<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15 (d)
of the Securities Exchange Act of 1934
Date of Report - July 24, 1998
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of Registrant as specified in its Charter)
New York 1-3268 14-0555980
______________ _________________ _____________
State or other (Commission File (IRS Employer
jurisdiction of Identification) Number)
incorporation number)
284 South Avenue, Poughkeepsie, New York 12601-4879
________________________________________ _____________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 452-2000
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Item 5. Other Events.
Amended Settlement Agreement
Reference is made to Registrant's Annual Report, on
Form 10-K, for the fiscal year ended December 31, 1997 ("10-K
Annual Report"), and Part II thereof under the caption
"Competition/Deregulation" in Item 7 thereof, and to the caption
"Amended Settlement Agreement" in Note 1 of the Notes to
Consolidated Financial Statements contained in Item 8 thereof for
a discussion of the settlement negotiations undertaken as part of
the Public Service Commission of the State of New York's ("PSC")
Competitive Opportunities Proceeding and the Amended Settlement
Agreement entered into by the Registrant, the PSC Staff and
certain other interested parties as part of such Proceeding.
Reference is also made to Registrant's Current Report,
on Form 8-K, dated February 10, 1998, describing the abbreviated
order, issued and effective February 19, 1998 ("Abbreviated
Order"), by which the PSC adopted the terms of said Amended
Settlement Agreement (which then became effective on that date)
subject to certain modifications and conditions as set forth in
the Abbreviated Order which modifications and conditions were
completed by Registrant, as described in said Current Report.
Filed herewith as Exhibit 10 (1) and incorporated
herein by reference is the Order of the PSC issued and effective
June 30, 1998, explaining in greater detail and reaffirming its
Abbreviated Order.
Independent System Operations
For a discussion of the filings of the Member Systems
of the New York Power Pool ("NYPP"), of which the Company is a
Member, with the Federal Energy Regulatory Commission ("FERC") to
establish a new electricity market structure, including an
Independent System Operator ("ISO"), see the caption "Properties
- -- New York Power Pool/Independent System Operator" in Item 2,
Part I of the 10-K Annual Report.
By Order, dated June 24, 1998, the FERC conditionally
authorized the establishment of an ISO by the Member Systems of
the NYPP. Said Order made an interim finding that the Member
Systems' conditional proposal to restructure the New York
electric wholesale market satisfied the principles set forth in
FERC Order 888. The FERC deferred action on other aspects of
such proposal including the rates, terms and conditions of the
ISO's open access tariff. Future filings with FERC will be
required to obtain FERC approval of the transfer of control of
all necessary facilities to the ISO. The Company can make no
prediction as to if and/or when the full and final approval will
be given by FERC and other regulatory agencies on this proposal.
Change in Executive Officers
Reference is made to the caption "Executive Officers of
the Company" in Item 1 of Part I of the 10-K Annual Report for a
listing of the Executive Officers of the Company. Effective
August 1, 1998, Mr. Paul J. Ganci was appointed by the Company's
Board of Directors as President and Chief Executive Officer. Mr.
John E. Mack, III, formerly Chairman of the Board and Chief
Executive Officer, will continue as Chairman of the Board.
Item 7. Financial Statements and Exhibits
(c) Exhibits. Following is the list of Exhibits
furnished in accordance with the provisions of Item 601 of
Regulation 8-K, filed as part of this Current Report on Form 8-K.
Exhibit No.
(Regulation 8-K
Item 601
Designation)
EXHIBITS
(10) (1) Order of the Public Service Commission of the
State of New York, issued and effective June 30, 1998,
explaining in greater detail and reaffirming its
Abbreviated Order, issued and effective February 19,
1988, as described in Registrant's Current Report, on
Form 8-K, dated February 10, 1998
(10) (2) By laws of the Company in effect on the date
of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Registrant)
By: (SGD.) DONNA S. DOYLE
DONNA DOYLE
Controller
Dated: July 24, 1998
</PAGE>
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
OPINION NO. 98-14
CASE 96-E-0909 - In the Matter of Central Hudson Gas &
Electric Corporation's Plans for Electric
Rates and Restructuring Pursuant to Opinion
No. 96-12.
OPINION AND ORDER ADOPTING TERMS OF SETTLEMENT
SUBJECT TO MODIFICATIONS AND CONDITIONS
Issued and Effective: June 30, 1998<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
Background and Procedural History 2
1. The 1997 Settlement 2
2. Public Input 4
3. The Amended Settlement 5
SUMMARY OF SETTLEMENT 7
EXCEPTIONS AND COMMENTS 10
Decisional Process and Criteria 10
1. Public Participation 10
2. Comment Procedure for the Amended Settlement 11
3. Standard of Review 12
a. Relevance of Individual Provisions 12
b. Relevance of Settlement Guidelines 12
c. General Conclusions as to Reasonableness 13
Revenue Requirement 15
1. The Commission's Rate Reduction Goals 15
2. Magnitude of Strandable Costs Disallowance 16
3. The Settlement's "Balance of Interests" 17
- i -
TABLE OF CONTENTS
PAGE
4. Revenue Requirement Adjustments 17
a. Metering Fund 17
b. Evidentiary Standard 18
5. Customer Benefits Fund 18
6. Metering, Billing, and Information Services 19
a. Metering: Standards and Alternative Methods 19
b. Other MBIS Practices 20
Efficacy and Timing of Competition 21
1. Specification of CTC 21
2. S.C. No. 13 22
a. Specification of EVOP 22
b. Legitimacy of Contracts 23
c. Adequacy of Discounts 24
d. Settlement Rates and Other Discounts 24
3. Timing of Retail Access 25
4. Permissibility of Retail Access 26
Sale of Generating Assets 26
1. Generally 26
2. The Incentive to Sell Fossil Units 27
3. Timing of the Auction 28
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TABLE OF CONTENTS
PAGE
4. Nuclear Generation 28
5. Auction Procedures 29
Other Corporate Structure and Antitrust Concerns 30
1. Deferral of Restructuring and Safeguards 30
2. Authorization to Market 30
3. Bilateral Contracts 31
4. Transition-Related Labor Issues 31
5. Transition Costs 32
6. Inter-Affiliate Investment 32
7. Further Corporate Restructuring 33
8. Scope of Affiliate Enterprises 33
9. Antitrust Immunity 33
Revenue Allocation and Rate Design 34
1. Targeted Versus Equal Rate Decreases 34
2. MI's Proposed Modifications 35
3. NYPA Rates and Tariffs 35
4. PII's Price-Cap-Plus Plan 36
Environmental Quality Concerns 36
1. System Benefits Charge 36
2. Resource Portfolio Requirements 37
-iii-
TABLE OF CONTENTS
PAGE
FINDINGS UNDER THE STATE
ENVIRONMENTAL QUALITY REVIEW ACT 37
DISCUSSION AND CONCLUSION 39
ORDER 40
APPENDICES
-iv-
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
COMMISSIONERS:
John F. O'Mara, Chairman<FN1>
Maureen O. Helmer
Thomas J. Dunleavy
CASE 96-E-0909 - In the Matter of Central Hudson Gas &
Electric Corporation's Plans for Electric
Rates and Restructuring Pursuant to Opinion
No. 96-12.
OPINION NO. 98-14
OPINION AND ORDER ADOPTING TERMS OF SETTLEMENT
SUBJECT TO MODIFICATIONS AND CONDITIONS
(Issued and Effective June 30, 1998)
BY THE COMMISSION:
INTRODUCTION
In a previous, abbreviated order (the February
order),<FN2> we adopted, subject to conditions and modifications,
an Amended and Restated Settlement Agreement (the Amended
Settlement), which prescribes an electric rate and restructuring
plan for Central Hudson Gas & Electric Corporation (Central
__________________
<FN1> John F. O'Mara served as Chairman of the Commission
until April 14, 1998.
<FN2> Case 96-E-0909, Order Adopting Terms of
SettlementSubject to Modifications and Conditions (issued
February 19, 1998) (Herein the February order).
<PAGE>
Hudson or the company). This opinion and order explains that
decision in greater detail.<FN1>
Background and Procedural History
1. The 1997 Settlement
We initiated this proceeding to investigate issues
related to competitive opportunities for electric service in
Central Hudson's service territory. The process began in Opinion
No. 96-12, where we directed the major investor-owned electric
utilities to file plans for a transition to competition.<FN2> We
called for submittals that would address, at a minimum, (1) the
utility's corporate structure, immediately and in the long term;
(2) a schedule for retail access and a set of unbundled tariffs;
(3) a rate plan, including mechanisms to reduce rates and address
strandable costs; (4) public policy programs that might require
special rate and accounting provisions; (5) load pockets and
mitigation of market power; and (6) the provision of energy
services.<FN3>
On October 1, 1996, Central Hudson in turn filed a
"Response" in which the company commented on these matters but
denied the need for any changes in its particular rates or
corporate structure. Nevertheless, in accordance with our
directive that parties attempt a negotiated resolution of the
______________________
<FN1> Appendix A lists the abbreviations and shorthand
nomenclature used herein.
<FN2> Cases 94-E-0952 et al., Competitive Opportunities
Regarding Electric Service, Opinion No. 96-12 (issued may 20,
1996).
<FN3> Ibid., pp. 75-76
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issues raised by the advent of competition,<FN1> Central Hudson
and four of the parties in this case ("the proponents")<FN2>
eventually arrived at a proposed settlement dated March 20, 1997
(the 1997 Settlement). Insofar as that proposal specified a rate
and restructuring plan, it effectively superseded the company's
October 1996 Response. The remaining active parties opposed the
1997 Settlement, arguing that it failed in various respects to
fulfill the objectives established in Opinion No. 96-12.
The parties <FN3> presented their positions initially
in statements and testimony after the 1997 Settlement was filed.
The testimony was examined in four days of evidentiary hearings,
followed by a single round of briefs to the Administrative Law
Judge.<FN4> In a recommended decision, the Judge concluded that
__________________________
<FN1> Cases 94-E-0952 et al., Order Establishing Procedures
and Schedule (issued October 9, 1996); approved by the full
Commission by Confirming Order (issued October 24, 1996).
<FN2> The signatories besides Central Hudson are staff of the
New York State Department of Public Service (Staff); the New York
State Department of Economic Development (DED); EnerScope; and
Robert Hankin.
<FN3> A list of the parties appearing is set forth in
Appendix B.
<FN4> Evidentiary hearings were held in Albany from May 6
through 9, 1997, before Administrative Law Judge Rafael A.
Epstein. The record includes 1,778 transcript pages and 10
multi-part exhibits.
-3-
we should reject the 1997 Settlement and remand it to the parties
for further modifications, if possible.<FN1> The recommended
decision was the subject of additional briefs, on exceptions and
opposing exceptions.<FN2>
2. Public Input
Through two series of educational forums and public
statement hearings (one preceding the 1997 Settlement and another
following it),<FN3> and correspondence by electronic and
conventional mail, considerable input from the public was
received. The recommended decision extensively describes the
____________________
<FN1> Case 96-E-0909, Recommended Decision (R.D.) issued July
1, 1997).
<FN2> Briefs on exceptions were filed by Central Hudson;
Staff; Independent Power Producers of New York, Inc. and Enron
Capital & Trade Resources (IPPNY/Enron); Multiple Intervenors
(MI); New York Power Authority (NYPA); New York State Consumer
Protection Board (CPB); New york State Department of Economic
Development (DED); New York State Department of Law (DOL); New
York State Electric & Gas Corporation (NYSEG); Public Interest
Intervenors (PII); Public Utility Law Project of New york, Inc.
(PULP); and Wheeeled Electric Power Company (WEPCO). Briefs
opposing exceptions were filed by Central Hudson, Co-op
Resources, IPPNY/Enron, MI, NYPA, CPB, DED, Staff, and WEPCO.
<FN3> Educational forums and public statement hearings were
held in Poughkeepsie on December 12, 1996, and May 13, 1997;
Kingston on December 12, 1996, and May 13, 1997; and Newburgh on
December 13, 1996 and May 12, 1997.
-4-
public's contributions toward defining the issues.<FN1> As noted
there, public comments about the introduction of competition
ranged from skepticism to enthusiasm. Participants included
residential and commercial customers, and representatives of
government agencies, community organizations, and advocacy
groups. The public comments cited a broad range of interests,
including rates, service reliability, conservation and
environmental values, the future role of Central Hudson and its
work force, and the practical effects of competition upon the
customers' day-to-day relationship with their electric service
provider. These concerns have been carefully considered in our
review of the 1997 Settlement and the Amended Settlement.
3. The Amended Settlement
The recommended decision and exceptions were presented
for consideration at our deliberative session of September 17,
1997. At that time, after identifying several features of the
1997 Settlement that should be modified through further
negotiation, we declined to approve it.
First, we expressed dissatisfaction because the 1997
Settlement did not adequately specify future plans for
restructuring Central Hudson, in particular because it
contemplated transferring fossil generating assets to an
affiliate based on an administratively determined market value.
We deemed this method inferior to an auction, because the former
approach would not achieve the maximum possible mitigation of
strandable costs that might ultimately be borne by customers. We
also noted our misgivings about the 1997 Settlement's provision
for investment by the company in new, time-differentiated meters,
and we concluded that the funds earmarked for that program should
be reallocated to other programs that would better benefit
ratepayers. In addition, we required that the level of the
system benefits charge (SBC) be addressed further.
___________________
<FN1> Case 96-E-0909, R.D. , supra, pp. 10-12.
-5-
On January 2, 1998, Central Hudson filed the Amended
Settlement, which responds to the concerns enumerated at the
September 17 session. We allowed ten days for public comment.
The Amended Settlement was endorsed by Central Hudson and Staff,
both of whom subscribed to the 1997 Settlement. DED, which had
signed the 1997 Settlement, now objects to the Amended Settlement
on procedural grounds. Two opponents of the 1997 Settlement,
i.e., CPB and Pace Energy Project (the latter opposed the 1997
Settlement as a member of PII), now endorse the Amended
Settlement.<FN1>
All other parties that filed comments object to aspects
of the Amended Settlement. These include IPPNY/Enron, DOL, MI,
WEPCO, PULP, Retail Council of New York (Retail Council),
Locals 310 and 2218 of International Brotherhood of Electrical
_____________________
<FN1> Enerscope and Robert Hankin, who were signatories to
the 1997 Settlement, have taken no position with respect to the
Amended Settlement.
-6-
Workers (IBEW), Joint Supporters and CNG Energy Service
Corporation (Joint Supporters/CNG), and the National Association
of Energy Service Companies.<FN1>
After considering the record compiled prior to our
September 17 session and the subsequent comments, we approved the
Amended Settlement, subject to additional modifications and
conditions enumerated in an order issued and effective
February 19, 1998 (the February order). The company, by letter
dated February 26, 1998, accepted these additional terms,
including drafting revisions prescribed in that order.<FN2>
Accordingly, the Amended Settlement took effect and its rate
reductions were implemented.
SUMMARY OF AMENDED SETTLEMENT
The Amended Settlement preserves the major elements of
the 1997 Settlement. Thus, unless otherwise noted, the following
summary describes both. The Amended Settlement's provisions
govern a term designed to run from its approval through
June 2001. Retail access for Central Hudson's customers will be
introduced gradually over this period. The resulting revenue
losses to the company will be offset by a combination of a non-bypassable
competitive transition charge (CTC), plus up to
______________________
<FN1> CPB also filed comments objecting to the Amended
Settlement. Since CPB subsequently became a signatory thereto,
its objections are not addressed herein.
<FN2> The Amended Settlement, exclusive of these revisions,
was appended to the February order. The subsequent drafting
revisions are attached hereto as Appendix C.
-7-
$10 million annually of "customer benefits" from deferred
credits, cost savings, sales growth, and shareholder sources.
In general, the Amended Settlement freezes base
electric rates at their present level, with the following
exceptions. For Service Classification (S.C.) No. 13, consisting
of large industrial customers, it offers basically two
alternatives. One is a 5% discount from present tariff rates for
the term of the Amended Settlement. The other enables a
qualifying customer to choose among several possible contractual
arrangements whereby the customer continues to be served by
Central Hudson but can turn to other competing providers to meet
part of its needs, for energy and capacity. In addition, an
energy only option is offered. The rate incentives available to
customers under present tariffs, to encourage growth and job
retention, are increased or made more freely available.
The Amended Settlement adopts no final disposition of
strandable costs (i.e., costs the utility might be unable to
recover in a competitive market). Instead, it provides for an
evaluation of such costs at the end of its term, together with
"mitigating" measures that may have occurred by then. At that
point, the Amended Settlement promises the company a reasonable
opportunity to recover the entire balance of prudently incurred
strandable costs that cannot reasonably be mitigated. Such
recovery is to be accomplished through a non-bypassable "wires
charge," commencing June 30, 2001.
The Amended Settlement caps earnings at a 10.6% return
on equity; 100% of any earnings exceeding the cap (cumulatively
over the entire term of the Amended Settlement) will be used to
offset strandable costs; any remainder will be used to provide
ratepayer benefits.
The 1997 Settlement required the company to file a plan
for structural separation of Central Hudson's fossil generation
assets (Danskammer, and the company's share of Roseton)<FN1> by
____________________
<FN1> Niagara Mohawk Power Corporation (Niagara Mohawk) and
Consolidated Edison Company of New York, Inc. (Con Edison) are
also joint owners of Roseton.
-8-
January 1, 2000. It was contemplated that we would act on the
proposal later in 2000. These fossil generation assets were to
be held by an unregulated generating subsidiary after
approximately June 2001. The remaining regulated entity would
retain Central Hudson's interest in the Nine Mile Point Unit
No. 2 (NM2) nuclear plant, and certain combustion turbine and
small hydropower plants.
The lack of a specific plan for structural separation
was among the reasons we cited in declining to approve the 1997
Settlement at the September 17 session. The ensuing revisions in
this area account for the most extensive differences between the
Amended Settlement and the 1997 version. The Amended Settlement
continues to provide initially for functional separation. But,
unlike the 1997 Settlement, the Amended Settlement now requires
that Central Hudson divest its fossil generation assets by means
of an auction, to be conducted by an independent auctioneer, and
that the assets be transferred no later than June 2001. The
Amended Settlement further specifies that Central Hudson may
reach a negotiated outcome with bidders after the auction, and
that its regulated transmission and distribution affiliate
(Regco) may, with our approval, contract for capacity or energy
from Central Hudson's fossil plants for up to five years from the
date the facilities to be auctioned are transferred. That
Settlement also authorizes a Central Hudson affiliate to bid in
the auction. As an incentive to avoid such participation, the
company would retain 5% of the gross sales proceeds up to net
book value plus 10% of the proceeds above net book value, with
benefits capped at $17.5 million, net of associated taxes, if the
affiliate abstained from bidding.
The Amended Settlement, in contrast to the 1997
version, includes specific provisions to address restructuring
issues such as rate recovery of corporate reorganization costs,
dividend payments by Regco, investment in unregulated affiliates
by Regco or its parent, marketing by Regco or its affiliates
within and beyond the Central Hudson service territory, affiliate
transactions, commonality of directors and attorneys among
affiliates, and royalty payments to Regco.
To the extent Central Hudson obtains power at a cost
other than at its embedded generation costs, the difference will
flow through to customers through the fuel adjustment clause
(FAC). In the Amended Settlement, as in the 1997 version, a
company proposal for full unbundling of tariffs is due January 1,
2000. However, filing of unbundled tariffs may be required
-9-
sooner, if necessary for implementing the timetable for retail
access or to comply with other scheduling directives we may
issue.
As noted, we raised concerns at our September 17, 1997
session regarding the requirement that all customers choosing
retail access use time-differentiated meters installed by Central
Hudson. The Amended Settlement responds by eliminating that
requirement. Instead of applying $3 million annually to support
the metering program, the Amended Settlement would use that
amount to raise SBC expenditures equivalent to approximately one
mill per kilowatt-hour (kWh). In addition, Central Hudson agrees
to the establishment of a statewide administrator for SBC-funded
programs, and a program of environmental disclosure concerning
fuel mix and emission characteristics of generation.
