Central Vermont Public Service Corporation (NYSE: CV) reported May 5 that its consolidated earnings for the first three months of 2011 were $8.4 million, or 62 cents per diluted share of common stock. This compares to consolidated earnings of $4.2 million, or 35 cents per diluted share of common stock for the first three months of 2010. It attributed the earnings increase mostly to higher operating revenues.
It announced on Wednesday preferred stock dividends. Meanwhile, common stock dividends remain at $.46 per share.
On May 3, 2011 the CVPS Board of Directors approved the following resolution: "That out of the reserved and unrestricted retained earnings of the Company quarterly dividends on the Preferred Stock, $100 Par Value, of $1.04 per share on the 4.15% Dividend Series, $1.17 per share on the 4.65% Dividend Series, $1.19 per share on the 4.75% Dividend Series, and $1.34375 per share on the 5.375% Dividend Series, are hereby declared payable July 1, 2011 to stockholders of record at the close of business June 21, 2011."
2011 vs. 2010
Operating revenues increased by $6.1 million for the three months ended March 31, 2011 compared to the same period in 2010 due to the following factors:
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Retail sales increased $7.2 million resulting primarily from a 7.46 percent base rate increase effective January 1, 2011 and higher customer usage due to colder weather in 2011.
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Resale sales decreased $3.6 million due to lower 2011 contract prices associated with the sale of our excess energy and lower volume available for resale due to higher retail load.
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The provision for rate refund increased $3.3 million primarily due to over- or under-collections of power, production and transmission costs as defined by the power cost adjustment clause of our alternative regulation plan. This increase included the favorable impact of $3.4 million of net deferrals and refunds in 2011 vs. the favorable impact of $0.1 million of net deferrals and refunds in 2010.
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Other operating revenues decreased $0.8 million mostly due to mutual aid for other utilities in 2010.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
Three months ended March 31
2011
2010
Operating Revenues
$
97,085
$
91,007
Operating Expenses
Purchased Power - affiliates
17,411
16,558
Purchased Power
23,941
25,160
Production
3,144
2,956
Transmission - affiliates
2,257
1,386
Transmission - other
7,104
7,187
Other operation
18,594
15,846
Maintenance
5,707
7,726
Depreciation
4,485
4,352
Taxes other than income
4,657
4,743
Income tax expense
2,857
1,838
Total Operating Expenses
90,157
87,752
Utility Operating Income
6,928
3,255
Other Income
Equity in earnings of affiliates
6,941
5,395
Allowance for equity funds during construction
56
3
Other income
703
712
Other deductions
(654
)
(679
)
Income tax expense
(2,302
)
(1,589
)
Total Other Income
4,744
3,842
Interest Expense
Interest on long-term debt
3,144
2,786
Other interest
129
111
Allowance for borrowed funds during construction
(26
)
(2
)
Total Interest Expense
3,247
2,895
Net Income
8,425
4,202
Dividends declared on preferred stock
92
92
Earnings available for common stock
$
8,333
$
4,110
Per Common Share Data:
Basic earnings per share
$
0.62
$
0.35
Diluted earnings per share
$
0.62
$
0.35
Average shares of common stock outstanding - basic
13,353,973
11,725,484
Average shares of common stock outstanding - diluted
13,406,926
11,756,303
Dividends declared per share of common stock
$
0.46
$
0.46
NOTES FROM CVPS 10K Filing of May 5, 2011 (CLICK HERE TO GO TO THE ENTIRE SEC FILING), in part explaining recent Vermont Yankee action, the pending deal for the acquisition of Vermont Marble Power Division and the Hydro-Quebec power purchase deal:
Long-Term Power Purchases Vermont Yankee: We are purchasing our entitlement share of Vermont Yankee plant output through the VY PPA between Entergy-Vermont Yankee and VYNPC. We have one secondary purchaser that receives less than 0.5 percent of our entitlement. See Note 4 ‘ Investments in Affiliates for additional information on the VY PPA.
Entergy-Vermont Yankee has no obligation to supply energy to VYNPC over its entitlement share of plant output, so we receive reduced amounts when the plant is operating at a reduced level, and no energy when the plant is not operating. We purchase replacement energy as needed when the Vermont Yankee plant is not operating or is operating at reduced levels. We typically acquire most of this replacement energy through forward purchase contracts and account for those contracts as derivatives. Our total VYNPC purchases were $17.1 million for the three months ended March 31, 2011 and $16.2 million for the three months ended March 31, 2010.
