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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
Date of Report - April 1, 1997
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of Registrant as specified in its Charter)
New York 1-3268 14-0555980
____________________________ ________________ _____________
(State or other jurisdiction (Commission File (IRS Employer
of incorporation number) Identification) Number)
284 South Avenue, Poughkeepsie, New York 12601-4879
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 452-2000
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Item 5. Other Events.
A. PSC Settlement Agreement
Reference is made to Registrant's Annual Report, on
Form 10-K, for the fiscal year ended December 31, 1996 ("Annual
Report"), and to the caption "Generally" in Item 1 of Part I
thereof for a discussion of the settlement negotiations regarding
the October 1, 1996 submissions of the New York utilities as part
of the Public Service Commission of the State of New York's
("PSC") Competitive Opportunities Proceeding. Registrant entered
into a Settlement Agreement with the staff of the PSC and the New
York State Department of Economic Development on March 20, 1997.
Contemporaneous with the execution of such Settlement Agreement,
Registrant issued a press release describing such Settlement
Agreement, which is filed herewith as Exhibit 99 and incorporated
herein by reference.
As part of such Settlement Agreement, Registrant agreed
that, at such time as the PSC adopts such Settlement Agreement,
Registrant will withdraw from the pending appeal of the November
25, 1996 Decision and Order of the New York State Supreme Court
in Albany County denying the request of the Energy Association of
New York State to invalidate the May 20, 1996 Order of the PSC
relating to the restructuring of the electric industry of New
York State in said Competitive Opportunities Proceeding.
Registrant is unable to predict whether the PSC will
approve such Settlement Agreement.
B. Holding Company
At Registrant's April 1, 1997 Annual Meeting of
Shareholders, Registrant's Chairman of the Board and Chief
Executive Officer announced that it was "recommended to the Board
of Directors that consideration be given to the formation of a
holding company, which would be completed and in place by
January 1, 1999".
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Item 7. Financial Statements and Exhibits.
(c) Exhibits. Following is the list of Exhibits
furnished in accordance with the provisions of Item 601 of
Regulation S-K, filed as part of this Current Report on Form 8-K:
Exhibit No.
(Regulation S-K
Item 601
Designation)
__________________
Exhibits
(99) Press release of Registrant, issued on March 20,
1997, relating to the PSC settlement negotiations in
the Competitive Opportunities Proceeding as reported
under the caption "Generally" in Item 1 of Part I of
Registrant's Annual Report, on Form 10-K, for the
fiscal year ended December 31, 1996.
(10) Settlement Agreement, dated March 20, 1997, among
Central Hudson Gas & Electric Corporation, the staff of
the Public Service Commission of the State of New York
and the New York State Department of Economic
Development.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Registrant)
By:_______________________________________
ELLEN AHEARN
Corporate Secretary
Dated: April 1, 1997
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EXHIBIT INDEX
Following is the index of Exhibits furnished in
accordance with the provisions of Item 601 of Regulation S-K,
filed as part of this Current Report on Form 8-K:
Exhibit No.
(Regulation S-K
Item 601
Designation)
_________________
(99) Press release of Registrant, issued on March 20,
1997, relating to the PSC settlement negotiations in
the Competitive Opportunities Proceeding as reported
under the caption "Generally" in Item 1 of Part I of
Registrant's Annual Report, on Form 10-K, for the
fiscal year ended December 31, 1996.
(10) Settlement Agreement, dated March 20, 1997, among
Central Hudson Gas & Electric Corporation, the staff of
the Public Service Commission of the State of New York
and the New York State Department of Economic
Development.
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EXHIBIT 10
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
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:
In the Matter of :
Central Hudson :
Gas & Electric Corporation's : Case 96-E-0909
Plans for Electric Rate/ :
Restructuring Pursuant to :
Opinion No. 96-12. :
:
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SETTLEMENT AGREEMENT
Dated: March 20, 1997
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Table of Contents
I. INTRODUCTION AND GENERAL PRINCIPLES....................... 1
II. DEFINITIONS............................................... 2
III.RATE PLAN................................................. 6
A. Base Rate Freeze..................................... 6
B. Customer Benefits: Sources, Amounts, Allocation and
Use for Funding Rate Reductions and Retail Access.... 6
C. Ratemaking........................................... 7
D. Fuel Adjustment Clause............................... 7
E. Carrying Charges..................................... 8
F. Mirror CWIP.......................................... 8
G. Deferrals............................................ 8
H. New Deferrals........................................ 9
I. Return on Equity..................................... 9
J. New York Power Authority Economic Development Rate... 9
K. Limitation on Central Hudson Bidding to ISO/PE...... 10
L. Nine Mile Point 2, Hydroelectric and Combustion
Turbine Resources.................................. 10
M. Customer Service Incentive Plan..................... 11
N. Potential Statewide Securitization Legislation...... 11
IV. CUSTOMER CHOICE.......................................... 11
A. General............................................. 11
B. Choice Options Available to Residential and Small
Commercial/Industrial Customer Classes............. 12
C. Compliance With Commission Order Concerning Retail
Access Proposals................................... 12
D. Choice Options Available To SC No. 13 Customers..... 13
E. EVOP Provisions..................................... 14
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F. Customer Contracts.................................. 15
G. New Economic Development Tariff Provisions.......... 15
H. New Tariffs......................................... 16
I. Retail Access Meters................................ 16
J. FERC Filing......................................... 18
V. CORPORATE STRUCTURE...................................... 18
A. Functional Separation............................... 18
B. Corporate Structure................................. 18
C. Financial Flexibility............................... 19
VI. STRANDABLE COSTS......................................... 20
A. Recovery of Strandable Costs........................ 20
B. Elements of Recoverable Strandable Costs............ 20
C. Valuation of Generation Assets...................... 21
D. Treatment of Net Proceeds on Sale of Generator...... 22
VII.GENERIC ISSUES........................................... 22
VIII. MONITORING AND REPORTING REQUIREMENTS RELATED TO
THIS AGREEMENT..................................... 23
A. Data on Retail Access Customer Information.......... 23
B. Data on Retail Access Meters........................ 23
C. Reporting of Credit Balances........................ 24
D. FAC Mechanics/Reporting............................. 24
IX. RATE UNBUNDLING.......................................... 25
A. Retail Access Tariffs and
Competitive Transition Charges ("CTC").............. 25
B. Unbundled Tariffs................................... 25
X. ITEMS FROM CASE 92-E-1055................................ 25
A. West Delaware Hydro Contract........................ 25
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B. DSM Prudence........................................ 25
XI. OTHER PROVISIONS......................................... 26
A. Term of Agreement................................... 26
B. Effect of Agreement................................. 26
C. Reservation of Rights............................... 28
D. Time Line........................................... 28
E. Applicable Law...................................... 28
F. Entire Agreement and Merger......................... 28
G. Titles.............................................. 29
H. Counterparts........................................ 29
Attachment A - Amortization of Mirror CWIP Credit and Offsetting
Deferred Credit
Attachment B - Measurement Plan For Excess Earnings
Attachment C - Time Line For Certain Actions
<PAGE>
CASE 96-E-0909
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into as
of the Twentieth day of March, 1997 by and among certain parties
to the New York Public Service Commission ("Commission")
proceeding entitled Central Hudson Gas & Electric Corporation,
Case No. 96-E-0909, including Central Hudson Gas & Electric
Corporation ("Central Hudson"), Staff of the Department of Public
Service ("Staff"), the Department of Economic Development ("DED")
and such other parties whose signature pages are attached.
Each party joining in this Agreement warrants that it has
full authority to enter into this Agreement and each signatory
executing this document in a representative capacity warrants
that he or she has full authority to execute this document with
the intention of binding his or her principals.
I. INTRODUCTION AND GENERAL PRINCIPLES
The discussions among the parties that resulted in this
Agreement were conducted pursuant to the Commission's Settlement
Guidelines, the Commission's Order Establishing Procedures and
Schedule (issued and effective October 9, 1996) in this and other
proceedings and subsequent, related orders and notices.
The parties to this Agreement recognize that Central
Hudson's rates are now and have for some time been the lowest in
New York State. Central Hudson's average rates are close to the
national average (when adjusted for taxes and sales). In
addition, Central Hudson has not increased base electric rates
since December, 1993, which, together with the rate freezes in
this Agreement, will produce a seven and one half year period of
rate stability in nominal terms, and rate reductions in real
terms, for consumers in Central Hudson's service area.
