<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NGE RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 6719 14-1798693
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
ONE COMMERCE PLAZA
SUITE 2006A-20TH FLOOR
ALBANY, NEW YORK 12260
(Address of principal executive offices)
(518) 434-3014
(Registrant's telephone number including area code)
------------------------
<TABLE>
<S> <C>
DANIEL W. FARLEY LEONARD BLUM, ESQ.
SECRETARY HUBER LAWRENCE & ABELL
NGE RESOURCES, INC. 605 THIRD AVENUE
ONE COMMERCE PLAZA NEW YORK, NEW YORK 10158
SUITE 2006A-20TH FLOOR (212) 682-6200
ALBANY, NEW YORK 12260
(518) 434-3014
</TABLE>
(Names, addresses and telephone numbers of agents for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, Par Value $5 per share............ 76,000,000 $26.907 $2,044,932,000 $619,676
</TABLE>
(1) This Registration Statement covers a number of shares of Common Stock of NGE
Resources, Inc. to be issued in the share exchange described herein (the
"Share Exchange") and to be issued in lieu of shares of common stock of New
York State Electric & Gas Corporation ("NYSEG") pursuant to NYSEG's 1997
Stock Option Plan, Employees' Stock Purchase Plan, Tax Deferred Savings Plan
for Salaried Employees, Tax Deferred Savings Plan for Hourly Paid Employees
and Dividend Reinvestment and Stock Purchase Plan.
(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, based
upon the per share market value of the shares of common stock of NYSEG,
which is the average of the reported high and low sales prices of a share of
common stock of NYSEG on the New York Stock Exchange, Inc. Composite Tape on
October 10, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA, NEW YORK
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
-------------------
To the Holders of Common Stock and Preferred Stock of
New York State Electric & Gas Corporation:
The holders of Common Stock of New York State Electric & Gas Corporation
("NYSEG") are cordially invited to attend the Special Meeting of Stockholders of
NYSEG which will be held at , New York, on
at 10:30 A.M. (Eastern Daylight Saving Time). The meeting is
being held to consider and approve an Agreement and Plan of Share Exchange
pursuant to which NYSEG will reorganize its corporate structure and as a result
NGE Resources, Inc., a New York corporation formed by NYSEG, will become the
parent company of NYSEG, and for the transaction of any other business properly
brought before the meeting or any adjournment thereof.
Holders of record of NYSEG Common Stock at the close of business on
will be entitled to notice of and to vote at the meeting.
Holders of record of NYSEG Preferred Stock at the close of business on
will be entitled to notice of the meeting. The vote of the
holders of NYSEG Preferred Stock is not required in connection with the proposed
Agreement and Plan of Share Exchange.
The Board of Directors requests NYSEG Common Stockholders to mark, sign and
date the accompanying form of proxy and return it in the enclosed envelope,
whether or not such holders expect to be present at the Special Meeting. The
proxy is revocable by such holders at any time before the exercise thereof, and
the giving of such proxy will not affect such holders' rights to vote in person,
if such holders attend the Special Meeting.
NYSEG COMMON STOCKHOLDERS WHO DISSENT MAY EXERCISE THEIR APPRAISAL RIGHTS BY
STRICTLY COMPLYING WITH THE REQUIREMENTS OF THE BUSINESS CORPORATION LAW OF THE
STATE OF NEW YORK.
By Order of the Board of Directors,
DANIEL W. FARLEY
VICE PRESIDENT AND SECRETARY
Dated: , 1997
Please mark, sign and date the enclosed proxy and return it in the envelope
enclosed for your convenience.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1997
PROXY STATEMENT
FOR
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
NEW YORK STATE ELECTRIC & GAS CORPORATION
PROSPECTUS
FOR
NGE RESOURCES, INC.
COMMON STOCK
This Proxy Statement and Prospectus contains both a Proxy Statement for a
Special Meeting of Stockholders of New York State Electric & Gas Corporation
("NYSEG"), a New York corporation, to be held on (the
"Special Meeting") and a Prospectus of NGE Resources, Inc. ("HoldCo"), a New
York corporation, relating to the issuance of up to 76,000,000 shares of common
stock, par value $5 per share, of HoldCo (the "HoldCo Common Stock"), upon the
consummation of, and subsequent to the proposed formation of, a holding company
structure for NYSEG as described herein. The name "NGE Resources, Inc." may be
changed prior to the effective time of the Share Exchange (as hereinafter
defined) at the discretion of the Board of Directors and without further action
by the holders of NYSEG Common Stock. NYSEG and HoldCo are collectively referred
to herein as the "Company."
We propose to reorganize NYSEG's current operations by forming a holding
company structure pursuant to an Agreement and Plan of Share Exchange (the "Plan
of Exchange"), a copy of which is attached hereto as Exhibit A. Under the Plan
of Exchange, all of the outstanding shares of NYSEG's common stock (the "NYSEG
Common Stock") will be exchanged on a share-for-share basis for HoldCo Common
Stock (the "Share Exchange"). The shares of HoldCo Common Stock held by NYSEG
immediately prior to the Share Exchange will be canceled. After the Share
Exchange, each person who owned NYSEG Common Stock immediately prior to the
Share Exchange (other than those NYSEG Common Stockholders who properly exercise
their appraisal rights) will own a corresponding number of shares and percentage
of the outstanding HoldCo Common Stock, and HoldCo will own all of the
outstanding shares of NYSEG Common Stock. See "The Restructuring--Terms of the
Restructuring." Our proposed holding company restructuring includes certain
additional aspects which may be important to you. See "The Restructuring--Terms
of the Restructuring" and "--Present Businesses."
IF THE SHARE EXCHANGE IS IMPLEMENTED, YOU NEED NOT SURRENDER YOUR NYSEG
STOCK CERTIFICATES FOR STOCK CERTIFICATES OF HOLDCO. SEE "THE
RESTRUCTURING--EXCHANGE OF STOCK CERTIFICATES."
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The principal executive offices of NYSEG and HoldCo are located at
Ithaca-Dryden Road, Ithaca, New York, 14851, telephone number (607) 347-4131,
and One Commerce Plaza, Suite 2006A-20th Floor, Albany, New York, 12260,
telephone number (518) 434-3014, respectively. This Proxy Statement and
Prospectus and the accompanying Proxy, solicited on behalf of the Board of
Directors of NYSEG, were first released to the holders of NYSEG Common Stock on
or about , 1997.
The date of this Proxy Statement and Prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information...................................................................................... 4
Forward Looking Statements................................................................................. 4
Incorporation of Certain Documents by Reference............................................................ 5
Questions and Answers and Summary.......................................................................... 6
Risk Factors............................................................................................... 9
Recent Developments........................................................................................ 11
Information About the Special Meeting...................................................................... 12
Outstanding Voting Securities and Voting Rights........................................................ 12
Security Ownership of Management....................................................................... 13
The Restructuring.......................................................................................... 14
Terms of the Restructuring............................................................................. 14
Recommendation of the Board of Directors............................................................... 15
Present Businesses..................................................................................... 17
NYSEG.............................................................................................. 17
Current Corporate Structure........................................................................ 17
HoldCo............................................................................................. 17
Holding Company Structure.......................................................................... 18
Reasons for Restructuring.............................................................................. 18
General............................................................................................ 18
The Regulatory Framework........................................................................... 18
The Restructuring Agreement........................................................................ 20
Benefits of a Holding Company Structure............................................................ 25
Plan of Exchange....................................................................................... 26
Termination or Amendment of Plan of Exchange........................................................... 26
Conditions to Restructuring............................................................................ 26
Rights of Dissenting Stockholders...................................................................... 26
Exchange of Stock Certificates......................................................................... 28
Common Stock Plans..................................................................................... 28
Listing of HoldCo Common Stock......................................................................... 28
Transfer Agent and Registrar........................................................................... 28
Market Value of NYSEG Common Stock..................................................................... 28
Regulatory Matters..................................................................................... 29
Public Service Law of the State of New York........................................................ 29
Federal Power Act.................................................................................. 29
Atomic Energy Act.................................................................................. 29
Public Utility Holding Company Act of 1935......................................................... 29
Dividend Policy........................................................................................ 30
Directors and Executive Officers....................................................................... 31
Description of NYSEG Capital Stock..................................................................... 31
Description of HoldCo Capital Stock.................................................................... 32
General............................................................................................ 32
Dividends.......................................................................................... 32
Voting Rights...................................................................................... 32
Liquidation........................................................................................ 32
Preemptive and Other Rights........................................................................ 32
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Possible Anti-takeover Effects......................................................................... 33
HoldCo Directors................................................................................... 33
Advance Notice Procedures.......................................................................... 33
Special Meetings of Stockholders and Right to Act by Unanimous Written Consent..................... 34
Classified Board of Directors...................................................................... 35
No Cumulative Voting............................................................................... 35
Authorized Shares.................................................................................. 35
Supermajority Approval Required for Certain Amendments to HoldCo By-Laws........................... 36
BCL Section 912.................................................................................... 37
Regulatory Approval of a Merger or Takeover Involving HoldCo....................................... 37
Comparison of NYSEG Common Stock and HoldCo Common Stock............................................... 37
Restrictions on Dividends.......................................................................... 37
Removal of Directors; Cumulative Voting; Filling of Vacancies...................................... 38
Number of Directors................................................................................ 38
Adoption of Plan of Merger by Majority Vote........................................................ 38
Authorized Shares.................................................................................. 38
Amendments to Certain HoldCo By-Law Provisions..................................................... 38
Treatment of NYSEG Preferred Stock..................................................................... 39
Treatment of NYSEG Indebtedness........................................................................ 39
Certain Income Tax Consequences........................................................................ 39
General............................................................................................ 39
Tax Implications to the Stockholders............................................................... 40
Tax Implications to HoldCo......................................................................... 40
Tax Implications to NYSEG in Connection with the Transfer of the Generation Assets to Gensub....... 40
Other Tax Aspects.................................................................................. 40
Legal Opinions......................................................................................... 41
Experts................................................................................................ 41
Other Matters.............................................................................................. 41
Cost of Solicitation....................................................................................... 41
Glossary................................................................................................... 42
Exhibit A--Agreement and Plan of Share Exchange............................................................ A-1
Exhibit B--Form of HoldCo Charter.......................................................................... B-1
Exhibit C--Form of HoldCo By-Laws.......................................................................... C-1
Exhibit D--BCL Section 910................................................................................. D-1
Exhibit E--BCL Section 623................................................................................. E-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
NYSEG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC" or "Commission") in accordance with the Exchange Act. Following
completion of the Share Exchange, both HoldCo and NYSEG will file such reports
and certain other information under the Exchange Act. You may read and copy any
such reports, proxy statements and other information at the SEC's public
reference facilities in Washington, D.C., Chicago, Illinois, and New York, New
York. The SEC also maintains an Internet web site at "http://www.sec.gov" that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Certain
securities of NYSEG are listed on the New York Stock Exchange (the "NYSE"). You
may read and copy any such reports, proxy statements and other information
concerning NYSEG at the office of the NYSE at 20 Broad Street, New York, New
York 10005.
HoldCo has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the SEC under the Securities Act of 1933, as amended (the
"Securities Act") to register the HoldCo Common Stock that will be issued
pursuant to the Share Exchange, as well as HoldCo Common Stock that will be
issued in lieu of NYSEG Common Stock under certain NYSEG Common Stock plans. As
permitted by the rules and regulations of the SEC, this Proxy Statement and
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information, reference is made to the Registration
Statement.
Upon completion of the Share Exchange, the HoldCo Common Stock will be
listed on the NYSE. At the time of such listing, the NYSEG Common Stock will be
delisted and will no longer be registered pursuant to Section 12 of the Exchange
Act.
FORWARD LOOKING STATEMENTS
This Proxy Statement and Prospectus contains certain forward-looking
statements. These statements are based upon management's current expectations
and information currently available and are subject to risks and uncertainties
that could cause actual results to differ materially from those projected in
such statements. Whenever we use the words "anticipate," "believe," "estimate,"
"expect," "project," "objective," or similar expressions, they are intended to
identify forward-looking statements. For example, such forward-looking
statements may include, without limitation, statements in connection with the
future payment of dividends, statements or projections as to the Company's
financial results or as to the pursuit of business in new markets, statements in
connection with the regulatory approval process or future regulation of HoldCo
and its subsidiaries, statements in connection with the future businesses or
management of HoldCo and its subsidiaries, and statements in connection with the
effects or benefits of a holding company structure. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that could cause the Company's actual results to differ
materially from those contemplated in any forward-looking statements include,
among others, regulatory developments, the rapidly changing and increasingly
competitive electric and gas utility environment, the ability to obtain adequate
and timely rate relief, cost recovery (including the potential impact of
stranded costs), legal or administrative proceedings, business conditions,
technological developments, changes in the cost or availability of capital,
labor developments, nuclear or environmental incidents, factors affecting the
utility industry in general, such as deregulation and the unbundling of energy
services, weather conditions and changes in fuel supply or cost, and other
considerations that may be disclosed from time to time in HoldCo's or NYSEG's
publicly disseminated documents or filings. HoldCo and NYSEG undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this Proxy
Statement and Prospectus, which means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement and Prospectus, except for any information superseded by information
in this Proxy Statement and Prospectus. This Proxy Statement and Prospectus
incorporates by reference the documents set forth below that were previously
filed with the SEC. Such documents contain important information about NYSEG,
its subsidiaries and their operations and financial condition.
1. NYSEG's Annual Report on Form 10-K for the year ended December 31, 1996.
2. NYSEG's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997.
3. NYSEG's Current Reports on Forms 8-K and 8-K/A each dated July 28, 1997,
and Form 8-K dated October 10, 1997.
We are also incorporating by reference additional documents that we may file
with the SEC between the date of this Proxy Statement and Prospectus and the
termination of the offering made by this Proxy Statement and Prospectus.
NYSEG WILL PROVIDE TO YOU WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST, A
COPY OF ANY DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED IN THIS PROXY
STATEMENT AND PROSPECTUS BY REFERENCE, OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS. WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO MR. D. W. FARLEY,
VICE PRESIDENT AND SECRETARY, NEW YORK STATE ELECTRIC & GAS CORPORATION, P.O.
BOX 3200, ITHACA, NEW YORK 14852-3200, TELEPHONE NUMBER (607) 347-2506. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE INCORPORATED DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY , 1998.
------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS. THIS
PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SHARES OF HOLDCO COMMON STOCK BY ANY PERSON IN
ANY JURISDICTION OR IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
Neither the delivery of this Proxy Statement and Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of NYSEG since the date of this Proxy
Statement and Prospectus.
5
<PAGE>
QUESTIONS AND ANSWERS AND SUMMARY
The following Questions and Answers and Summary highlight selected
information regarding the proposed holding company restructuring, and may not
contain all of the information that is important to you. For a more complete
discussion of the proposed holding company restructuring, you should read
carefully this entire document and the attached exhibits and the documents that
are incorporated by reference. For example, the Plan of Exchange (Exhibit A)
provides information regarding the Share Exchange, and HoldCo's Restated
Certificate of Incorporation and By-Laws, each in substantially the form to be
in effect at the effective time of the Share Exchange (Exhibits B and C) set
out, among other things, provisions governing certain rights of HoldCo's
stockholders. A "Glossary" setting forth the location of defined terms used in
this Proxy Statement and Prospectus is located at page 42 for your convenience.
1. WHAT IS THE PROPOSED HOLDING COMPANY RESTRUCTURING?
(See "The Restructuring--Terms of the Restructuring" and "--Present
Businesses")
The Board of Directors of NYSEG has unanimously approved a restructuring
pursuant to the Plan of Exchange whereby HoldCo will serve as the parent company
of NYSEG. Although our organizational structure will change as a result of the
proposed holding company restructuring, HoldCo will continue to conduct NYSEG's
current businesses through NYSEG and other subsidiaries of HoldCo.
All NYSEG Common Stock will be exchanged for HoldCo Common Stock on a
share-for-share basis unless you dissent and properly exercise your appraisal
rights. As an additional aspect of the proposed restructuring, as more fully
discussed under the caption "The Restructuring--Terms of the Restructuring,"
NYSEG intends to transfer its coal-fired generation assets to a generation
subsidiary formed for that purpose. In addition, immediately after the
consummation of the Share Exchange, NYSEG intends to transfer its subsidiaries
to HoldCo and its subsidiaries.
2. WHY IS THE HOLDING COMPANY RESTRUCTURING BEING PROPOSED?
(See "The Restructuring--Reasons for Restructuring")
We believe that our proposal represents the optimal corporate structure for
operating in the evolving, restructured energy marketplace. We also believe that
our proposal will result in greater financial, managerial and organizational
flexibility. As a result, we will be in a better position to adapt to the
changing industry and to meet and take advantage of future challenges and
opportunities, particularly in unregulated businesses. We also believe that the
proposed restructuring will help us to establish a broad base of income
generation which will enhance our overall financial strength. Finally, it is
important to know that our proposal is an integral part of NYSEG's overall rate
and restructuring plan, which resulted from the proceeding of the Public Service
Commission of the State of New York to address the future structure of the
electric utility industry in New York State. Our proposal reflects years of
careful negotiation in a multi-party collaborative process to create a fully
competitive environment for the supply of electricity while mitigating
strandable costs associated with NYSEG's generation plants.
3. WILL I HAVE TO EXCHANGE MY NYSEG STOCK CERTIFICATES FOR NEW HOLDCO STOCK
CERTIFICATES?
(See "The Restructuring--Exchange of Stock Certificates")
No. It will not be necessary for you to turn in your NYSEG stock
certificates for HoldCo stock certificates. Your certificates will automatically
represent HoldCo Common Stock.
4. WILL MY DIVIDENDS BE AFFECTED?
(See "The Restructuring--Dividend Policy")
We expect that quarterly dividends on the HoldCo Common Stock will be paid
on the same dates currently followed by NYSEG with respect to common stock
dividends. However, we cannot guarantee what the amount of the initial quarterly
dividend on HoldCo Common Stock may be or the payment of future dividends, since
the declaration of such dividends will depend primarily upon the ability of
HoldCo's subsidiaries to pay dividends to HoldCo, which, in turn, will depend
upon the future earnings and financial condition of these subsidiaries. For a
period of time following the Share Exchange, we expect that the
6
<PAGE>
funds required by HoldCo to enable it to pay common stock dividends will be
derived predominantly from the dividends paid by NYSEG to HoldCo. We anticipate
that such cash dividends paid by NYSEG to HoldCo will be sufficient to enable
HoldCo to pay cash dividends on HoldCo Common Stock and to meet operating and
other expenses.
5. WHEN WILL THE SHARE EXCHANGE OCCUR?
(See "The Restructuring--Terms of the Restructuring" and "--Conditions to
Restructuring")
If you approve the proposed Plan of Exchange and the other conditions
described below under the caption "The Restructuring--Conditions to
Restructuring" are satisfied, the Share Exchange will become effective upon the
filing of a Certificate of Exchange by the Department of State of the State of
New York. We intend to implement the Share Exchange as soon as practicable after
we receive your approval and all of the required regulatory approvals.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES?
(See "The Restructuring--Certain Income Tax Consequences")
You will not recognize any gain or loss for federal income tax purposes if
you exchange your NYSEG Common Stock for HoldCo Common Stock. However, if you
exercise your appraisal rights and exchange your NYSEG Common Stock for cash,
that will be a taxable transaction for federal income tax purposes.
7. WILL NYSEG PREFERRED STOCK OR BONDS BE EXCHANGED?
(See "The Restructuring--Treatment of NYSEG Preferred Stock" and "--Treatment
of NYSEG Indebtedness")
Shares of NYSEG's Preferred Stock and NYSEG's first mortgage bonds and other
indebtedness of NYSEG will remain securities and obligations of NYSEG after the
Share Exchange. We decided to leave the NYSEG Preferred Stock and such
indebtedness of NYSEG as securities and obligations of NYSEG because we did not
want to alter, or potentially alter, the nature of the investment represented by
such securities and obligations, namely a direct investment in a regulated
utility.
8. WHERE WILL MY HOLDCO COMMON STOCK BE TRADED?
(See "The Restructuring--Listing of HoldCo Common Stock")
NYSEG Common Stock is currently traded on the New York Stock Exchange under
the stock symbol "NGE." We expect the HoldCo Common Stock to be listed on the
New York Stock Exchange and, after the Share Exchange, to trade under the stock
symbol " ."
9. WHO WILL MANAGE HOLDCO?
(See "The Restructuring--Directors and Executive Officers" and "--Reasons for
Restructuring--The Restructuring Agreement")
After the Share Exchange, the Board of Directors of HoldCo will consist of
those persons who are directors of NYSEG immediately before the Share Exchange.
We anticipate that HoldCo and its subsidiaries will have common officers.
10. HOW WILL MY PARTICIPATION IN THE DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLAN BE AFFECTED?
(See "The Restructuring--Common Stock Plans")
All shares of NYSEG Common Stock held under our Dividend Reinvestment and
Stock Purchase Plan will be automatically exchanged for shares of HoldCo Common
Stock. We will continue the Dividend Reinvestment and Stock Purchase Plan with
HoldCo Common Stock after the Share Exchange.
11. WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
(See "Information About the Special Meeting")
The Special Meeting of Stockholders of NYSEG will be held at 10:30 a.m. on
, at , New
York, .
7
<PAGE>
12. WHO WILL BE ELIGIBLE TO VOTE ON THE PROPOSED PLAN OF EXCHANGE?
(See "Information About the Special Meeting--Outstanding Voting Securities and
Voting Rights")
Holders of NYSEG Common Stock at the close of business on are
entitled to vote at the Special Meeting. Holders of NYSEG Common Stock and NYSEG
Preferred Stock on such date are entitled to receive notice of the Special
Meeting.
13. WHAT STOCKHOLDER VOTE IS REQUIRED FOR APPROVAL OF THE PROPOSED PLAN OF
EXCHANGE?
(See "Information About the Special Meeting--Outstanding Voting Securities
and Voting Rights")
Approval of the proposed Plan of Exchange will require the affirmative vote,
in person or by proxy, of two-thirds of the outstanding shares of NYSEG Common
Stock entitled to vote. Pursuant to the terms of NYSEG's Certificate of
Incorporation and the applicable provisions of the New York Business Corporation
Law, each holder of NYSEG Common Stock entitled to vote is entitled to one vote
per share on the proposed Plan of Exchange. Since the requisite regulatory
order, approval or permission is being obtained, the vote of the holders of
NYSEG Preferred Stock is not required in connection with the proposed Plan of
Exchange.
SUMMARY OF CERTAIN OTHER SELECTED INFORMATION
RISK FACTORS--Certain factors for your consideration in determining whether
to vote "FOR" the proposed Plan of Exchange are discussed under the caption
"Risk Factors."
RESTRUCTURING AGREEMENT WITH PSC STAFF--On October 9, 1997, NYSEG, the staff
of the Public Service Commission of the State of New York (the "PSC") and
certain other parties entered into an Agreement Concerning the Competitive Rate
and Restructuring Plan of NYSEG (the "Restructuring Agreement"). We do not
expect the conditions or restrictions contained in the Restructuring Agreement
to materially restrict HoldCo's entry into unregulated business activities. The
Restructuring Agreement is subject to PSC approval. Although the PSC has not yet
approved the Restructuring Agreement, we do not expect material modifications to
be made to the Restructuring Agreement by the PSC. See "The
Restructuring--Reasons for Restructuring--The Restructuring Agreement."
OTHER REGULATORY MATTERS--NYSEG will continue to be an electric utility
engaged in the transmission and distribution of electricity, and, in the case of
its hydroelectric and nuclear generation assets, the generation of electricity,
and a natural gas utility. NYSEG may auction its nuclear generation assets. See
"The Restructuring--Reasons for Restructuring--The Restructuring Agreement."
NYSEG will remain subject to regulation by the PSC and the Federal Energy
Regulatory Commission (the "FERC"). HoldCo will not be subject to regulation by
the PSC or the FERC. It is expected that HoldCo's generation subsidiary will be
subject to light PSC regulation and will be subject to FERC jurisdiction. Both
HoldCo and NYSEG will be reporting companies under the Exchange Act. The
proposed holding company restructuring is subject to the approval of the PSC,
the SEC, the FERC and the Nuclear Regulatory Commission (the "NRC"). After the
SEC order is obtained, HoldCo will be exempt from registration as a holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Holding Company Act"). See "The Restructuring--Regulatory Matters."
COMPARISON OF NYSEG COMMON STOCK AND HOLDCO COMMON STOCK--The principal
differences between the rights of the holders of HoldCo Common Stock and the
rights of the holders of NYSEG Common Stock are set forth under the caption "The
Restructuring--Comparison of NYSEG Common Stock and HoldCo Common Stock." With
the exception of such differences, we believe that the rights of the holders of
HoldCo Common Stock will not be materially different from the rights of the
holders of NYSEG Common Stock.
DISSENTERS' APPRAISAL RIGHTS--Under applicable New York law, holders of
NYSEG Common Stock will have dissenters' appraisal rights in connection with the
proposed Plan of Exchange. See "The Restructuring--Rights of Dissenting
Stockholders."
8
<PAGE>
RISK FACTORS
NO ASSURANCE THAT RESTRUCTURING WILL BE BENEFICIAL TO HOLDERS OF HOLDCO
COMMON STOCK. The proposed holding company restructuring will, among other
things, establish a corporate structure that will enhance the Company's ability
to take advantage of business opportunities in the evolving energy and related
markets and outside of NYSEG's present markets. The Board of Directors of NYSEG
believes that the proposed holding company restructuring is in the best
interests of Stockholders. Nevertheless, there can be no assurance that HoldCo
will in fact be able to take advantage of such opportunities or that if HoldCo
does take advantage of such opportunities, that they will be beneficial to the
holders of HoldCo Common Stock.
UNREGULATED BUSINESS ACTIVITIES MAY INVOLVE MORE RISK. Following
consummation of the proposed holding company restructuring, HoldCo will be able
to pursue business opportunities through unregulated subsidiaries without having
to obtain the prior approval of the PSC. The proposed holding company
restructuring, therefore, will enable HoldCo to pursue certain business
opportunities that might involve more risk than would be permitted to be pursued
by NYSEG as a regulated electric and gas utility, but with the opportunity to
seek higher potential returns commensurate with any increased risk. HoldCo
anticipates that unregulated business activities will be related to the core
regulated businesses of NYSEG and will be designed to leverage the expertise
currently possessed by NYSEG. Pursuit of such activities, however, while
offering the potential of greater reward, could have either a positive or an
adverse effect on the value of a stockholder's investment, depending upon the
return actually realized from such opportunities. Such businesses may have
greater investment risk than those involved in the regulated electric and
natural gas businesses of NYSEG. There can be no assurance that such unregulated
businesses will be successful or, if unsuccessful, that they will not have a
material adverse effect on HoldCo. Any losses incurred by such businesses will
not be recoverable through the electric and natural gas rates of NYSEG. As
HoldCo engages in more such unregulated business activities, the market price of
HoldCo's Common Stock will be affected to a lesser extent by the performance of
NYSEG.
DIVIDENDS ON HOLDCO COMMON STOCK WILL BE DEPENDENT ON COMMON STOCK DIVIDENDS
PAID TO HOLDCO BY NYSEG. For a period of time following the Share Exchange, the
funds required by HoldCo to enable it to pay dividends on HoldCo Common Stock
are expected to be derived predominantly from the dividends paid by NYSEG to
HoldCo. Accordingly, the ability of HoldCo to pay such dividends, as a practical
matter, will be governed by the ability of NYSEG to pay common stock dividends.
It is anticipated that such cash dividends paid by NYSEG to HoldCo will be
sufficient to enable HoldCo to pay cash dividends on HoldCo Common Stock and to
meet operating and other expenses. The ability of NYSEG to pay dividends on its
common stock will continue to be subject to the preferential dividend rights of
the holders of NYSEG's preferred stock and NYSEG's preference stock, if any, and
to the common stock dividend restrictions currently contained in NYSEG's
Certificate of Incorporation (the "NYSEG Charter") and in NYSEG's first mortgage
bond indenture. In addition, although it has no present intention to do so, it
is possible that NYSEG may need to issue additional preferred stock in the
future to meet its capital requirements. Such additional preferred stock will
also have preferential dividend rights. Because NYSEG will remain subject to
regulation by the PSC under the Public Service Law of the State of New York (the
"PSL"), the amount of its earnings and dividends will be affected by the manner
in which the PSC regulates NYSEG. In addition, pursuant to the terms of the
Restructuring Agreement, common stock dividends paid by NYSEG to HoldCo will
generally be limited in any calendar year to 100% of net income available for
common stock. It is expected that the transfer of NYSEG's coal-fired generation
assets and the transfer of NYSEG's subsidiaries to HoldCo and its subsidiaries
will not have an adverse effect on NYSEG's ability to pay common stock dividends
to HoldCo since NYSEG will retain those assets which account for a substantial
portion of its net earnings. It is expected that quarterly dividends on the
HoldCo Common Stock will be paid on the same dates currently followed by NYSEG
with respect to common stock dividends. There can be no guarantee, however, of
the amount of the initial
9
<PAGE>
quarterly dividend on HoldCo Common Stock or of the payment of future dividends,
as the declaration of such dividends will primarily be dependent upon the
receipt of dividends from subsidiaries of HoldCo which, in turn, will be
dependent upon the future earnings and financial condition of these
subsidiaries. See "The Restructuring--Dividend Policy."
RESTRUCTURING MAY HAVE CERTAIN ANTI-TAKEOVER EFFECTS. Certain provisions of
HoldCo's Restated Certificate of Incorporation to be in effect at the effective
time of the Share Exchange (the "HoldCo Charter") and the By-Laws of HoldCo to
be in effect at the effective time of the Share Exchange (the "HoldCo By-Laws")
could discourage certain types of transactions that may involve an actual or
threatened change of control of HoldCo. While these provisions are designed to
reduce the vulnerability of HoldCo to an unsolicited proposal for a takeover
that, in the Board's view, does not have the effect of maximizing long-term
stockholder value or is otherwise not in the best interests of the stockholders
of HoldCo, they may, individually or in the aggregate, delay, discourage or
prevent a tender offer or unsolicited takeover attempt that a stockholder might
believe to be in his or her best interest, including those attempts that might
result in a premium over the market price for HoldCo Common Stock. Such
provisions may also adversely affect the market price for HoldCo Common Stock.
The HoldCo Charter is attached hereto as Exhibit B and the HoldCo By-Laws are
attached hereto as Exhibit C. See "The Restructuring--Possible Anti-takeover
Effects."
10
<PAGE>
RECENT DEVELOPMENTS
UNSOLICITED TENDER OFFER. On July 18, 1997, a subsidiary of Omaha,
Nebraska-based CalEnergy Company, Inc. ("CalEnergy") commenced an unsolicited
tender offer to purchase 9.9% of NYSEG Common Stock for $24.50 per share in cash
as part of a stated plan to acquire all of NYSEG's Common Stock. The Board of
Directors of NYSEG, after a comprehensive and careful review, unanimously
recommended that the holders of NYSEG Common Stock reject CalEnergy's
unsolicited tender offer. The Board also decided to reject CalEnergy's proposal
to commence merger negotiations for a transaction in which CalEnergy would
acquire all of NYSEG's Common Stock at $27.50 per share, as not being in the
best interests of NYSEG or its stockholders, customers, employees and other
constituencies. On August 15, 1997, CalEnergy announced that it was dropping its
unsolicited bid to take over NYSEG because its $24.50 tender offer failed to
attract the 9.9% of NYSEG Common Stock it sought. NYSEG expensed all costs
associated with this matter in the third quarter of 1997.
LEGAL PROCEEDINGS. Ten purported class action lawsuits were commenced
against NYSEG and some or all of its directors in the New York State Supreme
Court (Broome County, New York County, Kings County and Tompkins County) on or
about July 17, 1997 and various dates thereafter through early August 1997. The
lawsuits allege, among other things, that the plaintiffs are being deprived of
the opportunity to realize the full value of their investment in NYSEG as a
result of the defendants' failure to fulfill their fiduciary duties and seek to
maximize stockholder value in light of CalEnergy's offer to negotiate a
transaction by which CalEnergy would acquire all outstanding shares of NYSEG
Common Stock for $27.50 per share. The lawsuits seek generally, among other
things, injunctive and declaratory relief requiring the defendants to fulfill
their fiduciary duties to maximize stockholder value, and as to certain of the
actions, damages. The defendants believe that these lawsuits are without merit
and intend to defend them vigorously.
JOINT VENTURE WITH CENTRAL MAINE POWER COMPANY. NYSEG and Central Maine
Power Company have signed a memorandum of understanding that could lead to the
formation of a jointly-owned company to distribute natural gas to Maine
customers in areas not currently served by a natural gas utility. Various
regulatory approvals are required before the joint venture could operate a new
gas distribution service. The opportunity for new retail distribution of natural
gas depends on completion of either or both of two new pipeline proposals made
by separate organizations. Those proposals are currently under federal and state
regulatory review. The Board of Directors of NYSEG has authorized the investment
of up to $20,000,000 in the proposed joint venture.
11
<PAGE>
INFORMATION ABOUT THE SPECIAL MEETING
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of NYSEG to be used
at NYSEG's Special Meeting of Stockholders to be held at 10:30 a.m. on
at , New York. This Proxy Statement and Prospectus
and the form of proxy were first mailed to holders of NYSEG Common Stock and
NYSEG Preferred Stock on or about , 1997. The mailing address of NYSEG's
principal executive office is P.O. Box 3287, Ithaca, New York 14852-3287.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The close of business on (the "Record Date") has been fixed as
the date for determining the holders of NYSEG Common Stock entitled to vote at
the meeting (the "Stockholders"). As of the Record Date, NYSEG had outstanding
shares of Common Stock. Stockholders are entitled to one vote per share
on the proposed Plan of Exchange.
The proxy represents the number of shares registered in your name as well as
the number of whole shares credited to your account under NYSEG's Dividend
Reinvestment and Stock Purchase Plan. If you are an employee of NYSEG and
participate in the Tax Deferred Savings Plans, the proxy constitutes an
instruction for the trustee of such plans to vote the whole shares in your
account in such plans in the manner specified on the proxy. If you are an
employee of NYSEG and participate in the Tax Reduction Act Employee Stock
Ownership Plan, the proxy constitutes an instruction to vote all your shares in
such plan in the manner specified on the proxy.
The proxy is revocable by you at any time before the exercise thereof, and
the giving of such proxy will not affect your right to vote in person, should
you later find it convenient to attend the meeting.
In voting for the proposed Plan of Exchange, Stockholders may vote in favor
of the proposal or against the proposal or may abstain from voting. The vote
required to approve the proposed Plan of Exchange is the affirmative vote, in
person or by proxy, of two-thirds of the outstanding NYSEG Common Stock entitled
to vote. As a result, in accordance with New York law, abstentions will have the
same legal effect as a vote against the proposed Plan of Exchange.
Under the rules of the NYSE, member brokerage firms that hold shares in
street name for beneficial owners may, to the extent that such beneficial owners
do not furnish voting instructions with respect to any or all proposals
submitted for stockholder action, vote in their discretion upon proposals which
are considered "discretionary" proposals under the rules of the NYSE. Member
brokerage firms that have received no instructions from their clients as to
"non-discretionary" proposals do not have discretion to vote on these proposals.
Under the rules of the NYSE, the proposed Plan of Exchange is considered a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if such clients have not furnished voting
instructions. Such "broker non-votes" will not be considered as votes cast in
determining the outcome of the proposed Plan of Exchange. Accordingly, such
"broker non-votes" will have the same legal effect as a vote against the
proposed Plan of Exchange.
In determining whether a quorum is present, all duly executed proxies
(including those marked "abstain") will be counted. Broker non-votes will not be
counted for purposes of determining whether a quorum is present.
12
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of equity securities of
NYSEG and NYSEG Common Stock equivalent units beneficially owned as of by
each director, each of the executive officers named in the Summary Compensation
Table included in the 1997 Proxy Statement, and by the 24 current executive
officers and directors as a group and the percent of the outstanding securities
so owned.
<TABLE>
<CAPTION>
COMMON STOCK TOTAL COMMON STOCK
BENEFICIALLY COMMON STOCK AND COMMON STOCK PERCENT
NAME OWNED EQUIVALENT UNITS** EQUIVALENT UNITS OF CLASS
- ------------------------------------------- ----------------- ----------------------- --------------------------- -----------
<S> <C> <C> <C> <C>
Richard Aurelio............................ ***
James A. Carrigg........................... ***
Alison P. Casarett......................... ***
Joseph J. Castiglia........................ ***
Lois B. DeFleur............................ ***
Michael I. German.......................... ***
Everett A. Gilmour......................... ***
Paul L. Gioia.............................. ***
John M. Keeler............................. ***
Allen E. Kintigh........................... ***
Ben E. Lynch............................... ***
Alton G. Marshall.......................... ***
Gerald E. Putman........................... ***
Sherwood J. Rafferty....................... ***
Walter G. Rich............................. ***
Jack H. Roskoz............................. ***
Wesley W. von Schack....................... ***
24 current executive officers and directors
as a group*.............................. ***
</TABLE>
- ------------------------
* Includes shares held by an officer as nominee for NYSEG's Employees'
Stock Purchase Plan.
** Includes NYSEG Common Stock equivalent units granted under NYSEG's Long-Term
Executive Incentive Share Plan and the Director Share Plan for non-employee
directors for which the director, nominee or executive officer does not have
voting rights.
*** Less than of 1% of the outstanding NYSEG Common Stock.
13
<PAGE>
THE RESTRUCTURING
TERMS OF THE RESTRUCTURING
NYSEG proposes to reorganize its operations by forming a holding company
structure pursuant to the Plan of Exchange, a copy of which is attached hereto
as Exhibit A. Under the terms of the Plan of Exchange, all of the outstanding
shares of HoldCo Common Stock, which will then be owned by NYSEG, will be
canceled and all of the outstanding shares of NYSEG Common Stock will be
exchanged by HoldCo on a share-for-share basis for HoldCo Common Stock, subject
to the rights of Stockholders to exercise their appraisal rights as described
herein. Upon consummation of the Share Exchange, each owner of NYSEG Common
Stock immediately prior to the Share Exchange (other than those Stockholders who
properly exercise their appraisal rights) will own a corresponding number of
shares and percentage of the outstanding HoldCo Common Stock, and HoldCo will
own all of the outstanding shares of NYSEG Common Stock.
If the Share Exchange is implemented, it will not be necessary for
Stockholders to surrender their existing stock certificates for stock
certificates of HoldCo. See "The Restructuring--Exchange of Stock Certificates."
As an additional aspect of the proposed holding company restructuring, NYSEG
intends to transfer its coal-fired generation assets consisting of its Kintigh,
Homer City, Milliken, Goudey, Greenidge, Hickling and Jennison generating
stations and certain associated assets and liabilities (the "Generation Assets")
to NGE Generation, Inc. ("GenSub"), a New York corporation, as soon as
practicable after obtaining the mortgage trustee's release and any required
regulatory approvals. Subject to obtaining such release and such approvals, the
transfer of the Generation Assets to GenSub could occur at any time prior to or
after the effective time of the Share Exchange. GenSub is currently a
wholly-owned subsidiary of NYSEG and was organized to engage in the generation
business and to own and operate all or a part of the Generation Assets.(1) In
addition, immediately after the effective time of the Share Exchange, NYSEG
intends to transfer to HoldCo the common stock of NGE Enterprises, Inc.
("Enterprises"), a Delaware corporation, the common stock of GenSub and the
common stock of any subsidiary formed in connection with the joint venture, if
any, with Central Maine Power Company. See "Recent Developments--Joint Venture
With Central Maine Power Company." Enterprises is currently a wholly-owned
subsidiary of NYSEG and was organized to hold the stock of certain non-utility
subsidiaries of NYSEG and to conduct unregulated business activities. NYSEG will
also transfer the common stock of Somerset Railroad Corporation ("SRC"), a New
York corporation, to GenSub. SRC is currently a wholly-owned subsidiary of NYSEG
and was organized to own and operate a rail line which is used primarily to
transport coal and other materials to NYSEG's Kintigh Generating Station. NYSEG
will retain its hydroelectric and nuclear generation assets and its electric
transmission and distribution and natural gas assets, other than the common
stock of any subsidiary formed in connection with the joint venture, if any,
with Central Maine Power Company. NYSEG may auction its nuclear generation
assets. See "The Restructuring--Reasons for Restructuring--The Restructuring
Agreement." The reorganization pursuant to the Plan of Exchange, the transfer of
the Generation Assets to GenSub, the transfer of Enterprises and GenSub common
stock and the common stock of any subsidiary formed in connection with the joint
venture, if any, with Central Maine Power Company to HoldCo and the transfer of
SRC common stock to GenSub are herein referred to as the "Restructuring." See
"The Restructuring--Present Businesses" and "--Reasons for Restructuring--The
Restructuring Agreement."
The Board of Directors of NYSEG believes that the Restructuring is in the
best interests of the Stockholders, as further detailed below under the caption
"The Restructuring--Reasons for Restructuring." The Plan of Exchange has been
approved by the Boards of Directors of NYSEG and of HoldCo, and has been
executed by authorized officers of each company. If the Stockholders approve the
Plan of Exchange and the other conditions described below under the caption "The
Restructuring--Conditions to
- ------------------------
(1) In addition to GenSub, NYSEG may create one or more other generation
subsidiaries.
