-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MUq7xby+frtXMApQ39Is2prpuYF+q6rA2JUK83G0vWN8PJ9VV9Cir8XJHUxY8UiV bdftyqb89b9ibrYnKlva2Q== 0000018808-96-000005.txt : 19960328 0000018808-96-000005.hdr.sgml : 19960328 ACCESSION NUMBER: 0000018808-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL VERMONT PUBLIC SERVICE CORP CENTRAL INDEX KEY: 0000018808 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 030111290 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08222 FILM NUMBER: 96539192 BUSINESS ADDRESS: STREET 1: 77 GROVE ST CITY: RUTLAND STATE: VT ZIP: 05701 BUSINESS PHONE: 8027732711 10-K 1 FORM 10-K FYE 12/31/95 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-8222 Central Vermont Public Service Corporation (Exact name of registrant as specified in its charter) Vermont 03-0111290 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 77 Grove Street, Rutland, Vermont 05701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (802) 773-2711 ________________________________________________________________________ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered Common Stock $6 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes..X... No...... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements or any amendment to this Form 10-K. [ ] Cover page State the aggregate market value of the voting stock held by non- affiliates of the registrant: $157,923,942 based upon the closing price as of January 31, 1996 of Common Stock, $6 Par Value, on the New York Stock Exchange as reported in the Eastern Edition of the Wall Street Journal. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock: As of January 31, 1996, there were outstanding 11,590,748 shares of Common Stock, $6 Par Value. DOCUMENTS INCORPORATED BY REFERENCE No documents are incorporated by reference in this report. Cover page continued Form 10-K - 1995 TABLE OF CONTENTS Page Part I Item 1. Business................................................ 2 Item 2. Properties.............................................. 18 Item 3. Legal Proceedings....................................... 19 Item 4. Submission of Matters to a Vote of Security Holders..... 20 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................... 21 Item 6. Selected Financial Data................................. 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 23 Item 8. Financial Statements and Supplementary Data............. 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 59 Part III Item 10. Directors and Executive Officers of the Registrant...... 59 Item 11. Executive Compensation.................................. 63 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 69 Item 13. Certain Relationships and Related Transactions.......... 73 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 74 Signatures........................................................ 94 PART I Item 1. Business. Overview. Central Vermont Public Service Corporation (the "Company"), incorporated under the laws of Vermont on August 20, 1929, is engaged in the purchase, production, transmission, distribution and sale of electricity. The Company has various wholly and partially owned subsidiaries. These subsidiaries are described below. The Company is the largest electric utility in Vermont and serves 135,166 customers in nearly three-quarters of the towns, villages and cities in Vermont. This represents about 50% of the Vermont population. In addition, the Company supplies electricity to one municipal, one rural cooperative, and one private utility. The Company's sales are derived from a diversified customer mix. The Company's sales to residential, commercial and industrial customers accounted for 56% of total MWH sales for the year 1995. Sales to the five largest retail customers receiving electric service from the Company during the same period constituted about 4.4% of the Company's total electric revenues for the year. The Company's requirements resale sales accounted for approximately 4%, entitlement sales accounted for 24% and other resale sales which include contract sales, opportunity sales and sales to NEPOOL accounted for approximately 16% of total MWH sales for the year 1995. Connecticut Valley Electric Company Inc. (Connecticut Valley), a wholly owned subsidiary of the Company, incorporated under the laws of New Hampshire on December 9, 1948, distributes and sells electricity in parts of New Hampshire bordering the Connecticut River. It serves 10,126 customers in 13 communities in New Hampshire. About 2% of the New Hampshire population resides in its service area. Connecticut Valley's sales are also derived from a diversified customer mix. Connecticut Valley's sales to residential, commercial and industrial customers accounted for 99.5% of total MWH sales for the year 1995. Sales to its five largest retail customers during the same period equaled about 16% of Connecticut Valley's total electric revenues for the year. The Company also owns 56.8% of the common stock and 46.6% of the preferred stock of Vermont Electric Power Company, Inc. (VELCO). VELCO owns the high voltage transmission system in Vermont. VELCO created a wholly owned subsidiary, Vermont Electric Transmission Company, Inc. (VETCO), to finance, construct and operate the Vermont portion of the 450 KV DC transmission line connecting Quebec with Vermont and New England. In addition, the Company owns 31.3% of the common stock of Vermont Yankee Nuclear Power Corporation (Vermont Yankee), a nuclear generating company. The Company also owns 2% of the outstanding common stock of Maine Yankee Atomic Power Company, 2% of the outstanding common stock of Connecticut Yankee Atomic Power Company and 3.5% of the outstanding common stock of Yankee Atomic Electric Company. The Company has two wholly owned subsidiaries that were created for the purpose of financing and constructing two hydroelectric facilities in Vermont: Central Vermont Public Service Corporation - Bradford Hydroelectric, Inc. (Bradford), which became operational December 20, 1982, and Central Vermont Public Service Corporation - East Barnet Hydroelectric, Inc. (East Barnet), which became operational September 1, 1984. These hydro electric facilities have been leased and operated by the Company since their respective in-service dates. Bradford was dissolved effective January 16, 1996. The Company also has the following wholly owned non-utility subsidiaries: C.V. Realty Inc., a real estate company, Catamount Energy Corporation whose primary purpose is to invest in non-regulated, energy-supply projects, and SmartEnergy Services, Inc. whose purpose is to profitably provide reliable energy efficient products and services, including the rental of electric water heaters. Catamount Energy Corporation currently has six wholly owned subsidiaries: (See "DIVERSIFICATION"); Catamount Rumford Corporation, Equinox Vermont Corporation, Appomattox Vermont Corporation, Catamount Williams Lake L.P., Catamount Rupert Corporation and Catamount Glenns Ferry Corporation. For additional information of the Company's diversification activities, see Item 8 herein. REGULATION AND COMPETITION State Commissions. The Company is subject to the regulatory authority of the Vermont Public Service Board (PSB) with respect to rates, and the Company and VELCO are subject to PSB jurisdiction respecting securities issues, construction of major generation and transmission facilities and various other matters. The Company is subject to the regulatory authority of the New Hampshire Public Utilities Commission as to matters pertaining to construction and transfers of utility property in New Hampshire. Additionally, the Public Utilities Commission of Maine and the Connecticut Department of Public Utility Control exercise limited jurisdiction over the Company based on its joint-ownership interest as a tenant-in-common of Wyman #4, a 619 MW generating plant and Millstone #3, an 1149 MW nuclear generating facility, respectively. Connecticut Valley is subject to the regulatory authority of the New Hampshire Public Utilities Commission (NHPUC) with respect to rates, securities issues and various other matters. Federal Power Act. Certain phases of the businesses of the Company and VELCO, including certain rates, are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) as follows: the Company as a licensee of hydroelectric developments under Part I, and the Company and VELCO as interstate public utilities under Parts II and III of the Federal Power Act, as amended and supplemented by the National Energy Act. The Company has licenses expiring at various times under Part I of the Federal Power Act for twelve of its hydroelectric plants. The Company has obtained an exemption from licensing for the Bradford and East Barnet projects. Public Utility Holding Company Act of 1935. Although the Company, by reason of its ownership of utility subsidiaries, is a holding company, as defined in the Public Utility Holding Company Act of 1935, it is presently exempt, pursuant to Rule 2, promulgated by the Commission under said Act, from all the provisions of said Act except Section 9(a)(2) thereof relating to the acquisition of securities of public utility affiliates. Environmental Matters. In recent years, public concern for the physical environment has resulted in increased governmental regulation of environmental matters. The Company is subject to these regulations in the licensing and operation of the generation, transmission, and distribution facilities in which it has interest, as well as the licensing and operation of the facilities in which it is a co-licensee. These environmental regulations are administered by local, state and Federal regulatory authorities and concern the impact of the Company's generation, transmission, distribution, transportation and waste handling facilities on air, water, land and aesthetic qualities. The Company cannot presently forecast the costs or other effects which environmental regulation may ultimately have upon its existing and proposed facilities and operations. The Company believes that any such costs related to its utility operations would be recoverable through the rate-making process. For additional information see Item 7 herein and refer to Item 8 herein for disclosures relating to environmental contingencies, hazardous substance releases and the control measures related thereto. Nuclear Matters. The nuclear generating facilities of Vermont Yankee and the other nuclear facilities in which the Company has an interest are subject to extensive regulations by the Nuclear Regulatory Commission (NRC). The NRC is empowered to regulate the siting, construction and operation of nuclear reactors with respect to public health, safety, environmental and antitrust matters. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, require modification of units for which operating licenses have already been issued, or impose new conditions on such licenses, and may require that the operation of a unit cease or that the level of operation of a unit be temporarily or permanently reduced. Refer to Item 8 herein for disclosures relating to the shut down of the Yankee Atomic Nuclear Power plant. Competition. Competition now takes several forms. At the wholesale level, other electric power providers compete as suppliers to resale customers. Another competitive threat is the potential for customers to form municipally owned utilities in the Company's service territory. At the retail level, customers have long had energy options such as propane, natural gas or oil for heating, cooling and water heating, and self-generation for larger customers. Changes anticipated as a result of the National Energy Policy Act of 1992 and potential future change in state regulatory policy may result in retail customers being able to purchase electric power generated by competing suppliers for delivery over the Company's transmission and distribution facilities. Pursuant to Vermont statutes (30 V.S.A. Section 249), the PSB has established as the service area for the Company the area it now serves. Under 30 V.S.A. Section 251(b) no other company is legally entitled to serve any retail customers in the Company's established service area except as follows: An amendment to 30 V.S.A. Section 212(a) enacted May 28, 1987 authorizes the Vermont Department of Public Service (Department) to purchase and distribute power at retail to all customers of electricity in Vermont, subject to certain preconditions specified in new sections 212(b) and 212(c). Section 212(b) provides that a review board consisting of the Governor and certain other designated legislative officers review and approve any retail proposal by the Department if they are satisfied that the benefits outweigh any potential risk to the State. However, the Department may proceed to file the retail proposal with the PSB either upon approval by the review board or the failure of the board to act within sixty (60) days of the submission. Section 212(c) provides that the Department shall not enter into any retail sales arrangement before the PSB determines and approves certain findings. Those findings are (1) the need for the sale, (2) the rates are just and reasonable, (3) the sale will result in economic benefit, (4) the sale will not adversely affect system stability and reliability and (5) the sale will be in the best interest of ratepayers. Section 212(d) provides that upon PSB approval of the Department retail sales proposal, Vermont utilities shall make arrangements for distributing such electricity on terms and conditions that are negotiated. Failing such negotiation, the PSB is directed to determine such terms as will compensate the utility for all costs reasonably and necessarily incurred to provide such arrangements. See Rate Developments below for additional details involving retail sales by the Department. In addition, Chapter 79 of Title 30 authorizes municipalities to acquire the electric distribution facilities located within their boundaries. The exercise of such authority is conditioned upon an affirmative three-fifths vote of the legal voters in an election and upon the payment of just compensation including severance damages. Just compensation is determined either by negotiation between the municipality and the utility or, in the event the parties fail to reach an agreement, by the Public Service Board after a hearing. If either party is dissatisfied, the statute allows them to appeal the Board's determination to the Vermont Supreme Court. Once the price is determined, whether by agreement of the parties or by the PSB, a second affirmative three-fifths vote of the legal voters is required. There has been only one instance where Chapter 79 of Title 30 has been invoked; the Town of Springfield acted to acquire the Company's distribution facilities in that community pursuant to a vote in 1977. This action was subsequently discontinued by agreement between Springfield and the Company in 1985. In addition, in late 1994 the Select Board of the Town of Bennington considered whether to publicly warn a vote to acquire the Company's facilities located in Bennington pursuant to Chapter 79 of Title 30. By vote of the Selectors taken on January 9, 1995, the Town decided not to pursue the vote at this time. No other municipality served by the Company, so far as is known to the Company, has taken any formal steps in an attempt to establish a municipal electric distribution system. Competition in the energy services market exists between electricity and fossil fuels. In the residential and small commercial sectors this competition is primarily for electric space and water heating from propane and oil dealers. Competitive issues are price, service, convenience, cleanliness and safety. In the large commercial and industrial sectors, cogeneration and self- generation are the major competitive threats to electric sales. Competitive risks in these market segments are primarily related to seasonal, one-shift operations that can tolerate periodic power outages, and for industrial customers with steady heat loads where the generator's waste heat can be used in their manufacturing process. Competitive advantages for electricity in those segments are the cost of back up power sources, space requirements, noise problems, and maintenance requirements. In Docket DE 94-163, Order No. 21,683 (reh'g denied, Order No. 21,776), the New Hampshire Public Utilities Commission (NHPUC) ruled that Public Service Company of New Hampshire's (PSNH) rights to its franchise territory are not exclusive as a matter of law. Connecticut Valley was an intervenor in that docket. PSNH appealed the NHPUC's decision to the State of New Hampshire Supreme Court, and Connecticut Valley has filed a brief with the Court in favor of PSNH's position. This matter is still pending. In Docket DR 95-250, the NHPUC seeks to implement a Retail Competition Pilot Program (Pilot), through which three percent of each New Hampshire electric utility's load will be available for competitive electric service from alternative suppliers, for a period of up to two years. Connecticut Valley has engaged in a collaborative process with interested parties, including NHPUC Staff, and has proposed a recommendation for implementation of the Pilot in its service territory. For a discussion relating to utility restructuring in Vermont, see Item 7 herein. For a discussion relating to the Company's wholesale electric business see Wholesale Rates below. RATE DEVELOPMENTS Vermont Retail Rates. In response to a March 1993 PSB inquiry into the appropriateness of a general review of the Company's retail rates, in April 1993 the DPS and the Company entered into a Stipulation that was approved by the PSB in September 1993. In the Stipulation the Company agreed (1) to a decrease in its allowed rate of return on common equity from 12.5% to 12.0% for 1993, (2) to accelerate the recovery of $1.5 million of Conservation and Load Management (C&LM) costs deferred in 1993, (3) to not seek recovery of further C&LM costs deferred in 1993 equal to amounts in excess of the 12.0% rate of return on common equity for 1993, and (4) to not file a general rate increase that would become effective before August 1, 1994. The PSB in its September 1993 order also announced the opening of an investigation on November 16, 1993, the earliest date the Company could file for a rate increase under the Stipulation, into the Company's cost of service and resulting rates. In response to that investigation, on January 18, 1994 the Company filed a revenue requirement supporting a $16.1 million or 8.0% increase in retail rates for the year beginning November 1, 1993. The Company noted in its filing that current rate levels are justified and that the Company does not request any rate increase to be effective for that period. The Company also noted in its filing that rate relief would be needed in late 1994. On February 15, 1994, the Company filed for a rate increase of $17.9 million or 8.9% to become effective November 1, 1994. By PSB order dated October 31, 1994 and revised PSB order dated December 14, 1994, the PSB ordered (1) no changes in rates pursuant to its investigation and (2) a $10.192 million or 5.07% rate increase effective November 1, 1994 pursuant to the Company's rate increase request. The 10.75% rate of return on common equity allowed by the PSB was reduced by a 0.75% concurrent penalty based on the PSB's conclusions that there had been "mismanagement of power supply options" and because of "the Company's failed efforts to acquire all cost-effective energy efficiency resources." On October 17, 1995, the Company filed for a rate increase of $31.0 million or 14.6%. The PSB suspended the filing and approved a schedule for the rate increase to become effective July 1, 1996. The rate increase is primarily caused by increases in the cost of power and transmission, the most significant portion of which the cost of power purchased from Hydro-Quebec. See Power Resources below for additional discussion. The rate increase also seeks in two ways to restore the Company's return on common equity for its Vermont utility business. First, the Company proposes an 11.0% return on common equity. Second, the Company seeks to remove the 0.75% concurrent ROE penalties described above. Five individuals or entities intervened in the proceeding. The requests of four of them, including Killington, Ltd. (Killington) were ultimately granted by the PSB. On February 13, 1996, the Company reached an agreement with the Department regarding this rate increase request. Under terms of the agreement, the Company would increase rates by 5.5% effective June 1, 1996 and by 2% effective January 1, 1997. Except for extravating circumstances, the Company would not be able to increase rates prior to January 1, 1998 under the agreement. However, the Company believes that the rate increase settlement reached with the Department, if approved by the PSB, will be adequate through 1997. The agreement effectively caps the Company's allowed return on common equity in its Vermont retail business for 1996 and 1997 at 11%, by requiring the Company to reduce deferred CL&M costs to the extent its Vermont retail return on common equity would otherwise exceed 11%. In addition, the agreement would remove the penalties imposed in a PSB rate order dated October 31, 1994 discussed above. The agreement is subject to PSB approval. Killington, a wholly owned subsidiary of S-K-I, Ltd. (S-K-I), is a publicly held company. Killington owns and operates the Killington Ski Area and is one of the Company's largest customers (about 1% of retail MWH sales in 1995). Preston Leete Smith, a director of the Company since 1977, is S-K-I's chief executive officer and chairman of its executive committee. He is also chairman of the board of directors of Killington. Mr. Smith has informed the Company that because he recuses himself from all matters concerning Killington's relationship with the Company, he learned of Killington's request to intervene after the fact and as a matter of policy continues to recuse himself from all discussions related to the intervention, as well as other matters related to Killington's relationship with the Company. Similarly, as a matter of policy, Mr. Smith would recuse himself from consideration of any matters by the Company involving Killington or S-K-I. The Company does not believe that Killington's intervention is of itself an action that is adverse to the Company's interests, and the Company does not know at this time whether Killington's intervention will result in its taking any action or legal positions adverse to the Company and if so whether such action or legal positions would be considered material to the Company. As required by the PSB, the Company filed in May 1995 a comprehensive retail rate redesign which would be revenue neutral overall. The redesign would narrow the seasonal rate differential by reducing the higher winter charges and increasing the lower summer charges and would maintain the emphasis on more revenue collection via fixed-type charges (KW and service charges) instead of the more fluctuating KWH components of rates. The Company would also offer new service options under the redesign. Negotiations between the Company and the Department are ongoing and technical hearings before the PSB have been scheduled for mid-1996. The Company recognizes adequate and timely rate relief is necessary, particularly since Vermont regulatory rules do not allow for changes in purchased power and fuel costs to be passed on to consumers through automatic rate adjustment clauses. The Company's practice of reviewing costs periodically will continue and rate increases will be requested when warranted. New Hampshire Retail Rates. Connecticut Valley's retail rate tariffs, approved by the NHPUC, contain a fuel adjustment clause (FAC) and a purchased power cost adjustment clause (PPCA). Under these clauses, Connecticut Valley recovers its estimated annual costs for purchased energy and capacity which are reconciled when actual data is available. On the basis of estimates of costs for 1995 and reconciliations from 1994, the combined PPCA and FAC resulted in a decrease in revenues of approximately $489,000 or 2.7% for 1995. On the basis of estimates of costs for 1996 and reconciliations from 1995, the combined PPCA and FAC will result in an increase in revenues of approximately $1.2 million for 1996. The NHPUC order allowing the increase in 1996 revenues also ordered Connecticut Valley to file testimony and supporting material concerning the Hydro-Quebec/Vermont Joint Owners contract. The order also stated that the NHPUC would file a letter with the FERC requesting that the FERC issue a decision on the Wheelabrator complaint (see below) if one is pending or in the alternative inform the NHPUC as to when to expect a decision. Connecticut Valley's retail rate tariffs, approved by the NHPUC, also provide for a Conservation and Load Management Percentage Adjustment (C&LMPA) for residential and commercial/industrial customers in order to collect forecast C&LM costs. The forecast costs are updated effective January 1 of each year and are reconciled when actual data are available. In addition, Connecticut Valley's earnings reflect the recovery of lost revenues related to fixed costs which Connecticut Valley fails to otherwise recover as a result of C&LM activities. However, the Company is not made whole because a portion of the fixed costs of the wholesale transaction between the Company and Connecticut Valley is not recovered when C&LM activities occur in Connecticut Valley. The C&LMPA further provides for the future recovery of shareholder incentives related to past C&LM activities. In November 1995 Connecticut Valley filed its annual update of the 1996 C&LMPA rates. The Company requested approval of a decrease in program spending and hence a decrease in revenues of $383,000 or 2.1%. Settlement negotiations resulted in a decrease in revenues of $519,000 or 2.8% effective March 4, 1996 which the NHPUC approved. Connecticut Valley also purchases power from several small power producers who own qualifying facilities as defined by the Public Utility Regulatory Policies Act of 1978. In 1995, under long-term contracts with these qualifying facilities, Connecticut Valley purchased 40,323 MWH, of which 37,822 MWH were purchased from a New Hampshire/Vermont solid waste plant owned by Wheelabrator Claremont Company, L.P., (Wheelabrator). Connecticut Valley has filed a complaint with the FERC stating its concern that Wheelabrator has not been a qualifying facility since the plant began operation. Potential outcomes of this complaint could result in a refund, with interest, of past purchased power costs as well as lower future costs. Any refunds and lower future costs are likely to be reflected in the FAC. Pursuant to a Company request, the NHPUC issued an accounting order allowing deferral of litigation costs related to this FERC complaint, with recovery to be determined when the outcome of the FERC complaint is known and petitioned for implementation. Wholesale Rates. The Company sells firm power to Connecticut Valley under a wholesale rate schedule based on forecast data for each calendar year which is reconciled to actual data annually. The rate schedule provides for an automatic update of annual rates, as well as a subsequent reconciliation to actual data. The Company filed and the FERC approved (1) a revenue increase of $466,000 or 4.7% for 1995 power costs, (2) a reconciliation of 1994 revenues to actual costs which resulted in a refund of $85,482, including interest, and (3) a revenue decrease of $78,000 or 0.7% for 1996 power costs. As ordered by the NHPUC in Connecticut Valley's 1994 C&LMPA docket, the Company entered into negotiations with the NHPUC Staff to redesign the RS-2 wholesale rate under which Connecticut Valley purchases power from the Company. The redesign features marginal cost based energy and capacity charges for all energy and capacity purchases above or below a base level. Such negotiations concluded at the end of 1994. A summary report was filed with the NHPUC on February 13, 1995. The NHPUC issued an order approving the summary report in June 1995. The Company is preparing the filing with the FERC. Connecticut Valley's costs of wholesale power will be lower than they otherwise would be only if Connecticut Valley's growth rate exceeds that of the Company's Vermont retail operations. One of the Company's requirements wholesale customers, New Hampshire Electric Cooperative, Inc. (NHEC), with an average monthly peak of 2.8 MW gave the Company notice of termination of service under FERC Electric Tariff, First Revised Volume No. 1, effective in March 1995. The Company negotiated a interim temporary power sale to NHEC commencing with the termination date and a long-term power sale effective May 1, 1995. On March 1, 1995, the Company filed a comprehensive, open access transmission tariff (Tariff) with the FERC. The Tariff is designed to provide firm and non-firm network transmission service, as well as firm point-to-point service over the transmission systems of the Company and Connecticut Valley. In addition, the Tariff would permit customers to make use of the Company's contract rights to the transmission facilities of the Vermont Electric Power Company, Inc. and New England Power Company. The Tariff would provide transmission service that is comparable to that provided to native load customers. Charges for such service would be based upon the Company's cost of service for transmission. The Company prepared and filed the Tariff in anticipation of developing business opportunities in the area of electric transmission service. In addition, recent FERC orders led the Company to believe that all electric utilities owning transmission facilities would be required to prepare and file such a tariff in the near future. FERC issued a Notice Of Proposed Rulemaking (NOPR) dated March 29, 1995, requiring such utilities to make available comparable transmission service. The Company's tariff complies with many requirements proposed by the FERC in its NOPR. Nine parties intervened in the Company's Tariff filing. On April 28, 1995, the FERC issued a deficiency letter asking for more information in a number of areas. The Company filed a timely response to the deficiency letter on June 14, 1995. Three parties filed protests in response to the Company filing, and one additional party filed a request for late intervention. The FERC accepted the Tariff for filing on August 14, 1995, suspended it and set it for hearing. The order allowed the Tariff to become effective August 15, 1995, subject to refund and subject to the outcome of the Open Access NOPR proceeding. The NHEC began taking transmission service under the Tariff as of its effective date. The Company entered into negotiations with FERC Staff and intervenors and reached a settlement in principle in January 1996 on all rate issues contained in the Tariff filing but one which was settled in March 1996. The settlement provided for resolution of several rate issues based on the outcome of the NOPR or other cases before the FERC. The non-rate issues will be decided based on the outcome of the NOPR. However, further discussions within Vermont and New England continue on at least some of the non-rate issues. POWER RESOURCES Overview. The Company's and Connecticut Valley's energy production, which includes generated and purchased power, required to serve their retail and firm wholesale customers was 2,425,967 MWH for the year ended December 31, 1995. The maximum one-hour integrated demand during that period was 407.7 MW, which occurred on January 11, 1995. The Company's and Connecticut Valley's total production in 1995, including production related to all resale customers, was 3,951,973 MWH. The following tabulation shows the sources of such energy and capacity available to the Company and Connecticut Valley for the year ended December 31, 1994 and at the time of the Company's own peak. For additional information related to purchased power costs, refer to Item 7 herein.
Year Ended December 31, 1995 ___________________________________________________ Effective Generated and Capability Purchased at 12 Month Generated Time of the Average and Purchased Company's Peak __________ _________________ _______________ MW MWH % MW % WHOLLY-OWNED PLANTS: Hydro....................... 42.5 170,775 4.3 10.9 2.7 Diesel and Gas Turbine..... 28.5 1,925 - - - JOINTLY OWNED PLANTS: Millstone #3................ 19.7 138,644 3.5 7.4 1.8 Wyman #4.................... 11.0 9,992 0.2 15.6 3.8 McNeil...................... 10.5 27,191 0.7 9.9 2.4 EQUITY OWNERSHIP IN PLANTS: (Purchased) Vermont Yankee.............. 157.6 1,176,271 29.8 106.3 26.1 Maine Yankee................ 15.7 3,542 0.1 - - Connecticut Yankee.......... 11.5 73,242 1.9 11.0 2.7 MAJOR LONG-TERM PURCHASES: Hydro-Quebec................ 178.9 637,151 16.1 69.4 17.0 Merrimack #2................ 47.0 304,634 7.7 24.0 5.9 OTHER PURCHASES: System and other purchases.. 79.9 723,088 18.3 50.9 12.5 Small Power Producers....... 34.0 190,105 4.8 16.2 4.0 Unit Purchases.............. 55.3 129,795 3.3 43.5 10.7 Entitlement Purchases....... 0.4 14,179 0.4 - - Pumped Storage Hydro........ 4.2 4,455 0.1 3.1 0.7 NEPEX......................... - 346,984 8.8 39.5 9.7 ----- --------- ----- ----- ----- TOTAL.................... 696.7 3,951,973 100.0 407.7 100.0 ===== ========= ===== ===== =====
Wholly Owned Plants. The Company owns and operates 20 hydroelectric generating facilities in Vermont which have an aggregate nameplate capability of 41.2 MW and two gas- fired and one diesel generating facilities on a peaking or standby basis having a combined nameplate capability of 28.9 MW. Jointly Owned Plants. The Company has a joint-ownership interest in the following generating and transmission plants:
Net Fuel MW Generation Load Net Plant Name Location Type Ownership Entitlement MWH Factor Investment Millstone #3 Waterford, Nuclear 1.73% 20 138,644 79% $57,712,022 Connecticut Wyman #4 Yarmouth, Oil 1.78% 11 9,992 10% $ 1,651,408 Maine Joseph C. McNeil Burlington, Various 20.00% 10.6 27,191 29% $ 9,218,955 Vermont Highgate Trans- Highgate Springs, 46.08% N/A N/A N/A $ 9,030,890 mission Facility Vermont
The Company receives its share of the output and capacity of Millstone #3, an 1149 MW nuclear generating facility; and Wyman #4 and Joseph C. McNeil, a 619 MW and a 53 MW respectively, generating plants and is responsible for its share of the operating expenses of each. The Highgate Convertor, a 200 MW facility is directly connected to the Hydro-Quebec System to the north of the Convertor and to the VELCO System for delivery of power to Vermont Utilities. This facility can deliver power either direction, but normally delivers power from Hydro-Quebec to Vermont. Equity Ownership in Plants. In 1966 the Company purchased 35% of the Vermont Yankee common stock and was entitled to receive a like percentage of the output of the unit. In late 1969 and early 1970, the Company sold at cost a combined total of 3.7% of its original equity investment and currently resells at cost 4.5% of its entitlement. The Company's current equity ownership and net entitlement percentages are 31.3 and 30.5, respectively. The Atomic Energy Commission, now the NRC, granted a full-term (40-year), full power operating license for the Vermont Yankee plant, which was to expire in December 2007. On December 17, 1990 the NRC issued an amendment of the operating license extending its term to March 2012. Vermont Yankee's net capability is 514 MW of which 156.7 MW (See Note 1) is the Company's net entitlement. Vermont Yankee's plant performance for the past five years is shown below: Availability Capacity Factor Factor (See Note 2) (See Note 3) 1991......................... 93.6 91.2 1992......................... 87.5 82.7 1993......................... 78.3 74.9 1994......................... 98.2 95.8 1995......................... 86.3 84.8 Vermont Yankee was down for scheduled refueling outages in 1993 and 1995, as well as unscheduled outages in 1993. As described in the overview section above, the Company is a stockholder, together with other New England electric utilities, in the following three nuclear generating companies: Maine Yankee Atomic Power Company, Connecticut Yankee Atomic Power Company and Yankee Atomic Electric Company. Net Company's Company Capability Entitlement Maine Yankee (See Note 4)..... 847 MW 2.0% - 16.9 MW Connecticut Yankee............ 582 MW 2.0% - 11.6 MW Yankee Atomic................. (See Note 5) (See Note 5) The Company is obligated to pay its entitlement percentage of the operating expenses of Vermont Yankee and the other Yankee companies, including depreciation and a return on invested capital, whether or not the plant is operating. The Company is obligated to contribute its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but more limited obligation to Connecticut Yankee. The Company's entitlement percentages are identical to the ownership percentages except that Vermont Yankee's entitlement percentage is 35%. For additional information regarding Equity Ownership in Plants, refer to Item 8 herein. _______________ Notes: (1) Currently, the Company resells at cost, through VELCO, 23.2 MW of its original entitlement to other Vermont utilities. (2) "Availability Factor" means the hours that the plant is capable of producing electricity divided by the total hours in the period. (3) "Capacity Factor" means the total net electrical generation divided by the product of the maximum design electrical rating capacity of 514 through April 30, 1995 and 522 effective May 1, 1995, multiplied by the total hours in the period. (4) Currently, the Company resells at cost 1.8 MW of its entitlement to certain municipal utilities in Massachusetts. (5) Yankee Atomic permanently ceased power operations of the Yankee Nuclear Power Station. See Decommissioning Expense discussion below. Decommissioning Expense. Each of the Yankee companies and Millstone #3 has developed its own estimate of the cost of decommissioning its nuclear generating unit. These estimates vary depending upon the method of decommissioning, economic assumptions, site and unit specific variables, and other factors. Each of the Yankee Companies includes charges for decommissioning costs in the cost of capacity, as approved by the FERC. Decommissioning costs for Millstone #3 are included in depreciation expenses. The Company's entitlement percentage of decommissioning costs for Vermont Yankee, Connecticut Yankee, Maine Yankee, Yankee Atomic and Millstone #3 is as follows (dollars in millions): CVPS's Total Share of Date of Estimated CVPS's Funded Study Obligation Obligation Obligation Nuclear generating companies: Vermont Yankee 1993 $312.7 $109.4 $47.1 Maine Yankee 1993 $316.6 $6.3 $2.8 Connecticut Yankee 1992 $309.0 $6.2 $3.6 Yankee Atomic 1994 $370.0 $13.0 $3.9 Millstone #3 1992 $477.9 $8.3 $1.4 Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, the Company expects that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their operating or license lives. See Item 8 for additional disclosure. The Company owns interests in two of the five nuclear plants operated by Northeast Utilities (NU): 1) a 2% equity interest in the Connecticut Yankee Atomic Power Company (Haddam Neck Plant), and 2) a 1.7303% joint-ownership interest in the Millstone Unit #3 of the Millstone Nuclear Power Station. In March 1996, the NRC ordered NU to submit a plan within 30 days verifying operational compliance with licensing documentation at Millstone Unit #3 and the Haddam Neck Plant, or risk having the plants shut down. This order follows noncompliances discovered at two of Northeast Utilities' other nuclear units. The Company is unable to determine at this time what the results of the NRC order will be on the operations of the Millstone Unit #3 and Haddam Neck Plant, or what the impact would be on the Company if the units were to be shut down. For information regarding the premature shutdown of Yankee Atomic nuclear power plant, refer to Item 8 herein. In 1982 the State of Maine enacted legislation that requires the development of a decommissioning trust fund for the Maine Yankee nuclear plant. This statute also provides that, if the trust has insufficient funds to decommission the plant, the licensee, Maine Yankee, is responsible for the deficiency and, if the licensee is unable to provide the entire amount, the owners of the licensee are jointly and severally responsible for the remainder. The definition of owner under the statute includes the Company. It is expected that any payments required by the Company under these provisions would be recovered through rates. Nuclear Fuel. Vermont Yankee has approximately $123.8 million of "requirements based" purchase contracts for nuclear fuel needs to meet substantially all of its power production requirements through 2002. Under these contracts, any disruption of operating activity would allow Vermont Yankee to cancel or postpone deliveries until actually needed. Vermont Yankee has a contract with the United States Department of Energy (DOE) for the permanent disposal of spent nuclear fuel. Under the terms of this contract, in exchange for the one-time fee discussed below and a quarterly fee of $.001 per KWH of electricity generated and sold, the DOE agrees to provide disposal services when a facility for spent nuclear fuel and other high-level radioactive waste is available, which is required by contract to be prior to January 31, 1998. The DOE contract obligates Vermont Yankee to pay a one-time fee of $39.3 million for disposal costs for all spent fuel discharged through April 7, 1983. Although such amount has been collected in rates from the Sponsors, Vermont Yankee has elected to defer payment of the fee to the DOE as permitted by the DOE contract. The fee must be paid no later than the first delivery of spent nuclear fuel to the DOE. Interest accrues on the unpaid obligation based on the thirteen-week Treasury Bill rate and is compounded quarterly. Through 1995 Vermont Yankee accumulated approximately $65.9 million in an irrevocable trust to be used exclusively for defeasing this obligation ($89.0 million including accrued interest) at some future date provided the DOE complies with the terms of the aforementioned contract. The average energy and capacity costs to the Company of energy generated at the Vermont Yankee plant was 3.69, 4.71, 5.34, 3.77 and 4.68 cents per KWH for the years 1991 through 1995, respectively. The Company has been advised by the companies operating other nuclear generating stations in which the Company has an interest that they have contracted for certain segments of the nuclear fuel production cycle through various dates. Contracts for the remainder of the fuel cycle will be required but their availability, prices and terms cannot be predicted. Nuclear Liability and Insurance. The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.9 billion. Any damages beyond $8.9 billion are indemnified under an agreement with the Nuclear Regulatory Commission, but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $8.7 billion per incident by assessing each of the 110 reactor units that are currently subject to the Program in the United States, a total of $79.3 million, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is expected to be adjusted at least every five years to reflect inflationary changes. The Company's interests in the nuclear power units are such that it could become liable for an aggregate of approximately $4.1 million of such maximum assessment per incident per year. Major long-term purchases. Canadian Purchases - Under various contracts, the Company purchases from Hydro-Quebec capacity and associated energy. Under the terms of these contracts, the Company is required to pay certain fixed capacity costs whether or not energy purchases above a minimum level described in the contracts are made. Such minimum energy purchases must be made whether or not other less expensive energy sources might be available. The Company will receive varying amounts of capacity and energy from Hydro-Quebec under the Vermont Joint Owners (VJO) contract during the 1996-2016 period. A contract between the state of Vermont and Hydro-Quebec terminated on September 22, 1995. Related contracts were negotiated between the Company and Hydro-Quebec which in effect alter the terms and conditions contained in the VJO contract, reducing the overall power requirements and cost of the original contract. The maximum net amount of capacity that the Company will purchase during the term of the agreements is 143 MW. The total commitment in the next five years to purchase power under these contracts is approximately $346 million, less approximately $98 million of power sellbacks, yielding a net cost of approximately $248 million. The Company recently reached an agreement with Hydro-Quebec that will lower our 1997 cost of power by approximately $5.8 million. As part of this agreement, the Company will deliver to NEPOOL under existing firm energy contracts or joint marketing activities 54 MW of Phase II transmission capacity (see Transmission, Phase I and Phase II below) for a five-year period beginning July 1, 1996 through June 30, 2001. In addition, the agreement provides for continuing negotiations with Hydro-Quebec to further reduce future power cost increases. In the early phase of the VJO contract, two sellback contracts were negotiated, the first delaying the purchase of about 24 MW of capacity and associated energy, the second reducing the net purchase of Hydro Quebec power. In 1994, the Company negotiated a third sellback arrangement whereby the Company receives an effective discount on up to 70 MW of capacity starting in November 1995 for the 1996 contract year (declining to 30 MW in the 1999 contract year). In exchange for this sellback, Hydro-Quebec has the right to reduce capacity deliveries by up to 50 MW beginning as early as 2004 until 2015, including the use of a like amount of the Company's Phase I/II facility rights and the ability to reduce the amounts of energy delivered during a five-year term beginning in 2000. Details of these purchases and sell-back contracts are described in the table that follows (dollars in thousands):
State of VT Schedule Schedule Schedule Schedule Schedule Schedule Contract A C-1 C-2 B C-3 C-4a Capacity in MW 69 25 31 21 93 - 24 Contract period '85-'95 '91-'95 '91-'12 '92-'12 '95-'15 '95-'15 '96-'12 Minimum energy(load factor) 50.0% 50.0% 75.0% 75.0% 75.0% 75.0% 75.0% Minimum annual MWH 220,752 79,844 201,863 138,141 610,077 26 155,801 Actual 1995 energy charges $4,209 $2,570 $4,885 $3,343 $3,373 $0 N/A Estimated 1st full year future energy charges N/A N/A $5,040 $3,449 $15,204 $1,000 $4,140 Estimated average % change from 1st year future 3.0% 3.0% 3.0% 3.0% 3.0% ('96-'12) ('96-'12) ('96-'15) ('96-'15) ('96-'12) Actual 1995 annual capacity charge $3,224 $1,740 $7,252 $5,016 $6,467 $0 N/A Estimated 1st year future capacity charge N/A N/A $7,374 $5,046 $23,431 $1 $6,071 Estimated average % change from 1st year future 0.0% 0.0% 0.0% 0.0% 0.0% ('96-'12) ('96-'12) ('96-'15) ('96-'15) ('96-'12) Actual 1995 average cost in cents/KWH 3.0 5.5 6.0 6.1 7.1 N/A N/A Estimated 1st year future average cost in cents/KWH N/A N/A 6.1 6.1 6.3 6.3 6.6 Estimated average % change from 1st year future 1.2% 1.2% 1.2% 1.2% 1.2% ('96-'12) ('96-'12) ('96-'15) ('96-'15) ('96-'12) 1995 Sellback in average MW N/A 25 30 20 2.6 N/A N/A Actual 1995 sellback revenue $0 $4,310 $9,526 $6,553 N/A N/A N/A Expected sellback #1 revenue 25 MW Estimated 1st year future annual $10,101 (1996) Estimated out-years average annual $11,060 Estimated average annual % change 1.2% ('97-'12) Expected sellback #2 revenue 5.7 MW 20 MW Estimated 1996 annual $1,433 $5,006 Expected sellback #3-net sellback & purchase up to 70 MW Approx. 90% of capacity costs Est.1st contract yr. (11/95-10/96) future $16,170 70 MW Est.2nd contract yr. (11/96-10/97) future $11,400 50 MW Est.3rd contract yr. (11/96-10/98) future $9,120 40 MW Est.4th contract yr. (11/98-10/99) future $6,840 30 MW