This Agreement establishes the agreed upon transition for
Central Hudson to a restructured entity and will provide
customers with competitive choices for generation and retail
services. The parties have agreed to produce benefits for all
customers by providing customer choice for all customer classes,
and providing rate reduction alternatives to the large industrial
customers (in conjunction with enhanced growth incentives and new
job retention incentives applicable to smaller business
consumers) so that the overall economy of the Mid-Hudson Valley
may benefit from economic growth, and to achieve fair treatment
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of shareholders by providing the reasonable opportunity to
recover prudently incurred, verified and mitigated investments
including physical and regulatory assets, all in the fashions
described more particularly below.
This Agreement substantially responds to the Commission's
policy directives, as set forth in Opinion No. 96-12, by, for
example, describing how Central Hudson will provide retail access
and respond to other aspects of the emerging market, which
actions will be deemed to meet New York's policy goals for
competition as applied to Central Hudson during the term of this
Agreement. This Agreement establishes the framework for applying
to Central Hudson the outcomes of Generic Proceedings which are
not inconsistent with the terms and conditions of this Agreement.
II. DEFINITIONS
As used in this Agreement, the following terms shall have
the meanings set forth below:
Case 92-E-1055: That certain proceeding before the
Commission further denominated "Proceeding on the Motion of the
Commission as to the Rates, Charges, Rules and Regulations of
Central Hudson Gas & Electric Corporation for Electric Service."
Case 95-G-1034: That certain proceeding before the
Commission further denominated "Proceeding on Motion of the
Commission as to the Rates, Charges, Rules and Regulations of
Central Hudson Gas & Electric Corporation for Gas Service."
Coal Dock Project: Those certain facilities installed by
Central Hudson in 1996-1997 at the Danskammer Electric Generating
Station for the unloading and handling of coal delivered to the
site by ship or barge.
Competitive Transition Charge ("CTC"): A non-bypassable
charge which will be designed to recover the Non-fuel Production
Costs of the Company's generation facilities and which may be
expressed in either customer, energy or demand charge formats (or
some combination thereof).
Comprehensive Tax or Economic Incentives: A comprehensive
package of economic incentives, including tax abatements or
similar incentives, negotiated separately by a customer with
state and/or local authorities, and including a customer
commitment to remain in New York State for at least three years.
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Customer Benefits: The provision in this Agreement of either
rate reductions and/or funding of access to retail energy or
energy and capacity suppliers (other than Central Hudson).
Demand Side Management ("DSM"): Programs designed to
provide customers with information and options for improving
efficiency and measures for achieving improved energy efficiency.
Docket No. ER96-2466-000: That certain docket of the
Federal Energy Regulatory Commission ("FERC"), further entitled
New York State Electric & Gas Corporation, which is addressing,
inter alia, whether or not a utility that provides economic
development power from a state-owned generating plant to specific
retail customers under a state program is engaging in
transactions subject to federal jurisdiction.
Effective Date: The date on which the Commission adopts
this Agreement according to the terms hereof.
Energy Value Option Plan ("EVOP"): A plan set forth in this
Agreement for SC No. 13 customers which allows customers the
option of obtaining energy from suppliers other than Central
Hudson while still receiving the benefits of the Company's low-
cost nuclear and hydroelectric energy.
Fair Market Value: The value of property represented by the
consideration of an exchange, in an arm's length transaction, of
the property between a willing buyer and a willing seller.
Force Majeure: Events that cannot be overcome by reasonable
prudence and diligence, and without unusual expense, caused by
storm, flood, riot, fire, explosion, war, strike (other than
strike by Central Hudson's bargaining units) or other casualty or
cause beyond the control of Central Hudson.
Functional Separation: The creation of separate business
units within the existing corporate entity, involving the
separation of work functions and employees and the application of
standards of conduct, but not involving transfer of ownership of
assets, liabilities or equity.
Generic Proceeding(s): Proceedings conducted by the
Commission to address certain issues in the Competitive
Opportunities Proceeding for broad general application.
Independent System Operator ("ISO"): The organization that
will be responsible for maintaining the reliability of the bulk
power system in New York in an efficient manner and providing for
transmission service for all market participants on a comparable
and non-discriminatory basis.
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Mirror CWIP: The accounting entries on Central Hudson's
books of accounts that represent the return on the inclusion of
Nine Mile Point Unit No. 2 construction work in progress ("CWIP")
in rate base. Mirror CWIP includes two balance sheet components:
a credit amount which is amortized to the benefit of ratepayers
as directed by the Commission and a corresponding debit amount
which is recovered from ratepayers generally over the book life
of Nine Mile Point Unit No. 2.
Nine Mile Point Unit No. 2 ("NM2"): That certain nuclear
generating station located on Lake Ontario in Scriba, New York
owned currently by Central Hudson and other utilities as tenants
in common.
1990 Settlement Agreement: That certain agreement related
to rate base and other issues concerning NM2 approved by the
Commission in its Opinion No. 89-37(C)(issued March 14, 1991).
Non-fuel Production Costs of Generation: All non-fuel costs
of producing energy, including cost components such as
depreciation of and return on generation investment, operation
and maintenance expenses including labor, benefits, taxes,
supplies and services necessary to provide safe, efficient and
reliable production of electrical energy.
Operation and Maintenance ("O&M"): The costs of operating
and maintaining facilities, including labor, benefits, taxes,
supplies and services necessary or desirable to provide safe,
efficient and reliable electrical energy.
Other Post Employment Benefits ("OPEBs"): The benefits
other than pensions which Central Hudson has an obligation to
provide, such as health, life and dental insurance to retired or
separated employees.
Protocol Agreement: That certain agreement between the NM2
Co-Tenants and other parties which provides, inter alia, for the
regulatory treatment of certain costs of NM2.
Power Exchange ("PE"): An entity that will facilitate the
commercial energy markets by providing a forum for energy and/or
capacity sales between willing buyers and willing sellers.
Research and Development ("R&D"): Programs undertaken or
sponsored to identify or discover new methods, processes or
equipment to improve or lower the cost of electric service to
customers.
Retail Access: The opportunity for a regulated utility's
customers to be provided with electrical energy and capacity and
retail services by suppliers other than the utility.
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RKVA: The reactive kilovolt ampere charges in Central
Hudson's electric tariffs for certain Service Classifications.
Shelf Approval: Pre-approval by the Commission of a Central
Hudson application for a revised organization structure prior to
the time that Central Hudson anticipates implementing the
restructuring plan, so that the actual restructuring may be
quickly achieved.
Structural Separation: The formation of new corporate
entities through the transfer of assets, liabilities and equity.
The newly created entities may be subsidiaries of the parent, or
part of a holding company arrangement.
Supplement #5: That Settlement Agreement approved by the
Commission in Case 95-E-0123 - In the Matter of a Nine Mile 2
Operating and Capital Forecast for 1996 filed by the Co-tenants
Central Hudson Gas & Electric Corporation, Long Island Lighting
Company, New York State Electric and Gas Corporation, Niagara
Mohawk Power Corporation, and Rochester Gas & Electric
Corporation.
System Benefits Charge ("SBC"): A Commission-mandated, non-
bypassable charge to fund certain specified costs related to DSM,
R&D, low income or other programs of the type which are not
expected to be provided in a competitive energy market.
SFAS No. 71: Statement of Financial Accounting Standards
No. 71 - Accounting for the Effects of Certain Types of
Regulation.
SFAS No. 87: Statement of Financial Accounting Standards
No. 87 - Employers' Accounting for Pensions.
Strandable Costs: Those expenditures made by regulated
utilities in fulfilling their obligation to serve and provide
safe, reliable energy to customers within their franchise
territory which are not expected to be recoverable in a
competitive energy market.
Time Differentiated Meter: Electric meters having the
capability to record customer electric usage for, at a minimum,
each hour of each day.
Unbilled Revenues: Revenues associated with customer's
usage from the customer's last meter reading date in a calendar
year through the end of the calendar year.
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Year: A period of twelve consecutive months, commencing
with the month following the month in which the Commission adopts
and approves this Agreement.
III. RATE PLAN
A. Base Rate Freeze.
In consideration of the adoption, approval and
implementation of this Agreement by the Commission in accordance
with the terms hereof, Central Hudson agrees not to file with the
Commission a request that would increase base electric rates
during the term of this Agreement.
Base electric rates will be frozen at current levels for the
term of this Agreement except for the reductions for SC No. 13,
as provided in part IV.D. herein, except for implementing the
existing special provisions on economic revitalization and
economic growth incentive discounts, utilizing authority
concerning flex rates already provided by the Commission in Case
92-E-0229 or implementing the new economic development incentives
(enhanced growth and retention) provided for in this Agreement
and except for revenue neutral rate design changes.
