ML20247H191
| ML20247H191 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 05/14/1998 |
| From: | Feigenbaum T NORTH ATLANTIC ENERGY SERVICE CORP. (NAESCO) |
| To: | Collins S NRC (Affiliation Not Assigned) |
| References | |
| NYN-98069, NUDOCS 9805210092 | |
| Download: ML20247H191 (21) | |
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4 i Nordh North Atlantic Energy Service Corporation p
P.O. Box 300 V Adaritic seahreet Nii O3874 J
(603) 474-9521 The Northeast Utilities System May 14,1998 Docket No. 50-443 NYN-98069 AR #97018404 l
l Samuel J. Collins, Director Office of Nucles-Reactor Regulation United States Nuclear Regulatory Commission Washington, DC 20555-0001 Seabrook Station Inutsmittal of BayCorp IIoldings. Ltd. First Ouarter 1998 Financial RcRod As part of the temporary extension of Great Bay Power Corporation's (Great Bay) exemption from the Nuclear Regulatory Commission's (NRC) decommissioning regulations', the NRC imposed certain conditions. One of those conditions required the transmittal of the next four quarterly financial reports within 45 days of the close of the calendar quarter. Attached to this letter is a copy of the Securities and Exchange Commission Form 10-Q Repon for BayCorp llo! dings, Ltd. which provides the requested information for the first calendar quarter of 1998.
Should you required further information regarding this matter, please contact Mr. Terry L. Ilarpster, Director of Licensing Services, at (603) 773-7765.
Very truly yours, NORTH ATLANTIC ENERGY SERVICE CORP.
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MA C. Fei[baum
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Executive Vice Pres' nt and Chief Nuclear Officer l
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' Letter dated July 23,1997, U. S. NRC to North Atlantic Energy Service Corporation, Extension of Temporary Exemption from Certain Requirements of 10CFR50.75," Reporting and Recordkeeping for Decommissioning Planning," Seabrook Station, Unit 1 (TAC Nos. M98049 and M99072) 9805210092 980514 PDR ADOCK 05000443 I
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U. S. Nuclear Regulatory Commission NYN-98069/Page 2 cc w/erfc:
- 11. J. Miller, Region I Administrator A. W. De Agazio, NRC Project Manager, Seabrook Station R. K.. Lorson, Senior Resident inspector, Seabrook Station Document Control Desk iJ. S. Nuclear Regulatory Commission Washington, DC 20555 cc w/o ene:
Mr. John Tillinghast Great Bay Power Corporation Cocheco Falls Millworks "00 Main Street, Suite 201 Dover, Nil 03820 l
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l ENCLOSURE TO NYN-98069 O
UNITED STATES SECURITIES AND EXCIIANGE COMMISSION WASIIINGTON, D.C. 20549 FORM 10-Q (Mark one) lX!
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIIE SECURITIES EXCilANGE ACT OF 1934 For the quarterly period ended March 31.1998 OR l l TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF Tile SECURITIES EXCilANGE ACT OF 1934 For the transition period from to Commission Ole number 1-12527 BAYCORP HOLDINGS, LTD.
(Exact name of recistrant as speciDed in its charter)
Delaware 02-0488443 (State or otherjurisdiction of (I.R.S. Employer incorporation or organization)
Identification No.)
Cocheco Falls Millworks,100 Main Street, Suite 201 Dover, New Ilampshire 03820-3835 (Address of principal executive ofGces)
(Zip Code)
Registrant's telephone number, including area code: (603) 742-3388 Indicate by check mark whether the registrant (1) has Sled all reports required to be Gled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such Gling requirements for the past 90 days.
Yes X No Indicate by check mark whether the registrant has Gled all documents required to be Gled by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 cubsequent to the distribution of securities under a plan con 0rmed by a court.
Yes X No Class Outstanding at May 7,1998 Common Stock, S0.01 Par Value per Share 8,262,748
BAYCORP llOLDINGS, LTD.
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INDEX
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PART I-FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements ofIncome and Comprehensive Income
- Three Months Ended March 31,1998 and 1997....
.3 Consolidated Balance Sheets at March 31,1998 and December 31,1997...
..... 4-5 I
Consolidated Statements of Cash Flows - Three Months Ended March 31,1998 and 1997...
.6 Notes to Financial Statements...
.7-12 Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations:.....
.12-15
' PART II-OTIIER INFORMATION:
)
I tem 1 - Legal Proc eed i n gs................................................................ 15 Item 6 - Exhibits and Reports on Form 8-K........
