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1 LOOKING AHEAD l]

CMP Vice President, Datid tarting with AIPUC consideration of tj T. Flanagan works with a dedicated team of CMP C51P's 51illstone 3 investment, the

. professionals to promote the

<*5 interests of the Company's opening of a new docket to address the w

1 distribution of costs among customer classes, p.

shareholders and customers and the U.S. Department oi Enetgy s W

,ggy;, g,, y,gg,gagg,,,,,,,,,

(DOE's) identification of 31aine as a possi-ble candidate for a high-level radioactive waste disposal site,1986 promises to be no less demanding.

Utiliti. are the most pervasively regulated priva* mstitutions in this state. No other in-EARNING TRUST de q, including transportation, health care, r even defense is subject to so broad a range n its effort to earn the trust and con-

? governmental policies. C51P must accept fidence of government C.\\1P shares this reality, not resist it; and must meet the its expertise in energy and management with challenge of working within this environment state and local governments. The Company to promote the interests of the Company's also advises state decisionmakers ofits views shareholders and customers.

on issues which affect it in a professional, bi-partisan manner, while complying in good faith with established requirements. The Company informs the media and the public j

through accurate, reliable and documented information, seeking to avoid exaggeration and hyperbole. In all of these activities, j

credibility and integrity are the foundations of trust. CalP may sometimes disagree with the direction of government policy, but the Company must work with patience and de-termination within our system of government.

In support of its efforts in the law and government affairs area, the Company has recruited highly-qualified attorneys from the 51PUC, the State Attorney General's Office, the Nuclear Regulatory Commission and a nationally prominent private firm. CAIP is now in a position to provide responsive and i

economicallegal services through expanded in-house expertise, while continuing to utilize outside counsel from Alaine and national firms where appropriate.

15

STIPULATION CMP'S SEABROOK LEGISLATIVE ACTIVITIES AND CANCELLED n a separate effort in 1985, the Com-hile we cannot always expect a PWT smooth course in our government INVESTMENTS pany joined other utility and govern-relations, one constructive example of ment representatives before the Legislature C5fP's policy of cooperation and respect is E

T OF 1985 with respect to a bill which would have im-R the May,198a rate case stipulation, one of peded recovery of cancelled plant costs and the most significant decisions in the history Total $312.749 as d May 31.19Bs otherwise encumbered the regulatory pro-of the Company. Through intense negotia-cess at customer and shareholder expense.

tions among the MPUC staff, the Public Ad-The bill was defeated.

vocate and the Company, terms were reach-A special legislative committee, formed BEFORE RATE ORDER ed for resolving the issues created by the last year to investigate the political actisities Seabrook investment so that CMP would be I

of public utilities, was granted full and com-able to begin the journey toward financial plete access to Company records and per-recovery.

sonnel. While there was concern about the The Public Advocate insisted that the course the committee might take, its find-stipulation provide for a possible consolida-ings were ultimately moderate, consisting tion of CMP and Maine Public Service Com-largely of recommendations that utilities be pany (MPS), an Aroostook County electric required to file more complete reports utility, for the purpose of stabilizing the finan-regarding political actisities, that stricter con-cial condition of that company.

trols be placed en solicitations for funds being In fulfilling its commitment, CMP has filed raised for political campaigns in which utilities testimony with the MPUC indicating that a are involved and that pollsters hired by a util-consolidation of the two companies would be ity not share information with political candi-in the best interests of the customers of dates or officeholders. Although no subse-Aroostook County, a view shared by the E $248.040 EARNING NON CASH quent legislation imposed these constraints,

^fo; RE OVjRl F the Company voluntarily offered to comply NCERTAIN

[

MPUC's hearing examiner in her February,

,n 1986 report. As a safety net for MPS, CMP E $64.709 NOT PRODUCING would offer to purchase that company for an ANY RETURN. RECOVERY amount not to exceed the adjusted book

'$"2. S wand. Seabrook 2 P

value of MPS's shares, subject to conditions including MPUC approval and local support, FUTURE INITIATIVES both of which were uncertain as this report AFTER RATE ORDER went to press.

Ver the next five years, CMP must I jiQ.

file for relicensing of 14 of its operat-

%lk

-n ing hydroelectric facilities. The Company has j

already negotiated a relicensing agreement 3

y with the cities of Lewiston and Auburn and t

M has initiated an aggressive relicensing pro-4 G_

gram to demonstrate that continued CMP I

I operation of the Company's hydro resources is in the best interest of its customers.

l l

t C $191.243 IN RATE BASE.

EARNING CURRENT CASH RETURN Portions d Seabrook 1. Seabrook 2.

Sears Island. Pagnm 2 U $84.953 WRITE OFF Porbons d Seabrook 1. Sears Island, Pdgnm 2. Seabrook 2 E $36 553 OPEN FOR FUTURE RATE MAKING DETERMl NATION EARNING NON CASH AFC Pomon d SeabrorA 1 and an d Seabrook Nuclear Fuel 16

. s......- :.

'.I i m 4 -:1 " % A 0.W.y ; y ;t eed.,y q@yyyMy$q; $ ny 4GenMhun c p p re p g m n y y p. m.3

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produces electricityfor CMP customers at a total cost of l

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2.6 ccnts per kilotcatt-hour.

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NECLEAR WASTE c v" """"L ^ t h"" Rh N Ii"" c""'""" * "!'"

henefit trom the econonuc contnhuuons of unnd 19N. the O c;v

's, w aate.

natnin.t! defense facditic3 anil < u 4,f->t;it e som, a c.3 m r w a = ~3ure nm s, p. ~ r S nm. stnDe Yamkee w I

minated by the \\!a e I.eew!ature to requuc become a target f or sona of those w ho op-voter appr n.d of an ; dan to d:3pt -r of low -

po-e the b > cation of an) hichdesel waste j

!cret raWaactn e waste in.\\ lame at a 3tte dop ~.d fac6:y m thi, staic md for those w ho other than the.\\1 one Yanice p! 4.' \\i ters

-rek t< > 3h; _ di >wn all nuclear p )w er plants.

I how e\\ er. appri a rd an alterndtli c M."asic

.\\ halb ' que sti >n < >n ch)-Ing the pl. tnt may to require -p, i la: i:.ter approva!,4 any plan acam ht pre. "nted to.\\laine mters in to -tore iir d:-po3e / low -!crei wa-te. echer

.% a etnher 4 d 199i or 19K If.\\ lame Yankee j

n or out,ide of the ~Iate. In the meantune.

w ere to he sh. I down. the econonuc con-e-l Ihe federa! M:acrnmt n! I U\\tendt'd the quences tt e t hr ' Ntate f)f sl;iint* d!Id (.\\ll">

l time penod dunne w hwh.\\l;nne Yankee inay ci -tecrs cou:d he ses cre. In the near term.

j store its h tWdevel w a-!c at apprt)vei! -ites

.\\lamt' Ut !]e-w < suld he f< frced ti, rtplace the rrendy supphed by.\\laine Yankee l

m other state > and work has been comp:eted power 4 :

on a temporarv inu - es "! waste

-t ura ge at an a id:ti.,ia: cost to customers e -timated i

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ind

)v. d !!' 8n.1 L ' t I[l( llllli.

t 's t 'ri rl' I J\\ - 'd DII;IIt * >

.\\laine IanNet' w b continue to w of k toward to haic a tot;d prescG! value of $1 I nU[ hon.

il 'Mncly. saft' ai'c! permant'i ' it*m dutli en tis w hi. h dW.irt-t he utl}Itles' t'qllt) < sf $$.'$.9

.\\ lame'3 h)W-[evri W;t-!c dapi Nd t phhd;itle o 4-in ;.1< n m.\\la;nt Yanker, in the h;neer term.

In January of 19-ti. the 10E i !cntnied tw o

!he U.mpant w aubl he required tu huil ! or h b 'dIF )ib in.\\l.!l ic 'a l he lnJ!'dc<! in the 1./

hl) Imu capa. lt \\ til int *et the de m;ind.

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potential sites in sesen -tates ca-t of the nece-canne even higher rates.

.\\llwsissippi fi>r 41,Irlileratit n as a st's f an !

b Mra!.\\la:ac l ew t', b !nipain I-cf GiTu'-

h!Rh-Ie\\ cl Duc[ car w aste dblH aal I.it Iht' tell*

9 si" @ ha d -irre"hh. anil t t!t a Ili e d) til Identuicanon of the.\\l.cne and >th"r ea, tern the ;dhe po!. s i-uc - atfecting it s l

sit t %, at'c(Irdmd til t he l N )E w.h ha,"d (d

'h. ! *d w h *f s

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a!i'! ! e 'b a th ip-a computer anah -1, of geoli!gra! i'uorm e in ma p. -J n e w m Line : Hate nsh:p-a ch Iho+

with nLiny (4her fact (sr5 re-nLilnmg

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Commission (MPUC)in May, j

I 1985, decided the cancelled gy J _.

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plant and Seabrook-related J

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issues which were threaten-7 4* :: :

P b ing the financial survival of the Company. The 1 [3.s* g. h; s Y 1

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CMP's unrecovered investments in cancel-

. =:.f rate order decided the treatment of all of f

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%,1 led or abandoned plants, including Seabrook

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December 31,19M, in Seabrook 1. The rate n2 -; ' -

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order placed M3.3 million of cancelled plants 5: J.$.? ' EN N 3 9.i J

d cMI M..

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. O..f 3 and $147.9 million of Seabrook 1 in rate base

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1 earning a cash return and required the Com-

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' C pany to write off $85 million of cancelled plant

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d ' 'g M% $ p;;.(.,".

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l and Seabrook investments, which, after tax adjustments and the $10 milhon reserve A T,-ar

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established in 19M, created a net write-off

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fourth quarter of 1985, the Company g_y g f.

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gy established a reserve of $4.2 million for the

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t recapture of investment tax credits on dis-

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allowed Seabrook I costs, required if the MifS-O

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V Company sells its interest in the Seabrook

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,;h 7 p jq f ' f.ggd g 3.f:':

l project. The rate order also set forth a

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j ~ if.1 M$g;y1Op.$ g general framework for recovery of costs in-p*3,Q Ei A

curred with respect to the commercial opera-JsMMT ( g#.1-i

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tion of Seabrook 1 and construction costs in-W curred afterJanuary 1,1985, if the Company wom.no sent e oiot>yoav.n m.n,

retains its ownership interest in the project.

C3fP crercs replace The Company in late July,1985, entered flashboards on the 3/ilstar into an agreement in principle for the sale of The Company is unable to predict whether Dam in li'alerrille.

l Its interest in the entire Seabrook project to the conditions precedent set forth in the a wholly-owned subsidiary of Eastern agreement, including several agency ap-Utilities Associates (EUA), a Massachusetts provals and joint owner consents, will be holding company. The Purchase and Sale satisfied or whether or when a sale will be Agreement, which was executed in consummated. The Company, the Staff of February,1986, calls for the EUA subsidiary the MPUC and the Office of the Public Ad-to pay CMP an estimated $98 million, assum-vocate of the State of Maine have reached ing a June 30, 1986 sale date.