Central Hudson is not precluded from making other filings
with the Commission for changes in rates such as Fuel Adjustment
Clause ("FAC") filings, revenue tax factors, or the filing
contemplated by part V.B. hereof, or from making such filings
concerning financial flexibility or corporate form as are
contemplated by part V.C. hereof, or otherwise, by this
Agreement, or from appearing or taking action in any Commission
proceeding or making any other petition, application or filing
with the Commission that Central Hudson may deem appropriate.
B. Customer Benefits: Sources, Amounts, Allocation and
Use for Funding Rate Reductions and Retail Access.
Each Year during the term of this agreement, $10 Million in
funding will be made available and allocated among the
"Residential," "Commercial & Small Industrial" and "SC No. 13"
customer groups as follows:
Residential $3.5 M per Year
Commercial & Small Industrial$3.5 M per Year
SC No. 13 $3.0 M per Year
The $10 Million per Year amount (referred to herein as Customer
Benefits) will be utilized to fund the rate reductions and Retail
Access options provided for in this Agreement.
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The sources of the annual $10 million in Customer Benefits
will be as follows:
$3.0 M per Year from shareholder sources, cost reductions or
increased sales;
$3.5 M per Year from cost reductions associated with the
Coal Dock Project; and
$3.5 M per Year from deferred credits.
In the event that there should be a period of less than
twelve consecutive calendar months between the end of a Year and
the June 30, 2001 termination date of this Agreement, the funding
obligation for Customer Benefits and the related disposition of
those funds for that period shall be prorated.
C. Ratemaking.
Except as otherwise provided for in this Agreement, the
accounting and ratemaking conventions and methodologies,
including the existing deferral accounting and the use of a FAC
including the sharing mechanism set forth on 9th Revised Leaf No.
22C-1 of P.S.C. No. 14-Electricity, effective July 25, 1987,
which provides, among other things, for a maximum annual exposure
or reward of $3 Million, and all other items in effect as a
result of Case 92-E-1055, shall continue to apply. The
provisions of this Agreement will allow Central Hudson to remain,
during the term of this Agreement, under SFAS No. 71, which
provides for certain accounting conventions for regulated
companies subject to cost-based ratemaking.
D. Fuel Adjustment Clause
The current FAC will be modified to capture the cost
reductions associated with the Coal Dock Project on a monthly
basis as follows:
1. the FAC will be charged for energy generated at
Danskammer Units #3 and 4, the equivalent amount, on a
per MWh basis, that will produce $4.5 million per
annum;
2. the funds collected through the above charge are to be
preserved and applied as follows:
i. the monthly equivalent amount, not to exceed $1.0
million annually, will be applied to the appropriate
Accumulated Depreciation Reserve Account(s) as the
depreciation of the coal dock facility; and
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ii. the equivalent of $3.5 million annually will be
deferred in a sub-account of Account 253 - Other
Deferred Credits and utilized for funding the retail
access programs set forth in this Agreement.
Due to the anticipated implementation of the ISO and PE
functions in a manner and on a schedule that is not currently
known, modifications to the current FAC, or replacement of the
FAC, may be desirable, necessary or required during the term of
this Agreement. In the event of any such replacement mechanism
or any FAC modifications, the equivalent of the sharing mechanism
and $3.0 million annual cap provisions of the current FAC will be
retained and the risk/reward profile in the current FAC will not
otherwise be materially altered.
E. Carrying Charges.
Carrying charges will be accrued on debit balances of the
internal reserve related to SFAS No. 87, following the
methodology described on page 6 of Appendix A of the Commission's
Statement of Policy and Order Concerning the Accounting and
Ratemaking Treatment for Pensions and Postretirement Benefits
Other Than Pensions, in Case 91-M-0890, entitled "In the Matter
of the Development of a Statement of Policy Concerning the
Accounting and Ratemaking Treatment for Pensions and
Postretirement Benefits Other than Pensions" (issued and
effective September 7, 1993).
F. Mirror CWIP.
The expiring Mirror CWIP amortization will be replaced, in
accordance with the schedule set forth in Attachment A, with
other deferred credits to the extent necessary to provide for
full replacement of the expiring Mirror CWIP credits. The
deferred credits to be used include those associated with O&M
credits arising out of NM2, OPEBs, pensions, DSM, R&D and others.
G. Deferrals.
Current deferral provisions and practices from Central
Hudson's last electric rate case (92-E-1055) will remain in
effect, with the exception of pension and OPEB rate levels, which
are reduced as follows:
$(000s)
--------------------------------------
Current Rate Allowance Reduction
Rate Per In Rate
Allowance Agreement Allowance
Pensions $(3,747) $(5,747) $(2,000)
OPEB 6,602 5,102 1,500)
$(3,500)
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These reductions in rate allowances will be used to fund, in
part, the Retail Access programs described in this Agreement.
The deferrals and associated rate allowances will not terminate
by reason of the expiration of this Agreement.
H. New Deferrals.
Exogenous cost increases of the types identified below which
meet the following standards may be deferred pending the filing
of a petition with, and approval by, the Commission. The cost
increases must be incremental to current rate allowances and
exceed 5% of Central Hudson's New York State jurisdictional
electric income, per year, per individual item, with no
accumulation.
The costs allowable for deferral are those attributable to
any change in federal or state tax law or regulations,
legislative or other regulatory changes, changes in accounting
standards or Force Majeure.
Approval to defer the above items will be based upon the
Commission's past policies and practices which imply that rates
are set at levels that will recover the approved costs.
I. Return On Equity.
The achieved rate of return on common equity for Central
Hudson's Commission-regulated electric operations will be
calculated annually for each July 1 through June 30 twelve month
period or fraction thereof according to the procedure set forth
in Attachment B. Earnings greater than 10.6% will be deferred.
Earnings less than 10.6% will be offset against previously
deferred earnings in excess of 10.6%, to the extent available.
At the termination of this Agreement, the net earnings in excess
of 10.6% will be used to offset Strandable Costs and any excess
over that amount will be used to provide ratepayer benefits.
All such amounts will be deferred in a sub-account of
Account 253 - Other Deferred Credits. Disposition of any net
excess earnings will be determined by the Commission as part of
Strandable Cost recovery procedure described in part VI. of this
Agreement. If the aggregate of the annual deferred amounts is
negative at the end of the term of this Agreement, Central Hudson
shall not be entitled to recover such net amount.
J. New York Power Authority Economic Development Rate.
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This matter is currently being litigated by the Commission
before the FERC in New York State Electric & Gas Corporation,
FERC Docket No. ER96-2466-000. If the Commission retains
jurisdiction, Central Hudson will file a tariff with the
Commission within 90 days of the final resolution of the matter.
K. Limitation on Central Hudson Bidding to ISO/PE.
Following implementation of the ISO/PE, Central Hudson
agrees that the monthly average of its bids for each fossil fuel
unit to the ISO/PE shall not fall below the actual cost of fuel
plus variable O&M for such unit. This limitation shall not be
applicable to NM2 and shall not be applicable after June 30,
2001.
L. Nine Mile Point 2, Hydroelectric
and Combustion Turbine Resources.
Until July 1, 2001, the costs of Central Hudson's share of
NM2 (including, but not limited to, prudently incurred
investments and decommissioning costs), and Central Hudson's
Hydroelectric ("Hydro") and Combustion Turbine ("CT") resources,
shall continue to be treated as rate base or expense items (as
consistent with the Commission's past treatment of such items)
within the regulated transmission and distribution ("T&D")
entity, even though these costs may be accounted for in a
function or functions separate from T&D. The existing NM2
ratemaking, including the 1990 Global Settlement, the Protocol
Agreement and Supplement #5 or any successors, will be maintained
according to their terms through this time period. Following
July 1, 2001, the costs of Central Hudson's share of NM2
(including, but not limited to, prudently incurred investments
and decommissioning costs associated with NM2), and Central
Hudson's Hydro and CT resources will be recovered through charges
by the regulated T&D entity which, although the form has not been
determined, will be non-bypassable. The revenues from the sales
of power from these units will be attributed to the T&D entity.
Central Hudson agrees to participate in "good faith
discussions" related to a future State-wide nuclear resolution
that might include other ratemaking options as they relate to the
recovery of the on-going costs associated with the operation of
NM2 (as distinguished from prudently incurred investment and
decommissioning costs) and which are consistent with the
following principles:
1. Continuation of regulation of Central Hudson's share of
NM2 as part of Central Hudson's T&D entity;
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2. Recognition of the importance of maximizing the
benefits inherent in the operation of NM2 as a base
loaded unit over its useful life;
3. Approval by the Nuclear Regulatory Commission of any
nuclear restructuring and ratemaking, to the extent of
its authority; and
4. Agreement to future nuclear State-wide solutions as
they relate to NM2 by Central Hudson and the other NM2
co-tenants.
