<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 - January 7, 1998
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of Registrant as specified in its Charter)
New York 1-3268 14-0555980
____________________________ ________________ _____________
(State or other jurisdiction (Commission File (IRS Employer
of incorporation number) Identification) Number)
284 South Avenue, Poughkeepsie, New York 12601-4879
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 452-2000
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Item 5. Other Events.
PSC Settlement Agreement
Reference is made to Registrant's Annual Report, on
Form 10-K, for the fiscal year ended December 31, 1996 ("Annual
Report"), and to the caption "Generally" in Item 1 of Part I
thereof for a discussion of the settlement negotiations regarding
the October 1, 1996 submissions of the New York utilities as part
of the Public Service Commission of the State of New York's
("PSC") Competitive Opportunities Proceeding. Reference is made
to Registrant's Current Report, on Form 8-K, dated April 1, 1997,
in which it was reported that Registrant entered into a
Settlement Agreement with the staff of the PSC and the New York
State Department of Economic Development on March 20, 1997 ("the
March 20, 1997 Settlement Agreement").
Reference is also made to Registrant's Quarterly
Report, on Form 10-Q, for the quarterly period ended September
30, 1997, and to the caption "Competition" in Item 5 Other
Information of Part II thereof for a discussion of the PSC's
directives with regard to the March 20, 1997 Settlement
Agreement.
As a result of subsequent negotiations with PSC staff
and others, Registrant entered into an Amended and Restated
Settlement Agreement with the staff of the PSC and several other
parties dated January 2, 1998 ("Settlement Agreement"), subject
to PSC adoption. Contemporaneous with the execution of the
Settlement Agreement, Registrant issued a press release
describing the Settlement Agreement, which is filed herewith as
Exhibit 99 and incorporated herein by reference. Also filed
herewith as Exhibit 99 and incorporated herein by reference is a
summary of the principle terms of the Settlement Agreement.
Registrant is unable to predict whether the PSC will
adopt the Settlement Agreement, which is currently scheduled to
be considered by the PSC at its January 21, 1998 session.
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits. Following is the list of Exhibits
furnished in accordance with the provisions of Item 601 of
Regulation S-K, filed as part of this Current Report on Form 8-K:
Exhibit No.
(Regulation S-K
Item 601
Designation)
__________________
Exhibits
(99) Press release of Registrant issued on January 2,
1998, relating to the PSC settlement negotiations in
the Competitive Opportunities Proceeding as reported
under the caption "Generally" in Item 1 of Part I of
Registrant's Annual Report, on Form 10-K, for the
fiscal year ended December 31, 1996.
(10) Amended and Restated Settlement Agreement, dated
January 2, 1998, among Central Hudson Gas & Electric
Corporation, the staff of the Public Service Commission
of the State of New York and other parties.
(99) Summary of principle terms of the said Amended and
Restated Settlement Agreement.
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:
DONNA S. DOYLE
Controller
Dated: January 7, 1998
EXHIBIT INDEX
Following is the index of Exhibits furnished in
accordance with the provisions of Item 601 of Regulation S-K,
filed as part of this Current Report on Form 8-K:
Exhibit No.
(Regulation S-K
Item 601
Designation)
_________________
(99) Press release of Registrant issued on January 2,
1998, relating to the PSC settlement negotiations in
the Competitive Opportunities Proceeding as reported
under the caption "Generally" in Item 1 of Part I of
Registrant's Annual Report, on Form 10-K, for the
fiscal year ended December 31, 1996.
(10) Amended and Restated Settlement Agreement, dated
January 2, 1998, among Central Hudson Gas & Electric
Corporation, the staff of the Public Service Commission
of the State of New York and the New York State
Department of Economic Development.
(99) Summary of principle terms of the said Amended and
Restated Settlement Agreement.
</PAGE>
<PAGE>
EXHIBIT 99(1)
January 2, 1998
FOR RELEASE: Immediately
CONTACT: Denise VanBuren, (914) 471-8323
Central Hudson, Parties Reach Revised Settlement Agreement
After several months of renewed negotiations, a revised
Settlement Agreement has been reached between Central Hudson, the
staff of the New York State Department of Public Service and
several parties involved in the Competitive Opportunities
Proceeding being conducted to open the state's electric industry
to competitive forces. The Agreement may be considered by the
PSC at its January 21 session, and if accepted, could become
effective in February 1998.
The three and a half-year accord includes a continuation of
Central Hudson's rate freeze, which has been in effect for all
customers since 1993; economic development enhancements to create
and maintain jobs in the Mid-Hudson Valley; and a phased-in
program to provide all customers with the opportunity to choose
their energy supplier beginning in 1998. "For more than a year,
we've worked diligently to create a plan which responsibly and
effectively gives residents and businesses of the Mid-Hudson
Valley the ability to select who supplies their electricity. At
the same time, this agreement also protects the best interests of
our customers, our shareholders, and our employees," said Arthur
Upright, Assistant Vice President of Cost & Rate and Financial
Planning. "Importantly, it also ensures that Central Hudson will
retain its position as the lowest-cost electric utility in New
York following the four-year transition to a fully competitive
electric market."
According to Upright, among the most significant revised
developments in the Settlement is an agreement that Central
Hudson will place up for auction the Danskammer Generating
Station and its share of the Roseton Electric Generating Station,
with the sale and transfer completed by June 30, 2001. Central
Hudson has maintained the right to bid in the auction. As a
result of the auction process, Central Hudson will have the
opportunity to recover prudently incurred investments made on
behalf of customers to meet their long-term energy needs. The
auction will also provide customer benefits if the auction
results in the sale of assets above their book value as
determined by regulation. An Auction Plan must be filed with the
PSC at least six months prior to the scheduled auction date.
Other key components include a provision to participate in a
statewide program to support public policy initiatives such as
Energy Efficiency and renewable sources for electricity
production; creation of a mechanism for implementing retail
transmission tariffs that have limited application during the
transition period; and a determination that customers
participating in the Company's "Customer Choice Plan for Farmers
and Food Processing Businesses" will do so under terms of the
Settlement Agreement once it becomes effective.
"The Settlement Agreement also lays the groundwork for a new
corporate structure at Central Hudson. On or before June 30,
2001 Central Hudson will establish a Holding Company which will
include a regulated distribution company that will maintain the
system of wires and pipelines which delivers electricity and
natural gas to customers," Upright said. "This company will
continue to reliably and safely deliver energy here in the Mid-Hudson
Valley, and will also provide the services -- such as new
installations, meter reading, and restoration of service
following storms -- for which customers have turned to Central
Hudson for a century," Upright said.
He added that the Holding Company will include unregulated
companies which will provide a variety of new services to
customers within and outside the Mid-Hudson Valley region.