...................................16 Signature..
.. 17 Exhibit index.....
... 18 2
PART I-FINANCI AL INFORMATION Item 1. Financial Statements BAYCORP llOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREllENSIVE INCOME (UNAUDITED)
(DoHars in Thousands, except shares and per share data)
Three Months Three Months Ended Ended March 31,1998 March 31, l'D7 Operating Revenues
$7,443
$8,437 Operating Expenses:
Production 4,899 4,394 Transmission 213 220 Administrative & General 1,781 1,933 Depreciation & Amortization 877 863 Taxes other than Income 1,060 1,162 Total Operating Expenses 8,830 8,572 Operating Loss (1,387)
(135)
Other (income) Deductions:
Interest and Dividend income (352)
(402)
Decommissioning Cost Accretion 713 666 Decommissioning Trust Fund Income (109)
(11l)
Unit 2 Sales and Other Deductions 26 0
Total Other Deductions 278 153 i
Loss Before income Taxes (1,665)
(288)
Income Taxes 0
0 Net Loss
($1,665)
($288)
Other Comprehensive income, Net of Tax Unrealized Gains on Securities 63 9
Comprehensive income (Loss)
($1,602)
($279)
Weighted Average Shares Outstanding 8,264,192 8,320,869 Basic and Diluted Loss Per Share
($0.20)
($0.03) 4 (The accompanying notes are an integral part of these consolidated statements.)
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BAYCORP llOLDINGS, LTD, CONSOLIDATED BALANCE SilEETS (UNAUDITED)
(Dolf ars in Thousands)
March 31, December 31, 1998 1997 ASSETS:
Current Assets:
Cash & Cash equivalents
$4,351
$3,270 Short-tenn investments, at market 9,613 15,822 Accounts Receivable 5,573 465 Materials & Supplies, net 4,289 3,816 Prepayments & Other Assets 2,662 1.570 Total Current Assets 26.488 24.943 Property, Plant, & Equipment:
Utility Plant 110,433 108,584 Less: Accumulated Depreciation (10,585)
(9.758)
Net Utility Plant 99,848 98,826 Nuclear Fuel 15,108 15,076 Less: Accumulated Amortization (7,743)
(6.717)
Net Nuclear Fuel 7,365 8,359 Net Property, Plant & Equipment 107,213 107,185 Other Assets:
Deconunissioning Trust Fund 8,541 8,025 Deferred Debits & Other 14 5
Total Other Assets 8,555 8.030 TOTAL ASSETS
$142.256
$140,158 l
l (The accompanying notes are an integral part of these consolidated statements.)
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BAYCORP IIOLDINGS, LTD.
CONSOLIDATED BALANCE SIIEETS (UNAUDITED)
(Dollers in Thousands)
Marcli 31, Decendier 31, 1998 1997 l
LIABILITIES AND STOCKilOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses
$250
$270 Taxes Accmed 903 0
Miscellaneous Current Liabilities 1,910 1,594 Tohl Current LF Hlitics 3,063 1,864 Operating Reserves:
Decommissioning Liabil2; 58,056 55,846 Miscellaneous Other 564 564 Total Operating Reserves 58,620 56,410 Other Liabilities & Deferred Credits 4,10" 3,745 Commitments & Contingencies Stockholders' Equity:
Conunon stock, $.01 par value, Authorized - 20,000,000 shares, j
issued and Outstanding - 8,417,800 84 81 i
Less: Treasury Stock - 155,052 and 145,000 shares, irspectively, at cost (1,240)
(1,168)
Additional paid-in capital 92,100 92,100 j
Accumulated Other CC.prehensive Income 178 115 Accumulated Deficit (14,657)
(12,992)
Total Stockholders' Equity 76,465 8.139 TOTAL LIABILITIES AND STOCKliOLDERS' EQUITY
$142.256
$140.158 (The accompanying notes are an integral part of these consolidated statements.)