Merrimack #2 - The Company, through Velco, purchases power from Merrimack #2, a 320 MW capacity coal-fired steam unit located in Bow, New Hampshire, and owned by NU under a thirty-year contract which expires April 30, 1998. Beginning in 1995, the Merrimack #2 unit is subject to air emission limits for sulfur dioxide (SO2) and Nitrogen Oxides (NOx) mandated by the Clean Air Act Amendments of 1990 (CAAA). The CAAA establishes SO2 allowances to reduce SO2 emissions. NU expects to have sufficient SO2 allowances to meet CAAA SO2 requirements. If any gains are realized from the sale of excess allowances, the Company will receive its proportionate share from VELCO. Likewise, the Company will pay its share of any allowances purchased. NU complied with the Merrimack #2 NOx limits by installing Selective Catalytic Reduction (SCR) equipment in 1995 at a cost of approximately $19 million increasing operating costs by about $1.6 million annually. The SCR equipment is expected to have a negligible effect on unit fuel efficiency. The Company will share on a pro-rata basis the cost of the SCR equipment based on its share of the VELCO contract. The total cost to the Company of energy generated by the Merrimack #2 unit was 3.03 cents per KWH in 1995. Beginning in 1995, under the Clean Air Act Amendment of 1990, the plant is required to purchase allowances if its output of sulfur dioxide (SO2) exceeds about 21,400 tons of which the Company's share is about 3,100 tons. In 1995, Merrimack 2 emitted about 26,000 tons and the Company's share was about 3,800 tons, which required the purchase of allowances for a cost of approximately $600,000. The Company's share was about $87,000. Other Purchases. Cogeneration/Small Power Qualifying Facilities - A number of small producers using hydroelectric, biomass, and refuse-burning generation are currently producing energy that the Company is purchasing. For the year ended December 31, 1995, the Company received 190,105 MWH from these sources for which it paid $19,169,894. New England Power Pool - The Company, through VELCO, is a participant in the New England Power Pool (NEPOOL), which is open to all investor-owned, municipal and cooperative utilities in New England under an agreement in effect since 1971. The NEPOOL Agreement provides for joint planning and operation of generating and transmission facilities and also incorporates generating capacity reserve obligations and provisions regarding the use of major transmission lines and payment for such use. Because of its participation in NEPOOL, the Company's operating revenues and costs are affected to some extent by the operations of other participants in that agreement. The primary purposes of NEPOOL are to provide energy reliability for the region, centralized economic dispatch and coordination of generation planning and construction by the individual participants. The Company's peak demand for 1995 occurred on January 11, 1995 and equaled 407.7 MW. At the time of this peak, the Company had a reserve margin of 31.0%. NEPOOL's peak for the year occurred on July 27, 1995 and totaled 20,499 MW. NEPOOL had a 26% reserve margin at the time of its 1995 peak. Power Resources - Future. The Company purchases about 90% of the power it needs, including the power it receives as part owner of the various Yankee nuclear plants. In 1995, about 30% of the Company's purchased power came from renewable sources, primarily water and wood. The Company's core business has no plans at this time to build any new generating facilities to supply power, instead it intends to satisfy customers' energy needs through a combination of power purchases and energy-efficiency services. Therefore, the Company uses a process called "integrated resource planning," or IRP, to help determine the resources necessary to meet future power needs. IRP is an evolving, on-going process. An interdisciplinary team representing various functional planning area works together continuously to coordinate and integrate planning. The primary objective of IRP is to provide reliable, least-cost energy resources consistent with the Company's policy to protect the environment. The choice of least-cost resources explicitly seeks a balance between traditional supply resources and energy efficiency investments with the Company's customers. Flexibility and diversity are investment guidelines designed to provide least-cost resources over a broad range of possible futures. Based upon current load forecasts, the Company expects to be able to satisfy its load requirements into the first decade of the next century through its ownership in various generating facilities and purchases from various other New England, New York, Canadian utilities, Independent Power Producers, and Conservation and Load Management. Current load and capacity forecasts for NEPOOL indicate adequate reserves and availability of power for the region as a whole and the Northeast well past the year 2000. TRANSMISSION Vermont Electric Power Company, Inc. VELCO engages in the operation of a high-voltage transmission system which interconnects the electric utilities in the State including the areas served by the Company. VELCO is also engaged in the business of purchasing bulk power for resale, at cost, to the Company and the other electric utilities (cooperative, municipal and investor-owned) in Vermont (the "Vermont utilities") and transmitting such power for the Vermont utilities. Refer to Item 8 herein for a discussion of the 1985 Four Party Agreement between the Company, VELCO and two other major distribution companies in Vermont. VELCO provides transmission services for the State of Vermont, acting by and through the Department, and for all of the electric distribution utilities in the State of Vermont. VELCO is reimbursed for its costs (as defined in the agreements relating thereto) for the transmission of power for such entities. The Company, as the largest electric distribution utility in Vermont, is the major user of VELCO's transmission system. The Company owns 34,083 shares (56.8%) of the Class B common stock of VELCO, the balance being owned by other Vermont utilities. Each share of Class B common stock has one vote. The Company also owns 46,624 shares (46.6%) of the Class C preferred stock of VELCO, the balance being owned by other Vermont utilities. Shares of Class C preferred stock have no voting rights except the limited right to vote VELCO's shares of common stock in Vermont Electric Transmission Company, Inc. (VETCO) if certain dividend requirements are not met. NEPOOL Arrangements. VELCO participates for itself and as agent for the Company and twenty-one other Vermont utilities in NEPOOL. See "Business-New England Power Pool" for additional details. Capitalization. VELCO has authorized 92,000 shares of Class B common stock, $100 par value, of which 60,000 shares were outstanding on December 31, 1995 and 125,000 shares of Class C preferred stock, of which 100,000 shares were outstanding at December 31, 1995. On that date there were authorized and outstanding three issues of First Mortgage Bonds, aggregating $34,558,000, issued under an Indenture of Mortgage dated as of September 1, 1957, as amended, between VELCO and Bankers Trust Company, as Trustee (the "VELCO Indenture"). The issuance of bonds under the VELCO Indenture is unlimited in amount but is subject to certain restrictions. New transmission and associated facilities will be required by VELCO in 1996 to transmit power to Vermont utilities. The costs of such facilities are presently estimated at $7,600,000 including allowance for funds used during construction calculated at a rate of approximately 6.75%. For a description of VELCO's properties, see "VELCO" under Item 2. Management. In 1957 VELCO entered into an agreement (the "Three-Party Agreement") whereby the Company and Green Mountain agreed that, if VELCO transmits firm power owned by it (which it does not now do), they would have the right to purchase all such firm power not sold to others with their consent and the obligation to pay (in agreed proportions) amounts sufficient, together with VELCO's revenues from other sources, to pay all VELCO's operating expenses, debt service and taxes. In connection with the transfer to VELCO of entitlements of the output of the Vermont Yankee plant, the Company and Green Mountain entered into a Three-Party Transmission Agreement, dated November 21, 1969, as amended, whereby they have agreed to pay transmission charges thereon in an aggregate amount sufficient, with VELCO's other revenues, to pay all of VELCO's expenses including capital costs. VELCO's Bonds are secured by a first mortgage on the major part of VELCO's transmission properties and by the assignment to the Trustee of the Three-Party Agreement, the Three-Party Transmission Agreement and certain other contracts as specified in the VELCO Indenture. See Item 8 herein for information relating to the 1985 Four-Party Agreement. Vermont Electric Transmission Company, Inc. In connection with the importing of Canadian power, VELCO has created a wholly owned subsidiary, VETCO, to construct, finance, own and operate the Vermont portion of the transmission line which connects the Hydro-Quebec lines at the Canadian border to the lines of New England Electric Transmission Corporation, a subsidiary of New England Electric System, at the New Hampshire border on the Connecticut River. VETCO entered into a Capital Funds Agreement with VELCO pursuant to which VETCO may request up to $12,500,000 (of which $10,000,000 was contributed as of December 31, 1995) of capital contributions from VELCO and has entered into Transmission Line Support Agreements with 20 New England utilities, including VELCO as representative for 15 Vermont utilities, pursuant to which those utilities have agreed to pay the transmission line costs, whether or not the line is operational. VELCO, as such representative, has entered into a similar agreement with New England Electric Transmission Corporation with respect to the New Hampshire portion of the DC transmission line and the DC/AC converter station. VELCO has entered into a Vermont Participation Agreement and a Capital Funds Support Agreement with 15 Vermont distribution utilities, including the Company, pursuant to which those utilities assume their pro rata share (based upon 1980 sales) of the benefits and obligations of VELCO under the Support Agreements and the VETCO Capital Funds Agreement. VETCO has authorized 10 shares of common stock, $100 par value, all of which were outstanding on December 31, 1995 and owned by VELCO, with each share having one vote. During 1986 VETCO paid off its construction financing by issuing $37,000,000 of secured notes, maturing in 2006, and receiving a $9,999,000 equity contribution from VELCO. The notes are secured by a First Mortgage on the major part of VETCO's transmission properties and by the assignment of its rights under the Support Agreements. Phase I and Phase II. The Company participated with other electric utilities in the construction of the Phase I Hydro-Quebec transmission facilities in northeastern Vermont, which were completed at a total cost of approximately $140 million. Under a support agreement relating to the Company's participation in the facilities, the Company is obligated to pay its 4.42% share of Phase I Hydro-Quebec capital costs over a 20 year recovery period through and including 2006. The Company also participated in the construction of Phase II Hydro-Quebec transmission facilities which began operation in November 1990. This service increased the maximum capacity of the Hydro-Quebec 450 KV DC line from 690 MW to 2000 MW and extended Phase I line from Comerford, New Hampshire to Sandy Pond, Massachusetts. The Company uses this transmission path to deliver a portion of the Company's long-term Hydro-Quebec firm power contract. The project cost approximately $487 million. Under a similar support agreement, the Company is obligated to pay its 5.132% share of Phase II Hydro-Quebec capital costs over a 25-year recovery period through and including 2015. Under the support agreement, the Company is eligible for savings associated with certain energy transactions by NEPOOL, which will offset the Company's support cost obligations. CONSERVATION AND LOAD MANAGEMENT The primary purpose of Conservation and Load programs is to offset the need for long-term power supply and delivery resources that are more expensive to purchase or develop than customer-efficiency programs. For additional information regarding C&LM programs see Item 7, "Liquidity and Capital Resources" herein. The Company provides information to customers to help them use electricity more efficiently, first by ensuring that the customers are on the correct rate and have incorporated efficiency and conservation measures; secondly, by continually evaluating new energy management systems and other technologies to identify and develop programs to address new market opportunities and the competitive strengths of electricity. DIVERSIFICATION See Items 7 and 8 herein for information regarding the Company's diversification activities. The Company is continually assessing additional diversification opportunities. Any new investments will be financed primarily through a combination of debt and equity. EMPLOYEE INFORMATION A Local Union No. 300 affiliated with the International Brotherhood of Electrical Workers represents operating and maintenance employees of the Company and its wholly owned subsidiaries. At December 31, 1995 the Company and its wholly owned subsidiaries employed 670 persons, of which 234 are represented by the union. On December 31, 1992, the Company and its employees represented by the union agreed to a three-year contract, which provided for an annual wage increase of 3.95% for a three year period ending December 31, 1995. This contract expired on December 31, 1995, but it was extended until January 26, 1996, when a new three-year contract was agreed to by the Company and its employees represented by the Union. The new contract expires on December 31, 1998 and provides for general wage increases of 2.0%, 2.1% and 2.5% effective January 14, 1996, December 29, 1996 and December 28, 1997, respectively. Under the terms of the new agreement, effective in April 1996, Company's employees represented by the union will contribute weekly premiums for medical coverage of two, three and four dollars for the years 1996, 1997 and 1998, respectively. SEASONAL NATURE OF BUSINESS The Company experiences its heaviest loads in the colder months of the year. Winter recreational activities, longer hours of darkness and heating loads from cold weather usually cause the Company's peak of electric MWH sales to occur in January or late December. For additional information regarding the seasonal nature of business see Item 8 herein. Item 2. Properties. The Company. The Company's properties are operated as a single system which is interconnected by transmission lines of VELCO, New England Power Company and PSNH. The Company owns and operates 21 small generating stations with a total current nameplate capability of 66,370 KW, has a 1.78% joint-ownership interest in an oil generating plant in Maine, has a 20% joint-ownership interest in a wood, gas and oil-fired generating plant in Vermont, has a 1.73% joint-ownership interest in a nuclear generating plant in Connecticut, has a 46.08% joint-ownership interest in a transmission interconnection with Hydro-Quebec in Vermont and leases and operates two hydro generating stations from wholly owned subsidiaries, Bradford and East Barnet, 1,500 KW and 2,200 KW, respectively. However, Bradford was dissolved effective January 16, 1996. The electric transmission and distribution systems of the Company include about 614 miles of overhead transmission lines, about 7,228 miles of overhead distribution lines and about 223 miles of underground distribution lines which are located in Vermont except for about 23 miles of transmission lines which are located in New Hampshire and about two miles of transmission lines which are located in New York. Connecticut Valley. Connecticut Valley's electric properties consist of two principal systems in New Hampshire which are not interconnected with each other but each of which is connected directly with facilities of the Company. The electric systems of Connecticut Valley include about two miles of transmission lines and about 426 miles of overhead distribution lines and about 11 miles of underground distribution lines. All the principal plants and important units of the Company and its subsidiaries are held in fee. Transmission and distribution facilities which are not located in or over public highways are, with minor exceptions, located either on land owned in fee or pursuant to easements substantially all of which are perpetual. Transmission and distribution lines located in or over public highways are so located pursuant to authority conferred on public utilities by statute, subject to regulation of state or municipal authorities. VELCO. VELCO's properties consist of about 483 miles of high voltage overhead transmission lines and associated substations. The lines connect on the west at the Vermont-New York state line with the lines of Niagara Mohawk Power Corporation near Whitehall, New York, and Bennington, Vermont and with the submarine cable of NYPA near Plattsburg, New York; on the south and east with lines of New England Power Company and PSNH; on the south with the facilities of Vermont Yankee; and on the north with lines of Hydro-Quebec through a converter station and tie line jointly owned by the Company and several other Vermont utilities. VETCO. VETCO has approximately 52 miles of high voltage DC transmission line connecting at the Quebec-Vermont border in the Town of Norton, Vermont with the transmission line of Hydro-Quebec and connecting at the Vermont-New Hampshire border near New England Power Company's Moore hydro-electric generating station with the transmission line of New England Electric Transmission Corporation, a subsidiary of New England Electric System. Item 3. Legal Proceedings. On March 20, 1992, Sunnyside Cogeneration Associates filed suit in the United States District Court for the District of Vermont against the Company, CV Energy Resources, Inc. (CVER) and a subsidiary of CVER alleging damages in excess of five million dollars resulting from the parties' inability to come to agreement on the terms of CVER's proposed investment in the plaintiff's waste coal cogeneration facility under construction in Sunnyside, Utah. The Company filed an answer denying the allegations and both sides have filed motions for summary judgment which were denied. The plaintiff has also submitted its Requests for Finding of Fact, in which it claims damages of approximately $8.7 million. The case is expected to be tried later this spring or summer. On December 30, 1994, a lawsuit was filed in the United States District Court for the District of Vermont, Civil Action No. 2:94-CV386, by Bradford E. White, Michel J. Messier and John A. Wasik, against the Company, its present directors and certain former directors. This lawsuit (the "Shareholder Suit"), which purports to be on behalf of a class of consumers as well as on behalf of the Company s stockholders in enforcing the rights of the Company, alleges, among other things, (i) that F. Ray Keyser, Jr., Chairman of the Company's Board of Directors, violated Section 8 of the Clayton Act, 15 U.S.C. Subchapter 19, which precludes certain interlocking directorships, (ii) that Mr. Keyser violated his fiduciary duties to the Company's stockholders by acquiring and operating a series of businesses in competition with the Company without offering those business opportunities to the Company, (iii) that the remaining individual defendants violated their fiduciary duties to the Company's stockholders by failing to analyze, or to cause management to analyze, diversification into propane and fossil fuels, and by failing to make the Company an effective competitor of alternative fuel companies, and (iv) that the Company violated the applicable provision of the Vermont General Corporation Law by failing to provide a list of the Company's stockholders. The Shareholder Suit seeks an unspecified amount of damages (including treble damages against Mr. Keyser), attorney's fees and costs, a list of the Company's stockholders, and a court order to enjoin the defendants from alleged continuing violations of the law. Each of the individual defendants and the Company itself deny the allegations against them and intend to vigorously defend the Shareholder Suit. The Company and its directors have filed a Motion to Dismiss which is currently pending before the Court. Information regarding the Company's advancement of expenses incurred by the Company's directors in connection with the Shareholder Suit is set forth in Item 13 below under the captions "Report of Indemnification and Advancement of Expenses" and "Compensation Committee Interlocks and Insider Participation". In response to a shareholder letter received in November 1994, the Company's Board formed a Special Investigation Committee (the Committee), comprised of three outside directors, to investigate the shareholder's allegations concerning management's judgment in deciding, in August 1991, to commit, as part of a consortium of Vermont utilities, to a long-term purchase of a large amount of hydro-electric power from Hydro-Quebec. The shareholder also alleged that the Company misled the PSB, prior to the Company's decision to commit to the purchase, concerning the status of negotiations relating to the purchase. The Committee hired outside counsel to aid in the investigation and to render legal advice to it and the Board. At the conclusion of its investigation, the Committee recommended to the outside members of the full Board that pursuit of any legal claims implicated by the shareholder's letter would not be in the best interests of the Company and its shareholders and that the Company should take no further action with respect to the shareholder's letter. At the Board's regularly scheduled meeting in September 1995, the outside directors of the Board voted unanimously to adopt the Committee's recommendations. At the Company's 1994 Annual Meeting, shareholders approved two amendments to the Company's Articles of Incorporation subject to obtaining the necessary regulatory approval. One of the amendments was a so-called Fair Price provision. The other amendment served to limit The Board of Directors' liability in certain circumstances. Because, under Vermont law, the Company cannot amend its Articles of Incorporation without the Public Service Board's (PSB) permission, the Company filed a petition seeking the necessary regulatory approval. The Department of Public Service vigorously opposed both amendments, significantly decreasing the likelihood of obtaining PSB approval. The case was further complicated by the participation of Mr. Bradford White, a plaintiff in the lawsuit discussed in the afore mentioned paragraph. In light of the limited prospect of obtaining regulatory approval, as well as the ongoing costs associated with the proceeding, the Company decided to withdraw the petition with prejudice. Accordingly, on October 17, 1995, the Company filed a notice of withdrawal, which the PSB granted. There are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their property is subject. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to security holders during the fourth quarter of 1995. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) The Company's common stock is traded on the New York Stock Exchange (NYSE) under the trading symbol CV. The table below shows the high and low sales price of the Company's common stock, as reported on the NYSE composite tape by The Wall Street Journal, for each quarterly period during the last two years as follows: Market Price High Low 1995 First quarter.............. $ 14 1/4 $ 13 1/4 Second quarter............. 14 1/4 13 1/4 Third quarter.............. 14 3/8 13 3/8 Fourth quarter............. 14 3/8 13 1/4 1994 First quarter.............. $ 22 $ 18 3/8 Second quarter............. 19 1/8 14 1/4 Third quarter.............. 15 1/2 12 1/8 Fourth quarter............. 14 1/2 12 3/8 (b) As of December 31, 1995, there were 15,718 holders of the Company's common stock, $6 par value. (c) Common stock dividends have been declared quarterly. Cash dividends of $.355 per share were paid for all quarters of 1994 and cash dividends of $.20 were paid for all quarters of 1995. So long as any Senior Preferred Stock or Second Preferred Stock is outstanding, except as otherwise authorized by vote of two-thirds of each such class, if the Common Stock Equity (as defined) is, or by the declaration of any dividend will be, less than 20% of Total Capitalization (as defined), dividends on Common Stock (including all distributions thereon and acquisitions thereof), other than dividends payable in Common Stock, during the year ending on the date of such dividend declaration, shall be limited to 50% of the Net Income Available for Dividends on Common Stock (as defined) for that year; and if the Common Stock Equity is, or by the declaration of any dividend will be, from 20% to 25% of Total Capitalization, such dividends on Common Stock during the year ending on the date of such dividend declaration shall be limited to 75% of the Net Income Available for Dividends on Common Stock for that year. The defined terms identified above are used herein in the sense as defined in subdivision 8A of the Company's Articles of Association; such definitions are based upon the unconsolidated financial statements of the Company. As of December 31, 1995, the Common Stock Equity of the Company was 56.4% of total capitalization. For additional information regarding dividend payment level and dividend restrictions see Item 8 herein. Item 6. Selected Financial Data. (Dollars in thousands, except per share amounts)
1995 1994 1993 1992 1991 For the year Operating revenues $288,277 $277,158 $279,389 $275,375 $233,469 Net income* $ 19,851 $ 14,800 $ 21,292 $ 21,422 $ 18,576 Earnings available for common stock* $ 17,823 $ 12,662 $ 18,634 $ 18,764 $ 17,514 Consolidated return on average common stock equity* 10.0% 7.2% 11.0% 11.8% 11.8% Earnings per share of common stock* $1.53 $1.08 $1.64 $1.71 $1.65 Cash dividends paid per share of common stock $.80 $1.42 $1.42 $1.39 $1.39 Book value per share of common stock $15.51 $14.56 $15.03 $14.21 $14.03 Net cash provided by operating activities $ 41,711 $ 49,410 $ 36,833 $ 48,904 $ 42,033 Dividends paid $ 11,350 $ 18,845 $ 18,112 $ 18,174 $ 15,677 Construction and plant expenditures $ 21,337 $ 22,621 $ 20,519 $ 20,503 $ 18,950 Deferred conservation and load management expenditures $ 3,899 $ 6,159 $ 9,874 $ 3,539 $ 1,946 At end of year Long-term debt $120,142 $120,157 $122,419 $107,879 $130,163 Redeemable preferred stock $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 Total capitalization (excluding current portion of debt) $327,956 $318,995 $331,309 $302,023 $316,897 Total assets $490,062 $490,399 $480,150 $451,052 $430,748 * After deducting non-recurring charge-offs (net of taxes) of $1,703 ($.15 per share) and $4,336 ($.37 per share) for 1995 and 1994, respectively; and reflecting the Appomattox gain (net of taxes) of $905 ($.08 per share) for 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Earnings Overview. The Company's 1995 net income was $19.9 million or $1.53 per share of common stock, which equates to a 10.0% return on average common equity. Net income and earnings per share of common stock for 1995 compare to $14.8 million and $1.08 in 1994, and $21.3 million and $1.64 in 1993. The return on average common equity was 7.2% for 1994 and 11.0% for 1993. The improved earnings for 1995 result from an $.08 per share gain on the sale by Catamount Energy Corporation (Catamount), a wholly owned non-utility subsidiary of the Company, of approximately half of its limited partnership interest in the Appomattox Cogeneration Limited Partnership; the 5.07% retail rate increase effective November 1, 1994 and increased retail sales. In January 1996, the Vermont Public Service Board (PSB) issued an Accounting Order authorizing the Company to accelerate recovery of approximately $2.9 million or $.15 per common share of restructuring costs originally deferred pursuant to a PSB Accounting Order dated March 11, 1994. As a result of this acceleration, future annual amortization expense, including the Company's current rate increase request discussed below, will be reduced by approximately $.8 million through May 1999. The 1994 net income and earnings per share of common stock were reduced by approximately $4.3 million and $.37, respectively, for three non-recurring charges resulting from 1) cost disallowances associated with the PSB Rate Order which reduced after-tax earnings and earnings per share of common stock by approximately $1.8 million and $.16, respectively; 2) the Company's decision to discontinue its proposed new headquarters office building which reduced after-tax earnings and earnings per share of common stock by $1.7 million and $.14, respectively; and 3) writing down SmartEnergy Services, Inc.'s investment in Green Technologies, Inc.'s (Green Technologies) common stock to reflect management's estimate in the decline in value of the investment which reduced after-tax earnings and earnings per share of common stock by $.8 million and $.07, respectively. Earnings per share of common stock and return on common equity for 1993 were $1.64 and 11.0%, respectively. Absent the non-recurring charges and the Appomattox gain, net income and earnings per share of common stock would have been as follows (dollars in thousands): Year Ended December 31 1995 1994 1993 Net income as reported $19,851 $14,800 $21,292 Non-recurring charges, net of taxes 1,703 4,336 - Appomattox gain, net of taxes (905) - - ------- ------- ------- Net income before non-recurring charges and Appomattox gain $20,649 $19,136 $21,292 ------- ------- ------- Earnings per share of common stock before non-recurring charges and Appomattox gain $1.60 $1.45 $1.64 In 1995, the Company earned 10.75% return on average common equity on its Vermont utility business and 7.7% return on non-utility investments. The combined non-utility investments' return on average common equity of 7.7% resulted from a 9.4% return from Catamount and 10.5% loss from SmartEnergy Services, Inc. (SmartEnergy). The loss of SmartEnergy was caused primarily by the write-off of its remaining investment in Green Technologies. See Note 3 to the Consolidated Financial Statements for additional details on the Company's non-utility investments. Principally as a result of increasing purchased power costs, the Company filed for a 14.6% or $31.0 million general rate increase on October 17, 1995 to become effective July 1, 1996, to offset the increasing cost of providing service as more fully discussed below. On February 13, 1996, the Company reached an agreement with the Vermont Department of Public Service (DPS) regarding this rate increase request. Under terms of the agreement, the Company would increase rates 5.5% June 1, 1996 and 2% January 1, 1997. The agreement effectively caps the Company's allowed return on common equity in its Vermont retail business for 1996 and 1997 at 11%, by requiring the Company to reduce deferred Conservation and Load Management (C&LM) costs to the extent its Vermont retail return on common equity would otherwise exceed 11%. In addition, the agreement would remove the penalties imposed in a PSB rate order dated October 31, 1994 discussed in Note 12 to the Consolidated Financial Statements. The agreement is subject to PSB approval. Results of Operations. The major elements of the Consolidated Statement of Income are discussed below. Operating revenues and MWH sales A summary of MWH sales and operating revenues for 1995 and 1994 (and the related percentage changes from 1994) is set forth below:
Percentage Percentage MWH Sales Increase Revenues (000's) Increase 1995 1994 (Decrease) 1995 1994 (Decrease) Residential 946,342 954,329 (.8) $103,365 $ 99,991 3.4 Commercial 876,735 860,474 1.9 93,950 89,209 5.3 Industrial 404,487 391,928 3.2 31,565 30,002 5.2 Other retail 7,361 7,564 (2.7) 1,794 1,744 2.9 --------- --------- -------- -------- Total retail sales 2,234,925 2,214,295 0.9 230,674 220,946 4.4 Resale sales: Firm 4,860 17,469 (72.2) 223 634 (64.8) Entitlement 895,409 834,304 7.3 39,802 37,220 6.9 Other 580,048 642,802 (9.8) 13,269 14,201 (6.6) --------- --------- -------- -------- Total resale sales 1,480,317 1,494,575 (1.0) 53,294 52,055 2.4 Other revenues - - 4,309 4,157 3.7 -------- --------- -------- -------- Total 3,715,242 3,708,870 0.2 $288,277 $277,158 4.0
Year-to-year fluctuations in total retail MWH sales are primarily affected by customer growth, C&LM programs, as well as relative prices of alternate energy sources, weather patterns and conservation induced by price changes and income elasticity responses of customers. Total retail MWH sales for 1995 increased .9% compared to 1994. Retail MWH sales declined during the first quarter of 1995 due to warm weather and its impact on winter recreational activities. However, retail MWH sales improved throughout the remainder of the year. Retail revenues for 1995 increased $9.7 million or 4.4% due to an $8.0 million increase in price resulting from the 5.07% retail rate increase and $1.8 million associated with the .9% increase in MWH sales. In anticipation of a more competitive environment and to better align costs with revenues by rate class, on May 24, 1995, the Company filed with the PSB a request for a retail rate redesign which would be revenue neutral overall. The rate redesign, if subsequently approved by the PSB, would decrease the average rate per kilowatt hour for the commercial and industrial sectors by approximately 4% and would increase the average rate per kilowatt hour for the residential sector by about 5%. If approved by the PSB, the rate redesign will also reduce the gap between peak and off-peak rates. Technical hearings before the PSB for the proposed rate design changes have been scheduled for mid-1996. Due to current market conditions, some of the Company's firm resale customers chose not to extend their contracts. As a result, firm resale MWH sales and revenues declined for 1995 and 1994. However, two of those customers are currently purchasing power from the Company based on market rates. Entitlement MWH sales and revenues increased 7.3% and 6.9%, respectively, due to the sale of power purchased from Hydro-Quebec to Boston Edison Company. However, this increase was partially offset by decreased MWH sales made in conjunction with a swap arrangement with Commonwealth Electric, which terminated on October 31, 1995, reduced sell-backs to Hydro-Quebec of purchased power and reduced sales to UNITIL due to the scheduled refueling and maintenance shutdown of Vermont Yankee that began on March 17, 1995. Other resale sales for 1995 decreased 62,754 MWH and related revenues decreased $.9 million, primarily from lower short-term sales to NEPOOL. The Company continues to make every effort to maintain or increase resale sales despite the weak market for capacity and energy in the region. The table below analyzes the components of increases or decreases in revenues compared to the prior year (dollars in thousands): 1995 1994 Revenue increase (decrease) from: Retail MWH sales $ 1,765 $ 826 Retail rates 7,963 2,019 Changes in firm resale sales (411) (2,113) Changes in entitlement sales 2,582 (5,197) Changes in other resale sales (932) 8,006 Changes in other revenues 152 (70) Deferred revenues - (6,075) ------- ------- Net increase (decrease) over prior year $11,119 $(2,604) ======= ======= The increases in retail rates are due to the 5.07% retail rate increase that became effective with service rendered November 1, 1994. The decrease in entitlement sales and revenues for 1994 compared to 1993 is due to reduced sell-back of the Hydro-Quebec power, partially offset by increased sales made in conjunction with a swap arrangement with Commonwealth Electric as well as higher sales to UNITIL. The increase in other resale sales for 1994 resulted from increased sales to NEPOOL and other utilities in New England. Deferred revenues of $(6.1) million in 1994 relate to the recognition in 1993 of revenues deferred from 1991. Purchased power The Company purchases approximately 90% of its power needs under several contracts of varying duration. Over 30% of these purchases are from affiliated companies whereby the Company receives its entitlement share of the output. The Company's purchased power portfolio assures that a diversified mix of sources and fuel types are available to meet the Company's long-term load growth while providing short and intermediate term opportunities to purchase or sell capacity and energy to reduce overall power costs. The percentages of the Company's energy sources were as follows: Year Ended December 31 1995 1994 1993 Nuclear generating companies 32% 39% 34% Canadian imports 33 20 28 PSNH--coal 8 7 8 Company-owned hydro 4 5 5 Jointly owned units 4 5 4 Small power producers 5 5 5 Other sources 14 19 16 --- --- --- 100% 100% 100% === === === The Company has equity ownership interests in four nuclear generating companies: Vermont Yankee (VY), Maine Yankee (MY), Yankee Atomic (YA) and Connecticut Yankee (CY). The VY nuclear plant, which provides approximately one-third of the Company's power supply, was unavailable from August 27 through October 24, 1993 and from March 17 through May 2, 1995 due to its scheduled refueling outages. VY also had unscheduled outages from April 7 to April 16, 1993 and December 6 to December 20, 1993. The MY plant was shut down for refueling and maintenance from July 30 through October 13, 1993. For details relating to MY's 1995 shutdown and the permanent shutdown of YA, see Note 2 to the Consolidated Financial Statements. The CY plant was shut down for a scheduled refueling outage from May 15 through July 21, 1993 and from January 28 through April 18, 1995. There were no scheduled refueling outages and no major unscheduled outages during 1994. During scheduled refueling outages, the Company purchases more costly replacement energy from other sources to satisfy energy needs. In accordance with current rate-making treatment, the Company defers and amortizes to expense over their respective fuel cycles the incremental replacement energy and maintenance costs associated with these refueling outages for the Yankee plants and the Millstone #3 jointly owned nuclear generating unit. During 1995, the Company deferred $2.4 million and $6.9 million of replacement energy and capacity costs, respectively, for VY, MY, CY and Millstone #3; and for 1993, deferred $2.4 million and $6.5 million of energy and capacity costs, respectively, for VY, MY, CY and Millstone #3. Under various long-term purchase power contracts expiring in 2016, the Company receives varying amounts of capacity and energy from Hydro-Quebec. See Note 13 to the Consolidated Financial Statements for further details related to the Hydro-Quebec power contracts. Under a 30-year contract, which expires in 1998, the Company, through Vermont Electric Power Company, Inc., purchases 46.98 MW of capacity from Merrimack #2, a coal-fired generating plant owned by Northeast Utilities. The Company also owns 20 hydroelectric generating units which have a total nameplate capability of 41.2 MW and two gas-fired and one diesel-peaking units with a combined nameplate capability of 28.9 MW. In addition, the Company maintains joint-ownership interests in Joseph C. McNeil, a 53 MW wood, gas and oil-fired unit; Wyman #4, a 619 MW oil-fired unit; and Millstone #3, an 1149 MW nuclear unit. Millstone #3 was shut down from July 31 through November 7, 1993 and from April 14 to June 6, 1995 for refueling outages. The Company's percentage ownership in these units is 20%, 1.78% and 1.73%, respectively. The Company, under long-term contracts, purchases power from a number of small power producers who own qualifying facilities under the Public Utility Regulatory Policies Act of 1978. These qualifying facilities produce energy using hydroelectric, wood, biomass and refuse-burning generation. During 1995, the Company purchased 190,105 MWH of which approximately 135,504 MWH is associated with the Vermont Power Exchange and 37,822 MWH with a New Hampshire/Vermont solid waste plant. The Company engages in purchases and sales with other electric utilities and with NEPOOL to take advantage of immediate pricing and other market conditions. These purchases are included in Other sources in the table above. The net cost components of purchased power and production fuel costs for the past three years were as follows (dollars in thousands):
1995 1994 1993 Units Amount Units Amount Units Amount Purchased and produced: Capacity (MW) 585 $ 85,758 568 $ 83,677 496 $ 86,857 Energy (MWH) 3,603,446 63,907 3,544,563 59,485 3,338,298 59,726 -------- -------- -------- Total purchased power costs 149,665 143,162 146,583 Production fuel (MWH) 348,528 2,358 381,819 1,932 313,020 1,737 -------- -------- -------- Total purchased power and production fuel costs 152,023 145,094 148,320 Entitlement and other resale sales (MWH) 1,475,457 53,071 1,477,106 51,421 1,195,068 48,862 -------- -------- -------- Net purchased power and production fuel costs $ 98,952 $ 93,673 $ 99,458 ======== ======== ========
Purchased capacity costs increased $2.1 million for 1995 resulting from a 3% or $2.5 million increase in the amount of MW purchased offset by a favorable price variance of approximately $.4 million. The decrease of $3.2 million for 1994 resulted from a favorable price variance of $15.7 million offset by an increase of 14.5% or $12.5 million in the amount of MW purchased. The 1994 variances are primarily due to the absence of refueling outages for Vermont Yankee. Energy costs are directly related to the variable prices of oil, nuclear fuel and coal but, more importantly, to the proportion of the Company's purchased energy that comes from each of these fuel sources. In total, energy costs for 1995 increased $4.4 million. Cost per MWH purchased increased 5.7% or $3.4 million and the amount of MWH purchased increased 1.7% or $1.0 million. For 1994, energy costs were about the same as 1993. Cost per MWH purchased decreased 6.2% or $3.9 million offset by an increase of 6.2% or $3.7 million in the amount of MWH purchased. The Company is responsible for paying its entitlement percentage of decommissioning costs for VY, CY, MY and YA as well as its joint ownership percentage of decommissioning costs for Millstone #3. See Notes 2 and 13 to the Consolidated Financial Statements. Recently, the staff of the Securities and Exchange Commission has questioned certain current accounting practices of the electric utility industry, including the Company, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the industry-wide accounting for nuclear decommissioning costs. If current electric utility industry accounting practices for such decommissioning costs are changed, it is possible that annual provisions for decommissioning costs could increase, the total estimated costs for decommissioning could be recorded as a liability, and income from external decommissioning trusts could be reported as investment income instead of a reduction to decommissioning expense. The Company does not believe that such changes, if required, would have an adverse effect on results of operations due to its ability to recover decommissioning costs through the regulatory process. See Liquidity and Capital Resources - Competition, for related information. Production fuel costs increased $.4 million for 1995. The increase results from an increase in price of approximately $.7 million offset by an 8.8% decrease in the amount of MWH generated primarily by one of the Company's jointly owned units, Millstone #3, due to its scheduled refueling outage. The 1994 increase of $.2 million resulted from a 22.0% or 68,799 MWH increase in the amount of MWH generated mostly by Millstone #3. In order to optimize its power mix for baseload, intermediate and peaking power, the Company engages in sales and purchases with other electric utilities, primarily in New England and with NEPOOL. These transactions typically take advantage of immediate pricing and other market conditions. The profits from these transactions are used to reduce purchased power costs. As stated earlier, the Company is making every effort to maintain or increase these sales despite the weak resale market for excess capacity and energy in the region. The Company's forecast indicates that net purchased power and production fuel costs will be approximately $109.4 million, $119.9 million and $130.5 million for the period 1996 through 1998. Other operation expenses Other operation expenses were relatively flat for 1995 and increased 13.2% or $4.8 million for 1994 primarily due to the charge-off of approximately $2.9 million in costs related to the proposed new corporate headquarters office building, an increase in pension and benefit costs and regulatory commission expenses. Depreciation The increases in depreciation expense for 1995 and 1994 are due to property additions and the installation of new computer systems in 1993. Income taxes Federal and state income taxes fluctuate with the level of pre-tax earnings. These taxes increased for 1995 as a result of higher pre-tax earnings. For 1994, these taxes decreased as a result of lower pre-tax earnings. However, the decrease was offset by the write-off of $1.6 million of SFAS No. 109 deferred tax assets which were expected to be collected from customers through rates. Recovery of these taxes was disallowed by the PSB in its October 31, 1994 Rate Order. Other income and deductions Equity in earnings of affiliates increased 6.3% for 1995 resulting from higher earnings from the Company's nuclear generating affiliates. For 1994, it decreased 14.3% as compared to 1993. The decrease was attributable to a lower rate of return allowed by the Federal Energy Regulatory Commission (FERC) to some of the Company's nuclear generating affiliates. The increase in allowance for equity and borrowed funds used during construction for 1994 is due to increased capital expenditures and higher rates used for capitalization of these funds. The increase in other income (expenses), net results primarily from the $1.5 million pre-tax gain on the sale of a partial interest in the Appomattox project in 1995 and the $1.3 million write-down of the Company's investment in Green Technologies during 1994. However, the increase was partially offset by a $.4 million additional write-off of the Company's investment in Green Technologies in 1995 to reflect management's estimate of the permanent decline in the value of the investment. This eliminates SmartEnergy's investment in Green Technologies. On December 29, 1995, Green Technologies filed for bankruptcy under Chapter 7. The decrease of approximately $.9 million for 1994 compared to 1993 reflects the $1.3 million write-down in 1994 partially offset by higher income from non-utility subsidiaries as well as higher interest on temporary cash investments due to a combination of higher investment levels and interest rates during 1994. Interest on long-term debt Interest on long-term debt for 1995 was about the same as 1994. The 1994 increase over 1993 results from the issuance of $43 million of First Mortgage Bonds in December 1993. Other interest expense Due to increased short-term debt levels and higher interest rates, other interest expense increased for 1995 compared to 1994. The 1994 increase of approximately $.4 million was due to the 1993 FERC settlement related to certain wholesale customers. Cash Dividends Declared Preferred In January 1994, the Company redeemed 280,000 shares of preferred stock 9% dividend series at a premium of $.25 per share. This redemption resulted in a decrease in preferred dividends declared for 1995 and 1994. Common The decrease in common dividends declared for 1995 results from an advanced quarterly common dividend declaration in December 1994 payable February 15, 1995. As a result, the accompanying Consolidated Financial Statements reflect three quarterly dividend declarations in 1995 and five in 1994. The December 1994 declaration reflected the 44% reduction in dividends paid per share. Liquidity and Capital Resources Competition As described in Note 1 to the Consolidated Financial Statements, management believes that the Company meets the requirement of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation", but continues to evaluate significant changes in the regulatory and competitive environment to ensure and assess the Company's overall consistency with the criteria of SFAS No. 71. In the future, if the Company determines that it no longer meets the criteria for following SFAS No. 71, the accounting impact would be an extraordinary non-cash charge to operations of an amount that could be material. Although these conditions do not currently exist, the Company anticipates future competition will place pressure on both unit sales and the price the Company can charge. As a result, increased competitive pressure in the electric utility industry may restrict the Company's ability to establish prices to recover embedded costs and may lead to a significant change in the manner rates are set by regulators from cost-based regulation to a different form of regulation that approximates market conditions. Singly or together these events may give rise to the discontinuance of SFAS No. 71 and, in addition, could diminish the Company's ability to recover its embedded costs of providing service. Utility Restructuring The electric utility industry is in a period of potential transition that may result in a shift away from cost of service and return on equity rates to one with more market based rates. In many states, including Vermont and New Hampshire, where the Company does business, new mechanisms are being explored to bring greater competition, customer choice and market influence to the industry while retaining the public benefits associated with the current regulatory system. In Vermont, the PSB by Order dated October 17, 1995, opened a process requiring all 22 electric utilities in Vermont to file proposed restructuring plans by mid-1996, facilitating open competition for retail consumers. The goal, as set forth in the Order, is to achieve restructuring by December 31, 1997. The Company released its vision statement for a restructured electric industry to interested parties on January 26, 1996. The Company's vision statement provides for full recovery of prudently incurred utility investments and obligations that may become stranded as a result of restructuring in the electric industry. Potentially, costs that are currently being recovered in rates could become stranded in the future if the Company were unable to reflect such costs in its rates after restructuring. Sources of potential stranded costs would include any then above market purchased power contracts or generation costs, nuclear decommissioning obligations, unrecovered regulatory assets, as well as other unrecovered investments and commitments made as a provider of electric utility service. Recovery of stranded costs would be sought through a mandatory distribution "wires" charge for access to the distribution system. The extent of potential stranded costs, if any, depends upon the timing, nature, and degree of competition that may result from future changes in regulatory