<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended......................December 31, 1997
Commission file number 1-3268
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-0555980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $5.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Cumulative Preferred Stock:
4 1/2% Series
4.75% Series
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the Registrant as of
February 9, 1998 was $689,835,480 based upon the lowest price at
which Registrant's Common Stock was traded on such date, as
reported on the New York Stock Exchange listing of composite
transactions.
The number of shares outstanding of Registrant's Common
Stock, as of February 9, 1998, was 17,245,887.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Annual Report to
Shareholders, for the fiscal year ended December 31, 1997, are
incorporated by reference in Parts I, II and IV of this Report.
Registrant's definitive Proxy Statement, to be dated
March 2, 1998, and to be used in connection with its Annual
Meeting of Shareholders to be held on April 7, 1998, is
incorporated by reference in Part III hereof.
TABLE OF CONTENTS
Page
Table of Contents
PART I
ITEM 1 BUSINESS 1
Generally 1
Rates 2
Regulation 3
Construction Program and Financing 4
Fuel Supply and Cost 5
Environmental Quality 7
Research and Development 12
Other Matters 12
Executive Officers of the Company 14
ITEM 2 PROPERTIES 17
Electric 17
New York Power Pool/Independent System Operator 23
Gas 24
Other Matters 26
ITEM 3 LEGAL PROCEEDINGS 26
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 29
(i)
TABLE OF CONTENTS (Cont'd)
Page
PART II
ITEM 5 MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 29
ITEM 6 SELECTED FINANCIAL DATA 31
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 33
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 57
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 57
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 110
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 110
ITEM 11 EXECUTIVE COMPENSATION 110
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 110
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 111
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K 111
SIGNATURES 113
(ii)
<PAGE>
PART I
FORWARD LOOKING STATEMENTS
This Form 10-K may contain statements which, to the
extent they are not recitations of historical fact, constitute
"forward-looking statements" within the meaning of the Securities
Litigation Reform Act of 1995 ("Reform Act"). All such forward-looking
statements are intended to be subject to the safe harbor
protection provided by the Reform Act. A number of important
factors affecting the Company's business and financial results
could cause actual results to differ materially from those stated
in the forward-looking statements. Those factors include
developments in the legislative, regulatory and competitive
environment, electric and gas industry restructuring and certain
environmental matters.
ITEM 1 - BUSINESS
Generally
Registrant ("Company") is a gas and electric
corporation formed on December 31, 1926, as a consolidation of
several operating utilities which had been accumulated under one
management during the previous 26 years. The Company generates,
purchases and distributes electricity, and purchases and
distributes gas. The Company, in the opinion of its general
counsel, has, with minor exceptions, valid franchises, unlimited
in duration, to serve a territory extending about 85 miles along
the Hudson River and about 25 to 40 miles east and west from such
River. The southern end of the territory is about 25 miles north
of New York City, and the northern end is about 10 miles south of
the City of Albany. The territory, comprising approximately
2,600 square miles, has a population estimated at 622,200.
Electric service is available throughout the territory, and
natural gas service is provided in and about the cities of
Poughkeepsie, Beacon, Newburgh and Kingston and in certain
outlying and intervening territories. The number of Company
employees at December 31, 1997 was 1,196.
1
The Company's territory reflects a diversified economy,
including manufacturing industries, research firms, farms,
governmental agencies, public and private institutions, resorts,
and wholesale and retail trade operations.
For information concerning revenues and operating
income before taxes (expressed as percentages) and operating
profits and information regarding identifiable assets for the
electric and gas segments, which are the significant industry
segments of the Company, see Note 10 - "Departmental Information"
of the Notes to the Financial Statements referred to in Item 8
hereof (each such Note being hereinafter called the "Note").
Consumption of electricity in New York State has
stabilized and there is an excess of electric generating capacity
in the State. In 1998, as the competitive market place is
developed for electric utilities, it is anticipated that electric
customers will have the opportunity to purchase energy and
related services from sources other than their local utility.
These opportunities exist today for natural gas customers.
See Item 7 hereof under the caption
"Competition/Deregulation" and Note 1 - "Regulatory Matters"
herein for a discussion of the current 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 which
may affect future operations of the Company.
Rates
Generally: The electric and gas rates of the Company
applicable to service supplied to retail customers within the
State of New York are regulated by the PSC. Transmission rates
and rates for electricity sold for resale in interstate commerce
are regulated by the Federal Energy Regulatory Commission
("FERC").
The Company's present retail rate structure consists of
various service classifications covering residential, commercial
and industrial customers. During 1997, the average price of
electricity to such customers was 8.55 cents per kilowatthour
("kWh"), representing no change from the 1996 average price.
2
Rate Proceedings - Electric and Gas: For information
regarding the Company's most recent electric and gas cases filed
with the PSC, see Item 7 hereof under the caption "Rate
Proceedings."
Cost Adjustment Clauses: For information with respect
to the Company's electric and gas cost adjustment clauses, see
Note 2 - "Summary of Significant Accounting Policies" herein
under the caption "Rates, Revenues and Cost Adjustment Clauses."
Regulation
Generally: The Company is subject to regulation by the
PSC with respect to, among other things, service rendered
(including the rates charged), major transmission facility
siting, energy planning, accounting procedures and issuance of
securities.
Certain of the Company's activities, including
accounting and the acquisition and disposition of certain
property, are subject to regulation by the FERC, under the
Federal Power Act, by reason of the Company's transmission and
sale for resale of electric energy in interstate commerce.
The Company is not subject to the provisions of the
Natural Gas Act.
In the opinion of general counsel for the Company, the
Company's major hydroelectric facilities are not required to be
licensed under the Federal Power Act.
Purchased Electric Power Generation: Pursuant to the
provisions of the federal Public Utility Regulatory Policies Act
of 1978 ("PURPA"), and the New York Public Service Law, the
Company is required to enter into long-term contracts to purchase
electric power generated by small hydro, alternative energy and
cogeneration facilities which meet qualification standards
established by such statutes and the regulatory programs
promulgated thereunder. With respect to facilities qualified
under PURPA, the Company must pay its avoided cost (i.e., the
cost the Company would otherwise incur to generate the increment
3
of power purchased) for electric power purchased from qualified
facilities, which, under the New York Public Service Law, is "at
rates just and reasonable to electric [...] corporation
ratepayers." As of December 31, 1997, the Company's avoided cost
at the 115 kV transmission level was approximately 3.0 cents per
kWh.
As of December 31, 1997, 19 Megawatt ("MW") of
generation, qualifying for avoided cost payments by the Company
was interconnected with the Company's system. The opportunity
under PURPA and the New York Public Service Law to require the
Company to purchase power from qualifying facilities could serve
as an inducement to the Company's industrial and commercial
customers to install their own qualifying on-site generation
facilities to reduce their purchases of electric power from the
Company. This action would result in losses of revenues from
such customers. However, as of December 31, 1997, no significant
customer has indicated to the Company the intention to pursue
such alternative.
Construction Program and Financing
The Company is engaged in a construction program which
is presently estimated to involve total cash expenditures during
the period 1998 through 1999 of approximately $109.8 million.
The Company's principal construction projects consist of those
designed to improve the reliability, efficiency and environmental
compatibility of the Company's generating facilities and those
required to expand, reinforce and replace the Company's
transmission, substation, distribution and common facilities.
For estimates of construction expenditures, internal
funds available, mandatory and optional redemption of long-term
securities, and working capital requirements for the two-year
period 1998-1999, see the subcaption "Construction Program" in
Item 7 hereof under the caption "Capital Resources and
Liquidity."
For a discussion of the Company's capital structure,
financing program and short-term borrowing arrangements, see
Notes 5, 6 and 7 "Short-term Borrowing Arrangements,"
"Capitalization - Capital Stock" and "Capitalization - Long-term
4
Debt," respectively, and Item 7 hereof under the subcaptions
"Capital Structure," "Financing Program" and "Short-Term Debt" of
the caption "Capital Resources and Liquidity."
The Company's Certificate of Incorporation and its
various debt instruments do not contain any limitations upon the
issuance of authorized, but unissued, preferred stock and common
stock or of unsecured short-term debt.
The Company's various debt instruments include
limitations as to the amount of additional funded indebtedness
which the Company can issue. The Company believes such
limitations will not impair its ability to issue any or all of
the debt described under the above-referenced subcaption
"Financing Program."
Fuel Supply and Cost
The Company's two primary fossil fuel-fired electric
generating stations are the Roseton Steam Electric Generating
Plant ("Roseton Plant") (described in Item 2 hereof under the
subcaptions "Electric - General" and "Electric - Roseton Plant")
and the Danskammer Point Steam Electric Generating Station
("Danskammer Plant") (referred to in Item 2 hereof under the
subcaption "Electric - General"). Unit 2 of the Roseton Plant,
which Plant is fully equipped to burn both residual oil and
natural gas, has been the predominant operating unit of that
Plant's two units during 1997, with Unit 1 available on an
alternate basis. Units 1 and 2 of the Danskammer Plant, which
are equipped to burn residual oil or natural gas, are only
operated when the demand for power is high or purchased power and
energy exchange contracts are uneconomical. Units 3 and 4 of the
Danskammer Plant, which are operated predominantly, are capable
of burning coal, natural gas, or residual oil.
5
For the 12 months ended December 31, 1997, the sources
and related costs of electric generation for the Company were as
follows:
Aggregate
Sources of Percentage of Costs in 1997
Generation Energy Generated ($000)
Purchased Power 34.0% $ 56,002
Coal 38.5 40,159
Gas 4.8 7,600
Nuclear 13.7 4,100
Oil 6.6 11,437
Hydroelectric 2.4 638
100.0%
======
Fuel Handling Costs 1,536
Deferred Fuel Cost 509
$121,981
=======
Residual Oil: At December 31, 1997, there were 438,176
barrels of fuel oil in inventory in Company-owned tanks for use
in the Danskammer and Roseton Plants, which amount represents an
average daily supply of 36 days. The oil storage capacity as of
December 31, 1997 for these Plants was 16,251 and 1,079,000
barrels, respectively. The Company's share of the Roseton
Plant's oil storage capacity is 377,650 barrels.
During 1997, there were no purchases of fuel oil made
for the Danskammer Plant.
During 1997, the Roseton Plant's fuel oil requirements
were supplied under one firm and two spot market contracts. The
prices under the firm contract were determined on the basis of
published market indices in effect at the time of delivery. The
term of the firm contract became effective on September 1, 1996
and continues through August 31, 1998. This firm contract
permits the Company to make certain spot purchases from others.
6
Coal: In order to provide for its future requirements
for coal to be burned in Units 3 and 4 at the Danskammer Plant,
the Company, effective January 1, 1997, entered into two supply
contracts for the purchase of an aggregate of 720,000 tons per
year of low sulfur (0.7% maximum) coal.
One contract provides for the delivery of coal by water
from sources in Venezuela and Columbia, South America. The base
price of purchases under this contract was fixed for the period
which ended on December 31, 1997. As required by this contract,
the price is renegotiated by the parties on an annual basis. The
contract, as last renegotiated, now covers the term from January
1, 1998 through December 31, 2000.
The second contract, which provides for the delivery of
domestic coal by rail, expires on December 31, 1998. The base
price of purchases is fixed for the term of that contract.
The Company has also entered into a long-term rail
contract for the delivery of coal. This contract covers the
period January 1, 1997 - December 31, 2001. During the first two
years of this contract, rail rates are fixed, and thereafter,
such rates will be negotiated by the parties.
The Company also purchased during 1997 a portion of its
coal supply on the spot market.
Nuclear: For information regarding fuel reloading at
Unit No. 2 of the Nine Mile Point Nuclear Station ("Nine Mile
2"), of which the Company owns a 9% interest, see Item 7 hereof
under the subcaption "Nuclear Operations" under the caption
"Results of Operations."
Environmental Quality
The Company is subject to regulation by federal, state
and, to some extent, local authorities with respect to the
environmental effects of its operations, including regulations
relating to air and water quality, aesthetics, levels of noise,
hazardous wastes, toxic substances, protection of vegetation and
wildlife and limitations on land use. In connection with such
7
regulation, certain permits are required with respect to the
Company's facilities, which permits have been obtained and/or are
in the renewal process. Generally, the principal environmental
areas and requirements to which the Company is subject are as
follows:
Air: State regulations affecting the Company's
existing electric generating plants govern the sulfur content of
fuel used therein, the emission of particulate matter and certain
other pollutants therefrom and the visibility of such emissions.
In addition, federal and state ambient air quality standards for
sulfur dioxide, nitrogen oxides and suspended particulates must
be complied with in the area surrounding the Company's generating
plants. Based on the operation of its continuous emission stack
monitoring systems and its ambient air quality monitoring system
in the area surrounding the Roseton and Danskammer Plants, the
Company believes that present air quality standards for nitrogen
oxides, sulfur dioxide and particulates are satisfied in those
areas.
The Danskammer Plant burns coal having a maximum sulfur
content of 0.7%, fuel oil having a maximum sulfur content of 1%
and natural gas. The sulfur content of the oil burned at the
Roseton Plant is limited by stipulation with, among others, the
New York State Department of Environmental Conservation
("NYSDEC"), to an amount not exceeding 1.5% maximum and 1.3%
weighted annual average. Such sulfur content limitation at the
Roseton Plant can be modified by the NYSDEC in the event of
technological changes at such Plant, provided that the sulfur
dioxide and nitrogen oxides emissions are limited to that which
would have been generated by the use of oil with a sulfur content
of 1.3% on a weighted annual average. Natural gas fuel is also
burned at the Roseton Plant.
For a discussion of the impact of the Clean Air Act
Amendments of 1990 ("CAA Amendments") on the Company's efforts to
attain and maintain national ambient air quality standards for
emissions from its fossil-fueled electric power plants and for a
discussion of the proposal of the Federal Environmental
Protection Agency ("EPA") to modify emission standards for
nitrogen oxides and suspended particulates, see Note 9 -
"Commitments and Contingencies," hereof under the caption,
"Environmental Matters - Clean Air Act Amendments."
8
Except as set forth above, the Company is unable to
predict the effect (including cost) of these programs on its
power plant operations since the details of the CAA Amendments
are yet to be completely established by implementing regulations
to be issued over a period of years by the EPA and the NYSDEC.
Water: The Company is required to comply with
applicable state and federal laws and regulations governing the
discharge of pollutants into receiving waters.
The discharge of any pollution into navigable waterways
is prohibited except in compliance with a permit issued by the
EPA under the National Pollutant Discharge Elimination System
("NPDES") established under the Clean Water Act. Likewise, under
the New York Environmental Conservation Law industrial waste
cannot be discharged into state waters without a State Pollutant
Discharge Elimination System ("SPDES") permit issued by the
NYSDEC. Issuance of a SPDES permit satisfies the NPDES permit
requirement.
The Company has received SPDES permits for both the
Roseton Plant and the Danskammer Plant, its Eltings Corners
maintenance and warehouse facility, and its Rifton Recreation and
Training Center. The SPDES permits for the Roseton and
Danskammer Plants expired on October 1 and November 1, 1992,
respectively, and such permit renewal applications are pending
before the NYSDEC.
The Roseton Plant application is currently being
reviewed in a NYSDEC proceeding. The subject of the restriction
on use of water for cooling purposes at that Plant (as referred
to in Item 3 hereof under the caption "Environmental Litigation")
is being considered in that proceeding.
It is the Company's belief that the expired SPDES
permits continue in full force and effect pending issuance of the
new SPDES permits.
For further discussion of the Company's compliance with
the Clean Water Act and the Company's SPDES permit renewal
proceeding, see Note 9 - "Commitments and Contingencies," hereof
under the caption "Environmental Matters - Clean Water Act
Compliance."
9
Toxic Substances and Hazardous Wastes: The Company is
subject to state and federal laws and regulations relating to the
use, handling, storage, treatment, transportation and disposal of
industrial, hazardous and toxic wastes.
The NYSDEC in 1986 added to the New York State Registry
of Inactive Hazardous Waste Disposal Sites (the "Registry") six
locations at which gas manufacturing plants owned or operated by
the Company or by predecessors to the Company were once located.
Two other sites, which formerly contained gas manufacturing
plants, have been identified by the Company. The Company studied
these eight sites to determine whether they contain any hazardous
wastes which could pose a threat to the environment or public
health and, if such wastes were located at such sites, to
determine the remedial actions which may be appropriate.
All of these eight sites were studied using the Phase I
guidelines of the NYSDEC and five such sites were studied using
the more extensive Phase II guidelines of the NYSDEC. As a
result of these studies, the Company concluded that no remedial
actions were required at any of these sites. In 1991, the NYSDEC
advised the Company that four of the six sites had been deleted
from such Registry. In 1992, the NYSDEC advised the Company that
the two remaining sites listed on the Registry had been deleted
from the Registry. The NYSDEC also indicated that such deletions
of the sites were subject to reconsideration in the future, at
which time new analytical tests may be required to determine
whether or not wastes on site are hazardous. If, as a result of
such potential new analytical tests, or otherwise, remedial
actions were ultimately required at these sites by the NYSDEC,
the cost thereof could have a material adverse effect (the extent
of which cannot be reasonably estimated) on the financial
condition of the Company if the Company could not recover all, or
a substantial portion thereof, through insurance and rates.
For a discussion of litigation filed against the
Company involving one of the eight sites by the City of Newburgh,
New York and the Company's response thereto, see Note 9 -
"Commitments and Contingencies," hereof under the subcaption
"Environmental Matters - Former Manufactured Gas Plant
Facilities."
10
In August 1992, the NYSDEC notified the Company that
the NYSDEC suspected that the Company's offices at Little Britain
Road in New Windsor, New York, may constitute an inactive
hazardous waste disposal site. Pursuant to a Consent Order
entered into between the Company and the NYSDEC, the Company
performed a preliminary site assessment and, on January 31, 1996,
a draft final report ("site assessment report") prepared by the
Company's consultant was submitted to the NYSDEC for its review,
evaluation and comment. As a result of the NYSDEC's review of
this site assessment report, the Company agreed to perform
additional testing. The draft report on this additional testing
was submitted to the NYSDEC on December 6, 1996. These reports
both indicated that a limited amount of subsurface soil
contamination was detected near one corner of the site and that
contaminants were also detected in the ground water beneath the
site. Operations conducted on the site by the Company since it
purchased the property in 1978 are not believed to have
contributed to either the soil or the ground water contamination.
The Company can make no (i) prediction regarding what action the
NYSDEC may take with regard to the draft reports, or (ii)
prediction as to the outcome of recovery attempts against third
parties by the Company. However, the Company believes that the
cost of such site assessment and remediation, if any, will not be
material.
Other: The Company estimates that expenditures
attributable, in whole or in substantial part, to environmental
considerations totaled $8.4 million in 1997, of which about $.5
million related to capital projects and $7.9 million were charged
to expense. It is estimated that in 1998 the total of such
expenditures will be approximately $10.6 million.
The Company is not involved as a defendant in any court
litigation with respect to environmental matters and, to the best
of its knowledge, no litigation against it is threatened with
respect thereto, except with respect to the litigation described
in Item 3 hereof under the captions "Environmental Litigation"
and "Environmental Claims - Newburgh Manufactured Gas Site," and
as described in Note 9 - "Commitments and Contingencies," under
the caption "Environmental Matters - Former Manufactured Gas
Plant Facilities."
11
Research and Development
The Company is engaged in the conduct and support of
research and development ("R&D") activities that are focused on
providing enhanced customer service at lower costs while
improving existing energy technologies and developing new
technologies related to the production, distribution and
conservation of energy.
The Company leverages its R&D expenditures by
contributing to projects sponsored by various state and national
research consortia and seeking external funding for those
sponsored by the Company. In addition, New York law requires
electric and gas utilities to contribute to research undertaken
by the New York State Energy Research and Development Authority.
The Company's expenditures, net of revenues from
royalties, for electric and gas research and development projects
amounted to $3.3 million in 1996 and $3.6 million in 1997. The
Company projects that its 1998 expenditures for research and
development will total approximately $3.4 million.
Other Matters
Municipal Utilities: Article 14-A of the New York
General Municipal Law permits any municipality to construct,
lease, purchase, own, acquire, use and/or operate any utility
service for the benefit of its inhabitants, and, in furtherance
thereof, permits any municipality to acquire, through purchase or
condemnation, the public utility service of any public utility
company.
The current and projected excess supply of electricity
in the Northeastern United States and in Canada has significantly
depressed wholesale prices, and the increased level of
competition in the electric utility industry could cause
municipalization efforts to intensify. The Company is not aware
of any municipalization efforts in its franchise area.
PASNY Economic Development Power: The New York State
Economic Development Power Allocation Board is authorized by law
to solicit applications for "economic development power" by
12
municipalities or municipal agencies on behalf of businesses
which normally use a minimum peak electric demand of 400 kW for
purposes of economic development, particularly job creation.
"Economic Development Power" ("EDP") is electric power generated
at the Fitzpatrick Nuclear Generating Station of the Power
Authority of the State of New York ("PASNY") which is available
for such purpose. Should such power be allocated to a customer
within the Company's service territory, the Company would be
required to wheel such power to the user at a cost-based rate,
which must be approved by the PSC and/or by the FERC.
As of December 31, 1997, the Company is not aware of
any of its electric customers having applied for such EDP.
In addition, in 1997 the New York State Governor signed
legislation making 400 MW of low cost power available to
commercial and industrial customers as well as not-for-profit
organizations. Energy available under this "Power for Jobs"
program will be obtained from PASNY as well as competitively bid
sources, including private utilities. The Company will receive a
credit against its gross receipts tax liability, under Section
186-a of the New York Tax Law, for any lost revenue resulting
from customers participating in this program.
Electric Economic Development Rate: The Company's
tariff includes an economic development electric rate discount
provision for large industrial customers (which exhibit new
annual electric load of 500 kW or more) taking substation or
transmission service and locating or expanding their business
operations within the Company's service territory. Certain
energy efficiency guidelines must also be met by eligible
customers. Qualifying customers pay lower electric prices for
the increased load, with savings on current rates for ten years.
Customers must apply for the discount by October 1, 1999. As of
December 31, 1997, the Company had four industrial customers
participating under this rate structure.
Labor Relations: The Company has agreements with the
International Brotherhood of Electrical Workers for its 834
unionized employees, representing production and maintenance
employees, customer relations representatives, service workers
13
and clerical employees, excluding persons in managerial,
professional or supervisory positions, which agreements were
renegotiated effective July 1, 1994 and continue through June 30,
1998. The agreements provide for an average general wage
increase of 3.2% in each of the first three years of such
agreements and a 3.5% increase in the fourth year of such
agreements, and certain additional fringe benefits.
Affiliates:
Central Hudson Enterprises Corporation: Central Hudson
Enterprises Corporation ("CHEC") is engaged in the business of
conducting energy audits, providing services related to the
design, financing, installation and maintenance of energy
conservation measures and cogeneration systems for private
businesses, institutional organizations and governmental entities
and participates in cogeneration, small hydro and alternate
energy production projects, directly or through one or more of
its affiliates.
CH Resources, Inc., Phoenix Development Company, Inc.,
and Greene Point Development Corporation: These corporations,
each a wholly-owned subsidiary of the Company, were established
to either hold real property for the future use of the Company or
to participate in energy-related ventures. Currently, the assets
held by these subsidiaries are not material.
CHEC and the other subsidiaries noted above (with the
exception of Phoenix Development Company, Inc.) would become
subsidiaries of a proposed holding company as part of a
restructuring of the Company described in Item 7 hereof under the
caption, "Competition/Deregulation - Competitive Opportunities
Proceeding" and in Note 1 - "Regulatory Matters" hereof under the
caption "Amended Settlement Agreement."
Executive Officers of the Company
The names of the current officers of the Board of
Directors and the executive officers of the Company, their
positions held and business experience during the past five (5)
years and ages (at December 31, 1997) are as follows:
14
Principal Occupation or
Employment and Positions
Name of Officer, Age and Offices with the Company
and Position Held during the past five (5) years
Officers of the Board
John E. Mack, III, 63, Present positions, except Chairman
Chairman of the Board of the Committee on Finance,
and Chief Executive April 1996
Officer; Chairman of
the Executive,
Retirement and Finance
Committees
Jack Effron, 64, Present position since April 1994;
Chairman of Committee President of EFCO Products, a
on Compensation and bakery ingredients corporation;
Succession member of the St. Francis Health
Care Foundation; Chairman of the
Chief Executive's Network for
Manufacturing of the Council of
Industry of Southeastern New York
Heinz K. Fridrich, 64, Present position since April 1995;
Chairman of Committee Courtesy Professor, University of
on Audit Florida at Gainesville, since 1994;
Vice President - Manufacturing,
International Business Machines
Corporation, December 1992 - September
1993; Board of Trustees; Mount St.
Mary College
Executive Officers of the Company
Paul J. Ganci, 59, Present position
President and Chief
Operating Officer
15
Principal Occupation or
Employment and Positions
Name of Officer, Age and Offices with the Company
and Position Held during the past five (5) years
Executive Officers of the Company - (Continued)
Carl E. Meyer, 50, Present position since April 1996;
Sr. Vice President - Vice President - Customer Services
Customer Services December 1992 - April 1996
Allan R. Page, 50, Present position since April 1996;
Sr. Vice President - Vice President - Corporate Services,
Corporate Services December 1992 - April 1996
Joseph J. DeVirgilio, Present position
Jr., 46, Vice
President - Human
Resources and
Administration
Ronald P. Brand, 59, Present position
Vice President -
Engineering and
Environmental Affairs
Ellen Ahearn, 43, Present position since April 1994;
Secretary Assistant Secretary and Internal
Auditing Manager, December 1992 -
April 1994
Steven V. Lant, 40, Present positions since April 1993;
Treasurer and Assistant Treasurer and Assistant
Assistant Secretary Secretary, December 1992 - April
1993
16
Principal Occupation or
Employment and Positions
Name of Officer, Age and Offices with the Company
and Position Held during the past five (5) years
Executive Officers of the Company - (Continued)
Donna S. Doyle, 49, Present position since April 1995;
Controller Assistant Controller April 1994 -
April 1995; Manager of Taxes, Budgets
and Customer Accounting, April 1993 -
April 1995, Manager of Plant and
Depreciation and General Accounting,
December 1992 - April 1993
Arthur R. Upright, 54, Present position since February
Assistant Vice 1994; Manager Cost and Rate
President - Cost and Financial Planning, December 1992
and Rate and - February 1994
Financial Planning
Gladys L. Cooper, 46, Present position since September
Assistant Vice 1995; leave of absence for
President - educational purposes December 1992 -
Governmental September 1995; Secretary, December
Relations 1992 - April 1994
James P. Lovette, 48, Present position since October
Assistant Vice 1997; Plant Superintendent, December
President - Fossil 1992 - November 1997
Production
There are no family relationships existing among any of
the executive officers of the Company.
Each of the above executive officers is elected or
appointed annually by the Board of Directors.
ITEM 2 - PROPERTIES
Electric
General: The net capability of the Company's electric
generating plants as of December 31, 1997, the net output of each
plant for the year ended December 31, 1997, and the year each
plant was placed in service or rehabilitated are as set forth
below:
17<PAGE>
<TABLE>
<CAPTION> (MW)*
Electric Net Capability 1997 Unit
Generating Year Placed (96-97) Net Output
Plant Type of Fuel In Service Summer Winter (MWh)
<S> <C> <C> <C> <C> <C>
Danskammer Residual Oil, Natural 1951-1967 499 497 2,359,884
Plant ** Gas and Coal
Roseton Plant Residual Oil 1974 422 419 510,944
(35% share)** and Natural Gas
Neversink Water 1953 23 23 70,210
Hydro Station
Dashville Water 1920 4 4 11,752
Hydro Station
Sturgeon Pool Water 1924 16 16 53,352
Hydro Station
High Falls Water 1986 2 3 7,597
Hydro Station
Coxsackie Gas Kerosene or 1969 20 25 3,128
Turbine ("GT") Natural Gas
So. Cairo GT Kerosene 1970 19 21 2,008
Nine Mile 2 Nuclear 1988 102 104 794,475
Plant (9% share) ----- ----- ---------
Total 1,107 1,112 3,813,350
* Reflects maximum one-hour net capability of the Company's ownership of generation resources
and, therefore, does not include firm purchases or sales.
** Plants subject to auction based on Amended Settlement Agreement as described in Item 7
hereof under the caption "Competition/Deregulation - Competitive Opportunities
Proceeding" and in Note 1 - "Regulatory Matters."
</TABLE>
18
The Company has a contract with PASNY which entitles
the Company to 49 MW net capability from the Blenheim-Gilboa
Pumped Storage Hydroelectric Plant through 2002.
See Item 1 hereof, under the caption "Regulation" and
the subcaption "Purchased Electric Power Generation," with
respect to alternative electric power generation interconnected
with the Company's system.
The Company owns 83 substations having an aggregate
transformer capacity of 4.4 million kVA. The transmission system
consists of 588 pole miles of line and the distribution system of
7,394 pole miles of overhead lines and 856 trench miles of
underground lines.
Load and Capacity: The Company's maximum one-hour
demand within its own territory, for the year ended December 31,
1997, occurred on July 15, 1997 and amounted to 917 MW. The
Company's maximum one-hour demand within its own territory, for
that part of the 1997-1998 winter capability period through
February 9, 1998 occurred on December 10, 1997 and amounted to
752 MW.
Based on current projections of peak one-hour demands
for the three-year period comprising the 1998 summer capability
period through the winter capability period of 2000-2001, the
Company estimates that it will have capacity available to satisfy
its projected peak demands plus the estimated installed reserve
generating capacity requirements which it is required to maintain
as a member of the New York Power Pool ("NYPP"), described
herein.
19
<TABLE>
The following table sets forth the amounts of any excess capacity by summer and winter
capability periods for such three-year period:
<CAPTION>
Peak plus Excess of Capacity over
Forecasted Installed Available Peak Plus NYPP Installed
Capability Peak Reserve of Capacity Reserve Requirements
Period (MW) 18% (MW) (MW) (MW) Percent
<S> <C> <C> <C> <C> <C> <C>
1998 Summer 910 1074 1174 100 9.3
1998-99 Winter 870 1074* 1179 105 9.8
1999 Summer 925 1092 1174 82 7.5
1999-00 Winter 885 1092* 1179 87 8.0
2000 Summer 940 1109 1174 65 5.9
2000-01 Winter 905 1109* 1179 70 6.3
* Summer period peak plus reserve requirements carry over to the following winter
period.
</TABLE>
20
<PAGE>
Roseton Plant: The Roseton Plant is located in the
Company's franchise area at Roseton, New York, and is owned by
the Company, Consolidated Edison Company of New York ("Con
Edison") and Niagara Mohawk Power Corporation ("Niagara Mohawk")
as tenants-in-common. The Roseton Plant, placed in commercial
operation in 1974, has a generating capacity of 1,200 MW
consisting of two 600 MW generating units, both of which are
capable of being fired either by residual oil or natural gas (see
subcaption below entitled "Gas - Sufficiency of Supply and Future
Gas Supply"). The Company is acting as agent for the owners with
respect to operation of the Roseton Plant. Generally, the owners
share the costs and expenses of the operation of such Plant in
accordance with their respective ownership interests.
The Company, under a 1968 Agreement ("Basic
Agreement"), has the option to purchase the interests of Niagara
Mohawk (25%) and of Con Edison (40%) in the Roseton Plant in
December 2004. The exercise of this option is subject to PSC
approval. However, by agreement, dated March 30, 1994, between
the Company and Niagara Mohawk, Niagara Mohawk was given, among
other things, an option to retain its 25% interest in the Roseton
Plant, provided that Niagara Mohawk exercises such option by May
31, 1999.
In March 1997, Niagara Mohawk and the Company entered
into a Power Sales and Option Agreement which, among other
things, provides the Company with various options from 1998
through 2004 to purchase capacity and associated energy from
Niagara Mohawk's interest in the Roseton Plant.
