SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-8291
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GREEN MOUNTAIN POWER CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VERMONT 03-0127430
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(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
IDENTIFICATION NO.)
OR ORGANIZATION)
163 ACORN LANE
COLCHESTER, VT 05446
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ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (802) 864-5731
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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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS - COMMON STOCK OUTSTANDING AT APRIL 29, 2002
--------------------------- ----------------------------------
$3.33 1/3 PAR VALUE 5,708,550
GREEN MOUNTAIN POWER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AT AND FOR THE THREE MONTHS ENDED MARCH 31,
2002 AND 2001
Financial Statements Page
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Consolidated Balance Sheets 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition 16
And Results of Operations
Exhibits and Reports on Form 8-K 23
The accompanying notes are an integral part of the consolidated financial
statements.
GREEN MOUNTAIN POWER CORPORATION
CONSOLIDATED COMPARATIVE INCOME STATEMENTS
UNAUDITED
----------
THREE MONTHS ENDED
MARCH 31
2002 2001
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In thousands, except per share data
OPERATING REVENUES $68,866 $74,796
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OPERATING EXPENSES
Power Supply
Vermont Yankee Nuclear Power Corporation 8,073 7,835
Company-owned generation 962 2,376
Purchases from others 38,147 44,225
Other operating 3,507 3,368
Transmission 3,970 3,459
Maintenance 2,215 1,457
Depreciation and amortization 3,531 3,689
Taxes other than income 1,971 1,988
Income taxes 2,049 1,824
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Total operating expenses 64,425 70,221
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OPERATING INCOME 4,441 4,575
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OTHER INCOME
Equity in earnings of affiliates and non-utility operations 533 550
Allowance for equity funds used during construction 72 14
Other income (deductions), net (67) (27)
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TOTAL OTHER INCOME (DEDUCTIONS) 538 537
-------- --------
INCOME BEFORE INTEREST CHARGES 4,979 5,112
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INTEREST CHARGES
Long-term debt 1,360 1,547
Other interest 213 478
Allowance for borrowed funds used during construction (33) (62)
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TOTAL INTEREST CHARGES 1,540 1,963
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INCOME BEFORE PREFERRED DIVIDENDS AND 3,439 3,149
DISCONTINUED OPERATIONS
Preferred stock dividend requirement 85 235
-------- --------
Income from continuing operations 3,354 2,914
Net income from discontinued segment
operations - -
Loss on disposal, including provisions for
operating losses during phaseout period - -
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 3,354 $ 2,914
======== ========
Common stock data
Basic earnings per share $ 0.59 $ 0.52
Diluted earnings per share 0.57 0.51
Cash dividends declared per share $ 0.14 $ 0.14
Weighted average common shares outstanding-basic 5,691 5,588
Weighted average common shares outstanding-diluted 5,870 5,741
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Balance - beginning of period $ 8,070 $ 493
Net Income 3,439 3,149
Preferred stock dividend requirement (85) (235)
Cash Dividends-common stock (781) (768)
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Balance - end of period $10,643 $ 2,639
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
GREEN MOUNTAIN POWER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31
2002 2001
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OPERATING ACTIVITIES: In thousands
Net income before preferred stock dividend requirement $ 3,439 $ 3,149
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,531 3,689
Dividends from associated companies less equity income (96) 41
Allowance for funds used during construction (105) (76)
Amortization of purchased power costs 963 1,015
Deferred income taxes (368) (173)
Deferred revenues (2,212) 7,218
Deferred purchased power costs 725 551
Accrued purchase power contract option call - (1,580)
Environmental and conservation amortization (deferrals), net (97) (778)
Changes in:
Accounts receivable 24 (2,821)
Accrued utility revenues 279 214
Fuel, materials and supplies 533 926
Prepayments and other current assets 276 1,122
Accounts payable (1,058) (5,138)
Accrued income taxes payable and receivable 4,798 1,868
Other current liabilities 19 1,063
Other 643 (755)
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Net cash provided by continuing operations 11,297 9,533
INVESTING ACTIVITIES:
Construction expenditures (3,830) (2,350)
Investment in nonutility property (59) (46)
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Net cash used in investing activities (3,889) (2,397)
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FINANCING ACTIVITIES:
Redemption of preferred stock (11,000) -
Issuance of common stock 215 461
Reduction in long term debt (5,100) -
Power supply option obligation, net - 125
Short-term debt, net 6,000 (6,600)
Cash dividends and preferred stock dividend requirement (867) (1,003)
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Net cash used in financing activities (10,753) (7,017)
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Net increase(decrease) in cash and cash equivalents (3,344) 119
Cash and cash equivalents at beginning of period 5,006 341
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Cash and cash equivalents at end of period $ 1,662 $ 460
============== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year-to-date for:
Interest (net of amounts capitalized) $ 1,742 $ 1,354
Income taxes, net 965 -
The accompanying notes are an integral part of these consolidated financial
statements.
PART I, ITEM 1
GREEN MOUNTAIN POWER CORPORATION
CONSOLIDATED BALANCE SHEETS UNAUDITED
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AT MARCH 31, DECEMBER 31,
2002 2001 2001
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In thousands
ASSETS
UTILITY PLANT
Utility plant, at original cost $ 303,700 $291,034 $302,489
Less accumulated depreciation 122,133 111,877 119,054
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Net utility plant 181,567 179,157 183,435
Property under capital lease 5,959 6,449 5,959
Construction work in progress 9,851 8,567 7,464
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Total utility plant, net 197,377 194,173 196,858
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OTHER INVESTMENTS
Associated companies, at equity 14,997 14,332 14,093
Other investments 6,979 6,485 6,852
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Total other investments 21,976 20,817 20,945
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CURRENT ASSETS
Cash and cash equivalents 1,378 460 5,006
Certficate of deposit, pledged as collateral - 15,681 -
Accounts receivable, customers and others,
less allowance for doubtful accounts
of $613, $613, and $613 17,087 25,186 17,111
Accrued utility revenues 5,585 6,880 5,864
Fuel, materials and supplies, at average cost 3,524 3,130 4,058
Prepayments 1,444 1,375 1,976
Income tax receivable - - 1,699
Other 262 249 469
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Total current assets 29,280 52,961 36,183
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DEFERRED CHARGES
Demand side management programs 6,841 6,363 6,961
Purchased power costs 1,744 10,175 3,504
Pine Street Barge Canal 12,425 12,370 12,425
Power supply derivative deferral 40,776 31,517 37,313
Other 15,036 15,901 14,870
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Total deferred charges 76,822 76,326 75,073
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NON-UTILITY
Cash and cash equivalents 284 - -
Other current assets 8 8 8
Property and equipment 712 251 250
Other assets 807 862 817
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Total non-utility assets 1,811 1,121 1,075
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TOTAL ASSETS $ 327,266 $345,398 $330,134
============= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
GREEN MOUNTAIN POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
PART I-ITEM 1
1. SIGNIFICANT ACCOUNTING POLICIES
It is our opinion that the financial information contained in this report
reflects all normal, recurring adjustments necessary to present a fair statement
of results for the period reported, but such results are not necessarily
indicative of results to be expected for the year due to the seasonal nature of
our business and include other adjustments discussed elsewhere in this report
necessary to reflect fairly the results of the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. However, the
disclosures herein, when read with the annual report for 2001 filed on Form
10-K, are adequate to make the information presented not misleading.
The Vermont Public Service Board ("VPSB"), the regulatory commission in Vermont,
sets the rates we charge our customers for their electricity. In periods prior
to April 2001, we charged our customers higher rates for billing cycles in
December through March and lower rates for the remaining months. These were
called seasonally differentiated rates. In order to eliminate the impact of the
seasonally differentiated rates, we deferred some of the revenues from those
four months and recognized them in later periods when we had lower revenues or
higher costs. By deferring certain revenues we were able to better match our
revenues to our costs. On March 31, 2002 and 2001, there was deferred revenue
of $6.3 million and $7.2 million, respectively. These deferred revenues were
collected in prior periods. Seasonal rates were eliminated in April 2001, and
generated approximately $8.5 million in additional cash flow in 2001 that we
estimate will be used to offset increased costs during 2002, including $2.2
million that was recognized during the first quarter. The Company currently
estimates that its earnings for 2002 will be slightly below its allowed rate of
return of 11.25% percent, and that it will recognize the remaining balance of
$6.3 million of deferred revenues during 2002.
Certain line items on the prior year's financial statements have been
reclassified for consistent presentation with the current year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
assets and liabilities, and revenues and expenses. Actual results could differ
from those estimates.
UNREGULATED OPERATIONS
We have or have had unregulated, wholly-owned subsidiaries: Northern Water
Resources, Inc. ("NWR"); Green Mountain Propane Gas Company Limited ("GMPG");
GMP Real Estate Corporation; and Green Mountain Resources, Inc. ("GMRI").