Finally, the Amended Settlement (1) includes a customer
service quality incentive plan keyed to factors such as service
reliability, billing accuracy, and a customer satisfaction index;
(2) authorizes energy service companies (ESCOs) to bill retail
access customers directly; (3) resolves several open revenue
requirement issues; and (4) identifies the manner by which
independent system operator (ISO) costs will be recovered.
EXCEPTIONS AND COMMENTS
As we have described, some major criticisms directed to
the 1997 Settlement or the Amended Settlement have been resolved
through the parties' additional negotiations or the additional
terms prescribed in the February order. The remainder of this
opinion discusses those matters, together with other concerns
that were raised on exceptions to the recommended decision or in
subsequent comments on the Amended Settlement.
Decisional Process and Criteria
1. Public Participation
On exceptions, Central Hudson took issue with the
recommended decision's characterization of public comment at the
educational forums and public statement hearings. As noted
above, the Judge reported that the public expressed a range of
positive and negative views of our pro-competitive initiatives
generally and in relation to Central Hudson particularly. The
company said the recommended decision does not adequately convey
the public's misgivings about retail access and their
satisfaction with the rates and service offered by Central Hudson
in its present form.
-10-
We believe the recommended decision fairly summarized
the public comments to the extent feasible, given that the
comments were numerous and diverse. More to the point, we fully
appreciate the public's concerns about the uncertainties
inevitably associated with a major change such as the transition
to competitive electric markets. In reviewing the 1997
Settlement and the Amended Settlement, we responded to those
concerns by modifying and conditioning our adoption so the
public's interests are protected adequately.
2. Comment Procedure for the Amended Settlement
DED (supported by WEPCO, Retail Council and IBEW)
objects to the time allotted for parties to review and comment on
the Amended Settlement. DED contends that inadequate time was
provided for review and comment, noting that a "red lined" copy
was not received until three calendar days (one business day)
before comments were due. DED and its supporters seek additional
time to examine the Amended Settlement; and IBEW requests a
hearing on the ground that "[t]his is the first time that the
public is being made aware that the company intends to divest its
generation."<FN1>
It is true that in response to our concerns, the
Amended Settlement constitutes a more lengthy document than the
1997 Settlement. However, the protesting parties had ample
opportunity to become familiar with the Amended Settlement, since
it was developed over a period of more than three months.
Moreover, to extend this proceeding would be contrary to the
public interest because it would delay the realization of the
ratepayer benefits incorporated in the Amended Settlement. Thus,
the parties and the public have not been unfairly prejudiced by
the schedule we established. Moreover, since parties had a full
opportunity to comment, and all legal hearing requirements have
been satisfied, an additional hearing will not be scheduled.
_________________________
<FN1> IBEW's Comments, p. 3.
-11-
3. Standard of Review
a. Relevance of Individual Provisions
Central Hudson and Staff urged approval of the 1997
Settlement as a whole, if it tends to promote our general
objectives in the Competitive Opportunities proceedings,
regardless of whether some different approach or modifications
might have been preferable. These proponents emphasized the
negotiated balance among that Settlement's complex of
interrelated provisions. They denied that opponents could
legitimately criticize discrete provisions in an effort to obtain
a more favorable outcome from us than at the negotiating table.
The recommended decision concluded that the
1997 Settlement's reasonableness could best be gauged by
examining the opponents' criticisms of its individual provisions.
The company excepted; it said we deliberately shaped the process
as a bilateral company-Staff negotiation, and opponents therefore
should not be "rewarded" for non-participation by having us
consider their objections after the negotiated package is
complete. Staff said the objections raised no legally sufficient
basis for rejecting the 1997 Settlement.
The arguments of the proponents are unreasonably
narrow. The recommended decision was correct in examining
individual arguments addressing the 1997 Settlement. If, as the
company proposes, we precluded criticisms from dissatisfied
negotiating parties, this would have the undesirable effect of
penalizing parties for attempting to pursue their objectives
initially through negotiations. Further, it would improperly
relieve settlement proponents of their burden of proving that a
settlement is reasonable.
Thus, contrary to the company's theory, the opponents
are entitled to be heard regarding individual settlement
provisions. However, as detailed in the remainder of this
opinion, we conclude that all valid criticisms of the 1997
Settlement have been adequately addressed by the modifications
adopted in the Amended Settlement, or the additional changes
imposed by the February order.
b. Relevance of Settlement Guidelines
The recommended decision framed the ultimate issue as
whether the 1997 Settlement satisfied four tests specified in our
Settlement Guidelines (Guidelines): whether a settlement
(1) balances the affected parties' interests; (2) comports with
-12-
state policy as defined, in part, for purposes of this case, by
Opinion No. 96-12; (3) represents the equivalent of a likely
litigated outcome; and (4) enjoys support among normally
adversarial parties.<FN1>
NYSEG excepted, arguing that the Guidelines are
inapplicable because Central Hudson did not participate in this
case voluntarily and because Opinion No. 96-12 does not
adequately define state policy. NYSEG said the reasonableness of
a settlement should be determined by comparing it with
settlements in the other, concurrent Competitive Opportunities
cases.
The exception is denied. This case will be determined
taking into account the evidence and arguments, in light of
Opinion No. 96-12 and the Guidelines, because the decision here
must, of course, serve the objectives adopted in Opinion
No. 96-12; and because the Guidelines are the best means of
examining whether a settlement will result in safe and adequate
service at just and reasonable rates, as required by statute. To
the extent that Opinion No. 96-12 is subject to further
interpretation as NYSEG suggests, such clarification is supplied
by our opinions here and in the concurrent Competitive
Opportunities cases.
c. General Conclusions as to Reasonableness
The recommended decision found the 1997 Settlement
deficient under all four criteria mentioned above. The Judge
cited criteria (1) and (2) as the main problems, concluding that
the amount of rate reductions and the pace of competitive reform
(i.e., retail access, corporate restructuring, customer choice,
and disposition of strandable costs) in the 1997 Settlement did
not adequately serve long-term corporate and ratepayer interests
nor further sufficiently the objectives of Opinion No. 96-12.
Central Hudson and Staff excepted.
_____________________
<FN1> Cases 90-M-0255 et al., Procedures for Settlements and
Stipulation Agreements, Opinion No. 92-2 (issued March 24, 1992),
Appendix B, p. 8.
-13-
The exceptions have become somewhat academic as a
result of the changes leading to the Amended Settlement, and the
further modifications and conditions subsequently adopted in the
February order. In general, as compared with the 1997
Settlement, the framework approved in the February order better
serves shareholder and customer interests and the objectives of
Opinion No. 96-12 because the Amended Settlement, as modified and
conditioned, more clearly defines the restructured company's
future, ensures divestiture of generation, creates stronger
assurances that strandable costs will be minimized, and augments
the SBC funds available for programs that benefit the public.
Additionally, regardless of whether the Judge's
appraisal of the 1997 Settlement correctly applied the
Guidelines' various criteria, we agree that we should attach
substantial weight to certain important concessions accepted by
Central Hudson in both the 1997 Settlement and the Amended
Settlement. These include most notably Central Hudson's
prolonged forbearance since 1993 from rate increase requests,
despite its relatively low rates; the 10.6% equity earnings cap,
together with the 100% flow-through of excess earnings to
stranded cost recovery or to customers; Central Hudson's
obligation to mitigate strandable costs under the 1997 Settlement
and, to a greater degree, in the Amended Settlement; and the
company's commitment to retail access and (particularly in the
Amended Settlement) corporate restructuring.
Further, the proponents are correct that Opinion
No. 96-12 did not mandate rate reductions and industry
realignment immediately, and that rate and restructuring
proposals might reasonably vary according to individual
utilities' circumstances. While other Competitive Opportunities
settlements may move more aggressively in those directions, the
rate provisions and the gradual initiation of retail access
provided for in the Amended Settlement are acceptable under the
circumstances of this case. The introduction of competition will
lead to a choice of suppliers and services and additional cost
savings for customers later, thus fulfilling the objectives of
Opinion No. 96-12 over the long term.
Finally, for Central Hudson, a salient distinguishing
circumstance is that the company's rates are relatively low.
This fact suggests that (1) customers already have received a
real economic benefit insofar as Central Hudson has avoided rate
increases more successfully than other companies; and (2) Central
-14-
Hudson can afford a relatively gradual, and hence more orderly,
transition to competition because its rates for the most
competitive services compare favorably with those in other
service territories.
Accordingly, we conclude that the Amended Settlement
satisfies the Guidelines, and that the policy objectives
enunciated in Opinion No. 96-12 have been satisfied.
Revenue Requirement
1. The Commission's Rate Reduction Goals
The recommended decision concluded that the parties
should pursue larger rate reductions (from strandable cost
absorption or other sources) because rates under the 1997
Settlement are not low enough to compete on a national basis,
especially if rates decline nationally as a result of
competition. The recommended decision said that comparisons
between Central Hudson's rates and those available elsewhere in
the state or region provide no relevant measure of the company's
competitiveness.<FN1> Central Hudson and Staff excepted.
The exceptions are valid. Even though the company must
compete nationally, state and regional rate comparisons are
relevant to show that Central Hudson has managed to maintain the
lowest rates in New York. This achievement is especially
significant in view of the company's NM2 costs, which are
proportionally larger for Central Hudson than for any other NM2
co-tenant; and in view of the company's recent 10% sales loss
caused by downsizing at International Business Machines
Corporation. For similar reasons, it is equally significant that
the company avoided any base rate increase since December 1993
despite a cumulative 18% inflation rate for the same period.
As for rate comparisons beyond New York, the
Settlement's rate reductions are adequate to maintain Central
Hudson's competitiveness relative to utilities in other regions.
For the most competitive class, the average S.C. No. 13 customer
that takes the option of a 5% discount will receive reduced rates
of 5.2 cents per kWh to 4.94 cents, within 7% of the national average.
Larger reductions may be available through other pricing options
available under the Amended Settlement, or via a 25% Economic
Growth Incentive discount if the customer is eligible.
_____________________
<FN1> The same would apply to the Amended Settlement.
-15-
For commercial and small industrial customers, base
rates will remain frozen at their current level of 8.25 cents per kWh,
8% above the national average of 7.63 cents per kWh. Although
residential rates will remain above the national average of 8.64 cents
per kWh, a pertinent comparison is to the average in the
Northeast since the residential class is the least competitive
sector of Central Hudson's revenue base. That comparison reveals
that Central Hudson's residential rates are the lowest in New
York and within 10% of the Northeast average of 10.25 cents per kWh.
2. Magnitude of Strandable Costs Disallowance
The recommended decision concluded that additional rate
reductions are reasonably achievable by requiring shareholders to
absorb some strandable costs now instead of leaving the matter
unresolved until later. Central Hudson and Staff excepted.
The exceptions are granted. As Opinion No. 96-12
states, utilities should have a reasonable opportunity to seek
recovery of strandable costs consistent with the goals of
"lowering rates, fostering economic development, increasing
customer choices, and maintaining reliable service."<FN1> The
Amended Settlement as it stands, without any immediate strandable
cost disallowances, fulfills these objectives. Therefore, this
case gives us relatively greater latitude to expand the period
for the disposition of strandable costs in the expectation that
such costs will be mitigated through the operation of market
forces and the company's own efforts. Moreover, as customers
will recoup any earnings that exceed the 10.6% equity return cap
(and are not needed to write down strandable costs), it is
unlikely that additional rate reductions now will ultimately
provide customers any greater advantage as compared with the
Amended Settlement.
Additionally, quantification henceforth will be more
reliable because we then will know the import of (1) the auction
prices realized for divested generation, (2) restructuring of
independent power producer contracts, (3) retirement of older
generating units because of air quality compliance costs,
(4) retirement of nuclear units located in the Northeast,
(5) economic growth in New York, and (6) the organization and
procedures ultimately adopted for an Independent System Operator.
___________________
<FN1> Cases 94-E-0952 et al., Opinion No. 96-12, supra, p.
90.
-16-
Finally, the postponement of strandable costs quantification is
reasonable because it will allow time for the markets to correct
the current excess of generation supply over demand, which
inflates strandable costs.
3. The Settlement's "Balance of Interests"
The recommended decision said that the 1997 Settlement,
by omitting a definite apportionment of some strandable costs to
shareholders and using ratepayer funds to mitigate strandable
costs, failed to strike a reasonable balance among shareholder,
company, and ratepayer interests as the Settlement Guidelines
require. Central Hudson and Staff excepted.
Regardless of whether the exceptions were valid in the
context of the 1997 Settlement, the Amended Settlement assigns
Central Hudson adequate responsibility for mitigation of
strandable costs insofar as it carries forward the 1997
Settlement's mitigation requirements and adds an auction process
for generation divestiture. The Amended Settlement ensures that
customers will absorb, at most, only those stranded costs which
are prudent and verifiable and could not reasonably have been
mitigated by the company's energy marketing and planning
decisions related to its generating plant auction. While the
Amended Settlement offers customers no guarantee that
shareholders will absorb some of the prudent and verifiable
strandable costs remaining after mitigation, it creates a
"possibility" of reducing that remainder to zero. Meanwhile, the
Amended Settlement assures customers a rate reduction or freeze
and it secures important concessions from shareholders (described
under "General Conclusions as to Reasonableness," above).<FN1>
4. Revenue Requirement Adjustments
a. Metering Fund
The 1997 Settlement provided for the expenditure of up
to $3 million annually to offset costs the company would incur in
purchasing and installing time-differentiated meters for retail
access customers. Critics of this arrangement argued that
metering is not essential for retail access; it should not be
subsidized by customers that do not avail themselves of retail
access options; parties other than the company should be allowed
______________________
<FN1> Exceptions addressing various stranded costs proposals
and the disposition of excess earnings are moot as a result of
this determination.
-17-
to own meters; and the $3 million could be used instead for rate
reductions. The recommended decision said these matters should
be reexamined in light of our then forthcoming decision on
metering and related ESCO issues. The company excepted, calling
for approval of this provision.
Our subsequent ESCO decision <FN1> established that
retail access should not be conditioned on the availability of
time-differentiated meters. Moreover, there is a risk that a
utility's commitment to new investment in metering may create
additional new strandable costs, thus undermining the effort to
mitigate them. For these reasons, we expressed a preference for
modification of the provisions concerning the $3 million. As
described above, the Amended Settlement meets this requirement by
eliminating the metering proposal and reallocating the $3 million
to other purposes.
b. Evidentiary Standard
PULP excepted to the recommended decision's assumption
that a settlement requires less rigorous evidentiary support than
a litigated rate decision. PULP observed that, under the
Settlement Guidelines, the lack of a thoroughly developed record
weighs against approving a settlement. Thus, PULP said, the lack
of a rate case quality analysis of Central Hudson's revenue
requirement justifies rejection of the 1997 Settlement here.
The rates established under this order are just and
reasonable and adequately competitive; thus, they fulfill the
objective of fostering an economic climate conducive to
investment and job growth. Moreover, rates have not increased
since 1993 and no customer will suffer a rate increase through
June 2001 as a result of our action. In these circumstances,
ratemaking adjustments and evidentiary presentations comparable
to those necessary to justify a rate increase are not mandatory
5. Customer Benefits Fund
The 1997 Settlement, as well as the Amended Settlement,
sets aside $10 million annually as a "customer benefits" fund, to
support the retail access program. If retail access does not
exhaust the fund by June 30, 2001, the remaining balance will be
available to mitigate strandable costs, and beyond that for other
______________________
<FN1> Case 94-E-0952, Competitive Opportunities Regarding
Electric Service, Opinion No. 97-13 (issued August 1, 1997).
-18-
customer purposes. Of the $10 million amount, $3 million
annually is to be funded by Central Hudson in the form of
productivity, sales growth, and shareholder sources. The
remaining $7 million annually is a combination of fuel cost
savings (resulting from the company's coal dock project) and
deferred ratepayer credits.
The recommended decision found that this arrangement
unduly insulates the company from sharing strandable costs
because, of the $10 million, at least $7 million consists of
savings that would be available for the customers' benefit in
conventional ratemaking, and because the company has a prior
claim on any unexpended funds if it needs to write down
strandable costs. Central Hudson and Staff excepted.
The exceptions of the proponents are granted. The
"customer benefits" fund is intended to promote the level of
retail access we are endorsing. Its implications for strandable
cost reduction are minimal, at best, and the criticisms leveled
at the fund by the recommended decision are unwarranted.
6. Metering, Billing, and Information Services
a. Metering: Standards and Alternative Methods
The opponents criticized the 1997 Settlement for its
alleged failure, in numerous respects, to create a robust
competitive market in metering, billing, and information services
(MBIS). Without endorsing those criticisms, the recommended
decision noted that this Settlement would have to comport with
our generic conclusions on ESCO issues. (With respect to MBIS,
we subsequently resolved such issues in Opinion No. 97-13).<FN1>
Central Hudson excepted, alleging that the Judge should
have recommended (1) approval of the 1997 Settlement's MBIS
provisions and (2) rejection of class average load profiles as an
acceptable alternative to real time metering. IPPNY/Enron said
we should direct Staff and the company to consider other New York
utilities' progress toward robust MBIS competition, with a view
toward ensuring that "retail access and fully competitive MBIS
offerings"<FN2> will be available in Central Hudson's territory
by May 1999. WEPCO supported IPPNY/Enron's position, and added
that the 1997 Settlement is unreasonable in letting Central
Hudson retain its MBIS monopoly.
____________________
<FN1> Case 94-E-0952, supra, Opinion No. 97-13 (issued August
1, 1997).
<FN2> IPPNY/Enron's Brief on Exceptions, p. 8.
-19-
Broadly stated, our intent is that MBIS requirements,
albeit legitimate on their face, must not be used to delay the
expansion of retail access or exclude competitors from the MBIS
market. Requirements that have raised concerns in this respect
include the 1997 Settlement's insistence on metering (rather than
load profiles), which we subsequently rejected in Opinion
No. 97-13 as a precondition of retail access; and the 1997
Settlement's technical specifications intended to ensure
compatibility between Central Hudson's system and meters
installed by other service providers. However, the Amended
Settlement resolves these matters consistent with Opinion
No. 97-13, and MBIS requirements will be subject to all relevant
principles established in that opinion.<FN1>
b. Other MBIS Practices
Some exceptions to the recommended decision called for
approval or rejection of certain MBIS practices. Central Hudson
excepted to the recommended decision's conclusion that an ESCO
should be allowed to bill customers, independently, for services
provided by the ESCO. PULP, citing the importance attached to
service quality in Opinion No. 96-12 and in the public's
comments, excepted on the ground that the 1997 Settlement should
not have left service quality issues unresolved.
_____________________
<FN1> IPPNY/Enron, in an argument directed to matters
involving generation divestiture as well as MBIS, criticizes the
Amended Settlement as unclear regarding the effects of our
determinations in generic proceedings. IPPNY/Enron seeks
assurance that such generic decisions will be applicable to
Central Hudson. While the Amended Settlement does not bar the
application of generic decisions to the company, it correctly
indicates that parties may need opportunities to analyze and
comment on the specific applicability of generic decisions.
-20-
Here again, these issues have been explored in separate
proceedings to consider ESCO-related matters, and the Amended
Settlement conforms with generic decisions we reached subsequent
to the 1997 Settlement.<FN1> Moreover, the Amended Settlement
contains a Service Quality Incentive Plan.
Efficacy and Timing of Competition
1. Specification of CTC
Both Settlements prescribe a per-kWh charge (the CTC)
that would recover a portion of Central Hudson's non-fuel
production costs and would be determined in compliance filings
separately from this phase of the proceeding. In general, the
Amended Settlement requires all customers taking retail access to
pay Central Hudson a CTC equal to about 50% of the non-fuel
production costs.
Some opponents criticized the 1997 Settlement as vague
regarding the precise method of calculating the CTC. The
recommended decision agreed, but dismissed this criticism as
immaterial, noting that the parties probably could resolve all
ambiguities. IPPNY/Enron excepted on the ground that, unless the
CTC is properly calculated, retail access customers will not
avoid all of Central Hudson's marginal fossil generating costs as
they should. NYSEG excepted because the recommended decision did
not endorse NYSEG's proposed "full market price" backout credit.