policies governing the Company's activities and prices as well as future power costs and market prices of power. As such, it is not currently possible to predict with any reasonable precision the level of costs that could be considered stranded as a result of future electric utility industry restructuring. However, it is possible that stranded cost exposure could exceed the Company's current total common stock equity. In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC), directed by the New Hampshire legislature, has begun the process of establishing a Pilot Program (Pilot) to determine the implications of retail competition in the electric utility industry. The Pilot is for a three-year period beginning May 1, 1996 and will be open to all electric utilities and to all classes of customers in New Hampshire, although only a small percentage of customers will be selected to participate. Connecticut Valley Electric Company Inc. (Connecticut Valley), the Company's wholly owned New Hampshire subsidiary, will be able to compete as a full or partial service provider to retain its customers and to acquire additional load currently served by other New Hampshire utilities. Connecticut Valley has engaged in a collaborative process with interested parties, including NHPUC staff, and has proposed a recommendation for implementation of the Pilot in its service territory. Construction The Company's liquidity is primarily affected by the level of cash generated from operations and the funding require-ments of its ongoing construction and C&LM programs. Net cash provided by operating activities generated $41.7 million in 1995, $49.4 million in 1994 and $36.8 million in 1993. The Company ended the 1995 year with cash and cash equivalents of $12.0 million, an increase of $4.4 million from the beginning of the year. The increase in cash for 1995 was the result of $41.7 million provided by operating activities, $21.8 million used for investing activities and $15.5 million used for financing activities. Operating Activities Approximately $39.6 million was provided from net income before non-cash items, primarily depreciation and deferred income taxes. About $5.7 million was provided from other operation activities, including C&LM programs, restructuring costs and net deferral/amortization of nuclear replacement energy and maintenance costs, while $3.6 million was applied to fluctuations in working capital. Investing Activities Construction and plant expenditures consumed approximately $21.3 million, about $3.9 million was used for C&LM programs, $.3 million was used for non-utility investments and $2.7 million was deposited in a special account in anticipation of a non-utility investment. Proceeds of $6.4 million were generated from the sale of a partial interest in a non-utility investment. Financing Activities Dividends paid on common stock were $9.3 million, while preferred stock dividends were $2.0 million. Dividends paid on common stock for 1995 reflect the 44% reduction from the 1994 level. Short-term obligations provided $2.0 million while retirement of long-term debt and the repurchase of common stock required $4.3 million and $1.9 million, respectively. Excluding allowance for funds used during construction, construction expenditures are estimated at $21.8 million, $21.5 million, $17.7 million, $17.6 million and $19.3 million for the years 1996 through 2000, respectively. These spending levels are consistent with the Company's goal to move toward limiting annual capital expenditures to annual depreciation. Financing and Capitalization Utility The level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financings and market conditions. Short-term borrowings are supported by committed lines of credit and uncommitted loan facilities with several banks totaling $37.25 million. Short-term borrowings generally are reduced when long-term debt or equity securities are issued. In December 1993, the Company issued $43 million of long-term debt, of which $14.5 million replaced First Mortgage Bonds redeemed in October 1993 and $4.325 million replaced First Mortgage Bonds redeemed in January 1994. The balance was used to reduce short-term debt outstanding. In December 1994, the Company's wholly owned New Hampshire subsidiary, Connecticut Valley, issued a promissory note of $2.5 million under a five-year loan agreement. The proceeds were used to repay its 9 1/2% note of $2.5 million held by the parent company. In the past, the Company has been able to finance its construction and C&LM programs out of net-cash generated by operating activities and it expects to meet future commitments in the same manner. On November 8, 1994, the Board of Directors (Board) reduced the quarterly dividend rate from $.355 to $.20. As a result, the annual dividend of $1.42 was reduced 44% to $.80 effective with the first quarter dividend paid in February 1995. Also, the Board authorized the purchase of up to 2 million shares of its outstanding common stock from time to time in open market transactions. Through December 31, 1995, the Company had purchased 195,100 shares at an average price of $13.42 per share. These transactions are recorded as treasury stock, at cost, in the Company's Consolidated Balance Sheet. No shares of common stock were purchased by the Company subsequent to December 31, 1995. In January 1994, the Company redeemed $7 million of the 9.00% Series Preferred Stock, $25 par value. Beginning in August 1994, Dividend Reinvestment and Common Stock Purchase Plan, and Employee Stock Ownership Plan requirements are satisfied by the purchase of shares of common stock on the open market. The Company's capital structure ratios (including amounts of long-term debt due within one year) for the past three years were as follows: December 31 1995 1994 1993 Common stock equity 55% 53% 52% Preferred stock 8 9 10 Long-term debt 37 38 38 --- --- --- 100% 100% 100% === === === On July 21, 1994 and on August 5, 1994, Duff & Phelps, Inc. (Duff & Phelps) and Standard & Poor's Corporation (Standard & Poor's), respectively, lowered their rating on the Company's First Mortgage Bonds and Preferred Stock. Duff & Phelps stated that the downgrade reflected its concerns about the continuing recession in New England, intensifying competition in the utility industry and excess power in the northeastern region, as well as the Company's loss of wholesale revenues. Standard & Poor's stated "the downgrade reflected the Company's weak financial profile, adjusted for off-balance sheet obligations, primarily associated with purchased power, combined with the Company's low average business position, as well as, restrictive Vermont regulation, the state of the Vermont economy, nuclear asset concentration and increasing investments into non-regulated businesses are other factors impacting the Company's business position". Standard & Poor's also revised its ratings outlook on the Company to "stable" from "negative". Current credit ratings for the Company's securities as of February 1996 are as follows: Duff & Standard Phelps & Poor's First Mortgage Bonds BBB+ BBB Preferred Stock BBB- BBB- Non-Utility Catamount Energy Corporation, a wholly owned subsidiary of the Company, maintains an Irrevocable Standby Letter of Credit with a bank to borrow up to an aggregate amount of $1.2 million to replace its share of cash in the Appomattox Cogeneration Limited Partnership's Project Debt Service Reserve Fund. This Letter of Credit is for a one-year term with annual extensions available and requires fees of 1.5% of credit available. SmartEnergy, also a wholly owned subsidiary of the Company, maintains a $1.0 million revolving line of credit with a bank to provide working capital and financing assistance for investment purposes. Financial obligations of the non-utility wholly owned subsidiaries are non-recourse to the Company. C&LM Programs The primary purpose of these programs is to offset the need for long-term power supply and delivery resources that are more expensive to purchase or develop than customer-efficiency programs. Total C&LM expenditures in 1994 and 1995 were $7.9 million and $4.8 million, respectively, and are expected to be approximately $5.1 million in 1996. On April 7, 1995, the Company and the DPS jointly filed a Stipulation resolving issues related to the role of fuel switching as a C&LM resource, promotion of electricity, and C&LM spending levels for 1995 and 1996. This Stipulation resolves the outstanding material issues related to C&LM until the end of 1996. It also establishes a process to remove the return on equity penalty related to "the Company's failed efforts to acquire all cost-effective energy efficiency resources" imposed by the PSB in the Company's last rate case. Although not yet approved by the PSB, the parties are implementing the Stipulation as outlined in its terms. The parties have recommended that the PSB remove the return on equity penalty related to the C&LM programs because the Company has met the conditions outlined in the stipulation. Diversification Catamount was formed for the purpose of investing in non-regulated energy-related projects. Currently, Catamount, through its wholly owned subsidiaries, has interests in six operating independent power projects located in Rumford, Maine; East Ryegate, Vermont; Hopewell, Virginia; Williams Lake, British Columbia, Canada; and Glenns Ferry and Rupert, Idaho. SmartEnergy was formed for the purpose of profitably providing reliable, energy-efficient products and services, including the rental of electric water heaters. Rates and Regulation The Company recognizes adequate and timely rate relief is necessary if the Company is to maintain its financial strength, particularly since Vermont regulatory rules do not allow for changes in purchased power and fuel costs to be passed on to consumers through automatic rate adjustment clauses. The Company's practice of reviewing costs periodically will continue and rate increases will be requested when warranted. The Company filed for a 14.6% or $31.0 million general rate increase on October 17, 1995 to become effective July 1, 1996, to offset the increasing cost of providing service. Approximately $29.0 million or 93.5% of the rate increase request is to recover increased purchased power costs. As part of the rate filing, the Company proposed a special "Lifeline" program for low-income customers which, if approved, would serve to limit some of the impact of the rate case and rate design on residential low-income customers. On February 13, 1996, the Company reached an agreement with the DPS regarding this rate increase request. For detail, see Earnings Overview. At the Company's 1994 Annual Meeting, shareholders approved two amendments to the Company's Articles of Incorporation subject to obtaining the necessary regulatory approval. One of the amendments was a so-called Fair Price provision. The other amendment served to limit the Board's liability in certain circumstances. Because under Vermont law the Company cannot amend its Articles of Incorporation without the PSB's permission, the Company filed a petition seeking the necessary regulatory approval. The DPS vigorously opposed both amendments, significantly decreasing the likelihood of obtaining PSB approval. The case was further complicated by the intervention of one of the plaintiffs in the lawsuit discussed in Note 13 to the Consolidated Financial Statements. In light of the limited prospect of obtaining regulatory approval, as well as the ongoing costs associated with the proceeding, the Company decided to withdraw the petition with prejudice. Accordingly, on October 17, 1995, the Company filed a notice of withdrawal, which the PSB granted. Inflation The annual rate of inflation, as measured by the Consumer Price Index, was 2.5% for 1995 and 2.7% for 1994 and 1993. The Company's revenues, however, are based on rate regulation that generally recognizes only historical costs. Although the rate of inflation has eased in recent years, it continues to have an impact on most aspects of the business. New Accounting Pronouncements Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and decided not to adopt the accounting option of SFAS No. 123, "Accounting for Stock-Based Compensation". Refer to Note 14 to the Consolidated Financial Statements for additional information regarding these pronouncements. Item 8. Financial Statements and Supplementary Data. Index to Financial Statements and Supplementary Data Page No. Report of Independent Public Accountants 35 Financial Statements: Consolidated Statement of Income for each of the three years ended December 31, 1995 36 Consolidated Statement of Cash Flows for each of the three years ended December 31, 1995 37 Consolidated Balance Sheet at December 31, 1995 and 1994 38 Consolidated Statement of Capitalization at December 31, 1995 and 1994 39 Consolidated Statement of Changes in Common Stock Equity for each of the three years ended December 31, 1995 40 Notes to Consolidated Financial Statements 41 Report of Independent Public Accountants To the Board of Directors of Central Vermont Public Service Corporation: We have audited the accompanying consolidated balance sheet and statement of capitalization of Central Vermont Public Service Corporation and its wholly owned subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in common stock equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 Central Vermont Public Service Corporation and its wholly owned subsidiaries as of December 31, 1995 and 1994 and the results of their operations and cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 5, 1996
CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands, except per share amounts) Year Ended December 31 1995 1994 1993 Operating Revenues $288,277 $277,158 $279,389 Operating Expenses Operation Purchased power 149,665 143,162 146,583 Production and transmission 20,883 21,122 21,188 Other operation 42,116 40,691 35,933 Maintenance 12,874 12,245 11,719 Depreciation 17,297 16,478 15,402 Other taxes, principally property taxes 10,543 10,423 10,022 Taxes on income 10,662 11,934 12,496 -------- -------- -------- Total operating expenses 264,040 256,055 253,343 -------- -------- -------- Operating Income 24,237 21,103 26,046 -------- -------- -------- Other Income and Deductions Equity in earnings of affiliates 3,292 3,098 3,613 Allowance for equity funds during construction 243 232 35 Other income (expenses), net 2,493 (27) 827 Benefit (provision) for income taxes (246) 525 (276) -------- -------- -------- Total other income and deductions, net 5,782 3,828 4,199 -------- -------- -------- Total Operating and Other Income 30,019 24,931 30,245 -------- -------- -------- Interest Expense Interest on long-term debt 9,544 9,611 8,804 Other interest 798 657 226 Allowance for borrowed funds during construction (174) (137) (77) -------- -------- -------- Total interest expense, net 10,168 10,131 8,953 -------- -------- -------- Net Income 19,851 14,800 21,292 Preferred Stock Dividends Requirements 2,028 2,138 2,658 -------- -------- -------- Earnings Available For Common Stock $ 17,823 $ 12,662 $ 18,634 ======== ======== ======== Average Shares of Common Stock Outstanding 11,648,981 11,716,926 11,383,109 Earnings Per Share of Common Stock $1.53 $1.08 $1.64 Dividends Paid Per Share of Common Stock $ .80 $1.42 $1.42 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands)
Year Ended December 31 1995 1994 1993 Cash Flows Provided (Used) By Operating Activities Net income $ 19,851 $ 14,800 $ 21,292 Adjustments to reconcile net income to net cash provided by operating activities Deferred revenues - - (7,507) Depreciation 17,297 16,478 15,402 Write-down investment 424 1,332 - Write-off corporate headquarters costs - 2,857 - Deferred income taxes and investment tax credits 2,707 3,522 9,615 Allowance for equity funds during construction (243) (232) (35) Net deferral and amortization of nuclear replacement energy and maintenance costs (3,299) 5,353 (3,797) Gain on sale of non-utility investment (1,517) - - Amortization of conservation & load management costs 3,362 1,128 2,192 Amortization of restructuring costs 3,937 632 - (Increase) decrease in accounts receivable (1,280) (1,598) 1,127 Increase (decrease) in accounts payable 1,803 (1,298) (3,475) Increase (decrease) in accrued income taxes (2,500) 3,209 (2,991) Decrease in other working capital items (1,576) 1,916 2,028 Other, net 2,745 1,327 2,988 -------- -------- -------- Net cash provided by operating activities 41,711 49,426 36,839 -------- -------- -------- Investing Activities Construction and plant expenditures (21,337) (22,621) (20,519) Deferred conservation and load management expenditures (3,899) (6,159) (9,874) Investments in affiliates 249 150 290 Proceeds from sale of non-utility investment 6,400 - - Special deposit (2,686) 2,950 (2,950) Non-utility investments (226) (2,344) (4,475) Other investments, net (316) (423) (382) -------- -------- -------- Net cash used for investing activities (21,815) (28,447) (37,910) -------- -------- -------- Financing Activities Issuance of long-term debt - 2,500 43,400 Sale of common stock - 3,988 8,325 Repurchase of common stock (1,892) (735) - Short-term debt, net 1,994 10,155 (744) Retirement of preferred stock - (7,070) - Retirement of long-term debt (4,245) (5,382) (34,227) Common and preferred dividends paid (11,350) (18,845) (18,145) Other - (16) (26) -------- -------- -------- Net cash used for financing activities (15,493) (15,405) (1,417) -------- -------- -------- Net Increase (Decrease) In Cash and Cash Equivalents 4,403 5,574 (2,488) Cash and Cash Equivalents at Beginning of Year 7,559 1,98 4,473 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 11,962 $ 7,559 $ 1,985 ======== ======== ======== Supplemental Cash Flow Information Cash paid during the year for: Interest (net of amounts capitalized) $ 9,927 $ 9,673 $ 9,991 Income taxes (net of refunds) $ 7,721 $ 4,687 $ 5,337 Non-cash Investing and Financing Activities Regulatory assets (Notes 2 and 11) Long-term lease arrangements (Note 13) The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEET (Dollars in thousands)
December 31 1995 1994 Assets Utility Plant, at original cost $453,784 $434,059 Less accumulated depreciation 136,057 125,800 -------- -------- 317,727 308,259 Construction work in progress 8,108 15,099 Nuclear fuel, net 1,167 1,197 -------- -------- Net utility plant 327,002 324,555 -------- -------- Investments and Other Assets Investments in affiliates, at equity 26,464 26,765 Non-utility investments 22,622 28,184 Non-utility property, less accumulated depreciation 2,896 2,989 -------- -------- Total investments and other assets 51,982 57,938 -------- -------- Current Assets Cash and cash equivalents 11,962 7,559 Special deposits 3,868 575 Accounts receivable 21,374 20,523 Unbilled revenues 11,177 10,696 Materials and supplies, at average cost 4,023 4,182 Prepayments 3,607 3,544 Other current assets 4,564 4,231 -------- -------- Total current assets 60,575 51,310 -------- -------- Regulatory Assets and Other Deferred Charges 50,503 56,596 -------- -------- Total Assets $490,062 $490,399 ======== ======== Capitalization And Liabilities Capitalization Common stock equity $179,760 $170,784 Preferred and preference stock 8,054 8,054 Preferred stock with sinking fund requirements 20,000 20,000 Long-term debt 120,142 120,157 -------- -------- Total capitalization 327,956 318,995 -------- -------- Long-term Lease Arrangements 19,385 20,467 -------- -------- Current Liabilities Short-term debt 13,505 11,511 Current portion of long-term debt - 4,230 Accounts payable 4,726 5,970 Accounts payable - affiliates 10,559 8,435 Accrued income taxes 1,497 3,997 Dividends declared 507 2,853 Other current liabilities 26,101 26,673 -------- -------- Total current liabilities 56,895 63,669 -------- -------- Deferred Credits Deferred income taxes 57,191 52,710 Deferred investment tax credits 8,003 8,394 Other deferred credits 20,632 26,164 -------- -------- Total deferred credits 85,826 87,268 -------- -------- Commitments and Contingencies Total Capitalization and Liabilities $490,062 $490,399 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CAPITALIZATION (Dollars in thousands)
December 31 1995 1994 Common Stock Equity Common stock, $6 par value, authorized 19,000,000 shares; outstanding 11,785,848 shares $ 70,715 $ 70,715 Other paid-in capital 45,251 45,229 Treasury stock (195,100 shares and 56,400 shares, respectively, at cost) (2,628) (735) Retained earnings 66,422 55,575 -------- -------- Total common stock equity 179,760 170,784 -------- -------- Cumulative Preferred and Preference Stock Preferred stock, $100 par value, authorized 500,000 shares Outstanding: Non-redeemable 4.15 % Series; 37,856 shares 3,786 3,786 4.65 % Series; 10,000 shares 1,000 1,000 4.75 % Series; 17,682 shares 1,768 1,768 5.375% Series; 15,000 shares 1,500 1,500 Redeemable 8.30 % Series; 200,000 shares 20,000 20,000 Preferred stock, $25 par value, authorized 1,000,000 shares Outstanding - none - - Preference stock, $1 par value, authorized 1,000,000 shares Outstanding - none - - -------- -------- Total cumulative preferred and preference stock 28,054 28,054 -------- -------- Long-Term Debt First Mortgage Bonds 5 1/8% Series M , due 1995 - 4,230 9.20 % Series EE, due 1998 7,500 7,500 9.20 % Series FF, due 2000 7,500 7,500 9.26 % Series GG, due 2002 3,000 3,000 9.97 % Series HH, due 2003 25,000 25,000 8.91 % Series JJ, due 2031 15,000 15,000 5.30 % Series KK, due 1998 10,000 10,000 5.54 % Series LL, due 2000 5,000 5,000 6.01 % Series MM, due 2003 7,500 7,500 6.27 % Series NN, due 2008 3,000 3,000 6.90 % Series OO, due 2023 17,500 17,500 Vermont Industrial Development Authority Bonds Variable, due 2013 (4.25% at December 31, 1995) 5,800 5,800 New Hampshire Industrial Development Authority Bonds 6 7/8%, due 2009 5,500 5,500 Connecticut Development Authority Bonds Variable, due 2015 (3.50% at December 31, 1995) 5,000 5,000 Other, various 2,842 2,857 -------- -------- 120,142 124,387 Less current portion - 4,230 -------- -------- Total long-term debt 120,142 120,157 -------- -------- Total Capitalization $327,956 $318,995 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK EQUITY (Dollars in thousands)
Other Common Stock Paid-in Treasury Retained Shares Amount Capital Stock Earnings Total Balance, December 31, 1992 11,196,576 $67,180 $36,472 $ - $ 55,438 $159,090 Sale of common stock 365,643 2,193 6,132 8,325 Net income 21,292 21,292 Cash dividends on capital stock: Common stock - $1.42 per share (12,193) (12,193) Cumulative preferred stock: Non-redeemable (998) (998) Redeemable (1,660) (1,660) Common stock issuance expenses (26) (26) Amortization of preferred stock issuance expenses 6 6 ---------- ------- ------- ------- -------- -------- Balance, December 31, 1993 11,562,219 69,373 42,584 - 61,879 173,836 Sale of common stock 223,629 1,342 2,646 3,988 Treasury stock at cost (56,400) (735) (735) Net income 14,800 14,800 Cash dividends on capital stock: Common stock - $1.42 per share (16,620) (16,620) Common stock - $.20 per share (2,346) (2,346) Cumulative preferred stock: Non-redeemable (408) (408) Redeemable (1,660) (1,660) Premium (70) (70) Common stock issuance expenses (16) (16) Amortization of preferred stock issuance expenses 15 15 ---------- ------- ------- ------- -------- -------- Balance, December 31, 1994 11,729,448 70,715 45,229 (735) 55,575 170,784 Treasury stock at cost (138,700) (1,893) (1,893) Net income 19,851 19,851 Cash dividends on capital stock: Common stock - $.80 per share (6,976) (6,976) Cumulative preferred stock: Non-redeemable (368) (368) Redeemable (1,660) (1,660) Amortization of preferred stock issuance expenses 22 22 ---------- ------- ------- ------- -------- -------- Balance, December 31, 1995 11,590,748 $70,715 $45,251 $(2,628) $ 66,422 $179,760 ---------- ------- ------- ------- -------- -------- The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Regulation The Company is subject to regulation by the Vermont Public Service Board (PSB), the Federal Energy Regulatory Commission (FERC) and, to a lesser extent, the public utilities commissions in other New England states where the Company does business, with respect to rates charged for service, accounting and other matters pertaining to regulated operations. As such, the Company currently prepares its financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation", and records various regulatory assets and liabilities. In order for a Company to report under SFAS No. 71, the Company's rates must be designed to recover its costs of providing service, and the Company must be able to collect those rates from customers. If rate recovery of these costs becomes unlikely or uncertain, whether due to competition or regulatory action, these accounting standards may no longer apply to the Company's regulated operations. Management believes that the Company currently meets the criteria for continued application of SFAS No. 71, but will continue to evaluate significant changes in the regulatory and competitive environment to assess the Company's overall consistency with the criteria of SFAS No. 71. In the event the Company determines that it no longer meets the criteria for applying SFAS No. 71, the accounting impact would be an extraordinary non-cash charge to operations of an amount that could be material. Revenues Estimated unbilled revenues are recorded at the end of accounting periods. Unbilled revenues of approximately $18.3 million, $18.5 million and $18.7 million for 1993, 1994 and 1995, respectively, are included in revenues on the Consolidated Statement of Income. Maintenance Maintenance and repairs, including replacements not qualifying as retirement units of property, are charged to maintenance expense. Replacements of retirement units are charged to utility plant. The original cost of units retired plus the cost of removal, less salvage, is charged to the accumulated provision for depreciation. Depreciation The Company uses the straight-line remaining life method of depreciation. Total depreciation expense was approximately 3.6% of the cost of depreciable utility plant for each of the years 1993 through 1995. Income Taxes The Company records income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to determine income tax liabilities. The standard recognizes tax assets and liabilities for the cumulative effect of all temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities, see Note 11. Investment tax credits associated with utility plant are deferred and amortized ratably to income over the lives of the related properties. Investment tax credits associated with non-utility plant are recognized as income in the year realized. Allowance for Funds During Construction Allowance for funds used during construction (AFDC) is the cost, during the period of construction, of debt and equity funds used to finance construction projects. The Company capitalizes AFDC as a part of the cost of major utility plant projects to the extent that costs applicable to such construction work in progress have not been included in rate base in connection with rate-making proceedings. AFDC equity represents a current non-cash credit to earnings which is recovered over the life of the property. The AFDC rates used by the Company were 5.09%, 8.05% and 8.41% for the years 1993 through 1995, respectively. Regulatory Assets and Other Deferred Charges Certain costs are deferred and amortized in accordance with authorized or expected rate-making treatment. The major components of these costs are $20.5 million for Conservation and Load Management, $9.1 million for SFAS No. 109, $7.9 million for Yankee Atomic Electric Company dismantling costs, and $4.4 million of energy and capacity deferrals. During regular nuclear refueling outages, the increased costs attributable to replacement energy purchased from NEPOOL and maintenance costs are deferred and amortized ratably to expense until the next regularly scheduled refueling shutdown. The Company earns a return on the unamortized replacement energy and maintenance costs. See Note 2 to the Consolidated Financial Statements for discussion of the costs associated with the discontinued operation of the Yankee Atomic Nuclear Power Corporation nuclear power plant. Purchased Power The Company records the annual cost of power obtained under long-term contracts as operating expenses. Since these contracts, as more fully described in Note 13, do not convey to the Company the right to use property, plant, or equipment, they are considered executory in nature. This accounting treatment is in contrast to the Company's commitment with respect to the Hydro Quebec Phase I and II transmission facilities which are considered capital leases. As such, the Company has recorded a liability for its commitment under the Phase I and II arrangements and recognized an asset for the right to use these facilities. Use of Estimates The Company's Consolidated Financial Statements required the use of certain estimates, based on management's judgement, in determing the Company's assets, liabilities, revenue and expenses. Statement of Cash Flows The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. Reclassifications Certain reclassifications have been made to prior year Consolidated Financial Statements to conform with the 1995 presentation. Note 2 Investments in affiliates The Company uses the equity method to account for its investments in the following companies (dollars in thousands): December 31 Ownership 1995 1994 Nuclear generating companies: Vermont Yankee Nuclear Power Corporation 31.3% $16,740 $16,916 Connecticut Yankee Atomic Power Company 2.0% 2,021 2,011 Maine Yankee Atomic Power Company 2.0% 1,412 1,338 Yankee Atomic Electric Company 3.5% 820 813 ------- ------- 20,993 21,078 Vermont Electric Power Company, Inc.: Common stock 56.8% 3,496 3,494 Preferred stock 1,975 2,193 ------- ------- $26,464 $26,765 ======= ======= Each sponsor of the nuclear generating companies is obligated to pay an amount equal to its entitlement percentage of fuel, operating expenses (including decommissioning expenses) and cost of capital and is entitled to a similar share of the power output of the plants. The Company's entitlement percentages are identical to the ownership percentages except that Vermont Yankee's entitlement percentage is 35%. The Company is obligated to contribute its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but limited, obligation to Connecticut Yankee. The Company is responsible for paying its entitlement percentage of decommissioning costs for Vermont Yankee, Connecticut Yankee, Maine Yankee and Yankee Atomic as follows (dollars in millions): CVPS's Total Share of Date of Estimated CVPS's Funded Study Obligation Obligation Obligation Nuclear generating companies: Vermont Yankee 1993 $312.7 $109.4 $47.1 Maine Yankee 1993 $316.6 $6.3 $2.8 Connecticut Yankee 1992 $309.0 $6.2 $3.6 Yankee Atomic 1994 $370 $13.0 $3.9 In 1992, the Board of Directors of Yankee Atomic decided to permanently discontinue operation of their plant, and to decommission the facility. The Company relied on Yankee Atomic for less than 1.5% of its system capacity. Presently, purchased power costs billed to the Company by Yankee Atomic, which include a provision for ultimate decommissioning of the unit, are being collected from the Company's customers via existing retail rate tariffs. In 1995, the FERC approved a new settlement agreement regarding the decommissioning plan, recovery of plant investment and all issues with respect to the prudence of the decision to discontinue operation. The Company's total current share of its cost with respect to Yankee Atomic's decision to discontinue operation is approximately $7.9 million. This amount is reflected in the accompanying balance sheet both as a regulatory asset and deferred power contract obligation (current and non-current). The Company believes that its proportionate share of Yankee Atomic costs will be recovered through the regulatory process and, therefore, the ultimate resolution of the premature retirement of the Yankee Atomic plant has not and will not have a material adverse effect on the Company's earnings or financial condition. The Company owns 2% of the common stock of Maine Yankee and is entitled to approximately 2% of the power output of the 880-megawatt nuclear generating plant (Plant) located in Wiscasset, Maine. During the refueling and maintenance shutdown that commenced in early February 1995, Maine Yankee detected an increased rate of degradation of the Plant's steam generator tubes well above its expectations and began evaluating several courses of action. On May 22, 1995, Maine Yankee announced its plan to repair the tubes in the plant's three steam generators by sleeving all 17,000 steam generator tubes. The sleeving process was completed in December 1995 at a total cost of approximately $28 million. The Company's share of the cost to repair the steam generator tubes was about $.6 million. The Plant returned to service at 90% of its 880-megawatt rating in January 1996. The Company's additional costs for replacement power while Maine Yankee was not operating was $1.2 million. Costs incurred for unanticipated replacement power and steam generator repairs amounting to approximately $1.8 million have been included in the Company's 1995 results of operations. Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, the Company expects that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their operating or license lives. The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.9 billion. Beyond that a licensee maintains an indemnity agreement with the Nuclear Regulatory Commission, but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $8.7 billion per incident by assessing $79.3 million against each of the 110 reactor units that are currently subject to the Program in the United States, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is to be adjusted at least every five years to reflect inflationary changes. The Company's interests in the nuclear power units are such that it could become liable for an aggregate of approximately $4.1 million of such maximum assessment per incident per year. Summarized financial information for Vermont Yankee Nuclear Power Corporation is as follows (dollars in thousands): Earnings 1995 1994 1993 Operating revenues $180,437 $162,757 $180,145 Operating income $15,006 $14,355 $16,441 Net income $6,790 $6,588 $7,794 Company's equity in net income $2,111 $2,067 $2,434 December 31 Investment 1995 1994 Current assets $ 52,267 $ 41,416 Non-current assets 479,026 470,726 Total assets 531,293 512,142 Less: Current liabilities 25,058 29,115 Non-current liabilities 452,292 428,554 -------- -------- Net assets $ 53,943 $ 54,473 -------- -------- Company's equity in net assets $ 16,740 $ 16,916 Included in Vermont Yankee's revenues shown above are sales to the Company of $52.3 million, $53.6 million and $52.9 million for 1993 through 1995, respectively. These amounts are reflected as purchased power net of deferrals and amortization in the accompanying Consolidated Statement of Income. Vermont Electric Power Company, Inc. (Velco) and its wholly owned subsidiary Vermont Electric Transmission Company, Inc. own and operate transmission systems in Vermont over which bulk power is delivered to all electric utilities in the state. Velco has entered into transmission agreements with the state of Vermont and the electric utilities and under these agreements bills all costs, including interest on debt and a fixed return on equity, to the state and others using the system. These contracts enable Velco to finance its facilities primarily through the sale of first mortgage bonds. Included in Velco's revenues shown below are transmission services to the Company (reflected as production and transmission in the accompanying Consolidated Statement of Income) amounting to $8.9 million, $8.4 million and $7.9 million for 1993 through 1995, respectively. Velco operates pursuant to the terms of the 1985 Four-Party Agreement (as amended) with the Company and two other major distribution companies in Vermont. Although the Company owns 56.8% of Velco's outstanding common stock, the Four-Party Agreement effectively restricts the Company's control of Velco. Therefore, Velco's financial statements have not been consolidated. The Four-Party Agreement continues in full force and effect until May 1997 and will be extended for an additional two-year term in May 1997, and every two years thereafter, unless at least ninety (90) days prior to any two-year anniversary any party shall notify the other parties in writing that it desires to terminate the agreement as of such anniversary. No such notification has been filed by the parties. The Company also owns 46.6% of Velco's outstanding preferred stock, $100 par value. Summarized financial information for Velco is as follows (dollars in thousands): Earnings 1995 1994 1993 Transmission revenues $16,398 $16,761 $17,891 Operating income $2,767 $3,350 $4,423 Net income $1,297 $1,296 $1,375 Company's equity in net income $650 $638 $698 December 31 Investment 1995 1994 Current assets $22,121 $16,549 Non-current assets 49,547 53,175 ------- ------- Total assets 71,668 69,724 Less: Current liabilities 22,045 15,941 Non-current liabilities 39,193 42,909 ------- ------- Net assets $10,430 $10,874 ======= ======= Company's equity in net assets $ 5,471 $ 5,687 Note 3 Non-utility investments The Company's wholly owned subsidiary, Catamount Energy Corporation (Catamount) invests through its wholly owned subsidiaries in non-regulated, energy-related projects. Certain financial information for Catamount's investments is set forth in the table that follows (dollars in thousands):
Investment Generating In Service December 31 Projects Location Capacity Fuel Date Ownership 1995 1994 Rumford Cogeneration Co. L.P. (Rumford) Maine 85MW Coal/Wood 1990 15.1% $10,275 $9,804 Ryegate Associates (Equinox) Vermont 20MW Wood 1992 33.1% $ 6,671 $6,587 Appomattox Cogeneration L.P. (Appomattox) Virginia 41MW Coal/Wood 1982 25.3% $ 4,521 $9,819 Black liquor NW Energy Williams Lake L.P. British Columbia, 60MW Wood 1993 8.1% $ 1,155 $1,550 (Williams Lake) Canada Glenns Ferry Cogeneration Partners, Ltd. Idaho 10MW Gas 1996 50.0% - - Rupert Cogeneration Partners, Ltd. Idaho 10MW Gas 1996 50.0% - -
On October 26, 1992, Catamount purchased a 50% partnership interest in Appomattox Cogeneration L.P., which owns a power sales agreement associated with a cogeneration facility currently in operation. On July 21, 1995, Catamount sold approximately half of its limited partnership's interest in Appomattox. The sale generated capital to fund new investments in independent power projects. The sale resulted in a $1.5 million gain (pre-tax) and added approximately $.08 to earnings per common share during the third quarter of 1995. Upon closing, Catamount's ownership percentage in Appomattox was reduced to 25.25%. On October 2, 1995, Catamount's Board of Directors voted to invest, through wholly owned subsidiaries of Catamount, up to $3.1 million to purchase 50% interests in two 10MW gas-fired cogeneration projects to be constructed in Glenns Ferry and Rupert, Idaho. At December 31, 1995, Catamount had $2.7 million in an escrow account in anticipation of this closing. Both plants are scheduled to come on line by the end of 1996. SmartEnergy Services, Inc. (SmartEnergy) also is a wholly owned subsidiary of the Company, whose purpose is to profitably provide reliable, energy efficient products and services, including the rental of electric water heaters. On October 1, 1993, SmartEnergy purchased for $1.2 million, 304,125 shares (5%) of Green Technologies common stock and on September 19, 1994, purchased for $540,000, an additional 120,000 shares (1.8%). This investment increased SmartEnergy's ownership in Green Technologies to 6.8%. Green Technologies of Boulder, Colorado, manufactured Green Plug electricity savers for several types of household appliances. During the fourth quarter of 1994, SmartEnergy wrote-down its investment in Green Technologies by approximately $1.3 million and during the third quarter of 1995 wrote-off its remaining investment of approximately $.4 million to reflect management's estimate of the permanent decline in the value of the investment. This eliminates SmartEnergy's investment in Green Technologies. On December 29, 1995, Green Technologies filed for bankruptcy under Chapter 7. Note 4 Common Stock On November 8, 1994, the Company's board of directors (Board) reduced the quarterly dividend rate from $.355 to $.20. As a result, the annual dividend of $1.42 was reduced 44% to $.80 effective with the first quarter dividend paid in February 1995. Also, the Board authorized the purchase of up to 2 million shares of its outstanding common stock from time to time in open market transactions. Through December 31, 1995, the Company had purchased 195,100 shares at an average price of $13.42 per share. These transactions are recorded as treasury stock, at cost, in the Company's Consolidated Balance Sheet. No shares of common stock were purchased by the Company subsequent to December 31, 1995. Note 5 Redeemable preferred stock Commencing in 1998, the 8.30% Dividend Series Preferred Stock is redeemable at par through a mandatory sinking fund in the amount of $1.0 million per annum, and at its option, the Company may redeem at par an additional non-cumulative $1.0 million per annum. Note 6 Long-term debt and sinking fund requirements Based on issues outstanding at December 31, 1995, the aggregate amount of long-term debt maturities and sinking fund requirements are approximately $1.0 million, $3.0 million, $20.5 million, $5.5 million and $16.5 million for the years 1996 through 2000, respectively. Substantially all property and plant is subject to liens under the First Mortgage Bonds. Note 7 Financial instruments The estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 are as follows (dollars in thousands): 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $ 11,962 $ 11,962 $ 7,559 $ 7,559 Short-term debt $ 13,505 $ 13,505 $ 11,511 $ 11,511 Sale of accounts receivable and unbilled revenues $ 12,000 $ 12,000 $ 12,000 $ 12,000 Redeemable preferred stock $ 20,000 $ 25,168 $ 20,000 $ 18,790 Long-term debt $120,142 $128,939 $124,387 $119,374 The carrying amount for cash and cash equivalents and short-term debt approximates fair value because of the short maturity of those instruments. The carrying amount for the sale of accounts receivable and unbilled revenues approximates fair value because of the short maturity of those instruments. The fair value of the Company's redeemable preferred stock and long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturation. Anticipated regulatory treatment of any excess or decline in the fair value relative to the carrying value of the Company's financial instruments, if they were settled at amounts approximating those above, would result in an increase or decrease in the Company's rates over a prescribed amortization period. Accordingly, any settlement would not result in a material impact on the Company's financial position or results of operations. The Company has no financial instruments that fall under the guidance of SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as of January 1, 1994. SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The adoption of SFAS No. 115 had no material impact on the Company's financial position or results of operations. Note 8 Accounts receivable At December 31, 1995 and 1994, a total of $12 million of accounts receivable and unbilled revenues were sold under an accounts receivable facility. Accounts receivable and unbilled revenues that have been sold were transferred with limited recourse. A pool of assets, varying between 3% to 5% of the accounts receivable and unbilled revenues sold, are set aside for this potential recourse liability. Accounts receivable and unbilled revenues are reflected net of sales of $4.4 million and $7.6 million, respectively, at December 31, 1995 and $4.2 million and $7.8 million, respectively, at December 31, 1994. Accounts receivable are also reflected net of an allowance for uncollectible accounts of $1.6 million and $1.0 million at December 31, 1995 and 1994, respectively. Note 9 Short-term debt Utility The Company uses committed lines of credit and uncommitted loan facilities to finance its construction and C&LM programs, on a short-term basis, and for other corporate purposes. As of December 31, 1995, the Company had $22.25 million of committed lines of credit and $15.0 million of uncommitted loan facilities which are normally renewed upon expiration and require annual fees ranging from zero to .25% of an individual line. Borrowings under these short-term debt arrangements are at interest rates ranging from less than prime to the prime rate. The Company had $13.5 million and $11.5 million of outstanding short-term debt at December 31, 1995 and 1994, respectively, at average interest rates of 6.59% for 1995 and 5.22% for 1994. Non-Utility Catamount maintains an Irrevocable Standby Letter of Credit with a bank to borrow up to an aggregate amount of $1.2 million to replace its share of cash in the Appomattox Cogeneration Limited Partnership's Project Debt Service Reserve Fund. This Letter of Credit is for a one-year term with annual extensions available and requires fees of 1.5% of credit available. At December 31, 1995 and 1994, there were no borrowings outstanding under this Letter of Credit. Catamount believes it will not have to perform under this agreement. SmartEnergy maintains a $1.0 million revolving line of credit with a bank to provide working capital and financing assistance for investment purposes. SmartEnergy had no outstanding short-term debt at December 31, 1995 and $846,000 at December 31, 1994. Average interest rates were 9.05% for 1995 and 7.29% for 1994. Financial obligations of the non-utility wholly owned subsidiaries are non-recourse to the Company. Note 10 Pension and postretirement benefits The Company has a non-contributory trusteed pension plan covering all employees (union and non-union). Under the terms of the pension plan, employees are generally eligible for monthly benefit payments upon reaching the age of 65 with a minimum of five years of service. The Company's funding policy is to contribute, at least, the statutory minimum to a trust. The Company is not required by its union contract to contribute to multi-employer plans. The projected unit credit actuarial cost method was used to compute net pension costs and the accumulated and projected benefit obligations. The following table sets forth the funded status of the pension plan and amounts recognized in the Company's Balance Sheet and Statement of Income (dollars in thousands): December 31 1995 1994 1993 Funded status of the plan Vested benefit obligation $47,351 $35,869 $35,837 Non-vested benefit obligation 276 312 493 ------- ------- ------- Accumulated benefit obligation $47,627 $36,181 $36,330 ------- ------- ------- Projected benefit obligation $60,554 $46,669 $49,743 Market value of plan assets (primarily equity and fixed income securities) 55,443 44,115 46,074 Projected benefit obligation more (less) than market value of plan assets 5,111 2,554 3,669 Unrecognized net transition assets 1,447 1,608 1,768 Unrecognized prior service costs (2,978) (3,178) (3,568) Unrecognized net gain 2,270 5,963 1,498 ------- ------- ------- Net pension liability 5,850 6,947 3,367 Less regulatory asset for restructuring costs 346 1,974 - ------- ------- ------- Effective accrued pension costs $ 5,504 $ 4,973 $ 3,367 ------- ------- ------- Net pension costs include the following components Service cost $ 1,498 $ 2,065 $ 1,491 Interest cost 4,027 3,694 3,377 Actual return on plan assets (11,230) 515 (6,800) Net amortization and deferral 7,393 (4,095) 3,391 ------- ------- ------- Pension costs 1,688 2,179 1,459 Amortization of regulatory asset 1,628 261 - ------- ------- ------- Effective pension costs 3,316 2,440 1,459 Less amount allocated to other accounts 337 318 276 ------- ------- ------- Net pension costs expensed $ 2,979 $ 2,122 $ 1,183 ------- ------- ------- Assumptions used in calculating pension cost were as follows: December 31 1995 1994 1993 Weighted average discount rates 7.00% 8.50% 7.25% Expected long-term return on assets 9.50% 9.50% 9.75% Rate of increase in future compensation levels 4.50% 5.00% 4.75% The Company sponsors a defined benefit postretirement medical plan that covers all employees who retire with ten years or more of service after age 45. The Company adopted, on a prospective basis, SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions" (OPEB) which requires accrual of the expected costs of such benefits during the employees' years of service. In 1994, the Company adopted a policy to fund its OPEB obligation through a Voluntary Employees' Benefit Association and 401(h) Subaccount in its Pension Plan. The following table sets forth the plan's funded status and amounts recognized in the Company's Balance Sheet and the amount of expense charged to the Company's Statement of Income in accordance with SFAS No. 106 (dollars in thousands): December 31 1995 1994 1993 Accumulated postretirement benefit obligation Retirees $(8,207) $(8,265) $(5,098) Fully eligible active plan participants (600) (521) (1,207) Other active plan participants (1,033) (806) (1,293) Plan assets at fair value 1,663 744 - ------- ------- -------- Accumulated postretirement benefit obligation in excess of plan assets (8,177) (8,848) (7,598) Unrecognized transition obligation 5,180 5,485 6,253 Unrecognized net loss 428 337 351 ------- ------- -------- Accrued postretirement benefit cost (2,569) (3,026) (994) Regulatory asset for restructuring costs 352 2,008 - ------- ------- -------- Effective accrued postretirement benefit costs $(2,217) $(1,018) $ (994) ======= ======= ======= Net postretirement benefit cost includes the following components Service cost $ 153 $ 194 $ 168 Interest cost 755 682 588 Actual return on plan assets (49) 1 - Deferral of asset loss during the year (14) (1) - Amortization of transition obligation over a twenty-year period 305 305 329 ------- ------- -------- Postretirement benefit cost 1,150 1,181 1,085 Amortization of regulatory asset 1,656 265 - ------- ------- -------- Effective postretirement benefit cost 2,806 1,446 1,085 Less amount allocated to other accounts 229 172 205 ------- ------- -------- Net postretirement benefit cost expensed $ 2,577 $ 1,274 $ 880 ======= ======= ======= Assumptions used in the per capita costs of the accumulated postretirement benefit obligation were as follows: December 31 1995 1994 1993 Per capita percent increase in health care costs: Pre-65 8.00% 9.50% 9.50% Post-65 6.50% 8.00% 6.00% Weighted average discount rates 7.00% 8.50% 7.25% Rate of increase in future compensation levels 4.50% 5.00% 4.75% Long-term return on assets 8.50% - - Health care trend rates are assumed to decrease to 5.0% for pre-65 and 4.5% for post-65 for the year 2001 and thereafter. This decrease results from changes to the retiree medical plan limiting the cost for employees retiring after 1995 to the 1995 per participant cost. Increasing the assumed health care cost trend rates by one percentage point in each year would have resulted in an increase of approximately $691,000 in the accumulated postretirement benefit obligation as of January 1, 1996, and an increase of about $51,000 in the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1995. Effective January 1, 1994, the Company adopted, on a prospective basis, SFAS No. 112, "Employers' Accounting for Postemployment Benefits" which requires accrual of the expected cost of postemployment benefits provided to former or inactive employees, their beneficiaries, and covered dependents after employment but before retirement. The Company provides postemployment benefits consisting of long-term disability benefits, and prior to January 1, 1994 expensed these costs as benefits were paid. For 1993, such costs totaled $156,000. The accumulated postemployment benefit obligation at January 1, 1996 of approximately $1.1 million is reflected in the accompanying balance sheet as a deferred postemployment benefit obligation (current and non-current) and is offset by a corresponding regulatory asset of approximately $.9 million. The PSB in its October 31, 1994 Rate Order allowed the Company to recover the regulatory asset over a 7-1/2 year period beginning November 1, 1994 through April 30, 2002. The postemployment benefit cost charged to expense in 1994 was approximately $324,000 (pre-tax). Beginning in 1995, the Company paid premiums to insure the salary continuation portion of future long-term disability obligations. The post-employment benefit cost charged to expense in 1995, including insurance premiums, was $100,000 (pre-tax). In the first quarter of 1994, the Company offered and recorded an obligation related to a Voluntary Retirement Program (VRP). The VRP was accepted by 42 employees. The estimated benefit obligation for the VRP as of December 31, 1995 is about $3.3 million. This amount consists of pension benefits and postretirement medical benefits of $1.8 million and $1.5 million, respectively. Additionally, 32 employees accepted a Voluntary Severance Program (VSP) offered by the Company. Eligible employees had until April 22, 1994 to apply. The Company also announced a layoff of 20 employees on May 9, 1994. VSP and layoff obligations of $.8 million and $.2 million, respectively, were recorded in the second quarter of 1994. The VRP, VSP and layoff combined with attrition since mid-1993, yields a total work force reduction of approximately 14%. In January 1996, the PSB issued an Accounting Order authorizing the Company to effectively cap its Vermont retail after-tax return on equity at 10.75% and reduce, in 1995, deferred restructuring costs through operating expense recognition of approximately $2.9 million. On an after tax basis, these costs represent a reduction of earnings of approximately $1.7 million or $.15 per common share. The reduction of these additional restructuring costs will reduce future annual amortization expense by approximately $.8 million through May 1999. These restructuring costs were deferred pursuant to a PSB Accounting Order dated March 11, 1994. The unamortized balance of these costs was approximately $.8 million at December 31, 1995, which will be amortized over a 41-month period beginning January 1, 1996. Note 11 Income taxes The components of Federal and state income tax expense are as follows (dollars in thousands): Year Ended December 31 1995 1994 1993 Federal: Current $ 6,703 $ 6,177 $ 2,751 Deferred 2,610 3,417 7,893 Investment tax credits, net (391) (391) (391) ------- ------- ------- 8,922 9,203 10,253 State: Current 1,498 1,710 406 Deferred 488 496 2,113 ------- ------- ------- 1,986 2,206 2,519 ------- ------- ------- Total Federal and state income taxes $10,908 $11,409 $12,772 ======= ======= ======= Federal and state income taxes charged (credited) to: Operating expenses $10,662 $11,934 $12,496 Other income 246 (525) 276 ------- ------- ------- $10,908 $11,409 $12,772 ======= ======= ======= The principal items comprising the difference between the total income tax expense and the amount calculated by applying the statutory Federal income tax rate to income before tax are as follows (dollars in thousands): Year Ended December 31 1995 1994 1993 Income before income tax $30,759 $26,209 $34,064 Federal statutory rate 35% 35% 35% Federal statutory tax expense $10,766 $ 9,173 $11,922 Increases (reductions) in taxes resulting from: Disallowed regulatory tax asset - 1,641 - Dividend received deduction (903) (854) (995) Deferred taxes on plant 324 523 523 State income taxes net of Federal tax benefit 1,291 1,434 1,637 Investment credit amortization (391) (391) (391) Seabrook project 22 76 139 Book-to-return adjustments and other (201) (193) (63) ------- ------- ------- Total income tax expense provided $10,908 $11,409 $12,772 ======= ======= ======= The tax effects of temporary differences and tax carry forwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands): Year Ended December 31 1995 1994 1993 Deferred tax assets Alternative minimum tax credit carry forward $ 203 $ 900 $ 1,400 Non-deductible accruals and other 4,887 4,682 4,186 Deferred compensation and pension 3,546 4,651 4,058 Environmental costs accrual 2,205 2,335 2,142 ------- ------- ------- Total deferred tax assets 10,841 12,568 11,786 ------- ------- ------- Deferred tax liabilities Property, plant and equipment 45,670 41,609 38,304 Net regulatory asset 9,084 12,217 13,806 Conservation and load management expenditures 8,211 7,664 5,123 Nuclear refueling costs 1,782 473 2,633 Other 3,285 3,315 3,948 ------- ------- ------- Total deferred tax liabilities 68,032 65,278 63,814 ------- ------- ------- Net deferred tax liability $57,191 $52,710 $52,028 ======= ======= ======= As a result of adopting SFAS No. 109 in 1993, the Company recognized additional net accumulated deferred income tax liabilities of approximately $15 million and a net corresponding regulatory asset from customers of approximately $15 million for future revenues that will be received when the temporary differences reverse and are settled in rates. As a result of the October 31, 1994 PSB Rate Order, during the fourth quarter of 1994, the Company recognized an additional $1.6 million of tax expense related primarily to a previous revenue agent review which were expected to be collected from customers through rates. A valuation allowance has not been recorded, as the Company expects all deferred income tax assets will be utilized in the future. The Company has an alternative minimum tax credit carry forward of $.2 million which is available to reduce future regular income taxes over an indefinite period. Note 12 Retail Rates The Company filed for a 14.6% or $31.0 million general rate increase on October 17, 1995 to become effective July 1, 1996, to offset the increasing cost of providing service. Approximately $29.0 million or 93.5% of the rate increase request is to recover increased purchased power costs. The filing was unanimously supported by the Company's board of directors. Five individuals or entities asked the PSB for permission to intervene in the proceeding. The request of four of them, including Killington, Ltd. (Killington) was ultimately granted by the PSB. On February 13, 1996 the Company reached an agreement with the Vermont Department of Public Service regarding this rate increase request. Under terms of the agreement, the Company would increase rates 5.5% June 1, 1996 and 2% January 1, 1997. The agreement effectively caps the Company's allowed return on common equity in its Vermont retail business for 1996 and 1997 at 11% by requiring the Company to reduce deferred C&LM costs to the extent its Vermont retail return on common equity would otherwise exceed 11%. In addition, the agreement would remove the penalties imposed in a PSB rate order dated October 31, 1994 discussed below. The agreement is subject to PSB approval. The Company does not believe that Killington's intervention is of itself an action that is adverse to the Company's interests, and the Company does not know at this time whether Killington's intervention will result in its taking any action or legal positions adverse to the Company and if so whether such action or legal positions would be considered material to the Company. Killington is a wholly owned subsidiary of S-K-I, Ltd. (S-K-I), a publicly held holding company. Killington owns and operates the Killington Ski Area and is one of the Company's largest customers. Preston Leete Smith, a director of the Company since 1977, is S-K-I's chief executive officer and chairman of its executive committee. He is also chairman of the board of directors of Killington. Mr. Smith has informed the Company that because he recuses himself from all matters concerning Killington's relationship with the Company, he learned of Killington's request to intervene after the fact and as a matter of policy continues to recuse himself from all discussions related to the intervention, as well as other matters related to Killington's relationship with the Company. Similarly, as a matter of policy, Mr. Smith would recuse himself from consideration of any matters by the Company involving Killington or S-K-I. A PSB Rate Order dated October 31, 1994, subsequently amended, allowed the Company a base retail rate increase of 5.07% or approximately $10.2 million. The PSB Rate Order also lowered the allowed rate of return on the Company's common stock equity from 12% to 10%. The allowed return on equity is after deducting two concurrent .75% penalties based on the PSB's conclusions that there had been "mismanagement of power supply options" and because of "the Company's failed efforts to acquire all cost-effective energy efficiency resources". The Company disagrees with the PSB's conclusion. Note 13 Commitments and contingencies The Company's power supply is acquired from a number of sources including its own generating units, jointly owned units, long-term contracts and short-term purchases from a variety of sources. The cost of power obtained from sources other than wholly and jointly owned units, including payments required to be made whether or not energy is received by the Company, is reflected as Purchased power in the Consolidated Statement of Income. Through its investments in four nuclear generating companies, the Company is entitled to receive power from those nuclear units. See Note 2 for a discussion of the Company's obligations related to its investment in nuclear generating companies. The Company is also a joint owner of the Millstone #3 nuclear generating plant. Through Velco, the Company purchases power from a coal-fired generating plant owned by Northeast Utilities (NU) under a thirty-year contract which expires April 30, 1998. Under this contract the Company is obligated to make capacity payments which amounted to approximately $3.8 million, $4.3 million and $4.2 million for 1993 through 1995, respectively. These capacity payments will vary over the contract period due to factors such as changes in NU's net investment, allowed rate of return and operating and maintenance costs. The Company purchases power from several small power producers who own qualifying facilities under the Public Utility Regulatory Policies Act of 1978. These qualifying facilities produce energy using hydroelectric, wood, biomass, and refuse-burning generation. Under these long-term contracts, in 1995, the Company purchased 190,105 MWH of which approximately 135,504 MWH is associated with the Vermont Power Exchange and 37,822 MWH with the New Hampshire/Vermont Solid Waste Plant owned by Wheelabrator Claremont Company, L.P. The Company expects to purchase approximately 199,000 MWH of small power output in each year 1996 through 2000. Based on the forecast level of production, the total commitment in the next five years to purchase power from these qualifying facilities is estimated to be $107 million. The Company will receive varying amounts of capacity and energy from Hydro-Quebec under the Vermont Joint Owners (VJO) contract during the 1996 to 2016 period. A contract between the state of Vermont and Hydro-Quebec terminated on September 22, 1995. Related contracts were negotiated between the Company and Hydro-Quebec which in effect alter the terms and conditions contained in the VJO contract, reducing the overall power requirements and cost of the original contract. The maximum net amount of capacity that the Company will purchase during the term of the agreements is 143 MW. The total commitment in the next five years to purchase power under these contracts is approximately $346 million, less approximately $98 million of power sellbacks, yielding a net cost of approximately $248 million. The Company recently reached an agreement with Hydro-Quebec that will lower our 1997 cost of power by approximately $5.8 million. As part of this agreement, the Company will deliver to NEPOOL under existing firm energy contracts or joint marketing activities 54 MW of Phase II transmission capacity for a five- year period beginning July 1, 1996 through June 30, 2001. In addition, the agreement provides for continuing negotiations with Hydro-Quebec to further reduce future power cost increases. In the early phase of the VJO contract, two sellback contracts were negotiated, the first delaying the purchase of about 24 MW of capacity and associated energy, the second reducing the net purchase of Hydro-Quebec power. In 1994, the Company negotiated a third sellback arrangement whereby the Company receives an effective discount on up to 70 MW of capacity starting in November 1995 for the 1996 contract year (declining to 30 MW in the 1999 contract year). In exchange for this sellback, Hydro-Quebec has the right to reduce capacity deliveries by up to 50 MW beginning as early as 2004 until 2015, including the use of a like amount of the Company's Phase I/II facility rights and the ability to reduce the amounts of energy delivered during a five-year term beginning in 2000. Joint-ownership The Company's ownership interests in jointly owned generating and transmission facilities are set forth in the table that follows and recorded in the Company's Consolidated Balance Sheet (dollars in thousands):
Fuel In Service MW December 31 Type Ownership Date Entitlement 1995 1994 Generating plants: Wyman #4 Oil 1.78% 1978 11 $ 3,340 $ 3,338 Joseph C. McNeil Various 20.00% 1984 11 14,931 14,871 Millstone #3 Nuclear 1.73% 1986 20 75,380 75,101 Highgate transmission facility 46.08% 1985 12,786 12,775 -------- -------- 106,437 106,085 Accumulated depreciation 28,824 25,683 -------- -------- $ 77,613 $ 80,402 ======== ========
The Company's share of operating expenses for these facilities is included in the corresponding operating accounts on the Consolidated Statement of Income. Each participant in these facilities must provide for its own financing. The Company is responsible for paying its ownership percentage of decommissioning costs for Millstone #3. Based on a 1992 study, total estimated obligation at December 31, 1995 was approximately $477.9 million and the funded obligation was about $92.8 million. The Company's share for the total obligation and funded obligation was approximately $8.3 million and $1.4 million, respectively. Environmental The Company is engaged in various operations and activities which subject it to inspection and supervision by both Federal and state regulatory authorities including the United States Environmental Protection Agency (EPA). It is Company policy to comply with all environmental laws. The Company has implemented various procedures and internal controls to assess and assure compliance. If non-compliance is discovered, corrective action is taken. Based on these efforts and the oversight of those regulatory agencies having jurisdiction, the Company believes it conforms, in all material respects, with all environmental laws. Company operations occasionally result in unavoidable and inadvertent spills or releases of regulated substances or materials, such as the rupture of a pole mounted transformer, broken hydraulic line, or other similar occurrences. When the Company learns of such spills and releases from ongoing operations, they are cleaned up to meet Federal and state requirements. Except as discussed in the following paragraphs, the Company is not aware of any instances where it has caused, permitted or suffered a release or spill on or about its properties or otherwise which will likely result in any material environmental liabilities to the Company. The Company is an amalgamation of more than 100 predecessor companies. Those companies engaged in various operations and activities prior to being merged into the Company. At least two of these companies were involved in the production of gas from coal to sell and distribute to retail customers at three different locations. These activities were discontinued by the Company in the late 1940's or early 1950's. The coal gas manufacturers, other predecessor companies, and the Company itself may have engaged in waste disposal activities which, while legal and consistent with commercially accepted practices at the time, may not meet modern standards and thus represent potential liability. The Company continues to investigate, evaluate, monitor and, where appropriate, remediate contaminated sites related to these historic activities. The Company's policy is to accrue a liability for those sites where costs for remediation, monitoring and other future activities are probable and can be reasonably estimated. The Company has established a process for determining whether insurance proceeds are available to offset the costs associated with these sites. Cleveland Avenue Property One such site is the Company's Cleveland Avenue property located in the City of Rutland, Vermont, a site where one of its predecessors operated a coal-gasification facility and later the Company sited various operations functions. Due to the presence of coal tar deposits and Polychlorinated Biphenyl (PCB) contamination and uncertainties as to potential off-site migration of those contaminants, the Company conducted studies to determine the magnitude and extent of the contamination. The Company engaged a consultant to assist in evaluating clean-up methodologies and provide cost estimates. Those studies indicated the cost to remediate the site would be approximately $5 million. This was charged to expense in the fourth quarter of 1992. In 1995, a final risk assessment report was completed and submitted to the state for review. The Company was formally contacted by the EPA in January 1995 asking for written consent to conduct a site evaluation of the Cleveland Avenue property. The Company does not believe the EPA's evaluation changes its potential liability so long as reasonable further progress is made in remediating the site. Following state review, various remediation alternatives will be investigated. The Company has selected a consulting/engineering firm to develop and implement a remediation plan for the site and to collect additional data during 1996. PCB, Inc. In August 1995, the Company received an Information Request from the EPA pursuant to a Superfund investigation of two related sites, one in the state of Kansas and the other in the state of Missouri (Sites). During the mid-1980's, these Sites received materials containing PCBs from hundreds of sources, including the Company. The Company has complied with the information request and will monitor EPA activities at the Sites. At this time, there has been no estimate of the cost to remediate the Sites. Therefore, the Company cannot predict whether the Sites represent the potential for a material adverse effect on its financial condition or results of operations. However, given the fact EPA has identified more than 1,000 Potentially Responsible Parties (PRPs), and, based on information currently available to the Company, that the contaminated Sites and contamination at the Sites appears to be limited to several buildings, the Company's liability with respect to the Sites is not expected to be significant. The Company faces potential liability arising from the alleged disposal of hazardous materials at three former municipal landfills: the Bennington Landfill, the Parker Landfill, and the Trafton-Hoisington Landfill. Bennington Landfill The Bennington Landfill is a Superfund site located in Bennington, Vermont. An investigation by the Company suggested that it is unlikely that it contributed a meaningful amount of hazardous substances, if any, to the site. In July 1994, the EPA notified the Company that it had reviewed evidence which, in its opinion, indicated that the Company may have contributed to the environmental contamination at the Bennington site but that a full determination of its potential liability for the site had not been made. EPA, at that time, designated the Company a potentially interested party (PIP). Also in July 1994, the EPA notified the PRP Group, the Company and other PIPs that it was proposing a response action at the site with an estimated total present worth cost of approximately $9.5 million. During November 1994, the Company was notified that EPA had information indicating that the Company was a PRP with regard to the Bennington site. The EPA letter also requested that the Company participate with other PRPs in the response action described above and further made a demand against the Company and other PRPs for reimbursement of approximately $.85 million in costs EPA had incurred in responding to conditions at the site. The original PRP Group reformed into a larger group, incorporating additional PRPs, including the Company, to undertake the remedial response, pay EPA response expenses and obtain reimbursement for the $3 million it spent on the Engineering Evaluation/Cost Analysis. The Company determined its interests would be best served by participating in the larger PRP Group while at the same time exploring the possibility of a "De Minimis" settlement with the EPA, either alone or as part of a group, premised on its minimal contribution to the site. Negotiations between the PRP Group and the EPA continue. The PRP and EPA recently reached a tentative agreement. Under the terms of that agreement, and a related internal allocation, the Company's liability would be less than $100,000. If a final settlement is not achieved, the Company will continue to explore its settlement options, individually and as a part of a group of "De Minimis" parties. If all efforts at settlement fail, the Company will defend any contribution action brought by the other PRPs or the EPA. Parker Landfill The Parker Landfill is a Superfund site located in Lyndonville, Vermont. In 1989, the Company received an information request from the EPA. An investigation conducted at the time concluded that the Company occasionally sent general trash to the site, and that said trash did not include hazardous substances. In May 1994, the Company received a second EPA request seeking additional information. A renewed investigation by the Company supported its earlier conclusion that the Company did not send significant amounts of hazardous substances to the site. In summer of 1994, EPA announced its proposed preferred remedy for this site with an estimated total present net worth cost of $28.2 million. At this time, based on the information available, the Company does not believe that this site represents a material potential liability. Currently, the Company is considered a PIP for the site. The Company has complied with the information requests and will monitor EPA activities at the site. Trafton-Hoisington Landfill The Trafton-Hoisington Landfill was a municipal and industrial landfill in the Town of Windsor, Vermont. The site is presently a state lead site although placement on the National Priorities List remains a possibility. The State of Vermont has reached an agreement with a small group of PRPs to conduct a site investigation. The Company was contacted by these PRPs seeking a contribution toward the cost of the site investigation. The Company conducted an investigation and concluded that no significant amounts of hazardous substances were sent to the site. Accordingly, the Company has advised the PRPs it will not make any contribution towards those expenses. At this time, the Company does not believe these landfill sites represent the potential for a material adverse effect on its financial condition or results of operations but will continue to monitor activities at the sites. The Company is not subject to any pending or threatened litigation with respect to any other sites where remediation expenses could be material, nor has the EPA or other Federal or state agency sought contribution from the Company for the study or remediation of any such sites. Dividend restrictions The indentures relating to long-term debt and the Articles of Association contain certain restrictions on the payment of cash dividends on capital stock. Under the most restrictive of such provisions, approximately $58 million of retained earnings was not subject to dividend restriction at December 31, 1995. Leases and support agreements The Company participated with other electric utilities in the construction of the Phase I Hydro-Quebec transmission facilities in northeastern Vermont, which were completed at a total cost of approximately $140 million. Under a support agreement relating to the Company's participation in the facilities, the Company is obligated to pay its 4.42% share of Phase I Hydro-Quebec capital costs over a 20-year recovery period through and including 2006. The Company also participated in the construction of Phase II Hydro-Quebec transmission facilities constructed throughout New England, which were completed at a total cost of approximately $487 million. Under a similar support agreement, the Company is obligated to pay its 5.132% share of Phase II Hydro-Quebec capital costs over a 25-year recovery period through and including 2015. All costs under these support agreements are recorded as purchased transmission expense in accordance with the Company's rate-making policies. Future minimum payments will be approximately $3.0 million for each year from 1996 through 2015 and will decline thereafter. The Company's shares of the net capital cost of these facilities, totaling approximately $20.5 million, are classified in the accompanying Consolidated Balance Sheet as "Utility Plant" and "Long-term Lease Arrangements" (current and non-current). Minimum rental commitments of the Company under non-cancelable leases as of December 31, 1995, are not material. Total rental expense entering into the determination of net income, consisting principally of vehicle and equipment rentals, was approximately $3.1 million, $3.3 million and $3.3 million for the years 1993 through 1995, respectively. Legal proceeding On December 30, 1994, the Company and its board were named as defendants in a complaint filed in the United States District Court for the District of Vermont by three shareholders. The complaint alleges, among other things, (i) that F. Ray Keyser Jr., Chairman of the Company's board, violated Section 8 of the Clayton Act, 15 U.S.C. Subchapter 19, which precludes certain interlocking directorships, (ii) that Mr. Keyser violated his fiduciary duties to the Company's stockholders by acquiring and operating a series of businesses in competition with the Company without offering those business opportunities to the Company, (iii) that the remaining individual defendants violated their fiduciary duties to the Company's stockholders by failing to analyze, or to cause management to analyze, diversification into propane and fossil fuels, and by failing to make the Company an effective competitor of alternative fuel companies, and (iv) that the Company violated the applicable provision of the Vermont General Corporation Law by failing to provide a list of the Company's stockholders. The complaint seeks an unspecified amount of damages (including treble damages against Mr. Keyser), attorneys' fees and costs, a list of the Company's stockholders, and a court order to enjoin the defendants from alleged continuing violations of the law. Each of the individual defendants and the Company itself deny the allegations against them and intend to vigorously defend the complaint. To that end, the Company and its directors submitted a Motion to Dismiss, which was argued before the Court on November 29, 1995. Action on this Motion to Dismiss is pending. In response to a shareholder letter received in November 1994, the Company's Board formed a Special Investigation Committee (the Committee), comprised of three outside directors, to investigate the shareholder's allegations concerning management's judgment in deciding, in August 1991, to commit, as part of a consortium of Vermont utilities, to a long-term purchase of a large amount of hydro-electric power from Hydro-Quebec. The shareholder also alleged that the Company misled the PSB, prior to the Company's decision to commit to the purchase, concerning the status of negotiations relating to the purchase. The Committee hired outside counsel to aid in the investigation and to render legal advice to it and the Board. At the conclusion of its investigation, the Committee recommended to the outside members of the full Board that pursuit of any legal claims implicated by the shareholder's letter would not be in the best interests of the Company and its shareholders and that the Company should take no further action with respect to the shareholder's letter. At the Board's regularly scheduled meeting in September 1995, the outside directors of the Board voted unanimously to adopt the Committee's recommendations. Note 14 New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective for fiscal years beginning after December 15, 1995. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets and requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. The Company adopted SFAS No. 121 on January 1, 1996, and based on the current regulatory rate-making process, the adoption of SFAS No 121 did not have a material impact on the Company's financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for fiscal years beginning after December 15, 1995. SFAS No. 123 requires that financial statements include certain disclosures related to stock-based employee compensation arrangements regardless of the method used to account for them. The Company does not plan to adopt the accounting under this pronouncement but rather adopt the required audited pro forma disclosure. Based on arrangements used by the pronouncement, the pro forma effects on earnings and earnings per common share are not expected to be material. Note 15 Non-recurring Charge During the fourth quarter of 1994, the Company wrote-off approximately $2.9 million of costs associated with its proposed new headquarters office building which reduced after tax earnings by approximately $1.7 million. Note 16 Unaudited quarterly financial information The following quarterly financial information is unaudited and includes all adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for a fair statement of results of operations for such periods. Variations between quarters reflect the seasonal nature of the Company's business (dollars in thousands, except per share amounts): Quarter Ended 12 Months March June September December Ended 1995 Operating revenues $86,863 $62,846 $60,314 $78,254 $288,277 Operating income $14,928 $ 314 $ 1,922 $ 7,073 $ 24,237 Net income (loss) $13,796 $(1,063) $ 1,748 $ 5,370 $ 19,851 Earnings (loss) per share of common stock $1.13 $(.13) $ .11 $ .42 $1.53 1994 Operating revenues $83,885 $57,684 $59,027 $76,562 $277,158 Operating income (loss) $14,367 $ (447) $ 368 $ 6,815 $ 21,103 Net income (loss) $12,608 $(2,003) $ (791) $ 4,986 $ 14,800 Earnings (loss) per share of common stock $1.04 $(.22) $(.11) $.38 $1.08 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The Company's Articles of Incorporation and By-Laws provide for the division of the Board of Directors into three classes having staggered terms of office. The directors whose terms will expire at the 1996 Annual Meeting of Stockholders, consisting of the three nominees listed below, will stand for re-election to a three-year term expiring in 1999. Mr. Robert P. Bliss, Jr. will retire from the Board upon expiration of his current term. The directors have chosen not to fill the vacancy created upon Mr. Bliss' retirement from the Board and in accordance with the Company's By-Laws, the Board has fixed at nine (9) the number of directors for the ensuing year. Proxies will be voted (unless otherwise instructed) in favor of the election of the three nominees as indicated in the table below. While it is not anticipated that any of the persons listed will be unable to serve as a director, then the proxies will vote for such other person or persons as the present Board of Directors shall determine. The following table sets forth certain information regarding the three nominees for director, as well as all directors presently serving on the Board whose terms will expire after the 1996 Annual Meeting. Except for Mr. Young, each of the individuals listed in the table has been employed by the firm or has had the occupation set forth under his or her name for the past five years. Mr. Young, who was elected President and Chief Executive Officer of the Company upon the retirement of Mr. Thomas C. Webb in December and appointed to fill Mr. Webb's seat on the Board of Directors, has held a number of executive positions with the Company during the past five years. In general, the business experience of each of these persons during this time was typical of a person engaged in the principal occupation listed for each. Director Principal Occupation and Name and Age Since Business Experience Nominees whose terms will expire in 1999: Elizabeth Coleman - 58 1990 President, Bennington College, Bennington, Vermont Preston Leete Smith - 65 1977 Chief Executive Officer, S-K-I Ltd., West Lebanon, New Hampshire (Ski Business) Robert H. Young - 48 1995 President and Chief Executive Officer of the Company; Executive Vice President and Chief Operating Officer of the Company from 1993 to 1995; Senior Vice President and Chief Financial Officer of the Company from 1988 to 1993; Vice President and Chief Financial Officer of the Company from 1987 to 1988. Directors whose terms will expire in 1998: Luther F. Hackett - 62 1979 President, Hackett, Valine & MacDonald, Inc., Burlington, Vermont (Insurance Agents) F. Ray Keyser, Jr. - 68 1980 Chairman of the Board of the Company; Of Counsel, Keyser, Crowley, Meub, Layden, Kulig & Sullivan, P.C. Rutland, Vermont (Lawyers) Gordon P. Mills - 59 1980 Chairman, EHV-Weidmann Industries, Inc., St. Johnsbury, Vermont (Manufacturer of Electric Transformer Insulation) Directors whose terms will expire in 1997: Frederic H. Bertrand - 59 1984 Chairman of the Board and Chief Executive Officer, National Life Insurance Co., Montpelier, Vermont Mary Alice McKenzie - 38 1992 President and Chief Executive Officer, John McKenzie Packing Co., Inc., Burlington, Vermont (Manufacturer of Meat Products) Robert D. Stout - 69 1985 Retired President and Chief Executive Officer, Putnam Memorial Health Corporation, Bennington, Vermont Executive Officers of the Registrant: Name and Age Office Officer Since Thomas C. Webb, 61 (a) Retired President and Chief Executive Officer 1985 Robert H. Young, 48 President and Chief Executive Officer Effective December 30, 1995 1987 Robert de R. Stein, 46 Senior Vice President-Energy Resources and External Markets 1988 Francis J. Boyle, 50 Vice President-Finance & Administration and Principal Financial Officer 1995 Frederick S. Potter, 50 (a) Vice President-Finance & Administration and Principal Financial Officer 1994 Jacquel-Anne Chouinard, 56 (a) Vice President-Human Resources 1986 Thomas J. Hurcomb, 58 Vice President-Marketing and Public Affairs 1975 Robert G. Kirn, 44 Vice President-Engineering and Operations 1991 William J. Deehan, 43 Assistant Vice President-Rates and Economic Analysis 1991 Jonathan W. Booraem, 57 Treasurer 1984 Joseph M. Kraus, 41 Secretary and General Counsel 1987 James M. Pennington, 40 Controller and Principal Accounting Officer 1993 Mr. Young joined the Company in 1987. Mr. Young was elected Senior Vice President - Finance and Administration in 1988, and in 1993 was elected Executive Vice President and Chief Operating Officer. He was elected Director, President and Chief Executive Officer on December 30, 1995 to succeed Mr. Webb. Mr. Stein joined the Company in 1988 and was elected Vice President - Energy Supply Planning and Engineering effective January 1, 1990, and Senior Vice President - Engineering and Energy Resources in 1993. Mr. Stein assumed his present position in 1994. Mr. Boyle joined the Company in October, 1995, as Vice President - Finance and Administration and Chief Financial Officer. From 1993 to 1995, Mr. Boyle served as Chief Financial Officer of Westmoreland Coal Company (Westmoreland) in Philadelphia, Pennsylvania. In November, 1994, Westmoreland and several of its subsidiaries commenced Chapter 11 proceedings to confirm a so-called "prepackaged" plan of reorganization under which the court was asked to approve a sale of assets, the proceeds of which were to be used to satisfy in full certain maturing obligations of Westmoreland. In December, 1994, Westmoreland's plan of reorganization was confirmed, the asset sale was consummated, the obligations in question were paid, and Westmoreland emerged from Bankruptcy. From 1985 to 1992, Mr. Boyle was Chief Financial Officer of El Paso Natural Gas Company, El Paso, Texas. Mr. Hurcomb joined the Company in 1967. He was elected Vice President - External Affairs in 1975, and Vice President - Marketing and Public Affairs in 1993. Mr. Kirn joined the Company in 1991 as Vice President - Division Operations and assumed his present position in 1994. From 1979 to 1991, he was employed by New York State Electric & Gas Corporation. Mr. Deehan joined the Company in 1985. Prior to being elected to his present position in 1991, he served as Director of Rate Administration and Forecasting. Mr. Booraem joined the Company in 1969 and was elected to his present position in 1984. Mr. Kraus joined the Company in 1981. He was elected Corporate Secretary and Senior Corporate Counsel in 1987 and Corporate Secretary and General Counsel effective January 1, 1994. Mr. Pennington joined the Company in 1989. He was named Director of Taxes and Plant Accounting in 1990. Mr. Pennington was designated Acting Controller effective July 19, 1992, and was elected Controller and named Principal Accounting Officer in 1993. (a) Thomas C. Webb retired effective December 30, 1995 and Jacquel-Anne Chouinard retired effective December 31, 1995; and Frederick S. Potter resigned from the Company effective May 9, 1995. The term of each officer is for one year or until a successor is elected. Item 11. Executive Compensation. The following table sets forth all cash compensation paid or to be paid by the Company and its subsidiaries, as well as the number of stock option awards earned during the last three fiscal years by the Company's current and retired Chief Executive Officer and the four other most highly compensated executive officers whose salary and bonus for services rendered to the Company and its subsidiaries in all capacities for 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards Securities Other Underlying Annual Option/ All Other Name and Principal Salary Bonus Compensation SARs Compensation Position (1) Year ($) (2) ($)(3) ($) (4) (#) ($) (5) A. Robert H. Young 1995 178,423 12,500 - 6,000/0 5,876 President and Chief 1994 153,756 0 - 6,000/0 4,927 Executive Officer 1993 141,769 35,995 - 6,000/0 4,533 B. Robert de R. Stein 1995 124,153 - - 4,500/0 4,874 Senior Vice President- 1994 119,606 0 - 4,500/0 4,873 Energy Resources and 1993 114,677 16,804 - 4,500/0 3,988 External Markets C. Thomas J. Hurcomb 1995 109,765 - - 3,000/0 5,536 Vice President 1994 104,115 0 - 3,000/0 4,534 Marketing and 1993 98,382 15,606 - 3,000/0 4,996 Public Affairs D. Robert G. Kirn 1995 108,602 - - 3,000/0 4,554 Vice President - 1994 98,201 0 - 3,000/0 4,264 Engineering and 1993 93,736 15,750 - 3,000/0 3,574 Operations E. Joseph M. Kraus 1995 102,485 12,500 - 3,000/0 8,820 Corporate Secretary 1994 96,657 0 - 3,000/0 8,551 and General Counsel 1993 78,553 16,612 - 1,500/0 4,791 F. Thomas C. Webb 1995 280,898 12,500 9,584 8,000/0 9,792 Retired President 1994 260,759 0 - 8,000/0 7,946 and Chief Executive 1993 248,755 67,183 - 8,000/0 12,453 Officer
1/ - The principal positions listed were held as of December 31, 1995 by the executive officers named in the Summary Compensation Table other than Mr. Webb who retired from employment with the Company effective December 30, 1995. - Mr. Young was elected Director, President and Chief Executive Officer effective December 30, 1995. Compensation reported for 1995 includes compensation received in his position as Executive Vice President and Chief Operating Officer. 2/ - Includes compensation deferred at the election of all executive officers named, and directors' retainers and fees earned from VELCO by Mr. Webb. - Includes compensation for services performed by Mr. Webb for Vermont Yankee and by Mr. Stein for VELCO for which the Company was reimbursed. 3/ - Includes incentive awards by Catamount, as follows for: A: 1995 - $12,500, 1993 - $10,000; E: 1995 - $12,500, 1993 - $7,500; F: 1995 - $12,500, 1993 - $10,000. 4/ - Payment of $9,584 for the Federal Insurance Contribution Assessment tax on the present value of future benefits to be paid on the Supplemental Retirement Plan. 5/ - The total amounts shown in this column for the last fiscal year are comprised as follows: - Company matching contributions to the Employee Savings and Investment Plan includes for A: $5,525; B: $4,620; C: $4,391; D: $4,341; E: $4,096; F: $5,994. - Taxable term cost on executive split-dollar insurance. (An insurance plan that gives both employer and employee an interest in the policy death benefit on the employee's life.) for A: $351; B: $254; C: $639; D: $213; E: $109; F: $2,279. - Includes accrued above-market interest on deferred compensation for C: $506 and F: $1,519. - Pay-in-lieu of taking vacation based on Company policy for employees who qualify for E: $4,615. Directors' Compensation. Directors of CVPS receive an annual retainer of $7,200 and members of the Executive Committee are paid an additional retainer of $400. The Chairman of each committee receives an additional $1,600 retainer. Directors are also paid $520 plus expenses for each directors' meeting attended and $260 for each committee meeting attended if held on the same day as a meeting of the Board or held by telephone, and a fee of $520 plus expenses for attendance at each other meeting of such committee. These fees and retainers represent a reduction of 20% from amounts paid in previous years. The Chairman of the Board does not receive a salary, however, is paid an annual retainer of $30,000. As President and Chief Executive Officer, Mr. Young receives no director's retainer or other fees for serving on the Board or any of its committees or for services performed for consolidated subsidiary companies. Certain of the directors have elected to defer receipt of all or a portion of their fees pursuant to the Company's Deferred Compensation Plan for Directors, described below under the caption entitled "Deferred Compensation Plan". Stock Options. The following table sets forth stock options granted to the Company's current and retired Chief Executive Officer and the four other most highly compensated executive officers during 1995 under the Company's 1988 Stock Option Plan for Key Employees. Under SEC regulations, companies are required to project an estimate of appreciation of the underlying shares of stock during the option term. The Company has chosen the Black-Scholes model formula approved by the SEC. However, the ultimate value will depend on the market value of the Company's stock at a future date, which may or may not correspond to the projections below. Option/SAR Grants in Last Fiscal Year Grant Date Individual Grants Value Number of % of Total Securities Options/ Underlying SARs Options/ Granted to Exercise Grant SARs Employees Or Base Expira- Date Granted In Fiscal Price tion Present Name (#) 1/ Year ($/Sh) Date Value 2/ Robert H. Young 6,000/0 15.8% $13.5625 5/3/05 $10,253 Robert de R. Stein 4,500/0 11.8 13.5625 5/3/05 7,690 Thomas J. Hurcomb 3,000/0 7.9 13.5625 5/3/05 5,127 Robert G. Kirn 3,000/0 7.9 13.5625 5/3/05 5,127 Joseph M. Kraus 3,000/0 7.9 13.5625 5/3/05 5,127 Thomas C. Webb 8,000/0 21.1 13.5625 12/30/98 10,850 1/ A total of 38,000 shares were awarded to all plan participants in 1995. Stock Options are exercisable in whole or in part from the date of the grant for a period of ten years and one day but in no event later than three years after retirement from the Company. 2/ Per Black-Scholes model as certified by an independent consultant. The assumptions used for the Model are as follows: Volatility-.1776 based on monthly stock prices for the period of 12/31/92 to 12/31/95; Risk free rate of return-7.5%; Dividend Yield-6.88% over the period of 12/31/92 to 12/31/95; and a ten year exercise term. For a three year exercise term, the assumptions used are as follows for the same periods: Volatility-.1776; Risk free rate of return-6.9%; and Dividend Yield-6.88%. The following table sets forth stock options exercised by the Company's current and retired Chief Executive Officer and the four other most highly compensated executive officers during 1995, and the number and value of all unexercised options at year-end. The value of "in-the-money" options refers to options having an exercise price which is less than the market price of the Company's Common Stock on December 29, 1995.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value (a) (b) (c) (d) (e) Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs At FY-End (#) At FY-End ($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)1/ Unexercisable Unexercisable - --------------- --------------- ------------- ------------- ------------- Robert H. Young - - 22,500/0 -/- Robert de R. Stein - - 24,000/0 -/- Thomas J. Hurcomb - - 21,000/0 -/- Robert G. Kirn - - 14,250/0 -/- Joseph M. Kraus - - 7,500/0 -/- Thomas C. Webb - - 30,000/0 -/-