During 2000 and 2001, we sold most of the assets of NWR, and reported its
results as income (loss) from operations of a discontinued segment. See the
disclosure under the caption "Segments and Related Information" for a more
detailed discussion. We also have a rental water heater program that is not
regulated by the VPSB. The results of the operations of these subsidiaries,
including NWR during 2002, and the rental water heater program are included in
equity in earnings of affiliates and non-utility operations in the Other Income
section of the Consolidated Comparative Income Statements.
2. INVESTMENT IN ASSOCIATED COMPANIES
We recognize net income from our affiliates (companies in which we have
ownership interests) listed below based on our percentage ownership (equity
method).
VERMONT YANKEE NUCLEAR POWER CORPORATION ("VY")
Percent ownership: 19.0% common
Three months ended
March 31
2002 2001
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(in thousands)
Gross Revenue. . . . . $38,731 $40,964
Net Income Applicable. 1,487 1,550
to Common Stock
Equity in Net Income . 313 273
On August 15, 2001, VY agreed to sell its nuclear power plant to Entergy
Corporation for approximately $180 million. On January 30, 2002, the Federal
Energy Regulatory Commission approved the Entergy purchase. The sale is subject
to approval of the VPSB, the U.S. Nuclear Regulatory Commission and other
regulatory bodies. A related agreement calls for Entergy to provide the current
output level of the plant to VY's present sponsors, including the Company, at
average annual prices ranging from $39 to $45 per megawatthour through 2012,
subject to a "low market adjuster" effective November 2005, that protects the
Company and other sponsors in the event that market prices for power drop
significantly. No additional decommissioning liability funding or any other
financing by VY is anticipated to complete the transaction. The sale, if
completed, will lower projected costs over the remaining license period for VY,
and transfer the liability for decommissioning the plant to the buyer. The
Company would continue to own its equity interest in VY.
On March 4, 2002, the Company, along with Central Vermont Public Service
Corporation, VY, Entergy Nuclear Vermont Yankee, LLC, and the Vermont Department
of Public Service (the "Department") executed a Memorandum of Understanding in
the Vermont Yankee sale docket before the VPSB. The Company expects the
intervenors in the case to continue to oppose the settlement and the VPSB is
expected to thoroughly investigate all issues. However, the Company believes
this settlement provides the best framework to resolve issues in the case,
obtain VPSB approval, and permit a closing of the sale of Vermont Yankee
generating plant to Entergy during July of this year.
The VY plant currently has fuel rods that will require repair during 2002, a
maintenance requirement that is not unique to VY. VY has indicated that it
plans to shutdown the plant for a ten-to-fourteen day period, beginning on May
11, 2002, to repair the rods. The Company currently estimates its portion of
the cost for repair, including incremental replacement energy costs, to be
approximately $1.8 million. Actual costs could differ from this estimate by a
material amount based on the duration of the outage, the extent of necessary
repairs and the purchase price of replacement power during the outage period.
Consistent with past practice and with the provisions in its last rate increase
order, the Company intends to seek an accounting order from the VPSB to defer
the additional costs related to the outage, and believes that such amounts are
probable of future recovery.
The Company's ownership share of VY has increased from approximately 17.9
percent last year to approximately 19.0 percent currently, due to VY's purchase
of certain minority shareholders' interests.
VERMONT ELECTRIC POWER COMPANY, INC. ("VELCO")
PERCENT OWNERSHIP: 29.5% COMMON
30.0% PREFERRED
VELCO is a corporation engaged in the transmission of electric power within
the State of Vermont. VELCO has entered into transmission agreements with the
State of Vermont and various electric utilities, including the Company, and
under these agreements, VELCO bills all costs, including interest on debt and a
fixed return on equity, to the State and others using VELCO's transmission
system.
Three months ended
March 31,
2002 2001
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(in thousands)
Gross Revenue . . . . $6,484 $7,170
Net Income. . . . . . 195 243
Equity in Net Income. 77 55
3. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The electric industry typically uses or generates a range of potentially
hazardous products in its operations. We must meet various land, water, air
and aesthetic requirements as administered by local, state and federal
regulatory agencies. We believe that we are in substantial compliance with
these requirements and that there are no outstanding material complaints about
the Company's compliance with present environmental protection regulations,
except for developments related to the Pine Street Barge Canal site.
PINE STREET BARGE CANAL SITE
The Federal Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), commonly known as the "Superfund" law, generally
imposes strict, joint and several liability, regardless of fault, for
remediation of property contaminated with hazardous substances. We are one of
several potentially responsible parties ("PRPs") for cleanup of the Pine Street
Barge Canal ("Pine Street") site in Burlington, Vermont, where coal tar and
other industrial materials were deposited.
In September 1999, we negotiated a final settlement with the United States,
the State of Vermont (the "State"), and other parties to a Consent Decree that
covers claims with respect to the site and implementation of the selected site
cleanup remedy. In November 1999, the Consent Decree was filed in the federal
district court. The Consent Decree addresses claims by the Environmental
Protection Agency (the "EPA") for past Pine Street site costs, natural resource
damage claims and claims for past and future oversight costs. The Consent
Decree also provides for the design and implementation of response actions at
the site.
As of March 31, 2002, our total expenditures related to the Pine Street site
since 1982 were approximately $25.3 million. This includes amounts not
recovered in rates, amounts recovered in rates, and amounts for which rate
recovery has been sought but which are presently awaiting further VPSB action.
The bulk of these expenditures consisted of transaction costs. Transaction
costs include legal and consulting costs associated with the Company's
opposition to the EPA's earlier proposals of a more expensive remedy at the
site, litigation and related costs necessary to obtain settlements with insurers
and other PRPs to provide amounts required to fund the clean up ("remediation
costs"), and to address liability claims at the site. A smaller amount of past
expenditures was for site-related response costs, including costs incurred
pursuant to EPA and State orders that resulted in funding response activities at
the site, and to reimbursing the EPA and the State for oversight and related
response costs. The EPA and the State have asserted and affirmed that all costs
related to these orders are appropriate costs of response under CERCLA for which
the Company and other PRPs were legally responsible.
We estimate that we have recovered or secured, or will recover, through
settlements of litigation claims against insurers and other parties, amounts
that exceed estimated future remediation costs, future federal and state
government oversight costs and past EPA response costs. We currently estimate
our unrecovered transaction costs mentioned above, which were necessary to
recover settlements sufficient to remediate the site, to oppose much more costly
solutions proposed by the EPA, and to resolve monetary claims of the EPA and the
State, together with our remediation costs, to be $12.4 million over the next 32
years. The estimated liability is not discounted, and it is possible that our
estimate of future costs could change by a material amount. We also have
recorded an offsetting regulatory asset, and we believe that it is probable that
we will receive future revenues to recover these costs.
Through rate cases filed in 1991, 1993, 1994, and 1995, we sought and received
recovery for ongoing expenses associated with the Pine Street site. While
reserving the right to argue in the future about the appropriateness of full
rate recovery of the site-related costs, the Company and the Department, and as
applicable, other parties, reached agreements in these cases that the full
amount of the site-related costs reflected in those rate cases should be
recovered in rates.
We proposed in our rate filing made on June 16, 1997 recovery of an additional
$3.0 million in such expenditures. In an Order in that case released March 2,
1998, the VPSB suspended the amortization of expenditures associated with the
Pine Street site pending further proceedings. Although it did not eliminate the
rate base deferral of these expenditures, or make any specific order in this
regard, the VPSB indicated that it was inclined to agree with other parties in
the case that the ultimate costs associated with the Pine Street site, taking
into account recoveries from insurance carriers and other PRPs, should be shared
between customers and shareholders of the Company. In response to our Motion
for Reconsideration, the VPSB on June 8, 1998 stated its intent was "to reserve
for a future docket issues pertaining to the sharing of remediation-related
costs between the Company and its customers". The VPSB Order released January
23, 2001 and discussed below did not change the status of Pine Street cost
recovery.