On December 1, 1997, as part of its restructuring
proposal, Niagara Mohawk filed with the PSC a plan to divest its
fossil-fueled and hydroelectric generating assets by auction by
mid-1999. Niagara Mohawk's 25% interest in the Roseton Plant
would be part of such divestiture.
As part of Con Edison's Amended and Restated Agreement
and Settlement, as amended on September 19, 1997, between Con
Edison, the Staff of the PSC ("Staff") and others, and as
approved by the PSC by its Order issued and effective November 3,
1997, Con Edison agreed to develop a plan to divest and transfer
certain of its electric generating assets to unregulated
21
entities, including third parties and Con Edison affiliates, by
the end of 2002. Con Edison's 40% interest in the Roseton Plant
would be subject to such divestiture.
The Company cannot predict what effect any
auction/transfer of Niagara Mohawk's and/or Con Edison's
interests in the Roseton Plant would have on the Company's
interest in the Roseton Plant.
For information with respect to the Company's
obligation to divest itself of its interest in the Roseton Plant,
see Item 7 hereof under the caption "Competition/Deregulation -
Competitive Opportunities Proceeding" and Note 1 - "Regulatory
Matters," under the subcaption "Amended Settlement Agreement."
The 345 kV transmission lines and related facilities to
connect the Roseton Plant with other points in the system of the
Company and with the systems of Con Edison and Niagara Mohawk to
the north and west of such Plant are 100%-owned by the Company.
The share of each of the parties in the output of the Roseton
Plant is transmitted over these lines pursuant to a certain
transmission agreement relating to such Plant, which provides,
among other things, for compensation to the Company for such use
by the other parties. In addition, the Company has contract
rights which entitle the Company to the lesser of 300 MW, or one
quarter of the capacity in a 345 kV transmission line owned by
PASNY, which connects the Roseton Plant with a Con Edison
substation to the east of such Plant in East Fishkill, New York.
In exchange for these rights, the Company agreed to provide PASNY
capacity in the 345 kV transmission lines the Company owns from
the Roseton Plant, to the extent it can do so after satisfying
its obligations to Con Edison and Niagara Mohawk.
Nine Mile 2 Plant: For a discussion of the Company's
ownership interest in, costs for, and certain operating matters
relating to the Nine Mile 2 Plant, see Item 7 hereof under the
subcaption "Nuclear Operations," Note 3 - "Nine Mile 2 Plant,"
and Note 2 - "Summary of Significant Accounting Policies," under
the subcaption "Jointly-Owned Facilities."
22
New York Power Pool/Independent System Operator
The Company is a member of the NYPP consisting of the
major investor-owned electric utility companies in the State and
PASNY. The members of the NYPP, by agreement, provide for
coordinated operation of their bulk power electric systems with
the objectives of using the most economical source of
electricity, for the maintenance of a reserve margin equal to at
least 18% of each member's forecasted peak load and for the sale
and interchange of electric generating capability and energy
among such members. The members of the NYPP also provide for the
cooperative development of long-range plans for the expansion on
an integrated basis of the bulk power supply system for New York
State, compatible with environmental standards, and appropriately
related to interstate and international capacity and reliability
considerations.
As part of the ongoing discussions regarding the
restructuring of the electric industry in New York State referred
to in Item 7 hereof under the caption "Competition/Deregulation,"
proposals have been made to restructure the NYPP. In a filing
with FERC, dated January 31, 1997, the member systems of the NYPP
proposed a new market structure that would include as its key
elements the establishment of an Independent System Operator
("ISO"), the New York State Reliability Council ("NYSRC"), and
the New York Power Exchange ("NYPE"). The ISO, NYSRC and NYPE
would collectively replace the NYPP. A supplemental filing
expanding the proposed restructure of NYPP was made by NYPP to
FERC in December, 1997. The Company is unable to predict the
outcome of these FERC filings.
The ISO's principal mission would be to maintain the
reliability of the New York State bulk power systems and to
provide transmission service on a comparable and non-discriminatory basis.
The ISO would be open to buyers, sellers,
consumers and environmental groups and transmission providers;
each of these groups would be represented on the Board of
Directors of the ISO, which is proposed to be a not-for-profit
New York corporation. The NYSRC's mission would be to promote
and preserve the reliability of the bulk power system within New
York State, through its primary responsibility for the
promulgation of reliability rules; the ISO would develop the
23
procedures necessary to operate the system within these
reliability rules. The NYSRC is proposed to be governed by a
committee comprised of transmission providers and representatives
of buyers, sellers, and consumer and environmental groups. The
NYPE is proposed to be established as a non-profit corporation
that would provide a vehicle through which buyers and sellers
could participate in the markets for energy, capacity and
ancillary services.
Gas
General: The Company's gas system consists of 161
miles of transmission pipelines and 977 miles of distribution
pipelines.
During 1997, natural gas was available to firm gas
customers at a price competitive with that of alternative fuels.
As compared to 1996, in 1997, firm retail gas sales, normalized
for weather, increased by 1.17% and the average number of firm
gas customers increased by 1.43% or 867. Sales to interruptible
customers increased 111% in 1997 as compared to 1996. For
further information regarding the Company's incentive
arrangements for interruptible gas sales, see Item 7 hereof under
the subcaption "Interruptible Gas Sales."
For the year ended December 31, 1997, the total amount
of gas purchased from all sources was 19,397,777 Mcf., which
includes 1,831,307 Mcf. purchased directly for use as a boiler
fuel at the Roseton Plant.
The Company also owns two propane-air mixing facilities
for emergency and peak shaving purposes located in Poughkeepsie
and in Newburgh, New York. Each facility is capable of supplying
8,000 Mcf. per day with propane storage capability adequate to
provide maximum facility sendout for up to three consecutive
days.
Sufficiency of Supply and Future Gas Supply: The peak
daily demand for natural gas by the Company's customers for the
year ended December 31, 1997 occurred on January 18, 1997 and
amounted to 101,175 Mcf. The Company's peak-day gas capability
in 1997 was 116,865 Mcf. The peak daily demand for natural gas
24
by the Company's customers for that part of the 1997-1998 heating
season through February 9, 1998, occurred on December 3, 1997 and
amounted to 88,903 Mcf.
Fixed Price Option: By PSC Order issued and effective
June 5, 1997, the Company filed a rate design for a fixed natural
gas price option. The fixed price service option was made
available to firm sales customers effective with the 1997-98
heating season in an attempt to stabilize the commodity price
that customers pay for natural gas.
This option is offered to residential, commercial and
industrial customers whose annual consumption is greater than 500
Ccf (hundred cubic feet) annually. Approximately 36,000
customers qualified for the program on a first-come, first-service basis.
Response to the fixed price option was favorable.
Other: FERC permits non-discriminatory access to the
pipeline facilities of interstate gas pipeline transmission
companies subject to the jurisdiction of FERC under the Natural
Gas Act. This rule allows access to such pipelines by the
pipeline transmission company's customers enabling them to
transport gas purchased directly from third parties and spot
sources through such pipelines. Such access also permits
industrial customers of gas distribution utilities to connect
directly with the pipeline transmission company and to contract
directly with the pipeline transmission companies to transport
gas, thereby by-passing the distribution utility. The PSC has
authorized New York State distribution gas utilities to transport
customer-owned gas through its facilities upon request of a
customer. Currently, interstate pipeline transmission companies
are located in certain areas where the Company provides retail
gas service (the Towns of Carmel, Pleasant Valley, Coxsackie, and
LaGrange in New York State). There has been no adverse revenue
impact on the Company as a result of such action by the Company
to transport gas.
For a discussion of the PSC proceeding relating to
issues associated with the restructuring of the natural gas
market, see Item 7 hereof under the subcaption
"Competition/Deregulation - Natural Gas - PSC Position Paper."
25
Other Matters
The Danskammer Plant and the Roseton Plant and all of
the other principal generating plants and important property
units of the Company are held by it in fee simple, except (1)
certain rights-of-way, and (2) a portion of the property used in
connection with the hydroelectric plants of the Company
consisting of flowage or other riparian rights. The Company's
present interests in the Roseton Plant and the Nine Mile 2 Plant
are owned as undivided interests as a tenant-in-common with the
other utility owners thereof. Certain of the properties of the
Company are subject to rights-of-way and easements which do not
interfere with the Company's operations. In the case of certain
distribution lines, the Company owns only a part interest in the
poles upon which its wires are installed, the remaining interest
being owned by telephone companies. Certain electric
transmission facilities owned by others are used by the Company
pursuant to long-term contractual arrangements.
All of the physical properties of the Company, other
than property such as material and supplies excluded in the
Company's First Mortgage Bond Indenture ("Mortgage") and its
franchises, are subject to the lien of the Mortgage under which
all of its Mortgage Bonds are outstanding. Such properties are
from time to time subject to liens for current taxes and
assessments which the Company pays regularly as and when due.
During the three-year period ended December 31, 1997,
the Company made gross property additions of $144.0 million and
property retirements and adjustments of $34.7 million, resulting
in a net increase (including Construction Work in Progress) in
utility plant of $109.3 million, or 7.7%.
ITEM 3 - LEGAL PROCEEDINGS
Asbestos Litigation
For a discussion of litigation against the Company
involving asbestos, see Note 9 - "Commitments and Contingencies,"
hereof under the caption "Asbestos Litigation."
26
Environmental Litigation
On March 23, 1992, in an action brought in 1991 by the
Natural Resources Defense Council, Inc., the Hudson River
Fisherman's Association and Scenic Hudson, Inc., a Consent Order
was approved by the Supreme Court of the State of New York,
Albany County.
Such Consent Order provides for certain operating
restrictions at the Roseton Plant relating to the use of river
water for plant cooling purposes, which restrictions have not,
and are not expected to impose material additional costs on the
Company. The Consent Order was extended until February 1, 1998
by agreement of the parties and Court approval. A further
extension is being currently negotiated. For a description of
the pending NYSDEC proceeding involving the renewal of the SPDES
permit for the Roseton Plant, see Item 1 hereof under the
subcaption "Environmental Quality - Water," and Note 9 -
"Commitments and Contingencies," under the caption "Environmental
Matters - Clean Water Act Compliance."
Environmental Claims - Newburgh Manufactured Gas Site
For a discussion of litigation filed against the
Company by the City of Newburgh, New York, on May 26, 1995 in the
United States District Court, Southern District of New York, and
the Company's response thereto, see Note 9 - "Commitments and
Contingencies," under the subcaption "Environmental Matters -
Former Manufactured Gas Plant Facilities."
Catskill Incident
An explosion occurred in a dwelling in the Company's
gas service territory in Catskill, New York in November 1992
which resulted in personal injuries, the death of an occupant and
property damage. Lawsuits have been commenced against the
Company arising out of such incident, including the following:
By complaint, dated February 2, 1994, Carl Fatzinger,
as executor of the estate of Mildred Fatzinger, and Virginia
Fatzinger commenced an action in the Supreme Court of the State
of New York, Greene County, against the Company and two other
defendants. The complaint seeks an unspecified amount of
27
compensatory and punitive damages based on theories of
negligence, absolute liability and gross negligence for the death
of Mildred Fatzinger, personal injuries to Virginia Fatzinger and
property damage alleged to have been caused by said explosion.
By complaint, dated October 18, 1993 and filed in the
Supreme Court of the State of New York, Greene County, Frank
Reyes commenced an action against the Company for unspecified
personal injuries and property damage alleged to have been caused
by said explosion. The complaint seeks $2,000,000 in
compensatory damages and $2,000,000 in punitive damages from the
Company, based on theories of negligence and gross negligence.
The Company is investigating these claims and presently
has insufficient information on which to predict their outcome.
The Company believes that it has adequate insurance with regard
to the claims for compensatory damages. The Company's insurance,
however, does not extend to punitive damages. If punitive
damages were ultimately awarded in either or both of these
lawsuits, such award(s) could have a material adverse effect on
the financial condition of the Company. At this time, the
Company can make no prediction as to any other litigation which
may arise out of this incident.
Wappingers Falls Incident
Two consecutive fires and explosions occurred on
February 12, 1994, destroying a residence and commercial
establishment in the Village of Wappingers Falls, New York, in
the Company's service territory. Lawsuits have been commenced
against the Company arising out of such incident, including the
following:
On August 31, 1994, the Company was served with a
summons and complaint in an action brought by John DeLorenzo
against the Company and the Village of Wappingers Falls in the
Supreme Court of the State of New York, County of Dutchess. The
complaint seeks unspecified amounts of damages, based on a theory
of negligence, for personal injuries and property damage alleged
to have been caused by the incident.
28
On March 9, 1995, the Company was served with a summons
and complaint in an action brought by Cengiz Ceng, individually
and as executor under the last will and testament of Nizamettin
Ceng, and Tarkan Thomas Ceng against the Company and the Village
of Wappingers Falls in the Supreme Court of the State of New
York, County of Dutchess. The complaint seeks recovery of
$250,000 from the Company, based on the theory of negligence, for
property damages alleged to have been caused by the incident.
The Company is investigating these claims and presently
has insufficient information on which to predict their outcome.
The Company believes that it has adequate insurance with regard
to the claims for compensatory damages. The Company's insurance,
however, does not extend to punitive damages. If punitive
damages were ultimately awarded, in any of these lawsuits, such
award(s) could have a material adverse effect on the financial
condition of the Company. At this time, the Company can make no
prediction as to any other litigation which may arise out of this
incident.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year covered by
this Report.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
For information regarding the market for the Company's
common stock and related stockholder matters, see Item 7 hereof
under the captions "Capital Resources & Liquidity - Financing
Program" and "Common Stock Dividends and Price Ranges" and Note 6
- - "Capitalization - Capital Stock."
Pursuant to applicable statutes and its Certificate of
Incorporation, the Company may pay dividends on shares of
Preferred and Common Stock only out of surplus.
29
For information regarding the replacement, effective
January 1, 1997, of the Company's Automatic Dividend Reinvestment
and Stock Purchase Plan ("DRP"), Customer Stock Purchase Plan
("CSPP") and Employee Stock Purchase Plan ("ESPP"), by a single
new Stock Purchase Plan, see Note 6 - "Capitalization - Capital
Stock."
For information on the Company's program to repurchase
some of its issued and outstanding common stock pursuant to a
program approved by the PSC, see Item 7 hereof under the caption
"Financing Program."
30
<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
<CAPTION>
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA*
(In Thousands)
<S> 1997 1996 1995 1994 1993
Operating Revenues <C> <C> <C> <C> <C>
Electric........................................ $ 416,429 $ 418,761 $ 409,445 $ 411,082 $ 422,925
Gas............................................. 103,848 95,210 102,770 104,586 94,448
Total......................................... 520,277 513,971 512,215 515,668 517,373
Operating Expenses
Operations...................................... 284,714 267,779 274,665 274,497 274,477
Maintenance..................................... 27,574 28,938 29,440 32,716 34,486
Depreciation and amortization................... 43,864 42,580 41,467 40,380 39,682
Taxes, other than income tax.................... 64,879 66,145 66,709 66,899 65,564
Federal income tax.............................. 29,190 32,700 29,040 28,043 28,603
Total......................................... 450,221 438,142 441,321 442,535 442,812
Operating Income.................................. 70,056 75,829 70,894 73,133 74,561
Other Income
Allowance for equity funds
used during construction....................... 387 466 986 866 934
Federal income tax.............................. 2,953 1,632 353 1,237 1,445
Other - net..................................... 8,079 4,815 8,886 6,296 5,167
Total......................................... 11,419 6,913 10,225 8,399 7,546
Income before Interest Charges.................... 81,475 82,742 81,119 81,532 82,107
Interest Charges.................................. 26,389 26,660 28,397 30,603 31,717
31
</TABLE>
<TABLE>
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIAL DATA* (CON'T)
(In Thousands)
<CAPTION>
<S> 1997 1996 1995 1994 1993
<C> <C> <C> <C> <C>
Net Income........................................ 55,086 56,082 52,722 50,929 50,390
Premium on Preferred Stock Redemption-Net......... - 378 169 - -
Dividends Declared on Cumulative Preferred Stock.. 3,230 3,230 4,903 5,127 5,562
Income Available for Common Stock................. 51,856 52,474 47,650 45,802 44,828
Dividends Declared on Common Stock................ 37,137 37,128 36,459 35,541 34,497
Amount Retained in the Business................... 14,719 15,346 11,191 10,261 10,331
Retained Earnings - beginning of year............. 105,821 90,475 79,284 69,023 58,692
Retained Earnings - end of year................... $ 120,540 $ 105,821 $ 90,475 $ 79,284 $ 69,023
Common Stock
Average shares outstanding (000s)............... 17,435 17,549 17,380 17,102 16,725
Earnings per share on
average shares outstanding..................... $2.97 $2.99 $2.74 $2.68 $2.68
Dividends declared per share.................... $2.135 $2.115 $2.095 $2.075 $2.045
Book value per share (at year-end).............. $27.61 $26.87 $25.96 $25.34 $24.65
Total Assets...................................... $1,252,090 $1,249,106 $1,250,092 $1,250,781 $1,264,240
Long-term Debt.................................... 361,829 362,040 389,245 389,364 391,810
Cumulative Preferred Stock........................ 56,030 56,030 69,030 81,030 81,030
Common Equity..................................... 477,104 471,709 454,239 436,731 417,846
* This summary should be read in conjunction with the Consolidated Financial Statements and Notes
thereto included in Item 8 of this Form 10-K Report.
</TABLE>
32
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPETITION/DEREGULATION
General
The regulatory framework under which utilities operate
is undergoing significant change, although the path and pace of
that change vary from jurisdiction to jurisdiction. The Company
is subject to regulation for retail rates by the PSC and
wholesale rates by the FERC. These agencies have each adopted
policies that focus on competition in gas and electric markets.
As a result, the public utility industry is facing increasing
competition and deregulation initiatives across the country and
in New York State.
Due to the rapid change in the utility industry, the
Company continues to develop strategies designed to enhance its
competitive position and to adapt to anticipated changes in its
business. The Company's goal is to be the energy services
provider of competitive choice in the emerging retail market. In
order to achieve this goal, the Company continues to identify and
implement measures to increase efficiency and improve
effectiveness.
Competitive Opportunities Proceeding
In 1994, the PSC instituted the "Competitive
Opportunities Proceeding," the overall objective of which is to
identify regulatory and rate-making practices that will assist in
the transition to a more competitive electric industry. In May
1996, the PSC issued its order in that Proceeding, which required
all of the electric utilities subject to that Proceeding,
including the Company, to file a restructuring plan by October,
1996. That Plan was required to address, among other things, the
structure of the electric utility, both in the short and long-term, and
a schedule for the introduction of retail access. The
Company filed its response on October 1, 1996 and thereafter
began a series of lengthy discussions and negotiations with the
PSC and certain other interested parties which culminated in an
Amended and Restated Settlement Agreement, dated January 2, 1998
("Amended Settlement Agreement"), among the Company, PSC Staff
33
and certain other parties. The PSC approved the Amended
Settlement Agreement at its February 4, 1998 session; however,
the PSC had not yet issued its final order at the time this
document was filed with the Securities and Exchange Commission.
Generally, the principal points of the Amended Settlement
Agreement are as follows: (i) continuation of a basic electric
rate freeze for residential, commercial and small industrial
customers through June 2001; (ii) a 5% reduction in base electric
rates for large industrial customers; (iii) a phase-in of retail
access through June 30, 2001 to residential, commercial and small
industrial customers; (iv) a 10.6% return on equity ("ROE") cap
with excess earnings, if any, deferred for stranded cost
mitigation; (v) a reasonable opportunity to recover all prudently
incurred strandable costs; (vi) functional unbundling of the
Company's Danskammer Plant and its interest in the Roseton Plant
in 1998, followed by structural separation by June 30, 2001;
(vii) transfer of title by an auction of the Company's Danskammer
Plant and its interest in the Roseton Plant to be completed by
June 30, 2001 (an affiliate of the Company can bid); (viii)
approval to form a holding company not later than June 30, 2001,
which holding company initially would own the Company and all but
one of the Company's existing subsidiaries; and (ix) permission
for the Company to transfer up to $100 million of equity from the
Company to unregulated affiliates prior to formation of the
holding company.
The consideration received by the Company in an
auction, referred to in (vii) above, would, up to the net book
value of the assets sold, be available for investment in
unregulated operations without PSC approval. Any excess over
such net book value would be required to be used to offset the
Company's fossil-fueled generation related regulatory assets and,
to the extent of any remaining consideration, to reduce the book
cost of the Company's investment in the Nine Mile 2 Plant. In
the event that the sale price of any such assets were below the
Company's then current net book value, the difference would be
preserved for recovery as a strandable cost.
In the event a Company affiliate elects not to bid on
any such auction, the Company would retain, prior to application
of the consideration described in the immediately preceding
paragraph, 10% of such consideration in excess of the book value
of the Company's fossil-fueled generation assets, not to exceed
in the aggregate $17.5 million.
34
As provided for in the Amended Settlement Agreement,
the Company will withdraw from a certain lawsuit commenced by the
Company and certain other utilities in the New York State court
system challenging the validity of said May 1996 PSC Order.
The Amended Settlement Agreement creates certain
changes to the Company's accounting policies. For more
information regarding the Amended Settlement Agreement and its
impact on the Company's accounting policies see Note 1 -
"Regulatory Matters" herein.
FERC - Electric
On April 24, 1996, the FERC released Order Nos. 888 and
889, promoting wholesale competition between public utilities by
providing open access, non-discriminatory transmission services.
The Orders have the effect of (i) requiring electric utilities to
open their transmission lines to wholesale competitors, while
allowing recovery of certain "stranded costs," (ii) requiring
electric utilities to establish electronic systems to share
information about available transmission capacity, subject to
certain standards of conduct, and (iii) requiring certain
functional separation of power marketing from other operations.
The Company duly filed its open access transmission ("OAT")
tariff with FERC, as required by Order No. 888, which tariff has
been approved by FERC. Under the OAT tariff, the Company must
offer transmission service to wholesale customers on a basis that
is comparable to that which it provides itself. The Company is
also required to offer and/or provide certain ancillary services
which contribute to the reliability and security of the
transmission system. On December 30, 1996, the NYPP, of which
the Company is a member, filed an interim restructuring plan with
FERC in response to the requirements of Order No. 888. On
January 31, 1997, the NYPP filed an additional restructuring
filing, which includes proposals to establish an ISO, a NYPE, and
a NYSRC. The NYPP filed a supplemental filing with FERC in
December 1997 which expanded the prior restructuring filing.
Pending the outcome of such proceedings as the FERC may require
in response to such filings, the Company can make no prediction
as to the effect on it of these filings, or of compliance with
FERC Order Nos. 888 or 889.
35
Mergers in the Electric Industry
In response to the increasingly competitive
environment, utilities across the country have been reorganizing
to better position themselves financially in their market areas
for the future. Thus, mergers and possible mergers have been
reported in the news media, including the public announcement of
the proposed merger between Long Island Lighting Company
("LILCO") and Brooklyn Union Gas Company, two New York utilities.
Natural Gas-PSC Position Paper
On September 4, 1997, the PSC issued a notice inviting
comments on a report prepared by the PSC Staff, entitled "The
Future of the Natural Gas Industry" ("Position Paper").
Recognizing that customer choice has not evolved as expected
under the gas generic restructuring orders from the PSC, the PSC
Staff reached the conclusion that "the most effective way to
establish a robustly competitive market in gas supply is to
separate the merchant and distribution function." The Position
Paper sets forth a variety of recommendations addressing issues
such as upstream capacity, rate design, system reliability,
market power, customer communication, social programs and taxes.
The PSC Staff believes that a five-year period is necessary for
local distribution companies to transition out of the merchant
business. The Company is unable to predict what will be the
ultimate outcome of such a proposal.
RATE PROCEEDINGS
Electric
The Company's most recent completed electric rate case
was filed November 12, 1992 and, by Order issued and effective
February 11, 1994, the PSC permitted the Company to increase its
electric base rates by $5.133 million (or approximately 1.3% on
an annual basis), based on a 10.6% return on common equity, and
an 8.58% return on total invested capital. See the caption above
"Competition/Deregulation" and the subcaption "Competitive
Opportunities Proceeding" thereunder, for a discussion related to
the Company's October 1, 1996 filing in that Proceeding.
36
Gas
The Company filed its most recent gas rate case on
November 10, 1995, and the PSC, on October 3, 1996, issued its
Order and Opinion ("Order") regarding the Company's request to
increase its natural gas prices. The Order did not provide for
an increase in base prices, but did authorize rate moderation to
offset a projected revenue deficiency of $500,000, largely
through the use of previously retained interruptible profits.
The PSC also determined that a 10% return on common equity is
appropriate for the Company's gas operations.
CAPITAL RESOURCES AND LIQUIDITY
Construction Program
As shown in the Consolidated Statement of Cash Flows,
the cash expenditures related to the Company's construction
program amounted to $43.5 million in 1997, a $5.9 million
decrease from the $49.4 million expended in 1996. As shown in
the table below, cash construction expenditures for 1998 are
estimated to be $58.1 million, an increase of $14.6 million
compared to 1997 expenditures.
In 1998, the Company expects to satisfy its external
funding requirements, if any, through issuances of additional
debt securities, the amount and type of which cannot be
predicted.
37
Estimates of construction expenditures, internal funds
available, mandatory and optional redemption or repurchase of
long-term securities, and working capital requirements for the
two-year period 1998-1999 are set forth by year in the following
table:
Total
1998 1999 1998-1999
(In Thousands)
Construction Expenditures*..... $58,100 $51,700 $109,800
Internal Funds Available....... 55,900 56,600 112,500
Excess of Construction
Expenditures over Internal
Funds......................... 2,200 (4,900) (2,700)
Mandatory Redemption of Long-
term debt..................... 100 20,100 20,200
Optional Redemption or Purchase
of Securities:
Long-term debt.............. - 16,700 16,700
Common stock................ 24,000 24,000 48,000
Total................... 24,000 40,700 64,700
Other Cash Requirements........ 7,000 11,000 18,000
Total Cash Requirements........ $33,300 $66,900 $100,200
* Excluding the equity portion of Allowance for Funds Used During
Construction ("AFDC"), a noncash item.
Estimates of construction expenditures are subject to
continuous review and adjustment, and actual expenditures may
vary from estimates. These construction expenditures include
capitalized overheads, nuclear fuel and the debt portion of AFDC.
Included in the construction expenditures are
expenditures which are required to comply with the Clean Air Act
and related Amendments of 1990.
As shown in the table above, it is presently estimated
that funds available from internal sources will finance over 100%
of the Company's cash construction expenditures for the two-year
period 1998-1999. During this same two-year period, total
38
external financing requirements are projected to amount to $100.2
million, of which $20.2 million is related to the mandatory
redemption of long-term securities and $64.7 million is related
to the optional redemption of long-term securities and the
repurchase of common stock.
Capital Structure
Over the period 1988-1997, the Company substantially
increased its common equity ratio through retention of a portion
of its earnings, offerings of its common stock to the public,
original issuances of its common stock under its DRP and its CSPP
(both of which have since been superseded, effective January 1,
1997, by the Company's Stock Purchase Plan described in this Item
7 under the caption "Financing Program," below and in Note 6 -
"Capitalization - Capital Stock" hereof) and redemption of debt
and preferred stock. One result of these recent increases in the
Company's common equity ratio has been a significant improvement
in its interest coverage ratios as shown under the caption
"Financial Indices" in this Item 7. The Company's interest
coverage ratios have also been improved by the refinancing of a
portion of its debt at lower interest rates. Despite a
tightening of bond rating criteria applied to the electric
utility industry, the Company has maintained or improved its bond
ratings since 1991. During 1997, Standard & Poor's Corporation,
upgraded the Company's senior debt rating from "A-" to "A." The
Company's other bond ratings, which were reaffirmed during 1997,
are "A" by Duff & Phelps Credit Rating Co. and Fitch Investors
Service and "A3" by Moody's Investors Service, Inc. The
Company's continuing goal is to achieve and maintain bond ratings
at the "A" level.
Under the terms of the Amended Settlement Agreement,
described under the caption "Competition/Deregulation" of Item 7
hereof, the Company may invest up to $100 million in unregulated
businesses prior to the formation of a holding company, which
formation is contemplated to become effective between January 1,
1999 and June 30, 2001. After its formation, such holding
company will be free to invest in new businesses subject only to
the terms of the Amended Settlement Agreement. As a result of
the new investment opportunities the Company expects to become
available in 1998 and 1999, the Company may make substantial new
investments and may change its capital structure in ways that
cannot be predicted at this time.
39
Set forth below is certain information with respect to
the Company's capital structure at the end of 1997, 1996 and
1995:
Year-end Capital Structure
1997 1996 1995
Long-term debt .......... 40.5% 40.1% 42.8%
Short-term debt ......... - 1.7 -
Preferred stock ......... 6.3 6.2 7.5
Common equity ........... 53.2 52.0 49.7
100.0% 100.0% 100.0%
Financing Program
By an Order issued and effective December 4, 1996, the
PSC granted the Company authorization to issue and sell, through
December 31, 1999, up to an additional $40 million of securities.
This $40 million can be comprised of medium term notes or common
stock solely or a combination of medium term notes and common
stock. That Order also authorizes the Company to acquire,
through December 31, 1999, not more than 2.5 million shares of
its issued and outstanding common stock. The Company also
received approval to combine its DRP, its CSPP and its ESPP into
a new Stock Purchase Plan, effective January 1, 1997.
The Company improved its common equity ratio from 35.4%
at December 31, 1987 (following the write down of a portion of
the Nine Mile 2 Plant as directed by the PSC) to 52.0% at
December 31, 1996, which level was deemed sufficient by the
Company. Pursuant to the aforementioned PSC authorization, the
Company, in January 1997, instituted a common stock repurchase
program primarily for the purpose of managing continuing growth
in its common equity ratio. Under such program the Company
repurchased 275,200 shares of its common stock during 1997.
Despite such program, the Company's common equity ratio further
improved to 53.2% at December 31, 1997. The Company's target
level of share repurchase for 1998 will be determined in early
1998 in view of the price per share of common stock, cash flow
and opportunities to reinvest in the Company's business or invest
in new businesses.
The Company intends to refinance, if economic, its
8.375% Series NYSERDA Bonds ($16.7 million) on or soon after its
call date on December 1, 1998 at a lower cost. The Company also
intends to refund at maturity its 5.38% Series Medium Term Notes
($20 million) on January 15, 1999.
40
Under the terms of the Amended Settlement Agreement
described above under the caption "Competitive Opportunities
Proceeding," prior to the formation of a new holding company, the
Company may transfer up to $100 million from its regulated
utility business to its unregulated businesses. The Company may,
pursuant to this authorization, issue up to $100 million of new
securities in 1998 or 1999. Following the formation of the
holding company contemplated under the Amended Settlement
Agreement to occur between January 1, 1999 and June 30, 2001, the
Company may issue new securities in furtherance of its business
plan to be developed for such holding company. The type of any
such securities to be issued after the formation of such holding
company and timing of issuance cannot be predicted at this time.
For more information with respect to such Order and the
Company's financing program in general, see Note 6 -
"Capitalization - Capital Stock" and Note 7 - "Capitalization -
Long-Term Debt."
Short-Term Debt
As more fully discussed in Note 5 - "Short-Term
Borrowing Arrangements" hereof, the Company has a revolving
credit agreement with four commercial banks for borrowing up to
$50 million through October 23, 2001. In addition, the Company
has several committed and uncommitted bank facilities ranging
from $.5 million to $50 million from which it may obtain short-term financing.
Such agreements give the Company competitive
options to minimize its cost of short-term borrowing.
Authorization from the PSC limits the amount the Company may have
outstanding at any time under all of its short-term borrowing
arrangements to $52.0 million in the aggregate.
RESULTS OF OPERATIONS
The following discussion and analysis includes an
explanation of the significant changes in revenues and expenses
when comparing 1997 to 1996 and 1996 to 1995. Additional
information relating to changes between these years is provided
in the Notes.