14
<PAGE>
Restructuring" are satisfied, the Share Exchange will become effective upon the
filing of a Certificate of Exchange by the Department of State of the State of
New York (the "Effective Time"). Stockholder approval of the Plan of Exchange
will constitute approval of certain amendments to the Common Stock Plans (as
hereinafter defined) providing for the future use of HoldCo Common Stock in lieu
of NYSEG Common Stock under the Common Stock Plans and the assumption by HoldCo
of the obligations of NYSEG under the Common Stock Plans. See "The
Restructuring--Common Stock Plans."
After the Effective Time of the Share Exchange, HoldCo Common Stockholders
will have the right to vote on corporate action concerning HoldCo in accordance
with the Business Corporation Law of the State of New York (the "BCL"), the
HoldCo Charter and the HoldCo By-Laws. The HoldCo Charter is attached hereto as
Exhibit B and the HoldCo By-Laws are attached hereto as Exhibit C.
Shares of NYSEG's Serial Preferred Stock (Cumulative, $100 Par Value), of
which seven series are currently issued and outstanding, and NYSEG's Serial
Preferred Stock (Cumulative, $25 Par Value), of which two series are currently
issued and outstanding (collectively, the "NYSEG Preferred Stock"), will remain
securities of NYSEG after the Share Exchange. There are currently no issued and
outstanding shares of NYSEG's Preference Stock (Cumulative, $100 Par Value) (the
"NYSEG Preference Stock"). The Share Exchange will not result in any change in
the outstanding indebtedness of NYSEG, which will continue to be obligations of
NYSEG after the Share Exchange. NYSEG's first mortgage bonds will continue to be
secured by a first mortgage lien on all properties of NYSEG, other than the
Generation Assets transferred to GenSub and released from the lien of NYSEG's
first mortgage bond indenture. See "The Restructuring--Treatment of NYSEG
Preferred Stock" and "--Treatment of NYSEG Indebtedness."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of NYSEG recommends that Stockholders vote FOR the
Plan of Exchange. In making its decision to recommend the Plan of Exchange to
the Stockholders, the Board of Directors considered many factors. All material
factors considered by the Board of Directors in recommending approval of the
proposed Plan of Exchange are discussed below.
Spurred by state and federal regulatory developments and escalating
competitive pressures, the energy industry is evolving at an accelerated pace
and is undergoing a fundamental transformation into a competitive marketplace.
To respond effectively to the increased competition and restructured regulatory
environment, the Board of Directors of NYSEG has determined that in addition to
responding to competition in its existing markets, NYSEG must also position
itself to take advantage of potential business opportunities outside its present
markets.
In the opinion of the Board of Directors of NYSEG, it is desirable in the
long run to pursue these business opportunities through a holding company
structure. As discussed below under the caption "The Restructuring--Reasons for
Restructuring--Benefits of a Holding Company Structure," the Restructuring will
enable NYSEG to separate its regulated business from its unregulated businesses,
thereby increasing flexibility in operating its unregulated businesses,
enhancing the ability to take advantage of new business opportunities in a
timely manner and broadening the range of available financing techniques.
Furthermore, the separation of NYSEG's regulated and unregulated businesses will
provide a better structure for regulators to assure that there is no
cross-subsidization of costs or transfer of business risk from unregulated to
regulated lines of business.
The Board of Directors of NYSEG considered the financial cost to the Company
of implementing the Restructuring, including the expenses associated with
obtaining required approvals, the expenses associated with transferring the
Generation Assets, the costs of this proxy solicitation and the other expenses
incurred in connection with registering the HoldCo Common Stock with the
Commission. In addition, after the Effective Time both HoldCo and NYSEG will be
required to provide reports to public investors and file periodic reports and
make certain other filings with the Commission, thereby increasing the
15
<PAGE>
expense to the Company on an ongoing basis. In the Board's view, these expenses,
although in some cases significant, are acceptable in light of the benefits to
the Company of the Restructuring.
The Board of Directors of NYSEG also considered the effects on the holders
of NYSEG Common Stock and the holders of NYSEG Preferred Stock in determining
that the Share Exchange should only involve the NYSEG Common Stock. The Board's
decision to exchange NYSEG Common Stock for HoldCo Common Stock was primarily
based on the Board's desire to confer the expected benefits of the Restructuring
on those investors who are best placed to enjoy such benefits, namely the
holders of NYSEG Common Stock. The Board's decision not to provide for the
exchange of NYSEG Preferred Stock in the Share Exchange was primarily based on
the Board's desire not to alter, or potentially alter, the nature of the
investment decision represented by the NYSEG Preferred Stock (namely, a direct
investment in a regulated utility) and the conclusion that the benefits to the
holders of NYSEG Preferred Stock of maintaining their investment as a direct
investment in a regulated entity with a priority position with respect to
dividends and assets on liquidation outweighed any detriment associated with not
having an interest in the non-regulated aspects of the business of the Company.
See "The Restructuring --Treatment of NYSEG Preferred Stock."
------------------------
On balance, the Board of Directors of NYSEG concluded that the benefits to
the Company and the Stockholders of a holding company structure far outweighed
the time and expense of implementing the Restructuring.
THE BOARD OF DIRECTORS OF NYSEG
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PLAN OF EXCHANGE
16
<PAGE>
PRESENT BUSINESSES
NYSEG
NYSEG, organized under the laws of the State of New York in 1852, is engaged
principally in the business of generating, purchasing, transmitting and
distributing electricity, and purchasing, transporting and distributing natural
gas. The service territory, 99% of which is located outside the corporate limits
of cities, is in the central, eastern and western parts of the State of New
York. The service territory has an area of approximately 19,600 square miles and
a population of 2,400,000. The larger cities in which NYSEG serves both
electricity and natural gas are Binghamton, Elmira, Auburn, Geneva, Ithaca and
Lockport. NYSEG's customer mix is sufficiently diversified so that no customer
accounts for 5% or more of either electric or natural gas revenues. For the
twelve months ended September 30, 1997, 84% of operating revenues was derived
from electric service and 16% from natural gas service. For this period, 86% of
operating income before federal income taxes was derived from electric service
and the balance from natural gas service.
CURRENT CORPORATE STRUCTURE
NYSEG's current corporate structure is as follows:
<TABLE>
<S> <C> <C>
NYSEG
SRC Enterprises
</TABLE>
<TABLE>
<S> <C>
Other
XENERGY Subsidiaries of
Enterprises
</TABLE>
In April 1992, the PSC issued an order (the "Diversification Order")
approving the related Stipulation and Agreement allowing NYSEG to invest up to
5% of its consolidated capitalization in one or more subsidiaries that may
engage or invest in energy-related or environmental-services businesses and
provide related services.
NYSEG has been making investments through Enterprises in energy services
companies, including XENERGY, Inc. ("XENERGY"). NYSEG and its subsidiaries are
currently investigating a variety of business opportunities. NYSEG is currently
focusing on those opportunities which relate to its present core businesses,
namely the generation, purchase, transmission, and distribution of electric
energy, and the purchase, transportation and distribution of natural gas.
XENERGY is an energy services, information systems and energy-consulting
company providing energy services, serving utilities, governmental agencies and
end-use energy consumers. In addition, by order of the FERC dated June 9, 1997,
XENERGY received authorization to sell wholesale power at market-based rates.
HOLDCO
HoldCo was organized for the purpose of carrying out the Restructuring.
HoldCo is currently a direct wholly-owned subsidiary of NYSEG. At the Effective
Time of the Share Exchange, HoldCo will become the parent of NYSEG. HoldCo is
not expected to be an operating company at the parent company level.
17
<PAGE>
Currently, HoldCo has only nominal assets and has not engaged in any
business operations. All the business and operations conducted by NYSEG and its
subsidiaries immediately before the Effective Time will continue to be conducted
by HoldCo and its subsidiaries immediately after the Effective Time, and the
consolidated assets and liabilities of NYSEG and its subsidiaries immediately
before the Effective Time will be the same as the consolidated assets and
liabilities of HoldCo and its subsidiaries immediately after the Effective Time.
As soon as practicable after obtaining the mortgage trustee's release and
any necessary regulatory approvals, NYSEG will commence transferring the
Generation Assets to GenSub. See "The Restructuring--Reasons for
Restructuring--The Regulatory Framework" and "--Reasons for Restructuring--The
Restructuring Agreement." Immediately after the Effective Time, NYSEG will
transfer the common stock of its subsidiaries to HoldCo and its subsidiaries. It
is expected that these transfers will be made in the form of stock dividends.
After consummation of the Restructuring, HoldCo will engage in unregulated
business activities through certain of its subsidiaries. As business conditions
warrant, additional subsidiaries, including an energy services subsidiary, of
HoldCo, or of any HoldCo subsidiary, may be formed.
HOLDING COMPANY STRUCTURE
The reorganized corporate structure of the Company immediately after the
Restructuring is expected to be as follows:
<TABLE>
<S> <C> <C> <C>
HoldCo
Other
NYSEG GenSub Enterprises Subsidiaries
</TABLE>
<TABLE>
<S> <C> <C>
Other
Subsidiaries
SRC XENERGY of
Enterprises
</TABLE>
REASONS FOR RESTRUCTURING
GENERAL
The purpose of the Restructuring is to establish the optimal corporate
structure to respond to competition in NYSEG's existing markets and to take
advantage of potential business opportunities outside its present markets. As is
more fully described below, HoldCo and NYSEG believe that the establishment of a
broad base of income generation will enhance the overall financial strength of
the Company.
THE REGULATORY FRAMEWORK
Increased competition is undoubtedly the most significant issue facing the
electric utility industry today. At the state level, the transition to a more
competitive electric industry in New York State was set in motion in August 1994
when the PSC instituted an investigation of issues related to a restructuring of
the electric industry in New York State (the "Competitive Opportunities
Proceeding"). The Restructuring is an
18
<PAGE>
integral part of NYSEG's overall rate and restructuring plan, which resulted
from the PSC's Competitive Opportunities Proceeding and which will help to
mitigate strandable costs associated with the Generation Assets. The overall
objective of the Competitive Opportunities Proceeding was to identify regulatory
and ratemaking practices that would assist in the transition to a more
competitive electric industry.
On May 20, 1996, the PSC issued its Order in the Competitive Opportunities
Proceeding (the "Competitive Opportunities Order"), which set forth the PSC's
vision and goals for the future of the electric industry in New York State. The
Competitive Opportunities Order called for lowering rates of consumers,
increasing customers' choice of suppliers, continuing reliability of service,
continuing programs that are in the public interest, allaying concerns about
market power and continuing customer protections and the utilities' obligation
to serve. The Competitive Opportunities Order also stated that utilities should
have a reasonable opportunity to seek recovery of strandable costs consistent
with the goals of lowering rates, fostering economic development, increasing
customer choices and maintaining reliable service.
The Competitive Opportunities Order directed NYSEG and four other New York
electric utilities each to file a rate and restructuring plan consistent with
the PSC's vision and goals for increased competition. The PSC stated that these
utility plans should address, at a minimum, the following matters: (1) the
structure of the utility both in the short and long term, including a
description of how that structure complies with the PSC's vision and, in cases
where divestiture of generation is not proposed, effective mechanisms that
adequately address resulting market power concerns; (2) a schedule for the
introduction of retail access to all of the utility's customers, and a set of
unbundled tariffs that is consistent with the retail access program; (3) a rate
plan to be effective for a significant portion of the transition; and (4)
numerous other issues relating to strandable costs, load pockets, energy
services and public policy costs.
On September 27, 1996, NYSEG submitted its overall rate and restructuring
plan ("NYSEGPlan") in response to the Competitive Opportunities Order. NYSEGPlan
originally contemplated functional separation of NYSEG's generation business
from its electric delivery business. Parties to the NYSEGPlan proceeding,
including PSC Staff, expressed a preference for a structural separation of the
generation business and on December 19, 1996, NYSEG filed a petition with the
PSC pursuant to which NYSEG sought authority to form a holding company with a
structural separation of its coal-fired generation assets from the PSC-regulated
utility business. Structural separation of the Generation Assets is expected to
promote greater competition in generation. The PSC subsequently notified NYSEG
that the holding company petition would be addressed in the NYSEGPlan
proceeding.
On October 9, 1997, NYSEG, PSC Staff and certain other parties to the
Competitive Opportunities Proceeding entered into the Restructuring Agreement.
The Restructuring Agreement contemplates, among other things, the Restructuring,
subject to certain conditions and restrictions as more fully discussed below
under the caption "The Restructuring--Reasons for Restructuring--The
Restructuring Agreement." These conditions or restrictions are not expected to
materially restrict HoldCo's entry into unregulated business activities.
NYSEGPlan, of which the Restructuring is an integral part, reflects years of
careful negotiation in a multi-party collaborative process, fostered by the PSC
itself, to create a fully competitive environment for the supply of electricity,
at both wholesale and retail, to benefit customers throughout the State of New
York. The Restructuring is designed to implement a corporate structure that will
facilitate the Company's participation in a competitive utility marketplace and
the pursuit of unregulated non-utility business activities, which should benefit
NYSEG's Stockholders, while at the same time alleviating concerns regarding
market power in generation, which should benefit NYSEG's ratepayers. The
Restructuring Agreement is subject to PSC approval. Although the PSC has not yet
approved the Restructuring Agreement, NYSEG does not expect material
modifications to be made to the Restructuring Agreement by the PSC. See "The
Restructuring--Reasons for Restructuring --The Restructuring Agreement."
With the passage of the Public Utility Regulatory Policies Act of 1978
("PURPA") and the National Energy Policy Act of 1992 (the "Energy Act"), there
has been a significant increase in the level of competition in the market for
the generation and sale of electricity. PURPA requires utilities to purchase
substantial amounts of output from qualifying non-utility generators. In
addition, the Energy Act reduces barriers to market entry for companies that
wish to build, own and operate electric generating facilities,
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and it also promotes competition by authorizing the FERC to require wheeling for
wholesale power transactions. In 1996, the FERC issued Order No. 888, which
opened wholesale power markets to increased competition by requiring, among
other things, that public utilities owning, controlling or operating
transmission facilities file non-discriminatory open access transmission
tariffs. The order also establishes procedures for recovering stranded costs
deemed legitimate, prudent and verifiable that could otherwise go unrecovered if
customers use open access to switch to another wholesale supplier.
The natural gas business has become increasingly competitive as a result of
federal legislative and regulatory initiatives. As a consequence, natural gas
distribution companies and larger end users can now purchase gas supply from a
wide choice of producers and brokers in an essentially unregulated market. The
federal regulatory changes in the natural gas industry culminated in 1992 when
the FERC issued Order No. 636. Among other things, Order 636 mandates the
unbundling of interstate pipeline sales service and establishes certain open
access transportation requirements. One consequence of service unbundling has
been the creation of a new environment that mixes competition and regulation.
This mixture of competition and regulation creates new opportunities for energy
service providers and their customers.
At the state level, the PSC issued an Opinion and Order in December 1994
that set forth the policy framework to guide the transition of New York's gas
distribution industry to a more competitive marketplace after the implementation
of FERC Order 636. Under NYSEG's natural gas tariffs, which were approved by the
PSC Order issued in March 1996 (the "March Order"), all of NYSEG's customers--
residential, small business, commercial, and industrial--may buy natural gas
from other sources under a small customer aggregation program, with NYSEG
providing delivery service for a separate fee. In addition, consistent with the
March Order, NYSEG is implementing new services to compete more effectively for
sales to larger, more sophisticated transportation customers, as well as smaller
customers.
In order to respond effectively to this increased competition in the
electric and natural gas industry, NYSEG has determined that it must position
itself to take advantage of new and emerging business opportunities. NYSEG
believes that the holding company organization will enhance the Company's
ability to avail itself of such opportunities. NYSEG believes that the
separation of regulated and unregulated activities provides the necessary
protection for regulated customers and an efficient corporate structure to
pursue opportunities in competitive, unregulated markets in a timely manner.
THE RESTRUCTURING AGREEMENT
The following discussion is intended to be a summary of certain material
provisions of the Restructuring Agreement. This discussion is qualified in its
entirety by reference to the full text of the Restructuring Agreement which is
filed as an exhibit to the Registration Statement of which this Proxy Statement
and Prospectus is a part.
TERM OF THE AGREEMENT
The electric price cap and price reduction provisions of the Restructuring
Agreement cover the five-year period beginning with the effective date of
tariffs implementing the PSC order approving the Restructuring Agreement. That
five-year period is referred to as the "Price Cap Period." Other provisions
continue thereafter in accordance with the terms of the Restructuring Agreement.
RELATIONSHIP TO EXISTING SETTLEMENT AGREEMENTS
NYSEG is currently operating under a three-year electric settlement
agreement which was approved by the PSC in 1995 (the "1995 Electric
Settlement"), and which expires July 31, 1998. The Restructuring Agreement will
supersede the 1995 Electric Settlement. As a result, NYSEG will forgo the
revenue increases scheduled for the second and third years of the 1995 Electric
Settlement.
NYSEG is currently providing natural gas service under a three-year gas
settlement agreement approved by the PSC in 1995. It is expected that this gas
settlement will be extended through the Price Cap Period upon such terms as are
agreed to by NYSEG and the PSC.
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RATE PLAN
1. PRICE REDUCTIONS, PRICE FREEZE, SECURITIZATION AND ADDITIONAL NEGOTIATED
RATE INCENTIVES. The forgone revenue increases for the second and third years
of the 1995 Electric Settlement will result in a price reduction for residential
and commercial customers. Overall average electric prices for residential and
commercial customers will be capped for four years and reduced an additional 5%
for such customers at the beginning of the fifth year. In addition, prices will
be reduced 5% in each of the next five years for eligible industrial, commercial
and public authority customers who are heavy users of electricity.
In the event that legislation is enacted in New York to permit
securitization of intangible assets, including the Generation Assets, and NYSEG
engages in securitization of such assets, net savings resulting from
securitization will be returned to customers in a manner to be determined by the
PSC. During the Price Cap Period, NYSEG will also supplement existing rate
incentive programs or institute new rate incentive programs.
2. ELECTRIC EARNINGS CAP. During each year of the Price Cap Period, NYSEG's
electric earnings will be capped at 12% of common equity, and NYSEG's electric
earnings floor will be 9.0%.
3. ELECTRIC RATE DESIGN. As a rate objective, the parties to the
Restructuring Agreement agree that the basic service charge and the energy and
demand charges should reflect marginal costs, while avoiding undue bill shock
for any customer.
4. UNCONTROLLABLE COSTS. NYSEG may petition to recover revenue for certain
uncontrollable costs resulting from force majeure and certain other costs.
5. SYSTEM BENEFITS CHARGE. The PSC will make a determination regarding the
cost level and method of recovering costs associated with certain public policy
programs.
6. UNBUNDLING. Commencing with the date on which NYSEG files tariffs
implementing the PSC order approving the Restructuring Agreement, or as soon
thereafter as practicable, NYSEG's electric retail rates will be unbundled under
the Restructuring Agreement.
7. DIRECT CHARGE FEES. NYSEG may petition the PSC to introduce
revenue-neutral direct charge fees based on incremental costs for various
electric services now performed by it.
RETAIL ACCESS
1. GENERAL PROVISIONS. NYSEG will introduce direct retail access for
eligible retail electric customers to other qualified suppliers. Customers
receiving service under tariffs which allow NYSEG to receive negotiated or
incentive rates will become eligible to gain access to other retail power
suppliers after their contracts expire unless their contracts with NYSEG permit
such customer to become eligible earlier. NYSEG may file a petition with the PSC
for a retail access transaction fee.
2. CUSTOMER CHOICE PILOT PROGRAM. On November 1, 1997, NYSEG established a
Customer Choice Pilot Program. Tariffs governing the Customer Choice Pilot
Program became effective on a temporary basis on August 4, 1997.
3. RETAIL ACCESS FOR CITY OF NORWICH AND LOCKPORT DIVISION. Beginning
August 1, 1998, NYSEG will introduce retail access to all customers in the City
of Norwich and in NYSEG's Lockport Division, subject to certain requirements and
conditions. There are approximately 23,000 customers in the City of Norwich and
the Lockport Division.
4. RETAIL ACCESS FOR REMAINING CUSTOMERS. Beginning August 1, 1999, NYSEG
will offer retail access to all of its remaining customers who are not receiving
service under NYSEG negotiated or incentive rates, provided that there is in
place a FERC-approved Independent System Operator. Customers taking service
under NYSEG negotiated or incentive rates shall be eligible for retail access
after their contracts expire unless their contracts with NYSEG permit such
customers to become eligible earlier. Customers selecting a new supplier will
have power delivered by NYSEG from their chosen suppliers commencing no later
than December 31, 1999.
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5. GROSS RECEIPTS TAX. All customers, including those who switch suppliers,
shall pay a non-bypassable competitive transition charge plus any related Gross
Receipts Tax for as long as is necessary to permit NYSEG to recover the
regulatory asset determined by the auction process described below.
6. PROVIDER OF LAST RESORT. NYSEG will be the provider of last resort
during the Price Cap Period of the Restructuring Agreement unless such status is
changed by the PSC. For those eligible customers who do not receive electric
supply from a new supplier, NYSEG will deliver power, generated by NYSEG or
another entity, to such customers at the total cost of the bundled tariff rates
in place at that time, but only for the Price Cap Period. For customers that
have not made arrangements for electric supply at the end of the Price Cap
Period, NYSEG will acquire power from an appropriate power exchange and bill
those customers at cost.
7. RECIPROCITY. During each phase of the retail access program, HoldCo's
energy services subsidiary, if any, will have full access to provide services to
NYSEG's retail customers, subject to certain conditions. Also, to the extent any
other New York State utility or any other New York State utility-affiliated
entity seeks to gain access to NYSEG's service territory, such utility or entity
will not be given access to NYSEG's service territory unless the service
territory of such utility or entity is open to retail access by NYSEG and
HoldCo's energy services subsidiary, if any, in an equal or greater proportion.
8. RIGHTS AND OBLIGATIONS UNDER PSL SECTION 68. NYSEG's right and
obligation under New York law to provide electric service to its customers
remains unchanged notwithstanding the full implementation of retail access and
remains in full force and effect for the full term of the Restructuring
Agreement and thereafter.
COST RECOVERY
1. COMPETITIVE GENERATION PLAN. In order to promote a more fully
competitive generation marketplace, facilitate an auction sale free and clear of
NYSEG's mortgage indenture, and establish a regulatory asset to recover any
potential above market costs, the Generation Assets will be transferred to
GenSub as soon as practicable after obtaining the mortgage trustee's release and
any necessary regulatory approvals. Subsequent to the transfer, NYSEG will
conduct an auction of the Generation Assets in accordance with the terms of the
Restructuring Agreement. GenSub can participate in the auction as a bidder, but
it will not have any special rights or privileges. NYSEG will provide at the
same time (with appropriate confidentiality protections) all potential bidders
with the same plant and operating information as NYSEG makes available to
GenSub. The auction will be completed and the transactions resulting therefrom
will close no later than August 1, 1999.
After the auction, it is possible that GenSub may continue to own some or
all of the Generation Assets. GenSub may also purchase other generation assets
from third parties and enter into power purchase agreements as part of its power
marketing and trading function. Upon the transfer of the Generation Assets to
GenSub, a regulatory asset of NYSEG will be created for the difference between
the book value of the Generation Assets and the fair value determined in
accordance with NYSEG's first mortgage indenture for purposes of obtaining the
release of the Generation Assets from the lien of the mortgage. Upon a
subsequent sale of the Generation Assets pursuant to the auction process, such
regulatory asset will be adjusted to reflect auction proceeds net of tax and
transaction costs.(2) If no bids are received for a plant above the minimum bid
requirement of the auction, an appraisal process will be used
- ------------------------
(2) Pursuant to the Restructuring Agreement, NYSEG will be allowed to recover
from customers any short-fall between the book value of the Generation
Assets and the net auction proceeds. This will allow NYSEG to record a
regulatory asset in the amount of any such difference in accordance with
Financial Accounting Standard No. 71. In the event that the net auction
proceeds exceed the book value of the Generation Assets, a regulatory credit
will be created for the difference between the net auction proceeds and the
book value of the Generation Assets. Such regulatory credit will be used by
NYSEG to write down its investment in the Nine Mile Point nuclear generating
unit No. 2, and any such credit remaining after such write down will be used
by NYSEG as directed by the PSC.
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and completed no later than August 1, 1999, or as soon as practicable thereafter
for purposes of adjusting the regulatory asset.
2. NUGS, NMP2, HYDROELECTRIC AND REGULATORY ASSETS. Stranded cost recovery,
including amortization of the NYSEG regulatory assets associated with the
Generation Assets, is presumed within overall rate objectives during the Price
Cap Period and recovered through retail electric rates. After the Price Cap
Period, remaining NYSEG regulatory assets, other than those resulting from the
auction process, and hydroelectric, independent power producer and (except in
the event of the auction described below) nuclear fixed costs will be recovered
(for the life of the amortization period, contract or license) through a
non-bypassable wires charge. The regulatory asset created by the auction will
continue to be recovered through a competitive transition charge.
NYSEG will propose to its cotenants the auctioning of ownership of the Nine
Mile Point nuclear generating unit No. 2 ("NMP2"), and will vote for such
auction. The auction and the auction process, including but not limited to
measures to address the liability for decommissioning, would be subject to prior
PSC approval, and any sale or transfer of any ownership of NMP2 would be subject
to approval by the PSC, the NRC and any other regulatory bodies having
jurisdiction. If NYSEG's ownership of NMP2 is duly sold or transferred to a
non-NYSEG entity, then upon completion of such sale or transfer a regulatory
asset of NYSEG will be created on NYSEG's books for any difference between the
book value of such plant, less funded deferred taxes, and the net after-tax
auction proceeds.
In the event NYSEG achieves non-utility generator ("NUG") contract cost
savings net of transaction costs during the Price Cap Period through NUG
contract termination or restructuring, but excluding securitization, 80% of any
net savings achieved through such NUG contract termination or restructuring will
be flowed through to customers as determined by the PSC subject to certain
allocations of such savings to NYSEG for certain reimbursements. The remaining
20% of any net savings achieved through such NUG contract termination or
restructuring will be retained by NYSEG. Commencing after the Price Cap Period,
all net NUG contract cost savings will be subject to flow through to customers
in a manner to be determined by the PSC.
MERGERS AND ACQUISITIONS
NYSEG will have the flexibility to retain, on a cumulative basis, all
savings associated with the acquisition of or merger with another utility for a
period of five years from the date of closing of any such merger or acquisition
up to the amount of acquisition premium paid over the lesser of book value or
fair market value of assets merged or acquired. Savings in excess of that
recovery will be disposed of by order of the PSC. The cost recovery provisions
of the Restructuring Agreement will continue in the combined entity.
CORPORATE STRUCTURE
The Restructuring Agreement provides that NYSEG's proposed corporate
structure as contemplated by the Restructuring and as described herein will be
approved. In addition, NYSEG and the PSC Staff have agreed, among other things,
to certain conditions, including but not limited to, the following conditions
regarding affiliate operations and relationships:
1. Common stock dividends paid by NYSEG to HoldCo will be limited in any
calendar year to 100% of net income available for common stock. The calculation
of net income will exclude any one-time, non-cash accounting charges. This
restriction will exclude any one-time dividends to HoldCo resulting from certain
major transactions such as asset sales, the transfer of the Generation Assets or
securitization.
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2. NYSEG may, from time to time, repurchase at book value from HoldCo such
amount of shares of its common stock as NYSEG determines in order to maintain
the NYSEG equity ratio at an appropriate level. In the event that NYSEG's first
mortgage bond rating falls below investment grade according to both Moody's and
S&P, NYSEG will be prohibited from repurchasing shares of common stock until its
investment grade rating is restored.
3. Non-officer employees who transfer between NYSEG and an unregulated
affiliate will be prohibited from transferring back to their original employer
for a period of one year unless a specific waiver is received from the PSC.
Non-officer employees returning to NYSEG may not transfer to an unregulated
subsidiary for a minimum of one year from the date of the return unless a
specific waiver is received from the PSC. HoldCo and its subsidiaries, including
NYSEG, may have common officers.
4. NYSEG and its affiliates will be permitted to maintain one common pension
fund at HoldCo.
5. No payment or imputation of royalties or positive benefits to ratepayers
will be made by or with respect to NYSEG or any affiliates. The Diversification
Order and the related Stipulation and Agreement approved therein authorizing
NYSEG to make investments in diversified activities will be superseded.
6. In addition, the following standards of conduct will apply:
- SEPARATE ENTITIES: Any affiliate will be set up as a business entity
separate from NYSEG to foster competition in the utility's territory.
- SEPARATION OF BOOKS AND RECORDS: Separation will include books and
records, non-officer employees, advertising and marketing efforts, and
energy purchasing (except for tariffed services). Where common costs are
shared to take advantage of economies of scale, direct cost allocation
will be used where practical. However, if direct cost allocation is
impractical, cost allocations will be accomplished by using a fully
distributed cost method to be provided by NYSEG and approved by the PSC.
- PHYSICAL SEPARATION: NYSEG and HoldCo may occupy the same building. Any
non-regulated affiliate, other than HoldCo, will be located at a different
location from NYSEG. GenSub employees may occupy the same building as
NYSEG until completion of the auction required pursuant to the competitive
generation plan.
- AFFILIATE TRANSACTIONS: When affiliate transactions occur, they will be at
arms-length and will be priced at tariff rates, if applicable, or at least
at fully distributed costs. All transactions in excess of $100,000, other
than tariffed transactions and corporate governance and administrative
services, between NYSEG and either HoldCo or any affiliate will be
pursuant to written contracts filed with the PSC and on a basis that
neither disadvantages NYSEG nor unduly prefers HoldCo or any affiliate.
- TRANSFER OF ASSETS: NYSEG will be compensated for any transfer of utility
assets based on the greater of book value or market value, except for the
transfer of the Generation Assets to GenSub.
- TRANSFER OF DATA/INFORMATION: NYSEG will not provide any competitive
information or data to its affiliates unless that same information or data
is provided to all competitors at the same time and under the same
conditions.
- ACCESS TO BOOKS AND RECORDS: PSC Staff will have direct access to the
books and records of NYSEG and, prior to the auction, of GenSub. In
addition, PSC Staff will have direct access to the books and records of
GenSub, HoldCo, and any majority-held affiliate for certain purposes.
HoldCo will provide PSC designated personnel reasonable opportunity to
audit certain transactions between NYSEG and either HoldCo or its
affiliates, including GenSub, subject to appropriate confidentiality
agreements and trade secret protection.
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- DISPUTE RESOLUTION PROCESS: A process will be established, in consultation
with the PSC Staff, for a competitor or customer to obtain PSC review if
it believes that NYSEG, or its affiliate in a transaction with NYSEG, has
acted in an anti-competitive manner. Complete records of disputes will be
retained for PSC review.
- NAME AND REPUTATION: There will be no restrictions on HoldCo or any
affiliate using certain intangible assets of HoldCo or NYSEG, or in
identifying itself as being affiliated with HoldCo or NYSEG. NYSEG will
not provide sales leads for customers in NYSEG's service territory to any
affiliate and will refrain from giving the appearance that NYSEG speaks on
behalf of an affiliate or that the affiliate speaks on behalf of NYSEG. If
a customer requests information about securing any service or product
offered within the service territory by an affiliate, NYSEG may provide a
list of all companies known to NYSEG operating in the service territory
that provide the service or product, which may include the affiliate, but
NYSEG may not promote its affiliate.
- DEBT RATING: NYSEG will have its own debt rating. If NYSEG experiences a
downgrading or placement on creditwatch or review of its senior debt,
NYSEG management will notify the Director of Accounting & Finance of the
PSC.
- GUARANTEE OF AFFILIATE DEBT: NYSEG will not guarantee the notes,
debentures, debt obligations or other securities of any affiliate, nor
will it pledge any of its assets as security for any indebtedness of
HoldCo or its affiliates.
- LOANS OF EMPLOYEES: NYSEG will not loan operating employees to its
affiliates. Operating employees are those involved in competitive lines of
business, which excludes (among other categories) corporate governance,
finance, accounting, legal, and administrative services.
BENEFITS OF A HOLDING COMPANY STRUCTURE
NYSEG could continue to pursue unregulated business opportunities through
Enterprises and other unregulated subsidiaries of NYSEG. NYSEG believes,
however, that it is more desirable in the long run to conduct these unregulated
activities through a holding company structure.
The holding company structure is a well-established form of organization for
companies conducting multiple lines of business. It is a common form of
organization for unregulated companies and for those regulated companies, such
as telephone utilities and water utilities, which are not subject to the Holding
Company Act. In addition, it is utilized by many electric and gas companies
which are involved in unregulated activities.
There are many benefits of a holding company structure. The holding company
structure will enable HoldCo to engage in unregulated businesses without
obtaining the prior approval of the PSC, thereby enabling HoldCo to pursue
unregulated business opportunities in a timely manner. The holding company
structure also will permit the use of financing techniques that are more
directly suited to the particular requirements, characteristics and risks of
unregulated operations without affecting the capital structure or
creditworthiness of NYSEG, and will increase financial flexibility by allowing
the design and implementation of capitalization ratios appropriate for the
capital and business requirements of each subsidiary.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is desirable because it is easier for investors to
analyze and value individual lines of business. Moreover, the use of a holding
company structure provides legal protection against the imposition of liability
on regulated utilities for the results of unregulated business activities. In
short, the holding company structure
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is a highly desirable form of conducting regulated and unregulated businesses
within the same corporate group.
NYSEG's electricity purchase, transmission and distribution and natural gas
purchase, transportation and distribution businesses are expected to account for
the predominant part of HoldCo's earnings for the foreseeable future.
PLAN OF EXCHANGE
The Plan of Exchange has been approved by the Boards of Directors of NYSEG
and of HoldCo, and has been executed by authorized officers of each company. A
copy of the Plan of Exchange is attached to this Proxy Statement and Prospectus
as Exhibit A.
The Plan of Exchange provides that (i) each share of HoldCo Common Stock
outstanding immediately prior to the Effective Time shall be canceled and
thereupon shall constitute an authorized but unissued share of HoldCo Common
Stock and (ii) subject to the proper exercise of appraisal rights by dissenting
Stockholders (which are discussed below under the caption "The
Restructuring--Rights of Dissenting Stockholders"), each share of NYSEG Common
Stock outstanding at the Effective Time shall, by operation of law and without
any further action, at such time be exchanged for one share of HoldCo Common
Stock and HoldCo shall thereupon have acquired and be the holder of each
outstanding share of NYSEG Common Stock. The Plan of Exchange further provides
that, without any further action on the part of the Stockholders, each
outstanding certificate which, immediately before the Effective Time,
represented NYSEG Common Stock, shall be deemed and treated for all corporate
purposes to represent the ownership of the same number of shares of HoldCo
Common Stock as though a surrender or transfer and exchange had taken place.
TERMINATION OR AMENDMENT OF PLAN OF EXCHANGE
Notwithstanding Stockholder approval of the Plan of Exchange, the Plan of
Exchange may be terminated at any time prior to the Effective Time either by
HoldCo by resolution adopted by its Board of Directors or by NYSEG by resolution
adopted by its Board of Directors. If the Plan of Exchange is so terminated, the
Share Exchange and the other transactions that comprise the Restructuring will
be abandoned.
By mutual consent of their respective boards of directors, NYSEG and HoldCo
may amend the Plan of Exchange at any time prior to the Effective Time. However,
following approval of the Plan of Exchange by the Stockholders, no such
amendments may be made which either change the number or kind of shares to be
received pursuant to the Share Exchange or materially adversely affect the
rights of the stockholders of NYSEG in the judgment of the Board of Directors of
NYSEG.
CONDITIONS TO RESTRUCTURING
In addition to the required approval of the Plan of Exchange by the
Stockholders at the Special Meeting, consummation of the Restructuring,
including the Plan of Exchange, is subject to receipt of satisfactory approvals
from the PSC, the SEC, the FERC and the NRC, as discussed below. See "The
Restructuring--Regulatory Matters."
RIGHTS OF DISSENTING STOCKHOLDERS
Section 910 of the BCL sets forth the rights of Stockholders who object to
the Plan of Exchange. Any Stockholder who does not vote in favor of the Plan of
Exchange, or who duly revokes his or her vote in favor of the Plan of Exchange,
may, if the Share Exchange is consummated, obtain payment in cash for the
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fair market value of his or her shares by strictly complying with the
requirements of Section 623 of the BCL.
Such dissenting Stockholder must file with NYSEG, before the taking of the
vote on the Plan of Exchange, a written objection, including a notice of his or
her intention to dissent, his or her name and residence address, the number of
shares as to which he or she dissents (which number must not be less than all
his or her shares of such stock) and a demand for payment of the fair value of
his or her shares if the Share Exchange is consummated. Any such written
objection should be addressed to: Mr. D. W. Farley, Vice President and
Secretary, New York State Electric & Gas Corporation, P.O. Box 3200, Ithaca, New
York 14852-3200.
Within 10 days after the vote of Stockholders authorizing the Plan of
Exchange, NYSEG must give written notice of such authorization to each such
dissenting Stockholder who did not vote in favor of the Plan of Exchange.
At the time of filing the notice of election to dissent, or within one month
thereafter, such Stockholder must submit his or her Common Stock certificates to
(a) NYSEG or (b) NYSEG's transfer agent, ChaseMellon Shareholder Services,
L.L.C., P.O. Box 590, Ridgefield Park, New Jersey 07660, for notation thereon of
the election to dissent, after which such certificates will be returned to such
Stockholder. Any such Stockholder who fails to submit his or her shares for such
notation shall, at the option of NYSEG exercised by written notice to such
Stockholder within 45 days from the date of filing of the notice of election to
dissent, lose his or her dissenter's appraisal rights unless a court, for good
cause shown, shall otherwise direct.
Within 15 days after the expiration of the period within which Stockholders
may file their notices of election to dissent, or within 15 days after
consummation of the Share Exchange, whichever is later (but not later than 90
days after the Stockholders' vote authorizing the Plan of Exchange), NYSEG must
make a written offer (which, if the Share Exchange has not been consummated, may
be conditioned upon such consummation), to each Stockholder who has filed such
notice of election, to pay for his or her shares at a specified price which
NYSEG considers to be the fair value of such shares. If NYSEG and the dissenting
Stockholder are unable to agree as to such fair value, Section 623(h) of the BCL
provides for judicial determination of fair value. In the event of such a
disagreement, a court proceeding shall be commenced by NYSEG in the Supreme
Court of the State of New York, County of Tompkins, or by such dissenting
Stockholder if NYSEG fails to commence the proceeding within the time required
by Section 623 of the BCL. NYSEG intends to commence such a proceeding in the
event of such disagreement.
A negative vote on the Plan of Exchange does not constitute a "written
objection" to be filed by a dissenting Stockholder. An abstention from voting on
the Plan of Exchange, or failure to specify any vote on the accompanying proxy,
will not constitute a waiver of rights under Sections 910 and 623 of the BCL,
provided that a written objection has been properly filed. A vote in favor of
the Plan of Exchange will constitute a waiver of a Stockholder's appraisal
rights, even if a written objection has been filed.
For United States federal income tax purposes, a dissenting Stockholder who
receives payment for his or her shares upon exercise of his or her right of
appraisal may recognize capital gain or loss thereon measured by the difference
between the basis for his or her shares and the amount of payment received. This
tax discussion is included for general information only. Due to the individual
nature of tax consequences, each Stockholder is urged to consult his or her own
tax advisor as to the particular tax consequences to such Stockholder of
dissenting from the Plan of Exchange, including the effect and applicability of
federal, state, local, foreign and other tax laws.
The foregoing summary does not purport to be a complete statement of the
provisions of Sections 910 and 623 of the BCL, and is qualified in its entirety
by reference to those sections of the BCL, the complete texts of which are set
forth in Exhibits D and E, respectively, to this Proxy Statement and Prospectus.
Each
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Stockholder intending to exercise dissenter's appraisal rights should review
such Exhibits and consult his or her own counsel for a more complete and
definitive statement of the rights of dissenting Stockholders and the proper
procedure to follow to exercise such rights.
EXCHANGE OF STOCK CERTIFICATES
If the Plan of Exchange is approved and the Share Exchange is carried out,
it will not be necessary for Stockholders to surrender their existing stock
certificates for stock certificates of HoldCo. The Stockholders, other than
those Stockholders who properly exercise their appraisal rights, will
automatically become holders of HoldCo Common Stock and the present stock
certificates representing NYSEG Common Stock will automatically represent HoldCo
Common Stock on a share-for-share basis. After the Effective Time, when
presently outstanding certificates representing NYSEG Common Stock are presented
for transfer, new certificates bearing the name of HoldCo will be issued.
COMMON STOCK PLANS
NYSEG currently maintains the following stock-related employee plans: the
1997 Stock Option Plan, the Employees' Stock Purchase Plan, the Tax Deferred
Savings Plan for Salaried Employees and the Tax Deferred Savings Plan for Hourly
Paid Employees (the "Employee Plans"). NYSEG also maintains a Dividend
Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment Plan") and a
Tax Reduction Act Employee Stock Ownership Plan ("TRASOP"). The Dividend
Reinvestment Plan and the TRASOP together with the Employee Plans, are
collectively referred to herein as the "Common Stock Plans." The TRASOP will be
discontinued in 1998.