18

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I WHERE EACH agreement that the sale, as proposed, is in Maine Yankee were closed, recovery of DOLIAR WENT the public interest and have jointly requested CMP's equity in the plant could be prob-approval of the MPUC, including the condi-lematical. In addition, the extent of CMP's tion that the Company not incur earnings dilu-obligations regarding certain costs relating to tion or related write-offs beyond the $4.2 decommissioning, the ultimate storage of million relating to recapture of investment tax spent fuel generated by Maine Yankee and credits, as stated in the May 1985 rate order.

other possible financial obligations of that C CMP believes, and the agreement with the company would have to be determined.

% O-Commission Staff and Office of the Public Ad-During 1985 the Company was able to halt 1"

x

!W vocate contemplates, that both the future the financial deterioration which was l

.-N WMF price of our product and the risk of your in-threatening its existence. The challenge for vestment will be reduced by divesting of this 1986 is to begin the recovery. That recovery long-plagued nuclear power project. Though will not be immediate, due to the timing of the construction of Seabrook 1 now appears price increase requests and the loss of a por-to be under control, it is impossible to ac-tion of the shareholder equity base. As a curately predict the timing of necessary business, CMP is charged with exercising operating permits and licenses or the ap-control over product cost and thereby affec-O TAXES 1%

proval of an emergency evacuation plan. Fur-ting product price. However, as a regulated C LOSS ON POWEA PLANT ther, the intensity of nuclear power regula-entity, the Company cannot independently INVESTMENTS 13%

tion over the past decade makes accurate produce adequate financial performance, C WAGES AND BENEFITS 10%

estimation of the cost of operating nuclear since price is ultimately determined by the El OTHER OPERATIONS 16%

power plants a difficult, if not impossible, MPUC.

H DEPRECIATION AND

' n mMeCemb, M, M a re-AMORTIZATION 6%

$s a result of the Federal Department of quest for a general price increase which pro-O INTEREST AND PREFERRED Energy's 1985 ider+ification of two sites in poses the phase-in, over a two-year period, DMOENDS 12%

Maine as potential permanent disposal sites of costs relating to the Millstone 3 nuclear O EARNINGS - COMMON for high-level nuclear waste, Maine Yankee, plant in Connecticut and requests recovery STOCK NEGUG1BLE of which the Company owns 38 percent, has of other increased operating expenses and become the target for some of those who op-capital costs. The first of the proposed in-pose the location of any high-level waste crements relates to the partial phase-in, disposal facility in this state and who seek to other additions to plant in service and general shut down all nuclear power plants. The con-price issues. The second increment relates tinued operation of Maine Yankee has been primarily to the completion of the Millstone challenged in the past and a ballot question 3 phase-in. The phase-in would increase on closing the plant may again be presented retail revenues, on an annual basis, by $39 to Maine voters in 1986 or 1987. If such a milhon in 1986 and by $20 nullion in 1987, referendum were successful, the Company or 7.4 percent and 3.6 percent, respectively.

might be required to make payments with In the alternative, the Company has re-respect to contingent guarantees of Maine quested full recovery of Millstone 3 in-Yankee debt not in excess of $19 million. If vestments when that unit enters commercial operation, but has reaffirmed its willingness to consider its originally proposed two-year phase-in. This price request is an integral part of achieving a degree of financial l

1 19

strength which will competitively compensate shareholders in 1983 reflected AFC.

shareholders. Substantial non-recovery of Prior to the rate order in May of 1985, Millstone-related costs or other significant financial performance had been negatively revenue reductions would retard or inhibit affected by cancelled or incomplete plant in-the Company's ability to meet reasonable vestments on which the Company had not financial objectives.

earned a cash return. Those assets have now Consistent with the concept of a planned largely been written off or are earning a cash and sustainable financial recovery, the return with the principal exceptions of the Company's objective in 1986 is to restore post-December 31,1984 investment in the earnings to levels which support the current Seabrook project on which the Company con-dividend and provide a margin of safety over ELECTRIC tinues to accrue AFC, and the Millstone 3 that amount. Over the longer term, the Com.

OPERATING project. Earnings in 1985 and in 1984 REVENUES pany is striving for improvements in finan.

reflected growth in service area kilowatt-cial performance to provide shareholders pOLLARSIN NOUSANDS) hour sales and retail price increases granted with returns which are more competitive and in 1983 and 1985. Average common shares increased by 9 percent in 1935,13 percent commensurate with their risks, within the W

constraints hnposed by the cost of resources, in 1984 and 7 percent in 1983, causing some competition and regulation. Future dividend reduction in earnings per share. Effective in decisions will depend upon the Company's CC 1986 and subject to necessary regulatory ap-financial recovery and the Board of Directors' provals, the Company will no longer issue evaluation of this recovery.

new shares of conunon stock to meet the re-EL quirements ofits Dividend Reinvestment and Common Stock Purchase Plan in an effort to RESULTS OF OPERATIONS g

limit further earnings dilution. As amended, the plan's purchase requirements will be met EARNINGS g

um g g h h h in the open market.

{ arnings per share of common stock Q { Q ] g were 8 cents m 1980, compared with ej @

,,g, d, REVENUES AND SALES t

$1.99 in 1984 and $2.51 in 1983. Earnings

{b]e2g } ]h in 1985 and 1984 were reduced by the 1985 lectric Operating Revenues in 1985, net write-off of $45.4 million (which includes e

84

$4.2 million reserved in the fourth quarter excluding revenues relating to relating to the recapture of investment tax recovery of fuel costs, increased by $33.4 credits), and the $10 million reserve E OTHER REVENUES million, or 12.6 percent over 1984; the cor-

)

established in 1984. Earnings over the last U FUEL REVENUES.

responding revenues for 1984 were up $21.4 three years have included significant amounts million, or 8.8 percent over 1983. These in-of Allowance for Funds Used During Con.

creases reflect the retail base price increases struction (AFC), a non-cash item relating to mentioned previously, as well as increased construction work in progress. Fifty-seven KWH sales, percent of earnings available for common The Company's sales by broad customer shareholders were AFC earnings in 1985, category for the years 1981 through 1985 are excluding the net write-off of $45.4 million.

reflected in the graph on page 1 of this This AFC amount was lower than the two report. Power sales to entities outside of the prior years as a result of the May,1985 rate Company's service a:ea fluctuate on a year-order which placed the recoverable portion to-year basis, due to the requirements of of the Company's investment (as of other utilities for power and the market price December 31, 1984) in Seabrook 1 and and supply of available energy. The average cancelled plants in rate base, earning a cur.

number of residential customers has increas-rent cash return. The 57 percent for 1985 ed steadily over recent years, while the compares favorably with the two preceding years, when 70 percent were AFC earnings in 1984 (prior to the income statement im-1 pact of the $10 million reserve) and two-thirds of earnings available for common 20

average number of kilowatt-hours used per Bonds. Other Interest Expense consists residential customer has remained relative-primarily of short-term debt interest. The ly constant. In 1985, the number of residen-balance of short-term debt fluctuates due to tial customers increased by 9,182, among the the timing of long-term financings and day-largeat growth rates in CMP history, to-day operational needs.

substantially exceeding that which had been Allowance for Funds Used During Con-budgeted.

stmetion (AFC) (equity and borrowed)

Industrial and commercial sales increases, decreased by $7.9 million in 1985, relating net of the impact of additional kilowatt-hour to the current recovery of a significant por-sales to major cogenerators, reflected tion of Seabrook 1 carrying costs; the write-I economic growth within the Company's ser.

CAPITALIZATION off of approximately s64 million of costs l

vice territory. During 1985, however, sales RATIOS related to Seabrook 1, which as of June,1985 WOF SMG W to the largest industrial customer group, the no longer earned a return; and to a lesser pulp and paper industry, were below the degree, the accrual of AFC at a net of tax Company's budget projections with increases rate (effective June,1985) on the remaining i

of less than 1 percent. Sales to major in-

~

7' y

Seabrook 1 balance. The 1984 increase was e

due to increased construction work in pro-dustrial sectors for the years 1984 and 1985 j

gress and was moderated by the Company's are listed on page 22 of this report.

discontinuance of the recognition of AFC on EXPENSES AND TAXES Seabrook 2 as of April 1,1984. In 1984 AFC was accmed on the entire Seabrook 1 T otal operating expenses, excluding y

balance.

fuel and income taxes, increased ap-m m

Loss on investments in generating projects r

proximately $20 million or 11.7 percent over of $75.3 million in 1985 reflects the pre-tax 1984. More than one-half of that increase n n

,a n a

write-offs of the Company's investments in relates to the hurricane which hit the Com-cancelled or abandoned generating projects pany in September ($2.9 million), a reserve i

r and a portion of Seabrook 1. As noted earlier,

=

which was established for the anticipated cost M I; h d h the Company had provided a reserve of $10 of hazardous material clean-up ($3.0 million

]

3 P million in 1984 for such losses. For additional

- fourth quarter 1985) and increased amor-3 9"

information regarding these write-offs see tization relating to Seabrook and cancelled

" l "#

Note 3, " Regulatory Matters-Retail Rate plants ($6.7 million). Other cost increases of Order."

note in 1985 include Purchased Power-Other E TOTAL DEBT Federal and state taxes on operating in-l (Capacity) due primarily to an increase in E rREFERRED STOCK COme increased in 1985, due to increases in costs of the Maine Yankee nuclear plant, in-El COMMON EQUITY pre-tax book income after elimination of non-surance costs resulting from the current taxable AFC earnings. Dcferred taxes disarray in world insurance markets, and to recorded in 1985 retlect the deduction for a lesser extent, increases in transmission and book purposes of the Company's write-off distribution costs, wages and regulatory associated with the loss on Seabrook 1. See expenses.

Note 3, " Regulatory Matters - Retail Rate i

The single largest expense category, fuel Order."

costs, includes both fuel for Company gen-Deferred taxes recorded in 1984 reflect eration and the fuel component of purchased the deduction for tax purposes of the Com-power. These costs, including carrying costs, pany's investment in the abandoned Sears are fully recovered through approved tariffs.

Island coal and Seabrook 2 projects.

Interest charges on long-term debt in-Other Income (expense) increased by $1.4 creased, due primarily to borrowings used million in 1985 and by $5.3 million in 1984.

to finance construction and to the need for increases in 1985 and 1984 relate primarily a cash reserve dudng the financial difficulties to the income from temporary investments of 1984 and 1985. The Company borrowed which began in March 19M when the Com-

$40 million in May 1984 under its Revolving pany established a cash reserve to fund a j

Credit and Term Loan facility and in October portion of its anticipated 1984 capital re-l 1984 issued $60'million of Series G 18 Per-quirements and to meet other cash needs in cent General and Refunding Mortgage the face of its then deteriorating financial

(

condition.

21

LIQUIDITY AND in or disengagement from the Seabrook Proj-CAPITAL RESOURCES ect. The Company has entered into an agree-ment for the sale of its interest in the J

{ xternal sources of capitalin 1985 con-Seabrook Project to, and the assumption of sisted of $13.6 million raised by com-related liabilities by, a wholly-owned sub-mon stock issues through the Company's sidiary of Eastern Utilities Associates. In Dividend Reinvestment and Common Stock order to avoid under-estimation of our capital Purchase Plan. Funds generated from in-needs and because the sale of the Company's ternal sources consisted primarily of net interest in Seabrook depends upon income, depreciation and amortization and regulatory and other approvals, financial plan-the loss on investment in generating projects AFC PORTION OF ning assumptions in this report include con-(a non-cash charge against current earnings).

