CV Central Vermont Public Service Corp.

Central Vermont Public Service (NYSE-CV) today outlined a broad plan to restore the company's financial strength and credit rating, calling it critical to Vermont's energy future. "Failure to do that will leave Vermont in an untenable situation, with little control over energy decisions that will affect every business, every job and every resident of this state for years to come," President Bob Young said at the company's annual meeting. "If we fail to restore our credit rating, Vermont's options for obtaining new power supplies, through contract or construction, will be extremely limited." CVPS's rates were lowered by the Vermont Public Service Board by 2.8 percent last spring. The Public Service Board's order significantly reduced the company's cash flow and earnings. The order was followed by the downgrade of CVPS's corporate credit ratings to junk bond status, which required CVPS to put up millions of dollars in collateral to assure performance of power contracts, and raised the cost of capital. "Most importantly, the downgrade of our credit rating left the company a damaged ally in the energy procurement arena, an arena we must soon re-enter as we plan for the impending loss of our low-cost Hydro-Quebec and Vermont Yankee contracts," Young said. As the largest utility in Vermont, Young said CVPS must serve as a partner with the state, other utilities and other stakeholders to prepare for the end of the below-market Hydro-Quebec and Vermont Yankee contracts, which begin to expire in 2012. "We recognize and welcome our responsibility to provide collaborative leadership," Young said. "This responsibility requires, however, that I be blunt: it is an inescapable fact that CVPS cannot succeed without re-establishing our financial strength and restoring the company to investment grade within the next two or three years." Young outlined numerous steps the company has or is taking to improve finances and ratings outlooks: -- Secured a $25 million revolving credit facility in October 2005; -- Made $2.7 million in 2006 budget cuts, including a 10 percent cut in Young's salary, and a 5 percent reduction in other officers' salaries, to offset other cost increases. -- Sold Catamount Energy, providing funds to buy back 18.3 percent of CVPS stock and reinvest in the utility. -- Continued the Right Way to Work, a program that has identified more than $6 million in annual savings. -- Reorganizing the board of directors to instill more Vermont focus on the core utility, and reduce costs. -- Agreed to purchase Rochester Electric Light and Power, providing more than 900 new customers to further spread the company's fixed costs. -- Investing substantially in the core business and VELCO, with more than $40 million planned in 2006. -- Improved communication with regulators to find common ground on customer and company needs. Young noted that CVPS's rates have climbed less than 1 percent in the past seven years. Bills are believed to be the lowest of any major utility in New England. "Ultimately, restoration of the credit rating will depend in part on our rates in the coming years," Young said. "Due to our internal cost controls, the Right Way to Work and our long-term power contracts that currently provide below-market energy, we do not face the substantial rate pressures of many of New England's utilities. But we will need a relatively small increase next year, which we plan to apply for later this month. "Restoring our financial balance is critical to our success as a company, but even more so to Vermont's success in planning its energy future. We must demonstrate to Wall Street that Vermont will provide rates that cover our costs and give our shareholders an opportunity - not a guarantee, but an opportunity - to earn a reasonable return on their invested capital. "CVPS and Vermont are at an energy policy axis in history," Young said. "We face critical challenges, as a company and as a state, and we must make some difficult decisions in the coming months and years, decisions that will determine the future of this company, and the future of the entire electrical industry in Vermont."