M. Customer Service Incentive Plan.
Central Hudson, Staff and other interested parties will
collaboratively develop a mutually acceptable Customer Service
Incentive Plan, which will be completed no later than ninety days
following the filing of this Agreement with the Secretary of the
Commission. The Plan will, to the maximum extent practicable, be
consistent with the Company's Gas Incentive Plan, approved by the
Commission in Central Hudson Gas & Electric Corporation,
Commission Case 95-G-1034, and may include the customer
satisfaction index, keeping scheduled appointments, electric
reliability and bill accuracy.
N. Potential Statewide Securitization Legislation.
In the event of enactment of statewide securitization
legislation producing cost savings to Central Hudson, and
provided that such statute does not mandate a different
allocation of the benefits of securitization, such benefits will
be allocated to all customers, other than customers in the SC No.
13 class in light of the rate reductions and other customer
choice options for that class set forth in this Agreement.
IV. CUSTOMER CHOICE
A. General.
This Agreement provides for implementation of a number of
customer choice options, on the terms and conditions described
subsequently. The customer choice options include phased-in
availability of retail access to residential and small commercial
and industrial customers, and a program permitting large
industrial customers to select rate reductions, or retail access
options, or an Energy Value Option Plan ("EVOP"), or a
combination thereof.
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B. Choice Options Available to Residential and
Small Commercial/Industrial Customer Classes.
Central Hudson will make Retail Access available to all
customers in these classes by no later than early 1998, subject
to the penetration levels and timetable set forth below:
Percent Load Percent Load
Penetration Level, % Penetration Level, %
Dates Small C&I Classes Residential Classes
Early 98 to 12/31/98 8 8
1/1/99 to 12/31/99 16 16
1/1/00 to 12/31/00 24 24
1/1/01 to 6/30/01 28 28
The load penetration levels set forth in this table are estimated
maximum loads based on the funding obligations described in part
III.B. of this Agreement and may not be achieved. Central Hudson
is not required to provide Retail Access at levels greater than
those listed above. On July 1, 2001, penetration level
restrictions will be eliminated.
The participation of customers in Retail Access will produce
lost revenues during the term of this Agreement. The lost
revenues will be funded by accrual of up to $3.5 million as
required per year per class (Small Industrials and Commercial as
one class, and Residential Classes as another) from the funding
sources listed in part III.B. of this Agreement after applying a
CTC, as described in part IX of this Agreement. This CTC will be
at the level of approximately 50% of Central Hudson's Non-fuel
Production Costs.
To the extent that funding from the sources identified in
part III.B. of this Agreement is available but not used in a
particular Year, such unused funding will be carried forward to
the following Year during the term of this Agreement. Any
unexpended, accumulated retail access funding available at the
end of the term of this Agreement will be deferred to offset
Strandable Costs, and any funding balance then remaining will be
used to provide ratepayer benefits.
C. Compliance With Commission Order
Concerning Retail Access Proposals.
The parties agree that the choice options available in this
Agreement to residential and small commercial/industrial classes
are consistent with the parameters set forth by the Commission in
its Order Concerning Retail Access Proposals, in Cases 96-E-0948
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and 94-E-0385, et al. (issued and effective February 25, 1997).
Central Hudson will make the Retail Access provisions of this
Agreement available by October 31, 1997 to the entities covered
by the above referenced Order, provided that the CTC shall be at
the level of 90% pending the implementation of the Retail Access
provisions described in this Agreement for the Residential, and
Commercial/Small Industrial Classes generally, at which time the
CTC will be revised to the same level of approximately 50%
applicable to other customers.
D. Choice Options Available To SC No. 13 Customers.
SC No. 13 customers will be afforded the options described
below.
1. Customers not wishing to enter into a requirements
contract with Central Hudson may continue to receive
service under Central Hudson's existing SC No. 13
tariff. In addition, such customer may elect full
retail access (capacity and energy) for all or a
specified portion of its load, provided that a non-
bypassable CTC recovering Central Hudson's Non-fuel
Production Costs, as have been allocated to SC No. 13,
will be applicable.
2. SC No. 13 customers wishing to enter into either a full
or partial requirements contract with Central Hudson
for a term ending on June 30, 2001, which contract will
contain a one year cancellation right on the terms
described below, may select, through an annual, written
customer election in advance, from the following:
i. a 5% rate reduction (i.e., full requirements); or
ii. a 5% rate reduction together with an Energy Value
Option (EVOP) (described below in part IV.E.)(i.e.,
partial requirements); or
iii. a Retail Access option (i.e., partial requirements),
either with or without EVOP, for approximately 12-18%
of each customer's usage based on each customer's load
characteristics, that includes a CTC set equal to
approximately 50% of Central Hudson's Non-fuel
Production Costs. This option will be funded by and
limited to the equivalent of the 5% rate reduction
applied to that customer's load characteristics.
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The 5% rate reduction (Option "i," above) will be achieved
as follows: Central Hudson will reduce the current base rate
price for the demand, energy and RKVA components by 5% to each
member of this class that executes a full requirements contract
with Central Hudson for the term of this Agreement.
Options "ii" or "iii" above will be available to SC No. 13
customers which enter into partial requirements contracts with
Central Hudson for the term of this Agreement. The 5% rate
reduction portion of Option "ii" will also be achieved by
reducing the current base rate price for the demand, energy and
RKVA components by 5%.
All contracts for options "i," "ii" or "iii" will include a
right for the customer to cancel on twelve months' advance,
written, notice of cancellation and the annual right, to be
exercised on or before October 1 of each calendar year during the
term of this Agreement, to select any of the options set forth
above for the following calendar year; provided, however, that
any customer then selecting option "i" will execute a full
requirements contract with Central Hudson for the remaining term
of this Agreement.
Should a customer not provide the written advance
notification to Central Hudson by October 1 of a given calendar
year, that customer will retain its then current rate status for
the subsequent calendar year.
In the event that a customer exercises its option to cancel
its requirements contract with Central Hudson on one year's
advance notice, such customer may elect either to take service
during the then remaining term of this Agreement pursuant to
Central Hudson's existing SC No. 13 tariff or elect full retail
access (energy and capacity). In the latter event the customer
electing full retail access will pay, for the then remaining term
of this Agreement, a CTC recovering Central Hudson's Non-fuel
Production Cost of generation.
E EVOP Provisions.
The EVOP option permits SC No. 13 customers to obtain energy
from suppliers other than Central Hudson. Recognizing that
Central Hudson has low energy costs, SC No. 13 customers
participating in this program will, for purposes of this program,
be provided their pro-rata share of Central Hudson's low cost
nuclear and hydro power (representing about 20% of the SC No. 13
class energy requirements). For the remaining approximately 80%
of the SC No. 13 class energy requirements, a higher fuel cost
level will result, against which alternative suppliers may
compete.
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Each customer electing to participate in the EVOP will, as
part of its contract with Central Hudson, assume the
responsibility of selecting its desired supplier to provide
energy for the balance of its energy requirements above the level
provided from Central Hudson's nuclear and hydro resources.
EVOP requirements will be established in tariffs to be filed
with the Commission that will include a form of contract between
participating customers and Central Hudson, and contain
provisions such as off-peak maximum delivery limits, compensation
for minimum run level/dump energy costs, specification of
customer responsibility for balancing and scheduling and
provisions for curtailments. Central Hudson may, upon
establishment of a mutually acceptable business agreement between
Central Hudson and a customer which chooses EVOP option, perform
administrative functions concerning EVOP for such customer.
Customers electing to participate in the EVOP will continue
to receive a single bill from Central Hudson. The account of
each participating customer will be settled on a month-end basis
for over, under, or no deliveries. Central Hudson will be
responsible for settlements with the suppliers. Suppliers will
be responsible for over, under or no deliveries on a real time
basis and will include supplier responsibility for over, under or
no deliveries at the greater of Central Hudson's average or
incremental costs.
F. Customer Contracts.
EVOP and Retail Access will be implemented through contracts
between Central Hudson and participating customers, using
standard form contracts that will be contained in the appropriate
tariff.