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11AYCORP IIOLDINGS, LTD, CONSOLIDATED STATEMENTS OF CASil FLOWS (UNAUDITED)
(DoHars in Thousands)
Three Months Three Montns Ended Ended March 31,1998 March 31.1997 Net cash flow fn.m operathg activities:
Net (Loss)
($1,665)
($288)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 877 863 Amortization of nuclear fuel 1,026 1,078 Decommissioning trust accretion 713 666 Decommissioning trust interest (109)
(11I)
(Increase) decrease in accounts receivable (5,107) 243 Increase in materials & supplies (518)
(209) increase in prepaids and other assets (1,191)
(2,844)
Decrease in accounts payable (20)
(16)
Increase in taxes accrued 902 962 Other 696 (1,519)
Net cash used in operating activities (4,306)
(1,175)
Net cash flows provided by (used in) investing activities:
Utlility plant edditions (363)
(476)
Nuclear fuel additions (32)
(1,387)
Payments to decommissioning fund (289)
(277)
Short tcan investments, net 6,142 1,199 Net cash provided by (used in) investing activities 5,458 (94I)
Net cash used in financing activities:
Reacquired Capital Stock (71)
(336)
Net cash used in financing activities (7l}
(336)
Net increase (decrease) in cash and cash equivalents 1,081 (2,452)
Cash and cash equivalents, beginning of period 3,270 16,412 Cash and cash equivalents, end of period
$4,351
$13,960 (The accompanying notes are an integral part of these consolidated statements.)
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NOTES TO FINANCIAL STATEMENTS l
NOTE A - THE COMPANY BayCorp iloidings, Ltd. ("DayCorp" or the " Company") serves as a holding company for Great Bay Power Corporation (" Great Bay"). Great Bay is an electric generating company whose principal asset is a 12.1% joint ownership interest in the Seabrook Nuclear Power Project in Seabrook, New llampshire (the "Seabrook Project"). Great Bay is an exempt wholesale generator ("EWG") under the i
Public Utility lloiding Company Act of 1935 ("PUHCA"). Unlike regulated public utilities, Great Bay has no franchise area or captive customers. Great Bay sells its power in the competitive wholesale power markets.
Creat Bay became a wholly-owned subsidiary of BayCorp in a corporate reorganiz.ation that involved a merger of a newly-formed wholly-owned subsidiary of BayCorp with and into Great Bay on January 24,1997. The consolidated assets and liabilities of Great Bay and its subsidiar:es immediately before the reorganization were the same as the consolidated assets and liabilities of BayCorp and its subsidiaries immediately afler the reorganization. Currently, Great Bay is the sole subsidiary of BayCorp. BayCorp's principal asset is its 100% equity inteust in Great Bay. The new corporate structure enables BayCorp, either directly or thrr ugh mbs: diaries other than Great Bay, to engage in businesses that Great Bay would be prohibited fmm pursuing due to its status as an EWG under the l
PUllCA. BayCorp n'ay in the future enter into new businesses or acquire existing businesses, both in energy related fields and possibly in unrelated fields.
BayCorp was incorporated in Delaware in 1996. Great Bay was incorporated in New Hampshir; in 1986 and was formerly known as EUA Power Corporation (the " Predecessor"). Great Bay sells its share of the electricity output of the Seabrook Project in the wholesale electricity market, primarily in the Northeast United States. Neither BayCorp nor Great Bay has operational responsibili'ies for the Seabrook Project. Great Bay's share of the Seabrook Project capacity is approximately 140 megawatts
("MW"). Great Bay currently sells all but 10 MW ofits share of the Seabrook Project capacity in the short-term market.
NOTE B -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES The unaudited financial statements included herein have been prepared on behalf of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation ofinterim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed pursuant to such rules and regulations.
The Corpany believes, however, its disclosures herein, when read in conjunction with the Company's audited financial statements for the year ended December 31,1997, are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative af the results to be expected for the fM1 fiscal year.
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BAYCORP IlOLDINGS, LTD.
The Company adopted SFAS No.130, Repoaing Comprehensive income, effective January ',
1998. Accumulated Other Comprehensive income and the current period charge are as follows:
Unrealized Gains Accumulated Other on Securities Comprehensive Income Beginning Balance
$115,000
$115,000 Current Period Charge 63.000 63.000 Ending Balance
$178.000
$178.000 NOTE C - COMMITMENTS AND CONTINGENCIES Nuclear Power. Enerny and Utility Reaulation The Seabrook Project and Great Bay, as part owner of a licensed nuclear facility, are subject to the broad jurisdiction of the Nuclear Regulatory Commission ("NRC"), which is empowered to authorize the siting, construction i and operation of nuclear reactors after consideration of public health and safety, environmental and antitrust matters. Great Bay has been, and will be, affected to the extent ofits proportionate share by the cost of any NRC requirements applicable to Seabrook Unit 1.