From and after the Effective Time, HoldCo Common Stock will be used in lieu
of NYSEG Common Stock whenever stock is required in connection with the Common
Stock Plans and HoldCo will assume the obligations of NYSEG under the Common
Stock Plans. Amendments to the Common Stock Plans to provide for the foregoing
will take effect at the Effective Time. Stockholder approval of the Plan of
Exchange also will constitute Stockholder approval of amendments to the Common
Stock Plans providing for the future use of HoldCo Common Stock in lieu of NYSEG
Common Stock thereunder and the assumption by HoldCo of the obligations of NYSEG
under the Common Stock Plans.
LISTING OF HOLDCO COMMON STOCK
The HoldCo Common Stock is expected to be approved for listing on the NYSE
and, after the Effective Time, expected to trade under the stock symbol
" ". At the time of the listing of HoldCo Common Stock, the NYSEG Common
Stock will be delisted from the NYSE.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for HoldCo Common Stock will be ChaseMellon
Shareholder Services, L.L.C. The address for the transfer agent and registrar
is: P.O. Box 590, Ridgefield Park, New Jersey 07660.
MARKET VALUE OF NYSEG COMMON STOCK
NYSEG Common Stock is listed on the NYSE. The high and low sales prices of
the NYSEG Common Stock on were $ and $ , respectively.
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REGULATORY MATTERS
Upon completion of the Restructuring, NYSEG will continue to be an electric
utility engaged in the transmission and distribution of electricity, and, in the
case of its hydroelectric and nuclear generation assets, the generation of
electricity, and a natural gas utility. NYSEG may auction its nuclear generation
assets. See "The Restructuring--Reasons for Restructuring--The Restructuring
Agreement." NYSEG will remain subject to regulation by the PSC and the FERC. It
is expected that GenSub will be subject to light PSC regulation, and will be
subject to FERC jurisdiction. After the Generation Assets are transferred,
GenSub will sell electric power to the marketplace, and it may sell some
electric power to NYSEG pursuant to a PSC-approved power purchase agreement
during the transition to competition when NYSEG retains the obligation to serve.
HoldCo will not be subject to regulation by the PSC or the FERC. Also, after the
Effective Time, both HoldCo and NYSEG will be subject to the reporting
requirements of the Exchange Act by virtue of having classes of securities
registered under that act.
PUBLIC SERVICE LAW OF THE STATE OF NEW YORK
The Restructuring is subject to PSC approval and is an integral part of
NYSEGPlan, a comprehensive rate and restructuring plan to satisfy electric
industry restructuring goals established by the PSC in the Competitive
Opportunities Proceeding. See "The Restructuring--Reasons for Restructuring--The
Regulatory Framework" and "--Reasons for Restructuring--The Restructuring
Agreement."
FEDERAL POWER ACT
The FERC has held that the transfer of common stock of a public utility
company, such as NYSEG, from its existing stockholders to a holding company in a
transaction such as the Share Exchange constitutes a transfer of the "ownership
and control" of the facilities of such utility, and is thus a "disposition of
facilities" subject to FERC review and approval under Section 203 of the Federal
Power Act. NYSEG has applied for such approval and for approval of the transfer
of certain power sales contracts and a tariff associated with certain of the
Generation Assets.
ATOMIC ENERGY ACT
A provision in the Atomic Energy Act requires NRC consent for the transfer
of control of NRC licenses. The NRC Staff has in the past asserted that this
provision applies to the creation of a holding company over an NRC-licensed
utility company in a transaction such as the Share Exchange. NYSEG owns an 18%
interest in the Nine Mile Point nuclear generating unit No. 2 and holds an NRC
owner's license. NYSEG has applied for NRC approval under the Atomic Energy Act
for the transfer of control of such license resulting from the Share Exchange.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NYSEG is currently not subject to the Holding Company Act because it is not
a "public utility holding company" or a "subsidiary" thereof as such terms are
defined in that act.(3) HoldCo will own 100% of the common stock of GenSub,
which was organized to engage in the generation business and to own and operate
all or a part of the Generation Assets, which NYSEG will commence transferring
as soon as practicable after obtaining the mortgage trustee's release and any
necessary regulatory approvals. As a result of the Restructuring, GenSub will be
an electric utility company under the Holding Company Act and HoldCo will become
an affiliate of both NYSEG and GenSub. Section 9(a)(2) of the Holding Company
Act requires the prior approval of the Commission under Section 10 of the
Holding Company
- ------------------------
(3) NYSEG may temporarily become a statutory "holding company" under the
Holding Company Act if the Generation Assets are transferred to GenSub prior
to the Effective Time. Upon such transfer, NYSEG will claim exemption from
the Holding Company Act pursuant to Section 3(a)(1) or 3(a)(2) of the
Holding Company Act.
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Act for any person to become an affiliate of more than one public utility
company. HoldCo has applied for such approval. HoldCo has also applied to the
Commission for an order exempting HoldCo from all provisions of the Holding
Company Act, except Section 9(a)(2) thereof, pursuant to the exemption provided
by section 3(a)(1) thereof. The basis for such exemption is that NYSEG and
GenSub are predominantly intrastate in character and carry on, or in the case of
GenSub will carry on, their business substantially in a single state (I.E., New
York State), which is the same state in which HoldCo, NYSEG and GenSub are
organized.
DIVIDEND POLICY
It is expected that quarterly dividends on the HoldCo Common Stock will be
paid on the same dates currently followed by NYSEG with respect to common stock
dividends. The most recent quarterly dividend declared by the Board of Directors
of NYSEG on the NYSEG Common Stock was $.35 per share payable on November 15,
1997 to holders of record of NYSEG Common Stock on October 27, 1997.
There can be no guarantee of the amount of the initial quarterly dividend on
HoldCo Common Stock or of the payment of future dividends because the rate and
timing of dividends on HoldCo Common Stock will depend upon the future earnings
and financial condition of HoldCo and its subsidiaries, including NYSEG, and
upon other relevant factors affecting HoldCo's dividend policy which are not
presently determinable. The ability of HoldCo to pay common stock dividends will
be governed by the ability of HoldCo's subsidiaries to pay dividends to HoldCo.
For a period of time following the Share Exchange, the funds required by HoldCo
to enable it to pay dividends on HoldCo Common Stock are expected to be derived
predominantly from the dividends paid by NYSEG to HoldCo. In the future,
dividends from subsidiaries other than NYSEG may also be a source of funds for
dividend payments by HoldCo.
NYSEG's ability to make dividend payments to HoldCo will be subject to the
availability of earnings and the needs of its utility business. Because NYSEG
will remain subject to regulation by the PSC, the amount of its earnings and
dividends will be affected by the manner in which the PSC regulates NYSEG. In
addition, pursuant to the terms of the Restructuring Agreement, common stock
dividends paid by NYSEG to HoldCo will generally be limited in any calendar year
to 100% of net income available for common stock. NYSEG intends to pay dividends
to HoldCo, if available, in amounts which, to the extent not otherwise provided
by dividends and other funds from subsidiaries of HoldCo, will be sufficient for
HoldCo to pay cash dividends on HoldCo Common Stock and to pay the operating
expenses of HoldCo and for such other corporate purposes as the Board of
Directors of HoldCo may determine. The ability of NYSEG to pay dividends on its
common stock will continue to be subject to the preferential dividend rights of
the holders of the NYSEG Preferred Stock and NYSEG Preference Stock, if any. In
addition, although it has no present intention to do so, it is possible that
NYSEG may need to issue additional preferred stock in the future to meet its
capital requirements. Such additional preferred stock will also have
preferential dividend rights.
The transfer of the Generation Assets and the transfer by NYSEG of the
common stock of its subsidiaries to HoldCo and its subsidiaries are not expected
to have an adverse effect on NYSEG's ability to pay common stock dividends to
HoldCo since NYSEG will retain those assets which account for a substantial
portion of its net earnings.
NYSEG is subject to restrictions on the payment of dividends contained in
its Charter and in its first mortgage bond indenture. The NYSEG Charter provides
that after dividends on all outstanding NYSEG Preferred Stock and NYSEG
Preference Stock, if any, have been paid, or declared and funds set apart for
their payment, the NYSEG Common Stock is entitled to such dividends as may be
declared by the Board of Directors out of funds legally available therefor. So
long as NYSEG senior securities are outstanding, cash dividends can be paid on
NYSEG Common Stock only out of retained earnings (as determined under the NYSEG
Charter) accumulated since December 31, 1946. Such dividends are limited to 75%
of Net Income Available for Common Stock (as defined in the NYSEG Charter) if
Common Stock Equity (as
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defined in the NYSEG Charter) falls below 25% of Total Capitalization (as
defined in the NYSEG Charter), and to 50% if Common Stock Equity falls below 20%
of Total Capitalization. NYSEG's Common Stock Equity at September 30, 1997, was
approximately 52% of Total Capitalization. No dividends on NYSEG Common Stock
can be paid unless all sinking fund requirements of the NYSEG Preferred Stock
and NYSEG Preference Stock, if any, are met.
NYSEG's first mortgage bond indenture provides that so long as any first
mortgage bonds shall be outstanding, NYSEG will not declare or pay any dividends
on its common stock (except a dividend in NYSEG Common Stock), or make any other
distribution (by way of purchase or otherwise) to the holders of NYSEG Common
Stock (other than in an amount not greater than the proceeds of additional
common stock financings), except a payment or distribution out of earned surplus
of NYSEG (as determined under the NYSEG first mortgage bond indenture)
accumulated subsequent to December 31, 1946.
As of September 30, 1997, neither the NYSEG Charter nor the first mortgage
bond indenture operated to limit the amount of regular quarterly dividends that
NYSEG pays on its common stock. Dividends on the NYSEG Preferred Stock will
continue to be paid at the times, at the rates and pursuant to the terms
provided for in the various series of such stock.
DIRECTORS AND EXECUTIVE OFFICERS
Immediately after the Effective Time, the Board of Directors of HoldCo shall
consist of those persons who are directors of NYSEG immediately prior to the
Effective Time. It is anticipated that the directors of NYSEG immediately after
the Effective Time will be those persons who are directors of NYSEG immediately
prior to the Effective Time. It is also anticipated that HoldCo and its
affiliates will have common officers.
Following the Share Exchange, it is expected that the following persons,
each of whom is currently an executive officer of NYSEG, will hold, in addition,
the offices of HoldCo indicated below.
NAME OFFICE
HoldCo and NYSEG each may have directors or executive officers who are not
directors or executive officers of the other. Information with respect to NYSEG
executive officers and NYSEG directors is incorporated by reference in NYSEG's
Annual Report on Form 10-K for the year ended December 31, 1996, which is
incorporated herein by reference.
DESCRIPTION OF NYSEG CAPITAL STOCK
NYSEG has an authorized capitalization consisting of: (i) 90,000,000 shares
of common stock having a par value of $6.66 2/3 per share, of which 67,502,827
shares were issued and outstanding as of September 30, 1997; (ii) 2,455,000
shares of Serial Preferred Stock having a par value of $100 per share, of which
844,400 shares were issued and outstanding as of September 30, 1997; (iii)
10,800,000 shares of Serial Preferred Stock having a par value of $25 per share,
of which 3,000,000 shares were issued and outstanding as of September 30, 1997;
and (iv) 1,000,000 shares of Preference Stock having a par value of $100 per
share, of which none were issued and outstanding as of September 30, 1997. The
outstanding NYSEG Preferred Stock has preference over the NYSEG Common Stock,
and would have preference over shares of NYSEG Preference Stock if any such
shares were outstanding, as to dividends and assets on liquidation. If shares of
NYSEG Preference Stock were issued and outstanding, such shares would have
preference over the NYSEG Common Stock as to dividends and assets on
liquidation.
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The Stockholders will have one vote per share at the Special Meeting. See
"Information About the Special Meeting--Outstanding Securities and Voting
Rights."
DESCRIPTION OF HOLDCO CAPITAL STOCK
GENERAL
The HoldCo Charter will provide for an authorized capitalization consisting
of (i) 150,000,000 shares of HoldCo Common Stock, par value $5 per share, and
(ii) 10,000,000 shares of preferred stock, without par value ("HoldCo Preferred
Stock").
As of the Record Date, 100 shares of HoldCo Common Stock were outstanding
and held by NYSEG, and no other shares of HoldCo capital stock were issued or
outstanding.
The HoldCo Charter will provide that, to the extent permitted by the BCL,
the Board of Directors of HoldCo is authorized, at any time or from time to
time, to establish and designate one or more series of HoldCo Preferred Stock
and to fix the number of shares and the relative rights, preferences and
limitations of each such series.
DIVIDENDS
Dividends on HoldCo Common Stock will be paid if, when and as determined by
the Board of Directors of HoldCo from time to time out of funds legally
available therefor. The HoldCo Charter will not contain certain restrictions on
the declaration, payment and amount of dividends on common stock as are
contained in the NYSEG Charter. See "The Restructuring--Dividend Policy."
VOTING RIGHTS
Holders of HoldCo Common Stock are entitled to one vote for each share held
by them on all matters submitted to the stockholders of HoldCo. The HoldCo
Charter will provide for the adoption of a plan of merger or consolidation by
the affirmative vote of stockholders entitled to cast a majority of the votes;
in the absence of such provision a two-thirds vote would be required. Holders of
HoldCo Common Stock will not have cumulative voting rights in the election of
directors. The HoldCo Charter will require the affirmative vote of the
stockholders entitled to cast at least three-fourths of the votes entitled to be
cast in order to alter, amend, repeal, or adopt any provision inconsistent with,
certain specified provisions of the HoldCo By-Laws. HoldCo's Board of Directors
will be divided into three classes serving staggered three year terms. See "The
Restructuring--Possible Anti-takeover Effects."
LIQUIDATION
In the event of any liquidation, dissolution or winding up of HoldCo, either
voluntary or involuntary, after payment or provision for payment shall have been
made of the amounts to which the holders of HoldCo Preferred Stock shall be
entitled under the provisions of any series of HoldCo Preferred Stock
established by the Board of Directors, the holders of HoldCo Common Stock will
be entitled, to the exclusion of the holders of the HoldCo Preferred Stock of
any series, to share ratably, according to the number of shares held by them, in
all remaining assets of HoldCo available for distribution.
PREEMPTIVE AND OTHER RIGHTS
The holders of HoldCo capital stock will not be entitled to any preemptive
rights to subscribe for or purchase any part of any issue, sale or offering of
any shares of HoldCo of any class or series, now or hereafter authorized, or of
any options, warrants or rights to subscribe for or purchase any such shares, or
of any securities convertible into, exchangeable for, or carrying options,
warrants or rights to subscribe for or purchase, any such shares, regardless of
whether such issue, sale or offering is for cash, property,
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services or otherwise. The HoldCo Common Stock is not subject to redemption or
to any further calls or assessments and is not entitled to the benefit of any
sinking fund provisions. The shares of HoldCo Common Stock to be issued in
connection with the Share Exchange when issued will be fully paid and non-
assessable.
POSSIBLE ANTI-TAKEOVER EFFECTS
Certain provisions of the HoldCo Charter, the HoldCo By-Laws, the BCL and
the PSL could be deemed to have the effect of delaying, discouraging or
preventing tender offers or other unsolicited attempts to take over and acquire
the business of HoldCo on terms which some stockholders might believe to be in
their best interests. By discouraging potential takeover bids, these provisions
might diminish the opportunity for HoldCo's stockholders to sell their shares at
a premium over then prevailing market prices. It was determined to include
provisions in the HoldCo Charter and HoldCo By-Laws that might have such
anti-takeover effects in order to ensure that the Board of Directors have the
ability to evaluate any proposed acquisition or change in control of HoldCo in
light of the interests of the Company and all of its constituencies without
being subject to undue pressure.
Set forth below is a discussion of the possible anti-takeover effects of
such provisions of the HoldCo Charter, the HoldCo By-Laws, the BCL and the PSL.
Reference is hereby made, and the following discussion is qualified in its
entirety by reference, to the full texts of the HoldCo Charter and the HoldCo
By-Laws, which are attached hereto as Exhibits B and C, respectively, and to the
relevant provisions of the BCL and the PSL.
HOLDCO DIRECTORS
The HoldCo By-Laws will provide that HoldCo directors may only be removed by
holders of a majority of shares of HoldCo Common Stock for cause and only at a
meeting of stockholders. Stockholders would be unable to remove a director
without cause and hence would have more difficulty in forcing changes in the
composition of the majority of the Board of Directors. In addition, the HoldCo
Charter and By-Laws will not provide for a minimum and maximum number of
directors and the HoldCo By-Laws will not permit stockholders to increase or
decrease the number of directors. Such provisions would encourage any person who
may be attempting to take over HoldCo, including those holding a majority of
shares, to deal with the then current Board of Directors. Stockholders would be
required to amend the By-Laws, which would require a supermajority vote, in
order to decrease or increase the number of directors. The HoldCo By-Laws will
provide that newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors of HoldCo
resulting from death, resignation, removal or disability, or any other cause
will be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum, and not by the stockholders.
Such provisions could have the effect of discouraging unsolicited takeover
proposals for HoldCo.
ADVANCE NOTICE PROCEDURES
The HoldCo By-Laws will contain certain advance notice procedures which
stockholders must comply with in order to make nominations of candidates for
election as directors of HoldCo or to bring other business before an annual
meeting of stockholders of HoldCo (the "Advance Notice Procedures").
The Advance Notice Procedures will provide that only persons who are
nominated by, or at the direction of, the Board of Directors of HoldCo, or by a
stockholder who has given written, timely notice meeting certain requirements to
the Secretary of HoldCo, will be eligible for election as directors of HoldCo.
The Advance Notice Procedures will also provide that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Board of Directors of HoldCo, or by a stockholder who has
given written, timely notice meeting certain requirements to the Secretary of
HoldCo of such stockholder's intention to bring such business before such annual
meeting.
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Under the Advance Notice Procedures, in order to be timely, notice of
stockholder nominations to be made at, or notice of business to be brought
before, an annual meeting must be received by HoldCo not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided that, in the event that the annual
meeting is called for a date that is not within 30 calendar days before or after
such anniversary date, notice by the stockholder in order to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure of the date of the annual meeting was made, whichever occurs
first. These by-law provisions will provide a more orderly procedure for
conducting stockholder meetings and will provide the Board of Directors with a
meaningful opportunity prior to stockholder meetings to inform stockholders, to
the extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together with any
recommendation of the Board of Directors. Also, by requiring advance notice of
nominations by stockholders, these by-law provisions will afford the Board of
Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the Board
of Directors, to inform stockholders about such qualifications.
Although the Advance Notice Procedures will not give the HoldCo Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors or business to be brought before the annual meeting, they
may have the effect of precluding a contest for the election of directors or the
consideration of business if the proper procedures are not followed and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to HoldCo and its stockholders. The Advance Notice
Procedures may also provide sufficient time for HoldCo to institute litigation
or take other appropriate steps to prevent the nominee of a stockholder
attempting to acquire control of HoldCo or the Board of Directors from being
elected or serving, or to respond or prevent such business from being acted
upon, if such action is thought to be necessary or desirable for any reason.
SPECIAL MEETINGS OF STOCKHOLDERS AND RIGHT TO ACT BY UNANIMOUS WRITTEN
CONSENT
The HoldCo By-Laws will provide that special meetings of stockholders may be
called only by the Chairman or by the President, and shall be called by the
Chairman or the President or Secretary at the request in writing of a majority
of the Board of Directors. Stockholders will not be permitted to call, or to
require that the Board of Directors call, a special meeting of stockholders.
Moreover, the business permitted to be transacted at a special meeting of
stockholders will be limited to business that is specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
Chairman, the President or the Board of Directors or otherwise properly brought
before the special meeting by or at the direction of the Board of Directors. A
stockholder will be unable to force stockholder consideration of a proposal over
the opposition of the Board of Directors of HoldCo by calling a special meeting
of stockholders.
In addition, HoldCo's Charter will provide that the stockholders may take
action without a meeting by written consent, but only if such consent is signed
by the holders of all outstanding shares entitled to vote thereon. Such
provision of the HoldCo Charter, together with the provisions relating to the
calling of special meetings described above, may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting and would
prevent the holders of less than all of the outstanding shares entitled to vote
thereon from using the written consent procedure to take stockholder action.
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CLASSIFIED BOARD OF DIRECTORS
The BCL provides that a board of directors may be classified into three
classes, serving staggered three-year terms. The HoldCo Charter will provide
that HoldCo's Board of Directors will be classified into three classes. HoldCo's
classified Board of Directors will provide a greater likelihood of continuity,
knowledge and experience on the Board of Directors because at any one time,
one-third of the Board of Directors would be in its second year of service and
one-third would be in its third year of service. A classified Board would cause
any person who may be attempting to take over HoldCo, including those holding a
majority of shares, to deal with the then current Board of Directors. Generally,
such a person would be unable to force immediate changes in the composition of
the majority of the Board of Directors since the terms of approximately
one-third of the incumbent directors would expire each year and it would require
at least two annual meetings for such person to change a majority of the Board
of Directors, as opposed to being able to achieve control in one annual meeting.
Similarly, an attempt to amend the HoldCo Charter to eliminate the classified
board provision would require at least two annual meetings, since under New York
law, the HoldCo Charter could only be amended if authorized by the HoldCo Board
of Directors followed by a vote of the stockholders and it would require any
person attempting to so amend the HoldCo Charter to control a majority of the
votes of HoldCo's Board of Directors, which as discussed above, would require at
least two annual meetings to achieve. These provisions could have the effect of
discouraging unsolicited takeover proposals for HoldCo or impeding a business
combination between HoldCo and a significant stockholder.
NO CUMULATIVE VOTING
The HoldCo Charter will not provide for cumulative voting in the election of
directors. Cumulative voting means that the total number of votes which a holder
of common stock may cast for the election of directors shall equal the number of
directors to be elected multiplied by the number of shares held, and such
stockholder may cast all of such votes for a single nominee for director or may
distribute them among all or several nominees, as such stockholder sees fit.
Under cumulative voting, it is possible for representation on a board of
directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock. Such a stockholder or group may have
interests and goals which are not consistent with, and indeed may be in conflict
with, those of a majority of stockholders. The Board of Directors of HoldCo
believes that each director should represent all of the stockholders, rather
than the interests of any special constituency, and that the presence on the
Board of Directors of HoldCo of one or more directors representing such a
constituency could disrupt or impair the efficient management of HoldCo. The
lack of cumulative voting could discourage the accumulation of blocks of HoldCo
Common Stock and therefore could tend to make temporary increases in the market
price of HoldCo Common Stock, which could result therefrom, less likely to
occur.
AUTHORIZED SHARES
HoldCo will be authorized to issue significantly more shares of common stock
than NYSEG. After the Effective Time, HoldCo will have authorized and unissued
approximately 83,000,000 shares of HoldCo Common Stock and 10,000,000 shares of
HoldCo Preferred Stock.
The Board of Directors of HoldCo will have the authority to issue the
unissued HoldCo Common Stock, or any part thereof, and, to the extent permitted
by the BCL, the full authority to determine the terms of any series of the
HoldCo Preferred Stock without further action by the stockholders except as
required by law or applicable stock exchange requirements. For example, the
NYSE, on which the HoldCo Common Stock will be listed, currently specifies
stockholder approval as a prerequisite for listing shares in several instances,
including acquisition transactions where the present or potential issuance of
shares could result in an increase in the number of shares outstanding by 20% or
more.
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Although HoldCo has no current plans for the issuance of any additional
HoldCo Common Stock or HoldCo Preferred Stock (other than HoldCo Common Stock in
connection with the Share Exchange and pursuant to the Common Stock Plans), such
shares could be used in connection with acquisitions of stock or assets of other
companies, to provide funds for construction of facilities and/or other
corporate purposes. Dividend requirements and any redemption, sinking fund or
conversion provision pertaining to shares of the HoldCo Preferred Stock, if
authorized and issued, may have an adverse effect on the availability of
earnings for distribution to holders of HoldCo Common Stock and for use with
respect to other corporate purposes. While there is no present intention to
issue such shares except as set forth above, the number of authorized shares of
HoldCo Common Stock and shares of HoldCo Preferred Stock will insure that shares
will be available, if needed, for issuance in connection with raising additional
capital, acquisitions, and other corporate purposes and, in the case of HoldCo
Common Stock, to support the issuance of HoldCo Preferred Stock or other
securities convertible into or exercisable for HoldCo Common Stock.
An effect of having authorized but unissued shares of HoldCo Common Stock
and HoldCo Preferred Stock may be to enable the HoldCo Board of Directors to
discourage an unsolicited takeover attempt or other transaction to obtain
control of HoldCo or to make such transaction more difficult to complete. Such
HoldCo Common Stock or HoldCo Preferred Stock might be issued by the HoldCo
Board of Directors without stockholder approval in a manner which might prevent
the completion of such takeover transaction or which might make the completion
of such takeover transaction more difficult or costly by diluting the voting or
other rights of the proposed acquiror. Although the Board of Directors of HoldCo
currently has no intention of doing so, shares of HoldCo Preferred Stock could
be issued in a manner which could have the effect of discouraging unsolicited
takeover attempts that the Board of Directors of HoldCo does not believe are in
the best interests of stockholders. Such HoldCo Preferred Stock could be issued
entitling holders to vote separately as a class on any proposed merger or
consolidation, to convert HoldCo Preferred Stock into a large number of HoldCo
Common Stock or other securities, to require redemption at a specified price
under prescribed circumstances related to a change of control, or to exercise
other rights designed to impede an unsolicited takeover that the Board of
Directors of HoldCo determines are not in the best interests of stockholders. In
addition, the authorized but unissued HoldCo Common Stock or HoldCo Preferred
Stock could be used in connection with the adoption of a rights plan, pursuant
to which the HoldCo Board of Directors could issue rights granting the holders
thereof, other than a person acquiring in excess of a specified percentage of
shares of HoldCo Common Stock without the consent of the HoldCo Board of
Directors, a right to purchase from HoldCo additional shares of HoldCo Common
Stock (or their equivalent) at a price below the then current market price for
such shares. The effect of such a plan would be to discourage any person from
acquiring shares in excess of such specified percentage without the approval of
the HoldCo Board of Directors.
SUPERMAJORITY APPROVAL REQUIRED FOR CERTAIN AMENDMENTS TO HOLDCO BY-LAWS
In general, approval of amendments to the HoldCo By-Laws will require the
affirmative vote of a majority of the Board of Directors or the affirmative vote
of the stockholders entitled to cast a majority of the votes entitled to be
cast. The HoldCo Charter and the HoldCo By-Laws will require supermajority
stockholder approval for the alteration, amendment, repeal of, or the adoption
of any provision inconsistent with, certain specified provisions of the HoldCo
By-Laws. Such by-law amendments will require the affirmative vote of the
stockholders entitled to cast at least three-fourths of the votes entitled to be
cast.
The HoldCo By-Law provisions which will not be able to be amended without a
supermajority vote relate generally to the Advance Notice Procedures, special
meetings of stockholders, the structure of the HoldCo Board of Directors, and
the amendment of the supermajority requirements. Since the supermajority
requirements will make it more difficult to amend such provisions, the
supermajority requirements could have the effect of discouraging unsolicited
takeover proposals for HoldCo that the Board of Directors of HoldCo determines
are not in the best interests of stockholders.
36
<PAGE>
BCL SECTION 912
Section 912 of the BCL prohibits a resident domestic corporation (a New York
corporation which has certain additional connections with New York) from
engaging in a business combination (as defined in Section 912) with an
interested stockholder (generally, the beneficial owner of 20% or more of a
corporation's voting stock) for five years following the time such stockholder
became an interested stockholder unless prior to the time that the stockholder
became an interested stockholder, the corporation's board of directors approved
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder. After the expiration of the five-year
period, such business combinations may occur only if approved by a majority vote
of disinterested stockholders, or if specific requirements as to consideration
paid to holders of common stock and preferred stock are met.
REGULATORY APPROVAL OF A MERGER OR TAKEOVER INVOLVING HOLDCO
Under Section 70 of the PSL, no gas corporation or electric corporation may
directly or indirectly acquire the stock or bonds of any other corporation
incorporated for, or engaged in, the same or a similar business unless
authorized by the PSC. That statute also provides that, in general, no stock
corporation of any description, domestic or foreign, other than a gas
corporation or electric corporation, may purchase or acquire, take or hold, more
than ten percent (10%) of the voting capital stock of any gas corporation or
electric corporation organized or existing under or by virtue of the laws of New
York State unless with the consent of, and subject to the terms and conditions
set by, the PSC. No consent may be given by the PSC to any such acquisition
under Section 70 of the PSL unless it has been shown that such acquisition is in
the public interest. An "electric corporation" is defined to generally include
any corporation, company, partnership and person owning, operating or managing
any electric plant. A "gas corporation" is defined to generally include any
corporation, company, partnership and person owning, operating or managing any
gas plant. In the event of a merger, consolidation or takeover transaction
involving HoldCo, any regulatory approvals required for such a transaction would
depend on the structure and other details of the transaction. The necessary
approvals could include approval of the PSC under Section 70 of the PSL.
COMPARISON OF NYSEG COMMON STOCK AND HOLDCO COMMON STOCK
As New York corporations, both NYSEG and HoldCo are governed primarily by
the BCL. Holders of NYSEG Common Stock, whose rights as Stockholders are
currently governed by the NYSEG Charter and the By-Laws of NYSEG (the "NYSEG
By-Laws"), will become as a result of the Share Exchange holders of HoldCo
Common Stock, whose rights as stockholders will be governed by the HoldCo
Charter and the HoldCo By-Laws. Certain differences arise due to this change in
governing charters and by-laws. The following discussion is not intended to be a
complete statement of all differences affecting the rights of stockholders, but
summarizes certain differences between the rights of the holders of HoldCo
Common Stock and the rights of Stockholders. This discussion is qualified in its
entirety by reference to the full texts of the HoldCo Charter, HoldCo By-Laws,
the NYSEG Charter, and the NYSEG By-Laws. The HoldCo Charter and the HoldCo
By-Laws are attached hereto as Exhibits B and C, respectively. The NYSEG Charter
and the NYSEG By-Laws in effect on the date hereof are included as exhibits to
NYSEG's Annual Report on Form 10-K for the year ended December 31, 1996, which
is incorporated herein by reference.
RESTRICTIONS ON DIVIDENDS
The NYSEG Charter contains certain restrictions which limit the declaration,
payment and amount of dividends on NYSEG Common Stock and the HoldCo Charter
will not contain any such restrictions on HoldCo Common Stock dividends. See
"The Restructuring--Dividend Policy" and "--Description of HoldCo Capital
Stock."
37
<PAGE>
REMOVAL OF DIRECTORS; CUMULATIVE VOTING; FILLING OF VACANCIES
The HoldCo By-Laws will permit holders of a majority of the shares of HoldCo
Common Stock to remove directors of HoldCo only for cause and only at a meeting
of stockholders.
The NYSEG Charter and By-Laws by their terms permit Stockholders holding a
majority of the shares of NYSEG Common Stock to remove directors of NYSEG with
or without cause and at a meeting of Stockholders or by written consent.
However, Section 706(c)(1) of the BCL provides that in the case of a corporation
having cumulative voting, no director may be removed when the votes cast against
his removal would be sufficient to elect him if voted cumulatively in an
election at which the same total number of votes were cast and the entire board,
or the entire class of directors of which he is a member, were then being
elected. NYSEG's Charter and By-Laws provide for cumulative voting. Because
Section 706(c)(1) is inconsistent with NYSEG's Charter and By-Law provisions
authorizing a majority of the shares of NYSEG Common Stock to remove directors
of NYSEG with or without cause, NYSEG believes that such NYSEG Charter and
By-Law provisions are invalid and inoperative. HoldCo's Charter and By-Laws will
not provide for cumulative voting.
HoldCo's By-Laws will provide that any vacancies on the Board of Directors
of HoldCo resulting from removal will be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum, and not by the stockholders, while the NYSEG By-Laws provide that a
vacancy caused by the removal by Stockholders of a director with or without
cause may be filled by the Stockholders. See "The Restructuring--Possible
Anti-takeover Effects."
NUMBER OF DIRECTORS
The NYSEG Charter and By-Laws provide for a minimum and maximum number of
directors and the HoldCo Charter and By-Laws will contain no such provision. The
HoldCo By-Laws, unlike those of NYSEG, will not permit stockholders to increase
or decrease the number of directors. See "The Restructuring--Possible
Anti-takeover Effects."
ADOPTION OF PLAN OF MERGER BY MAJORITY VOTE
The HoldCo Charter will provide for the adoption of a plan of merger or
consolidation by affirmative vote of stockholders entitled to cast a majority of
the votes; in the absence of such provision a two-thirds vote would be required.
The NYSEG Charter contains no such provision. See "The Restructuring--
Description of HoldCo Capital Stock."
AUTHORIZED SHARES
HoldCo will be authorized to issue significantly more shares of common stock
than NYSEG and the Board of Directors of HoldCo will have, to the extent
permitted by the BCL, full authority to determine the terms of any series of
HoldCo Preferred Stock. See "The Restructuring--Possible Anti-takeover Effects."
AMENDMENTS TO CERTAIN HOLDCO BY-LAW PROVISIONS
HoldCo's Charter and By-Laws will require supermajority stockholder approval
for amendments to certain specified provisions of the HoldCo By-Laws. See "The
Restructuring--Possible Anti-takeover Effects."
38
<PAGE>
TREATMENT OF NYSEG PREFERRED STOCK
The Share Exchange will not result in any change in the outstanding NYSEG
Preferred Stock, several series of which are listed on the NYSE. The shares of
NYSEG Preferred Stock issued and outstanding immediately prior to the Share
Exchange will not be converted or otherwise affected by the Share Exchange and
will continue as equity securities of NYSEG with the same preferences,
designations, relative rights, privileges and powers, and subject to the same
restrictions, limitations and qualifications, as were applicable to such
securities prior to the Share Exchange. The decision to have the NYSEG Preferred
Stock continue as securities of NYSEG is based upon a desire not to alter, or
potentially alter, the nature of the investment represented by such fixed income
securities, namely a direct investment in a regulated utility. It is anticipated
that the current listings of some of NYSEG's Preferred Stock on the NYSE will
continue after the Share Exchange. It is currently anticipated that NYSEG will
continue to file reports pursuant to the Exchange Act.
As to holders of NYSEG Preferred Stock, the benefits of continuing as
investors in NYSEG's regulated utility business outweigh any loss of access to
the return on NYSEG's subsidiaries. In that regard, investors in priority
position securities, such as the holders of NYSEG Preferred Stock, benefit to
the extent that such securities have been issued by the corporate entity that
holds directly and/or has unrestricted access to the assets which generate a
substantial portion of the net earnings of the enterprise. As discussed above
under the caption "The Restructuring--Dividend Policy," the funds required to
pay dividends on HoldCo Common Stock for a period of time following the Share
Exchange are expected to be derived predominantly from dividends paid by NYSEG.
If the NYSEG Preferred Stock also were to be exchanged pursuant to the Share
Exchange and become preferred stock of HoldCo, the funds required to pay
dividends on that preferred stock would also be derived predominantly from
dividends paid by NYSEG.
Although it has no present intention to do so, it is possible that NYSEG may
need to issue preferred stock in the future to meet its capital requirements.
The preferred stock that would be issued by NYSEG would have preference over the
NYSEG Common Stock and NYSEG Preference Stock, if any, as to the payment of
dividends and, therefore, would reduce the amount of funds available to NYSEG
for the payment of dividends to HoldCo. As a result, the conversion of the NYSEG
Preferred Stock to HoldCo Preferred Stock would result in the dividend payments
and distributions upon liquidation with respect to those shares being
subordinated to the dividend and distribution rights of the newly created
preferred stock of NYSEG.
TREATMENT OF NYSEG INDEBTEDNESS
The Share Exchange will not result in any change in the outstanding
indebtedness of NYSEG which will continue to be obligations of NYSEG after the
Share Exchange. NYSEG's first mortgage bonds will continue to be secured by a
first mortgage lien on all of the properties of NYSEG that are currently subject
to such lien other than the Generation Assets transferred to GenSub and released
from the lien of NYSEG's first mortgage bond indenture. Such indebtedness will
be neither assumed nor guaranteed by HoldCo in connection with the Share
Exchange. The decision to have such indebtedness of NYSEG continue as
obligations of NYSEG is based upon a desire not to alter, or potentially alter,
the nature of the investment represented by such fixed income obligations,
namely a direct investment in a regulated utility.
CERTAIN INCOME TAX CONSEQUENCES
GENERAL
The following general discussion summarizes certain income tax
considerations relating to the Restructuring. This discussion is included for
general information only. It does not discuss all aspects of income taxation
that may be relevant to a particular Stockholder in light of the personal tax
circumstances of the Stockholder or to certain types of Stockholders subject to
special treatment under the income tax laws.
39
<PAGE>
Statements of legal conclusion regarding federal tax treatments, effects or
consequences reflect the opinion of Huber Lawrence & Abell, General Counsel for
the Company. No rulings have been requested from the Internal Revenue Service.
Accordingly, each Stockholder should consult his or her own tax advisor as to
the specific tax consequences to him or her, including the application and
effect of state or local income and other tax laws.
The following discussion is based on existing statutory provisions, existing
and proposed regulations and existing administrative interpretations and court
decisions. Future legislation, regulations, administrative interpretations or
court decisions could significantly change such authorities either prospectively
or retroactively.
For federal income tax purposes, the Share Exchange is intended to qualify
as a tax free exchange pursuant to Section 351 of the Internal Revenue Code of
1986, as amended.
TAX IMPLICATIONS TO THE STOCKHOLDERS
For federal income tax purposes, no gain or loss will be recognized by the
Stockholders from the Share Exchange. The tax basis of the HoldCo Common Stock
received by each Stockholder will be the same as the Stockholder's basis in the
NYSEG Common Stock surrendered in the Share Exchange. The holding period of the
HoldCo Common Stock held by each Stockholder for determining long-term capital
gains for federal income tax purposes will include the period during which such
Stockholder held the NYSEG Common Stock, provided that the NYSEG Common Stock
was held as a capital asset on the date of the Share Exchange.
For federal income tax purposes, a dissenting Stockholder who receives
payment for his or her shares upon exercise of his or her right of appraisal may
recognize capital gain or loss thereon measured by the difference between the
basis for his or her shares and the amount of payment received. Due to the
individual nature of tax consequences, each such Stockholder is urged to consult
his or her own tax advisor as to the particular tax consequences to him or her
of dissenting from the Plan of Exchange, including the effect and applicability
of federal, state, local, foreign and other tax laws.
TAX IMPLICATIONS TO HOLDCO
No gain or loss will be recognized by HoldCo for federal income tax purposes
upon receipt of the NYSEG Common Stock. For federal income tax purposes, the
basis of the NYSEG Common Stock received by HoldCo will be the same as NYSEG's
net asset basis immediately after the Share Exchange, subject to certain
adjustments under Treasury Regulations relating to consolidated groups, and
HoldCo's holding period in the NYSEG Common Stock received in the Share Exchange
includes the period during which such stock was held by Stockholders.
TAX IMPLICATIONS TO NYSEG IN CONNECTION WITH THE TRANSFER OF THE GENERATION
ASSETS TO GENSUB
The transfer of the Generation Assets to GenSub will result in no adverse
federal income tax consequences to NYSEG. In general, it will have no net impact
on the determination of the enterprise's taxable income for federal income tax
purposes.
OTHER TAX ASPECTS
Apart from federal income tax aspects, no attempt has been made to determine
any tax that may be imposed on a Stockholder by the country, state or
jurisdiction in which such Stockholder resides or is a citizen. Stockholders may
be subject to other taxes, such as state or local income taxes that may be
imposed by various jurisdictions. Such Stockholders may also be subject to
intangible property, estate and inheritance taxes in their state of domicile.
Such Stockholders should consult their own tax advisors with regard to state and
local income, inheritance and estate taxes.
40
<PAGE>
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE
ONLY A GENERAL SUMMARY, AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY
WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION
DOES NOT ADDRESS ANY FOREIGN, FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF THE
DISPOSITION OF STOCK IN NYSEG OR HOLDCO EITHER BEFORE OR AFTER THE SHARE
EXCHANGE. ACCORDINGLY, EACH STOCKHOLDER IS STRONGLY URGED TO CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF
THE SHARE EXCHANGE OR SUCH DISPOSITION OF STOCK.
LEGAL OPINIONS
The validity of the HoldCo Common Stock will be passed upon for the Company
by Huber Lawrence & Abell, General Counsel for the Company.
EXPERTS
The consolidated financial statements and related financial statement
schedule of NYSEG incorporated in this Proxy Statement and Prospectus by
reference from NYSEG's Annual Report on Form 10-K have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as stated in their report which
is incorporated herein by reference, and has been so incorporated in reliance
upon such report given upon the authority of that firm as experts in accounting
and auditing.
Statements made herein and in the documents incorporated by reference in
this Proxy Statement and Prospectus as to matters of law and legal conclusions
have been reviewed by Huber Lawrence & Abell, General Counsel of the Company,
and have been made in reliance upon their authority as experts. As of September
30, 1997, members of the firm of Huber Lawrence & Abell who participated in the
preparation of this Proxy Statement/Prospectus owned 2,058 shares of NYSEG
Common Stock.
