ITEM 1 - BUSINESS
(a) General. Maine Yankee Atomic Power Company (the "Company" or "Maine Yankee"), incorporated under the laws of Maine on January 3, 1966, owns and operates a pressurized-water nuclear-powered electric generating plant at Wiscasset, Maine, with a current net capacity of approximately 860 megawatts electric (the "Plant"). The Company sells its capacity and output to its ten sponsoring stockholder utilities. The Company's principal office address is Edison Drive, Augusta, Maine 04330, and its telephone number is (207) 622-4868.
The Plant was declared commercial on December 28, 1972, with regular operation at approximately 570 megawatts electric (net) starting on January 1, 1973. Hearings on the Company's application for a full operating license were completed in 1972 and the license for full operation to 2008 was granted by the Atomic Energy Commission, the predecessor of the Nuclear Regulatory Commission ("NRC"), on June 29, 1973.
The Plant is operated on a planned 18-month operating cycle and must be taken off line at the end of a cycle for approximately eight to ten weeks for scheduled refueling, maintenance and construction activities. Through December 31, 1993, the Company had sold over 106.8 billion kilowatt-hours ("KWH") of electricity at an average lifetime total cost per KWH of 2.3 cents. The Plant's lifetime average capacity factor is 72%.
In 1993 the Plant operated at an average capacity factor of 76 percent (based on a net rating of 860 megawatts), and generated for sale 5.7 billion KWH of electric power, the highest total for a refueling year in the Plant's history, at an average cost of 3.4 cents per KWH. The Plant was shut down from July 30 to October 13, 1993, for scheduled refueling and maintenance.
The Company is sponsored by ten investor-owned New England utilities (the "Sponsors" or the "Stockholders"), each of which is committed under a Power Contract with the Company to purchase a specified percentage of the capacity and output of the Plant and to pay therefor a like percentage of amounts sufficient to pay the Company's fuel costs, operating expenses (including a depreciation accrual at a rate sufficient to fully amortize the investment in the Plant over the operating life of the Plant and amounts estimated to be sufficient to decommission the Plant), interest on its debt and a return on its equity. The Company and its Sponsors have also executed Additional Power Contracts for the purpose of extending the term of the Power Contracts, as amended, from 2003 to the end of the useful life of the Plant and the completion of its decommissioning and financial obligations. Each Sponsor has also agreed under a Capital Funds Agreement with the Company to provide a like percentage of the Company's capital requirements not obtained from other sources, subject to obtaining necessary authorizations of regulatory bodies in each instance. All such obligations are subject to the continuing jurisdiction of various federal and state regulatory bodies. - 1 -
ITEM 1 - BUSINESS (continued)
(a) General. (continued)
The obligations of the Sponsors to make payments under the Power Contracts are unconditional, subject only to each Sponsor's right to cancel its Power Contract if deliveries cannot be made to the Sponsor because either (i) the Plant is damaged to the extent of being completely or substantially completely destroyed, or (ii) the Plant is taken by exercise of the right of eminent domain or a similar right or power, or (iii) (a) the Plant cannot be used because of contamination or because a necessary license or authorization cannot be obtained or is revoked or the utilization thereof is made subject to specified conditions which are not met, and (b) the situation cannot be rectified to an extent which will permit the Company to make deliveries to the Sponsor from the Plant. Notwithstanding the right to cancel, the obligation to pay decommissioning costs continues until the Plant has been fully decommissioned.
A default by a Sponsor of the Company in making payments under the Power Contract or Capital Funds Agreement could have a material adverse effect on the Company, depending on the magnitude of the default, and would constitute a default under the Company's First Mortgage Indenture and two other major credit agreements unless cured within applicable grace periods by the defaulting Sponsor or other Sponsors.
(b) Problems Affecting the Industry and the Company. Substantial controversy exists concerning nuclear generating plants, which intensified when events in 1979 at the Three Mile Island Nuclear Unit No. 2 in Pennsylvania ("TMI") caused increased concern about the safety of such plants. This prompted a rigorous reexamination of safety related equipment and operating procedures in all nuclear facilities and caused the NRC to promulgate numerous requirements in response to TMI, including both near-term modifications to upgrade certain safety systems and instrumentation and longer-term design changes, ranging from equipment changes to operational support. The Company has made the modifications required by the NRC. The NRC is continuing its safety reviews under both long-standing and new regulations and may at any time issue orders which could materially affect the Company's affairs and financial condition and the operation of the Plant. For a discussion of the voluntary shutdown of the Yankee Atomic Electric Company plant at Rowe, Massachusetts, for both regulatory and economic reasons, see "(h) Yankee Atomic Electric Company Plant Shutdown", below.
Public and regulatory attention has also focused on the disposal of both low- and high-level nuclear wastes. Certain aspects of the disposal of nuclear wastes and the decommissioning of nuclear generating facilities have been regulated under federal and Maine law and further regulation is likely in this area. Public concern about the operation of nuclear generating facilities and the disposal of nuclear wastes has sometimes resulted in public campaigns to close such facilities. Although affecting various nuclear generating facilities in varying degrees, such events, as well as other problems of the industry, have had, and will continue to have, a direct effect on the affairs and financial condition of the Company. For further discussion of nuclear waste disposal issues, see "(d) Nuclear Fuel Disposal" and "(f) Low-Level Waste Disposal", below. - 2 -
ITEM 1 - BUSINESS (continued)
(b) Problems Affecting the Industry and the Company. (continued)
There have been three unsuccessful state referenda attempting to close the Plant since 1980. The last referendum occurred on November 3, 1987, when the Maine electorate defeated an initiated bill intended to close the Plant on July 4, 1988, by a margin of 59 percent to 41 percent. There is no certainty that such a referendum will not occur again, and in the event that one takes place, no prediction can be made as to the potential outcome. If a referendum were to be initiated, the Company would strongly contest any attempts to close or impair the operation of the Plant. If (contrary to the history of unsuccessful referenda on the Plant) a referendum were to pass in Maine, the Company believes that such referendum would be vulnerable to a challenge on the basis of fundamental legal principles and that the Company would have substantial rights and remedies available to it, which it would vigorously seek to enforce.
(c) Regulation and Environmental Matters. The Plant is subject to exten- sive regulation by the NRC, which is empowered to authorize the siting, construction and operation of nuclear reactors after consideration of public health, safety, environmental and antitrust matters.
The United States Environmental Protection Agency ("EPA") administers programs established under the Federal Water Pollution Control Act and the Clean Air Act, as amended in 1990, which affect the Plant. The former Act establishes a national objective of complete elimination of discharges of pollutants into the nation's water and creates a rigorous permit program designed to achieve this objective. The latter Act empowers the EPA to establish clean air standards which are implemented and enforced by state agencies.
In addition, pursuant to the Federal Resource Conservation and Recovery Act of 1976, the EPA regulates the generation, transportation, treatment, storage and disposal of hazardous wastes. The EPA has broad authority in administering these programs, including the ability to require installation of pollution control and mitigation devices.
The National Environmental Policy Act of 1969 ("NEPA") requires that de- tailed statements of the environmental effects of major federal actions be prepared by federal agencies. Major federal actions can include licenses or permits issued to the Company by the NRC and other federal agencies for construction or operation of generation and transmission facilities. NEPA requires that federal licensing agencies make an independent evaluation of the environmental impact of, and alternatives to, the proposed action. Future construction modifications or other activities at the Plant could require federal licenses or approvals that involve NEPA requirements.
The Company is also subject to regulation as to environmental matters and land use by various state and local authorities in Maine. - 3 -
ITEM 1 - BUSINESS (continued)
(c) Regulation and Environmental Matters. (continued)
Under their continuing jurisdiction, the NRC and one or more of the EPA and the state authorities having jurisdiction over the Company's facilities may modify permits or licenses which have already been issued, or impose new conditions on such permits or licenses, and may require additional capital expenditures or require that the level of the operation of a unit be temporarily or permanently reduced. See "(b) Problems Affecting the Industry and the Company", above. The Sponsors of the Company have agreed, however, subject to certain exceptions including regulatory approval, (i) to provide the required capital not otherwise available, (ii) to take the total output of the Plant, and (iii) to pay all costs of the Plant, including capital and decommissioning costs.
The Company and several of its Sponsors are subsidiaries of registered holding companies and as such are subject to regulation by the Securities and Exchange Commission ("SEC") under the Public Utility Holding Company Act of 1935 with respect to various matters, including the issuance of certain securities. The Company is also subject to regulation by the SEC under other federal securities laws.
In addition the Company is subject to regulation by the Federal Energy Regulatory Commission ("FERC") as to its rates (including the Power Contracts and Additional Power Contracts) and various other matters, and is subject to regulation by the Maine Public Utilities Commission ("MPUC") as to some aspects of its business, including the issuance of securities.
(d) Nuclear Fuel Disposal. The cycle of production and utilization of nuclear fuel for nuclear generating units consists of (1) the mining and milling of uranium ore, (2) the conversion of the resulting concentrate to uranium hexafluoride, (3) the enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblies, (5) the utilization of the nuclear fuel, and (6) the disposal of spent fuel. The Company has entered into a contract with the federal Department of Energy ("DOE") for disposal of its spent nuclear fuel, as required by the Nuclear Waste Policy Act of 1982, pursuant to which a fee of $1.00 per megawatt-hour is currently assessed against net generation of electricity and paid to the DOE quarterly. Under this Act, the DOE has assumed the responsibility for disposal of spent nuclear fuel produced in private nuclear reactors. In addition, Maine Yankee is obligated to make a payment of $50.4 million with respect to generation prior to April 7, 1983 (the date current DOE assessments began), all of which the Company has already collected from its customers, but for which a reserve was not funded. The Company has elected under the terms of this contract to make a single payment of this obligation prior to the first delivery of spent fuel to DOE, scheduled to begin no earlier than 1998. The payment will consist of the $50.4 million, plus interest accrued at the 13-week Treasury Bill rate compounded on a quarterly basis from April 7, 1983, through the date of the actual payment. Current costs incurred by the Company under this contract are recoverable by it under the terms of its Power Contracts with its Sponsors. The Company has accrued and billed $53.1 million of interest cost for the period April 7, 1983, through December 31, 1993. - 4 -
ITEM 1 - BUSINESS (continued)
(d) Nuclear Fuel Disposal. (continued)
Maine Yankee has formed a trust to provide for payment of its long-term spent fuel obligation. The total spent fuel fund balance, held by an independent trustee, as of December 31, 1993, was $86.7 million (including interest earned). The trust is funded at least semiannually by the Company through deposits, which began in December 1985, with current projected semiannual deposits of approximately $0.26 million through December 1997. Deposits are expected to total approximately $62.8 million. The estimated liability, including interest due at the time of disposal, is projected to be approximately $115.9 million at January 31, 1998. The Company estimates that trust fund deposits plus estimated earnings will meet this total liability if funding continues without material changes.