41
Earnings
Earnings per share of common stock are shown after
provision for dividends on preferred stock and are computed on
the basis of the average number of common shares outstanding
during the year. The number of common shares, the earnings per
share and the rate of return earned on average common equity are
as follows:
1997 1996 1995
Average shares outstanding (000s).. 17,435 17,549 17,380
Earnings per share................. $ 2.97 $ 2.99 $ 2.74
Return earned on common equity
per financial statements*......... 10.8% 11.1% 10.5%
* Return on equity for regulatory rate-making purposes differs
from these figures.
Earnings per share in 1997, when compared to 1996
results, decreased $.02 per share. This decrease resulted
substantially from decreased electric and gas net operating
revenues (including fuel costs and purchased electricity)
attributable largely to decreased sales resulting primarily from
a decrease in usage by residential and industrial electric
customers and residential and commercial gas customers due to
unseasonable weather experienced in 1997. Billing adjusted
heating degree days were 8% lower and cooling degree days were
16% lower, when 1997 results were compared to 1996. The effect
of these unseasonable weather conditions alone reduced earnings
by an estimated $.22, despite a 1% increase in the number of
customers. Also contributing to the decrease in 1997 earnings
are decreased electric earnings related to regulatory incentive
programs based on fuel costs and energy efficiency, largely due
to the reduced availability of purchased power at a cost below
the Company's fossil-fueled generation, and increased
depreciation expense on the Company's plant and equipment.
Partially offsetting these decreases in 1997 earnings
is a $.09 increase resulting from the net effect of two non-recurring items as
follows: the 1997 recording of tax adjustments including additional
investment tax credits and related interest refunded from the settlement
of various Internal Revenue Service ("IRS") audits, and the 1997 provision
for the non-recoverable
42
portion of a purchased power contract. Other items also impacted
earnings favorably including: decreased uncollectible accounts,
avoided interest expense from the optional redemption in May 1996
of the Company's 8 3/4% Series $30 million First Mortgage Bonds,
increased interest and dividend income, and decreased interest
expense.
Earnings per share in 1996 increased $.25 per share
over 1995 resulting primarily from increased electric and gas net
operating revenues caused largely by an increase in usage by
residential customers, and the unseasonable hot and/or cold
weather conditions experienced in 1996 when compared to 1995.
Heating degree days were 17% higher in 1996 than in the prior
year. Also contributing to the increase in 1996 were the
optional redemption of the Company's 7.44% Series Cumulative
Preferred Stock in October 1995, 7.72% Series Cumulative
Preferred Stock in January 1996 and 8 3/4% Series $30 million
First Mortgage Bonds in May 1996.
This 1996 increase in earnings per share was partially
offset by increased employee wages and associated fringe benefits
and the 1995 non-recurring gain from the sale of long-term stock
investments. Various other items unfavorably impacted earnings
per share including increased depreciation expense associated
with the Company's plant and equipment, decreased interest and
dividend income and increased uncollectible accounts.
43
<TABLE>
Operating Revenues
<CAPTION>
Total operating revenues increased $6.3 million (1%) in 1997 as compared to 1996
and increased $1.8 million (.3%) in 1996, as compared to 1995.
See the table below for details of the variations:
Increase or (Decrease) from Prior Year
1997 1996
Electric Gas Total Electric Gas Total
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Customer sales............. $ (7,860) $ 2,624 $ (5,236) $ 9,784 $(8,368) $ 1,416
Sales to other utilities... 4,840 (2,290) 2,550 330 2,475 2,805
Fuel cost adjustment....... (291) 8,846 8,555 (1,248) (2,497) (3,745)
Deferred revenues.......... 675 (1,125) (450) 677 840 1,517
Miscellaneous.............. 304 583 887 (227) (10) (237)
Total............... $ (2,332) $ 8,638 $ 6,306 $ 9,316 $(7,560) $ 1,756
</TABLE>
44
Sales
The Company's sales vary seasonally in response to
weather. Generally electric revenues peak in the summer and gas
revenues peak in the winter.
Sales of electricity within the Company's service
territory decreased 3% in 1997 and increased 3% in 1996.
Electric sales in 1997 decreased primarily because of a decrease
in usage by residential and industrial customers largely due to
the unseasonable weather conditions experienced in 1997 when
compared to 1996. In 1996, electric sales increased largely from
an increase in usage by residential customers, and the
unseasonable hot and/or cold weather experienced throughout 1996
when compared to the weather conditions of 1995.
Firm sales of natural gas (which excludes interruptible
and transportation sales) decreased 5% in 1997 due primarily to a
decrease in usage by residential and commercial customers. In
1996, firm sales of natural gas increased 12% due to an increase
in usage by residential, commercial and industrial customers.
Changes in sales from last year by major customer
classification, including interruptible gas sales are set forth
below. Also indicated are the changes related to transportation
of customer-owned gas:
% Increase (Decrease)
from Prior Year
Electric (Mwh) Gas (Mcf)
1997 1996 1997 1996
Residential............ (2) 5 (6) 16
Commercial............. - 1 (6) 12
Industrial............. (6) 3 11 15
Interruptible.......... N/A N/A 111 (78)
Transportation of
Customer-Owned Gas.... N/A N/A 74 105
Residential and Commercial Sales: Residential electric
and gas sales are primarily affected by the growth in the number
of customers and the change in customer usage. In 1997,
residential electric and gas sales and commercial gas sales
decreased primarily from a decrease in customer usage largely due
to the unseasonable weather experienced in the Company's service
45
territory in 1997. Billing adjusted heating degree days were 8%
lower and cooling degree days were 16% lower when 1997 results
were compared to 1996.
In 1996, residential and commercial electric and gas
sales increased primarily due to an increase in customer usage
partly caused by unseasonable hot and/or cold weather experienced
throughout 1996 in the Company's service territory. Heating
degree days were 17% higher in 1996 than in the prior year.
Industrial Electric Sales: In 1997, as compared to
1996, industrial electric sales decreased 6% primarily due to a
decrease in usage by a large industrial customer. In 1996, as
compared to 1995, industrial electric sales increased 3% largely
because of an increase in usage by a large industrial customer.
Industrial Gas Sales: In 1997, firm gas sales to
industrial customers increased 11% primarily because of an
increase in usage by a large industrial customer. Firm gas sales
to industrial customers for 1996 increased 15% substantially
because of increased usage by several large industrial customers.
Interruptible Gas Sales: In 1997, interruptible gas
sales increased 111% largely due to an increase in natural gas
sold for use as a boiler fuel at the Roseton Plant.
Interruptible gas sales decreased 78% in 1996, due substantially
to a decrease in natural gas sold for use as a boiler fuel at the
Roseton Plant. The use of gas as a boiler fuel at the Roseton
Plant is dependent upon its economic benefit as compared to the
use of oil for generation or the purchase of electricity to meet
the Company's load requirements. Due to sharing arrangements, as
described in the caption "Incentive Arrangements" of Item 7
hereof that are in place for interruptible gas sales and
transportation of customer-owned gas, variations from year to
year typically have a minimal impact on earnings.
Transportation of Customer-Owned Gas: The volume of
customer-owned gas transported in 1997 increased 74% and 105% in
1996 due primarily to an increase in usage by a large
transportation customer.
46
Incentive Arrangements
Pursuant to certain incentive formulas approved by the
PSC, the Company either shares with its customers, certain
revenues and/or cost savings exceeding defined predetermined
levels, or is penalized in some cases for shortfalls from the
targeted levels or defined performance standards.
Incentive formulas are in place for fuel cost
variations, sales of electricity and gas to other utilities,
interruptible gas sales, capacity release transactions and
customer satisfaction.
The net results of these incentive formulas were to
increase pretax earnings by $700,000, $2.9 million and $2.8
million during 1997, 1996 and 1995, respectively.
Operating Expenses
Changes from the prior year in the components of the
Company's operating expenses are listed below:
Increase or (Decrease)
from Prior Year
1997 1996
Amount % Amount %
(In Thousands)
Operating Expenses:
Fuel and purchased
electricity............... $ 7,584 7 $ 1,134 1
Purchased natural gas...... 10,878 22 (11,703) (19)
Other expenses of
operation................. (1,527) (2) 3,683 4
Maintenance................ (1,364) (5) (502) (2)
Depreciation and
amortization.............. 1,284 3 1,113 3
Taxes, other than
income tax................ (1,266) (2) (564) (1)
Federal income tax......... (3,510) (11) 3,660 13
Total.............. $ 12,079 3 $ (3,179) (1)
The most significant elements of operating expenses are
fuel and purchased electricity in the Company's electric
department and purchased natural gas in the Company's gas
47
department. Approximately 29% in 1997 and 27% in 1996 of every
revenue dollar billed by the Company's electric department was
expended for the combined cost of fuel used in electric
generation and purchased electricity. The corresponding figures
in the Company's gas department for the cost of purchased gas
were 59% and 53%, respectively.
In an effort to keep the cost of electricity at the
lowest reasonable level, the Company purchases energy from
sources such as other member companies of the NYPP, Canadian
hydro sources and energy marketers whenever energy can be
purchased at a unit cost lower than the incremental cost of
generating the energy in the Company's plants.
Fuel and purchased electricity increased $7.6 million
(7%) in 1997 primarily because of a 3% increase in total system
sales which includes sales to other utilities.
Purchased natural gas increased $10.9 million (22%) in
1997 largely due to higher interruptible gas sales, including gas
used as a boiler fuel at the Roseton Plant. In 1996, purchased
natural gas decreased $11.7 million (19%) primarily because of
lower interruptible gas sales for usage as a boiler fuel at the
Roseton Plant.
Other expenses of operation increased $3.7 million (4%)
in 1996 primarily due to increased employee wages and associated
fringe benefits and increased uncollectible accounts.
See Note 4 - "Federal Income Tax," herein for an
analysis and reconciliation of the federal income tax.
Other Income and Interest Charges
Other income (excluding AFDC) increased $4.6 million
(71%) in 1997 and decreased $2.8 million (30%) in 1996. The 1997
increase was due primarily to interest refunded in 1997 from the
settlement of various IRS audits and the 1996 charges associated
with the optional redemption of the 8 3/4% Series of First
Mortgage Bonds. The 1996 decrease was largely due to the non-recurring gain of
$2.1 million realized in 1995 from the sale of
long-term stock investments and the recording of one-time charges
associated with the optional redemption of $30 million 8 3/4%
Series of First Mortgage Bonds in May 1996.
Total interest charges (excluding AFDC) decreased
$533,000 (2%) in 1997 and $1.7 million (6%) in 1996.
48
<PAGE>
The following table sets forth some of the pertinent data on the
Company's outstanding debt:
1997 1996 1995
(In Thousands)
Long-term debt:
Debt retired................ $ 85 $ 30,000 $ 2,562
Outstanding at year-end*:
Amount (including current
portion)................... 363,744 364,026 391,715
Effective rate.............. 6.78% 6.70% 7.00%
Short-term debt:
Average daily amount
outstanding ............... $ 1,692 $ 5,477 $ 103
Weighted average
interest rate ............. 5.54% 5.59% 6.16%
*Including debt of subsidiaries of $7.4 million in 1997, $7.6
million in 1996 and $5.3 million in 1995.
See Note 5 - "Short-Term Borrowing Arrangements" and Note 7 -
"Capitalization - Long-Term Debt" for additional information on
short-term and long-term debt of the Company.
Nuclear Operations
The Nine Mile 2 Plant is owned, as tenants-in-common,
by the Company, Niagara Mohawk, New York State Electric & Gas
Corporation ("NYSEG"), LILCO and Rochester Gas and Electric
Corporation ("Rochester"). Niagara Mohawk operates the Nine Mile
2 Plant.
The Company owns a 9% interest of the Nine Mile 2
Plant, which is discussed in Note 3 - "Nine Mile 2 Plant." The
operations of this Plant have continued to improve. The actual
capacity factor of 88.7% for 1997 exceeded the targeted capacity
factor of 84% included in the Company's electric fuel adjustment
clause. This resulted in a favorable impact on earnings.
The operating expenses, taxes and depreciation
pertaining to the operation of the Nine Mile 2 Plant are included
in the Company's financial results. For both 1997 and 1996, the
actual cost of operations was less than the allowable Nine Mile 2
Plant operation and maintenance expenses provided in Supplement
49
No. 5 to the 1990 Settlement Agreement, as approved by the PSC.
In both 1997 and 1996, the underruns were entirely deferred for
the future benefit of customers (see Note 1 - "Regulatory
Matters").
The Company has continued to participate actively in
the management, operations and accounting committees for the Nine
Mile 2 Plant and will do so in the future.
On October 12, 1996, Niagara Mohawk and Rochester
announced plans to establish a joint nuclear operation company to
be known as New York Nuclear Operating Company ("NYNOC"). NYNOC
is envisioned to assume full responsibility for operation of all
the nuclear plants in New York State, including the Nine Mile 2
Plant, Niagara Mohawk's Unit No. 1 of the Nine Mile Point Nuclear
Station and Rochester's Ginna Nuclear Plant. Since that time
NYNOC has been organized as a New York limited liability company,
and Con Edison and PASNY have announced their desire to move
forward with the Niagara Mohawk and Rochester plans to implement
NYNOC. It is expected that NYNOC could contribute to maintaining
a high level of operational performance, contribute to continued
satisfactory Nuclear Regulatory Commission ("NRC") regulatory
compliance, provide opportunities for continued cost reductions
and provide the basis for satisfactory economic regulation by the
PSC. Various groups are now involved in the detailed studies and
analysis required before a definitive decision to proceed with
NYNOC can be made. Sufficient information is not available for
the Company to make an assessment of such plans or whether it
would consent to such plans to the extent that the Nine Mile 2
Plant is affected. Until such assessment can be made, the
Company can take no position with respect to such plans.
The Nine Mile 2 Plant completed its fifth refueling
outage November 2, 1996. It is scheduled to commence its sixth
refueling outage in May 1998, with a targeted 37-day duration.
A decommissioning study for the Nine Mile 2 Plant was
completed in 1995. The study's estimate of the cost to
decommission the Nine Mile 2 Plant is significantly higher than
previous estimates. The Company believes that decommissioning
costs, if higher than currently estimated, will ultimately be
recovered in rates, although no such assurance can be given.
However, future developments in the utility industry, including
the effects of deregulation and increasing competition could
50
change this conclusion. The Company cannot predict the outcome
of these developments. For further information on
decommissioning, see Note 3 - "Nine Mile 2 Plant."
In October 1996, Niagara Mohawk, as operating cotenant
for the Nine Mile 2 Plant, along with other companies that
operate nuclear plants, received a letter from the NRC, requiring
it to provide the NRC with information on the "adequacy and
availability" of design basis documentation on their nuclear
plants within 120 days. Such information will be used by the NRC
to verify that companies are in compliance with the terms and
conditions of their license(s) and NRC regulations. In addition,
it will allow the NRC to determine if other inspection activities
or enforcement actions should be taken on a particular company.
The Company believes that the NRC is becoming more
stringent as indicated by this letter and that there may be
direct cost impact on companies with nuclear plants as a result.
The NRC issued a policy statement on the Restructuring and
Economic Deregulation of the Electric Utility Industry ("Policy
Statement") in 1997. The Policy Statement addresses NRC's
concerns about the adequacy of decommissioning funds and about
the potential impact on operational safety. Current NRC
regulations allow a utility to set aside decommissioning funds
annually over the estimated life of a plant. In addition to the
above Policy Statement, the NRC is proposing to amend its
regulations on decommissioning funding to reflect conditions
expected from deregulation of the electric power industry. The
Company is unable to predict how such increased stringency may
affect the results of operations or financial condition of the
Nine Mile 2 Plant.
On August 27, 1997, the PSC Staff issued a "Notice
Soliciting Comments on Nuclear Generation" requesting comments
and alternative approaches by interested parties on a "Staff
Report on Nuclear Generation" ("Nuclear Report"). The Nuclear
Report concludes that nuclear generation, along with non-nuclear
generation facilities, should be subject to the discipline of
market-based pricing. According to the PSC Staff, the optimal,
least cost method for "regulating" generating units is to free
them to operate in the wholesale competitive markets where
running costs must be recovered in the wholesale market price of
power. The Company submitted comments, pointing out the
shortcomings in the Nuclear Report, which comments included
51
adopting a process to fully develop the necessary facts and
analyses. The NYNOC organizing utilities submitted comments
noting that the PSC Staff proposal would nullify the potential
benefits of NYNOC. The PSC Staff has yet to respond to the
comments and reply comments of the numerous parties. The Company
can make no prediction as to the outcome of the Nuclear Report
proposal.
On December 30, 1997, the NRC issued its latest
systematic assessment of licensee performance ("SALP") review of
the Nine Mile Point Nuclear Station for the period June 2, 1996
to November 8, 1997 ("1996/97 SALP Report"). The Nine Mile Point
Nuclear Station is comprised of both Units No. 1 and No. 2. Unit
No. 1, located adjacent to the Nine Mile 2 Plant, is owned and
operated solely by Niagara Mohawk. The 1996/97 SALP Report,
conducted under the revised SALP process that was implemented by
the NRC on July 19, 1993, rates licensee performance in four
functional areas; operations, maintenance, engineering and plant
support.
Overall, the NRC indicated that the performance at the
Nine Mile Point Nuclear Station was generally good; however,
continued management attention was needed to address issues in
several areas. The ratings were as follows: (i) operations was
rated Category 2 ("good"), which was lower than the Category 1
("superior") rating on the prior SALP Report (covering the period
January 1995 through June 1, 1996); (ii) maintenance was rated
Category 2 ("good"), which was the same rating as on the
1995/1996 SALP Report; (iii) engineering was rated Category 3
("acceptable"), which was lower than the Category 2 in said prior
SALP Report; and (iv) plant support was rated Category 2
("good"), remaining the same as the prior SALP Report.
Other Matters
Storm Costs: On April 1, 1997, a snow and wind storm
disrupted service to approximately 100,000 customers in the
Company's service territory. The restoration costs of the storm
totaled approximately $8.9 million which, after applying
mitigating credits, amounted to $5.3 million as reflected in
"Deferred Charges-Other" in the Consolidated Balance Sheet. The
Company believes these costs are recoverable in rates and has
52
therefore requested the PSC to authorize deferral of these costs.
The Amended Settlement Agreement authorizes the deferral of these
costs.
Federal Income Tax Refund: In the second quarter of
1997 the Company received a $1.9 million net refund as a result
of audits by the IRS of the Company's federal income tax returns
for the years 1987-1991. The Company has complied with the PSC
notification requirements for tax refunds and recorded the refund
in the fourth quarter of 1997.
Year 2000: The Company is addressing potential adverse
impacts from potential Year 2000 computer software failures to
ensure the availability and integrity of its financial systems
and the reliability of its operational systems. The Company has
established processes for evaluating and managing the risks and
costs associated with this problem. The Company has, and will
continue to make, certain investments in its software systems and
applications to ensure the Company is Year 2000 compliant. The
financial impact to the Company has not been determined but is
not anticipated to be material.
Electric Sales to IBM: The Company's largest customer
is International Business Machines Corporation ("IBM"), which
accounted for approximately 9% and 10% of the Company's total
electric revenues for the years ended December 31, 1997 and 1996,
respectively.
IBM announced that it will be investing $700 million at
its East Fishkill, New York facility to construct one of the
world's most sophisticated microchip manufacturing plants. This
facility, slated to open in 1999 with 400 employees, will embrace
new technology in developing 12" diameter silicon wafers. This
expansion could have a favorable impact on the Company's revenue
base and customers.
New Accounting Standards: In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This Statement
establishes standards for reporting information about operating
segments in annual and interim financial statements.
53
The Company does not expect that the adoption of SFAS
131 will have a significant impact on the reporting requirements
of the Company. For a discussion of proposed and new accounting
standards from the FASB, see Note 2 - "Summary of Significant
Accounting Policies," herein.
In February 1996, the FASB issued an exposure draft
entitled "Accounting for Certain Liabilities Related to Closure
and Removal of Long-Lived Assets," which includes nuclear plant
decommissioning. If the accounting standard proposed in such
exposure draft were adopted, it could result in higher annual
provisions for removal or decommissioning to be recognized
earlier in the operating life of nuclear and other generating
units and an accelerated recognition of the decommissioning
obligation. The FASB is deliberating this issue and the
resulting final pronouncement could be different from that
proposed in the exposure draft. The Company can make no
prediction at this time as to the ultimate form of such proposed
accounting standard, assuming it is adopted, nor can it make any
prediction as to its ultimate effect(s) on the financial
condition of the Company.
Other Issues: On an ongoing basis, the Company assesses
environmental issues which could impact the Company and its
customers. Note 3 - "Nine Mile 2 Plant" and Note 9 -
"Commitments and Contingencies" discuss current environmental
issues affecting the Company, including (i) the 1995
decommissioning cost study of the Nine Mile 2 Plant, (ii) the
Clean Water Act and Clean Air Act Amendments of 1990, which
require control of emissions from fossil-fueled electric
generating units, (iii) asbestos litigation cases, and (iv) a
legal action filed in 1995 against the Company by the City of
Newburgh, New York.
54
<PAGE>
<TABLE>
FINANCIAL INDICES
<CAPTION>
Selected financial indices for the last five years are set forth in the
following table:
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Pretax coverage of total interest charges:
Including AFDC..................................... 3.94x 4.08x 3.68x 3.38x 3.29x
Excluding AFDC..................................... 3.69x 3.83x 3.43x 3.15x 3.15x
Funds from Operations.............................. 5.18x 5.29x 4.69x 4.24x 4.27x
Pretax coverage of total interest
charges and preferred stock dividends.................. 3.37x 3.47x 2.97x 2.74x 2.65x
Percent of construction expenditures
financed from internal funds........................... 100% 100% 100% 100% 100%
AFDC and Mirror CWIP* as a percentage
of income available for common stock................... 13% 13% 16% 16% 11%
Effective tax rate...................................... 32% 36% 35% 35% 35%
* Refer to Note 1 - "Regulatory Matters" under subcaptions "Summary of Regulatory Assets
and Liabilities" and "Deferred Finance Charges - Nine Mile 2 Plant" for a definition of
Mirror CWIP.
</TABLE>
55
COMMON STOCK DIVIDENDS AND PRICE RANGES
The Company and its principal predecessors have paid
dividends on its common stock in each year commencing in 1903,
and the common stock of the Company has been listed on the New
York Stock Exchange since 1945. The price ranges and the
dividends paid for each quarterly period during the Company's
last two fiscal years are as follows:
1997 1996
High Low Dividend High Low Dividend
1st Quarter $33 3/8 $30 1/2 $.53 $31 1/2 $28 3/4 $.525
2nd Quarter 34 3/4 29 3/4 .53 31 1/4 28 7/8 .525
3rd Quarter 35 7/8 32 1/8 .535 31 1/4 29 1/2 .53
4th Quarter 43 7/8 34 11/16 .535 31 1/2 29 .53
On June 27, 1997, the Company increased its quarterly
dividend rate to $.535 per share from $.53 in 1996. On June 28,
1996, the Company increased its quarterly dividend rate to $.53
per share from $.525 per share.
Any determination with regard to future dividend
declarations, and the amounts and dates of such dividends, will
depend on the circumstances at the time of consideration of such
declaration. One such consideration will be the effect on the
Company of the corporate restructuring described in this Item 7
under the caption "Competition/Deregulation."
The number of registered holders of common stock as of
December 31, 1997 was 22,605. Of these, 21,933 were accounts in
the names of individuals with total holdings of 5,544,827
shares, or an average of 253 shares per account. The 672 other
accounts, in the names of institutional or other non-individual
holders, for the most part, hold shares of common stock for the
benefit of individuals.
56
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not Applicable
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
I - Index to Financial Statements: Page
Report of Independent Accountants 58
Statement of Management's Responsibility 59
Consolidated Balance Sheet at
December 31, 1997 and 1996 61
Consolidated Statement of Income for the
three years ended December 31, 1997 65
Consolidated Statement of Retained Earnings
for the three years ended December 31, 1997 67
Consolidated Statement of Cash Flows for the
three years ended December 31, 1997 68
Notes to Consolidated Financial Statements 70
Selected Quarterly Financial Data (Unaudited) 108
II - Schedule II - Reserves 109
All other schedules are omitted because they are not
applicable or the required information is shown in the
Consolidated Financial Statements or the Notes thereto.
Supplementary Data
Supplementary data that is included in "Selected
Quarterly Financial Data (Unaudited)" appears under this Item and
reference is made thereto.
57
Report of Independent Accountants
To the Board of Directors and Shareholders of Central Hudson Gas
& Electric Corporation
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Central Hudson Gas & Electric
Corporation and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
January 23, 1998, except as to
Note 1 of the Consolidated Financial
Statements which is as of February 4, 1998
58
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Central
Hudson Gas & Electric Corporation and its subsidiaries
(collectively, the Company) as well as all other information
contained in this Form 10-K. The consolidated financial
statements have been prepared in conformity with generally
accepted accounting principles and, in some cases, reflect
amounts based on the best estimates and judgements of the
Company's Management, giving due consideration to materiality.
The Company maintains adequate systems of internal control to
provide reasonable assurance, that, among other things,
transactions are executed in accordance with Management's
authorization, that the consolidated financial statements are
prepared in accordance with generally accepted accounting
principles and that the assets of the Company are properly
safeguarded. The systems of internal control are documented,
evaluated and tested by the Company's internal auditors on a
continuing basis. Due to the inherent limitations of the
effectiveness of internal controls, no internal control system
can provide absolute assurance that errors will not occur.
Management believes that the Company has maintained an effective
system of internal control over the preparation of its financial
information including the consolidated financial statements of
the Company as of December 31, 1997.
Independent accountants were engaged to audit the consolidated
financial statements of the Company and issue their report
thereon. The Report of Independent Accountants, which is
presented above, does not limit the responsibility of Management
for information contained in the consolidated financial
statements and elsewhere in this Form 10-K.
59
The Company's Board of Directors maintains a Committee on Audit
which is composed of Directors who are not employees of the
Company. The Committee on Audit meets with Management, its
Internal Auditing Manager, and its independent accountants
several times a year to discuss internal controls and accounting
matters, the Company's consolidated financial statements, the
scope and results of the audits performed by the independent
accountants and the Company's Internal Auditing Department. The
independent accountants and the Company's Internal Auditing
Manager have direct access to the Committee on Audit.
JOHN E. MACK, III DONNA S. DOYLE
Chairman of the Board and Controller
Chief Executive Officer
January 23, 1998
60<PAGE>
CONSOLIDATED BALANCE SHEET
(In Thousands)
December 31,
ASSETS 1997 1996
Utility Plant
Electric............................... $1,193,735 $1,171,798
Gas.................................... 151,222 145,375
Common................................. 91,522 87,591
Nuclear fuel........................... 37,262 36,913
1,473,741 1,441,677
Less: Accumulated depreciation......... 560,304 520,999
Nuclear fuel amortization........ 33,059 29,748
880,378 890,930
Construction work in progress.......... 52,413 48,699
Net Utility Plant.................... 932,791 939,629
Investments and Other Assets
Prefunded pension costs................ 23,536 10,672
Other.................................. 14,958 12,419
Total Investments and Other Assets... 38,494 23,091
Current Assets
Cash and cash equivalents.............. 9,054 4,235
Accounts receivable from customers -
net of allowance for doubtful accounts;
$2.8 million in 1997 and $3.2 million
in 1996............................... 49,643 48,080
Accrued unbilled utility revenues...... 16,229 16,042
Other receivables...................... 2,073 2,896
Materials and supplies, at average cost
Fuel.................................. 11,920 14,935
Construction and operating............ 12,180 13,160
Special deposits and prepayments....... 14,210 13,440
Total Current Assets................. 115,309 112,788
The Notes to Consolidated Financial Statements are an integral
part hereof.
61
CONSOLIDATED BALANCE SHEET (CON'T)
(In Thousands)
December 31,
ASSETS 1997 1996
Deferred Charges
Regulatory assets (Note 1)............. 139,236 151,426
Unamortized debt expense............... 5,002 5,393
Other.................................. 21,258 16,779
Total Deferred Charges............... 165,496 173,598
TOTAL ASSETS $1,252,090 $1,249,106
The Notes to Consolidated Financial Statements are an integral
part hereof.
62
CONSOLIDATED BALANCE SHEET (CON'T)
(In Thousands)
December 31,
CAPITALIZATION AND LIABILITIES 1997 1996
Capitalization
Common Stock Equity
Common stock, $5 par value (Note 6)... $ 87,775 $ 87,775
Paid-in capital (Note 6).............. 284,465 284,465
Retained earnings..................... 120,540 105,821
Reacquired capital stock (Note 6)..... (9,398) -
Capital stock expense................. (6,278) (6,352)
Total Common Stock Equity............ 477,104 471,709
Cumulative Preferred Stock (Note 6)
Not subject to mandatory redemption... 21,030 21,030
Subject to mandatory redemption....... 35,000 35,000
Total Cumulative Preferred Stock..... 56,030 56,030
Long-term Debt (Note 7)................. 361,829 362,040
Total Capitalization................. 894,963 889,779
Current Liabilities
Current maturities of long-term debt.... 1,317 1,362
Notes payable........................... - 15,600
Accounts payable........................ 24,368 26,137
Dividends payable....................... 10,052 10,112
Accrued taxes and interest.............. 3,240 5,347
Accrued vacation ....................... 4,339 4,251
Customer deposits....................... 4,001 4,019
Other................................... 6,545 6,676
Total Current Liabilities............ 53,862 73,504
The Notes to Consolidated Financial Statements are an integral
part hereof.
63
CONSOLIDATED BALANCE SHEET (CON'T)
(In Thousands) December 31,
CAPITALIZATION AND LIABILITIES 1997 1996
Deferred Credits and Other Liabilities
Regulatory liabilities (Note 1)......... 81,271 74,587
Operating reserves...................... 6,582 4,755
Other................................... 10,019 9,155
Total Deferred Credits and
Other Liabilities..................... 97,872 88,497
Deferred Income Tax (Note 4)............. 205,393 197,326
Commitments and contingencies
(Notes 1, 3 and 9).....................
TOTAL CAPITALIZATION AND LIABILITIES $1,252,090 $1,249,106
The Notes to Consolidated Financial Statements are an integral
part hereof.
64
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
Year ended December 31,
1997 1996 1995
Operating Revenues
Electric................... $416,429 $418,761 $409,445
Gas........................ 103,848 95,210 102,770
Total Operating Revenues. 520,277 513,971 512,215
Operating Expenses
Operation:
Fuel used in electric
generation................ 66,117 58,874 60,940
Purchased electricity...... 55,864 55,523 52,323
Purchased natural gas...... 61,514 50,636 62,339
Other expenses of operation 101,219 102,746 99,063
Maintenance................. 27,574 28,938 29,440
Depreciation and amortization
(Note 2).................... 43,864 42,580 41,467
Taxes, other than income
tax........................ 64,879 66,145 66,709
Federal income tax
(Note 4).................... 29,190 32,700 29,040
Total Operating Expenses. 450,221 438,142 441,321
Operating Income............. 70,056 75,829 70,894
Other Income
Allowance for equity funds
used during construction
(Note 2).................. 387 466 986
Federal income tax (Note 4) 2,953 1,632 353
Other - net................ 8,079 4,815 8,886
Total Other Income....... 11,419 6,913 10,225
Income before Interest
Charges.................... 81,475 82,742 81,119
The Notes to Consolidated Financial Statements are an integral
part hereof.