RETAIL RATE CASE
The Company reached a final settlement agreement with the Department in its
1998 rate case during November 2000. The final settlement agreement contained
the following provisions:
* The Company received a rate increase of 3.42 percent above existing rates,
beginning with bills rendered January 23, 2001, and prior temporary rate
increases became permanent;
* Rates were set at levels that recover the Company's Hydro-Quebec VJO
contract costs, effectively ending the regulatory disallowances experienced by
the Company from 1998 through 2000;
* The Company agreed not to seek any further increase in electric rates
prior to April 2002 (effective in bills rendered January 2003) unless certain
substantially adverse conditions arise, including a provision allowing a request
for additional rate relief if power supply costs increase in excess of $3.75
million over forecasted levels;
* The Company agreed to write off in 2000 approximately $3.2 million in
unrecovered rate case litigation costs, and to freeze its dividend rate until it
successfully replaces short-term credit facilities with long-term debt or equity
financing;
* Seasonal rates were eliminated in April 2001, which generated
approximately $8.5 million in additional cash flow in 2001 that can be utilized
to offset increased costs during 2002 and 2003;
* The Company agreed to consult extensively with the Department regarding
capital spending commitments for upgrading our electric distribution system and
to adopt customer care and reliability performance standards, in a first step
toward possible development of performance-based rate-making;
* The Company agreed to withdraw its Vermont Supreme Court appeal of the
VPSB's Order in a 1997 rate case; and
* The Company agreed to an earnings limitation for its electric operations
in an amount equal to its allowed rate of return of 11.25 percent, with amounts
earned over the limit being used to write off regulatory assets. The Company
earned approximately $30,000 in excess of its allowed rate of return during 2001
before writing off regulatory assets in the same amount.
On January 23, 2001, the VPSB approved the Company's settlement (the
"Settlement Order") with the Department, with two additional conditions:
* The Company and customers shall share equally any premium above book value
realized by the Company in any future merger, acquisition or asset sale, subject
to an $8.0 million limit on the customers' share; and
* The Company's further investment in non-utility operations is restricted.
POWER CONTRACT COMMITMENTS
Under an arrangement established on December 5, 1997 ("9701"), Hydro-Quebec
paid $8.0 million to the Company. In return for this payment, we provided
Hydro-Quebec options for the purchase of power. Commencing April 1, 1998 and
effective through 2015, the term of a previous contract with Hydro-Quebec (the
"1987 Contract"), Hydro-Quebec may purchase up to 52,500 MWh ("option A") on an
annual basis, at the 1987 Contract energy prices, which are substantially below
current market prices. The cumulative amount of energy that may be purchased
under option A shall not exceed 950,000 MWh.
Over the same period, Hydro-Quebec may exercise an option to purchase a total of
600,000 MWh ("option B") at the 1987 Contract energy prices. Under option B,
Hydro-Quebec may purchase no more than 200,000 MWh in any year.
During the first quarter of 2002, $0.8 million in power supply expense was
recognized to reflect the cost of option A, which is recognized ratably over the
year. Hydro-Quebec has previously agreed not to call option B during the 2002
contract year. At March 31, 2002, the cumulative amount of power purchased by
Hydro-Quebec under option B is approximately 432,000 MWh.
During the first quarter of 2001, Hydro-Quebec exercised option A and
option B, calling for deliveries of 134,592 MWh during June, July and August of
2001. The Company recognized $1.7 million in expense during the quarter ended
March 31, 2001 to reflect 9701 estimated costs. A regulatory asset of $4.9
million was established for the remaining estimated difference between the
option exercise price and the expected cost of replacement power for 2001.
If estimated costs of fulfilling the Hydro-Quebec option calls exceed
amounts recovered in rates and/or amounts previously recorded, the excess cost
would be immediately charged against earnings. No charge for excess cost was
required during the first quarters of 2002 and 2001. The Company had purchased
power sufficient to fulfill the 9701 options called in 2001, and no charges in
excess of amounts provided in rates or previously recorded are anticipated for
the remainder of 2002.
Hydro-Quebec's option to curtail energy deliveries pursuant to a July 1994
Agreement can be exercised in addition to these purchase options if documented
drought conditions exist. The exercise of this curtailment option is limited to
five times, requiring notice four months in advance of any contract year, and
cannot reduce deliveries by more than approximately 13 percent. The Company may
defer the curtailment by one year. Hydro-Quebec also has the option to reduce
the load factor from 75 percent to 65 percent under the 1987 Contract a total of
three times over the life of the contract. The Company can delay the load factor
reduction by one year under the same contract. During 2001, Hydro-Quebec
exercised the first of its load factor reduction options intended for 2002, and
the Company delayed the effective date of this exercise until 2003. The Company
estimates that the net cost of Hydro-Quebec's exercise of its load factor
reduction option will increase power supply expense during 2003 by approximately
$0.4 million.
It is possible our estimate of future power supply costs could differ materially
from actual results.
COMPETITION
During 2001, the Town of Rockingham ("Rockingham"), Vermont initiated
inquiries and legal procedures to establish its own electric utility, seeking to
purchase an existing hydro-generation facility from a third party, and the
associated distribution plant owned by the Company within the town. In March
2002, voters in Rockingham authorized Rockingham to create a municipal utility
by acquiring a municipal plant, which would include the Bellows Falls
Hydroelectric facility and the electric distribution systems of the Company
and/or Central Vermont Public Service Corporation. The Company receives annual
revenues of approximately $4.0 million from its customers in Rockingham. Should
Rockingham create a municipal system, the Company would vigorously pursue its
right to receive just compensation from Rockingham. Such compensation would
include full reimbursement for Company assets, if acquired, and full
reimbursement of any other costs associated with the loss of customers in
Rockingham, to assure that our remaining customers do not subsidize a Rockingham
municipal utility.
4. SEGMENTS AND RELATED INFORMATION
The Company had two reportable segments during 2001, the electric utility
and NWR. The electric utility is engaged in the distribution and sale of
electrical energy in the State of Vermont and also reports the results of its
wholly-owned unregulated subsidiaries (GMPG, GMRI, NWR and GMP Real Estate) and
the rental water heater program as a separate line item in the Other Income
section in the Consolidated Statement of Income.
NWR is an unregulated business that invested in energy generation, energy
efficiency and wastewater treatment projects. As of March 31, 2002, most of
NWR's net assets and liabilities have been sold or otherwise disposed, and NWR
is no longer reported as a separate segment. The remaining net liability
reflects expected warranty obligations, net of equity investments in two wind
farms and wastewater treatment projects.
In 2001, the Company reported NWR results as discontinued operations. The
provisions for loss from discontinued operations reflected the Company's most
recent estimate at that time. The ultimate loss remains subject to the
disposition of NWR's remaining liabilities, primarily wastewater treatment
warranty obligations, and could exceed amounts recorded. Results of operations
for NWR for the three months ended March 31, 2002 are now reported as continuing
operations under the caption Equity in earnings of affiliates and non-utility
operations. Segment information compared with the Company's results includes
the following:
Three months ended
March 31
2002 2001
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(in thousands, except per share data)
External revenues
Electric utility . . . . . . . . . . $68,866 $74,796
NWR segment. . . . . . . . . . . . . - 35
Net income from
operations
Electric utility . . . . . . . . . . $ 3,354 $ 2,914
NWR segment. . . . . . . . . . . . . - -
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Consolidated net income . . . . . . . $ 3,354 $ 2,914
======= =======
Basic earnings per share
Discontinued operations. . . . . . $ - $ -
Continuing operations. . . . . . . 0.59 0.52
Diluted earnings per share
Discontinued operations. . . . . . $ - $ -
Continuing operations. . . . . . . 0.57 0.51
5. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended ("SFAS 133").
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133, as amended by SFAS 137, was
effective for the Company beginning 2001.
One objective of the Company's risk management program is to stabilize cash flow
and earnings by minimizing power supply risks. Transactions permitted by the
risk management program include futures, forward contracts, option contracts,
swaps and transmission congestion rights with counter-parties that have at least
investment grade ratings. These transactions are used to hedge the risk of
fossil fuel and spot market electricity price increases. Futures, swaps and
forward contracts are used to hedge market prices should option calls by
Hydro-Quebec be exercised. The Company's risk management policy specifies risk
measures, the amount of tolerable risk exposure, and authorization limits for
transactions.
On April 11, 2001, the VPSB issued an accounting order that requires the Company
to defer recognition of any earnings or other comprehensive income effects
relating to future periods caused by application of SFAS 133. At March 31,
2002, the Company had a liability reflecting the negative fair value of the two
derivatives described below, as well as a corresponding regulatory asset of
approximately $40.8 million. The Company believes that the regulatory asset is
probable of recovery in future rates. The liability is based on current
estimates of future market prices that are likely to change by material amounts.
If a derivative instrument is terminated early because it is probable that a
transaction or forecasted transaction will not occur, any gain or loss would be
recognized in earnings immediately. For derivatives held to maturity, the
earnings impact would be recorded in the period that the derivative is sold or
matures.
The Company has a contract with Morgan Stanley Capital Group, Inc. ("MS") used
to hedge against increases in fossil fuel prices. MS purchases the majority of
the Company's power supply resources at index (fossil fuel resources) or
specified (i.e., contracted resources) prices and then sells to us at a fixed
rate to serve pre-established load requirements. This contract allows
management to fix the cost of much of its power supply requirements, subject to
power resource availability and other risks. The MS contract is a derivative
under SFAS 133 and is effective through December 31, 2003. Management's
estimate of the fair value of the future net cost of this arrangement at March
31, 2002 is approximately $12.5 million.