1/ The dollar values in columns (c) and (e) are calculated by determining the difference between the fair market value of the securities underlying the options and the exercise or base price of the options at exercise or fiscal year end, respectively. Deferred Compensation Plan. Employees of the Company who are officers are eligible to defer receipt of a portion of their compensation pursuant to the Company's Deferred Compensation Plan (the "Deferred Plan") for Officers. Also, certain of the directors of the Company have elected to defer receipt of all or a portion of their fees under a similar plan for directors. Under the Deferred Plan approved effective January 1, 1990 directors and officers of the Company may elect to defer over a 5-year period receipt of a specified amount of compensation or fees otherwise currently payable to them until retirement at age 65 (age 70 for directors), or until their death, disability, or resignation. Officers may receive a reduced benefit beginning at age 60 with 10 years of service. Amounts deferred are not currently taxable for state and federal income taxes. The benefit is equal to the compensation deferred plus interest credited by the Company. The Deferred Plan is a defined contribution program under which the Company recovers any costs, including the cost of capital, through the proceeds of the supporting life insurance policies. In addition, if death of a director occurs before age 70, an additional survivor benefit equal to the annual amount deferred will be paid to the beneficiary each year for fifteen years. This benefit is also financed by life insurance proceeds. Pension Plan. The Pension Plan of Central Vermont Public Service Corporation and Its Subsidiaries (the "Pension Plan") is a defined benefit plan which covers employees, among others, who are officers. The Company pays the full cost of the Pension Plan. The table below shows the annual amounts payable under the present provisions of the Pension Plan as amended through December 31, 1995, based on Final Average Earnings for various years of service, assuming the employee would retire at age 65 in 1996. Assumed 5-Year Final Years of Service AverageEarnings 15 20 25 30 35 $ 80,000 $18,828 $25,105 $31,381 $37,657 $39,657 100,000 24,078 32,105 40,131 48,157 50,657 120,000 29,328 39,105 48,881 58,657 61,657 140,000 34,578 46,105 57,631 69,157 72,657 150,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) 190,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) 230,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) 250,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) 280,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) 300,000 37,203(1) 49,605(1) 62,006(1) 74,407(1) 78,157(1) ________ (1) Internal Revenue Code Section 401(a)(17) limits earnings used to calculate qualified plan benefits to $150,000 for 1995. Final Average Earnings is the highest five-year average of consecutive years' Base Salary as set forth in the Salary column of the Summary Compensation Table over an employee's career with the Company. The amounts above are payable for the life of the retiree only, and would be reduced on an actuarial basis if survivor options were chosen. In addition, no Social Security offset applies to amounts above. The credited years of service at December 31, 1995 under the Pension Plan for the named executive officers in the Summary Compensation Table were as follows: Mr. Young, 8.6 years; Mr. Stein, 7.7 years; Mr. Kraus, 14.5 years; Mr. Hurcomb, 28 years and Mr. Kirn, 4.8 years. At the time of his retirement, Mr. Webb had 11 years of service with the Company. Officers' Insurance and Supplemental Retirement Plan. The Officers' Insurance and Supplemental Retirement Plan (the "SERP") is designed to supplement the retirement benefits available to the Company's officers. The SERP is a part of the Company's overall strategy for attracting and maintaining top managerial talent in the utility industry. Under this SERP, the named executive officers in the Summary Compensation Table are covered, while employed, by life insurance at the following multiple of salary: Mr. Young, four times; Messrs. Stein, Hurcomb, Kirn and Kraus, three times. Under the SERP, each officer is entitled to receive, upon retirement at age 65, fifteen annual payments in amounts equal to a specified percentage of the officer's final year's Base Salary. The applicable percentages for the named executive officers in the Summary Compensation Table are as follows: Mr. Webb, 44.5%; Mr. Young, 44%; Messrs. Stein, Hurcomb, Kirn, and Kraus, 33%. A reduced benefit is available at age 60 for officers who attain age 55 with ten years of service. Mr. Webb, who retired effective December 30, 1995, will receive an unreduced annual benefit of $120,595 under this SERP per approval of the Board of Directors. A paid-up life insurance of $100,000 is also provided to vested retirees under this SERP. The SERP is financed through the Company's acquisition of corporate-owned life insurance. Shown below is the estimated Company provided benefit payable under the SERP for the named executive officers in the Summary Compensation Table, assuming they were to retire at age 65, and based on assumed final base pay amount: Assumed Final Annual Base Pay 33% 44% 44.5% $ $ $ % 80,000 26,400 35,200 35,600 100,000 33,000 44,000 44,500 120,000 39,600 52,800 53,400 140,000 46,200 61,600 62,300 160,000 52,800 70,400 71,200 180,000 59,400 79,200 80,100 220,000 72,600 96,800 97,900 260,000 85,800 114,400 115,700 280,000 92,400 123,200 124,600 300,000 99,000 132,000 133,500 Predecessor Deferred Compensation Plan. Between 1986 and 1990, the Company allowed officers to defer receipt of compensation in return for fifteen annual payments of a defined benefit amount upon retirement. The Company will pay the difference, if any, between the defined benefit cost and the accumulated value of deferred compensation. Mr. Hurcomb, who elected to participate, will receive an estimated annual Company-provided benefit, payable at age 65 of $13,900. Mr. Webb, who retired December 30, 1995, receives an annual reduced benefit of $26,100. Since these benefits do not apply to all of the named executive officers, they have not been reflected in the foregoing pension table. Employee Savings and Investment Plan. Effective January 1, 1985 the Company adopted an Employee Savings and Investment Plan (the "Plan") (also known as a 401(k) Plan) which provides a means for eligible employees to accumulate savings and investment income without payment of current income taxes. Presently any employee of the Company who has completed at least one year of service, as defined in the Plan, is eligible to participate (Participant). An eligible employee who elects to participate in the Plan may authorize the Company to contribute to the Plan for his or her account between 1% and 15% of their pre-tax base compensation for each pay period. For 1995, the Plan limits the maximum annual deferral to $9,240 per Participant. This maximum is adjusted annually for inflation by the Internal Revenue Service. The Company matches 100% of the first 4% of the compensation the Participant contributes to the Plan. A Participant may direct the investment of his or her Plan account among six funds specified in the Plan and is at all times fully vested in his or her Plan account. Generally, distribution of employee contributions is deferred until the Participant's death, disability, retirement or other termination of employment, except in cases of financial hardship. Matching employer contributions, however, may be withdrawn by the Participant at any time and for any reason, provided either the amount withdrawn has been in the Plan for at least two years or the Participant has been a member of the Plan for at least 5 years. Such in-service withdrawals are generally subject to ordinary income tax and an additional 10% tax plus a mandatory 20% rollover tax withholding effective January 1, 1993. Distribution of Plan benefits may be in the form of cash, an annuity, or in certain circumstances, Common Stock of the Company. Amounts voluntarily deferred by the named executive officers are included in the Salary column of the Summary Compensation Table. Matching Company contributions credited to the Plan accounts of the named executive officers during 1995 are set forth in the All Other Compensation column of the Summary Compensation Table. Contracts with Management. The Company has entered into severance compensation agreements with Messrs. Young, Stein, Hurcomb, Kirn, Kraus and four other executive officers of the Company. The agreements have a term of five years provision for renewal. They provide that in the event of termination of employment, or a significant change in employment status as defined in the agreement, within three years following a change in control of the Company, Messrs. Young, Stein, Hurcomb, Kirn, Kraus and one other executive officer will receive 2.999 times and three other executive officers will receive two times their average annual compensation for the preceding five or fewer years of service and certain legal fees and expenses incurred as a result of termination of employment. The provisions of the agreement do not apply if the executive officer retires, dies, or is disabled, voluntarily resigns, or is dismissed for cause. In exchange for agreeing to provide consulting services as requested by the Company for one year and refraining from working in competition with, or for a competitor of the Company for three years, the agreement permits continued participation in and retention of benefits under the Deferred Compensation Plan, Officers' Insurance and Supplemental Retirement Plans, and health and disability plans. The extent of these provisions depends on an individual's participation and circumstances, and is specified in each agreement. The officers with less than 10 years of service would receive a payment actuarially equivalent to benefits received under the Company's Pension Plan at age 65 with ten years of service, less any benefit paid under the Pension Plan. The agreements also provide for the payment to executive officers of an amount sufficient to offset any federal excise tax on the termination payments under Section 4999 of the Internal Revenue Code. Non-qualified stock options not immediately exercisable will become exercisable in the event of a change of control of the Company as defined in the Plan. A change of control occurs under the agreement when (1) any person, corporation, partnership or group acquires 20% or more of the combined voting power of the Company's outstanding securities; (2) if those members constituting a majority of the directors at any given date no longer constitute a majority of the directors at the end of a period of two consecutive years thereafter (unless the nomination of each new director was approved by a vote of at least two-thirds of the directors in office who were directors at the beginning of the period); or (3) if a third party acquires ownership or voting power of 10% or more of the outstanding voting securities of the Company, and subsequently is a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, or the Company loses its exemption from or is required to register under that Act. The Company entered into an agreement with Mr. Webb for consulting services rendered to the Company after his retirement for 1996 and 1997 to provide for an orderly management succession and for his continued service on the Vermont Yankee Board of Directors. The amount to be paid will be $75,000 per year if all contractual arrangements are met. During 1989, the Board also approved a severance plan in the event of a change of control for key managers of the Company not covered by the above plan. In the event of a change in control as described above and a subsequent discharge from employment within eighteen months for reason other than cause, certain managers will receive a severance payment equal to one year's base salary, outplacement services, and coverage under the Company's medical plan for one year at Company expense. Currently, eighteen managers are subject to the Plan. The Board of Directors believes that such agreements protect the stockholders by ensuring officers and key managers can and will act in stockholders' best interests without regard to personal situations or concerns. The Board also believes that such agreements will better ensure retention and recruitment of high caliber officers and key managers. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth the number of shares of Common Stock of the Company beneficially owned by each director and nominee director, each of the executive officers named in the Summary Compensation Table and by all the directors, nominee directors and executive officers as a group as of January 31, 1996. Shares of Common Stock Percent Name Beneficially Owned (1)(2)(3)(4) of Class Frederic H. Bertrand 11,278 (5) Elizabeth Coleman 6,850 Luther F. Hackett 12,432 (6) Thomas J. Hurcomb 23,928 F. Ray Keyser, Jr. 15,062 (7) Robert G. Kirn 14,468 Joseph M. Kraus 8,765 Mary Alice McKenzie 8,602 (8) Gordon P. Mills 42,856 (9) Preston Leete Smith 10,549 Robert de R. Stein 24,349 Robert D. Stout 13,780 Thomas C. Webb 44,129 Robert H. Young 23,195 (10) All directors and executive officers as a group (19) 280,579 2.4% No director, nominee for director or executive officer owns any shares of the various classes of the Company's outstanding non-voting preferred stock. (1) No director, nominee for director or executive officer owns beneficially in excess of 1% of CVPS' outstanding Common Stock. Except as otherwise indicated in the footnotes to the table, each of the named individual possesses sole voting and investment power over the shares listed. (2) Includes shares that the named individuals have a right to acquire pursuant to options granted under the 1988 and 1993 Stock Option Plans for Non-Employee Directors as follows: Messrs. Bertrand, Keyser, Mills and Stout, 9,750 shares; Ms. McKenzie and Mr. Smith, 8,250 shares; Ms. Coleman and Mr. Hackett, 6,750 shares. (3) Includes shares that the named executive officers have a right to acquire pursuant to options granted under the 1988 Stock Option Plan for Key Employees as follows: Mr. Hurcomb, 21,000 shares; Mr. Kirn, 14,250 shares; Mr. Kraus, 7,500 shares; Mr. Stein, 24,000 shares; Mr. Webb, 30,000 shares; Mr. Young, 22,500 shares; and all executive officers as a group, 159,170 shares. (4) Includes shares that the named executive officers hold indirectly under the Company's Employee Savings and Investment and Employee Stock Ownership Plans as follows: Mr. Hurcomb, 2,913 shares; Mr. Kraus, 102 shares; Mr. Webb, 9,628 shares; and Mr. Young, 339 shares. (5) Includes 1,528 shares held jointly with his wife over which Mr. Bertrand has voting and investment power. (6) Includes 3,000 shares owned by corporations over which Mr. Hackett has voting and investment power. (7) Includes 1,562 shares held jointly with his wife and 3,750 shares held in a Keogh Trust over which Mr. Keyser has voting and investment power. (8) Includes 150 shares held jointly with her husband over which Ms. McKenzie has voting and investment power. (9) Includes 15,000 shares held in a pension trust over which Mr. Mills has voting and investment power. (10) Includes one share held by Mr. Young's wife as custodian for his son over which Mr. Young disclaims beneficial ownership. The Company knows of no person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) which owns beneficially more than 5% of any class of the Company's outstanding equity securities. Reports of Beneficial Ownsership. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers to file reports of ownership and changes in ownership of Company securities with the SEC and to furnish the Company with copies of all such reports. It also requires directors, officers and persons who beneficially own more than ten percent (10%) of the Company's stock to file initial reports of ownership and subsequent reports of changes in ownership with the SEC and the NYSE. In making this statement, the Company has relied on copies of reports that have been filed with the Commission. In 1995, Mr. Robert H. Young inadvertently failed to file with the SEC on a timely basis a Form 4 report involving the sale of 250 shares of Common Stock of the Company which he beneficially owns. Except for the foregoing, based solely on a review of the copies of such reports prepared and filed with the Commission during 1995 by the Company's executive officers and directors, and on written representations that no other reports were required, the Company believes its directors and executive officers have complied with all Section 16(a) filing requirements. The Company does not have a ten percent holder. REPORT OF THE COMPENSATION COMMITTEE OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION Executive Compensation. The philosophy of the Compensation Committee (Committee), with regard to executive compensation, is to maintain a total compensation pay package which, by virtue of its design and target levels, enables the Company to recruit the best talent for our jobs, to retain high performing employees by strongly rewarding exceptional performance, to encourage employees to develop their skills and abilities; and encourages and supports performance and decisions that strengthen the Company financially and strategically, including service to the customer. Base Annual Salary. It is the policy of the Committee to establish salaries within a range that surrounds the 50th percentile of salaries of similar positions as reported in the annual Executive Compensation Survey conducted by the Edison Electric Institute, adjusted to reflect the size of the Company as determined by revenues. Within this range the salary is determined based on an evaluation of the individual's qualifications, experience and performance. Increases are limited by a merit increase budget pool, which is established annually. The size of the pool, which is then distributed among executive officers based on an evaluation of their contribution, is based on published salary management planning surveys, which report the planned merit increase budgets of other companies. Management Incentive Compensation Plans. The Company's executive officers participate in the core utility Management Incentive Plan (the "Incentive Plan"). The purpose of the Incentive Plan is to focus the efforts of the executive team on the achievement of challenging and demanding corporate objectives. When corporate performance reaches or exceeds the specified annual performance objectives, an award is granted. A well-directed incentive plan, in conjunction with competitive salaries, provides a level of compensation which fully rewards the skills and efforts of the executives. Participants are designated annually by the Board of Directors. In 1995, eleven executive officers were eligible to participate including the named executive officers in the Summary Compensation Table. During 1995 the Compensation Committee restructured the Incentive Plan as follows: It established a financial performance threshold, below which no incentive awards would be paid. The threshold is calibrated against the allowed return on equity. The degree to which the allowed return on equity is achieved generates a pool which is available to fund incentive payouts. The pool funds awards, but performance measures must also be met in the following areas to receive an award. Each measure is equally weighted. Return on equity. While this measure is used to establish the incentive pool, it is also one of the measures which is assessed in determining distribution of the pool. Operating costs and efficiency. Measures the cost of operating and maintenance expense expressed as a percent of kilowatt hour sales, as compared to budgeted expense levels. Retail customer satisfaction index. Measures service reliability by compiling the combined number and duration of outages in the current year, and the result of this calculation must be a 5% reduction as measured against the previous five-year average. Individual performance. Based on advice and recommendation from the Chief Executive Officer for others reporting to him, the Committee evaluates individual officer performance. If the maximum payout on all of the standards were to be achieved, the total award would represent 30% of base salary for the Chief Executive Officer, 25% of base salary for the Chief Operating Officer, 20% for Senior Vice Presidents and Vice Presidents, and 15% for designated Assistant Officers. The amount of the payout, if any, to be awarded under the Company's Incentive Plan for 1995 has not yet been determined. Catamount Energy Corporation, a wholly owned subsidiary of the Company, also has an Incentive Plan for officers of Catamount approved annually by its Board of Directors. Officers of the Company who are also officers of Catamount may be granted a discretionary award by the Board based upon the performance of Catamount and the Board's subjective evaluation of each officer's individual contribution to that performance. The amounts paid under the Catamount Incentive Plan were based solely on the profitable sale of a portion of the Company's interest in the Appomattox project. Amounts paid under the Catamount Incentive Plan for 1995 are set forth in the Bonus column of the Summary Compensation Table. Long-Term Incentives. The Committee views the Company's long-term Stock Option Plan for Key Employees (Stock Option Plan), approved by the stockholders, as an important component in its strategy for attracting and retaining executives of high caliber and helps to motivate them to increase shareholder value. The options are granted to executive officers annually by the full Board on recommendation of the Committee. In 1995, ten of the Company's executive officers received options including the named executive officers in the Summary Compensation Table. The number of options is determined by reference to the annual Edison Electric Institute Executive Compensation Survey, with data statistically adjusted to reflect company size. This determination is further validated by calculations made in accordance with the Black-Scholes option pricing model. All awards are provided by means of non-qualified stock options which have an exercise price equal to 100% of the Fair Market Value of the Common Stock of the Company on the date of grant. The options will have value only if the Company's stock price increases. The Committee's policy is that the exercise price of stock options should not be amended after grant, except in the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Company's Common Stock. The Stock Option Plan is effective for ten years terminating in 1997. Any new plan will require stockholder approval. Stock options are exercisable in whole or in part from the date of grant for a period of ten years and one day but in no event later than three years after retirement from the Company. Options granted under the Stock Option Plan are not transferrable except upon the death of the optionee and during his or her lifetime are exercisable only by him or her. The options terminate immediately upon termination of employment for cause or after a specified period in the case of termination of employment for any other reason. It is the policy of the Committee not to compensate officers through the use of perquisites. A car is provided to the Chief Executive Officer and periodic medical examinations for all officers. There are no other perquisites provided to any officer. The Company is eligible for tax deductions for compensation paid to its officers, as each officer's compensation is less than the one million dollar pay cap enacted by Congress as part of the Omnibus Budget Reconciliation Act effective 1994. The Committee retains the services of an independent expert to advise it with respect to the extent to which its pay practices are consistent with prevailing industry standards. With the assistance of its advisor, it aggressively reviews its plans each year to assure that it competitively pays and rewards executives to act in the interests of the ratepayers and the shareholders. Preston Leete Smith, Chairman Frederic H. Bertrand Elizabeth Coleman F. Ray Keyser, Jr. Gordon P. Mills Five-Year-Shareholder Return Comparison. The Securities and Exchange Commission requires that the Company include in this proxy statement a line-graph presentation comparing cumulative, five-year shareholder returns on an indexed basis with the S&P 500 Stock Index and either a published industry or line-of-business index or an index of peer companies selected by the Company. The Board of Directors has selected for its peer group index a stock index compiled by the Edison Electric Institute (EEI), because the Board feels it is the most comprehensive and representative in as much as it includes stock performance data for 100 investor-owned electric utility companies. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* CENTRAL VERMONT, EEI 100 ELECTRICS, S & P 500 Measurement Period CVPS EEI S&P 500 (Fiscal Year Covered) Measurement Pt-12/31/90 $100 $100 $100 FYE 12/31/91 $136.21 $128.87 $130.34 FYE 12/31/92 $157.85 $138.69 $140.25 FYE 12/31/93 $142.35 $154.11 $154.32 FYE 12/31/94 $100.79 $136.28 $156.42 FYE 12/31/95 $105.93 $178.55 $214.99 Assumes $100 Invested on December 31, 1990 *Total Return Assumes Quarterly Reinvestment of Dividends Item 13. Certain Relationships and Related Transactions. Report of Indemnification and Advancement of Expenses. As described above under the caption "Legal Proceedings" each of the directors and certain former directors of the Company are named defendants in the Shareholder Suit. In accordance with Article XI of the Company's By-Laws and applicable provision of the Vermont Business Corporation ACT (VBCA), the Company during 1995 advanced funds to pay the cost of such directors defense of the Shareholder Suit, in the aggregate amount of approximately $367,000. As required by the Company's By-Laws and the VBCA, each of such directors have agreed to repay advances made by the Company on his or her behalf if it is ultimately determined that such director did not meet applicable standards of conduct. Such standards require that the director have acted in good faith and in a manner that he or she reasonably believed (as to actions in his or her official capacity with the Company) was in the Company's best interests, or (in all other cases) was at least not opposed to the Company's best interests. The Company intends to continue to advance funds for payment of the defendants' expenses in the Shareholder Suit to the extent permitted under the Company's By-Laws and the VBCA. Compensation Committee Interlocks and Insider Participation. The Compensation Committee consists of non-employee directors and is responsible for reviewing and making recommendations to the Board of Directors concerning the compensation of officers of the Company and certain subsidiaries. The members of the Compensation Committee are also responsible for the administration of the Stock Option Plan for Key Employees. During 1995, the Compensation Committee held five meetings. During 1995, the Compensation Committee of the Board consisted of Preston Leete Smith, Frederic H. Bertrand, Elizabeth Coleman, F. Ray Keyser, Jr. and Gordon P. Mills. Thomas C. Webb, retired President and Chief Executive Officer, served as a member of the Board of Directors of S-K-I Ltd., its Stock Option Committee and Profit Sharing Retirement Trust Committee but not on its Executive Committee which generally performs the functions of a compensation committee. Preston Leete Smith, Chief Executive Officer of S K I Ltd., serves as a Director of CVPS and as Chairman of its Compensation Committee. Each of the members of the Compensation Committee is a named defendant in the Shareholder Suit. As described above, during 1995 the Company advanced, and intends to advance during 1996, the cost of the directors' defense of the Shareholder Suit in accordance with applicable provisions of the Company's By-Laws and Vermont law. See "Report of Indemnification and Advancement of Expenses" above. Filed Herewith at Page PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)1. The following financial statements for Central Vermont Public Service Corporation and its wholly owned subsidiaries are filed as part of this report: (See Item 8) 1.1 Consolidated Statement of Income, for each of the three years ended December 31, 1995 Consolidated Statement of Cash Flows, for each of the three years ended December 31, 1995 Consolidated Balance Sheet at December 31, 1995 and 1994 Consolidated Statement of Capitalization at December 31, 1995 and 1994 Consolidated Statement of Changes in Common Stock Equity for each of the three years ended December 31, 1995 Notes to Consolidated Financial Statements (a)2. Financial Statement Schedules: 2.1 Central Vermont Public Service Corporation and its wholly owned subsidiaries: Schedule II - Reserves for each of the three years ended December 31, 1995 Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of the Registrant (which is primarily an operating company) have been omitted since they are consolidated only with those of totally held subsidiaries. Separate financial statements of subsidiary companies not consolidated have been omitted since, if considered in the aggregate, they would not constitute a significant subsidiary. Separate financial statements of 50% or less owned persons for which the investment is accounted for by the equity method by the Registrant have been omitted since, if considered in the aggregate, they would not constitute a significant investment. (a)3. Exhibits (* denotes filed herewith) Each document described below is incorporated by reference to the appropriate exhibit numbers and the Commission file numbers indicated in parentheses, unless the reference to the document is marked as follows: * - Filed herewith. Exhibit 3 Articles of Incorporation and By-Laws * 3-1 By-Laws, as amended August 7, 1995. (Exhibit 3-1, Form 10-Q September 30, 1995, File No. 1-8222) 3-2 Articles of Association, as amended August 11, 1992. (Exhibit 3-2, 1992 10-K, File No. 1-8222) Exhibit 4 Instruments defining the rights of security holders, including Indentures Incorporated herein by reference: 4-1 Mortgage dated October 1, 1929, between the Company and Old Colony Trust Company, Trustee, securing the Company's First Mortgage Bonds. (Exhibit B-3, File No. 2-2364) 4-2 Supplemental Indenture dated as of August 1, 1936. (Exhibit B-4, File No. 2-2364) 4-3 Supplemental Indenture dated as of November 15, 1943. (Exhibit B-3, File No. 2-5250) 4-4 Supplemental Indenture dated as of December 1, 1943. (Exhibit B-4, File No. 2-5250) 4-5 Directors' resolutions adopted December 14, 1943, establishing the Series C Bonds and dealing with other related matters. (Exhibit B-5, File No. 2-5250) 4-6 Supplemental Indenture dated as of April 1, 1944. (Exhibit B-6, File No. 2-5466) 4-7 Supplemental Indenture dated as of February 1, 1945. (Exhibit 7.6, File No. 2-5615) (22-385) 4-8 Directors' resolutions adopted April 9, 1945, establishing the Series D Bonds and dealing with other matters. (Exhibit 7.8, File No. 2-5615 (22-385) 4-9 Supplemental Indenture dated as of September 2, 1947. (Exhibit 7.9, File No. 2-7489) 4-10 Supplemental Indenture dated as of July 15, 1948, and directors' resolutions establishing the Series E Bonds and dealing with other matters. (Exhibit 7.10, File No. 2-8388) 4-11 Supplemental Indenture dated as of May 1, 1950, and directors' resolutions establishing the Series F Bonds and dealing with other matters. (Exhibit 7.11, File No. 2-8388) 4-12 Supplemental Indenture dated August 1, 1951, and directors' resolutions, establishing the Series G Bonds and dealing with other matters. (Exhibit 7.12, File No. 2-9073) 4-13 Supplemental Indenture dated May 1, 1952, and directors' resolutions, establishing the Series H Bonds and dealing with other matters. (Exhibit 4.3.13, File No. 2-9613) 4-14 Supplemental Indenture dated as of July 10, 1953. (July, 1953 Form 8-K, File No. 1-8222) 4-15 Supplemental Indenture dated as of June 1, 1954, and directors' resolutions establishing the Series K Bonds and dealing with other matters. (Exhibit 4.2.16, File No. 2-10959) 4-16 Supplemental Indenture dated as of February 1, 1957, and directors' resolutions establishing the Series L Bonds and dealing with other matters. (Exhibit 4.2.16, File No. 2-13321) 4-17 Supplemental Indenture dated as of March 15, 1960. (March, 1960 Form 8-K, File No. 1-8222) 4-18 Supplemental Indenture dated as of March 1, 1962. (March, 1962 Form 8-K, File No. 1-8222) 4-19 Supplemental Indenture dated as of March 2, 1964. (March, 1964 Form 8-K, File No, 1-8222) 4-20 Supplemental Indenture dated as of March 1, 1965, and directors' resolutions establishing the Series M Bonds and dealing with other matters. (April, 1965 Form 8-K, File No. 1-8222) 4-21 Supplemental Indenture dated as of December 1, 1966, and directors' resolutions establishing the Series N Bonds and dealing with other matters. (January, 1967 Form 8-K, File No. 1-8222) 4-22 Supplemental Indenture dated as of December 1, 1967, and directors' resolutions establishing the Series O Bonds and dealing with other matters. (December, 1967 Form 8-K, File No. 1-8222) 4-23 Supplemental Indenture dated as of July 1, 1969, and directors' resolutions establishing the Series P Bonds and dealing with other matters. (Exhibit B.23, July, 1969 Form 8-K, File No. 1-8222) 4-24 Supplemental Indenture dated as of December 1, 1969, and directors' resolutions establishing the Series Q Bonds January, and dealing with other matters. (Exhibit B.24, January, 1970 Form 8-K, File No. 1-8222) 4-25 Supplemental Indenture dated as of May 15, 1971, and directors' resolutions establishing the Series R Bonds and dealing with other matters. (Exhibit B.25, May, 1971, Form 8-K, File No. 1-8222) 4-26 Supplemental Indenture dated as of April 15, 1973, and directors' resolutions establishing the Series S Bonds and dealing with other matters. (Exhibit B.26, May, 1973, Form 8-K, File No. 1-8222) 4-27 Supplemental Indenture dated as of April 1, 1975, and directors' resolutions establishing the Series T Bonds and dealing with other matters. (Exhibit B.27, April, 1975, Form 8-K, File No. 1-8222) 4-28 Supplemental Indenture dated as of April 1, 1977. (Exhibit 2.42, File No. 2-58621) 4-29 Supplemental Indenture dated as of July 29, 1977, and directors' resolutions establishing the Series U, V, W, and X Bonds and dealing with other matters. (Exhibit 2.43, File No. 2-58621) 4-30 Thirtieth Supplemental Indenture dated as of September 15, 1978, and directors' resolutions establishing the Series Y Bonds and dealing with other matters. (Exhibit B-30, 1980 Form 10-K, File No. 1-8222) 4-31 Thirty-first Supplemental Indenture dated as of September 1, 1979, and directors' resolutions establishing the Series Z Bonds and dealing with other matters. (Exhibit B-31, 1980 Form 10-K, File No. 1-8222) 4-32 Thirty-second Supplemental Indenture dated as of June 1, 1981, and directors' resolutions establishing the Series AA Bonds and dealing with other matters. (Exhibit B-32, 1981 Form 10-K, File No. 1-8222) 4-45 Thirty-third Supplemental Indenture dated as of August 15, 1983, and directors' resolutions establishing the Series BB Bonds and dealing with other matters. (Exhibit B-45, 1983 Form 10-K, File No. 1-8222) 4-46 Bond Purchase Agreement between Merrill, Lynch, Pierce, Fenner & Smith, Inc., Underwriters and The Industrial Development Authority of the State of New Hampshire, issuer and Central Vermont Public Service Corporation. (Exhibit B-46, 1984 Form 10-K, File No. 1-8222) 4-47 Thirty-Fourth Supplemental Indenture dated as of January 15, 1985, and directors' resolutions establishing the Series CC Bonds and Series DD Bonds and matters connected therewith. (Exhibit B-47, 1985 Form 10-K, File No. 1-8222) 4-48 Bond Purchase Agreement among Connecticut Development Authority and Central Vermont Public Service Corporation with E. F. Hutton & Company Inc. dated December 11, 1985. (Exhibit B-48, 1985 Form 10-K, File No. 1-8222) 4-49 Stock-Purchase Agreement between Vermont Electric Power Company, Inc. and the Company dated August 11, 1986 relative to purchase of Class C Preferred Stock. (Exhibit B-49, 1986 Form 10-K, File No. 1-8222) 4-50 Thirty-Fifth Supplemental Indenture dated as of December 15, 1989 and directors' resolutions establishing the Series EE, Series FF and Series GG Bonds and matters connected therewith. (Exhibit 4-50, 1989 Form 10-K, File No. 1-8222) 4-51 Thirty-Sixth Supplemental Indenture dated as of December 10, 1990 and directors' resolutions establishing the Series HH Bonds and matters connected therewith. (Exhibit 4-51, 1990 Form 10-K, File No. 1-8222) 4-52 Thirty-Seventh Supplemental Indenture dated December 10, 1991 and directors' resolutions establishing the Series JJ Bonds and matters connected therewith. (Exhibit 4-52, 1991 Form 10-K, File No. 1-8222) 4-53 Thirty-Eight Supplemental Indenture dated December 10, 1993 establishing Series KK, LL, MM, NN, OO. (Exhibit 4-53, 1993 Form 10-K, File No. 1-8222) Exhibit 10 Material Contracts (*Denotes filed herewith) Incorporated herein by reference: 10.l Copy of firm power Contract dated August 29, 1958, and supplements thereto dated September 19, 1958, October 7, 1958, and October 1, 1960, between the Company and the State of Vermont (the "State"). (Exhibit C-1, File No. 2-17184) 10.1.1 Agreement setting out Supplemental NEPOOL Understandings dated as of April 2, 1973. (Exhibit C-22, File No. 5-50198) 10.2 Copy of Transmission Contract dated June 13, 1957, between Velco and the State, relating to transmission of power. (Exhibit 10.2, 1993 Form 10-K, File No. 1-8222) 10.2.1 Copy of letter agreement dated August 4, 1961, between Velco and the State. (Exhibit C-3, File No. 2-26485) 10.2.2 Amendment dated September 23, 1969. (Exhibit C-4, File No. 2-38161) 10.2.3 Amendment dated March 12, 1980. (Exhibit C-92, 1982 Form 10-K, File No. 1-8222) 10.2.4 Amendment dated September 24, 1980. (Exhibit C-93, 1982 Form 10-K, File No. 1-8222) 10.3 Copy of subtransmission contract dated August 29, 1958, between Velco and the Company (there are seven similar contracts between Velco and other utilities). (Exhibit 10.3, 1993 Form 10-K, Form No. 1-8222) 10.3.1 Copies of Amendments dated September 7, 196l, November 2, 1967, March 22, 1968, and October 29, 1968. (Exhibit C-6, File No. 2-32917) 10.3.2 Amendment dated December 1, 1972. (Exhibit 10.3.2, 1993 Form 10-K, File No. 1-8222) 10.4 Copy of Three-Party Agreement dated September 25, 1957, between the Company, Green Mountain and Velco. (Exhibit C-7, File No. 2-17184) 10.4.1 Superseding Three Party Power Agreement dated January 1, 1990. (Exhibit 10-201, 1990 Form 10-K, File No. 1-8222) 10.4.2 Agreement Amending Superseding Three Party Power Agreement dated May 1, 1991. (Exhibit 10.4.2, 1991 Form 10-K, File No. 1-8222) 10.5 Copy of firm power Contract dated December 29, 1961, between the Company and the State, relating to purchase of Niagara Project power. (Exhibit C-8, File No. 2-26485) 10.5.1 Amendment effective as of January 1, 1980. (Exhibit 10.5.1, 1993 Form 10-K, File No. 1-8222) 10.6 Copy of agreement dated July 16, 1966, and letter supplement dated July 16, 1966, between Velco and Public Service Company of New Hampshire relating to purchase of single unit power from Merrimack II. (Exhibit C-9, File No. 2-26485) 10.6.1 Copy of Letter Agreement dated July 10, 1968, modifying Exhibit A. (Exhibit C-10, File No. 2-32917) 10.7 Copy of Capital Funds Agreement between the Company and Vermont Yankee dated as of February 1, 1968. (Exhibit C-11, File No. 70-4611) 10.7.1 Copy of Amendment dated March 12, 1968. (Exhibit C-12, File No. 70-4611) 10.7.2 Copy of Amendment dated September 1, 1993. (Exhibit 10.7.2, 1994 Form 10-K, File No. 1-8222) 10.8 Copy of Power Contract between the Company and Vermont Yankee dated as of February 1, 1968. (Exhibit C-13, File No. 70-4591) 10.8.1 Amendment dated April 15, 1983. (Exhibit 10.8.1, 1993 Form 10-K, File No. 1-8222) 10.8.2 Copy of Additional Power Contract dated February 1, 1984. (Exhibit C-123, 1984 Form 10-K, File No. 1-8222) 10.8.3 Amendment No. 3 to Vermont Yankee Power Contract, dated April 24, 1985. (Exhibit 10-144, 1986 Form 10-K, File No. 1-8222) 10.8.4 Amendment No. 4 to Vermont Yankee Power Contract, dated June 1, 1985. (Exhibit 10-145, 1986 Form 10-K, File No. 1-8222) 10.8.5 Amendment No. 5 dated May 6, 1988. (Exhibit 10-179, 1988 Form 10-K, File No. 1-8222) 10.8.6 Amendment No. 6 dated May 6, 1988. (Exhibit 10-180, 1988 Form 10-K, File No. 1-8222) 10.8.7 Amendment No. 7 dated June 15, 1989. (Exhibit 10-195, 1989 Form 10-K, File No. 1-8222) 10.9 Copy of Capital Funds Agreement between the Company and Maine Yankee dated as of May 20, 1968. (Exhibit C-14, File No. 70-4658) 10.9.1 Amendment No. 1 dated August 1, 1985. (Exhibit C-125, 1984 Form 10-K, File No. 1-8222) 10.10 Copy of Power Contract between the Company and Maine Yankee dated as of May 20, 1968. (Exhibit C-15, File No. 70-4658) 10.10.1 Amendment No. 1 dated March 1, 1984. (Exhibit C-112, 1984 Form 10-K, File No. 1-8222) 10.10.2 Amendment No. 2 effective January 1, 1984. (Exhibit C-113, 1984 Form 10-K, File No. 1-8222) 10.10.3 Amendment No. 3 dated October 1, 1984. (Exhibit C-114, 1984 Form 10-K, File No. 1-8222) 10.10.4 Additional Power Contract dated February 1, 1984. (Exhibit C-126, 1985 Form 10-K, File No. 1-8222) 10.11 Copy of Agreement dated January 17, 1968, between Velco and Public Service Company of New Hampshire relating to purchase of additional unit power from Merrimack II. (Exhibit C-16, File No. 2-32917) 10.12 Copy of Agreement dated February 10, 1968 between the Company and Velco relating to purchase by Company of Merrimack II unit power. (There are 25 similar agreements between Velco and other utilities.) (Exhibit C-17, File No. 2-32917) 10.13 Copy of Three-Party Power Agreement dated as of November 21, 1969, among the Company, Velco, and Green Mountain relating to purchase and sale of power from Vermont Yankee Nuclear Power Corporation. (Exhibit C-18, File No. 2-38161) 10.13.1 Amendment dated June 1, 1981. (Exhibit 10.13.1, 1993 Form 10-K, File No. 1-8222) 10.14 Copy of Three-Party Transmission Agreement dated as of November 21, 1969, among the Company, Velco, and Green Mountain providing for transmission of power from Vermont Yankee Nuclear Power Corporation. (Exhibit C-19, File No. 2-38161) 10.14.1 Amendment dated June 1, 1981. (Exhibit 10.14.1, 1993 Form 10-K, File No. 1-8222) 10.15 Copy of Stockholders Agreement dated September 25, 1957, between the Company, Velco, Green Mountain and Citizens Utilities Company. (Exhibit No. C-20, File No. 70-3558) 10.16 New England Power Pool Agreement dated as of September 1, 1971, as amended to November 1, 1975. (Exhibit C-21, File No. 2-55385) 10.16.1 Amendment dated December 31, 1976. (Exhibit 10.16.1 1993 Form 10-K, File No. 1-8222) 10.16.2 Amendment dated January 23, 1977. (Exhibit 10.16.2, 1993 Form 10-K, File No. 1-8222) 10.16.3 Amendment dated July 1, 1977. (Exhibit 10.16.3, 1993 Form 10-K, File No. 1-8222) 10.16.4 Amendment dated August 1, 1977. (Exhibit 10.16.4, 1993 Form 10-K, File No. 1-8222) 10.16.5 Amendment dated August 15, 1978. (Exhibit 10.16.5, 1993 Form 10-K, File No. 1-8222) 10.16.6 Amendment dated January 31, 1979. (Exhibit 10.16.6, 1993 Form 10-K, File No. 1-8222) 10.16.7 Amendment dated February 1, 1980. (Exhibit 10.16.7, 1993 Form 10-K, File No. 1-8222) 10.16.8 Amendment dated December 31, 1976. (Exhibit 10.16.8, 1993 Form 10-K, File No. 1-8222) 10.16.9 Amendment dated January 31, 1977. (Exhibit 10.16.9, 1993 Form 10-K, File No. 1-8222) 10.16.10 Amendment dated July 1, 1977. (Exhibit 10.16.10, 1993 Form 10-K, File No. 1-8222) 10.16.11 Amendment dated August 1, 1977. (Exhibit 10.16.11, 1993 Form 10-K, File No. 1-8222) 10.16.12 Amendment dated August 15, 1978. (Exhibit 10.16.12, 1993 Form 10-K, File No. 1-8222) 10.16.13 Amendment dated January 31, 1980. (Exhibit 10.16.13, 1993 Form 10-K, File No. 1-8222) 10.16.14 Amendment dated February 1, 1980. (Exhibit 10.16.14, 1993 Form 10-K, File No. 1-8222) 10.16.15 Amendment dated September 1, 1981. (Exhibit 10.16.15, 1993 Form 10-K, File No. 1-8222) 10.16.16 Amendment dated December 1, 1981. (Exhibit 10.16.16, 1993 Form 10-K, File No. 1-8222) 10.16.17 Amendment dated June 15, 1983. (Exhibit 10.16.17, 1993 Form 10-K, File No. 1-8222) 10.16.18 Amendment dated September 1, 1985. (Exhibit 10-160, 1986 Form 10-K, File No. 1-8222) 10.16.19 Amendment dated April 30, 1987. (Exhibit 10-172, 1987 Form 10-K, File No. 1-8222) 10.16.20 Amendment dated March 1, 1988. (Exhibit 10-178, 1988 Form 10-K, File No. 1-8222) 10.16.21 Amendment dated March 15, 1989. (Exhibit 10-194, 1989 Form 10-K, File No. 1-8222) 10.16.22 Amendment dated October 1, 1990. (Exhibit 10-203, 1990 Form 10-K, File No. 1-8222) 10.16.23 Amendment dated September 15, 1992. (Exhibit 10.16.23, 1992 Form 10-K, File No. 1-8222) 10.16.24 Amendment dated May 1, 1993. (Exhibit 10.16.24, 1993 Form 10-K, File No. 1-8222) 10.16.25 Amendment dated June 1, 1993. (Exhibit 10.16.25, 1993 Form 10-K, File No. 1-8222) 10.16.26 Amendment dated June 1, 1994. (Exhibit 10.16.26, 1994 Form 10-K, File No. 1-8222) * 10.16.27 Thirty-Second Amendment dated September 1, 1995. (Exhibit 10.16.27, Form 10-Q dated September 30, 1995, File No. 1-8222) 10.17 Agreement dated October 13, 1972, for Joint Ownership, Construction and Operation of Pilgrim Unit No. 2 among Boston Edison Company and other utilities, including the Company. (Exhibit C-23, File No. 2-45990) 10.17.1 Amendments dated September 20, 1973, and September 15, 1974. (Exhibit C-24, File No. 2-51999) 10.17.2 Amendment dated December 1, 1974. (Exhibit C-25, File No. 2-54449) 10.17.3 Amendment dated February 15, 1975. (Exhibit C-26, File No. 2-53819) 10.17.4 Amendment dated April 30, 1975. (Exhibit C-27, File No. 2-53819) 10.17.5 Amendment dated as of June 30, 1975. (Exhibit C-28, File No. 2-54449) 10.17.6 Instrument of Transfer dated as of October 1, 1974, assigning partial interest from the Company to Green Mountain Power Corporation. (Exhibit C-29, File No. 2-52177) 10.17.7 Instrument of Transfer dated as of January 17, 1975, assigning a partial interest from the Company to the Burlington Electric Department. (Exhibit C-30, File No. 2-55458) 10.17.8 Addendum dated as of October 1, 1974 by which Green Mountain Power Corporation became a party thereto. (Exhibit C-31, File No. 2-52177) 10.17.9 Addendum dated as of January 17, 1975 by which the Burlington Electric Department became a party thereto. (Exhibit C-32, File No. 2-55450) 10.17.10 Amendment 23 dated as of 1975. (Exhibit C-50, 1975 Form 10-K, File No. 1-8222) 10.18 Agreement for Sharing Costs Associated with Pilgrim Unit No.2 Transmission dated October 13, 1972, among Boston Edison Company and other utilities including the Company. (Exhibit C-33, File No. 2-45990) 10.18.1 Addendum dated as of October 1, 1974, by which Green Mountain Power Corporation became a party thereto. (Exhibit C-34, File No. 2-52177) 10.18.2 Addendum dated as of January 17, 1975, by which Burlington Electric Department became a party thereto. (Exhibit C-35, File No. 2-55458) 10.19 Agreement dated as of May 1, 1973, for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units among Public Service Company of New Hampshire and other utilities, including Velco. (Exhibit C-36, File No. 2-48966) 10.19.1 Amendments dated May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974, and January 31, 1975. (Exhibit C-37, File No. 2-53674) 10.19.2 Instrument of Transfer dated September 27, 1974, assigning partial interest from Velco to the Company. (Exhibit C-38, File No. 2-52177) 10.19.3 Amendments dated May 24, 1974, June 21, 1974, and September 25, 1974. (Exhibit C-81, File No. 2-51999) 10.19.4 Amendments dated October 25, 1974 and January 31, 1975. (Exhibit C-82, File No. 2-54646) 10.19.5 Sixth Amendment dated as of April 18, 1979. (Exhibit C-83, File No. 2-64294) 10.19.6 Seventh Amendment dated as of April 18, 1979. (Exhibit C-84, File No. 2-64294) 10.19.7 Eighth Amendment dated as of April 25, 1979. (Exhibit C-85, File No. 2-64815) 10.19.8 Ninth Amendment dated as of June 8, 1979. (Exhibit C-86, File No. 2-64815) 10.19.9 Tenth Amendment dated as of October 10, 1979. (Exhibit C-87, File No. 2-66334) 10.19.10 Eleventh Amendment dated as of December 15, 1979. (Exhibit C-88, File No.2-66492) 10.19.11 Twelfth Amendment dated as of June 16, 1980. (Exhibit C-89, File No. 2-68168) 10.19.12 Thirteenth Amendment dated as of December 31, 1980. (Exhibit C-90, File No. 2-70579) 10.19.13 Fourteenth Amendment dated as of June 1, 1982. (Exhibit C-104, 1982 Form 10-K, File No. 1-8222) 10.19.14 Fifteenth Amendment dated April 27, 1984. (Exhibit 10-134, 1986 Form 10-K, File No. 1-8222) 10.19.15 Sixteenth Amendment dated June 15, 1984. (Exhibit 10-135, 1986 Form 10-K, File No. 1-8222) 10.19.16 Seventeenth Amendment dated March 8, 1985. (Exhibit 10-136, 1986 Form 10-K, File No. 1-8222) 10.19.17 Eighteenth Amendment dated March 14, 1986. (Exhibit 10-137, 1986 Form 10-K, File No. 1-8222) 10.19.18 Nineteenth Amendment dated May 1, 1986. (Exhibit 10-138, 1986 Form 10-K, File No. 1-8222) 10.19.19 Twentieth Amendment dated September 19, 1986. (Exhibit 10-139, 1986 Form 10-K, File No. 1-8222) 10.19.20 Amendment No. 22 dated January 13, 1989. (Exhibit 10-193, 1989 Form 10-K, File No. 1-8222) 10.20 Transmission Support Agreement dated as of May 1, 1973, among Public Service Company of New Hampshire and other utilities, including Velco, with respect to New Hampshire Nuclear Units. (Exhibit C-39, File No. 2-48966) 10.21 Sharing Agreement - 1979 Connecticut Nuclear Unit dated September 1, 1973, to which the Company is a party. (Exhibit C-40, File No. 2-50142) 10.21.1 Amendment dated as of August 1, 1974. (Exhibit C-41, File No. 2-51999) 10.21.2 Instrument of Transfer dated as of February 28, 1974, transferring partial interest from the Company to Green Mountain. (Exhibit C-42, File No. 2-52177) 10.21.3 Instrument of Transfer dated January 17, 1975, transferring a partial interest from the Company to Burlington Electric Department. (Exhibit C-43, File No. 2-55458) 10.21.4 Amendment dated May 11, 1984. (Exhibit C-110, 1984 Form 10-K, File No. 1-8222) 10.22 Preliminary Agreement dated as of July 5, 1974, with respect to 1981 Montague Nuclear Generating Units. (Exhibit C-44, File No. 2-51733) 10.22.1 Amendment dated June 30, 1975. (Exhibit C-45, File No. 2-54449) 10.23 Agreement for Joint Ownership, Construction and Operation of William F. Wyman Unit No. 4 dated November 1, 1974, among Central Maine Power Company and other utilities including the Company. (Exhibit C-46, File No. 2-52900) 10.23.1 Amendment dated as of June 30, 1975. (Exhibit C-47, File No. 2-55458) 10.23.2 Instrument of Transfer dated July 30, 1975, assigning a partial interest from Velco to the Company. (Exhibit C-48, File No. 2-55458) 10.24 Transmission Agreement dated November 1, 1974, among Central Maine Power Company and other utilities including the Company with respect to William F. Wyman Unit No. 4. (Exhibit C-49, File No. 2-54449) 10.25 Copy of Power Contract between the Company and Yankee Atomic dated as of June 30, 1959. (Exhibit C-61, 1981 Form 10-K, File No. 1-8222) 10.25.1 Revision dated April 1, 1975. (Exhibit C-61, 1981 Form 10-K, File No. 1-8222) 10.25.2 Amendment dated May 6, 1988. (Exhibit 10-181, 1988 Form 10-K, File No. 1-8222) 10.25.3 Amendment dated June 26, 1989. (Exhibit 10-196, 1989 Form 10-K, File No. 1-8222) 10.25.4 Amendment dated July 1, 1989. (Exhibit 10-197, 1989 Form 10-K, File No. 1-8222) 10.25.5 Amendment dated February 1, 1992. (Exhibit 10.25.5, 1992 Form 10-K, File No. 1-8222) 10.26 Copy of Transmission Contract between the Company and Yankee Atomic dated as of June 30, 1959. (Exhibit C-63, 1981 Form 10-K, File No. 1-8222) 10.27 Copy of Power Contract between the Company and Connecticut Yankee dated as of June 1, 1964. (Exhibit C-64, 1981 Form 10-K, File No. 1-8222) 10.27.1 Supplementary Power Contract dated March 1, 1978. (Exhibit C-94, 1982 Form 10-K, File No. 1-8222) 10.27.2 Amendment dated August 22, 1980. (Exhibit C-95, 1982 Form 10-K, File No. 1-8222) 10.27.3 Amendment dated October 15, 1982. (Exhibit C-96, 1982 Form 10-K, File No. 1-8222) 10.27.4 Second Supplementary Power Contract dated April 30, 1984. (Exhibit C-115, 1984 Form 10-K, File No. 1-8222) 10.27.5 Additional Power Contract dated April 30, 1984. (Exhibit C-116, 1984 Form 10-K, File No. 1-8222) 10.28 Copy of Transmission Contract between the Company and Connecticut Yankee dated as of July 1, 1964. (Exhibit C-65, 1981 Form 10-K, File No. 1-8222) 10.29 Copy of Capital Funds Agreement between the Company and Connecticut Yankee dated as of July 1, 1964. (Exhibit C-66, 1981 Form 10-K, File No. 1-8222) 10.29.1 Copy of Capital Funds Agreement between the Company and Connecticut Yankee dated as of September 1, 1964. (Exhibit C-67, 1981 Form 10-K, File No. 1-8222) 10.30 Copy of Five-Year Capital Contribution Agreement between the Company and Connecticut Yankee dated as of November 1, 1980. (Exhibit C-68, 1981 Form 10-K, File No. 1-8222) 10.31 Form of Guarantee Agreement dated as of November 7, 1981, among certain banks, Connecticut Yankee and the Company, relating to revolving credit notes of Connecticut Yankee. (Exhibit C-69, 1981 Form 10-K, File No. 1-8222) 10.32 Form of Guarantee Agreement dated as of November 13, 1981, between The Connecticut Bank and Trust Company, as Trustee, and the Company, relating to debentures of Connecticut Yankee. (Exhibit C-70, 1981 Form 10-K, File No. 1-8222) 10.33 Form of Guarantee Agreement dated as of November 5, 1981, between Bankers Trust Company, as Trustee of the Vernon Energy Trust, and the Company, relating to Vermont Yankee Nuclear Fuel Sale Agreement. (Exhibit C-71, 1981 Form 10-K, File No. 1-8222) 10.34 Preliminary Vermont Support Agreement re Quebec Interconnection between Velco and among seventeen Vermont Utilities dated May 1, 1981. (Exhibit C-97, 1982 Form 10-K, File No. 1-8222) 10.34.1 Amendment dated June 1, 1982. (Exhibit C-98, 1982 Form 10-K, File No. 1-8222) 10.35 Vermont Participation Agreement for Quebec Interconnection between Velco and among seventeen Vermont Utilities dated July 15, 1982. (Exhibit C-99, 1982 Form 10-K, File No. 1-8222) 10.35.1 Amendment No. 1 dated January 1, 1986. (Exhibit C-132, 1986 Form 10-K, File No. 1-8222) 10.36 Vermont Electric Transmission Company Capital Funds Support Agreement between Velco and among sixteen Vermont Utilities dated July 15, 1982. (Exhibit C-100, 1982 Form 10-K, File No. 1-8222) 10.37 Vermont Transmission Line Support Agreement, Vermont Electric Transmission Company and twenty New England Utilities dated December 1, 1981, as amended by Amendment No. 1 dated June 1, 1982, and by Amendment No. 2 dated November 1, 1982. (Exhibit C-101, 1982 Form 10-K, File No. 1-8222) 10.37.1 Amendment No. 3 dated January 1, 1986. (Exhibit 10-149, 1986 Form 10-K, File No. 1-8222) 10.38 Phase 1 Terminal Facility Support Agreement between New England Electric Transmission Corporation and twenty New England Utilities dated December 1, 1981, as amended by Amendment No. 1 dated as of June 1, 1982 and by Amendment No. 2 dated as of November 1, 1982. (Exhibit C-102, 1982 Form 10-K, File No. 1-8222) 10.39 Power Purchase Agreement between Velco and CVPS dated June 1, 1981. (Exhibit C-103, 1982 Form 10-K, File No. 1-8222) 10.40 Agreement for Joint Ownership, Construction and Operation of the Joseph C. McNeil Generating Station by and between City of Burlington Electric Department, Central Vermont Realty, Inc. and Vermont Public Power Supply Authority dated May 14, 1982. (Exhibit C-107, 1983 Form 10-K, File No. 1-8222) 10.40.1 Amendment No. 1 dated October 5, 1982. (Exhibit C-108, 1983 Form 10-K, File No. 1-8222) 10.40.2 Amendment No. 2 dated December 30, 1983. (Exhibit C-109, 1983 Form 10-K, File No. 1-8222) 10.40.3 Amendment No. 3 dated January 10, 1984. (Exhibit 10-143, 1986 Form 10-K, File No. 1-8222) 10.41 Transmission Service Contract between Central Vermont Public Service Corporation and The Vermont Electric Generation & Transmission Cooperative, Inc. dated May 14, 1984. (Exhibit C-111, 1984 Form 10-K, File No. 1-8222) 10.42 Copy of Highgate Transmission Interconnection Preliminary Support Agreement dated April 9, 1984. (Exhibit C-117, 1984 Form 10-K, File No. 1-8222) 10.43 Copy of Allocation Contract for Hydro-Quebec Firm Power dated July 25, 1984. (Exhibit C-118, 1984 Form 10-K, File No. 1-8222) 10.43.1 Tertiary Energy for Testing of the Highgate HVDC Station Agreement, dated September 20, 1985. (Exhibit C-129, 1985 Form 10-K, File No. 1-8222) 10.44 Copy of Highgate Operating and Management Agreement dated August 1, 1984. (Exhibit C-119, 1986 Form 10-K, File No. 1-8222) 10.44.