Great Bay is also subject to thejurisdiction of the Federal Energy Regulatory Commission
("FERC") under Pans il and 111 of the Federal Power Act and, as a result, is required to file with FERC all contracts for the sale of electricity. FERC has the authority to suspend the rates at which Great Bay proposes to sell power, to allow such rates to go into effect subject to refund and to modify a proposed or existing rate if FERC determines that such rate is not "just and reasonable." FERC' jurisdiction also includes, among other things, the sale, lease, merger, consolidation or other disposition of facilities, interconnection of certain facilitie:, accounts, service and property records.
1 Because it is an EWG, Great Bay is not subject to thejurisdiction of the SEC under PUHCA. In order to maintain its EWG status, Great Bay must continue to engage exclusively in the business of owning and/or operating all or part of one or more " eligible facilities" and to sell electricity only at wholesale (i.e. not to end users) and activities incidental thereto. An " eligible facility" is a facility used for the generation of electric energy exclusively at wholesale on used for the generation of electric energy and leased to one or more public utility companies. The term " facility" may include a portion of a facility. In the case of Great Bay, its 12.1% joint ownership interest in the Seabrook Project comprises an " eligible facility."
Great Bay is subject to regulction by the New llampshire Public Utilities Commission
("NHPUC") in many respects, including the issuance of securitics, the issuance of debt, contracts with affiliates, forms of acccunts, transfers of utility properties, mortgaging of utility property and other matters. The NiiPUC does not regulate rates charged for sales of electricity at wholesale.
Utility Deregulation: Public Controversy Concerninn Nuclear Power Plants i
The NIIPUC and the regulatory authorities with jurisdiction over utilities in New llampshire and state legislatures of mveral other states in which Great Bay sells electricity are considering or have 8
4 BAYCORP IIOLDINGSa LTD.
l implemented initiatives relating to the deregulation of the utility industry. Simultaneously with '.he deregulation initiatives occurring in each of the New England states, the New England Power Pool
("NEPOOL") is restructuring to create and maintain open, non-discriminatory, competitive, unbundled markets for energy, capacity, and ancillary services. NEPOOL's restructuring is designed to function efficiently in a changing electric power industry and to permit regional transmission at rates that do not vary with distance. In conjunction with NEPOOL's restructuring, a new entity, ISO New England, Inc.,
has been formed to insure system reliability and to oversee the newly formed deregulated generation markets. All of the deregulation initiatives open electricity markets to competition in the affected states.
While Great Bay believes it is a low-cost producer of electricity and will benefit from the deregulation of the electric industry, it is not possible to predict the impact of these various initiatives on Great Bay.
Nuclear units in the United States have been subject to widespread criticism and opposition, which has led to construction delays, cost overruns, licensing delays and other difdculties. Various groups have sought to prohibit the completion and operation of nuclear units and the disposal of nuclear waste by litigation, legislation and participation in administrative proceedings. The Seabrook Project was the subject of significant public controversy during its construction and licensing and remains controversial. An increase in public concerns regarding the Seabrook Project or nuclear power in general could adversely afTect the operating license of Seabrook Unit 1. While the Company cannot predict the ultimate effect of such controversy, it is possible that it could result in a premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations require that the unit be completely decontaminated of any residual radioactivity. While the owners of the Seabrook Project are accumulating a trust fund to pay decommissioning costs, if these costs exceed the amount of the trust fund, the owners, including Great Bay, will be liable for the excess.
Decommissionly Liability Bas:d on tr : enancial Accounting Standards Board's ("FASB") tentative conclusions, Great l
Bay has recognized as a liability its proportionate share of the estimated Seabrook Project decommissioning. The initial recognition of this liability was capitalized as part of the Fair Value of the Utility Plant at November 23,1994. The current estimated cost to decommission the Seabrook Project, based en a study performed for the lead owner of the Seabrook Project, is approximately $473 million in 1997 dollars and $2.2 billion in 2026 dollars, assuming a remaining 28 year life for the facility and a future escalation rate of 5%. Based on this estimate, the present value of Great Bay's share of this liability as of March 31,1998 is approximately $58.1 million.
Durin;; the first certer of 1996, Great Bay began to accrete its share of the Seabrook Project's decommissioning liability. This accretion is a non-cash charge and recognizes Great Bay's liability related to the closure and decommissioning ofits nuclear plant in current year dollars over the licensing perimi of the plant. As a result of this accretion, Great Bay's share of the estimated decommissioning cost increased from $50.2 million as December 31,1995 to $58.1 million as of March 31,1998.