TOTAL EARNINGS tinued involvement in the project. For addi-l The combined proceeds of these various (PER COMMON SHARE) tionalinformation see Note 3. " Regulatory sources were utilized to pay down outstand-Alatters - Retail Rate Order" and Note 4, ing short-and long-term debt, fund ongoing sn

" Commitments and Contingencies."

construction requirements and for other in the fourth quarter of 1985, the Company g'

general corporate pumoses. The Company's re-entered the short-term commercial paper cash reserve at year-end 1985 amounted to 2c market with a Standard and Poor's rating of g g A3 and a Afoody's Investors Senice rating

$50.3 million and has now been reduced to 1

Y of P2. The issuance of commercial paper re-approximately $20 million, and short-term M

==iP quires back-up lines of credit. As of debt has been reduced by approximately $30

$c "

million.

y [] y y December 31,1985, the Company's lines of in 1985, the Company continued its cash

~

credit totalled $75.3 million.

7 conservation program. This program in-r b! bc b bm CAIP anticipates that it will be able to meet cluded reduced levels of maintenance and p

its 1986 capital requirements through inter-construction expenditures. Employee levels,

~

nally generated funds; a reduction ofits tem-g 61 porary cash investments which at year-end reduced in 1984 through an early retirement incentive program, remained at low levels Fi 1985 amounted to $50.3 million; and by bor-during 1985. Employees represented by rowing through unsecured debt. The only IBEW Local 1837 had agreed in 1984 to a

-2

' O, long term financings currently planned for

~

,~

j 1986 relate to the refunding of certain of the two-year contract providing increases of 3 Company's outstanding mortgage bonds, percent in 1984 and 1985. Salaried employee e

e o,y g

raises were held at about the same level in i

1984 and 1985. Though efficient use of cash E NON-AFC RELATED EARNINGS MAJOR INDUSTRIAL SALES remains a high priority, the Company's 1986 L2 EARNINGS RELATED TO AFC budgets reflect a move toward levels of operation and maintenance which are sus.

Il WRITE-OFF tainable over the long run.

Net Earrnngs after wnte-off.

em ewm t

The Company's capital requirements for Paper and Athed Products 2.127*

2.125*

1986 depend upon its continued involvement Electncal and Electronic j

Machinery 165 159 Transportation Equipment (Shipbutiding) 144 155 Textile Mill Products 126 122 Lumber and Wood Products 108 119 l

Food Products 95 95 Rubber and Miscellaneous

_ Plastics 93 81 Chemicals and Allied Products 88 25 Leather and Leather Products 84 96

Includes sales under simultaneous purchase / sale contracts required under PURPA.

22

STATEMENT OF EARNINGS l

(Dollars on Thousands Except Per Share Amounts)

I Yedr Erh.1ed oeCPNF 3t 1985 1984 1983 Electric Operating Revenues (Noes i am 3>

$536,008

$515.407

$456.117 i

Operating Expenses Fuel Used for Company Generatton 64,919 78.012 75.550 Purchased Power - Energy iNee,

173,566 171.606 140.084 Purchased Power - Cther 50,224 48.069 41.316 Other Operatton 71,728 65.423 57,161 Maintenance 24,637 21.177 20.754 Deprec:at:en and Amort.zatron (Nye y 33,595 25.786 25.843 Federal and State income Taxes (Noes i am a 21,611 17.843 18,259 Local Property and Other Taxes 13,114 12.655 11.494 Total Operating Expenses 453,394 440.571 390.461 Equity in Earnings of Assocl.ated Companies < Nae n 6,355 4.306 4,142 Operating income 88,969 79.142 69.798 Cther income (Expense)

Allowance for Equ:ty Funds Used During Construction Nxe n 14,282 18,730 15.735 Loss on Investments in Generating Projects tNme c (75,262)

(10.000)

Other, Net 5,216 3,771 (1,543)

Income Taxes Appbcable to Other Income (Expense) <Nse a 27,399 f1,917) 796 Total Other income (Expense)

(28,365) 10.584 14.988 Income Before Interest Charges 60,604 89.726 84,786 Interest Charges Long-Term Debt (Ncte e>

57,162 49.590 41.679 Other inter st 3,702 5.222 4.470 e

Allowance for Borrowed Funds Used Dunng Construct;on 4 Nae n (12,652)

(16.101)

(13.612)

Total Interest Charges 48,212 38.711 32,537 Not income 12,392 51.015 52.249 Dividends on Preferred Stock 10,741 10.900 7.574 Earnings Applicable to Common Stock S 1,651

$ 40.115

$ 44.675 Weighted Average Number of Shares of Common Stock Outstanding 21,994,423 20.184.594 17.803.797 Earnings Per Share of Common Stock 8.08

$1.99

$2.51 tiividends Declared per Share of Common Stock

$1.40

$1.68

$1.90 1

The accompanying notes are an integral part of these financial statements l

)

i 23

Central Maine Power Com.

1 BALANCE SHEET (Dollars in Thousands)

Dece-te si.

Assets i985 1984 Electric Property, at Ong;nal Cost (Notes 7 e and ic)

S 899,789

$ 861,830 Less: Accumulated Depreciation iNae y 296,585 274.599 Electnc Property In Servce 603,204 587,231 Construction Work in Progress INdes 3 and di Seabrook 1 Nuclear Project 200,874 226.375 Millstone 3 Nuclear Project 110,246 86.293 Other Company Projects 9,380 17,250 Total Construction Work in Progress 320,500 329.918 Net Electnc Property 923,704 917,149 investments in Assoc:ated Companies, at Equity (Noe 73 39,258 41,137 Not Electric Property and Investments In Associated Companies 962,962 958.286 Current Assets Cash (Nae si 2,692 1,637 Temporary Cash investments 50,300 80,000 Accounts Receivable, Less Allowances for Uncollect:ble Accounts of $686 in 1985 and $683 in 1984 Service - Bdled 45,650 44,673 Service - Unbilled (Nae y 16,973 23,812 Other Accounts Receivable 12,583 11.053 Inventones Fuel Oil, at Average Cost 7,974 14,542 Matenals and Supplies, at Average Cost 10,674 11,146 Prepayments and Other Current Assets 4,596 3,854 Total Current Assets 151,442 190,717 j

Deferred Charges and Other Assets Unamortized Investments in Abandoned Projects, Net <Naes i am 33 27,695 34,636 Other Deferred Charges and Other Assets 10,816 12,145 Deferred Char 9es and Other Assets, Not 38,511 46,781 Total Assets

$1,152,915 51,195,784 The accompanying notes are an integral part of these financial statements.

1 i

l l

l 24

~

Central Maine Power Compan BALANCE SIIEET (Dollars in Thousands) l l

l December 31, Eteokholders' investment and LloblIlties 1985 1984 Capitalisatten (See Separate Statement)

Common Stock investment 8 328,887

$ 344,472 Preferred Stock 35,571 35,571 Redeemable Preferred Stock (Nae s) 78,505 81,265 Long-Term Debt (Naa 8) 440,374 484,574 Total Capitalisatten 923,337 945,882 Current Llabilities and Interim Financing Intenm Financing (See Separate Statement) (Nae s) 35,100 55,510 Other Current Liabihties Sinking Fund Requirements 4,527 5.534 Accounts Payable 38,348 48,139 Dividends Payable 10,839 10,146 Accrued Interest 11,178 11,912 Accrued Income Taxes 7,185 2,388 3

l Miscellaneous Current Liabilities 16,410 10,309 I

Total Current Liabikties 90,3SC 88,428 Total Current Llalmtles and Interim Financing 125,485 143,938 Commitments and contineencies (Naes 3. 4 ano 7)

Reserves and Deferred Credits Accumulated Deferred Income Taxes (Nae 2) 41,985 61,043 Unamortized investment Tax Credits (Naa 2) 51,407 38,680 Other Reserves and Deferred Credits 10,701 6.241 Total Reserves and Deferred Credits 104,093 105,964 Total Stockholders' investment and L8 abilities

$1,152,915 51,195.784 The accompanying notes are an integral part of these financial statements.

25

1 STATEMENT OF CAPITALIZATION AND INTERIM FINANCING (Dollars in Thousands)

December 31.

1985 1984 Amourt Amou t n

Capitalization (Note 8)

I I

Common Stock Investment:

Common Stock, Par Value $5 Per Share -

Authonzed - 28.000.000 Shares Outstanding - 22,538.350 Shares in 1985 and 21.300,049 Shares in 1984 S112,492

$ 106.500 Other Paid-in Capital 149,588 142.050 Retained Earnings 84,607 95.922 Total Common Stock investment 328,887 34.3 %

344.472 34.4 %

I Preferred Stock:

Preferred Stoc_k -- Not Subject to Mandatory Redemption (Note 8) 35,571 3.7 35.571 3.6 i

Preferred Stock - Sub.iect to Mandatory Redempt;on (Note 8) 81,265 83.025 Less: Current sinking fund requirements 2,760 1.760 Total Preferred Stock - Subject to Mandatory Redemption 78,505 8.2 81,265 8.1 Long-Term Debt:

Mortgage Bonds (Note 8) 405,809 420,258 Less: Unamortized debt d scount and premium-net 248 245 l

Total Mortgage Bonds 405,561 420.013 Other Long-Term Debt:

Lease Obligation,11.5% in installments to 2021 7,830 7,845 Pollution Control Facility Notes (Note 8) 30,750 30,750 Revolving Credit Agreement, Vanable, due April 1,1987 (Note 8) 40,000 40.000 Total Other Long-Term Debt 78,580 78,595 Less. Sinking fund requirements and current matunties 3,767 14,034 Total Long Term Debt 480,374

_ 50.1 484,574 48.4 l

Total Capitalization 923,337 96.3 945,882 94.5 Interim Financing, Amounts to be Refinanced (Note 5):

Bank Notes 9,600 45.250 Commercial Paper 25,500 Current Matunties of Long-Term Debt 10.260 Total Intenm Financing 35,100 3.7 55,510 5.5 Total Capitalization and Interim Financing 8958,437 100.0 % $1,001,392 100.0 %

The accompanying notes are an integral part of thesa financial statements.

l l

I l

26

STATE 31ENT OF CHANGES IN CO3DION STOCK INVEST 31ENT For the Three Years Ended December 31,1985 (Dollars an Thousands) otner Arnourt at Pade Retaned stares Par Value Caplaf Earrings Total Balance-December 31,1982 17,132,324

$ 85,662

$112.052

$ 79,787

$277,501 Add (Deduct)

Net income 52,249 52,249 Dividends declared-Common Stock (34,128)

(34,128)

Preferred Stock (7,574)

(7,574)

Sales of Common Stock 1,262,837 6.314 12,967 19,281 Capital stock expense._

__(236)

.(236)

Balance-December 31,1983 18,395,161 91.976 124,783 90.334 307,093 Add (Deduct)

Net income 51,015 51,015

(,

Dividends declared-l Common Stock (34.527)

(34,527)

Preferred Stock (10,900)

(10,900)

Sales of Common Stock 2,904.888 14,524 17,360 31,884 Capital stock expense

_ (93)_.