________________
<FN1> Case 94-E-0952, supra, Establishing Regulatory Policies
for the provision of Retail Energy Services, Opinion No. 97-5
(issued May 19, 1997) and Opinion No. 97-17 (issued November 18,
1997).
-21-
As Central Hudson and Staff observed, the CTC at issue
here should be approved because it conforms conceptually with our
resolution of the pertinent issues in our order establishing
retail access pilot programs (issued after the record closed in
this case).<FN1> We reject NYSEG's proposal because it was not
presented upon the record in this proceeding, and because NYSEG
has not shown that it would be superior to the approach adopted.
As for the lack of specificity in the calculation method, Central
Hudson first filed a form of CTC tariff (on August 4, 1997),
which we approved after parties had an opportunity to comment.
Thereafter, on March 20, 1998, the company filed a tariff
implementing its retail access program, which tariff sufficiently
described the CTC.
2. S.C. No. 13
a. Specification of EVOP
The offerings available to S.C. No. 13 customers
include an Energy Value Option Plan (EVOP), which is capped at
50 MW. This feature enables a customer to meet about 20% of its
energy needs through low-cost nuclear and hydroelectric energy
purchased from Central Hudson, while other vendors compete to
supply the amount of customer load eligible to be served under
the program. Load not met by the company's nuclear and hydro
generation plus EVOP deliveries would be supplied at the average
cost of fuel, exclusive of the cost of nuclear and hydro
generation. Here, as in the case of the CTC, opponents
complained that the EVOP's details would be left unresolved until
the company files a form of contract for our review.
Another issue focused on the fact that the 20% limit is
designed to reflect the S.C. No. 13 customers' historical share
of Central Hudson's kWh sales. MI proposed to recalculate the
limit, on the basis of nuclear and hydropower capacity
costs--instead of kWh volumes--attributable to each class. MI
proposed only a methodology for this purpose, without performing
the calculation.
_________________
<FN1> Case 96-E-0948, Petition of Dairylea Cooperative, Inc.,
Order Establishing Retail Access Pilot Programs (issued June 23,
1997).
-22-
The recommended decision found that any vagueness as to
the EVOP calculation was immaterial because it would be remedied
when the contract is filed. IPPNY/Enron excepted. Additionally,
the recommended decision suggested that MI's proposed
recalculation could be considered during the review of the
contract filing. Central Hudson and Staff excepted.
As the recommended decision correctly concluded, the
lack of detail regarding the EVOP (in both Settlements) is
immaterial because interested parties have an opportunity to be
heard on the specific terms by commenting on the company's filing
of a proposed form of contract.<FN1> We will not approve MI's
proposed recalculation here, because it should be considered, if
at all, in the context of a comprehensive rate unbundling case
where parties could address the effects of nuclear and hydropower
cost reallocations for all classes of customers and not solely
S.C. No. 13.
In a related comment, WEPCO complains that the Amended
Settlement requires an independent supplier to pay Central Hudson
for the greater of the company's average or incremental costs on
a real-time basis, to the extent that the supplier's energy
deliveries fall short of an agreed amount; yet, in the event of
excess deliveries by the independent supplier, Central Hudson is
to pay the supplier only the company's average cost. We expect
that this issue will be fleshed out and resolved in the company's
retail access plan.
b. Legitimacy of Contracts
Opponents claimed that the 1997 Settlement (and thus,
by implication, the Amended Settlement) is anti-competitive
because it would prescribe requirements contracts with Central
Hudson as a precondition of the 5% discount for S.C. No. 13
customers. The recommended decision rejected this view.
MI excepted on the ground that participants in
competitive markets cannot be compelled to accept such contracts.
Similarly, in its comments on the Amended Settlement, WEPCO
objects to the requirements contract provisions on the ground
that they exclude ESCOs from a "key segment" of the market.
Joint Supporters/CNG object particularly to the provision for a
one-year termination notice.
___________________
<FN1> The company submitted the filing in this docket on
February 26, 1998, and the period for comment pursuant to the
State Administrative Procedure Act ran through may 30, 1998.
-23-
These criticisms are unsound. The subject contracts do
not unreasonably restrict the availability of the discount, as
they are an element of a rate plan that is optional for the
customer and terminable on a year's notice. An S.C. No. 13
customer need not enter a contract (nor accede to the contractual
one-year notice requirement) unless the customer wants one of the
new rate options, i.e., a 5% rate reduction or conditioned retail
access. If S.C. No. 13 customers reject these options, they
continue to enjoy Central Hudson's relatively low rates and are
eligible to seek out an alternative energy supplier to supply
their needs in part (under the EVOP) or fully. Thus, ESCOs are
not excluded from the market. Moreover, even under a
requirements contract, ESCOs are not disadvantaged because
Central Hudson's back-out rate will, at least initially, be more
favorable to ESCOs than any other New York utility's, thus
stimulating the demand for retail access and encouraging ESCOs to
enter Central Hudson's market.
c. Adequacy of Discounts
The recommended decision acknowledged that, as MI
emphasized, the 5% reduction for S.C. No. 13 customers under some
of the optional rate formulas is only a discount for the term of
the 1997 Settlement (and the Amended Settlement as well), rather
than a permanent rate reduction. Nevertheless, MI excepted to
the recommended decision insofar as the Judge did not explicitly
condemn the discount as a poor substitute for a permanent
reduction. Central Hudson and Staff opposed MI's exception,
arguing that S.C. No. 13 deserves nothing more than a temporary
discount.
We shall deny MI's exception, without reaching the
proponents' claim that a permanent 5% reduction would be
unreasonable. The difference between an extended temporary
discount and a permanent rate reduction is illusory, because
there can be no assurance that the "permanent" rates would remain
immutable after the Amended Settlement expires. Furthermore, the
S.C. No. 13 discounted rate more than covers marginal costs and
serves a sound policy objective--it encourages economic growth
and job retention in Central Hudson's service territory.
d. Settlement Rates and Other Discounts
MI seeks assurance that S.C. No. 13 customers receiving
5% discounts under the Amended Settlement can receive state-sponsored Economic
Development Power (EDP) allocations without
jeopardizing the discount. There already are S.C. No. 13
-24-
customers who receive EDP allocations while paying Central
Hudson's rates for the balance of their load. We interpret the
Amended Settlement as requiring that customers otherwise eligible
for the 5% discount will retain such eligibility for the balance
of their load regardless of whether they receive EDP allocations.
MI also questions how the Amended Settlement may affect
special contracts in which S.C. No. 13 customers have obtained
growth incentive discounts. MI seeks assurance that Central
Hudson will honor these long-term rate commitments. In the
February order, we modified the Amended Settlement to require
that Central Hudson maintain a bundled S.C. No. 13 rate until
June 30, 2001 regardless of when the company divests its fossil-fueled plants.
This will help maintain the existing economic
development rates at least until then.
3. Timing of Retail Access
The Amended Settlement prescribes staged annual
increases in the percentage of customer load eligible for retail
access in each class. Under the 1997 Settlement, the customer
base eligible for retail access (other than S.C. No. 13) is
limited to 8% of load during 1998, increasing to 28% in the first
half of 2001 and 100% thereafter. The recommended decision said
the 1997 Settlement could be improved by introducing retail
access more quickly. The Judge nevertheless rejected contentions
that this Settlement should be disapproved for that reason. He
noted that Opinion No. 96-12 provides no explicit timetable, and
that the 1997 Settlement acknowledges our authority to initiate a
rate unbundling case promptly.
Central Hudson and Staff excepted, arguing that a more
rapid transition might impair reliability and cause customer
confusion or frustration. Also, regardless of how quickly
unbundled rates might be determined, Central Hudson and Staff
objected to any suggestion that the new rates might actually be
made available to customers on a schedule faster than that
specified in the 1997 Settlement.
We will not require that retail access at unbundled
rates expand faster than prescribed, because any acceleration of
the retail access schedule would impose economic impacts on
Central Hudson that are not accounted for in the Amended
Settlement. However, rates should be unbundled as soon as
practicable so that potential competitors may gain the necessary
insights as to the extent of competitive opportunities in Central
Hudson's market.
-25-
4. Permissibility of Retail Access
The recommended decision acknowledged our authority to
implement retail access, citing the Supreme Court's Energy
Association decision<FN1> and rejecting PULP's arguments to the
contrary. PULP excepted. It claimed that (1) we lack statutory
authority to approve electric retail wheeling, except for
commercial and industrial classes; and (2) the 1997 Settlement
unlawfully would allow Central Hudson to abdicate its statutory
duty to provide service, while allowing us to abdicate our
statutory duty to review rates and contracts.
The exceptions are denied because they are legally
incorrect, as we have noted in other rate/restructuring
decisions.<FN2> However, they highlight the importance of
deciding this case in a manner consistent with our legal
obligation to ensure safe and adequate service at just and
reasonable rates. We are adopting the terms found in the Amended
Settlement, as modified and conditioned, in the exercise of our
statutory responsibility to set such rates. That these terms
achieve this result by allowing rates to become increasingly
dependent on competitive market forces in no way diminishes the
validity of our findings either legally or substantively.
Sale of Generating Assets
1. Generally
The 1997 Settlement reserved the issue of nuclear
assets for future negotiations, in light of whatever generic
policies we may adopt. Regarding fossil units, the 1997
Settlement would allow them to be transferred to a Central Hudson
affiliate.
__________________________
<FN1> Energy Association v. PSC, 169 Misc. 2d 924 (Sup. Ct.
Alb. Co., November 25, 1996).
<FN2> Case 96-E-0900, Orange and Rockland Utilities, Inc. -
Rate/Restructuring, Opinion No. 97-20 (issued December 31, 1997),
mimeo p. 22; Cases 96-E-0897 et al., Consolidated EdisionCompany
of New York, Inc. - Electric Rate/Restructuring, Opinion No. 97-16
(issued November 3, 1997), mimeo p. 30.
-26-
At our September 17 session, as has been explained, we
declined to approve the 1997 Settlement partly because it did not
require the auction of fossil generation to assure robust
competition and the mitigation of stranded costs to the maximum
extent possible through a market-based evaluation process. As
described above, however, the Amended Settlement meets the
requirements established during the September 17 session, by
including provisions for an auction of fossil generating plants
and related terms.
2. The Incentive to Sell Fossil Units
A number of parties, including DOL, MI, and WEPCO,
object to the provision that Central Hudson retain 5% of the net
proceeds of an auction up to the book value of the asset being
auctioned, even if the asset is disposed of at a loss.<FN1> They
cite the recommended decision in the rate/restructuring
proceeding for Niagara Mohawk <FN2> for the proposition that
there should be no incentive for sales of generation assets below
book value.
The provision that Central Hudson receive a 5% cost
incentive on sales below book value in the event it does not
participate in the auction is intended to encourage the company
to lessen its strandable costs. However, the provision is
objectionable because it might be perceived as an unwarranted
benefit to the company if it incurs a loss on the sale of its
fossil fuel generating assets. Consequently, in the February
order, Central Hudson was authorized to realize an incentive only
if the auction results in a net gain. That incentive is 10% of
the total proceeds above net book value, not to exceed $17.5
million, net of tax.
____________________
<FN1> The aucton incentive provisions apply to the net
proceeds realized from the auction of Danskammer and Roseton
combined and only if Central Hudson does not bid on any of its
fossil generation assets. Thus, the company cannot engage in
"gaming."
<FN2> Cases 94-E-0098 and 94-E-0099, Niagara Mohawk Power
Corporation - Electric Rates/Restructuring, Recommended Decision
(issued December 29, 1997), P. 79.
-27-
3. Timing of the Auction
The Amended Settlement permits Central Hudson to defer
transferring its fossil generation facilities until June 2001 in
order to avoid mortgage defeasance costs that could approach
$20 million.<FN1> IPPNY/Enron contends that this circumstance
alone does not justify delaying the sale of Roseton by Central
Hudson and its co-tenants as an intact, independent unit.
According to IPPNY/Enron, it is likely that such a sale at an
early date would produce sufficient benefits, such as reduced
transaction costs, to more than offset the defeasance costs.
IPPNY/Enron requests that the matter be studied further.
We addressed this general issue in the February order,
concluding that we would not compel Central Hudson to advance the
auction of its generation assets. However, the company is on
notice that we favor such an outcome, if feasible, and that if
market conditions so warrant, we expect Central Hudson to take
the necessary steps to maximize the net proceeds of an auction
while minimizing avoidable generation costs.
4. Nuclear Generation
Here, as in the Niagara Mohawk electric
rate/restructuring proceeding, NYSEG asserts that the proposed
disposition of the company's share of NM2 is incompatible with a
competitive environment. NYSEG argues that the nuclear asset
should be auctioned and not left in an uncertain state or made
part of a statewide nuclear company, as the Amended Settlement
contemplates.
___________________
<FN1> Defeasance would require Central Hudson to provide the
mortgage trustee with marketable assets (such as Treasury bonds
or bills) to produce future cash flows that would match the
timing and amounts of all future payments required on the
company's first mortgage debt.
-28-
As we stated in the Niagara Mohawk case,
[I]t is clear that the disposition of
Nine Mile 2 directly involves the other
utilities and any resolution would
affect each of them. Rather than seek
to resolve such matters here, the
Settlement properly acknowledges the
currently ongoing statewide efforts and
provides a reasonable period for Niagara
Mohawk to submit its own proposal if the
ongoing efforts fail. Moreover, we are
considering divestiture of nuclear
generation in Case 94-E-0952 and we have
no plans to delay that proceeding.<FN1>
Accordingly, NYSEG's proposal is rejected.
5. Auction Procedures
IPPNY/Enron opposes the provision allowing the company
to reject all auction bids. While Central Hudson may reject all
bids, the Amended Settlement bars the company from abusing that
authority to benefit its affiliate, should it participate in the
bidding. Moreover, should Central Hudson exercise the option of
rejecting all bids, its subsequent actions would be closely
scrutinized. Finally, this provision is necessary to give the
company the opportunity to abort the auction process if
circumstances warrant. Accordingly, the exception is denied.
____________________
<FN1> Cases 94-E-0098 and 94-E-0099, supra, Opinion No. 98-8
(issued March 20, 1998), mimeo p. 64.
-29-
Other Corporate Structure and Antitrust Concerns
1. Deferral of Restructuring and Safeguards
The recommended decision preferred that the
1997 Settlement prescribe structural (rather than functional)
separation of Central Hudson's vertically integrated operations,
and establish affiliate transaction rules in more detail and
sooner than proposed. But the recommended decision concluded
that this was not a major flaw, because Opinion No. 96-12
establishes no specific timetable for such measures.
Central Hudson excepted to the intimation that Opinion
No. 96-12 requires corporate restructuring, and Staff excepted on
the ground that structural separation sooner than 2001 would
violate the company's mortgage indenture provisions. IPPNY/Enron
and WEPCO excepted to the recommended decision's acceptance of
merely functional, rather than structural, separation.
IPPNY/Enron and WEPCO excepted also because the Judge would not
recommend that the 1997 Settlement include certain affiliate
transaction limitations proposed by those parties.
The modifications reflected in the Amended Settlement
and the February order adequately resolve the issues raised in
the exceptions concerning the 1997 Settlement, not only by
establishing a process for divestiture of fossil generation but
also by adding terms that govern transactions and financial
arrangements among affiliates. To the extent that parties
dispute the adequacy of these new provisions, their criticisms
are addressed in the following sections.
2. Authorization to Market
IPPNY/Enron and WEPCO object to a provision that would
permit Regco to market energy, capacity, and ancillary services
within and outside its service territory. These parties contend
this provision is antithetical to the basic aim of divestiture,
i.e., open markets. They also object to allowing Regco to
reserve the option, subject to our approval, to secure capacity
or energy from the company's fossil plants up to five years after
the plants are divested.
In view of the fact that our approval is required
before Regco can engage in retail sales within its service
territory or secure such energy or capacity from divested fossil
units, those objections are unwarranted. We contemplate only
that we may grant such approval. As for Central Hudson's
marketing efforts outside of the service territory, such an
outcome has always been contemplated by us, and its ESCO has been
-30-
authorized to do so, subject to our determinations in other
proceedings involving generic issues.
3. Bilateral Contracts
Until Central Hudson auctions its fossil plants, the
Amended Settlement allows the company's generating company
affiliate to enter into bilateral contracts with Regco.
IPPNY/Enron protests that such an arrangement is inconsistent
with the principles of fair competition, and asks that Regco be
required to engage in an "open arms-length bidding process."<FN1>
While the Amended Settlement does provide for bilateral
contracts, such contracts "will be subject to the usually
applicable standards of prudence in purchasing of supply by
Regco."<FN2> In addition, Public Service Law (PSL) subsection 110 will
govern these contracts, thereby minimizing the likelihood of
interaffiliate abuses. Consequently, the bilateral contract
provisions are acceptable.
4. Transition-Related Labor Issues
The Amended Settlement relegates to the collective
bargaining process issues such as employee retraining, out-placement,
severance pay, early retirement, and employee
retention programs. IBEW requests that the Amended Settlement be
further amended to require that (1) parties acquiring the
generation assets be bound by the terms, conditions and
obligations of the collective bargaining agreement, and (2) all
employee-related transition costs be deferred for later
collection by Central Hudson.
________________
<FN1> IPPNY/Enron Comments, p. 4.
<FN2> Amended Settlement, p. 57.
-31-
IBEW's requests are consistent with the settlement in
the Competitive Opportunities proceeding for Orange & Rockland
Utilities, Inc.<FN1> However, that settlement capped total
ratepayer obligations for this item. Here, in contrast, Central
Hudson would negotiate the level of employee-related transition
costs as part of the collective bargaining process. That
approach is acceptable unless ratepayer exposure is excessive.
To preclude such an eventuality, we will retain the authority to
establish the level of costs that may be deferred for future
amortization in rates.
5. Transition Costs
MI objects to the fact that customers would pay two-thirds
of all restructuring costs incurred up to $7.5 million,
and 100% of all costs in excess of that amount. However, this
obligation is limited to the corporate restructuring, and the
amount of the expense is reasonable given the ratepayer benefits
anticipated in the long run.
6. Inter-Affiliate Investment
MI challenges the Amended Settlement's provision that
authorizes up to $100 million of investment by Central Hudson in
its unregulated affiliates without further regulatory review. MI
says this proceeding has not examined how such investment
authority might affect Regco's customers.
MI's criticism is unwarranted. The Amended
Settlement's treatment of investment authority for non-regulated
lines of business is consistent with approvals we previously
granted. Moreover, the subject provision recognizes that, in the
transition to a competitive environment, we need not specifically
review every dollar of investment if the proper checks and
balances are in place to limit unacceptable financial and
operating consequences and abuses. Finally, we note that Central
Hudson's capital structure will not be adversely affected by such
level of investment because it is has a thick common equity ratio
(53%), and because $100 million represents only about 3% of the
existing corporation's assets or 11% of its assets after the
divestiture of fossil generation.
__________________
<FN1> Case 96-E-0900, supra, Opinion No. 97-20 (issued
December 31, 1997).
-32-
In a related issue, MI challenges the provision that
affords Regco discretion to modify its capital structure, on the
ground that the affiliate could substitute more expensive equity
for debt. However, if the company's regulated capital structure,
is not sound or appropriate, we may impute a capital structure.
Moreover, the Amended Settlement requires Regco to maintain a
sound capital structure.
7. Further Corporate Restructuring
PULP objects to a provision in the Amended Settlement
that authorizes Central Hudson to reorganize further without our
prior approval (in contrast to Orange & Rockland and Consolidated
Edison Company of New York, Inc., which must seek such approval).
However, having examined the company's pro forma capital
structure and after reviewing the checks and balances built into
the Amended Settlement (such as the potential for dividend
restrictions), we believe this case is distinguishable from those
and we are satisfied this Settlement provides adequate incentives
for the company to maintain its financial integrity.
Consequently, the additional requirement sought by PULP is
unnecessary.
8. Scope of Affiliate Enterprises
MI objects insofar as the Amended Settlement
contemplates preapproval of ownership of generating facilities,
within New York, but outside Central Hudson's service territory.
This objection is misplaced because Staff's Load Pocket Study
determined that Central Hudson is far from able to exert
horizontal market power. Thus, the challenged provision serves
only to ensure that the Amended Settlement does not handicap
Central Hudson relative to other providers of electricity.