G. New Economic Development Tariff Provisions.
Central Hudson's existing growth incentive tariff will be
modified as follows:
1. Raising the existing "cap" from 50MW to 75MW;
2. Expanding the qualifying customer classes to include
specified SIC Codes within the SC No. 3, Large Power,
Primary Service class;
3. Applying an incremental minimum growth requirement for
SC No. 3 of 250KW and a discount of 20%;
4. Imposing a sunset date for the tariff of June 30, 2001;
and
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5. Removing the following sentence from the existing
tariff: "The Company will assist the customer in
identifying and implementing cost effective measures
recommended by the audit."
In addition, Central Hudson's existing SC Nos. 2 and 3
tariffs will be modified to include a special job retention
provision. This provision will be applicable to customers having
a minimum load of 250 KW and the same SIC Codes specified for SC
No. 13, where there is a certification by DED that the customer
has satisfactorily demonstrated that Comprehensive Tax or
Economic Incentives and the special retention rates are both
necessary to retain the customer in New York State. To be
considered for certification by DED, the customer must
satisfactorily document one or more actual, impending relocation
opportunities outside New York State that would significantly
reduce the operating costs of the customer and the customer must
also document the existence of Comprehensive Tax or Economic
Incentives from local and/or State authorities. This special
provision will sunset on June 30, 2001. The special provision
will contain a discount of 20% on the demand, energy, and RKVA
prices and will be applied to the portion of the load
corresponding to the legitimate job retention situation that has
been demonstrated, provided that the customer's usage does not
fall below 85% of the most recent twenty-four month historical
usage. Power available under this special provision will be
capped according to the following schedule of cumulative power
for each year of this Agreement:
Effective Date 7/1/98 to 7/1/99 to 7/1/00 to
to 6/30/98 6/30/99 6/30/00 6/30/01
3 MW 5 MW 7 MW 9 MW
The lost revenues resulting from this special provision will be
deferred and included with any unexpended, accumulated retail
access funding as of June 30, 2001 as described in part III.B.
H. New Tariffs.
On July 1, 2001, all customers, including participating
retail access customers, will be transferred to new tariffs and
will be eligible for full retail (capacity and energy) access.
I. Retail Access Meters.
Time differentiated (real time) meters ("Meters") will be
provided for customers participating in any of the Retail Access
options established by this Agreement. In accordance with 16
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NYCRR Part 92, Central Hudson will select, install, maintain and
own (and may lease or otherwise provide) the Meters. The
schedule for installation of Meters will support the Retail
Access schedule in part IV.B.
Central Hudson shall provide Meters to all Retail Access
customers participating in the Retail Access programs set forth
herein on a customer cost-neutral basis. On or before September
1, 1997, Central Hudson will submit to Staff a plan and budget
for the metering program supporting the retail access schedule
set forth in part IV.B. The metering program will be funded, up
to a maximum of $3.0 Million per year from sources which may
include R&D (exclusive of R&D recovered in the SBC), DSM and
other deferred credits, and, to the extent practicable, will not
materially impact the balances available from this Agreement for
offsetting Strandable Costs or providing ratepayer benefits. On
or before September 1, 1997, Central Hudson also will provide to
Staff a plan for a system-wide time-differentiated metering
program, which, if agreed upon, will be submitted for Commission
approval to supersede the preceding plan. To the extent that
these submissions include sensitive, commercially valuable
information, confidential treatment will be sought.
Up to the most recent 24 months of metering data using a
standardized format shall be made available upon written
authorization from each customer, in a timely fashion and at no
charge, to any third party requesting such data. Other, more
detailed or value-added data may be made available using
standardized formats upon written authorization from each
customer to any third party requesting such data, on a non-
discriminatory basis, which may include charging a fee for such
information.
Upon written request of a customer, Central Hudson will
install an alternative meter provided that:
1. any such meter shall be an approved meter under 16 NYCRR
Part 93 and also be operationally compatible with Central
Hudson's metering system;
2. any such meter shall be "plug and play" installable in
the existing metering pan socket and shall be installed and
maintained by Central Hudson;
3. any such meter will provide all necessary billing data in
the format required by Central Hudson's billing system; and
4. Central Hudson may charge the customer the full costs
related to any such meters, including but not limited to the
costs of installation and maintenance and the costs of
assuring operational compatibility.
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J. FERC Filing.
Implementation of customer choice options are contingent on
the FERC exempting the retail access provisions established in
this Agreement from Central Hudson's FERC 888 tariff, for the
term of this Agreement. Central Hudson agrees to file the
appropriate documents with FERC seeking such exemption within 90
days following adoption of this Agreement by the Commission and
diligently to prosecute such application thereafter. In the
event that the FERC rejects Central Hudson's application, the
parties to this Agreement will meet as soon as practicable to
discuss in good faith the establishment of modifications or
amendments to this Agreement that are necessary to assure
collection, from customers participating in Retail Access, of the
costs that this Agreement contemplates will be collected from
such customers.
V. CORPORATE STRUCTURE
A. Functional Separation.
Central Hudson will functionally separate generation
(exclusive of NM2, CTs and Hydro) and T&D and implement
reasonable accounting safeguards for those two functions,
consistent with the time line set forth in Attachment C, provided
that other actions precedent to such functional separation (such
as, for example, Staff's proposal of accounting safeguards) also
set forth on the time line occur timely.
B. Corporate Structure.
Central Hudson will file with the Commission on or before
January 1, 2000 a petition for approval of a revised organization
which structurally separates its fossil generation resources
(exclusive of CTs and Hydro) from its transmission and
distribution operations. The separation will be accomplished
through a holding company, divestiture of generation, or other
options sought by Central Hudson and approved by the Commission.
Any such application will request Commission approval by no later
than November 1, 2000. Central Hudson may also petition the
Commission prior to January 1, 2000 for approval to establish
such a revised organizational structure, including seeking Shelf
Approval, or approval for Stranded Cost recovery.
The costs associated with the separation of the Company's
fossil generation, through any of the options described above,
will be allocated on a 2/3-1/3 basis between regulated and
deregulated activities, respectively. In no event shall the
amount allocated to deregulated activities exceed $2.5 million.
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C. Financial Flexibility.
Should Central Hudson desire Commission approval for
additional financing flexibility pending the submission of the
petition to be filed not later than January 1, 2000, as referred
to in the preceding paragraph, it may file a petition with the
Commission requesting such approval at any time. The parties
agree, and agree to request that the Commission confirm, that the
following principles will be applied in the disposition of such
application:
1. Energy Related Businesses: Central Hudson will not be
prohibited from establishing within unregulated affiliates or
subsidiaries, an energy service company or electric marketing or
supply functions to sell energy and related services inside or
outside its established franchise, subject to reasonable
safeguards. Central Hudson will also not be restricted in
financing these activities provided that such financing does not
adversely impact its responsibilities in regard to its regulated
utility obligations.
2. Non-Energy Related Businesses: Central Hudson will also
not be restricted from establishing unregulated ventures
unrelated to energy services provided that the financing of such
activities does not subject on-going regulated utility activities
to undue risk, as will be established in the Commission's Order
in response to Central Hudson's application.
3. Accounting and Other Safeguards: The types of accounting
and other safeguards potentially applicable to restructuring of
Central Hudson are shown with an "x" in the table set forth
below:
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Type of Safeguard Applicable toApplicable to
Functional Regulated and
Separation Unregulated
Entities in Holdco
Applicable Generic Reporting x x
Cost Allocations x x
Affiliate Transactions Rules - x
Books/Records Access Standards x x
Employee Transfers x x
Asset Transfers x x
Board - x
Royalties - x
Access to Customer Data x x
The specifics of each of the above safeguards will be
developed collaboratively by the parties, in accordance with the
schedule set forth in Attachment C, and submitted to the
Commission for approval.
VI. STRANDABLE COSTS
A. Recovery of Strandable Costs.
Central Hudson shall have a reasonable opportunity to
recover all prudently incurred, verifiable and appropriately
mitigated Strandable Costs (assumed herein to be valued as of
7/1/01). Recovery will be achieved through competitively neutral
non-bypassable wires charges, which will commence
contemporaneously with the transfer of Central Hudson's fossil
generation assets from its regulated operations pursuant to
Commission action on the restructuring petition described in part
V.B. of this Agreement. The obligation to mitigate shall not
require Central Hudson to take any action not commercially
reasonable, considering the relevant circumstances at the time.