We also sometimes use future contracts to hedge forecasted wholesale sales of
electric power, including material sales commitments. We currently have an
arrangement with Hydro-Quebec that grants them an option to call power at prices
below current and estimated future market rates. This arrangement is a
derivative and is effective through 2015. Management's estimate of the fair
value of the future net cost for this arrangement at March 31, 2002 is
approximately $28.3 million.
6. NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations ("SFAS 141"), and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires the use of the purchase method to account for business
combinations initiated after June 30, 2001 and uses a non-amortization approach
to purchased goodwill and other indefinite-lived intangible assets. Under SFAS
142, effective for fiscal years beginning after December 15, 2001, goodwill and
intangible assets deemed to have indefinite lives, will no longer be amortized,
and will be subject to annual impairment tests. The adoption of these
accounting standards did not impact the Company's financial position or results
of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), effective
for the Company's 2003 fiscal year, which provides guidance on accounting for
nuclear plant decommissioning costs. SFAS 143 prescribes fair value accounting
for asset retirement liabilities, including nuclear decommissioning obligations,
and requires recognition of such liabilities at the time incurred. The Company
has not yet determined what impact, if any, the accounting standard will have on
its financial position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets" ("SFAS 144"). SFAS 144 specifies accounting and reporting for the
impairment or disposal of long-lived assets. The adoption of SFAS 144 did not
impact the Company's financial position or results of operations.
6. COMPUTATION OF EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and common
stock equivalent shares outstanding during each year. The Company established a
stock incentive plan for all directors and employees during the year ended
December 31, 2000, and options granted are exercisable over vesting schedules of
between one and four years.
Three months ended
March 31
2002 2001
------ ------
(in thousands)
Net income before preferred dividends. . $3,439 $3,149
Preferred stock dividend requirement . . 85 235
------ ------
Net income applicable to common stock. . $3,354 $2,914
====== ======
Average number of common shares-basic. . 5,691 5,588
Dilutive effect of stock options . . . . 179 153
Anti-dilutive stock options. . . . . . . - -
------ ------
Average number of common shares-diluted. 5,870 5,741
====== ======
GREEN MOUNTAIN POWER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2002
PART I-ITEM 2
In this section, we explain the general financial condition and the results
of operations for Green Mountain Power Corporation (the Company) and its
subsidiaries. This includes:
Factors that affect our business;
Our earnings and costs in the periods presented and why they changed
between periods;
The source of our earnings;
Our expenditures for capital projects year-to-date and what we expect they
will be in the future;
Where we expect to get cash for future capital expenditures; and
How all of the above affects our overall financial condition.
Management believes the most critical accounting policies include the regulatory
accounting framework within which we operate and the manner in which we account
for certain power supply arrangements that qualify as derivatives. These
accounting policies, among others, affect the Company's more significant
judgments and estimates used in the preparation of its consolidated financial
statements, including estimates and judgements used in determining the current
period recognition of revenues deferred in 2001, as discussed further under the
caption "Operating Revenues and MWh Sales-Revenues", in this section.
As you read this section it may be helpful to refer to the consolidated
financial statements and notes in Part I-Item 1.
There are statements in this section that contain projections or estimates and
are considered to be "forward-looking" as defined by the Securities and Exchange
Commission. In these statements, you may find words such as "believes,"
"estimates", "expects," "plans," or similar words. These statements are not
guarantees of our future performance. There are risks, uncertainties and other
factors that could cause actual results to be different from those projected.
Some of the reasons the results may be different are listed below and are
discussed under "Competition and Restructuring" in this section:
Regulatory and judicial decisions or legislation;
Weather;
Energy supply and demand and pricing;
Availability, terms, and use of capital;
General economic and business risk;
Nuclear and environmental issues;
Changes in technology; and
Industry restructuring and cost recovery (including stranded costs).
These forward-looking statements represent only our estimates and
assumptions as of the date of this report.
RESULTS OF OPERATIONS
EARNINGS SUMMARY - OVERVIEW
In this section, we discuss our earnings and the principal factors affecting
them. We separately discuss earnings for the utility business and for our
unregulated businesses
Total basic earnings per share of Common Stock
Three months ended
March 31
2002 2001
----- -----
Utility business . . . . $0.58 * $0.50
Unregulated businesses . 0.01 0.02
----- -----
Earnings from:
Continuing operations. . 0.59 * 0.52
Discontinued segment . . - -
----- -----
Basic earnings per share $0.59 * $0.52
===== = =====
* Includes recognition of $2.2 million of deferred revenues
UTILITY BUSINESS
The Company recorded basic earnings per share from utility operations of
$0.58 in the quarter ended March 31, 2002, compared with utility earnings of
$0.50 per share in the first quarter of 2001. Decreased retail revenues
resulting from warmer than normal winter temperatures and an economic downturn
were more than offset by the recognition $2.2 million in revenues deferred
during 2001 in accordance with the settlement of the Company's retail rate case
approved by the Vermont Public Service Board in January 2001. In the first
quarter of 2002, power supply costs were $7.3 million lower compared with the
same quarter of 2001, primarily due to a $6.0 million reduction in low margin
wholesale sales of electricity, and reduced retail sales of electricity.
UNREGULATED BUSINESSES
Earnings from unregulated businesses included in results from continuing
operations for the three months ended March 31, 2002 were lower than during the
same period in 2001. A financial summary for these businesses follows:
Three months ended
March 31
2002 2001
------------- -----
In thousands
Revenue. . $ 248 $ 262
Expense. . 164 125
------------- -----
Net Income $ 84 $ 137
============= =====
OPERATING REVENUES AND MWH SALES
Our revenues from operations, megawatthour ("MWh") sales and average number of
customers for the three months ended March 31, 2002 and 2001 are summarized
below:
Three months ended
March 31
2002 2001
---------- ----------
(dollars in thousands)
Operating revenues
Retail. . . . . . . . $ 52,489 $ 51,953
Sales for Resale. . . 15,809 21,838
Other . . . . . . . . 568 1,005
---------- ----------
Total Operating Revenues. $ 68,866 $ 74,796
========== ==========
MWh sales-Retail. . . . . 498,008 520,771
MWh sales for Resale. . . 518,287 638,096
---------- ----------
Total MWh Sales . . . . . 1,016,295 1,158,867
========== ==========
Average Number of Customers
Three months ended
March 31
2002 2001
------ ------
Residential . . . . . . . 73,831 73,149
Commercial and Industrial 13,076 12,933
Other . . . . . . . . . . 65 65
------ ------
Total Number of Customers. . 86,972 86,147
====== ======
REVENUES
Total revenues from operations in the first quarter of 2002 decreased 7.9
percent or $5.9 million compared with the same period in 2001. Operating
revenues result from retail and wholesale sales of electricity.
Retail revenues in the first quarter of 2002 were $0.5 million or 1.0 percent
higher compared with the same period in 2001, reflecting the recognition of $2.2
million of revenues deferred during 2001 under a settlement order in the
Company's retail rate filing that was approved by the Vermont Public Service
Board in January 2001. This amount was partially offset by decreased MWh sales
of electricity of 2.9 percent to small commercial and industrial customers, 5.4
percent to residential customers and 4.7 percent to lower margin industrial
customers during the first quarter of 2002 compared with the same period in
2001.
The Company currently estimates that its earnings for 2002 will be slightly
below its allowed rate of return of 11.25% percent, and that it will recognize
the remaining balance of $6.3 million of deferred revenues during 2002.
We sell wholesale electricity to others for resale. Our revenue from wholesale
MWh sales of electricity decreased $6.0 million in the first quarter of 2002
compared with the same period in 2001. The decrease was due primarily to
decreased sales under a power purchase and supply agreement between the Company
and MS, and decreased sales under various arrangements with Hydro-Quebec. Under
the MS agreement, we sell power to MS at predefined operating and pricing
parameters. MS then sells to us, at a predefined price, power sufficient to
serve pre-established load requirements.
OPERATING EXPENSES
POWER SUPPLY EXPENSES - THREE MONTHS ENDED MARCH 31, 2002
Power supply expenses decreased 13.3 percent or $7.3 million in the first
quarter of 2002 over the same period in 2001, primarily due to a reduction in
low margin wholesale sales of electricity and reduced retail sales of
electricity.
Power supply expenses at Vermont Yankee ("VY") decreased 3.0 percent or $0.2
million during the first quarter of 2002 compared with the first quarter of
2001. A proposed sale of the generating plant is discussed under Part I, Item
2, "Investment in Associated Companies".