Insofar as there are vertical market power considerations, these
will be addressed in the subsection 70 petition that must be filed if Regco
seeks to lease or acquire generating facilities.
9. Antitrust Immunity
IPPNY/Enron argues that we should withdraw Central
Hudson's state action immunity, leaving the company subject to
the antitrust laws. The recommended decision disagreed with this
proposition on the basis that state action immunity is not a
status to be granted or withdrawn by regulators. Rather, the
Judge said, it represents a judicial doctrine whereby courts
decide whether to exempt a firm from antitrust liability because
-33-
the alleged anti-competitive conduct occurs under regulatory
oversight. He added, however, that if we expressed our
intentions concerning applicability of the antitrust laws to
Central Hudson, a court might take this as some evidence of
whether we were supervising Central Hudson in a manner that would
suffice to confer immunity. Central Hudson excepted, arguing
that the judicial nature of the immunity doctrine precludes us
from addressing the issue.
We resolved this matter in a concurrent competitive
opportunities case, in an opinion issued subsequent to the
exceptions phase in this proceeding. We observed that "[a]s a
matter of law, any activities that are not closely supervised by
us would no longer be protected by state action immunity," and
that the possible applications of that principle have no bearing
on whether particular terms proposed by the parties deserve to be
adopted.<FN1> The same reasoning applies here.
Revenue Allocation and Rate Design
1. Targeted Versus Equal Rate Decreases
Opponents of the 1997 Settlement criticized its
distinctive benefits for the approximately 14 customers that
constitute S.C. No. 13, who would receive 5% discounts and other
retail access options while the remaining customers would get
only a base rate freeze with one possible option (and possible
FAC charges). The recommended decision concluded that the
resulting rate structure is not unreasonably discriminatory or
otherwise objectionable.
DOL said a redistribution of the S.C. No. 13 reductions
to other classes was one of the matters that should be addressed
in a renegotiation of the 1997 Settlement. PULP excepted on the
ground that, to determine whether rates are just and reasonable,
we must examine whether they are affordable.
The exceptions are denied, as the recommended decision
resolved these matters correctly. As discussed above,
S.C. No. 13 customers are large employers with significant
opportunities to relocate jobs and load. Thus we may properly
conclude that rate reductions targeted to S.C. No. 13 will
provide a cost-justified economic benefit to Central Hudson's
service territory. Further, regardless of competition, the fact
___________________
<FN1> Case 96-E-0897, supra, Opinion No. 97-16 (issued
November 3, 1997), mimeo p. 59.
-34-
remains that residential customers as of now are the least price-elastic
and, in Central Hudson's case, a class producing a
relatively lower return than other customer classes. Thus, the
rate structures sought by the excepting parties would be the
least efficient economically, to the detriment of all customers
in the service territory collectively.
As to PULP's argument, affordability is not a legally
mandatory standard, but an element to be considered together with
other relevant facts. In this instance, the Amended Settlement's
beneficial consequences for actual or potential employers in the
service territory are a more rational basis for designing rates
than if the S.C. No. 13 rate reductions were redistributed among
residential customers, resulting in minimal annual savings.
2. MI's Proposed Modifications
The recommended decision endorsed, as an area for
reexamination in any renegotiation of the 1997 Settlement, MI's
proposal that S.C. No. 13 participate in securitization benefits
and job retention rate offerings. Central Hudson and DED
excepted.
The Amended Settlement, as well as the 1997 Settlement,
already afford S.C. No. 13 sufficient benefits. The exceptions
are granted because there is no reason to alter the balance of
benefits among service classifications as MI proposes.
3. NYPA Rates and Tariffs
The recommended decision concluded that, in examining
unbundled rates for Central Hudson in a subsequent proceeding, we
should (1) require the company to file a tariff proposal for EDP
delivery service to NYPA customers, and (2) determine whether the
EDP delivery rate should include strandable costs. Central
Hudson excepted on the ground that we lack jurisdiction to
approve such a tariff. NYPA excepted on the grounds that an EDP
tariff should be filed immediately and that NYPA customers should
share no responsibility for strandable costs. The exceptions are
moot, as these issues have been resolved in a separate decision
where we reviewed tariffs for Central Hudson and other utilities
pursuant to the State's 1997 Power for Jobs legislation.<FN1>
_______________________
<FN1> Case 97-E-1640, Niagra Mohawk Power Corporation - Power
for Jobs Tariffs, and related cases, Order on Power for Jobs
Tariffs (issued March 27, 1998).
-35-
4. PII's Price-Cap-Plus Plan
PII proposed a revenue decoupling plan, called "price
caps plus." The recommended decision rejected it as unnecessary
for encouraging investment in energy efficient plant or demand-
side management measures. PII excepted, and asserted that
rejection of its proposal would necessitate an additional
analysis under the State Environmental Quality Review Act
(SEQRA).
As the recommended decision concluded, market forces
will adequately serve the purposes sought to be achieved through
PII's plan. The exception therefore is denied. The accompanying
Environmental Assessment Form discusses the SEQRA implications
and concludes that this action requires no additional SEQRA
analysis.
Environmental Quality Concerns
1. System Benefits Charge
The recommended decision rejected PII's position that
an SBC should be calculated to produce annual funding equal to
Central Hudson's actual 1995 expenditures of $5.6 million for
analogous activities. PII excepted as to the magnitude of the
SBC. Additionally, PII excepted to the recommended decision's
acceptance of the 1997 Settlement's silence on whether the SBC
will be used partly to continue low-income energy efficiency
programs.
At our September 17 session, we responded to these
concerns directly and indirectly by calling for elimination of
the $3 million annual expenditure by the company for time-differentiated
meters, and reexamination of the level of SBC
expenditures. Accordingly, the Amended Settlement would
eliminate the $3 million metering expense and use the resulting
savings to support an increase in the per-kWh SBC charge to one
mill. We expect this will permit annual SBC program expenditures
of approximately $4.3 million. Consequently, the Amended
Settlement will satisfy objections among some of the 1997
Settlement's opponents, by minimizing any reduction in SBC-type
expenditures from 1995 levels. Moreover, we are acting to assure
that the administrator of the SBC fund devotes adequate resources
to low income programs in territories such as Central Hudson's,
where there are no utility-run low income programs.
In comments on the Amended Settlement, MI objects to the
reallocation of the annual metering
allowance to the SBC fund. MI argues that the $3 million annual
-36-
allowance should be employed to reduce S.C. No. 13 rates further
and/or to provide other direct customer benefits. Such an
action, contends MI, would be consistent with our desire to lower
rates and enhance economic development. MI also objects to a
number of other SBC-related provisions, including the
establishment of a statewide administrator, the allocation to the
SBC of 10% of possible securitization savings, and the provision
for environmental disclosure, among others. Finally, MI objects
to the fact that the SBC will not be separately stated on
customer bills.
PSL Subsection 5(2) directs that we encourage utilities
to carry out long-range programs for the performance of their
public service responsibilities "with economy, efficiency, and
care for the public safety, the preservation of environmental
values and the conservation of natural resources." The
provisions of the SBC to which MI objects are consistent with
that goal during the transition to full competition, as explained
in Opinion No. 96-12. With regard to a separately stated SBC,
that issue will be addressed when rates are unbundled. Until
then, incorporating the SBC into the bundled rate accords with
the prevailing regulatory scheme, and need not be tampered with,
as it sets an SBC for Central Hudson consistent with Opinion
No. 96-12 and comparable to those we have established in other
utilities' rate/restructuring proceedings.
2. Resource Portfolio Requirements
The recommended decision rejected PII's proposal that
the 1997 Settlement be modified to include either higher SBC
funding and environmentally oriented disclosure of generation
sources, or a statewide emissions portfolio standard. PII
excepted.
At our September 17 session, we expressed concern about
the lack of an environmental disclosure requirement under the
1997 Settlement. Accordingly, the Amended Settlement commits
Central Hudson to support the development of a statewide
disclosure program.
FINDINGS UNDER THE STATE
ENVIRONMENTAL QUALITY REVIEW ACT
In conformance with the SEQRA, on May 3, 1996, we
issued a Final Generic Environmental Impact Statement (FGEIS)
which evaluated the action adopted in the generic proceeding
-37-
regarding competitive opportunities for electric service,
Case 94-E-0952. Recognizing that individual utility
restructuring proposals might bring to light new concerns, we
also required each utility to file an environmental assessment of
its restructuring plans. Central Hudson filed an Environmental
Assessment Form (EAF) concerning the 1997 Settlement on June 17,
1997.
On May 13, 1997, PII filed a petition asking that a
Supplemental Environmental Impact Statement be filed on several
proposed settlements, including Central Hudson's. In its
petition, PII raised several substantive issues, some relevant to
Central Hudson's 1997 Settlement, for SEQRA consideration. In a
June 19, 1997 ruling, Chief Administrative Law Judge Gerald L.
Lynch narrowed the issues needing further consideration in the
environmental assessment and invited additional party comments on
Central Hudson's EAF by June 8, 1997. Only MI and PII filed
comments.
As discussed, we reviewed the proposed 1997 Settlement
at our September 17, 1997 session and declined to adopt it. On
January 2, 1998, the company and parties signed the Amended
Settlement. With regard to settlement issues that have potential
environmental consequences, the 1997 Settlement and the Amended
Settlement are identical or similar.
The information provided by Central Hudson in its
June 17, 1997 EAF, the parties' comments, and other information
were evaluated in order to determine whether the potential
impacts resulting from adoption of the Amended Settlement would
be within the bounds and thresholds of the FGEIS adopted in 1996.
Arguably, all of the potential environmental impacts of that
Settlement need not be considered, given that some of them result
from Type II exempt rate actions. Nonetheless, the analysis
examined all areas in which impacts would reasonably be expected.
No impacts were found to be associated with price cap
regulation, the Amended Settlement's treatment of the CTC, or
load pockets. However, increased air pollution may accompany
increased demand for electric energy. It is possible that
increases in energy demand will result from that Settlement's
decrease in rates (0.6% average annual increase in demand over
the 1997-2012 period) and in demand-side management (DSM)
expenditures (0.1% increase in demand). Each of these
incremental growth rates is an upper bound. For example, it is
not clear that all of the rate reductions from the Amended
Settlement should be attributed to restructuring, and the lower
-38-
DSM expenditures do not consider ESCO DSM spending. We believe
that the actual growth rates will be substantially less than the
corresponding rates evaluated in the FGEIS (1% annual incremental
growth from the "high sales" scenario, and 0.29% from the "no
incremental utility DSM" scenario), and that any air quality
impacts will be within the range of those analyzed in the FGEIS.
Because of the inherent uncertainty in forecasting
future impacts, as a matter of discretion, monitoring of Central
Hudson's restructuring and environmental impacts will be
implemented.
Based on these analyses, the potential environmental
impacts of the Amended Settlement are found to be within the
range of thresholds and conditions set forth in the FGEIS.
Therefore, no further SEQRA action is necessary.<FN1>
DISCUSSION AND CONCLUSION
Our assessment of this Settlement reflects not only the
diverse nature of those parties who endorse it, but also the
views of other parties whose comments have been less favorable.
The salient features upon which we focus are the rate plan, the
impact on competition, and the amelioration of environmental
concerns.
The rate plan is intended to promote jobs and economic
development by reducing rates for large industrial customers to a
level approaching the national average. At the same time other
customers, who have had their rates frozen since December 1993,
will see a continuing rate freeze through June 30, 2001. As we
noted, had we apportioned the revenue reduction equally among all
classes, customers other than large industrial customers would
have realized a minimal gain, while the laudatory goal of
promoting job growth and economic development would have been
abandoned.
The Amended Settlement will promote fair and effective
competition, to the benefit of competitors and the public at
large, while preserving the regulated utility's financial
integrity, protecting customers from having to support excessive
earnings or bear risks associated with Central Hudson's
unregulated affiliates, and providing continued incentives for
efficient management and reliable utility service. Furthermore,
______________________
<FN1> The Environmental Assessment Form (EAF) is attached as
Appendix D.
-39-
a reasonable segment of Central Hudson's customers will be able
to avail themselves of retail access in the near future and it
will be available to all by June, 2001. Moreover, the company
has agreed to divest by auction all of its fossil generating
assets. This should further contribute to the development of a
robust, competitive electric generation market. The company's
unbundling plan, as well as the auction plan, will be subject to
our approval, and we will ensure that market power concerns are
mitigated. These elements of the Amended Settlement, together
with the development of a competitive electric market will,
therefore, produce just and reasonable rates that we expect will
be lower than they would be otherwise.
Finally, we are satisfied the funding of an SBC and the
additional environmental protections agreed to by Central Hudson
adequately protect our environment.
For the reasons stated, Central Hudson and the
supporting parties have demonstrated that the electric
rate/restructuring proposals will ensure safe and adequate
service at just and reasonable rates, as required by law, and
that the Amended Settlement, as modified and conditioned,
satisfies the objectives of Opinion No. 96-12 and our Settlement
Guidelines. We therefore adopt the terms of the Amended
Settlement, as modified and conditioned, and reaffirm our order
of February 19, 1998 and our view that the development of a
competitive market will produce further consumer benefits.
The Commission orders:
1. Ordering clauses one through eight contained in the
Order Adopting Terms of Settlement Subject to Modifications and
Conditions (issued in this proceeding February 19, 1998) are
adopted in their entirety and are incorporated as part of this
opinion and order.
2. This proceeding is continued.
By the Commission,
(SGD.)JOHN C. CRARY
JOHN C. CRARY
Secretary
-40-
APPENDIX A
CASE 96-E-0909
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
GLOSSARY
Central Hudson - Central Hudson Gas & Electric Corporation
CNG - CNG Energy Service Corporation
Con Edison - Consolidated Edison Company of New York, Inc.
CPB - New York State Consumer Protection Board
CTC - Competitive Transition Charge
DED - New York State Department of Economic Development
DOL - New York State Department of Law
DSM - demand-side management
EDP - Economic Development Power
Enron - Enron Capital & Trade Resources
ESCO - energy service company
EVOP - Energy Value Option Plan
FAC - fuel adjustment clause
Guidelines - Settlement Guidelines
IBEW - Locals 310 and 2218 of International Brotherhood of
Electrical Workers
IPPNY - Independent Power Producers of New York, Inc.
ISO - Independent System Operator
kWh - kilowatt-hour
MBIS - metering, billing, and information services
MI - Multiple Intervenors
Niagara Mohawk - Niagara Mohawk Power Corporation
NM2 - Nine Mile Point No. 2
NYPA - New York Power Authority
NYSEG - New York State Electric & Gas Corporation
PII - Public Interest Intervenors
PSL - Public Service Law
PULP - Public Utility Law Project of New York, Inc.
R.D. - recommended decision
Regco - Central Hudson's regulated affiliate
Retail Council - Retail Council of New York
SBC - system benefits charge
S.C. - Service Classification
SEQRA - State Environmental Quality Review Act
Staff - New York State Department of Public Service staff
T&D - transmission and distribution
WEPCO - Wheeled Electric Power Company
-41-
APPENDIX B
PAGE 1 OF 3
APPEARANCES
FOR DEPARTMENT OF PUBLIC SERVICE STAFF:
John L. Grow, Esq., Three Empire State Plaza, Albany,
New York 12223-1350.
FOR CENTRAL HUDSON GAS & ELECTRIC CORPORATION:
Gould & Wilkie (by Robert J. Glasser, Robert T.
Barnard, and Eric O. Costello, Esqs.), One Chase
Manhattan Plaza, 58th Floor, New York, New York
10005-1401.
FOR CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.:
Sara Schoenwetter, Esq., 4 Irving Place, New York, New
York 10003-3589.
FOR ENERGY ENTERPRISES, INC.:
George H. Dall, Jr., 3401 Rochester Road, P.O. Box 687,
Lakeville, New York 14480.
FOR INDEPENDENT POWER PRODUCERS OF NEW YORK, INC. and ENRON
CAPITAL & TRADE RESOURCES:
Read & Laniado (by Craig M. Indyke and Kevin R. Brocks,
Esqs.), 25 Eagle Street, Albany , New York 12207-1901.
FOR MULTIPLE INTERVENORS, INC.:
Couch, White, Brenner, Howard & Feigenbaum (by Barbara
S. Brenner, Robert M. Loughney, and Julia Smead
Bielawski, Esqs.), 540 Broadway, P.O. Box 22222,
Albany, New York 12201-2222.
APPENDIX B
PAGE 2 OF 3
APPEARANCES
FOR NEW ENERGY VENTURES, INC. and ENTEK POWER SERVICES, INC.:
Cohen, Dax & Koenig (by Jeffrey C. Cohen and Richard B.
Miller, Esqs.), 90 State Street, Albany, New York
12207.
FOR NEW YORK POWER AUTHORITY:
Charles M. Pratt and Eric J. Schmaler, Esqs., 1633
Broadway, New York, New York 10019.
FOR NEW YORK STATE CONSUMER PROTECTION BOARD:
Anne F. Curtin, Esq., 5 Empire State Plaza, Suite 2101,
Albany, New York 12223-1556.
FOR NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT:
Gloria Kavanah, One Commerce Plaza, Albany, New York
12245.
FOR NEW YORK STATE DEPARTMENT OF LAW:
Dennis C. Vacco, Attorney General (by Charlie Donaldson
and Richard W. Golden, Esqs.), 120 Broadway, New York,
New York 10271.
FOR NEW YORK STATE ELECTRIC & GAS CORPORATION:
Huber Lawrence & Abell (by Andrew W. Fisher, Esq.), 605
Third Avenue, New York, New York 10158.
FOR PUBLIC INTEREST INTERVENORS:
Pace Energy Project, Pace University School of Law (by
David Wooley and Mollie Lampi, Esqs.), 122 South Swan
Street, Albany, New York 12210.
APPENDIX B
PAGE 3 OF 3
APPEARANCES
FOR PUBLIC UTILITY LAW PROJECT OF NEW YORK:
B. Robert Piller, Gerald Norlander, and Charles J.
Brennan, Esqs., 90 State Street, Albany, New
York 12207.
FOR RE3SCO RESTRUCTURING COALITION:
Michael D. Arny, 1526 Chandler Street, Madison,
Wisconsin 53711
FOR RETAIL COUNCIL OF NEW YORK:
Cohen, Dax & Koenig (by Paul C. Rapp, Esq.), 90 State
Street, Albany, New York 12207.
FOR WHEELED ELECTRIC POWER COMPANY:
Joel Blau, Esq., 32 Windsor Court, Delmar, New York
12054.
<PAGE>
APPENDIX C
<PAGE>
617.20 APPENDIX D
State Environmental Quality Review
ENVIRONMENTAL ASSESSMENT FORM
PROJECT INFORMATION
1. APPLICANT/SPONSOR: Central Hudson Gas & Electric Corporation
(CHG&E)
2. PROJECT NAME: Elect.Rate/Restructuring - Case 96-E-0909
3. PROJECT LOCATION: CHG&E Service Territory
Municipality NA County NA
4. PRECISE LOCATION: (Street address and road intersections,
prominent landmarks, etc., or provide map)
NA
5. PROPOSED ACTION IS:
New Expansion (X) Modification/alteration
6. DESCRIBE PROJECT BRIEFLY: Case 96-E-0909 - In the matter of
competitive opportunities regarding electric service, filed
in Case 93-M-0229; Plans for electric rate/restructuring
pursuant to Opinion No. 96-12; and the formation of a holding
company pursuant to PSL, subsections 70, 108 and 110, and certain
related transactions -- Environmental Assessment Form.
7. AMOUNT OF LAND AFFECTED: NA
Initially________acres Ultimately_________acres
8. WILL PROPOSED ACTION COMPLY WITH EXISTING ZONING OR OTHER
EXISTING LAND USE RESTRICTIONS?
NA
Yes No If No, describe briefly
9. WHAT IS PRESENT LAND USE IN VICINITY OF PROJECT?
NA
Residential Industrial Commercial Agricultural
Park/Forest/Open space Other
Describe:
10. DOES ACTION INVOLVE A PERMIT APPROVAL, OR FUNDING, NOW OR
ULTIMATELY FROM ANY OTHER GOVERNMENTAL AGENCY (FEDERAL, STATE
OR LOCAL)?