Federal legislation enacted in 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also provides for the possible development of a Monitored Retrievable Storage ("MRS") facility and abandons plans to identify and select a second permanent disposal site. An MRS facility would provide temporary storage for high-level waste prior to eventual permanent disposal. In late 1989 the DOE announced that the permanent disposal site was not expected to open before 2010, although originally scheduled to open in 1998. Additional delays due to political and technical problems are probable.
Under the terms of a license amendment approved by the NRC in 1984, the present storage capacity of the spent fuel pool at the Plant will be reached in 1999 and after 1996 the available capacity of the pool will not accommodate a full-core removal. After consideration of available technologies, the Company elected to provide additional capacity by replacing the fuel racks in the spent fuel pool at the Plant and, on January 25, 1993, filed with the NRC seeking authorization to implement the plan. On March 15, 1994, the NRC granted the authorization. Maine Yankee believes that the replacement of the fuel racks will provide adequate storage capacity through the Plant's licensed operating life, but cannot predict with certainty whether or to what extent the new level of storage capacity at the Plant will affect the operation of the Plant or the future cost of disposal.
(e) Decommissioning. A study conducted for the Company in 1987 by an external engineering consultant estimated decommissioning costs, which include the costs of removal of the Plant and reclamation of the Plant site, to be $142.5 million, plus a contingency of $35.6 million, for a total of $178.1 million (in mid-1987 dollars). The Company is currently allowed to collect $9.1 million annually in rates, based on the FERC- approved rate case settlement amount of $167.0 million (in mid-1987 dollars). Through 1993 the Company had collected $69.1 million for decommissioning, which funds are held by an independent trustee. The total decommissioning fund balance as of December 31, 1993, was $93.8 million (including interest earned). The amounts collected, together with the trust earnings, will be used to meet the Company's decommissioning obligation. - 5 -
ITEM 1 - BUSINESS (continued)
(e) Decommissioning. (continued)
The Company's most recent study, conducted by the same consultant in 1993, estimated decommissioning costs to be $273.1 million, plus a contingency of $43.5 million, for a total of $316.6 million (in mid-1993 dollars). For a discussion of a rate filing by the Company with the FERC, in which decommissioning costs are a major area of focus, see Item 3, LEGAL PROCEEDINGS, Section (b), "Rate Proceedings", below. The Company recognizes the relative uncertainties associated with decommissioning, including its changing technology and the possibility of new requirements of law, and therefore recognizes the need to monitor and adjust decommissioning collections through supplemental rate filings with the FERC.
(f) Low-Level Waste Disposal. The federal Low-Level Radioactive Waste Policy Amendments Act (the "Waste Act"), enacted in 1986, required operating disposal facilities to accept low-level nuclear waste from other states until December 31, 1992. The Waste Act also set limits on the volume of waste each disposal facility must accept from each state, established milestones for the nonsited states to establish facilities within their states or regions (pursuant to regional compacts) and authorized increasing surcharges on waste disposal until 1992. After 1992 the states in which there are operating disposal sites are permitted to refuse to accept waste generated outside their states or compact regions. In 1987 the Maine Legislature created the Maine Low-Level Radioactive Waste Authority (the "Maine Authority") to provide for such a facility if Maine is unable to secure continued access to out-of-state facilities after 1992, and the Maine Authority has been engaged in a search for a qualified disposal site in Maine. The Company volunteered its site at the Plant for that purpose, but progress toward establishing a definitive site in Maine, as in other states, was difficult because of the complex technical nature of the search process and the political sensitivities associated with it. As a result, Maine did not satisfy its milestone obligation under the Waste Act requiring submission of a site license application by the end of 1991, and is therefore subject to surcharges on its waste and has not had access to regulated disposal facilities since the end of 1992. Thus, Maine Yankee now stores all waste generated at an on-site storage facility.
At the same time, the State of Maine was pursuing discussions with the State of Texas concerning participation in a compact with that state and Vermont. In May 1993, the Texas Legislature approved a compact with the states of Maine and Vermont. The Maine Legislature in June 1993 ratified the compact and submitted it to ratification by Maine voters in a referendum held on November 2, 1993, in which the compact was ratified by a margin of approximately 73% to 27%. It must now be presented to the United States Congress for final ratification.
The compact provides for Texas to take Maine's low-level waste over a 30- year period for disposal at a planned facility in west Texas. In return Maine would be required to pay $25 million, assessed to the Company by the State of Maine, payable in two equal installments, the first after ratification by Congress and the second upon commencement of operation of the Texas facility. In addition, the Company would be assessed a total of $2.5 million for the benefit of the Texas county in which the facility would be located and would also be responsible for its pro-rata share of - 6 -
ITEM 1 - BUSINESS (continued)
(f) Low-Level Waste Disposal. (continued)
the Texas governing commission's operating expenses. Pending the ratification votes, the Maine Authority has suspended its search for a suitable disposal site in Maine.
In the event the required ratification by Congress is not obtained, subject to continued NRC approval, the Company can continue to utilize its capacity to store approximately ten to twelve years' production of low-level waste in its facility at the Plant site, which it started in January 1993. Subject to obtaining necessary regulatory approval, the Company could also build a second facility on the Plant site. The Company believes it is probable that it will have adequate storage capacity for such low-level waste available on-site, if needed, through the licensed operating life of the Plant. On January 26, 1993, the NRC published for public comment a proposed rulemaking that, if adopted, would require a licensee such as Maine Yankee, as a condition of its license, to document that it had exhausted other reasonable waste management options in order to be permitted to store low-level waste on-site beyond January 1, 1996. Such options include taking all reasonable steps to contract, either directly or through the state, for disposal of the low-level waste. On February 9, 1994, the NRC, after affirming its preference for disposal of waste over storage, announced its decision to withdraw the proposed rulemaking. Maine Yankee expects the NRC to issue its formal notice of withdrawal in the spring of 1994.
The Company cannot predict whether the final required ratification of the Texas compact or other regulatory approvals required for on-site storage will be obtained, but the Company intends to utilize its on-site storage facility in the interim and continue to cooperate with the State of Maine in pursuing all appropriate options.
(g) Nuclear Insurance. In accordance with the Price-Anderson Act, the limit of liability for a nuclear-related accident is approximately $9.317 billion, effective March 20, 1994. The primary layer of insurance for the liability is $200 million of coverage provided by the commercial insurance market. The secondary coverage is approximately $9.117 billion, based on 115 licensed reactors. The secondary layer is based on a retrospective premium assessment of $75.5 million per nuclear accident per licensed reactor, payable at a rate not exceeding $10 million per year per accident. In addition, the retrospective premium is subject to inflation-based indexing at five-year intervals and, if the sum of all public liability claims and legal costs arising from any nuclear accident exceeds the maximum amount of financial protection, each licensee can be assessed an additional 5% ($3.775 million) of the maximum retrospective assessment.
In addition to the insurance required by the Price-Anderson Act, the Company carries all-risk nuclear property damage insurance in the amount of $500 million plus additional excess nuclear property insurance in the amount of $2.25 billion, effective January 1, 1994. Of this additional excess insurance, $1.4 billion is provided by a nuclear electric utility industry insurance company through a combination of current premiums and retrospective premium assessments. If the insurance company experiences losses in excess of its capacity to pay them, each participating utility may be assessed a retrospective premium of up to 7.5 times its premium with respect to industry losses in any policy year, which could range up to - 7 -
ITEM 1 - BUSINESS (continued)
(g) Nuclear Insurance. (continued)
approximately $12.8 million for the Company. The remaining excess nuclear property coverage of $850 million is obtained from the commercial insurance market and is not subject to retrospective premium assessments. These excess coverage amounts are the maximum offered by both the industry mutual company and the commercial market.
(h) Yankee Atomic Electric Company Plant Shutdown. In February 1992, Yankee Atomic Electric Company ("Yankee Atomic"), a Massachusetts corporation with several of the same sponsors as Maine Yankee, announced that it would permanently cease power operation of the Yankee Nuclear Power Station in Rowe, Massachusetts, and would prepare for an orderly decommissioning of the facility. Yankee Atomic cited continued regulatory uncertainty and economics as the key factors in its decision to close the generating plant eight years prior to the expiration of its operating license.
Yankee Atomic said several important regulatory issues had not been fully resolved, which, coupled with unfavorable economic conditions, would have imposed costs too large to justify the expense of seeking to restart the 185-megawatt plant. The Yankee Atomic Plant, which had been voluntarily shut down in October 1991, is a small plant whose design is technologically different from that of the larger and more modern Maine Yankee Plant.
(i) Employees. At December 31, 1993, the Company had 472 full-time employees.
ITEM 2
ITEM 2 - PROPERTIES
The Plant is located on tidewater on Bailey Point in Wiscasset, Maine, on a 740-acre site which is owned in fee by the Company and is adequate for the Plant and for all associated facilities, including the associated switchyard facilities which are owned in part and operated by Central Maine Power Company.
The Plant is a nuclear-powered electric generating plant, utilizing a pressurized-water reactor, fueled with slightly enriched uranium oxide. The nuclear steam supply system and certain other equipment were designed and fabricated by Combustion Engineering, Inc. The turbine generator was supplied by Westinghouse Electric Corporation. Stone & Webster Engineering Corporation, as engineer and constructor, designed and constructed the Plant. Construction of the Plant, which began in 1967, was completed in 1972 except for certain discharge temperature control facilities designed to meet the requirements of the Maine Board of Environmental Protection, which were completed in 1975.