Company-owned generation expenses decreased $1.4 million in the first quarter of
2002 compared with the same period in 2001 primarily due to the higher cost of
fuels and the unavailability in 2001 of unique replacement equipment connecting
Vermont's transmission system to that of New York. The lack of replacement
equipment required running generation to support system reliability. The
Company received subsequent reimbursement of its costs of running its units for
system reliability from the Independent System Operator of New England ("ISO")
during 2001.
The cost of power that we purchased from other companies decreased 13.7 percent
or $6.1 million in the first quarter of 2002 compared with the same period in
2001. This was primarily due to a $6 million reduction in low margin wholesale
electric revenues, decreased expenses under the 9701 arrangement with
Hydro-Quebec and reductions in retail MWh sales of electricity. These decreases
were offset in part by higher power supply costs under both the MS arrangement
and small power producer contracts. See the discussion under "Commitments and
Contingencies-Power Contract Commitments" for more detail regarding the 9701 and
MS arrangements.
The 9701 arrangement allows Hydro-Quebec to exercise an option to purchase power
from the Company at energy prices based on a 1987 contract. During the first
quarter of 2002, $0.8 million in power supply expense was recognized to reflect
the costs of option A, which are recognized ratably over the year. During the
first quarter of 2001, $1.6 million in power supply expense was recognized to
reflect the costs of options A and B. Hydro-Quebec has previously agreed not to
call option B during the 2002 contract year. The cumulative amount of power
purchased by Hydro-Quebec under option B is approximately 432,000 MWh.
During the first quarter of 2001, Hydro-Quebec exercised its purchase option for
delivery of 134,592 MWh during the months of June, July and August of 2001. The
Settlement Order approved by the VPSB included revenues in 2001 sufficient to
provide for net costs of replacing power purchased by Hydro-Quebec of
approximately $6.6 million annually. The Company recognized $1.7 million in
expense during the quarter ended March 31, 2001 to reflect these estimated
costs. A regulatory asset of $4.9 million was established for the remaining
estimated difference between the option exercise price and the expected cost of
replacement power. If the estimated costs of power purchased to supply
Hydro-Quebec option calls exceed amounts recovered in rates and/or amounts
previously recorded, the excess cost would be immediately charged against
earnings. No charge for excess cost was required during the first quarter of
2002 or 2001. It is possible our estimate of future power supply costs could
differ materially from actual results.
Both the 9701 arrangement and any related forward purchase contracts are
considered derivative instruments as defined by SFAS 133. On April 11, 2001,
the VPSB issued an accounting order that allows the Company to defer recognition
of any earnings or other comprehensive income effect relating to future periods
caused by application of SFAS 133, and as a result, we do not anticipate SFAS
133 to cause earnings volatility. At March 31, 2002, the Company had a
regulatory asset of approximately $40.8 million related to derivatives that the
Company believes is probable of recovery. The regulatory asset is based on
current estimates of future market prices that are likely to change by material
amounts.
OTHER OPERATING EXPENSES
Other operating expenses increased 4.1 percent or $139,000 in the first
quarter of 2002 compared with the same period in 2001, as a result of higher
employee benefit and other administrative and general costs.
TRANSMISSION EXPENSES
Transmission expenses increased by approximately $0.5 million or 14.8% for
the three months ended March 31, 2002 compared with the same period in 2001. The
Company's relative share of transmission costs varies with the peak demand
recorded on Vermont's transmission system. The Company's share of those costs
has increased due to its increased load growth, relative to other Vermont
utilities, recorded during the previous year. Congestion charges recorded in
the first quarter of 2001 reflect the lack of adequate transmission or
generation capacity in certain locations within New England, and these charges
are allocated to all ISO New England members. The Company is unable to predict
the magnitude or duration of future congestion charge allocations, but amounts
could be material.
MAINTENANCE EXPENSES
Maintenance expenses increased by approximately $0.8 million or 52.0%
during the first quarter of 2002 compared with the same period in 2001,
primarily due to increasing a liability for a claim for past services and a
temporary increase in overhead line maintenance costs.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses decreased $0.2 million or 4.3
percent during the first quarter of 2002 compared with the same period in 2001.
The reduction is primarily due to decreased amortization of demand side
management assets.
TAXES OTHER THAN INCOME TAXES
Other taxes expense for the first quarter of 2002 were essentially
unchanged from the same period in 2001.
INCOME TAXES
Income taxes increased $0.2 million in the first quarter of 2002 compared
with the same period in 2001 due to an increase in pretax book income for core
electric operations.
OTHER INCOME
Other income for the three months ended March 31, 2002 was essentially
unchanged from the same period in 2001.
INTEREST CHARGES
Interest charges decreased $0.4 million or 21.5 percent in the first
quarter of 2002 compared with the same period in 2001 primarily due to the
redemption of first mortgage bonds in December 2001, and reduced short-term debt
costs resulting from reductions in borrowing.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 2002, we spent $3.6 million principally
for expansion and improvements of our transmission and distribution plant. We
expect to spend approximately $16.0 million during the remainder of 2002.
The Company has a $15.0 million, 364-day revolving credit agreement with
Fleet Financial Services ("Fleet") joined by KeyBank National Association,
("KeyBank") expiring June 2002 (the "Fleet-Key Agreement"). There was $6.0
million outstanding on the Fleet-Key Agreement at March 31, 2002. The Fleet-Key
Agreement is unsecured. There was no non-utility short-term debt outstanding at
March 31, 2002.
On September 20, 2000, we established a $15.0 million revolving credit
agreement with KeyBank. The Company was required to invest $15.0 million
provided by Energy East Corporation ("EE"), pursuant to a power supply option
agreement, in a certificate of deposit at KeyBank pledged by the Company to
secure the repayment of the Keybank revolving credit facility. The payment made
by EE was returned with accrued interest on September 11, 2001. The KeyBank
agreement expired on September 19, 2001.
On July 27, 2001, the VPSB approved a $12.0 million two-year unsecured loan
agreement, with Fleet, joined by KeyBank, and the loan was made to the Company
on August 24, 2001. The Company used this facility, along with proceeds from
the maturing KeyBank certificate of deposit, to terminate the KeyBank agreement
and repay the $15.0 million it received from EE pursuant to the power supply
option agreement. At March 31, 2002, there was $12.0 million outstanding under
the two-year loan agreement.
The Company anticipates that it will secure financing that replaces some or
all of its expiring facilities during 2002.
The credit ratings of the Company's securities at March 31, 2002 are:
Fitch Moody's Standard & Poor's
----- ------- -----------------
First mortgage bonds BBB Baa2 BBB
Preferred stock. . . BBB- Ba2 BB
FUTURE OUTLOOK
COMPETITION AND RESTRUCTURING-The electric utility business continues to
experience rapid and substantial changes. These changes are the result of the
following trends:
disparity in electric rates, transmission, and generating capacity among
and within various regions of the country;
improvements in generation efficiency;
increasing demand for customer choice;
consolidation through business combinations;
new regulations and legislation intended to foster competition, also known
as restructuring; and
increasing volatility of wholesale market prices for electricity.
We are unable to predict what form future restructuring legislation, if
adopted, will take and what impact that might have on the Company, but it could
be material.
During 2001, the Town of Rockingham ("Rockingham"), Vermont initiated
inquiries and legal procedures to establish its own electric utility, seeking to
purchase an existing hydro-generation facility from a third party, and the
associated distribution plant owned by the Company within the town. In March
2002, voters in Rockingham authorized Rockingham to create a municipal utility
by acquiring a municipal plant, which would include the Bellows Falls
Hydroelectric facility and the electric distribution systems of the Company
and/or Central Vermont Public Service Corporation. The Company receives annual
revenues of approximately $4.0 million from its customers in Rockingham. Should
Rockingham create a municipal system, the Company would vigorously pursue its
right to receive just compensation from Rockingham. Such compensation would
include full reimbursement for Company assets, if acquired, and full
reimbursement of any other costs associated with the loss of customers in
Rockingham, to assure that our remaining customers do not subsidize a Rockingham
municipal utility.
NUCLEAR DECOMMISSIONING
The Financial Accounting Standards Board ("FASB") issued a new statement in
August 2001 for "Accounting for Asset Retirement Obligations", which provides
guidance on accounting for nuclear plant decommissioning costs. The Company has
not yet determined what impact, if any, the new accounting standard will have on
its investment in VY. We do not believe that changes in such accounting, if
required, would have an adverse effect on the results of our operations due to
our current and future ability to recover decommissioning costs through rates
and due to the pending sale of the VY plant.
EFFECTS OF INFLATION
Financial statements are prepared in accordance with generally accepted
accounting principles and report operating results in terms of historic costs.
This accounting provides reasonable financial statements but does not always
take inflation into consideration. As rate recovery is based on these
historical costs and known and measurable changes, the Company is able to
receive some rate relief for inflation. It does not receive immediate rate
recovery relating to fixed costs associated with Company assets. Such fixed
costs are recovered based on historic figures. Any effects of inflation on
plant costs are generally offset by the fact that these assets are financed
through long-term debt.