65
CONSOLIDATED STATEMENT OF INCOME (CON'T)
(In Thousands)
Year ended December 31,
1997 1996 1995
Interest Charges
Interest on long-term debt.. 23,097 23,617 25,925
Other interest.............. 2,647 2,626 1,917
Allowance for borrowed
funds used during
construction (Note 2)...... (261) (523) (514)
Amortization of expense on
debt....................... 906 940 1,069
Total Interest Charges.... 26,389 26,660 28,397
Net Income................... 55,086 56,082 52,722
Premium on Preferred Stock
Redemptions-Net............ - 378 169
Dividends Declared on Cumul-
ative Preferred Stock....... 3,230 3,230 4,903
Income Available for
Common Stock................ $51,856 $ 52,474 $ 47,650
Common Stock:
Average shares outstanding
(000s)..................... 17,435 17,549 17,380
Earnings per share on
average shares outstanding $2.97 $2.99 $2.74
The Notes to Consolidated Financial Statements are an integral
part hereof.
66
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(In Thousands)
Year ended December 31,
1997 1996 1995
Balance at beginning of year. $105,821 $ 90,475 $ 79,284
Net Income................... 55,086 56,082 52,722
Premium on preferred stock
redemption-net............. - 378 169
Dividends declared:
On cumulative preferred
stock..................... 3,230 3,230 4,903
On common stock ($2.135 per
share 1997; $2.115 per
share 1996; $2.095 per
share 1995)............... 37,137 37,128 36,459
Total dividends declared 40,367 40,358 41,362
Balance at end of year....... $120,540 $105,821 $ 90,475
The Notes to Consolidated Financial Statements are an integral
part hereof.
67
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) Year ended December 31,
<CAPTION> 1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Net Income.......................................... $ 55,086 $ 56,082 $ 52,722
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization including nuclear
fuel amortization............................... 48,348 47,073 45,388
Deferred income taxes, net....................... 14,077 17,848 14,146
Allowance for equity funds used during
construction.................................... (387) (466) (986)
Nine Mile 2 Plant deferred finance charges, net.. (4,855) (4,855) (4,855)
Provisions for uncollectibles.................... 3,493 4,336 3,220
Accrued pension costs............................ (8,555) (6,757) (10,627)
Gain on sale of long-term investment............. - - (2,104)
Deferred gas costs............................... 3,475 (4,861) 5,302
Deferred gas refunds............................. 1,695 (1,556) (1,784)
Other - net...................................... 7,233 4,039 11,466
Changes in current assets and liabilities, net:
Accounts receivable and unbilled utility
revenues........................................ (4,420) (6,338) (3,300)
Materials and supplies........................... 3,995 (505) 5,799
Special deposits and prepayments................. (770) (781) (567)
Accounts payable................................. (1,769) 1,704 (5,008)
Accrued taxes and interest....................... (2,107) (2,477) 995
Other current liabilities........................ (61) 602 944
Net cash provided by operating activities........... 114,478 103,088 110,751
The Notes to Consolidated Financial Statements are an integral part hereof.
68
CONSOLIDATED STATEMENT OF CASH FLOWS (CON'T)
(In Thousands) 1997 1996 1995
<S> <C> <C> <C>
Investing Activities
Additions to plant....................................... (43,868) (49,860) (50,269)
Allowance for equity funds used during construction...... 387 466 986
Net additions to plant................................... (43,481) (49,394) (49,283)
Nine Mile 2 Plant decommissioning trust fund............. (2,861) (1,734) (1,895)
Proceeds from sale of long-term investments.............. - - 2,879
Other - net.............................................. 2,389 200 (1,161)
Net cash used in investing activities.................... (43,953) (50,928) (49,460)
Financing Activities
Proceeds from issuance of:
Long-term debt......................................... 2,000 3,090 1,000
Common stock........................................... - 1,817 7,064
Net borrowings (repayments) of short-term debt........... (15,600) 15,600 (3,000)
Retirement and redemption of long-term debt.............. (2,282) (30,779) (3,139)
Retirement & redemption of cumulative preferred stock.... - (13,000) (12,000)
Premium on preferred stock redemption.................... - (378) (146)
Dividends paid on cumulative preferred and common stock.. (40,426) (40,489) (41,364)
Issuance and redemption costs............................ - 736 (20)
Reacquired capital stock................................. (9,398) - -
Net cash used in financing activities.................... (65,706) (63,403) (51,605)
Net Change in Cash and Cash Equivalents.................... 4,819 (11,243) 9,686
Cash and Cash Equivalents at Beginning of Year............. 4,235 15,478 5,792
Cash and Cash Equivalents at End of Year................... $ 9,054 $ 4,235 $ 15,478
Supplemental Disclosure of Cash Flow Information
Interest paid.......................................... $ 24,309 $ 25,184 $ 26,738
Federal income taxes paid.............................. 17,111 15,875 14,100
The Notes to Consolidated Financial Statements are an integral part hereof.
69
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - REGULATORY MATTERS
Competitive Opportunities Proceeding
In 1994, the Public Service Commission of the State of
New York ("PSC") instituted the "Competitive Opportunities
Proceeding," the overall objective of which is to identify
regulatory and rate-making practices that will assist in the
transition to a more competitive electric industry. On May 20,
1996, the PSC issued its Order ("Order") in this proceeding
setting forth the PSC's vision and goals for the future of the
electric industry in New York State. The Order called for
implementation of a competitive wholesale power market, reducing
rates for consumers, increasing customer choice, continuing
reliability of service, continuing programs that are in the
public interest, allaying concerns about market power, continuing
customer protections and the obligation to serve.
The Order required the Company and certain other
utilities to file a rate and restructuring plan with the PSC by
October 1, 1996. The Company was obligated to comply (and did so
on October 1, 1996) with the provision of the Order.
On October 9, 1996, the PSC issued an order
establishing procedures for a completion of discovery and
settlement negotiations regarding the utilities' October 1, 1996
submissions, and, in the absence of settlement, for
administrative litigation before a PSC Administrative Law Judge.
Amended Settlement Agreement
On March 20, 1997, after months of negotiations, the
Company entered into a Settlement Agreement with the Staff of the
PSC ("Staff"), the New York State Department of Economic
Development and other parties ("Settlement Agreement") which
addressed the Commission's Order by providing a (i) four-year
basic electric rate freeze for all customers; (ii) economic
development inducements to create and maintain jobs in the Mid-Hudson Valley;
(iii) a reduction in prices for the largest
industrial customers; (iv) a phased-in program to provide all
customers with the opportunity to choose their energy supplier
70
beginning in 1998; (v) a mechanism for the Company to recover all
prudently incurred strandable costs and (vi) a proposal to
structurally separate its generation assets by July 1, 2001
through the creation of a holding company, divestiture or other
option.
At its September 17, 1997 session, the PSC discussed
the Settlement Agreement and indicated that further negotiations
were needed on certain open issues related to the auctioning of
the Company's fossil-fuel electric generating units, the
provision of certain types of meters and environmental program
funding.
On January 2, 1998, the Company concluded further
negotiations with Staff and others resulting in an Amended
Settlement Agreement between the Company, the PSC Staff, and
several other interested parties ("Amended Settlement
Agreement"). The PSC approved the Amended Settlement Agreement
at its February 4, 1998 session; however, the PSC had not yet
issued its final order at the time this document was filed with
the Securities and Exchange Commission. Among the most
significant developments in the Amended Settlement Agreement is
an agreement that the Company will auction its fossil-fueled
electric generating units (i.e., the Company's interest in the
Roseton Electric Generating Station ("Roseton Plant") and the
Company's Danskammer Point Steam Electric Generating
Station,("Danskammer Plant"), with the sale and transfer to be
completed by June 30, 2001. At December 31, 1997 the book value
of those units represented approximately 20% of net utility
plant. The Company has maintained the right to bid in the
auction. The auction will also provide customer benefits if the
auction results in the sale of assets in excess of their book
value. The Amended Settlement Agreement does not contemplate the
divestiture or transfer of the Company's share of Unit No. 2 of
the Nine Mile Point Nuclear Station ("Nine Mile 2 Plant"). As
part of the Amended Settlement Agreement, the Company will have a
reasonable opportunity to recover prudently incurred and
appropriately mitigated investments.
The Company's potential strandable costs are those
prior utility investments and commitments that may not be
recoverable in a competitive energy market. Examples include any
unrecovered cost of the Company's fossil-fueled generating plants
(resulting from the auction process) and net generation related
regulatory assets. During the transition, the Company will
continue to recover its potential electric strandable costs in
the rates it charges its transmission and distribution customers.
71
Following the transition, the Company will be given a reasonable
opportunity to recover, through a non-bypassable charge to
customers, remaining electric strandable costs.
Other key components of the Amended Settlement
Agreement include (i) a basic electric rate freeze through June
2001; (ii) phase-in of retail access through June 30, 2001 to
residential, commercial and small industrial customers; (iii) a
10.6% return on equity cap with excess earnings deferred for
stranded cost mitigation; (iv) provision to participate in a
statewide program to support public policy initiatives such as
energy efficiency and renewable sources for electricity
production; (v) the creation of a mechanism for implementing
retail transmission tariffs that will be limited to customers
eligible during the transition period and (vi) a determination
that customers participating in the Company's "Customer Choice
Plan for Farmers and Food Processing Businesses" will do so under
terms of the Amended Settlement Agreement.
The Amended Settlement Agreement also addresses options
regarding a new corporate structure for the Company. On or
before June 30, 2001, the Company, subject to shareholder and
regulatory approvals, will establish a holding company. The
holding company will include a regulated transmission and
distribution company that will maintain the system of wires and
pipelines which deliver electricity and natural gas to customers.
The holding company will also include unregulated companies which
will provide a variety of new services to customers within and
outside the Mid-Hudson Valley region and, possibly, fossil-fueled
generating units retained or acquired.
Impact of Amended Settlement Agreement on Accounting Policies
The Amended Settlement Agreement creates certain
changes to the Company's accounting policies. The Company's
accounting policies conform to generally accepted accounting
principles, which, for regulated public utilities, include
Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("SFAS 71").
Under SFAS 71, regulated companies defer costs and credits on the
balance sheet as regulatory assets and liabilities when it is
probable that those costs and credits will be allowed in the
rate-making process in a period different from when they
otherwise would have been reflected in income.
72
These deferred regulatory assets and liabilities are then
reflected in the income statement in the period in which the same
amounts are reflected in rates. If some of an enterprise's
operations are regulated and meet the appropriate criteria, SFAS
71 is applied only to the regulated portion of the enterprise's
operations.
As discussed above, the goal of the Amended Settlement
Agreement is to deregulate and, ultimately, divest the Company's
fossil-fueled generating assets. During 1997, the Financial
Accounting Standards Board ("FASB") Emerging Issues Task Force
concluded that an entity should discontinue application of SFAS
71 to any portion of its business when a deregulation transition
plan is in place and the terms are known. The Amended Settlement
Agreement was approved by the PSC on February 4, 1998, and on
that date the Company applied the standards in Statement of
Financial Accounting Standards No. 101, "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB
Statement No. 71" ("SFAS 101") to the fossil-fueled generating
portion of its business. Therefore, the Company discontinued
application of SFAS 71 to its fossil-fueled generation assets as
of the date of such approval. The application of SFAS 101 to the
fossil-fueled generating portion of the Company's business will
not have a material adverse effect on the Company's financial
position or results of operations as of the date of such
approval.
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," ("SFAS 121") requires that long-lived assets be reviewed
for impairment if the carrying value of
the asset may not be recoverable. SFAS 121 also requires that
long-lived assets to be disposed of be carried at the lower of
net book value or fair value, and amends SFAS 71 to require that
regulatory assets be charged against earnings if recovery of such
assets is no longer considered probable. The Company will not
recognize an impairment of its fossil-fueled generating assets
because the estimated cash flows from operations, the sale of
such generating assets, and stranded cost recovery provisions of
the Amended Settlement Agreement are not expected to be less than
the net carrying amount of such generating assets.
Certain regulatory assets and liabilities have been
created as a result of transactions relating to the Company's
fossil-fueled generating assets. At December 31, 1997, net
regulatory assets associated with the fossil-fueled generating
73
assets totaled $7.6 million. The Company did not expense any of
these net regulatory assets because recovery of such assets is
considered probable under the Amended Settlement Agreement.
Summary of Regulatory Assets and Liabilities
The following table sets forth the Company's regulatory
assets and liabilities:
At December 31, 1997 1996
Regulatory Assets (Debits): (In Thousands)
Deferred finance charges -
Nine Mile 2 Plant..................... $ 68,470 $ 69,615
Income taxes recoverable
through future rates.................. 49,220 55,791
Deferred energy efficiency costs........ 5,168 8,894
Other................................... 16,378 17,126
Total Regulatory Assets............... $ 139,236 $151,426
Regulatory Liabilities (Credits):
Deferred finance charges -
Nine Mile 2 Plant..................... $ 16,431 $ 22,431
Income taxes refundable................. 28,516 29,077
Deferred Nine Mile 2 Plant costs........ 11,296 6,322
Deferred pension costs overcollection... 8,306 3,997
Deferred OPEB costs overcollection...... 6,824 4,778
Deferred unbilled gas revenues.......... 4,255 4,357
Other................................... 5,643 3,625
Total Regulatory Liabilities.......... 81,271 $ 74,587
Net Regulatory Assets.............. $ 57,965 $ 76,839
Some of the significant regulatory assets and
liabilities include:
74
Deferred Finance Charges - Nine Mile 2 Plant: During
the construction of the Nine Mile 2 Plant, the PSC authorized the
inclusion in rate base of increasing amounts of the Company's
investment in that Plant. The Company did not accrue an
allowance for the cost of funds used during construction ("AFDC")
on any of the Nine Mile 2 Plant construction work in progress
("CWIP") which was included in rate base and for which a cash
return was being allowed; however, the PSC ordered, effective
January 1, 1983, that amounts be accumulated in deferred debit
and credit accounts equal to the amount of AFDC which was not
being accrued on the CWIP included in rate base ("Mirror CWIP").
The balance in the deferred credit account is available to reduce
future revenue requirements by amortizing portions of the
deferred credit to other income or by the elimination through
writing off other deferred balances as directed by the PSC. The
Company expects such application of the deferred credit will
occur over a period substantially shorter than the life of the
Nine Mile 2 Plant. When amounts of such deferred credit are
applied in order to reduce revenue requirements, amortization is
started for a corresponding amount of the deferred debit, which
amortization continues on a level basis over the remaining life
of the Nine Mile 2 Plant resulting in recovery of such
corresponding amount through rates. Mirror CWIP is expected to
be exhausted by the end of the useful life of the Nine Mile 2
Plant either through the amortization or write-off procedures
described above or through the write-off of the remaining debit
and credit as directed by the PSC. The net effect of this
procedure is that at the end of the amortization period for the
deferred credit, the accounting and rate-making treatment will be
the same as if the Nine Mile 2 Plant CWIP had not been included
in rate base during the construction period.
Pursuant to a PSC Order issued and effective February
11, 1994, in an electric rate proceeding, the Company was
authorized to amortize $6.0 million annually of the deferred
credit beginning in December 1993.
The $6.0 million amortization of the deferred credit
will be continued unless changed by a future PSC rate order or
until it is exhausted. Under provisions of the Amended
Settlement Agreement, this amortization will be replaced with
other deferred credits to the extent necessary to provide for
full replacement of the expiring mirror CWIP credits. The
75
current level of the deferred debit amortization of $1.145
million is based on the level of deferred credits that have been
utilized through the most recent rate year, which has ended.
Credit amounts utilized subsequently are included in the deferred
debit amortization level at the time of the next PSC rate order
for the new rate year based on the then remaining life of the
Nine Mile 2 Plant.
Income Taxes Recoverable/Refundable: The adoption of
Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes," ("SFAS 109") in 1993 increased the Company's net
deferred tax obligation. As it is probable that the increase
will be recovered from customers, the Company established a net
regulatory asset.
Deferred Nine Mile 2 Plant Costs: The existing rate-making for the
Nine Mile 2 Plant, as directed by the PSC in its
Order on Nine Mile 2 Operating and Capital Forecast for 1996
("Supplement No. 5"), provides for the deferral of the difference
between actual and authorized operating and maintenance expense.
Supplement No. 5 continues in effect until changed by a
subsequent rate order. For 1996 and 1997 the Nine Mile 2 Plant
incurred less actual expense than authorized, and the Company's
share has been recorded as a regulatory liability in accordance
with Supplement No. 5.
Independent System Operator
The Company is a member of the New York Power Pool ("NYPP")
whose members, major investor-owned State electric utility
companies and the Power Authority of the State of New York
("PASNY"), by agreement, provide for coordinated operation of
their bulk power electric systems. In a filing with the Federal
Energy Regulatory Commission ("FERC"), dated January 31, 1997,
the member systems of the NYPP proposed a new market structure
that would include as a key element the establishment of an
Independent System Operator ("ISO"). The ISO's principal mission
would be to maintain the reliability of the New York State bulk
power systems and to provide transmission service on a comparable
and non-discriminatory basis. The NYPP filed a supplemental
filing with FERC in December 1997, which expanded the
restructuring filing of January 31, 1997. The Company is unable
to predict the outcome of these FERC filings.
76
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. Intercompany
balances and transactions have been eliminated.
The Company's subsidiaries are each wholly owned and
are comprised of landholding, cogeneration or energy management
companies. The net income of the Company's subsidiaries is
reflected in the Consolidated Statement of Income as other non-operating income.
Rates, Revenues and Cost Adjustment Clauses
Electric and gas retail rates, including fuel and gas
cost adjustment clauses, applicable to intrastate service (other
than contractually established rates for service to
municipalities and governmental bodies) are regulated by the PSC.
Transmission rates, facilities charges and rates for electricity
sold for resale in interstate commerce are regulated by the FERC.
Revenues are recognized on the basis of cycle billings
rendered monthly or bimonthly. Estimated revenues are accrued
for those customers billed bimonthly whose meters are not read in
the current month.
The Company's tariff for retail electric service
includes a fuel cost adjustment clause pursuant to which electric
rates are adjusted to reflect changes in the average cost of
fuels used for electric generation and in certain purchased power
costs, from the average of such costs included in base rates.
The Company's tariff for gas service contains a comparable clause
to adjust gas rates for changes in the price of purchased natural
gas and certain costs of manufactured gas.
Utility Plant
The costs of additions to utility plant and
replacements of retired units of property are capitalized at
original cost. The Company's share of the costs of the Nine Mile
2 Plant are capitalized at original cost, less the disallowed
investment of $169.3 million which was recorded in 1987. Costs
include labor, materials and supplies, indirect charges for such
77
items as transportation, certain taxes, pension and other
employee benefits and AFDC. Replacement of minor items of
property is included in maintenance expenses.
The original cost of property, together with removal
cost, less salvage, is charged to accumulated depreciation at
such time as the property is retired and removed from service.
Jointly Owned Facilities
The Company has a 9%, or 103 MW, undivided interest in
the 1,143 MW Nine Mile 2 Plant (see Note 3, hereof) and a 35%, or
420 MW, undivided interest in the 1,200 MW Roseton Plant.
The Company's share of the respective investments in
the Nine Mile 2 Plant and the Roseton Plant, as included in its
Consolidated Balance Sheet at December 31, 1997 and 1996, were:
1997 1996
(In Thousands)
Nine Mile 2 Plant
Plant in service.............. $316,123 $314,270
Accumulated depreciation...... (70,202) (61,708)
Construction work in progress. 1,032 1,894
Roseton Plant
Plant in service.............. $134,555 $135,026
Accumulated depreciation...... (77,438) (74,963)
Construction work in progress. 571 745
Allowance For Funds Used During Construction
The Company includes in plant costs AFDC approximately
equivalent to the cost of funds used to finance construction
expenditures. The concurrent credit for the amount so
capitalized is reported in the Consolidated Statement of Income
as follows: the portion applicable to borrowed funds is reported
as a reduction of interest charges while the portion applicable
to other funds (the equity component, a noncash item) is reported
as other income. The AFDC rate was 8.0% in 1997 and 7.5% in 1996
and 8.5% in 1995.
78
Depreciation and Amortization
For financial statement purposes, the Company's
depreciation provisions are computed on the straight-line method
using rates based on studies of the estimated useful lives and
estimated net salvage value of properties, with the exception of
the Nine Mile 2 Plant which is depreciated on a remaining life
amortization method. The year 2026, which is the year in which
the Nine Mile 2 Plant operating license expires, is used as the
end date in the development of the remaining life amortization.
The Company performs depreciation studies on a continuing basis
and, upon approval by the PSC, periodically adjusts the rates of
its various classes of depreciable property. The most recent
study was performed in 1993.
The Company's composite rates for depreciation were
3.16% in 1997, 3.13% in 1996 and 3.14% in 1995 of the original
cost of average depreciable property. The ratio of the amount of
accumulated depreciation to the cost of depreciable property at
December 31 was 38.2% in 1997, 36.5% in 1996 and 35.3% in 1995.
For federal income tax purposes, the Company uses an
accelerated method of depreciation and generally uses the
shortest life permitted for each class of assets.
Amortization of Nuclear Fuel
The cost of the Nine Mile 2 Plant nuclear fuel
assemblies and components is amortized to operating expense based
on the quantity of heat produced for the generation of electric
energy. Niagara Mohawk Power Corporation ("Niagara Mohawk"), on
behalf of the Nine Mile 2 Plant cotenants, has entered into an
agreement with the U.S. Department of Energy ("DOE") for the
ultimate disposal and storage of spent nuclear fuel. The
cotenants are assessed a fee for such disposal based upon the
kilowatthours generated by the Nine Mile 2 Plant. These costs
are charged to operating expense and recovered from customers
through base rates or through the electric fuel cost adjustment
clause described herein. The Company cannot now determine
whether such arrangements with the DOE will ultimately provide
for the satisfactory permanent disposal of such waste products.
79
Cash and Cash Equivalents
For purposes of the Consolidated Statement of Cash
Flows, the Company considers temporary cash investments with a
maturity when purchased of three months or less to be cash
equivalents.
Federal Income Tax
The Company and its wholly-owned subsidiaries file a
consolidated federal income tax return. Federal income taxes are
allocated to operating expenses and other income and deductions
in the Consolidated Statement of Income. Federal income taxes
are deferred under the liability method in accordance with
Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes are
provided for all differences between financial statement and tax
basis of assets and liabilities. Additional deferred income
taxes and offsetting regulatory assets or liabilities are
recorded to recognize that income taxes will be recoverable or
refundable through future revenues.
Use of Estimates
Preparation of the financial statements in accordance
with generally accepted accounting principles includes the use of
estimates and assumptions by management that affect the reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements
and reported amount of revenues and expenses during the reporting
period. Actual results may differ from those estimates.
New Accounting Standards and Other FASB Projects
Segment Disclosures: In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
131"). This Statement establishes standards for reporting
information about operating segments in annual and interim
financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and
major customers. In compliance with the requirements of this
80
Statement, the Company expects to adopt SFAS 131 in 1998. The
Company does not expect that the adoption of SFAS 131 will have a
significant impact on the reporting requirements of the Company.
Plant Decommissioning: The FASB is considering when a
liability for plant decommissioning or other long-lived asset
retirement should be recognized, how any such liability should be
measured, and whether a corresponding asset is created. In an
exposure draft issued February 1996, FASB tentatively concluded
that a liability should be recognized for legal or unavoidable
constructive obligations for closure and removal of facilities,
such as the Nine Mile 2 Plant, as the obligation is incurred.
The liability recognized for those closure and removal
obligations shall reflect the present value of estimated future
cash outflows currently expected to be required to satisfy those
obligations. Initial recognition of a liability for closure and
removal obligations increases the cost of the related asset
because incurrence of the obligation is integral to or a
prerequisite for operating the asset. Further, any securities or
other assets dedicated to future settlement of closure and
removal obligations cannot be offset to those liabilities for
financial reporting purposes. The FASB is deliberating this
issue and the resulting final pronouncement, which may be issued
in 1998, could be different from that projected in the exposure
draft. The Company does not believe that such changes, if
required, would have a significant adverse effect on results of
operations due to its current belief that decommissioning costs
will continue to be recovered in rates. However, future
developments in the utility industry, including the effects of
deregulation and increasing competition, could change this
conclusion.
NOTE 3 - NINE MILE 2 PLANT
General
The Nine Mile 2 Plant is located in Oswego County, New
York, and is operated by Niagara Mohawk. The Nine Mile 2 Plant
is owned as tenants in common by the Company (9% interest),
Niagara Mohawk (41% interest), New York State Electric & Gas
Corporation ("NYSE&G")(18% interest), Long Island Lighting
81
Company ("LILCO") (18% interest), and Rochester Gas and Electric
Corporation ("Rochester") (14% interest). The output of the Nine
Mile 2 Plant, which has a rated net capability of 1,143 MW, is
shared and the operating expenses of the Plant are allocated to
the cotenants in the same proportions as the cotenants'
respective ownership interests. The Company's share of direct
operating expense for the Nine Mile 2 Plant is included in the
appropriate expense classifications in the accompanying
Consolidated Statement of Income.
Under the Operating Agreement entered into by the
cotenants, Niagara Mohawk acts as operator of the Nine Mile 2
Plant, and all five cotenants share certain policy, budget and
managerial oversight functions. The Operating Agreement remains
in effect subject to termination on six months notice.
Radioactive Waste
Niagara Mohawk has contracted with the DOE for disposal
of high-level radioactive waste ("spent fuel") from the Nine Mile
2 Plant. Despite a court order reaffirming the DOE's obligation
to accept spent nuclear fuel by January 31, 1998, the DOE has
forecasted the start of operations of its high-level radioactive
waste repository to be no earlier than 2010. The Company has
been advised by Niagara Mohawk that the Nine Mile 2 Plant spent
fuel storage pool has a capacity for spent fuel that is adequate
until 2012. If DOE schedule slippage should occur, facilities
that extend the on-site storage capability for spent fuel at the
Nine Mile 2 Plant beyond 2012 would need to be acquired.
Nuclear Plant Decommissioning Costs
The Company's 9% share of costs to decommission the
Nine Mile 2 Plant is estimated to be approximately $209.6 million
($77.7 million in 1997 dollars) and assumes that decommissioning
will begin in the year 2028. This estimate is based upon a site-
specific study completed in December 1995.
In order to assist the Company in meeting this
obligation, the Company makes annual contributions of $868,000 to
a qualified external decommissioning trust fund. The total
annual amount allowed in rates is $999,000, but the maximum
82
annual tax deduction allowed is $868,000. Currently, the
difference between the rate allowance ($999,000) and the amount
contributed to the external qualified fund ($868,000) is recorded
as an internal reserve ($131,000), and the funds are held by the
Company.
The qualified external decommissioning trust fund at
December 31, 1997 and 1996 amounted to $11.0 million and $8.1
million, respectively, including net reinvested earnings to date
of $4.3 million. The qualified external decommissioning trust
fund is reflected in the Company's Consolidated Balance Sheet in
"Investments and Other Assets-Other." At December 31, 1997, the
external decommissioning trust fund investments carrying value
approximated fair market value. The amount of accumulated
decommissioning costs recovered through rates and the net
earnings of the external decommissioning trust fund are reflected
in accumulated depreciation in the Consolidated Balance Sheet and
amount to $12.6 million and $9.6 million at December 31, 1997 and
1996, respectively.
Reference is made to the subcaption "New Accounting
Standards and Other FASB Projects - Plant Decommissioning" in
Note 2 hereof for details of the proposed changes in accounting
for nuclear decommissioning costs.
The Company believes that if decommissioning costs are
greater than currently estimated, such revised costs would be
recovered in rates. However, future developments in the utility
industry, including the effects of deregulation and increasing
competition, could change this conclusion.
83
NOTE 4 - FEDERAL INCOME TAX
Components of Federal Income Tax
The following is a summary of the components of federal
income tax as reported in the Consolidated Statement of Income:
1997 1996 1995
(In Thousands)
Charged to operating expense:
Federal income tax.......... $19,004 $18,936 $19,245
Deferred income tax......... 10,186 13,764 9,795
Income tax charged to
operating expense....... 29,190 32,700 29,040
Charged (credited) to other
income and deductions:
Federal income tax.......... (6,844) (5,716) (4,704)
Deferred income tax......... 3,891 4,084 4,351
Income tax charged
(credited) to other
income and deductions... (2,953) (1,632) (353)
Total federal income tax.. $ 26,237 $31,068 $28,687
84
Reconciliation: The following is a reconciliation between the
amount of federal income tax computed on income before taxes at
the statutory rate and the amount reported in the Consolidated
Statement of Income:
1997 1996 1995
(In Thousands)
Net income.................... $55,086 $56,082 $52,722
Federal income tax............ 12,160 13,220 14,541
Deferred income tax........... 14,077 17,848 14,146
Income before taxes......... $81,323 $87,150 $81,409
Computed tax @ 35%
statutory rate............... $28,463 $30,503 $28,493
Increase (decrease) to computed
tax due to:
Alternative minimum tax..... (7,350) (2,262) (2,958)
Tax depreciation............ (4,225) (10,499) (10,096)
Pension expense............. (2,855) (2,424) (1,738)
Deferred storm costs........ (2,257) - -
Deferred finance charges -
Nine Mile 2 Plant.......... (1,699) (1,699) (1,701)
Nine Mile 2 settlement costs 1,567 1,043 843
Deferred gas costs.......... 1,216 (1,703) 2,286
Other....................... (700) 261 (588)
Federal income tax............ 12,160 13,220 14,541
Deferred income tax........... 14,077 17,848 14,146
Total federal income tax.... $26,237 $31,068 $28,687
Effective tax rate........... 32.3% 35.6% 35.2%
85
The following is a summary of the components of
deferred taxes at December 31, 1997 and 1996, as reported in the
Consolidated Balance Sheet:
1997 1996
(In Thousands)
Accumulated Deferred Income
Tax Assets:
Future tax benefits on
investment tax credit basis
difference................. $ 14,837 $ 15,318
Alternative minimum tax...... 1,048 8,398
Unbilled revenues............ 5,675 5,654
Other........................ 29,047 26,891
Accumulated Deferred Income
Tax Assets..................... $ 50,607 $ 56,261
Accumulated Deferred Income
Tax Liabilities:
Tax depreciation............. $181,314 $176,522
Accumulated deferred investment
tax credit................. 27,555 28,448
Future revenues - recovery of
plant basis differences.... 17,475 20,321
Other........................ 29,656 28,296
Accumulated Deferred Income
Tax Liabilities................ 256,000 253,587
Net Accumulated Deferred Income
Tax Liability.................. $205,393 $197,326
NOTE 5 - SHORT-TERM BORROWING ARRANGEMENTS
The Company has in effect a revolving credit agreement
with four commercial banks which allows it to borrow up to $50.0
million through October 23, 2001 ("Agreement"). The Agreement
gives the Company the option of borrowing at either the higher of
the prime rate or the sum of the federal funds rate plus 1/2%, or
three other money market rates, if such rates are lower.
Compensating balances are not required under the Agreement. In
addition, the Company continues to maintain confirmed lines of
credit totaling $1.5 million with two regional banks. There were
no outstanding loans under the Agreement or the lines of credit
at December 31, 1997 or 1996. In order to diversify its sources
86
<TABLE>
of short-term financing, the Company has entered into short-term credit facilities
agreements with several commercial banks. The Company had no short-term debt outstanding
at December 31, 1997. At December 31, 1996, the Company had outstanding short-term debt
of $15.6 million under such facilities with a weighted average interest rate of 5.94%.
Authorization from the PSC limits the amount the Company may have outstanding,
at any time, under all of its short-term borrowing arrangements to $52.0 million in the
aggregate.
NOTE 6 - CAPITALIZATION - CAPITAL STOCK
Common Stock, $5 par value; 30,000,000 shares authorized:
<CAPTION> Reacquired
Common Stock Paid-In Capital
Shares Amount Capital Stock
Outstanding ($000) ($000) ($000)
<S> <C> <C> <C> <C>
January 1, 1995..................... 17,238,464 $86,192 $277,205 $ -
Issued under dividend
reinvestment plan("DRP")(a)....... 218,610 1,093 4,897 -
Issued under customer stock
purchase plan ("CSPP")(a)......... 38,977 195 879 -
Redemption of preferred
stock............................. - - (39) -
December 31, 1995................... 17,496,051 87,480 282,942 -
Issued under DRP(a)................ 49,023 245 1,278 -
Issued under CSPP(a)............... 9,913 50 245 -
December 31, 1996................... 17,554,987 87,775 284,465 -
Repurchased under common
stock repurchase plan............. (275,200) - - (9,398)
December 31, 1997................... 17,279,787 $87,775 $284,465 $ (9,398)
(a) In May 1996, the Company converted its DRP and its CSPP from original issue to open
market purchase of common shares.