Under the terms of the Indenture securing the First Mortgage Bonds, substantially all electric plant of the Company is subject to a first mortgage lien. - 8 -
ITEM 2 - PROPERTIES (continued)
Since the Plant commenced operation, the Company has sought to improve its safety and reliability, while increasing its output, through periodic upgrading of equipment and facilities, along with regular training programs for Plant personnel. In furtherance of those goals, the Company replaced the Plant's two low-pressure turbines and its high-pressure turbine in 1988 and 1990, respectively, with new units provided by Asea Brown Boveri ("ABB"), which resulted in an increase of approximately 20 megawatts in the Plant's output. In addition, the Company had contracted with ABB for the purchase and installation of a new main generator, which was planned to be installed during the February 1992 refueling outage, but which the Company is now retaining as a spare. For accounting purposes, Maine Yankee has carried the approximately $8.1 million cost of the spare generator and associated equipment in a plant account as an emergency spare since December 1992, and in January 1993 filed an accounting letter request seeking FERC concurrence in that treatment. In a letter dated April 27, 1993, the FERC approved the treatment of the spare generator and associated equipment as an emergency spare component.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
(a) General. The operation of existing nuclear units and the construction of nuclear units in the United States continue to be subjects of public controversy. Various groups have filed lawsuits and participated in administrative proceedings claiming that the present state of nuclear technology presents risks to public health and safety and to the environ- ment. In addition, certain of these groups have proposed restrictive legislation relating to nuclear power. Some of the claims made by such groups, if they should prevail, or the existence of the controversy itself, could cause substantial modifications to or extended shutdowns of plants presently in operation. See Item 1, BUSINESS, Section (b), "Problems Affecting the Industry and the Company", above.
(b) Rate Proceedings. On April 7, 1993, the FERC initiated an investigation pursuant to Section 206 of the Federal Power Act into the justness and reasonableness of Maine Yankee's rate of return on common equity ("ROE") established in the Company's 1988 FERC rate case. The FERC indicated that its concurrent investigations of the rates of return on common equity of Maine Yankee and other nuclear generating companies were based on an independent analysis that suggested such rates might be excessive under current market conditions. After extensive negotiations, on September 20, 1993, the FERC staff, intervenors and Maine Yankee submitted for filing an offer of partial settlement, which was approved by the Commission on December 30, 1993. The settlement agreement provided, among other things, for the following:
(1) a reduction in Maine Yankee's ROE effective June 15, 1993, to 10.65% from 12.9%;
(2) an agreement by the parties to enter into good-faith negotiations regarding Maine Yankee's estimated cost of decommissioning and the corresponding collection rate; - 9 -
ITEM 3 - LEGAL PROCEEDINGS (continued)
(b) Rate Proceedings. (continued)
(3) an agreement that if the parties reached a settlement on Maine Yankee's decommissioning and collection rate, Maine Yankee would submit a rate filing requesting approval of the agreed-upon decommissioning and collection rate and a continuation of the 10.65% ROE, with the support of the FERC staff and intervenors;
(4) an agreement that if the parties were unable to reach agreement on the decommissioning issues, the Company would submit a rate filing that would encompass all appropriate rate issues.
On January 18, 1994, Maine Yankee, after reaching agreement on the major issues, filed its rate case with the FERC. In the filing, the Company sought approval to continue the ROE of 10.65% as earlier approved by the FERC. Maine Yankee also sought to increase the annual amount collected to fund decommissioning costs for the Plant from $9.1 million to the agreed amount of $14.9 million commencing April 1, 1994. This amount reflects the first step increase in the estimated cost to fully decommission the Plant from the $167.0 million (in mid-1987 dollars) allowed by the FERC in the Company's 1988 rate case to $316.6 million (in mid-1993 dollars) based on the Company's 1993 decommissioning cost study. The Company plans to continue to evaluate the cost of decommissioning periodically and seek additional step increases as necessary. With this filing, Maine Yankee is also requesting the FERC's approval for current and past expenses to fund postretirement benefits other than pensions, pursuant to a new accounting standard. See Note 11 of Notes to Financial Statements.
Along with the rate filing, the Company filed offers of settlement that were the result of extensive negotiations between Maine Yankee and the intervenors. The parties, except for one municipal utility, have agreed to a settlement reflecting, among other things, the following:
(1) an agreement to extend the ROE of 10.65% to April 1, 1997, or later, except for certain reopener provisions;
(2) an agreement to establish the decommissioning collection rate described above based on the new decommissioning cost estimate of $316.6 million;
(3) an agreement to establish a moratorium on Maine Yankee's ROE and decommissioning collection rate until April 1, 1997, except in certain limited circumstances.
The settlement offer does not address the treatment of postretirement benefits other than pensions.
Although the Company has reached agreement with all of the principal parties on the major rate issues, the Company cannot predict with certainty what action the FERC will take on its rate filing.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. - 10 -
PART II
ITEM 5
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS
The Company's Common Stock, owned by the Company's ten utility Sponsors, is not publicly traded. Transfer of the Common Stock is restricted by the Company's bylaws. The Company has paid cash dividends on its Common Stock to its utility Sponsors in each year of operation, 1973 through 1993. The following table shows cash dividends paid for years 1993 and 1992:
The payment of dividends on the Company's Common Stock is subject to the following restrictions:
(1) The Company's First Mortgage Indenture (the "Indenture") provides that the Company shall not declare or pay any dividend on any class of its stock, except out of earned surplus, and shall not declare or pay any such dividend or directly or indirectly make any payment on account of the purchase, redemption, acquisition or other retirement of any shares of its stock, unless, after giving effect to such declaration or payment, the Company's Equity shall be at least 35% of Plant Construction Financing, and the Company's Common Equity shall be at least 30% of Plant Construction Financing. Under the provisions of its two revolving credit arrangements with banks, the Company may not permit its Equity (as defined in the Indenture) to be less than 33% of Plant Construction Financing (as so defined) and its Common Equity (as so defined) to be less than 28% thereof. The Company was in compliance with those restrictions through December 31, 1993.
(2) The Company's Articles of Incorporation provide that so long as any shares of the Company's Cumulative Preferred Stock are outstanding, the payment of dividends on Common Stock (other than dividends in Common Stock) and the making of distributions thereon are limited to 50% of Net Income Available for Dividends on Common Stock for the preceding twelve months if the Common Stock Equity (after such action) is less than 20% of Total Capitalization, and to 75% of such Net Income if such Common Stock Equity (after such action) is 20% or more but less than 25% of Total Capitaliza- tion. The Company was in compliance with that restriction through December 31, 1993. - 11 -
Maine Yankee Atomic Power Company Form 10-K - 1993 ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA (Dollars in Thousands Except Per Share Amounts)
- 12 -
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a period commencing January 1, 1973, extending for thirty years thereafter in accordance with the Power Contracts, as amended, subsequently extended by the Additional Power Contracts from 2003 to the end of the useful life of the Plant and completion of all licensing and financial obligations, and subject to certain limitations, each Sponsor receives its entitlement percentage of Plant output and is obligated to pay its entitlement percentage of the Company's total costs, including a return on invested capital, regardless of the level of operation of the Plant. The Plant's operating license expires in 2008.
The following is management's analysis of certain significant factors which have affected the Company's operating results and financial condition for the period 1991 through 1993.
Operating Results
Plant Operations
The Plant has operated safely and reliably and has been a high production, low cost supplier of electricity since 1972. The Company has continued to upgrade its equipment and facilities. The reliability of the Plant is reflected in its 72% lifetime average capacity factor rating, which compares very favorably with a lifetime industry average capacity factor of approximately 67%. Through December 31, 1993, the Company had sold over 106.8 billion KWH of electricity at an average lifetime total cost per KWH of 2.3 cents.
The Plant is operated on a planned eighteen-month operating cycle and must be taken off line at the end of a cycle for approximately eight to ten weeks for scheduled refueling, maintenance and planned construction activities.
During 1993 the Plant operated at an average 76% capacity factor (using MDC net rating of 860 MWe) and generated and sold 5.7 billion KWH, the highest annual electrical production in its history during a refueling year.
Generation
The following table sets forth the Company's average cost of power and generation for the years 1993, 1992 and 1991. Comparability of amounts below is primarily impacted by the duration of plant outages. There was no refueling outage in 1991.
- 13 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Fuel Expenses
Fuel Amortization expense is based on the cost of (1) nuclear fuel in the reactor core that is allocated to the accounting period based on the level of energy production and (2) amortization over the remaining useful life of the Plant for the last core of unburned nuclear fuel.
Fuel amortization decreased by $6.1 million in 1992 over 1991, primarily as a result of lower generation and a reduction in the amortization rate due to lower-cost fuel being inserted into the core during the 1992 scheduled refueling, maintenance and construction outage ("refueling outage").
Fuel Disposal Cost results from (1) a disposal fee of $1.00 per megawatt- hour of net generation which is assessed by the DOE and is paid quarterly, and (2) a DOE annual assessment for decontaminating and decommissioning DOE's enrichment facilities. The 1992 and 1991 disposal costs include adjustments, lowering expense, for anticipated refunds from the DOE of $272,000 and $277,000, respectively.
The final DOE rule on the refund process for disposal costs became effective on January 30, 1992. Over the following four years, the DOE is implementing the refund process for overpayments through credits against quarterly payments. The refund process is being completed in two phases. In the initial phase, principal overpayments and accrued interest through March 31, 1992, were calculated and made available for credit during the 1992-1994 period. In the second phase, additional accrued interest for the period April 1, 1992, through September 30, 1994, will be calculated and made available for credit during 1995. Total credits available for Maine Yankee are $4,312,246 (plus interest accrued from March 31, 1992, through December 31, 1993) of which $2,588,296 has been applied through 1993.
Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for decontaminating and decommissioning DOE's enrichment facilities to be partially funded by a special assessment against domestic utilities. Under the Policy Act the total amount collected for the fiscal year will not exceed $150,000,000 escalated by the Consumer Price Index ("CPI") annually, and the collection of the amounts will cease after the earlier of (1) 15 years after the date of the enactment or (2) the collection of $2,250,000,000 (to be escalated by the CPI annually). Each utility's share of the assessment is to be based on its cumulative consumption of DOE enrichment services.
The Company's estimated obligation is $23,985,000 based on information from the DOE. In September 1993 the Company paid the first assessment of $1,599,000, of which $1,070,000 was expensed in 1993.