MARKET RISK
A sensitivity analysis has been prepared to estimate the exposure to the market
price risk of our electricity commodity positions. Our daily net commodity
position consists of purchased electric capacity. The table below presents
market risk, estimated as the potential loss in fair value resulting from a
hypothetical 10 percent adverse change in prices. Actual prices may differ
materially from the table.
Commodity Price Risk At March 31, 2002
Fair Value Market Risk
--------------- ------------
(in thousands)
Net short position $ 40,776 $ 3,900
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item 6b. The following filings on Form 8-K were filed by the Company on the
topics and dates indicated:
March 4, 2002, announced the Settlement Agreement filed with the VPSB as a
Memorandum of Understanding on the Sale of Vermont Yankee between the Vermont
Department of Public Service, Entergy Nuclear Vermont Yankee, LLC, Vermont
Yankee Nuclear Power Corporation, Central Vermont Public Service Corporation and
the Company.
March 25, 2002, announced that Vermont Yankee Nuclear Power Corporation has
confirmed a shutdown on or about May 11, 2002 for a mid cycle outage to repair
several fuel rods. The outage was anticipated to last ten to fourteen days.
Item 6a. The following exhibit 10-d-37, Severance Agreement with D. J. Rendall,
Jr., is filed herewith.
Exhibit 10-d-37
PERSONAL AND CONFIDENTIAL
March 1, 2002
Donald J. Rendall, Jr.
General Counsel
Green Mountain Power Corporation
163 Acorn Lane
Colchester, VT 05446
Dear Don:
Green Mountain Power Corporation (the "Company") considers it essential to
the best interests of its shareholders to foster the continuous employment of
key management personnel. In addition, the Board of Directors of the Company
(the "Board") recognizes that the possibility of a change of control of the
Company may exist and the uncertainty and questions which it may raise among
management may result in the distraction or departure of management personnel to
the detriment of the Company and its shareholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of the possibility of a change in control of the
Company, although no such change is known to be contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in subsection 4(ii) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
Agreement in the event your employment with the Company is terminated subsequent
to a "change in control of the Company" (as defined in section 4 hereof and
hereinafter a "Change of Control") under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on March 1, 2002 (the
-------------------
"Effective Date") and shall continue in effect through March 1, 2003; provided,
however, that commencing on January 1, 2003 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company shall
have given notice that it does not wish to extend this Agreement.
2. Terms of Employment Before a Change of Control. Prior to a Change of
--------------------------------------------------
Control, your terms of employment ("Terms of Employment") shall be as follows:
(a) General duties. Excluding periods of vacation and sick leave to which
you are entitled, you will continue to exercise such authority and perform such
executive duties as are commensurate with the authority being exercised and
duties being performed by you immediately before the Effective Date.
(b) Place of employment. Your services will be performed at the location
where you were employed immediately before the Effective Date. If the Company
and you agree, however, the location of your employment may be changed without
affecting your rights under this Agreement.
(c) Expenses generally. You are entitled to receive prompt reimbursement
for all reasonable expenses you incur. Reimbursement must be made in accordance
with the Company's policies and procedures in effect on the Effective Date
(which may include a requirement that you submit an itemized expense voucher).
(d) Meetings, conventions, and seminars. You are encouraged and are
expected to attend seminars, professional meetings and conventions, and
educational courses. The cost of travel, tuition or registration, food, and
lodging for attending those activities must be paid by the Company. Other costs
are your expense, unless the Company authorizes those costs. If those other
costs are authorized expenses, you must be reimbursed after satisfying the
Company's policies and procedures for such reimbursement (which may include a
requirement that you submit an itemized expense voucher).
(e) Promotional expenses. You are encouraged and are expected, from time to
time, to incur reasonable expenses for promoting the Company's business. Such
promotional expenses include travel, entertainment (including memberships in
social and athletic clubs), professional advancement, and community service
expenses. You agree to bear those expenses except to the extent that those
expenses are incurred at the Company's specific direction or those expenses are
specifically authorized by the Company as expenses that the Company may pay
directly or indirectly through reimbursement to you.
(f) Outside activities. You may (i) serve on corporate, civic, or
charitable boards or committees; (ii) deliver lectures, fulfill speaking
engagements, or teach at educational institutions; and (iii) manage personal
investments. Such activities must not significantly interfere with the
performance of your responsibilities for the Company. To the extent that any
such activities have been conducted by you before the Effective Date, such prior
conduct of activities and any subsequent conduct of activities similar in nature
and scope may not be deemed to interfere with the performance of your
responsibilities to the Company.
(g) Compensation and fringe benefits. Your compensation (including your
annual base salary and any bonuses or incentive compensation) and benefits
generally are the same as those in effect on the Effective Date. Your
compensation and benefits are, however, subject to periodic review and
adjustment by the Company. This section of this Agreement does not change the
terms of any fringe benefit program or employee benefit plan maintained by the
Company and does not give you any additional vested interest in any compensation
or benefit to which you are not already entitled under any such program or plan
on the Effective Date. Generally, your benefits include the following items,
all of which are subject to periodic review and adjustment: (i) You are entitled
to receive all group life, accidental death and dismemberment, long-term
disability, and medical insurance benefits available to you according to Company
policies and employee benefit plans maintained by the Company that are in effect
on the Effective Date; (ii) You are entitled to paid vacation in accordance with
the Company's policies in effect on the Effective Date; (iii) You are entitled
to sick leave in accordance with the Company's policies in effect on the
Effective Date; and (iv) You are entitled to participate in all employee benefit
plans and programs in which you participate on the Effective Date, whether or
not such plans or programs are subject to the Employee Retirement Income Act of
1974, as amended ("ERISA"), including but not limited to the Company's
Retirement Plan, Supplemental Retirement Plan or any successor plans thereto,
any incentive compensation plans maintained by the Company or any successor
thereto, the Company's Deferred Compensation Plan for Certain Officers and any
stock-based compensation plans maintained by the Company or successor plans
thereto and any savings or thrift plan maintained by the Company.
3. Extension of Agreement Upon Change of Control. If a Change of Control
------------------------------------------------
shall have occurred during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period of at least thirty-six (36)
months beyond the month in which such Change of Control occurred. The Terms of
Employment set forth in section 2 continue in effect after a Change of Control
and may not be changed to terms and conditions less favorable than those in
effect on the day immediately preceding a Change of Control.
4. Change of Control.
-------------------
(i) No benefits shall be payable hereunder unless there shall have been
a Change of Control, as set forth below. For purposes of this Agreement, a
Change of Control shall be deemed to have occurred if (A) any "person" (as such
term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then outstanding
securities (a "20% Holder"); or (B) during any period of two consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board of Directors of the
Company (the "Board") and any new director (other than a director designated by
a person who has entered into an agreement with the Company to effect a
transaction described in clauses (A) or (C) of this subsection) whose election
by the Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the directors of the Company; or (C) the
shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; provided, however, that a Change of
Control shall not be deemed to have occurred under clauses (A) or (C) above if a
majority of the Continuing Directors (as defined below) determine within five
business days after the occurrence of any event specified in clauses (A) or (C)
above that control of the Company has not in fact changed and it is reasonably
expected that such control of the Company in fact will not change.
Notwithstanding that, in the case of clause (A) above, the Board shall have made
a determination of the nature described in the preceding sentence, if there
shall thereafter occur any material change in facts involving, or relating to,
the 20% Holder or to the 20% Holder's relationship to the Company, including,
without limitation, the acquisition by the 20% Holder of l% or more additional
outstanding voting stock of the Company, the occurrence of such material change
in facts shall result in a new Change of Control for the purpose of this
Agreement. In such event, the second immediately preceding sentence hereof
shall be effective. As used herein, the term "Continuing Director" shall mean
any member of the Board on the date of this Agreement and any successor of a
Continuing Director who is recommended to succeed the Continuing Director by a
majority of Continuing Directors. If, following a Change of Control, you are
the beneficial owner of two percent or more of the then-outstanding equity
securities of the Company, or its successor in interest, a majority of the
Continuing Directors may elect, within five business days after such Change of
Control, to terminate any benefits payable to you under this Agreement after the
date of such an election by the Continuing Directors.