_ (93)

Balance-December 31,1984 21,300,049 106,500 142,050 95,922 344,472 i

Add (Deduct)

Net income 12.392 12,392 Davidends declared-Common Stock (30.966)

(30,966)

Preferred Stock (10,741)

(10,741)

Sales of Common Stock 1,238,301 6,192 7,392 13,584 Cap! al stock expense

__ 146 _

t 146 Calance-December 31,1985 22,538,350

$112,892 S149,588 SSS,007 8328,887 The accompanying notes are an integral part of these financial statements.

Price Range and Dividends of Voting Stock (Unaudited) 1985 1984 Market Prce Dvidends Market Prce Dvdends Common Stock Traded N.Y.S.E.

1st Quarter

$10%

$ 9%

S.35

$14%

$13

$.49 2nd Quarter 12%

9%

.35 13 %

7%

.49 3rd Quarter 13 %

12

.35 11 %

8%

.35

______ _%__ _ 8hi _ 35 10 4th Quarter 14 %

12% _ _

.35 6% Preferred Traded O.T.C.

1st Quarter St.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.

27

l i

STATEMENT OF SOURCES OF FUNDS FOR CONSTRUCTION i

(Dollars in Thousands)

Year Emms1 Decerets 3t 1985 1984

'983 Funds Provided 1

internal Sources From Operations Net income S 12,392

$ 51.015 5 52,249 Depreciation and Amortization 33,595 25,786 25,843 Deferred income taxes and investment tax credits, net (14,204) 21.334 13.168 Loss on investments in generating projects 75,262 10,000 Allowance for equity funds used dunng construction (14,282)

(18,730)

(15.735) 92,763 89.405 75.525 Less:

Sinking fund requirements of long-term debt and Preferred Stock 5,964 6.418 2.349 Dividends declared 41,707 45.427 41.702 Other, net (7,775)

(1,810)

(3.099) 39,896 50,035 40,952 (Increase) decrease in working capital exclusive of intenm financ:ng and sinking fund requirements Cash, temporary cash investments and receivables 32,977 (73.311)

(25.164)

Other current assets 6,298 675 2,179 Other current liabilities 964 7.665 12.606 40,239 (64.971)

(10.379)

Internal Sources (Uses). Net 93,106 (25.601) 24.194 External Sources Common Stock 13,584 31.884 19.281 Preferred Stock 30.000 i

Long-term debt 60.300 60.000 Pollution Control Facility Notes 19.500 Revolving Cred.t and Term Loan Agreement 40.000 Increase (decrease) in short-term borrowings (10,150)

(3.750)

(16,500)

Long-term debt refunded (10,260)

(20,000)

(8.530)

Changes in investments 57 57 External Sources. Net (6,826) 127.691 84.308 8 86,280

$102,090

$108.502 Funds Used for Construction 1

Jointly-owned nuclear projects S 64,092

$ 70.297

$ 75.903 Other Company projects 36,470 50.523 48.334 j

Altowance for equity funds used dunng construction (14,282)

(18.730)

(15.735) i S 86,280

$102.090

$108.502 The accompanying notes are an integral part of these financial statements.

28

i 1

SUEIARY OF SIGNIFICANT ACCOUNTING POLICIES REGULATION: The Company's rates, operations, accounting and certain other practices are subject to the regulatory authority of the Public Utilities Commission of the State of Alaine (51PUC) and the Federal Energy Regulatory Comnussion (FERC). See Note 3 " Regulatory Alatters" for a discussion of the Company's most recent retail rate order which significantly affected certain of the Company's accounting policies effective June 7, 1985.

ELECTRIC OPERATING REVENUES: Electric operating revenues include amounts billed to customers, estimated unbilled sales and unbilled fuel costs at the end of each reporting period.

The Company's approved tariffs permit the dollar-for-dollar recovery of the cost of fuel used in Company generating facilities and purchased power energy costs, as well as an allowed cost of capital associated with the financing of unbilled fuel costs.

DEPRECIATION: Depreciation of electric property is provided using the straight-line method. The effective composite rates were 3.06%, 3.09% and 3.25% for the years 1985,1984 and 1983, respectively.

ALLOWANCE FOR FUNI)S USED DURING CONSTRUCTION (AFC): The Company capitalizes as an element of the cost of construction an allowance for funds (including common equity funds) used to finance construction. The debt component of AFC is reflected as a reduction of interest expense, while the equity component is recorded as other income. AFC, a non-cash, non-operating item, is recognized as a cost of constructing " Electric Property."

Ratemaking practices historically have permitted the recovery of such financing costs, if prudently incurred, if and when the " Electric Property" is placed in sersice, through their inclusion in rate base and in the provision for depreciation. When a construction project is abandoned, or work on it is indefinitely delayed, the Company stops recording AFC on that project. Pursuant to its most recent retail order, the Company does not record AFC on that portion of its Seabrook 1 investment, which was placed in rate base and on which it presently earns a current cash return.

The amount of AFC is determined by multiplying the average monthly dollar balance of qualifying construction work in progress (CWIP) by a monthly rate reflecting the overall weighted cost of capital including short-tenn borrowing balances and the cost of equity allowed in the 51PUC's most recent rate decision. The Company calculates AFC at a net of tax rate on that portion of Seabrook Unit I which does not earn a current return through rates. The average AFC rate produced by this monthly net of tax computation was 9.79% for the period June through December 1985. The average AFC rates produced by the Company's monthly computations under a pre-tax basis applied to other construction work in progress were 12.63%,12.M% and 12.11% for 1985,1984 and 1983, respectively.

INCOME TAXES: The Company records income tax expenses as allowed for ratemaking purposes by the SIPUC. The practices followed by the 51PUC 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 or when SIPUC approval is granted on specific timing differences. Current tax law requires the Company to defer federal income taxes arising from the use of accelerated tax depreciation of property added subsequent to 1969. Deferred tax benefits associated with Unamortized Investments in Abandoned Projects are recorded as a reduction of the related investment. The income tax effect of other timing differences related to property, including AFC, is passed on or flowed through to customers in lower rates. See Note 2, " Income Taxes."

SUBSIDIARIES: The Company accounts for investments in its subsidiaries using the equity method. See Note 7, " Capacity Arrangements" for information on those subsidiaries that are related to energy production and transmission of electricity.

INVESTMENTS IN ABANDONED PROJECTS: Costs of investments in abandoned generating projects are reported as assets, net of related deferred income taxes and disallowed costs which were written off pursuant to the Stay,1985 retail rate order. The Company earns a current return on substantially all of these recoverable investments amortized over 10 years. See Note 3, " Regulatory 51atters." Prior to the 51ay,1985 retail rate order, the Company did not earn any return on the unamortized costs associated with these investments.

29

l 2

INCOME TAXES The components of federal and state income taxes reflected in the Statement of Earnings are as follows:

Yes Ended Dwtw 31 (Dollars in Thousands) 19es

'ssa 1983 Federal:

Current S 4,552

$ (524)

$ 1.972 Deferred (21,419) 23.610 6.430 Investment tax credits, net 12,728 (5.324) 6.663 (4,139) 17.762 15.065 state:

Current 3,864 (1.050) 2.323 Deferred (5,513) 3.048 75 (1,649) 1.998 2.398 Total federal and state income taxes S (5,788)

$19.760

$17.463 Federal and state Income taxes charged (credited) to:

Operating Expense 8 21,611

$17.843

$18.259 Other income (27,399) 1.917 (796)

$ (5,788)

$19.760

$17,463 Federalincome tax expense differs from the amount of tax computed by multiplying income before tax by the statutory federal rate. The following table reconciles the federal statutory rate to a rate determined by dividing the total federal income tax expense by income before that expense.

i 1905 1984 1983 l

(Dollars in Thousands)

A m ns Amoum Amous Statutory federal income tax expense and rate S 3,796 46.0 % $31,638 46 0 % $30,964 46.0 %

Permanent d;fferences:

Allowance for funds used dunng construction - equity (6,570) (79.6)

(8.616)

(12.5)

(7,238)

(10.8)

Dividend received deduction (2,484) (30.1)

(1.684)

(2.5)

(1.619)

(2.4)

Other (1,501) (18.2)

(892)

(1.3)

(1.414)

(2.1)

(6,759) (81.9) 20,446 29.7 20.693 30 7 Effect of timing differences for which deferred taxes are not l

recorded (flow through):

Allowance for funds used dunng construction - borrowed (5,820) (70.5)

(7.406)

(10.8)

(6.261)

(9.3)

Loss on investments in generating projects 6,403 77.5 4.600 6.7 Depreciation differences flowed through in pnor years 1,739 21.1 1.481 2.1 1.649 2.5 Deduction of removal costs (570)

(6.9)

(650)

( 9)

(753)

(1.1)

Other 868 10.5 (709)

(1.0)

(263)

( 4) l Calculated federal income tax expense and rate

$(4,139) (50.2)% $17.762 25 8 % $15.065 22.4 %

l l

As of December 31,1985, cumulative net income tax timing differences for which deferred taxes have not been recorded totalled approximately $115,000,000. The Company expects that the unrecorded costs associated with these timing differences will be recovered in the future in the form of higher rates to customers when the unrecorded deferred taxes become payable.

Investment tax credits used to reduce federal income taxes currently payable are deferred and amortized over the lives of the related assets. As of December 31,1985, the Company had approximately $16,000,000 of additional investment tax credits available to reduce future federalincome taxes otherwise payable.

30

1 1

3 REGULATORY MATTERS i

RETAIL RATE ORDER: In Stay 1985, the AIPUC adopted a stipulation authorizing an increase in rates of 1

$21.7 million effective June 7,1985. This increase was in addition to a $14 million interim rate increase effective Starch 13, 1985. The Order required that the Company write off and not be permitted to recover approximately

$85 million (prior to tax adjustments) of its investments in cancelled or abandoned generating facilities and in the Seabrook Unit I nuclear project still under construction. The Company was permitted to earn a return on the unamortized balances of these investments (except for certain other Seabrook Unit I costs discussed below),

reduced by related deferred income taxes. The revenue associated with this return constitutes the major portion of the increased revenues. The Company was allowed to recover $147.9 million of costs related to Seabrook 1 over a 30-year period and to recover $13.3 million related to Seabrook 2, Pilgrim 2 and its proposed Sears Island coal facility over a 10-year period.

The 5!PUC noted that the Order " resolves all Seabrook 1 prudency issues" for plant costs incurred through December 31,1984. Ilowever, in the event of cancellation of Unit 1, the regulatory treatment of $35.2 million of nuclear fuel costs and expenditures between January 1,1985 and Stay 31,1985 is expressly left open by the Order for future 5!PUC review.