Operation Expense
Operation expense increased by $12.9 million for 1992 over 1991, a non- outage year, primarily from the effect of the refueling outage in 1992. - 14 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Maintenance Expense
The increase in maintenance expense by $6.8 million for 1993 over 1992 is due primarily to a maintenance project involving the Plant's thermal shield, along with general overall inflation associated with routine maintenance services, equipment and parts.
The increase in maintenance expense by $14.3 million for 1992 over 1991, a nonoutage year, is due primarily to expenses incurred for the 1992 refueling outage and general overall inflation associated with routine maintenance services, equipment and parts.
Income Taxes
The net increase in federal and state income taxes of $.5 million for 1993 over 1992 resulted primarily from a reduction in the flowback of excess deferred taxes associated with liberalized depreciation created from higher corporate tax rates in prior periods.
The net increase in federal and state income taxes of $1.7 million for 1992 over 1991 resulted primarily from four items: (1) a reduction in flowback of investment tax credits associated with the nuclear fuel assemblies as a result of the 1986 change in federal tax law which eliminated investment tax credits, (2) a reduction in flowback of excess deferred income taxes associated with liberalized depreciation, (3) the current state taxation of the growth in spent fuel trust earnings, offset by (4) the net tax benefits associated with the increased tax-exempt earnings of the spent fuel and decommissioning trust funds.
Other Income, Net
The increase in Other Income for 1992 over 1991 reflects primarily the increased earnings associated with the Company's prior spent fuel disposal trust fund.
Fuel Disposal Interest
The Company is accruing interest on its obligation to the DOE for fuel burned prior to April 7, 1983. This interest expense is compounded quarterly on the DOE obligation at the 13-week Treasury Bill rate. The interest expense associated with this liability is reflected as Interest Charges - Fuel Disposal Liability. The decrease in expense for 1993 and 1992 reflects the effect of lower interest rates.
Fuel Financing and Other Bank Note Interest
The average level of borrowings on fuel financing notes and bank notes was lower in 1993 than in 1992 primarily due to the repayment of short-term borrowings with the net proceeds of: (1) the $40,000,000 principal amount of Series E 8.13% Bonds issued on January 22, 1993, which was first applied to the redemption of the outstanding $27,500,000 principal amount of Series A 9.10% Bonds; and (2) the $25,000,000 principal amount of Series F 6.89% Bonds issued on June 4, 1993, which was first applied to the redemption of the outstanding $16,741,000 principal amount of Series B 8 1/2% Bonds and the outstanding $4,419,000 principal amount of Series C 7 5/8% Bonds. - 15 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Allowance for Funds Used
Fluctuations in the amount of allowance for funds (equity and borrowed) occur as the result of changes in the level of investment in plant construction and nuclear fuel in process, and/or the rates used for capitalization of these funds.
Earnings Applicable To Common Stock
The decrease in earnings applicable to common stock of $1.0 million for 1993 over 1992 resulted primarily from a decrease in the Company's ROE from 12.9%, established in the Company's 1988 FERC rate case, to 10.65% effective June 15, 1993, approved by the FERC on December 30, 1993. See Note 3 of Notes to Financial Statements, "Most Recent Rate Case", for a discussion of the rate case filing.
Liquidity and Capital Resources
Capital Resources
Cash flow needs for 1993 were provided from operating activities in the amount of $54.7 million and decommissioning trust earnings of $7.1 million restricted to decommissioning trust investments.
The primary uses of cash were for various corporate purposes such as: (1) nuclear fuel acquisitions of $11.2 million, (2) construction of operating property, which utilized $14.4 million, (3) trust fund investments of $22.2 million to meet future plant decommissioning costs and prior spent fuel permanent disposal, (4) dividend payments of $9.4 million, and (5) the net redemption of overall debt of $2.7 million.
The Company's current 1994 budget for construction of electric property is $8.7 million, inclusive of Allowance for Funds Used During Construction ("AFC"), and $23.4 million for procurement of nuclear fuel, inclusive of Allowance for Funds Used for Nuclear Fuel ("AFN"). See Note 12 of Notes to Financial Statements, "Commitments and Contingencies", for additional information concerning the Company's 1994 construction program and the projected acquisition of nuclear fuel requirements for 1994 through 1998.
At December 31, 1993, the Company had capital resources available from secured and unsecured lines of credit totaling $106 million, of which $12.0 million was utilized.
On September 22, 1992, the Company issued $15.0 million of Cumulative Preferred Stock, 8.00% Series (Sinking Fund), through a private placement to institutional investors. The net proceeds received by the Company from the sale of the Preferred Stock were applied to the repayment of bank borrowings incurred to finance the Company's construction program. - 16 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Capital Resources (continued)
On January 22, 1993, the Company issued $40.0 million of First Mortgage Bonds, Series E (Sinking Fund) 8.13% due 2008, through a private placement to institutional investors. The net proceeds received by the Company from the bonds were applied to the redemption of the outstanding $27.5 million principal amount of Series A 9.10% Bonds, with the balance being applied to the repayment of bank borrowings incurred to finance the Company's construction and fuel procurement programs.
On June 4, 1993, the Company issued $25.0 million of First Mortgage Bonds, Series F (Sinking Fund) 6.89% due 2008, through a private placement to an institutional investor. The net proceeds received by the Company from the bonds were applied to the redemption of the outstanding $16.7 million principal amount of Series B 8 1/2% Bonds and $4.4 million principal amount of Series C 7 5/8% Bonds, with the balance being applied to the repayment of bank borrowings incurred to finance the Company's construction and fuel procurement programs.
Each of the Maine Yankee Sponsors has agreed under a Capital Funds Agreement with the Company to provide a percentage equal to its respective ownership percentage of the Company's capital requirements not obtained from other sources, subject to obtaining necessary authorizations of regulatory bodies in each instance. All such obligations are subject to the continuing jurisdiction of various federal and state regulatory bodies.
In December 1993 Standard & Poor's Corp. ("S&P") announced that it was lowering its rating on Maine Yankee's preferred stock to "BBB-" from "BBB" and its implied senior secured debt rating to "BBB+" from "A-". S&P said the downgrade reflected a decline in the "aggregate credit quality of the utility sponsors in light of the recent downgrade of Central Maine Power Co., which holds a 38% ownership interest in the Maine Yankee plant." After a series of downgradings of Central Maine Power Company's securities by three rating agencies, S&P in January 1994 further downgraded Central Maine's senior secured debt to "BB+" with correspondingly lower ratings for its unsecured debt and preferred stock.
The Company, as well as the nuclear electric industry in general, has been challenged by common problems in recent years including those of increasing operating costs and expenditures for plant modifications attributable to more stringent regulatory requirements and uncertainties caused by political involvement in nuclear utility regulation. It is not possible at this time to predict what impact these uncertainties will have on the future financial operation of the Company.
Liquidity The Company bills its customers under a formula rate based on its cost of service. Unlike traditional utility ratemaking, where rates are based on a test-year rate base and total revenue requirements, the Company's rates consist of its actual costs of providing service each month, regardless of the production level of the Plant, plus the costs, as determined by the FERC in periodic rate cases, of the following items: (1) return on common equity; (2) property depreciation; (3) decommissioning expense; (4) amortization of the materials and supplies inventory that will remain at the end of the Plant's operating life; and (5) amortization of the fuel remaining in the core at the end of the Plant's operating life. - 17 -
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity (continued)
The Company therefore recovers all of its actual or estimated costs monthly from its customers. See Note 3 of Notes to Financial Statements, "Most Recent Rate Case", for a more detailed discussion of the Company's rate formula.
In addition to funding its short-term needs, the Company must also fund the payment of its long-term prior spent fuel disposal liability of $50.4 million and accrual of interest from April 7, 1983, to the time of payment, which through 1993 amounted to an additional $53.1 million. Maine Yankee is funding an external trust to provide for payment of this liability. Payment from the trust to the DOE is scheduled for not earlier than January 1998. The trust is funded at least semiannually by the Company through deposits, which began in December 1985, with current projected semiannual deposits of approximately $0.26 million through December 1997. Deposits are expected to total approximately $62.8 million. The estimated liability, including interest due at the time of disposal, is projected to be approximately $115.9 million at January 31, 1998. The Company estimates that trust fund deposits plus estimated earnings will meet this total liability if funding continues without material changes.
The Company must also provide for the eventual decommissioning of the Plant at the end of its operating life. The Company's 1987 external engineering study estimated the cost of decommissioning to be $142.5 million, plus a contingency of $35.6 million, for a total of $178.1 million (in mid-1987 dollars). The Company is currently allowed to collect $9.1 million annually in rates, based on the FERC-approved rate case settlement amount of $167.0 million (in mid-1987 dollars). The amounts collected in cost of service are being deposited into an external trust. These amounts, together with the trust earnings, will be used to meet the Company's decommissioning obligation. The Company recognizes the relative uncer- tainties associated with decommissioning, including its changing technology and the possibility of new requirements of law, and therefore recognizes the need to monitor and adjust decommissioning collections through supplemental rate filings with the FERC. In anticipation of such a rate filing, the Company initiated a new decommissioning cost study by an external engineering consultant in early 1993. The new study estimates decommissioning costs to be $273.1 million plus a contingency of $43.5 million for a total of $316.6 million (in mid-1993 dollars). See Note 3 of Notes to Financial Statements, "Most Recent Rate Case", for a discussion of the current rate case filing.