Yes No If yes, list agency(s) name and
permit/approvals:
NYS Public Service Commission
11. DOES ANY ASPECT OF THE ACTION HAVE A CURRENTLY VALID PERMIT
OR APPROVAL?
Yes No If yes, list agency(s) name and
permit/approval
Stationary sources owned and operated by CHG&E have valid,
approved certificates to operate.
12. AS A RESULT OF PROPOSED ACTION WILL EXISTING PERMIT/APPROVAL
REQUIRE MODIFICATION? NA
Yes No
I CERTIFY THAT THE INFORMATION PROVIDED ABOVE IS TRUE TO THE BEST
OF MY KNOWLEDGE
Agency: NYS Department of Public Service
Date: February 9, 1998
Signature:
APPENDIX D
PART II-ENVIRONMENTAL ASSESSMENT
A. DOES ACTION EXCEED ANY TYPE 1 THRESHOLD IN 6 NYCRR, PART
617.4?
If yes, coordinate the review process and use the FULL EAF.
Yes (X) No
B. WILL ACTION RECEIVE COORDINATED REVIEW AS PROVIDED FOR
UNLISTED ACTIONS IN 6 NYCRR, PART 617.6? If No, a negative
declaration may be superseded by another involved agency.
NA
Yes No
C. COULD ACTION RESULT IN ANY ADVERSE EFFECTS ASSOCIATED WITH THE
FOLLOWING: (Answers may be handwritten, if legible.)
C1. Existing air quality, surface or groundwater quality or
quantity, noise levels, existing traffic patterns,
solid waste production or disposal, potential for
erosion, drainage or flooding problems? Explain
briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C2. Aesthetic, agricultural, archaeological, historic, or
other natural or cultural resources; or community or
neighborhood character? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C3. Vegetation or fauna, fish, shellfish or wildlife
species, significant habitats, or threatened or
endangered species? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C4. A community's existing plans or goals as officially
adopted, or a change in use or intensity of use of land
or other natural resources? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C5. Growth, subsequent development, or related activities
likely to be induced by the proposed action? Explain
briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C6. Long term, short term, cumulative, or other effects not
identified in C1-C5? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C7. Other impacts (including changes in use of either
quantity or type of energy)? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
D. WILL THE PROJECT HAVE AN IMPACT ON THE ENVIRONMENTAL
CHARACTERISTICS THAT CAUSED THE ESTABLISHMENT OF A CRITICAL
ENVIRONMENTAL AREA (CEA)? Yes (x) No If Yes,
explain briefly:
E. IS THERE, OR IS THERE LIKELY TO BE, CONTROVERSY RELATED TO
POTENTIAL ADVERSE ENVIRONMENTAL IMPACTS?
Yes (X) No If Yes, explain briefly:
<PAGE>
Part III - DETERMINATION OF SIGNIFICANCE (To be completed by
Agency)
See the attached Environmental Assessment Form Narrative.
Staff recommends that the Final Generic Environmental Impact
Statement (FGEIS) issued on May 3, 1996 (Case 94-E-0952), with
respect to the proposed action of adopting a policy supporting
increased competition in electric markets be extended in
applicability, without modification or supplementation, to the
approval of Central Hudson Gas & Electric Corporation (The
Corporation) Agreement and Settlement on the grounds that the
significance of the proposal's anticipated environmental
impacts will not exceed the threshold values examined in the
FGEIS. Consequently, no further State Environmental Quality
Review Act (SEQRA) action is necessary in approving the
Proposal.
Staff further recommends that a monitoring program be
instituted to provide a record of changes resulting from the
restructuring plan's implementation to enable confirmation
and/or exposition of unexpected outcomes and their
significance, and to assure that specific mitigation measures
are implemented as needed.
NYS Department of Public Service February 9, 1998
Name of Lead Agency Date
John H. Smolinsky
Print or Type Name of Responsible Officer in Lead Agency
Chief, Environmental Compliance and Operations
Title of Responsible Officer
_______________________________________________
Signature of Responsible Officer in Lead Agency
____________________________________________________________
Signature of Preparer(If different from responsible officer)
<PAGE>
ENVIRONMENTAL ASSESSMENT FORM NARRATIVE
I. BACKGROUND
On May 3, 1996, the Commission issued a Final Generic
Environmental Impact Statement (FGEIS) in the Competitive
Opportunities proceeding which addressed the environmental
impacts of a policy supporting increased competition in electric
markets and alternative approaches to achieving electric
competition, including a no-action alternative.
In Opinion No. 96-12<FN1> issued May 20, 1996, the
Commission set forth its findings with respect to the FGEIS
(pp. 76-81). The Commission determined that the likely
environmental effects of a shift to a more competitive market for
electricity are not fully predictable but that:
In general, the proposed action will
have environmental impacts that are
modest or not distinguishable from those
of alternative actions, including the
no-action alternative... Apart from the
areas of substantial concern noted
below, the FGEIS did not identify
reasonably likely significant adverse
impacts.
With respect to air quality impacts
related to oxides of nitrogen and
sulfur, it appears likely that the
retail or wholesale electric market
structures would have greater impacts
than the no action alternative. It
appears likely that, in the absence of
mitigation measures, research and
development in environmental and
renewables areas would lose funding if
competitive restructuring moves forward.
In addition, there would like be a
decrease in the amount of cost-effective
_______________________
<FN1> Cases 94-E-0952, et al., Competitive Opportunities
proceeding, Opinion No. 96-12 (issued May 20, 1996).
energy efficiency during any transition
to wholesale or retail competition.
In order to address the adverse
environmental effects identified above
on air quality, energy efficiency, and
research and development, several
mitigation measures will be employed as
necessary. First, a system benefits
charge will be used as appropriate to
fund DSM and research and development in
environmental and renewable resource
areas during the transition to
competition. Second, the competitive
restructuring will be monitored closely
to ensure that specific mitigation
measures are implemented if needed.
Finally, the Commission will support and
assist efforts by New York State and
federal agencies to ensure that adverse
environmental impacts to the state's air
quality from upwind sources of air
contamination do not occur as a result
of the movement toward competition.
Notwithstanding the mitigation measures
identified, the proposed action to
restructure the electric industry may
result in an unavoidable adverse
environmental importance to air quality
related to oxides of nitrogen and
sulfur, loss of some DSM activity, loss
of some research and development funding
in the environmental and renewables
areas, and displacement of workers and
local economic loss where plants are
closed. Nevertheless, weighing and
balancing these likely environmental
effects of the shift to competition in
the electric industry in New York with
social, economic, and other essential
considerations, leads to the conclusion
that implementing the proposed action
toward greater competition is desirable.
-2-
The Commission also recognized that individual utility
proposals might bring to light new concerns. In Opinion
No. 96-12,<FN1> and as further clarified in Opinion No. 96-17,<FN2>
it required each utility to file with its restructuring
plans an Environmental Assessment Form and a recommendation on
further environmental review. The information to be provided was
expected to assist the Commission in determining the need for
additional mitigation measures with respect to company
restructuring.
On June 17, 1997, Central Hudson submitted its
Environmental Assessment Form (EAF) and State Environmental
Quality Review Act (SEQRA) recommendation in connection with the
Agreement and Settlement dated March 20, 1997, in Case 96-E-0909.
Parties filed comments on the EAF on July 8, 1997 and responses
to party comments on July 15, 1997.
Staff reviewed the company's EAF and prepared a Staff
EAF based on the March 20, 1997 proposed settlement. The
Commission considered and rejected the March 20 settlement at its
session of September 17, 1997. The company, Staff and interested
parties subsequently negotiated a revised settlement (January 2,
1998) intended to address deficiencies in the March 20
settlement. The following document is a revised EAF prepared by
Staff which addresses the January 2 revised settlement.
______________________
<FN1> Ibid, p. 78, n. 1.
<FN2> Cases 94-E-0952, et al., Competitive Opportunities
Proceeding Rehearing Petitions, Opinion No. 96-17 (issued October
24, 1996).
-3-
<PAGE>
SEQRA and Commission Approval of the Central Hudson
Restructuring Plan - Options Before the Commission
The FGEIS issued by the Commission in conformance with
SEQRA in Case 94-E-0952, et al. addressed the following proposed
action:
adoption of a policy supporting increased
competition in electric markets, including a
preferred method to achieve electric competition;
and regulatory and ratemaking practices that will
assist in the transition to a more competitive and
efficient electric industry, while maintaining
safety, environmental, affordability, and service
quality goals.<FN1>
Commission approval of Central Hudson's proposed
restructuring plan constitutes a "subsequent proposed action."
SEQRA requirements with respect to this "subsequent proposed
action" allow the Commission to pursue one of the four following
options:
1. No further State Environmental Quality Review
(SEQRA) compliance is required if a subsequent
proposed action will be carried out in conformance
with the conditions and thresholds established for
such actions in the generic Environmental Impact
Statement (EIS) or its findings statement;
2. An amended findings statement must be prepared if
the subsequent proposed action was adequately
addressed in the generic EIS but was not addressed
or was not adequately addressed in the findings
statement for the generic EIS;
3. A negative declaration must be prepared if a
subsequent proposed action was not addressed or was
not adequately addressed in the generic EIS and the
subsequent action will not result in any
significant environmental impacts; and
___________________
<FN1> Cases 94-E-0952, et al., Competitive Opportunities
Proceeding, Opinion No. 96-12 (issued May 20, 1996), p. 76.
-4-
4. A supplement to the final generic EIS must be
prepared if the subsequent proposed action was not
addressed or was not adequately addressed in the
generic EIS and the subsequent action may have one
or more significant adverse environmental
impacts.<FN1>
The following environmental assessment will assist in
choosing the appropriate option. The assessment is based on
Central Hudson's EAF, party comments submitted in response to
Administrative Law Judge Lynch's June 19, 1997 ruling, and on
additional analysis by Department Staff. The Assessment consists
of:
- Section II, Central Hudson's Settlement Agreement on
Restructuring;
- Section III, The Company's EAF;
- Section IV, Party Comments on the Central Hudson EAF;
- Section V, Staff's Analysis;
- Section VI, Mitigation of Impacts - Monitoring; and
- Section VII, Conclusions.
II. Central Hudson's Settlement Agreement on Restructuring
Central Hudson has a service territory of approximately
2,600 square miles and 260,000 customers. The company owns the
Danskammer (coal/oil/gas) steam electric plant and owns portions
of the Roseton (oil/gas) and Nine Mile 2 (nuclear) plants for a
total of 1028 MW of baseload generation. In addition, it owns
88 MW of hydro and combustion turbine generation and has
contracts for almost 20 MW of IPP power.
_______________________
<FN1> 6 NYCRR Part 617.10 (d).
-5-
The company's electric price is the lowest in the State
(about 27% below the average of the other New York investor owned
electric utilities) but was about 25% above the national average
price in 1995. This was a substantial improvement over 1985,
when the company's price was 51% above the national average. The
company's prices have been adversely affected by a decline in
sales during recent years to the major industrial customer in the
territory and a related local economic downturn.
The company has two potential load pockets in
predominantly rural areas. During the periods of peak load,
unplanned outages of key transmission lines or substation
equipment could make these areas dependent on the operation of
specific company owned generation to avoid outages. Since these
circumstances are expected to be infrequent and of short
duration, the company does not consider the load pockets to be a
significant problem.
On March 20, 1997, the company, Staff and other parties
in Case 96-E-0909 entered into a settlement agreement to
facilitate Central Hudson's transition to a more competitive
electric industry. The agreement, if approved by the Commission,
would remain in effect until June 30, 2001, and would provide
$10 million in annual benefits to customers in the form of rate
reductions or funding for retail access. The company's Return on
Equity would be capped at 10.6% with any earnings in excess of
that level reserved for paying down stranded costs. On July 1,
1997, Administrative Law Judge Rafael A. Epstein filed a
recommended decision in Case 96-E-0909, which concluded that the
proposed settlement does not adequately serve the policy
objectives adopted in Opinion No. 96-12.<FN1> The judge
recommended that the parties negotiate a better agreement. At
its session of September 17, the Commission rejected the proposed
settlement and requested that the parties renegotiate the
restructuring agreement.
Staff, the company and many of the parties signed a
revised proposed settlement on January 2. The differences
between the original and revised settlement are primarily in
areas that have little impact on environmental impacts. The
Staff environmental analysis in Section V has been updated to
reflect the revised settlement proposal.
<FN1> Case 96-E-0909, Recommended Decision, July 1, 1997, p.
60.
-6-
An important feature of the proposed agreement is the
Competitive Transition Charge or CTC. This charge is intended to
recover all non-fuel costs which a customer might avoid by
participating in retail access options (summarized below) during
the transition period. Different retail access options are
available to different customer groups and not all customers
would pay the full CTC. In some cases a portion of the CTC would
be funded from the $10 million per year customer benefit fund
established by the agreement.
Under the proposed rate plan, large industrial
customers (SC-13) would have the option of electing full retail
access (energy and capacity) for up to 100% of load. A full
Competitive Transition Charge (CTC) would be applied to retail
access purchases.
Alternatively, SC-13 customers could opt to enter into
a full or partial requirements contract with Central Hudson, with
one year cancellation right, and choose from the following
options:
- an immediate 5% rate reduction; or
- a 5% rate reduction and retail access for energy
under the Energy Value Option Plan (EVOP); or
- no rate reduction, but ability to find an alternate
supplier for energy and capacity equivalent to
about 12%-18% of load. Funds allotted for rate
decrease would fund 50% of the CTC and the customer
would pay the other half.
Residential and small commercial/industrial customers
would receive base electric rates frozen at current levels, but
would have increasing options to participate in retail access
over the life of the agreement.
- Stage 1 - By October 1997, Dairylea and other
customers qualifying under a multi-utility pilot
program (as approved by the Commission in Cases
96-E-0948 and 94-E-0385) would be eligible for
retail access. Stage 1 retail access transactions
would be subject to a 90% CTC.
-7-
- Stage 2 - By mid-1998, retail access would be
offered to residential customers, as well as small
industrial and commercial customers. In the
initial year, participation would be capped at 8%
of each group's load. This load limit would be
increased by 8 percentage points each year until
July 1, 2001, when all penetration restrictions
would be removed. Stage 2 retail access
transactions would be subject to a 50% CTC through
July 1, 2001.
Under the settlement, the company is obligated to
auction off its fossil generating units, but may retain
combustion turbine and hydroelectric facilities and its interest
in the Nine Mile Point nuclear facility as part of the regulated
utility. The settlement allows the company's GENCO or an
affiliate to submit a bid on the fossil generating units.
The settlement ties the timing of the auction to the
implementation of an operationally independent system operator
and to Commission review of a detailed auction plan - so the
earliest likely date for the auction cannot be determined at this
time. However, the company is obligated to make every effort to
complete the transfer of the facilities by July 1, 2001.
There would be no disallowance of stranded costs at
this time. The company would have a reasonable opportunity to
recover all prudently incurred, verifiable and appropriately
mitigated stranded costs through a non-bypassable wires charge
after the end of the settlement agreement in 2001.
Expanded economic growth and job retention provisions
would be included in tariffs and a new Customer Service Incentive
Plan would be developed. No specific provisions are made for
continuation of Demand Side Management programs in the January 2
agreement. The settlement provides for a System Benefits Charge
(SBC) funded at one mill/kWh.
III. The Company's EAF
On June 17, 1997, the company submitted an (EAF) which
addressed the likely environmental impacts of the proposed
restructuring plan.
-8-
The company asserts that the restructuring plan is
unlikely to result in the operation of cheaper inefficient plants
with higher emissions rates. The company states that the
agreement will not result in large purchases of out-of-state
power.
The EAF observes that the FGEIS showed that emissions
might increase if nuclear plants were retired, gas fired NUGs
were placed on economic dispatch or significant economic growth
led to increased electricity sales. According to the company,
the proposed revised settlement agreement does not require
shutting down nuclear plants or "economic dispatch" of NUGs and
is likely to have only an insignificant impact on the statewide
economy and is thus unlikely to have a significant effect on the
environment.
The company states that fuel purchases in the future
will be determined largely by unforeseeable changes in price.
The EAF asserts that the restructuring agreement will not affect
its fuel purchases or the environmental impacts of burning
different types of fuels.
According to the company, the restructuring plan does
not require the retirement of the company's Roseton or Danskammer
plants and the company has no plans to construct new plants or
transmission lines. If additional power plants or transmission
lines were proposed for construction as a result of deregulation,
those facilities would be subject to state environmental review
and the seriousness of any environmental impacts would be
assessed and mitigated as part of the permitting process.
The company states that it will continue to perform
some T&D related research and development activities. Other
research and development, demand side management and investment
in renewables may be funded by a system benefits charge which is
being considered by the Commission in a separate proceeding.
In conclusion, the company states that the settlement
agreement would not result in "any substantial modification of or
additions to" or any substantial change in the operation of
Central Hudson facilities, and that therefore, incremental
environmental impacts associated with these facilities are not
expected to occur or would be minimal. For this reason there
would be no adverse environmental impacts in excess of those
contemplated in the FGEIS. Accordingly, the company believes no
further environmental impact assessment is necessary.
-9-
IV. Party Comments on the Central Hudson EAF
Parties to Case 96-E-0909 were invited to file comments
on the Central Hudson EAF by July 8, 1997. Only Multiple
Intervenors (MI) and the Public Interest Intervenors (PII) filed
comments. Subsequently, on July 15, PII filed responses to the
MI comments and MI and Central Hudson filed responses to the PII
comments.
The MI comments supported the findings of the Central
Hudson EAF that there was no need for the filing of a
Supplemental Environmental Impact Statement (SEIS) on the
proposed restructuring agreement. However, in its Case 96-E-0909
comments, PII argued that an SEIS was required for the following
reasons.
A) "The system benefits charge [SBC] proposed in the
settlement agreement is well below the thresholds
and conditions established in the FGEIS and
warrants additional environmental scrutiny."
PII notes that the FGEIS considered using a system
benefits charge (which would pay for certain energy efficiency,
low income and R&D activities not likely to be undertaken by a
deregulated utility) as means of mitigating some environmental
impacts. It asserts that the Commission made a decision in
Opinion 96-12 that the SBC should be funded at approximately the
current levels of DSM activity.
B) "Providing retail choice without environmental
disclosure will have serious environmental
repercussions that should be examined."
PII argues that many customers would choose to pay
more for power from less polluting sources if reliable
information on the source of power provided by various suppliers
were available to consumers. It advocates a mandatory procedure
for disclosing the source of power provided by ESCOs and GENCOs
and argues that the settlement's failure to require such
disclosure is of sufficient potential importance to require an
SEIS.
C) "Environmental Impacts associated with a price cap
form of regulation for the T&D company must be
evaluated."
-10-
PII notes that although the proposed agreement
provides for transition to deregulation of generation, T&D
services would remain under a traditional price cap form of
regulation with a freeze in rates for the period of the
agreement. PII argues that price cap regulation contains
inherent incentives for a utility to increase sales and inflate
rate base, that T&D regulatory structure is not exempt from SEQRA
review, and that the Commission is therefore required to order an
SEIS on the subject of price cap regulation.
D) "Failure to expose Central Hudson's Fossil
Generating Units to full market risk requires
environmental review."
The proposed March 20 settlement included a
provision for a Competitive Transition Charge (CTC) which would
allow the company to recover the "going forward" costs of its
steam electric plants. This charge, which would be recovered
through energy, capacity or customer charges, would cover
generating facility costs, such as labor, routine maintenance,
and property taxes, which are not variable in the short term but
which could be avoided in the long term by shutting the plant
down. PII argues that by providing a mechanism for the recovery
of these costs, the agreement would subsidize the operation of
the company's plants, give the company an unfair price advantage
when bidding energy sales to an ISO and result in those plants
operating more than is economically efficient. Environmental
impacts would ensue if the Central Hudson plants were run in lieu
of other plants which are both more economically efficient and
more environmentally benign.