On June 22, 2010, we, along with GMP, made a claim under the September 6, 2001 VY PPA. The claim is that Entergy-Vermont Yankee breached its obligations under the agreement by failing to detect and remedy the conditions that resulted in cooling tower-related failures at the Vermont Yankee nuclear plant in 2007 and 2008. Those failures caused us and GMP to incur substantial incremental replacement power costs.
We are seeking recovery of the incremental costs from Entergy-Vermont Yankee under the terms of the VY PPA based upon the results of certain reports, including an NRC inspection, in which the inspection team found that Entergy-Vermont Yankee, among other things, did not have sufficient design documentation available to help it prevent problems with the cooling towers. The NRC released its findings on October 14, 2008. In considering whether to seek recovery, we also reviewed the 2007 and 2008 root cause analysis reports by Entergy-Vermont Yankee and a December 22, 2008 reliability assessment provided by Nuclear Safety Associates to the State of Vermont. Entergy-Vermont Yankee disputes our claim. We cannot predict the outcome of this matter at this time.
The VY PPA contains a formula for determining the VYNPC power entitlement following an uprate in 2006 that increased the plant’s operating capacity by approximately 20 percent. VYNPC and Entergy-Vermont Yankee are seeking to resolve certain differences in the interpretation of the formula. At issue is how much capacity and energy VYNPC Sponsors receive under the VY PPA following the uprate. Based on VYNPC’s calculations the VYNPC Sponsors should be entitled to slightly more capacity and energy than they have been receiving under the VY PPA since the uprate. We cannot predict the outcome of this matter at this time.
Our contract for power purchases from VYNPC ends in March 2012, but there is a risk that we could lose this resource if the plant shuts down for any reason before that date, and its future beyond that date is uncertain. An early shutdown could cause our customers to lose the economic benefit of an energy volume of close to 50 percent of our total committed supply and we would have to acquire replacement power resources for approximately 40 percent of our estimated power supply needs. While this has been a significant concern in the past, the ever-shortening span of time before the contract’s end and changes in the regional power market have decreased the risk the company might face. The New England Market currently has a significant surplus of available energy and capacity, and due to significant reductions in natural gas prices, electrical energy is available at competitive rates. We are not able to predict whether there will be an early shutdown of the Vermont Yankee plant or whether the PSB would allow timely and full recovery of any costs related to such shutdown.
Under Vermont law, in addition to a favorable Vermont legislative vote, the PSB must issue a Certificate of Public Good in order for the plant to continue to operate after March 21, 2012. On February 24, 2010, in a non-binding vote, the Vermont Senate voted against allowing the PSB to consider granting the Vermont Yankee plant another 20-year operating license. The new Vermont Legislature elected on November 2, 2010 could vote differently, although the political makeup of the House and Senate remains largely unchanged and there is nothing to suggest that a new vote will be held. Also, Vermont elected a new governor who advocated as a member of the Vermont Senate and during the gubernatorial campaign that the Vermont Yankee plant should close when its current license expires, and he maintains that position.
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After the November election, Entergy announced it had begun pursuing a possible sale of the plant, apparently concluding that the plant had a better chance at remaining part of Vermont’s power supply under new ownership. We vigorously engaged in contract talks with Entergy-Vermont Yankee for the specific purpose of increasing the chances the plant would continue to operate beyond 2012. On March 29, 2011, Entergy announced its sale process had concluded unsuccessfully. Consequently, the potential for state legislative and regulatory approval of continued plant operations is now, in our view, less likely. However, as discussed more fully below, Entergy-Vermont Yankee is seeking to operate the plant beyond March 21, 2012, without such approvals.
On March 10, 2011, the NRC voted 4-0 to approve the 20-year license extension through March 21, 2032 requested by Entergy-Vermont Yankee. This approval removes the last federal-level regulatory requirement for relicensing of the Vermont Yankee station.