Maine Yankee has been notified by the Maine Department of Environmental Protection ("DEP") that it is one of approximately 100 potentially responsible parties under the Maine Uncontrolled Hazardous Substance Sites law for having arranged for the transport of hazardous substances to sites that have been designated uncontrolled hazardous substance sites by the DEP. Under the Maine law, each responsible party is jointly and severally liable for costs associated with the abatement, clean-up or mitigation of the hazards at such a site. Since the investigations by the DEP and the Company are in their early stages and a large number of potentially responsible parties are involved, the Company cannot now predict the amount of costs it will ultimately be required to assume, but believes the amount could be material. - 18 -
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX OF FINANCIAL INFORMATION
The information required to be furnished in response to this Item is submitted on the following pages:
- 19 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF MAINE YANKEE ATOMIC POWER COMPANY:
We have audited the accompanying balance sheet and statement of capitalization of MAINE YANKEE ATOMIC POWER COMPANY (a Maine corporation) as of December 31, 1993 and 1992, and the related statements of income, changes in common stock investment and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules listed in the index of financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MAINE YANKEE ATOMIC POWER COMPANY as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 11 of the Notes to Financial Statements, effective January 1, 1993, the Company changed its method of accounting for income taxes and other postretirement benefits.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statement schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts, January 28, 1994 - 20 -
Maine Yankee Atomic Power Company
STATEMENT OF INCOME (Dollars in Thousands Except Per Share Amounts)
- 21 -
Maine Yankee Atomic Power Company BALANCE SHEET (Dollars in Thousands)
ASSETS
- 22 -
Maine Yankee Atomic Power Company
BALANCE SHEET (Dollars in Thousands)
STOCKHOLDERS' INVESTMENT AND LIABILITIES
- 23 -
Maine Yankee Atomic Power Company
STATEMENT OF CAPITALIZATION (Dollars in Thousands)
- 24 -
Maine Yankee Atomic Power Company
STATEMENT OF CHANGES IN COMMON STOCK INVESTMENT for the Three Years Ended December 31, 1993 (Dollars in Thousands)
The accompanying notes are an integral part of these financial statements. - 25 -
Maine Yankee Atomic Power Company
STATEMENT OF CASH FLOWS (Dollars in Thousands) ------ ------ ------ - 26 -
Maine Yankee Atomic Power Company
STATEMENT OF CASH FLOWS (Dollars in Thousands)
- 27 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company: The Company owns and operates a pressurized-water nuclear-powered electric generating plant with a current rated net capacity of approximately 860 megawatts (the "Plant"). The Plant commenced commercial operation on January 1, 1973. The following New England electric utilities own all of the Company's common stock: ===
For a period commencing January 1, 1973, extending for thirty years thereafter in accordance with the Power Contracts, as amended, subsequently extended by the Additional Power Contracts from 2003 to the end of the useful life of the Plant and completion of all licensing and financial obligations, and subject to certain limitations, each Sponsor receives its entitlement percentage of Plant output and is obligated to pay its entitlement percentage of the Company's total costs, including a return on invested capital, regardless of the level of operation of the Plant. The Plant's operating license expires in 2008.
Regulation: The Company is subject to the regulatory authority of the Federal Energy Regulatory Commission ("FERC"), the Nuclear Regulatory Commission ("NRC") and the Maine Public Utilities Commission ("MPUC") and other federal and state agencies as to rates, accounting, operations and other matters.
Depreciation: Depreciation is provided using a composite remaining life method designed to fully depreciate the original cost of electric plant over the Plant operating life. Under the composite method, at the time depreciable property is retired, the original cost, plus cost of removal, less salvage, of such property is charged to accumulated depreciation. - 28 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Decommissioning: A study conducted for the Company in 1987 by an external engineering consultant estimated decommissioning costs, which include the costs of removal of the Plant and reclamation of the Plant site, to be $142.5 million, plus a contingency of $35.6 million, for a total of $178.1 million (in mid-1987 dollars). The Company is currently allowed to collect $9.1 million annually in rates, based on the FERC-approved rate case settlement amount of $167.0 million (in mid-1987 dollars). Through 1993 the Company had collected $69.1 million for decommissioning, which funds are held by an independent trustee. The total decommissioning fund balance as of December 31, 1993, was $93.8 million (including interest earned) and is included in Deferred Charges and Other Assets on the accompanying balance sheet. The amounts collected, together with the trust earnings, will be used to meet the Company's decommissioning obligation.
The Company's most recent study, conducted by the same consultant in 1993, estimated decommissioning costs to be $273.1 million, plus a contingency of $43.5 million, for a total of $316.6 million (in mid- 1993 dollars). See Note 3 of Notes to Financial Statements, "Most Recent Rate Case." The Company recognizes the relative uncertainties associated with decommissioning, including its changing technology and the possibility of new requirements of law, and therefore recognizes the need to monitor and adjust decommissioning collections through supplemental rate filings with the FERC.
Amortization of Nuclear Fuel: The cost of nuclear fuel in the reactor is amortized to Fuel Expense based on the ratio of energy produced during the period to the estimated total core capability.
The Company amortizes to expense the estimated costs of the unburned nuclear fuel which is expected to be in the reactor core at the expiration of the Plant's NRC operating license life in 2008. These costs are being amortized over the period ending October 2008. Accumulated amortization for last core fuel for 1993 and 1992 was $8,221,000 and $7,248,000, respectively.
Federal Department of Energy ("DOE") Decontamination and Decommissioning Assessment: Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for decontaminating and decommissioning DOE's enrichment facilities to be partially funded by a special assessment against domestic utilities. Under the Policy Act the total amount collected for a fiscal year will not exceed $150,000,000 escalated by the Consumer Price Index ("CPI") annually, and the collection of the amounts will cease after the earlier of (1) 15 years after the date of the enactment or (2) the collection of $2,250,000,000 (to be escalated by the CPI annually). Each utility's share of the assessment is to be based on its cumulative consumption of DOE enrichment services. - 29 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Maine Yankee's preliminary estimate of its annual assessment was $1,760,000 (1.17% of the $150,000,000). As of year-end 1992, the Company had accrued to Deferred Credits its estimated obligation of $26,400,000 related to prior years' usage, with an equal amount charged to Nuclear Fuel - Spent, to be paid over the 15-year period beginning October 1, 1992.
In August 1993 the Company changed the estimated annual assessment to $1,599,000 (1.066% of the $150,000,000) and decreased the estimated obligation of $26,400,000 to $23,985,000, based on information provided by the DOE.
In September 1993 the Company paid the first assessment of $1,599,000. In accordance with the September 24, 1993, accounting ruling of the FERC the cost previously recorded in Nuclear Fuel - Spent was reclassified to Other Regulatory Assets. At December 31, 1993 and 1992, the unamortized balance of the Regulatory Asset was $22,475,000 and $25,960,000, respectively.
Fuel Disposal Cost: In 1983 the Company entered into a contract with the DOE for disposal of its spent nuclear fuel, as required by the Nuclear Waste Policy Act of 1982, pursuant to which a fee of $1.00 per megawatt-hour is assessed against current generation and is paid to the DOE quarterly. The Company also has an obligation of $50.4 million with respect to generation prior to April 7, 1983 (the date current DOE assessments began), all of which the Company has already collected from its customers, but for which a reserve was not funded. The Company has elected under the terms of this contract to make a single payment of this obligation prior to the first delivery of spent fuel to DOE, scheduled to begin no earlier than 1998 (See Note 12). Interest on the obligation accrues at the 13-week Treasury Bill rate compounded on a quarterly basis from April 7, 1983, through the date of the actual payment and is billed under the terms of the Power Contract. Interest accrued and billed through December 31,1993, amounted to $53.1 million. The Company has formed a trust to provide for payment of this long-term fuel obligation. The total spent fuel fund balance, held by an independent trustee, as of December 31, 1993, was $86.7 million (including interest earned) and is included in Deferred Charges and Other Assets on the accompanying balance sheet. Funding of the trust is being made through deposits by the Company at least semiannually, which began in December 1985, with current projected semiannual deposits of approximately $0.26 million through December 1997. Deposits are expected to total approximately $62.8 million. The trust fund deposits plus estimated earnings are projected to meet the total estimated future liability of $115.9 million at January 31, 1998. - 30 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amortization of Materials and Supplies: The Company began reserving for materials and supplies inventory that is expected to be unrecoverable at the end of the Plant's life. This amortization expense is based on the current inventory balance less the accumulated amortization. This cost is being amortized over the period ending October 2008 on a monthly basis using the prior month's ending balances. Accumulated amortization for 1993 and 1992 was $3,480,000 and $2,650,000, respectively.
Allowance for Funds Used During Construction ("AFC") and Allowance for Funds Used for Nuclear Fuel ("AFN"): In accordance with prior rate- making treatment, the Company earns a current return on up to 50% of Construction Work in Progress ("CWIP") and 50% of Nuclear Fuel in Process ("NFIP"), subject to certain limitations. The Company capitalizes the net cost of borrowed funds and the allowed rate of return on equity funds used to finance its remaining construction and nuclear fuel acquisition costs as AFC and AFN. The amount of the allowance recorded is determined by multiplying the applicable average monthly balance of CWIP and NFIP by the weighted average cost of capital used to finance the respective additions.
The following table contains the rates used for the most recent three annual periods:
AFC AFN on CWIP on NFIP
1993 9.50% 5.93% 1992 9.94 5.97 1991 10.18 9.86
Unamortized Gain or Loss on Reacquired Debt: Gains and losses on bonds reacquired to satisfy sinking fund requirements of First Mortgage Bonds are deferred and amortized to income over the remaining original terms of the applicable series as prescribed by the Uniform System of Accounts of the FERC. - 31 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
2. INCOME TAX EXPENSE
The components of federal and state income taxes reflected in the Statement of Income are as follows: ===== ===== ===== Deferred income taxes are provided to recognize the income tax effect of reporting certain transactions in different years for income tax and financial reporting purposes in accordance with the ratemaking policies of the FERC. Provisions for deferred income taxes reflect the tax effect of all timing differences.
In February 1992, the FASB issued SFAS No. 109 on accounting for income taxes effective for fiscal years beginning after December 15, 1992. The Company adopted the newly revised standard effective January 1, 1993, and will not restate prior periods. The standard requires the use of the liability method under which existing deferred taxes will be adjusted currently to reflect the effect of tax rates applicable to the years in which these taxes would become payable. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. The new standard had no impact on total income tax expense for financial reporting purposes. The net regulatory liability related to income taxes is $12,628,000 as of December 31, 1993. This liability is being amortized consistent with the Company's ratemaking. - 32 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
2. INCOME TAX EXPENSE (continued)
Accumulated deferred income taxes consisted of the following as of December 31, 1993. ====== A valuation allowance has not been recorded at December 31, 1993, as the Company expects that all deferred income tax assets will be realized in the future.