The Order also provides that, in the event Seabrook Unit 1 is cancelled, the Company would not recover through rates 50 percent of its investment in Seabrook Unit 1 made subsequent to Stay 31,1985. If Seabrook Unit 1 is completed, the Company would be permitted to recover all of its prudent investment in the project made after December 31,1984 to the extent that the cost of power generated by Unit I does not on the average exceed certain predetermined " benchmark" costs of power. Based on the latest estimates furnished by the lead participant in the project, and barring some presently unknown circumstances leading to greatly increased operating costs, the Company believes it would ultimately recover all of its costs if Seabrook Unit I were completed. For a discussion of continuing uncertainties associated with the portion of the Company's investment in Seabrook Unit I which remains subject to regulatory treatment, see Note 4, " Commitments and Contingencies."

1985 RETAIL RATE FILING: In mid-December 1985, the Company filed with the AIPUC a request to' increase retail prices by a total of approximately $59 million in 1986 and 1987, including a possible two-year phase-in of rates relating to its investment in Millstone 3. See Note 4, " Commitments and Contingencies." If its proposal were accepted, the Company would commit not to seek further general price increases to be effective before 1988 subject to certain limitations such as fuel clause adjustments and the recovery of Seabrook costs if and when that plant is completed. In the alternative, the Company has requested full recovery of Millstoae 3 investments when that unit enters commercial operation, but has reaffirmed its wi!!ingness to consider its originally proposed two-year phase-in. The filing requests an overall rate of return of 12.78% based on a return on common equity of 15.0E The 51PUC must issue a final decision concerning the Company's rate request by September, 1986.

31

4 CO3DIITAIENTS AND CONTINGENCIES l

NUCLEAR GENERATING FACILITIES UNDER CONSTRUCTION: The Company's investments in nuclear generating facilities under construction include 51illstone 3 and the portion of Seabrook I which remains subject to final regulatory treatment. The portion of Seabrook I which remains subject to regulatory treatment as of December 31,1985 (including the initial core of nuclear fuel and reloads) is set forth below:

Seat, rook 1 (remaining portion)

c W A_FC) _

E staater (Daars c Trasandu Lead o SerWe Percent E sf enated To A9er Paeoant oa'e o*ne +c Nei capat%

sm as sv es Taai Pubilc Service of NH 1/1/87 6 04 69.5MW

$35.166

$19 491

$54.657

In service date used by the Cornpany for financial planning purposes The Company's investment in Stillstone 3 as of December 31,1985 (including the initial core of nuclear fuel and reloads) is set forth below:

Millstone 3 E stmater tead n Serge Percent E st *ated Cas a Thot.saNs)

Pame cant Daw O*oeres het Cacataty d rect AFC Total Northeast Utilities, CT 5/1/86 2.50 20MW

$69.580

$40.666 $110.246

In service date provided by the lead partic: pant.

The ultimate rate treatment of the Company's investment in 51illstone 3 has yet to be determined. The Company has a request before the 51PUC to allow for the capitalization of carrying charges on major generating projects after completion and until such projects have been placed in rate base. Present S!PUC accounting rules requ%

that AFC cease and depreciation begin upon the commercial operation of a generating project. Alonthly carrying charges and operating expenses, net of taxes, on 51illstone 3 would be approximately $1.5 million.

During 1985, the construction of the Seabrook project has progressed, but the project continues to experience regulatory difficulties. The lead participant recently announced that the project is 96% complete. Construction-related aspects of the project appear to be under control and management believes that Unit I will ultimately be completed and placed in commercial operation. Ilowever, the Company cannot conclusively predict the timing of commercial operation, or the resulting impact on the cost of the project.

On July 31,1985, CAIP entered into an agreement in principle for the sale of the Company's interest in the Seabrook project to, and the assumption of related liabilities by, a wholly-owned subsidiary of Eastern Utilities i

Associates (EUA). The agreement in principle was superseded by a purchase and sale agreement executed in February 1986, providing that EUA would pay an amount equal to the Company's investment in the Seabrook l

project between January 1,1985 and the date of the sale (including all fuel for the project) plus approximately $28 million and sets a sale deadline of June 30,1986. The agreement is subject to several significant conditions, including approval by the respective governing bodies of the two companies, releases from the other joint owners of the project and approval of pertinent state and federal authorities. In addition, consummation of the sale is contingent upon each party's satisfaction with the ratemaking treatment accorded the sale.

In light of the Company's agreement to sell its Seabrook interest, it has charged earnings for the loss of approximately $1.2 million of investment tax credits related to disallowed Seabrook Unit I costs.

Sale of the Company's interest in the Seabrook project would also require the Company to obtain certain consents and satisfy other provisions contained in certain agreements to which the Company is a party. Such a sale would require the approval of the various banks under the Company's Revolving Credit Agreement, the possible refinancing of $8.5 million of pollution bonds and would also severely reduce or eliminate bonding capacity (except refinancings) under the Company's General and Refunding 51ortgage. The Company, the Staff of the A1PUC and the Office of the Public Advocate of the State of Alaine have reached agreement that the sale, as proposed, is in the public interest and have jointly requested approval of the AIPUC to permit the sale on the condition that the Company not incur earnings dilution or additional write-offs as a result of the sale.

32

In December,1985, the Financial Accounting Standards Board issued an exposure draft which would, if implemented in its present form, significantly change generally accepted accounting principles for regulated l

enterprises. The exposure draft proposes revised accounting requirements for phase-in plans and regulatory disallowances of plant costs, among other things. While the exposure draft would have no effect on the accompanying financial statements if adopted in its present form, the proposed requirements could affect the Company's accounting for future rate treatment that may be accorded Millstone 3.

CONSTRL'CTION PROGRAM: The Company's load forecast, plans for improvements to existing generating facilities and the plans for the purchase of power are under a process of continuing review. Based on the current load forecast, the Company could meet its energy requirements through the early 1990s, but will be purchasing various amounts of peaking capacity to meet its reserve requirements. That forecast assumes the completion of Millstone 3, certain Company hydro expansions and the addition of significant amounts of cogeneration. The Company's disengagement from the Seabrook Project would not substantially change the Company's ability to meet these estimated requirements.

Estimated construction expenditures for the Company's transmission, distribution, hydroelectric and other capital projects are based on the latest information available. Construction estimates for the Seabrook Project are based on the Company's current estimates, which reflect an in-service date of January 1,1987 for Unit 1. Estimates for the jointly-owned Millstone 3 nuclear project are based on the August 1984 projections provided by Northeast Utilities, the utility responsible for the construction of that project. Based upon the above information, the Company's forecasted construction expenditures (assuming continued participation in the Seabrook Project) amount to $79,500,000 for 1986 and $307,300.000 for 1987 through 1990, not including AFC estimated to be

$36,900,000, but including nuclear fuel acquisition costs of $11,200,000 for initial core and reloads. These expenditures are as follows:

(Dollars in Thousands) 1987 Total T,m o' Fac M es 1986 1990 1986-199J Ceabrook 1

$ 18.100

$ 4.300

$ 22,400 Nuclear fuel (:n;tial core and reloads) 700 7,700 8,400 Millstone 3 4.400 200 4.600 Nuclear fuel (intt:al core and reloads) 100 2,700 2,800 Other Generating Projects 4.900 53.800 58.700 Transmission 8,100 56.500 64.600 Distribution 29.200 148,700 17".900 Ceneral 14.000 33.400 47,400

$79.500

$307,300

$386.800 l

The Company's forecasted expenditures excluding all direct costs related to Seabrook Unit 1 amount to l

$60,700,000 for 1986 and $295,300,000 for 1987 through 1990.

I 5

xrsaiu FixAxcixo i

The Company uses short-term borrowings under lines of credit with commercial banks and issues commercial paper backed by these lines of credit to provide initial financing for construction and other corporate purposes including day-to-day operations. Existing lines of credit as of December 31,1985 totalled $75,300,000. Annual fees of % to % of 1 percent of the line are required on $71,500,000, while a compensating balance of 5 percent of the line is required on $2,500,000. Other credit arrangements amounting to $1,300,000 do not require fees or compensating cash balances. Such lines of credit are subject to periodic review and renewal during the year by l

various banks.

In late October 1985, the Company re-entered the short-term commercial paper market with a Standard and Poor's rating of A3 and a Moody's Investors Service rating of P2. The issuance of comn ercial paper requires back-up lines of credit.

The Company's Articles of incorporation limit certain unsecured indebtedness that may be outstanding to 20% of capitalization, as defined (such permitted amount being $179,840,000 as of December 31,1985). Such unsecured indebtedness, as defined, amounted to $65,850,000 as of December 31,1985.

33

6 PENSION AND POST-EMPLODIENT BENEFITS The Company has two non-contributory defined benefit pension plans which cover substantially all of its employees. The Company's policy is to fund pension costs on an annual basis in amounts sufficient to satisfy the requ;rements of the Employee Retirement Income Security Act (ERISA).

Annual pension expense, including amortization of prior service costs over thirty years, amounted to $3,823,000

$3,471,000 and $3,383,000 for 1985,1984 and 1983, respectively. The relationship of accumulated benefits and assets of the plans is shown below:

anua,, i.

ms m4 Actuarial present value of accumulated benefits Vested

$52,524,000

$45.285.000 Nonvested 3,775,000 3.578.000 556,299,000

$48.863.000 Not assets available for benefits

$62,757,000

$58,169.000 The increase in pension plan expense in 1985 and the increase in the January 1,1985 actuarial present value of accumulated benefits reflect increases in payroll, incentive payments under the 1984 early retirement incentive plan and liberalized eligibility rules legislated by the Retirement Equity Act. The assumed rate of return used to calculate the actuarial present value of accumulated plan benefits was 7.25%

In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for substantially all of its retired employees. The Company recognizes the cost of providing these benefits, which amounted to $1,849,000 for 1985, by charging expense in the period paid.

7 CAPACFFY AIUMNGEMENTS POWER AGREEMENTS: The Company owns directly or indirectly a portion of the generating capacity and energy production of certain nuclear generating facilities (the four Yankee companies) and transmission facilities (Maine Electric Power Company [MEPCo.1) operated by associated utility companies and is obligated to pay its proportionate share of the generating or transmission costs which include depreciation, a return on invested capital and the estimated cost of decommissioning the nuclear plants at the end of their estimated service lives. In addition to those facilities, the Company has signed a transmission and support agreement relating to the purchase of energy from Hydro-Quebec. The agreemerts call for the payment of transmission and operating costs, including depreciation and a return on invested capital.

Pertinent data related to these power agreements as of December 31,1985 are as follows:

Ma.ne Vecont ConrwKtc,,t Yankee Yarwee Yarmee Ya%ee Afor"ac MEPCo

% of Ownership 38 %

4%

6%

9.5%

78.1 %

Contract Expiration Date 2008 2007 1998 1991 Capacity (MW) 847 528 582 176 Company's Share of Capacity (MW) 317 19 35 17 Estanated Annual Current Costs (1985 Costs in Thousands)

$51.335

$4.268

$9.143

$5.928

$ 548 Company's Share of Long-Term Debt and Redeemable Preferred Stock (Thousands)

$71.503

$5.208

$7.315

$2.946

$3.910

not appbcat9e 34

l i

Estimated costs of nuclear plant decommissioning are being collected through rates by the four Yankee companies.