OTHER MATTERS
The Board of Directors does not know of any other matters of business to be
presented for action at the meeting. However, the enclosed form of proxy will
confer discretionary authority for the transacting of any such other and further
business if properly brought before the meeting or any adjournment thereof. If
any such business is so brought before the meeting, the persons named in the
enclosed form of proxy, or their substitutes, will vote according to their
discretion.
COST OF SOLICITATION
The accompanying proxy is solicited on behalf of the Board of Directors. The
costs of this solicitation, including reimbursement of charges of brokerage
houses and others for their expenses in forwarding proxy materials to beneficial
owners of stock, will be paid by NYSEG. Directors, officers, and employees of
NYSEG may solicit proxies by telephone, telegram or in person, without
additional compensation. In addition, NYSEG has retained to aid
in the solicitation of proxies at a fee of not to exceed $ , plus
reimbursement for out-of-pocket expenses incurred by that firm on behalf of
NYSEG.
By Order of the Board of Directors
DANIEL W. FARLEY,
VICE PRESIDENT AND SECRETARY
Dated: , 1997
41
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
1995 Electric Settlement................................................................................... 20
Advance Notice Procedures.................................................................................. 33
BCL........................................................................................................ 15
CalEnergy.................................................................................................. 11
Commission................................................................................................. 4
Common Stock Plans......................................................................................... 28
Company.................................................................................................... 1
Competitive Opportunities Order............................................................................ 19
Competitive Opportunities Proceeding....................................................................... 18
Diversification Order...................................................................................... 17
Dividend Reinvestment Plan................................................................................. 28
Effective Time............................................................................................. 15
Employee Plans............................................................................................. 28
Energy Act................................................................................................. 19
Enterprises................................................................................................ 14
Exchange Act............................................................................................... 4
FERC....................................................................................................... 8
Generation Assets.......................................................................................... 14
GenSub..................................................................................................... 14
HoldCo..................................................................................................... 1
HoldCo By-Laws............................................................................................. 10
HoldCo Charter............................................................................................. 10
HoldCo Common Stock........................................................................................ 1
HoldCo Preferred Stock..................................................................................... 32
Holding Company Act........................................................................................ 8
March Order................................................................................................ 20
NMP2....................................................................................................... 23
NRC........................................................................................................ 8
NUG........................................................................................................ 23
NYSE....................................................................................................... 4
NYSEG...................................................................................................... 1
NYSEG By-Laws.............................................................................................. 37
NYSEG Charter.............................................................................................. 9
NYSEG Common Stock......................................................................................... 1
NYSEG Preference Stock..................................................................................... 15
NYSEG Preferred Stock...................................................................................... 15
NYSEGPlan.................................................................................................. 19
Plan of Exchange........................................................................................... 1
Price Cap Period........................................................................................... 20
PSC........................................................................................................ 8
PSL........................................................................................................ 9
PURPA...................................................................................................... 19
Record Date................................................................................................ 12
Registration Statement..................................................................................... 4
Restructuring.............................................................................................. 14
Restructuring Agreement.................................................................................... 8
SEC........................................................................................................ 4
Securities Act............................................................................................. 4
Share Exchange............................................................................................. 1
Special Meeting............................................................................................ 1
SRC........................................................................................................ 14
Stockholders............................................................................................... 12
TRASOP..................................................................................................... 28
XENERGY.................................................................................................... 17
</TABLE>
42
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
AND
NGE RESOURCES, INC.
This Agreement and Plan of Share Exchange (the "Plan of Exchange") is dated
and executed as of the day of , 1997 by and between New York
State Electric & Gas Corporation, a New York corporation and NGE Resources,
Inc., a New York corporation.
1. The name of the acquiring corporation is NGE Resources, Inc. (the
"Acquiring Corporation"). The name of the subject corporation is New York State
Electric & Gas Corporation (the "Subject Corporation"). The name under which the
Subject Corporation was originally formed was the Ithaca Gas Light Company.
2. The designation and number of outstanding shares of capital stock of the
Subject Corporation are as follows: Common Stock, $6.66 2/3 par value per share,
each of which is entitled to one vote and of which 67,502,827 shares are
outstanding ("Subject Corporation Common Stock"); 3.75% Serial Preferred Stock,
$100.00 par value per share, of which 150,000 shares are outstanding; 4 1/2%
Serial Preferred Stock (Series 1949), $100.00 par value per share, of which
40,000 shares are outstanding; 4.15% Serial Preferred Stock, $100.00 par value
per share, of which 14,000 shares are outstanding; 4.40% Serial Preferred Stock,
$100.00 par value per share, of which 55,200 shares are outstanding; 4.15%
Serial Preferred Stock (Series 1954), $100.00 par value per share, of which
35,200 shares are outstanding; 6.48% Serial Preferred Stock, $100.00 par value
per share, of which 300,000 shares are outstanding; 6.30% Serial Preferred
Stock, $100.00 par value per share, of which 250,000 shares are outstanding;
Adjustable Rate Serial Preferred Stock, Series B, $25.00 par value per share, of
which 2,000,000 shares are outstanding; and 7.40% Serial Preferred Stock, $25.00
par value per share, of which 1,000,000 are outstanding (said series of
preferred stock are collectively referred to herein as "Subject Corporation
Preferred Stock"). The Subject Corporation is also authorized by its Restated
Certificate of Incorporation to issue Preference Stock (Cumulative, $100 Par
Value) ("Subject Corporation Preference Stock"), none of which is outstanding.
The number of shares set forth in this paragraph is subject to change prior to
the Effective Time (as defined below) insofar as the Subject Corporation may
during said period issue Subject Corporation Preference Stock, issue additional
Subject Corporation Common Stock and Subject Corporation Preferred Stock and may
reacquire Subject Corporation Preferred Stock and may repurchase Subject
Corporation Common Stock.
The designation and number of outstanding shares of the Acquiring
Corporation are: Common Stock, $5 par value per share (the "Acquiring
Corporation Common Stock"), of which 100 shares are outstanding; and Preferred
Stock, no par value per share (the "Acquiring Corporation Preferred Stock"),
none of which are outstanding. The number of shares set forth in this paragraph
is subject to change prior to the Effective Time (as defined below) insofar as
the Acquiring Corporation may during said period issue Acquiring Corporation
Preferred Stock and additional Acquiring Corporation Common Stock.
In accordance with the provisions of Section 913(c) of the New York Business
Corporation Law ("BCL"), this Plan of Exchange shall be submitted to the holders
of the Subject Corporation Common Stock for their approval and adoption. The
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Subject Corporation Common Stock shall be necessary to approve and adopt this
Plan of Exchange.
A-1
<PAGE>
3. Upon the time of filing of a Certificate of Exchange in connection with
the share exchange contemplated hereby (the "Share Exchange") by the Department
of State of the State of New York (the "Effective Time"):
(a) Each share of Subject Corporation Common Stock outstanding at the
Effective Time shall, by operation of law and without further action, be
exchanged for one share of Acquiring Corporation Common Stock, subject to
dissenting shareholders' rights under Sections 623 and 910 of the BCL
("Dissenter's Rights");
(b) Each share of Acquiring Corporation Common Stock outstanding
immediately prior to the Effective Time shall be canceled and shall be
restored to the status of an authorized but unissued share of Acquiring
Corporation Common Stock;
(c) Each share of Subject Corporation Common Stock held in the treasury
of the Subject Corporation immediately prior to the Effective Time shall be
canceled and shall be restored to the status of an authorized but unissued
share of Subject Corporation Common Stock; and
(d) Immediately after the Effective Time, all of the outstanding shares
of Subject Corporation Common Stock will be held by the Acquiring
Corporation, and all of the outstanding shares of Acquiring Corporation
Common Stock will be held by the holders of shares of Subject Corporation
Common Stock that were outstanding immediately prior to the Effective Time
(subject to Dissenter's Rights). Each holder of Subject Corporation Common
Stock who properly exercises Dissenter's Rights shall have the right to
receive payment of the fair value of the holder's Subject Corporation Common
Stock in accordance with the provisions of Sections 623 and 910 of the BCL.
4. Shares of Subject Corporation Preferred Stock shall not be exchanged or
otherwise affected by this Plan of Exchange. Each share of Subject Corporation
Preferred Stock outstanding immediately prior to the Effective Time shall
continue to be outstanding following the Effective Time.
5. Each outstanding certificate which immediately prior to the Effective
Time represents Subject Corporation Common Stock shall, without any further
action on the part of the holder thereof, be deemed and treated for all
corporate purposes to represent the ownership of the same number of shares of
Acquiring Corporation Common Stock as though a surrender or transfer and
exchange had taken place.
6. At the Effective Time, the Acquiring Corporation will succeed to and
assume the Subject Corporation's Tax Deferred Savings Plan for Salaried
Employees, Tax Deferred Savings Plan for Hourly Paid Employees, Employees' Stock
Purchase Plan, Tax Reduction Act Employee Stock Ownership Plan, Dividend
Reinvestment and Stock Purchase Plan and 1997 Stock Option Plan (collectively
referred to as the "Plans"); and, by virtue of the Share Exchange and without
any action on the part of the holder thereof, each option or right under the
Plans to purchase shares of Subject Corporation Common Stock granted and
outstanding immediately prior to the Effective Time shall be converted into and
become an option or right to purchase an equivalent number of shares of
Acquiring Corporation Common Stock at the same price per share, and upon the
same terms and subject to the same conditions, as applicable immediately prior
to the Effective Time under the relevant option or right.
The Acquiring Corporation will reserve, for purposes of the Plans, a number
of shares of Acquiring Corporation Common Stock equivalent to the number of
shares of Subject Corporation Common Stock reserved by the Subject Corporation
for such purposes immediately prior to the Effective Time.
7. The Plan of Exchange shall be conditioned upon:
(a) Receipt of the requisite vote of shareholders of the Subject
Corporation pursuant to Section 913(c)(2) of the BCL;
A-2
<PAGE>
(b) Effectiveness of a registration statement under the Securities Act
of 1933 relating to Acquiring Corporation Common Stock to be issued or
reserved for issuance in connection with the Share Exchange;
(c) Approval for listing, on official notice of issuance, of such shares
of Acquiring Corporation Common Stock on the New York Stock Exchange;
(d) Receipt of an opinion of counsel covering certain United States
federal income tax matters;
(e) Receipt of an opinion of counsel as to the legality of Acquiring
Corporation Common Stock issuable in connection with the Share Exchange; and
(f) Receipt of all consents and approvals of federal or state regulatory
authorities that are necessary and appropriate for the consummation of the
Share Exchange, in form and substance satisfactory to the Subject
Corporation and the Acquiring Corporation.
8. At any time prior to the Effective Time, this Plan of Exchange may be
amended or modified by mutual consent of the respective Boards of Directors of
the Subject Corporation and the Acquiring Corporation; provided, however, once
the Plan of Exchange is approved by the common shareholders of the Subject
Corporation, no amendment or modification may be made that either changes the
number or kind of shares to be received by the Subject Corporation Common
Shareholders pursuant to the Plan of Exchange or affects the rights of any
shareholder of the Subject Corporation in any manner that is materially adverse
to such shareholder in the judgment of the Board of Directors of the Subject
Corporation. The Plan of Exchange may be abandoned by resolution approved by the
Board of Directors of either the Subject Corporation or the Acquiring
Corporation, at any time before the Effective Time, whether or not the
shareholders of the Subject Corporation have cast their votes with regard to the
Plan of Exchange.
9. The Subject Corporation and the Acquiring Corporation, respectively,
shall take all such action as may be necessary or appropriate in order to
effectuate the Share Exchange and the other transactions contemplated by this
Plan of Exchange. If at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Plan of Exchange, the
officers and directors of each of the Acquiring Corporation and the Subject
Corporation shall take such further action.
A-3
<PAGE>
10. The Plan of Exchange was duly adopted by the Board of Directors of the
Subject Corporation on October 10, 1997.
11. The Plan of Exchange was duly adopted by the Board of Directors of the
Acquiring Corporation on September 25, 1997.
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Exchange to
be duly executed by their respective duly authorized representatives as of the
date first above written.
<TABLE>
<S> <C> <C>
NGE RESOURCES, INC.
By:
-----------------------------------------
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By:
-----------------------------------------
</TABLE>
A-4
<PAGE>
EXHIBIT B
DRAFT
RESTATED CERTIFICATE OF INCORPORATION
OF
NGE RESOURCES, INC.
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
The undersigned, being the and of NGE Resources, Inc., a New
York corporation, hereby certify:
FIRST. The name of the corporation is NGE Resources, Inc.
SECOND. The Certificate of Incorporation of the corporation was filed by
the Department of State on September 23, 1997.
THIRD. The Certificate of Incorporation is amended or changed to effect one
or more amendments or changes authorized by the Business Corporation Law of the
State of New York, namely: to increase the aggregate number of shares which the
corporation is authorized to issue by authorizing One Hundred Forty-Nine Million
Nine Hundred Ninety-Nine Thousand Two Hundred (149,999,200) additional shares of
Common Stock, with a par value of Five Dollars ($5) per share, and Nine Million
Nine Hundred Ninety-Nine Thousand Eight Hundred (9,999,800) additional shares of
Preferred Stock, without par value; to clarify the limitation on director
liability; to delete the provision setting the minimum and maximum number of
directors; to provide for the Board of Directors to be classified into three
classes; to delete the supermajority requirement for a stockholder vote to amend
certain provisions of the Certificate of Incorporation; to clarify the voting
requirements for the amendment of the By-Laws; to provide for the amendment of
certain By-Laws by the stockholders only upon the affirmative vote of the
stockholders entitled to cast three-fourths of the votes entitled to be cast; to
provide for the adoption of a plan of merger or consolidation by the affirmative
vote of the stockholders entitled to cast a majority of the votes entitled to be
cast; and to provide that the stockholders may take action without a meeting on
written consent, but only if such consent is signed by the holders of all
outstanding shares entitled to vote thereon. The text of the Certificate of
Incorporation is hereby restated as so amended or changed to read as follows:
1. The name of the corporation is NGE Resources, Inc. (the "Corporation").
2. The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York, provided that any act or
activity requiring the consent or approval of any state official, department,
board, agency or other body shall not be engaged in without such consent or
approval first being obtained.
3. The office of the Corporation in the State of New York is located in the
County of Albany.
4. (A) The aggregate number of shares of stock which the Corporation shall
have authority to issue is One Hundred Sixty Million (160,000,000) consisting
of:
(1) One Hundred Fifty Million (150,000,000) shares of Common Stock, with
a par value of Five Dollars ($5) per share; and
(2) Ten Million (10,000,000) shares of Preferred Stock, without par
value.
(B) The designations, relative rights, preferences and limitations of the
shares of each class of stock are as follows:
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(1) COMMON STOCK
Each share of Common Stock shall have one vote. Subject to any voting rights
which may vest in holders of Preferred Stock under the provisions of any series
of Preferred Stock established by the Board of Directors pursuant to authority
herein provided and except as otherwise provided by law, the exclusive voting
power for all purposes shall be vested in the holders of Common Stock. Subject
to the rights of the holders of Preferred Stock under the provisions of any
series of Preferred Stock established by the Board of Directors pursuant to
authority herein provided, the holders of Common Stock shall be entitled to
receive such dividends, in cash, securities, or property, as may from time to
time be declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
after payment or provision for payment shall have been made of the amounts to
which the holders of Preferred Stock shall be entitled under the provisions of
any series of Preferred Stock established by the Board of Directors pursuant to
authority herein provided, the holders of Common Stock shall be entitled, to the
exclusion of the holders of the Preferred Stock of any series, to share ratably,
according to the number of shares held by them, in all remaining assets of the
Corporation available for distribution.
(2) PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
Each share of Preferred Stock of any particular series shall be identical in all
respects with every other share of Preferred Stock of the same series. The Board
of Directors is authorized, at any time or from time to time, to establish and
designate one or more series of Preferred Stock and to fix the number of shares
and the relative rights, preferences and limitations of each such series,
subject to such limitations as may be prescribed by law and the provisions of
this Article. The authority of the Board of Directors with respect to each
series of Preferred Stock shall include, but not be limited to, determination of
the following:
(a) The distinctive serial designation of the shares of the series by
number, letter, title or other means which shall distinguish these shares
from the shares of all other series;
(b) The number of shares included in the series, which number (except
where otherwise provided by the Board of Directors in creating the series)
may be increased (but not above the total number of authorized shares of
Preferred Stock) or decreased (but not below the number of the outstanding
shares of such series) from time to time by the Board of Directors; provided
that if the number of shares is decreased, the shares constituting such
decrease shall be restored to the status of authorized but unissued shares
of Preferred Stock;
(c) The dividend rate for the shares of the series, which may be
expressed in terms of a formula or other method by which such rate shall be
calculated from time to time, and the dividend periods, including the dates
on which such dividends shall be payable;
(d) Whether dividends on the shares of the series shall be cumulative
and, with respect to the shares of any series having cumulative dividend
rights, the date or dates or method of determining the date or dates from
which dividends on the shares of the series shall be cumulative;
(e) The amount or amounts per share (plus all dividends accrued and in
arrears thereon) which shall be paid out of the assets of the Corporation to
the holders of the shares of the series upon the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation;
(f) The redemption price or prices, if any, for the series and the
procedure or procedures for redemption of shares of such series;
(g) The obligation, if any, of the Corporation to acquire shares of the
series pursuant to a sinking fund and the terms and conditions upon which
the shares of the series shall be acquired pursuant to such sinking fund;
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(h) The period or periods within which and the terms and conditions, if
any, including the price or prices or the rate or rates of conversion or
exchange and terms and conditions of any adjustments thereof, upon which the
shares of the series shall be convertible into, or exchangeable for, shares
of any other class or classes of stock or shares of any other series of any
class or any other securities or assets;
(i) The voting rights, if any, of the shares of the series in addition
to those provided by law; and
(j) Any other relative rights, preferences, or limitations of the shares
of the series not inconsistent herewith or with applicable law.
5. No holders of shares of the Corporation of any class or series, now or
hereafter authorized, shall have any preemptive rights to subscribe for or
purchase any part of any issue, sale or offering of any shares of the
Corporation of any class or series, now or hereafter authorized, or of any
options, warrants or rights to subscribe for or purchase any such shares, or of
any securities convertible into, exchangeable for, or carrying options, warrants
or rights to subscribe for or purchase, any such shares, regardless of whether
such issue, sale or offering is for cash, property, services or otherwise.
6. To the fullest extent that New York law from time to time permits the
elimination or limitation of the personal liability of directors, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for damages for any breach of duty as a director. No amendment or
repeal of this Article 6 shall adversely affect any right of a director of the
Corporation or the protection of a director of the Corporation from liability
for acts or omissions that occur prior to the time of such amendment or repeal.
7. The directors shall be divided, with respect to the terms for which they
severally hold office, into three classes, hereby designated Class I, Class II
and Class III. The three classes shall be as nearly equal in number as possible.
The initial terms of office of the Class I, Class II and Class III directors
shall expire at the next succeeding annual meeting of stockholders, the second
succeeding annual meeting of stockholders and the third succeeding annual
meeting of stockholders, respectively. At each annual meeting of stockholders,
the successors of the class of directors whose term expires at that annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of their
election. Any newly created directorships or any decrease in directorships shall
be so apportioned among the classes as to make all classes as nearly equal in
number as possible. If the number of directors is increased by the Board and any
newly created directorships are filled by the Board, there shall be no
classification of the additional directors until the next annual meeting of
stockholders.
8. By-Laws of the Corporation may be altered, amended, repealed or adopted
by the affirmative vote of the stockholders entitled to cast a majority of the
votes entitled to be cast, or by the affirmative vote of a majority of the Board
of Directors at any meeting duly held as provided in the By-Laws of the
Corporation; provided that any alteration, amendment or repeal of, or the
adoption of any provision inconsistent with, By-Laws 8, 9, 10, 12 or 53, if by
action of the stockholders, shall be only upon the affirmative vote of the
stockholders entitled to cast three-fourths of the votes entitled to be cast.
9. The affirmative vote of the stockholders entitled to cast a majority of
the votes entitled to be cast shall be required to adopt a plan of merger or
consolidation.
10. Actions by the stockholders may be taken without a meeting on written
consent, setting forth the action so taken, but only if such consent is signed
by the holders of all outstanding shares entitled to vote thereon.
11. The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom any process in any action or proceeding
against it may be served. The post office address to which the Secretary of
State shall mail a copy of any such process served upon him is One Commerce
Plaza, Suite 2006A-20th Floor, Albany, New York 12260, Attention: Secretary.
FOURTH. The foregoing Restated Certificate of Incorporation was authorized
by the Board of Directors of the Corporation at a meeting of the Board of
Directors held on , followed by the written consent of the sole
stockholder of the Corporation dated .
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IN WITNESS WHEREOF, the undersigned have made, signed and acknowledged this
Restated Certificate of Incorporation this day of , 1998.
NGE Resources, Inc.
--------------------------------------
[Name]
[Title]
[Address]
--------------------------------------
[Name]
[Title]
[Address]
STATE OF NEW YORK )
:ss.:
COUNTY OF [Name] )
On this day of , 1998, before me personally came , to me
known, and known to me to be the person described in and who executed the
foregoing Restated Certificate of Incorporation and he duly acknowledged to me
that he executed the same.
--------------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
:ss.:
COUNTY OF [Name] )
On this day of , 1998, before me personally came , to me
known, and known to me to be the person described in and who executed the
foregoing Restated Certificate of Incorporation and he duly acknowledged to me
that he executed the same.
--------------------------------------
NOTARY PUBLIC
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EXHIBIT C
DRAFT
NGE RESOURCES, INC.
------------------------
BY-LAWS
------------------------
OFFICES
1. The office shall be at the place specified in the Certificate of
Incorporation, now County of Albany, State of New York.
The Corporation may also have offices at such other places as the Board of
Directors may from time to time designate or the business of the Corporation may
require.
SEAL
2. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "CORPORATE SEAL, NEW
YORK". If authorized by the Board of Directors, the corporate seal may be
affixed to any certificates of stock, bonds, debentures, notes or other
engraved, lithographed or printed instruments, by engravings, lithographing or
printing thereon such seal or a facsimile thereof, and such seal or facsimile
thereof so engraved, lithographed or printed thereon shall have the same force
and effect, for all purposes, as if such corporate seal had been affixed thereto
by indentation.
STOCKHOLDERS' MEETINGS
3. All meetings of the stockholders shall be held at the principal office of
the Corporation, or at such other location in the State of New York as shall be
stated in the notice of the meeting, except when otherwise expressly provided by
statute. All meetings of stockholders shall be presided over by the Chairman or
by the President or a Vice President except when by statute the election of a
presiding officer is required.
4. The annual meeting of stockholders shall be held at such date and time as
shall be stated in the notice of the meeting at which the stockholders entitled
to vote shall elect directors and transact such other business as may properly
be brought before the meeting.
5. The holders of a majority of the votes of shares entitled to vote
thereat, without regard to class or series, present in person or by proxy, shall
be requisite for, and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise expressly
provided by statute, by the Certificate of Incorporation or by these By-Laws.
If, however, the holders of a majority of such votes shall not be present or
represented by proxy at any such meeting, the stockholders entitled to vote
thereat, present in person or by proxy, shall have power, by a majority vote of
those votes present or represented, to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the holders of the
amount of votes requisite to constitute a quorum shall be present in person or
by proxy. At any adjourned meeting at which a quorum shall be present, in person
or by proxy, any business may be transacted which might have been transacted at
the meeting as originally noticed.
6. At each meeting of stockholders each holder of record of shares of
capital stock then entitled to vote shall be entitled to vote in person, or by
proxy appointed by such stockholder or by his duly authorized attorney; but no
proxy shall be valid after the expiration of eleven months from the date thereof
unless
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otherwise provided in the proxy. Except as otherwise provided by statute or by
the Certificate of Incorporation each holder of record of shares of capital
stock entitled to vote at any meeting of stockholders shall be entitled to one
vote for every share of capital stock standing in his name on the books of the
Corporation. All elections shall be determined by a plurality vote. The vote for
directors shall be by ballot.
7. A list of stockholders as of the record date, certified by the corporate
officer responsible for its preparation or by a transfer agent, shall be
produced at any meeting of stockholders upon the request thereat or prior
thereto of any stockholder. If the right to vote at any meeting is challenged,
the inspectors of election, or person presiding thereat, shall require such list
of stockholders to be produced as evidence of the right of the persons
challenged to vote at such meeting, and all persons who appear from such list to
be stockholders entitled to vote thereat may vote at such meeting.
8. Except as may be otherwise provided in the Certificate of Incorporation,
only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this By-Law and on the record date for the determination
of stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this By-Law.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the person(s) named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement
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or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this By-Law. If
the chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
9. No business may be transacted at an annual meeting of stockholders, other
than business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this By-Law and
on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this By-Law.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this By-Law. If the chairman of the annual meeting determines that
business was not properly brought before the annual meeting in accordance with
the foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall not
be transacted.
10. Special meetings of the stockholders for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation may be
called by the Chairman or by the President, and shall be called by the Chairman
or the President or Secretary at the request in writing of a majority of the
Board of Directors. Such request shall state the purpose or purposes of the
proposed meetings. No other person or persons may call or request special
meetings of the stockholders.
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No business may be transacted at a special meeting of the stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Chairman, the
President or the Board of Directors or (b) otherwise properly brought before the
special meeting by or at the direction of the Board of Directors.
11. Notice of every meeting of stockholders, setting forth the time, place
and purpose or purposes thereof, shall be mailed, not less than ten nor more
than sixty days prior to such meetings to all stockholders (at their respective
addresses appearing on the books of the Corporation unless the stockholder shall
have filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address, in which case the notice shall
be mailed to the address designated in such request) entitled to vote at such
meeting, of record as of a date fixed by the Board of Directors, not more than
sixty days in advance of such meeting, for determining the stockholders entitled
to notice of and to vote at such meeting, unless and except to the extent that
such notice shall have been waived in writing either before or after the holding
of such meeting by stockholders entitled to notice thereof and to vote thereat.
DIRECTORS
12. The property and business of the Corporation shall be managed under the
direction of its Board of Directors. Directors need not be stockholders.
Directors shall be elected at the annual meeting of the stockholders, or, if no
such election shall be held, at a meeting called and held in accordance with the
statutes of the State of New York. Each director shall be elected to hold office
until the expiration of the term for which he is elected, and thereafter until a
successor shall be elected and shall qualify.
A majority of the entire Board of Directors, at any regular or special
meeting, may fix the number of directors and, in the case of an increase in such
number, shall thereupon elect the additional directors. No decrease in the
number of directors shall shorten the term of any incumbent director. Except as
otherwise provided by statute, at any meeting of the stockholders, the holders
of a majority of the shares of common stock issued and outstanding, voting
separately as a class, may remove at any time, for cause only, any director.
Directors shall not be removed without cause by the stockholders, except in the
case of a director elected by the holders of any class or series of stock (other
than the common stock), now or hereafter authorized, voting separately as a
class or series, when so entitled by the provisions of the Certificate of
Incorporation applicable thereto.
No director who shall have attained the age of 70 shall stand for
re-election as a director.
13. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board may exercise all such powers of the Corporation,
and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders. A director or officer of this Corporation
shall not be disqualified by his office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor shall any
transaction or contract of this Corporation be void or voidable by reason of the
fact that any director or officer or any firm of which any director or officer
is a member or employee or any corporation of which any director or officer is a
shareholder, director, officer or employee, is in any way interested in such
transaction or contract, provided that such transaction or contract is or shall
be authorized, ratified or approved either (1) by vote of a majority of a quorum
of the Board of Directors or of the Executive Committee without counting in such
majority or quorum any director so interested or (2) by vote at a stockholders'
meeting of the holders of record of a majority of all the outstanding shares of
capital stock of the Corporation having full voting power or by writing or
writings signed by a majority of such holders; nor shall any director or officer
be liable to account to the Corporation for any profits realized by and from or
through any such transaction, or contract of this Corporation authorized,
ratified or approved as aforesaid by reason of the fact that he or any firm of
which he is a member or employee, or any corporation of which he is a
shareholder, director, officer or employee was interested in such transaction or
contract.
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MEETINGS OF THE BOARD
14. The first meeting of the Board of Directors held after the annual
meeting of stockholders at which directors shall have been elected shall be held
for the purpose of organization, the election of officers, and the transaction
of any other business which may come before the meeting.
15. Regular meetings of the Board may be held without notice, except as
otherwise provided by these By-Laws, at such time and place as shall from time
to time be designated by the Board.
16. Special meetings of the Board may be called by the Chairman or by the
President or a Vice President or any two directors and may be held at the time
and place designated in the call and notice of the meeting. The Secretary or
other officer performing his duties shall give notice either personally or by
mail or telegram at least twenty-four hours before the meeting. Meetings may be
held at any time and place without notice if all the directors are present or if
those not present waive notice in writing either before or after the meeting.
17. At all meetings of the Board one-third of the total number of directors
shall be requisite for and shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these By-Laws.
18. Any regular or special meeting may be adjourned to any other time at the
same or any other place by a majority of the directors present at the meeting,
whether or not a quorum shall be present at such meeting, and no notice of the
adjourned meeting shall be required other than announcement at the meeting.
COMPENSATION OF DIRECTORS
19. Directors, other than salaried officers or employees of the Corporation
or of any affiliated company, shall receive cash compensation for their services
as directors in such form and amounts, and at such times, as may be prescribed
from time to time by the Board of Directors. All directors shall be reimbursed
for their reasonable expenses, if any, for attendance at each regular or special
meeting of the Board of Directors. Nothing herein contained shall be construed
to preclude any director from receiving non-cash compensation for serving as a
director or from serving the Corporation in any other capacity and receiving
compensation therefor.
20. Members of the Executive Committee other than salaried officers or
employees of the Corporation or of any affiliated company, shall receive
compensation for their services on that committee in such form and amounts, and
at such times, as may be prescribed from time to time by the Board of Directors.
Members of special or standing committees, including the Executive
Committee, shall be allowed such additional compensation and reimbursement for
expenses as may be fixed by the Board of Directors.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
21. The Board of Directors may by vote of a majority of the whole Board
designate three or more of their number to constitute an Executive Committee to
hold office for such period as the Board shall determine. The Chairman and the
President shall each be a member of the Executive Committee. The Board of
Directors may likewise designate one or more alternate members who shall serve
on the Executive Committee in the absence or disqualification of any regular
member or members of such Committee. When a regular or alternate member of the
Executive Committee ceases to be a director he shall automatically cease to be
such regular or alternate member of the Executive Committee. Such Executive
Committee shall, between meetings of the Board, have all the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
except that no such committee shall have authority as to: the submission to
stockholders of any action that needs stockholders' authorization
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under the Business Corporation Law; the filling of vacancies in the Board of
Directors or in any committee; the fixing of compensation of the directors for
serving on the Board or on any committee; the amendment or repeal of the
By-Laws, or the adoption of new By-Laws; or the amendment or repeal of any
resolution of the Board which by its terms shall not be so amendable or
repealable.
The Executive Committee shall cause to be kept regular minutes of its
proceedings, which may be transcribed in the regular minute book of the
Corporation, and all such proceedings shall be reported to the Board of
Directors at its next succeeding meeting, and shall be subject to revision or
alteration by the Board, provided that no rights of third persons shall be
affected by such revision or alteration. A majority of the Executive Committee
shall constitute a quorum at any meeting. The act of a majority of the Executive
Committee present at any meeting at which there is a quorum shall be the act of
the Executive Committee. The Board of Directors may by vote of a majority
thereof fill any vacancies in the Executive Committee. The Executive Committee
may, from time to time, subject to the approval of the Board of Directors,
prescribe rules and regulations for the calling and conduct of meetings of the
Committee, and other matters relating to its procedure and the exercise of its
powers.
22. In addition to having the power to designate an Executive Committee, the
Board of Directors may by vote of a majority of the whole Board designate other
committees, whether special or standing, each to consist of three or more of
their number, to hold office for such period as the Board shall determine. With
respect to each such other committee, the Board of Directors may likewise
designate one or more alternate members who shall serve in the absence or
disqualification of any regular member or members of such other committee. When
a regular or alternate member of such other committee ceases to be a director he
shall automatically cease to be a regular or alternate member of such other
committee. Each such other committee shall have authority only to the extent
provided by the Board of Directors, except that no such other committee shall
have authority as to: the submission to stockholders of any action that needs
stockholders' authorization under the Business Corporation Law; the filling of
vacancies in the Board of Directors or in any committee; the fixing of
compensation of the directors for serving on the Board or on any committee; the
amendment or repeal of the By-Laws, or the adoption of new By-Laws; or the
amendment or repeal of any resolution of the Board which by its terms shall not
be so amendable or repealable. A majority of each such other committee shall
constitute a quorum at any meeting thereof. The act of a majority of each such
other committee present at any meeting thereof at which there is a quorum shall
be the act of such other committee. The Board of Directors may by vote of a
majority thereof fill any vacancies in each such other committee.
MEETINGS OF THE BOARD AND COMMITTEE THEREOF
BY CONFERENCE TELEPHONE OR SIMILAR MEANS
23. Any one or more of the members of the Board of Directors, the Executive
Committee or any special or standing committee of the Board of Directors may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
ACTION BY BOARD OR COMMITTEE WITHOUT A MEETING
24. If all members of the Board of Directors, the Executive Committee or any
special or standing committee of the Board of Directors consent in writing to
the adoption of a resolution authorizing action required or permitted to be
taken by the Board or any committee, such action may be taken without a meeting.
The resolution and the written consents thereto shall be filed with the minutes
of the proceeding.
OFFICERS
25. The officers of the Corporation shall be chosen by the Board of
Directors. The officers shall be a Chairman, one or more Assistants to the
Chairman, a President, one or more Assistants to the President, one or more Vice
Presidents, one or more Assistant Vice Presidents, a Secretary, one or more
Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a
Controller, one or more Assistant Controllers, and such other officers as the
Board may from time to time choose and appoint.
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26. The Board of Directors, at its first meeting after the election of
directors by the stockholders, shall choose a Chairman and a President from
among their own number, and a Secretary, and may choose a Treasurer and a
Controller, and such Assistants to the Chairman, Assistants to the President,
Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, Assistant
Treasurers and Assistant Controllers, as it shall deem necessary, none of whom
need be members of the Board.
27. The Board may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms, and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
28. The salary or other compensation of the officers of the Corporation
shall be fixed by the Board of Directors. The salary or other compensation of
all other employees shall, in the absence of any action by the Board be fixed by
the Chairman or the President or by such other officers or executives as shall
be designated by the Chairman or the President.
29. The officers of the Corporation shall hold office until the first
meeting of the Board of Directors after the next succeeding annual meeting of
stockholders and until their successors are chosen and qualify in their stead.
Any officer or agent elected or appointed by the Board of Directors may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors. Any other employee or agent of the
Corporation may be removed at any time, with or without cause, by the
affirmative vote of a majority of the whole Board of Directors or, in the
absence of any action by the Board, by the Chairman or the President or by such
other officers or executives as shall have been designated by the Chairman or
the President.
CHAIRMAN
30. The Chairman shall be the chief executive officer of the Corporation and
shall, when present, preside at all meetings of the Board of Directors and of
the stockholders, except as otherwise by law provided. He may sign in the name
of and on behalf of the Corporation, certificates of stock, notes, and any and
all contracts, agreements and other instruments of a contractual nature
pertaining to matters which arise in the normal conduct and ordinary course of
business of the Corporation. He shall be a member of the Executive Committee and
of all standing committees except the Executive Compensation and Succession
Committee, the Audit Committee and the Nominating Committee. He shall also
generally have the powers and perform the duties which appertain to the office.
The Assistants to the Chairman shall assist the Chairman in the performance
of his duties and exercise and perform such other powers and duties as may be
conferred or required by the Board.
PRESIDENT
31. The President shall, when present in the absence of the Chairman,
preside at all meetings of the Board of Directors and of the stockholders,
except as otherwise by law provided. He may sign in the name of and on behalf of
the Corporation, certificates of stock, notes, and any and all contracts,
agreements and other instruments of a contractual nature pertaining to matters
which arise in the normal conduct and ordinary course of business of the
Corporation. He shall be a member of the Executive Committee and of all standing
committees except the Executive Compensation and Succession Committee, the Audit
Committee and the Nominating Committee. He shall also generally have the powers
and perform the duties which appertain to the office.
The Assistants to the President shall assist the President in the
performance of his duties and exercise and perform such other powers and duties
as may be conferred or required by the Board.
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VICE PRESIDENT
32. A Vice President may sign, in the name of and on behalf of the
Corporation, certificates of stock, notes and any and all contracts, agreements
and other instruments of a contractual nature pertaining to matters which arise
in the normal conduct and ordinary course of business, and shall perform such
other duties as the Board of Directors may prescribe.
If there be more than one Vice President, the Board of Directors may
designate one or more Vice Presidents as Executive Vice Presidents who shall
have general supervision, direction and control of the business and affairs of
the Corporation in the absence or disability of the Chairman and the President,
and may designate one or more Vice Presidents as Senior Vice Presidents who
shall have general supervision, direction and control of the business and
affairs of the Corporation in the absence or disability of the Chairman and the
President and the Executive Vice Presidents. A Vice President who has not been
designated as Executive Vice President or as Senior Vice President shall have
general supervision, direction and control of the business and affairs of the
Corporation in the absence or disability of the Chairman and the President, and
the Executive Vice Presidents and the Senior Vice Presidents.
The Assistant Vice Presidents shall assist the Vice Presidents in the
performance of their duties and exercise and perform such other powers and
duties as may be conferred or required by the Board.
SECRETARY
33. The Secretary shall attend all sessions of the Board and all meetings of
the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose; and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors. He shall be
sworn to the faithful discharge of his duty. Any records kept by him shall be
the property of the Corporation and shall be restored to the Corporation in case
of his death, resignation, retirement or removal from office.
He shall be the custodian of the seal of the Corporation and, when
authorized by the Board of Directors or by the Chairman, the President or a Vice
President, shall affix the seal to all instruments requiring it and shall attest
the seal and/or the execution of such instruments, as required. He shall have
control of the stock ledger, stock certificate book and minute books of the
Corporation and its committees, and other formal records and documents relating
to the corporate affairs of the Corporation.
The Assistant Secretary or Assistant Secretaries shall assist the Secretary
in the performance of his duties, exercise and perform his powers and duties in
his absence or disability, and such powers and duties as may be conferred or
required by the Board.
TREASURER
34. (a) The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the Board of
Directors.
(b) He shall disburse the funds of the Corporation in such manner as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the Chairman, the President and directors, at the regular meetings of
the Board, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
(c) He shall give the Corporation a bond if required by the Board of
Directors in a sum, and with one or more sureties satisfactory to the Board, for
the faithful performance of the duties of his office, and for the restoration of
the Corporation, in case of his death, resignation, retirement or removal from
office, of
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all books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
The Assistant Treasurer or Assistant Treasurers shall assist the Treasurer
in the performance of his duties, exercise and perform his powers and duties in
his absence or disability, and such powers and duties as may be conferred or
required by the Board.
CONTROLLER
35. The Controller of the Corporation shall have full control of all the
books of account of the Corporation and keep a true and accurate record of all
property owned by it, of its debts and of its revenues and expenses and shall
keep all accounting records of the Corporation other than the record of receipts
and disbursements and those relating to the deposit or custody of money and
securities of the Corporation, which shall be kept by the Treasurer, and shall
also make reports to the directors and others of or relating to the financial
condition of the Corporation.
The Assistant Controller or Assistant Controllers shall assist the
Controller in the performance of his duties, exercise and perform his powers and
duties in his absence or disability, and such powers and duties as may be
conferred or required by the Board.
VACANCIES
36. If the office of any director becomes vacant by reason of death,
resignation, removal or disability, or any other cause, the directors then in
office, except as otherwise provided in the Certificate of Incorporation,
although less than a quorum, by a majority vote, may choose a successor or
successors, who shall hold office until the next annual meeting of stockholders,
and thereafter until a successor or successors shall be elected and shall
qualify. If the office of any officer of the Corporation shall become vacant for
any reason, the Board, by a majority vote of those present at any meeting at
which a quorum is present, may choose a successor or successors who shall hold
office for the unexpired term in respect of which such vacancy occurred.
RESIGNATIONS
37. Any officer or any director of the Corporation may resign at any time,
such resignation to be made in writing and to take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation, and
then from that time.
DUTIES OF OFFICERS MAY BE DELEGATED
38. In case of the absence of any officer of the Corporation, or for any
other reason the Board may deem sufficient, the Board may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer or to any director, provided a majority of the entire Board concur
therein.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
39. The Corporation shall fully indemnify to the extent not prohibited by
law any person made, or threatened to be made, a party to an action or
proceeding, whether civil or criminal, including an investigative,
administrative, legislative or other proceeding, and including an action by or
in the right of the Corporation or any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, by reason of the fact that he, his testator or
intestate, (i) is or was a director, officer, or employee of the Corporation or
(ii) is or was serving at the request of the Corporation, as a director,
officer, or in any other capacity, any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, against any and all judgments, fines, amounts paid in
settlement and expenses, including
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attorneys' fees, actually and reasonably incurred as a result of or in
connection with any such action or proceeding or any appeal therein, except as
provided in the next paragraph.