The Seabrook Project's decommissioning estimate and funding schedule is subject to review each year by the New llampshire Nuclear Decommissioning Finance Committee ("NDFC"). This estimate is based on a number of assumptions. Changes in assumptions based on factors sucly as labor l
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BAYCORP IIOLDINGS, LTD.
and material costs, technology, inflation and timing of decommissioning could cause these estimates to change, possibly materially, in the near term.
The Staff of the Securities and Exchange Commission (the "SEC") has questioned certain of the current accounting practices of tbc electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations and joint owners in the financial statements of these entities. In response to these questions, the F ASB has agreed to review the accounting for nuclear decommissioning costs. In 1996, the FASB issued an Exposure Draft entitled
" Accounting for Certain Liabilities Related to Closure and Removal of Long-Lived Assets." The FASB continues te work on this project. Either a revised exposure draft or a final statement may be issued in 1998. Great Bay's accounting for decommissioning was based on the FASB's original tentative conclusi^ns. If the cur ent exposure draft is adopted or accounting practices for nuclear power plant decommissioning are changed, Great Bay's decommissioning liability and annual provision for decommissioning could change relative to amounts reflected in the financial statements. The Company is unable to predict the empact, if any, changes in the cunent accounting w?! have on the Company's financial statements.
Although the owners of Seabrook are accumulating funds in an external trust to defray decommissioning costs, these costs could substantially exceed the value of the trust fund, and the owners, meluding Great Bay, would remain liable for the excess. The amount required to be deposited in the trust fund is subject to periodic review and adjustment by the NDFC, which could result in material increases in such amounts. Based on the currently approved funding schedule, Great Bay's decommissioning payments will be approximately$1.2 million in 1998 and esca! ate at 4% each year thereafter through 2026.
On November 15,1992, Great Bay, the Bondholder's Committee and the Predecessor's former parent, Eastern Utilities Associates ("EUA"), entered into a settlement agreement that resolved certain proceedings against EUA brought by the Bondholder's Committee. Under the settlement agreement EUA reafYirmed its guarantee of up to $10 million of Great Bay's future decommissioning costs of Seabrook Unit 1.
la Jr.nuary 1997 and July 1997, the NRC staff ruled that Great Bay did not satisfy the NRC definition of" electric utility." If the NRC does not reverse its ruling, Great Bay would have to comply with the NRC regulations applicable to non " electric utility" owners ofinterests in nuclear power plants, including less favorable decommissioning funding requirements.
In Januar3 1998, Great Bay filed a petition with the NRC seeking NRC approval of Great Bay's proposal to fund decommissioning obligations. Great Bsy's petition also sought, in the alternative, an i
NRC permanent exemption from the obligatien of Great Bay to comply with the NRC regulations applicable to non " electric utility" owners ofinterests in nuch ar power plants.
The Company cannot predict whether Great Bay's funding proposal will be acceptable to the i
NRC or whether the NRC will grant a permanent exemption to Great Bay. Failure to obtain relief may have a material adverse effect on Great Bay's business, financial condition, liquidity or results of operation.
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BAYCORP llOLDINGS, LTD.
l 1 ianidity and Capital Expenditges BayCorp anticipates that its share of the Seabrook Project's capital expenditures for the 1998 fiscal year will total approximately $7.4 million, primarily for nuclear fuct and various capital projects. This estimate is based on the latest projections provided by the managing agent of the Seabrook Project.
An unscheduled outage began on December 5,1997 and lasted until January 15,1998.
The Seabrook Project from time to time experiences both scheduled and unscheduled outages.
The Company incurs losses during outage periods due to the loss of all operating revenues and additional costs associated with the outages as well as continuing cperating and maintenance expenses and depreciation.
For each of the tax years 1994,1995,1996 and 1997, Great Bay filed property tax abatement applications with the town of Seabrook and two other New llampshire towns in which the Seabrook Project is located. Great Bay paid the 1994,1995 and half of the 1996 property taxes billed by the Towns of Seabrook, llampton and llampton Falls, New Hampshire (collectively, the " Towns") but withheld payment of he second half of the 1996 property taxes billed by the Towns, based on Great Bay's position that the portion of IWo property taxes paid to the Towns exceeded the amount of the total 1996 property taxes appropriately payable by Great Bay to the Towns. Great Bay also withheld the first half ofits 1997 property taxes to the Towns. The abatement request for tax years 1994,1995 and 1996 were denied. Great Bay filed appeals for each of those years with the New ilampshire Board of Tax and Land Appeals. The appeals are currently pending and a hearing on the first pha e of these appeals is scheduled for May 11,1998.