Entergy-Vermont Yankee, previously attempting to overcome legislative concerns, recently challenged the state’s authority as it relates to relicensing. In a federal lawsuit filed on April 18, 2011, Entergy-Vermont Yankee contended that the state was improperly attempting to interfere with its relicensing. In the complaint filed in U.S. District Court for the District of Vermont, Entergy-Vermont Yankee is seeking a judgment to prevent the state of Vermont from forcing the Vermont Yankee nuclear power plant to cease operation on March 21, 2012. The complaint seeks both declaratory and injunctive relief, and contends that Vermont’s attempts to shutter the plant are preempted by the Atomic Energy Act, the Federal Power Act and the Commerce Clause of the U.S. Constitution. The state of Vermont has vowed to vigorously defend its position. The federal court has scheduled a pretrial status conference for May 5, 2011, during which time procedural matters will be discussed including the litigation schedule. We are evaluating the potential impact of the litigation on our financial statements and on our customers. The outcome of this matter is uncertain at this time.
Hydro-Québec: We are purchasing power from Hydro-Québec under the VJO power contract. The VJO power contract has been in place since 1987 and purchases began in 1990. Related contracts were subsequently negotiated between us and Hydro-Québec, altering the terms and conditions contained in the original contract by reducing the overall power requirements and related costs. The VJO power contract runs through 2020, but our purchases under the contract end in 2016. The average level of deliveries under the current contract decreases by approximately 19 percent after 2012, and by approximately 84 percent after 2015. Our total purchases under the VJO Power contract were $16.5 million for the three months ended March 31, 2011 and $16.6 million for the three months ended March 31, 2010
The annual load factor is 75 percent for the remainder of the VJO power contract, unless the contract is changed or there is a reduction due to the adverse hydraulic conditions described below.
There are two sellback contracts with provisions that apply to existing and future VJO power contract purchases. The first resulted in the sellback of 25 MW of capacity and associated energy through April 30, 2012, which has no net impact currently since an identical 25 MW purchase was made in conjunction with the sellback. We have a 23 MW share of the 25 MW sellback. However, since the sellback ends six months before the corresponding purchase ends, the first sellback will result in a 23 MW increase in our capacity and energy purchases for the period from May 1, 2012 through October 31, 2012.
A second sellback contract provided benefits to us that ended in 1996 in exchange for two options to Hydro-Québec. The first option was never exercised and expired December 31, 2010. The second gives Hydro-Québec the right, upon one year’s written notice, to curtail energy deliveries in a contract year (12 months beginning November 1) from an annual capacity factor of 75 to 50 percent due to adverse hydraulic conditions as measured at certain metering stations on unregulated rivers in Quebec. This second option can be exercised five times through October 2015 but due to the notice provision there is a maximum remaining application of three times available. To date, Hydro-Québec has not exercised this option. We have determined that this second option is not a derivative because it is contingent upon a physical variable.
There are specific contractual provisions providing that in the event any VJO member fails to meet its obligation under the contract with Hydro-Québec, the remaining VJO participants will ‘step-up’ to the defaulting party’s share on a pro-rata basis. As of March 31, 2011, our obligation is about 47 percent of the total VJO power contract through 2016, and represents approximately $269.1 million, on a nominal basis.
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In accordance with FASB’s guidance for guarantees, we are required to disclose the ‘maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee.’ Such disclosure is required even if the likelihood is remote. With regard to the ‘step-up’ provision in the VJO power contract, we must assume that all members of the VJO simultaneously default in order to estimate the ‘maximum potential’ amount of future payments. We believe this is a highly unlikely scenario given that the majority of VJO members are regulated utilities with regulated cost recovery. Each VJO participant has received regulatory approval to recover the cost of this purchased power contract in its most recent rate applications. Despite the remote chance that such an event could occur, we estimate that our undiscounted purchase obligation would be an additional $316 million for the remainder of the contract, assuming that all members of the VJO defaulted by April 1, 2011 and remained in default for the duration of the contract. In such a scenario, we would then own the power and could seek to recover our costs from the defaulting members or our retail customers, or resell the power in the wholesale power markets in New England. The range of outcomes (full cost recovery, potential loss or potential profit) would be highly dependent on Vermont regulation and wholesale market prices at the time.
Independent Power Producers: We receive power from several Independent IPPs. These plants use water or biomass as fuel. Most of the power comes through a state-appointed purchasing agent that allocates power to all Vermont utilities under PSB rules. Our total purchases from IPPs were $6.3 million for March 31, 2011 and March 31, 2010.