</PAGE>
<PAGE>
EXHIBIT 99(2)
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
SUMMARY OF PRINCIPLE TERMS OF THE
AMENDED AND RESTATED SETTLEMENT AGREEMENT
DATED JANUARY 2, 1998
RATES/RETAIL CHOICE
* Continuation of an electric rate freeze (since December
1993) for residential, commercial and small industrial
customers through June 2001
* Customer benefit accounts will be established for each class
of customer as follows:
Residential $ 3.5 million per year
Commercial & Small Industrial $ 3.5 million per year
Large Industrial $ 3.0 million per year
Total $ 10.0 million per year
Such amounts will be used to offset the lost revenues for
retail access customers and to provide rate reductions
* A 5% reduction for large industrial customers, along with an
"energy value option" for retail access
* An additional 3% growth incentive for large industrial
customers
* A phase-in of Retail Choice through June 2001. The CTC is
set at 50% of the Company's non-fuel generation costs
* The fuel cost adjustment is retained
* A $3 million fund for systems benefits programs to be
collected via non-bypassable charge
* A 10.6% Return on Equity ("ROE") cap with excess earnings
deferred for stranded cost mitigation. Underruns in
earnings may be offset by deferrals from prior years
* A Customer Service Incentives Plan will be established:
* Service quality as determined by a Customer
Satisfaction Index. A penalty of 2.5 Basis Points of
ROE per 1% decline in the Index
* Reliability, as determined by frequency and duration of
outages. Maximum 15 Basis Point penalty on ROE
* Keeping scheduled appointments - $20 credit on customer
bills for missed appointments
CORPORATE RESTRUCTURING
* The opportunity to recover all strandable costs
* The Company's 9% interest in the Nine Mile Point 2 Nuclear
Station ("NMP-2") remains with the regulated T&D company,
with an agreement that the Company would participate in good
faith consideration of any New York State nuclear solution
* Functional unbundling of the Company's fossil generation in
1998, followed by structural separation by June 30, 2001
* An auction of the Company's fossil generation will be
completed by June 30, 2001. An auction plan is to be
submitted to PSC 6 months prior to such auction
* An unregulated affiliate of the Company may bid in said
auction
* In event the Company elects not to bid in said auction, the
Company will retain 5% of proceeds up to book value, 10% of
proceeds above book value, subject to $17.5 million cap.
Proceeds above book value not retained by the Company will
be used to offset the Company's fossil generation related
regulatory assets and the net investment in the NMP2
HOLDING COMPANY
* Approval to form a Holding Company
* Permission for the Company to transfer up to $100 million of
equity from the Company to unregulated affiliates prior to
formation of Holding Company
* The target date for formation of a Holding Company is
January 1, 1999, but not later than June 30, 2001
* No limitations on unregulated entities, use of Company name,
or type of business or location of business
* A provision for a $250k annual royalty to be credited to
utility customers for the period of the Settlement Agreement
* Standard safeguards including Code of Conduct, Cost
Allocation Guidelines, Affiliate Transaction Rules, limits
on employee transfers with exceptions during first year of
transition, bond rating criteria, and PSC access to books
and records
</PAGE>
<PAGE>
EXHIBIT 10
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------x
:
In the Matter of :
Central Hudson :
Gas & Electric Corporation's : Case 96-E-0909
Plans for Electric Rate/ :
Restructuring Pursuant to :
Opinion No. 96-12. :
:
- --------------------------------------x
AMENDED AND RESTATED
SETTLEMENT AGREEMENT
Dated: January 2, 1998
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION.............................................1
II. GENERAL PRINCIPLES.......................................1
III. DEFINITIONS..............................................2
IV. RATE PLAN................................................7
A. Base Rate Freeze......................................7
B. Customer Benefits: Sources, Amounts, Allocation and
Use for Funding Rate Reductions and Retail Access.....8
C. Ratemaking............................................9
D. Fuel Adjustment Clause................................9
E. Carrying Charges.....................................10
F. Mirror CWIP..........................................10
G. Deferrals............................................10
H. New Deferrals........................................10
I. Return on Equity.....................................11
J. New York Power Authority Economic Development Rate...12
K. Limitation on Central Hudson Bidding to ISO/PE.......12
L. Nine Mile Point 2, Hydroelectric and
Combustion Turbine Resources.........................12
M. Service Quality Incentive Plan.......................13
N. Potential Statewide Securitization Legislation.......13
O. System Benefit Funding and
Generic System Benefit Administration
and Environmental Disclosure Proceedings.............14
P. Transmission and Distribution System Upgrades.......15
V. CUSTOMER CHOICE.........................................15
A. General.............................................15
B. Choice Options Available to Residential and
Commercial/Small Industrial Customer Classes........16
C. Compliance With Commission Order
Concerning Retail Access Proposals..................17
D. Choice Options Available To S.C. No. 13 Customers...17
E. EVOP Provisions.....................................18
F. Customer Contracts..................................19
G. New Economic Development Tariff Provisions..........19
H. New Tariffs.........................................21
I. Retail Access Meters................................21
J. FERC Filing.........................................21
K. Recovery of ISO Start-up Costs and NTAC.............22
VI. CORPORATE STRUCTURE.....................................22
A. Functional Separation...............................22
B. Corporate Structure.................................22
VII. AUCTION OF FOSSIL GENERATION............................35
A. Auction Generally...................................35
B. Auction Objectives..................................36
C. Auction Principles..................................36
D. Auction Procedures and Criteria.....................36
E. Conditions Precedent to Obligation to Conduct Auction39
F. Closing on Sale of Fossil Generation.................39
G. Future Ownership of Generation.......................39
H. Auction Incentive....................................40
I. Represented Employees................................41
J. Commission Action Upon Auction.......................41
VIII. STRANDABLE COSTS.........................................41
A. Recovery of Strandable Costs.........................41
B. Treatment of Net Proceeds
on Sale of Fossil Generation.........................43
IX. GENERIC ISSUES...........................................43
X. MONITORING AND REPORTING REQUIREMENTS
RELATED TO THIS AGREEMENT................................44
A. Data on Retail Access Customer Information...........44
B. Reporting of Credit Balances.........................44
C. FAC Mechanics/Reporting..............................45
D. Financing Reporting..................................45
E. Holdco Reports.......................................45
F. Downgrade Reports....................................45
XI. RATE UNBUNDLING........................................45
A. Retail Access Tariffs and
Competitive Transition Charges ("CTC")...............45
B. Unbundled Tariffs....................................46
XII. ITEMS FROM CASE 92-E-1055................................46
A. West Delaware Hydro Contract.........................46
B. DSM Prudence.........................................46
XIII. OTHER PROVISIONS.........................................47
A. Term of Agreement....................................47
B. Effect of Agreement..................................47
C. Reservation of Rights................................49
D. Time Line............................................50
E. Applicable Law.......................................50
F. Entire Agreement and Merger..........................50
G. Titles...............................................50
H. Counterparts.........................................50
Attachment A - Amortization of Mirror CWIP Credit and Offsetting
Deferred Credit
Attachment B - Measurement Plan For Excess Earnings
Attachment C - Customer Service Incentive Plan
Attachment D - Time Line For Certain Actions
Attachment E - Initial Organizational Structure
Attachment F - Financing Provisions
Attachment G - Form of Certificate Pursuant to PSL Section 108
Attachment H - Cost Allocation Guidelines
Attachment I - Standards of Conduct
Attachment J - Illustrative Outline of Information to be
Provided in Auction Process
Attachment K - Illustration of Development of Net Proceeds From
the Sale of Fossil Generation
<PAGE>
CASE 96-E-0909
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
AMENDED AND RESTATED
SETTLEMENT AGREEMENT
I. INTRODUCTION
This Amended and Restated Settlement Agreement
("Agreement") is entered into as of the 2nd day of January, 1998
by and among the following parties to that certain New York
Public Service Commission ("Commission") proceeding entitled
Central Hudson Gas & Electric Corporation, Case No. 96-E-0909,
following discussions and negotiations with interested parties
pursuant to the Commission's Order of October 9, 1996, and
subsequent, related orders and notices: Central Hudson Gas &
Electric Corporation ("Central Hudson"), Staff of the Department
of Public Service ("Staff"), the Department of Economic
Development ("DED") and the Pace Energy Project.