(ii) For purposes of this Agreement, a "Potential Change of Control"
shall be deemed to have occurred if (A) the Company enters into an agreement,
the consummation of which would result in the occurrence of a Change of Control;
(B) any person (including the Company) publicly announces an intention to take
or to consider taking actions which if consummated would constitute a Change of
Control; (C) any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned,
directly or indirectly, by the shareholders of the Company in substantially the
same proportion as their ownership of stock of the Company, becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 5% or more of the combined voting power of the Company's then
outstanding securities; or (D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change of Control has occurred. You
agree that, subject to the terms and conditions of this Agreement, in the event
of a Potential Change of Control, you will remain in the employ of the Company
until the earliest of (i) a date which is six (6) months from the occurrence of
such Potential Change of Control, (ii) the termination by you of your employment
by reason of Long-Term Disability or Retirement (at your normal retirement age),
as defined in subsection 5(i), or (iii) the occurrence of a Change of Control.
5. Termination Following Change of Control. If any of the events described
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in subsection 4(i) hereof constituting a Change of Control shall have occurred,
you shall be entitled to the benefits provided in subsection 6(iii) hereof upon
the subsequent termination of your employment during the term of this Agreement
unless such termination is (A) because of your death, Long-Term Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason.
(i) Death, Long-Term Disability, or Retirement. If, as a result of
your incapacity due to physical or mental illness which is determined to be
total and permanent and to prevent you from performing, with or without
reasonable accommodation, the essential functions of your employment by a
physician and any other consultants selected by the Company or its insurers and
acceptable to you or your legal representative, you shall have been absent from
the full-time performance of your duties with the Company for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given you shall not have returned to the full-time performance of
your duties, your employment may be terminated for "Long -Term Disability".
Termination by the Company or you of your employment based on "Retirement" shall
mean termination in accordance with the Company's retirement policy, including
early retirement, generally applicable to its salaried employees or in
accordance with any retirement arrangement established with your consent with
respect to you. Your death ("Death") during the term of this Agreement will
terminate the Agreement.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination, by
you for Good Reason, as defined in subsection 5(iii)) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have
not substantially performed your duties, (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise, or (C) your willful and continued breach of a material
term of this Agreement. For purposes of this subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses (A),
(B), or (C) of the first sentence of this subsection and specifying the
particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence after a Change of Control
of any of the following circumstances unless, in the case of paragraphs (A),
(E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the
Date of Termination specified in the Notice of Termination, as defined in
Subsections 6(iv) and 6(v), respectively, given in respect thereof:
(A) the assignment to you of any duties inconsistent with your status
as General Counsel of Green Mountain Power Corporation or a substantial adverse
alteration in the nature or status of your responsibilities from those in effect
immediately prior to the Change of Control;
(B) a reduction by the Company in your annual base salary as in effect
on the date hereof or as the same may be increased from time-to-time except for
across-the-board salary reductions similarly affecting all executives of the
Company and all executives of any person in control of the Company;
(C) the relocation of the Company's principal executive offices
(presently located at 163 Acorn Lane, Colchester, Vermont) to a location more
than fifty miles distant from the present location prior to the Change of
Control, or the closing thereof, or the Company's requiring you to be based
anywhere other than within fifty miles of the present location, except for
required travel on the Company's business to an extent substantially consistent
with your present business travel obligations;
(D) the failure by the Company, without your consent, to pay to you any
portion of your current compensation except pursuant to an across-the-board
compensation deferral similarly affecting all executives of the Company and all
executives of any person in control of the Company;
(E) the failure by the Company to offer you any compensation plan
introduced to other executives of similar responsibility or any substitute plans
adopted prior to the Change of Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan; or the failure by the Company to continue your
participation in any such compensation plan (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of your participation relative to
other participants, as existed at the time of the Change of Control;
(F) the failure by the Company to continue to provide you with the
benefits substantially similar to those enjoyed by you under any of the
following plans or programs maintained by the Company at the time of a Change of
Control or the taking of any action which would directly or indirectly
materially reduce any of such benefits, including but not limited to: (i) fringe
benefits, in accordance with the Company's policies in effect at the time of a
Change of Control; (ii) group life, accidental death and dismemberment,
long-term disability, and medical and dental insurance benefits available to you
according to Company policies and employee benefit plans maintained by the
Company that are in effect at the time of a Change of Control; (iii) paid
vacation in accordance with your agreements with the Company's and/or the
Company's policies in effect at the time of a Change of Control; (iv) sick leave
in accordance with the Company's policies in effect at the time of a Change of
Control; and (v) the Company's Retirement and Supplemental Retirement Plans or
any successors thereto, any incentive compensation plans maintained by the
Company or any successor thereto, the Company's Deferred Compensation Plan for
Certain Officers, any stock-based compensation plans maintained by the Company
or successor plans thereto, any savings or thrift plan maintained by the
Company, whether or not such plans or programs are subject to ERISA;
(G) any action by the Company that eliminates, materially reduces or
jeopardizes the ability of the Company to fulfill its obligations under the
Company's Deferred Compensation or Supplemental Retirement Plan, or both such
plans, including by way of example and not of limitation, the sale or other
disposition of assets of the Company, and all, or substantially all, of the
proceeds from such sale or other disposition do not remain with the Company;
(H) the failure of the Company to obtain a satisfactory agreement from
any successor company to assume and agree to perform this Agreement, as
contemplated in section 7 hereof;
(I) any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of subsection
(iv) below (and if applicable, the requirements of subsection (ii) above); for
purposes of this Agreement, no such purported termination shall be effective; or
(J) your resignation, if tendered during the thirty days immediately
following the first twelve months after a Change of Control; provided, however,
that, if the Change of Control occurs pursuant to subsection 4(i)(C), your
resignation must be tendered during the thirty days immediately following the
first twelve months after the date the Company merges or consolidates with the
corporation approved by the shareholders pursuant to subsection 4(i)(C) of this
Agreement.
Your right to terminate your employment pursuant to this subsection shall
not be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder. For purposes
of this subsection, any good faith determination of Good Reason made by you
shall be conclusive.
(iv) Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with section 9 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if your
employment is terminated for Long-Term Disability, thirty (30) days after Notice
of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30) day period), and
(B) if your employment is terminated pursuant to subsection (ii) or (iii) above
or for any other reason (other than Long-Term Disability), the date specified in
the Notice of Termination (which, in the case of a termination pursuant to
subsection (ii) above shall not be less than thirty (30) days, and in the case
of a termination pursuant to subsection (iii) above shall not be less than
fifteen (15) nor more than sixty (60) days, respectively, from the date such
Notice of Termination is given); provided that if within fifteen (15) days after
any Notice of Termination (as determined without regard to this provision), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this subsection. Amounts paid under this subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
6. Compensation Upon Termination or During Short-Term Disability. Following
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a Change of Control, as defined by subsection 4(i), upon termination of your
employment or during a period of Short-Term Disability you shall be entitled to
the following benefits:
(i) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness
(hereinafter "Short-Term Disability") you shall continue to receive your base
salary at the rate in effect at the commencement of the Short-Term Disability,
together with all compensation and benefits payable or available to you and your
family under any other plan in effect during such period, until this Agreement
is terminated pursuant to subsection 5(i) hereof. Thereafter, or in the event
your employment shall be terminated by the Company or by you for Long-Term
Disability, Retirement, or by reason of your Death, your benefits and your
family's or heirs' benefits, if applicable, shall be determined under the
Company's retirement, insurance and other compensation programs with respect to
other peer executives and their families as in effect on the Date of
Termination, or if more favorable to you, your family or your heirs, as in
effect during the 120-day period immediately preceding a Change of Control, in
accordance with the terms of such programs. You, or, if applicable, your heirs
or estate, shall also receive your full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given.
(ii) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, Long-Term Disability, Death or Retirement,
the Company shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation or benefit plan of the
Company at the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement, Death or Long-Term Disability or (b)
by you for Good Reason, then you shall be entitled to the benefits provided
below:
(A) The Company shall pay you the following: the sum of (1) your full
base salary through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) your most recent annual bonus or
variable compensation award and (II) the annual bonus or variable compensation
award paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which you were employed for less than twelve full
months), for the most recently completed fiscal year since the Change of
Control, if any, and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any accrued vacation or sick pay, in each
case to the extent not theretofore paid;
(B) In lieu of any further salary payments to you for periods subsequent to
the Date of Termination, the Company shall pay as severance pay to you a lump
sum severance payment (the "Severance Payment") equal to 2.99 times your "base
amount", as defined in section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). Such base amount shall be determined in accordance with
temporary or final regulations, if any, promulgated under section 280G of the
Code.
(C) The Company shall pay to you all legal fees and expenses incurred by you
as a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder), such
payment to be made at the later of the times provided in paragraph (D), below or
within five (5) days after your request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
(D) In addition, if the excise tax imposed under Code section 4999 on
"excess parachute payments", as defined in Code section 280G, is provoked by (i)
any amount paid or payable to or for the benefit of you under this section as
legal fees and expenses, or (ii) any payments or benefits which you receive or
have the right to receive from the Company (including the Severance Payment) or
any affiliated entity or any payments or benefits under any plan or program
maintained by the Company or any affiliated entity, the Company must indemnify
you and hold you harmless against all claims, losses, damages, penalties,
expenses, and excise taxes. To effect this indemnification, the Company must
pay you an additional amount that is sufficient to pay any excise tax imposed by
Code section 4999 on the payments and benefits to which you are entitled without
the additional amount, plus the excise and income taxes on the additional
amount. The determination of any additional amount that must be paid under this
section must be made by the Company in good faith.