</TABLE> 87
Cumulative Preferred Stock, $100 par value; 1,200,000 shares
authorized:
Final Redemption Shares Outstanding
Redemption Price December 31,
Series Date 12/31/97 1997 1996
Not Subject to Mandatory
Redemption:
4 1/2% $107.00 70,300 70,300
4.75% 106.75 20,000 20,000
4.35% 102.00 60,000 60,000
4.96% 101.00 60,000 60,000
210,300 210,300
Subject to Mandatory
Redemption:
6.20% 10/1/08 (a) 200,000 200,000
6.80% 10/1/27 (a) 150,000 150,000
350,000 350,000
Total 560,300 560,300
(a) Cannot be redeemed prior to October 1, 2003.
The Company had no cumulative preferred stock
redemptions or issuances during 1997; however on January 1, 1996,
the Company optionally redeemed its 7.72% Series Cumulative
Preferred Stock (par value $100 per share) at a redemption price
of $101.00 per share. The $13.1 million redemption price paid
and associated costs were funded through internal sources.
Expenses incurred on issuance of capital stock are
accumulated and reported as a reduction in common stock equity.
These expenses are not being amortized, except that, as directed
by the PSC, certain issuance and redemption costs and unamortized
expenses associated with certain issues of preferred stock that
were redeemed have been deferred and are being amortized over the
remaining lives of the issues subject to mandatory redemptions.
By Order, issued and effective December 4, 1996, the
PSC authorized the issuance and sale of certain debt and equity
securities of the Company.
That Order authorizes the Company, through December 31,
1999, to: 1) issue and sell up to $40.0 million of new securities
comprised of common stock and/or medium term notes, 2) acquire
not more than 2.5 million shares of its issued and outstanding
common stock of which the Company repurchased 275,200 shares
during 1997, and 3) effective January 1, 1997, combine its
88
existing DRP, its CSPP and its Employee Stock Purchase Plan into
a single plan called the Stock Purchase Plan. The Stock Purchase
Plan became effective January 1, 1997, superseded such other
plans and operates as an original issue or open market purchase
plan.
NOTE 7 - CAPITALIZATION - LONG-TERM DEBT
Details of long-term debt are shown below:
December 31,
1997 1996
(In Thousands)
Series Maturity Date
First Mortgage Bonds
(Net of Sinking Fund Requirements):
6.10% (a) April 28, 2000 $10,000 $10,000
7.70% (a) June 12, 2000 25,000 25,000
7.97% (a) June 11, 2003 8,000 8,000
7.97% (a) June 13, 2003 8,000 8,000
6.46% (a) August 11, 2003 10,000 10,000
6 1/4%(b) June 1, 2007 4,325 4,415
9 1/4% May 1, 2021 70,000 70,000
8.12% (a) August 29, 2022 10,000 10,000
8.14% (a) August 29, 2022 10,000 10,000
8.375%(b) December 1, 2028 16,700 16,700
172,025 172,115
Promissory Notes:
1984 Series A (7 3/8%)(c) Oct. 1, 2014 16,700 16,700
1984 Series B (7 3/8%)(c) Oct. 1, 2014 16,700 16,700
1985 Series A (Var. rate)(c) Nov. 1, 2020 36,250 36,250
1985 Series B (Var. rate)(c) Nov. 1, 2020 36,000 36,000
1987 Series A (Var. rate)(c) June 1, 2027 33,700 33,700
1987 Series B (Var. rate)(c) June 1, 2027 9,900 9,900
5.38% (a) Jan. 15,1999 20,000 20,000
7.85% (a) July 2, 2004 15,000 15,000
184,250 184,250
Secured Notes Payable of Subsidiary 6,152 6,299
Unamortized Discount on Debt (598) (624)
Total long-term debt $361,829 $362,040
89
(a) Issued under the Company's Medium Term Note Program.
(b) First Mortgage Bonds issued in connection with the sale by
the New York State Energy Research and Development Authority
("NYSERDA") of tax-exempt pollution control revenue bonds.
(c) Promissory Notes issued in connection with the sale by
NYSERDA of tax-exempt pollution control revenue bonds.
First Mortgage Bonds
The Company did not issue or redeem any first mortgage
bonds during 1997; however, on May 1, 1996, the Company redeemed
$30 million of its 8 3/4% Series due 2001 at a redemption price
of 102.07% of the principal amount.
Medium Term Notes
By Order, issued and effective December 4, 1996, the PSC
authorized the Company to issue and sell not later than December
31, 1999, a combination of new debt securities and/or common
stock totaling not more than $40.0 million in the aggregate.
Amended Settlement Agreement
Under the terms of the Amended Settlement Agreement
described in Note 1 hereof, the Company may transfer up to $100
million from its regulated utility business to its unregulated
businesses prior to the formation of a holding company. The
Company may, pursuant to this authorization, issue up to $100
million new securities in 1998 or 1999. The type of securities
or timing of issuance is uncertain.
NYSERDA
The NYSERDA Pollution Control Revenue Bonds issued in
1985 (Series A and B) and 1987 (Series A and B) (collectively,
the "1985 and 1987 NYSERDA Bonds") are variable rate obligations
subject to weekly repricing and investor tender. The Company has
the right, exercisable independently with respect to each series
of the 1985 and 1987 NYSERDA Bonds, to convert those Bonds of
each such series to a fixed rate for the remainder of their term.
90
In its rate orders, the PSC has authorized deferred accounting
for the interest costs on the Company's 1985 and 1987 Series A
and B Promissory Notes which were issued in connection with the
sale of the 1985 and 1987 NYSERDA Bonds. The authorization
provides for full recovery of the variance between that portion
of the actual interest costs supporting utility operations and
the interest costs allowed in rates. The percent of interest
costs supporting utility operations represents approximately 95%
of the total costs. The deferred balances under such accounting
were $3.8 million and $2.4 million at December 31, 1997 and 1996,
respectively, and were included in "Regulatory Assets" in the
Company's Consolidated Balance Sheet. Such deferred balances are
to be addressed in future rate cases. By Order, issued and
effective December 4, 1996, the PSC authorized the Company to
issue up to $132.55 million of tax-exempt NYSERDA Pollution
Control Revenue Bonds for refunding purposes or for the purpose
of refinancing, if economical, a like amount of such bonds
presently outstanding.
Letters of Credit
The Company has in place irrevocable letters of credit
which support certain payments required to be made on the 1985
and 1987 NYSERDA Bonds. Such letters of credit expire in 1999
and 2000. The Company anticipates being able to extend such
letters of credit if the interest rate on the related series of
such Bonds is not converted to a fixed interest rate. If the
Company were unable to extend the letter of credit that is
related to a particular series of such Bonds, that series would
have to be redeemed unless a fixed rate of interest became
effective. Payments made under the letters of credit in
connection with purchases of tendered 1985 and 1987 NYSERDA Bonds
are repaid with the proceeds from the remarketing of such Bonds.
To the extent the proceeds are not sufficient, the Company would
be required to reimburse the bank that issued the letter of
credit for the amount of any resulting draw under that letter
prior to its expiration date.
91
Interest Rate Cap
By Order, issued and effective December 4, 1996, the PSC
authorized the Company to employ interest rate caps, collars and
floors to manage interest rate risk associated with its variable
rate 1985 and 1987 NYSERDA Bonds and to recognize the associated
costs as interest expense for rate making purposes. The Company
entered into an interest rate cap agreement with a bank to manage
exposure to upward changes in interest rates on the 1985 and 1987
NYSERDA Bonds. Under this agreement, in the event a nationally
recognized tax-exempt bond interest rate index exceeds 8%, the
Company will receive a payment from such bank equal to the amount
by which the actual interest costs on such Bonds exceeds 8% per
annum. This agreement has the effect of limiting the interest
rate the Company must pay on such Bonds (on a $115.9 million
notional amount) to the lesser of their actual rate or 8% per
annum. In the event such bank failed to make any required
payment under such interest rate cap agreement, the Company's
exposure would be limited to a maximum interest rate of 15% per
annum under the terms of such Bonds. The interest rate cap
agreement currently in effect expires on April 19, 1998. The
Company intends to enter into a new agreement prior to such
expiration date to provide similar risk management benefits for
the remainder of 1998 and possibly beyond.
Debt Expense
Expenses incurred on debt issues and any discount or
premium on debt are deferred and amortized over the lives of the
related issues. Expenses incurred on debt redemptions prior to
maturity have been deferred and are generally being amortized
over the shorter of the remaining lives of the related
extinguished issues or the new issues as directed by the PSC.
Debt Covenants
Certain debt agreements require the maintenance by the
Company of certain financial ratios and contain other restrictive
covenants.
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Mortgage Indenture Covenant
Article XXI of the Company's First Mortgage Bond
Indenture requires that the Company deposit, annually with the
Indenture Trustee cash in an amount equal to the difference
between annual capital additions and depreciation charges, if
such charges exceed capital additions, to the extent that such
difference is not offset by credits from prior years. Though no
cash deposit was required in 1997 or 1996, the Company
anticipates that a deposit of cash of up to $4.0 million will be
made pursuant to such Article by March 31, 1998. Such deposit
may be withdrawn at a subsequent date to fund redemptions of
outstanding mortgage bonds.
NOTE 8 - POSTEMPLOYMENT BENEFITS
Retirement Income Plan
The Company has a non-contributory retirement income
plan ("Retirement Plan") covering substantially all of its
employees. The Retirement Plan provides pension benefits that
are based on the employee's compensation and years of service.
It has been the Company's practice to provide periodic updates to
the benefit formula stated in the Retirement Plan.
The Company's funding policy is to make annual
contributions equal to the amount of net periodic pension cost,
but not in excess of the maximum allowable tax-deductible
contribution under the federal income tax law nor less than the
minimum requirement under the Employee Retirement Income Security
Act of 1974.
The return on plan assets has resulted in net periodic
pension income of which 25% was allocated to capital projects in
both 1997 and 1996 and 27% in 1995. This allocation follows the
payroll distribution.
93
Net periodic pension income for 1997, 1996 and 1995
include the following components:
1997 1996 1995
(In Thousands)
Service cost - benefits earned
during the period........... $ 4,479 $ 4,556 $ 3,877
Interest cost on projected
benefit obligation.......... 15,316 14,594 14,449
Actual return on Retirement
Plan assets................. (60,760) (30,772) (38,849)
Net amortization and deferral 28,101 1,872 9,896
Net periodic pension
(income) ................ $(12,864) $ (9,750) $(10,627)
The following table sets forth the Retirement Plan's
funded status at October 1, 1997 and 1996 and amounts recognized
in the Company's Consolidated Balance Sheet at December 31, 1997
and 1996:
1997 1996
(In Thousands)
Actuarial present value of benefit
obligations:
Vested................................ $192,410 $173,424
Nonvested............................. 3,455 3,207
Total $195,865 $176,631
Projected benefit obligation ("PBO")for
service rendered to date.............. $222,250 $199,416
Retirement Plan assets at market value. 316,852 268,615
Excess of Retirement Plan assets over
PBO................................... 94,602 69,199
Unrecognized net gain.................. (74,326) (58,464)
Unrecognized prior service cost........ 5,960 3,273
Unrecognized net asset*................ (2,700) 3,336)
Prefunded Pension Cost................. $ 23,536 $ 10,672
* Being amortized over 15 years.
Assumptions used to determine actuarial
valuations:
Discount rate used to determine PBO... 7.25% 7.75%
Rate of compensation increase used to
determine PBO........................ 4.50% 4.50%
Long-term rate of return on plan assets
for net pension benefit.............. 9.25% 9.75%
94
Retirement Plan assets consist primarily of equities,
real estate and fixed income securities. The Retirement Plan is
deemed to be fully funded for federal income tax purposes,
therefore, the Company did not make any contributions to the
Retirement Plan during 1997 or 1996.
The 1997 and 1996 accounting for pension benefits
reflects adoption of PSC-prescribed provisions which, among other
things, requires ten-year amortization of actuarial gains and
losses and deferral of differences between actual costs and rate
allowances.
Other Postretirement Benefits
The Company provides certain health care and life
insurance benefits for retired employees through its
postretirement benefit plan ("Benefit Plan"). Substantially all
of the Company's employees may become eligible for these benefits
if they reach retirement age while working for the Company.
These and similar benefits for active employees are provided
through insurance companies whose premiums are based on the
benefits paid during the year. In order to recover a portion of
the costs of these benefits, the Company requires employees who
retired on or after October 1, 1994, to contribute toward the
cost of such benefits.
The Company is fully recovering its net periodic
postretirement costs in accordance with PSC guidelines. Under
these guidelines, the difference between the amounts of post-retirement
benefits recoverable in rates and the amounts of post-
retirement benefits determined by the actuary under SFAS 106,
"Employers Accounting for Postretirement Benefits Other Than
Pensions," are deferred as either a regulatory asset or
liability, as appropriate.
95
Net periodic postretirement benefit cost for 1997, 1996
and 1995 includes the following components:
1997 1996 1995
(In Thousands)
Service cost - benefits
attributed to the period....... $1,745 $ 1,875 $ 1,384
Interest cost on accumulated
postretirement benefit
obligation..................... 5,264 5,149 4,613
Actual return on Benefit Plan
assets......................... (1,886) (1,335) (875)
Amortization of Transition
Obligation*.................... 3,114 3,114 3,114
Net amortization and deferral... (1,514) (784) (1,837)
Net periodic postretirement
benefit cost................... $6,723 $8,019 $ 6,399
*The Company is amortizing the unfunded accumulated
postretirement benefit obligation ("Transition Obligation") at
January 1, 1993 over a 20-year period.
The Company has established a qualified funding vehicle
for such retirement benefits for collective bargaining employees
and a similar vehicle for management employees in the form of
qualified Voluntary Employee Beneficiary Association ("VEBA")
trusts. Contributions to the VEBA trusts are tax deductible,
subject to limitations contained in the Internal Revenue Code and
other regulations. Contributions to the VEBA trusts are made to
fund employees' postretirement health care and life insurance
benefits, as well as benefits as they are paid to retirees. The
VEBA trusts consists primarily of equities and fixed income
securities.
96
The Benefit Plan's funded status reconciled with the
Company's Consolidated Balance Sheet is as follows:
December 31,
1997 1996
(In Thousands)
Accumulated postretirement
benefit obligation ("APBO"):
Retirees...................... $ (36,991) $(33,427)
Fully eligible employees...... (4,391) (4,632)
Other employees............... (37,571) (33,422)
(78,953) (71,481)
Benefit Plan assets at fair
value.......................... 45,109 31,402
Excess of APBO over Benefit Plan
assets......................... (33,844) (40,079)
Unrecognized net gain........... (14,716) (11,419)
Unrecognized prior service cost. (139) (149)
Unrecognized Transition
Obligation..................... 46,693 49,807
Postretirement benefit liability $ (2,006) $ (1,840)
Assumptions used to determine
actuarial valuations:
Discount rate used to determine
APBO.......................... 7.25% 7.75%
Rate of compensation increase
for applicable life insurance
plans......................... 4.50% 4.50%
Long-term rate of return on plan
assets for periodic post
retirement benefit costs...... 6.80% 6.60%
The assumed health care cost trend is 11% in the early
years and trends down to an ultimate rate of 5.5% by the year
2010. A 1% increase in health care cost trend rate assumptions
would produce an increase in the accumulated postretirements
benefit obligation at December 31, 1997 and 1996 of $10.3 and
$9.4 million, respectively, and an increase in the aggregate
service and interest cost components of the net periodic
postretirement benefit cost of $1 million for both 1997 and 1996,
respectively.
97
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
The Price-Anderson Act is a federal law which limits
the public liability which can be imposed with respect to a
nuclear incident at a licensed nuclear electric generating
facility. Such Act also provides for assessment of owners of all
licensed nuclear units in the United States for losses in excess
of certain limits in the event of a nuclear incident at any such
licensed unit. Under the provisions of the Price-Anderson Act,
the Company's potential assessment (based on its 9% ownership
interest in the Nine Mile 2 Plant and assuming that the other
Nine Mile 2 Plant cotenants were to contribute their
proportionate shares of the potential assessments) would be $6.8
million (subject to adjustment for inflation) and the Company
could be assessed $339,800 (subject to adjustment for inflation)
as an additional surcharge, but would be limited to a maximum
assessment of $900,000 in any year with respect to any nuclear
incident. The public liability insurance coverage of $200
million required under the Price-Anderson Act for the Nine Mile 2
Plant is provided through Niagara Mohawk.
The Company also carries insurance to cover the
additional costs of replacement power (under a Business
Interruption and/or Extra Expense Insurance Policy) incurred by
the Company in the event of a prolonged accidental outage of the
Nine Mile 2 Plant. This insurance arrangement provides for
payments of up to $342,000 per week if the Nine Mile 2 Plant
experiences a continuous accidental outage which extends beyond
21 weeks. Such payments will continue for 52 weeks after
expiration of the 21-week deductible period, and thereafter the
insurer shall pay 80% of the weekly indemnity for a second and
third 52-week period. Subject to certain limitations, the
Company may request prepayment, in a lump sum amount, of the
insurance payments which would otherwise be paid to it with
respect to said third 52-week period, calculated on a net present
value basis.
The Company is insured as to its respective interest in
the Nine Mile 2 Plant under property damage insurance provided
through Niagara Mohawk. The insurance coverage provides $500
million of primary property damage coverage for both Units of the
98
Nine Mile Point Nuclear Station and $2.25 billion of excess
property damage coverage solely for Unit 2 of that station. Such
insurance covers decontamination costs, debris removal and repair
and/or replacement of property.
The Company intends to maintain, or cause to be
maintained, insurance against such risks at the Nine Mile 2
Plant, provided such coverage can be obtained at an acceptable
cost.
Environmental Matters
General: On an ongoing basis, the Company assesses
environmental issues which could impact the Company and its
ratepayers.
Clean Water Act Compliance: In 1992 the Company filed
renewal applications for the State Pollution Discharge
Elimination System ("SPDES") permits for its Roseton and
Danskammer Plants. Such permits are required to operate the
Plants' cooling water systems and wastewater treatment systems.
The Company is a party to an active proceeding before the New
York State Department of Environmental Conservation ("NYSDEC")
related to the processing of the application for the Roseton
Plant. At this stage of the proceeding, the Company can make no
determination as to the outcome of the proceeding or the impact,
if any, on the Company's financial position.
Clean Air Act Amendments: The Clean Air Act Amendments
of 1990 ("CAA Amendments") added several new programs which
address attainment and maintenance of national ambient air
quality standards. These include control of emissions from
fossil-fueled electric power plants that affect "acid rain" and
ozone. At December 31, 1997, the Company believes it was in full
compliance with regulations promulgated to date under the CAA
Amendments. Ongoing federal and state clean air initiatives may
require the Company to reduce its emissions in the future.
The Company's emissions of nitrogen oxides ("NOx") were
subject to additional controls effective May 31, 1995 under Title
I of the CAA Amendments. The Company has installed appropriate
controls in compliance with this requirement. The Northeast
Ozone Transport Commission, of which New York State is a member,
has agreed that additional reductions of NOx emissions will be
99
required in 1999 and, possibly, in the year 2003. Because
regulations have not yet been promulgated by New York State to
implement this agreement, the specific reductions required at the
Company's facilities have not been determined.
In July 1997, the Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality
Standards for ozone and particulates. These regulations may
result in the need for additional reductions of sulfur dioxide
and NOx emissions, depending on the results of ongoing ambient
air monitoring programs. Should monitoring determine that
counties in the vicinity of the Company's electric generating
stations exceed the new standards, emissions reductions could be
required. However, ambient air monitoring for particulates will
not be completed until 2002, at which time the EPA also intends
to complete a reassessment of health risks associated with
particulate emissions. Similarly, additional controls of NOx
emissions that are associated with ozone formation are unlikely
until 2003. At that time the EPA will have completed its review
of plans for meeting the new ozone standards that are to be
submitted by the states.
While it is not presently possible to determine the
additional emissions reductions, if any, required at the
Company's facilities, the Company expects that it will have
adequate financial resources to comply with the CAA Amendments
requirements.
Former Manufactured Gas Plant Facilities
In May 1995, the City of Newburgh, New York ("City")
filed suit against the Company in the United States District
Court for the Southern District of New York ("District Court").
The City alleges that the Company has released certain allegedly
hazardous substances without a permit from the site of the
Company's former coal gasification plant ("Central Hudson Site")
in Newburgh, New York into the ground at the Central Hudson Site
and into adjacent and nearby property of the City, in violation
of the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the federal Resource Conservation
and Recovery Act ("RCRA") and the federal Emergency Planning and
100
Community Right to Know Act ("EPCRA"). The City also alleges a
number of nuisance, trespass, damage and indemnification claims
pursuant to New York State law.
The City seeks injunctive relief against such alleged
disposal, storage or release of hazardous substances at the
Central Hudson Site, remediation and abatement of the conditions
alleged to lead to endangerment of the City's property, payment
of restitution of clean-up costs and monetary damages of at least
$70 million, assessment of certain civil penalties under RCRA,
CERCLA and EPCRA, and recovery of the City's costs and attorneys'
fees in such action. The Company and the City continue to
investigate this matter. A tentative schedule of proceeding has
been applied by the District Court.
The Company and the NYSDEC have entered into an Order
on Consent regarding the development and implementation of an
investigation and remediation program for the Central Hudson
Site, the City's adjacent and nearby property and the adjoining
areas of the Hudson River. Remedial investigations were
completed in September 1997. A draft report on the
investigations was provided to the NYSDEC for its review and
comment on October 31, 1997. The investigations revealed the
presence of contaminants in the soil in portions of the study
area. In the majority of the study area contaminants were found
deep within the ground and are not a threat to the public.
Contaminated ground water is associated with the contaminated
soil but it is not used as a drinking water supply. Impacted
sediments were also present within the Hudson River adjacent to
the City's property which is the location of its sewage treatment
plant. There are several possible sources of the contaminants
due to the long industrial history and current uses of the area.
Following NYSDEC's approval of the report and its
determination whether or not the contaminants found in the
investigation may pose a significant threat to human health or
the environment, a risk assessment will be completed by the
Company, if required. Remedial alternatives addressing any
unacceptable risks identified in the risk assessment will be
evaluated. It is currently anticipated that the risk assessment
and remedial alternatives report will be completed in 1998.
At this time, the Company can make no prediction as to
the outcome of this litigation, nor can it make reasonable
101
estimates of the cost of the activities required under the Order
on Consent. However, the Company has put its insurance carriers
on notice and intends to pursue reimbursement from them. The
Company cannot predict the extent of reimbursement that will be
available from its carriers at this time.
By letter dated June 3, 1997, the Company received
authorization from the PSC to defer costs related to this matter,
including legal defense costs, but excluding the Company's labor,
related to environmental site investigation and remediation
actions. The Company has deferred costs expended to date that it
expects to be recovered in future rates. The cumulative deferred
costs for 1997 amounted to $2.2 million and were included in
"Deferred Charges-Regulatory Assets" in the Company's
Consolidated Balance Sheet.
Asbestos Litigation
Since 1987, the Company, along with many other parties,
has been joined as a defendant or third-party defendant in 1,212
asbestos lawsuits commenced in New York State and federal courts.
The plaintiffs in these lawsuits have each sought millions of
dollars in compensatory and punitive damages from all defendants.
The cases were brought by or on behalf of individuals who have
allegedly suffered injury from exposure to asbestos, including
exposure which allegedly occurred at Company facilities.
As of December 31, 1997, of the 1,212 cases that had
been brought against the Company, 596 remained pending against
the Company. The 616 cases that were no longer pending against
the Company as of December 31, 1997 were resolved as follows: (i)
the Company negotiated voluntary dismissals in 372 cases and won
summary judgement dismissals in 10 cases; (ii) 116 third-party
claims were extinguished with respect to the Company when the
third party plaintiff, Owens Corning Fiberglass settled the cases
with the plaintiffs; and (iii) the Company settled 118 cases.
The Company is presently unable to assess the validity of the
remaining asbestos lawsuits; accordingly, it cannot determine the
ultimate liability relating to these cases. Based on information
known to the Company at this time, including its experience in
settling asbestos cases and in obtaining dismissals of asbestos
cases, the Company believes that the cost to be incurred in
102
connection with the remaining lawsuits will not have a material
adverse effect on the Company's financial position or results of
operations.
The Company is insured under successive comprehensive
general liability policies issued by a number of insurers, has
put such insurers on notice of the asbestos lawsuits and has
demanded reimbursement for its defense costs and liability.
Purchased Power Commitments
Under federal and New York State laws and regulations,
the Company is required to purchase the electrical output of
unregulated cogeneration facilities ("IPPs") which meet certain
criteria for Qualifying Facilities, as such term is defined in
the appropriate legislation. Purchases are made under long-term
contracts which require payment at rates higher than what can be
purchased on the wholesale market. These costs are currently
fully recoverable through the Company's electric fuel adjustment
clause. However, the PSC has indicated to the Company that it
may not allow full recovery of one such IPP contract. At
December 31, 1997, the Company has accrued a liability for its
estimate of future payments under this IPP contract which will
not be recovered through rates. IPPs with which the Company has
contracts represent 4.6% of the Company's energy purchases in
1997.
Other Matters
The Company is involved in various other legal and
administrative proceedings incidental to its business which are
in various stages. While these matters collectively involve
substantial amounts, it is the opinion of management that their
ultimate resolution will not have a material adverse effect on
the Company's financial position or results of operations.
Included in such proceedings are lawsuits against the
Company arising from a November 1992 explosion in a dwelling in
Catskill, New York. These lawsuits include: one alleging
personal injuries, the death of an occupant, and property damage
and recovery of an unspecified amount of compensatory and
punitive damages; and one alleging personal injuries and property
damage and compensatory and punitive damages in the sum of $4.0
million.
103
In addition to the above, on February 12, 1994, a fire
and an explosion destroyed a residence in the Village of
Wappingers Falls, New York, in the Company's service territory.
A short time later, a second explosion and fire destroyed a
nearby commercial facility. Lawsuits have been commenced against
the Company arising out of the Wappingers Falls incident
including: one alleging property damage and seeking recovery of
$250,000 in compensatory damages and one alleging personal
injuries and property damage and seeking an unspecified amount of
damages against the Company.
The Company is investigating the above claims and
presently has insufficient information on which to predict their
outcome. The Company believes that it has adequate insurance to
cover any compensatory damages that might be awarded. The
Company's insurance, however, does not extend to punitive damages
which, if awarded, could have a material adverse effect on the
Company's financial position.
NOTE 10 - DEPARTMENTAL INFORMATION
The Company is engaged in the electric and natural gas
utility businesses and serves the Mid-Hudson Valley region of New
York State. Total revenues and operating income before income
taxes (expressed as percentages), derived from electric and gas
operations for each of the last three years, were as follows:
Percent of Percent of Operating
Total Revenues Income Before Income Taxes
Electric Gas Electric Gas
1997....... 80% 20% 85% 15%
1996....... 81% 19% 88% 12%
1995....... 80% 20% 90% 10%
For the year ended December 31, 1997, the Company
served an average of 266,471 electric and 61,402 gas customers.
Of the Company's total electric revenues during that period,
approximately 43% was derived from residential customers, 31%
from commercial customers, 17% from industrial customers and 9%
from other utilities and miscellaneous sources. Of the Company's
total gas revenues during that period, approximately 43% was
derived from residential customers, 32% from commercial
104
customers, 5% from industrial customers, 15% from interruptible
customers and 5% from miscellaneous sources (including revenues
from transportation of customer-owned gas).
The Company's largest customer is International
Business Machines Corporation ("IBM"), which accounted for
approximately 9% of the Company's total electric revenues and
approximately 1% of its total gas revenues for the year ended
December 31, 1997.
Certain additional information regarding these segments
is set forth in the following table. General corporate expenses,
property common to both segments and depreciation of such common
property have been allocated to the segments in accordance with
practice established for regulatory purposes.
Electric
1997 1996 1995
(In Thousands)
Operating Revenues................ $416,429 $418,761 $409,445
Operating Expenses:
Fuel and purchased electricity... 121,981 114,397 113,263
Depreciation and amortization.... 39,480 38,401 37,503
Other, excluding income tax...... 170,338 170,498 168,313
Total......................... 331,799 323,296 319,079
Operating Income before Income Tax 84,630 95,465 90,366
Federal income tax, including
deferred income tax - net........ 24,622 28,592 26,632
Operating Income.................. $ 60,008 $ 66,873 $ 63,734
Construction Expenditures......... $ 36,686 $ 43,359 $ 41,195
Identifiable Assets at December 31*
Net utility plant................ $771,110 $784,582 $784,345
Construction work in progress.... 43,173 39,346 38,978
Total utility plant............ 814,283 823,928 823,323
Materials and supplies........... 18,695 22,668 23,167
Total.......................... $832,978 $846,596 $846,490
105
<PAGE>
Gas
1997 1996 1995
(In Thousands)
Operating Revenues................ $103,848 $ 95,210 $102,770
Operating Expenses:
Purchased natural gas............ 61,514 50,636 62,339
Depreciation and amortization.... 4,384 4,179 3,964
Other, excluding income tax...... 23,334 27,331 26,899
Total......................... 89,232 82,146 93,202
Operating Income before Income Tax 14,616 13,064 9,568
Federal income tax, including
deferred income tax - net........ 4,568 4,108 2,408
Operating Income.................. $ 10,048 $ 8,956 $ 7,160
Construction Expenditures......... $ 7,183 $ 6,501 $ 9,074
Identifiable Assets at December 31*
Net utility plant................ $109,268 $106,348 $103,979
Construction work in progress.... 9,240 9,353 9,792
Total utility plant............ 118,508 115,701 113,771
Materials and supplies........... 5,405 5,427 4,423
Total.......................... $123,913 $121,128 $118,194
*Identifiable assets not included herein are considered to be
corporate assets and have not been allocated between the
electric and gas segments.
106
<PAGE>
NOTE 11 - FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Cash and Temporary Cash Investments: The carrying
amount approximates fair value because of the short maturity of
those instruments.
Cumulative Preferred Stock Subject to Mandatory
Redemption: The fair value is estimated based on the quoted
market price of similar instruments.
Long-Term Debt: The fair value is estimated based on
the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities and quality.
Notes Payable: The carrying amount approximates fair
value because of the short maturity of those instruments.