The principal components of deferred federal and state income taxes required to be disclosed pursuant to the accounting standards for income taxes in effect prior to the adoption of SFAS No. 109 are as follows: ===== === ===== === - 33 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
2. INCOME TAX EXPENSE (continued)
Excess deferrals were created as a result of the reduction in the federal income tax rate to 34 percent. The excess deferral related to accelerated tax depreciation will be flowed back as a cost of service reduction over the period that the depreciation timing difference reverses (i.e., the period that straight-line depreciation exceeds accelerated depreciation). The excess deferred tax reserve related to other book/tax timing differences is being flowed back on a straight-line basis over the remaining book life of the plant facilities.
Investment tax credits utilized to reduce federal income taxes currently payable are deferred and amortized over the lives of the related assets.
The following table reconciles the statutory federal income tax rate to the effective tax rate for financial reporting purposes. ===== ==== ===== ==== ===== ==== 3. MOST RECENT RATE CASE
On April 7, 1993, the FERC initiated an investigation pursuant to Section 206 of the Federal Power Act into the justness and reasonableness of Maine Yankee's rate of return on common equity ("ROE") established in the Company's 1988 FERC rate case. The FERC indicated that its concurrent investigations of the rates of return on common equity of Maine Yankee and other nuclear generating companies were based on an independent analysis that suggested such rates might be excessive under current market conditions. After extensive negotiations, on September 20, 1993, the FERC staff, intervenors and Maine Yankee submitted for filing an offer of partial settlement, which was approved by the Commission on December 30, 1993. The settlement agreement provided, among other things, for the following: - 34 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
3. MOST RECENT RATE CASE (continued)
(1) a reduction in Maine Yankee's ROE effective June 15, 1993, to 10.65% from 12.9%;
(2) an agreement by the parties to enter into good-faith negotiations regarding Maine Yankee's estimated cost of decommissioning and the corresponding collection rate;
(3) an agreement that if the parties reached a settlement on Maine Yankee's decommissioning and collection rate, Maine Yankee would submit a rate filing requesting approval of the agreed-upon decommissioning and collection rate and a continuation of the 10.65% ROE, with the support of the FERC staff and intervenors;
(4) an agreement that if the parties were unable to reach agreement on the decommissioning issues, the Company would submit a rate filing that would encompass all appropriate rate issues.
On January 18, 1994, Maine Yankee, after reaching agreement on the major issues, filed its rate case with the FERC. In the filing, the Company sought approval to continue the ROE of 10.65% as earlier approved by the FERC. Maine Yankee also sought to increase the annual amount collected to fund decommissioning costs for the Plant from $9.1 million to the agreed amounts of $14.9 million commencing April 1, 1994. This amount reflects the first step increase in the estimated cost to fully decommission the Plant from the $167.0 million (in mid- 1987 dollars) allowed by the FERC in the Company's 1988 rate case to $316.6 million (in mid-1993 dollars) based on the Company's 1993 decommissioning cost study. The Company plans to continue to evaluate the cost of decommissioning periodically and seek additional step increases as necessary. With this filing, Maine Yankee is also requesting the FERC's approval for current and past expenses to fund postretirement benefits other than pensions, pursuant to a new accounting standard. See Note 11 of Notes to Financial Statements.
Along with the rate filing, the Company filed offers of settlement that were the result of extensive negotiations between Maine Yankee and the intervenors. The parties, except for one municipal utility, have agreed to a settlement reflecting, among other things, the following:
(1) an agreement to extend the ROE of 10.65% to April 1, 1997, or later, except for certain reopener provisions;
(2) an agreement to establish the decommissioning collection rate described above based on the new decommissioning cost estimate of $316.6 million;
(3) an agreement to establish a moratorium on Maine Yankee's ROE and decommissioning collection rate until April 1, 1997, except in certain limited circumstances. - 35 -
Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS
3. MOST RECENT RATE CASE (continued)
The settlement offer does not address the treatment of postretirement benefits other than pensions.
Although the Company has reached agreement with all of the principal parties on the major rate issues, the Company cannot predict with certainty what action the FERC will take on its rate filing.
4. NOTES PAYABLE TO BANKS
The Company had bank lines of credit totaling $21.0 million as of December 31, 1993 and 1992, all of which require an annual fee of 1/4%. The outstanding bank notes under the lines of credit as of December 31, 1993 and 1992 were $0.0 and $4.5 million respectively.
5. FIRST MORTGAGE BONDS
On March 14, 1991, the Company issued $60.0 million of First Mortgage Bonds, Series D (Sinking Fund) 8.79% due 2002, through a private placement to institutional investors. The net proceeds received by the Company from the sale of Series D Bonds were applied to the repayment of bank borrowings incurred to finance the Company's construction program.
On January 22, 1993, the Company issued $40.0 million of First Mortgage Bonds, Series E (Sinking Fund) 8.13% due 2008, through a private placement to institutional investors. The net proceeds received by the Company from the bonds were applied to the redemption of the outstanding $27.5 million principal amount of Series A 9.10% Bonds, with the balance being applied to the repayment of bank borrowings incurred to finance the Company's construction and fuel procurement programs.
On June 4, 1993, the Company issued $25.0 million of First Mortgage Bonds, Series F (Sinking Fund) 6.89% due 2008, through a private placement to an institutional investor. The net proceeds received by the Company from the bonds were applied to the redemption of the out- standing $16.7 million principal amount of Series B 8 1/2% Bonds and $4.4 million principal amount of Series C 7 5/8% Bonds, with the balance being applied to the repayment of bank borrowings incurred to finance the Company's construction and fuel procurement programs.
The annual sinking fund requirements of outstanding Series D, E, and F First Mortgage Bonds and bonds repurchased in advance for each of the five years ending December 31, 1997, are as follows:
- 36 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
5. FIRST MORTGAGE BONDS (continued)
Under the terms of the Indenture securing the First Mortgage Bonds, substantially all electric plant of the Company is subject to a first mortgage lien.
6. SECURED CREDIT AGREEMENT
In 1989 the Company entered into a secured credit agreement with a group of banks including the Bank of New York ("BNY"), which is also acting as the agent bank, under which the Company may borrow amounts up to $50.0 million to finance corporate expenditures. Borrowings are secured by the Company's nuclear fuel inventory as defined and certain rights under the Power Contracts and Capital Funds Agreements. Under the credit agreement as amended in 1992, the Company has four rate options for financing its interim requirements: (1) a rate based on the higher of BNY's prime rate or a rate based on overnight federal funds transactions plus 1/4%; (2) the LIBOR rate plus 1/2%; (3) an adjusted certificate of deposit rate plus 5/8%; and (4) a rate established by bid. A quarterly commitment fee of .35% per annum is required on the unused portion of the facility. The credit agreement has a three-year term, which may be extended for an additional year on each anniversary by agreement of the Company and the banks. The agreement was extended for an additional year in 1993 with a current maturity date of August 1996. Certain other information relating to this loan arrangement is as follows:
7. EURODOLLAR REVOLVING CREDIT AGREEMENT
In January 1990 the Company entered into a Eurodollar Revolving Credit Agreement with a group of major international banks including Union Bank of Switzerland, which is also acting as agent bank, under which the Company may borrow up to $35.0 million. Under the facility each loan is due one year after the date of the loan, unless an earlier termination date applies under the agreement, and bears interest at a LIBOR-based rate plus 5/8%. A commitment fee of .35% on the unused line is payable quarterly. The loans are secured by a second lien on the Company's nuclear fuel inventory (excluding fuel in the reactor) and on certain rights under its Power Contracts and Capital Funds Agreements requiring payments or financing of fuel-related costs. - 37 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
7. EURODOLLAR REVOLVING CREDIT AGREEMENT (continued)
Certain other information relating to the Eurodollar Revolving Credit Agreement is as follows:
8. REDEEMABLE PREFERRED STOCK
7.48% Series. The Company must redeem and cancel 6,000 shares annually of the 7.48% Series Preferred Stock at par value plus accrued dividends. At the election of the Company, up to an additional 6,000 shares may be redeemed and cancelled at par plus accrued dividends on each redemption date. The optional provision is not cumulative. The annual sinking fund requirement through December 31, 1998, is $600,000. The Company may also redeem, in whole or in part, any additional shares of the 7.48% Series Preferred Stock upon not less than thirty nor more than fifty days' notice at $101.50 per share on or before December 31, 1997, and at $100.00 per share thereafter, in each case plus accrued dividends.
There was no Preferred Stock repurchased for the sinking fund in advance and not cancelled at December 31, 1993, 1992, and 1991.
8.00% Series. On September 22, 1992, the Company issued $15.0 million of Cumulative Preferred Stock, 8.00% Series (Sinking Fund), through a private placement to institutional investors. The net proceeds received by the Company from the sale of the Preferred Stock were applied to the repayment of bank borrowings incurred to finance the Company's construction program.
At the option of the Company, any time on and after October 1, 1997, shares of the Cumulative Preferred Stock, 8.00% Series are redeemable at redemption prices decreasing from $105.33 per share on or after October 1, 1997, to $100.00 per share as of October 1, 2007. No shares of Cumulative Preferred Stock 8.00% Series may be redeemed, directly or indirectly, prior to October 1, 1997. Mandatory sinking fund redemptions of the 8.00% Series shares begin October 1, 2002, and each October 1 thereafter with a noncumulative optional provision to redeem additional shares at a price of $100.00 per share plus dividends accrued. - 38 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
9. RETAINED EARNINGS
Under terms of the most restrictive test in the Company's First Mortgage Indenture and the Company's Articles of Incorporation, no dividend may be paid on any class of its stock unless the Company is in compliance with specific equity ratio requirements. Through December 31, 1993, the Company was in compliance with these requirements.
10. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable are discussed below. The carrying amounts of cash and temporary investments approximate fair value because of the short maturity of these investments. The fair value of redeemable preferred stock, other notes and long-term obligations is based on quoted market prices for the same or similar issues.
The estimated fair value of the Company's financial instruments as of December 31, 1993, is as follows:
Anticipated regulatory treatment of any differences between fair value and carrying value of the Company's financial instruments is expected to be considered in the future rates charged by the Company.
11. EMPLOYEE AND POSTRETIREMENT BENEFITS
The Company has two separate noncontributory defined-benefit pension plans which cover substantially all of its union and nonunion employees. The Company's funding policy is to contribute amounts to the separate plans which are sufficient to meet the funding requirements set forth in the Employee Retirement Income Security Act ("ERISA"), plus such additional amounts as the Company may determine to be appropriate. Total pension expense related to these plans amounted to $1,524,000 in 1993, $1,434,000 in 1992 and $991,000 in 1991.