Nuclear Decommissioning Obligations We are obligated to pay our share of nuclear decommissioning costs for nuclear plants in which we have an ownership interest. We have an external trust dedicated to funding our joint-ownership share of future Millstone Unit #3 decommissioning costs. DNC has suspended contributions to the Millstone Unit #3 Trust Fund because the minimum NRC funding requirements have been met or exceeded. We have also suspended contributions to the Trust Fund, but could choose to renew funding at our own discretion as long as the minimum requirement is met or exceeded. If a need for additional decommissioning funding is necessary, we will be obligated to resume contributions to the Trust Fund.
We have equity ownership interests in Maine Yankee, Connecticut Yankee and Yankee Atomic. These plants are permanently shut down and completely decommissioned except for the spent fuel storage at each location. Our obligations related to these plants are described in Note 4 - Investments in Affiliates.
We also had a 35 percent ownership interest in the Vermont Yankee nuclear power plant through our equity investment in VYNPC, but the plant was sold in 2002. Our obligation for plant decommissioning costs ended when the plant was sold, except that VYNPC retained responsibility for the pre-1983 spent fuel disposal cost liability. VYNPC has a dedicated Trust Fund that meets most of the liability. Changes in the underlying interest rates that affect the earnings and the liability could cause the balance to be a surplus or deficit. Excess funds, if any, will be returned to us and the other former owners and must be applied to the benefit of retail customers.
DOE Litigation We have a 1.7303 joint-ownership percentage in Millstone Unit #3, in which DNC is the lead owner with 93.4707 percent of the plant joint-ownership. In January 2004 DNC filed, on behalf of itself and the two minority owners, including us, a lawsuit against the DOE seeking recovery of costs related to the storage of spent nuclear fuel arising from the failure of the DOE to comply with its obligations to commence accepting such fuel in 1998. A trial commenced in May 2008. On October 15, 2008, the United States Court of Federal Claims issued a favorable decision in the case, including damages specific to Millstone Unit #3. The DOE appealed the court’s decision in December 2008. On February 20, 2009, the government filed a motion seeking an indefinite stay of the briefing schedule. On March 18, 2009, the court granted the government’s request to stay the appeal. On November 19, 2009, DNC filed a motion to lift the stay. On April 12, 2010, the stay was lifted and a staggered briefing schedule was proposed, to which DNC has responded with a request to expedite the briefing schedule so that the appeals of all parties can be heard concurrently.
On June 30, 2010, the DOE filed its initial brief in the spent fuel damages litigation. This brief focuses on the costs awarded in connection with Millstone Unit #3. DNC replied to the government’s brief in August, 2010. The government’s reply brief was filed September 14, 2010 and briefing on the appeal is now complete. Oral argument on the government’s appeal occurred before the Federal Circuit on January 12, 2011.
On April 25, 2011 the U.S. Court of Appeals for the Federal Circuit issued a decision affirming the spent fuel damages award for damages incurred through June 30, 2006 in connection with DOE’s failure to begin accepting spent fuel for disposal. The government has the option to seek rehearing of the Federal Circuit decision and to seek review by the U.S. Supreme Court. The time period for seeking rehearing is 45 days.
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We continue to pay our share of the DOE Spent Fuel assessment expenses levied on actual generation and will share in recovery from the lawsuit, if any, in proportion to our ownership interest. We expect that our share of a recovery, if any, would be credited to our retail customers.
Future Power Agreements New Hydro-QuébecAgreement: On August 12, 2010 we, along with Green GMP, VPPSA, Vermont Electric Cooperative, Inc., Vermont Marble, Town of Stowe Electric Department, City of Burlington, Vermont Electric Department, Washington Electric Cooperative, Inc. and the 13 municipal members of VPPSA (collectively, the ‘Buyers’) entered into an agreement for the purchase of shares of 218 MW to 225 MW of energy and environmental attributes from HQUS commencing on November 1, 2012 and continuing through 2038.
The rights and obligations of the Buyers under the HQUS PPA, including payment of the contract price and indemnification obligations, are several and not joint or joint and several. Therefore, we shall have no responsibility for the obligations, financial or otherwise, of any other party to the HQUS PPA. The parties have also entered into related agreements, including collateral agreements between each Buyer and HQUS, a Hydro-Québec guaranty, an allocation agreement among the Buyers, and an assignment and assumption agreement between us and Vermont Marble, related to the pending acquisition.