Effective January 15,1985, 5faine Yankee began collecting $1,000,000 annually for decommissioning. Under the terms of its power agreements, the Company pays its ownership share (or entitlement share) of estimated decommissioning expense as a cost of purchased power. The estimated cost of decommissioning the 5faine Yankee Plant, assuming immediate dismantlement and removal, is $115,500,000 (in 1983 dollars), of which, as of December 31,1985, $10,180,000 was funded. This estimate is based on an external engineering consultant's study. The four Yankee companies recognize the relative uncertainty of the future cost of decommissioning, the changing technology of decommissioning and the possibility of new requirements of the law and, therefore, recognize the need to constantly monitor and adjust decommissioning costs, if necessary, through supplemental rate filings.

Condensed financial information of Alaine Yankee Atomic Power Company is as follows:

(Dollars on Thousands)

'ses tw 1983 i

Earnings:

Operating Revenues

$134,785

$128,080

$120,471 Operat:ng income 23,195 21,288 19.549 Net income 10,556 7,495 7,216 Earnings Applicable to Common Stock 9,879 6,730 6,437 Company's Equity Share of Net Earnings 3,754 2,557 2,446 Investment:

Net Electric Property and Nuclear Fuel

$322,235

$327.894

$332,738 i

Current Assets 28,239 27,145 41,406 I

Deferred Charges and Other Assets 19,953 16.036 13,961 I

Total Assets 370,427 371,075 388.105 Less:

i Redeemable Preferred Stock 9,055 10,069 10.296 Long-Term Debt 178,771 180,350 187,700 Current Liabilit.es 14,522 18,150 34,347 Reserves and Deferred Credts 101.172 95,128 88.889 Not Assets S 64,907

$ 67.378

$ 66,873

}

Company's Equity In Not Assets S 25,424

$ 25,604

$ 25.412 The Company also has a nearly 60% ownership interest in the jointly-owned, but Company-operated,619 megawatt oil-fired W. F. Wyman Unit No. 4. The Company's share of the operating cost of this unit is incl $dt d in i

the appropriate expense categories in the Statement of Earnings. The Company's plant in service and related accumulated depreciation attributable to the unit as of December 31,1985 and 1984 are as follows:

(Dollars in Thousands) nss tw Plant in Service S115,154

$114,943 Accumulated Depreciation 25.046 21,360 l

1 i

l l

1 35

O CAPITALIZATION CO31 MON STOCK: Through the Dividend Reinvestment and Common Stock Purchase Plan (the " Plan"),

holders of common stock, employees and certain Company customers have been able to purchase shares of common stock directly from the Company without incurring sersice charges. Shares have been purchased by automatically reinvesting all or a portion of their dividends or through optional cash payments. In 1985, the Company issued 1,238,301 shares of common stock through the Plan.

Subject to regulatory approvals, the plan will change in 1986 to a market plan. New stock would no longer be issued for shares purchased under the plan. The plan would purchase common shares outstanding on the open market. In addition, brokerage costs would be allocated to the accounts of Plan participants.

RETAINED E ARNINGS: 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 Con'pany if such dividend would reduce retained earnings below $30,334,000. At December 31,1985, $36,273,000 of retained earnings was not so restricted.

SIORTGAGE HONDS: Under the terms of the respective indentures securing the First and General Mortgage Bonds, and General and Refunding Mortgage Bonds, substantially all of the Company's electric utility property is subject to a lien. The lien of the General and Refunding Mortgage Indenture is subject to the prior lien of the First and General Mortgage until the First and General Mortgage Bonds have been retired.

Mortgage Bonds outstanding as of December 31,1985 and 1984 were as follows (dollars in thousands):

Ser es interest Ree Msv ty 1965 1984 r

First and General Mortgage Bonds:

V 3%%

April 1,1985 8

$ 10.260 W

4%

May 1,1987 15,373 15.373 X

5%

November 1,1990 5,145 5.145 Y

7W May 1,1999 27,363 27,490 Z

9.30 August 1,1995 32,18g 32.384 AA 7.70 July 1.1997 23,23g 23.356 General and Refunding l

Mortgage Bonds:

A 9%%

May 1,2006 35,000 35.000 B

9%

October 1. 2003 22,500 23,750 C

10W October 15,1999 35,000 37.500 D

16 %

May 1.1991 45,000 45.000 I

E 15%

December 1.1991 45,000 45.000 i

F 12 %

May 1,2013 80,000 60.000 l

G 18 September 15.1994 60,000 60.000 Total Mortgage Bonds

$405,80g

$420.258 l

l l

36

i All or any part of each outstiading series of First.and General 51ortgage Bonds may be redeemed by the Company at any time at established redemption prices plus accrued interest to the date of redemption. The Company's outetr.nding series of General and Refunding Afortgage Bonds may also be redeemed at established redemption prices plus accrued interest to date of redemption subject to certain refunding limitations and in the case of Series G, a no-ca1 provision expiring in 1989.,

The annual sin;Gng fund requirements for First>nd General Stortgage Bonds (1% of maximum principal amount of series outstandMg) may be met by payment in cash er repurchased bonds or, up to one-half of their amounts, by the certifration of additional property. The Series A, D, E and F General and Refunding Stortgage Bonds have no sinking fund. The Series B and Series C General and Refunding 51ortgage Bonds have mandatory cash sinking funds of 5% and 6%%, respectively, and the Series G General and Refunding 5fortgage Bonds have a 14%

mandatory cash sinking fund commencing in 1988.

Each of Series B. C'and G also has, at the Company's option, a non-curmlative cash sinking fund, not to exceed the amount of the mandatory sinking fund subject to limitations based on a percentage of the aggregate principal amount c.f bonds issued.

The Company intends to meet one-half ($570,000) of the 1986 sinking fund requirements for the First and General Stortgage Bwds through the certi6 cation of additional property. Sinking fund requirements and maturing debt issues (net of $786,000 purchased in advance) for the five years ending December 31,1990 are as follows (dollars in thousandM:

vw smng ra uc#ng een nu 198C

$ 4.337

$ 4,337 1987 4.590 15.283 19.873 19W 13.101 13,101 1989 13,115 13.115 1990 13.077 5.014 18.091 RFVOI,VING CREDIT AGREEMENT: In Atay 1984, the Company entered into a three-year revolving credit and term loan agreement with several banks providing for loans of up to $80 million in the aggregate. This aggregate commitment was subsequently reduced to $40 million by action of the Company. Loans made to the Company are secured by the major portion of the Company's 38% common stock interest in 5faine Yankee Atomic Power Company. Under the terms of a recent amendment, the Company may borrow at the agent bank's CD loan rate plus 1%, Eurodollar loan rate plus %% or 103% of the agent bank's base rate. Borrowings under this agreement may be converted to term loann on or before April 1,1987 at a rate of 108% of the agent bank's base rate. Quarterly fees of one-half of 1% per annum are required on the unused portion of the line as well as a quarterly ager t's fee of $20,000. At December 31,1985 borrowings under this agreement amounted to $40 million. Future borrowings, and conversion to term loans in 1987, are subject to satisfaction by the Company of various conditions, including in certain cases the absence of material adverse events.

POLITTION CONTROL FACILITY NOTES: Pollution control facility r.otes outstanding as of December 31,1985 and 1984 were as follows (dollars in thousands):

n es Se'es Rate MaNr4y 198$

1984 Yarmouth Installment Notes 6%%

June 1. 2002 S10,250

$10,250 Yarmouth Installment Notes 6%

December 1. 2003 1,000 1,000 Industnal Development Authonty of the State of New Hampshwe Vanable

May 1. 2014 11,000 11,000 Vanable*

May 1. 2014 8,500 8,500

$30,750

$30.750

The average Comb,ned ra'e was 5 5% in 1985 37

The bonds issued by the Industrial Development Authority of the State of New llampshire are supported by loan agreements between the Company and the Authority. The bonds are also supported by a major bank's letters of credit which, unless their extension provisions are exercised by the Company and the bank, will expire in 1989.

Expiration of the supporting letters of credit without corresponding replacements, or the determination that interest payments to bondholders are not exempt from federal taxation, would result in the mandatory redemption of the bonds. In addition, disengagement from or sale of the relevant pollution control facility (at the Seabrook site) would, under certain circumstances, require the mandatory redemption of the $8,500,000 issue of bonds. The bond agreements call for a variable rate based upon an estimated rate of interest which would be necessary to remarket the bonds in a secondary market at par plus accrued interest.

PREFERRED STOCK: Preferred stock balances outstanding as of December 31,1985 and 1984 were as follows (dollars in thousands, except per share amounts):

1985 19fW Preferred Stock - Not Subject to Mandatory Redemption:

Par Value $25 Per Share -

Au'honzed - 2.000.000 Shares Outstand.ng - None S

Par Value $100 Per Share -

Noncallable. Voting. 6% - Authonzed and Outstanding - 5.713 Shares 571 571 Dividend Senes. Catlable -

Authonzed - 2.300,000 Shares l

Cuned Cu e1 n

outstanang Redempon Ra'e Shares Prce 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 Total Preferred Stock - Not Subject to Mandatory Redemption

$35,571

$35.571 Redeemable Preferred Stock -

Subject to Mandatory Redemption:

8.40 %

195.000 in 1985

$106.30

$18,500

$20.875 208.750 in 1984

$11.25 67,650 in 1985 105.63 S,765 7.150 71.500 in 1984 11.75 %

250.000 109.06 25,000 25.000 12.75 300.000 112.75 30,000 30.000 Total Redeemable Preferred Stock - Subject to Mandatory Redemption S81,245

$83.025 Sinking fund provisions for the 8.40%, $11.25,11.75% and the 12.75% 5eries Preferred Stock require the Company to redeem all shares at par plus an amount equal to disidends accrued to the redemption date on the basis of 13,750 shares annually for the 8.40% Series,3,850 shares annually for the $11.25 Series,10,000 shares annually beginning in 1986 for the 11.75% Series and 15,000 shares annually beginning in 1990 for the 12.75%

Series. Tbc Company also has the non-cumulative right to redeem up to 13,750 additional shares of the 8.40%

Series annually, up to 10,000 shares of the 11.75% Series annually beguuung in 1986 and 15,000 additional shares I

of the 12.75% Series annually beginning in 1990 at par plus an amount equal 19 dividends accrued to the redemption date. The annual sinking fund requirements for the five years ending December 31,1990 are as follows: 1986 through 1989 - $2,760,000; 1990 - $1.260,000.

l 38

b SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited quarterly financial data pertaining to the results of operations are shown below:

QUARTERLY FINANCIAL INFOIDIATION OUARTER ENDE D Coes e 7%saw f Keor & Sna e Awm>

Msen 31 ue 30 Sever-ter E Decemtet 31 l

1985 l

E!ectric Operatng Revenues

$14 7.115

$115 820

$128 352

$144,721 Operatng income 26.224 21.027 22.250 19.468 Net incorre (Loss) 21.507 (26 866)a 12.448 5.303m Earn;ngs (Loss) Per Common Sharem 87 (135)c 44

.12m 1984 Electr.c Operatng Revenues

$130.217

$128 908

$121.310

$134.972 Operatng income 23.798 16,187 18 067 21.090 Net incor*e 20.795 11.381 13 766 5.073m Earnings Per Common Sharem 97 43 53

.11m 1983 Electnc Operatng Revenues

$119.597

$ 98.205

$103 317

$134 998 Operat ng income 18.553

'S289 15.938 20.018 Net income 14 390 10 647 11.514 15.698 Earninos Per Common Sharem

.73 50 54

.74

0) Eamings pess) per share are cornputed us.ng tN *e<ghted merage common shares outstand,ng dur;ng the appicable Quarter (2) Amounts re*ect reserves a"d wMe#s d scuued e'sewhere in th s report g SUPPLEMENTARY INFORMATION TO DISCLOSE TIIE EFFECTS OF CIIANGING PRICES (UNAUDITED)

The following information is provided in accordance with the requirements of Statements of Financial Accounting Standards Numbers 33 and 82 and is intended to be viewed as an estimate of the approximate effect of inflation, rather than as a precise measure. These accounting standards were issued as a result of the impact of general inflation and changes in specific prices which hae caused distortions in traditional accounting measurements of income and capital. Although inflation has decreased substantially in recent years, the replacement of existing plant occurs at a significantly higher cost than the historical cost which is or has been recovered through depreciation.