No indemnification shall be made to or on behalf of any director, officer,
or employee if a judgment or other final adjudication adverse to the director,
officer, or employee establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
Except in the case of an action or proceeding against a director, officer,
or employee specifically approved by the Board of Directors, the Corporation
shall pay expenses incurred by or on behalf of such a person in defending such a
civil or criminal action or proceeding (including appeals) in advance of the
final disposition of such action or proceeding. Such payments shall be made
promptly upon receipt by the Corporation, from time to time, of a written demand
of such person for such advancement, together with an undertaking by or on
behalf of such person to repay any expenses so advanced to the extent that the
person receiving the advancement is ultimately found not to be entitled to
indemnification for such expenses.
The rights to indemnification and advancement of defense expenses granted by
or pursuant to this By-Law (i) shall not limit or exclude, but shall be in
addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement, (ii)
shall be deemed to constitute contractual obligations of the Corporation to any
director, officer, or employee who serves in such capacity at any time while
this By-Law is in effect, (iii) are intended to be retroactive and shall be
available with respect to events occurring prior to the adoption of this By-Law
and (iv) shall continue to exist after the repeal or modification hereof with
respect to events occurring prior thereto. It is the intent of this By-Law to
require the Corporation to indemnify the persons referred to herein for the
aforementioned judgments, fines, amounts paid in settlement and expenses,
including attorneys' fees, in each and every circumstance in which such
indemnification could lawfully be permitted by an express provision of a by-law,
and the indemnification required by this By-Law shall not be limited by the
absence of an express recital of such circumstances.
The Corporation may, with the approval of the Board of Directors, enter into
an agreement with any person who is, or is about to become, a director, officer,
or employee of the Corporation, or who is serving, or is about to serve, at the
request of the Corporation, as a director, officer, or in any other capacity,
any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which agreement may provide for indemnification of such person and advancement
of defense expenses to such person upon such terms, and to the extent, not
prohibited by law.
STOCK OF OTHER CORPORATIONS
40. The Board of Directors shall have the right to authorize any officer or
other person on behalf of the Corporation to attend, act and vote at meetings of
the stockholders of any corporation in which the Corporation shall hold stock,
and to exercise thereat any and all the rights and powers incident to the
ownership of such stock and to execute waivers of notice of such meetings and
calls therefor; and authority may be given to exercise the same either on one or
more designated occasions, or generally on all occasions until revoked by the
Board. In the event that the Board shall fail to give such authority, such
authority may be exercised by the Chairman or the President in person or by
proxy appointed by him on behalf of the Corporation.
CERTIFICATES OF STOCK
41. Stock of the Corporation may be in certificated or uncertificated form.
Stock of the Corporation represented by certificates shall be numbered and shall
be entered in the books of the Corporation as the
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certificates are issued. The certificates shall exhibit the holder's name and
number of shares and shall be signed by the Chairman, President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, and the seal of the Corporation shall be affixed thereto.
Where any such certificates of stock are signed by a transfer agent and by a
registrar, the signatures of the Chairman, President or a Vice President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
upon any such certificates, if authorized by the Board of Directors, may be made
by engraving, lithographing or printing thereon a facsimile of such signatures,
in lieu of actual signatures, and such facsimile signatures so engraved,
lithographed or printed thereon shall have the same force and effect as if such
officers had actually signed the same.
In case any officer who has signed, or whose facsimile signature has been
affixed to, any such certificate shall cease to be such officer before such
certificate shall have been delivered by the Corporation, such certificate may
nevertheless be issued and delivered as though the person who signed such
certificate, or whose facsimile signature has been affixed thereto, had not
ceased to be such officer of the Corporation.
To the extent permitted by law, some or all of any or all classes and series
of stock of the Corporation may be uncertificated stock, provided that no stock
represented by a certificate shall be registered on the books of the Corporation
as uncertificated stock until such certificate is surrendered to the
Corporation.
TRANSFERS OF STOCK
42. Transfers of certificated stock shall be made on the books of the
Corporation only upon the request of the person named in the certificate or by
attorney, lawfully constituted in writing, and upon surrender of the certificate
therefor.
Transfers of uncertificated stock shall be made on the books of the
Corporation only upon the request of the holder of record of such uncertificated
stock or by attorney, lawfully constituted in writing, and upon receipt by the
Corporation of a written instruction signed by the holder of record of such
uncertificated stock or by such attorney requesting that the transfer of such
uncertificated stock be registered on the books of the Corporation.
FIXING OF RECORD DATE
43. The Board of Directors is hereby authorized to fix a day and hour not
exceeding sixty (60) days (and in the case of a meeting not less than ten (10)
days) preceding the date of any meeting of stockholders or the date fixed for
the payment of any dividend or for the delivery of evidences of rights, as a
record time for the determination of the stockholders entitled to notice of and
to vote at any such meeting or entitled to receive any such dividend or rights,
as the case may be; and all persons who are holders of record of voting stock at
such time, and no others, shall be entitled to notice of and to vote at such
meeting, and only stockholders of record at any time so fixed shall be entitled
to receive any such dividend or rights; and the stock transfer books shall not
be closed during any such period.
REGISTERED STOCKHOLDERS
44. The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the statutes of the State of
New York.
LOST CERTIFICATES
45. Any person claiming a certificate of stock to be lost or destroyed shall
make an affidavit or affirmation of that fact, whereupon a new certificate may
be issued of the same tenor and for the same
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number of shares as the one alleged to be lost or destroyed; provided, however,
that the Board of Directors may require, as a condition to the issuance of a new
certificate, a bond of indemnity in such form and amount and with such surety or
sureties, or without surety, as the Board of Directors shall determine, and may
also require the advertisement of such loss in such manner as the Board may
prescribe.
INSPECTION OF BOOKS
46. The Board of Directors shall have power to determine whether and to what
extent, and at what time and places and under what conditions and regulations,
the accounts and books of the Corporation (other than the books required by
statute to be open to the inspection of stockholders), or any of them, shall be
open to the inspection of stockholders, and no stockholders shall have any right
to inspect any account or book or document of the Corporation, except as such
right may be conferred by the statutes of the State of New York or by resolution
of the directors or of the stockholders.
CHECKS, NOTES, BONDS AND OTHER INSTRUMENTS
47. All checks or demands for money and notes of the Corporation shall be
signed by such person or persons (who may but need not be an officer or officers
of the Corporation) as may be authorized by these By-Laws or as the Board of
Directors may from time to time designate, either directly or through such
officers of the Corporation as shall, by resolution of the Board of Directors,
be authorized to designate such person or persons. If authorized by the Board of
Directors, the signatures of such persons, or any of them, upon any checks for
the payment of money may be made by engraving, lithographing or printing thereon
a facsimile of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such persons had actually signed the same.
All bonds, mortgages and other instruments requiring a seal shall be
executed on behalf of the Corporation by the Chairman or the President or a Vice
President, and the seal of the Corporation shall be thereunto affixed by the
Secretary or an Assistant Secretary who shall, when required, attest the seal
and/ or the execution of said instruments. If authorized by the Board of
Directors, the signatures of the Chairman or the President or a Vice President
and the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer upon any engraved, lithographed or printed bonds, debentures, notes or
other instruments may be made by engraving, lithographing or printing thereon a
facsimile of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such officers had actually signed the same.
In case any officer who has signed any such bonds, debentures, notes or
other instruments shall cease to be such officer before such bonds, debentures,
notes or other instruments shall have been delivered by the Corporation, such
bonds, debentures, notes or other instruments may nevertheless be adopted by the
Corporation and be issued and delivered as though the person who signed the same
had not ceased to be such officer of the Corporation.
RECEIPTS FOR SECURITIES
48. All receipts for stocks, bonds or other securities received by the
Corporation shall be signed by the Treasurer or an Assistant Treasurer or by
such other person or persons as the Board of Directors or Executive Committee
shall designate.
FISCAL YEAR
49. The fiscal year shall begin the first day of January in each year.
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DIRECTORS' ANNUAL STATEMENT
50. The Board of Directors shall present at each annual meeting, and when
called for by vote of the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
NOTICES
51. Whenever under the provisions of these By-Laws notice is required to be
given to any director, officer or stockholder, it shall not be construed to
require personal notice, but such notice may be given in writing, by mail, by
depositing a copy of the same in a post office, letter box or mail chute,
maintained by the Post Office Department, in a postpaid sealed wrapper,
addressed to such stockholder, officer or director, at his address as the same
appears on the books of the Corporation.
A stockholder, director or officer may waive in writing any notice required
to be given to him under these By-Laws.
INSPECTORS
52. Preceding each meeting of the stockholders, the Board of Directors shall
appoint two inspectors to act at such meeting or any adjournment or adjournments
thereof as inspectors. In the event that such inspectors shall not be so
appointed, or if any inspector shall refuse to serve, or neglect to attend the
meeting or his office become vacant, the person presiding at the meeting shall
appoint an inspector in his place. The inspectors appointed to act at any
meeting of the stockholders shall, before entering upon the discharge of their
duties, be sworn to faithfully execute the duties of inspector at such meeting
with strict impartiality, and according to the best of their ability, and the
oaths so taken shall be subscribed by them and delivered to the Secretary of the
meeting with a certificate of the result of the vote taken thereat.
AMENDMENTS
53. These By-Laws may be altered, amended or repealed, or new By-Laws may be
adopted, by the affirmative vote of the stockholders entitled to cast a majority
of the votes entitled to be cast, or by the affirmative vote of a majority of
the Board of Directors at any meeting duly held as provided above; provided that
any alteration, amendment or repeal of, or the adoption of any provision
inconsistent with, By-Laws 8, 9, 10, 12 or 53, if by action of the stockholders,
shall be only upon the affirmative vote of the stockholders entitled to cast
three-fourths of the votes entitled to be cast.
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EXHIBIT D
SECTION 910.RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR
SHARE EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the taking
of an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a
party; except that the right to receive payment of the fair value of his
shares shall not be available;
(i) To a shareholder of the parent corporation in a merger
authorized by section 905 (Merger of parent and subsidiary
corporations), or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations); and
(ii) To a shareholder of the surviving corporation in a merger
authorized by this article, other than a merger specified in
subparagraph (i), unless such merger effects one or more of the
changes specified in subparagraph (b)(6) of section 806 (Provisions
as to certain proceedings) in the rights of the shares held by such
shareholder.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where the
shareholders' approval thereof is conditioned upon the dissolution of the
corporation and the distribution of substantially all of its net assets
to the shareholders in accordance with their respective interests within
one year after the date of such transaction.
(C) Any share exchange authorized by section 913 in which the
corporation is participating as a subject corporation; except that the
right to receive payment of the fair value of his shares shall not be
available to a shareholder whose shares have not been acquired in the
exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized
by section 905 or paragraph (c) of section 907, or in a share exchange
authorized by paragraph (g) of section 913, who files with the corporation a
written notice of election to dissent as provided in paragraph (c) of
section 623.
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EXHIBIT E
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
E-1
<PAGE>
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer or a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
E-2
<PAGE>
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation, whose
shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law
for the service of a summons, and upon each nonresident dissenting
shareholder either by registered mail and publication, or in such other
manner as is permitted by law. The jurisdiction of the court shall be
plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a
jury and without referral to an appraiser or referee. Upon application by
the corporation or by any shareholder who is a party to the proceeding, the
court may, in its discretion, permit pretrial disclosure, including, but not
limited to, disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the proceeding
and notwithstanding subdivision (d) of section 3101 of the civil practice
law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the
pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good
E-3
<PAGE>
faith. The court may, in its discretion, apportion and assess all or any of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if
the court finds any of the following: (A) that the fair value of the shares
as determined materially exceeds the amount which the corporation offered to
pay; (B) that no offer or required advance payment was made by the
corporation; (C) that the corporation failed to institute the special
proceeding within the period specified therefor; or (D) that the action of
the corporation in complying with its obligations as provided in this
section was arbitrary, vexatious or otherwise not in good faith. In making
any determination as provided in clause (A), the court may consider the
dollar amount or the percentage, or both, by which the fair value of the
shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation, and if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restriction of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
E-4
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Business Corporation Law of the State of New York ("BCL") provides that
if a derivative action is brought against a director or officer, the Registrant
may indemnify him against amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred by him in connection with the defense or
settlement of such action, if such director or officer acted in good faith for a
purpose which he reasonably believed to be in the best interests of the
Registrant, except that no indemnification shall be made without court approval
in respect of a threatened action, or a pending action settled or otherwise
disposed of, or in respect of any matter as to which such director or officer
has been found liable to the Registrant. In a nonderivative action or threatened
action, the BCL provides that the Registrant may indemnify a director or officer
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees incurred by him in defending such action if such
director or officer acted in good faith for a purpose which he reasonably
believed to be in the best interests of the Registrant.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-laws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.
The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections
721-725 of the BCL.
The By-Laws of the Registrant provide that to the extent not prohibited by
law, the Registrant shall indemnify each person made, or threatened to be made,
a party to any civil or criminal action or proceeding by reason of the fact that
he, or his testator or intestate, (i) is or was a director or officer of the
Registrant or (ii) is or was serving any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, in any capacity at the request of the Registrant.
The By-Laws of the Registrant also provide, among other things, that:
(1) no indemnification shall be made to or on behalf of any director or
officer, if a judgment or other final adjudication adverse to the director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled;
(2) the rights to indemnification and advancement of defense expenses
granted by or pursuant to the By-Laws shall not limit or exclude, but shall be
in addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement; and
(3) the Registrant may, with the approval of the Board of Directors, enter
into an agreement with any person who is, or is about to become, a director or
officer of the Registrant, or who is serving, or is about to serve, at the
request of the Registrant, as a director, officer, or in any other capacity, any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, which agreement
may provide for indemnification of such person and advancement of defense
expenses to such person upon such terms, and to the extent, not prohibited by
law.
The Registrant has insurance policies indemnifying its directors and
officers against certain obligations that may be incurred by them, subject to
certain retention and co-insurance provisions.
II-1
<PAGE>
ITEM 21. LIST OF EXHIBITS.
See Exhibit Index.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10 (b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Binghamton,
State of New York, on the 15th day of October, 1997.
NGE RESOURCES, INC.
(Registrant)
By /s/ WESLEY W. VON SCHACK
-----------------------------------------
Wesley W. von Schack
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints W.W. von Schack, S.J. Rafferty, D.W. Farley, and
L. Blum, Esq., and each of them (with full power to act without the others or
any of them) his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 15th day of October, 1997.
SIGNATURE TITLE
- ------------------------------ --------------------------
Principal Executive, Financial
and
Accounting Officer:
/s/ WESLEY W. VON SCHACK Chairman and Director
- ------------------------------
Wesley W. von Schack
Directors:
/s/ RICHARD AURELIO Director
- ------------------------------
Richard Aurelio
/s/ LOIS B. DEFLEUR Director
- ------------------------------
Lois B. DeFleur
/s/ WALTER G. RICH Director
- ------------------------------
Walter G. Rich
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. METHOD OF FILING
- ------------- --------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Share Exchange.................. Included as Exhibit A to the Proxy State-
ment and Prospectus.
3.1 Form of Restated Certificate of Incorporation of
HoldCo to be in effect at Effective Time of Share
Exchange.............................................. Included as Exhibit B to the Proxy State-
ment and Prospectus.
3.2 Form of By-Laws of HoldCo to be in effect at Effective
Time of Share Exchange................................ Included as Exhibit C to the Proxy State-
ment and Prospectus.
5.1 Opinion of Huber Lawrence & Abell with respect to the
legality of the securities registered hereunder....... To be filed by amendment.
8.1 Tax Opinion of Huber Lawrence & Abell................. To be filed by amendment.
23.1 Consent of Counsel.................................... Included in opinions filed as Exhibit Nos.
5.1 and 8.1.
23.2 Consent of Coopers & Lybrand L.L.P.................... Filed herewith.
24.1 Power of Attorney of Directors and Officers........... Incorporated into signature page II-3 of
this Form S-4.
24.2 Power of Attorney of HoldCo........................... Filed herewith.
99.1 Form of Proxy......................................... Filed herewith.
99.2 Agreement Concerning the Competitive Rate and
Restructuring Plan of New York State Electric & Gas
Corporation........................................... Filed herewith
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of NGE Resources, Inc. on Form S-4 of our report dated January 31, 1997 on our
audits of the consolidated financial statements and financial statement schedule
of New York State Electric & Gas Corporation and Subsidiaries as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, which report is included in the Annual Report on Form 10-K for 1996 of New
York State Electric & Gas Corporation. We also consent to the reference to our
Firm under the caption "Experts" in the related Prospectus pertaining to the
issuance of common stock of NGE Resources, Inc.
COOPERS & LYBRAND L.L.P.
New York, New York
October 16, 1997
<PAGE>
EXHIBIT 24.2
NGE RESOURCES, INC.
CERTIFIED RESOLUTION
RESOLVED, that the Corporation hereby constitutes and appoints W. W. von
Schack, S. J. Rafferty, D. W. Farley and L. Blum, Esquire, and each of them
(with full power to each of them to act alone), its true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for it and on its behalf and in its name, place and stead, to sign, execute and
file a Registration Statement under the Securities Act of 1933, as amended, for
the proposed issue or issues of not to exceed 100,000,000 shares of Common
Stock, par value $5 per share, of the Corporation to be used in connection with
the formation of a holding company for New York State Electric & Gas Corporation
and in connection with the issuance of the Corporation's Common Stock in lieu of
Common Stock of New York State Electric & Gas Corporation under certain of such
corporation's common stock plans, any and all amendments to such Registration
Statement and any and all other documents requisite to be filed with respect
thereto, with all exhibits and other documents in connection therewith, granting
unto said attorneys, and each of them or their substitutes or substitute full
power and authority to do and perform each and every act and things requisite
and necessary to be done in and about the premises in order to effectuate the
same as fully to all intents and purposes as the Corporation might or could do.
*****************************************************************
I, DANIEL W. FARLEY, Secretary of NGE RESOURCES, INC., a New York
corporation, do hereby certify that the foregoing is a true and correct copy of
a resolution duly adopted by the Board of Directors of said Corporation at a
meeting thereof duly called, convened and held on September 25, 1997 and that
said resolution is in full force and effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of said Corporation this 15th day of October, 1997.
/s/ Daniel W. Farley
- --------------------------------------------------------------------------------
Secretary
<PAGE>
P R O X YEXHIBIT 99.1
NEW YORK STATE ELECTRIC & GAS CORPORATION
PO Box 3200, Ithaca, NY 14852-3200
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints D. W. Farley, S. J. Rafferty, and G. J. Turton or any
one or more of them, with power of substitution, proxies of the undersigned, to
vote, as specified, and in their discretion with respect to any other business
properly brought before the meeting, all shares of stock of New York State
Electric & Gas Corporation which the undersigned is entitled to vote at the
Special Meeting of Stockholders of said Corporation to be held on ,
1998, and at any adjournment thereof.
- --------------------------------------------------------------------------------
The Board of Directors Recommends a vote "FOR" the Agreement and Plan of Share
Exchange
------------------------------------------------------------------------------
Approval of the Agreement and Plan of Share Exchange. / / FOR
/ / AGAINST / / ABSTAIN
- --------------------------------------------------------------------------------
The shares represented by this Proxy will be voted as specified. If no
specification is made, this Proxy will be voted FOR the Agreement and Plan of
Share Exchange.
Dated _________________________________
_______________________________________
_______________________________________
(Signature/s)
(Joint owners each must sign. When
signing as attorney, trustee,
administrator, executor or guardian,
please give your full title as such.)
<PAGE>
Exhibit 99.2
NEW YORK STATE PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of New York State Electric
& Gas Corporation's Plans for Electric Case 96-E-0891
Rate/Restructuring Pursuant to
Opinion No. 96-12
- ---------------------------------------------------
AGREEMENT CONCERNING
THE COMPETITIVE RATE AND RESTRUCTURING PLAN
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
New York State Electric & Gas Corporation
New York State Department of Public Service
New York State Department of Economic Development
New York Power Authority
National Association of Energy Services Companies
The Joint Supporters
October 9, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. Introduction....................................................... 2
1. Procedural History of Opinion No. 96-12......................... 3
2. The Requirements of Opinion No. 96-12........................... 4
3. NYSEGPlan....................................................... 5
4. NYSEG's 1995 Electric Settlement................................ 5
5. Negotiations Among The Parties.................................. 7
6. Litigation of NYSEG's Modified Plan for Competition............. 8
7. The Settlement Agreement........................................ 8
II. General Provisions................................................. 9
1. Term............................................................ 9
2. Relationship to 1995 Electric Settlement........................ 9
3. Relationship to Existing Gas Settlement Agreement............... 9
III. Rate Plan.......................................................... 10
1. Price Reductions, Price Freeze, Securitization and Additional
Negotiated Rate Incentives...................................... 10
2. Electric Earnings Cap........................................... 16
3. Electric Rate Design............................................ 16
4. Uncontrollable Costs............................................ 17
5. System Benefits Charge.......................................... 18
6. Unbundling...................................................... 20
7. Direct Charge Fees.............................................. 21
</TABLE>
<PAGE>
Table of Contents
(cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
IV. Retail Access...................................................... 21
1. General Provisions.............................................. 21
2. Customer Choice Pilot Program................................... 22
3. Retail Access for City of Norwich and Lockport Division......... 22
4. Retail Access for Remaining Customers........................... 22
5. GRT............................................................. 24
6. Provider of Last Resort......................................... 24
7. Reciprocity..................................................... 24
8. Rights and Obligations under Public Service Law Section 68...... 24
V. Cost Recovery...................................................... 25
1. Competitive Generation Plan..................................... 25
2. NUGs, NMP2, Hydroelectric and Regulatory Assets................. 27
VI. Mergers and Acquisitions........................................... 29
VII. Corporate Structure................................................ 29
VIII. Other Provisions................................................... 34
IX. Finality........................................................... 36
X. Effectiveness...................................................... 36
</TABLE>
- ii -
<PAGE>
Table of Contents
(cont'd)
Appendices
Appendix A: Forecast Summary of Kilowatthours and Revenue Effects
Appendix B: Rate Schedules
Appendix C: Uncontrollable Costs
Appendix D: Method for Calculating CTC
Appendix E: Target Levels for NUG Contracts
Appendix F: Service Quality Mechanism
Appendix G: Amortization Schedule for Electric Business of RegSub
Appendix H: Economic Development Power
Appendix I: Estimated Price Reductions
- iii -
<PAGE>
NEW YORK STATE PUBLIC SERVICE COMMISSION
- ----------------------------------------------
In the Matter of New York State Electric
& Gas Corporation's Plans for Electric Case 96-E-0891
Rate/Restructuring Pursuant to
Opinion No. 96-12
- ----------------------------------------------
AGREEMENT
CONCERNING THE COMPETITIVE RATE AND RESTRUCTURING PLAN
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
This agreement concerning the competitive rate and restructuring plan of New
York State Electric & Gas Corporation (the "Agreement") is entered into as of
this 9th day of October 1997 among New York State Electric & Gas Corporation
("NYSEG" or the "Company"(1)), the Department of Public Service Staff ("Staff"),
the New York State Department of Economic Development ("DED"), the New York
Power Authority ("NYPA"), the National Association of Energy Services Companies
("NAESCO") and The Joint Supporters ("Joint Supporters")(2) , hereinafter
collectively referred to as the "Parties." The Parties agree as follows:
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(1) In various provisions of this Agreement, these terms refer to the
corporation as of the date of this Agreement and, where this Agreement
applies to periods after the formation of a holding company ("HoldCo"), to
the electric business of RegSub which will continue to be the Commission-
regulated electric and gas utility. After the corporate restructuring
contemplated by Article VII of this Agreement, HoldCo will be the parent of
RegSub and other subsidiaries, including but not limited to one or more
generation companies ("GenSub") and energy services companies ("ESCO").
(2) The Joint Supporters, a coalition of energy service providers,
includes the following entities: CNG Energy Services Corporation, B.E.S.T.,
Inc., The E Cubed Company LLC, OnSite Energy, Inc., R.E.E.P., Inc., SYCOM
Enterprises and Power Resource Managers (PRM), LLC.
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I. Introduction
In response to the Order Establishing Procedures and Schedule, issued
October 9, 1996 in this proceeding by the Public Service Commission of the State
of New York (the "Commission"), representatives of NYSEG and Staff have been
engaged in discussions regarding a rate plan for the Company's business
operations and a restructuring of the Company. As a result of further
discussions, the Parties have reached this Agreement to resolve the issues
raised in this proceeding and in the Commission's Opinion and Order Regarding
Competitive Opportunities for Electric Service, Opinion No. 96-12, issued May
20, 1996 ("Opinion No. 96-12") in the Competitive Opportunities proceeding (Case
94-E-0952).
The issues raised in these proceedings are interrelated and complex and will
have long-range impacts on the provision of electric service in the Company's
service territory. Notwithstanding the complexity of the issues, the Parties
have resolved these matters by settlement rather than litigation. This Agreement
gives fair consideration to the interests of NYSEG's customers, investors and
other stakeholders and achieves the Commission's principles, vision and goals
set forth in Opinion No. 96-12 and its Opinion No. 95-7, Opinion and Order
Adopting Principles to Guide the Transition to Competition, issued in Case
94-E-0952 on June 7, 1995.
In general, this Agreement provides for: (1) lower rates for all customers
as contrasted to those that would have applied under NYSEG's 1995 electric
settlement agreement; (2) a retail access program that will lead to retail
choice of power supplier for all NYSEG customers commencing August 1, 1999; (3)
a mechanism to assess the market value of NYSEG's coal-fired generation; (4)
authority to implement a HoldCo structure in accordance with the terms set forth
in Article VII below; (5) a rate with the objective of moving basic customer
service charges, and incremental demand and energy use toward marginal cost,
while avoiding undue bill shock for any customer; (6) reasonable unbundling of
existing electric rates; and (7) an extension of the gas rate settlement after
further negotiation.
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1. Procedural History of Opinion No. 96-12
In 1993, the Commission initiated a proceeding to address issues related to
potential competition in the regulated energy markets in New York State. Case
93-M-0229, Proceeding on Motion of the Commission to Address Competitive
Opportunities Available to Customers of Electric and Gas Service and Develop
Criteria for Utility Responses, Order Instituting Proceeding (March 19, 1993)
(changed to Case 94-E-0952, by Order dated November 30, 1994, to reflect new
focus on electric service) (the "Competitive Opportunities proceeding").
Subsequently, the Commission issued its Opinion No. 94-15 which addressed
the utilities' ability to enter into individually negotiated flex rate contracts
with qualifying customers. Case 93-M-0229, Opinion and Order Regarding Flexible
Rates, Opinion No. 94-15, issued July 11, 1994. In that Opinion, the Commission
stated that "a second phase of this proceeding may be helpful to investigate
issues related to the future regulatory regime in light of Competitive
Opportunities." Id. at p. 35.
On August 9, 1994, the Commission instituted phase II of the Competitive
Opportunities proceeding, Order Instituting Phase II of Proceeding, Case
93-M-0229 (August 9, 1994). This phase of the proceeding was intended "to
identify regulatory and ratemaking practices that will assist in the transition
to a more competitive electric industry designed to increase efficiency in the
provision of electricity while maintaining safety, environmental, affordability,
and service quality goals." Id. at pp. 1-2. Parties to Phase II of the
proceeding were urged to work together to "examine issues related to the
establishment of a fully efficient wholesale market for electricity and any
pricing reforms necessary to reflect those market efficiencies in retail
customer rates." Id. at p. 3.
The Commission adopted, on June 7, 1995, final principles to guide the
transition to greater competition in the electric industry. Case 94-E-0952,
Opinion and Order Adopting Principles to Guide the Transition to Competition,
Opinion No. 95-7, issued June 7, 1995.
On December 21, 1995, Administrative Law Judge Judith A. Lee and Ronald
Liberty, then-Deputy Director of the Energy and Water Division, issued a
Recommended Decision addressing implementation of the restructuring principles.
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Subsequently, on May 20, 1996, the Commission issued its Opinion No. 96-12.
2. The Requirements of Opinion No. 96-12
Opinion No. 96-12 sets forth the Commission's vision and goals for the
future electric regulatory regime. The Commission's stated vision for the
future of the electric utility industry includes the following factors: (1)
effective competition in the generation and energy services sectors; (2)
reduced prices resulting in improved economic development for the State as a
whole; (3) increased consumer choice of supplier and service company; (4) a
system operator that treats all participants fairly and ensures reliable
service; (5) a provider of last resort for all consumers and the continuation
of a means to fund necessary public policy programs; (6) ample and accurate
information for consumers to use in making informed decisions; and (7) the
availability of information that permits adequate oversight of the market to
ensure its fair operation. Id. at 24. In addition, the Commission reiterated
that the principles adopted on June 7, 1995 "set forth the overall goals of
the future regulatory regime by briefly stating the advantage to be gained
and the limitations that are necessary as the State moves toward a more
competitive electric industry." Id. at p. 26. The Commission also established
the following goals: (1) lowering rates for consumers; (2) increasing
customer choice; (3) continuing reliability of service; (4) continuing
programs that are in the public interest; (5) allaying concerns about market
power; (6) continuing customer protections and the obligation to serve. Id.
at pp. 26-27.
In its Opinion, the Commission directed NYSEG and four other electric
utilities to each file a rate and restructuring plan consistent with the
Commission's policy and vision for increased competition. Id. at pp. 74-75; see
also id. at p. 92.
The Commission stated that these utility plans should address, at a minimum,
the following matters: (1) the structure of the utility both in the short and
long term, including a description of how that structure complies with the
Commission's vision and, in cases where divestiture is not proposed, effective
mechanisms that adequately address resulting market power concerns; (2) a
schedule for the introduction of retail access to all of the utility's
customers, and a set of unbundled tariffs that is consistent
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with the retail access program; (3) a rate plan to be effective for a
significant portion of the transition; and (4) numerous other issues relating
to strandable costs, load pockets, energy services, and public policy costs.
Id. at pp. 75-76, 90.
In addition, the Commission directed the utilities to collaborate with Staff
and other interested parties to accomplish technical studies on subjects
including load pockets, market prices, energy services companies and reporting
requirements. Collaborative efforts were also directed to be held on public
educational forums and on necessary Federal Energy Regulatory Commission
("FERC") filings, which have centered on development of an independent system
operator and power exchange. Id. at 63-64.
In a petition filed September 18, 1996 in the Supreme Court of New York,
Albany County, the electric utilities, including NYSEG, challenged certain
aspects of the Commission's determinations made in Opinion No. 96-12. On
November 25, 1996, Justice Joseph Harris issued a decision and order denying the
petition of the electric utilities. A notice of appeal was filed by the electric
utilities on December 24, 1996 and the appeal remains pending. If this
settlement is approved and becomes effective as set forth in Article X below,
NYSEG will withdraw its appeal.
3. NYSEGPlan
In compliance with the directives of Opinion No. 96-12, the Company
submitted its rate and restructuring proposal called NYSEGPlan on September 27,
1996. On December 19, 1996, the Company filed a petition pursuant to which NYSEG
has sought authority to form a holding company. The Commission subsequently
notified the parties that the holding company petition would be addressed
herein. Case 96-E-0891, Notice to the Parties (issued January 7, 1997).
4. NYSEG's 1995 Electric Settlement
In Opinion No. 95-17, the Commission's Opinion and Order Concerning Electric
Revenue and Rate Design (issued September 27, 1995 in Case 94-M-0349), the
Commission approved a three-year settlement agreement (the "1995 Electric
Settlement") which replaced the third year of a previous agreement. In the 1995
Electric Settlement, NYSEG agreed to forgo the 9.1% increase provided for in a
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previously-approved agreement, and eliminated its fuel adjustment clause and
its revenue decoupling mechanism and waived its right to most of the
reconciliations and true-ups that had been provided under the prior
agreement. The 1995 Electric Settlement resolved NYSEG's revenue requirement
for a 36-month period by providing for the following increases(3):
Year One: $ 45,079,000 (2.9%)
Year Two: $ 45,250,000 (2.8%)
Year Three: $ 45,500,000 (2.7%)
Under the terms of the 1995 Electric Settlement, rate design for the first
year was adopted and NYSEG was required to file its proposal for Years 2 and 3
revenue allocation and rate design no later than six months before the Year 2
rates were to go into effect (February 1, 1996). On January 31, 1996, NYSEG
filed its proposed revenue allocation and rate design for the second and third
years and subsequently submitted applicable tariffs on July 18, 1996 for Year 2.
On September 9, 1996, NYSEG petitioned for rehearing of the Commission's Order
Suspending Rate Filing issued August 26, 1996, which deferred through December
30, 1996 the rates in the July 18 tariff submission. On December 18, 1996, the
Commission issued an order further extending the effective date of the July 18,
1996 tariffs to June 30, 1997. By letter dated May 29, 1997, the Company agreed
to an extension of the suspension period, with certain conditions, pending the
outcome of its rate/restructuring proceeding. At its Open Session of June 25,
1997, the Commission approved this extension of the maximum suspension period.
By its Order Suspending Rate Filing, issued July 10, 1997, the Commission
suspended the Year 3 rate increase that was scheduled to take effect on August
1, 1997.
In a petition filed and pending in the Supreme Court of the State of New
York, Albany County, the Company is seeking a judgment annulling and setting
aside the orders issued August 26, 1996 and December 18, 1996 and directing the
Commission to issue an order granting rates for the second year increase under
the 1995 Electric Settlement. On January 16, 1997, the Commission issued its
Order Denying Petition for Rehearing and Requiring Further Proceedings. In this
order, the Commission: (1) denied NYSEG's petition
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(3) Years One, Two and Three refer to the twelve month periods ending
July 31, 1996, July 31, 1997 and July 31, 1998, respectively.
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for rehearing; and (2) determined that the issue of whether NYSEG should
receive the second year increase of 2.8% under the 1995 Electric Settlement
would be reviewed in this proceeding.
5. Negotiations Among The Parties
Case 96-E-0891 was established by the Commission to examine NYSEGPlan. On
October 9, 1996, the Commission issued its Order Establishing Procedures and
Schedule (the "October 9 Order"). In the October 9 Order, the Commission
established a schedule and assigned Administrative Law Judge Jeffrey E.
Stockholm to preside over this proceeding. To date, 58 parties have intervened
in this proceeding.
In the October 9 Order, the Commission stated that a negotiated outcome is
preferable to a litigated outcome and that discussions and negotiations among
the parties are strongly encouraged. October 9 Order at p. 3. The Commission
also established a 90-day period for negotiations. To facilitate these
negotiations, the Commission waived certain provisions of its settlement
guidelines.
On November 1, 1996, NYSEG conducted a briefing session concerning the
NYSEGPlan submission and technical experts were available at that session to
answer questions. By letter dated November 14, 1996, NYSEG provided notice of
impending settlement negotiations pursuant to applicable Commission rules and
regulations. An all parties conference was held on December 4, 1996. Public
Statement Hearings were held in Plattsburgh on November 20, 1996, in Binghamton
on December 11, 1996 and in Elmira on December 12, 1996.
ALJ Stockholm convened procedural conferences on November 18 and December
20, 1996 to review the status of negotiations and discovery, to establish future
procedures and schedules and to address other necessary matters. By notices
issued December 19, 1996, January 9, February 13, February 27 and March 6, 1997,
the Secretary of the Commission informed the parties that the period established
in the October 9 Order for the submission of a settlement agreement would be
extended for NYSEG, the last extension being to March 25, 1997. Without an
executed settlement by that date, the parties proceeded to litigate the case.
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6. Litigation of NYSEG's Modified Plan for Competition
On March 25, 1997, NYSEG submitted direct testimony that updated, and in
certain respects revised, the testimony that had been filed in support of
NYSEGPlan on September 27, 1996. In addition, the Company filed a Proposed
Settlement Agreement (Exh. 117). In a letter dated April 10, 1997, the Company
explained that the Proposed Settlement Agreement supersedes the March 25th
testimony where differences between the two appear.
Direct testimony was also submitted by the following parties: Staff; the
American Association of Retired Persons ("AARP"); Independent Power Producers of
New York, Inc. and Enron Trade & Capital Resources ("IPPNY/Enron"); Multiple
Intervenors ("MI"); the Public Interest Intervenors ("PII"); EnerScope; NYPA;
DED; the New York State Consumer Protection Board ("CPB");the Retail Council of
New York ("Retail Council"); the RE3SCO Restructuring Coalition ("RE3SCO"); and
Wheeled Electric Power Company ("WEPCO").
A Procedural Conference was held before ALJ Stockholm on April 16, 1997 to
address a variety of procedural issues. The Company submitted responsive
testimony on April 21, 1997. Staff and most of the other parties identified
above filed rebuttal testimony on May 6, 1997. Evidentiary Hearings were held in
Albany, New York before ALJ Stockholm on May 15-16 and 19-22, 1997. The record
in this proceeding comprises 3,718 pages of transcript. In addition, 205
exhibits were received in evidence. Initial and Reply Briefs were submitted to
ALJ Stockholm on June 13, 1997 and June 23, 1997, respectively.
7. The Settlement Agreement
Negotiations between the Company and Staff continued through the litigation
phase of the case. On July 30, 1997, the Company filed with the Commission and
ALJ Stockholm, and served upon all parties to the proceeding, a Joint Statement
of Principles, which was executed on July 28, 1997 by counsel for NYSEG and
Staff. NYSEG and Staff met with all interested parties in Albany on August 5 and
12, 1997 to explain the Statement of Principles and to discuss the parties'
concerns.
On August 20, 1997, a draft Agreement, incorporating the points covered in
the Joint Statement of Principles, was
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sent to all active parties. A meeting of interested parties was held in
Albany on August 26, 1997 to receive their comments on the draft Settlement
Agreement. As a result of that meeting and subsequent discussions, several
revisions were made and are now reflected in the Agreement.
II. General Provisions
1. Term
The electric price cap and price reduction provisions of this Agreement
cover the five-year period beginning with the effective date of tariffs
implementing the Commission opinion approving this Agreement. That five-year
period is referred to herein as the "Price Cap Period." Other provisions
continue thereafter in accordance with the terms of this Agreement. To more
particularly define the Price Cap Period, the terms Year One, Year Two, Year
Three, Year Four and Year Five describe the first, second, third, fourth and
fifth twelve month period, respectively, after the commencement of the Price Cap
Period.
2. Relationship to 1995 Electric Settlement
a. NYSEG is currently operating under the terms of the 1995 Electric
Settlement, which expires July 31, 1998. The increases for the second year,
commencing August 1, 1996, and the third year commencing August 1, 1997, were
suspended by the Commission pending the outcome of this proceeding, as stated
in Article I.4 of this Agreement.
b. This Agreement supersedes the 1995 Electric Settlement. As a result,
upon this Agreement becoming effective, NYSEG will (i) withdraw its pending
Article 78 petition regarding the electric increase for the second year under
the 1995 Electric Settlement, and (ii) forgo the increases scheduled for the
second and third years of the 1995 Electric Settlement. NYSEG will withdraw
that petition based upon a court-filed stipulation between NYSEG and the
Commission.
3. Relationship to Existing Gas Settlement Agreement
NYSEG is currently providing natural gas service consistent with a
three-year gas settlement agreement approved by the Commission in Opinion No.
95-19, issued December 14, 1995. After further negotiations, it is expected that
this gas settlement will be extended through
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the Price Cap Period upon such terms as are agreed to by the Parties and are
accepted by the Commission pursuant to a separate agreement or another
proceeding.
III. Rate Plan
1. Price Reductions, Price Freeze, Securitization and
Additional Negotiated Rate Incentives
a. NYSEG will forgo the $45.25 million revenue increase approved as part
of Year 2 and the $45.5 million revenue increase approved as part of Year 3
under the 1995 Electric Settlement. Those forgone revenues will result in a
price reduction of approximately 7% for residential and commercial customers
from levels previously anticipated in the 1995 Electric Settlement.
b. Beginning with the effective date of Year 1 tariff leaves implementing
the Commission opinion approving this Agreement, current electric rates will
be reduced five percent on average each year for five years for the following
eligible customer groups (including recognition of the legislated changes in
New York State revenue taxes): (i) industrial customers with average on-peak
demands of 500 kw or greater and (ii) all demand-billed customers with load
factors of 68% or greater. Customers receiving negotiated or incentive rates
will become eligible for such rate reductions after their contracts and/or
applicable tariff obligations with NYSEG expire unless those contracts and/or
applicable tariffs permit them to become eligible for such rate reductions
prior to the contract and/or applicable tariff obligation expiration date.
c. Beginning with the effective date of the Year 5 tariff leaves
implementing the Commission opinion approving this Agreement, the
then-current electric rates will be reduced by the amount necessary to
produce a five percent rate reduction (which shall include recognition of the
legislated changes in New York State revenue taxes) for all customers not
eligible for the reductions described in Article III.1.b above. The five
percent rate reduction is calculated in Appendix I. Customers receiving
negotiated or incentive rates will become eligible for such rate reductions
after their contracts and/or applicable tariff obligations with NYSEG expire
unless those contracts and/or applicable tariffs permit them to become
eligible for such rate reductions prior to the contract and/or applicable
tariff obligation expiration date.