This Agreement is an amendment and restatement of the March
20, 1997 Agreement that was filed with the Commission, subjected
to on the record hearings, issuance of a Recommended Decision,
filing of exceptions and consideration of exceptions by the
Commission at a Public Meeting on September 17, 1997.
Each party joining in this Agreement warrants that it has
full authority to enter into this Agreement and each signatory
executing this document in a representative capacity warrants
that he or she has full authority to execute this document with
the intention of binding his or her principals.
II. GENERAL PRINCIPLES
The discussions among the parties that resulted in this
Agreement were conducted pursuant to the Commission's Order
Establishing Procedures and Schedule (issued and effective
October 9, 1996) in this and other proceedings and subsequent,
related orders and notices.
The parties to this Agreement recognize that Central
Hudson's rates are now and have for some time been the lowest in
New York State. Central Hudson's average rates are close to the
national average (when adjusted for taxes and sales). In
addition, Central Hudson has not increased electric base rates
since December, 1993, which, together with the rate freezes in
this Agreement, will produce a seven and one half year period of
rate stability in nominal terms, and rate reductions in real
terms, for consumers in Central Hudson's service area.
This Agreement establishes the agreed upon transition for
Central Hudson to a restructured entity and will provide
customers with competitive choices for generation and retail
services. The parties have agreed to produce benefits for all
customers through implementing customer choice for all customer
classes, and providing rate reduction alternatives for the large
industrial customers (in conjunction with enhanced growth
incentives and new job retention incentives applicable to smaller
business consumers) so that the overall economy of the Mid-Hudson
Valley may benefit from economic growth, and to achieve fair
treatment of shareholders by providing a reasonable opportunity
to recover prudently incurred, verified and mitigated investments
including physical and regulatory assets, all in the fashions
described more particularly below.
This Agreement substantially responds to the Commission's
policy directives, as set forth in Opinion No. 96-12, by, for
example, describing how Central Hudson will provide retail access
and respond to other aspects of the emerging market, which
actions will be deemed to meet New York's policy goals for
competition for Central Hudson during the term of this Agreement.
This Agreement establishes the framework for applying to Central
Hudson the outcomes of Generic Proceedings which are not
inconsistent with the terms and conditions of this Agreement.
III. DEFINITIONS
As used in this Agreement, the following terms shall have
the meanings set forth below:
Auction Incentive: The retention by Central Hudson of up
to $17.5 Million (after tax) from the gross proceeds of the
auction of Fossil Generation.
Auction Plan: A description of the procedures to be
employed in conducting the auction of Fossil Generation.
Case 92-E-1055: That certain proceeding before the
Commission further denominated "Proceeding on the Motion of the
Commission as to the Rates, Charges, Rules and Regulations of
Central Hudson Gas & Electric Corporation for Electric Service."
Case 95-G-1034: That certain proceeding before the
Commission further denominated "Proceeding on Motion of the
Commission as to the Rates, Charges, Rules and Regulations of
Central Hudson Gas & Electric Corporation for Gas Service."
Central Hudson Enterprises Corporation ("CHEC"): The
wholly-owned subsidiary of Central Hudson Gas & Electric
Corporation formed in December 1982. On July 30, 1996, the
merger of Central Hudson Cogeneration, Inc. (another of the
Company's wholly-owned subsidiaries) into CHEC was accomplished.
CHEC is currently engaged in the business of conducting energy
audits, providing services related to the design, financing,
installation and maintenance of energy conservation measures and
cogeneration systems for private businesses, institutions and
governmental entities and it participates in cogeneration, small
hydro and alternate energy production projects, directly or
through one or more of its affiliates. At June 30, 1997, CHEC's
total equity was approximately $11.7 million.
Central Hudson Resources ("Resources"): A wholly-owned
subsidiary of Central Hudson that was formed in May 1980 to
engage in research, exploration and development work related to
the acquisition, transportation, storage and utilization of all
types and forms of energy and energy resources and similar
activities. At June 30, 1997, Resources' total equity was
approximately $300,000.
Coal Dock Project: The facilities installed by Central
Hudson in 1996-1997 for the unloading and handling of coal
delivered by ship or barge to the Danskammer Electric Generating
Station site.
Competitive Transition Charge ("CTC"): A non-bypassable
charge which will be designed to recover the Non-fuel Production
Costs of the Company's generation facilities and which may be
expressed in either customer, energy or capacity charge formats
(or some combination thereof). This CTC does not reflect a
determination of Central Hudson's Strandable Costs and will be
redesigned in conjunction with the development of unbundled
tariffs following the auction of Fossil Generation.
Comprehensive Tax or Economic Incentives: A comprehensive
package of economic incentives, including tax abatements or
similar incentives, negotiated separately by a customer with
state and/or local authorities, and including a customer
commitment to remain in New York State for at least three years.
Customer Benefits: The provision in this Agreement of
either rate reductions and/or funding of access to retail energy
or energy and capacity suppliers (other than Central Hudson).
Demand Side Management ("DSM"): Programs designed to
provide customers with information and options for improving
efficiency and measures for achieving improved energy efficiency.
Docket No. ER96-2466-000: That certain docket of the
Federal Energy Regulatory Commission ("FERC"), further entitled
New York State Electric & Gas Corporation, which is addressing,
inter alia, whether or not NYSEG, a utility that provides
economic development power from a state-owned generating plant to
specific retail customers under a state program, is engaging in
transactions subject to federal jurisdiction.
Effective Date: The date on which the Commission adopts
this Agreement according to the terms hereof.
Energy Value Option Plan ("EVOP"): A plan set forth in this
Agreement for S.C. No. 13 customers which allows those customers
the option of obtaining energy from suppliers other than Central
Hudson while still receiving the benefits of the Company's low-cost nuclear
and hydroelectric energy.
Fair Market Value: The value of property represented by
the consideration of an exchange, in an arm's length transaction,
of the property between a willing buyer and a willing seller.
Force Majeure: Events that cannot be overcome by
reasonable prudence and diligence, and without unusual expense,
caused, for example, by storm, flood, riot, fire, explosion, war,
strike (other than strike by Central Hudson's bargaining units)
or other casualty or cause beyond the control of Central Hudson.
Fossil Generation: Any of Central Hudson's existing
Danskammer Generating Units and its interests in the Roseton
Generating Station, including all related assets and liabilities.