The HQUS PPA will replace approximately 65 percent of the existing VJO power contract discussed above, which along with the VY PPA supply the majority of Vermont’s current power needs. The VJO power contract and the VY PPA expire within the next several years.
The obligations of HQUS and each Buyer are contingent upon the receipt of certain governmental approvals. On August 17, 2010, the Buyers filed a petition with the PSB asking for Certificates of Public Good under Section 248 of Title 30, Vermont Statutes Annotated. Technical hearings were held and final legal briefs were filed in the first quarter of 2011. On April 15, 2011 the PSB issued an order approving the HQUS PPA, which we plan to execute as proposed. In the event the HQUS PPA is terminated with respect to any Buyer as a result of such Buyer’s failure to receive governmental approvals, each of the other Buyers will have an option to purchase the additional energy.
Under the Agreement, subject to regulatory approval, we would be entitled to purchase an energy quantity of up to 85.4 MW from November 1, 2015 to October 31, 2016; 96.4 MW from November 1, 2016 to October 31, 2020; 98.4 MW from November 1, 2020 to October 31, 2030; 112.1 MW from November 1, 2030 to October 31, 2035; and 26.7 MW from November 1, 2035 to October 31, 2038.
Performance Assurance We are subject to performance assurance requirements through ISO-NE under the Financial Assurance Policy for NEPOOL members. At our current investment-grade credit rating, we have a credit limit of $3.2 million with ISO-NE. We are required to post collateral for all net power and transmission transactions in excess of this credit limit. Additionally, we are currently selling power in the wholesale market pursuant to contracts with third parties, and are required to post collateral under certain conditions defined in the contracts.
At March 31, 2011, we had posted $5.6 million of collateral under performance assurance requirements for certain of our power and transmission transactions, $5.5 million of which was represented by a letter of credit and $0.1 million of which was represented by cash and cash equivalents. At December 31, 2010, we had posted $6.6 million of collateral under performance assurance requirements for certain of our power and transmission transactions, $5.5 million of which was represented by a letter of credit and $1.1 million of which was represented by cash and cash equivalents.
We are also subject to performance assurance requirements under our Vermont Yankee power purchase contract (the 2001 Amendatory Agreement). If Entergy-Vermont Yankee, the seller, has commercially reasonable grounds to question our ability to pay for our monthly power purchases, Entergy-Vermont Yankee may ask VYNPC and VYNPC may then ask us to provide adequate financial assurance of payment. We have not had to post collateral under this contract.
Environmental Over the years, more than 100 companies have merged into or been acquired by CVPS. At least two of those companies used coal to produce gas for retail sale. Gas manufacturers, their predecessors and CVPS used waste disposal methods that were legal and acceptable then, but may not meet modern environmental standards and could represent a liability. These practices ended more than 50 years ago. Some operations and activities are inspected and supervised by federal and state authorities, including the EPA. We believe that we are in compliance with all laws and regulations and have implemented procedures and controls to assess and assure compliance. Corrective action is taken when necessary.
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The total reserve for environmental matters was $0.8 million as of March 31, 2011 and $0.8 million as of December 31, 2010. The reserve for environmental matters is included as current and long-term liabilities on the Condensed Consolidated Balance Sheets and represents our best estimate of the cost to remedy issues at these sites based on available information as of the end of the applicable reporting periods. Below is a brief discussion of the significant sites for which we have recorded reserves.
Cleveland Avenue Property: The Cleveland Avenue property in Rutland, Vermont, was used by a predecessor to make gas from coal. Later, we sited various operations there. Due to the existence of coal tar deposits, PCB contamination and the potential for off-site migration, we conducted studies in the late 1980s and early 1990s to quantify the nature and extent of contamination and potential costs to remediate the site. Investigation at the site continued, including work with the State of Vermont to develop a mutually acceptable solution. In June 2010, both the VANR and the EPA approved separate remediation work plans for the manufactured gas plant and PCB waste at the site. Remedial work started in August 2010 and concluded in early December 2010. It was necessary to increase the reserve by $0.3 million in the first quarter of 2011, which represented Vermont’s hazardous waste tax on contaminated soil that has been removed from the site. Some additional sitework including grading and vegetation planting will occur in 2011. In February 2011, we submitted a Construction Completion Report for the project to the EPA and VANR for review. The report documented remedial construction and confirmatory sampling activities. As of March 31, 2011, our estimate of the remaining obligation is less than $0.1 million.