Proposed NRC regulations and a review of Great Bay's status as an " electric utility" by the NRC are currently in process and may adversely effect BayCorp's and Great Bay's liquidity, possibly materi.21ly. See " Decommissioning Liability."
On February 12,1998, Great Bay sent a letter to PECO Energy Company ("PECO") informing PECO that Great Bay intended to terminate PECO as Great Bay's exclusive marketing agent. On February 24,1998, Great Bay filed suit against PECO in the United States District Court for the District of New 11ampshire seeking a d alaratoryjudgment that Great Bay properly tern inated the PECO Services Agreement and seeking damages arising not of PECO's breach of the PECO Services Agreement. In its complaint, Great Bay allercs that O) PECO has entered into a number of wholesale power agreements in its own name and for its own benefit without bringing these opportunities to Great I
Bay's attention or submitting bids on behalf of Great Bay and (ii) PECO failed to offer Great Bay's power on a firm basis to customers as required under the PECO Services Agreement. In February 27, 1998, Great Bay sent a letter to PECO notifying PECO that the Services Agreement was terminated.
On March 10,1998, PECO filed a motion in the United States District Court for the District of New llampshire for a preliminary injunction to prevent Great Bay from t:rminating the PECO Services Agreement. At that time, PECO also filed counterclaims seeking damages for an amount in excess of
$5,000,000 for allegell breach of contract, alleged loss of goodwill and alleged harm to PECO's reputation. PECO's counterclaim contained seven counts: breach of contract / wrongful termination, 11
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l breach of exclusivity promise, breach of the covenant of good faith and fair dealing, unjust enrichment, defamation, unfair trade practices and an action for declaratoryjudgment.
On March 30,1998, the Court denied PECO's motion for a preliminary injunction. Ilowever, in its decision denying PECO's request for a preliminary injunction, the Court found that it is likely that PECO will prevail on its claim that Great Bay wrongfully terminated the PECO Services Agreement.
Great Bay and PECO are currently engaged in settlement negotiations. During the pendency of these negotiations, the parties have agreed that they will not take further action in the litigation.
NOTE D - EQUITY On October 9,1997, the Board of Directors of BayCorp adopted a resolution authorizing BayCorp to repurchase up to an additional aggregate of 100,000 shares of BayCorp common stock on the open market or in negotiated transactions. The shareholder groups controlled by Omega Advisors,Inc.
and Elliot Associates, L.P., the owners of approximately 57% of the Company's shares outstanding in aggregate, have advised the Company that they do not intend to sell shares in the open market or in negotiated transactions which would be subject to repurchase by the Company under this repurchase program. As of March 31,1998, the Company had repurchased 10,000 shares at a cost of approximately
$71,253, or approximately $7.125 per share, as part of this repurchase program.
Neither the Company nor Great Bay has ever paid cash dividends on its common stock.
BayCorp currently expects that it will retain all ofits future earnings and does not anticipate paying a dividend in the foreseeable future.
Item 2. Manacement's Discussion and Analysis of Financial Condition and Results of gnerations Overview As a result of the corporate restructuring that occurred in January 1997, BayCorp's principal asset is its 100% equity interest in Great Bay. Great Bay is a public utility whose principal asset is a 12.1% joint ownership interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Unless the context requires otherwise, references to BayCorp for events and time periods before January 1997 redect treatment of BayCorp as successor to Great Bay.
An unscheduled outage at the Seabrook Project began on December 5,1997 and lasted until January 15,1998. For the three months ended March 31,1998, the Company has reported a loss of
- r. approximately $1,665,000 due to decreased revenues and increased operating costs associated with this unscheduled outage. See " Liquidity and Capital Expenditures."
Results of Operations: First Ouarter of Fiscal 1998 Compared to the First Ouarter of Fiscal 1997 Operating Revenues Operating Revenues decreased by approximately $994,100, or 11.8%, to $7,443.100 in the Grst quarter of 1998 as compared to $8,437,200 in the first quarter of 1997. This decrease in reveriues was 12
BAYCORP IlOLDINGS, LTD.
primarily the result of the unscheduled outage that began in December 1997 and ended on January 15, 1998. For the first quarter of 1998, the capacity factor at the Seabrook plant was 81.2% versus a capacity factor of 100% for the first quarter of 1997. The capacity factor for the first quarter of 1998 was adversely affected by the unscheduled outage referred to above. There were no scheduled or unscheduled outages during the first quarter of 1997. Sales of electricity decreased by approximately 19% to 246,494,100 kilowatt-hours ("kWhs") in the first quarter of 1998 as compared to 304,475,500 kWhs in the first quarter of 1997. During the first quarter of 1998 the average sales price per kWh (determined by dividing total sales revenue by the total number of kWhs sold in the applicable period) increased 9.0% to 3.02 cents per kWh as compared with 2.77 cents per kWh in the first quarter of 1991.