Functional Separation: The creation of separate business
units within the existing corporate entity, involving the
separation of work functions and employees and the application of
standards of conduct, but not involving transfer of ownership of
assets, liabilities or equity.
Generic Proceeding(s): Proceedings conducted by the
Commission to address certain issues in the Competitive
Opportunities Proceeding for broad general application.
Greene Point Development Company ("Greene Point"): Greene
Point, which was formed in January 1969 principally to acquire
and hold real property purchased for ultimate transfer to the
Company for public utility use, is a wholly-owned subsidiary of
Central Hudson. At June 30, 1997, Greene Point's total equity
was approximately $200,000.
Independent System Operator ("ISO"): The organization that
will be responsible for maintaining the reliability of the bulk
power system in New York in an efficient manner and providing for
transmission service for all market participants on a comparable
and non-discriminatory basis.
LBMP: The acronym for Locational Based Marginal Cost
Pricing, referring to the pricing of energy and transmission
services to recognize the costs of congestion on the transmission
system.
Mirror CWIP: The accounting entries on Central Hudson's
books of accounts that represent the return on the inclusion of
NM2 construction work in progress ("CWIP") in rate base. Mirror
CWIP includes two balance sheet components: a credit amount
which is amortized to the benefit of ratepayers as directed by
the Commission and a corresponding debit amount which is
recovered from ratepayers generally over the book life of Nine
Mile Point Unit No. 2.
Nine Mile Point Unit No. 2 ("NM2"): That certain nuclear
generating station located on Lake Ontario in Scriba, New York
owned currently by Central Hudson and other utilities as tenants
in common.
1990 Settlement Agreement: That certain agreement related
to rate base and other issues concerning NM2 approved by the
Commission in its Opinion No. 89-37(C)(issued March 14, 1991),
sometimes called the "Global Settlement."
Non-fuel Production Costs of Generation: All non-fuel
costs of producing energy, including cost components such as
depreciation of and return on generation investment, operation
and maintenance expenses including labor, benefits, taxes,
supplies and services necessary to provide safe, efficient and
reliable production of electrical energy.
NTAC: The acronym for the New York Power Authority
("NYPA") Transition Adjustment Charge, a FERC approved charge
resulting from the implementation of LBMP pricing, intended to
provide for recovery of shortfalls in the NYPA transmission
system revenue requirements as determined by the FERC.
Operation and Maintenance ("O&M"): The costs of operating
and maintaining facilities, including labor, benefits, taxes,
supplies and services necessary or desirable to provide safe,
efficient and reliable electrical energy.
Other Post Employment Benefits ("OPEBs"): The benefits
other than pensions which Central Hudson has an obligation to
provide, such as health, life and dental insurance to retired or
separated employees.
Phoenix Development Company, Inc. ("Phoenix"): Phoenix is
a wholly owned subsidiary of Central Hudson that has been engaged
principally in acquisitions and holding of land for utility
purposes.
Power Exchange ("PE"): An entity that facilitates the
commercial energy markets by providing a forum for energy and/or
capacity and/or ancillary services sales between willing buyers
and willing sellers.
Protocol Agreement: That certain agreement between the NM2
co-tenants and other parties which provides, inter alia, for the
regulatory treatment of certain costs of NM2.
Public Utility Holding Company Act of 1935 ("PUHCA"): The
federal statute enacted in 1935, which, among other things,
governs the circumstances under which an utility holding company
must be registered with the SEC.
Research and Development ("R&D"): Programs undertaken or
sponsored to identify or discover new methods, processes or
equipment to improve, or lower the cost of, electric service to
customers.
Retail Access: The opportunity for a regulated utility's
customers to be provided with electrical energy and capacity and
retail services by suppliers other than the utility.
RKVA: The reactive kilovolt ampere charges in Central
Hudson's electric tariffs for certain Service Classifications.
Securities and Exchange Commission ("SEC"): The federal
agency which, among other things, administers provisions of
PUCHA.
Severance Costs: All costs of separating Fossil Generation
(as a stand-alone entity) from the existing systems, whether
incurred at or with respect to the generating facilities or at or
with respect to the remaining facilities.
Severance Facilities: The facilities, contracts or other
rights or obligations, which would require adjustment,
modification or treatment as a direct result of the sale of
Fossil Generation or to enable the independent operation of
Fossil Generation, including but not limited to cables,
protection facilities, fuel supply facilities, easements, etc.
Supplement #5: That Settlement Agreement approved by the
Commission in Case 95-E-0123 - In the Matter of a Nine Mile 2
Operating and Capital Forecast for 1996[,] filed by the Co-tenants, Central
Hudson Gas & Electric Corporation, Long Island
Lighting Company, New York State Electric and Gas Corporation,
Niagara Mohawk Power Corporation, and Rochester Gas & Electric
Corporation.
SFAS No. 71: Statement of Financial Accounting Standards
No. 71 - Accounting for the Effects of Certain Types of
Regulation.
SFAS No. 87: Statement of Financial Accounting Standards
No. 87 - Employers' Accounting for Pensions.
Strandable Costs: Those expenditures made by regulated
utilities in fulfilling their obligation to serve and provide
safe, reliable energy to customers within their franchise
territory which are not expected to be recoverable in a
competitive electricity market.
Systems Benefit Charge ("SBC"): A non-bypassable charge
(which need not be separately stated) to fund certain specified
Commission-mandated public policy program costs related to DSM,
R&D, low income or other programs of the type not expected to be
provided in a competitive electricity market.
Time Differentiated Meter: An electric meter having the
capability to record customer electric usage for, at a minimum,
each hour of each day.
Unbilled Revenues: Regulated utility revenues associated
with a customer's usage from the customer's last meter reading
date in a calendar year through the end of the calendar year.
Year: A period of twelve consecutive months, commencing
with the month following the month in which the Commission adopts
and approves this Agreement.
IV. RATE PLAN
A. Base Rate Freeze.
In consideration of the adoption, approval and
implementation of this Agreement by the Commission in accordance
with the terms hereof, Central Hudson agrees not to file with the
Commission a request that would increase base electric rates
prior to June 30, 2001 unless, prior to that date, the Fossil
Generation is transferred from the regulated utility to another
entity (whether affiliated or not), in which event, Central
Hudson will file with the Commission a request for a change in
base rates that would be effective subject to refund as of the
date of such transfer of the Fossil Generation.
Base electric rates will be frozen at current levels for
the term described above except for the reductions for S.C. No.
13, as provided in part V.D. herein, except for implementing the
existing special provisions on economic revitalization and
economic growth incentive discounts, utilizing authority
concerning flex rates already provided by the Commission in Case
92-E-0229 or implementing the new economic development incentives
provided for in this Agreement and except for revenue neutral
rate design changes.
Central Hudson is not precluded from making other filings
with the Commission for changes in rates such as Fuel Adjustment
Clause ("FAC") filings, revenue tax factors, or otherwise, by
this Agreement, or from appearing or taking action in any
Commission proceeding or making any other petition, application
or filing with the Commission that Central Hudson may deem
appropriate.
B. Customer Benefits: Sources, Amounts,
Allocation and Use for Funding
Rate Reductions and Retail Access.