Plan benefits under the union retirement plan are based on average career earnings and length of employee service. Plan benefits under the nonunion retirement plan are based on average final earnings, as defined within the plan, and length of employee service.
A summary of the components of net periodic pension cost for the union and nonunion defined benefit plans in 1993, l992 and 1991 and the total contributions charged to pension expense is as follows: - 39 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
11. EMPLOYEE AND POSTRETIREMENT BENEFITS (continued) === === === ===== ===== ===== The following table sets forth the actuarial present value of pension benefit obligations, the funded status of the plans and the liabilities recognized on the Company's balance sheet at December 31, 1993 and l992:
===== ===== ====== =====
Assumptions used in determining the actuarial present value of the pension benefit obligation for the union and nonunion plans at December 31 plans at December 31 were as follows: - 40 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
11. EMPLOYEE AND POSTRETIREMENT BENEFITS (continued)
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for substantially all of its qualifying employees. These benefits are provided through insurance companies acting either as an insurer or plan administrator, and premiums are based on the benefits paid during the year. The Company recognizes the cost of providing these benefits through charging expense in the current period. The cost of health care and life insurance benefits, substantially all of which relates to active employees, aggregated approximately $2,422,000 in 1993, $2,159,000 in 1992 and $1,833,000 in 1991.
In addition, in 1989 the Company established an employee welfare benefit plan for nonunion employees, to provide a systematic means of providing certain life, health and other postretirement benefits to eligible retired employees and their dependents. In 1990 the Company began funding the employee welfare benefit plan for union employees. The benefits of the plan will be provided through a trust fund established for the exclusive purpose of funding such benefits. The trust fund will be funded by contributions by participants in the plan, if and to the extent such contributions are required under the plan, and contributions by the Company. Contributions made by the Company related to these plans amounted to $786,000 in 1993, $331,000 in 1992 and $606,000 in 1991.
The benefits provided under the employee welfare benefit plans will be limited to benefits for participants, dependents and beneficiaries which qualify as welfare benefits under Section 3(1) of ERISA or as life, sickness, accident or other benefits permitted to be provided through (1) a "Voluntary Employees' Beneficiary Association" exempt from taxation to the extent permitted under Sections 501(c)(9) and 512 of the Internal Revenue Code ("IRC") and the regulations thereunder, and (2) a 401(h) subaccount, for nonunion employees, established in accordance with Section 401(h) of the IRC in 1992 and maintained within the Company's Retirement Income Plan for Nonunion Employees.
In December 1990, the FASB issued a new standard on Employers' Accounting for Postretirement Benefits Other Than Pensions, such as health care and life insurance. The Company adopted the new standard effective January 1, 1993, and did not restate prior periods. The new standard requires the accrual of the expected cost of such benefits during the employees' years of service and provides transition rules allowing the impact of the adoption to be included in annual expense over a period not greater than 20 years.
The following table sets forth the plan's funded status: - 41 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
11. EMPLOYEE AND POSTRETIREMENT BENEFITS (continued) ========= The weighted-average discount rate used in determining the accumulated postretirement benefit obligation is 7.25%. The expected pre-tax long- term rate of return on the plan assets is 7.50%. A 14% annual rate of increase in the per capita cost of covered health care benefits is assumed for 1993. The health care cost trend rate is assumed to decrease annually through the year 1999 to an ultimate rate of 5.5%. Increasing the assumed health care cost trend rates by 1% would increase the accumulated postretirement benefit obligation as of December 31, 1993, by $2.0 million.
12. COMMITMENTS AND CONTINGENCIES
Construction: The Company anticipates construction expenditures to amount to $8.7 million (inclusive of AFC) in 1994.
Nuclear Fuel: The Company anticipates nuclear fuel expenditures of $23.4 million (inclusive of AFN) for 1994 and $61.4 million (inclusive of AFN) for the period 1995 through 1998. - 42 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
Nuclear Fuel Storage: Federal legislation enacted in 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also provides for the possible development of a Monitored Retrievable Storage ("MRS") facility and abandons plans to identify and select a second permanent disposal site. An MRS facility would provide temporary storage for high-level waste prior to eventual permanent disposal. In late 1989 the DOE announced that the permanent disposal site was not expected to open before 2010, although originally scheduled to open in 1998. Additional delays due to political and technical problems are probable.
Under the terms of a license amendment approved by the NRC in 1984, the present storage capacity of the spent fuel pool at the Plant will be reached in 1999 and after 1996 the available capacity of the pool will not accommodate a full-core removal. After consideration of available technologies, the Company elected to provide additional capacity by replacing the fuel racks in the spent fuel pool at the Plant and, on January 25, 1993, filed with the NRC seeking authorization to implement the plan. On March 15, 1994, the NRC granted the authorization. Maine Yankee believes that the replacement of the fuel racks will provide adequate storage capacity through the Plant's licensed operating life, but cannot predict with certainty whether or to what extent the new level of storage capacity at the Plant will affect the operation of the Plant or the future cost of disposal.
Nuclear Insurance: In accordance with the Price-Anderson Act, the limit of liability for a nuclear-related accident is approximately $9.317 billion, effective March 20, 1994. The primary layer of insurance for the liability is $200 million of coverage provided by the commercial insurance market. The secondary coverage is approximately $9.117 billion, based on 115 licensed reactors. The secondary layer is based on a retrospective premium assessment of $75.5 million per nuclear accident per licensed reactor, payable at a rate not exceeding $10 million per year per accident. In addition, the retrospective premium is subject to inflation-based indexing at five-year intervals and, if the sum of all public liability claims and legal costs arising from any nuclear accident exceeds the maximum amount of financial protection, each licensee can be assessed an additional 5% ($3.775 million) of the maximum retrospective assessment.
In addition to the insurance required by the Price-Anderson Act, the Company carries all-risk nuclear property damage insurance in the amount of $500 million plus additional excess nuclear property insurance in the amount of $2.25 billion, effective January 1, 1994. Of this additional excess insurance, $1.4 billion is provided by a nuclear electric utility industry insurance company through a - 43 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
combination of current premiums and retrospective premium assessments. If the insurance company experiences losses in excess of its capacity to pay them, each participating utility may be assessed a retrospective premium of up to 7.5 times its premium with respect to industry losses in any policy year, which could range up to approximately $12.8 million for the Company. The remaining excess nuclear property coverage of $850 million is obtained from the commercial insurance market and is not subject to retrospective premium assessments. These excess coverage amounts are the maximum offered by both the industry mutual company and the commercial market.
Low-Level Waste Disposal: The federal Low-Level Radioactive Waste Policy Amendments Act (the "Waste Act"), enacted in 1986, required operating disposal facilities to accept low-level nuclear waste from other states until December 31, 1992. The Waste Act also set limits on the volume of waste each disposal facility must accept from each state, established milestones for the nonsited states to establish facilities within their states or regions (pursuant to regional compacts) and authorized increasing surcharges on waste disposal until 1992. After 1992 the states in which there are operating disposal sites are permitted to refuse to accept waste generated outside their states or compact regions. In 1987 the Maine Legislature created the Maine Low- Level Radioactive Waste Authority (the "Maine Authority") to provide for such a facility if Maine is unable to secure access to out-of-state facilities after 1992, and the Maine Authority has been engaged in a search for a qualified disposal site in Maine. The Company volunteered its site at the Plant for that purpose, but progress toward establish- ing a definitive site in Maine, as in other states, was difficult because of the complex technical nature of the search process and the political sensitivities associated with it. As a result, Maine did not satisfy its milestone obligation under the Waste Act requiring submission of a site license application by the end of 1991, and is therefore subject to surcharges on its waste and has not had access to regulated disposal facilities since the end of 1992. Thus, Maine Yankee now stores all waste generated at an on-site storage facility.
At the same time, the State of Maine was pursuing discussions with the State of Texas concerning participation in a compact with that state and Vermont. In May 1993, the Texas Legislature approved a compact with the states of Maine and Vermont. The Maine Legislature in June 1993 ratified the compact and submitted it to ratification by Maine voters in a referendum held on November 2, 1993, in which the compact was ratified by a margin of approximately 73% to 27%. It must now be presented to the United States Congress for final ratification. - 44 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
The compact provides for Texas to take Maine's low-level waste over a 30-year period for disposal at a planned facility in west Texas. In return Maine would be required to pay $25 million, assessed to the Company by the State of Maine, payable in two equal installments, the first after ratification by Congress and the second upon commencement of operation of the Texas facility. In addition, the Company would be assessed a total of $2.5 million for the benefit of the Texas county in which the facility would be located and would also be responsible for its pro-rata share of the Texas governing commission's operating expenses. Pending the ratification votes, the Maine Authority has suspended its search for a suitable disposal site in Maine.
In the event the required ratification by Congress is not obtained, subject to continued NRC approval, the Company can continue to utilize its capacity to store approximately ten to twelve years' production of low-level waste at its facility at the Plant site, which it started in January 1993. Subject to obtaining necessary regulatory approval, the Company could also build a second facility on the Plant site. The Company believes it is probable that it will have adequate storage capacity for such low-level waste available on-site, if needed, through the licensed operating life of the Plant. On January 26, 1993, the NRC published for public comment a proposed rulemaking that, if adopted, would require a licensee such as Maine Yankee, as a condition of its license, to document that it had exhausted other reasonable waste management options in order to be permitted to store low-level waste on-site beyond January 1, 1996. Such options include taking all reasonable steps to contract, either directly or through the state, for disposal of the low-level waste. On February 9, 1994, the NRC, after affirming its preference for disposal of waste over storage, announced its decision to withdraw the proposed rulemaking. Maine Yankee expects the NRC to issue its formal notice of withdrawal in the spring of 1994.
The Company cannot predict whether the final required ratification of the Texas compact or other regulatory approvals required for on-site storage will be obtained, but the Company intends to utilize its on- site storage facility in the interim and continue to cooperate with the State of Maine in pursuing all appropriate options.