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d. The forecast summary of kilowatthours ("kWh") and revenue effects due
to revised rates for each service classification for each year of the Price
Cap Period is attached hereto as Appendix A. This Agreement secures for
NYSEG's customers substantial benefits over a five year Price Cap Period and
the Agreement has benefits which extend beyond the Price Cap Period as the
Company fosters a fully competitive environment through an auction of its
generation plant and full retail access for customers by August 1, 1999. As
described in more detail below in Table 1, repeated as Appendix I to this
Agreement, NYSEG has agreed to forego rate increases previously approved by
the Commission in the amount of $522.1 million while qualifying industrial
and large commercial customers will receive rate reductions to stimulate
economic development for the benefit of upstate New York. All residential and
commercial customers will benefit from a price reduction of 11.7% by the
fifth year. The total amount of the rate concessions called for in this
Agreement is $725.4 million. The following table reflects the estimated
reductions shown in Appendix I:
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Table 1
Estimated Price Reductions and Revenue Concessions
Included in the 1997 Electric Rate Settlement Agreement
($/millions)
<TABLE>
<CAPTION>
Pre-Year 1 Year 1 Year 2 Year 3 Year 4 Year 5 Total
----------- --------- --------- --------- --------- --------- ---------
8/96-12/97 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C> <C>
Elimination of 1996 & 1997 Approved Rate Increases
$ 68.0 90.8 90.8 90.8 90.8 90.9 522.1
% 5.2% 6.9% 6.9% 6.8% 6.8% 6.7%
----- ------ ------ ----- ----- -----
Subtotal 68.0 90.8 90.8 90.8 90.8 90.9 522.1
------ ------ ------ ----- ----- ----- ------
Residential, Small Commercial, and Other Customers
Not Eligible for Other Decreases or Special Discounts
Gross Revenue Tax $ 0.8 3.3 13.3 13.5 13.6 44.5
Rate Reductions $ 54.4 54.4
----- -----
Subtotal $ 0.8 3.3 13.3 13.5 68.0 98.9
------ ------ ------ ----- ----- -----
% 0.1% 0.2% 1.0% 1.0% 5.0%
------ ------ ------ ----- -----
Subtotal of Benefits for Residential, Small Commercial, and Other Customers
Not Eligible for Other Decreases or Special Contracts
$ 68.0 91.6 94.1 104.1 104.3 158.9 621.0
% 7.0% 7.1% 7.8% 7.8% 11.7%
------ ------ ------ ----- -----
Industrial Customers with Demands of at Least 500 kw & all Customers with
Load Factors of at Least 68%
Gross Revenue Tax $ 0.1 0.3 1.2 1.1 1.1 3.8
Rate Reductions $ 6.4 12.4 17.5 23.4 28.9 88.6
------ ------ ------ ----- ----- -----
Subtotal $ 6.5 12.7 18.7 24.5 30.0 92.4
% 5.0% 9.7% 14.3% 18.5% 22.6%
------ ------ ------ ----- -----
EDP 2.0 2.0 2.0 3.0 3.0 12.0
- --- ------ ------ ------ ----- ----- -----
Total Benefits $ $ 68.0 $ 100.1 $ 108.8 $ 124.8 $ 131.8 $ 191.9 $ 725.4
- -------------- ------ ------ ------ ----- ----- ----- -----
</TABLE>
In addition to the above quantifiable savings, the Company will forgo costs
incurred and revenues lost associated with implementing retail access.
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e. In the event that New York law is enacted to permit and facilitate the
voluntary securitization of intangible assets, including but not limited to
the generation asset provided for in Article V.1 of this Agreement, and is so
utilized by NYSEG, net savings resulting from securitization will be returned
to customers in a manner to be determined by the Commission.
f. To further business retention, revitalization and economic
development during the Price Cap Period, NYSEG will supplement existing
programs or institute new programs as specified more fully below. Except as
otherwise specified herein, the parties intend that provisions of the
existing tariffs referred to in this subparagraph f will continue during the
price cap period:
- Economic Development Zone Incentive ("EDZI") Rates: For qualified loads in
the zones currently in place, a discount of 4.0 cents per kWh will apply
prospectively to new customers or growth from existing customers. Rates
for existing EDZI qualifying load will continue at the current incentive
discount during the Price Cap Period. For zones that may be created in the
future, the following discounts shall apply: (i) for the first two zones
created, the discount shall be 4.0 cents per kWh; (ii) for any additional
zones, the discount shall be 3.25 cents per kWh. NYSEG agrees to re-
examine the level of the discounts and incorporate marginal cost pricing
for such growth in the filing it makes no later than February 1, 1999 for
rates that will apply in Year 3. Customers receiving the 4.0 cents per kWh
discount and 3.25 cents per kWh discount specified above for growth will
qualify for any greater EDZI discounts approved in response to the Year 3
rate filing. For customers receiving the growth discounts specified above,
the Company intends to maintain at least that level of discounts
prospectively as long as the resultant rate charged customers does not
fall below incremental cost.
- Economic Revitalization Incentive ("ERI") Rates: The eligibility criteria
based on billing demand for customers eligible for the ERI will be reduced
from 500 kw to 300 kw. Customers taking service under the ERI special
provision may opt instead for the 5% reductions described in Article
III.1.b, provided that they have met or agree to continue to meet their
commitments under this tariff and also provided that they meet the
eligibility criteria for the 5% rate reductions set forth in this
Agreement. All qualifying applicants may participate in appropriate
conservation and DSM programs offered by the Company.
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- Business Retention Incentive ("BRI"): NYSEG will file a new tariff
provision, to be known as the BRI, designed to augment its existing
retention (e.g., Self Generation Deferral Incentive, Industrial
Incubator Incentive, Economic Development Incentive, EDZI, SC 13 and SC
14) and revitalization (e.g., ERI) tariff provisions during the Price
Cap Period. Any shortfall in net revenues received by NYSEG as a result
of the BRI will be deferred with carrying charges for subsequent
recovery from ratepayers in accordance with Article V.2.a., or from NUG
contract savings in accordance with Article V.2.b. NYSEG will make
available a total of 50 MW of capacity for this new service, with a
phase-in of 10 MW per year for each year of the Price Cap Period.
Criteria to determine which industrial and non-retail commercial
business customers with minimum monthly billing demands of 250 kw shall
be eligible for the BRI will be agreed upon by NYSEG and DED.
Qualifying customers must receive a comprehensive package of
quantifiable economic incentives (which, among other incentives, may
include real property tax incentives) from sources other than NYSEG
equaling at least an amount of the customer's previous 12 consecutive
months of electric bills that is the product of such aggregate bills
times the percentage discount to be received from NYSEG as specified
below for the years the customer will receive such discounts.
Qualifying criteria for revitalization customers will be those
identified in NYSEG's ERI special provision. NYSEG and DED will develop
together objective criteria for retention customer eligibility and for
measuring the value of the package actually received by the customer.
When a customer qualifies for the BRI, it will receive, out of the
aforesaid funding, discounts in energy and demand rates of 20% for both
the first and second years, 15% for both the third and fourth years and
10% for the fifth year, if any. The above-specified BRI discounts shall
apply only during the Price Cap Period. Customers taking service under
the BRI may opt instead for the 5% reductions described in Article
III.1.b or retail access provided for in Article IV provided they have
met or agree to continue to meet all BRI job retention and/or
revitalization commitments and the eligibility criteria for the 5% rate
reductions or retail access set forth in this Agreement. This BRI
program is not intended to diminish NYSEG's commitment to its SC 13
program.
- SC 13: For industrial customers eligible for an SC 13 contract, the
existing 2 MW minimum capacity threshold set forth in the SC 13 tariff
will be reduced to 1 MW. For non-retail commercial business customers
eligible for an SC 13
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contract, the existing 5 MW minimum capacity threshold set forth in the
SC 13 tariff will be reduced to 3 MW. NYSEG retains the flexibility to
file further revisions to its SC 13 tariff.
- SC 14: For customers eligible for an SC 14 contract, the existing criteria
set forth in the SC 14 tariff will be modified as follows:
(i) an additional affidavit shall be developed that will enable a
customer to represent that "but for" the combination of a
comprehensive package of economic incentives or real property
tax incentives and the award of an SC 14 contract, the business
would not expand or locate in NYSEG's service territory;
(ii) the growth threshold will be reduced from 500 kw of
connected capacity to 250 kw in areas where there is
underutilization of NYSEG's distribution facilities (as
determined by NYSEG) and to 300 kw in all other areas;
(iii) for an existing customer which increases its use of its
existing facilities, a customer will be eligible for an
SC 14 contract if it adds a shift in order to use equipment
with total connected demand of 250 kw in underutilized
areas and 300 kw in all other areas, that has not been in
operation for a period of at least one year; and
(iv) the baseload of SC 14 customers will be eligible for
the 5% reductions specified in Article III.1.b, provided
that such baseload meets the eligibility criteria under
Article III. 1.b.
NYSEG retains the flexibility to file further revisions to its SC 14 tariff.
- Availability of 5% Reductions and Retail Access to Recipients of Incentive
Rates: Unless otherwise specified above, recipients of any NYSEG incentive
rates may qualify for the 5% reductions described in Article III.1.b or
retail access provided for in Article IV by relinquishing eligibility
under the incentive, provided that they have met the requirements of their
tariff and the eligibility criteria for the 5% rate reductions or retail
access set forth in this Agreement.
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2. Electric Earnings Cap
a. During each year of the Price Cap Period, RegSub electric earnings will
be capped at 12% of common equity, including any combined GenSub earnings prior
to the completion of the auction or the subsequent appraisal process (if
necessary). Any such earnings in excess of 12% will be returned to customers in
a manner to be determined by the Commission. Any reduction in the common equity
balance resulting from any writeoff or writedown of assets, or the repurchase of
common stock, will be eliminated before RegSub's electric return on equity is
calculated under the earnings cap. The costs of any potential takeover defense
mounted by NYSEG may be excluded from the earnings cap calculation at the
discretion of the Commission.
b. During each year of the five-year Price Cap Period, the RegSub
electric earnings floor will be 9.0%. The Company may petition for rate
relief if earnings fall below the floor. Such rate relief will be prospective
from the date of the filing.
3. Electric Rate Design
a. As a rate objective, the parties agree that the basic service charge
and the energy and demand charges upon which customers make decisions about
whether to consume more or less electricity should reflect marginal costs,
while avoiding undue bill shock for any customer. The Company agrees,
however, to freeze rates for customers not covered by Article III.1.b. above
for Years 1 and 2 of the Agreement, subject to the terms of this Agreement.
b. Year 1 and 2 rates for all service classifications are shown on the
rate schedules attached hereto as Appendix B and made a part hereof. The Year
1 rates for customers covered by Article III.1.b. will be implemented upon
the effective date of tariff leaves for Year 1 pursuant to the Commission
Opinion approving this Agreement. The tariff leaves for Year 1 will be filed
on one day's notice prior to the effective date. The Year 2 rates pursuant to
Appendix B shall apply for Year 2 of the Price Cap Period, unless otherwise
modified by the Company in accordance with the terms of this Agreement.
c. The Company will make a filing no later than February 1, 1999, that
includes new electric rate designs for Years 3, 4 and 5 that address the
marginal cost-based rate objectives for all classes. In connection with such
filing, the Company intends to propose that the rate reductions provided for
in Article III.1.b be preserved on a revenue neutral basis to the Company.
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Beginning in Year 3, NYPA savings for residential customers will be reflected
in the basic service charge. These rates will be implemented upon Commission
approval of tariff leaves to be effective at the beginning of Year 3 of the
Price Cap Period, unless otherwise modified by the Company in accordance with
the terms of this Agreement. At the same time, the Commission will also
approve tariff leaves to be effective at the beginning of Years 4 and 5 of
the Price Cap Period, unless otherwise modified by the Company in accordance
with the terms of this Agreement.
d. During the Price Cap Period, the Company may file with the Commission
for approval of tariff changes to implement voluntary incentive rates to
encourage changes in sales based upon marginal costs and for minor
revenue-neutral electric service price changes between and within classes.
Any proposed changes will be filed by RegSub upon 30 days notice and will be
subject to Commission approval.
e. The NYPA savings for residential customers will be communicated to
customers through a message on their bill for the term of the Price Cap
Period.
4. Uncontrollable Costs
a. The Company may petition to recover revenue for the following two
categories of uncontrollable costs:
- Category 1 -- As outlined in Appendix C, p. 1, this category covers
nonrecurring events as a result of force majeure, which shall include
storm, flood, riot, terrorism, sabotage, war, strike or labor disturbance
(other than by NYSEG's bargaining units) or acts of God. Category 1 costs
also include those Category 2 costs that have been incurred before rates
are changed to recover those increased costs. Aggregate costs in Category
1 during any of the specified 12-month periods in excess of a materiality
threshold of 3% of RegSub's net electric income will be recovered through
the aforesaid adjustment.
- Category 2 -- This category covers any costs incurred above the target
levels specified in Appendix C, p. 2.
b. Recovery of Category 1 and Category 2 uncontrollable costs will be
determined through a limited and expedited process similar to a traditional
"second stage" review, and will not result in a reopener of any terms of this
Agreement. The Company
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shall submit an annual filing which reports the variances of actual costs
above the 3% materiality threshold for Category 1 items, and Category 2
targets and costs included on Appendix C, p. 2 of 2. Any recovery of Category
1 or 2 cost increases may be offset by Category 1 or 2 cost savings below the
targets achieved during the Price Cap Period, any electric earnings in excess
of the 12% cap discussed below, and any net NUG contract cost savings
achieved by contract termination or restructuring during the Price Cap
Period. In the event that the variances from the target are negative, the
amounts will be disposed of at the discretion of the Commission. The Appendix
C, p. 2 of 2, target amounts, entitled "Other Programs in PSC's Discretion,"
represent monies available for use at the Commission's discretion in each of
the identified years.
c. Notwithstanding a Company filing to recover costs pursuant to the
Category 1 and 2 cost items, the Company shall make an annual filing for each
of the years of the Price Cap Period to report on electric earnings and to
defer any excess electric earnings that have not been used to offset rate
recovery of uncontrollable costs as described above for the benefit of
customers. In the event that in any year of the Price Cap Period the Company
petitions for cost recovery under the uncontrollable cost recovery provision
for Category 1 or 2 items, the Commission will be entitled to offset any such
request with any electric earnings in excess of 12% that would have been
realized but for the use by the Company of accelerated (increased)
depreciation or amortization of any physical or regulatory assets. Such
acceleration (increase) is permitted without pre-approval by the Commission.
5. System Benefits Charge
a. The Commission will make a determination in either the instant
proceeding or in the pending System Benefits Charge ("SBC") collaborative in
the Competitive Opportunities proceeding regarding the cost level and
mechanism of recovering costs associated with certain public policy programs.
If such a mechanism is approved by the Commission, the Parties support use of
standard performance contracts with stipulated pricing as one way that could
be used to disburse funds for energy efficiency programs.
b. Except as otherwise provided in this Agreement or as determined by the
Commission as part of the SBC collaborative in Case 96-E-0952, the Company
shall have no further DSM obligations pursuant to the 1995 Settlement other
than the DSM evaluation report for year ending July 31, 1997, and will not be
required to
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obtain approval for its 1997 DSM Plan. As a result, the Company will withdraw
its petition for approval of that Plan.
REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK
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6. Unbundling
a. Commencing with the date on which NYSEG files tariffs implementing the
Commission opinion approving this Agreement, or as soon thereafter as
practicable, NYSEG electric retail rates will be unbundled as shown in Table II
below:
TABLE II
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEARS 3-5
- ------------------------------- -------------------------------- ------------------------------------
<S> <C> <C>
Basic Service Basic Service Basic Service
Charge Charge Charge
System Benefits System Benefits System Benefits
Charge* Charge* Charge*
Energy & Demand Transmission Power Supply
as appropriate
Retail Access Delivery and CTC
Credit, as appropriate Power Supply (Competitive
Transition Charge)
Total Retail Access Transmission
Credit, as
appropriate
Total Distribution
Customer Service
Retail Access
Credit, as
appropriate
Total
* If any * If any * If any
</TABLE>
b. Unbundling of "Transmission" from "Delivery and Power Supply" will be
implemented based on the classification of transmission and distribution
facilities determined by the Commission in Case 97-E-0251.
c. RegSub will endeavor to submit a cost of service study for electric
customer service functions by November 1, 1998, but in no event will such
study be submitted later than February 1, 1999. The Company agrees to
unbundle the customer service
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function on an incremental cost basis with the filing of tariffs to be
effective August 1, 1999.
7. Direct Charge Fees
a. NYSEG may petition to introduce revenue-neutral direct charge fees based
on incremental costs for various electric services now performed by the Company.
These services may include, but are not limited to, activation fees for customer
name change or meter turn-on, reconnection fees where service is restored within
12 months of disconnection, fees to recover costs incurred where access to a
customer's property is not permitted, and fees related to customer payment in
the field to avoid shut off. The filing will specify the nature of the fee, the
rationale for the fee based on cost causation, and the amounts to be collected
from customers.
IV. Retail Access
1. General Provisions
a. NYSEG will introduce direct retail access for eligible retail
electric customers to other qualified suppliers pursuant to this Agreement.
Prior to August 1, 1999, the availability to a customer of competitive market
options through the retail access permitted under Article IV of this
Agreement cannot be used to justify eligibility for a negotiated or incentive
rate for either new load or revitalization purposes. Customers receiving
service under tariffs allowing NYSEG negotiated or incentive rates will
become eligible for retail access after their contracts and/or applicable
tariff obligations expire unless their contracts with NYSEG permit such
customer to become eligible earlier except as provided in Article III.1.f.
NYSEG may file a petition with the Commission for a retail access transaction
fee on an incremental cost basis.
b. For the purposes of this Article IV, the market price of electric
power and supply shall be assumed to include energy and capacity. The market
price will be obtained from published sources, such as the Dow Jones and
Reuters financial service, and eventually from an appropriate power exchange
once it is approved by FERC and is operating.
c. Concurrent with the Customer Choice Pilot Program described in
Paragraph 2 of this Article IV, NYSEG will begin a statewide education effort
for its other retail customers using various communications media, which
education effort will be subject to comment by the parties and approval by
Staff.
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2. Customer Choice Pilot Program
a. Beginning November 1, 1997, NYSEG will implement a Customer Choice Pilot
Program in satisfaction of the Commission's "Order Establishing Retail Access
Pilot Program", issued June 23, 1997 in Case 96-E-0948--Petition of Dairylea
Cooperative, Inc. to Establish Open-Access Pilot Program for Farm and Food
Processor Electricity Customers. Tariffs governing the Customer Choice Pilot
Program were submitted on August 1, 1997 in Case 96-E-0948 and became effective
on a temporary basis on August 4, 1997.
3. Retail Access for City of Norwich and Lockport Division
a. Beginning August 1, 1998, RegSub will introduce retail access to all
customers in the City of Norwich and in RegSub's Lockport Division subject to
minimum load and aggregation requirements as are necessary for the Company
and are consistent with the minimization of barriers to competition. There
are approximately 23,000 customers in the City of Norwich and the Lockport
Division. All customers in this group who sign up with a new supplier will
have power delivered by RegSub from their chosen suppliers commencing no
later than December 31, 1998. During this introductory period, customers who
choose another supplier may be billed off-system, rather than through
RegSub's Customer Information System ("CIS").
b. The retail access credit used to back out generation during the period
prior to the completion of the auction as more particularly described in
Article V.1 and the closing(s) thereon for Norwich and Lockport customers
electing to switch suppliers shall be the market price defined in Article
IV.1.b plus an adder of four-tenths of one cent ($0.004) per kWh for
customers eligible for the 5% reductions pursuant to Article III 1.b., and an
adder of one cent ($0.01) per kWh for customers not eligible for the 5%
reductions pursuant to Article III 1.b., except for the flex rate customers
defined in Article III 1.b. unless and until they are eligible as provided
for in Article III 1.b. In no event shall such credit exceed three cents
($0.03) per kWh, including the Gross Receipts Tax ("GRT").
4. Retail Access for Remaining Customers
a. Beginning August 1, 1999, RegSub will offer retail access to all of its
remaining customers who are not receiving service under RegSub negotiated or
incentive rates, provided that the Independent System Operator ("ISO") is first
approved by the FERC and is operating. Notwithstanding the foregoing, customers
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<PAGE>
taking service under RegSub's negotiated or incentive rates shall be eligible
for retail access after their contracts and/or applicable tariff obligations
expire unless their contracts and/or applicable tariff obligations with NYSEG
permit such customer to become eligible earlier. Customers selecting a new
supplier will have power delivered by RegSub from their chosen suppliers
commencing no later than December 31, 1999. The Company may petition for an
extension of these deadlines if RegSub experiences unacceptable
balancing/settlement problems or experiences severe customer order backlogs or
if the ISO as first approved by FERC is not operating. The petition should
clearly define the problems causing delay, NYSEG's potential solutions, and
NYSEG's proposed revised schedule.
b. The retail access credit used to back out generation during the period
following the completion of the auction and closing(s) thereon through the
end of the Price Cap Period for all customers electing to switch suppliers
shall be equal to (i) 3.23 cents per kWh including GRT through July 31, 2000,
(ii) 3.47 cents per kWh including GRT from August 1, 2000 through July 31,
2001, and (iii) 3.71 cents per kWh including GRT from August 1, 2001 through
the end of the Price Cap Period. The retail access credit provided to
customers will be net of the CTC produced as a result of the auction
described in Article V and will be adjusted without altering the system
average retail access credit amounts set forth above. The method used to make
this adjustment will be presented by the Company when it submits its cost of
service study for electric customer service unbundling as described in
Article III.6.c. At the end of the Price Cap Period, all costs (other than
the non-bypassable CTC) related to the assets subject to the
auction/appraisal process hereunder shall be excluded from the rates charged
by RegSub for all customers, and all customers shall pay the market price of
generation plus any applicable GRT.
c. In the event the auction or appraisal process described in Article V
and the closing(s) thereon are not completed by August 1, 1999, the retail
access credit during the period commencing August 1, 1999 and ending upon the
completion of the auction or appraisal process used to back out generation
for all customers electing to switch suppliers shall be the market price of
energy plus a four-tenths of one cent ($0.004) per kWh adder for customers
eligible for the 5% reductions pursuant to Article III 1.b. and a one cent
($0.01) per kWh adder for customers not eligible for the 5% reductions
pursuant to Article III 1.b., except for the flex rate customers defined in
Article III 1.b unless and until they are eligible as provided for in Article
III 1.b., but such credit shall in no event exceed 3.23 cents per kWh,
including GRT.
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<PAGE>
5. GRT
a. All customers, including those who switch suppliers, shall pay the
non-bypassable CTC plus any related GRT for as long as is necessary to permit
the Company to recover the regulatory asset determined by the auction
process. Bills will disclose all generation-related credits and charges.
b. In the event the GRT is modified from the July 28, 1997 amounts, the
backout figures listed in Article IV.4.b shall be changed by a corresponding
amount.
6. Provider of Last Resort
RegSub will be the provider of last resort during the Price Cap Period of
this Agreement unless such status is changed by the Commission. For those
eligible customers who do not receive electric supply from a new supplier,
RegSub will deliver power, generated by RegSub or another entity, to such
customers at the total cost of the bundled tariff rates in place at that time,
but only for the Price Cap Period of this Agreement. For customers that have not
made arrangements for electric supply at the end of the Price Cap Period, RegSub
will acquire electric supply from an appropriate power exchange and bill those
customers for such supply at cost. Unless otherwise required by law, RegSub may
rely on the ISO to plan for power supply, assuming the ISO is approved by FERC
and operating.
7. Reciprocity
During each phase of the retail access program, HoldCo's ESCO will have full
access to provide services to RegSub's retail customers within the conditions of
HoldCo's structure described in Article VII of this Agreement. Also, to the
extent any other New York State utility or New York State utility-affiliated
load serving entity ("LSE") seeks to gain access to RegSub's service territory,
such LSE will not be allowed to serve as a supplier in RegSub's service
territory unless the service territory of the LSE's affiliated utility is open
to retail access by RegSub and ESCO in an equal or greater proportion.
8. Rights and Obligations under Public Service Law Section 68
Except as specifically modified by this Agreement, RegSub's right and
obligation under New York Law and its Public Service Law Section 68 Certificates
to provide electric service to its customers remains unchanged notwithstanding
the full
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<PAGE>
implementation of retail access and remains in full force and effect for the
full term of this Agreement and thereafter until duly changed.
V. Cost Recovery
1. Competitive Generation Plan
NYSEG owns, operates and maintains several coal-fired electric generation
plants under traditional cost-of-service regulation supervised by the
Commission. To promote a more fully competitive generation marketplace, mitigate
the strandable costs associated with generation plants, achieve the Commission's
goals, and prudently establish the fair market value of such NYSEG generation
plants for the benefit of investors and customers, NYSEG will undertake to
operate and to transfer its coal-fired plants pursuant to the following terms
and conditions.
a. The NYSEG coal-fired electric generation that is covered by this
competitive generation plan consists of its Kintigh, Homer City, Milliken,
Goudey, Greenidge, Hickling and Jennison generating stations and their
associated assets and liabilities (including without limitation, Somerset
Railroad, environmental liabilities, pension costs, collective bargaining
agreements, fuel contracts, land and property rights, equipment and
facilities, etc.).
b. The valuation of NYSEG's coal-fired electric generation plants shall
be determined by a simultaneous multiple round open auction process designed
to obtain the highest final market value for purposes of mitigation of
above-market costs and establishment of a regulatory asset for recovery of
remaining above-market costs. All coal plants and associated assets and
liabilities as set forth in Article V, Paragraph 1.a, will be subject to such
auction process. The process will not be designed to necessarily require
NYSEG to divest its coal plants to a third party, except as otherwise agreed
to in this settlement. The Company's generating subsidiary (GenSub) can
participate as a bidder, and shall not have any special rights or privileges,
including the right to close out the bidding by a matching bid. NYSEG shall
provide at the same time (with appropriate confidentiality protections) all
potential bidders with the same plant and operating information as NYSEG
makes available to GenSub.
c. The ascending bid auction will continue for a given coal plant until
no new bids are received. Bids will be compared in the auction process on a
gross cash basis, and the Company
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<PAGE>
agrees to sell (or transfer to GenSub) the plants at the auction determined
value without subsequent negotiation of value.
d. The auction process will be completed and the transaction(s) resulting
therefrom shall close no later than August 1, 1999.
e. If no bids are received for a plant above the minimum bid requirement
of the auction, an appraisal process will be used and completed no later than
August 1, 1999, or as soon as practicable thereafter. The valuation, on an
after-tax basis, achieved by the appraisal process shall be used in lieu of
the value of net after tax auction proceeds for purposes of establishing the
regulatory asset or credit as set forth below.
f. The protocols, terms and conditions to implement the auction and
appraisal process developed by the Company in consultation with Staff will be
submitted to the Parties for comment prior to submittal to the Commission for
pre-auction approval, which submission will occur by approximately February
1, 1998. Such auction provisions will state time requirements for bids and
have mechanisms to pre-qualify bidders willing and able to abide by auction
requirements and to disqualify or penalize bidders for cause. The Commission
may employ a consultant, at NYSEG's expense (recoverable from the auction
proceeds), to advise the Commission on the design and implementation of the
auction process consistent with this Agreement. The Commission shall select
the consultant from a list of at least three qualified individuals or firms
selected jointly by the Company and Staff.
g. In order to facilitate a competitive generation market, an auction
sale or transfer free and clear of the Company's mortgage indenture, and
establishment of a minimum bid value for the auction process, the coal plants
and associated assets and liabilities will be transferred to GenSub as soon
as practicable after the creation of HoldCo and/or obtaining the mortgage
trustee's release. GenSub earnings with respect to any such transferred plant
will be combined with RegSub's earnings for the period prior to an auction
sale or transfer of that plant for purposes of the electric earnings cap
referred to in Article III.2. Upon such transfer, a regulatory asset of
RegSub will be created for the difference between the book value of the coal
plants and the valuation performed in accordance with the bond indenture.
Such regulatory asset will be adjusted subsequently upon a sale or transfer
based on the cash proceeds resulting from the auction process net of tax,
auction and transaction costs. After a plant is sold or transferred, pursuant
to the process
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<PAGE>
described in this Article, there will be no further adjustment of RegSub's
regulatory assets that have been created as a consequence of this Article,
except for federal income tax consequences.
h. Upon completion of the auction process and sale of any plant to an
unrelated third party or GenSub, the regulatory asset or credit on RegSub's
books will represent the difference between the net book value of the plant,
less funded deferred taxes, and the net after-tax auction proceeds. This
regulatory asset or credit will be grossed up in accordance with SFAS 109.
Any net regulatory asset and carrying charges thereon (calculated based on
the pre-tax costs of capital used by the Commission to determine the
Company's retail rates, i.e., 12.43%) will be recovered from all customers
through the CTC over a period of time to be determined by the Commission at
the conclusion of the auction process and which shall not exceed the weighted
average remaining life of the auctioned assets as of the conclusion of the
auction process and the closing(s) thereon. The method for calculating the
CTC is attached hereto as Appendix D. In the event that the GenSub is the
winning bidder of any plant in the auction, any deferred tax liability on the
gain will remain the responsibility of RegSub's customers by virtue of its
inclusion in the calculation of the above-described regulatory asset or
credit which may result from the auction. The amount of this future customer
responsibility will be limited to the tax (calculated at the then current tax
rate) which derives from the tax gain that would have been realized at the
time of the transfer to the GenSub at the auction-determined value, had the
sale been made to an unrelated third party grossed up in accordance with SFAS
109. Any net regulatory credit will be used by RegSub to writedown the
Company's Nine Mile II investment, and any such credit remaining after such
write down will be used by RegSub as directed by the Commission.
2. NUGs, NMP2, Hydroelectric and Regulatory Assets
a. Stranded cost recovery, including amortization of the RegSub
regulatory assets associated with the coal plants, is presumed within overall
rate objectives during the Price Cap Period and recovered through retail
electric rates. After the Price Cap Period, remaining RegSub regulatory
assets, other than those resulting from the auction process, and hydro,
non-utility generator ("NUG") and (except in the event of the auction
described below) nuclear fixed costs will be recovered (for the life of the
amortization period, contract or license) through a non-bypassable wires
charge. The regulatory asset created by the coal plant auction will continue
to be recovered through the CTC.
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<PAGE>
The Company will propose to its cotenants the auctioning of ownership of Nine
Mile Point II, and will vote for such auction. The auction and the auction
process, including but not limited to measures to address the liability for
decommissioning, would be subject to prior Commission approval, and any sale
or transfer of any ownership of Nine Mile Point II would be subject to
approval by the Commission, the Nuclear Regulatory Commission and any other
regulatory bodies having jurisdiction. If NYSEG's ownership of Nine Mile
Point II is duly sold or transferred to a non-NYSEG entity, then upon
completion of such sale or transfer a regulatory asset of RegSub will be
created on RegSub's books for any difference between the book value of such
plant, less funded deferred taxes, and the net after-tax auction proceeds.
Such regulatory asset will be grossed up in accordance with SFAS 109, and any
net regulatory asset and carrying charges thereon (calculated based on
12.43%) will be recovered from all customers through a non-bypassable wires
charge over a period of time to be determined by the Commission not to exceed
fifteen years. If such sale or transfer occurs during the Price Cap Period,
an appropriate adjustment to benefit NYSEG customers will be made for net
nuclear operation, maintenance, fuel and tax savings, realized by NYSEG as a
result of the sale or transfer, such adjustment to be applied first to reduce
or eliminate the nuclear non-bypassable wires charge. If a net credit results
from such sale or transfer, such credit will be used by RegSub as directed by
the Commission. If Nine Mile Point II is not transferred to new ownership
during the Price Cap Period, nuclear variable costs, which would exclude
decommissioning and wind down costs and 62.5% of annual property taxes, will
be put to market after the Price Cap Period pending the auction, provided
that the Company's cotenants put the same to market. In year 5 of the Price
Cap Period, RegSub will make a filing with the Commission for rates
applicable to the year following the Price Cap Period.
b. In the event NYSEG achieves NUG contract cost savings net of
transaction costs from targets set forth in Appendix E of this Agreement
during the Price Cap Period of this Agreement through NUG contract
termination or restructuring, but excluding securitization, 80% of any net
savings achieved through such NUG contract termination or restructuring shall
be flowed through to customers in a manner to be determined by the
Commission, subject to the allocation of such savings first to reimburse the
Company for lost revenue resulting from implementation of the new EDP
provisions set forth in Appendix H hereto and then to credit the regulatory
asset created to cover the shortfall in net revenues resulting from the
implementation of the BRI tariff pursuant to Article III.1.f. The remaining
20% of any net savings achieved through such NUG contract termination or
restructuring shall be
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<PAGE>
retained by the Company. The foregoing shall be subject to potential offset
against uncontrollable costs in the event the Company petitions for
uncontrollable cost recovery with respect to Category 1 or 2 items as more
particularly described in Article III.4. of this Agreement. Commencing after
the Price Cap Period, all net NUG contract cost savings are subject to flow
through to customers in a manner to be determined by the Commission. The
Parties agree that in order to provide such contract savings the negotiated
modification of the pricing terms would be in the public interest. The
Parties will encourage and actively support the negotiated termination and/or
restructuring of such contracts. Such termination and/or restructuring
includes methods to provide NUG contract savings through negotiations that do
not materially adversely affect the steam host. NYSEG shall consider the
effects, if any, of termination and/or restructuring on the steam hosts.
VI. Mergers and Acquisitions
1. Pursuant to a petition filed jointly or individually by the Company,
NYSEG shall have the flexibility to retain, on a cumulative basis, all savings
associated with the acquisition or merger with another utility for a period of
five years from the date of closing of any such merger or acquisition up to the
amount of acquisition premium paid over the lesser of book value or fair market
value of assets merged or acquired. Savings in excess of that recovery will be
disposed of by order of the Commission.
2. The cost recovery provisions of this Agreement will continue in the
combined entity.
3. Staff and the Commission will give expedited review and treatment to any
petition by RegSub or HoldCo in connection with an acquisition or merger with
another utility.
VII. Corporate Structure
1. NYSEG's petition to form HoldCo shall be approved, and NYSEG shall be
authorized to restructure its operations by forming a holding company structure
pursuant to a Plan of Exchange (the "Plan of Exchange") as more particularly set
forth in this Agreement.
2. Under the terms of the Plan of Exchange, and subject to the rights of the
holders of NYSEG's Common Stock (the "NYSEG Common Stock") to exercise their
appraisal rights, all of the outstanding shares of NYSEG Common Stock will be
exchanged on a
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share-for-share basis for the common stock of HoldCo (the "Share Exchange").
Such common stock exchanged for NYSEG Common Stock is referred to herein as
HoldCo Common Stock. NYSEG and HoldCo will make such regulatory filings as
may be required by law to effectuate the proposed restructuring.
3. Upon consummation of the Share Exchange, each person who owned NYSEG
Common Stock immediately prior to the Share Exchange, other than those
stockholders who properly exercise their appraisal rights, will own a
corresponding number of shares and percentage of the outstanding HoldCo Common
Stock, and HoldCo will own all of the outstanding shares of NYSEG Common Stock.
4. After the Share Exchange, NYSEG will be a regulated, wholly-owned utility
subsidiary of HoldCo, herein referred to as RegSub, which will functionally
separate electric delivery services from gas services.
5. After the Share Exchange, NYSEG shall be authorized to transfer to
GenSub, in the form of a stock dividend or such other appropriate form, all of
the common stock of Somerset Railroad Corporation, which is currently a
wholly-owned subsidiary of NYSEG.
6. After the Share Exchange, NYSEG shall be authorized to transfer to
HoldCo, in the form of a stock dividend or such other appropriate form, all of
the common stock of NGE Enterprises, Inc., which is currently a wholly-owned
subsidiary of NYSEG.
7. RegSub shall be authorized to structurally separate its coal-fired
generation assets and liabilities by transferring such generation assets and
liabilities to GenSub in accordance with Article V.1 of this Agreement.
8. The following terms and conditions shall apply to RegSub and its
affiliates regarding affiliate operations and relationships.
a. Common stock dividends paid by RegSub to HoldCo will be limited in any
calendar year to 100% of net income available for common stock. The
calculation of net income will exclude any one-time, non-cash accounting
charges. This restriction will exclude any one-time dividends to HoldCo
attributable to major transactions such as asset sales, the transfer of
generating assets associated with HoldCo and GenSub formation, or
securitization.
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<PAGE>
b. By a separate petition that will be reviewed and acted upon
expeditiously, the terms of the current Commission Global Financing Order
applicable to NYSEG (Case 95-M-1195) will extend through the term of this
Agreement and be amended to include authorization for RegSub to enter into
derivative or other risk management transactions with respect to current or
future financings. In addition, by a separate petition that will be reviewed
and acted upon expeditiously, the terms of the Stock Repurchase Order
applicable to NYSEG (Case 94-M-0954) will extend through the term of this
Agreement and will be amended so that RegSub may, from time to time,
repurchase at book value from HoldCo such amount of shares of its common
stock as RegSub determines in order to maintain the RegSub equity ratio at an
appropriate level. These stock repurchases will be excluded from the
calculation of excess earnings. These buyback provisions are in addition to
the Commission's authorization to repurchase shares in Case 94-M-0954. In the
event that RegSub's first mortgage bond rating falls below investment grade
according to both Moody's and S&P, RegSub will be prohibited from
repurchasing shares of common stock until its investment grade rating is
restored.
c. Non-officer employees who transfer between RegSub and an unregulated
affiliate will be prohibited from transferring back to their original
employer for a period of one year unless a specific waiver is received from
the Commission or its designee. Non-officer employees returning to RegSub may
not transfer to an unregulated subsidiary for a minimum of one year from the
date of the return unless a specific waiver is received from the Commission
or its designee. HoldCo and its affiliates, including RegSub, may have common
officers.
d. RegSub and its affiliates will be permitted to maintain one common
pension fund at HoldCo. For the purposes of allocating pension expense
(credit), excess pension fund assets as of August 1, 2002 will be attributed
to RegSub. Subsequent gains or losses will be allocated to all affiliates.
e. No payment or imputation of royalties or positive benefits to
ratepayers will be made by or with respect to RegSub or any affiliates given
the special circumstance surrounding this Agreement. The "Order Approving
Stipulation and Agreement, Subject to Conditions", issued April 28, 1992 in
Case 91-M-0838 and the Stipulation and Agreement approved therein authorizing
NYSEG to make investments in diversified activities are superseded.
- 31 -
<PAGE>
f. In addition, the following standards of conduct shall apply:
- - Separate Entities: Any affiliate will be set up as a business entity
separate from RegSub to foster competition in the utility's territory.
Separate entities will help to minimize the potential for self-dealing and
the perception of self-dealing by customers and other competitors.
- - Separation of books and records: Separation will include books and
records, non-officer employees, advertising and marketing efforts, and
energy purchasing (except for tariffed services). Where common costs
are shared to take advantage of economies of scale, direct cost
allocation will be used where practical. However, if direct cost
allocation is impractical, cost allocations will be accomplished by
using a fully distributed cost method to be provided by NYSEG and
approved by the Commission.
- - Physical Separation: RegSub and HoldCo may occupy the same
building. Any non-regulated affiliate, other than HoldCo, will be
located at a different location from RegSub to reduce the opportunity
for, and appearance of, anti-competitive behavior or other
inappropriate activities. Generation employees may occupy the same
building as RegSub until completion of the auction required pursuant to
the competitive generation plan.
- - Affiliate Transactions: Affiliate transactions will be minimized
to protect against cross-subsidies. When transactions occur, they will
be priced at tariff rates, if applicable, or at least at fully
distributed costs. In addition, such transactions will be at
arms-length. All transactions in excess of $100,000, other than
tariffed transactions and corporate governance and administrative
services, between RegSub and either HoldCo or any affiliate will be
pursuant to written contracts filed with the Commission, and the
provision of goods and services by such contracts will be on a basis
that neither disadvantages RegSub nor unduly prefers HoldCo or any
affiliate.
- - Transfer of Assets: Any transfer of utility assets will be compensated
to RegSub based on the greater of book value or market value, except
for the transfer of generation assets (coal plants, related equipment
and contracts) as contemplated by this Agreement.
- 32 -
<PAGE>
- - Transfer of Data/Information: RegSub will not provide any competitive
information or data, including but not limited to any customer or
market information relative to energy services, to its affiliated
entities unless that same information or data is provided to all
competitors at the same time and under the same conditions.
- - Access to Books and Records: Staff will have direct access to the
books and records of RegSub and, prior to the auction, of GenSub. For
purposes of Public Service Law Section 110, Staff will also have direct
access to the books and records of RegSub, GenSub, HoldCo, and any
majority-held affiliate. For the purpose of auditing any Section 110
transactions between RegSub and either HoldCo or its affiliates,
including GenSub, HoldCo will provide Commission designated personnel
reasonable opportunity to audit any such transaction, subject to
appropriate confidentiality agreements and trade secret protection.
- - Dispute Resolution Process: A process will be established, in
consultation with Department of Public Service Staff, for a competitor
or customer to obtain Commission review if it believes that RegSub, or
its affiliate in a transaction with RegSub, has acted in an
anti-competitive manner. Complete records of disputes will be retained
for Department of Public Service review.