Brattleboro Manufactured Gas Facility: In the 1940s, we owned and operated a manufactured gas facility in Brattleboro, Vermont. We ordered a site assessment in 1999 at the request of the State of New Hampshire. In 2001, New Hampshire indicated that no further action was required, although it reserved the right to require further investigation or remedial measures. In 2002, the VANR notified us that our corrective action plan for the site was approved. As of March 31, 2011, our estimate of the remaining obligation is $0.5 million.
The Windham Regional Commission and the Town of Brattleboro are currently pursuing the redevelopment of the gas plant site and waterfront area into vehicle parking with green space. This concept calls for the removal of the remnant gas plant building plus covering and otherwise avoiding contaminated areas instead of removing contaminated soil and debris.
We are actively discussing the proposed redevelopment with consultants for the Town of Brattleboro and the Windham Regional Commission. We have indicated to the consultants our willingness to partner with the Town of Brattleboro through a formal remediation agreement to participate in the redevelopment. This participation will assure continued acknowledgement of site contamination. We received a non-binding letter from the Town of Brattleboro summarizing its preferred remedial plan.
We have requested that the Town of Brattleboro schedule a meeting with all interested parties to discuss the remediation of the gas plant site and overall waterfront properties. We expect that this meeting will occur in the second quarter of 2011. Subsequently, we will reassess its probabilistic cost estimate to remediate the site.
Dover, New Hampshire, Manufactured Gas Facility: In 1999, PSNH contacted us about this site. PSNH alleged that we were partially liable for cleanup, since the site was previously operated by Twin State Gas and Electric, which merged into CVPS on the same day that PSNH bought the facility. In 2002, we reached a settlement with PSNH in which certain liabilities we might have had were assigned to PSNH in return for a cash settlement we paid based on completion of PSNH’s cleanup effort. As of March 31, 2011, our estimate of the remaining obligation was less than $0.1 million.
Middlebury Lower Substation: By letter dated February 5, 2010, the VANR Sites Management Section informed us they require additional investigation of the soil contamination at the Middlebury Lower Substation. This was a result of voluntarily submitted information from an internal soil sampling that we completed in the fall of 2009. The soil sampling showed elevated levels of TPH, which will require remediation. Some soil removal has already occurred and the remaining contaminated material will be removed in conjunction with the substation reconstruction. As of March 31, 2011, our estimate of the remaining obligation was $0.1 million.
Salisbury Substation: We completed internal testing and found PCBs and TPH, in addition to small quantities of pesticides in the soil and concrete at this site. The substation is located adjacent to the Salisbury hydroelectric power station. It is scheduled to be retired and replaced during 2011. Final results indicated that PCB, TPH and pesticide concentrations exceed state and federal regulatory limits at portions at the site. We submitted a letter to the VANR Sites Management Section proposing that PCB remediation efforts would be sufficient mitigation for TPH and pesticide contamination, and proposed to collect soil samples for confirmatory testing of these compounds. Remediation is expected to begin during the third quarter of 2011. As of March 31, 2011, our estimate of the remaining obligation was $0.2 million.
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To management’s knowledge, there is no pending or threatened litigation regarding other sites with the potential to cause material expense. No government agency has sought funds from us for any other study or remediation.
Catamount Indemnifications On December 20, 2005, we completed the sale of Catamount, our wholly owned subsidiary, to CEC Wind Acquisition, LLC, a company established by Diamond Castle Holdings, a New York-based private equity investment firm. Under the terms of the agreements with Catamount and Diamond Castle Holdings, we agreed to indemnify them, and certain of their respective affiliates, in respect of a breach of certain representations and warranties and covenants, most of which ended June 30, 2007, except certain items that customarily survive indefinitely. Indemnification is subject to a $1.5 million deductible and a $15 million cap, excluding certain customary items. Environmental representations are subject to the deductible and the cap, and such environmental representations for only two of Catamount’s underlying energy projects survived beyond June 30, 2007. Our estimated ‘maximum potential’ amount of future payments related to these indemnifications is limited to $15 million. We have not recorded any liability related to these indemnifications. To management’s knowledge, there is no pending or threatened litigation with the potential to cause material expense. No government agency has sought funds from us for any study or remediation.