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-152, 1986 Form 10-K, File No. 1-8222) 10.44.2 Amendment No. 2 dated November 13, 1986. (Exhibit 10-167, 1987 Form 10-K, File No. 1-8222) 10.44.3 Amendment No. 3 dated January 1, 1987. (Exhibit 10-168, 1987 Form 10-K, File No. 1-8222) 10.45 Copy of Highgate Construction Agreement dated August 1, 1984. (Exhibit C-120, 1984 Form 10-K, File No. 1-8222) 10.45.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-151, 1986 Form 10-K, File No. 1-8222) 10.46 Copy of Agreement for Joint Ownership, Construction and Operation of the Highgate Transmission Interconnection. (Exhibit C-121, 1984 Form 10-K, File No. 1-8222) 10.46.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-153, 1986 Form 10-K, File No. 1-8222) 10.46.2 Amendment No. 2 dated April 18, 1985. (Exhibit 10-154, 1986 Form 10-K, File No. 1-8222) 10.46.3 Amendment No. 3 dated February 12, 1986. (Exhibit 10-155, 1986 Form 10-K, File No. 1-8222) 10.46.4 Amendment No. 4 dated November 13, 1986. (Exhibit 10-169, 1987 Form 10-K, File No. 1-8222) 10.46.5 Amendment No. 5 and Restatement of Agreement dated January 1, 1987. (Exhibit 10-170, 1987 Form 10-K, File No. 1-8222) 10.47 Copy of the Highgate Transmission Agreement dated August 1, 1984. (Exhibit C-122, 1984 Form 10-K, File No. 1-8222) 10.48 Copy of Preliminary Vermont Support Agreement Re: Quebec Interconnection - Phase II dated September 1, 1984. (Exhibit C-124, 1984 Form 10-K, File No. 1-8222) 10.48.1 First Amendment dated March 1, 1985. (Exhibit C-127, 1985 Form 10-K, File No. 1-8222) 10.49 Vermont Transmission and Interconnection Agreement between New England Power Company and Central Vermont Public Service Corporation and Green Mountain Power Corporation with the consent of Vermont Electric Power Company, Inc., dated May 1, 1985. (Exhibit C-128, 1985 Form 10-K, File No. 1-8222) 10.50 Service Contract Agreement between the Company and the State of Vermont for distribution and sale of energy from St. Lawrence power projects (NYPA Power) dated as of June 25, 1985. (Exhibit C-130, 1985 Form 10-K, File No. 1-8222) 10.50.1 Lease and Operating Agreement between the Company and the State of Vermont dated as of June 25, 1985. (Exhibit C-131, 1985 Form 10-K, File No. 1-8222) 10.51 System Sales & Exchange Agreement Between Niagara Mohawk Power Corporation and Central Vermont Public Service Corporation dated October 1, 1986. (Exhibit C-133, 1986 Form 10-K, File No. 1-8222) 10.54 Transmission Agreement between Vermont Electric Power Company, Inc. and Central Vermont Public Service Corporation dated January 1, 1986. (Exhibit 10-146, 1986 Form 10-K, File No. 1-8222) 10.55 1985 Four-Party Agreement between Vermont Electric Power Company, Central Vermont Public Service Corporation, Green Mountain Power Corporation and Citizens Utilities dated July 1, 1985. (Exhibit 10-147, 1986 Form 10-K, File No. 1-8222) 10.55.1 Amendment dated February 1, 1987. (Exhibit 10-171, 1987 Form 10-K, File No. 1-8222) 10.56 1985 Option Agreement between Vermont Electric Power Company, Central Vermont Public Service Corporation, Green Mountain Power Corporation and Citizens Utilities dated December 27, 1985. (Exhibit 10-148, 1986 Form 10-K, File No. 1-8222) 10.56.1 Amendment No. 1 dated September 28, 1988. (Exhibit 10-182, 1988 Form 10-K, File No. 1-8222) 10.56.2 Amendment No. 2 dated October 1, 1991. (Exhibit 10.56.2, 1991 Form 10-K, File No. 1-8222) 10.56.3 Amendment No. 3 dated December 31, 1994. (Exhibit 10.56.3, 1994 Form 10-K, File No. 1-8222) 10.57 Highgate Transmission Agreement dated August 1, 1984 by and between the owners of the project and the Vermont electric distribution companies. (Exhibit 10-156, 1986 Form 10-K, File No. 1-8222) 10.57.1 Amendment No. 1 dated September 22, 1985. (Exhibit 10-157, 1986 Form 10-K, File No. 1-8222) 10.58 Vermont Support Agency Agreement re: Quebec Interconnection - Phase II between Vermont Electric Power Company, Inc. and participating Vermont electric utilities dated June 1, 1985. (Exhibit 10-158, 1986 Form 10K, File No. 1-8222) 10.58.1 Amendment No. 1 dated June 20, 1986. (Exhibit 10-159, 1986 Form 10-K, File No. 1-8222) 10.59 Indemnity Agreement B-39 dated May 9, 1969 with amendments 1-16 dated April 17, 1970 thru April 16, 1985 between licensees of Millstone Unit No. 3 and the Nuclear Regulatory Commission. (Exhibit 10-161, 1986 Form 10-K, File No. 1-8222) 10.59.1 Amendment No. 17 dated November 25, 1985. (Exhibit 10-162, 1986 Form 10-K, File No. 1-8222) 10.62 Contract for the Sale of 50MW of firm power between Hydro-Quebec and Vermont Joint Owners of Highgate Facilities dated February 23, 1987. (Exhibit 10-173, 1987 Form 10-K, File No. 1-8222) 10.63 Interconnection Agreement between Hydro-Quebec and Vermont Joint Owners of Highgate facilities dated February 23, 1987. (Exhibit 10-174, 1987 Form 10-K, File No. 1-8222) 10.63.1 Amendment dated September 1, 1993 (Exhibit 10.63.1, 1993 Form 10-K, File No. 1-8222) 10.64 Firm Power and Energy Contract by and between Hydro-Quebec and Vermont Joint Owners of Highgate for 500MW dated December 4, 1987. (Exhibit 10-175, 1987 Form 10-K, File No. 1-8222) 10.64.1 Amendment No. 1 dated August 31, 1988. (Exhibit 10-191, 1988 Form 10-K, File No. 1-8222) 10.64.2 Amendment No. 2 dated September 19, 1990. (Exhibit 10-202, 1990 Form 10-K, File No. 1-8222) 10.64.3 Firm Power & Energy Contract dated January 21, 1993 by and between Hydro-Quebec and Central Vermont Public Service Corporation for the sale back of 25 MW of power. (Exhibit 10.64.3, 1992 Form 10-K, File No. 1-8222) 10.64.4 Firm Power & Energy Contract dated January 21, 1993 by and between Hydro-Quebec and Central Vermont Public Service Corporation for the sale back of 50 MW of power. (Exhibit 10.64.4, 1992 Form 10-K, File No. 1-8222) 10.66 Hydro-Quebec Participation Agreement dated April 1, 1988 for 600 MW between Hydro-Quebec and Vermont Joint Owners of Highgate. (Exhibit 10-177, 1988 Form 10-K, File No. 1-8222) 10.67 Sale of firm power and energy (54MW) between Hydro-Quebec and Vermont Utilities dated December 29, 1988. (Exhibit 10-183, 1988 Form 10-K, File No. 1-8222) 10.75 Receivables Purchase Agreement between Central Vermont Public Service Corporation, Central Vermont Public Service Corporation as Service Agent and The First National Bank of Boston dated November 29, 1988. (Exhibit 10-192, 1988 Form 10-K) 10.75.1 Agreement Amendment No. 1 dated December 21, 1988 (Exhibit 10.75.1, 1993 Form 10-K, File No. 1-8222) 10.75.2 Letter Agreement dated December 4, 1989 (Exhibit 10.75.2, 1993 Form 10-K, File No. 1-8222) 10.75.3 Agreement Amendment No. 2 dated November 29, 1990 (Exhibit 10.75.3, 1993 Form 10-K, File No. 1-8222) 10.75.4 Agreement Amendment No. 3 dated November 29, 1991 (Exhibit 10.75.4, 1993 Form 10-K, File No. 1-8222) 10.75.5 Agreement Amendment No. 4 dated November 29, 1992 (Exhibit 10.75.5, 1993 Form 10-K, File No. 1-8222) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS A 10.68 Stock Option Plan for Non-Employee Directors dated July 18, 1988. (Exhibit 10-184, 1988 Form 10-K, File No. 1-8222) A 10.69 Stock Option Plan for Key Employees dated July 18, 1988. (Exhibit 10-185, 1988 Form 10-K, File No. 1-8222) A 10.70 Officers Supplemental Insurance Plan authorized July 9, 1984. (Exhibit 10-186, 1988 Form 10-K, File No. 1-8222) A 10.71 Officers Supplemental Deferred Compensation Plan dated November 4, 1985. (Exhibit 10-187, 1988 Form 10-K, File No. 1-8222) * A 10.71.1 Amendment dated October 2, 1995. A 10.72 Directors' Supplemental Deferred Compensation Plan dated November 4, 1985. (Exhibit 10-188, 1988 Form 10-K, File No. 1-8222) * A 10.72.1 Amendment dated October 2, 1995. A 10.73 Management Incentive Compensation Plan as adopted September 9, 1985. (Exhibit 10-189, 1988 Form 10-K, File No. 1-8222) A 10.73.1 Revised Management Incentive Plan as adopted February 5, 1990. (Exhibit 10-200, 1989 Form 10-K, File No. 1-8222) * A 10.73.2 Revised Management Incentive Plan dated May 2, 1995. A 10.74 Officers' Change of Control Agreements as approved October 3, 1988. (Exhibit 10-190, 1988 Form 10-K, File No. 1-8222) A 10.78 Stock Option Plan for Non-Employee Directors dated April 30, 1993. (Exhibit 10.78, 1993 Form 10-K, File No. 1-8222) A 10.79 Officers Insurance Plan dated November 15, 1993. (Exhibit 10.79, 1993 Form 10-K, File No. 1-8222) * A 10.79.1 Amendment dated October 2, 1995. A 10.80 Directors' Supplemental Deferred Compensation Plan dated January 1, 1990. (Exhibit 10.80, 1993 Form 10-K, File No. 1-8222) * A 10.80.1 Amendment dated October 2, 1995. A 10.81 Officers' Supplemental Deferred Compensation Plan dated January 1, 1990. (Exhibit 10.81, 1993 Form 10-K, File No. 1-8222) A - Compensation related plan, contract, or arrangement. 21. Subsidiaries of the Registrant * 21.1 List of Subsidiaries of Registrant 23. Consents of Experts and Counsel * 23.1 Consent of Independent Public Accountants 27. Financial Data Schedule (b) Reports on Form 8-K: The Company filed the following reports on Form 8-K during the quarter ended December 31, 1995: 1. Item 5. Other Events, dated October 2, 1995 re: CVPS President Thomas C. Webb to retire at year's end. Report of Independent Public Accountants To the Board of Directors of Central Vermont Public Service Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Central Vermont Public Service Corporation's annual report to shareholders, included in this Form 10-K, and have issued our report thereon dated February 5, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state, in all material respects, the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts February 5, 1996
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1995 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses accounts Deductions year Reserves deducted from assets to which they apply: $ 80,978(1) 644,277(2) Reserve for uncollectible 200,000(3) accounts receivable -------- $ 967,732 $1,074,327 $925,255 $1,415,708(4) $1,551,606 ========== ========== ======== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,450,284 $ 350,522 - $ 292,313(5) $3,508,493 Other 213,287 82,478 - - 295,765 ---------- ---------- --------- ---------- $3,663,571 $ 433,000 $ 292,313 $3,804,258 ========== ========== ======== ========== ========== Reserve shown separately: Injuries and damages reserve $ 225,580 - - - $ 225,580 ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Transferred from miscellaneous receivables. (4) Uncollectible accounts written off. (5) Retirements of rental water heaters.
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1994 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses accounts Deductions year Reserves deducted from assets to which they apply: $ 71,210(1) Reserve for uncollectible 335,718(2) accounts receivable -------- $ 936,080 $547,490 $406,928 $ 922,766(3) $ 967,732 ========== ========== ======== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,428,944 $265,309 - $ 243,969(4) $3,450,284 Other 68,153 145,134(5) - - 213,287 ---------- -------- ---------- ---------- $3,497,097 $410,443 $ 243,969 $3,663,571 ========== ========== ========== ========== Reserve shown separately: Injuries and damages reserve $ 225,580 - - - $ 225,580 ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Uncollectible accounts written off. (4) Retirements of rental water heaters. (5) Includes reclassification of $67,201 of the Company's wholly owned subsidiary, SmartEnergy Services, Inc.'s depreciation expense from its water heater program to other non-utility property.
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1993 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses accounts Deductions year Reserves deducted from assets to which they apply: $ 64,809(1) Reserve for uncollectible 324,081(2) accounts receivable -------- $1,079,806 $960,000 $388,890 $1,492,616(3) $ 936,080 ========== ======== ======== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,334,201 $352,547 - $ 257,804(4) $3,428,944 Other 41,052 27,101 - - 68,153 ---------- -------- ---------- ---------- $3,375,253 $379,648 $ 257,804 $3,497,097 ========== ========== ========== ========== Reserve shown separately: Injuries and damages reserve $ 242,901 - - $ 17,321(5) $ 225,580 ========== ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Uncollectible accounts written off. (4) Retirements of rental water heaters. (5) Payments for construction accidents.
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. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By /s/ Robert H. Young ------------------------------ Robert H. Young, President and Chief Executive Officer March 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. DATE NAME AND TITLE - ----------------- ----------------------------------------- March 27, 1996 /s/ Robert H. Young --------------------------------------- Robert H. Young President and Chief Executive Officer and Director March 27, 1996 /s/ Francis J. Boyle --------------------------------------- Francis J. Boyle, Vice President - Finance and Administration and Chief Financial Officer (Principal Financial Officer) March 27, 1996 /s/ James M. Pennington --------------------------------------- James M. Pennington, Controller (Principal Accounting Officer) March 27, 1996 /s/ F. Ray Keyser, Jr. --------------------------------------- F. Ray Keyser, Jr. Chairman of the Board and Director March 27, 1996 /s/ Frederic H. Bertrand --------------------------------------- Frederic H. Bertrand Director March 27, 1996 /s/ Robert P. Bliss, Jr. --------------------------------------- Robert P. Bliss, Jr. Director March 27, 1996 /s/ Elizabeth Coleman --------------------------------------- Elizabeth Coleman Director March 27, 1996 /s/ Luther F. Hackett --------------------------------------- Luther F. Hackett Director March 27, 1996 /s/ --------------------------------------- Mary Alice McKenzie Director March 27, 1996 /s/ Gordon P. Mills --------------------------------------- Gordon P. Mills Director March 27, 1996 /s/ Preston Leete Smith --------------------------------------- Preston Leete Smith Director March 27, 1996 /s/ Robert D. Stout --------------------------------------- Robert D. Stout Director EX-3 2 CV'S BYLAWS FOR FORM 10-K Exhibit 3-1 ----------- BY-LAWS OF CENTRAL VERMONT PUBLIC SERVICE Corporation ARTICLE I. Articles of Agreement: Offices Section 1. These By-Laws shall be subject to the Articles of Association, and all references in these By-Laws to the Articles of Association shall be construed to mean the Articles of Association of the Corporation as from time to time amended. Section 2. The Corporation shall maintain its principal office in Rutland, Vermont, and may maintain offices at such other places as the Board of Directors may, from time to time, appoint. ARTICLE II. Seal The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the words and figures: "Seal Vermont 1929". ARTICLE III. Capital Stock and Transfers Section 1. The amount and classes of capital stock that may be issued by the Corporation, and the designations, preferences, rights, privileges, voting powers, restrictions, and qualifications of each class thereof, shall be as set forth in the Articles of Association, as the same shall at any time be duly recorded in the office of the Secretary of State of Vermont in original or amended form. Section 2. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock as provided by law and in a form approved by the Board of Directors. (As amended May 2, 1972) Section 3. Shares of stock may be transferred by the owner by a proper endorsement upon the back of the certificate or by a separate instrument of assignment, and the assignee, upon producing, and surrendering the former certificate so transferred or the certificate accompanied by such instrument, shall be entitled to a new certificate if no liens upon the stock against the former owner have attached. The delivery of a properly executed stock certificate to a bona fide purchaser or pledgee for value to sell, assign and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title against all persons except the Company; but no such transfer shall affect the right of the Company to treat the stockholder of record as the stockholder in fact until the old certificate is surrendered and a new certificate is issued to the person entitled thereto. Except as hereinafter provided, or as may be required by law or by the order of a court in appropriate proceedings, shares of stock shall be transferred on the books of the Company only upon the proper assignment and surrender of the certificates issued therefor. If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a replacement certificate issued upon such terms as the Directors may prescribe. (As amended May 2, 1972) Section 4. If default shall be made in the prompt payment when due of any sum payable to the Company upon any subscription for stock of the Company, and if such default shall continue for a period of twenty days, then all right under the subscription in and to the stock subscribed for shall, upon the expiration of such period, cease and determine and become and be forfeited to the Company; provided that if at the expiration of such twenty day period such right shall belong to the estate of a decedent, it may be forfeited only by resolution of the Board of Directors declaring forfeiture. (As amended May 2, 1972) ARTICLE IV. Meetings of Stockholders Section 1. All meetings of the stockholders shall be held in Vermont, either at the principal office of the Company or at such other place as shall be designated in the call therefor. The annual meeting shall be held on the first Tuesday of May in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the time designated in the call, for the election of Directors, and the transaction of such other business as may come before it. (As amended April 2, 1946) Section 2. Special meetings of the stockholders may be called by the Board of Directors, the President or the Secretary upon written request of stockholders holding not less than one-tenth of all the shares entitled to vote at the meeting. In case an annual meeting shall be omitted through inadvertence or otherwise, the business of such meeting may be transacted at a special meeting duly called for the purpose. (As amended May 2, 1972) Section 3. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the President or the Secretary, to each registered holder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the registered holder at the address as it appears on the stock transfer books of the Company, with postage on it prepaid. (As amended August 7, 1995) Section 4. Unless otherwise provided in the Articles of Association, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by law, by these By-Laws or by the Articles of Association. A majority vote of whatever stock shall be represented, even if less than a quorum, shall be sufficient (a) to adjourn from time to time until a quorum is present or (b) to adjourn sine die. (As amended May 2, 1972) Section 5. At all stockholders' meetings, holders of record of stock then having voting power shall be entitled to one vote for each share of stock held by them, respectively, upon any question or at any election, and such vote may, in all cases, be given by proxy, duly authorized in writing. But no proxy dated more than eleven months before the meeting, which shall be named therein, shall be accepted; and no proxy shall be valid after the final adjournment of such meeting. (As amended August 7, 1995) Article V. Directors Section 1. The property and business of the Corporation shall be managed by a Board of Directors, each of whom must be a stockholder. The Directors shall be elected by ballot by majority vote of the stockholders present in person or represented by proxy at the election and entitled to vote on the question, except as otherwise provided in the Articles of Association or in these By-Laws. (As amended October 16, 1944; May 7, 1963 and February 17, 1987) No person shall be eligible for election or re-election as a Director after his/her seventieth birthday, provided that any Director whose term of office extends beyond his/her seventieth birthday shall be entitled to serve the remainder of the full term of the class of Directors to which he/she was elected. (As amended June 13, 1983 and November 2, 1987) A majority of the Directors shall at all times be persons who are not employees of the Corporation. The provisions of this paragraph shall not apply to the election of Directors by the holders of preferred stock when, in accordance with the Articles of Association, they shall be entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors. (As amended August 7, 1995) Section 2. Subject to the provisions of Section 5 below, the Board of Directors shall consist of not less than 9 nor more than 21 persons, the exact number to be fixed from time to time by resolution of the Board of Directors. Such exact number may be increased or decreased by the affirmative vote of the holders of at least 80 percent of the combined voting power of the then- outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock on the question. The Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. Upon their initial election, the members of the first class shall hold office for a term expiring at the next annual meeting of stockholders after their election, the members of the second class shall hold office for a term expiring at the second annual meeting of stockholders after their election, and the members of the third class shall hold office for a term expiring at the third annual meeting of stockholders after their election. (As amended February 17, 1987) Section 3. Subject to the provisions of Section 5 below, any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum of the Board of Directors. Any Director elected in accordance with this provision shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred and until such Director's successor shall have been elected and qualified. No decrease in the number of authorized Directors constituting the entire Board of Directors shall shorten the term of any incumbent Director. (As amended February 17, 1987) Section 4. Except as otherwise provided in paragraph (e) of subdivision 6 of the Articles of Association, a Director may be removed from office only for cause and only by the affirmative vote of the holders of at least 80 percent of the combined voting power of the then-outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock on the question. (As amended February 17, 1987) Section 5. Nothing contained in Sections 2 through 4 of this Article V shall be deemed to alter, amend or repeal the provisions of paragraph (b) of subdivision 6, paragraph (b) of subdivision 10F, or paragraph (a) of subdivision 20F, of the Articles of Association each of which confers, under the circumstances described therein, on the holders of the classes of stock referred to therein, the right to vote in the election of Directors. During any period in which such rights may be exercised, the provision or provisions conferring such rights shall prevail over any provision of these By-Laws inconsistent therewith. (As amended February 17, 1987) Section 6. Notwithstanding any other provision of these By-Laws, of the Articles of Association or of law, the affirmative vote of the holders of at least 80 percent of the combined voting power of the then-outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock in the election of Directors shall be required to alter, amend or repeal Sections 2, 3, 4, 5 or 6 of this Article V. (As amended February 17, 1987) Section 7. The Board of Directors may hold its meetings and may have one or more offices, and may keep the books of the Corporation (except such records and books as by laws of Vermont are required to be kept within the State) within or outside of Vermont, at such places as it may from time to time determine. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation, and do all such lawful acts and things as are not by law, by the Articles of Association or by these By-Laws required to be exercised or done by the incorporators or stockholders. ARTICLE VI. Meetings of the Board Section 1. Regular meetings of the Board of Directors shall be held at such place and time as may be designated from time to time by the Board; and such meetings, and a regular meeting immediately following and at the same place as each annual meeting of the stockholders, may be held without notice. Special meetings of the Board of Directors may be called by the President, or by any two Directors, upon two days' notice to each Director, either personally or by mail or by telegram; and they may be held at any time without call or formal notice, provided all the Directors are present or waive notice thereof in writing. (As amended May 1, 1962) Section 2. A majority of the number of Directors fixed in accordance with the By-Laws shall constitute a quorum for the transaction of business, unless a greater number is required by the Articles of Association. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by the Articles of Association. (As amended May 2, 1972) Section 3. Directors who are not also officers or regular employees of the Company may receive compensation for their services as such or as a member of any committee of the Board of Directors, as well as fixed sums and expenses for attendance at Directors' or committee meetings, in such amounts as may be provided from time to time by the Board of Directors, provided that nothing herein contained shall be construed to preclude any Director from serving the Company in any other capacity and receiving compensation therefor. (As amended May 5, 1981) Section 4. Directors and members of the Executive Committee and any other committee designated by the Board of Directors may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting in such a manner shall constitute presence in person at such meeting. (As amended May 3, 1977) ARTICLE VII. Officers Section 1. In each year there shall be elected by the Board of Directors, and if practicable, at its first meeting after the annual election of Directors, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a Controller; and the Board may provide for and elect a Chairperson, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers and prescribe such duties for them as in its judgment may, from time to time, be required to conduct the business of the Company. One of said Vice Presidents may be designated Executive Vice President. Any two or more offices may be held by the same person, except the offices of President and Secretary. All officers shall hold their respective offices for the term of one year, and until their successors, willing to serve, shall have been elected and, in the case of the Secretary, qualified, unless sooner removed; but they, and any of them, may be removed from their respective offices at the pleasure of the Board. Vacancies arising in any office from any cause shall be filled by the Board of Directors; and the persons chosen to fill vacancies shall serve for the balance of the unexpired term and until their successors shall have been elected. (As amended May 1, 1962; May 7, 1963; May 5, 1964; May 2, 1972 and November 2, 1987) Section 2. A Chairperson elected pursuant to Section 1 of this Article VII shall advise with and make his/her counsel available to the other officers of the Company and shall have such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. He/She shall, when present, preside at all meetings of the stockholders and of the Board of Directors and of the Executive Committee. (As amended May 5, 1964) The President shall be the Chief Executive Officer of the Company and, subject to the direction of the Board of Directors and of the Chairperson (if one is elected), shall supervise the administration of the business and affairs of the Company and shall have such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. In the absence of the Chairperson (or if no such Chairperson is elected), the President shall, when present, preside at meetings of the stockholders and of the Board of Directors and of the Executive Committee. (As amended May 5, 1964 and November 2, 1987) The Chairperson and the President shall be members of the Executive Committee (if such Executive Committee is designated by the Board of Directors) and each of them, in his/her discretion, may attend any meeting of any committee of the Board, whether or not he/she is a member of such committee. (As amended May 5, 1964) Section 3. The President shall, subject to the control of the Board of Directors, have charge of the business and affairs of the Company, including the power to appoint and to remove and to discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors, and such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. (As amended May 5, 1964) Section 4. The Vice President or Vice Presidents, if there shall be more than one, shall have such powers and duties as may from time to time be prescribed by the Board of Directors or by the President, but any powers and duties prescribed by the President shall not be inconsistent with any theretofore prescribed by the Board of Directors. In case the President, from absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in case of his/her death, resignation or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the Executive Vice President if one shall have been designated and is able to serve, or in case of the latter's inability, upon the Vice President designated by the Board of Directors and able to serve and shall be exercised by such Vice President as acting President during such inability of the President, or until the vacancy in the office of President shall be filled. In case of the absence, disability, death, resignation or removal from office of both the President and such Vice President, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. (As amended May 1, 1951 and May 1, 1962) Section 5. The Secretary shall reside in the State of Vermont and shall have the duties prescribed by law and such other duties as the By-Laws or the Board of Directors may prescribe. (As amended May 2, 1972) Section 6. The Treasurer shall have charge of, and be responsible for the custody and, jointly with the Controller, the receipt and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Company, in such banks, trust companies, or safe deposit vaults as the Board of Directors may direct. The Treasurer shall have the custody of such books and papers as in the practical business operations of the Company shall naturally belong in the office or custody of the Treasurer, or as shall be placed in his/her custody by the Board of Directors, by the Executive Committee, or by the President. The Treasurer shall also have charge of the safekeeping of all stocks, bonds, mortgages, and other securities belonging to the Company, but such stocks, bonds, mortgages, and other securities shall be deposited for safekeeping in a safe deposit vault to be approved by the Board of Directors or the Executive Committee, in a box or boxes, access to which shall be had as may be provided by resolution of the Board of Directors or by the Executive Committee. The Treasurer shall have such other powers and duties as are commonly incident to the office of Treasurer, or as may be prescribed. The Treasurer may be required to give bond to the Company for the faithful discharge of duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. (As amended November 2, 1987) Section 7. The Controller shall have charge of, and be responsible for the collection, and jointly with the Treasurer, the receipt and disbursement of the funds of the Corporation. The Controller shall maintain adequate records of all assets, liabilities, and transactions of the Company; shall see that adequate audits thereof are currently and regularly made and, in conjunction with other officers and department heads, shall initiate and enforce methods and procedures whereby the business of the Company shall be conducted with maximum safety, efficiency and economy. The Controller shall have the custody of such books, receipted vouchers, and other books and papers as in the practical business operations of the Company shall naturally belong in the office or the custody of the Controller, or as shall be placed in his/her custody by the Board of Directors, by the Executive Committee, or by the President. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed. The Controller may be required to give bond to the Company for the faithful discharge of duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. (As amended November 2, 1987) Section 8. Assistant Secretaries or Treasurers, when elected, shall assist the Secretary or Treasurer, as the case may be, in the performance of the respective duties assigned to such principal officers; and the powers and duties of any such principal officer, shall, except as otherwise ordered by the Board of Directors, temporarily devolve upon his/her assistant in case of the absence, disability, death, resignation or removal from office of such principal officer. They shall perform such other duties as may be assigned to them from time to time. (As amended May 7, 1963) ARTICLE VIII. Executive Committee Section 1. The Board of Directors may, by resolution passed by a majority of the Board, designate from their number an Executive Committee of such number, not less than three, as the Board may fix from time to time. The Executive Committee may make its own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have all the powers of the Board in management of the business and affairs of the Company except as may otherwise be provided by law, including power to authorize the seal of the Company to be affixed to all papers which may require it, and, by majority vote of all its members, exercise any and all such powers in such manner as such Committee shall deem best for the interest of the Company, in all cases in which specific directions shall not have been given by the Board of Directors, and in which the vote of a quorum of the full Board of Directors is not required by law, the Articles of Association, or by these By-Laws. (As amended May 2, 1972) Section 2. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Board of Directors shall have power to rescind any vote or resolution of the Executive Committee, but no such recision shall have retroactive effect. ARTICLE IX. Inspection of Books All records, accounts, and papers of the Corporation shall be open to the inspection of every stockholder at reasonable times and for legitimate purposes; and, subject to such rights of inspection as may be afforded the stockholders by law, the Directors may make such reasonable regulations relative to such inspection, and take such action to prevent an inspection of corporate books or papers for illegitimate purposes as may be consistent with law. ARTICLE X. (As amended May 3, 1988) Vote Required to Approve Business Combination The vote of the stockholders of the Corporation required to approve any Business Combination shall be as set forth in this Article X. The term "Business Combination" shall have the meaning ascribed to it in Paragraph 10.1(B) of this Article X. Each other capitalized term shall have the meaning ascribed to it in Paragraph 10.3 of this Article X. 10.1 (A) In addition to any affirmative vote required by law or these By-Laws and except as otherwise expressly provided in Paragraph 10.2 of this Article X: (1) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other person (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or (3) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or an Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate) from the Corporation or a Subsidiary; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (5) any transaction involving the Corporation or any Subsidiary (whether or not with or into or otherwise involving an Interested Stockholder), and including, without limitation, any reclassification of securities (including any reverse stock split), or recapitalization or reorganization of the Corporation, or of its Subsidiaries or any self tender offer for or repurchase of securities of the Corporation by the Corporation or any Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder), which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the affirmative vote of the holders of at least 80 percent of the combined voting power of the then outstanding shares of the Voting Stock (for the purposes of this Article X, each share of the Voting Stock shall have the number of votes granted to it pursuant to the Company's Articles of Association), which vote shall include the affirmative vote of at least two-thirds (2/3) of the combined voting power of the outstanding shares of Voting Stock held by stockholders other than the Interested Stockholder. Such affirmative vote shall be required notwithstanding any provision of law, any other provision of these By-Laws or the Articles of Association, any agreement with any national securities exchange or otherwise which might permit a lesser vote or no vote and in addition to any affirmative vote required of the holders of any class or series of Voting Stock pursuant to law. (B) The term "Business Combination" as used in this Article X shall mean any transaction that is referred to in any one or more clauses (1) through (5) of Paragraph 10.1(A) of this Article X. 10.2 The provisions of Paragraph 10.1(A) of this Article X shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, any other provision of these By-Laws, by the Articles of Association, or any agreement with any national securities exchange, if, in the case of a Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation, solely in their respective capacities as stockholders of the Corporation, as specified in paragraph 10.2(A) is met, or, in the case of any other Business Combination, the condition specified in the following paragraph 10.2(A) or the conditions specified in the following paragraph 10.2(B) are met: (A) such Business Combination shall have been approved by a majority of the Disinterested Directors; or (B) each of the conditions specified in the following clauses (1) through (4) shall have been met: (1) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of Voting Stock in such Business Combination shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B) (1) shall be required to be met with respect to all shares of Voting Stock outstanding whether or not the Interested Stockholder has acquired any shares of the Voting Stock): (i) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Voting Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Stockholder, whichever is higher; or (ii) the Fair Market Value per share of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; or (iii) an amount which bears the same or greater percentage relationship to the Fair Market Value of the Voting Stock on the Announcement Date as the highest per share price determined in clause (B)(l)(i) above bears to the Fair Market Value of the Voting Stock on the date of the commencement of the acquisition of the Voting Stock by such Interested Stockholder; and (2) the consideration to be received by holders of a particular class or series of outstanding Voting Stock shall be in cash or in the same form as was previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Stockholder and, if the Interested Stockholder beneficially owns shares of any class or series of Voting Stock that were acquired with varying forms of consideration, the form of consideration to be received by each holder of such class or series of Voting Stock shall be, at the option of such holder, either cash or the form used by the Interested Stockholder to acquire beneficially the largest number of shares of such class or series of Voting Stock beneficially acquired by it prior to the Announcement Date; and (3) after such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock of the Corporation, except as part of the transaction in which it became an Interested Stockholder or upon conversion of convertible securities acquired by it prior to becoming an Interested Stockholder or as a result of a pro rata stock dividend or stock split; and (ii) such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the Corporation or any Subsidiary, whether in anticipation of or in connection with such Business Combination or otherwise; and (iii) such Interested Stockholder shall not have caused any material change in the Corporation's business or capital structure, including, without limitation, the issuance of shares of capital stock of the Corporation to any third party; and (iv) there shall have been no reduction in the annual rate of dividends paid on Voting Stock (except as necessary to reflect any subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors and an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split), recapitalization, reorganization, self tender offer or any similar transaction which has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate was approved by a majority of the Disinterested Directors; and (4) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules and regulations), whether or not the Corporation is then subject to such requirements, shall be mailed by and at the expense of the Interested Stockholder at least thirty days prior to the earlier of the Consummation Date or the vote of stockholders relative thereto of such Business Combination to the stockholders of the Corporation (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions), and shall contain at the front thereof in a prominent place (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which the Disinterested Directors, if any, may choose to state, and (ii) the opinion of a reputable national investment banking firm as to the fairness (or not) of such Business Combination from the point of view of the remaining stockholders of the Corporation (such investment banking firm to be engaged solely on behalf of the remaining stockholders, to be paid a reasonable fee for their services by the Corporation upon receipt of such opinion, to be unaffiliated with such Interested Stockholder, and, if there are at the time any Disinterested Directors, to be selected by a majority of the Disinterested Directors). 10.3 For the purposes of this Article X. (A) A "person" shall include, without limitation, any individual, firm, corporation, group (as such term is used in Regulation 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1987) or other entity. (B) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary or any employee benefit plan of the Corporation or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly of more than 10 percent of the combined voting power of the then outstanding shares of Voting Stock; or (2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the combined voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (C) A person shall be a "beneficial owner" of any Voting Stock if: (1) such person or any of its Affiliates or Associates beneficially owns, directly or indirectly, Voting Stock; or (2) such person or any of its Affiliates or Associates has (a) the right to acquire (whether of not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding of the Voting Stock; or (3) the Voting Stock is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (D) For the purposes of determining whether a person is an Interested Stockholder pursuant to Paragraph 10.3 (B) of this Article X, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such Interested Stockholder through application of Paragraph 10.3 (C) of this Article X but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1987. (F) "Subsidiary" shall mean any corporation more than 50 percent of whose outstanding equity securities having ordinary voting power in the election of directors is owned, directly or indirectly, by the Corporation or by a Subsidiary or by the Corporation and one or more Subsidiaries; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 10.3 (B) of this Article X, the term "Subsidiary" shall mean only a corporation of which a majority of each class of Voting Stock is owned, directly or indirectly, by the Corporation. (G) "Disinterested Director" shall mean any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors. (H) "Fair Market Value" shall mean: (1) in the case of stock, the highest closing sale price during the 30-day period commencing on the 40th day preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the New York Stock Exchange-Composite Tape, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sale price or bid quotation with respect to a share of such stock during the 30-day period commencing on the 40th day preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations system or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (2) in the case of property other than cash or stock the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (I) In the event of any Business Combination in which the Corporation survives, the phrase "any consideration other than cash to be received" as used in Paragraphs 10.2 (B)(1) and (2) of this Article X shall include the shares of Voting Stock retained by the holders of such shares. (J) "Announcement Date" shall mean the date of first public announcement of the proposed Business Combination. (K) "Determination Date" shall mean the date on which the Interested Stockholders became an Interested Stockholder. (L) "Consummation Date" shall mean the date of the consummation of the Business Combination. (M) The term "Voting Stock" shall mean all outstanding shares of capital stock of all classes and series of the Corporation at the time entitled to vote in the election of directors of the Corporation, in each case voting together as a single class. 