Each Year during the term of this Agreement, $10 Million in
funding of Customer Benefits will be made available and allocated
among the "Residential," "Commercial & Small Industrial" and
"S.C. No. 13" customer groups as follows:
Residential $3.5 M per Year
Commercial & Small Industrial $3.5 M per Year
S.C. No. 13 $3.0 M per Year
The $10 Million per Year amount (referred to herein as "Customer
Benefits") will be utilized to fund the rate reductions and
Retail Access options provided for in this Agreement. The S.C.
No. 13 amount is inclusive of the $500,000 annual amount set
aside for funding certain economic development rates set forth in
part V.G. of this Agreement.
The sources of the annual $10 Million in Customer Benefits
will be as follows:
$3.0 M per Year from shareholder sources, cost reductions
or increased sales;
$3.5 M per Year from cost reductions associated with the
Coal Dock Project; and
$3.5 M per Year from deferred credits.
In the event that there should be a period of less than
twelve consecutive calendar months between the end of a Year and
the June 30, 2001 termination date of this Agreement, the funding
obligation for Customer Benefits and the related disposition of
those funds for that period shall be prorated.
C. Ratemaking.
Except as otherwise provided for in this Agreement, the
accounting and ratemaking conventions and methodologies,
including the existing deferral accounting and the use of a FAC
including the sharing mechanism set forth on 9th Revised Leaf No.
22C-1 of P.S.C. No. 14-Electricity, effective July 25, 1987,
which provides, among other things, for a maximum annual exposure
or reward of $3 Million, and all other items in effect as a
result of Case 92-E-1055, shall continue to apply. The
provisions of this Agreement will allow the regulated utility to
remain, during the term of this Agreement, under SFAS No. 71,
which provides for certain accounting conventions for regulated
companies subject to cost-based ratemaking.
D. Fuel Adjustment Clause.
The current FAC will be modified to capture the cost
reductions associated with the Coal Dock Project on a monthly
basis as follows:
1. the FAC will be charged for energy generated at
Danskammer Units #3 and 4, the equivalent amount, on a per MWh
basis, that will produce $4.5 Million per annum;
2. the funds collected through the above charge are to be
preserved and applied as follows:
i. the equivalent of $1.0 Million annually, will be
applied to the appropriate Accumulated Depreciation
Reserve Account(s) as the depreciation of the Coal Dock
Project; and
ii. the equivalent of $3.5 million annually will be
deferred in a sub-account of Account 253 - Other
Deferred Credits and utilized for funding the rate
reductions and Retail Access programs set forth in this
Agreement.
Due to the anticipated implementation of the ISO and PE
functions, in a manner and on a schedule that is not currently
known, modifications to the current FAC, or replacement of the
FAC, may be desirable, necessary or required during the term of
this Agreement. In the event of any such replacement mechanism
or any FAC modifications, the equivalent of the sharing mechanism
and $3.0 Million annual cap provisions of the current FAC will be
retained and the risk/reward profile in the current FAC will not
otherwise be materially altered.
E. Carrying Charges.
Carrying charges will be accrued on debit balances of the
internal reserve related to SFAS No. 87, following the
methodology described on page 6 of Appendix A of the Commission's
Statement of Policy and Order in Case 91-M-0890 (issued and
effective September 7, 1993).
F. Mirror CWIP.
The expiring Mirror CWIP amortization will be replaced, in
accordance with the schedule set forth in Attachment A, with
other deferred credits to the extent necessary to provide for
full replacement of the expiring Mirror CWIP credits. The
deferred credits to be used include those associated with O&M
credits arising out of NM2, OPEBs, pensions, DSM, R&D and others.
G. Deferrals.
Current deferral provisions and practices from Central
Hudson's last electric rate case (92-E-1055) will remain in
effect, with the exception that $3.5 Million per Year of pension
and OPEB deferrals will be used to fund, in part, the rate
reductions and Retail Access programs described in this
Agreement. The deferrals and associated rate allowances will not
terminate by reason of the expiration of this Agreement.
H. New Deferrals.
Exogenous cost increases of the types identified below
which meet the following standards may be deferred pending the
filing of a petition with, and approval by, the Commission. The
cost increases must be incremental to current rate allowances and
exceed a 5% materiality threshold of Central Hudson's New York
State jurisdictional electric net income, per year, per item,
with no accumulation.
The costs allowable for deferral are those attributable to
changes in federal or state tax law or regulations, legislative
or other regulatory changes, changes in accounting standards or
Force Majeure. In addition, any penalties accrued under the
Service Quality Incentive Plan will be deferred and applied to
reduce Strandable Costs and will be excluded from the calculation
of ROE under Attachment B.
Approval to defer the above items will be based upon the
Commission's past policies and practices which imply that rates
are set at levels that will recover the approved costs.
With respect to the Petition for Deferral of Storm Costs
filed by Central Hudson with the Commission on May 28, 1997,
Central Hudson is permitted to defer $5.3 million ($8.9 Million
of storm expenses and lost net revenues less non-incremental
expenses, IRS audit interest, Lunamar interest and rate case tax
reserves). In addition, taxes and interest thereon resulting
from the resolution of the pending Internal Revenue Service
("IRS") audit for tax years 1992 through 1996 shall be reserved
for the account of ratepayers on a net basis (i.e., including all
items related to regulated operations previously recognized in
the ratemaking process, whether in Central Hudson's or the IRS's
favor). The calculation method of Attachment B shall be applied
to actual 1997 earnings and the results, to the extent above the
10.6% ROE of this Agreement shall be deferred.
I. Return On Equity.
The achieved rate of return on common equity for Central
Hudson's Commission-regulated electric operations will be
calculated annually during the term of this Agreement according
to the procedure set forth in Attachment B. Until the end of the
calendar quarter within which Central Hudson structurally
separates its Fossil Generation pursuant to the auction
procedures provided for in this Agreement, earnings greater than
10.6% will be deferred. Earnings less than 10.6% will be offset
against previously deferred earnings in excess of 10.6%, to the
extent available. At the end of the calendar quarter within
which Central Hudson structurally separates its Fossil
Generation, the net earnings in excess of 10.6% will be used to
offset Strandable Costs and any excess over that amount will be
used to provide ratepayer benefits.
All such amounts will be deferred in a sub-account of
Account 253 - Other Deferred Credits. Disposition of any net
excess earnings will be determined by the Commission as part of
Strandable Cost recovery procedure described in part VIII. of
this Agreement. If the aggregate of the annual deferred earnings
amounts is negative at the end of the term of this Agreement,
Central Hudson shall not be entitled to recover such net amount.
In the event that a substantial portion of the Fossil
Generation is sold significantly before the remaining portion,
Central Hudson shall submit to the Commission the proposed
treatment of the net earnings cap, which may include a proposal
to change rates.
J. New York Power Authority Economic Development Rate.
This matter is currently being litigated by the Commission
before the FERC in New York State Electric & Gas Corporation,
FERC Docket No. ER96-2466-000. If the Commission retains
jurisdiction, Central Hudson will file a tariff with the
Commission within 90 days of the final resolution of the matter.