B. Elements of Recoverable Strandable Costs.
Elements to be included in the determination (assumed herein
to be as of 7/1/01) of Strandable Costs are:
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1. The value of fossil generation assets (exclusive of CTs
and Hydro) at the difference between Fair Market Value
and net book value
2. Net production-related regulatory assets
3. IPP contracts
4. Transition costs
5. Potential Mitigators
a. Accumulated excess earnings
b Retail access fund balance
c. Other Deferred Credits from Case 92-E-1055
d. Royalties
e. Unbilled revenues
f. Excess depreciation reserve, where applicable and
approved by FERC
g. Potential statewide nuclear solutions, other than
securitization, producing benefits to Central
Hudson not presently recognized.
C. Valuation of Generation Assets.
For any transfer or sale of generation assets, the
Commission shall apply the standard of Fair Market Value.
In the event that Central Hudson proposes to sell a
generating unit or a property interest in any of its generating
units, it shall first seek Commission approval pursuant to
Section 70 of the Public Service Law. In any such application,
Central Hudson shall present evidence of the Fair Market Value of
the unit or interest to be sold. In the event of a dispute
before the Commission concerning Fair Market Value, the
procedures of the following paragraph shall be utilized.
In the event of a transfer to an affiliate of Central Hudson
or a dispute before the Commission concerning Fair Market Value
in the context of a sale of a generating unit, Fair Market Value
at the time of transfer shall be the basis for an independent,
third party valuation of Strandable Costs. In establishing Fair
Market Value, Central Hudson and Staff shall each select one
valuation expert and those experts shall mutually agree to a
third. The three valuation experts will each develop an
independent assessment of Fair Market Value, and then attempt to
agree on the Fair Market Value, for each Central Hudson
generation resource (other than CTs and Hydro). In the event of
agreement, the independent assessments and the agreed to Fair
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Market Value will be submitted to the Commission. Failing
agreement, each expert will submit to the Commission evidence as
to Fair Market Value.
Nothing in this Agreement shall preclude Central Hudson from
seeking Commission approval for a sale or transfer of any
generating asset or interest in any generating asset at any time.
D. Treatment of Net Proceeds on Sale of Generator.
In the event of a sale of a generating asset, as discussed
in part VI.C., above, and in recognition of the provisions of
this Agreement assuring to Central Hudson the opportunity for
recovery of Strandable Costs, as discussed in parts VI. A., B.
and C., above, ratepayers are assured by this Agreement the
opportunity for recovery of any net proceeds (after taxes and
costs of the transaction) to the extent that such net proceeds
exceed the net book value of the asset or interest sold, for
disposition first as an offset to Strandable Costs and then as
ratepayer benefits.
The consideration received by Central Hudson for any such
asset or interest shall, up to the net book value of the asset or
interest (including associated deferred taxes), be available for
investment in unregulated operations. Such investment shall be
limited by any prior agreement (or Commission action on a Central
Hudson petition) governing Central Hudson's ability to invest in
unregulated operations. In the absence of such agreement or
prior Commission approval, the consideration shall be subject to
such statutory right as the Commission may have pursuant to
Public Service Law Section 107, to the extent that provision is
applicable to the receipt of revenues by Central Hudson from the
sale. In the event that the sale price is at a level below
Central Hudson's then current net book value (including
associated deferred taxes), the difference will be preserved for
recovery as a Strandable Cost.
VII. GENERIC ISSUES
The outcomes of any of the following possible Generic
Proceedings shall be applied to Central Hudson in accordance with
part XI.B. of this Agreement:
- -- ISO
- -- Load Pocket/Market Power
- -- Reporting Requirements
- -- Nuclear
- -- ESCOs
- -- System Benefits Charge
- -- Bulk Transmission/Local Distribution Definition
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VIII. MONITORING AND REPORTING REQUIREMENTS
RELATED TO THIS AGREEMENT
This part identifies information Central Hudson has agreed
to provide to Staff as part of this Agreement. Other than listed
below, Central Hudson is not required by this Agreement to submit
reports.
A. Data on Retail Access Customer Information.
(monthly and YTD)
1. Number of SC No. 13 customers taking EVOP tariff
2. Load penetration level of SC No. 13 EVOP customers
3. Number of SC No. 13 customers taking Retail Access
tariff
4. Load penetration of SC No. 13 Retail Access tariff
customers
5. Number of small industrial/commercial customers
taking Retail Access tariff
6. Load penetration of small industrial/commercial
customers taking Retail Access tariff
7. Number of residential customers taking Retail
Access tariff
8. Load penetration of residential customers taking
Retail Access tariff
9. List of ESCOs/Marketers providing service within
Central Hudson's area
10. Measure of Retail Access in/out movement
B. Data on Retail Access Meters.
(monthly and YTD)
1. Number of meters installed, by customer group and
tariff description
2. Types of meters (e.g., retrofit, design) installed
3. Total Retail Access metering costs
4. Description of additional services available from
meter/meter network.
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C. Reporting of Credit Balances.
Provide the total of the Debit and Credit entries annually
and the period to date Balance for the following deferrals:
1. Funds available for SC No. 13 Retail Access
program;
2. Funds available for Small Industrial/Commercial
Customers' Retail Access program;
3. Funds available for Residential Customers' Retail
Access program;
4. Excess/Deficient Earnings variation from 10.6%
Return on Equity (within 90 days after the end of
the computation period consistent with Attachment
B);
5. Mirror CWIP;
6. Replacement for Mirror CWIP at expiration of its
amortization;
7. Itemized list(excluding 1-6, above) of each
Deferral Balance to be used as a potential offset
to Strandable Costs at the end of this Agreement.
D. FAC Mechanics/Reporting.
Except as provided herein, Central Hudson will continue to
provide the same support documentation as is currently supplied
for purposes of establishing monthly FAC targets and actual
monthly FAC charges. Central Hudson will supply, with its annual
FAC target filing, the derivation of the monthly per-kwh charges
designed, as discussed in part III.D., to capture fuel savings
associated with the Coal Dock Project. Central Hudson will file
such reasonable information needed to support calculations
required under any revised FAC or similar mechanism that may be
instituted in response to the establishment of the ISO/PE, as
described in part III.D., above.
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IX. RATE UNBUNDLING
A. Retail Access Tariffs and
Competitive Transition Charges ("CTC").
During the term of this Agreement, Central Hudson will
provide retail access customers with tariffs that have been
developed to include CTCs, as described in this Agreement. CTCs
will be used to offset lost revenues due to Retail Access during
the term of this Agreement and will be applied to those customers
who elect to participate in the Retail Access options set forth
herein.
These tariffs will be developed with the objective of
minimizing cost shifting between classes and within classes of
customers. CTC charges may vary by service class and may include
KW, KWH or customer charges (or combinations thereof), consistent
with the pricing principles of the existing rates, and will be
non-bypassable.
B. Unbundled Tariffs.
Commencing July 1, 2001, unbundled tariffs will be
available.
X. ITEMS FROM CASE 92-E-1055
A. West Delaware Hydro Contract.
In Opinion No. 94-3, the Commission determined that Staff
had developed a prima facie showing of imprudence related to an
amendment to the West Delaware Hydro Associates contract. As a
result, Central Hudson has the burden of establishing that its
actions were prudent. Central Hudson will file its evidence
within six months of the Effective Date of this Agreement.
B. DSM Prudence.
In Opinion No. 94-3, at pages 37-45, the Commission directed
that Central Hudson "should provide in its next rate case filing,
a comparison of its results to the cost-effectiveness of all ESCO
offers that were available prior to July 19, 1993...." Central
Hudson will file such a comparison within six months of the
Effective Date of this Agreement.
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XI. OTHER PROVISIONS
A. Term of Agreement.
This Agreement shall become effective as of the Effective
Date and shall continue in effect from that date until June 30,
2001; provided however that the obligations of parts III.F.,
III.G., III.L., V.C., VI., XI.B. and XI.C. of this Agreement
shall survive the termination of this Agreement.
B. Effect of Agreement.
At such time as the Commission adopts this Agreement,
Central Hudson agrees to withdraw from the pending Article 78
proceeding styled In the Matter of The Energy Association of New
York State, Inc., et al. v. Public Service Commission, et al.,
Albany County Index No. 5830-96; Appellate Division-Third
Department Case No. 78608. The withdrawal of the Article 78
Proceeding will be effected through a Stipulation of Withdrawal,
mutually agreed upon between Central Hudson and the Commission.
After the Stipulation is adopted by the Commission, the
Stipulation will be filed with the Court then having jurisdiction
of the Article 78 matter.
Central Hudson is also making the following additional
concessions, which include, but are not limited to:
1. freezing base electric rates until 6/30/01;
2. allocating earnings in excess of the authorized rate of
return to Strandable Cost and ratepayer benefits;
3. establishing funding of rate reductions to customers,
Retail Access, the EVOP energy value option and
enhanced economic development tariffs during the
transition period;
4. restructuring of generation no later than 7/01/01; and
5. making full retail access available to all customers in
2001.