Maine Yankee has been notified by the Maine Department of Environmental Protection ("DEP") that it is one of approximately 100 potentially responsible parties under the Maine Uncontrolled Hazardous Substance Sites law for having arranged for the transport of hazardous substances to sites that have been designated uncontrolled hazardous substance sites by the DEP. Under the Maine law, each responsible party is jointly and severally liable for costs associated with the abatement, clean-up or mitigation of the hazards at such a site. Since the investigations by the DEP and the Company are in their early stages and a large number of potentially responsible parties are involved, the Company cannot now predict the amount of costs it will ultimately be required to assume, but believes the amount could be material. - 45 -
Maine Yankee Atomic Power Company
NOTES TO FINANCIAL STATEMENTS
13. UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data are shown below. Results of operations vary between quarters, primarily because of scheduled and unscheduled plant outages.
14. TRANSACTIONS WITH ASSOCIATED COMPANIES
During 1993, 1992 and 1991, the Company paid $12,654,440, $12,214,635 and $11,099,994, respectively, to Yankee Atomic Electric Company, an associate of several of the Sponsors, for services at cost for its engineering and nuclear services department. Central Maine Power Company has furnished the Company certain engineering, administrative and legal services, and furnished certain facilities at cost, and electric service at its filed rates. During 1993, 1992 and 1991, Central Maine Power Company was reimbursed in the amount of $3,454,611, $4,010,974 and $3,485,433, respectively, for such services. It is expected that Yankee Atomic Electric Company and Central Maine Power Company will continue to perform similar services for the Company in the future, for which they will be reimbursed by the Company.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable. - 46 -
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors
The directors of the Company and their principal occupations and all positions and offices with the Company are as follows:
- 47 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
A. Directors (continued)
* Mr. Rowe also served as a director of the Company from 1984 to 1989 while President and Chief Executive Officer of Central Maine Power Company.
Each of the directors has been for the past five years, and each of the directors is now, an officer or employee of the Company, one of the Sponsors or an associated company thereof.
Each of the Sponsors is represented on the Company's Board of Directors, but there is no formal arrangement with respect to such representation. The directors are elected at the annual meeting of stockholders and hold office until their successors are elected and qualified. They are not compensated by Maine Yankee for serving as directors. - 48 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
B. Executive Officers
The following are the executive officers of the Company with all positions and offices held:
Each of the executive officers except Mr. Leitch and Ms. Lynch has been for the past five years and is now an officer or employee of the Company or one of the Sponsors or an associated company thereof. Mr. Leitch had been retired from Philadelphia Electric Company since July 1992 after serving since 1987 as Vice President and Plant Manager of the Limerick nuclear power plant. - 49 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
B. Executive Officers (continued)
Ms. Lynch was associated with the law firm of Verrill & Dana, Portland, Maine, from 1984 until her employment with the Company.
The executive officers are elected annually by the Board of Directors and hold office until their successors are elected and qualified. All are employees of the Company except Mr. Kadak, who is employed by Yankee Atomic Electric Company, and Mr. Finn, who is employed by Central Maine Power Company.
There are no family relationships between any directors or executive officers nor any formal arrangements or understandings pursuant to which any were selected as officers or directors.
C. Other Directorships
The following directors of the registrant hold other directorships as follows:
- 50 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
C. Other Directorships (continued)
- 51 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
C. Other Directorships (continued)
- 52 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
C. Other Directorships (continued)
- 53 -
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
C. Other Directorships (continued)
- 54 -
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Prior to April l, l988, except for participation by some officers in incentive compensation and benefit plans, the Company's officers and directors were compensated by the Sponsors or other associated companies by which they were principally employed. Commencing April l, l988, however, certain Company officers became employees of, and started being compensated by, the Company, and were no longer employees of Central Maine Power Company. In addition, certain other employees compensated by Maine Yankee have been promoted to officer positions. In complying with regulatory requirements, the Company has also reimbursed Central Maine Power Company for services rendered by its employees including Maine Yankee officers and directors. See Item l3, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table set forth below includes compensation information as to the President and Chief Executive Officer of the Company and the Company's most highly compensated executive officers whose total annual salary and bonus in 1993 exceeded $100,000.
(1)The compensation shown in this column reflects Officer and Manager Incentive Plan payments, which are based on the proportion by which the Company exceeds each year's performance goals.
(2)In accordance with the transitional provisions of the applicable Securities and Exchange Commission rules, the Company has not provided any information in this column for any fiscal year that ended prior to December 15, 1992. The compensation shown in this column reflects Company contributions to the Savings and Investment Plan that is available to all nonunion employees except for the amount reported for Graham M. Leitch, which reflects payment for moving expenses in 1993.
(3)Mr. Frizzle became Chief Executive Officer in June 1992.
(4)Mr. Leitch became Vice President, Operations in January 1993. - 55 -
ITEM 11 - EXECUTIVE COMPENSATION (continued)
PENSION PLAN TABLE
The following table shows the estimated annual retirement benefit payable to participating employees, including executive officers, in the earnings and years of service classifications indicated.
Covered compensation consists of the salaries of the eligible executive officers. The computation of the estimated retirement benefits in the above table is based on a straight life annuity. Messrs. Frizzle, Leitch, Lydon and Whittier have, respectively, 22, 1, 22 and 10 years of credited service under the Company's retirement program. - 56 -
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the ownership of the Company's 500,000 shares of $100 par value Common Stock, all of which is issued and outstanding and all of which is held of record and beneficially. None is held by management. ======= === - 57 -
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the Plant construction period, no return was paid to Sponsors on the money paid by them for Common Stock, but a return (at the rate of 7% per annum through November 30, 1970, and at the rate of 10% per annum thereafter) was charged to plant as an allowance for equity funds used during construction. The amounts so charged were recorded as paid-in capital. This practice terminated as of December 31, 1972, the last day of the last month of the construction period. These amounts are to be paid to the Sponsors on the redemption of Common Stock. The Company's First Mortgage Indenture and the provisions of its Articles of Incorporation relating to its capital stock contain various limitations on redemption.
During 1993 and 1992, the Company paid $12,654,440 and $12,214,635, respectively, to Yankee Atomic Electric Company, an associate of several of the Sponsors, for services at cost for its engineering and nuclear services department. Central Maine Power Company has furnished the Company certain engineering, administrative and legal services, and furnished certain facilities at cost, and electric service at its filed rates. During 1993 and 1992, Central Maine Power Company was reimbursed in the amount of $3,454,611 and $4,010,974, respectively, for such services. It is expected that Yankee Atomic Electric Company and Central Maine Power Company will continue to perform similar services for the Company in the future, for which they will be reimbursed by the Company. - 58 -
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements are filed as a part of this report:
2. The following financial statement schedules of the Company are filed herewith and included in response to Item 14(d):
INDEX OF FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted as the required information is not applicable or the information is presented in the Financial Statements or related notes.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the last quarter of 1993 and thereafter to date.
(c) The exhibits which are filed with this Form 10-K or are incorporated herein by reference are set forth in the Exhibit Index, which immediately precedes the exhibits to this report.
(d) The financial statement schedules required to be filed under this paragraph are listed under paragraph (a) 2. of this Item. - 59 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAINE YANKEE ATOMIC POWER COMPANY By Patrick S. Lydon s/s Patrick S. Lydon, Vice President, Finance and Administration March 30, 1994
- 60 -
Schedule V (1993)
Maine Yankee Atomic Power Company
ELECTRIC PROPERTY AND NUCLEAR FUEL For The Year Ended December 31, 1993 (Dollars in Thousands)
Balance at Retire- Balance Beginning Additions ments Transfers & at End ======= ====== ===== ====== =======
Schedule V (1993)
Maine Yankee Atomic Power Company
ELECTRIC PROPERTY AND NUCLEAR FUEL For The Year Ended December 31, 1992 (Dollars in Thousands)
Balance at Retire- Balance Beginning Additions ments Transfers & at End
Schedule V (1993)
Maine Yankee Atomic Power Company
ELECTRIC PROPERTY AND NUCLEAR FUEL For The Year Ended December 31, 1991 (Dollars in Thousands)
Balance at Retire- Balance Beginning Additions ments Transfers & at End ======= ====== ===== ====== =======
Schedule VI
Maine Yankee Atomic Power Company
ACCUMULATED PROVISION FOR DEPRECIATION OF ELECTRIC PLANT AND AMORTIZATION OF NUCLEAR FUEL For The Years Ended December 31, (Dollars in Thousands)
Balance at Balance Beginning Charged Other at End
* Excludes amounts collected for Decommissioning and Permanent Disposal Cost. See Note 1 of Notes to Financial Statements for the Company's depreciation and fuel amortization policies.
Schedule VIII
Maine Yankee Atomic Power Company
RESERVES EXCLUSIVE OF RESERVES FOR DEPRECIATION For the Years Ended December 31, (Dollars in Thousands)
Balance at Charged Charged Deductions Balance Beginning to to Other From at End
Maine Yankee Atomic Power Company
Form 10-K - 1993 Schedule IX SHORT-TERM BORROWINGS (Dollars in Thousands)
(1) See Note 4 of Notes to Financial Statements.
EXHIBIT INDEX
The following designated exhibits, as indicated below, are either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933, the Securities Exchange Act of 1934 or the Public Utility Holding Company Act of 1935 and are incorporated herein by reference to such filings. Reference is made to Item 8 of this Form 10-K for a listing of certain financial information and statements incorporated by reference herein. Filed Prior SEC Herewith Exhibit Number And Description Of Document Exhibit No. Docket at Page
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
Not applicable
(4) Instruments defining the rights of security holders
E-1
Filed Prior SEC Herewith Exhibit Number And Description Of Document Exhibit No. Docket at Page
(4) Instruments defining the rights of security holders (continued)
E-2
Filed Prior SEC Herewith Exhibit Number And Description Of Document Exhibit No. Docket at Page (4) Instruments defining the rights of security holders (continued)
(9) Voting Trust Agreement
Not applicable
(10) Material Contracts E-3
Filed Prior SEC Herewith Exhibit Number And Description Of Document Exhibit No. Docket at Page
(11) Statement re computation of per share earnings
Not applicable
(12) Statements re computation of ratios
Not applicable
E-4
Filed Prior SEC Herewith Exhibit Number And Description Of Document Exhibit No. Docket at Page
E-5