The estimated fair values of the Company's financial
instruments are as follows:
December 31, 1997
Carrying Fair
Amount Value
(In Thousands)
Cumulative preferred stock subject
to mandatory redemption............. $ (35,000) $ (39,100)
Long-term debt (including
current maturities)................. (363,146) (382,837)
December 31, 1996
Carrying Fair
Amount Value
Cumulative preferred stock subject
to mandatory redemption............. $ (35,000) $ (33,950)
Long-term debt (including
current maturities)................. (363,402) (380,875)
107
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Selected financial data for each quarterly period within 1997 and 1996 are
presented below:
Earnings Per
Income Average
Available Share of
for Common
Operating Operating Common Stock
Revenues Income Stock Outstanding
(In Thousands) (Dollars)
Quarter Ended:
<S> <C> <C> <C> <C>
1997
March 31............ $151,875 $25,802 $20,677 $1.18
June 30............. 118,604 14,842 9,656 .55
September 30........ 123,507 17,911 12,560 .72
December 31......... 126,291 11,501 8,963 .52
1996
March 31............ $153,846 $27,092 $21,014 $1.20
June 30............. 116,994 16,366 10,195 .58
September 30........ 117,684 18,000 12,857 .73
December 31......... 125,447 14,371 8,407 .48
</TABLE>
108
<TABLE>
SCHEDULE II - Reserves
<CAPTION>
Additions
Payments Balance
Balance at Charged to Charged to Charged at End
Beginning Cost and Other to of
Description of Period Expenses Accounts Reserves Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Operating Reserves........ $4,755,264 $2,142,391 $ 334,700 $ 650,741 $6,581,614
Reserve for Uncollectible
Accounts................. $3,200,000 $3,493,405 $ - $3,893,405 $2,800,000
YEAR ENDED DECEMBER 31, 1996
Operating Reserves........ $6,024,101 $2,665,136 $ 195,608 $4,129,581 $4,755,264
Reserve for Uncollectible
Accounts................. $2,500,000 $4,335,676 $ - $3,635,676 $3,200,000
YEAR ENDED DECEMBER 31, 1995
Operating Reserves........ $5,663,407 $3,044,329 $1,091,388 $3,775,023 $6,024,101
Reserve for Uncollectible
Accounts................. $2,000,000 $3,220,608 $ - $2,720,608 $2,500,000
</TABLE>
109
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to the Directors of the
Company required hereunder is incorporated by reference to the
caption "Election of Directors" in the Company's definitive proxy
statement, to be dated March 2, 1998, and to be used in
connection with its Annual Meeting of Shareholders to be held on
April 7, 1998, which proxy statement will be submitted to the
Securities and Exchange Commission pursuant to that Commission's
Regulation S-T.
The information with respect to the executive officers
of the Company required hereunder is incorporated by reference to
Item 1 herein, under the caption "Executive Officers of the
Company."
ITEM 11 - EXECUTIVE COMPENSATION
The information required hereunder is incorporated by
reference to the caption "Executive Compensation" in the
Company's definitive proxy statement, to be dated March 2, 1998,
and to be used in connection with its Annual Meeting of
Shareholders to be held on April 7, 1998.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required hereunder is incorporated by
reference to the caption "Security Ownership" in the Company's
definitive proxy statement, to be dated March 2, 1998, and to be
used in connection with its Annual Meeting of Shareholders to be
held on April 7, 1998.
110
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no relationships or transactions of the type
required to be described by this Item.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
1. and 2. All Financial Statements and Financial Statement
Schedules filed as part of this Report are included in Item
8 of this Form 10-K and reference is made thereto.
3. Exhibits
Incorporated herein by reference to the Exhibit Index for
this Report. Such Exhibits include the following management
contracts or compensatory plans or arrangements required to
be filed as an Exhibit pursuant to Item 14(c) hereof:
Description in the Exhibit List and Exhibit Nos. for this
Report
Directors' Deferred Compensation Plan, effective October 1,
1980. (Exhibit (10)(iii)1)
Trust Agreement between Registrant and Dutchess Bank & Trust
Company, as trustee, dated as of January 1, 1984, pursuant
to Registrant's Savings Incentive Plan. (Exhibit
(10)(iii)2)
First Amendment, dated December 31, 1990, to Trust Agreement
between Registrant and The Bank of New York, as successor
trustee, dated as of January 1, 1984, pursuant to
Registrant's Savings Incentive Plan. (Exhibit (10)(iii)3)
Agreement, made March 14, 1994 by and between Registrant and
Mellon Bank, N.A., amending and restating, effective
111
April 1, 1994, Registrant's Savings Incentive Plan and
related Trust Agreement with The Bank of New York, together
with amendments dated July 22, 1994 and December 16, 1994.
(Exhibits (10)(iii)18, 19 and 20)
Executive Deferred Compensation Plan of the Company,
effective March 1, 1992, together with Amendment thereto
dated December 17, 1993. (Exhibits (10)(iii)8 and 15)
Retirement Benefit Restoration Plan of the Company,
effective May 1, 1993, together with Amendment thereto dated
July 23, 1993. (Exhibits (10)(iii)10 and 11)
Executive Incentive Compensation Plan of the Company,
effective January 1, 1993, together with Amendment thereto
dated April 4, 1995. (Exhibits (10)(iii)17 and 21)
Stock Plan for Outside Directors of the Company, dated
November 17, 1995. (Exhibit (10)(iii)22)
Management Incentive Program of the Company, effective April
1, 1994, together with Amendment thereto dated July 25,
1997. (Exhibits (10)(iii)23 and 24)
(b) Reports on Form 8-K
During the last quarter of the period covered by this Report
and including the period to the date hereof, the following
Reports on Form 8-K were filed by the Company:
(1) Report dated November 17, 1997 relating to the
Company's former manufactured gas plant facilities described
under the caption "Environmental Claims - Newburgh
Manufactured Gas Site" in Item 3 of Part I of the Annual
Report on Form 10-K for the fiscal year ending December 31,
1997, which in turn relates to the litigation filed against
the Company by the City of Newburgh, New York, on May 26,
1995, in the United States District Court, Southern District
of New York. Pursuant to the October 1995 Order on Consent
entered into between the Company and the NYSDEC, as referred
to in said Item 3, the Company filed, on October 31, 1997, a
Remedial Investigation report with the NYSDEC for the
112
investigation and remediation program being conducted on the
Company's former coal gasification plant site and the City
of Newburgh's adjacent and nearby property. On October 31,
1997, the Company issued a related press release which was
filed as Exhibit 99 and incorporated by reference to said
Form 8-K.
(2) Report dated January 7, 1998 regarding the Company's
execution of an Amended and Restated Settlement Agreement,
dated January 2, 1998 with various parties, related to the
Competitive Opportunities Proceeding described in Note 1.
(c) Exhibits Required by Item 601 of Regulation S-K
Incorporated herein by reference to subpart (a)-3 of Item
14, above.
(d) Financial Statement Schedule required by Regulation S-X
which is excluded from the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1997
Not applicable, see Item 8 hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
By (SGD.) JOHN E. MACK, III
(John E. Mack, III,
Chairman of the Board
and Chief Executive Officer)
Dated: February 10, 1998
113
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
person on behalf of the Company and in the capacities and on the
date indicated:
Signature Title Date
(a) Principal Executive
Officer or Officers:
(SGD.) JOHN E. MACK, III
(John E. Mack, III) Chairman of
the Board and
Chief Executive
Officer February 10, 1998
(b) Principal Accounting
Officer:
(SGD.) DONNA S. DOYLE
(Donna S. Doyle) Controller February 10, 1998
(c) Principal Financial
Officer:
(SGD.) STEVEN V. LANT
(Steven V. Lant) Treasurer and
Assistant Secretary
February 10, 1998
114
<PAGE>
(d) A majority of Directors:
L. Wallace Cross*, Jack Effron*,
Heinz K. Fridrich*, Edward F.X.
Gallagher*, Paul J. Ganci*,
Charles LaForge*, John E. Mack, III*
and Edward P. Swyer*, Directors
By (SGD.) JOHN E. MACK, III
(John E. Mack, III) February 10, 1998
________________
*John E. Mack, III, by signing his name hereto, does thereby sign
this document for himself and on behalf of the persons named
above after whose printed name an asterisk appears, pursuant to
powers of attorney duly executed by such persons and filed with
the Securities and Exchange Commission as Exhibit 24 hereof.
115
</PAGE>
<PAGE>
EXHIBIT INDEX
Following is the list of Exhibits, as required by Item
601 of Regulation S-K, filed as a part of this Annual Report on
Form 10-K, including Exhibits incorporated herein by reference
(1):
Exhibit No.
(Regulation S-K
Item 601
Designation) Exhibits
________________ ________
(3) Articles of Incorporation and Bylaws:
(i) 1-- Restated Certificate of Incorporation of
the Registrant under Section 807 of the
Business Corporation Law, filed August
14, 1989. ((1); Exhibit (3)1)
(i) 2-- Certificate of Amendment to the
Certificate of Incorporation of the
Registrant under Section 805 of the
Business Corporation Law, filed April 5,
1990. ((1); Exhibit (3)2)
(i) 3-- Certificate of Amendment to the
Certificate of Incorporation of the
Registrant under Section 805 of the
Business Corporation Law, filed October
19, 1993 ((1); Exhibit (3)3)
(ii) 1-- Bylaws in effect on the date of this
Report.
(4) Instruments defining the rights of security holders,
including indentures (see also Exhibit (3) above):
____________________
E-1
(1) Exhibits which are incorporated by reference to
other filings are followed by information contained in
parentheses, as follows: The first reference in the parenthesis
is a numeral, corresponding to a numeral set forth in the Notes
which follow this Exhibit list, which identifies the prior filing
in which the Exhibit was physically filed; and the second
reference in the parenthesis is to the specific document in that
prior filing in which the Exhibit appears.
*(ii) 1-- Indenture dated January 1, 1927 between
the Registrant and American Exchange
Irving Trust Company, as Trustee. ((2);
Exhibit (4)(ii)1)
*(ii) 2-- Supplemental Indenture dated March 1,
1935 between the Registrant and Irving
Trust Company, as Trustee. ((2);
Exhibit (4)(ii)2)
*(ii) 3-- Second Supplemental Indenture dated June
1, 1937 between the Registrant and
Irving Trust Company, as Trustee. ((2);
Exhibit (4)(ii)3)
*(ii) 4-- Third Supplemental Indenture dated April
1, 1940 between the Registrant and
Irving Trust Company, as Trustee. ((2);
Exhibit (4)(ii)4)
*(ii) 5-- Fourth Supplemental Indenture dated
March 1, 1941 between the Registrant and
Irving Trust Company, as Trustee. ((2);
Exhibit (4)(ii)5)
*(ii) 6-- Fifth Supplemental Indenture dated
December 1, 1950 between the Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)6)
*(ii) 7-- Sixth Supplemental Indenture dated
December 1, 1952 between the Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)7)
E-2
*(ii) 8-- Seventh Supplemental Indenture dated
October 1, 1954 between the Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)8)
*(ii) 9-- Eighth Supplemental Indenture dated May
15, 1958 between the Registrant and
Irving Trust Company, as Trustee. ((2);
Exhibit (4)(ii)9)
(ii) 10-- Ninth Supplemental Indenture dated
December 1, 1967 between the Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)10)
(ii) 11-- Tenth Supplemental Indenture dated as of
January 15, 1969 between the Registrant
and Irving Trust Company, as Trustee.
((3); Exhibit 2.12)
(ii) 12-- Eleventh Supplemental Indenture dated as
of June 1, 1970 between the Registrant
and Irving Trust Company, as Trustee.
((4); Exhibit 1.13)
(ii) 13-- Twelfth Supplemental Indenture dated as
of February 1, 1972 between the
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)13)
(ii) 14-- Thirteenth Supplemental Indenture dated
as of April 15, 1974 between the
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)14)
(ii) 15-- Fourteenth Supplemental Indenture dated
as of November 1, 1975 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)15)
E-3
(ii) 16-- Fifteenth Supplemental Indenture dated
as of June 1, 1977 between Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)16)
(ii) 17-- Sixteenth Supplemental Indenture dated
as of September 15, 1979 between
Registrant and Irving Trust Company, as
Trustee. ((4); Exhibit 1.18)
(ii) 18-- Seventeenth Supplemental Indenture dated
as of May 15, 1980 between Registrant
and Irving Trust Company, as Trustee.
((5); Exhibit (4)(a)18)
(ii) 19-- Eighteenth Supplemental Indenture dated
as of November 15, 1980 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)19)
(ii) 20-- Nineteenth Supplemental Indenture dated
as of August 15, 1981 between Registrant
and Irving Trust Company, as Trustee.
((2); Exhibit (4)(ii)20)
(ii) 21-- Twentieth Supplemental Indenture dated
as of September 1, 1982 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)21)
(ii) 22-- Twenty-First Supplemental Indenture
dated as of November 22, 1982 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)22)
(ii) 23-- Twenty-Second Supplemental Indenture
dated as of May 24, 1984 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)23)
E-4
(ii) 24-- Twenty-Third Supplemental Indenture
dated as of June 15, 1985 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)24)
(ii) 25-- Twenty-Fourth Supplemental Indenture
dated as of September 1, 1986 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)25)
(ii) 26-- Twenty-Fifth Supplemental Indenture
dated as of December 1, 1988 between
Registrant and Irving Trust Company, as
Trustee. ((2); Exhibit (4)(ii)26)
(ii) 27-- Twenty-Sixth Supplemental Indenture
dated as of May 1, 1991 between
Registrant and The Bank of New York, as
Trustee. ((2); Exhibit (4)(ii)27)
(ii) 28-- Twenty-Seventh Supplemental Indenture
dated as of May 15, 1992 between
Registrant and The Bank of New York, as
Trustee. ((2); Exhibit (4)(ii)28); and
Prospectus Supplement Dated May 28, 1992
(To Prospectus Dated April 13, 1992)
relating to $125,000,000 principal
amount of First Mortgage Bonds,
designated Secured Medium-Term Notes,
Series A, and the Prospectus Dated April
13, 1992, relating to $125,000,000
principal amount of Registrant's debt
securities attached thereto, as filed
pursuant to Rule 424(b) in connection
with Registration Statement No. 33-46624. ((6)(a)), and,
as applicable to
a tranche of such Secured Medium-Term
Notes, one of the following:
E-5
(a) Pricing Supplement No. 1, Dated
June 4, 1992 (To Prospectus Dated
April 13, 1992, as supplemented
by a Prospectus Supplement Dated
May 28, 1992) filed pursuant to
Rule 424(b) in connection with
Registration Statement No. 33-46624. ((6)(b))
(b) Pricing Supplement No. 2, Dated
June 4, 1992 (To Prospectus Dated
April 13, 1992, as supplemented
by a Prospectus Supplement Dated
May 28, 1992) filed pursuant to
Rule 424(b) in connection with
Registration Statement No. 33-46624. ((6)(c))
(c) Pricing Supplement No. 3, Dated
June 4, 1992 (To Prospectus Dated
April 13, 1992, as supplemented
by a Prospectus Supplement Dated
May 28, 1992) filed pursuant to
Rule 424(b) in connection with
Registration Statement No. 33-46624. ((6)(d))
(d) Pricing Supplement No. 4, Dated
August 20, 1992 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((6)(e))
(e) Pricing Supplement No. 5, Dated
August 20, 1992 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((6)(f))
E-6
(f) Pricing Supplement No. 6, Dated
July 26, 1993 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((6)(g))
(g) Pricing Supplement No. 7, Dated
July 26, 1993 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((6)(h))
(ii) 29-- Twenty-Eighth Supplemental Indenture
dated as of May 1, 1995 between
Registrant and The Bank of New York, as
Trustee. ((35); Exhibit (4)(ii)33)
Prospectus Supplement Dated May 15, 1995
(To Prospectus Dated April 4, 1995)
relating to $80,000,000 principal amount
of First Mortgage Bonds, designated
Secured Medium-Term Notes, Series B, and
the Prospectus Dated April 4, 1995,
relating to (i) $80,000,000 of
Registrant's Debt Securities and Common
Stock, $5.00 par value, but not in
excess of $40 million aggregate initial
offering price of such Common Stock and
(ii) 250,000 shares of Registrant's
Cumulative Preferred Stock, par value
$100 per share, which may be issued as
1,000,000 shares of Depositary Preferred
Shares each representing 1/4 of a share
E-7
of such Cumulative Preferred Stock
attached thereto, as filed pursuant to
Rule 424(b) in connection with
Registration Statement No. 33-56349).
(9)
(ii) 30-- Indenture, dated as of April 1, 1992,
between Registrant and Morgan Guaranty
Trust Company of New York, as Trustee.
((7); Exhibit (4)(ii)29); and Prospectus
Supplement Dated May 28, 1992 (To
Prospectus Dated April 13, 1992)
relating to $125,000,000 principal
amount of Medium-Term Notes, Series A,
and the Prospectus Dated April 13, 1992,
relating to $125,000,000 principal
amount of Registrant's debt securities
attached thereto, as filed pursuant to
Rule 424(b) in connection with
Registration Statement No. 33-46624.
((8)(a)), and, as applicable to a
tranche of such Medium-Term Notes, one
of the following:
(a) Pricing Supplement No. 1, Dated
June 26, 1992 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((8)(b))
(b) Pricing Supplement No. 2, Dated
October 6, 1993 (To Prospectus
Dated April 13, 1992, as
supplemented by a Prospectus
Supplement Dated May 28, 1992)
filed pursuant to Rule 424(b) in
connection with Registration
Statement No. 33-46624. ((8)(c))
E-8
Prospectus Supplement Dated May 15, 1995
(To Prospectus Dated April 4, 1995)
related to $80,000,000 principal amount
of Medium-Term Notes, Series B, and the
Prospectus Dated April 4, 1995, relating
to (i) $80,000,000 of Registrant's Debt
Securities and Common Stock, $5.00 par
value, but not in excess of $40 million
aggregate initial offering price of such
Common Stock and (ii) 250,000 shares of
Registrant's Cumulative Preferred Stock,
par value $100 per share, which may be
issued as 1,000,000 shares of Depositary
Preferred Shares each representing 1/4
of a share of such Cumulative Preferred
Stock attached thereto, as filed
pursuant to Rule 424(b) in connection
with Registration Statement No. 33-56349). (10)
(ii) 31-- Form of the Registrant's 4.85%
Promissory Notes. ((9); Exhibit 1.9)
(ii) 32-- Participation Agreement, dated as of
November 1, 1985, by and between New
York State Energy Research and
Development Authority and the
Registrant. ((2); Exhibit (4)(ii)31)
(ii) 33-- The Registrant has entered into certain
other instruments with respect to long-term debt of
the Registrant. No such
instrument relates to securities
authorized thereunder which exceed 10%
of the total assets of the Registrant
and its subsidiaries on a consolidated
basis. The Registrant agrees to provide
the Commission, upon request, copies of
any instruments defining the rights of
holders of long-term debt of the
Registrant and subsidiaries for which
consolidated or unconsolidated financial
statements are required to be filed with
the Commission.
E-9
(10) Material contracts:
(i) 1-- Agreement dated October 31, 1968 between
the Registrant and Consolidated Edison
Company of New York, Inc. and Niagara
Mohawk Power Corporation. ((3); Exhibit
5.1)
(i) 2-- Agreement dated September 22, 1969
between Registrant and Algonquin Gas
Transmission Company. ((12); Exhibit
5.5)
(i) 3-- Agreement dated as of April 4, 1977
between Registrant, Consolidated Edison
Company of New York, Inc., Long Island
Lighting Company, New York State
Electric & Gas Corporation, Niagara
Mohawk Power Corporation, Orange and
Rockland Utilities, Inc., Rochester Gas
and Electric Corporation and the Power
Authority of the State of New York.
((3); Exhibit 5.6)
(i) 4-- Agreement dated April 27, 1973 between
Registrant and the Power Authority of
the State of New York. ((13); Exhibit
5.19)
(i) 5-- Agreement dated July 28, 1975 between
Registrant and the Power Authority of
the State of New York. ((14); Exhibit
5.18)
(i) 6-- Agreement dated as of September 22, 1975
between Registrant, Niagara Mohawk Power
Corporation, Long Island Lighting
Company, New York State Electric & Gas
Corporation, and Rochester Gas and
Electric Corporation. ((14); Exhibit
5.21)
E-10
(i) 7-- Agreement dated November 23, 1976
between Registrant and Consolidated
Edison Company of New York, Inc. ((15);
Exhibit 5.29)
(i) 8-- Agreement dated December 29, 1975
between Registrant and Niagara Mohawk
Power Corporation, Long Island Lighting
Company, New York State Electric & Gas
Corporation, and Rochester Gas &
Electric Corporation. ((16); Exhibit
(10)(i)18)
(i) 9-- Assignment and Assumption dated as of
October 24, 1975 between Registrant and
New York State Electric & Gas
Corporation. ((14); Exhibit 5.25)
(i) 10-- Amendment to Assignment and Assumption
dated October 30, 1978 between
Registrant and New York State Electric &
Gas Corporation. ((3); Exhibit 5.34)
(i) 11-- Agreement dated as of May 12, 1977
between Registrant and Niagara Mohawk
Power Corporation. ((17); Exhibit 5.34)
(i) 12-- Agreement, dated May 8, 1980, by and
between Registrant and Jersey Central
Power & Light Company. ((18); Exhibit
(10)(i)21)
(i) 13-- Purchase Agreement, dated as of June 1,
1980, by and between Registrant and
Consolidated Edison Company of New York,
Inc. ((18); Exhibit (10)(i)22)
(i) 14-- Purchase Agreement, dated as of June 16,
1980, by and between Registrant and
Philadelphia Electric Company. ((18);
Exhibit (10)(i)23)
E-11
(i) 15-- Purchase Agreement, dated as of June 18,
1980, by and between Registrant and
Public Service Electric and Gas Company.
((18); Exhibit (10)(i)24)
(i) 16-- Purchase Agreement, dated as of July 1,
1980, by and between Registrant and
Connecticut Light and Power Company.
((18); Exhibit (10)(i)25)
(i) 17-- Letter Amendment Agreement, dated
December 16, 1980, by and between
Registrant and Niagara Mohawk Power
Corporation. ((18); Exhibit (10)(i)26)
(i) 18-- Settlement Agreement, dated December 19,
1980, by and among the United States
Environmental Protection Agency, The
Department of Environmental Conservation
of the State of New York, The Attorney
General of the State of New York, Hudson
River Fisherman's Association, Inc.,
Scenic Hudson Preservation Conference,
Natural Resources Defense Council, Inc.,
Registrant, Consolidated Edison Company
of New York, Inc., Orange and Rockland
Utilities, Inc., Niagara Mohawk Power
Corporation and Power Authority of the
State of New York. ((18); Exhibit
(10)(i)27)
(i) 19-- Agreement dated April 2, 1980 by and
between Registrant and the Power
Authority of the State of New York.
((2); Exhibit (10)(i)24)
(i) 20-- Purchase Agreement, dated April 19,
1983, between Registrant and New York
State Electric & Gas Corporation. ((2);
Exhibit (10)(i)29)
E-12
(i) 21-- Transmission Agreement, dated October
25, 1983, between Registrant and Niagara
Mohawk Power Corporation. ((2); Exhibit
(10)(i)30)
(i) 22-- Underground Storage Service Agreement,
dated June 30, 1982, between Registrant
and Penn-York Energy Corporation. ((2);
Exhibit (10)(i)32)
(i) 23-- Interruptible Transmission Service
Agreement, dated December 20, 1983,
between Registrant and Power Authority
of the State of New York. ((19);
Exhibit (10)(i)33)
(i) 24-- Agreement, dated December 7, 1983,
between Registrant and the Power
Authority of the State of New York.
((2); Exhibit (10)(i)34)
(i) 25-- Specification of Terms and Conditions of
Settlement in State of New York Public
Service Commission Proceeding - Case
29124, dated September 3, 1985. ((2);
Exhibit (10)(i)35)
(i) 26-- Reimbursement Agreement, dated as of
November 1, 1985, between Registrant and
the Bank named therein. ((2); Exhibit
(10)(i)36)
(i) 27-- General Joint Use Pole Agreement between
Registrant and the New York Telephone
Company effective January 1, 1986 (not
including the Administrative and
Operating Practices provisions thereof).
((2); Exhibit (10)(i)37)
(i) 28-- Agreement, dated June 3, 1985, between
Registrant, Consolidated Edison Company
of New York, Inc. and the Power
E-13
Authority of the State of New York
relating to Marcy South Real Estate -
East Fishkill, New York. ((2); Exhibit
(10)(i)38)
(i) 29-- Agreement, dated June 11, 1985, between
the Registrant and the Power Authority
of the State of New York relating to
Marcy South Substation - East Fishkill,
New York. ((2); Exhibit (10)(i)39)
(i) 30-- Agreement, dated as of April 9, 1986,
among Registrant, Consolidated Edison
Company of New York, Inc., Niagara
Mohawk Power Corporation and the Power
Authority of the State of New York
relating to Real Estate - Roseton/
Danskammer. ((2); Exhibit (10)(i)40)
(i) 31-- Agreement, dated as of April 9, 1986,
between Registrant, for itself and as
agent for itself, Niagara Mohawk Power
Corporation and Consolidated Edison
Company of New York, Inc., and the Power
Authority of the State of New York
relating to Supplemental Land Use -
Roseton/Danskammer. ((2); Exhibit
(10)(i)41)
(i) 32-- Roseton Amendment Agreement, dated as of
September 9, 1987, between Registrant
and Niagara Mohawk Power Corporation,
for the purchase of interests in the
Roseton Steam Electric Generating Plant.
((20); Exhibit (19)(10)(i)76)
(i) 33-- Agreement dated as of November 20, 1987
between Registrant and Consolidated Rail
Corporation to transport coal to
Danskammer Generating Station. [Certain
portions of said Agreement setting forth
or relating to pricing provisions are
omitted and filed separately with the
E-14
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.] ((20); Exhibit
(19)(10)(i)83)
(i) 34-- Reimbursement Agreement, dated as of
July 1, 1987, between Registrant and the
Bank named therein. ((20); Exhibit
(19)(10)(i)90)
(i) 35-- First Amendment, dated as of September
1, 1987, to the Reimbursement Agreement,
dated as of November 1, 1985, between
Registrant and the Bank named therein.
((20); Exhibit (19)(10)(i)93)
(i) 36-- Purchase and Administration Agreement,
dated as of November 25, 1987, between
Registrant and the finance corporation
named therein providing for the sale of
Registrant's accounts receivables.
((20); Exhibit (19)(10)(i)95)
(i) 37-- Contract dated October 5, 1987, between
Registrant and Norfolk and Western
Railway Company providing for
transportation of coal to the Danskammer
Plant. [Certain portions of said
Contract setting forth or relating to
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((20);
Exhibit (19)(10)(i)96)
(i) 38-- Memorandum of Understanding, dated as of
March 22, 1988, by and among Registrant,
Alberta Northeast Gas, Limited, the
Brooklyn Union Gas Company, New Jersey
Natural Gas Company and Connecticut
E-15
Natural Gas Corporation. ((20); Exhibit
(19)(10)(i)98)
(i) 39-- Agreement for the Sale and Purchase of
Coal, dated as of January 1, 1987, among
Registrant, Kentucky Carbon Corporation
and The Carbon Fuel Sales Company.
[Certain portions of said agreement
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((21);
Exhibit (28)(10)(i)100)
(i) 40-- Restatement of Purchase and
Administration Agreement, dated as of
April 4, 1989, between Registrant and
CSW Credit, Inc., amending and restating
the Purchase and Administration
Agreement, dated as of November 25,
1987, between such parties providing for
the sale of Registrant's accounts
receivables. ((21); Exhibit (28)
(10)(i)101)
(i) 41-- Nine Mile Point Nuclear Station Unit 2
Interim Operating Agreement, effective
August 22, 1989, between and among
Registrant, Niagara Mohawk Power
Corporation, Long Island Lighting
Company, New York State Electric & Gas
Corporation and Rochester Gas and
Electric Corporation. ((22); Exhibit
(28)(10)(i)102)
(i) 42-- Amendment of Nine Mile Point Nuclear
Station Unit 2 Interim Operating
Agreement, dated as of March 6, 1990,
among Registrant, Niagara Mohawk Power
Corporation, Long Island Lighting
E-16
Company, New York State Electric & Gas
Corporation and Rochester Gas and
Electric Corporation. ((18); Exhibit
(19)(10)(i)99)
(i) 43-- Amendment No. 2: One-Year Extension of
Nine Mile Point Nuclear Station Unit 2
Interim Operating Agreement, dated as of
November 27, 1990, among Registrant,
Niagara Mohawk Power Corporation, Long
Island Lighting Company, New York State
Electric & Gas Corporation and Rochester
Gas and Electric Corporation. ((23);
Exhibit (19)(10)(i)71)
(i) 44-- Second Amendment, dated as of July 1,
1990, to the Reimbursement Agreement,
dated as of November 1, 1985, between
Registrant and the Bank named therein.
((23); Exhibit (19)(10)(i)72)
(i) 45-- First Amendment, dated as of July 1,
1990, to the Reimbursement Agreement,
dated as of July 1, 1987, between
Registrant and the Bank named therein.
((23); Exhibit (19)(10)(i)73)
(i) 46-- Credit Agreement, dated as of December
17, 1990, among Registrant and the Banks
named therein. ((23); Exhibit
(19)(10)(i)74)
(i) 47-- Agreement, effective as of November 1,
1989, between Columbia Gas Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)75)
(i) 48-- Agreement, dated as of November 1, 1989,
between Columbia Gas Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)77)
E-17
(i) 49-- Agreement, dated as of November 1, 1989,
between Columbia Gas Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)78)
(i) 50-- Agreement, dated as of November 1, 1989,
between Columbia Gulf Transmission
Company and Registrant. ((23); Exhibit
(19)(10)(i)79)
(i) 51-- Agreement, dated October 9, 1990,
between Texas Eastern Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)80)
(i) 52-- Agreement, dated July 2, 1990, between
Texas Eastern Transmission Corporation
and Registrant. ((23); Exhibit
(19)(10)(i)81)
(i) 53-- Agreement, dated December 28, 1989,
between Texas Eastern Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)82)
(i) 54-- Agreement, dated December 28, 1989,
between Texas Eastern Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)83)
(i) 55-- Agreement, dated November 3, 1989,
between Texas Eastern Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)84)
(i) 56-- Gas Sales Contract, dated as of January
1, 1989, between Tennessee Gas Pipeline
Company and Registrant. ((23); Exhibit
(19)(10)(i)86)
(i) 57-- Agreement, effective December 15, 1989,
between Algonquin Gas Transmission
Company and Registrant. ((23); Exhibit
(19)(10)(i)87)
E-18
(i) 58-- Storage Service Agreement, dated July 1,
1989, between CNG Transmission
Corporation and Registrant. ((23);
Exhibit (19)(10)(i)91)
(i) 59-- Agreement dated as of February 7, 1991
between Registrant and Alberta Northeast
Gas, Limited for the purchase of
Canadian natural gas from ATCOR Ltd. to
be delivered on the Iroquois Gas
Transmission System. ((23); Exhibit
(19)(10)(i)92)
(i) 60-- Agreement dated as of February 7, 1991
between Registrant and Alberta Northeast
Gas, Limited for the purchase of
Canadian natural gas from AEC Oil and
Gas Company, a Division of Alberta
Energy Company, Ltd. to be delivered on
the Iroquois Gas Transmission System.
((23); Exhibit (19)(10)(i)93)
(i) 61-- Agreement dated as of February 7, 1991
between Registrant and Alberta Northeast
Gas, Limited for the purchase of
Canadian natural gas from ProGas Limited
to be delivered on the Iroquois Gas
Transmission System. ((23); Exhibit
(19)(10)(i)94)
(i) 62-- Agreement No. 2 dated as of February 7,
1991 between Registrant and Alberta
Northeast Gas, Limited for the purchase
of Canadian natural gas from TransCanada
Pipelines Limited under Precedent
Agreement No. 2 to be delivered on the
Iroquois Gas Transmission System.
((23); Exhibit (19)(10)(i)95)
(i) 63-- Agreement No. 1 dated as of February 7,
1991 between Registrant and Alberta
Northeast Gas, Limited for the purchase
E-19
of Canadian natural gas from TransCanada
Pipelines Limited under Precedent
Agreement No. 1 to be delivered on the
Iroquois Gas Transmission System.