Each concession is made in return for the following rate and
other assurances by the Commission. These assurances include,
but are not limited to:
1. a specified rate of return, including a fuel adjustment
clause and freezing the overall level of base electric
rates;
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2. a competitive transition charge;
3. a reasonable opportunity for the company to recover
prudently incurred Strandable Costs through i)
application of funds from various sources accrued
during the transition period and ii) non-bypassable
charges post-transition;
4. inclusion of the fair market value of fossil generation
in Stranded Cost calculations; and
5. allowing Central Hudson's net investment in NM2 to
remain in rate base absent other treatment, as provided
for herein.
The parties hereby agree that the mutual concessions and
assurances will result in rates that are just and reasonable to
both customers and shareholders through June 30, 2001, and
include the recovery of Stranded Costs in non-bypassable wires
charges beyond June 30, 2001. The parties agree that the
Commission's approval of this Agreement represents approval of
all of its terms and the parties recognize that the concessions
and assurances of Central Hudson are being made, in substantial
part, in reliance upon later actions of the Commission pursuant
to the terms of this Agreement.
The parties recognize that Central Hudson's participation in
this Agreement is based on the premise that in adopting this
Agreement the Commission will find, in substance, that:
1. the mutual concessions and assurances set forth in this
Agreement are inextricably interrelated;
2. this Agreement will produce just and reasonable rates
throughout the term of this Agreement;
3. the mutual concessions and assurances embodied in this
Agreement justify the opportunity for recovery of
Strandable Costs and the use of non-bypassable wires
charges for that purpose post-June 30, 2001;
4. this Agreement is consistent with the Commission's
policy directives in Opinion No. 96-12; and
5. this Agreement furthers the public interest.
Furthermore, it is understood by the parties that Central Hudson
will request that the Commission make such findings and the
parties agree not to oppose such a request.
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If the Commission does not approve this Agreement in its
entirety without modification, this Agreement will be deemed to
have been disapproved and the parties shall have no obligations
under this Agreement other than to discuss in good faith whether
any alteration of this Agreement that may be required by the
Commission is acceptable to them. Each party to this Agreement
fully reserves its rights in that event.
Generic determinations by the Commission on the specific
topics listed above in part VII will be addressed in good faith
by the parties to this Agreement and will provide guidance for
potential tailoring or application that preserves this Agreement
and associated concessions and assurances of Central Hudson and
the Commission. Nothing in this Agreement limits the rights of a
party to challenge the Commission's decisions in Generic
Proceedings.
Central Hudson shall have a reasonable opportunity fully to
recover all prudently incurred, verifiable and appropriately
mitigated Stranded Costs incurred in fulfilling its obligation to
serve and in providing safe and adequate service at just and
reasonable rates during the term of this Agreement, unless and
until the foregoing standard is modified (for prospective
application) by subsequent order of the Commission or action of
other applicable governmental authority.
C. Reservation of Rights.
In the event that the Commission does not apply the Fair
Market Value standard as provided in part VI of this Agreement,
Central Hudson reserves the right to be excused from its
agreement to restructure its generation and provide Retail Access
to customers who did not previously enroll in the Retail Access
program set forth in this Agreement.
D. Time Line.
The times for various actions to be accomplished by the
various parties are set forth on Attachment C.
E. Applicable Law.
This Agreement shall be construed in accordance with the
laws of the State of New York.
F. Entire Agreement and Merger.
This Agreement represents the entire agreement among the
parties and all prior understandings are merged into this
Agreement.
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G. Titles.
The titles of the parts of this Agreement are for the
convenience of the parties.
H. Counterparts.
This Agreement may be executed in counterparts.
WHEREFORE, this Agreement has been executed as of the date
first set forth above by each of the following parties, who, by
its signature, each represents that it is fully authorized to
execute this Agreement and, if executing this Agreement in a
representative capacity, it is fully authorized to execute this
Agreement on behalf of its principals.
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SIGNATURE PAGE FOR SETTLEMENT AGREEMENT OF MARCH 20, 1997
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Settlement Agreement dated March 20, 1997 and
agrees to the provisions of such Settlement Agreement.
Staff of the Department of Public Service
SGD. Phillip S. Teumim
_________________________________________
By: Phillip S. Teumim
Its: Director, Gas and Water Division
Dated: March 20, 1997
<PAGE>
SIGNATURE PAGE FOR SETTLEMENT AGREEMENT OF MARCH 20, 1997
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Settlement Agreement dated March 20, 1997 and
agrees to the provisions of such Settlement Agreement.
Central Hudson Gas & Electric Corporation
SGD. Arthur R. Upright
_________________________________________
By: Arthur R. Upright
Its: Assistant Vice President-
Cost & Rate & Financial Planning
Dated: March 20, 1997
<PAGE>
SIGNATURE PAGE FOR SETTLEMENT AGREEMENT OF MARCH 20, 1997
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Settlement Agreement dated March 20, 1997 and
agrees to the provisions of such Settlement Agreement.
New York State Department of
Economic Development
SGD. Jeffrey Schnur
_________________________________________
By: Jeffrey Schnur
Its: Director of Energy Policy
Dated: March 20, 1997
<PAGE>
SIGNATURE PAGE FOR SETTLEMENT AGREEMENT OF MARCH 20, 1997
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Settlement Agreement dated March 20, 1997 and
agrees to the provisions of such Settlement Agreement.
SGD. Robert Hankin
_________________________________________
By: Robert Hankin
Dated: March 20, 1997
<PAGE>
<TABLE>
Attachment A : Amortization of Mirror CWIP Credit And Offsetting Deferred Credit
<CAPTION>
Mirror CWIPAmortization ofAmortizationAmortization Net
Credit Mirror CWIP Of Deferred Of Deferred Net Credit Operating
Date Balance Credit Credit FIT Debit AmortizationIncome
<S> <C> <C> <C> <C> <C> <C>
Jan/00 4430500 500000 0 0 0 500,000
Feb/00 3,930,500 500000 0 0 0 500,000
Mar/00 3,430,500 500000 0 0 0 500,000
Apr/00 2,930,500 500000 0 0 0 500,000
May/00 2,430,500 500000 0 0 0 500,000
June/00 1,930,500 500000 0 0 0 500,000
July/00 1,430,500 500000 0 0 0 500,000
Aug/00 930,500 500000 0 0 0 500,000
Sep/00 430,500 430500 106900 -37400 69,500 500,000
Oct/00 0 0 769200 -269200 500,000 500,000
Nov/00 0 0 769200 -269200 500,000 500,000
Dec/00 0 0 769200 -269200 500,000 500,000
Jan/01 0 0 769200 -269200 500,000 500,000
Feb/01 0 0 769200 -269200 500,000 500,000
Mar/01 0 0 769200 -269200 500,000 500,000
Apr/01 0 0 769200 -269200 500,000 500,000
May/01 0 0 769200 -269200 500,000 500,000
Jun/01 0 0 769200 -269200 500,000 500,000
<PAGE>
ATTACHMENT B
MEASUREMENT PLAN FOR EXCESS EARNINGS
The calculation of excess earnings for electric operations
shall be based on operating income on a ratemaking basis and rate
base for 12-month periods that begin on July 1 and end on June 30
of each year that the Settlement Agreement is in effect.
The determination of ratemaking operating income shall be
based on operating income as recognized on the Company's books
and records adjusted for items recorded as non-operating expense,
which are recognized as ratemaking operating expense (e.g.,
Mirror CWIP interest expense on certain of the Company's
Pollution Control Bonds) and any earnings available for the
Company's shareholders under a sharing arrangement between
customers and shareholders (e.g., incentive mechanism for fuel
target and Net Sales For Resale).
The measurement of excess earnings will be calculated by
multiplying electric rate base by the pro-forma rate of return
(assuming a 10.6% ROE). This result will be compared to
ratemaking operating income as described above. The excess, if
any, shall be deferred, grossed up for federal income tax to
offset strandable costs, and any excess over that amount will be
used to provide ratepayer benefits.
Excess earnings also must be measured for the period of time
between the Effective Date of this Agreement and the first June
30 following that date (the partial period). Excess earnings for
the partial period will be calculated by multiplying electric
excess earnings for the entire 12-month period ending the first
June 30 following the Effective Date of this Agreement by the
ratio of electric sales for the partial period to electric sales
for the entire 12-month period. Computations of excess earnings
will exclude the capital costs of the Coal Dock Project already
recovered through the FAC.