CURRENT COST ACCOUNTING: This method of accounting reflects changes in specific prices of property used in the Company's operation from the time of acquisition of the property to the present. Current

(

cost amounts of electric generation and transmission plant are estimated based on engineering studies of the current cost of constructing the present mix of generatian and transmission facilities. The current cost of distribution and other plants is determined primarily by indexing surviving plants by the llandy-Whitman Index of Public Utility Construction Costs. Depreciation under the current cost method is computed by applying the same depreciation percentage rates used in the historical cost statements to the current cost property amounts.

EFFECTS OF REGCLATION: Under present ratemaking practices, only the depreciation of historical cost of utility property is recoverable through rates. The excess of the cost of utility property, as stated in terms of current costs over the historical cost, resulting from inflation, is not recoverable in rates as depreciation and is reflected as a reduction to the net recoverable cost.

During a period of inflation, holders of monetary assets, such as cash or a claim to receive a fixed amount of money, suffer a loss of general purchasing power while holders of monetary liabilities, such as an obligation to pay a fixed amount of money, 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 by the Company to finance plant.

Because of regulation the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery of only the embedded cost of debt capital.

l Fuel inventories are treated as monetary assets, since regulation limits the recovery of fue! under the Company's fuel adjustment clause to actual costs. Income statement items, other than depreciation, have not been adjusted.

i 39

l The Company's operation and maintenance expenses include the average effects of changing prices during the periods reviewed, and, therefore, no adjustments have been made to them. IIistorical income tax expense is not adjusted, since only historical costs are deductible for income tax purposes.

Statement Of Earnings Adjusted For Changing Prices For the Year Ended December 31,1983 (In Thousands of Average 1985 Donars) cem com (Measu ed m Tees r

or scoc %=cew Prw e9 Earnings Apphcable to Common Stock, As Reported S 1,651 Frosion of Common Stock investment Because of Chang;ng Prces Cost in excess of the onginal cost of productive facilities not recoverable in rates as depreciation

Reported as an add,ttonal provision for depreciation 43,400 Reported as an adjustment to net recoverable cost (25,200) 18,200 Excess of increase in the current year in general pnce char.ges over the specific level of pnces (current cost) 17,500 Total amount not specifically recoverable in rates 35,700 Offsetting effect of debt and preferred stock financing 23,100 Net erosion of Common Stock investment 12,600 Earnings Applcable to Common Stock. As Adjusted

$(10,949)

At December 31.1985. currett cost of property, piant and equtptrent net of the interpolated accumulated depreciat.on. was $1.275.659 wNe h4torcal cost or e e net cost recoveratae through actual depreciat on charges was 56o3 204 Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (In Melhons of Average 1985 Dollars. Except Per Share Amounts)

Year Ecd Decert;er 31 1965 1984 1983 1982 1981 Operating Revenues Historca!. as reported

$536.0

$515.4

$456.1

$401.3

$ 361.7 Adjusted for general inflation 536.0 533.8 492.5 447.2 427.8 General information Gain from decline in purchasing power of net amounts owed (monetary liabihttes) 3 23.1

$ 24 3

$ 22.5

$ 20 8

$ 45 4 Net assets at year end at recoverable cost Historcal, as reported

$328.9

$344.5

$307.1

$277.5

$ 262.4 Adjusted for general inflation 323.7 351.8 326 0 305.8 300.3 Dividends declared per share Historcal, as reported 8 1.40

$ 1.68

$ 1.90

$ 1.82

$ 1.74 Adjusted for general inflation 1.40 1.74 2.05 2.03 2.06 Market pnce per share at year end Historcal, as reported

$14.25

$ 9.75

$14.50

$17.00

$12.375 Adjusted for general inflation 14.02 9.96 15.39 18.73 14.16 Average consumer pnce index 322.2 311.1 298.4 289.1 272.4 Current Cost information Loss applicable to Common Stock adjusted for additional depreciation

${41.8)

$ (3 0)

$ (9.5)

$ (15.7)

Loss per share applicable to Common Stock adjusted for additional depreciation (1.90)

(.15)

(.57)

(1.09)

Increase in specific price level (current cost) over (under) increase in general prces amer adjustment to net recoverable cost 7.8 7.3 14.0 14.7 (23.9) 40

i REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Central Alaine Ibwer Company:

We have examined the balance sheet and statement of capitalization and interim financing of Central 51aine Iower Company (a 51aine corponition) as of December 31,1985 and 1984, and the statements of earnings, changes in common stock investment and sources of funds for construction for each of the three years in the period ended December 31,1985. 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 auditors' report dated Afarch 21,1985, our opinion on the 1984 financial statements was qualified as subject to the effect of such adjustments, if any, as might have been required had the outcome of uncertainties relating to the Company's investments in Seabrook Unit 1, Seabrook Unit 2 and two other generating projects been known. At the time, the Company was seeking recovery in its 1984 rate filing referred to in Note 3. As explained in Note 3, during 1985 the Afaine Public Utilities Commission ordered that $85,000,000 of the investments not be recovered through rates. As a result, the disallowed costs were written off in the current year, net of related income taxes and a $10,000,000 loss reserve provided in 1984. As explained in Note 4, subsequent events indicate it is probable that Unit I will ultimately be completed and placed in commercial operation at a cost which the Company would ultimately recover under terms of the rate order referred to above. Ilowever, the Company has decided to sell its ownership interest in the Seabrook project if it obtains regulatory approval of proposed ratemaking under which no material writeoff would result. As a result of the foregoing developments, our present opinion on the 1984 financial statements, as presented herein, is no longer qualified.

In our opinion, the financial statements referred to above present fairly the financial position of Central Slaine Power Company as of December 31,1985 and 1984, and the results of its operations and its sources of funds for construction for each of the three years in the period ended December 31,1985, in conformity with generally ac-cepted accounting principles applied on a consistent basis.

ARTIIUR ANDERSEN & CO.

Boston, 5!assachusetts, h! arch 1,1986.

41

W 1975.as Central Maine Power Compan SEE NOTES HELOW 198$

1984 1983 1982 Tctal Revenues (Doitars in Thousands)

Res4dential S 211,934

$ 197.962

$167.929

$168.785 Commercial 132,895 120.374 101.505 99.682 Industnal 171,296 159 860 129.380 116.306 E!ectne Utet,es 4,209 4.186 3 600 3.356 Lighting 7,829 7.213 6.653 6 688 Total Service Area Revenues S 528,163

$ 489.595

$409.067

$394 817 Total Operat.ng Revenues S 536,004 5 515.407

$456.117

$401.336 Kilowatt-hour Sales (Thousands)

Residential 2,662,416 2.636.2i2 2.481.073 2.453.310 Commercial (a) 1,725,326 1.668 310 1.561.584 1.503 641 Industnal (a) 3,296,754 3.231.237 2.959.857 2,506.696 Electnc Utlit=es 37,731 85.466 79.537 76.611 Lighting 41,422 44,074 44147 46.326 Total Service Area Sales 7,813,649 7.665.300 7.126.398 6 586.584 Annual Percentage Change-Service Area Sa'es 1.9%

7.6%

82%

5.9%

Electric Customers (Average)

Resident,al 379,643 370.836 363.387 356.838 Commerc;al and Industnal 45,338 43.545 42.040 41.042 Electnc Utites 3

3 3

3 Lighting 397 395 394 394 Total Service Area Customers 425,381 414.779 405.824 398.277 Annual Percentage Gnange-Total Customers 2.6 %

2.2%

1.9%

3.3%

Residential Sales Averstes Annual Kilowa*t-hours Used 7,013 7.109 6 828 6,875 Revenue per Kdowa*! hour 7.964 7.51c 6 77c 6 88C Annual Eoli S 558

$ 534

$ 462

$ 473 Revenue per Retail Kilowatt-hour 6.78e 6 40c 5 75c 6.01c Not income (Thousands)

S 12,392 5

51.015 5 52 249

$ 40.955 Capitalisation (Thousands)

Short-term Debt S

35,100

$ 45.250

$ 49 000

$ 65.500 Long-term Debt 440,374 494.834 399.975 353.123 Redeemable Pre

erred Stock 78,505 81.265 83.025 54.785 Pre' erred Stock 35,571 35.371 35.571 35,571 Common Stock Investment 328,887 344.472 307.093 277.501 Total 8 958,437

$1,001.392

$874.664

$786.480 Common Stock Data Earnings Appl > cable to Common Stock (Thousands)

S 1,651

$ 40.115 5 44 675

$ 33.563 Earnings Per Average Share of Common Stock

.08

$ 1.99

$ 2 51

$ 2.02 AFC Earnings Per Share S 1.22

$ 1.73

$ 165

$ 1.37 D;vedends Declared Per Share S 1.40

$ 168

$ 1.90

$ 1.82 Payout Rato 65%(d) 91 %

75 %

89 %

Pnce/ Earnings Ratio 7X(d)

SX 6X 8X Shares Outstand ng-Average 21,994,423 20.184.594 17.803.797 16.630.925 Number of Common Shareholders 47,833 51.078 51.632 52.666

% Earned on Average Common Eau:ty

.5%

12.3 %

15 3 %

12.4 %

Dividend Cash Coverage Ratio 2.3X 1.7X 16X 1.6X Yield 11.9 %

16 1 %

12.0 %

12 4 %

Book Value Per Share S14.59

$16.17

$16 69

$16 20 Ceneration Mix (% of Total KWH)

Hydro 15 %

18 %

17 %

20 %

Nuclear 30 28 31 31 Oil 26 26 25 38 Canadian 17 17 17 6

Local Non-UtJity 12 11 10 5

Total 100 %

100 %

Miscellaneous Average Annual interest Rate on Bonds 12.20 %

11.96 %

10 92 %

10 49%

Ratio of Earnings to Fixed Charges (c) 1.1 X 2.3X 2 4X 2.3X Average Annual Dtvidend Rate on Preferred Stock 9.08 %

9 08 %

9 07 %

7.88 %

Net System Capabsty at Time of Peak-MW 1,557 1.554 1.524 1.465 System Peak Demand-MW 1,375 1.288 1.289 1.259 Reserve Margin at Time of Peak 13 %

21 %

18 %

16 %

System Load Factor 70%

72 %

68 %

64 %

Tc*al Average Fuel Cost Per KWH 2.83c 2 96c 2.60c 2.61 c Fuel Cost as a % of Operating Revenues 44 %

48 %

47%

46 %

Number of Employees-Year-End 2,062 1.971 2.103 2.082 Net Utsty Plant (Thousands)

S 923,704

$917.149

$861.227

$765.554 Total Assets (Thousands) 81,152,915

$1.195.784

$1.054 969

$933.593 Construct on Expend.tures (Thousands)

S 100,562

$120.820

$124,237

$112.284 Internally Generated Funds as a % of Construction Requirements (tncludes AFC) 100 %

0%

34 %

54 %

Ef'ective income Tax Rate 27.9 %

25.1 %

24 2 %

(a) Cornrnerce and industral Howa'1 FCuts sales for pemd 1975 1981 were rewsed to cor#orm to current presentaton. by sic code (b) Based on divdend5 declared (c) Rato calculabon re# sed in 1983. and adNsted retroactuelv. to re9ect crav *n sEC reemodosoqv (d) AFTER THE RESTATEMENT To EXCLuoE WRITE-OFFS AsSoCIATEo WITH cERTAIN GENERATING PROJECTS.