((23); Exhibit (19)(10)(i)96)
(i) 64-- Agreement dated as of February 7, 1991
between Registrant and Iroquois Gas
Transmission System to transport gas
imported by Alberta Northeast Gas,
Limited to Registrant. ((23); Exhibit
(19)(10)(i)97)
(i) 65-- Service Agreement, dated September 30,
1986, between Registrant and Algonquin
Gas Transmission Company, for firm
storage transportation under Rate
Schedule SS-III. ((24); Exhibit
(19)(10)(i)95)
(i) 66-- Service Agreement, dated March 12, 1991,
between Registrant and Algonquin Gas
Transmission Company, for firm
transportation of 5,056 dth. of Texas
Eastern Transmission Corporation
incremental volume. ((24); Exhibit
(19)(10)(i)99)
(i) 67-- Agreement, dated December 28, 1990 and
effective February 5, 1991, between
Registrant and National Fuel Gas Supply
Corporation for interruptible
transportation. ((24); Exhibit
(19)(10)(i)100)
(i) 68-- Utility Services Contract, effective
October 1, 1991, between Registrant and
the U.S. Department of the Army, for the
provision of natural gas service to the
U.S. Military Academy at West Point and
Stewart Army Subpost, together with an
E-20
Amendment thereto, effective October 10,
1991. ((24); Exhibit (19)(10)(i)101)
(i) 69-- Fuel Oil Supply Contract, effective
October 1, 1991, among Sun Oil Trading
Company and Registrant, Consolidated
Edison Company of New York, Inc. and
Niagara Mohawk Power Corporation, for
the supply of fuel oil to the Roseton
Plant. [Certain portions of said
contract setting forth or relating to
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((24);
Exhibit (19)(10)(i)102)
(i) 70-- Service Agreement, effective December 1,
1990, between Registrant and Texas
Eastern Transmission Corporation, for
firm transportation service under Rate
Schedule FT-1. ((24); Exhibit
(19)(10)(i)103)
(i) 71-- Service Agreement, dated February 25,
1991, between Registrant and Texas
Eastern Transmission Corporation, for
incremental 5,056 dth. under Rate
Schedule CD-1. ((24); Exhibit
(19)(10)(i)104)
(i) 72-- Agreement, dated November 6, 1991,
between Registrant and Mingo Logan Coal
Company, for the sale and purchase of
coal. ((24); Exhibit (19)(10)(i)105)
(i) 73-- Service Agreement, dated January 7,
1992, between Registrant and Texas
Eastern Transmission Corporation, for
the firm transportation of 6,000
E-21
dth./day under Rate Schedule FTS-5.
((24); Exhibit (19)(10)(i)106)
(i) 74-- Amendment Nos. 1-4, dated February 21,
1989, May 31, 1990, January 8, 1991 and
November 20, 1991, respectively, by and
between Registrant and Norfolk Southern
Railway, to Contract, dated October 5,
1987, between Registrant and Norfolk and
Western Railway Company, providing for
transportation of coal to the Danskammer
Plant. [Certain portions of said
amendment 4 setting forth or relating to
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((24);
Exhibit (19)(10)(i)107)
(i) 75-- Amendment Nos. 1-3, dated August 30,
1988, December 10, 1990 (effective
December 22, 1990) and January 31, 1992,
respectively, to Agreement, dated as of
November 20, 1987, between Registrant
and Consolidated Rail Corporation to
transport coal to Danskammer Generating
Station. [Certain portions of said
amendments setting forth or relating to
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((24);
Exhibit (19)(10)(i)108)
(i) 76-- First Amendment, dated as of November 1,
1991, to Agreement for the Sale and
Purchase of Coal, dated as of January 1,
1987, among Registrant, Kentucky Carbon
Corporation and The Carbon Fuel Sales
Company. [Certain portions of said
amendment setting forth or relating to
E-22
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((24);
Exhibit (19)(10)(i)109)
(i) 77-- Agreement of Assignment, Assumption,
Consent and Release entered into as of
February 29, 1992 by and among Kentucky
Carbon Corporation, The Carbon Fuel
Sales Company, Massey Coal Sales Company
and Registrant. ((24); Exhibit
(19)(10)(i)111)
(i) 78-- Agreement dated as of July 1, 1992
between Registrant and Tennessee Gas
Pipeline Company for storage of natural
gas. ((25); Exhibit (10)(i)114)
(i) 79-- Agreement dated as of July 1, 1992
between Registrant and Tennessee Gas
Pipeline Company for firm transportation
periods. ((25); Exhibit (10)(i)115)
(i) 80-- Fuel Oil Supply Agreement, effective as
of September 1, 1992 between Global
Petroleum Corporation and Registrant,
Consolidated Edison Company of New York,
Inc. and Niagara Mohawk Power
Corporation for the Roseton Electric
Generating Plant. [Certain portions of
said Agreement setting forth or relating
to pricing provisions are omitted and
filed separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((19);
Exhibit (19)(10)(i)99)
E-23
(i) 81-- Agreement, dated November 1, 1990,
between Tennessee Gas Pipeline and
Registrant for transportation of third-party gas
for injection into and
withdrawal from Penn York storage.
((19); Exhibit (19)(10)(i)100)
(i) 82-- Agreement, dated December 1, 1991,
between Registrant and Iroquois Gas
Transmission System for interruptible
gas transportation service. ((19);
Exhibit (19)(10)(i)101)
(i) 83-- Letter Agreement, dated August 24, 1992,
between Registrant and Iroquois Gas
Transmission System amending that
certain Agreement, dated December 1,
1991 between said parties for
interruptible gas transportation
service. ((19); Exhibit (19)(10)(i)102)
(i) 84-- Tennessee Gas Pipeline Purchase and
Sales Agreement, dated November 1, 1992
between Registrant and Tenngasco
Corporation. ((19); Exhibit
(19)(10)(i)103)
(i) 85-- Agreement, dated as of July 16, 1993,
between Registrant, Consolidated Edison
Company of New York, Inc., Long Island
Lighting Company, New York State
Electric & Gas Corporation, Niagara
Mohawk Power Corporation, Orange and
Rockland Utilities, Inc., Rochester Gas
and Electric Corporation and the Power
Authority of the State of New York.
((19); Exhibit (19)(10)(i)104)
(i) 86-- Nine Mile Point Nuclear Station Unit 2
Operating Agreement, effective January
1, 1993, between and among Registrant,
Niagara Mohawk Power Corporation, Long
E-24
Island Lighting Company, New York State
Electric & Gas Corporation and Rochester
Gas and Electric Corporation. ((19);
Exhibit (19)(10)(i)105)
(i) 87-- Third Amendment, dated as of July 29,
1992, to the Reimbursement Agreement,
dated as of November 1, 1985, between
Registrant and the Bank named therein.
((2); Exhibit (19)(10)(i)106)
(i) 88-- Second Amendment, dated as of July 29,
1992, to the Reimbursement Agreement,
dated as of July 1, 1987, between
Registrant and the Bank named therein.
((2); Exhibit (19)(10)(i)107)
(i) 89-- Gas Transportation Agreement, dated as
of September 1, 1993, by and between
Tennessee Gas Pipeline Company and
Registrant. ((1); Exhibit
(19)(10)(i)108)
(i) 90-- First Amendment, dated as of October 1,
1993, to Fuel Oil Supply Contract,
effective as of September 1, 1992,
between Global Petroleum Corporation and
Registrant, Consolidated Edison Company
of New York, Inc. and Niagara Mohawk
Power Corporation for the Roseton
Electric Generating Station. ((1);
Exhibit (19)(10)(i)109)
(i) 91-- Second Amendment, dated as of November
1, 1993, to the Agreement for the Sale
and Purchase of Coal, dated as of
January 1, 1987, among Registrant,
Kentucky Carbon Corporation and The
Carbon Fuel Sales Company. [Certain
portions of said amendment setting forth
or relating to pricing provisions are
E-25
omitted and filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.] ((29); Exhibit (10)(i)92)
(i) 92-- Agreement, dated as of May 20, 1993,
between Registrant and New York State
Electric & Gas Corporation. ((29);
Exhibit (10)(i)93)
(i) 93-- Nine Mile Point Nuclear Station Unit 2
Operating Agreement, effective January
1, 1993, among Registrant, Niagara
Mohawk Power Corporation, Long Island
Lighting Company, New York State
Electric & Gas Corporation and Rochester
Gas and Electric Corporation. ((29);
Exhibit (10)(i)94)
(i) 94-- Amendment No. 2 to Irrevocable Letter of
Credit No. S01880, dated August 12,
1993, relating to the Reimbursement
Agreement, dated as of July 1, 1987, as
amended, between Registrant and the Bank
named therein. ((29); Exhibit (10)(i)95)
(i) 95-- Amendment No. 2 to Irrevocable Letter of
Credit No. S01881, dated August 12,
1993, relating to the Reimbursement
Agreement, dated as of July 1, 1987, as
amended, between Registrant and the Bank
named therein. ((29); Exhibit (10)(i)96)
(i) 96-- Amendment No. 2 to Irrevocable Letter of
Credit No. A95056-S, dated August 17,
1993, relating to the Reimbursement
Agreement, dated as of November 1, 1985,
as amended, between Registrant and the
Bank named therein. ((29); Exhibit
(10)(i)97)
E-26
(i) 97-- Amendment No. 2 to Irrevocable Letter of
Credit No. A95057-S, dated August 17,
1993, relating to the Reimbursement
Agreement, dated as of November 1, 1985,
as amended, between Registrant and the
Bank named therein. ((29); Exhibit
(10)(i)98)
(i) 98-- Second Amendment, effective as of
September 1, 1994, to Fuel Oil Supply
Contract, effective as of September 1,
1992, between Global Petroleum
Corporation and Registrant, Consolidated
Edison Company of New York, Inc. and
Niagara Mohawk Power Corporation for the
Roseton Electric Generating Station.
((31); Exhibit (10)(i)99)
(i) 99-- Third Amendment, dated as of November 1,
1994, to the Agreement for the Sale and
Purchase of Coal, dated as of January 1,
1987, among Registrant, Kentucky Carbon
Corporation and The Carbon Fuel Sales
Company (Exhibit (10)(i)(40) to
Registrant's 10-K Report), as amended.
[Certain portions of said amendment
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((32);
Exhibit (10)(i)100)
(i) 100-- Agreement of Assignment, Assumption,
Consent and Release, entered into as of
July 1, 1994 by and among Global
Petroleum Corporation, Montello Oil
Corporation, and Registrant for itself
and as Agent for Consolidated Edison
Company of New York, Inc., and Niagara
E-27
Mohawk Power Corporation for the Roseton
Electric Generating Station, relating to
a Fuel Supply Contract, effective
September 1, 1992 (Exhibit (10)(i)81),
as amended. ((32); Exhibit (10)(i)101)
(i) 101-- Amendment No. 4, dated November 28,
1994, to Agreement, dated as of November
20, 1987, between Registrant and
Consolidated Rail Corporation to
transport coal to Danskammer Generating
Station, as amended. [Certain portions
of the amendment setting forth or
relating to pricing provisions are
omitted and filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.] ((33); Exhibit (10)(i)102)
(i) 102-- Amendment No. 5, dated February 28,
1995, to Agreement, dated as of November
20, 1987, between Registrant and
Consolidated Rail Corporation to
transport coal to Danskammer Generating
Station, as amended. [Certain portions
of the amendment setting forth or
relating to pricing provisions are
omitted and filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.] ((34); Exhibit (10)(i)103)
(i) 103-- Fuel Oil Supply Contract, effective as
of September 1, 1995, between Montello
Oil Corporation and Central Hudson Gas &
Electric Corporation, Consolidated
Edison Company of New York, Inc. and
Niagara Mohawk Power Corporation for the
Roseton Electric Generating Plant.
[Certain portions of the amendment
E-28
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((36);
Exhibit (10)(i)104)
(i) 104-- Fourth Amendment, dated as of November
1, 1995, to the Agreement for the Sale
and Purchase of Coal, dated as of
January 1, 1987, among Registrant,
Kentucky Carbon Corporation and The
Carbon Fuel Sales Company (Exhibit
(10)(i)40 to Registrant's 10-K Report.
[Certain portions of the amendment
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((36);
Exhibit (10)(i)105)
(i) 105-- Fuel Oil Supply Contract, effective as
of September 1, 1996, between Bayway
Refining Company and Central Hudson Gas
& Electric Corporation, Consolidated
Edison Company of New York, Inc. and
Niagara Mohawk Power Corporation for the
Roseton Electric Generating Plant.
[Certain portions of the contract
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((40);
Exhibit (10)(i)106)
(i) 106-- Agreement for the Sale and Purchase of
Coal, dated as of December 1, 1996,
among Registrant, Inter-American Coal
E-29
N.V. and Inter-American Coal, Inc.
[Certain portions of the agreement
setting forth or relating to pricing
provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((41);
Exhibit (10)(i)107)
(i) 107-- Agreement for the Sale and Purchase of
Coal, dated as of January 1, 1997, among
Registrant, HPM Corporation and
Integrity Coal Sales, Inc. [Certain
portions of the amendment setting forth
or relating to pricing provisions are
omitted and filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.] ((41); Exhibit (10)(i)108)
(i) 108-- Transportation Contract by and between
Registrant and Consolidated Rail
Corporation, dated as of November 26,
1996. [Certain portions of the
agreement setting forth or relating to
pricing provisions are omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment under
the rules of said Commission.] ((41);
Exhibit (10)(i)109)
(i) 109-- Credit Agreement, dated as of October
23, 1996, among Registrant and The Banks
listed herein and Morgan Guaranty Trust
Company of New York, as Agent. ((41);
Exhibit (10)(i)110)
(i) 110-- Settlement Agreement, dated March 20,
1997, among the Registrant, the
E-30
staff of the Public Service Commission
of the State of New York and the New
York State Department of Economic
Development. ((42); Exhibit (10)(i)111)
(i) 111-- Amended and Restated Settlement
Agreement, dated January 2, 1998, among
the Registrant, the staff of the Public
Service Commission of the State of New
York and the New York State Department
of Economic Development. ((44); Exhibit
(10)(i)112)
(i) 112-- Amendment, dated as of March 20, 1994,
to the Agreement, dated as of September
9, 1987, between Registrant and Niagara
Mohawk Power Corporation relating to the
purchase of interests in the Roseton
Steam Electric Generating Plant (Exhibit
(19)(10)(i)76) [Certain portions of said
Amendment set forth and relate to
confidential terms of said Amendment and
will be filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.]
(i) 113-- Amendment, dated as of November 1, 1997,
to the Agreement for the Sale and
Purchase of Coal, dated December 1,
1996, among Registrant, Inter-American
Coal N.V. and Inter-American Coal, Inc.
[Certain portions of said Amendment set
forth and relate to pricing provisions
and will be filed separately with the
Securities and Exchange Commission
pursuant to a request for confidential
treatment under the rules of said
Commission.]
E-31
(iii) 1-- Directors' Deferred Compensation Plan,
effective October 1, 1980. ((18);
Exhibit (10)(iii)1)
(iii) 2-- Trust Agreement between Registrant and
Dutchess Bank & Trust Company, as
trustee, dated as of January 1, 1984,
pursuant to Registrant's Savings
Incentive Plan. ((2); Exhibit
(10)(iii)2)
(iii) 3-- First Amendment, dated December 31,
1990, to Trust Agreement between
Registrant and The Bank of New York, as
successor trustee, dated as of January
1, 1984, pursuant to Registrant's
Savings Incentive Plan. ((23); Exhibit
(19)(10)(i)99)
(iii) 4-- Savings Incentive Plan of Registrant, as
restated as of January 1, 1987, together
with Amendments thereto dated September
23, 1988 and March 17, 1989,
respectively. ((18); Exhibit
(19)(10)(iii)3)
(iii) 5-- Amendment, dated December 31, 1990, to
Savings Incentive Plan of Registrant, as
amended. ((23); Exhibit (19)(10)(i)98)
(iii) 6-- Amendment, dated January 14, 1991, to
Savings Incentive Plan of Registrant, as
amended. ((26); Exhibit (19)(10)(iii)4)
(iii) 7-- Amendment, dated October 25, 1991, to
Savings Incentive Plan of Registrant, as
amended. ((26); Exhibit (19)(10)(iii)5)
(iii) 8-- Executive Deferred Compensation Plan of
Registrant, effective March 1, 1992.
((24); Exhibit (19)(10)(iii)8)
E-32
(iii) 9-- Amendment, dated December 11, 1992, to
Savings Incentive Plan of Registrant, as
amended. ((2); Exhibit (19)(10)(iii)9)
(iii) 10-- Retirement Benefit Restoration Plan of
Registrant, effective May 1, 1993.
((27); Exhibit (10)(iii)10)
(iii) 11-- Amendment, dated July 23, 1993, to
Retirement Benefit Restoration Plan of
Registrant. ((27); Exhibit (10)(iii)11)
(iii) 12-- Amendment, dated July 23, 1993, to the
Savings Incentive Plan of Registrant.
((27); Exhibit (10)(iii)12)
(iii) 13-- Amendment, dated September 24, 1993, to
the Savings Incentive Plan of
Registrant, as amended. ((29); Exhibit
(10)(iii)13)
(iii) 14-- Amendment, dated December 17, 1993, to
the Savings Incentive Plan of
Registrant, as amended. ((29); Exhibit
(10)(iii)14)
(iii) 15-- First Amendment, dated December 17,
1993, to the Registrant's Executive
Deferred Compensation Plan. ((29);
Exhibit (10)(iii)15)
(iii) 16-- Amendment, dated March 3, 1994, to the
Savings Incentive Plan of Registrant, as
amended. ((29); Exhibit (10)(iii)16)
(iii) 17-- Executive Incentive Compensation Plan of
Registrant, effective January 1, 1993.
((29); Exhibit (10)(iii)17)
(iii) 18-- Agreement, made March 14, 1994, by and
between Registrant and Mellon Bank,
N.A., amending and restating, effective
E-33
April 1, 1994, Registrant's Savings
Incentive Plan and related Trust
Agreement with The Bank of New York.
((31); Exhibit (10)(iii)18)
(iii) 19-- Amendment 1, dated July 22, 1994
(effective April 1, 1994) to the Amended
and Restated Savings Incentive Plan of
Registrant. ((33); Exhibit (10)(iii)19)
(iii) 20-- Amendment 2, dated December 16, 1994
(effective January 1, 1995) to the
Amended and Restated Savings Incentive
Plan of Registrant, as amended. ((33);
Exhibit (10)(iii)20)
(iii) 21-- Amendment, dated April 4, 1995, to the
Executive Incentive Compensation Plan of
Registrant. ((41); Exhibit (10)(iii)21)
(iii) 22-- Stock Plan for Outside Directors of
Registrant, dated November 17, 1995.
((41); Exhibit (10)(iii)22)
(iii) 23-- Management Incentive Program of
Registrant, effective April 1, 1994.
((41); Exhibit (10)(iii)23)
(iii) 24-- Amendment, dated July 25, 1997, to the
Management Incentive Program of
Registrant, effective August 1, 1997.
(12) -- Statement showing the computation of the ratio of
earnings to fixed charges.
E-34
(21) -- Subsidiaries of the Registrant:
State or other Name under which
Jurisdiction of Subsidiary conducts
Name of Subsidiary Incorporation Business
__________________ ______________ ______________________
Phoenix Development New York Phoenix Development
Company, Inc. Company, Inc.
Greene Point New York Greene Point
Development Corporation Development Corporation
CH Resources, Inc. New York CH Resources, Inc.
Central Hudson New York Central Hudson
Enterprises Enterprises Corporation
Corporation
(23) -- Consent of Experts:
The consents of Price Waterhouse LLP appear on page 58
of this Annual Report on Form 10-K.
(24) -- Powers of Attorney:
Powers of Attorney for each of the directors comprising
a majority of the Board of Directors of Registrant
authorizing execution and filing of this Annual Report
on Form 10-K by John E. Mack, III.
(27) -- Financial Data Schedule
(99) -- Additional Exhibits:
(i) 1 -- Offer to Induce Settlement, dated July 15,
1986, among Niagara Mohawk Power Corporation,
Long Island Lighting Company, New York State
Electric & Gas Corporation, Rochester Gas and
Electric Corporation and Registrant. ((2);
Exhibit (28)(i)1)
E-35
(i) 2 -- Response by the Co-tenants to the Public
Service Commission's Inquiry As to
Modification of the Specification of Terms
and Conditions of Offer of Settlement to
Substitute an Allowed Cost of $4.16 Billion,
dated July 15, 1986. ((2); Exhibit (28)(i)2)
(i) 3 -- Stipulation and Order on Consent signed on
behalf of the Department of Environmental
Protection of the City of New York,
Environmental Defense Fund, Inc., Department
of Environmental Conservation of the State of
New York, Central Hudson Gas & Electric
Corporation and Consolidated Edison Company
of New York, Inc. ((28); Exhibit 28.1)
(i) 4 -- Settlement Agreement on Issues Related to
Nine Mile Two Nuclear Plant, dated June 6,
1990, among the Staff of the Department of
Public Service, the Consumer Protection
Board, the Attorney General of the State of
New York, Assemblyman Maurice Hinchey,
Multiple Intervenors, Registrant, Long Island
Lighting Company, New York State Electric &
Gas Corporation, Niagara Mohawk Power
Corporation and Rochester Gas and Electric
Corporation. ((23); Exhibit (19)(28)(i)4)
(i) 5 -- Order on Consent signed on behalf of the New
York State Department of Environmental
Conservation and Registrant relating to
Registrant's former manufactured gas site
located in Newburgh, New York. ((36);
Exhibit (99)(i)5)
(i) 6 -- 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.
((42); Exhibit 99(i)6)
E-36
(i) 7 -- Press release of Registrant issued on October
31, 1997, relating to the litigation
commenced by the City of Newburgh, New York,
on May 26, 1995, against Registrant, as
reported under the caption "Environmental
Claims - Newburgh Manufactured Gas Site" in
Item 3 of Part I of Registrant's Annual
Report, on Form 10-K, for the fiscal year
ended December 31, 1996. ((43); Exhibit
99(i)7)
(i) 8 -- Press release of Registrant issued on January
2, 1998, 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.
((44); Exhibit 99(i)8)
(i) 9-- Summary of principal terms of the Amended and
Restated Settlement Agreement, dated January
2, 1998, among the Registrant, the staff of
the Public Service Commission of the State of
New York and the New York State Department of
Economic Development. ((44); Exhibit 99(i)9)
____________________
E-37
<PAGE>
The following are notes to the Exhibits listed above:
(1) Incorporated herein by reference to
Registrant's Quarterly report on Form 10-Q
for fiscal quarter ended September 30, 1993
(File No. 1-3268).
(2) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1992 (File
No. 1-3268).
(3) Incorporated herein by reference to
Registrant's Registration Statement No. 2-65127.
(4) Incorporated herein by reference to
Registrant's Registration Statement No. 2-67537.
(5) Incorporated herein by reference to
Registrant's Registration Statement No. 2-69640
(6) (a) Incorporated herein by reference to
Prospectus Supplement Dated May 28, 1992 (To
Prospectus Dated April 13, 1992) relating to
$125,000,000 principal amount of First
Mortgage Bonds, designated Secured Medium-Term Notes, Series
A, and to the Prospectus
Dated April 13, 1992 relating to $125,000,000
principal amount of Registrant's debt
securities attached thereto, as filed with
the Securities and Exchange Commission
pursuant to Rule 424(b)(5) under the
Securities Act of 1933, in connection with
Registration Statement No. 33-46624.
E-38
(b) Incorporated herein by reference to Pricing
Supplement No. 1, Dated June 4, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(c) Incorporated herein by reference to Pricing
Supplement No. 2, Dated June 4, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(d) Incorporated herein by reference to Pricing
Supplement No. 3, Dated June 4, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(e) Incorporated herein by reference to Pricing
Supplement No. 4, Dated August 20, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
E-39
(f) Incorporated herein by reference to Pricing
Supplement No. 5, Dated August 20, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(g) Incorporated herein by reference to Pricing
Supplement No. 6, Dated July 26, 1993 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(h) Incorporated herein by reference to Pricing
Supplement No. 7, Dated July 26, 1993 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(7) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated May 27, 1992 (File No. 1-3268).
(8) (a) Incorporated herein by reference to
Prospectus Supplement Dated May 28, 1992 (To
Prospectus Dated April 13, 1992) relating to
$125,000,000 principal amount of Medium-Term
Notes, Series A, and to the Prospectus Dated
April 13, 1992, relating to $125,000,000
E-40
principal amount of Registrant's debt
securities attached thereto, as filed with
the Securities and Exchange Commission
pursuant to Rule 424(b)(5) under the
Securities Act of 1933, in connection with
Registration Statement No. 33-46624.
(b) Incorporated herein by reference to Pricing
Supplement No. 1, Dated June 26, 1992 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(c) Incorporated herein by reference to Pricing
Supplement No. 2, Dated October 6, 1993 (To
Prospectus Dated April 13, 1992, as
supplemented by a Prospectus Supplement Dated
May 28, 1992), as filed with the Securities
and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 in
connection with Registration Statement No.
33-46624.
(9) Incorporated herein by reference to
Prospectus Supplement Dated May 15, 1995 (To
Prospectus Dated April 4, 1995) relating to
$80,000,000 principal amount of First
Mortgage Bonds, designated Secured Medium-Term Notes, Series
B, and the Prospectus
Dated April 4, 1995, relating to (i)
$80,000,000 of Registrant's Debt Securities
and Common Stock, $5.00 par value, but not in
excess of $40 million aggregate initial
offering price of such Common Stock and (ii)
250,000 shares of Registrant's Cumulative
Preferred Stock, par value $100 per share,
E-41
which may be issued as 1,000,000 shares of
Depositary Preferred Shares each representing
1/4 of a share of such Cumulative Preferred
Stock attached thereto, as filed pursuant to
Rule 424(b) in connection with Registration
Statement No. 33-56349.
(10) Incorporated herein by reference to
Prospectus Supplement Dated May 15, 1995 (To
Prospectus Dated April 4, 1995) relating to
$80,000,000 principal amount of Medium-Term
Notes, Series B, and the Prospectus Dated
April 4, 1995, relating to (i) $80,000,000 of
Registrant's Debt Securities and Common
Stock, $5.00 par value, but not in excess of
$40 million aggregate initial offering price
of such Common Stock and (ii) 250,000 shares
of Registrant's Cumulative Preferred Stock,
par value $100 per share, which may be issued
as 1,000,000 shares of Depositary Preferred
Shares each representing 1/4 of a share of
such Cumulative Preferred Stock attached
thereto, as filed pursuant to Rule 424(b) in
connection with Registration Statement No.
33-56349.
(11) Incorporated herein by reference to
Registrant's Registration Statement No. 2-66511.
(12) Incorporated herein by reference to
Registrant's Registration Statement No. 2-36680.
(13) Incorporated herein by reference to
Registrant's Registration Statement No. 2-50276.
(14) Incorporated herein by reference to
Registrant's Registration Statement No. 2-54690.
E-42
(15) Incorporated herein by reference to
Registrant's Registration Statement No. 2-58500.
(16) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986 (File
No. 1-3268).
(17) Incorporated herein by reference to
Registrant's Registration Statement No. 2-60496.
(18) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File
No. 1-3268).
(19) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (File
No. 1-3268).
(20) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 (File
No. 1-3268).
(21) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1989
(File No. 1-3268).
(22) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1989 (File No. 1-3268).
(23) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File
No. 1-3268).
E-43
(24) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 1-3268).
(25) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1992 (File No. 1-3268).
(26) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1991 (File No. 1-3268).
(27) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1993
(File No. 1-3268).
(28) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated May 15, 1987 (File No. 1-3268).
(29) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (File
No. 1-3268).
(30) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1994
(File No. 1-3268).
(31) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1994
(File No. 1-3268).
(32) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1994 (File No. 1-3268).
E-44
(33) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File
No. 1-3268).
(34) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1995
(File No. 1-3268).
(35) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated May 15, 1995 (File No. 1-3268).
(36) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1995 (File No. 1-3268).
(37) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (File
No. 1-3268).
(38) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated June 11, 1996 (File No. 1-3268).
(39) Incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30,
1996 (File No. 1-3268).
(40) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated October 15, 1996 (File No. 1-3268).
(41) Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File
No. 1-3268).
E-45
(42) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated April 1, 1997 (File No. 1-3268).
(43) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated November 17, 1997 (File No. 1-3268).
(44) Incorporated herein by reference to
Registrant's Current Report on Form 8-K,
dated January 7, 1998 (File No. 1-3268).
* Exhibits preceded by an asterisk have heretofore been
classified as basic documents under previous Rule 24(b)
of the SEC Rules of Practice.
E-46
</PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $932,791
<OTHER-PROPERTY-AND-INVEST> $38,494
<TOTAL-CURRENT-ASSETS> $115,309
<TOTAL-DEFERRED-CHARGES> $165,496
<OTHER-ASSETS> $0
<TOTAL-ASSETS> $1,252,090
<COMMON> $87,775
<CAPITAL-SURPLUS-PAID-IN> $278,187
<RETAINED-EARNINGS> $120,540
<TOTAL-COMMON-STOCKHOLDERS-EQ> $477,104
$35,000
$21,030
<LONG-TERM-DEBT-NET> $361,829
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $1,317
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $355,810
<TOT-CAPITALIZATION-AND-LIAB> $1,252,090
<GROSS-OPERATING-REVENUE> $520,277
<INCOME-TAX-EXPENSE> $29,190
<OTHER-OPERATING-EXPENSES> $421,031
<TOTAL-OPERATING-EXPENSES> $450,221
<OPERATING-INCOME-LOSS> $70,056
<OTHER-INCOME-NET> $11,419
<INCOME-BEFORE-INTEREST-EXPEN> $81,475
<TOTAL-INTEREST-EXPENSE> $26,389
<NET-INCOME> $55,086
$3,230
<EARNINGS-AVAILABLE-FOR-COMM> $51,856
<COMMON-STOCK-DIVIDENDS> $37,137
<TOTAL-INTEREST-ON-BONDS> $14,237
<CASH-FLOW-OPERATIONS> $114,478
<EPS-PRIMARY> $2.97
<EPS-DILUTED> $0
</TABLE>
<PAGE>
<TABLE> EXHIBIT 12
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<CAPTION> Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Earnings:
A. Net Income $ 55,086 $ 56,082 $ 52,722 $ 50,929 $ 50,390
B. Federal Income Tax 26,237 31,068 28,687 26,806 27,158
C. Earnings before Income Taxes $ 81,323 $ 87,150 $ 81,409 $ 77,735 $ 77,548
D. Total Fixed Charges <FN1> 27,148 27,231 30,433 32,679 33,820
E. Total Earnings $108,471 $114,381 $111,842 $110,414 $111,368
Preferred Dividend Requirements:
F. Allowance for Preferred Stock
Dividends Under IRC Sec 247 $ 3,230 $ 3,230 $ 4,903 $ 5,127 $ 5,562
G. Less Allowable Dividend Deduction 127 127 528 528 528
H. Net Subject to Gross-up 3,103 3,103 4,375 4,599 5,034
I. Ratio of Earnings before Income
Taxes to Net Income (C/A) 1.476 1.554 1.544 1.526 1.539
J. Pref. Dividend (Pre-tax) (HxI) 4,580 4,822 6,755 7,018 7,747
K. Plus Allowable Dividend Deduction 127 127 528 528 528
L. Preferred Dividend Factor 4,707 4,949 7,283 7,546 8,275
M. Fixed Charges (D) 27,148 27,231 30,433 32,679 33,820
N. Total Fixed Charges
and Preferred Dividends $ 31,855 $ 32,180 $ 37,716 $ 40,225 $ 42,095
O. Ratio of Earnings to Fixed
Charges (E/D) 4.00 4.20 3.68 3.38 3.29
P. Ratio of Earnings to Fixed Charges
and Preferred Dividends (E/N) 3.41 3.55 2.97 2.74 2.65
<FN1> Includes a portion of rent expense deemed to be representative of the interest factor.