K. Limitation on Central Hudson Bidding to ISO/PE.
Following implementation of the ISO/PE, Central Hudson
agrees that the monthly average of its bids for each fossil fuel
unit to the ISO/PE shall not fall below the actual cost of fuel
plus variable O&M for such unit and that it will not enter into
bilateral sales at a price over the term of the transaction that
is below the actual cost of fuel plus variable O&M. This
limitation shall not be applicable to NM2 and shall not be
applicable after June 30, 2001 or such earlier date on which
Central Hudson transfers as a result of the auction process title
or interest in any existing Fossil Generation resource to another
entity, whether affiliated or not, nor shall this limitation
preclude Central Hudson from bidding as necessary to permit
delivery of bilateral transactions under the ISO/PE structure.
L. Nine Mile Point 2, Hydroelectric
and Combustion Turbine Resources.
Until July 1, 2001, or such later date on which the
Commission approves the transfer of any Fossil Generation
pursuant to the Auction provisions of part VII. of this
Agreement, the costs of Central Hudson's share of NM2 (including,
but not limited to, prudently incurred investments and
decommissioning costs), and Central Hudson's Hydroelectric
("Hydro") and Combustion Turbine ("CT") resources, shall continue
to be treated as rate base or expense items (as consistent with
the Commission's past treatment of such items) within the
regulated transmission and distribution ("T&D") entity, even
though these costs may be accounted for in a function or
functions separate from T&D. The existing NM2 ratemaking,
including the 1990 Global Settlement, the Protocol Agreement and
Supplement #5 or any successors, will be maintained according to
their terms through this time period. Following July 1, 2001, or
such later date on which the Commission approves the transfer of
any Fossil Generation pursuant to the Auction provisions of part
VII. of this Agreement, the costs of Central Hudson's share of
NM2 (including, but not limited to, prudently incurred
investments and decommissioning costs), and Central Hudson's
Hydro and CT resources will be recovered through charges by the
regulated T&D entity which, although the form has not been
determined, will be non-bypassable. The revenues from the sales
of power from these units will be attributed to the T&D entity.
Central Hudson agrees to participate in "good faith
discussions" related to a future State-wide nuclear resolution
that might include other ratemaking options as they relate to the
recovery of the on-going costs associated with the operation of
NM2 (as distinguished from prudently incurred investment and
decommissioning costs), such as placing some portion of NM2
operating costs at market risk, securitization, facility sale or
establishment of a state-wide nuclear operating company, and
which are consistent with the following principles:
1. Continuation of regulation of Central Hudson's
ownership share of NM2 as part of Central Hudson's T&D
entity;
2. Recognition of the importance of maximizing the
benefits inherent in the operation of NM2 as a base
loaded unit over its useful life;
3. Approval by the Nuclear Regulatory Commission of any
nuclear restructuring and ratemaking, to the extent of
its authority; and
4. Agreement to future nuclear State-wide solutions as
they relate to NM2 by Central Hudson and the other NM2
co-tenants.
M. Service Quality Incentive Plan.
The Service Quality Incentive Plan annexed hereto as
Attachment C will be applicable during the term of this
Agreement.
N. Potential Statewide Securitization Legislation.
In the event of enactment of statewide securitization
legislation producing net cost savings to Central Hudson, and
provided that such statute does not mandate a different
allocation of the benefits of securitization, such net benefits
will be allocated to all customers, other than customers in the
S.C. No. 13 class in light of the rate reductions and other
customer choice options set forth in this Agreement. To the
extent allowed by such statute, the parties recommend that the
Commission allocate up to ten percent of the achieved net cost
savings to Central Hudson resulting from securitization to SBC
programs.
O. System Benefit Funding and Generic
System Benefit Administration
and Environmental Disclosure Proceedings.
The $3.0 Million per Year in funds previously allocated to
metering by the March 20, 1997 Settlement Agreement are
reallocated by this Agreement to increased funding for the SBC
for three years, beginning with the year in which the Commission
approves this Agreement. The funding in this Agreement for SBC
programs will be one mill per kwh, and will not exceed one mill
per kwh during each year of the three years. Any such funding
and any increases in funding levels required by law (including by
order of the Commission) will be fully recoverable by Central
Hudson. Funding not expended in any year will be preserved for
subsequent disposition by the third party administrator until
June 30, 2001. Any funding not expended as of June 30, 2001
shall be available for such uses as the Commission may direct.
Central Hudson shall be free to make proposals concerning such
uses.
The Commission may appoint a third-party administrator to
administer the SBC funded programs. All SBC funding under this
Agreement accrued after the approval of this Agreement will be
allocated by the statewide administrator. However, the
establishment of such statewide administrator shall not preempt
funding commitments for SBC programs made by Central Hudson prior
to the approval of this Agreement by the Commission. Central
Hudson agrees to participate in any generic proceeding concerning
administering the SBC as the Commission may establish.
The parties agree that customer choice may be enhanced by
the availability of environmental information concerning the
power being provided to them. The parties agree to work in any
environmental disclosure generic proceeding that the Commission
may establish to develop means of providing customers with
information on the fuel mix and emission characteristic of
generation. Environmental disclosure may facilitate informed
customer choice, promote resource diversity and improve
environmental quality. Central Hudson generally does not object
to the concept of environmental disclosure if reasonably
accomplished consistent with market requirements and reserves its
rights to take any position consistent with this principle
concerning the manner and extent of environmental disclosure.
P. Transmission and Distribution System Upgrades.
During the term of this Agreement, for each new major T&D
upgrade (projects of $2 million or more) that Central Hudson
undertakes, the Company will identify the location, reason, scope
and projected capital costs, and shall monitor circuit peaks for
any affected substation and the load on any affected transmission
lines as part of its planning process. When deciding whether to
implement major T&D upgrades, the Company shall consider cost-effective
alternatives that reduce the capital and operating
costs of the T&D utility, including demand side technologies and
practices, fuel cells, photovoltaic systems or other
alternatives, including environmentally beneficial alternatives,
that may defer the need for implementing the upgrade. Providing
that the foregoing procedures concerning major T&D projects are
followed, Central Hudson shall not be precluded by this Agreement
from implementing any alternative it deems appropriate subject to
any required governmental approvals. T&D projects that involve
relocating existing facilities because of highway construction or
are designed solely to accommodate contingency requirements in
order to maintain the reliability of the T&D system are not major
projects for the purposes of this paragraph. The Company will
seek to minimize costs and environmental impacts for T&D projects
that are not major projects.
V. CUSTOMER CHOICE
A. General.
This Agreement provides for implementation of a number of
customer choice options, on the terms and conditions described
subsequently. The customer choice options include phased-in
availability of retail access to residential and small commercial
and industrial customers, and a program permitting large
industrial customers to select rate reductions, or Retail Access
options, or an Energy Value Option Plan ("EVOP"), or a
combination thereof.
B. Choice Options Available to
Residential, Commercial and
Small Industrial Customer Classes.