j BayCorp's cost of power (determined by dividing total operating expenses by BayCorp's 12.1%
share of the power produced by the Seabrook Project during the applicable period) increased 21.1% to 3.58 cents per kWh in the first quarter of 1998 as compared to 2.82 cents per kWh in the first quarter of 1997. This increase was primarily the result of the unscheduled outage and its associated costs that were incurred in the first quarter of 1998 and the lower capacity factor at the Seabrook Project during the first quarter of 1998 as compared to the first quarter of 1997. Scheduled and unscheduled outage time increases BayCorp's cost of power because Seabrook costs are spread over fewer kWhs.
Expenses Production and Transmission expenses for the first quarter of 1998 increased approximately
$498,000, or 10.8%, as compared to the first quarter of 1997. This increase was primarily the result of unscheduled outage related costs incurred in the first quarter of 1998. These were no scheduled or unscheduled outages during the first quarter of 1997.
During the first quarter of 1998, there was an overall decrease of approximately $240,000, or 6.1%, in depreciation and amortization, taxes, and administrative and general expenses, from $3,958,000 in the first quarter of 1997 to $3,718,000 in the first quarter of 1998. This decrease was primarily attributable to a decrease in general and administrative expenses at Seabrook during the first quarter of 1998 as compared to the first quarter of 1997.
Other (income) Deductions Decommissioning Cost Accrnion increased $47,000, to $713,000 during the first quarter of 1998 as compared to $666,000 during the first quarter of 1997. This accretion is a non-cash charge and recognizes Great Bay's liability related to the closure and decommissioning of the Seabrook Project in current year dollars over the over the period during which the Seabrook Project is licensed to operate.
During the first quarter of 1998, the Company realized $435,000 in miscellaneous other income as compared to $513,000 for the first quarter of 1997. This income primarily reflects interest earned on the Company's cash and decommissioning trust fund accounts. The decrease of $78,000, or 15.2%,
primarily reflects reduced interest earnings on the lower cash balances during the first quarter of !998 as compared to the first quarter of 1997.
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BAYCORP IIOLDINGS, LTD.
Net Loss As a result of the above factors, dming the first qusrter ended March 31,1998, the Company recorded a net loss of $1,665,000, or approximately 5.20 per basic and diluted share, as compared to a net loss of $288,000, or approximately $.03 per basic and dimted share, dur.ng the first quarter ended l
March 31,1997.
Net Operating Losses For federal income tax purposes, as of December 31,1997, the Company had net operating loss carry forwards ("NOLs") of approximately $196 million, which are scheduled to expire between 2005 t.nd 2012. Because the Company has experienced one or more ownership changes, within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, an annual limitation is imposed on the ability of the Company to use $136 million of these carryforwards. The Company's best estimate at this time is that th annual limitation on the use of $136 million of the Company's NOLs is approximately
$5.5 mil' ion per year. Any unused portion of the $5.5 million annual limitation applicable to the Company's restricted NOL's is available for use in future years until such NOL's are scheduled to expire. The Company's other $60 million of NOLs are not currently subject to such limitations.
Liquidity BayCorp's cash and short-term investments decreased approximately $5,128,000 during the first three months of 1998. Principal factors affecting liquidity during the three months ended March 31, 1998 included the operating loss of $1,665,000 discussed above and cash expenditures of approximately
$363,000 for capital plant additions and $289,000 for decommissioning trust fund payments. The increase in accounts reccivable of approximately $5,107,000 includes an outstanding receivable of approximately $2,500,000 for February sales currently due from PECO. PECO is withholding this payment pending the outcome of the current sett'ement negotiations between BayCorp and PECO. See
" Liquidity and Capital Expenditures." The remaining increase in accounts receivable of approximately
$2,600,000 is primarily due to the low 1997 year end receivables balance resulting from the unscheduled outage in December 1997 that reduced December sales.
Offsetting these cash charges were non-cash charges to income which included $877,000 for depreciation, $1,026,000 for nuclear fuel amortization and decommissioning trust fund accretion of
$713,000 and an increase in Taxes Accrued of $902,000. During the first quarter of 1998, prepaids and other assets decreased approximately $1,101,000 and other working capital items increased $696,000, for a net decrease of approximately $405,000 primarily related to payments to the Seabroak Project for operating expenses.