V. Staff Analysis
The FGEIS covered the significant generic issues
connected with restructuring at considerable length. The
following analysis will not recapitulate the material in the
FGEIS, nor will the analysis repeat the material adequately
covered in the company's EAF and summarized in Section III of
this memorandum. This analysis will deal with issues identified
by Staff or by PII comments on the Central Hudson EAF where it is
reasonable to anticipate that unique features of the company's
-11-
service territory or restructuring plan might result in
environmental impacts not considered in the FGEIS or in excess of
thresholds identified in the FGEIS.
A. Effects of Restructuring on Overall Level of
Electric Sales in Central Hudson's Service
Territory
A key determinant of the incremental environmental
impacts of restructuring the electric industry in New York is the
effect of restructuring on the overall level of electric sales.
This section of the EAF will address whether any likely effect of
the Central Hudson restructuring plan would cause sales growth
(and therefore air quality or other impacts) in excess of the
levels contemplated in the Final Generic Environmental Impact
Statement (FGEIS).
There appear to be three plausible ways in which
restructuring could have significant impacts on electric sales.
1. Price Elasticity Effects.
If electric prices drop--as a result of utility
rate reductions incorporated in restructuring agreements and/or
as a result of competition among the utility and alternative
suppliers--customers may make the economic decision to consume
more electricity. This is a price elasticity effect. The FGEIS
analysis included the preparation of a statewide "high sales"
scenario which estimated the likely upper bound of sales
increases that would result from credible decreases in electric
prices, given the best information then available to Staff
economists. The scenario assumed that under the high sales
assumptions used in the analysis, the compounding statewide
electric sales growth would be about 2.2% per year.
This scenario was compared to a FGEIS base case
"evolving regulatory model" scenario. The base case assumed
statewide sales growth of 1.2%.<FN1> Thus, the additional
_____________________
<FN1> The 1994 Power Pool "Load and Capacity Data" (yellow
book) was the source of the pre-restructuring statewide growth
forecast used in the FGEIS. Although the FGEIS did not examine
specific growth, the company forecasts are available in the
yellow book. For Central Hudson the growth forecast was about
1.3%.
-12-
incremental statewide sales growth likely to result from the high
sales scenario compared to the no action base case was estimated
as about 1.0% a year.<FN1>
PROMOD simulation of comparative plant
dispatching under these scenarios showed that compared to the
evolving regulatory model, the high sales model would result in
an incremental 2.9% increase in SO2 emissions, a 5.5% increase in
NOx and a 12% increase in CO2 by 2012. The Commission determined
that, although the FGEIS showed the possibility of detrimental
incremental air quality impacts "consistent with the social,
economic and other considerations, from among the reasonable
alternatives available," the Commission's restructuring policy
"avoids or minimizes adverse environmental impacts to the maximum
extent possible."<FN2>
Recently, Staff of the Office of Regulatory
Economics (ORE) estimated the expected sales growth under a
competitive environment using updated data for many variables.
ORE's forecast shows that Central Hudson's sales growth under the
proposed settlement is likely to be about the same as the
evolving regulatory model sales growth, much less than the 1%
statewide incremental growth assumed for the "high sales
scenario" in the FGEIS. An analysis of the price elasticity of
demand (Appendix A) using the current settlement rate reductions
predicts an annual average incremental sales growth of 0.1%
(essentially the same as the ORE forecast). The ORE forecast
shows that even with higher rate reductions, Central Hudson's
____________________
<FN1> To provide a sense of scale, NYPP retail sales for 1996
were about 110,628 GWH and Central Hudson were 4,250 GWH. Under
the FGEIS comparative scenarios, a 1.0% per year incremental
growth rate would result in additional statewide sales of about
1,106 GWH in 1997 due to price elasticity and pro rata additoinal
Central Hudson sales of 43 GWH in 1997.
<FN2> Case 94-E-0952, et. al., In the Matter of Competitive
Opportunities Regarding Electric Service, Opinion and Order 96-12
(issued May 20, 1996). p. 81.
-13-
incremental growth would be about 0.6% per year at most. The
elasticity analysis also predicts about 0.6% sales growth if the
residential/commercial rate reduction is increased to 10%. In
fact, there may be somewhat less potential for electric price
reductions in Central Hudson's territory than in other New York
utility territories due to the company's recent pre-restructuring
price reductions. Central Hudson's growth in sales (and any
associated increase in air emissions) will be less than the
threshold considered in the FGEIS.
2. Price Cap Regulation of the T&D Utility
This is not an issue for Central Hudson; while
some other New York utilities have been subject to Revenue
Decoupling Mechanisms in most aspects, Central Hudson has been
continuously subject to a conventional rate of return regulation.
Regardless of concerns about the incentives which may be embedded
in this form of regulation, the continuation of traditional price
cap regulation for the Central Hudson T&D activities does not
constitute a policy change which might require SEQRA analysis.
The one respect in which Central Hudson has not
been subject to conventional price cap regulation is the
treatment of net lost revenues attributable to DSM programs. For
several years, the company was allowed to submit program
evaluation evidence documenting the sales loss attributable to
DSM energy efficiency programs and place these costs in a
deferral account for later collection. The proposed settlement
would abolish this true up mechanism. Since this mechanism is
limited to recovery of revenues lost due to DSM programs, its
discontinuation could affect the company's incentives to
undertake DSM programs, but would not have any incremental
effects on other postulated incentives to sell more electricity,
or build uneconomic transmission.
The following section provides an analysis of
the potential sales effects of decreased Central Hudson
expenditures on energy efficiency programs.
3. Lower Energy Efficiency Effect
For all New York utilities, including Central
Hudson, the levels of DSM expenditures and energy savings have
declined drastically in recent years. Central Hudson's DSM
expenditures peaked at $8.2 million in 1991 and its incremental
annual DSM energy savings peaked at 37.8 GWH in 1992. By 1996,
its DSM budget had declined to only $1.8 million and its DSM
-14-
incremental energy savings goal had declined to only 7 GWH.<FN1>
The proposed settlement does not include specific provisions for
the continuation of the company's own DSM programs (as distinct
from SBC energy efficiency programs).
It seems reasonable to consider the possibility
that competition related DSM budget reductions, or regulatory
changes which eliminate or modify incentive or cost recovery
mechanisms, could further reduce or eliminate utility DSM
activities. This would result in incremental increases in
electric sales beyond the base case, and associated environmental
impacts.
The FGEIS base case "evolving regulatory model"
scenario included annual incremental Central Hudson DSM energy
savings of 7 GWH for the years 1997 and beyond (the 7 GWH figure
was the company's 1996 Commission-approved DSM goal). If Central
Hudson's rate of DSM achievements is decreased from the levels
assumed in the evolving regulatory scenario to those in the
proposed settlement, the average annual incremental increase in
demand (over the 1997-2012 modeling period used in the FGEIS)
would be about 0.1%. As a consequence, modeling indicates
Central Hudson's cumulative in-state 1997-2012 emissions would be
0.1% higher for SO2, 0.3% higher for NOx and 0.9% higher for CO2
than the company's emissions in the evolving regulatory scenario.
In the FGEIS, Staff estimated the statewide sales and
environmental impacts of halting all DSM activities. The
incremental sales growth associated with the "No incremental
utility DSM" scenario is about 0.32% per year over the 1997-2012
modeling period.
4. System Benefits Charge
In Opinion 96-12, the Commission set a policy
that a non-bypassable System Benefits Charge (SBC) would be used
to fund a variety of programs unlikely to be continued by
utilities at historic levels under competition. Part of this
fund would be used to support energy efficiency programs. Since
no allowance for energy savings from an SBC were considered in
preparing the high sales scenario in the FGEIS, any level of SBC
___________________
<FN1> The company somewhat exceeded its 1996 budget and
goals, but only because it made payments during the first months
of 1996 of rebates in the pipeline for a program actualy
discontinued at the end of 1995.
-15-
actually adopted would tend to decrease actual electricity sales
and related environmental impacts below the levels analyzed in
the FGEIS.
The proposed settlement provides for a SBC
funded at the level of 1 mill per kWh. This works out to
approximately $4.5 million annually. This is slightly more than
the company's 1995 DSM expenditure of $4.3 million and should
result in substantial incremental energy savings. The Commission
will determine the appropriate level for SBC funding by Central
Hudson in this proceeding.
B. Effect of Restructuring on Retirement or
Construction of New Generation, Plant Dispatch or
Fuel Purchase
Another potential factor that could, in concept,
affect New York's environment is the direct or indirect effect of
the Central Hudson restructuring plan on the mix of fuels burned
or plants run to meet electric sales in Central Hudson's
territory. The following section will analyze whether there is
any reason to believe that the Central Hudson plan would result
in impacts that are greater than or different in nature or
causation from those already addressed in the FGEIS.
1. Retirement of Central Hudson Generating
Facilities
Retirement of a major Central Hudson generating
facility would change the mix of generation resources available
in the region and thus could have a potential environmental
impact, both positive and negative. Positive impacts would
include elimination of air and water discharges from the retired
plant, while negative impacts could be those emissions at
generators providing the energy previously provided by the
retired plant. In addition, permanent retirement and
decommissioning of a plant could have a variety of local fiscal,
economic, employment and land use impacts. However, the company
asserts in its EAF that it has no plans to retire any of its
existing steam electric generating facilities. There is no
reason to believe, at this point, that any of the company's
fossil generation would be retired subsequent to the planned
auction.
-16-
In addition, Central Hudson owns a variety of
small hydroelectric and combustion turbine resources. These
plants would continue to be treated as rate base and expense
items within the regulated T&D utility. There is no reason to
believe any of those plants would be decommissioned as a result
of the restructuring.
2. Construction of New Generating Facilities
In its EAF, the company asserts that it has no
plans to construct new generating facilities. We note that U.S.
Generating, Inc. has announced plans to construct a new 1080 MW
combined cycle gas fired plant in Central Hudson's service
territory. U.S. Generating asserts that it has no current
contracts and is building the plant as a merchant plant in
anticipation of competitive opportunities in the region. While
this project is undoubtedly related to the general movement
towards competition, we have no reason to believe it is a direct
result of the Central Hudson restructuring plan. In any case,
under current air regulations (particularly the emissions offset
policy for NOx) construction of new generation facilities tends
to improve air quality.
3. Effect of Competitive Transition Charge (CTC)
on Plant Dispatch
The proposed settlement agreement of January 2,
1998 includes a provision for the company to recover the non-fuel
production costs of the company's generation facilities through
customer, energy or demand charges. PII contends that, since
non-regulated potential competitors will not receive a similar
income stream earmarked to cover their non-fuel operating costs,
Central Hudson could and would offer its generation to the ISO at
a subsidized and uneconomic price. This, PII asserts, could
result in Central Hudson operating less efficient and dirtier
plants than the ESCO plants which would have operated in the
absence of the CTC.
Under the provisions of the settlement, the CTC
would be recovered by Central Hudson through mechanisms that are
indifferent to whether or not any Central Hudson plants operated
on a given day. In fact, the proposed settlement contains no
provision which would end or reduce the CTC in the event that the
company chose to permanently retire one or both of its steam
electric plants before the end of the transition period. The CTC
-17-
would end, however, once the company transferred title of its
fossil generation facilities following the planned auction.
Under the provisions of the settlement, this transfer would take
place by July 1, 2001.
Since collection of the CTC is not dependent on
operating a Central Hudson plant (i.e., is not marginal revenue),
both Central Hudson and any competitors would face the same short
term decision criterion. They would maximize profits (or
minimize losses) on existing facilities by selling on the market
whenever the clearing price equals or exceeds their marginal
operating costs--as they themselves calculate marginal costs
given their best information. So long as the recovery of the CTC
is not linked to the operation of specific plants, it should not
affect Central Hudson's pricing decisions--regardless of whether
or not the CTC is correctly defined and calculated.
It is of course true that Central Hudson--or
any competitor--might be tempted for strategic reasons to sell at
a price below marginal costs for a period of time in an attempt
to secure market share and dissuade competitors from entering the
market.<FN1> However, the CTC would not be any more relevant to
this decision than any other source of revenue or reserves
available to the company. In any event, the proposed settlement
includes a provision that requires that the monthly average of
Central Hudson's bids to the ISO for each unit shall not fall
beneath the actual cost of fuel plus O&M for such units. This
agreement is subject to Staff audit.
4. Fuel Burned by Central Hudson
Various Central Hudson units have the capacity
to burn either coal, gas or oil within existing air quality
limits. Decisions about which fuel to burn at these facilities
will continue to be based on economic considerations. The
company has invested in a new coal dock at Danskammer which will
____________________
<FN1> It should also be noted that the temporary nature of
the CTC mitigates against it having a significant impact on
competitor's decisions with regards to the construction of new
power plants. If a competitor were to begin today to plan a new
steam-electric power plant to compete with Central Hudson, it
would be difficult for a plant to be designed, sited, licensed,
built and go on-line before the end of the transition period.
Any planning decision about the viability of such a plant would
be based primarily on expected income flows from the years beyond
2001. -18-
make it cheaper to burn coal. This could be anticipated to
increase coal combustion during the transition period. However,
the decision to construct the coal dock predates the current
proceeding and is not related to the restructuring plan.
5. Environmental Disclosure
It is possible that some customers in a retail
electric market will consider the generation source of the power
they utilize and prefer to purchase power from a less polluting
or "green" source. PII has argued that customers will be more
likely to purchase, or even pay a premium for, green power if a
trustworthy source of information on the different environmental
impacts of electricity supplied by different suppliers is
available. An "environmental disclosure" requirement in the
restructuring plan would, it is argued, provide that information
to consumers. PII argues that since environmental disclosure is
not required by the proposed settlement agreement, restructuring
would lead to increased environmental impacts.
However, no allowance was made for the benefits
of an environmental disclosure mechanism in the estimation of any
of the scenarios in the FGEIS. Therefore, any negative effects
of not having an environmental disclosure plan are already
inherent in the worst case FGEIS scenario.
An environmental disclosure program could
increase customer choice and could have the potential to somewhat
mitigate the otherwise unavoidable environmental effects of
electric generation through a market based means. The parties to
the January 2 settlement state their general support for
environmental disclosure and agree to work collaboratively in
support of a statewide environmental disclosure program.
C. Effect of Restructuring Plan on Construction of New
Transmission Facilities
In its EAF, Central Hudson states that no new
transmission facilities are required to implement the agreement.
However, the company's September 27, 1996 load pocket study
indicates that, under conditions of high summer usage and
equipment failures, load pockets may occur. PII recommends that
a supplemental environmental impact statement be prepared to
assess the impacts of transmission facilities required to
alleviate these load pockets and thereby prevent the exercise of
market power by Central Hudson.
-19-
The company's entire service territory is a minor
load pocket in certain infrequent circumstances. For example,
the failure of the East Fishkill transformer during peak load
conditions and hot weather in the year 2000 would create load
pocket conditions requiring customers to buy 60 MW of Danskammer
generation.
Two smaller contingency load pockets exist in
certain combinations of load, weather and/or equipment failures.
In certain circumstances, one of two company owned combustion
turbines must run in order to avoid load shedding on the
company's Northeast 69 kV system which is projected to serve 110
MW of load in the year 2000. The second small load pocket is on
the company's western area 69 kV system which is projected to
serve 50 MW in the year 2000. Under contingency conditions,
operation of company owned hydroelectric facilities would be
required to avoid load shedding. Under the proposed settlement,
the regulated T&D company would continue to own and operate these
combustion turbines and hydroelectric facilities.
These load pockets have existed for some time and
deregulation does not create or worsen any load pocket
reliability problems. However, they are of potential concern in
a competitive environment since Central Hudson has potential
market power within the load pockets. In theory, it could charge
monopoly rates for the output of its "in-pocket" generators
during the time when customers were unable to purchase from
competitors.
Construction of additional transmission facilities
could eliminate Central Hudson market power in these load
pockets. However, there are no specific plans for constructing
such facilities and other alternatives for alleviating these load
pockets exist. For example:
- requiring the utility to stock spare transformers
to limit the duration of any contingency driven
load pocket,
- using targeted load control, energy efficiency or
fuel switching programs to reduce customer
vulnerability to market power,
- requiring the ISO to monitor the system for
evidence of market power and then temporarily re-regulating
a generator for the duration of a load
pocket incident, or
-20-
- requiring special operating rules or price caps as
a condition of the sale or divestiture of a plant
in potential load pockets.
Such approaches have few environmental impacts
and are likely to be particularly applicable and cost
effective (compared to new transmission) in the case of load
pockets--like Central Hudson's--which are both relatively
small and occur infrequently.
Article VII of the Public Service Law provides
for the examination of the environmental impacts of
transmission lines and reasonable alternatives. If a
transmission facility were proposed to alleviate load
pockets, such alternatives could include the regulatory
approaches summarized above. Since there is an appropriate
forum for considering these alternatives on an actual case
by case basis, there is no need to consider load pocket
related transmission lines in further detail in this EAF.
VI. Mitigation of Impacts - Monitoring
It is important to note that the FGEIS explicitly
recognized that "the likely environmental effects of a shift
to a more competitive market for electricity are not fully
predictable" <FN1> due to the absence of precedence,
complexity of the New York electric industry, future
regulatory activities, including those of other states and
the federal government, and the nature and degree of market
response. The same uncertainty persists with respect to
Central Hudson's restructuring plan.
In Opinion 96-12 (Opinion and Order Regarding
Competitive Opportunities for Electric Service), the
Commission made certain "findings" pursuant to the State
Environmental Quality Review Act. The Commission determined
that "...adverse environmental impacts will be avoided or
minimized to the maximum extent practicable by incorporating
as conditions to the decision those mitigative measures that
were identified as practicable;....These mitigation measures
are: (1) monitoring environmental impacts; (2) system
benefits charge; and (3) assisting efforts undertaken by
other agencies to address interstate pollution transport."
______________________
<FN1> FGEIS, p. 77.
-21-
Staff analysis of the Central Hudson restructuring
plan determined that its implementation would result in
environmental effects which would most likely be less than
the impact values assessed in the FGEIS. To address any
uncertainty and to evaluate unknown outcomes, a monitoring
program, as envisioned in the FGEIS, should be developed.
The environmental impacts which could be monitored
are described in Section 6.2.3 of the Final Generic
Environmental Impact Statement (FGEIS) issued May 3, 1996 in
Case 94-E-0952 (Competitive Opportunities Regarding Electric
Service). The FGEIS and this EAF discuss a number of
environmental activities and changes that would be important
to monitor during the transition to competition, including:
- imported electricity from the midwest,
- SO2 and NOx emissions,
- retirement of Central Hudson power plants,
- in-state and out-of-state purchased generation,
- fuel mixture of generation,
- R&D related environmental impact,
- new electric and gas transmission line
construction,
- acid precipitation in the Adirondacks and
Catskills and other sensitive receptor areas,
- mitigation and market power in load pockets, and
- the operation of the CTC.
The proposed environmental monitoring plan should
be organized around the major environmental impacts
considered in the FGEIS and this EAF, including information
necessary for analysis of any restructuring environmental
impacts, confirmation of expected impacts and exposition of
unexpected outcomes and their significance. Staff
anticipates Central Hudson's cooperation in the development
and implementation of this monitoring plan.
VII. Conclusions
Staff has considered features of Central Hudson's
territory and the proposed settlement agreement and has
analyzed the potential impacts of that agreement on the
environment. We have compared these likely impacts to those
addressed in the FGEIS. Our analysis has been broadly
-22-
framed and has looked at limiting cases in order to
encompass any modifications to that agreement likely to be
adopted by the Commission. In our analysis, we have also
considered issues raised by outside parties commenting on
the Central Hudson EAF.
It is likely that increases in demand will result
from the settlement's decrease in rates (0.1% average annual
increase in demand over the 1997-2012 modeling period used
in the FGEIS), and from a decrease in DSM expenditures (0.1%
annual increase in demand). If greater rate reductions are
approved, it is possible that the incremental increase in
sales could be as much as 0.6% per year. Each of these
increases are upper bounds and do not consider mitigating
factors such as ESCO and SBC spending on DSM. Therefore,
actual growth rates will be less than the corresponding
rates in the FGEIS: 1% annual incremental growth from the
"high sales" scenario, and 0.32% from the "no incremental
utility DSM" scenario.