Central Hudson will make Retail Access available to all
customers in these classes by no later than early 1998, subject
to the penetration levels and timetable set forth below:
Percent Load Percent Load
Penetration Level,% Penetration Level,%
Dates C& Small I Classes Residential Classes
Early 98 to 12/31/98 8 8
1/1/99 to 12/31/99 16 16
1/1/00 to 12/31/00 24 24
1/1/01 to 6/30/01 28 28
The load penetration levels set forth in this table are estimated
maximum loads based on the funding obligations described in part
IV.B. of this Agreement and may not be achieved. Central Hudson
is not required to provide Retail Access at levels greater than
those listed above. On July 1, 2001, penetration level
restrictions will be eliminated.
The participation of customers in Retail Access will
produce lost revenues during the term of this Agreement. The
lost revenues will be funded by accrual of up to $3.5 million per
Year for the Residential Classes as a group and $3.5 million per
Year for Small Industrial and Commercial classes as the other
group from the funding sources listed in part IV.B. of this
Agreement after applying a CTC, as described in part XI.A. of
this Agreement. This CTC will be at the level of approximately
50% of Central Hudson's Non-fuel Production Costs.
To the extent that funding from the sources identified in
part IV.B. of this Agreement is available but not used in a
particular Year, such unused funding will be carried forward to
the following Year during the term of this Agreement. Any
unexpended, accumulated retail access funding available at the
end of the term of this Agreement will be deferred to offset
Strandable Costs, and any funding balance then remaining will be
used to provide ratepayer benefits. Lost revenues produced from
the tariffs that became effective on November 1, 1997 in Cases
96-E-0948 and 94-E-0385, until the date that the Retail Access
program of this Agreement begins, will be deferred and charged
against the 1998 Retail Access funding obligation.
C. Compliance With Commission Order
Concerning Retail Access Proposals.
Any customers receiving service under tariffs that became
effective on November 1, 1997 in Cases 96-E-0948 and 94-E-0385,
et al. will be transferred to the tariffs applicable to such
customers under this Agreement, as of the effective date of the
Commission approval of the tariffs under this Agreement.
D. Choice Options Available To S.C. No. 13 Customers.
S.C. No. 13 customers will be afforded the options
described below.
1. Customers not wishing to enter into a requirements
contract with Central Hudson may continue to receive
service under Central Hudson's existing S.C. No. 13
tariff. In addition, such customer may elect full
Retail Access (capacity and energy) for all or a
specified portion of its load, provided that a non-bypassable CTC
recovering Central Hudson's Non-fuel
Production Costs of Generation, as have been allocated
to S.C. No. 13, will be applicable.
2. S.C. No. 13 customers wishing to enter into either a
full or partial requirements contract with Central
Hudson for a term ending on June 30, 2001, which
contract will contain a one year cancellation right on
the terms described below, may select, through an
annual, written customer election in advance, from the
following:
i. a 5% rate reduction (i.e., full requirements); or
ii. a 5% rate reduction together with an Energy Value
Option (EVOP) (described below in part V.E.)
(i.e., partial requirements); or
iii. a Retail Access Option, (i.e., partial
requirements), either with or without EVOP, for
approximately 12-18% of each customer's usage
based on each customer's load characteristics,
that includes a CTC set equal to approximately 50%
of Central Hudson's Non-fuel Production Costs of
Generation. This option will be funded by and
limited to the equivalent of the 5% rate reduction
applied to that customer's load characteristics.
The 5% rate reduction (Option "i," above) will be achieved
as follows: Central Hudson will reduce the current base rate
price for the demand, energy and RKVA components by 5% to each
member of this class that executes a full requirements contract
with Central Hudson for the term of this Agreement.
Options "ii" or "iii" above will be available to S.C. No.
13 customers which enter into partial requirements contracts with
Central Hudson for the term of this Agreement. The 5% rate
reduction portion of Option "ii" will also be achieved by
reducing the current base rate price for the demand, energy and
RKVA components by 5%.
All contracts for options "i," "ii" or "iii" will include a
right for the customer to cancel on twelve months' advance,
written notice of cancellation and the annual right, to be
exercised on or before October 1 of each calendar year during the
term of this Agreement, to select any of the options set forth
above for the following calendar year; provided, however, that
any customer then selecting option "i" will execute a full
requirements contract with Central Hudson for the remaining term
of this Agreement.
Should a customer not provide the written advance
notification to Central Hudson by October 1 of a given calendar
year, that customer will retain its then current rate status for
the subsequent calendar year.
In the event that a customer exercises its option to cancel
its requirements contract with Central Hudson on one year's
advance notice, such customer may elect either to take service
during the then remaining term of this Agreement pursuant to
Central Hudson's existing S.C. No. 13 tariff or elect full Retail
Access (energy and capacity). In the latter event the customer
electing full retail access will pay, for the then remaining term
of this Agreement, a CTC recovering an amount equal to Central
Hudson's Non-fuel Production Cost of Generation.
E. EVOP Provisions.
The EVOP option permits S.C. No. 13 customers to obtain
energy from suppliers other than Central Hudson. Recognizing
that Central Hudson has low energy costs, S.C. No. 13 customers
participating in this program will, for purposes of this program,
be provided their pro-rata share of Central Hudson's low cost
nuclear and hydro power (representing about 20% of the S.C. No.
13 class energy requirements). For the remaining approximately
80% of the S.C. No. 13 class energy requirements, a higher fuel
cost level will result, against which alternative suppliers may
compete.
Each customer electing to participate in the EVOP will, as
part of its contract with Central Hudson, assume the
responsibility of selecting its desired supplier to provide
energy for the balance of its energy requirements above the level
provided from Central Hudson's nuclear and hydro resources.
EVOP requirements will be established in tariffs to be
filed with the Commission that will include a form of contract
between participating customers and Central Hudson, and contain
provisions such as off-peak maximum delivery limits, compensation
for minimum run level/dump energy costs, specification of
customer responsibility for balancing and scheduling and
provisions for curtailments. Central Hudson may, upon
establishment of a mutually acceptable business agreement between
Central Hudson and a customer which chooses EVOP option, perform
administrative functions concerning EVOP for such customer.
Customers electing to participate in the EVOP may either
receive a single bill from Central Hudson or receive separate
bills from Central Hudson and the energy provider. The account
of each participating customer will be settled on a month-end
basis for over, under, or no deliveries. Central Hudson will be
responsible for settlements with the suppliers. Suppliers will
be responsible for under or no deliveries on a real time basis at
the greater of Central Hudson's average or incremental costs and
for over deliveries at Central Hudson's average costs.
F. Customer Contracts.
EVOP and Retail Access will be implemented through
contracts between Central Hudson and participating customers,
using standard form contracts that will be contained in the
appropriate tariff.
G. New Economic Development Tariff Provisions.
Central Hudson's existing growth incentive tariff will be
modified as follows:
1. Raising the existing "cap" from 50MW to 75MW;
2. Expanding the qualifying customer classes to include
specified SIC Codes within the S.C. No. 3, Large Power,
Primary Service class;
3. Applying an incremental minimum growth requirement for
S.C. No. 3 of 250KW and a discount of 20%;
4. Imposing a sunset date of 7/1/2001 for the growth
incentive tariffs for S.C. No. 3;
5. Increasing to 28% the growth incentive discount in S.C.
No. 13, which shall be applicable to new electrical
load added after the date on which tariffs implementing
this Agreement are approved by the Commission and shall
sunset on 6/30/2001; and
6. Removing the following sentence from the existing
tariff: "The Company will assist the customer in
identifying and implementing cost effective measures
recommended by the audit."