10.4 A majority of the Disinterested Directors shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article X including, without limitation: (A) whether a person is an Interested Stockholder; (B) the number of shares of Voting Stock beneficially owned by any person; (C) whether a person is an Affiliate or Associate of another person; (D) whether the requirements of Paragraph 2(B) of this Article X have been met with respect to any Business Combination; (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value of $5,000,000 or more; and (F) such other matters with respect to which a determination is required under this Article X. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article X. 10.5 Nothing contained in this Article X shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 10.6 Notwithstanding any other provisions of these By-Laws, the Articles of Association or of law, the affirmative vote of the holders of at least 80 percent of the combined voting power of all of the then outstanding shares of Voting Stock shall be required to alter, amend or repeal this Article X or any provision hereof; provided, however, that if there is an Interested Stockholder on the record date for the meeting at which such action is submitted to the stockholders for their consideration, such 80 percent vote must include the affirmative vote of at least two-thirds (2/3) of the combined voting power of all of the outstanding shares of Voting Stock held by stockholders other than the Interested Stockholder. ARTICLE XI (As amended May 3, 1988) INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Section 1. Permissive Indemnification. To the extent legally permissible, the Company may indemnify any of its Directors, officers and employees who, as a result of such position, was or is a party or is threatened to be made a party to any contemplated, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal against expenses, actually and reasonably incurred by him or her in connection with such action, suit or proceeding. The term Expenses, as used in this Article, includes reasonable attorney's fees, damages, judgments, fines, amounts paid in settlement and costs including the costs of investigation and defense. Such indemnification against Expenses shall be payable only if (a) the Director, officer or employee acted in good faith, (b) the Director reasonably believed: (A) in the case of conduct in the Director's official capacity with the Company, that the Director's conduct was in its best interests; and (B) in all other cases, that the Director's conduct was at least not opposed to its best interests; and (c) with respect to any proceeding brought by a governmental entity, the Director had no reasonable cause to believe his or her conduct was unlawful, and the Director is not finally found to have engaged in a reckless or intentional unlawful act. Notwithstanding the foregoing and except as otherwise provided by law, the Company may not indemnify any Director, officer, or employee for any Expenses in any action by or in right of the Company in which such individual is adjudged liable to the Company. (As amended December 3, 1990 and May 3, 1994) Any indemnification under this section (unless ordered by a court) shall be made by the Company only upon a determination that indemnification of the Director, officer or employee is proper because he or she has acted in good faith in conformance with the applicable standard of conduct as set forth herein. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who are not parties to such action, suit or proceeding or (b) if such a quorum is not obtainable, by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties to the action, suit or proceeding may participate), consisting solely of two or more Directors not at the time parties to the action, suit or proceeding; (c) by written opinion of special legal counsel: (A) selected by the Board of Directors or its committee in the manner prescribed in clause (a) or (b); or (B) if a quorum of the Board of Directors cannot be obtained under clause (a) and a committee cannot be designated under clause (b), selected by majority vote of the full Board of Directors (in which selection Directors who are parties to the action, suit or proceeding may participate); or (d) by the shareholders, but shares owned by or voted under the control of Directors who are at the time parties to the action, suit or proceeding may not be voted on the determination. (As amended May 3, 1994) Authorization of indemnification and evaluation as to reasonableness of Expenses shall be made in the same manner provided above as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of Expenses shall be made by those entitled under clause (c) above to select such counsel. (As amended May 3, 1994) The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea no nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith in conformance with the applicable standard of conduct as set forth above. (As amended May 3, 1994) Section 2. Mandatory Indemnification. To the extent that a Director, officer or employee of the Company has been wholly successful on the merits or otherwise in defense of any action, suit, proceeding, claim, issue, or matter referred to in Section 1 of this Article, he or she shall be indemnified to the extent legally permissible against Expenses reasonably incurred by him or her in connection therewith. (As amended May 3, 1994) Section 3. Right To Rely On Corporate Information. In discharging his or her duty, any Director, when acting in good faith in conformance with the applicable standard of conduct as set forth above, may rely upon information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (a) one or more officers or employees of the Company whom the Director reasonably believes to be reliable and competent in the matters presented; (b) legal counsel, public accountants, or other persons as to matters the Director reasonably believes are within the person's professional or expert competence; or (c) a committee of the Board of Directors of which the Director is not a member if the Director reasonably believes the committee merits confidence. (As amended May 3, 1994) Section 4. Advance Payment of Expenses. Expenses incurred by a Director, officer or employee in connection with any of the matters with respect to which indemnification may be sought pursuant hereto may be paid from time to time by the Company in advance of the final disposition of any such matter if the following conditions are met: (a) the Director furnishes the Company written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 1 of this Article; (b) the Director furnishes the Company a written undertaking, executed personally or on the Director's behalf, to repay the advance if it is ultimately determined that the Director did not meet the standard of conduct; and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter. (As amended May 3, 1994) Determinations and authorizations of payments under this Section 4 shall be made in the manner specified in Section 1 of this Article. (As amended May 3, 1994) The Board of Directors may authorize counsel (which may be either Company counsel or outside counsel) to represent such individual in any action, suit or proceeding, whether or not the Company is a party to such action, suit or proceeding. (As amended May 3, 1994) Section 5. Procedure For Indemnification. Subject to compliance with any applicable procedures in Sections 1 or 4, as the case may be, any indemnification of a Director, officer or employee of the Company or advance of Expenses to such an individual under the terms of this Article shall be made promptly. If the Company unreasonably denies a written request for indemnity or the advance payment of Expenses, either in whole or in part, or if payment in full pursuant to such request is not made promptly, the right to indemnification or advances as granted by this Article shall be enforceable by such individual in any court of competent jurisdiction. Such individual's costs and expenses including reasonable attorney's fees incurred in connection with successfully establishing his or her right to indemnification in any such action shall also be indemnified by the Company. (As amended May 3, 1994) Section 6. Non-Exclusivity of Indemnification Rights. The right of indemnification hereby provided shall not be deemed exclusive of or otherwise affect any other rights to which any individual seeking indemnification may be entitled by law, or under any agreement, vote of stockholders or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. (As amended May 3, 1994) Section 7. Other Organizations. The indemnification provisions of this Article shall extend to any Director, officer or employee who serves at the Company's request as director, officer or trustee of another organization, including, without limitation, an employee benefit plan, in which the Company has or had an interest as a stockholder, creditor, sponsor or otherwise. The right to rely on corporate information conferred in Section 3 of this Article shall also extend to the records, books of accounts and reports of any such other organization of which the individual serves as director, officer or trustee. (As amended May 3, 1994) Section 8. Survival. The foregoing indemnification provisions shall be deemed to be a contract between the Company and each individual who serves in any capacity as a Director, officer or employee of the Company at any time while these provisions are in effect. Except as may otherwise be required as a result of changes in the law governing indemnification of officers, directors and employees of Vermont corporations, any repeal or modification of the foregoing provisions shall not affect any right or obligation then existing and such "contract rights" may not be modified retroactively without the consent of such Director, officer or employee. (As amended May 3, 1994) ARTICLE XII. (As amended May 3, 1988) Miscellaneous Section 1. The funds of the Company shall be deposited to its credit in such banks or trust companies as the Board of Directors may, from time to time, designate, and shall be drawn out only for the purposes of the Company and only upon checks or drafts signed in such manner as shall be authorized by the Board of Directors in accordance with the power vested in them by these By-Laws. Section 2. No debts shall be contracted, except for current expenses, unless authorized by the Board of Directors or the Executive Committee. Section 3. All dividends shall be payable at such time as may be fixed by the Board of Directors. Before payment of any dividend or making any distribution of profits, there shall be set aside, out of the surplus or net profits of the Corporation such sum or sums as the Board of Directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors think conducive to the interest of the Corporation. Section 4. The first fiscal year of the Corporation shall be the period commencing September 1, 1929 and ending December 31, 1930, and thereafter each calendar year, commencing with the year 1931, shall be the fiscal year of the Corporation. ARTICLE XIII AMENDMENT Except as set forth in subdivision 21 of the Company's Articles of Association and in Articles V and X of these By-Laws, these By-Laws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, by vote of the stockholders, or if there shall be two or more classes or series of stock entitled to vote on the question, by vote of each such class or series. These By-Laws may also be altered, amended or repealed by vote of the majority of the number of Directors fixed in accordance with the By-Laws at a meeting called for that purpose of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, except that the Directors shall not take any action which provides for indemnification of Directors or affects the powers of Directors or officers to contract with the Company, nor any action to amend this Article XIII, Sections 2, 3, 4, 5 or 6 of Article V, or Article X, and except that the Directors shall not take any action unless permitted by law. Except as set forth in subdivision 21 of the Company's Articles of Association and in Articles V and X of these By-Laws, any By-Law so altered, amended or repealed by the Directors may be further altered or amended or reinstated by the stockholder in the above manner. (As amended May 6, 1986 and May 3, 1988) EX-10 3 EXHIBIT 10.6.7 FOR FORM 10-K THIRTY-SECOND AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT THIS THIRTY-SECOND AGREEMENT, dated as of the 1st day of September, 1995, is entered into by the signatory Participants for the amendment by them of the New England Power Pool Agreement dated as of September 1, 1971 (the "NEPOOL Agreement"), as previously amended by twenty-nine (29) amendments, the most recent of which was dated as of May 1, 1993; as previously proposed to be amended by a thirtieth amendment dated as of June 1, 1993 which has been withdrawn; and as proposed to be amended by a pending thirty-first amendment dated as of July 1, 1995. WHEREAS, the NEPOOL Review Committee has been reconstituted, in response to a general invitation issued in early 1995 by the NEPOOL Participants, to include representatives of independent power producers ("IPPs"), power marketers, power brokers, utility regulators, environmental groups and others, and the Committee is currently discussing a restructuring of NEPOOL in light of the emerging changes in the electric utility industry; WHEREAS, the NEPOOL Review Committee's January 1995 Phase One Report concluded as part of the NEPOOL restructuring that "NEPOOL membership should be open to a broad spectrum of entities"; WHEREAS, IPPs are permitted to become Participants under current NEPOOL provisions and the Participants are willing, consistent with the NEPOOL Review Committee's Phase One Report, to amend the NEPOOL Agreement also to permit power marketers and power brokers to become Participants;. WHEREAS, as an interim step in the restructuring of NEPOOL the Participants are willing to amend the NEPOOL Agreement to permit power marketers and power brokers to become Participants now, even before the completion of the restructuring of NEPOOL, to facilitate their participation in bulk power transactions in New England and more directly in the day-to-day activities of NEPOOL; WHEREAS, certain New England utilities that have chosen so far not to become Participants have expressed their interest in amending language to the NEPOOL Agreement in order to make membership in NEPOOL more desirable to them; WHEREAS, the amendments proposed herein do not change the voting and governance provisions of the NEPOOL Agreement; WHEREAS, representatives of certain of the IPPs and power marketers have expressed in NEPOOL Review Committee discussions (1) the belief that any amendments to the NEPOOL Agreement designed to effect the restructuring of NEPOOL should be preceded by an amendment to the NEPOOL voting and governance structure so that IPPs and power marketers can participate fully and have a separate vote on all restructuring matters placed before the NEPOOL Executive Committee, (2) the concern that the interests of IPPs and power marketers may not be adequately addressed in the restructuring discussions in the NEPOOL Executive Committee during the interim period when the terms of NEPOOL restructuring are being discussed, and (3) the position that the issue of whether and, if so, how to amend the definition of the term "Entity" under Section 15.14 of the NEPOOL Agreement to include end-users should be addressed and resolved during the NEPOOL restructuring process; WHEREAS, during NEPOOL Review Committee discussions, various NEPOOL Participants have expressed (1) their belief that the NEPOOL voting and governance structure (a) should be fair, (b) should take into account the interests of all members and reflect votes that are appropriately weighted in relationship to each member's responsibilities and obligations (i.e. transmission, generation and/or load), and (c) should minimize the opportunities for gridlock, (2) their desire to involve substantively the IPPs, power marketers, power brokers, Federal and state regulators, and any other interested entities in the restructuring effort, but not to impede the operations of NEPOOL during the restructuring process, and (3) the desire first to assure the opportunity for broader membership by all entities transacting business in the wholesale bulk power market in New England before addressing whether and, if so, how to involve end users in the Pool; WHEREAS, in order to address the IPPs' and power marketers' beliefs, concerns, positions, desires, and interests, the Participants have invited IPPs, power marketers, and power brokers that elect to become Participants after this Thirty-second Agreement is effective to select a common representative to receive notice of all meetings of the NEPOOL Executive Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning Committee and to attend those meetings and act as their common spokesperson at such meetings; WHEREAS, those IPPs and power marketers involved in the NEPOOL Review Committee effort which are listed in Attachment 1 to this Thirty-Second Agreement have provided the Participants assurances that these IPPs and power marketers support or do not oppose acceptance of this Thirty-Second Agreement by the Federal Energy Regulatory Commission (the "Commission"); WHEREAS, in reliance on and subject to the assurances of the IPPs and power marketers described in the preceding paragraph, the Participants, IPPs and power marketers participating in the NEPOOL Review Committee effort have agreed that governance and voting issues relative to IPPs and power marketers are among the priority issues identified in the NEPOOL Review Committee's Phase One Report and that they will continue to use their best efforts to resolve these issues expeditiously through the NEPOOL Review Committee; and WHEREAS, Participants, IPPs and power marketers have also agreed that the issue of whether and, if so, how to amend the NEPOOL Agreement to permit membership by those not eligible for NEPOOL membership after this Thirty-Second Agreement becomes effective should be addressed before completion of the NEPOOL restructuring process; NOW THEREFORE, the signatory Participants hereby agree as follows: SECTION 1 AMENDMENTS TO NEPOOL AGREEMENT 1. The definition of "Entity" in Section 15.14 of the NEPOOL Agreement, as heretofore amended, is amended to read as follows: Entity is any person or organization engaged in the electric utility business (the generation and/or transmission and/or distribution of electricity for consumption by the public, or the purchase, as principal or broker, of electric energy and/or capacity for resale at wholesale), whether the United States of America or Canada or a state or province or a political subdivision thereof or a duly established agency of any of them, a private corporation, a partnership, an individual, an electric cooperative or any other person or organization recognized in law as capable of owning property and contracting with respect thereto. No person or organization shall be deemed to be an Entity if the generation, transmission, or distribution of electricity by such person or organization is primarily conducted to provide electricity for consumption by such person or organization or an affiliated person or organization. 2. Section 5.15 of the NEPOOL Agreement, as heretofore amended, is amended to re-letter paragraph (h) as paragraph (i) and by inserting the following new paragraph (h) after present paragraph (g): (h) The Management Committee shall have the authority, at the time that it acts on an Entity's application pursuant to Section 1.2 to become a Participant, to waive, conditionally or unconditionally, compliance by such Entity with one or more of the obligations imposed by this Agreement if the Committee determines that such compliance would be unnecessary or inappropriate for such Entity and the waiver for such Entity will not impose an additional burden on other Participants. 3. Section 5.16 of the NEPOOL Agreement, as heretofore amended, is hereby amended to read as follows: Each member of the Management Committee or that member's designee shall be entitled to attend any meeting of the Executive Committee, Operations Committee, and Policy planning Committee and shall have a reasonable opportunity to express views on any matter to be acted upon at the meeting. SECTION II PARTICIPATION ON NEPOOL COMMITTEES The Participants that are the signatories to this Thirty-second Agreement agree that they will cause their representatives to take action in the NEPOOL Executive Committee, the NEPOOL Operations Committee and the NEPOOL Policy Planning Committee to authorize the IPPs, power marketers and power brokers that become Participants (collectively, such IPPs, power marketers, and power brokers are hereinafter referred to as "non-utility Participants") to designate as a group after this Thirty-Second Agreement becomes effective, a non-voting representative for each of the NEPOOL Executive Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning Committee. The right to designate such representatives to the NEPOOL Executive Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning Committee shall be in addition to, and not in lieu of, such non-utility Participants' rights under the existing provisions of the NEPOOL Agreement to be represented by members on the NEPOOL Operations Committee and NEPOOL Policy Planning Committee. If the nonutility Participants designate a representative for the NEPOOL Executive Committee, NEPOOL Operations Committee or NEPOOL Policy Planning Committee, that representative shall be treated as if he or she were a member of that Committee for purposes of notice of and participation in Committee meetings, but shall not be entitled to vote, and shall not be deemed a member of the Committee for purposes of determining the number of votes required for Committee action. SECTION III EFFECTIVENESS OF THE THIRTY-SECOND AGREEMENT This Thirty-Second Agreement, and the amendments provided for above, shall become effective on November 15, 1995, or on such other date as the Federal Energy Regulatory Commission shall provide that such amendments shall become effective. SECTION IV USAGE OF DEFINED TERMS The usage in this Thirty-Second Agreement of terms which are defined in the NEPOOL Agreement shall be deemed to be in accordance with the definitions thereof in the NEPOOL Agreement. SECTION V COUNTERPARTS This Thirty-Second Agreement may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument and as if all the parties to all the counterparts had signed the same instrument. Any signature page of this Thirty-Second Agreement may be detached from any counterpart of this Thirty-Second Agreement without impairing the legal effect of any signatures thereof, and may be attached to another counterpart of this Thirty-Second Agreement identical in form thereto but having attached to it one or more signature pages. IN WITNESS WHEREOF, each of the signatories has caused a counterpart signature page to be executed by its duly authorized representative, as of the 1st day of September, 1995. COUNTERPART SIGNATURE PAGE TO THIRTY-SECOND AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF SEPTEMBER 1, 1995 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by twenty-nine (29) amendments the most recent of which was dated as of May 1, 1995, and as proposed to be amended by a pending amendment dated as of July 1, 1995 CENTRAL VERMONT PUBLIC SERVICE CORPORATION (Participant) By: /s/ Robert de R. Stein Name: Robert de R. Stein Title: Senior Vice President Energy Resources & External Markets Address: 77 Grove Street, Rutland, VT 05701-3400 APPENDIX 1 The following independent power producers and power marketers who are participating in the work of the NEPOOL Review Committee have provided the Participants assurances that they support or do not oppose acceptance of the foregoing Agreement by the Federal Energy Regulatory Commission: Enron Power Marketing, Inc. Coastal Electric Services Corp. North American Energy Conservation, Inc. KCS Power Marketing, Inc. Electric Clearing House, Inc. EX-10 4 EXHIBIT 10.71.1 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION OFFICERS SUPPLEMENTAL DEFERRED COMPENSATION PLAN Central Vermont Public Service Corporation (the "Company") hereby establishes the following supplemental deferred compensation plan (the "Plan"): 1. Purpose: The purpose of this Plan is to provide a foundation for continued growth of the Company by strengthening its capacity to attract and retain outstanding executives in key positions. 2. Participants: Employees of the Company who are Officers are eligible to participate in the Plan ("Participant"). 3. Participant's Election: (a) A Participant, by filing a written election on the Summary Schedule attached with the Treasurer may elect not to have paid to him/her a part of the compensation that would have otherwise been paid during the year for which the election is made and the succeeding three years; provided, however, that the amount of compensation under this Plan and the Employees' Deferred Compensation Plan a Participant may elect not to receive during any such year shall not, without the approval of the Board of Directors of the Company ("Board") exceed the following: Annual Salary Maximum Deferral Allowed ------------- ------------------------ Up to $ 30,000 Up to 5% Up to 50,000 Up to 10% Up to 100,000 Up to 15% Over 100,000 Up to 20% For the purpose of this Plan "compensation" shall mean the wages earned by the employee for any calendar year (including any amount of such wages which a Participant elects to defer under this Plan). (b) The Participant shall indicate on the Summary Schedule the amounts to be deferred. However, the Participant must defer the same amount each year for a four year period. (c) Any election to defer compensation under this section shall be irrevocable and may not be canceled for any reason. 4. Supplemental Deferral Account: (a) the Company shall establish a bookkeeping account (the "Supplemental Deferral Account")for each Participant to record the amounts deferred according to the provisions of Section 3 and any additions thereto. The Company shall make a credit to each Participant's Supplemental Deferral Account equal to the portion of the compensation designated in his/her written notice. Such credit shall be made at the times that payment to the Participant of current compensation would have been made if he/she had not elected deferral hereunder. (b) The Company shall credit the Supplemental Deferral Account at least annually with any increase in value thereto. (c) The Company shall provide each Participant with an annual statement setting forth the balance in his/her Supplemental Deferral Account. 5. Distribution of Supplemental Deferral Account: The Company shall distribute the Supplemental Deferral Account to the Participant as follows: (a) If the Participant has deferred all four of the annual amounts set forth on the Summary Schedule under "Supplemental Deferral Election" ("Annual Deferrals"), and is an employee of the Company when he/she attains his/her normal retirement age of (65), then, within one month after the Participant retires from the Company the Company shall commence annual payments to the Participant of the amount set forth on the Summary Schedule as Supplemental Deferral Payment ("Supplemental Deferral Payment") for a period of fifteen years (15 payments). If the Participant dies after payments are commenced but before all of the payments have been made to the participant then the remaining annual payments shall be paid annually to the Participant's beneficiaries as indicated on the Summary Schedule. (b) If the Participant terminates his/her employment with the Company for any reason other than death after attaining the age of 60 but prior to attaining normal retirement age (65) and the Participant has deferred all four Annual Deferrals, then the Supplemental Deferral Payment shall be reduced by a percentage ("Early Termination Percentage") based upon the Participant's age at the time of termination as follows: Age at Time of Termination Percentage of Reduction -------------------------- ----------------------- 64 4.99 63 9.73 62 14.23 61 18.51 60 22.57 The above percentages will be adjusted by a straight-line interpolation where there is a fraction of a year involved. The Board may, in its sole discretion, reduce or eliminate the Early Termination Percentage reduction. The reduced Supplemental Deferral Payment shall then be paid to the Participant annually for a period of fifteen years (15 payments) commencing within one month after the participant terminates employment with the Company. If the Participant dies after payments are commenced but before all of the payments have been made to the Participant, then the remaining annual payments shall be paid annually to the Participant's beneficiaries as set forth on the Summary Schedule. (c) If the Participant terminates his/her employment with the Company for any reason other than the death after attaining the age of 60 but prior to attaining normal retirement age (65) and the participant has not deferred all four Annual Deferrals, then the Supplemental Deferral Payment shall be reduced by 25% for each Annual Deferral that the Participant did not defer and by the Early Termination Percentage. The Board may, in its sole discretion, reduce or eliminate the Early Termination Percentage reduction. The reduced Supplemental Deferral Payment shall then be paid to the Participant annually for a period of fifteen years (15 payments) commencing within one month after the Participant terminates employment with the Company. If the participant dies after payments are commenced but before all of the payments have been made to the Participant, then the remaining annual payments shall be paid annually to the Participant's beneficiaries as set forth on the Summary Schedule. (d) If the Participant terminates his or her employment with the Company for any reason other than death prior to attaining the age of 60, then the amount to be paid to the participant shall be determined as follows: First, the Company shall determine (i) an amount equal to the Annual Deferrals actually deferred by the participant under this Plan plus any transfers to this Plan from the Employees Deferred Compensation Plan together with the interest thereon from the date(s) of deferral to the date of termination based upon an interest rate of 6% per annum compounded annually, and (ii)the present value, using 6% as the discount rate, of the Supplemental Deferral Payment multiplied by a percentage which is equal to the number of Annual Deferrals actually deferred divided by four and that result then multiplied by a percentage which is equal to the number of years of fractions thereof that the Participant was employed by the Company divided by the number of years or fractions thereof from the participant's date of hire by the Company to the Participant's normal retirement age (65). Second, if the amount determined pursuant to (i) above is greater than he amount determined pursuant to (ii) and it does not exceed One Hundred Thousand Dollars, then the amount determined pursuant to (i) shall be paid to the Participant in a single lump sum payment within one month after the Participant's termination of employment. Third, if the amount determined pursuant to (ii) above is greater than the amount determined pursuant to (i), or if the amount determined pursuant to (i) exceeds One Hundred Thousand Dollars, then the Participant shall be paid a reduced benefit equal to the Supplemental Deferral Payment multiplied by a percentage which is equal to the number of Annual Deferrals actually deferred divided by four and that result then multiplied by a percentage which is equal to the number of years of fractions thereof that the participant was employed by the Company divided by the number of years or fractions thereof from the Participant's date of hire by; the Company to the Participant's normal retirement age (65). The payment of that reduced benefit shall commence when the participant attains the age of 65 and shall be made annually for fifteen years (15 payments). If the Participant dies after the reduced benefit payments are commenced but before all of the payments have been made to the Participant, then the remaining annual payments shall be paid annually to the Participant, then the remaining annual payments shall be paid annually to the participant's beneficiaries as set forth on the Summary Schedule. If the Participant dies after termination of the employment but before the reduced benefit payments are commenced, then the Company shall pay the reduced benefit to the Participant's beneficiaries, as named on the Summary Schedule, annually for fifteen years (15 payments) commencing within one month after the Participant's death. (e) If the Participant dies prior to attaining his/her normal retirement age (65) and at the time of death is an employee of the Company (whether or not the Participant has made the four Annual Deferrals), then the Company shall within one month after the Participant's death commence annual payments to the Participant's beneficiaries, as set forth on the Summary Schedule, of the amount set forth on the Summary Schedule as Supplemental Death Benefit Payment for a period of fifteen years (15 payments). Distribution of the amounts set forth in this Paragraph 5 shall be in full settlement and payment of any amounts due to the Participant or his/her beneficiaries from his/her Supplemental Deferral Account. If a Participant does not defer the entire Annual Deferral set forth on the Summary Schedule for a given year, then the Participant shall be considered as not having made an Annual Deferral for that year. Additional Payments: In addition to the amount to be paid to the Participant under paragraph 5 hereof, the Company shall pay to each Participant who is also a Participant in the "Pension Plan of Central Vermont Public Service Corporation and Its Subsidiaries as amended and restated January 1, 1976", as amended from time to time (hereinafter "Pension Plan") maintained by the Company a supplemental amount equal to the difference between (i) the amount of benefits which the participant would have received under such Pension Plan if he had not elected to participate in this Plan and defer the Annual Deferrals, and (ii) the amount of benefits which the Participant is actually receiving under such Pension Plan. This supplemental payment shall, if applicable, be made to the participant at such times and under such terms and conditions as the Pension Plan provides for benefits payable thereunder. 7. Nature of Accounts: All amounts credited to the Supplemental deferral Account shall remain the sole property of the Company and shall be usable by it as a part of its general funds for any legal purpose whatever. The Supplemental Deferral Account shall exist only for the purpose of facilitating the computation of benefits hereunder and nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust or escrow of any kind, or a fiduciary relationship between the Company and the Participant, his/her designated beneficiary or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company other than as noted in Paragraph 12. 8. Beneficiary Designation: A Participant may designate a beneficiary to receive in the event of his/her death all amounts which are then and thereafter payable under Section 5 which shall be paid to said beneficiary in accordance with this Plan. Such designation and any subsequent changes thereto shall be made in writing and filed with the Treasurer. 9. Non-Transferability: No right to payment under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right to payment shall, in any manner, be liable for or subject to the debts, contracts, liabilities or torts of the person entitled thereto. If, at the time when payments are to be made hereunder, the Participant and/or his/her beneficiary are indebted to the Company then any payments remaining to be made hereunder may, at the discretion of the Company, be reduced by the amount of such indebtedness. An election by the Company not to reduce such payments shall not constitute a waiver of its claim for such indebtedness. 10. Plan Interpretation: The Board shall have full power and authority to interpret, construe and administer this Plan and the Board's interpretations and construction thereof, and actions thereunder, including any valuation of the Supplemental Deferral Account, or the amount or recipient of the payment to be made therefrom, shall be binding and conclusive on all persons for all purposes. No member of the Board shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his/her own willful misconduct or lack of good faith. 11. Authorized Investments: The amount so credited to the Supplemental Deferral Account may or may not be invested by the Company, from time to time, in such proportion and in such amounts as the Company in its sole discretion, sees fit, including but not limited to investments in life insurance on the Participant's life, mutual funds and variable annuity contracts. 12. Reorganization of the Company: The Company agrees that it will not merge or consolidate with any other company, business, corporation, partnership, or organization, and/or that it will not permit any of its activities to be taken over unless and until the succeeding or continuing corporation expressly assumes all rights, duties, privileges and obligations herein set forth. With regard to a default with respect to this provision, the Participant or Beneficiary shall have a continuing lien on all corporate assets, including transferred assets, until the Company's obligations herein are completely and totally fulfilled. In the event the Executive incurs litigation costs in imposing, enforcing, and collecting on said lien, those costs, including, but not limited to attorneys fees, shall be paid by the Company. The Company will pay to the Executive any taxes the Executive may incur on account of the Company, or its successor's default and the Executive's benefit will be reduced by the actuarial equivalent value of the taxes paid. 13. Communications: Any notice or communication shall be made in writing and addressed as the case may be to the principal offices or the Company and the principal residence of the Participant. Each party shall notify the other of a change of address of the principal office and principal address. 14. Facility of Payment: Any installment or payment required to be made by the Company under this Agreement to any person under a legal disability who is entitled to said payment, may be made in any of the following ways by the Company in its sole discretion: (1) directly to the person; (2) to the legal representative of the person; (3) to some near relative of the person, said payment to be used for the latter's benefit; or (4) directly for the payment of expenses relating to the health, maintenance, support, and education of the person. Any such payment by the Company shall be a discharge of the obligation to make said payment. The Company shall not be liable to the person under a legal disability for making the payment to any of the parties enumerated above. 15. Successors and Assigns: This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participant and his/her heirs, executors, administrators and legal representatives. 16. Amendment and Termination: The Board may, at its sole discretion at any time, amend or terminate this Plan with respect to any future period, and no such amendment or termination shall reduce the Participants' benefits which had accrued prior to such amendment or termination. Notice shall be given to the Participants ninety (90) days before the effective date(s) thereof. 17. Acceleration: Notwithstanding the payment provisions set forth in Paragraph 5 hereof, the Company in its sole and absolute discretion may at any time that the Participant or his/her beneficiaries is entitled to receive benefits under Paragraph 5 pay to the Participant or his/her then beneficiaries, in lieu of the remaining payments provided for therein, a single lump sum amount equal to the then present value of the remaining payments to be paid to the participant or his/her beneficiaries. In determining the present value, the Company shall use an interest rate equal to the interest rate on treasury securities having a maturity equivalent to the average length of the remaining payment period. The computation by the Company shall be final and binding on all parties. 18. Arbitration: In the event any dispute arising between the parties to this Agreement, the parties agree that such controversy shall be settled by arbitration in accordance with the Rules of the American Arbitration Association. All costs arising from said arbitration shall be borne by the Company. 19. Amendment: Except as provided in Section 16 above, this Agreement may be amended or revoked in whole or in part only by a writing signed by both parties hereto. 20. Effective Date: The effective date of this Plan is November 4, 1985. 21. Entire Agreement: Except as otherwise provided by the Change of Control Agreement, this writing contains the entire agreement and there are no other understandings or provisions other than what is contained herein. 22. Taxes: The Company shall deduct from all payments made hereunder all applicable federal or state taxes required by law to be withheld from such payments. 23. Transfer: The Board at its sole discretion may transfer amounts deferred under the Company's Employees Deferred Compensation Plan to this Plan to make the Annual Deferrals required hereunder. 24. Authorship: The company acknowledges and concedes that it drafted this agreement and that therefore any ambiguity contained therein must be construed against it. 25. Applicable Law: This Plan shall be construed in accordance with and governed by the laws of the State of Vermont. 26. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 27. Waiver. A waiver of one or more provisions of this Agreement shall not affect any other provisions of this Agreement, such that the remaining provisions will remain in full force and effect. 28. Invalid Provisions. Should any clause, sentence or paragraph of this Agreement be judicially declared invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement unless said clause, sentence or paragraph shall go to the heart of this Agreement. However, the balance of the Agreement will survive such an event if the Parties hereto agree that the part or parts of this Agreement going to the heart of this Agreement so held to be invalid, unenforceable, or void shall be deemed to have been stricken and that the remainder shall have the same force and effect as if said part or parts had never been included herein. ACKNOWLEDGMENT OF ARBITRATION. THE PARTIES UNDERSTAND THAT THIS EMPLOYEES' SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE. AFTER SIGNING THIS DOCUMENT, THE PARTIES UNDERSTAND THAT THEY WILL NOT BE ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE WHICH IS COVERED BY THE ARBITRATION AGREEMENT UNLESS IT INVOLVES A QUESTION OF CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD, THE PARTIES AGREE TO SUBMIT ANY SUCH DISPUTE TO AN IMPARTIAL ARBITRATOR. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer, and the Participant has hereunto set his/her hand and seal as of the ____ day of ______ IN WITNESS WHEREOF: ___________________ CENTRAL VERMONT PUBLIC SERVICE CORP. By_________________________________ Its __________________________________ Participant EX-10 5 EXHIBIT 10.72.1 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Directors' Deferred Compensation Plan Central Vermont Public Service Corporation (the "Company") hereby establishes the following supplemental deferred compensation plan (the "Plan"): 1. Purpose: The purpose of this Plan is to provide a foundation for continued growth of the Company by strengthening its capacity to attract and retain outstanding executives on its Board of Directors ("Board"). 2. Participants: Directors of the Company are eligible to participate in the Plan ("Participant"). 3. Participant's Election: (a) A Participant, by filing a written election on the Summary Schedule attached with the Treasurer may elect not to have paid to him/her a part or all of the compensation that would have otherwise been paid during the year for which the election is made and the succeeding three years. For the purpose of this Plan "compensation" shall mean the salary and fees paid by the Company to said director as Director of the Company. (b) The Participant shall indicate on the Summary Schedule the amounts to be deferred. However, the Participant must defer the same amount each year for a four year period. (c) Any election to defer compensation under this section shall be irrevocable and may not be canceled for any reason. 4. Supplemental Deferral Account: (a) The Company shall establish a bookkeeping account (the "Supplemental Deferral Account") for each Participant to record the amounts deferred according to the provisions of Section 3 and any additions thereto. The Company shall make a credit to each Participant's Supplemental Deferral Account equal to the portion of the compensation designated in his/her written notice. Such credit shall be made at the times that payment to the Participant of current compensation would have been made if he/she had not elected deferral hereunder. (b) The Company shall credit the Supplemental Deferral Account at least annually with any increase in value thereto. (c) The Company shall provide each Participant with an annual statement setting forth the balance in his/her Supplemental Deferral Account. 5. Distribution of Supplemental Deferral Account: The Company shall distribute the Supplemental Deferral Account to the Participant as follows: (a) If the Participant has deferred all four of the amounts set forth on the Summary Schedule under "Supplemental Deferral Election" ("Annual Deferrals"), then, when the Participant attains the age of 70 the Company shall commence annual payments to the Participant of the amount set forth on the Summary Schedule as Supplemental Deferral Payment ("Supplemental Deferral Payment") for a period of fifteen years (15 payments). If the Participant dies after payments are commenced but before all of the payments have been made to the Participant then the remaining annual payments shall be paid to the Participant's beneficiaries as indicated on the Summary Schedule. (b) If the Participant has not deferred all four Annual Deferrals for any reason other than death, then the Supplemental Deferral Payment shall be reduced by 25% for each Annual Deferral that the Participant did not defer. The reduced Supplemental Deferral Payment shall then be paid to the Participant annually for a period of fifteen years (15 payments) commencing when the Participant attains the age of 70. If the Participant dies after payments are commenced but before all of the payments have been made to the Participant, then the remaining annual payments shall be made to the Participant's beneficiaries as set forth on the Summary Schedule. (c) If the Participant has deferred all four Annual Deferrals and dies prior to attaining the age of 70, then the Company shall within one month after the Participant's death commence annual payments to the Participant's beneficiaries, as set forth on the Summary Schedule, of the amount set forth on the Summary Schedule as Supplemental Death Benefit Payment for a period of fifteen years (15 payments). (d) If the Participant has not deferred all four Annual Deferrals and dies prior to attaining the age of 70 and at the time of death is not a Director of the Company, then the Company shall within one month after the Participant's death commence annual payments to the Participant's beneficiary, as set forth on the Summary Schedule, of the amount set forth on the Summary Schedule as Supplemental Death Benefit Payment reduced by 25% for each annual amount that the Participant did not defer. The reduced Supplemental Death Benefit Payment shall be paid to the Participant's beneficiaries annually for a period of fifteen years (15 payments). (e) If the Participant has not deferred all four Annual Deferrals and dies prior to attaining the age of 70 and at the time of death is a Director of the Company, then the Company shall within one month after the Participant's death commence annual payments to the Participant's beneficiaries, as set forth on the Summary Schedule, of the amount set forth on the Summary Schedule as Supplemental Death Benefit Payment for a period of fifteen years (15 payments). Distribution of the amounts set forth in this paragraph 5 shall be in full settlement and payment of any amounts due to the Participant from his/her Supplemental Deferral Account. If a Participant does not defer the entire Annual Deferral set forth on the Summary Schedule for a given year, then the 25% reduction provided for in paragraph (b) and (d) above shall be applicable to that year. 6. Nature of Accounts: All amounts credited to the Supplemental Deferral Account shall remain the sole property of the Company and shall be usable by it as a part of its general funds for any legal purpose whatever. The Supplemental Deferral Account shall exist only for the purpose of facilitating the computation of benefits hereunder and nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust or escrow of any kind, or a fiduciary relationship between the Company and the Participant, his/her designated beneficiary or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company other than as noted in Paragraph 11. 