We conclude that the Central Hudson restructuring
plan would not result in significant new environmental
impacts not considered in the FGEIS, nor would it result in
impacts likely to be greater than those considered in the
FGEIS. Therefore, no SEIS is required under the provisions
of SEQRA. Staff recommends that the Commission determine
that no further SEQRA compliance is required with regard to
the transitional restructuring plan for this company.
Although no further SEQRA compliance is required,
it is appropriate to institute mechanisms for monitoring
and, if indicated, mitigating some of the potential impacts
of restructuring.
-23-<PAGE>
Attachment
Page 1 of 5
IMPACT OF POSSIBLE RATE DECREASES
ON SALES GROWTH
Several of the potential impacts of deregulation
examined in the Final Generic Environmental Impact Statement
(FGEIS) are a result of the increased sales that are
expected to accompany deregulation. Rate reductions, which
are a primary driver of the increased sales, are not
considered explicitly in the FGEIS; rather it was assumed
that, beginning in 1997, sales would increase by an
additional 1% per year for 15 years. That is, if statewide
growth without deregulation is 1.2% per year (as was assumed
in the FGEIS evolving regulatory model), growth with
deregulation would be 2.2%.
In each of the restructuring cases, specific rate
reductions are now being considered. Using price elasticity
of demand, these proposed rate reductions now permit the
calculation of an estimate of increased sales to be expected
from restructuring.
The following tables (developed by the Office of
Regulatory Economics) consider both short-run elasticity
(the increase in sales which occurs immediately after the
rate reduction) and long-run elasticity (increases which
occur in subsequent years). The first step in the
calculation (Table F) is to determine the weighted average
elasticities based on the elasticities for each sector
(industrial, commercial and residential) and the fraction of
the utility's load in each sector (sales weight). Also, the
average price reduction per year is calculated based on the
expected rate decrease for each sector and the sales weight.
Tables A through E then calculate the year by year
increase in sales due to competition (short-run, long-run
and total), the cumulative change in sales, and the annual
average rate of sales growth. Residential Delta is the
possible residential rate reduction considered in the table;
Percent Total Impact per Year (%TI/Yr) is the average price
reduction per year from Table F. The end of the five year
Page 2 of 5
settlement period and the end of the fifteen year modeling
period are highlighted.
The text of the EAF refers to Tables A and E which
present the effects of price elasticity based on residential rate
decreases of 0% and 10%, plausible range of rate decreases
expected to result from the revised settlement agreement.<PAGE>
Attachment
Page 3 of 5
CENTRAL HUDSON PRICE ELASTICITY IMPACT
Sales ch = (price elasticity * % price ch) + lambda * (sales ch lag 1)
A. %Res Delta %Tl/ Yr Lambda SR Elas. LR Elas
0.0 1.40 0.72 0.32 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
1998 0.452 0.000 0.452 0.452 0.45
1999 0.000 0.324 0.324 0.775 0.39
2000 0.000 0.232 0.232 1.007 0.33
2001 0.000 0.166 0.166 1.173 0.29
2002 0.000 0.119 0.119 1.292 0.26
2003 0.000 0.085 0.085 1.377 0.23
2004 0.000 0.061 0.061 1.439 0.20
2005 0.000 0.044 0.044 1.482 0.18
2006 0.000 0.031 0.031 1.514 0.17
2007 0.000 0.022 0.022 1.536 0.15
2008 0.000 0.016 0.016 1.552 0.14
2009 0.000 0.012 0.012 1.564 0.13
2010 0.000 0.008 0.008 1.572 0.12
2011 0.000 0.006 0.006 1.578 0.11
2012 0.000 0.004 0.004 1.582 0.10
B. %Res Delta %Tl/ Yr Lambda SR Elas. LR Elas
2.5 3.20 0.72 0.32 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
1998 1.032 0.000 1.032 1.032 1.03
1999 0.000 0.740 0.740 1.772 0.88
2000 0.000 0.530 0.530 2.302 0.76
2001 0.000 0.380 0.380 2.682 0.66
2002 0.000 0.272 0.272 2.954 0.58
2003 0.000 0.195 0.195 3.148 0.52
2004 0.000 0.140 0.140 3.288 0.46
2005 0.000 0.100 0.100 3.388 0.42
2006 0.000 0.072 0.072 3.460 0.38
2007 0.000 0.051 0.051 3.511 0.35
2008 0.000 0.037 0.037 3.548 0.32
2009 0.000 0.026 0.026 3.574 0.29
2010 0.000 0.019 0.019 3.593 0.27
2011 0.000 0.014 0.014 3.607 0.25
2012 0.000 0.010 0.010 3.616 0.24
C. %Res Delta %Tl/ Yr Lambda SR Elas. LR Elas
5.0 5.00 0.72 0.32 1.14
Attachment
Page 4 of 5
CENTRAL HUDSON PRICE ELASTICITY IMPACT
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
1998 1.613 0.000 1.613 1.613 1.61
1999 0.000 1.156 1.156 2.769 1.37
2000 0.000 0.828 0.828 3.597 1.18
2001 0.000 0.593 0.593 4.190 1.03
2002 0.000 0.425 0.425 4.615 0.91
2003 0.000 0.305 0.305 4.919 0.80
2004 0.000 0.218 0.218 5.138 0.72
2005 0.000 0.156 0.156 5.294 0.65
2006 0.000 0.112 0.112 5.406 0.59
2007 0.000 0.080 0.080 5.486 0.54
2008 0.000 0.057 0.057 5.544 0.49
2009 0.000 0.041 0.041 5.585 0.45
2010 0.000 0.030 0.030 5.614 0.42
2011 0.000 0.021 0.021 5.636 0.39
2012 0.000 0.015 0.015 5.651 0.37
Sales ch = (price elasticity * % price ch) + lambda * (sales ch lag 1)
D. %Res Delta %Tl/ Yr Lambda SR Elas. LR Elas
7.5 6.80 0.72 0.32 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
1998 2.194 0.000 2.194 2.194 2.19
1999 0.000 1.572 1.572 3.765 1.87
2000 0.000 1.126 1.126 4.891 1.60
2001 0.000 0.807 0.807 5.698 1.40
2002 0.000 0.578 0.578 6.276 1.22
2003 0.000 0.414 0.414 6.690 1.09
2004 0.000 0.297 0.297 6.987 0.97
2005 0.000 0.213 0.213 7.200 0.87
2006 0.000 0.152 0.152 7.352 0.79
2007 0.000 0.109 0.109 7.461 0.72
2008 0.000 0.078 0.078 7.539 0.66
2009 0.000 0.056 0.056 7.595 0.61
2010 0.000 0.040 0.040 7.636 0.57
2011 0.000 0.029 0.029 7.664 0.53
2012 0.000 0.021 0.021 7.685 0.49
E. %Res Delta %Tl/ Yr Lambda SR Elas. LR Elas
10.0 8.60 0.72 0.32 1.14
Attachment
Page 5 of 5
CENTRAL HUDSON PRICE ELASTICITY IMPACT
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
1998 2.774 0.000 2.774 2.774 2.77
1999 0.000 1.988 1.988 4.762 2.35
2000 0.000 1.424 1.424 6.186 2.02
2001 0.000 1.020 1.020 7.207 1.75
2002 0.000 0.731 0.731 7.938 1.54
2003 0.000 0.524 0.524 8.461 1.36
2004 0.000 0.375 0.375 8.837 1.22
2005 0.000 0.269 0.269 9.106 1.10
2006 0.000 0.193 0.193 9.298 0.99
2007 0.000 0.138 0.138 9.436 0.91
2008 0.000 0.099 0.099 9.535 0.83
2009 0.000 0.071 0.071 9.606 0.77
2010 0.000 0.051 0.051 9.657 0.71
2011 0.000 0.036 0.036 9.693 0.66
2012 0.000 0.026 0.026 9.719 0.62
F. Large Small Res/ Weighted Annual
Indus Indus/Comm Other Average Price
Sales Weights 0.28 0.37 0.35
SR Price Elasticity 0.43 0.31 0.25 0.32
LR Price Elasticity 1.28 1.17 0.99 1.14
Price Reduction A 5.00 0.00 0.00 1.40 1.40
Price Reduction B 5.00 2.50 2.50 3.20 3.20
Price Reduction C 5.00 5.00 5.00 5.00 5.00
Price Reduction D 5.00 7.50 7.50 6.80 6.80
Price Reduction E 5.00 10.00 10.00 8.60 8.60
Lambda (1-(SR Elast/LR Elast)): 0.72
</PAGE>
<PAGE>
B Y - L A W S
OF
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
___________________
ARTICLE I.
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meeting. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the City of Poughkeepsie, County of Dutchess,
State of New York, or at such other place or places in the State
of New York as may from time to time be fixed by the Board of
Directors.
SECTION 2. Annual Meeting. The Annual Meeting of the
shareholders, for the election of directors and the transaction
of such other business as may be brought before the meeting,
shall be held each year on the first Tuesday in April (or if said
day be a legal holiday, then on the next succeeding business
day), at such time of day as the directors may determine.
SECTION 3. Special Meetings. Special meetings of the
shareholders may be called by the Board of Directors or by the
Chairman of the Board of Directors or by the President, or by
shareholders together holding at least one third of the capital
stock of the Corporation entitled to vote or act with respect
thereto upon the business to be brought before such meeting.
SECTION 4. Notice of Meetings. Notice of any annual or
special meeting of the shareholders shall be in writing and shall
be signed by the Chairman of the Board of Directors or the
President or the Secretary or an Assistant Secretary. Such
notice shall state the purpose or purposes for which the meeting
is called and shall state the place, date and hour of the meeting
and, unless it is the annual meeting, indicate that it is being
issued by or at the direction of the person or persons calling
1
the meeting. A copy of the notice of any meeting shall be given,
personally or by first-class mail, not fewer than ten nor more
than sixty days before the date of the meeting, provided,
however, that a copy of such notice may be given by third-class
mail not fewer than twenty-four nor more than sixty days before
the date of the meeting, to each shareholder entitled to vote at
such meeting. If mailed, such notice is given when deposited in
the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of
shareholders, or, if he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed
to some other address, then directed to him at such other
address. An affidavit of the Secretary of the Corporation or
other person giving the notice or of a transfer agent of the
Corporation that the notice required by this section has been
given shall be supplied at the meeting to which it relates.
SECTION 5. Quorum. Except as otherwise provided by
statute, the holders of a majority of the shares entitled to vote
thereat shall constitute a quorum at a meeting of shareholders
for the transaction of any business, provided that when a
specified item of business is required to be voted on by a class
or series, voting as a class, the holders of a majority of the
shares of such class or series shall constitute a quorum for the
transaction of such specified item of business.
SECTION 6. Inspectors. The person presiding at a
shareholders' meeting may, and on the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine questions arising in connection
with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders.
The inspectors shall make a report in writing of any matter
determined by them and execute a certificate of any fact found by
them.
2
SECTION 7. Adjournment of Meetings. Any meeting of
shareholders may be adjourned by a majority vote of the
shareholders present or represented by proxy despite the absence
of a quorum. When a meeting of shareholders is adjourned to
another time or place, it shall not be necessary to give any
notice of the adjourned meeting if the time and place to which
the meeting is adjourned are announced at the meeting at which
the adjournment is taken, and at the adjourned meeting at which a
quorum shall be present, any business may be transacted, and any
corporate action may be taken, which might have been transacted
or taken if the meeting had been held as originally called.
SECTION 8. Voting. Every shareholder of record shall be
entitled at every meeting of the shareholders to one vote for
every share of stock standing in his name on the record of
shareholders of the Corporation unless otherwise provided in the
Certificate of Incorporation and amendments thereto and except as
provided in Section 9 of this Article I. Every shareholder
entitled to vote at a meeting of shareholders may authorize
another person or persons to act for him by proxy. No proxy
shall be valid after the expiration of eleven months from the
date thereof unless otherwise provided in the proxy. A list of
shareholders as of the record date certified by the officer
responsible for its preparation or by a transfer agent shall be
available at every meeting of shareholders and shall be produced
upon the request of any shareholder, and all persons who appear
from such list to be shareholders entitled to vote thereat may
vote at such meeting.
SECTION 9. Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to
or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment
of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than sixty nor less
than ten days before the day of such meeting, nor more than days
prior to any other action.
3
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. Number and Qualifications. The number of
directors constituting the entire Board shall be nine. The
number of directors may be increased, or decreased to not less
than three nor more than 25, by amendment of the by-laws adopted
by vote of a majority of the entire Board of Directors.
Each director shall be at least 18 years of age. No person
who has reached age 70 shall stand for election as a director.
SECTION 2. Election of Directors. Except as otherwise
required by law or by the Certificate of Incorporation as
amended, and except as hereinafter otherwise provided by Sections
5 and 6 of this Article II, directors shall be elected by a
plurality of the votes cast at the annual meeting of shareholders
by the holders of shares entitled to vote at the election and
shall hold office until the next annual meeting of shareholders.
SECTION 3. Term of Office. Each director shall, except as
hereinafter provided in Section 4 and in Section 6 of this
Article II, hold office until the expiration of the term for
which he is elected and until his successor has been elected and
qualified.
SECTION 4. Resignation and Removal. Any director may
resign at any time. Such resignation shall be made in writing
and shall take effect at the time specified therein, or if no
time be specified, at the time of its receipt by the Chairman of
the Board of Directors or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective unless so
specified therein. Any director may at any time, with or without
cause, be removed by vote of the shareholders at a special
meeting called for that purpose. When, however, pursuant to the
provisions of the Certificate of Incorporation as amended, the
holders of the shares of any class or series, voting as a class,
have the right to elect one or more directors, such director or
directors so elected may be removed only by the applicable vote
of the holders of the shares of that class or series, voting as a
class.
4
SECTION 5. Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board for any
reason, except the removal of directors without cause, and except
as provided for in Section 6 of this Article II, may be filled by
vote of a majority of the directors then in office, although less
than a quorum exists. A vacancy occurring in the Board by reason
of the removal of a director without cause, may be filled only by
vote of the shareholders, subject to the provisions of said
Section 6. A director elected to fill a vacancy shall be elected
to hold office for the unexpired term of his predecessor, and
until his successor is elected and qualified.
SECTION 6. Election of Directors by Holders of Preferred
Stock. Anything in the by-laws to the contrary notwithstanding:
In case dividends on any series of the serial preferred stock of
the Corporation at the rate or rates prescribed for such series
shall not have been paid in full for periods aggregating one year
or more, than, and until full cumulative dividends thereon shall
have been paid, the holders of each such series shall have the
right, together with holders of all other serial preferred stock
in respect to which the same right shall be conferred, to elect a
majority of the members of the Board of Directors of the
corporation. Whenever the holders of any series of serial
preferred stock shall become so entitled, either separately or
together with the holders of other serial preferred stock as
aforesaid, to elect a majority of the members of the Board of
Directors, and upon the written request of the holders of record
of at least five percent of the total number of shares of serial
preferred stock then outstanding and entitled to such right of
election, addressed to the Secretary of the Corporation, a
special meeting of the holders of serial preferred stock entitled
to such right of election and the holders of Common Stock shall
be called for the purpose of electing directors. At such meeting
the holders of serial preferred stock and the holders of Common
Stock shall vote separately, and the holders of serial preferred
stock present in person or by proxy at such meeting shall be
entitled to elect, by a plurality of votes cast by them, a
majority of the members of a new Board of Directors of the
corporation, and the holders of Common Stock present in person or
by proxy shall be entitled to elect, by a plurality of votes cast
by them, the remainder of the new Board of Directors. The
persons so elected as directors shall thereupon constitute the
5
Board of Directors of the Corporation, and the terms of office of
the previous directors of the Corporation shall thereupon
terminate. The term "a majority of the members of Board of
Directors" as herein used shall mean one more than one half of
the total number of directors provided for by the by-laws,
regardless of the number then in office, and in case one half of
such number shall not be a whole number, such one half shall be
the next smaller whole number. In the event of any vacancy in
the Board of Directors among the directors elected by the holders
of serial preferred stock, such vacancy may be filled by the
other directors elected by them, and if not so filled may be
filled by the holders of serial preferred stock entitled to the
right of election as aforesaid at a special meeting of the
holders of said stock called for that purpose, and such a meeting
shall be called upon the written request of at least five percent
of the total number of shares of serial preferred stock then
outstanding and entitled to such right of election. If and when,
however, full cumulative dividends upon any series of the serial
preferred stock shall at any subsequent time be paid, then and
thereupon such power of the holders of such series of serial
preferred stock to vote in the election of a majority of the
members of the Board of Directors shall cease; subject, however,
to being again revived at any subsequent time if there shall
again be default in payment of dividends upon such series of
serial preferred stock for periods aggregating one year or more
as aforesaid. Whenever such power of the holders of all series
of serial preferred stock to vote shall cease, the proper officer
of the Corporation may and upon the written request of the
holders of record of five percent of the total number of shares
of Common Stock then outstanding shall call a special meeting of
the holders of Common Stock for the purpose of electing
directors. At any meeting so called, the holders of a majority
of the Common Stock then outstanding, present in person or by
proxy, shall be entitled to elect, by a plurality of votes, a new
Board of Directors of the Corporation. The persons so elected as
directors shall thereupon constitute the Board of Directors of
the Corporation, and the terms of office of the previous
directors of the Corporation shall thereupon terminate.
SECTION 7. Regular Meetings. The directors shall hold a
regular annual meeting for the election of officers as soon as
practicable after the adjournment of the Annual Meeting of the
shareholders, and, in addition, regular meetings of the directors
6
shall be held at such times as the Board of Directors may by
resolution determine. No notice of the Annual Meeting shall be
required if held immediately after the Annual Meeting of the
shareholders and if a quorum is present.
SECTION 8. Special Meetings. Special meetings of the
directors may be called by the Chairman of the Board of Directors
or by the President or by any two directors at any time and must
be called by the Secretary on the written request of any two
directors.
SECTION 9. Notice and Place of Meetings. Regular meetings
shall be held at such place or places either within or without
the State of New York as the Board of Directors may from time to
time determine. Special meetings shall be held at such place or
places either within or without the State of New York as may be
specified in the respective notices of the meetings. Except as
provided in Section 7 of this Article II, notice of any regular
or special meeting of the directors shall be mailed to each
director addressed to him at his residence or usual place of
business at least two days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegraph,
or be delivered personally or by telephone, not later than the
day before the day on which the meeting is to be held.
SECTION 10. Business Transacted at Meetings. Any business
may be transacted and any corporate action taken at any regular
or special meeting of the directors whether stated in the notice
of the meeting or not.
SECTION 11. Quorum and Manner of Acting. Any five of the
directors in office at the time of any meeting of the Board shall
constitute a quorum and, except as by law otherwise provided, the
act of a majority of the directors present at any such meeting,
at which a quorum is present, shall be the act of the Board of
Directors. In the event it is necessary to obtain a quorum, and
only in such event, at the discretion of the presiding Board
member, any one or more members of the Board may be present and
participate in a meeting of the Board by means of a conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence
in person at such meeting. In the absence of a quorum, the
7
directors present may adjourn the meeting from time to time until
a quorum be had. Notice of any adjourned meeting need not be
given other than by announcement at the meeting. The directors
shall act only as a Board and the individual directors shall have
no power as such.
SECTION 12. Compensation. The compensation of the
directors, other than employees of the Corporation, for services
as directors and as members of committees of the Board shall be
as fixed by the Board from time to time. Such directors shall
also be reimbursed for expenses incurred in attending meetings of
the Board and/or committees thereof.
SECTION 13. Indemnification of Officers and Directors. Any
person made, or threatened to be made a party to any action or
proceedings, whether civil or criminal, by reason of the fact
that he, his testator or intestate, is or was a director or
officer of the Board of Directors, or officer or employee of the
Corporation or serves or served any other corporation in any
capacity at the request of the Corporation, shall be indemnified
by the Corporation, and the Corporation may advance his related
expenses, to the full extent authorized or permitted by law. The
Corporation may enter into indemnification agreements with such
directors and officers, as the Chairman of the Board and/or
President shall authorize, to the full extent authorized or
permitted by law.