- - Name and Reputation: There shall be no restrictions on HoldCo or any
affiliate using the same name, trade name, trademarks, service name,
service mark or a derivative of a name, of HoldCo or RegSub, or in
identifying itself as being affiliated with HoldCo or RegSub. RegSub
will not provide sales leads for customers in RegSub's service
territory to any affiliate and will refrain from giving the appearance
that RegSub speaks on behalf of an affiliate or that the affiliate
speaks on behalf of RegSub. If a customer requests information about
securing any service or product offered within the service territory by
an affiliate, RegSub may provide a list of all companies known to
RegSub operating in the service territory that provide the service or
product, which may include the affiliate, but RegSub may not promote
its affiliate.
- - Debt Rating: Regsub will have its own debt rating. If RegSub
experiences a downgrading or placement on creditwatch or review of its
senior debt, RegSub management will notify the Director of Accounting &
Finance of the New York State Department of Public Service.
- 33 -
<PAGE>
- - Guarantee of Affiliate Debt: RegSub will not guarantee the notes,
debentures, debt obligations or other securities of any affiliate, nor
will it pledge any of its assets as security for any indebtedness of
HoldCo or its affiliates.
- - Loans of Employees: RegSub will not loan operating employees to its
affiliates. Operating employees are those involved in competitive lines
of business, which excludes (among other categories) corporate
governance, finance, accounting, legal, and administrative services.
- - Behind-the-Meter Energy Services: NYSEG's RegSub will not conduct
competitive behind-the-meter energy services, except that NYSEG RegSub
will be permitted to provide solutions to customer reliability and
deliverability issues related to transmission and distribution.
VIII. Other Provisions
1. The Parties will negotiate in good faith modifications to NYSEG's SC-11
tariff relating to backup and maintenance services. The negotiation shall
address recovery of the CTC where backup or maintenance service continues to be
provided by NYSEG.
2. As described in more detail in Appendix F NYSEG's Service Quality
Mechanism will be modified to be a potential penalty-only mechanism based on
RegSub's performance on electric service reliability. RegSub's earnings cap
threshold will be adjusted down for the period of the penalty in the event that
a penalty is incurred.
3. In order to mitigate customers' above-market cost burden, in its sole
discretion, RegSub shall have the flexibility to accelerate or increase
amortization of regulatory assets, including the generation asset resulting from
the competitive generation plan described in Article V.1.c. of this Agreement,
accelerate or increase amortization of the Nine Mile Point 2 ("NMP2") book
balance, accelerate or increase depreciation, or make similar adjustments in the
exercise of its business judgment. An amortization schedule is attached hereto
as Appendix G. These expenses shall be included in the annual calculation of
RegSub's electric return on equity for earnings cap purposes, except that these
adjustments shall be excluded from such annual calculation in the event that
RegSub presents to the Commission a proposed cost-recovery charge for
uncontrollable costs pursuant to Article III.4. of this Agreement. In addition,
the Commission will be entitled to offset such proposed charge
- 34 -
<PAGE>
with any RegSub earnings in excess of 12.0% on common equity that would have
been realized but for the use of accelerated or increased amortization or
accelerated or increased depreciation as above permitted. These adjustments
shall be excluded in the calculation of any earnings shortfall for the
purposes of RegSub filing for electric rate relief described in Article III.2
of this Agreement.
4. As set forth in Appendix G, NYSEG may apply any deferred credit balances
as of the commencement of the Price Cap Period against any deferred charges.
5. In its Order Reconvening Proceeding, issued September 20, 1996, in Case
93-E-0960, the Commission directed the parties to that proceeding to negotiate
future Economic Development Power ("EDP") rates. Pursuant to a Memorandum of
Understanding (the "Memorandum") executed December 6, 1996, the parties agreed
to interim EDP rates pending litigation of all issues related to NYSEG's
provision of EDP service in this proceeding (Case 96-E-0891). For the reasons
explained in the Procedural Ruling of March 20, 1997, the due date for
submission of testimony on the EDP rate issue was postponed from the date
provided in the Memorandum. An agreement on EDP rates to resolve Case 93-E-0960
is attached as Appendix H.
6. Any net savings from changes in Gross Receipts Taxes will be flowed
through to NYSEG's customers subject to Article IV.5.
7. RegSub will make a filing at the beginning of Year 5 of the Price Cap
Period to provide for recovery of delivery, NMP2 and NUG costs, recovery of or
credit to regulatory assets (including the generation asset described in Article
V.1 of this Agreement) and recovery of the costs of electric power supply at
market rates beginning after the Price Cap Period, consistent with the terms of
this Agreement.
8. NYSEG will withdraw the two Article 78 Proceedings referenced in this
Agreement and the Article 78 proceeding to challenge the Commission's "Order
Concerning Retail Access Proposal" issued in Case 96-E-0948 (the Dairylea
Proceeding) through stipulation agreements between the Company and the
Commission.
9. It is the intent of the Parties, and the Commission by virtue of its
approval of this Agreement, that this Agreement meets the accounting
requirements of Statement of Financial Accounting Standards No. 71, throughout
its term.
- 35 -
<PAGE>
10. The Parties request an expedited process to obtain Commission approval
of this Agreement.
IX. Finality
The Parties agree that Commission approval of this Agreement represents
approval of its terms, and the Parties recognize that the concessions and
assurances of NYSEG are being made, in substantial part, in reliance upon later
actions of the Commission pursuant to the terms of this Agreement. Accordingly,
the Parties hereby request that the Commission's Order approving this Agreement
expressly find that:
1) the mutual concessions and assurances set forth in this Agreement
are inextricably interrelated;
2) that they will produce rates that are just and reasonable through
the Price Cap Period;
3) that they justify the reasonable opportunity for continued recovery
of strandable costs and the use of non-bypassable wire charges for
that purpose subsequent to the Price Cap Period according to the
terms of this Agreement;
4) that they achieve the Commission's goals and policy objectives in
Opinion No. 96-12; and
5) that they further the public interest.
X. Effectiveness
1. The NYSEG restructuring plan provided for under this Agreement is subject
to any required approval of the NYSEG Board of Directors and stockholders and
any regulatory body having jurisdiction. This Agreement is subject to issuance
of a final Commission Order approving this Agreement without changes, which
order shall include or adopt the above-stated express findings. In the event
that any of said approvals is not received, then this Agreement and all of its
terms and conditions shall be null and void. This Agreement shall be binding
upon, and shall inure to the benefit of, any successor in interest to any Party.
2. The terms and provisions of this Agreement apply solely to and are
binding only in the context of the purposes and results of this Agreement. None
of the terms and provisions of this Agreement and none of the positions taken
herein by any Party may be referred to, cited or relied upon by any other Party
- 36 -
<PAGE>
as precedent in any other proceeding before this Commission or any other
regulatory agency or before any court of law, except in furtherance of the
purposes and results of this Agreement.
Executed as of the 9th day of October 1997
NEW YORK STATE ELECTRIC & GAS
CORPORATION
By: /s/ Kenneth M. Jasinski, its attorney
----------------------------------------
NEW YORK STATE DEPARTMENT OF
PUBLIC SERVICE
By: /s/ Leonard Van Ryn
----------------------------------------
NEW YORK STATE DEPARTMENT OF
ECONOMIC DEVELOPMENT
By: /s/ Jeffrey Schnur
----------------------------------------
NEW YORK POWER AUTHORITY
By: /s/ Edgar K. Byham
----------------------------------------
THE JOINT SUPPORTERS
By: /s/ Ruben S. Brown
----------------------------------------
NATIONAL ASSOCIATION OF ENERGY SERVICES
COMPANIES
By: / s/ Ruben S. Brown
----------------------------------------
- 37 -
<PAGE>
APPENDIX A
FORECAST SUMMARY OF KILOWATTHOURS
AND REVENUE EFFECTS
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
NEW YORK STATE ELECTRIC & GAS CORPORATION PSC CASE NO. 96-E-0891
Appendix A
Forecast Summary of Kilowatthours and Revenue Effects Schedule A
Due to Revised Rates Page 1 of 5
Reflecting an RTS Factor of: 0.954696
Year 1 of Settlement
<TABLE>
<CAPTION>
Revenue
Existing Increase/ Total Percent
PSC SC Revenue (Decrease) Revenue Change
No. No. MWH (000) (000) (000) %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential Regular 115 1 3,326,704 $483,982 note(1) $483,982 note(1)
Residential Day-Night 115 8 1,738,318 $221,284 note(1) $221,284 note(1)
Residential Time of Use 115 12 333,559 $39,423 note(1) $39,423 note(1)
TOTAL RESIDENTIAL 5,398,581 $744,688 note(1) $744,688 note(1)
General Service Regular 115 6 205,238 $35,709 note(1) $35,709 note(1)
General Service Day-Night 115 9 6,520 $924 note(1) $924 note(1)
Subtotal 211,758 $36,633 note(1) $36,633 note(1)
General Service-w/Demand 115 2 Industrial > 500 kW 0 $0 $0 $0 0.0%
General Service-w/Demand 115 2 High Load Factor > 68% 171,716 $15,796 ($793) $15,004 -5.0%
General Service-w/Demand 115 2 All Others 2,582,189 $321,025 note(1) $321,025 note(1)
General Service-w/Demand 115 2 Total 2,753,905 $336,821 ($793) $336,029 -0.2%
General Service-Time of Use 115 7-1 Industrial > 500 kW 125,402 $12,910 ($661) $12,249 -5.0%
General Service-Time of Use 115 7-1 High Load Factor > 68% 68,772 $6,270 ($322) $5,948 -5.0%
General Service-Time of Use 115 7-1 All Others 595,673 $64,908 note(1) $64,908 note(1)
General Service-Time of Use 115 7-1 Total 789,847 $84,088 ($983) $83,105 -1.2%
Subtotal 3,543,753 $420,909 ($1,776) $419,133 -0.4%
TOTAL GENERAL SERVICE 3,755,511 $457,542 ($1,776) $455,766 -0.4%
Primary Service 115 3-P Industrial > 500 kW 0 $0 $0 $0 0.0%
Primary Service 115 3-P High Load Factor > 68% 15,491 $1,325 ($67) $1,258 -5.0%
Primary Service 115 3-P All Others 141,387 $15,776 note(1) $15,776 note(1)
Primary Service 115 3-P Total 156,878 $17,101 ($67) $17,034 -0.4%
Primary Service-Time of Use 115 7-2 Industrial > 500 kW 377,783 $37,088 ($1,884) $35,204 -5.0%
Primary Service-Time of Use 115 7-2 High Load Factor > 68% 48,291 $4,271 ($214) $4,057 -5.0%
Primary Service-Time of Use 115 7-2 All Others 748,083 $75,123 note(1) $75,123 note(1)
Primary Service-Time of Use 115 7-2 Total 1,174,157 $116,482 ($2,099) $114,383 -1.8%
Subtransmission Service 115 3S Industrial > 500 kW 0 $0 $0 $0 0.0%
Subtransmission Service 115 3S High Load Factor > 68% 2,271 $182 ($9) $173 -5.0%
Subtransmission Service 115 3S All Others 4,180 $474 note(1) $474 note(1)
Subtransmission Service 115 3S Total 6,451 $656 ($9) $647 -1.4%
Subtransmission-Time of Use 115 7-3 Industrial > 500 kW 494,227 $41,841 ($2,119) $39,722 -5.0%
Subtransmission-Time of Use 115 7-3 High Load Factor > 68% 45,771 $3,688 ($186) $3,502 -5.0%
Subtransmission-Time of use 115 7-3 All Others 222,157 $19,949 note(1) $19,949 note(1)
Subtransmission-Time of Use 115 7-3 Total 762,155 $65,478 ($2,305) $63,173 -3.5%
Transmission-Time of Use 115 7-4 Industrial > 500 kW 60,458 $4,945 ($248) $4,698 -5.0%
Transmission-Time of Use 115 7-4 High Load Factor > 68% 0 $0 $0 $0 0.0%
Transmission-Time of Use 115 7-4 All Others 191,620 $16,504 note(1) $16,504 note(1)
Transmission-Time of Use 115 7-4 Total 252,078 $21,450 ($248) $21,202 -1.2%
TOTAL PRIMARY 2,351,719 $221,167 ($4,727) $216,439 -2.1%
TOTAL GENERAL SERVICE & PRIMARY 6,107,230 $678,709 ($6,503) $672,206 -1.0%
Outdoor Lighting 115 5 17,560 $3,713 note(1) $3,713 note(1)
SUBTOTAL 115 REVENUE 11,523,371 $1,427,110 ($6,503) $1,420,607 -0.5%
Street Lighting 118 All 86,335 $18,563 note(1) $18,563 note(1)
SUBTOTAL TARIFF REVENUE 11,609,706 $1,445,673 ($6,503) $1,439,170 -0.4%
Miscellaneous Contracts 1,717,457 $108,614 $0 $108,614 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETAIL SALES REVENUE 13,327,163 $1,554,287 ($6,503) $1,547,784 -0.4%
SUMMARY
Residential $744,688 $0 $744,688 0.0%
Non-Residential (not subject to decrease) 572,668 0 572,668 0.0%
--------- ------ ---------
Subtotal 1,317,356 0 1,317,356 0.0%
Industrial & High Load Factor 128,317 ($6,503) 121,814 -5.0%
Miscellaneous Contracts 108,614 0 108,614 0.0%
--------- ------ ---------
Total $1,554,287 ($6,503) $1,547,784 -0.4%
</TABLE>
NOTE:
(1) This appendix does not reflect the total reductions to residential and
other customers not eligible for other decreases or special discounts as
shown on Appendix I.
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
NEW YORK STATE ELECTRIC & GAS CORPORATION PSC CASE NO. 96-E-0891
Appendix A
Forecast Summary of Kilowatthours and Revenue Effects Schedule A
Due to Revised Rates Page 2 of 5
Reflecting an RTS Factor of: 0.954696
Year 2 of Settlement
<TABLE>
<CAPTION>
Revenue
Existing Increase/ Total Percent
PSC SC Revenue (Decrease) Revenue Change
No. No. MWH (000) (000) (000) %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential Regular 115 1 3,345,437 $486,633 note(1) $486,633 note(1)
Residential Day-Night 115 8 1,728,039 $220,128 note(1) $220,128 note(1)
Residential Time of Use 115 12 329,028 $38,913 note(1) $38,913 note(1)
TOTAL RESIDENTIAL 5,402,504 $745,674 note(1) $745,674 note(1)
General Service Regular 115 6 207,394 $36,074 note(1) $36,074 note(1)
General Service Day-Night 115 9 6,591 $933 note(1) $933 note(1)
Subtotal 213,986 $37,007 note(1) $37,007 note(1)
General Service-w/Demand 115 2 Industrial > 500 kW 0 $0 $0 $0 0.0%
General Service-w/Demand 115 2 High Load Factor > 68% 173,224 $15,128 ($758) $14,370 -5.0%
General Service-w/Demand 115 2 All Others 2,604,864 $323,595 note(1) $323,595 note(1)
General Service-w/Demand 115 2 Total 2,778,089 $338,723 ($758) $337,965 -0.2%
General Service-Time of Use 115 7-1 Industrial > 500 kW 126,589 $12,377 ($634) $11,744 -5.0%
General Service-Time of Use 115 7-1 High Load Factor > 68% 69,162 $6,143 ($307) $5,836 -5.0%
General Service-Time of Use 115 7-1 All Others 598,573 $65,023 note(1) $65,023 note(1)
General Service-Time of Use 115 7-1 Total 794,324 $83,543 ($941) $82,602 -1.1%
Subtotal 3,572,413 $422,266 ($1,699) $420,567 -0.4%
TOTAL GENERAL SERVICE 3,786,399 $459,273 ($1,699) $457,574 -0.4%
Primary Service 115 3-P Industrial > 500 kW 0 $0 $0 $0 0.0%
Primary Service 115 3-P High Load Factor > 68% 15,623 $1,268 ($64) $1,204 -5.0%
Primary Service 115 3-P All Others 142,589 $15,899 note(1) $15,899 note(1)
Primary Service 115 3-P Total 158,212 $17,167 ($64) $17,103 -0.4%
Primary Service-Time of Use 115 7-2 Industrial > 500 kW 381,360 $35,573 ($1,807) $33,765 -5.0%
Primary Service-Time of Use 115 7-2 High Load Factor > 68% 48,484 $4,072 ($204) $3,868 -5.0%
Primary Service-Time of Use 115 7-2 All Others 749,017 $75,156 note(1) $75,156 note(1)
Primary Service-Time of Use 115 7-2 Total 1,178,861 $114,801 ($2,011) $112,789 -1.8%
Subtransmission Service 115 3S Industrial > 500 kW 0 $0 $0 $0 0.0%
Subtransmission Service 115 3S High Load Factor > 68% 2,289 $175 ($9) $166 -5.0%
Subtransmission Service 115 3S All Others 4,162 $472 note(1) $472 note(1)
Subtransmission Service 115 3S Total 6,451 $647 ($9) $638 -1.4%
Subtransmission-Time of Use 115 7-3 Industrial > 500 kW 498,907 $40,130 ($2,033) $38,097 -5.0%
Subtransmission-Time of Use 115 7-3 High Load Factor > 68% 45,785 $3,503 ($177) $3,326 -5.0%
Subtransmission-Time of use 115 7-3 All Others 217,695 $19,536 note(1) $19,536 note(1)
Subtransmission-Time of Use 115 7-3 Total 762,387 $63,169 ($2,210) $60,959 -3.5%
Transmission-Time of Use 115 7-4 Industrial > 500 kW 61,030 $4,745 ($237) $4,509 -5.0%
Transmission-Time of Use 115 7-4 High Load Factor > 68% 0 $0 $0 $0 0.0%
Transmission-Time of Use 115 7-4 All Others 192,570 $16,579 note(1) $16,579 note(1)
Transmission-Time of Use 115 7-4 Total 253,600 $21,324 ($237) $21,087 -1.1%
TOTAL PRIMARY 2,359,511 $217,108 ($4,530) $212,577 -2.1%
TOTAL GENERAL SERVICE & PRIMARY 6,145,910 $676,381 ($6,229) $670,152 -0.9%
Outdoor Lighting 115 5 17,560 $3,713 note(1) $3,713 note(1)
SUBTOTAL 115 REVENUE 11,565,974 $1,425,768 ($6,229) $1,419,538 -0.4%
Street Lighting 118 All 86,335 $18,563 note(1) $18,563 note(1)
SUBTOTAL TARIFF REVENUE 11,652,309 $1,444,331 ($6,229) $1,438,101 -0.4%
Miscellaneous Contracts 1,753,457 $110,220 $0 $110,220 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETAIL SALES REVENUE 13,405,766 $1,554,551 ($6,229) $1,548,321 -0.4%
SUMMARY
Residential $745,674 $0 $745,674 0.0%
Non-Residential (not subject to decrease) 575,543 0 575,543 0.0%
--------- ------ ---------
Subtotal 1,321,217 0 1,321,217 0.0%
Industrial & High Load Factor 123,114 (6,229) 116,885 -5.0%
Miscellaneous Contracts 110,220 0 110,220 0.0%
--------- ------ ---------
Total $1,554,551 ($6,229) $1,548,321 -0.4%
</TABLE>
NOTE:
(1) This appendix does not reflect the total reductions to residential and
other customers not eligible for other decreases or special discounts as
shown on Appendix I.
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
NEW YORK STATE ELECTRIC & GAS CORPORATION PSC CASE NO. 96-E-0891
Appendix A
Forecast Summary of Kilowatthours and Revenue Effects Schedule A
Due to Revised Rates Page 3 of 5
Reflecting an RTS Factor of: 0.954696
Year 3 of Settlement
<TABLE>
<CAPTION>
Revenue
Existing Increase/ Total Percent
PSC SC Revenue (Decrease) Revenue Change
No. No. MWH (000) (000) (000) %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential Regular 115 1 3,373,940 $490,738 note(1) $490,738 note(1)
Residential Day-Night 115 8 1,732,927 $220,762 note(1) $220,762 note(1)
Residential Time of Use 115 12 328,023 $38,803 note(1) $38,803 note(1)
TOTAL RESIDENTIAL 5,434,890 $750,303 note(1) $750,303 note(1)
General Service Regular 115 6 209,796 $36,476 note(1) $36,476 note(1)
General Service Day-Night 115 9 6,660 $942 note(1) $942 note(1)
Subtotal 216,457 $37,418 note(1) $37,418 note(1)
General Service-w/Demand 115 2 Industrial > 500 kW 0 $0 $0 $0 0.0%
General Service-w/Demand 115 2 High Load Factor > 68% 175,124 $14,518 ($727) $13,791 -5.0%
General Service-w/Demand 115 2 All Others 2,633,435 $326,821 note(1) $326,821 note(1)
General Service-w/Demand 115 2 Total 2,808,559 $341,339 ($727) $340,612 -0.2%
General Service-Time of Use 115 7-1 Industrial > 500 kW 127,693 $11,843 ($607) $11,236 -5.0%
General Service-Time of Use 115 7-1 High Load Factor > 68% 69,964 $5,727 ($295) $5,432 -5.0%
General Service-Time of Use 115 7-1 All Others 605,880 $65,821 note(1) $65,821 note(1)
General Service-Time of Use 115 7-1 Total 803,536 $83,391 ($902) $82,489 -1.1%
Subtotal 3,612,095 $424,730 ($1,629) $423,101 -0.4%
TOTAL GENERAL SERVICE 3,828,552 $462,148 ($1,629) $460,519 -0.4%
Primary Service 115 3-P Industrial > 500 kW 0 $0 $0 $0 0.0%
Primary Service 115 3-P High Load Factor > 68% 15,761 $1,214 ($61) $1,153 -5.0%
Primary Service 115 3-P All Others 143,849 $16,024 note(1) $16,024 note(1)
Primary Service 115 3-P Total 159,610 $17,238 ($61) $17,176 -0.4%
Primary Service-Time of Use 115 7-2 Industrial > 500 kW 384,684 $34,102 ($1,741) $32,361 -5.0%
Primary Service-Time of Use 115 7-2 High Load Factor > 68% 49,067 $3,912 ($197) $3,715 -5.0%
Primary Service-Time of Use 115 7-2 All Others 759,273 $76,031 note(1) $76,031 note(1)
Primary Service-Time of Use 115 7-2 Total 1,193,024 $114,044 ($1,937) $112,107 -1.7%
Subtransmission Service 115 3S Industrial > 500 kW 0 $0 $0 $0 0.0%
Subtransmission Service 115 3S High Load Factor > 68% 2,303 $167 ($8) $158 -5.0%
Subtransmission Service 115 3S All Others 4,148 $471 note(1) $471 note(1)
Subtransmission Service 115 3S Total 6,451 $638 ($8) $630 -1.3%
Subtransmission-Time of Use 115 7-3 Industrial > 500 kW 503,255 $38,467 ($1,954) $36,513 -5.0%
Subtransmission-Time of Use 115 7-3 High Load Factor > 68% 46,442 $3,372 ($170) $3,202 -5.0%
Subtransmission-Time of use 115 7-3 All Others 223,638 $19,963 note(1) $19,963 note(1)
Subtransmission-Time of Use 115 7-3 Total 773,335 $61,802 ($2,124) $59,678 -3.4%
Transmission-Time of Use 115 7-4 Industrial > 500 kW 61,562 $4,551 ($227) $4,324 -5.0%
Transmission-Time of Use 115 7-4 High Load Factor > 68% 0 $0 $0 $0 0.0%
Transmission-Time of Use 115 7-4 All Others 194,339 $16,712 $0 $16,712 0.0%
Transmission-Time of Use 115 7-4 Total 255,901 $21,263 ($227) $21,036 -1.1%
TOTAL PRIMARY 2,388,321 $214,986 ($4,358) $210,628 -2.0%
TOTAL GENERAL SERVICE & PRIMARY 6,216,873 $677,134 ($5,987) $671,147 -0.9
Outdoor Lighting 115 5 17,560 $3,713 note(1) $3,713 note(1)
SUBTOTAL 115 REVENUE 11,669,323 $1,431,150 ($5,987) $1,425,163 -0.4%
Street Lighting 118 All 86,335 $19,195 note(1) $19,195 note(1)
SUBTOTAL TARIFF REVENUE 11,755,658 $1,450,345 ($5,987) $1,444,358 -0.4%
Miscellaneous Contracts 1,753,457 $110,220 $0 $110,220 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETAIL SALES REVENUE 13,509,115 $1,560,565 ($5,987) $1,554,578 -0.4%
SUMMARY
Residential $750,303 ($0) $750,303 0.0%
Non-Residential (not subject to decrease) 582,169 0 582,169 0.0%
--------- ------ ---------
Subtotal 1,332,472 (0) 1,332,472 0.0%
Industrial & High Load Factor 117,873 (5,987) 111,886 -5.0%
Miscellaneous Contracts 110,220 0 110,220 -0.4%
--------- ------ ---------
Total $1,560,565 ($5,987) $1,554,578 -0.4%
</TABLE>
NOTES:
(1) This appendix does not reflect the total reductions to residential and
other customers not eligible for other decreases or special discounts as
shown on Appendix I.
(2) Total Revenues will be based on MWh shown above and rates resulting from
design approved resulting from filing by February 1, 1999.
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
NEW YORK STATE ELECTRIC & GAS CORPORATION PSC CASE NO. 96-E-0891
Appendix A
Forecast Summary of Kilowatthours and Revenue Effects Schedule A
Due to Revised Rates Page 4 of 5
Reflecting an RTS Factor of: 0.954696
Year 4 of Settlement
<TABLE>
<CAPTION>
Revenue
Existing Increase/ Total Percent
PSC SC Revenue (Decrease) Revenue Change
No. No. MWH (000) (000) (000) %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential Regular 115 1 3,407,676 $495,665 note(1) $495,665 note(1)
Residential Day-Night 115 8 1,747,872 $222,604 note(1) $222,604 note(1)
Residential Time of Use 115 12 330,600 $39,094 note(1) $39,094 note(1)
TOTAL RESIDENTIAL 5,486,148 $757,363 note(1) $757,363 note(1)
General Service Regular 115 6 212,715 $36,955 note(1) $36,955 note(1)
General Service Day-Night 115 9 6,753 $954 note(1) $954 note(1)
Subtotal 219,469 $37,910 note(1) $37,910 note(1)
General Service-w/Demand 115 2 Industrial > 500 kW 0 $0 $0 $0 0.0%
General Service-w/Demand 115 2 High Load Factor > 68% 177,482 $13,966 ($701) $13,264 -5.0%
General Service-w/Demand 115 2 All Others 2,668,903 $330,817 note(1) $330,817 note(1)
General Service-w/Demand 115 2 Total 2,846,385 $344,782 ($701) $344,081 -0.2%
General Service-Time of Use 115 7-1 Industrial > 500 kW 128,731 $11,324 ($583) $10,741 -5.0%
General Service-Time of Use 115 7-1 High Load Factor > 68% 70,936 $5,678 ($284) $5,394 -5.0%
General Service-Time of Use 115 7-1 All Others 615,029 $66,465 note(1) $66,465 note(1)
General Service-Time of Use 115 7-1 Total 814,696 $83,468 ($867) $82,600 -1.0%
Subtotal 3,661,081 $428,250 ($1,569) $426,682 -0.4%
TOTAL GENERAL SERVICE 3,880,549 $466,160 ($1,569) $464,591 -0.3%
Primary Service 115 3-P Industrial > 500 kW 0 $0 $0 $0 0.0%
Primary Service 115 3-P High Load Factor > 68% 15,916 $1,163 ($59) $1,104 -5.0%
Primary Service 115 3-P All Others 145,262 $16,163 note(1) $16,163 note(1)
Primary Service 115 3-P Total 161,178 $17,326 ($59) $17,267 -0.3%
Primary Service-Time of Use 115 7-2 Industrial > 500 kW 387,813 $32,662 ($1,664) $30,998 -5.0%
Primary Service-Time of Use 115 7-2 High Load Factor > 68% 49,683 $3,759 ($189) $3,571 -5.0%
Primary Service-Time of Use 115 7-2 All Others 770,519 $77,000 note(1) $77,000 note(1)
Primary Service-Time of Use 115 7-2 Total 1,208,015 $113,421 ($1,852) $111,569 -1.6%
Subtransmission Service 115 3S Industrial > 500 kW 0 $0 $0 $0 0.0%
Subtransmission Service 115 3S High Load Factor > 68% 2,316 $159 ($8) $151 -5.0%
Subtransmission Service 115 3S All Others 4,135 $470 note(1) $470 note(1)
Subtransmission Service 115 3S Total 6,451 $630 ($8) $622 -1.3%
Subtransmission-Time of Use 115 7-3 Industrial > 500 kW 507,349 $36,844 ($1,871) $34,973 -5.0%
Subtransmission-Time of Use 115 7-3 High Load Factor > 68% 47,094 $3,244 ($164) $3,080 -5.0%
Subtransmission-Time of use 115 7-3 All Others 229,743 $20,407 note(1) $20,407 note(1)
Subtransmission-Time of Use 115 7-3 Total 784,186 $60,496 ($2,035) $58,460 -3.4%
Transmission-Time of Use 115 7-4 Industrial > 500 kW 62,063 $4,363 ($218) $4,145 -5.0%
Transmission-Time of Use 115 7-4 High Load Factor > 68% 0 $0 $0 $0 0.0%
Transmission-Time of Use 115 7-4 All Others 195,707 $16,814 note(1) $16,814 note(1)
Transmission-Time of Use 115 7-4 Total 257,770 $21,177 ($218) $20,960 -1.0%
TOTAL PRIMARY 2,417,600 $213,050 ($4,172) $208,878 -2.0%
TOTAL GENERAL SERVICE & PRIMARY 6,298,149 $679,210 ($5,741) $673,469 -0.8%
Outdoor Lighting 115 5 17,560 $3,713 note(1) $3,713 note(1)
SUBTOTAL 115 REVENUE 11,801,857 $1,440,285 ($5,741) $1,434,545 -0.4%
Street Lighting 118 All 86,335 $18,563 note(1) $18,563 note(1)
SUBTOTAL TARIFF REVENUE 11,888,192 $1,458,848 ($5,741) $1,453,108 -0.4%
Miscellaneous Contracts 1,753,457 $110,220 $0 $110,220 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETAIL SALES REVENUE 13,641,649 $1,569,068 ($5,741) $1,563,328 -0.4%
SUMMARY
Residential $757,363 $0 $757,363 0.0%
Non-Residential (not subject to decrease) 588,323 0 588,323 0.0%
--------- ------ ---------
Subtotal 1,345,686 0 1,345,686 0.0%
Industrial & High Load Factor 113,163 (5,741) 107,422 -5.0%
Miscellaneous Contracts 110,220 0 110,220 -0.4%
--------- ------ ---------
Total $1,569,068 ($5,741) $1,563,328 -0.4%
</TABLE>
NOTES:
(1) This appendix does not reflect the total reductions to residential and
other customers not eligible for other decreases or special discounts as
shown on Appendix I.
(2) Total Revenues will be based on MWh shown above and rates resulting from
design approved resulting from filing by February 1, 1999.
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
NEW YORK STATE ELECTRIC & GAS CORPORATION PSC CASE NO. 96-E-0891
Appendix A
Forecast Summary of Kilowatthours and Revenue Effects Schedule A
Due to Revised Rates Page 5 of 5
Reflecting an RTS Factor of: 0.954696
Year 5 of Settlement
<TABLE>
<CAPTION>
Revenue
Existing Increase/ Total Percent
PSC SC Revenue (Decrease) Revenue Change
No. No. MWH (000) (000) (000) %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential Regular 115 1 3,443,698 $500,894 note(1) $500,894 note(1)
Residential Day-Night 115 8 1,766,217 $224,853 note(1) $224,853 note(1)
Residential Time of Use 115 12 334,056 $39,482 note(1) $39,482 note(1)
TOTAL RESIDENTIAL 5,543,971 $765,229 note(1) $765,229 note(1)
General Service Regular 115 6 215,891 $37,475 note(1) $37,475 note(1)
General Service Day-Night 115 9 6,862 $968 note(1) $968 note(1)
Subtotal 222,752 $38,443 note(1) $38,443 note(1)
General Service-w/Demand 115 2 Industrial > 500 kW 0 $0 $0 $0 0.0%
General Service-w/Demand 115 2 High Load Factor > 68% 180,120 $13,451 ($674) $12,777 -5.0%
General Service-w/Demand 115 2 All Others 2,708,565 $335,310 note(1) $335,310 note(1)
General Service-w/Demand 115 2 Total 2,888,685 $348,761 ($674) $348,088 -0.2%
General Service-Time of Use 115 7-1 Industrial > 500 kW 129,791 $10,838 ($558) $10,280 -5.0%
General Service-Time of Use 115 7-1 High Load Factor > 68% 72,032 $5,472 ($274) $5,199 -5.0%
General Service-Time of Use 115 7-1 All Others 625,467 $67,474 note(1) $67,474 note(1)
General Service-Time of Use 115 7-1 Total 827,290 $83,785 ($832) $82,953 -1.0%
Subtotal 3,715,975 $432,546 ($1,505) $431,041 -0.3%
TOTAL GENERAL SERVICE 3,938,728 $470,989 ($1,505) $469,484 -0.3%
Primary Service 115 3-P Industrial > 500 kW 0 $0 $0 $0 0.0%
Primary Service 115 3-P High Load Factor > 68% 16,098 $1,116 ($56) $1,060 -5.0%
Primary Service 115 3-P All Others 146,930 $16,331 note(1) $16,331 note(1)
Primary Service 115 3-P Total 163,028 $17,447 ($56) $17,390 -0.3%
Primary Service-Time of Use 115 7-2 Industrial > 500 kW 391,005 $31,290 ($1,602) $29,688 -5.0%
Primary Service-Time of Use 115 7-2 High Load Factor > 68% 50,512 $3,625 ($182) $3,442 -5.0%
Primary Service-Time of Use 115 7-2 All Others 763,027 $76,955 $0 $76,955 0.0%
Primary Service-Time of Use 115 7-2 Total 1,204,544 $111,869 ($1,784) $110,085 -1.6%
Subtransmission Service 115 3S Industrial > 500 kW 0 $0 $0 $0 0.0%
Subtransmission Service 115 3S High Load Factor > 68% 2,334 $161 ($8) $153 -5.0%
Subtransmission Service 115 3S All Others 4,117 $469 note(1) $469 note(1)
Subtransmission Service 115 3S Total 6,451 $630 ($8) $622 -1.3%
Subtransmission-Time of Use 115 7-3 Industrial > 500 kW 512,524 $35,357 ($1,796) $33,561 -5.0%
Subtransmission-Time of Use 115 7-3 High Load Factor > 68% 47,791 $3,124 ($158) $2,966 -5.0%
Subtransmission-Time of use 115 7-3 All Others 235,477 $20,822 note(1) $20,822 note(1)
Subtransmission-Time of Use 115 7-3 Total 795,792 $59,304 ($1,954) $57,349 -3.3%
Transmission-Time of Use 115 7-4 Industrial > 500 kW 62,574 $4,182 ($208) $3,974 -5.0%
Transmission-Time of Use 115 7-4 High Load Factor > 68% 0 $0 note(1) $0 note(1)
Transmission-Time of Use 115 7-4 All Others 197,617 $16,960 note(1) $16,960 note(1)
Transmission-Time of Use 115 7-4 Total 260,191 $21,142 ($208) $20,934 -1.0%
TOTAL PRIMARY 2,430,006 $210,391 ($4,011) $206,380 -1.9%
TOTAL GENERAL SERVICE & PRIMARY 6,368,734 $681,381 ($5,516) $675,864 -0.8%
Outdoor Lighting 115 5 17,560 $3,713 note(1) $3,713 note(1)
SUBTOTAL 115 REVENUE 11,930,265 $1,450,322 ($5,516) $1,444,806 -0.4%
Street Lighting 118 All 86,335 $18,563 note(1) $18,563 note(1)
SUBTOTAL TARIFF REVENUE 12,016,600 $1,468,885 ($5,516) $1,463,369 -0.4%
Miscellaneous Contracts 1,753,457 $110,220 $0 $110,220 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETAIL SALES REVENUE 13,770,057 $1,579,105 ($5,516) $1,573,589 -0.3%
SUMMARY
Residential $765,229 $0 $765,229 0.0%
Non-Residential (not subject to decrease) 595,040 0 595,040 0.0%
--------- ------ ---------
Subtotal 1,360,269 0 1,360,269 0.0%
Industrial & High Load Factor 108,616 (5,516) 103,100 -5.0%
Miscellaneous Contracts ll0,220 0 110,220 -0.3%
--------- ------ ---------
Total $1,579,105 ($5,516) $1,573,589 -0.3%
</TABLE>
NOTES:
(1) This appendix does not reflect the total reductions to residential and
other customers not eligible for other decreases or special discounts as
shown on Appendix I.
(2) Total Revenues will be based on MWh shown above and rates resulting from
design approved resulting from filing by February 1, 1999.
<PAGE>
Privileged & Confidential - For Settlement Purposes Only
New York State Electric & Gas Corporation PSC CASE NO. 96-E-0891
Revenue Impact Appendix A
Of Reduction in Base Rates and Gross Revenue Tax (GRT) Schedule B
For Industrial and High Load Factor Customers
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) Revenues at Previous Year's Level of GRT $128,316(1) $123,189 $117,715 $112,501 $107,125
(b) Target Percent rate reduction (2) 5.0% 5.0% 5.0% 5.0% 5.0%
(c) Change in revenues due to GRT and rate decreases ($6,420) ($6,170) ($5,918) ($5,625) ($5,356)
(b)*(a)
(d) Reduced Level of Revenues at Revised Level of GRT $121,897 $117,019 $111,797 $106,876 $101,768
(a)-(c)
(e) Change in revenues due to GRT and rate decreases ($6,420) ($6,170) ($5,918) ($5,625) ($5,356)
(f) Change in revenues due to base rate decrease $6,336 $5,928 $5,003 $5,625 $5,356
(g) Change in revenues due to GRT decrease ($84) ($241) ($915) $0 $0
(e)-(f)
</TABLE>
(1) Per Appendix A, Schedule A, Page 1 "Existing Revenues"
(2) Per Appendix A, Schedule A, Pages 1-5 "Percent Change"
<PAGE>
APPENDIX B
RATE SCHEDULES
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 1 of 9
New York State Electric & Gas Corporation
Rate Schedules - Residential Years 1 - 2*
S. C. No. 1 (Straight Meter)
Current Year 1 Year 2
Energy $/kWh
-------------------------------------------------------------
$0.1237 $0.1237 $0.1237
Customer Charge $/month
-------------------------------------------------------------
$7.43 $7.43 $7.43
S. C. No. 8 (Day-Night Meter)
Current Year 1 Year 2
Energy $/kWh
-------------------------------------------------------------
Day $0.1391 $0.1391 $0.1391
Night $0.0571 $0.0571 $0.0571
Customer Charge $/month
-------------------------------------------------------------
$9.23 $9.23 $9.23
S. C. No. 12 (TOU Meter)
Current Year 1 Year 2
Energy $/kWh
-------------------------------------------------------------
On-Peak $0.1928 $0.1928 $0.1928
Mid-Peak $0.1138 $0.1138 $0.1138
Off-Peak $0.0571 $0.0571 $0.0571
Customer Charge $/month
-------------------------------------------------------------
$24.00 $24.00 $24.00
*Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 2 of 9
New York State Electric & Gas Corporation
Rate Schedules
Non Residential (Small General Service) Years 1 - 2*
S. C. No. 6 (Straight Meter)
Current Year 1 Year 2
Energy $/kWh
------------------------------------------------------------
$0.14277 $0.14277 $0.14277
Customer Charge $/month
------------------------------------------------------------
$7.43 $7.43 $7.43
S. C. No. 9 (Day-Night Meter)
Current Year 1 Year 2
Energy $/kWh
------------------------------------------------------------
Day $0.15512 $0.15512 $0.15512
Night $0.06422 $0.06422 $0.06422
Customer Charge $/month
------------------------------------------------------------
$9.23 $9.23 $9.23
*Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 3 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 2 General Service - Secondary**
Current Year 1 Year 2
Hours Use $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- --------------------- -------------------------- --------------------------
First 200 $0.08379 $0.07965 $0.08379 $0.07581 $0.08379
201 to 350 $0.07292 $0.06932 $0.07292 $0.06597 $0.07292
Over 350 $0.05599 $0.05322 $0.05599 $0.05066 $0.05599
Demand $/kW
- --------------------- ------------- ----------- ------------- ----------
All kW $11.35 $10.79 $11.35 $10.27 $11.35
Customer
Charge $/month
- --------------------- ------------- ----------- ------------- ----------
$0.00 $0.00 $0.00 $0.00 $0.00
Reactive
Charge $/RKVAH
- ---------------------- ------------- ----------- ------------- -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 4 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 7-1 Large General Service - Secondary**
Current Year 1 Year 2
Energy On-Peak $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- ----------------------- -------------------------- --------------------------
$0.08755 $0.08322 $0.08755 $0.07921 $0.08755
Energy Off-Peak $/kWh
- ----------------------- -------------------------- --------------------------
$0.05599 $0.05322 $0.05599 $0.05066 $0.05599
Demand On-Peak $/kW
- ------------------------ ------------- ------------ ------------ -----------
All kW $11.35 $10.79 $11.35 $10.27 $11.35
Customer Charge $/month
- ------------------------ ------------- ------------ ------------ -----------
$9.15 $8.70 $9.15 $8.28 $9.15
Reactive Charge $/RKVAH
- ------------------------ ------------- ------------ ------------ -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 5 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 3 Primary Distribution**
Current Year 1 Year 2
Hours Use $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- --------------------- -------------------------- --------------------------
First 200 $0.07803 $0.07417 $0.07803 $0.07060 $0.07803
201 to 350 $0.06802 $0.06466 $0.06802 $0.06154 $0.06802
0ver 350 $0.05422 $0.05154 $0.05422 $0.04906 $0.05422
Demand $/kW
- --------------------- ------------- ----------- ------------- ----------
All kW $10.78 $10.25 $10.78 $9.75 $10.78
Customer
Charge $/month
- --------------------- ------------- ----------- ------------- ----------
$0.00 $0.00 $0.00 $0.00 $0.00
Reactive
Charge $/RKVAH
- ---------------------- ------------- ----------- ------------- -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a. and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 6 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 7-2 Large General Service - Primary Distribution**
Current Year 1 Year 2
Energy On-Peak $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- ----------------------- -------------------------- --------------------------
$0.07932 $0.07540 $0.07932 $0.07177 $0.07932
Energy Off-Peak
- ----------------------- -------------------------- --------------------------
$0.05422 $0.05154 $0.05422 $0.04906 $0.05422
Demand On-Peak $/kW
- ------------------------ ------------- ------------ ------------ -----------
All kW $11.68 $11.10 $11.68 $10.57 $11.68
Customer Charge $/month
- ------------------------ ------------- ------------ ------------ -----------
$9.15 $8.70 $9.15 $8.28 $9.15
Reactive Charge $/RKVAH
- ------------------------ ------------- ------------ ------------ -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 7 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 3 Sub-Transmission**
Current Year 1 Year 2
Hours Use $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- --------------------- -------------------------- --------------------------
First 200 $0.07499 $0.07128 $0.07499 $0.06785 $0.07499
201 to 350 $0.06498 $0.06177 $0.06498 $0.05879 $0.06498
Over 350 $0.05118 $0.04865 $0.05118 $0.04631 $0.05118
Demand $/kW
- --------------------- ------------- ----------- ------------- ----------
All kW $8.68 $8.25 $8.68 $7.85 $8.68
Customer
Charge $/month
- --------------------- ------------- ----------- ------------- ----------
$0.00 $0.00 $0.00 $0.00 $0.00
Reactive
Charge $/RKVAH
- ---------------------- ------------- ----------- ------------- -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Charges shown include a high voltage discount for SC 3 Sub-Transmission
customers from the SC 3 Primary Distribution charges on Appendix B Page 5 of 9.
Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a. and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 8 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 7-3 Large General Service - Sub-Transmission**
Current Year 1 Year 2
Energy On-Peak $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- ----------------------- -------------------------- --------------------------
$0.07441 $0.07073 $0.07441 $0.06732 $0.07441
Energy Off-Peak
- ----------------------- -------------------------- --------------------------
$0.05165 $0.04910 $0.05165 $0.04673 $0.05165
Demand On-Peak $/kW
- ------------------------ ------------- ------------ ------------ -----------
All kW $8.88 $8.44 $8.88 $8.03 $8.88
Customer Charge $/month
- ------------------------ ------------- ------------ ------------ -----------
$9.15 $8.70 $9.15 $8.28 $9.15
Reactive Charge $/RKVAH
- ------------------------ ------------- ------------ ------------ -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a and reductions pursuant to Article III.1.c.
<PAGE>
PSC Case No. 96-E-0891
Appendix B
Page 9 of 9
Rate Schedules - Non Residential Years 1 - 2
SC 7-4 Large General Service - Transmission**
Current Year 1 Year 2
Energy On-Peak $/kWh HLF/Industrial* All Other HLF/Industrial* All Other
- ----------------------- -------------------------- --------------------------
$0.07305 $0.06944 $0.07305 $0.06609 $0.07305
Energy Off-Peak
- ----------------------- -------------------------- --------------------------
$0.05063 $0.04813 $0.05063 $0.04581 $0.05063
Demand On-Peak $/kW
- ------------------------ ------------- ------------ ------------ -----------
All kW $8.71 $8.28 $8.71 $7.88 $8.71
Customer Charge $/month
- ------------------------ ------------- ------------ ------------ -----------
$9.15 $8.70 $9.15 $8.28 $9.15
Reactive Charge $/RKVAH
- ------------------------ ------------- ------------ ------------ -----------
All RKVAH $0.00095 $0.00090 $0.00095 $0.00086 $0.00095
* Qualifying High Load Factor (HLF) and Industrial Customers as per this
Comprehensive Settlement Agreement.
** Rate design for years 3 through 5 of the Price Cap Period will be determined
pursuant to the filing described in Article III.3.c., which will reflect
reductions pursuant to Article III.1.b, freezes prices by service class pursuant
to Article III.3.a. and reductions pursuant to Article III.1.c.
<PAGE>
APPENDIX C
UNCONTROLLABLE COSTS
<PAGE>
Appendix C
Page 1 of 2
Uncontrollable Cost Factors(1)
<TABLE>
<CAPTION>
CATEGORY 1 CATEGORY 2
------------------------------------ ------------------------------------
<S> <C> <C>
Frequency: One-Time Event Ongoing Costs
General Description of Qualifying Natural Disasters, Acts of Accounting, Legislative, Regulatory,
Events: Terrorism, and Category 2 Costs or Tax Changes
Incurred Before Rates are Changed
Examples of Potential Qualifying -Storms -Change in DSM Expenses
Events: -Bombings -
-Retroactive Tax Levies FASB Accounting Pronouncements
-Changes in Federal Income Tax Rate
Changes in Nuclear Decommissioning
Costs
-NYPA Transmission Adjustment Charge
Threshold Limits for Rate Recovery Aggregate Costs in Excess of 3% of Variations from Targets Stated in
RegSub Appendix A, Page 2
Net Income
Recovery Method: The Uncontrollable Costs Factors The Uncontrollable Cost Factors will
will be be
applied to each customer's applied to each customer's
bill in a manner to be determined by bill in a manner to be determined by
the Commission. the Commission.
Timing of Rate Charge/Recovery Annually in a manner and over a Annually in a manner and over a
Period: period to period
be determined by the Commission. to be determined by the Commission.
</TABLE>
(1) The Uncontrollable Cost Factors relate to cost increases and decreases.
<PAGE>
Appendix C
Page 2 of 2
UNCONTROLLABLE COST FACTOR ADJUSTMENTS(1)
($000)
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nuclear Decommissioning Costs:
Internal Fund $ 208 $ 263 $ 263 $ 263 $ 263
External Fund 1,494 4,062 4,062 4,062 4,062
Total: 1,702 4,325 4,325 4,325 4,325
Manufactured Gas Plant Site Remediation Costs 1,569 2,163 2,640 2,640 2,640
Other Programs in PSC's Discretion 13,327 13,406 13,509 NA NA
NYPA Transition Adjustment 0 0 0 0 0
Mandatory Regulatory, Legislative, Accounting and Tax Changes 0 0 0 0 0
Total $16,598 $19,894 $20,474 $6,965 $6,965
</TABLE>
(1) The above targets are the amounts that are covered within the rates
specified in this Settlement. Prudently incurred changes from these
amounts will be included in the Uncontrollable Cost Factor Adjustments.
NA means not applicable.
<PAGE>
APPENDIX D
METHOD FOR CALCULATING THE CTC
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 1 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Summary of the Estimated CTC Rates
Based on Three Potential Valuation Results of Coal-Fired Generation Assets
$550 Million Below Book, Equal to Book, and $550 Million Above Book
(Dollars per kwh)
- --------------------------------------------------------------------------------
Rate Year Ending July
---------------------------------
Potential Market Valuations 2000 2001 2002
- --------------------------- ---- ---- ----
$550 Million Below Book (page 2) 0.83 0.79 0.76
Equal to Book (page 3) 0.31 0.30 0.29
$340 Million Above Book (page 4) 0.00 0.00 0.00
$550 Million Above Book (page 5) 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Commencing August 1, 1999, retail access customers will be credited with the
backout rates set forth in Article IV.4.b of the Agreement, net of a CTC
calculated as illustrated in this appendix.
Since the backout rate is based on generation costs divided by retail sales,
retail access customers will also be responsible to compensate NYSEG for system
losses between the supply point and the customer meter.
The valuations are for illustrative purposes and do not presume any actual
value. The actual CTC will be based on the results of the auction valuation or
subsequent appraisal pursuant to Article V.1 of the Agreement and actual
balances of generation net assets on the books after the auction.
Based on these estimates, if the market value of the coal-fired generation
assets is $340 million above book, the CTC would be zero. Any value in excess of
that needed to produce a zero CTC will be disposed of pursuant to Article V.1.h
of the Agreement.
In the event of a negative determination from the IRS regarding normalization
issues, it would be necessary to remove funded deferred taxes from the CTC.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 2 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Based on Assumed Market Value of Coal-Fired Generation Assets
$550 Million Below Book
($000)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Calendar Years: 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Balances at Dec 31, 1996
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Net Assets to be Transferred
to GenSub NYSEG SRC Total
----- --- -----
Net Plant Including Construction
Work in Progress $1,200,959 $45,884 $1,246,843
(b) Coal Inventory, Spare Parts,
Prepaid Property Taxes &
Insurance, etc. 80,931 80,931
(c) Deferred Taxes - APB-11@35% (200,094) (12,659) (212,753)
(c) Excess Deferred Taxes
(46% vs 35%) (16,127) (2,830) (18,957)
--------- ------ ---------
Total 1,065,669 30,395 1,096,064
Assumed Value of Plants 546,064
---------
Before-Tax Gain or (Loss) (550,000)
(d) Federal Income Tax
Sale Price 546,064
Remaining Tax Depreciable Basis (374,124) (4,762) (378,886)
Tax Deduction for Remaining
Inventory, Prepayments, etc. (80,931)
---------
Taxable Gain or (Loss) 86,247
Tax Rate 35%
---------
Tax Liability 30,186
---------
After-Tax Gain or (Loss) (580,186)
---------
- ------------------------------------------------------------------------------------------------------------------------------------
Net-of-Tax Above (Below)-Market
Regulatory Asset
Beginning Balance 580,186 549,650 519,114 488,578 458,042 427,506
Annual Amortization through
2015 - the End of the Average
Service Life (30,536) (30,536) (30,536) (30,536) (30,536) (30,536)
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 549,650 519,114 488,578 458,042 427,506 396,970
Average Balance 564,918 534,382 503,846 473,310 442,774 412,238
(e) Cost of Capital Grossed Up for
FIT per 1995 Settlement 12.43% 12.43% 12.43% 12.43% 12.43% 12.43%
---------- ---------- ---------- ---------- ---------- ----------
Annual Carrying Charge 70,219 66,424 62,628 58,832 55,037 51,241
Annual Amortization Grossed Up for
FIT @ 35% 46,978 46,978 46,978 46,978 46,978 46,978
---------- ---------- ---------- ---------- ---------- ----------
Total Annual Cost Before GRT $117,197 $113,402 $109,606 $105,810 $102,015 $98,219
Annual Retail Sales (mwh) 13,360,421 13,441,485 13,553,386 13,700,753 13,769,257 13,838,103
---------- ---------- ---------- ---------- ---------- ----------
Cost per KWH (cents) 0.88 0.84 0.81 0.77 0.74 0.71
(f) Gross Revenue Tax @ 4.53% 0.04 0.04 0.04 0.04 0.04 0.03
---------- ---------- ---------- ---------- ---------- ----------
(g) Annual CTC Based on Market Value
$550 Million Below Book 0.92 0.88 0.85 0.81 0.78 0.74
---------- ---------- ---------- ---------- ---------- ----------
(g) CTC for Rate Year Ending July 0.83 0.79 0.76
---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 6.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 3 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Based on Assumed Market Value of Coal-Fired Generation Assets
Equal to Book
($000)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Calendar Years: 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Balances at Dec 31, 1996
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Net Assets to be Transferred
to GenSub NYSEG SRC Total
----- --- -----
Net Plant Including Construction
Work in Progress $1,200,959 $45,884 $1,246,843
(b) Coal Inventory, Spare Parts,
Prepaid Property Taxes &
Insurance, etc. 80,931 80,931
(c) Deferred Taxes - APB-11@35% (200,094) (12,659) (212,753)
(c) Excess Deferred Taxes
(46% vs 35%) (16,127) (2,830) (18,957)
---------- ------- ----------
Total 1,065,669 30,395 1,096,064
Assumed Value of Plants 1,096,064
---------
Before-Tax Gain or (Loss) 0
(d) Federal Income Tax
Sale Price 1,096,064
Remaining Tax Depreciable Basis (374,124) (4,762) (378,886)
Tax Deduction for Remaining
Inventory, Prepayments, etc. (80,931)
---------
Taxable Gain or (Loss) 636,247
Tax Rate 35%
---------
Tax Liability 222,686
---------
After-Tax Gain or (Loss) (222,686)
---------
- ------------------------------------------------------------------------------------------------------------------------------------
Net-of-Tax Above (Below)-Market
Regulatory Asset
Beginning Balance 222,686 210,966 199,246 187,526 175,806 164,086
Annual Amortization through
2015 - the End of the Average
Service Life (11,720) (11,720) (11,720) (11,720) (11,720) (11,720)
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 210,966 199,246 187,526 175,806 164,086 152,366
Average Balance 216,826 205,106 193,386 181,666 169,946 158,226
(e) Cost of Capital Grossed Up for
FIT per 1995 Settlement 12.43% 12.43% 12.43% 12.43% 12.43% 12.43%
---------- ---------- ---------- ---------- ---------- ----------
Annual Carrying Charge 26,951 25,495 24,038 22,581 21,124 19,667
Annual Amortization Grossed Up
for FIT @ 35% 18,031 18,031 18,031 18,031 18,031 18,031
---------- ---------- ---------- ---------- ---------- ----------
Total Annual Cost Before GRT $44,982 $43,526 $42,069 $40,612 $39,155 $37,698
Annual Retail Sales (mwh) 13,360,421 13,441,485 13,553,386 13,700,753 13,769,257 13,838,103
---------- ---------- ---------- ---------- ---------- ----------
Cost per KWH (cents) 0.34 0.32 0.31 0.30 0.28 0.27
(f) Gross Revenue Tax @ 4.53% 0.02 0.02 0.01 0.01 0.01 0.01
---------- ---------- ---------- ---------- ---------- ----------
(g) Annual CTC Based on Market Value
Equal to Book 0.36 0.34 0.32 0.31 0.29 0.28
---------- ---------- ---------- ---------- ---------- ----------
(g) CTC for Rate Year Ending July 0.31 0.30 0.29
---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 6.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 4 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Based on Assumed Market Value of Coal-Fired Generation Assets
$340 Million Above Book
($000)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Calendar Years: 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Balances at Dec 31, 1996
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Net Assets to be Transferred
to GenSub NYSEG SRC Total
----- --- -----
Net Plant Including Construction
Work in Progress $1,200,959 $45,884 $1,246,843
(b) Coal Inventory, Spare Parts,
Prepaid Property Taxes
& Insurance, etc. 80,931 80,931
(c) Deferred Taxes - APB-11@35% (200,094) (12,659) (212,753)
(c) Excess Deferred Taxes
(46% vs 35%) (16,127) (2,830) (18,957)
---------- ------- ----------
Total 1,065,669 30,395 1,096,064
Assumed Value of Plants 1,436,064
----------
Before-Tax Gain or (Loss) 340,000
(d) Federal Income Tax
Sale Price 1,436,064
Remaining Tax Depreciable Basis (374,124) (4,762) (378,886)
Tax Deduction for Remaining
Inventory, Prepayments, etc. (80,931)
----------
Taxable Gain or (Loss) 976,247
Tax Rate 35%
----------
Tax Liability 341,686
----------
After-Tax Gain or (Loss) (1,686)
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Net-of-Tax Above (Below)-Market
Regulatory Asset
Beginning Balance 1,686 1,597 1,508 1,419 1,330 1,241
Annual Amortization through
2015 - the End of the Average
Service Life (89) (89) (89) (89) (89) (89)
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 1,597 1,508 1,419 1,330 1,241 1,152
Average Balance 1,642 1,553 1,464 1,375 1,286 1,197
(e) Cost of Capital Grossed Up for
FIT per 1995 Settlement 12.43% 12.43% 12.43% 12.43% 12.43% 12.43%
---------- ---------- ---------- ---------- ---------- ----------
Annual Carrying Charge 204 193 182 171 160 149
Annual Amortization Grossed Up
for FIT @ 35% 137 137 137 137 137 137
---------- ---------- ---------- ---------- ---------- ----------
Total Annual Cost Before GRT $341 $330 $319 $308 $297 $286
Annual Retail Sales (mwh) 13,360,421 13,441,485 13,553,386 13,700,753 13,769,257 13,838,103
---------- ---------- ---------- ---------- ---------- ----------
Cost per KWH (cents) 0.00 0.00 0.00 0.00 0.00 0.00
(f) Gross Revenue Tax @ 4.53% 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
(g) Annual CTC Based on Market Value
$340 Million Above Book 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
(g) CTC for Rate Year Ending July 0.00 0.00 0.00
---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 6.
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 5 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Based on Assumed Market Value of Coal-Fired Generation Assets
$550 Million Above Book
($000)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Calendar Years: 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Balances at Dec 31, 1996
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Net Assets to be Transferred
to GenSub NYSEG SRC Total
----- --- -----
Net Plant Including Construction
Work in Progress $1,200,959 $45,884 $1,246,843
(b) Coal Inventory, Spare Parts,
Prepaid Property Taxes &
Insurance, etc. 80,931 80,931
(c) Deferred Taxes - APB-11@35% (200,094) (12,659) (212,753)
(c) Excess Deferred Taxes
(46% vs 35%) (16,127) (2,830) (18,957)
---------- ------- ----------
Total 1,065,669 30,395 1,096,064
Assumed Value of Plants 1,646,064
----------
Before-Tax Gain or (Loss) 550,000
(d) Federal Income Tax
Sale Price 1,646,064
Remaining Tax Depreciable Basis (374,124) (4,762) (378,886)
Tax Deduction for Remaining
Inventory, Prepayments, etc. (80,931)
----------
Taxable Gain or (Loss) 1,186,247
Tax Rate 35%
----------
Tax Liability 415,186
----------
After-Tax Gain or (Loss) 134,814
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Net-of-Tax Above (Below)-Market
Regulatory Asset
Beginning Balance (134,814) (127,719) (120,624) (113,529) (106,434) (99,339)
Annual Amortization Through
2015 the End of the Average
Service Life 7,095 7,095 7,095 7,095 7,095 7,095
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance (127,719) (120,624) (113,529) (106,434) (99,339) (92,244)
Average Balance (131,267) (124,172) (117,077) (109,982) (102,887) (95,792)
(e) Cost of Capital Grossed Up for
FIT per 1995 Settlement 12.43% 12.43% 12.43% 12.43% 12.43% 12.43%
---------- ---------- ---------- ---------- ---------- ----------
Annual Carrying Charge (16,316) (15,435) (14,553) (13,671) (12,789) (11,907)
Annual Amortization Grossed Up
for FIT @ 35% (10,915) (10,915) (10,915) (10,915) (10,915) (10,915)
---------- ---------- ---------- ---------- ---------- ----------
Total Annual Cost Before GRT ($27,231) ($26,350) ($25,468) ($24,586) ($23,704) ($22,822)
Annual Retail Sales (mwh) 13,360,421 13,441,485 13,553,386 13,700,753 13,769,257 13,838,103
---------- ---------- ---------- ---------- ---------- ----------
Cost per KWH (cents) 0.00 0.00 0.00 0.00 0.00 0.00
(f) Gross Revenue Tax @ 4.53% 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
(g) Annual CTC Based on Market Value
$550 Million Above Book 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
(g) CTC for Rate Year Ending July 0.00 0.00 0.00
---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 6.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix D
Page 6 of 6
New York State Electric & Gas Corporation
Illustration of Method for Calculating the Competitive Transition Charge (CTC)
Notes Relating to the CTC Calculation
- --------------------------------------------------------------------------------
(a) The items listed on pages 2 through 5 are the major net assets associated
with coal-fired generation. Other assets or liabilities may be identified
at the time of the auction.
(b) The balances of coal inventory, spare parts, prepayments and deferred
taxes at December 31, 1996 are estimates. Actual balances will be used in
the calculation of the CTC following the auction.
(c) In the event of a negative determination from the IRS regarding
normalization issues, it would be necessary to remove funded deferred
taxes from the CTC.
(d) RegSub's tax liability will be payable upon the sale of the plants to a
third party and will be included in the CTC.
(e) The tax-depreciable basis of the successful bidder will be the purchased
price of the plants. If GenSub is the successful bidder, it will receive a
stepped-up basis.
If GenSub is the successful bidder, RegSub's tax liability will be
included in the CTC, however it will not accrue a carrying charge because
no cash payment would be made as IRS regulations allow RegSub to defer
payment of the tax to match GenSub's stepped-up basis.
(f) This appendix does not reflect recent legislated reductions of the gross
revenue tax rate. Pursuant to the Agreement, the rate will be adjusted
when the actual CTC is calculated.
(g) Any value in excess of that needed to produce a zero CTC will be disposed
of pursuant to Article V.1.h of the Agreement.
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX E
TARGET LEVELS FOR NUG CONTRACTS
<PAGE>
- --------------------------------------------------------------------------------
Appendix E
Page 1 of 3
New York State Electric & Gas Corporation
Description of the Method that Will be Used to Quantify Savings
Associated with the Termination or Restructuring of NUG Contracts
- --------------------------------------------------------------------------------
Net savings associated with the termination or restructuring of NUG contracts
will be quantified as described in this appendix and shared pursuant to Section
III.2.b of the Agreement.
Net savings will be calculated separately for individual NUGs and will be
limited to changes directly resulting from the termination or restructuring of
contracts.
Net savings will be calculated at the end of each rate year for inclusion in
rates the following year.
The net savings will be determined as follows:
Amount of Avoided Gross Payments to NUGs
Less Cost of Replacement Power (or Reduced Sales for Resale Revenue)
Less Cost to Terminate or Restructure the Contracts
The avoided gross payments will be the difference between the forecast payments
listed on Appendix E, Page 2 and the actual payments made to the NUG during the
year, to the extent such changes were the result of contract termination or
restructuring.
The cost of replacement power (or reduced sales for resale revenue) will be the
weighted average market price for the year times the difference between the
forecast mwh purchases listed on Appendix E, Page 3 and the actual mwh purchased
from the NUG during the year, to the extent that such changes were the result of
contract termination of restructuring.
The weighted average market price will be determined as described in Article
IV.1.b of the Agreement.
Incremental costs incurred to effect a contract termination or reformation will
be deferred and amortized ratably over the remainder of the original contract
period. Interest will be accrued on the unamortized balance of termination and
restructuring costs at the before-tax cost of capital allowed in the most recent
NYSEG electric rate case (12.43% for the term of this agreement).
Sharing of the net benefit will be according to Article V.2.b of the Agreement.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix E
Page 2 of 3
New York State Electric & Gas Corporation
Cost of NUG Purchases Excluding Gas Import Tax
Forecast at Time of 1997 Rate Settlement
($000)
- --------------------------------------------------------------------------------
Private Generator Year 1 Year 2 Year 3 Year 4 Year 5
- ----------------- ------ ------ ------ ------ ------
Contract 1 $109,166 $112,345 $117,241 $119,366 $123,752
Contract 2 152,993 156,644 159,031 165,782 179,261
Contract 3 19,936 19,669 19,219 18,679 18,147
Contract 4 17,901 18,341 18,863 19,143 21,570
Contract 5 8,445 8,880 9,562 9,868 10,214
Contract 6 1,266 1,273 1,277 1,273 1,273
Contract 7 2,192 2,236 1,721 1,313 1,313
Contract 8 1,653 2,001 2,096 2,047 662
Contract 9 426 402 416 432 452
Contract 10 70 122 126 131 137
Contract 11 800 1,412 1,461 1,509 1,577
Contract 12 270 270 278 286 295
Contract 13 113 68 71 76 82
Contract 14 222 179 187 200 217
Contract 15 350 285 207 213 223
Contract 16 7 5 5 5 6
Contract 17 40 40 40 40 40
Contract 18 792 972 1,071 1,141 1,192
Contract 19 3,179 3,365 3,365 3,365 3,365
Contract 20 15,614 14,902 14,902 14,902 14,902
Contract 21 626 603 603 603 603
Contract 22 312 315 315 315 315
Contract 23 72 89 89 89 89
-------- -------- -------- -------- --------
TOTAL $336,442 $344,417 $352,145 $360,778 $379,689
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix E
Page 3 of 3
New York State Electric & Gas Corporation
NUG MWH Purchases
Forecast at Time of 1997 Rate Settlement
- --------------------------------------------------------------------------------
Private Generator Year 1 Year 2 Year 3 Year 4 Year 5
- ----------------- ------ ------ ------ ------ ------
Contract 1 1,259,220 1,223,510 1,255,780 1,228,040 1,221,310
Contract 2 1,883,062 1,864,018 1,833,498 1,828,131 1,907,943
Contract 3 103,670 103,360 103,360 103,770 103,530
Contract 4 360,000 360,000 364,800 364,800 404,880
Contract 5 128,760 128,760 134,050 133,660 133,660
Contract 6 21,190 21,190 21,250 21,190 21,190
Contract 7 23,050 23,050 23,110 23,050 23,050
Contract 8 20,390 20,390 20,450 20,390 20,390
Contract 9 17,470 17,470 17,470 17,470 17,500
Contract 10 5,290 5,290 5,290 5,290 5,290
Contract 11 48,530 48,530 48,530 48,530 48,530
Contract 12 5,150 5,150 5,150 5,150 5,150
Contract 13 2,310 2,310 2,310 2,310 2,310
Contract 14 6,090 6,090 6,090 6,090 6,090
Contract 15 6,890 6,890 6,890 6,890 6,890
Contract 16 170 170 170 170 170
Contract 17 670 670 670 670 670
Contract 18 8,330 8,330 8,330 8,330 8,330
Contract 19 37,950 37,950 37,950 37,940 37,950
Contract 20 216,910 216,910 217,090 217,090 217,090
Contract 21 6,750 6,750 6,750 6,750 6,750
Contract 22 3,730 3,730 3,730 3,730 3,730
Contract 23 960 960 960 960 960
- -------------------- --------- --------- --------- --------- ---------
TOTAL 4,166,542 4,111,478 4,123,678 4,090,401 4,203,363
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX F
SERVICE QUALITY MECHANISM
<PAGE>
ELECTRIC SERVICE QUALITY PERFORMANCE MECHANISM
An Electric Service Quality Performance Mechanism shall be implemented for
the Price Cap Period. The mechanism provides NYSEG an incentive to render
reliable electric service to its customers by avoiding a penalty due to
unsatisfactory performance. The mechanism will make use of two reliability
indices. They are:
1. The customer average interruption duration index ("CAIDI"). This
measures how long the average power outage lasts for an interrupted
customer during each year of the Price Cap Period.
2. The system average interruption frequency index ("SAIFI"). This
measures how often the average customer is interrupted during
each year of the Price Cap Period.
The calculation of CAIDI and SAIFI conforms to PSC electric reliability
standards and, therefore, interruptions due to "major storm", as defined in 16
NYCRR in Part 105, are excluded.
The two measures will be tracked separately for NYSEG on a systemwide
composite basis (average of NYSEG district performance indicators). The
systemwide, composite figure for each measure will be determined using
performance indicators applicable to each NYSEG district as established in Case
Nos. 90-E-1119 and 95-E-0165. The threshold systemwide composite performance
indicator for duration (CAIDI) shall be 2.08 for each year of the Price Cap
Period. The threshold systemwide composite performance indicator for frequency
(SAIFI) shall be 1.33 for each year of the Price Cap Period.
In the event that the systemwide composite performance indicator for CAIDI
is within the range of 2.08 and 2.18 during any year of the Price Cap Period,
NYSEG shall be assessed a penalty equal to 3.75 basis points. If the systemwide
composite performance indicator for CAIDI exceeds 2.18 during any year of the
Price Cap Period, NYSEG shall be assessed the maximum CAIDI penalty of 7.5 basis
points.
<PAGE>
In the event that the systemwide composite performance indicator for SAIFI
is within the range of 1.33 and 1.40 during any year of the Price Cap Period,
NYSEG shall be assessed a penalty equal to 3.75 basis points. If the systemwide
composite performance indicator for SAIFI exceeds 1.40 during any year of the
Price Cap Period, NYSEG shall be assessed the maximum SAIFI penalty of 7.5 basis
points.
The maximum aggregate penalty that could be assessed for each year of the
Price Cap Period is 15 basis points. In the year that a penalty is incurred, the
12.0% earnings cap contained in the Settlement Agreement will be reduced by the
number of basis points of the penalty incurred. For example, if the maximum
aggregate penalty is incurred, the ROE cap for that year would be 11.85%.
<PAGE>
APPENDIX G
AMORTIZATION SCHEDULE FOR
ELECTRIC BUSINESS OF REGSUB
<PAGE>
- --------------------------------------------------------------------------------
Appendix G
New York State Electric & Gas Corporation
Amortization Schedule for Electric Business of RegSub
($000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Before Year 1 Year 1 Year 2 Year 3 Year 4 Year 5
------------- ------ ------ ------ ------ ------
(a)
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance
Sales for Resale Profit (4,835)
Fuel Costs 10,662
South Corning Termination Costs (b) 17,328
Demand Side Management Program Costs 66,006
SFAS-112 OPEBs 3,175
Ice Storm 1,426
Somerset Non Cash Return 3,065
Jamesport Plant Abandonment 12,484
NYS Sales Tax Audit Deficiency 1,248
Federal Income Tax
TRA-86 Deferred Taxes 1,960
RRA-93 Deferred Taxes 1,768
R&D Tax Credits 8,046
FIT Gross-up 6,340
-------
Total 128,613 117,110 89,359 61,608 33,857 6,106
Amount Used to Provide 5% Price Reduction
for Residential and Other Customers Not
Eligible for Other Decreases or Special
Discounts in Year 5 20,161
Annual Amortization (c) (11,563) (27,751) (27,751) (27,751) (27,751) (27,751)
-------- -------- -------- -------- -------- --------
Ending Balance (d) 117,110 89,359 61,608 33,857 6,106 (1,484)
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
This schedule assumes that the Price Cap Period will begin on January 1, 1998.
(a) This schedule reflects the actual deferred balances recorded on NYSEG's
books at July 31, 1997, plus additional net credits for qualified &
non-qualified pensions, and DSM program costs & lost revenues relating to
periods before August 1, 1997 that will be charged to the deferred
accounts during the remainder of 1997.
To accommodate these changes, the amortization for the remainder of 1997
may be reduced by an amount equal to the net effect on income caused by
the additional deferrals, in which case the amortization during the Price
Cap Period will be increased by a corresponding amount.
With these exceptions, pursuant to the terms of the Settlement, all of the
true-ups provided in the 1995 electric rate settlement, including costs
and benefits associated with Nine Mile 2, pensions and NGE, were
discontinued on July 31, 1997.
(b) Pursuant to Article VIII.4 of the Agreement, the $27.608 million net
credit balance associated with items subject to true-up per the 1995 rate
settlement and the $2.385 million deferred credit balance associated with
the gas import tax have been netted against the $44.031 million South
Corning deferred debit balance, thereby reducing the non-cash return that
will be accrued as the remaining balance is amortized linearly over the
years of the Price Cap Period.
(c) During the Price Cap Period, NYSEG will continue to record an amortization
of $27.751 million annually, subject to the provisions of Article VIII.3
and the modifications in "a" above.
(d) If the Price Cap Period commences on January 1,1998, there will be a $27.6
million deferred credit balance associated with the above items at the end
of the Price Cap Period. The Agreement provides for the first $20.161
million of that credit to be used to fund part of the $54.4 million price
reduction in year 5 for residential and other customers that are not
eligible for other decreases or special discounts. Any remainder of this
credit will be used at the discretion of the Commission.
This schedule does not include the above-market costs of coal-fired
generators because they cannot be identified until after the auction or
subsequent appraisal.
<PAGE>
APPENDIX H
<PAGE>
Appendix H
Page 1 of 6
NYPA POWER
1. During the Price Cap Period, NYSEG will deliver up to 38 MW's of
Economic Development Power ("EDP") at the rates set forth in this
paragraph 1 to:
a. existing EDP customers;
b. entities with an existing EDP allocation which has not been used
to date; and
c. replacement EDP customers for relinquished NYSEG EDP allocations,
but deliveries to replacement customers and the two previous groups
shall not exceed 35 MWs.
In addition, during the Price Cap Period, NYSEG will deliver FitzPatrick
High Load Factor Manufacturer ("HLFM") Power at the rates set forth in this
paragraph 1 to HLFM customers, provided that such load was not previously
served by NYSEG.
The delivery rates for service to such EDP and HLFM customers during the
Price Cap Period shall be the sum of the following:
a. All such EDP and HLFM customers shall pay NYSEG a transmission rate
of $2.86/KW/ month (which includes NYSEG's current Open Access
Transmission Tariff ("OATT") rates for transmission services and
Scheduling, System Control and Dispatch Service; Reactive Power
and Voltage Control from
<PAGE>
Appendix H
Page 2 of 6
Generation Sources Service; and Regulation and Frequency Response
Service) subject to change, from time-to-time, during the Price Cap
Period to reflect increases or decreases in the rates and charges
under: (1) NYSEG's OATT for transmission services; Scheduling,
System Control and Dispatch Service; Reactive Power and Voltage
Control from Generation Sources Service; and/or Regulation and
Frequency Response Service; or (2) a successor ISO Tariff for
similar services when and if such ISO Tariff becomes effective.
The changes in the transmission component of the delivery rates
described in this subparagraph shall be subject to modification
upon a unilateral filing by NYSEG with FERC and/or the PSC, as
appropriate, and shall become effective at the same time that the
changes in the rates and charges under the OATT, or any successor
ISO Tariff, become effective.
b. All such EDP and HLFM customers taking service below 34.5 kV shall
pay the following additional charges:
$3.81 per KW/month for delivery at the primary level, or
$4.32 per KW/month for delivery at the secondary level.
<PAGE>
Appendix H
Page 3 of 6
Such EDP and HLFM customers shall obtain energy
loss compensation service, Operating Reserve--Spinning
Reserve Service, and Operating Reserve--Supplemental Reserve
Service (collectively referred to as "voluntary ancillary
services") from NYPA or another supplier other than NYSEG. If
such EDP or HLFM customer chooses to obtain the voluntary
ancillary services from NYSEG, they will be provided at the
rates and charges included in the then effective OATT, or for
loss compensation services at rates and terms mutually agreed
upon by NYSEG and such EDP or HLFM customer. NYSEG reserves
the right to make a unilateral filing with the FERC under
Section 205 or any other applicable provision of the Federal
Power Act to modify NYSEG's rates, charges, terms and
conditions under the OATT or any successor tariff. In
addition, NYSEG reserves the right to make a unilateral filing
with the Public Service Commission to modify NYSEG's rates,
charges, terms and conditions for distribution services to
such EDP and HLFM customers.
<PAGE>
Appendix H
Page 4 of 6
2. Subject to acceptance by EDPAB and/or NYPA as appropriate, the
EDP or HLFM customers described in the preceding paragraph have the
option to change the delivery point and/or voltage level at which
service is received during the Price Cap Period by paying the
applicable rates and charges.
3. NYPA agrees to modify, subject to Trustee approval, its Rural
and Domestic Hydropower Contract with NYSEG to eliminate the
"Restoration of Withdrawn Power and/or Energy" (Section K) provision.
4. NYSEG's standard tariff rates in accordance with the terms of
the Agreement, including the CTC and retail access credit, shall be
applied to the following:
a) all new or increased allocations of EDP above the
applicable cap set forth in paragraph 1 and HLFM power for
load previously served by NYSEG; and
b) customer loads for which the customer has relinquished or no
longer receives all or part of its allocation of NYPA power.
The schedule for implementing retail access set forth in the Agreement
shall apply to the NYPA customers covered by the rates described in
this paragraph 4.
<PAGE>
Appendix H
Page 5 of 6
5. If at any time the PSC or FERC determines that the rates,
charges, terms or conditions set forth in paragraph 1 or 2 of this
Appendix must be offered to any customer other than a customer
eligible under the terms of this Appendix H, then NYSEG may make a
unilateral filing with the PSC or FERC (pursuant to Section 205 or
any other applicable provision of the Federal Power Act) to modify
such rates, charges, terms or conditions for customers covered by the
provisions of paragraphs 1 and 2. This paragraph 5 is not intended to
limit the availability of EDP delivery rates to Power For Jobs Power
as set forth in Section 189(j) of the Economic Development Law.
6. Nothing in this Appendix is intended to relieve NYPA or NYSEG
or any customer covered by this Appendix of any of their obligations
under the ISO Tariff, when and if implemented.
7. NYSEG will refund to current EDP customers the difference
between the rates in effect pursuant to NYSEG's EDP special provision
on August 1, 1996, and $3.12 per KW/month for those EDP customers
taking service at 34.5 kV and above. For those EDP customers taking
service below 34.5 kV, the refund shall be the difference between the
rates in effect for such customers pursuant to NYSEG's EDP special
provision on August 1, 1996, and $8.53 per
<PAGE>
Appendix H
Page 6 of 6
KW/month. Subject to necessary regulatory approvals, the rates
set forth in paragraph 1 of this Appendix H shall apply prospectively
from the date of execution of this Agreement.
8. Nothing in this Agreement shall have any application to
Niagara Expansion Power and Energy (as described in Section 1005 (13)
of the New York Public Authorities Law).
9. Nothing in this Agreement affects or establishes the rates,
charges, terms or conditions for EDP up to the cap agreed to herein,
or HLFM power that does not displace load previously served by NYSEG,
after the expiration of the Price Cap Period.
<PAGE>
APPENDIX I
TABLE OF RATE REDUCTIONS
<PAGE>
APPENDIX I
Estimated Price Reductions and Revenue Concessions
Included in the 1997 Electric Rate Settlement Agreement
($/millions)
<TABLE>
<CAPTION>
PRE-YEAR 1 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
8/96-12/97 1998 1999 2000 2001 2002
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Elimination of 1996 & 1997 Approved Rate Increases
$..................................................... 68.0 90.8 90.8 90.8 90.8 90.9
%..................................................... 5.2% 6.9% 6.9% 6.8% 6.8% 6.7%
----- --------- --------- --------- --------- ---------
Subtotal.............................................. 68.0 90.8 90.8 90.8 90.8 90.9
----- --------- --------- --------- --------- ---------
Residential, Small Commercial, and Other Customers Not
Eligible for Other Decreases or Special Discounts
Gross Revenue Tax $................................... 0.8 3.3 13.3 13.5 13.6
Rate Reductions $..................................... 54.4
----- --------- --------- --------- --------- ---------
Subtotal $............................................ 0.8 3.3 13.3 13.5 68.0
----- --------- --------- --------- --------- ---------
%..................................................... 0.1% 0.2% 1.0% 1.0% 5.0%
----- --------- --------- --------- --------- ---------
Subtotal of Benefits for Residential, Small
Commercial, and Other Customers Not Eligible for
Other Decreases or Special Contracts
$..................................................... 68.0 91.6 94.1 104.1 104.3 158.9
%..................................................... 7.0% 7.1% 7.8% 7.8% 11.7%
----- --------- --------- --------- --------- ---------
Industrial Customers with Demands of at Least 500 kw &
all Customers with Load Factors of at Least 68%
Gross Revenue Tax $................................... 0.1 0.3 1.2 1.1 1.1
Rate Reductions $..................................... 6.4 12.4 17.5 23.4 28.9
----- --------- --------- --------- --------- ---------
Subtotal $............................................ 6.5 12.7 18.7 24.5 30.0
%..................................................... 5.0% 9.7% 14.3% 18.5% 22.6%
----- --------- --------- --------- --------- ---------
EDP................................................... 2.0 2.0 2.0 3.0 3.0
----- --------- --------- --------- --------- ---------
Total Benefits $...................................... $ 68.0 $ 100.1 $ 108.8 $ 124.8 $ 131.8 $ 191.9
----- --------- --------- --------- --------- ---------
<CAPTION>
TOTAL
---------
<S> <C>
Elimination of 1996 & 1997 Approved Rate Increases
$..................................................... 522.1
%.....................................................
---------
Subtotal.............................................. 522.1
---------
Residential, Small Commercial, and Other Customers Not
Eligible for Other Decreases or Special Discounts
Gross Revenue Tax $................................... 44.5
Rate Reductions $..................................... 54.4
---------
Subtotal $............................................ 98.9
---------
%.....................................................
---------
Subtotal of Benefits for Residential, Small
Commercial, and Other Customers Not Eligible for
Other Decreases or Special Contracts
$..................................................... 621.0
%.....................................................
---------
Industrial Customers with Demands of at Least 500 kw &
all Customers with Load Factors of at Least 68%
Gross Revenue Tax $................................... 3.8
Rate Reductions $..................................... 88.6
---------
Subtotal $............................................ 92.4
%.....................................................
---------
EDP................................................... 12.0
---------
Total Benefits $...................................... $ 725.4
---------
</TABLE>
In addition to the above quantifiable savings, the Company will forgo costs
incurred and revenues lost associated with implementing retail access.