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Any statements contained herein (including without limitation statements to the effect that the Company, Great Bay or their management " believes", " expects", " anticipates"," plans" l
and similar expressions) that are not statements of historical fact should be considered forward-looking l
statements. Among the important factors that could cause actual results to differ materially from tl.ose indicated by such forward-looking statements are the factors set forth in the Company's Annual Report on Form 10-K under the caption Management's Discussion and Analysis of Financial Condition and l
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1 BAYCORP IlOLDINGS, LTD.
j i
Results of Operation - Certain Factors That May Affect Future Results, which are incorporated by teference herein.
l PAllT II-OTIIEll INFOllMATf 0N
]
Item 1. Lecal Proceedings I
For each of the tax years 1994,1995,1996 and 1997, Great Bay filed property tax abatement I
applications with the town of Seabrook and two other New ilampshire towns in which the Seabrook Project is located. Great Bay paid the 1994,1995 and half of the 1996 property taxes billed by the Towns of Seabrook, llampton and llampton Falls, New ilampshire (collectively, the " Towns") but withheld payment of the second half of the 1996 property taxes billed by the Towns, based on Great Bay's position that the portion of 1996 property taxes paid to the Towns exceeded the amount of the total 1996 property taxes appropriately payable by Great Bay to the Towns. Great Bay also withheld the first half ofits 1997 property taxes to the Towns. The abatement request for tax years 1994,1995 and 1996 were denied. Great Bay filed appeals for each of those years with the New IIampshire Board of Tax and Land Appeals. The appeals are currently pending and a hearing on the first phase of these appeals is scheduled for May 12,1998.
I On February 12,1998, Great Bay sent a letter to PECO Energy Company ("PECO") informing PECO that Great Bay intended to terminate PECO as Great Bay's exclusive marketing agent. On l
February 24,1998, Great Bay filed suit against PECO in the United States District Court for the District of New Hampshire seeking a declaratoryjudgment that Great Bay properly terminated the PECO l
Services Agreement and seeking damages arising out of PECO's breach of the PECO Services Agreement. In its complaint, Great Bay alleges that (i) PECO has entered into a number of wholesale power agreements in its own name and for its own benefit without bringing these opportunities to Great Bay's attention or submitting bids on behalf of Great Bay and (ii) PECO failed to offer Great Bay's power on a Drm basis to customers as required under the PECO Services Agreement. In February 27, 1998, Great Bay sent a letter to PECO notifying PECO that the Services Agreement was terminated.
On March 10,1998, PECO Gled a motion in the United States District Court for the District of New Ilampsidre for a preliminary injunction to prevent Great Bay from terminating the PECO Services Agreement. At that time, PECO also filed counterclaims seeking damages for an amount in excess of
$5,000,000 for alleged breach of contract, alleged loss of goodwill and alleged harm to PECO's reputation. PECO's counterclaim contained seven counts: breach of contract / wrongful termination, breach of exclusivity rsromise, breach of the covenant of good faith and fair dealing, unjust enrichment, defamation, unfair trade practices and an action for declaratoryjudgment.
On March 30,1998, the Coun denied PECO's motion for a preliminary injunction. Ilowever, in its decision denying PECO's request for a preliminary injunction, the Court found that it is likely that PECO will prevail on its claim that Great Bay wrongfully terminated the PECO Services Agreement.
Great Bay and PECO are currently engaged in settlement negotiations. During the pendency of these negotiations, the parties have agreed that they will not take further action in the litigation.
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BAYCORP IIOLDINGSp LTD.
Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit index (b) There were no reports on Form 8-K submitted for the three months ended March 31,1998.
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BAYCORP HOLDINGS, LTD.
l Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BayCorp Holdings, Ltd.
May 12,1998 By:
/s Frank W. Getman Jr.
President and Chief Executive Officer i
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BAYCORP IIOLDINGS, LTD.
EXfilBIT INDEX Exhibit No.
Description s
10.27 Employment Agreement between Frank W. Getman Jr. and BayCorp lioldings, Ltd., dated May 5,1998.
10.28 Employment Agreement between John A. Tillinghast and BayCorp Iloidings, I.td., dated May 5,1998.
27.1 Financial Data Schedule 99.1 Certain Factors That May Affect Future Results, set out on pages 18-22 of the Company's Annual Report on Form 10-K for the period ended December 31, 1997. Such Form 10-K shall not be deemed to be filed except to the extent that portions thereof are expressly incorporated by reference herein.
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