</TABLE>
</PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, PAUL J. GANCI,
President and Chief Operating Officer and a Director of Central
Hudson Gas & Electric Corporation ("Corporation"), have made,
constituted and appointed, and by these presents do make,
constitute and appoint, JOHN E. MACK III, DONNA S. DOYLE, ELLEN
AHEARN, WILLIAM P. REILLY, and each of them, my true and lawful
attorneys, for me and in my name, place and stead, and in my
office and capacity as aforesaid, to sign and file the
Corporation's Annual Report, on Form l0-K, for the year ended
December 3l, 1997, with the Securities and Exchange Commission,
pursuant to the applicable provisions of the Securities Exchange
Act of l934, together with any and all amendments and supplements
to said Annual Report and any and all other documents to be
signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said attorneys, and each
of them, full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done
in the premises as fully, to all intents and purposes, as I might
or could do if personally present, hereby ratifying and
confirming in all respects all that said attorneys or any of them
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) PAUL J. GANCI L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came PAUL J. GANCI to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, L. WALLACE
CROSS, a Director of Central Hudson Gas & Electric Corporation
("Corporation"), have made, constituted and appointed, and by
these presents do make, constitute and appoint, JOHN E. MACK III,
PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN, WILLIAM P. REILLY,
and each of them, my true and lawful attorneys, for me and in my
name, place and stead, and in my office and capacity as
aforesaid, to sign and file the Corporation's Annual Report, on
Form l0-K, for the year ended December 3l, 1997, with the
Securities and Exchange Commission, pursuant to the applicable
provisions of the Securities Exchange Act of l934, together with
any and all amendments and supplements to said Annual Report and
any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in the premises as
fully, to all intents and purposes, as I might or could do if
personally present, hereby ratifying and confirming in all
respects all that said attorneys or any of them may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) L. WALLACE CROSS L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came L. WALLACE CROSS to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD. JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, EDWARD P.
SWYER, a Director of Central Hudson Gas & Electric Corporation
("Corporation"), have made, constituted and appointed, and by
these presents do make, constitute and appoint, JOHN E. MACK III,
PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN, WILLIAM P. REILLY,
and each of them, my true and lawful attorneys, for me and in my
name, place and stead, and in my office and capacity as
aforesaid, to sign and file the Corporation's Annual Report, on
Form l0-K, for the year ended December 3l, 1997, with the
Securities and Exchange Commission, pursuant to the applicable
provisions of the Securities Exchange Act of l934, together with
any and all amendments and supplements to said Annual Report and
any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in the premises as
fully, to all intents and purposes, as I might or could do if
personally present, hereby ratifying and confirming in all
respects all that said attorneys or any of them may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this -
23rd day of January, 1998.
(SGD.) EDWARD P. SWYER L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came EDWARD P. SWYER to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JACK EFFRON, a
Director of Central Hudson Gas & Electric Corporation
("Corporation"), have made, constituted and appointed, and by
these presents do make, constitute and appoint, JOHN E. MACK III,
PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN, WILLIAM P. REILLY,
and each of them, my true and lawful attorneys, for me and in my
name, place and stead, and in my office and capacity as
aforesaid, to sign and file the Corporation's Annual Report, on
Form l0-K, for the year ended December 3l, 1997, with the
Securities and Exchange Commission, pursuant to the applicable
provisions of the Securities Exchange Act of l934, together with
any and all amendments and supplements to said Annual Report and
any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in the premises as
fully, to all intents and purposes, as I might or could do if
personally present, hereby ratifying and confirming in all
respects all that said attorneys or any of them may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) JACK EFFRON L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came JACK EFFRON to me known and known to me to be the individual
described in and who executed the foregoing instrument, and duly
acknowledged to me that he executed the same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, HEINZ K.
FRIDRICH, a Director of Central Hudson Gas & Electric Corporation
("Corporation"), have made, constituted and appointed, and by
these presents do make, constitute and appoint, JOHN E. MACK III,
PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN, WILLIAM P. REILLY,
and each of them, my true and lawful attorneys, for me and in my
name, place and stead, and in my office and capacity as
aforesaid, to sign and file the Corporation's Annual Report, on
Form l0-K, for the year ended December 3l, 1997, with the
Securities and Exchange Commission, pursuant to the applicable
provisions of the Securities Exchange Act of l934, together with
any and all amendments and supplements to said Annual Report and
any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in the premises as
fully, to all intents and purposes, as I might or could do if
personally present, hereby ratifying and confirming in all
respects all that said attorneys or any of them may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) HEINZ K. FRIDRICH L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came HEINZ K. FRIDRICH to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, EDWARD F. X.
GALLAGHER, a Director of Central Hudson Gas & Electric
Corporation ("Corporation"), have made, constituted and
appointed, and by these presents do make, constitute and appoint,
JOHN E. MACK III, PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN,
WILLIAM P. REILLY, and each of them, my true and lawful
attorneys, for me and in my name, place and stead, and in my
office and capacity as aforesaid, to sign and file the
Corporation's Annual Report, on Form l0-K, for the year ended
December 3l, 1997, with the Securities and Exchange Commission,
pursuant to the applicable provisions of the Securities Exchange
Act of l934, together with any and all amendments and supplements
to said Annual Report and any and all other documents to be
signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said attorneys, and each
of them, full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done
in the premises as fully, to all intents and purposes, as I might
or could do if personally present, hereby ratifying and
confirming in all respects all that said attorneys or any of them
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) EDWARD F. X. GALLAGHER L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came EDWARD F. X. GALLAGHER to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, CHARLES
LAFORGE, a Director of Central Hudson Gas & Electric Corporation
("Corporation"), have made, constituted and appointed, and by
these presents do make, constitute and appoint, JOHN E. MACK III,
PAUL J. GANCI, DONNA S. DOYLE, ELLEN AHEARN, WILLIAM P. REILLY,
and each of them, my true and lawful attorneys, for me and in my
name, place and stead, and in my office and capacity as
aforesaid, to sign and file the Corporation's Annual Report, on
Form l0-K, for the year ended December 3l, 1997, with the
Securities and Exchange Commission, pursuant to the applicable
provisions of the Securities Exchange Act of l934, together with
any and all amendments and supplements to said Annual Report and
any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in the premises as
fully, to all intents and purposes, as I might or could do if
personally present, hereby ratifying and confirming in all
respects all that said attorneys or any of them may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this
23rd day of January, 1998.
(SGD.) CHARLES LAFORGE L.S.
STATE OF NEW YORK )
: ss.:
COUNTY OF DUTCHESS )
On this 23rd day of January, 1998, before me personally
came CHARLES LAFORGE to me known and known to me to be the
individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the
same.
(SGD.) JEANETTE M. KIHLMIRE
Notary Public
</PAGE>
<PAGE>
EXHIBIT 10(i)112)
AGREEMENT BETWEEN
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
AND NIAGARA MOHAWK POWER CORPORATION
THIS AGREEMENT made as of March 30, 1994, by and
between Central Hudson Gas & Electric Corporation, a New York
corporation (Central Hudson), having an office at 284 South
Avenue, Poughkeepsie, New York 12601 and Niagara Mohawk Power
Corporation, a New York corporation (Niagara Mohawk), having an
office at 300 Erie Boulevard West, Syracuse, New York 13202.
WITNESSETH:
WHEREAS, Central Hudson, Consolidated Edison Company of
New York, Inc. (Con Edison) and Niagara Mohawk entered into an
agreement dated as of October 31, 1968 (Basic Agreement)
concerning the Roseton Electric Generating Plant (Plant);
attached to the Basic Agreement and made a part thereof are a
number of related agreements including Appendix B Roseton
Operating Agreement (Operating Agreement) and Exhibit VI, Option
Agreement (Option Agreement);
WHEREAS, the Option Agreement was executed on May 14,
1969 and recorded in the Orange County Clerk's Office on May 27,
1969 in Liber 1820 of Deeds at page 846; and
WHEREAS, Central Hudson and Niagara Mohawk had
previously amended the Option Agreement through that certain
agreement made as of September 9, 1987 (Roseton Transfers
Agreement) to, among other things, supersede the Option Agreement
as among themselves by such Roseton Transfers Agreement; and
WHEREAS, in recognition of changed circumstances since
the execution of the Roseton Transfers Agreement, Central Hudson
and Niagara Mohawk find it to be desirable to terminate and
cancel the Roseton Transfers Agreement;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, and other good and valuable
consideration, the parties hereto agree that the Roseton
Transfers Agreement made as of September 9, 1987 is hereby
terminated and cancelled. Niagara Mohawk and Central Hudson
shall cooperate in the preparation, filing with and support
before the Public Service Commission of a request to withdraw the
"Joint Petition of Central Hudson Gas & Electric Corporation and
Niagara Mohawk Power Corporation" dated February 28, 1988 and to
close the proceedings in Public Service Commission Case 88-E-036.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement by their duly authorized officers as of the day and
year first above written.
Attest: CENTRAL HUDSON GAS &
ELECTRIC CORP
(SGD.) ARTHUR R. UPRIGHT (SGD.) ALLAN R. PAGE
ARTHUR R. UPRIGHT ALLAN R. PAGE
Attest: NIAGARA MOHAWK POWER
CORPORATION
(SGD.) ROSE M. YOUNG (SGD.) CLEMENT E. NADEAU
ROSE M. YOUNG CLEMENT E. NADEAU
NIAGARA MOHAWK
March 30, 1994
Mr. Allan R. Page
Central Hudson Gas & Electric Corporation
284 South Avenue
Poughkeepsie, NY 12601
Dear Allan:
This Letter of Understanding ("Agreement") will memorialize
our understanding with regard to the disposition of the September
9, 1987 Roseton Amendment Agreement ("Amendment") between Niagara
Mohawk and Central Hudson. The Amendment requires approval of
the Public Service Commission ("PSC"). Central Hudson and
Niagara Mohawk ("Parties") filed a Joint Application for approval
with the PSC which has not been acted upon by the PSC as of the
date of this Letter. Instead of continuing to pursue approval of
the Joint Application, Niagara Mohawk and Central Hudson have
agreed to terminate the Amendment in consideration of the mutual
covenants and understandings set forth below and have
contemporaneously executed a separate agreement terminating the
Amendment.
1. The covenants and understandings set forth in this letter
shall in no way contravene the rights of all three cotenants
under the Agreement dated October 31, 1968 by and between
Central Hudson Gas & Electric Corporation, Consolidated
Edison Company of New York, Inc. and Niagara Mohawk Power
Corporation dealing with the Roseton Electric Generating
Plant ("1968 Agreement") which includes all related
agreements, including but not limited to Appendix B, Roseton
Operating Agreement and, other than as specifically affected
by paragraph 7 hereof, Exhibit VI Option Agreement. Nothing
in this Agreement shall be construed to diminish in any
fashion the authority of Central Hudson under the 1968
Agreement.
2. Central Hudson will discuss as soon as possible with Niagara
Mohawk and Con Edison, pursuant to ARTICLE 8.3 of the
Operating Agreement, the operation of Units 1 and 2 of the
Plant on an alternating six-month basis.
3. The Parties agreed to enter into the power sales
transactions specified on Attachments 1, 11, and III of this
Agreement, which are incorporated herein and made a part of
this Agreement, under Niagara Mohawk's wholesale power sales
Tariff filed with the Federal Energy Regulatory Commission
("FERC") in FERC Docket NO. ER93-313-000, as may be amended
or refiled.
4. Central Hudson has advised that if one or both units at the
Roseton Plant are not expected to generate it will
periodically solicit competitive bids for meeting its load
requirements by issuing requests for proposals during the
May 1995 through April 2004 time period. Based on Central
Hudson's current load requirement Central Hudson will
solicit bids for firm power deliveries for which the minimum
amounts will be the following:
I. 50 MW at 1 00% capacity factor and
II. 50 MW at 1 00% capacity factor for all on peak hours
and 30% capacity factor for all off peak hours.
Future bids may differ from amounts and schedules stipulated
in I and 11 herein. Niagara Mohawk shall have the right to
better any offer (or offers) selected in response to
solicitations up to 21 0 MW by Central Hudson. It is the
understanding of the Parties that a better offer shall be
any offer by Niagara Mohawk that has a total purchase cost
that is less than the offer(s) selected by Central Hudson.
In the event that multiple offers are required to achieve
Central Hudson's desired capacity, up to 210 MW, Niagara
Mohawk must only better each of the separate offers selected
by Central Hudson.
5. Central Hudson shall have the right to an option, beginning
1/l/98 and extending through 12/31/04 for up to the annual
amounts indicated under Reserved Capacity in the table
below. However, in no instance, shall the amount selected
by Central Hudson for the next year be less than the amount
selected in the current year. Central Hudson will pay
Niagara Mohawk $.XX per KW per month as a "Reservation
Charge" for these options beginning 1/l/98 in accordance
with the following:
<PAGE>
YEAR RESERVED MAXIMUM
CAPACITY RESERVATION CHARGE
PAYMENT
1/l/98 XX MW $ XX,XXX
1/1/99 XX MW $XXX,XXX
1/1/00 XX MW $XXX,XXX
1/1/Ol XX MW $XXX,XXX
1/l/02 XX MW $XXX,XXX
1/l/03 XX MW $XXX,XXX
1/l/04 XX MW $XXX,XXX
XX XXXXXXXXXXX XXXXXX XXXXX XX XXX XXXXX XXX XXXX XXXX.
Central Hudson shall provide Niagara Mohawk with at least
one years prior notice to exercise its option for a given
year. Should Central Hudson elect to exercise the capacity
and/or energy option in a given year in accordance with the
requirements above, the related Reservation Charge shall
cease. Payment for energy and capacity shall be at a rate
which is the lower of either the full cost of electricity
supplied from the Roseton Station or a price offered by
Niagara Mohawk which may be developed to better a bid
selected by Central Hudson. XXX XXXXXXXXXXX XX XXX XXXX
XXXX XX XXXXXXX XXXX XX XXXXX XXXX XXXXXXXX XXXXXXX XXXXXXX
XX XXX XXXXXXXX XXXX XX XXX XXXXXXXX XXXX XXXXXXXXX XXX
XXXXXXXXXXX XXXXXXX ("XXXXXXXX XXXXXX") XXXX XXXX XXXXXXX.
A sample calculation shall be developed as part of the Power
Sales and Option Agreement.
6. Central Hudson shall have the option to purchase a block(s)
of capacity and associated energy (which individually or
collectively shall not exceed) a total of 150 megawatts,
unless Niagara Mohawk determines, as set forth below, that
capacity is not available. The term of the purchasers)
under the option(s) shall commence on January 1, 2001 and
terminate December 31, 2004.
Capacity will be considered available based on Niagara
Mohawk forecasts of the availability of capacity above own
load at the time of notice from Central Hudson plus
wholesale sales obligations as of May 1, 1994 (191 MW) plus
reserve requirements. Central Hudson shall provide Niagara
Mohawk with at least three years advance notice to exercise
its right to receive delivery of capacity and associated
energy unless mutually agreed otherwise. Central Hudson may
solicit competitive bids for this capacity. In the event
that Central Hudson solicits competitive bids for capacity,
Niagara Mohawk shall have the right to better any offer
selected by Central Hudson in response to this solicitation.
Such rates for energy and capacity shall be capped at the
full cost of electricity supplied from the Roseton Station
as defined in Section 5.
7. The 1968 option is hereby amended by and between the Parties
hereto as set forth herein and superseded by such amendment
as to the Parties hereto. The Option Agreement continues in
full force and effect as to Central Hudson and Con Edison is
not affected hereby.
As between Niagara Mohawk and Central Hudson, Central Hudson
shall not exercise its option under the 1968 Agreement with
respect to Niagara Mohawk's 25% interest and Niagara Mohawk
shall have an option to retain its 25% interest in the
plant. Niagara Mohawk shall give Central Hudson written
notice by May 31, 1999 that Niagara Mohawk is exercising its
option. In the event that Niagara Mohawk does not provide
Central Hudson with such written notice that it is retaining
its 25% interest, that interest shall then be subject to
exercise by Central Hudson of its option in regard to
Niagara Mohawk's 25% interest in the 1968 Agreement. The
Parties shall cooperate in obtaining all necessary
approvals.
Niagara Mohawk, for the period 2005 - 201 0, shall have the
right to better any offer (or offers) selected in response
to bid solicitations. It is the understanding of the
Parties that a better offer shall be any offer by Niagara
Mohawk that has a total purchase cost that is less than the
offer(s) selected by Central Hudson.
The provisions of Paragraphs 4, 5, 6, and 7 of this
Agreement will be memorialized in a separate agreement
(Power Sales and Option Agreement) to be completed by the
Parties on or about July 1, 1994. Niagara Mohawk will file
the Power Sales and Option Agreement with FERC and the
Parties will use their best efforts to obtain FERC
acceptance of such agreement. If the Parties fail to agree
or FERC does not accept the Power Sales and Option Agreement
or will accept R only with material modifications, the
Parties will use their best efforts to agree on alternative
terms. Niagara Mohawk will make all necessary filings with
the New York State Public Service Commission except any
informational filings Central Hudson must make as a
purchaser hereunder.
8. Niagara Mohawk has advised Central Hudson that it utilizes
an evaluation procedure termed Core Process Redesign (CPR)
process to identify cost reduction opportunities at its
generating stations. Niagara Mohawk will provide Central
Hudson with background information on the CPR evaluation
technique. Central Hudson will consider this process for
the purpose of evaluating and improving the efficiencies of
the operating and maintenance processes associated with the
Roseton Generating Station. To the extent that it is judged
to be applicable, Central Hudson will use its best efforts
to complete an evaluation of the Roseton plant by December
31, 1994. Central Hudson's evaluation will entail the full
discussion of its findings with the other two cotenants
indicating actions that Central Hudson will plan to take as
appropriate to reduce costs.
9. The Parties shall use their best efforts to identify and
complete any additional documentation and agreements
required to fully implement the understandings and
agreements set forth herein. Further, the Parties shall
cooperate and use their best efforts to obtain any necessary
regulatory approvals to allow all of the terms and
conditions of this Agreement to take effect.
10. The Parties recognize that the prices and rate terms for the
purchases and sales of capacity and associated rights for
the sale and purchase of power contemplated by this
Agreement (collectively referred to as 'Transactions")
constitute the commercially sensitive information of Niagara
Mohawk. Accordingly, Central Hudson shall treat the price
or rate terms of all Transactions hereunder or any related
discussions/positions taken during the negotiation of a
Transaction ("Confidential Material) as confidential.
Confidential Matter furnished by Niagara Mohawk shall be for
the sole and exclusive use of Central Hudson and Central
Hudson shall not publish, disclose, or otherwise divulge the
Confidential Matter to any person at any time prior to two
years following the termination of a transaction without the
prior written consent of an officer of Niagara Mohawk except
as expressly provided herein.
Central Hudson shall employ procedures established to
prevent unauthorized disclosure or use of the Confidential
Matter.
If required by an order of a governmental or judicial body
of competent jurisdiction, Central Hudson may release to
such body Confidential Matter required by such order
provided that it shall use its best efforts to cause that
body to treat such information in a confidential manner and
prevent such information from becoming part of the public
domain. Upon receiving a request for any Confidential
Matter from any governmental authority or subdivision or
from any party in a proceeding pending before any court or
administrative agency, Central Hudson shall provide Niagara
Mohawk with notice and copies of said request for
Confidential Matter and responses as soon as reasonably
practicable. Central Hudson shall reasonably cooperate with
Niagara Mohawk in exercising any applicable rights to oppose
the disclosure of Confidential Matter in any such proceeding
or before any such body.
This Paragraph shall not apply to Confidential Matter (a)
which was in the public domain at the time of disclosure
hereunder; or (b) after it passes into the public domain by
acts other than the acts of or caused by Central Hudson.
11. Nothing in this agreement is intended to waive Central
Hudson's rights, under the Federal Power Act, as a purchaser
under the Niagara Mohawk FERC tariff.
12. It is understood that with respect to any solicitation of
bids as may be provided in this Agreement, that there may be
full disclosure to all bidders of any right of Niagara
Mohawk to better any offer (offers) selected by Central
Hudson.
<PAGE>
If the terms and conditions set forth above are consistent
with our understanding, please indicate your acceptance by
signing this letter in the space provided and returning one
copy to me.
Sincerely
(SGD.) CLEMENT E. NADEAU
Clement E. Nadeau
Vice President
Power Transactions and
Planning
Attachments
Accepted by Central Hudson Gas and Electric Corporation:
(SGD.) ALLAN R. PAGE
ALLAN R. PAGE 4/11/94
<PAGE>
MARCH 30, 1994
Attachment I
NIAGARA MOHAWK POWER CORPORATION
POWER SALES TERMS
AMOUNT: XX MW
PRICE: $XX.XX per MWH
TRANSACTION START DATE: May 1, 1994
TRANSACTION START TIME: Hour ending 0100
TRANSACTION STOP DATE: April, 30, 1995
TRANSACTION STOP TIME: Hour ending 2400
SCHEDULING NOTES
1. Transaction is at 100% capacity factor, must take, no cut
unless mutually agreed otherwise.
Acknowledged and Agreed to on behalf of
Central Hudson Gas & Electric Corporation:
By: (SGD.) ALLAN R. PAGE
Title: VICE PRESIDENT-CORPORATE SERVICES
Date: 4/11/94<PAGE>
MARCH 30, 1994
ATTACHMENT II
NIAGARA MOHAWK POWER CORPORATION
POWER SALES TERMS
AMOUNT: XX MW
PRICE: 1. $XX.XX XXX XXX XXX XXX XX XXXX
XXXXX XXXXXX XXXXXXX XXXXXXXX, XXXX
XXXXXX XXXX XXXXXXX XXXX XXXXXX
XXXX
2. $XX.XX XXX XXX XXX XXX XXX XXXX
XXXXX XXXXXX XXXXXXX XXXXXXXX, XXXX
XXXXXX XXXX XXXXXXX XXXX XXXXXX
XXXX, XXX XXX XXXXXX XXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXX.
TRANSACTION START DATE: May 1, 1994
TRANSACTION START TIME: Hour ending 0100
TRANSACTION STOP DATE: April, 30, 1995
TRANSACTION STOP TIME: Hour ending 2400
SCHEDULING NOTES:
1. Transaction is at 1 00% capacity factor, must take, no cut
during on peak hours unless mutually agreed otherwise.
2. Transaction is at 30% capacity factor must take for off peak
hours unless mutually agreed otherwise.
3. Estimated off peak schedule will be provided by Central
Hudson to Niagara Mohawk by Friday at 1000 hours, detailing
hours for the following week (Monday through Sunday) meeting
30% weekly capacity factor. Central Hudson may make changes
to the hourly schedule on shift.
Acknowledged and Agreed to on behalf of
Central Hudson Gas & Electric Corporation:
By: (SGD.) ALLAN R. PAGE
Title: VICE PRESIDENT CORPORATE SERVICES
DATE: 4/11/94
March 30, 1994
ATTACHMENT III
NIAGARA MOHAWK POWER CORPORATION
POWER SALES TERMS
AMOUNT: Up to XXX MW
PRICE: XXXXXXX XX XXXXXX XXXXXXXXX XXX XXXXXX
XXX XXXXXXXX XX XXXXXXXXXXX XX
XXXXXXXXXXXX.
TRANSACTION START DATE: May 1, 1994
TRANSACTION START TIME: Hour ending 0100
TRANSACTION STOP DATE: April, 30, 2004
TRANSACTION STOP TIME: Hour ending 2400
SCHEDULING NOTES:
1. Central Hudson will provide Niagara Mohawk with daily,
weekly or monthly requirements. Weekly requirements shall
be provided (Monday through Sunday) by the previous Thursday
at 1200 hours.
2. Niagara Mohawk will provide Central Hudson with amounts and
prices by the previous Friday at 1000 hours for the
designated time period.
3. The accepted schedule will be provided by Central Hudson to
Niagara Mohawk by Friday at 1200 hours.
Acknowledged and Agreed to on behalf of
Central Hudson Gas & Electric Corporation:
By: (SGD.) ALLAN R. PAGE
Title: VICE PRESIDENT-CORPORATE SERVICES
Date: 4/11/94
</PAGE>
<PAGE>
EXHIBIT 10(i)113)
AMENDMENT I TO THE AGREEMENT
FOR THE SALE AND PURCHASE OF COAL
THIS AMENDMENT ("AMENDMENT"), dated as of November 1,
1997 TO THAT AGREEMENT ("AGREEMENT") FOR THE SALE AND PURCHASE OF
COAL made and entered into as of the lst day of December 1996 by
and between CENTRAL HUDSON GAS & ELECTRIC CORPORATION, (herein-
after referred to as "BUYER") and INTER-AMERICAN COAL N.V.,
(hereinafter referred to as "PRODUCER") and INTER-AMERICAN COAL,
INC., (hereinafter referred to as "SALES AGENT"). PRODUCER and
SALES AGENT are hereinafter collectively referred to as "SELLER".
WITNESSETH:
WHEREAS, Article VI of the AGREEMENT provides that
beginning July 1, 1997, BUYER and SELLER shall commence good
faith negotiations with respect to the price of coal for the next
Contract Year; and
WHEREAS, notice was duly given and BUYER and SELLER
entered into good faith negotiations; and
WHEREAS, after completion of good faith negotiations,
BUYER and SELLER desire to amend the AGREEMENT to provide for the
pricing of coal and certain other AGREEMENT provisions;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants set forth herein, the parties hereto agree
as follows:
ARTICLE II (TERM OF AGREEMENT), ARTICLE IV
(SPECIFICATION & QUALITY & WEIGHT) , ARTICLE VI (BASE PRICE) and
ARTICLE VII (ADJUSTMENT IN PRICE FOR QUALITY) of the AGREEMENT
shall be respectively amended in their entirety to read as
follows:
"ARTICLE II
TERM OF AGREEMENT
The Term of this Agreement shall be for the period
commending January 1, 1997 and continuing until midnight,
December 31, 2000, unless sooner terminated as provided for
herein. This Agreement shall terminate automatically, without
further obligation or liability to either party, except for
payments for coal delivered, at the end of the Term.
ARTICLE IV
SPECIFICATION & QUALITY & WEIGHT
Section 1. Origin: The coal shall be from the
Producer's operations as per the component blend indicated and
meet the specifications as per Attachment I:
Santander 50%
Mina Norte 30%
Tachira 20%
If the coal blend of the shipment is within a 5%
deadband per component (Santander 47.5% - 52.5%; Mina Norte 27.5%
- - 32.5%; Tachira 17.5% - 22.5%) there will be no adjustment to
the Base Price. If the coal blend is outside of the 5% deadband
the price will be adjusted to the actual weighted blend using the
rates as per Attachment III. The Base Price will not be
increased unless Central Hudson requests a change to the desired
blend of the delivery which, on actual loading, falls outside the
above ranges. The 5% deadband methodology shall- also be used if
a replacement blend is requested.
ARTICLE VI
BASE PRICE
Section 1. The Base Price for coal shipped under the
terms of this Agreement will be $XX.XX DES per NT for the
Contract Year 1998.
Section 2. On or before July 1, 1998, Buyer and Seller
will enter into negotiations to fix the Base Price for coal
delivered hereunder for the ensuing year. This Agreement will
terminate on December 31, 1998, if negotiations for the following
year have not been completed by October 1.
ARTICLE VII
ADJUSTMENT IN PRICE FOR QUALITY
Section 3. Adjustment for Ash Value: The Price to
be paid to Seller by Buyer is based upon coal with an ash content
(Ash Value) of seven percent (7%) by weight of the "as received"
analysis of the coal. If the Ash Value is between X.X% and X.X%,
there will be no adjustment for Ash Value. If the Ash Value is
less than X.X%, then a premium of $.XXX per net ton shall be paid
to Seller for each .X% Ash Value variation below 7.0%. If the Ash
Value is greater than X.X%, then a penalty of $X.XXX per net ton
shall be deducted from the Price for each .X% Ash Value variation
in excess of 7.0%.
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused
this AGREEMENT to be executed in its behalf by its proper officer
thereunder duly authorized, all as of the day and year first
above written.
BUYER: CENTRAL HUDSON GAS & ELECTRIC CORPORATION
BY: (SGD.) PAUL J. GANCI
PAUL J. GANCI
ITS: President and Chief Operating Officer
PRODUCER: INTER-AMERICAN COAL N.V.
BY: (SGD.) MARCEL L. J. VAN DEN BERG
MARCEL L. J. VAN DEN BERG
ITS: President and Chief Executive Officer
SALES AGENT: INTER-Al
BY: (SGD.) MARCEL L. J. VAN DEN BERG
MARCEL L. J. VAN DEN BERG
ITS: President
<PAGE>
Attachment III
Base Price/Blend:
COMPONENT $/MMBtu min % max %
Mina Norte $X.XX 30 100
Norte de Santander $X.XX - 50
Tachira $X.XX - 25
Weighted Prices per short ton determined using the above $/MmBtu
and the guaranteed contract Btu/Lb shall be decreased by
$0.10/ton.
</PAGE>
<PAGE>
EXHIBIT 10(iii)24)
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
MANAGEMENT INCENTIVE PROGRAM
WHEREAS, effective with the fiscal year beginning
January 1, 1991, the Company established a Management Incentive
Program ("MIP") as part of the Company's Savings Incentive Plan
("SIP"); and
WHEREAS, effective April 1, 1994, the MIP was amended
and restated; and
WHEREAS, the Company proposes to amend and restate the
MIP by this instrument;
NOW, THEREFORE, the Company hereby amends the MIP,
effective as of August 1, 1997, to read as amended as follows:
I. General
The MIP shall be a cash bonus program ("Incentive
Award") based on meeting an "Incentive Goal" (as described
below). The MIP's purpose is to provide an added incentive to
management employees for meeting or exceeding the Company's
commitments to its customers, shareholders and employees.
II. Eligibility
All management employees are eligible to receive an
Incentive Award except (i) the Chairman of the Board and Chief
Executive Officer, the President and Chief Operating Officer and
any other officer(s) which the Chairman shall determine from time
to time, (ii) temporary employees and (iii) those employees whose
employment is terminated in a year in which an Incentive Award is
made unless such termination is a retirement.
III. Incentive Goal
The Incentive Goal will, to the extent possible, be
established during the first quarter of each year by the Board of
Directors and thereafter announced to the Company's management
employees. The Incentive Goal currently in effect shall be
attached hereto as Exhibit A.
IV. Incentive Award
After the audited financial results of the Company for
a fiscal year ("Fiscal Year") have been made public, the Board of
Directors of the Company shall determine whether or not the
Incentive Goal has been met for the Fiscal Year, which
determination shall be final. The method for determining the
amount of the Incentive Award currently in effect shall be set
forth in Exhibit A.
If the Incentive Goal for the Fiscal Year has been met,
the Incentive Award shall be paid (subject to applicable payroll
taxes) to those management employees determined to be eligible
pursuant to Paragraph II hereof as soon as practicable after such
determination by the Board of Directors. The aggregate of the
Incentive Award will be allocated among and be paid to each such
eligible management employee in the same proportion that each
such employee's base compensation for the Fiscal Year bears to
base compensation paid to all such eligible management employees
for that Fiscal Year.
IN WITNESS WHEREOF, the undersigned Chairman of the
Board and Chief Executive Officer of Central Hudson Gas &
Electric Corporation has signed this instrument this 25th day of
July, 1997 as duly authorized by resolution of the Board of
Directors.
(SGD.) JOHN E. MACK, III
JOHN E. MACK, III
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT A - Incentive Goal and Award Currently in Effect
I. Incentive Goal
The Company must, for fiscal year 1997, achieve its
Customer Satisfaction Index Goal AND exceed the weighted average
rate of return on the Company's common equity then authorized by
the New York State Public Service Commission with respect to the
Company's electric and gas departments ("ROE").(1)
With respect to the Company's Customer Satisfaction
Index ("CSI"), the Company's Goal, for fiscal year 1997, is to
achieve a cumulative average of 28.3% of customers responding to
the Company's "How did we do?" survey who indicate they are
highly satisfied with the Company's service.
(1) In the event a new rate of return becomes effective during
1997, a rate of return shall be developed for the Incentive
Goal for 1997 using a weighted average of both the prior and
new rates of return.
II. Incentive Award
The Incentive Award shall be determined as follows:
$15,000 for each .01% by which the Company's ROE
is exceeded, provided that the excess is equal to
or greater than 0.1%. Such payment shall not
exceed 2% of base payroll for eligible employees.
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