7. Beneficiary Designation: A Participant may designate a beneficiary to receive in the event of his/her death all amounts which are then and thereafter payable under Section 5 which shall be paid to said beneficiary in accordance with this Plan. Such designation and any subsequent changes thereto shall be made in writing and filed with the Treasurer. 8. Non-Transferability: No right to payment under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right to payment shall, in any manner, be liable for or subject to the debts, contracts, liabilities or torts of the person entitled thereto. If, at the time when payments are to be made hereunder, the Participant and/or his/her beneficiary are indebted to the Company, then any payments remaining to be made hereunder may, at the discretion of the Company, be reduced by the amount of such indebtedness. An election by the Company not to reduce such payments shall not constitute a waiver of its claim for such indebtedness. 9. Plan Interpretation: The Board of Directors shall have full power and authority to interpret, construe and administer this Plan and the Board's interpretations and construction thereof, and actions thereunder, including any valuation of the Supplemental Deferral Account, or the amount or recipient of the payment to be made therefrom, shall be binding and conclusive on all persons for all purposes. No member of the Board shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his/her own willful misconduct or lack of good faith. 10. Authorized Investments: The amount so credited to the Supplemental Deferral Account may or may not be invested by the Company, from time to time, in such proportion and in such amounts as the Company in its sole discretion, sees fit, including but not limited to investments in life insurance on the Participant's life, mutual funds and variable annuity contracts. 11. Reorganization of the Company: The Company agrees that it will not merge or consolidate with any other company, business, corporation, partnership, or organization, and/or it will not permit any of its activities to be taken over unless and until the succeeding or continuing corporation expressly assumes all rights, duties, privileges and obligations herein set forth. With regard to a default with respect to this provision, the Participant or Beneficiary shall have a continuing lien on all corporate assets, including transferred assets, until the Company's obligations herein are completely and totally fulfilled. In the event the Participant incurs litigation costs in imposing, enforcing, and collecting on said lien, those costs, including, but not limited to, attorneys fees, shall be paid by the Company. The Company will pay to the Participant any taxes the Participant may incur on account of the Company, or its successor's default and the Participant's benefit will be reduced by the actuarial equivalent value of the taxes paid. 12. Communications: Any notice or communication shall be made in writing and addressed as the case may be to the principal offices of the Company and the principal residence of the Participant. Each party shall notify the other of a change of address of the principal office and principal address. 13. Facility of Payment: Any installment or payment required to be made by the Company under this Agreement to any person under a legal disability who is entitled to said payment, may be made in any of the following ways by the Company in its sole discretion: (1) directly to the person; (2) to the legal representative of the person: (3) to some near relative of the person, said payment to be used for the latter's benefit; or (4) directly for the payment of expenses relating to the health, maintenance, support, and education of the person. Any such payment by the Company shall be a discharge of the obligation to make said payment. The Company shall not be liable to the person under a legal disability for making the payment to any of the parties enumerated above. 14. Successors and Assigns: This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participant and his/her heirs, executors, administrators and legal representative. 15. Amendment and Termination: The Board may, at its sole discretion at any time, amend or terminate this Plan with respect to any future period, and no such amendment or termination shall reduce the Participant's benefits which had accrued prior to such amendment or termination. Notice shall be given to the Participants ninety (90) days before the effective date(s) thereof. 16. Acceleration: Notwithstanding the payment provisions set forth in Paragraph 5 hereof, the Company in its sole and absolute discretion, may at any time that the Participant or his/her beneficiaries is entitled to receive benefits under Paragraph 5 pay to the Participant or his/her beneficiaries, in lieu of the remaining payments provided for therein, a single lump sum amount equal to the then present value of the remaining payments to be paid to the Participant or his/her beneficiaries. In determining the present value, the Company shall use an interest rate equal to the interest rate on treasury securities having a maturity equivalent to the average length of the remaining payment period. The computation by the Company shall be final and binding on all parties. 17. Arbitration: In the event any dispute arising between the parties to this Agreement, the parties agree that such controversy shall be settled by the arbitration in accordance with the Rules of the American Arbitration Association. All costs arising from said Arbitration shall be borne by the Company. 18. Amendment: Except as provided in Section 15, this Agreement may be amended or revoked in whole or in part only by a writing signed by both parties hereto. 19. Effective Date: The effective date of this Plan is November 4, 1985. 20. Entire Agreement: This writing contains the entire agreement and there are no other understandings or provisions other than what is contained herein. 21. Taxes: The Company shall deduct from all payments made hereunder all applicable federal or state taxes required by law to be withheld from such payments. 22. Transfer: The Board at its sole discretion may transfer amounts deferred under the Company's Directors Deferred Compensation Plan to this Plan to make the annual deferral required hereunder. 23. Applicable Law: This Plan shall be construed in accordance with and governed by the laws of the State of Vermont. 24. Authorship. The Company acknowledges and concedes that it drafted this agreement and that therefore any ambiguity contained therein must be construed against it. 25. Headings: Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 26. Waiver: A waiver of one or more provisions of this Agreement, shall not affect any other provisions of this Agreement, such that the remaining provisions will remain in full force and effect. 27. Invalid Provisions: Should any clause, sentence or paragraph of this Agreement be judicially declared invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this agreement unless said clause, sentence or paragraph shall go to the heart of this Agreement. However, the balance of the Agreement will survive such an event if the parties hereto agree that the part or parts of this Agreement going to the heart of this Agreement so held to be invalid, unenforceable or void shall be deemed to have been stricken and that the remainder shall have the same force and effect as if said part or parts had never been included herein. ACKNOWLEDGMENT OF ARBITRATION. THE PARTIES UNDERSTAND THAT THIS DIRECTOR'S SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE. AFTER SIGNING THIS DOCUMENT, THE PARTIES UNDERSTAND THAT THEY WILL NOT BE ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE WHICH IS COVERED BY THE ARBITRATION AGREEMENT UNLESS IT INVOLVES A QUESTION OF CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD, THE PARTIES AGREE TO SUBMIT ANY SUCH DISPUTE TO AN IMPARTIAL ARBITRATOR. IN WITNESS WHEREOF, the Company has caused this Plan to be executed in duplicate by its duly authorized officer, and the Participant has hereunto set his/her hand and seal as of the_____ day of _________________, 19____. IN WITNESS WHEREOF: - -------------------------- CENTRAL VERMONT PUBLIC SERVICE CORP. By -------------------------------- Its Corporate Secretary -------------------------------- Participant EX-21 6 EXHIBIT 21.1 FOR FORM 10-K EXHIBIT 21.1 ------------ Subsidiaries of the Registrant ------------------------------ State in Which Incorporated --------------- Connecticut Valley Electric Company Inc. (a) (F1) New Hampshire Vermont Electric Power Company, Inc. (b) (F2) Vermont C.V. Realty, Inc. (a) (F1) Vermont Central Vermont Public Service Corporation - Bradford Hydroelectric, Inc. (a) (F1) Vermont Central Vermont Public Service Corporation - East Barnet Hydroelectric, Inc. (a) (F1) Vermont CV Energy Resources, Inc. (a) (F1) Vermont Catamount Rumford, Inc. (a) (F1) Vermont Equinox Vermont Corporation (a) (F1) Vermont Appomattox Vermont Corporation (a) (F1) Vermont Catamount Energy Corporation (a) (F1) Vermont Catamount Williams Lake, Ltd. (a) (F1) Vermont Catamount Glenns Ferry Corporation Vermont Catamount Rupert Corporation Vermont Summersville Hydro Corporation Vermont Gauley River Management Corporation Vermont SmartEnergy Services, Inc. (a) (F1) Vermont - - - - - - - - - - - - - - - - - - - - - - - - - - - - (FN) (F1) (a) Included in consolidated financial statements (F2) (b) Separate financial statements do not need to be filed under Regulation S-X, Rule 1-02 (v) defining a "significant subsidiary", and Rule 3-09, which sets forth the requirement for filing separate financial statements of subsidiaries not consolidated. EX-23 7 EXHIBIT 23.1 FOR FORM 10-K EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports dated February 5, 1996 included in this Form 10-K, into Central Vermont Public Service Corporation's previously filed Registration Statements on Form S-8, File No. 33-22741, Form S-8, File No. 33-22742, Form S-8, File No. 33-58102, Form S-8, File No. 33-62100 and Form S-3, File No. 33-37095. ARTHUR ANDERSEN LLP Boston, Massachusetts March 25, 1996 EX-27 8 EXHIBIT 27 FOR FORM 10-K
UT This Financial Data Schedule contains summary financial information extracted from the Consolidated Financial Statements included herein and is qualified in its entirety by reference to such financial statements (dollars in thousands, except per share amounts). 1,000 YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 327,002 51,982 60,575 50,503 0 490,062 68,087 45,251 66,422 179,760 20,000 8,054 120,142 13,505 0 0 0 0 19,385 1,094 128,122 490,062 288,277 10,662 253,378 264,040 24,237 5,782 30,019 10,168 19,851 2,028 17,823 6,976 8,142 41,711 1.53 0
EX-10 9 EXHIBIT 10.73.2 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION MANAGEMENT INCENTIVE PLAN Adopted As Of May 2, 1995. I. PURPOSE The Company's executive officers participate in the core utility Management Incentive Plan (the "Incentive Plan"). The purpose of the Incentive Plan is to focus the efforts of the executive team on the achievement of challenging and demanding corporate objectives. When corporate performance reaches or exceeds the specified annual performance objectives, an award is granted. A well-directed incentive plan, in conjunction with competitive salaries, provides a level of compensation which fully rewards the skills and efforts of the executives. II. ADMINISTRATION The Incentive Plan will be administered by the Compensation Committee of the Board of Directors (the "Committee"). All Committee actions will be subject to review and approval by the full Board of Directors (the "Board"). At the beginning of each year ("Plan Year"), the Committee will submit to the Board its recommendations for that Plan Year as to (i) the Incentive Plan's Corporate Performance Goals, and (ii) the eligible participants. After the end of each Plan Year, the Committee will report to the Board with respect to achievement of the approved Corporate Performance Goals and individual performance measures for that Plan Year, and will submit to the Board its recommendations as to the appropriate award payment levels for each eligible participant. Recommendations of the Committee, with such modifications as may be made by the Board, will be binding on all participants in the Incentive Plan. III. THE PLAN There is established a financial performance threshold, below which no incentive awards will be paid. The threshold is calibrated against the allowed return on equity. The degree to which the allowed return on equity is achieved generates a pool which is available to fund incentive payouts. The pool funds awards, but performance measures must also be met in the following areas to receive an award. Each measure is equally weighted. Return on equity. While this measure is used to establish the incentive pool, it is also one of the measures which is assessed in determining distribution of the pool. Operating costs and efficiency. Measures the cost of operating and maintenance expense expressed as a percent of kilowatt hour sales, as compared to budgeted expense levels. Retail customer satisfaction index. Measures service reliability by compiling the combined number and duration of outages in the current year, and the result of this calculation must be a 5% reduction improvement as measured against the previous five-year average. Individual performance. Based on advice and recommendation from the Chief Executive Officer for others reporting to him, the Committee evaluates individual officer performance. If the maximum payout on all of the standards were to be achieved, the total award would represent 30% of base salary for the Chief Executive Officer, 25% of base salary for the Chief Operating Officer, 20% for Senior Vice Presidents and Vice Presidents, and 15% for designated Assistant Officers. IV. AMENDMENTS The Board reserves the right to amend the Incentive Plan at any time. EX-10 10 EXHIBIT 10.79.1 FOR FORM 10-K OFFICERS SUPPLEMENTAL RETIREMENT PLAN This Agreement, entered into as of the date set forth on the Summary Schedule, which is attached hereto and made a part hereof, by and between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (hereinafter "Company") and the Executive named on the Summary Schedule (hereinafter "Executive"). WHEREAS, the Executive has provided valuable services to the Company and the Company desires to retain the Executive's valuable services and to aid in providing retirement and death benefits to the Executive and his/her beneficiaries; and WHEREAS, the Executive is a highly compensated managerial employee; NOW THEREFORE, the Company and the Executive in consideration of the terms and conditions set forth herein hereby mutually covenant and agree as follows: 1. Retirement Benefit: The Company will commence paying the Executive within thirty (30) days after the Executive's normal retirement date, provided the Executive is employed by the Company on his/her normal retirement date, the amount per month set forth on the Summary Schedule guaranteed for fifteen (15) years. If the Executive dies after becoming entitled to payments, but before the payments guaranteed for fifteen (15) years have been paid, the unpaid balance of the payment guaranteed for fifteen (15) years will continue to be paid by the Company to the beneficiaries named in the Summary Schedule. 2. Early Retirement Benefits: In the event the Executive's employment with the Company terminates prior to the Executive's normal retirement date for any reason other than death of the Executive or cause (gross misconduct) and the Executive has attained the age of 55 and has been employed by the Company for at least 10 years, then within thirty (30) days of the date of such termination, or reaching the age of 60, whichever is later, the Company will commence paying the Executive the monthly retirement benefit set forth on the Summary Schedule for fifteen years reduced by such amount as shall be determined by the Company, however, such reduction shall not be more than five percent (5%) for each full year that the benefit commencement date precedes the normal retirement date. Partial years shall be completed by a straight-line interpolation. If the Executive dies after becoming entitled to payments under this paragraph, but before all the guaranteed payments have commenced or have been made, the remaining payments shall be made by the Company to the beneficiaries named in the Summary Schedule. 3. Death Benefit: If the Executive dies after becoming eligible for guaranteed payments under paragraph 1 or 2, then the Company shall pay to the Executive's beneficiaries as an additional benefit, the sum of one hundred thousand dollars ($100,000.). 4. Leave of Absence: The Company may grant the Executive one or more leaves of absence during which time the Executive shall be considered to be in the employ of the Company for purposes of this Agreement. 5. Assignability: The benefits provided by this Agreement will not be subject to garnishment, attachment or any other legal process by the creditors of the Executive or of any person or persons designated as beneficiaries of the agreement. 6. Employment and Other Rights: This Agreement creates no rights whatsoever in the Executive to continue in the employ of the Company for any length of time, nor does it create any rights in the Executive or obligations on the part of the Company except as set forth herein. 7. Anti-Alienability Clause: Neither the Executive nor any beneficiary shall transfer, assign, pledge, mortgage or encumber any of the benefits and payments hereunder. The benefits shall not be subject to seizure, lien, judgement, alimony, levy, garnishment, or attachment. In the event that the Executive or any Beneficiary shall attempt any of the above acts, then the payment of installment payments or benefits by the Company shall immediately cease and terminate. 8. No Effect On Other Plans: Nothing contained herein shall affect any right or privilege of the Executive with regard to other employee plans the Company has, or may have in the future. 9. Financial Hardship: The Company may, in its sole discretion, pay the balance of the account, or any portion thereof to the Executive or any Beneficiary herein, provided that the Executive or Beneficiary has a demonstrable need due to financial hardship. The decision of whether or not financial hardship exists, or whether or not any payments herein shall be made, shall at all times rest solely with the Company, in its sole discretion. 10. Reorganization of the Company: The Company agrees that it will not merge or consolidate with any other company, business corporation, partnership, or organization, and/or that it will not permit any of its activities to be taken over unless and until the succeeding or continuing corporation expressly assumes all rights, duties, privileges and obligations herein set forth. With regard to a default with respect to this provision, the Executive or Beneficiary shall have a continuing lien on all corporate assets, including transferred assets, until the Company's obligations herein are completely and totally fulfilled. In the event the Executive incurs litigation costs in imposing, enforcing, and collecting on said lien, those costs, including, but not limited to attorneys fees, shall be paid by the Company. The Company will pay to the Executive any taxes the Executive may incur on account of the Company, or its successor's default and the Executive's benefit will be reduced by the actuarial equivalent value of the taxes paid. 11. Unsecured Provision: The rights of the Executive under this Agreement, and of any Beneficiary shall be solely those of an unsecured creditor of the Company. Any asset acquired by the Company in connection with any obligation herein shall not be deemed to be held in trust for the Executive or Beneficiary. All such assets remain general, unpledged assets of the Company. 12. Communications: Any notice or communication shall be made in writing and addressed as the case may be to the principal offices of the Company and the principal residence of the Executive. Each part shall notify the other of a change of address of the principal office and principal residence. 13. Facility of Payment: Any installment or payment required to be made by the Company under this Agreement, to any person entitled to said payment, with the person being under a legal disability at the time, then said payment may be made in any of the following ways, by the Company, in its sole discretion. 1. Directly to the person. 2. To the legal representative of the person. 3. To some near relative of the person, said payment to be used for the latter's benefit. 4. Directly for the payment of expenses relating to the health, maintenance, support and education of the person. Any such payment by the Company shall be a discharge of the obligation to make said payment. The company shall not be liable for making the payment to any of the parties enumerated above. 14. Arbitration: In the event of any dispute arising between the parties of this Agreement, the parties agree that such controversy shall be settled by arbitration, in accordance with the rules of the American Arbitration Association. One arbitrator shall be named by each party involved in the dispute, with an additional arbitrator named by the arbitrators so chosen. All costs arising from said arbitration shall be borne by the Company. 15. State Law: This Agreement shall be construed under the laws of the State of Vermont. 16. Revocability: This Agreement may be revoked or amended inwhole or part by a writing signed by both parties hereto except as set forth in Paragraph 17 below. 17. Amendment: Notwithstanding any other provision of this Agreement, in the event of a substantial change in the Federal Income Tax Laws affecting the economic viability of this plan, the Board of Directors may amend the plan by freezing the Executive's salary level for purposes of this Plan at the level as of date of such amendment. 18. Headings: Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 19. Waiver: A waiver of one or more provisions of this Agreement shall not affect any provisions of this Agreement, such a that the remaining provisions will remain in full force and effect. 20. Invalid Provisions: Should any clause, sentence or paragraph of this Agreement be judicially declared invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement unless said clause, sentence or paragraph shall go to the heart of this Agreement. However, the balance of the Agreement will survive such an event if the Parties hereto agree that the part or parts of this Agreement going to the heart of this Agreement so held to be invalid, unenforceable, or void shall be deemed to have been stricken and that the remainder shall have the same force and effect as if said part or parts had never been included herein. 21. Authorship: The Company acknowledges and concedes that it drafted this agreement and that therefore any ambiguity contained therein must be construed against it. 22. Whole Agreement: This writing contains the whole Agreement, except as other wise provided in the Change of Control Agreements, with no other understandings or provisions other than what is considered herein. Executed in duplicate as of this _______ day of _______________, 19_______. IN PRESENCE OF: _______________________________ _____________________________ Executive CENTRAL VERMONT PUBLIC SERVICE CORPORATION _______________________________ By___________________________ Duly Authorized Agent OFFICERS SUPPLEMENTAL RETIREMENT PLAN SUMMARY SCHEDULE 1. Name of Executive:___________________________________________ 2. Address:___________________________________________________ ___________________________________________________ 3. Date of Agreement:___________________________________________ 4. Monthly Retirement Benefit: __________________________ of the Executive's salary from the Company for the calendar year before retirement or termination of employment divided by 12. 5. Beneficiaries: _______________________________________________ _______________________________________________ _______________________________________________ In the event there are no surviving beneficiaries, then the benefit shall be paid to the Executor or Administrator of the last survivor of the Executive and said beneficiaries. 6. Normal Retirement Date:______________________________________ Executed in duplicate this __________ day of ____________________, 19_____. ________________________________ _______________________________ Witness Executive CENTRAL VERMONT PUBLIC SERVICE CORPORATION ________________________________ By_____________________________ Witness Duly Authorized Agent OFFICERS INSURANCE AGREEMENT This AGREEMENT made as of this date set forth on the Summary Schedule, which is attached hereto and made a part hereof, by and between Central Vermont Public Service Corporation (hereinafter "Company") and the Executive named in the Summary Schedule (hereinafter "Executive"). WHEREAS, the Executive has provided valuable services to the Company and Company desired to retain the Executive's valuable services and to provide the Executive and his/her beneficiaries with death benefits; NOW THEREFORE, the Company and the Executive in consideration of the terms and conditions set forth herein hereby mutually covenant and agree as follows: 1. Death Benefit: The Company agrees to purchase a life insurance policy on the life of the Executive which policy shall provide death benefits for the Executive's named beneficiaries in an amount equal to the Death Benefit set forth on the Summary Schedule. The Company shall be the owner of the policy and shall be entitled to exercise all of the rights and privileges available under the terms of the policy. The balance of the proceeds from the life insurance policy in excess of the Death Benefit provided for the Executive shall belong to the Company. Executive shall designate on the Summary Schedule the beneficiaries of the Death Benefit. The Executive may change the designated beneficiaries at any time by giving written notice to the Company. 2. Conditions: (a) Except as otherwise provided by the Change of Control Agreement, upon the Executive's termination of employment with the Company this Agreement shall automatically terminate and the Executive shall have no further rights hereunder and all proceeds from the policy shall thereafter belong to the Company. (b) The Executive agrees that he already has, or will, answer truthfully any questions or request for information by an insurance company in connection with the issuance of a policy upon his life with the Company as owner thereof. If the Executives fails to do so, or dies by suicide, and the liability of the insurer under said policy or policies, if any, is restricted to any degree as a result of such failure or suicide, then the Company shall be released from all of its obligations to Executive under this Agreement. 3. Premiums: The premiums for the insurance policy shall be paid by the Company. 4. Dividends: The dividends on the policy will be used to purchase additional paid-up insurance. 5. Extra Features: There will be incorporated in the policy a rider providing for waiver of premiums, if available, in the event of the total and permanent disability of the insured. 6. Termination: The Company may cancel this Agreement on thirty (30) days written notice to the Executive. 7. Definitions: The following terms as used in the Agreement mean: 1. "Premiums" The premiums provided for by the policy including any premium for the Waiver of Premium rider but exclusive of any other riders. 2. "Cash Value" The cash value including guaranteed cash value and value of insurance additions purchased with dividends as defined in the policy. 8. Successors and Assigns: All Company's rights under this Agreement will pass to and this Agreement will be binding upon its successors and assigns. All Executive's rights under this Agreement will pass to and this Agreement will be binding upon Executive's heirs, beneficiaries, Executors and Administrators. 9. Arbitration: In the event of any dispute arising between the parties to this Agreement, the parties agree that such controversy shall be settled by arbitration, in accordance with the rules of the American Arbitration Association. One arbitrator shall be named by each party involved in the dispute, with an additional arbitrator named by the arbitrators so chosen. All costs arising from said arbitration shall be borne by the Company. 10. State Law: This Agreement shall be construed under the laws of the State of Vermont. 11. Revocability: This Agreement may be revoked or amended in whole or part by a writing signed by both parties hereto. 12. Whole Agreement: Except as otherwise provided by the Change of Control Agreement, this writing contains the whole agreement, with no other understanding or provisions other than what is contained herein. 13. Headings: Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 14. Waiver. A waiver of one or more provisions of this Agreement, shall not affect any other provisions of this Agreement, such that the remaining provisions will remain in full force and effect. 15. Invalid Provisions. Should any clause, sentence or paragraph of this Agreement be judicially declared invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement unless said clause, sentence or paragraph shall go to the heart of this Agreement. However, the balance of the Agreement will survive such an event if the Parties hereto agree that the part or parts of this Agreement going to the heart of this Agreement so held to be invalid, unenforceable, or void shall be deemed to have been stricken and that the remainder shall have the same force and effect as if said part or parts had never been included herein. 16. Authorship. The Company acknowledges and concedes that it drafted this agreement and that therefore any ambiguity contained therein must be construed against it. EXECUTED in duplicate as of this _________ day of _______________, 19____. IN THE PRESENCE OF: _______________________________ _______________________________ Witness Executive CENTRAL VERMONT PUBLIC SERVICE CORPORATION _______________________________ By_____________________________ Witness Duly Authorized Agent OFFICERS INSURANCE AGREEMENT SUMMARY SCHEDULE 1. Name of Executive:___________________________________________ 2. Address:___________________________________________________ ___________________________________________________ 3. Date: ___________________________________________________ 4. Name of Insurance Company:___________________________________ ___________________________________________________ 5. Policy Number:______________________________________________ 6. Death Benefit: _________________(________times the Executives Salary) 7. Beneficiaries: ______________________________________________ ______________________________________________ If a beneficiary is not named or if the named beneficiary does not survive the Executive, the Death Benefit shall be paid to the Executor or Administrator of the Executive's Estate. DATED at Rutland, Vermont, this ______ day of _____________, 19_____. _______________________________ _______________________________ Witness Executive CENTRAL VERMONT PUBLIC SERVICE CORPORATION _______________________________ By_____________________________ Witness Duly Authorized Agent EX-10 11 EXHIBIT 10.80.1 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN ARTICLE I PURPOSE The purpose of this plan is to permit Directors of Central Vermont Public Service Corporation and subsidiary companies an opportunity to defer receipt of salary, bonus or incentive payments; and to enable to Corporation to attract and retain outstanding individuals to function as Directors. ARTICLE II DEFINITIONS When used herein the following terms have the meanings indicated unless a different meaning is clearly required by the context. 1. "Administrator": The person, persons, or committee appointed by the Board of Directors of the Corporation to administer this Plan. 2. "Corporation": Central Vermont Public Service Corporation and subsidiary companies, and its corporate successors. 3. "Deferred Compensation Agreement": Written agreement between the Corporation and a Participant in substantially the form attached hereto as Exhibit A and made a part hereof. 4. "Designated Beneficiary": One or more beneficiaries, as designated in writing to the administrator, to whom payments otherwise due to or for the benefit of a Participant are to be made in the event of the Participant's death. If no written designation is made by a Participant, or if the beneficiary is not in existence at the Participant's death, or if the beneficiary predeceases the Participant, the Participant is deemed to have designated his estate as beneficiary. 5. "Director": A person who has been elected to such a position by the Board of Directors of the Corporation. 6. "Normal Retirement": Retirement as an Director from the Corporation on or after the later of attainment of sixty-five (65) and the completion of five (5) years of Plan participation. 7. "Normal Retirement Date": The first day of the month coinciding with or next following the date on which a Participant first meets the requirement for Normal Retirement. 8. "Participant": An Director who is or hereafter becomes eligible to participate in the Plan and does participate by electing, in the manner specified herein, to defer compensation pursuant to the Plan. 9. "Participant's Account": The Participant's Account shall be the amount deferred by the Participant pursuant to the Deferred Compensation Agreement, Exhibit A, plus interest as determined by the Administrator in accordance with the table attached hereto as Exhibit B. However, the Participant understands and accepts that the present value of the Plan cost to the Corporation shall remain less than zero and that all risks of change in the credited interest rate used, mortality and tax law changes are to be assumed by the Participant. This may result in additional Plan deferrals which will be reflected in the balance of the Participant's Account. 10. "Plan": The Deferred Compensation Plan for Directors of Central Vermont Public Service Corporation contained herein, and as may be amended from time to time hereafter. 11. "Plan Year": A twelve month period commencing January 1 and ending the following December 31 with the first Plan year commencing January 1, 1990. 12. "Termination": When an Director's service with Corporaton terminates or is terminated for any reason. ARTICLE III ELIGIBILITY AND PARTICIPATION 1. Eligibility. Any Director of the Corporation 2. Participation. An eligible Director participates in the Plan by irrevocably electing, in the manner specified herein, to defer a predetermined amount for each year for five (5) consecutive Plan Years. ARTICLE IV RETIREMENT BENEFITS 1. Normal Retirement Benefit. (a) Upon retirement as an Director of the Corporation on or after his Normal Retirement Date, a Participant shall become entitled to his/her Normal Retirement Benefit. This Normal Retirement Benefit shall be determined by the amount in the Participant's Account as of the date of retirement and shall be paid out in the form of a level fifteen (15) year annuity certain, payable in one hundred eighty (180) equal monthly installments. For purposes of establishing the retirement annuity the fixed monthly payments will be based upon the account value at the date of retirement, with interest computed in the future based on the 60 months interest credited to your account prior to retirement. Payment of the Normal Retirement Benefit commences on the first day of the first month after the Participant's Normal Retirement Date and continues on the first day of each month thereafter until one hundred eighty (180) monthly payments have been made. ARTICLE V SURVIVOR BENEFITS 1. Events. The Company will pay to a Participant's Designated Beneficiary a Survivor Benefit as defined in this Article V in the event a Participant's death occurs as follows: (a) while serving as an Director of the Corporation and while a Participant under the Plan; (b) after becoming entitled to a Retirement Benefit under Article IV hereof, but prior to commencement of payment of such benefit; or (c) after annuity benefits have commenced, but prior to the completion of one hundred eighty (180)monthly benefit payments. 2. Amount. The amount of Survivor Benefit pursuant to this Article V will be determined as follows: (a) The Survivor Benefit will be equal to the value of the Participant's Account as of the date of death plus interest determined in the same manner as Normal Retirement Benefit pursuant to Article IV-1(a) if the Participant's death occurs while serving as an Director of the Corporation and while a Participant under the Plan. (b) The Survivor Benefit will be equal to the continuation of the monthly benefit payable to the Participant if the Participant's death occurs after benefit payments have commenced to him/her. 3. Duration. Payment of the Survivor Benefit to a Designated Beneficiary pursuant to this Article V commences on the first day of the month following the death of a Participant and continues on the first day of each month thereafter until a total of one hundred eighty (180) monthly payments have been made to the Participant or this Designated Beneficiary. ARTICLE VI TERMINATIONS In the event a Participant's relationship as an Director of the Corporation terminates for any reason other than death, Early Retirement or Normal Retirement, the Participant will have his/her account paid as follows: (i) If the Participant's Account is under $25,000, it shall be paid within thirty (30) days of the date of termination; (ii) If the Participant's Account is over $25,000, it shall be paid in one hundred eighty (180) monthly installments commencing at the time early retirement benefits would have been paid had he/she continued to be employed by the Corporation as an annuity based on an interest rate equal to the interest rate credited to the Account for the five (5) years prior to the early retirement date. ARTICLE VII AMENDMENT AND TERMINATION The Corporation reserves the right, at any time or from time to time, by action of its Board of Directors, to modify or amend in whole or in part any or all provisions of the Plan. In addition, the Corporation reserves the right by action of its Board of Directors to terminate the Plan in whole or in part. Such termination shall not affect the amount in the Participant's Account as of the date of such modification, amendment or termination. In addition, such modification, amendment or termination shall not affect the Deferred Compensation Agreements under which benefit payments had commenced prior to such modification, amendment or termination of the Plan. Should such modification, amendment or termination occur during the 5-year deferral period, Participant is released from obligation to continue deferrals. ARTICLE IX MISCELLANEOUS 1. Suicide. Except as hereafter provided no benefit will be payable under the Plan to a Participant or his Designated Beneficiary in the event the Participant dies as a result of suicide with twenty-four (24) months of entering this Plan. In the event of such suicide, the Participant's Designated Beneficiary will receive within a reasonable period of time a lump sum equal to the actual amounts deferred by the Participant under the Plan. 2. Non-Alienation of Benefits. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. 3. No Trust Created. The obligations of the Corporation to make payments hereunder shall constitute a liability of the Corporation to a Participant. Such payments shall be made from the general funds of the Corporation, and the Corporation shall not be required to establish or maintain any special or separate fund, or purchase or acquire life insurance on Participant's life, or other wise to segregate assets to assure that such payment shall be made, and neither a Participant, his estate nor Designated Beneficiary shall have any interest in any particular asset of the Corporation by reason of its obligations hereunder. Nothing contained in the Plan shall create or be construed as creating a trust of any kind or other fiduciary relationship between the Corporation and a Participant or any other person. 4. No employment Agreement. Neither the execution of this Plan nor any action taken by the Corporation pursuant to this Plan shall be held or construed to confer on a Participant any legal right to be continued as an Director of the Corporation nor restrict the right of any Participant to terminate his role as an Director of the Corporation. 5. Designation of Beneficiary. Participants shall file with the Corporation a notice in writing designating one or more Designated Beneficiaries to whom payments otherwise due to or for the benefit of the Participant hereunder shall be made in the event of his death prior to the complete payment of such benefit. Participants shall have the right to change the beneficiary or beneficiaries so designated from time-to-time provided; however, that any change shall not become effective until received in writing by the Administrator. 6. Claims for Benefits. Each Participant or Designated Beneficiary must claim any benefit to which entitled under this Plan by a written notification to the Administrator. If a claim is denied, it must be denied within a reasonable period of time, and be contained in a written notice stating the following: the specific reason for the denial; specific reference to the Plan provision on which the denial is based; description of additional information necessary for the claimant to present his claim, if any, and an explanation of why such material is necessary. The claimant will have sixty (60) days to request a review of the denial by the Administrator, which will provide a full and fair review. The request for review must be in writing delivered to the Administrator. The claimant may review pertinent documents, and he may submit issues and comments in writing. The decision by the Administrator with respect to the review must be given withing sixty (60) days after receipt of the request, unless special circumstances require an extension (such as for hearing). In no event shall the decision be delayed beyond one hundred twenty (120) days after receipt of the request for review. The decision shall be written in a manner calculated to be understood by the claimant, and it shall include specific reasons and refer to specific Plan provisions to its effect. 7. Binding Effect. Obligations incurred by the Corporation pursuant to this Plan shall be binding upon and insure to the benefit of the Corporation, its successors and assigns, and the Participant and the beneficiary or beneficiaries designated pursuant to Section 5 of this Article IX. 8. Reorganization of the Company. The Company agrees that it will not merge or consolidate with any other company, business, corporation, partnership, or organization, and/or that it will not permit any of its activities to be taken over unless and until the succeeding or continuing corporation expressly assumes all rights, duties, privileges and obligations herein set forth. With regard to a default with respect to this provision, the Participant or Beneficiary shall have a continuing lien on all corporate assets, including transferred assets, until the Company's obligations herein are completely and totally fulfilled. In the event the Participant incurs litigation costs in imposting, enforcing, and collecting on said lien, those costs, including, but not limited to attorneys fees, shall be paid by the Company. The Company will papy to the Participant any taxes the Participant may incur on account of the Company, or its successor's default and the Participant's benefit will be reduced by the actuarial equivalent value of the taxes paid. 11. Arbitration: In the event of any dispute arising between the parties of this Agreement, the parties agree that such controversy shall be settled by arbitration, in accordance with the rules of the American Arbitration Association. One arbitrator shall be neamed by each party involved in the dispute, with an additional arbitrator named by the arbitrators so chosen. All costs arising from said arbitration shall be borne by the Company. 9. Entire Plan. This document, and any amendments, contains all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect. 10. Invalid Provisions. Should any clause, sentence or paragraph of this Agreement be judicially declared invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement unless said clause, sentence or paragraph shall go to the heart of this Agreement. However, the balance of the Agreement will survive such an event if the parties hereto agree that the part or parts of this Agreement going to the heart of this Agreement so held to be invalid, unenforceable, or void shall be deemed to have been stricken and that the remainder shall have the same force and effect as if said part or parts had never been included herein. 11. Arbitration. In the even of any dispute arising between the parties of this Agreement, the parties agree that such controversy shall be settled by arbitration, in accordance with the rules of the American Arbitration Association. One arbitrator shall be named by each party involved in the dispute, with an additional arbitrator named by the arbitrators so chosen. All costs arising from said arbitration shall be borne by the Company. ARTICLE X CONSTRUCTION 1. Governing Law. This Plan shall be construed and governed in accordance with the laws of the State of Vermont. 2. Gender. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary. 3. Headings, etc. The cover page of this Plan, the Table of Contents and all headings used in this Plan are for convenience of reference only and are not part of the substance of this Plan. 4. Authorship. The Company acknowledges and concedes that it drafted this agreement and that therefore any ambiguity contained therein must be construed against it. 5. Waiver: A waiver of one or more provisions of this Agreement will not affect any provisions of this Agreement, such a that the remaining provisions will remain in full force and effect. THIS PLAN is signed in duplicate and becomes effective this _______ day of ___________________, 19_____. ___________________ ____________________________ Participant For Central Vermont Public Service Corporation Attest: ________________________________ Secretary (Corporate Seal) EXHIBIT A DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT is made this the _____ day of __________, 19_____, between Central Vermont Public Service Corporation, a Vermont corporation(hereinafter the "Corporation"), and _________________ an Director of the Corporation (hereinafter called "Participant") WHEREAS, the Board of Directors of the Corporation has approved a Deferred Compensation Plan for the purpose of attracting and retaining outstanding individuals to function as Directors of the Corporation; and WHEREAS, such Deferred Compensation Plan provides that the Participant become eligible to participate upon execution of a Deferred Compensation Agreement; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the Corporation and the Participant agree as follows: 1. Participation. This Agreement is made to evidence the Participant's participation in the Deferred Compensation Plan for Directors of Central Vermont Public Service Corporation (hereinafter the "Plan"), to set forth the amount of the Participant's Normal Retirement Benefit and Survivor Benefit under the Plan. 2. Adoption of Plan. The Plan (and its provisions), as it now exists and as it may be amended hereafter, is incorporated herein and made a part of this Agreement. 3. Definitions. When used herein, the terms which are defined in the Plan shall have the meanings given them in the Plan, unless a different meaning is clearly required by the context. 4. Deferrals. Pursuant to Article III of the Plan, the Participant hereby elects to defer the receipt of, and the Corporation hereby elects to defer the payment of salary, bonus or incentive payments in the amount of __________________________________________________($______________) dollars per year for each of the Plan years ending December 31, _______, _______, _______, _______ and _______. 5. Retirement Benefit. The Participant's Normal and Early Retirement Benefits are as defined in Article IV of the Plan. 6. Survivor Benefit. The Participant's Survivor Benefit is as defined in Article V of the Plan. 7. Entire Agreement. This Agreement contains the entire agreement and understanding by and between the Corporation and the Participant, and no representations, promises, agreements or understandings, written or oral, not contained herein shall be of any force or effect. IN WITNESS WHEREOF, the parties have executed in duplicate this Agreement in Duplicate originals as of the day and year entered above. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By:______________________ Chairman of the Board Attest: ___________________________________ Secretary (Corporate Seal) PARTICIPATING DIRECTOR: ______________________________(L.S) Participant -----END PRIVACY-ENHANCED MESSAGE-----