<PAGE>
ATTACHMENT C
TIME LINE FOR CERTAIN ACTIONS
Date Action
1. June 20, 1997 * Customer Service Incentive Plan
collaboration completed; Plan filed
with Commission.
2. - * Commission approves and adopts
Settlement Agreement
3. + 15 Days * Central Hudson files FAC
modifications to implement agreement
with respect to Competitive
Transition Charge, Coal Dock
Depreciation and Energy Value
Option.
* Central Hudson files SC No. 13
modifications.
- Permit discounting and
contracts
- Permit EVOP, redesign rate
and coordinate with FAC
- Permit Retail Access,
redesign rate to include a
CTC, subject to FERC 888
tariff revisions
- Include enhanced economic
growth incentive
* Central Hudson files modified SC No.
2 and SC No. 3
- SC No. 2 modifications are
retention revisions
- SC No. 3 modifications are
retention and enhanced
growth incentives.
4. + 90 Days * Assuming PSC approves SC No. 13
modification, Central Hudson files
FERC exemption from Order 888
tariff.
* EVOP and Retail Access for SC No. 13
customers become effective upon FERC
approval.
* Staff provides functional separation
accounting proposals.
5. + 120 Days * Central Hudson files plan to
functionally separate fossil
generation from T&D and establish
accounting protocols.
- Central Hudson implements
plan on 1/1/98, assuming
prior Commission approval.
6. 9/1/97 * Central Hudson files tariff
amendments to permit Retail Access
for defined residential, commercial,
and small industrial.
- 30 days from PSC approval
Central Hudson will file
exemption to FERC Order
888 tariff.
7. +180 Days * Central Hudson makes filings
described in part X of Settlement
Agreement.
8. 1/1/98 * Assuming regulatory approval of
preceding filings - first retail
access phase implemented.
9. 1/1/99 * Retail access - second phase.
10. 7/1/99 * Retail access - progress report.
11. 1/1/00 * Retail access - third phase.
* Central Hudson files corporate
structure petition and T&D rate
case:
- Corporate Structure
Proposal
- Stranded Cost Valuation
- T&D Rate Case
- T&D Unbundled Rates.
12. 11/1/00 * Commission issues order approving
structure, recovery of stranded
costs and setting unbundled rates
effective 7/1/01.
13. 11/2/00 * Central Hudson commences processes
to be implemented by 7/1/01,
assuming satisfactory Commission
Order.
14. 1/01/01 * Retail Access-fourth phase.
15. 7/1/01 * Central Hudson implements:
- full retail access
- generation separation
- full stranded cost
recovery
</PAGE>
</TABLE>
<PAGE>
EXHIBIT (99)
March 20, 1997
FOR RELEASE: Immediately
CONTACT: Steven V. Lant, Treasurer, (914) 486-5254
Donna S. Doyle, Controller, (914) 486-5566
CENTRAL HUDSON ENSURES CORPORATE FLEXIBILITY,
GROWTH OPPORTUNITIES THROUGH PSC AGREEMENT
A four-year electric rate freeze for all customers, economic
development enhancements -- including a reduction in prices for the
largest industrial customers -- and an innovative program to allow
other businesses and residential customers to choose their energy
supplier beginning in 1998 are key components of a settlement
reached today among the following major parties: Central Hudson Gas
& Electric Corporation, the staff of the New York State Public
Service Commission, and the New York State Department of Economic
Development.
The agreement, which resulted from the utility's October, 1996
response to the PSC's Competitive Opportunities Proceeding, is a
blueprint for introducing competition to the utility and its
260,000 electric customers. More than 45 individuals and
organizations are parties in the Proceeding; the agreement now
begins a public review process and could be considered for
Commission approval by July, 1997.
"Throughout the entire Proceeding's fact-finding sessions and
deliberations, we placed the highest priority on protecting the
best interests of our customers, employees and shareholders," said
Arthur R. Upright, Assistant Vice President of Cost & Rate and
Financial Planning. "We believe this agreement not only provides
such protection, but also charts a new course for our Company --
one which offers opportunities for unprecedented challenge and
growth in a new era of electric utility competition."
Upright added that the settlement additionally provides for an
orderly customer-investor transition toward a competitive system
while giving the Company an opportunity to reach its full
potential.
<PAGE>
SIGNIFICANT PROVISIONS OF THE SETTLEMENT AGREEMENT
I. CUSTOMER BENEFITS
* Base electric rates will be frozen through June 30, 2001.
Central Hudson's average prices, which have been unchanged for
nearly four years and are currently 19 percent below the New York
State average, will remain at 1993 levels agreement's term. The
eight-year commitment to stable prices occurs despite a more than
10 percent decline in sales during the early 1990s.
* Residential, Commercial and Small Industrial customers will be
given the opportunity to purchase energy from suppliers other than
Central Hudson. An innovative program to provide these customers
classes with the opportunity to choose their energy supplier will
begin next year. This Retail Access Option for the Company's
customers will begin no later than 1998, and will be incrementally
phased in for all customers beyond the year 2001. Each year, up to
8 percent of the Company's customer base will be allowed to
purchase from an alternative supplier with the entire customer base
becoming eligible to purchase from alternative suppliers in July,
2001.
* Rates for Large Industrial customers will be reduced by 5
percent. Upright said economic growth incentives will also be
expanded, noting that the Company's electric rates are among the
lowest in the Northeast. Large industrial customers will be given
the immediate choice of participating in the Company's Energy Value
Option plan, which provides for alternative energy suppliers.
* These components -- the rate freeze, industrial rate reduction,
and customer choice options -- represent $10 million in annual
benefits for the Company's customers, allocated as follows:
Large Industrial $3.0 million
Small Industrial/Commercial $3.5 million
Residential $3.5 million
These benefits will be funded through the following annual
mechanisms: $3 million from cost reductions and increased sales;
$3.5 million from cost reductions associated with the Company's
marine coal delivery facility; and $3.5 million from deferred
credits, including pension and post-retirement benefits. The $3.5
million allocated to small industrial/commercial customers and $3.5
million allocated to residential customers will be used to offset
lost revenue resulting from the phased-in retail access program.
II. TREATMENT OF COMPANY ASSETS
* The Company will structurally separate its fossil generation
resources by the year 2001 through creation of a holding company,
divestiture, or other options. Central Hudson will have the
opportunity to recover through a wires charge any stranded costs
that result from structural separation. Stranded costs are those
costs which exceed the market value of the generation assets. The
Commission will apply the fair market value standard which is to be
determined by third party valuation of three independent experts:
one selected by Central Hudson, the second by the PSC and the final
through mutual agreement. In the event of a sale of a generating
asset, any net proceeds in excess of net book value will be used to
offset strandable costs and/or for customer benefits.
* Through the term of the agreement, all costs associated with
Central Hudson's share of the Nine Mile Point 2 Nuclear Power Plant
will remain in rates and the plant will continue as a regulated
asset. It is anticipated that after July 1, 2001, the costs of
Nine Mile 2 will be recovered through a charge within the regulated
operations of the Company. However, the agreement calls for
Central Hudson to engage in good faith discussions regarding any
statewide nuclear solutions proposed by New York State subject to
the principles of the agreement.
* Earnings will be unaffected in 2000 and 2001 by the expiration in
2000 of Mirror CWIP amortization, which will be replaced with other
deferred credits.
* A mechanism will be established for Central Hudson to recover all
"prudently incurred" strandable costs. Recovery will be achieved
through a non-bypassable wires charge to all customers beginning in
July, 2001.
III. GROWTH OPPORTUNITIES
* Central Hudson may establish unregulated subsidiaries (including
but not limited to Energy Services or Electric Marketing Supply
companies) within or outside its established franchise territory.
The Company will also not be prohibited from financing unregulated
ventures.
* Over the term of the agreement, the Company's Rate of Return on
its electric business will be capped at 10.6 percent. Return on
equity will be calculated annually, for each 12-month period
following the effective date of the agreement. The agreement
permits a shortfall in ROE in one period to be offset by a surplus
in another period. During the term of the agreement, all
cumulative earnings greater than 10.6 percent will be deferred to
offset strandable costs; in the event such costs are recovered in
full, any excess will be used to provide customer benefits. Under
the 10.6 percent ROE cap, earnings per share could grow by 3
percent per year, due to growth in book value resulting from
retained earnings.
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Residential Typical Bill-500 kWh per Month
Source: EEI Typical Bills Semiannual Report
[GRAPH]
Graphical depiction of typical residential electric bill
comparision between Registrant and other New York State Electric
Utilities.
</PAGE>