SECTION 14. Committees of the Board. The Board, by
resolution adopted by a majority of the entire Board, may
designate from among its members, in addition to the Executive
Committee provided for in Article III of these By-Laws,
committees of the Board, each consisting of three or more
directors, and each of which shall have the powers and duties
prescribed in the resolution designating such committees.
Anything in these By-Laws or in the resolution designating such
committees to the contrary notwithstanding, in the event it is
necessary to obtain a quorum, and only in such event, at the
discretion of the presiding committee member, any one or more
members of any committee of the Board of Directors may
participate in any meeting of such committee by means of a
conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at
the same time. Participation by such means shall constitute
presence in person at such meeting.
8
ARTICLE III.
EXECUTIVE COMMITTEE
SECTION 1. How Constituted and Powers. The Board of
Directors, by resolution adopted by a majority of the entire
Board, may designate two or more of the directors, together with
the Chairman of the Board of Directors, and the President, to
constitute an Executive Committee, to serve at the pleasure of
the Board, which Committee shall during the intervals between
meetings of the Board of Directors, unless limited by the
resolution appointing such Committee, have authority to exercise
all or any of the powers of the Board of Directors in the
management of the affairs of the Corporation, insofar as such
powers may lawfully be delegated. The Board may designate one or
more directors as alternate members of such Committee, who may
replace any absent member or members at any meeting of such
Committee.
SECTION 2. Removal and Resignation. Any member of the
Executive Committee, except a member ex officio, may be removed
at any time with or without cause, by resolution adopted by a
majority of the entire Board. Any member of the Executive
Committee may resign at any time. Such resignation shall be in
writing and shall take effect at the time specified therein, or,
if no time be specified, at the time of its receipt by the
Chairman of the Board of Directors or the President or Secretary.
The acceptance of a resignation shall not be necessary to make it
effective unless so specified therein. Any person ceasing to be
a director shall ipso facto cease to be a member of the Executive
Committee.
SECTION 3. Filling of Vacancies. Any vacancy among the
members of the Executive Committee occurring from any cause
whatsoever may be filled from among the directors by a majority
of the entire Board of Directors.
SECTION 4. Quorum. A majority of the members of the
Executive Committee shall constitute a quorum. The act of a
majority of the members of the Executive Committee present at any
meeting at which a quorum is present shall be the act of the
Executive Committee. The members of the Executive Committee
shall act only as a committee and the individual members thereof
shall have no powers as such.
9
SECTION 5. Record of Proceedings, etc. The Executive
Committee shall keep a record of its acts and proceedings and
shall report the same to the Board of Directors when and as
required.
SECTION 6. Organization, Meetings, etc. The Executive
Committee shall make such rules as it may deem expedient for the
regulation and carrying on of its meetings and proceedings.
SECTION 7. Compensation of Members. The members of the
Executive Committee shall be entitled to such compensation as may
be allowed them by resolution of the Board of Directors.
ARTICLE IV.
OFFICERS
SECTION 1. Election. The Board of Directors, at its
regular annual meeting, shall elect or appoint from their number
a Chairman of the Board of Directors and the Chairmen of
Committees of the Board and may elect or appoint a vice chairman
of the Board of Directors and vice chairmen of Committees of the
Board, which officers shall be officers of the Board; and it
shall elect or appoint a President, one or more Vice Presidents,
a Secretary, a Treasurer, and a Controller which officers shall
be officers of the Corporation. Each of said officers, subject
to the provisions of Sections 2 and 3 of this Article, shall hold
office, if elected, until the meeting of the Board following the
next Annual Meeting of shareholders and until his successor has
been elected and qualified, or, if appointed, for the term
specified in the resolution appointing him and until his
successor has been elected or appointed. Any two or more offices
may be held by the same person, except the offices of President
and Secretary. Should any of the officers of the Board or the
President cease to be a director, he shall ipso facto cease to be
such officer.
SECTION 2. Removal. Any officer may be removed summarily
with or without cause at any time by resolution of the Board of
Directors, or, except in the case of any officer elected by the
Board of Directors, by any committee or officer upon whom such
power of removal may be conferred by the Board of Directors,
without prejudice, however, to any rights which any such person
may have by contract.
10
SECTION 3. Resignation of Officers. Any officer may resign
at any time by giving written notice of such resignation to the
Board of Directors, its Chairman, the President or Secretary of
the Corporation. Such resignation shall take effect at the time
specified therein, or, if no time be specified, at the time of
its receipt by the Board of Directors or one of the above-named
officers
of the Corporation. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
SECTION 4. Filling of Vacancies. A vacancy in any office,
from whatever cause arising, shall be filled for the unexpired
portion of the term in the manner provided in these by-laws for
the regular election or appointment of such officer.
SECTION 5. Compensation. The compensation of the officers
shall be fixed by the Board of Directors or by any committee or
superior officer upon whom power in that regard may be conferred
by the Board of Directors.
SECTION 6. Chairman of the Board of
Directors and Chief Executive Officer. The Chairman of the Board
of Directors shall, when present, preside at all meetings of the
shareholders and the Board of Directors. He shall be Chairman of
the Executive Committee. He shall be responsible for direction
of the policy of the Board of Directors and shall have the power
and perform the duties necessary to implement such
responsibility. He shall be the Chief Executive Officer of the
Corporation and shall have the power and perform the duties
usually appertaining to the chief executive of a corporation.
SECTION 7. Vice Chairman of the Board of Directors. In the
absence of the Chairman of the Board of Directors, the Vice
Chairman shall, when present, preside at all meetings of the
shareholders and the Board of Directors. He shall have such
powers and perform such duties as the Chairman of the Board of
Directors shall delegate to him.
SECTION 8. President and Chief Operating Officer. The
President shall, subject to the authority of the Chairman of the
Board of Directors, have the power and perform the duties usually
appertaining to the president of a corporation, and such power
and duties as the Chairman of the Board of Directors shall assign
11
to him. He shall be a member of the Board of Directors and of
the Executive Committee. He shall be the Chief Operating Officer
of the Corporation and shall have the power and perform the
duties usually appertaining to the chief operating officer of a
corporation.
SECTION 9. The Vice Presidents. The Vice Presidents shall
have such duties as may from time to time be assigned to them by
the Board of Directors or the President, or by the Chairman of
the Board in the President's absence. When performing the duties
of the President, they shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 10. The Treasurer. The Treasurer shall:
(a) Except as otherwise ordered by the Board, have charge
and custody of, and be responsible for all funds, securities,
receipts and disbursements of the Corporation and shall deposit,
or cause to be deposited, all money and other valuable effects in
its name in such banks, trust companies or other depositaries as
shall be selected in accordance with these by-laws;
(b) Receive and give receipts for payments made to the
Corporation and take and preserve proper receipts for all monies
disbursed by it;
(c) In general, perform such duties as are incident to the
office of Treasurer, or as may be from time to time assigned to
him by the Board of Directors, the Chairman of the Board or the
President, or as may be prescribed by law or by these by-laws.
The Treasurer shall give to the Corporation a bond if, and
in such sum as, required by the Board of Directors, conditioned
for the faithful performance of the duties of his office and the
restoration to the Corporation at the expiration of his term of
office, or in case of his death, resignation or removal from
office, of all books, papers, vouchers, money or other property
of whatever kind, in his possession belonging to the Corporation.
SECTION 11. Controller. The Controller shall:
(a) Keep at the office of the Corporation correct books of
account of all its business and transactions, subject to the
supervision and control of the President and Treasurer;
12
(b) Exhibit at all reasonable times his books of accounts
and records to any of the directors upon application during
business hours at the office of the Corporation where such books
and records are kept;
(c) Render a full statement of the financial condition of
the Corporation whenever requested so to do by the Board of
Directors, the Chairman of the Board or the President; and
(d) In general, perform such duties as may be from time to
time assigned to him by the Board of Directors, the Chairman of
the Board or the President.
SECTION 12. The Secretary. The Secretary shall:
(a) Keep the minutes of the meetings of the shareholders,
Board of Directors and Executive Committee in books provided for
the purpose;
(b) See that all notices are duly given in accordance with
the provisions of these by-laws or as required by law;
(c) Be custodian of the seal of the Corporation and see that
it or a facsimile thereof is affixed to all stock certificates
prior to their issue, and that it is affixed to all documents the
execution of which under the seal of the Corporation is duly
authorized or which require that the seal be affixed thereto;
(d) Have charge of the stock certificate books of the
Corporation and keep, or cause to be kept, at the office of the
Corporation or at the office of its transfer agent or registrar,
a record of shareholders of the Corporation, containing the names
and addresses of all shareholders, the number and class of shares
held by each and the dates when they respectively became the
owners of record thereof; and
(e) In general, perform such duties as are incident to the
office of Secretary, or as may be from time to time assigned to
him by the Board of Directors, the Chairman of the Board or the
President, or as are prescribed by law or by these by-laws.
SECTION 13. Other Officers. Other officers, including one
or more additional Vice Presidents, may from time to time be
13
appointed by the Board of Directors or by any officer or
committee upon whom a power of appointment may be conferred by
the Board of Directors, which other officers shall have such
powers and perform such duties as may be assigned to them by the
Board of Directors, the Chairman of the Board or the President
and shall hold office for such terms as may be designated by the
Board of Directors or the officer or committee appointing them.
ARTICLE V.
CONTRACTS, LOANS, BANK ACCOUNTS, ETC.
SECTION 1. Contracts, etc., How Executed. The Board of
Directors, except as in these by-laws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be
general or confined to specific instances, and, unless so
authorized by the Board of Directors, no officer or agent or
employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its
credits or to render it liable pecuniarily for any purpose or to
any amount.
SECTION 2. Loans. No loans shall be contracted on behalf
of the Corporation and no negotiable paper shall be issued in its
name, unless authorized by the vote of the Board of Directors.
When so authorized, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank,
trust company or other institution, or from any firm, corporation
or individual and for such loans and advances may make, execute
and deliver promissory notes, bonds or other evidences of
indebtedness of the corporation. When so authorized any officer
or agent of the Corporation, as security for the payment of any
and all loans, advances, indebtedness and liabilities of the
Corporation, may pledge, hypothecate or transfer any and all
stocks, securities and other personal property at any time held
by the Corporation, and to that end endorse, assign and deliver
the same. Such authority may be general or confined to specific
instances. The Board of Directors may authorize any mortgage or
pledge of, or the creation of a security interest in, all or any
part of the corporate property, or any interest therein, wherever
situated.
14
SECTION 3. Checks, Drafts, etc. All checks, drafts or
other orders for the payment of money, notes or other evidence of
indebtedness issued in the name of the Corporation shall be
signed by the Treasurer or such other officer
or officers, agent or agents of the Corporation and in such
manner as shall from time to time be determined by resolution of
the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation shall be
deposited from time to time to its credit in such banks, trust
companies or other depositaries as the Board of Directors may
select, or as may be selected by an officer or officers, agent or
agents of the Corporation to whom such power, from time to time,
may be delegated by the Board of Directors and, for the purpose
of such deposit, checks, drafts and other orders for the payment
of money which are payable to the order of the Corporation may be
endorsed, assigned and delivered by the President or a Vice
President, or the Treasurer or the Secretary, or by any officer,
agent or employee of the Corporation to whom any of said
officers, or the Board of Directors, by resolution, shall have
delegated such power.
SECTION 5. General and Special Bank Accounts. The Board of
Directors may from time to time authorize the opening and keeping
of general and special bank accounts with such banks, trust
companies or other depositaries as the Board may select and may
make such special rules and regulations with respect thereto, as
it may deem expedient.
ARTICLE VI.
CAPITAL STOCK
SECTION 1. Issue of Certificates of Stock. Certificates
for shares of the capital stock of the Corporation shall be in
such form as shall be approved by the Board of Directors. They
shall be numbered, as nearly as may be, in the order of their
issue and shall be signed by the Chairman of the Board of
Directors or by the President or a Vice President, and by the
Secretary or an Assistant Secretary or the Treasurer or an
15
Assistant Treasurer, and sealed with the seal of the Corporation
or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar other than the
Corporation itself or its employee.
SECTION 2. Transfer of Stock. Shares of the capital stock
of the Corporation shall be transferable by the holder thereof in
person or by duly authorized attorney upon surrender of the
certificate or certificates for such shares properly endorsed.
Every certificate of stock exchanged or returned to the
Corporation shall be appropriately cancelled. A person in whose
name shares of stock stand on the books of the Corporation shall
be deemed the owner thereof as regards the Corporation. The
Board of Directors may make such other and further rules and
regulations as they may deem necessary or proper concerning the
issue, transfer and registration of stock certificates.
SECTION 3. Lost, Destroyed and Mutilated Certificates. The
holder of any stock of the Corporation shall immediately notify
the corporation of any loss, destruction or mutilation of the
certificates therefor. The Corporation may issue a new
certificate of stock in the place of any certificate theretofore
issued by it alleged to have been lost or destroyed, and the
Board of Directors may, in its discretion, require the owner of
the lost or destroyed certificate or his legal representatives to
give the Corporation a bond in such sum and with such surety or
sureties, as they may require to indemnify the Corporation, and
any registrar or transfer agent of its stock, against any claim
that may be made against it by reason of the issue of such new
certificate and against all other liability in the premises.
ARTICLE VII.
DIVIDENDS, SURPLUS, ETC.
SECTION 1. General Discretion of Directors. The Board of
Directors shall have the power from time to time to fix and
determine and to vary the amount of working capital of the
Corporation, to determine whether any and, if any, what dividends
16
shall be declared and paid to the shareholders, to fix the date
or dates for the payment of dividends, and to fix a time, not
exceeding 50 days preceding the date fixed for the payment of any
dividend, as a date for the determination of shareholders
entitled to receive payment of such dividend. When any dividend
is paid or any other distribution is made, in whole or in part,
from sources other than earned surplus, it shall be accompanied
by a written notice (1) disclosing the amounts by which such
dividend or distribution affects stated capital, surplus and
earned surplus, or (2) if such amounts are not determinable at
the time of such notice, disclosing the approximate effect of
such dividend or distribution as aforesaid and stating that such
amounts are not yet determinable.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation
shall be the calendar year.
SECTION 2. Waiver of Notice. Notice of meeting need not be
given to any shareholder who submits a signed waiver of notice,
in person or by proxy, whether before or after the meeting. The
attendance of any shareholder at a meeting, in person or by
proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of
notice by him. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to him.
Whenever the Corporation or the Board of Directors or any
committee thereof is authorized to take any action after notice
to any person or persons or after the lapse of a prescribed
period of time, such action may be taken without notice and
without the lapse of such period of time, if at any time before
or after such action is completed the person or persons entitled
to such notice or entitled to participate in the action to be
taken or, in the case of a shareholder, by his attorney-in-fact,
submit a signed waiver of notice of such requirements.
17
SECTION 3. Notices. Whenever by the by-laws any written
notice is required to be given to any shareholder, director or
officer, the same may be given, unless otherwise required by law
and except as hereinbefore otherwise expressly provided, by
delivering it personally to him or by mailing or telegraphing it
to him at his last known post office address. Where a notice is
mailed or telegraphed, it shall be deemed to have been given at
the time it is mailed or telegraphed.
SECTION 4. Examination of Books. The Board of Directors
shall, subject to the laws of the State of New York have power to
determine from time to time, whether, to what extent, and under
what conditions and regulations the accounts and books of the
Corporation or any of them shall be open to the inspection of the
shareholders, and no shareholder shall have any right to inspect
any account book or document of the Corporation except as
conferred by the laws of the State of New York unless and until
authorized so to do by resolution of the Board of Directors or
shareholders of the Corporation.
SECTION 5. Gender. Words used in these by-laws importing
the male gender shall be construed to include the female gender,
wherever appropriate.
ARTICLE IX.
AMENDMENTS
SECTION 1. Amendment by Directors. The Board of Directors
shall have the power without the assent or vote of the
shareholders to adopt by-laws, and except as hereinafter provided
in Section 2 of this Article, and subject to such limitations as
may be imposed by law, to rescind, alter, amend or repeal by a
vote of a majority of the whole Board any of the by-laws, whether
adopted by the Board or by the shareholders.
SECTION 2. Amendment by Shareholders. The shareholders
shall have power to rescind, alter, amend or repeal any by-laws
and to adopt by-laws which, if so expressed, may not be
rescinded, altered, amended or repealed by the Board of
Directors.
18<PAGE>
I, __________________, Secretary of Central Hudson Gas &
Electric Corporation, do hereby certify that the foregoing is a
full, true and correct copy of the by-laws of said Corporation as
in effect at the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary
of said Corporation and hereunto affixed its corporate seal this
day of _______, 199_.
____________________
Secretary
4/2/96
A:4296byl.BYL
I, Ellen Ahearn, Secretary of Central Hudson Gas & Electric
Corporation, do hereby certify that the foregoing is a full, true
and correct copy of the by-laws of said Corporation as in effect
at the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary
of said Corporation and hereunto affixed its corporate seal this
24th day of March, 1998.
(SGD.) ELLEN AHEARN
Secretary
4/2/96
A:4296byl.BYL<PAGE>
B Y - L A W S
OF
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
<PAGE>
TABLE OF CONTENTS
BY-LAWS OF
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Page
ARTICLE I. MEETING OF SHAREHOLDERS 1
Section 1. Place of Meeting 1
Section 2. Annual Meeting 1
Section 3. Special Meeting 1
Section 4. Notice of Meetings 1
Section 5. Quorum 2
Section 6. Inspectors 2
Section 7. Adjournment of Meetings 2
Section 8. Voting 2
Section 9. Record Date 3
ARTICLE II. BOARD OF DIRECTORS 3
Section 1. Number and Qualifications 3
Section 2. Election of Directors 3
Section 3. Term of Office 3
Section 4. Resignation and Removal 3
Section 5. Newly Created Directorships & Vacancies 4
Section 6. Election of Directors by Holders of
Preferred Stock 4
Section 7. Regular Meetings 5
Section 8. Special Meetings 5
Section 9. Notice and Place of Meetings 5
Section 10. Business Transacted at Meetings 6
Section 11. Quorum and Manner of Acting 6
Section 12. Compensation 6
Section 13. Indemnification of Officers & Directors 6
Section 14. Committees of the Board 6
ARTICLE III. EXECUTIVE COMMITTEE 7
Section 1. How Constituted and Powers 7
Section 2. Removal and Resignation 7
Section 3. Filling of Vacancies 7
Section 4. Quorum 7
Section 5. Record of Proceedings, etc. 8
Section 6. Organization, Meetings, etc. 8
Section 7. Compensation of Members 8
Page
ARTICLE IV. OFFICERS 8
Section 1. Election 8
Section 2. Removal 8
Section 3. Resignation of Officers 8
Section 4. Filling of Vacancies 9
Section 5. Compensation 9
Section 6. Chairman of the Board of Directors
& Chief Executive Officer 9
Section 7. Vice Chairman of the Board of
Directors 9
Section 8. President & Chief Operating Officer 9
Section 9. The Vice Presidents 9
Section 10. The Treasurer 9
Section 11. Controller 10
Section 12. The Secretary 10
Section 13. Other Officers 11
ARTICLE V. CONTRACTS, LOANS, BANK ACCOUNTS, ETC. 11
Section 1. Contracts, etc., How Executed 11
Section 2. Loans 11
Section 3. Checks, Drafts, etc. 12
Section 4. Deposits 12
Section 5. General and Special Bank Accounts 12
ARTICLE VI. CAPITAL STOCK 12
Section 1. Issue of Certificates of Stock 12
Section 2. Transfer of Stock 12
Section 3. Lost, Destroyed & Mutilated
Certificates 13
ARTICLE VII. DIVIDENDS, SURPLUS, ETC. 13
Section 1. General Discretion of Directors 13
ARTICLE VIII. MISCELLANEOUS PROVISIONS 13
Section 1. Fiscal Year 13
Section 2. Waiver of Notice 14
Section 3. Notices 14
Section 4. Examination of Books 14
Section 5. Gender 14
ARTICLE IX. AMENDMENTS 14
Section 1. Amendment by Directors 14
Section 2. Amendment by Shareholders 15
</PAGE>