Leases and support agreements Operating Leases: We have two master lease agreements for vehicles and related equipment. On October 30, 2009, we signed a vehicle lease agreement to finance many of the vehicles covered by a former agreement. Our guarantee obligation under this lease will not exceed 8 percent of the acquisition cost. The maximum amount of future payments under this guarantee at March 31, 2011 is approximately $0.4 million. The total future minimum lease payments required for all lease schedules under this agreement at March 31, 2011 is $3.3 million. As of March 31, 2011 there is no credit line in place for additions under this agreement. The total acquisition cost of all lease additions under this agreement at March 31, 2011 was $5.3 million.
On October 24, 2008, we entered into an operating lease for new vehicles and other related equipment. Our guarantee obligation under this lease is limited to 5 percent of the acquisition cost. The maximum amount of future payments under this guarantee is approximately $0.1 million. The total future minimum lease payments required for all lease schedules under this agreement at March 31, 2011 is $2.1 million. As of March 31, 2011 there is no credit line in place for additions under this agreement. The total acquisition cost of all lease additions under this agreement at March 31, 2011 was $2.9 million.
Legal Proceedings We are involved in legal and administrative proceedings in the normal course of business. We do not believe that the ultimate outcome of these proceedings will have a material adverse effect on our financial position, results of operations or cash flows.
NOTE 14 ‘ PENDING ACQUISITIONS
Vermont Marble Power Division: On April 30, 2010, we signed a purchase and sale agreement with Omya, Inc. to purchase certain generating, transmission and distribution assets of Vermont Marble located in the State of Vermont. Under this agreement, we will pay $33.2 million for the transmission and distribution assets and generating assets comprised of four hydroelectric generating stations. The agreement contains usual and customary purchase and sale terms and conditions and is contingent upon federal and state regulatory approvals.
With Omya, Inc., we filed a joint petition with the PSB on August 2, 2010, requesting that they consent to the proposed sale by Omya and purchase by us of assets used in the public service business of Vermont Marble and approve certain related matters. As part of the proposed purchase and sale, we will acquire from Vermont Marble, among other things, four hydroelectric facilities on Otter Creek and Vermont Marble’s transmission and distribution facilities, which include approximately 56 miles of 46 kV transmission lines, 11 miles of 2.4/4.16 kV distribution lines, one distribution substation in the Village of Proctor, and two transmission substations. On September 14, 2010, the PSB held a prehearing conference and subsequently established a schedule for resolution of the docket including technical hearings and the filing of final legal briefs.
On October 28, 2010, we received approval from FERC, subject to certain conditions, for the proposed transaction.
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On February 25, 2011, we filed an MOU between us, the DPS, the Town of Proctor and Omya, with the PSB that resolves all the outstanding issues between the parties concerning our acquisition of Vermont Marble. As part of the settlement, we will pay $28.3 million for the generating assets and approximately $1 million for the transmission and distribution assets. We will be allowed recovery from customers of $27 million for the generating assets and the $1 million for the transmission and distribution assets. Included in the MOU is the creation of a value sharing mechanism that provides for certain excess value received by us to be split between our customers, Omya and our shareholders if energy market prices and hydro improvements yield more value than anticipated. This will provide us with an opportunity to recover the $1.3 million not otherwise recovered in rates.
The agreement also includes a five-year, six-step phase-in of residential rate changes for existing Vermont Marble customers, which will be funded by Omya up to an amount estimated to be approximately $1.1 million.
On March 4, 2011 we signed an amended and restated purchase and sale agreement with Omya, Inc. to incorporate the terms of the MOU filed on February 25, 2011. The PSB held a hearing on the matter on April 11, 2011 and we expect a ruling on the petition for approval of the transaction in the second quarter of 2011.
Readsboro Electric Department: On October 27, 2010, we signed a purchase and sale agreement with Readsboro. The $0.4 million purchase price includes all of the assets of Readsboro including about 14 miles of distribution line and associated equipment, and the exclusive franchise Readsboro holds to serve its 319 customers. The sale is contingent upon approval by the PSB. On February 24, 2011 we, along with the DPS and Readsboro, filed a stipulation with the PSB that resolves the issues outstanding in our acquisition of Readsboro. The PSB is expected to rule on the petition for approval of the transaction in the second quarter of 2011.