42

1981 1980 19?9 1976

'977 1976 1975

$157.042

$137.229

$108.550

$ 88.815

$ 83 590

$ 71.557

$ 67.314 95 629 83 801 63.545 49.374 47.030 41.066 41.412 108.8G6 88.377 60.488 46.282 43.216 31.463 28.289 3.570 3.212 2.390 1.750 1.775 1.362 1.438 6.174 5.694 5.059 4.543 4.398 3.971 3.622

$371.281

$318 313

$240 032

$190.762

$180.009

$149 419

$142.075

$361.670

$335.265

$271.764

$208.176

$188.309

$155.005

$146.399 2.338.745 2.335.368 2.352.509 2.319.602 2.213.823 2,143.942 1.915,633 1.479.267 1.461.569 1.416.900 1.352.757 1.309.598 1,305.115 1.306.363 2.273.216 2.108.747 2.053 028 2.044.383 1.924.543 1.636.906 1.462,381 82.735 83.102 78 836 76.768 75.180 79.149 79.251 47.638 49.735 50.507 50.573 49.358 48.322 45.803

~

6.221.601 6.038.521 5 951.780 5.844.083 5.572.502 5.213.434 4.809.431 30%

1.5%

1.8%

49%

69%

84%

2.4%

345.089 340.351 335.474 330.655 323.562 316.487 306.569 39.969 39 538 39.430 39.285 38.914 38.358 37.404 4

4 5

4 4

4 5

391 392 390 390 392 387 375 385.453 380 285 375 299 370.334 362.872 355.236 344.353 1.4%

13%

21%

2.1%

3.2%

2.3%

6.777 6 862 7.012 7.015 6.842 6.774 6.249 6 71C 5 88c 4 61c 3 83c 3.78c 3 34C 3 SIC

$ 455

$ 403

$ 324

$ 269

$ 258

$ 226

$ 220 5 99c 5 29c 4 05c 3 28c 3 24C 2 88C 2 97C

$ 33 645

$ 26 427

$29 643

$ 29.611

$ 21.001

$ 16.940

$ 14.671

$ 23.500

$ 66,198

$ 60.592

$ 41.391

$ 31.073

$ 15.400

$ 14.00C 353.861 279.152 254 699 236.391 225.228 228.576 199.065 56 545 58.305 33 690 34.075 34.460 9.845 10.230 35.571 35.571 35.571 35.571 35.571 35.571 35.571 262.353 235.711 214.022 203 600 167.954 139.387 122.355

$731.830

$674.937

$598.574

$551.028

$494.286

$428.779

$381.221

$ 26.195

$ 20.647

$ 25.044

$ 24.969

$ 18.275

$ 14.310

$ 12.058

$ 1.81

$ 167

$ 2.10

$ 2.19

$ 187

$ 1.75

$1.70

$ 124

$.88 5.53

$ 1.05

$.80

$.54 5.23

$ 1.74

$ 1.66

$ 1.55

$ 1.46

$ 1.41

$ 135W

$ 1.34 96%(b) 99 %

74 %

67%

75 %

77 %

79 %

7X 7X 6X 7X 9X 9X 8X 14.458.788 12.357.075 11.899.435 11.378.432 9.748.304 8.163.930 7.082.622 51.947 50.015 48 915 49.621 45.613 41.497 38.989 10 5 %

92%

12.0 %

13.4 %

11 9 %

10 9 %

10 3 %

1.6X (b) 2 OX 2 6X 2.5X 2 4X 2 6X 2.7X 14.1%(b) 12 9 %

10 9 %

9.3%

86%

89%

10 4 %

$16.16 516.89

$17.73

$17.25

$16 67

$16 44

$16 26 20 %

15 %

19 %

22 %

24 %

26 %

25 %

35 30 33 39 39 47 41 l

36 48 42 31 24 22 32 7

6 5

7 12 4

1 2

1 1

100 %

10 48 %

8 38 %

8 23 %

7.69 %

7.45 %

7.38 %

6 65 %

2.0X 2 OX 2.7X 3 OX 2.5X 2.4X 24X 7.90 %

7.91 %

6 55 %

6 58 %

6 60 %

5 66 %

5.71 %

1.490 1.523 1.526 1.290 1,348 1.268 1,119 1.209 1,193 1.207 1,173 1.124 1,089 1.035 23 %

28 %

26 %

10 %

20 %

16 %

8%

63 %

61 %

62 %

60 %

58 %

2.5CC 2.52c 1.56c 0 98c 0.89C 0 63c 0 81C 47%

49 %

37 %

30 %

29 %

23 %

29 %

2.018 2.008 2.000 1.971 1.962 1.948 1.947

$692.034

$625.796

$552.384

$513.170

$459.695

$397.905

$342.681

$849.384

$795.041

$694.837

$634.041

$559.487

$483.425

$425.072

$101.201

$ 97.928

$ 60.068

$ 69.982 5 84.713

$ 65.333

$ 49.743 46 %

21 %

32 %

31 %

27 %

37%

63 %

21.7 %

25 6 %

36 3 %

30 9 %

32 9 %

34 9 %

36 0 %

43

YOUR MANAGEMENT.

IMMRD OF DIRECTORS Y our it iard < >t I hrectors uhludes in-Gearge II. Ellis 66

~}3..

dividuals with a wim arrav < it th<

Wenesley. Massachusetts 3

.-c 3,'"

Chairman of the Board

!. -ssr" of the Compar y

~k expenence, interests and talents whab

.\\laine and New England itter Their com Retired President and Chief

} 1.- : '

hined talent and expertise pr.ivide the sound Executive Officer.

41.

4 ?j e,

f

.g Home Savings Bank. Boston.

W i.

gu: dance required hv a husmew with rcop<in.

Massachusetts

- 1:

it:

4 g, '

sihthtic - as deep and dn erse as C ent ri Former President. Federal Reserve y

.\\la'ne l'i >wer O 'mpans.

Bank of Boston 2- '

Former Chief Executive Officer.

.Pg;'..

^

'_ A - );

.t

' ~

Keptone Custoduin Funds. Inc..

G.'.

~...

Boston u,..~

Fv

H

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h L 9,.) ' [ ? '.: f ^.'f; John W. Rowe 40

,i Augusta. Mam.e

.4 *.- ' ' ',~'i

' '.4 '.." 4.

Presdent and Chief Executive

:Vg Officer of the Company

. Y. J'(.( 4f p

{ y;.

... e f, J

hQ

f. *.?. *

.r 98 M' 1;s -;'. Lw Y ;.y.kK. [,I J

Cuin C. Ilampton 63

, ;},

]

Portland. Maine

+-

President

/ L'..,-

- =- Q,.t Umon Mutual Life Insurance

. -. 'i 4,,

s

.s 9, 3 - - ~.

Comp.ny Unkmmutual

. ' [c ;l.; [ N;"v

((

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e w

4

(

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. :. :r

.1 James II. Titcomb 68 I'

Sanford. Maine

?

s"~~

Partner

'y

. 1.f. : <.]

Titcomb. Fenderson & Knight

'-Qi.

Attorneys

- i

. _.I '

E.

RETIRE.TIENT 9

r

.c Trrinun. Vom.oumis A Kwunr

+

...y.

}

Y iss Pnscilia A. t! ark ha3 retired from 1'

..-~ '. C

" " " ' " ' " ' ^ *

~~

~

your lloard of ihrector3. effective

)

Januarv 31.19Ni.\\lin Clark was elected to the lloard October 19.192 She has served a3 Vice President of Las, llav L ollege in Charleen 31. Chase 37 i

Portland and is former Vice President South Paris Maine

,frea3urer of Hu son L oUege in liang< >r..\\ll" Executive Director w

Oxford County Commuruty Services Clark 3erved your Board a3 a member of tht and Androscoggin Valley Commumty Audit Uimmittee fi>r mani scars.

Action Agency

@ @<- }

n o

l 44

g OFFICERS Arthur W. Adelberg 34 John J. Russell 58 P

Portland, Maine Ralph L. Bean 63 Senior V'ce President and Treasurer VP, Engineenng Hannaford Bros. Co. (Food Distrautors)

Richard A. Crabtree 39 Vre President. Finance and

. g p

.4 Chief Financial Officer William M. Finn 49 Secretary and Clerk David T. Flanagan 38 Leon A. Gorman 51 Vice President, Yarmouth, Maine Law and Administraten 1

President Charles D. Frizzle, Jr. 43 L.L. Bean, Inc. (Sporting Goods and AppareD VP, Maine Yankee Operations E

Lynn K. Goldfarb 46 I

VP, Customer Senices R. Edward llanson 48 AVP, Production Operations Willi A. Ilartung 55 Priscilla A. Clark 63 AVP, Information Services Portland, Maine -

Robert S. Ilowe 46 Vice President and Treasurer Comptroller Casco Bay CoDege p.,

A P 5tatthew Ilunter 51 Senior Vice President, Customer Services and Division Operations S4 Walter W. Jabs 63 i

AVP, Human Resources 1

Charles E. Monty 58 Augusta, Maine Donald F. Kelly 51 l

Executive Vice President VP, Power Supply and Chief Operating Officer

. of the Company John L. Lacrosse 55 Assistant Treasurer b

Sharon 31. Lunner 41 3[

Treasurer Patrick S. Lydon 43

/

VP, Nuclear Fin. and Admin.

x.

Charles E. Stonty 58 Executive Vice President and Chief Operating Officer E. James Motar 51 Joseph R. Storan 44 VP, Division Operations en Treasurer g

William Philbrick Company Carol W. Oliva 38 (GeneralInsurance and Real Estate)

Assistant Treasurer G P

=f Gerald C. Poulin 43 AVP, Mgr. of Engineering Carlton D. Reed, Jr. 55 John B. Randazza 57 Woolwich, Maine VP, Nuclear Resources President Reed and Reed, Inc. (Construction)

John W. Rowe 40 President and t

i E'

Chief Executive Officer Douglas Stevenson 37 i

AVP, Resource Planning & Budgets (Ages as of March 1,1986)

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