(E)The payments provided for in paragraphs (B), (C) and (D) above, shall (except
as otherwise provided therein) be made not later than the fifth day following
the Date of Termination, provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code).
(iv) If your employment shall be terminated (A) by the Company other
than for Cause, Retirement or Disability or (B) by you for Good Reason, then for
a thirty-six (36) month period after such termination, the Company shall provide
you and your family at Company expense with group life, disability, medical and
dental insurance benefits substantially similar to those which you and your
family are receiving immediately prior to the Notice of Termination. The
Company shall pay any applicable premiums on behalf of you and your family for
continuation of medical coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable
by you and your family pursuant to this subsection 6(iv) shall be reduced to the
extent comparable benefits are actually received by you and your family during
the thirty-six (36) month period following your termination, and any such
benefits actually received by you and your family shall be reported to the
Company.
(v) If your employment shall be terminated (A) by the Company other
than for Cause, Retirement or Long-Term Disability or (B) by you for Good
Reason, then in addition to the retirement benefits to which you are entitled
under the Company's Retirement Plan and Supplemental Retirement Plan or any
successor plans thereto, the Company shall pay you in cash at the time and in
the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to
the actuarial equivalent of the excess of (x) the retirement pension (determined
as a straight life annuity commencing at age sixty-five) which you would have
accrued under the terms of the Company's Retirement Plan without regard to any
amendment to the Company's Retirement Plan made subsequent to a Change of
Control and on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits thereunder,
determined as if you were fully vested thereunder and had accumulated (after the
Date of Termination) thirty-six (36) additional months of service credit
thereunder at your highest annual rate of compensation during the twelve (12)
months immediately preceding the Date of Termination over (y) the retirement
pension (determined as a straight life annuity commencing at age sixty-five)
which you had then accrued pursuant to the provisions of the Company's
Retirement Plan. For the purposes of this subsection, "actuarial equivalent"
shall be determined using the same methods and assumptions utilized under the
Company's Retirement Plan immediately prior to the Change of Control.
(vi) The Company shall, at its sole expense as incurred, provide you with
outplacement services the scope and provider of which shall be selected by you
in your sole discretion.
(vii) Offsets Against Severance Payment.
(A) The Severance Payment to which you are entitled under this
Agreement may be reduced under this subsection, but not below zero. Reductions
in the Severance Payment must be made under this subsection in the manner herein
described. The Company must make any required determination or calculation in
good faith.
(B) You are not required to seek or accept any employment that is not
Comparable Employment. If you obtain any employment during the months remaining
in your employment period after the Date of Termination, the Severance Payment
must be reduced by all amounts actually earned by you from such employment
during those months; except that no such reduction may be made because of
earnings from employment in which you could have engaged while you were employed
by the Company. For example, the Severance Payment may not be reduced because
of your fees for service as a director of a corporation other than the Company
or your earnings from part-time employment or from any other employment that
would not have impaired your ability to perform the duties described in section
2 of this Agreement.
(C) During the months remaining in your employment period after the Date of
Termination and unless you are then eligible to retire under the Company's
Retirement Plan, you must seek and accept any Comparable Employment that is
offered to you. If the Company establishes that Comparable Employment was
offered to you and that you did not accept it, the full amount of wages that you
could have earned from Comparable Employment reduces the Severance Payment to
which you are entitled under this Agreement.
(D) For purposes of this Agreement, Comparable Employment means employment
that entitles you to the same (or higher) total compensation (including
employment related benefits) to which you were entitled immediately prior to a
Change of Control and to similar status, title(s), office(s), and management
responsibilities; employment with a general character and grade similar to the
general character and grade of your former employment with the Company; and
employment suited to your education, training, and experience. For purposes of
the Agreement, employment is not Comparable Employment if such employment is
located more than forty miles from the location at which you are based on the
Date of Termination; is short-term or temporary employment; entitles you to
total compensation that is less than the total compensation (including
employment related benefits) to which you were entitled immediately prior to a
Change of Control; requires you to take serious bodily or financial risks;
entitles you to a lower status, title(s), office(s), and management
responsibilities; or would not have impaired your ability to perform the duties
described in section 2 of this Agreement.
(E) To prevent hardship, repayment of the Severance Payment under this
section may be made by you in installments, determined in the Company's sole
discretion, but a repayment arrangement may not be used as a disguised loan.
(vii) In addition to all other amounts payable to you under this
section 6, you shall be entitled to receive all benefits payable to you under
the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement
Plan and any other plan or agreement relating to retirement benefits.
7. Agreement Binding on Successors.
----------------------------------
(i) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you terminate your
employment for Good Reason following a Change of Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
8. Subsidiary Corporations. Upon approval of the Board of Directors of the
------------------------
appropriate wholly-owned subsidiary, this Agreement shall apply to an executive
of any wholly-owned subsidiary of the Company with the same force and effect as
if said executive were employed directly by the Company. Upon approval by said
subsidiary's Board of Directors, the executive of the wholly-owned subsidiary
shall be entitled to the same benefits from the Company as those granted to
executives of the Company. For purposes of this Agreement the transfer of an
employee from the Company to any wholly-owned subsidiary of the Company, or from
any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary
to another shall not constitute a termination of such employee's employment. As
applied to an executive of a wholly-owned subsidiary, the duties and obligations
of the Company shall, wherever appropriate, refer to the duties and obligations
of the Company's wholly-owned subsidiary which employs the executive; provided,
however, that the Company rather than the wholly-owned subsidiary shall remain
liable to the executive for payment of benefits due hereunder.
9. Notice. For the purpose of this Agreement, notices and all other
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communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notice to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
10. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement supersedes any previous agreements between the
Company and you on the matters herein addressed. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Vermont. All reference to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Company under section
6 shall survive the expiration of the term of this Agreement.
11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
---------------------------
limit your continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which you may qualify. Amounts which are vested benefits or which you are
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to a Change of Control shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
12. Confidentiality.
---------------
(i) Confidential information. You must hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company and its business, which is obtained
by you during your employment by the Company and which is not public knowledge
(other than by acts by you or your representatives in violation of this
Agreement). After the termination of your employment with the Company, you must
not, without the Company's prior written consent, communicate or divulge any
such information, knowledge, or data to anyone other than the Company and those
designated by it to receive such information, knowledge, or data. In no event
may an asserted violation of this section constitute a basis for deferring or
withholding any amounts otherwise payable to you under this Agreement.
(ii) Records and files. All records and files concerning the Company
or the Company's clients and customers belong to and remain the property of the
Company.
13. Termination of Employment Prior to a Change of Control of the Company.
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You and the Company acknowledge that prior to a Change of Control or a Potential
Change of Control, your employment may be terminated by the Company in
accordance with the notice provisions set forth in section 1 of this Agreement,
and by you at any time, in which case you shall have no further rights under
this Agreement.
14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise
---------------
encumber any rights, duties, or amounts that you might be entitled to receive
under this Agreement.
15. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
16. Funding. The Company is not required to establish a trust or other
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funding vehicle to pay benefits under this Agreement, except to the extent
otherwise required by the Code or ERISA with respect to any employee benefit
plan.
17. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in Burlington,
Vermont in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that you shall be entitled to seek
specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
19. Governing Law. This Agreement shall be governed by the laws of State
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of Vermont.
ACKNOWLEDGMENT OF ARBITRATION
The parties hereto understand that this 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.
This letter is submitted in duplicate. If it sets forth our agreement on
the subject matter hereof, kindly sign both copies and return one copy to me
within thirty (30) days (after which this offer of severance benefits will
lapse). These letters will then constitute our agreement on this subject.
By: /s/Thomas P. Salmon
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Thomas P. Salmon, Chairman
Board of Directors
Green Mountain Power Corporation
Agreed to as of March 1, 2002
/s/Donald J. Rendall, Jr.
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Donald J. Rendall, Jr.
General Counsel
Green Mountain Power Corporation
GREEN MOUNTAIN POWER CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREEN MOUNTAIN POWER CORPORATION
-----------------------------------
(Registrant)
Dated:May 3, 2002 /s/Robert J. Griffin
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Robert J. Griffin, Controller,
Treasurer
Dated:May 3, 2002 /s/Robert J. Griffin
----------------------
Robert J. Griffin, Controller, Treasurer
(as Principal Financial Officer)