In addition (although not available for loads covered under
the above provisions), Central Hudson's existing S.C. Nos. 2 and
3 tariffs will be modified to include a special job retention
provision. This provision will be applicable to customers having
a minimum load of 250 KW and the same SIC Codes specified for
S.C. No. 13, where there is a certification by DED that the
customer has satisfactorily documented that Comprehensive Tax or
Economic Incentives and the special retention rates are both
necessary to retain the customer in New York State. To be
considered for certification by DED, the customer must
satisfactorily document one or more actual, impending relocation
opportunities outside New York State that would significantly
reduce the operating costs of the customer and the customer must
also document the existence of Comprehensive Tax or Economic
Incentives from local and/or State authorities. This special
provision will sunset on June 30, 2001. The special provision
will contain a discount of 20% on the demand, energy, and RKVA
prices and will be applied to the portion of the load
corresponding to the legitimate job retention situation that has
been demonstrated, provided that the customer's usage does not
fall below 85% of the most recent twenty-four month historical
usage. Power available under this special provision will be
capped according to the following schedule of cumulative power
for each year of this Agreement:
Effective Date 7/1/98 to 7/1/99 to 7/1/00 to
to 6/30/98 6/30/99 6/30/00 6/30/01
3 MW 5 MW 7 MW 9 MW
The lost revenues resulting from this special provision will be
deferred and included with any unexpended, accumulated retail
access funding as of June 30, 2001 as described in part V.B.
H. New Tariffs.
On July 1, 2001, all customers, including participating
Retail Access customers, will be transferred to new tariffs and
will be eligible for full (capacity and energy) Retail Access.
I. Retail Access Meters.
Customers in S.C. Nos. 3 and 13 which currently have Time
Differentiated Meters shall retain such meters; all customers in
all other classes will be billed for Retail Access purposes based
on class load shape data and Time Differentiated Meters will not
be used for any such customer, subject to the Commission's
generic metering determinations.
Up to the most recent 24 months of metered customer usage
data using a standardized format shall be made available at no
charge upon written authorization from each customer, or
customer's designee. Other, more detailed or value-added data
may be made available using standardized formats upon written
authorization from each customer or customer's designee to any
third party requesting such data, on a non-discriminatory basis,
and Central Hudson may charge a reasonable fee for such
information.
J. FERC Filing.
Implementation of customer choice Retail Access assumes
that the FERC will accept or grant waivers concerning the Retail
Access provisions established in this Agreement that supplement
or conflict with Central Hudson's FERC Open Access Transmission
Tariff ("OATT"), for the term of this Agreement. Central Hudson
agrees to file with the Commission, within 30 days following
acceptance and approval of this Agreement by the Commission,
proposed modifications to its then current FERC OATT tariff to
incorporate the rate design changes and non-price terms and
conditions necessary to make the OATT tariff consistent with the
Retail Access program of this Agreement. The rate design changes
will utilize the rate design principles of the existing Central
Hudson retail rates. Central Hudson will, within 10 days
following issuance of a Commission order approving the OATT
tariff modifications, file a request with the FERC seeking FERC
approval of those modifications and Central Hudson will
diligently prosecute such application thereafter. The filing
with the FERC will include a copy of the Commission's order.
If the FERC should require that the transmission or other
component of retail access service be provided under Central
Hudson's OATT or other FERC tariff, the retail rates resulting
from implementation of the CTC provisions of this Agreement will
be further adjusted to offset any differences (positive or
negative) in revenue requirement recovery for the transmission or
other component of retail service provided under the FERC
tariff(s), so that revenue recovery matches the recovery that
would have occurred had transmission or other service provided
under the FERC tariff(s) been provided under the rates previously
approved by the Commission in Case 92-E-1055.
K. Recovery of ISO Start-up Costs and NTAC
By Petition dated November 12, 1997, Central Hudson and
other utilities have sought Commission approval to defer, for
later collection, the incremental costs related to the formation
of the ISO. To the extent that the Commission approves such
deferral, and the costs are not otherwise recovered through FERC
jurisdictional rates, Central Hudson shall be permited to defer
all such costs for later recovery in the fashion approved by the
Commission.
To the extent that NTAC costs are allowed by the FERC for
ratemaking purposes, either in whole or in part, such costs may
be recovered through Central Hudson's FAC, or through such other
methods as may be approved by the Commission.
VI. CORPORATE STRUCTURE
A. Functional Separation.
Central Hudson will functionally separate generation
(exclusive of NM2, CTs and hydro) and T&D, consistent with the
time-line set forth in Attachment D, provided that any other
actions precedent to such functional separation set forth on the
time-line (Attachment D) also occur on a timely basis.
B. Corporate Structure.
1. The adoption and approval of this Agreement by the
Commission shall be deemed to constitute all requisite Commission
approvals, within the scope of its authority, for the
reorganization of Central Hudson into the holding company
("Holdco") described herein and all requisite Commission
authorization for the operation of Holdco, including the
formation of Holdco, the Share Exchange, the structure and
investments of Holdco, the formation of Genco and the operation
of all affiliates, including, by way of illustration and not
limitation, Holdco, Central Hudson, CHEC and Genco. It is the
intent and shall be the effect of this Agreement that, upon
adoption and approval hereof by the Commission, no further
Commission authorization for the reorganization into the Holdco,
formation or operation of Holdco and affiliates shall be
required.
2. The initial structure of Holdco will include i)"Regco,"
a Commission-regulated electric and gas T&D subsidiary of Holdco
that may also contain generation assets and which shall continue
to be called Central Hudson Gas & Electric Corporation,
ii)"Genco," a subsidiary or subsidiaries of Holdco that may own
or operate generation assets (whether in fee, joint tenancy,
leasehold, partnership or other ownership form) and is considered
to be "unregulated" in this Agreement for purposes of
distinguishing Genco from Regco, iii) CHEC, an unregulated entity
that currently owns and operates independent power production
facilities and provides other, energy-related services, and
iv)other entities, all as shown on the chart (Attachment E)
reflecting the initial organizational structure, after
establishment of the Holdco and implementation of the related
transactions described in this Agreement.
The authorization and approvals provided by the Commission
of the Holdco described in this Agreement anticipate that the
structure of Holdco may vary from that shown in Attachment E and
recognize that the Holdco structure is expected to change from
time to time. The Holdco may include one or more subsidiary
holding companies.
3. The date of restructuring into a Holdco is contingent
upon receipt of required approvals and is subject to Central
Hudson's discretion, however it is expected that the
restructuring of Central Hudson into a Holdco organization will
be accomplished by no later than June 30, 2001 and may be done
earlier.
4. The first $7.5 million of the reasonable and prudent
costs of restructuring into a Holdco organization will be
allocated on a two-thirds/one third basis between regulated and
unregulated activities, respectively. The regulated portion
thereof shall be deferred and recovered through the computation
described in part VIII.A. of this Agreement. In no event shall
the amount allocated to unregulated activities exceed $2.5
million. Any costs of restructuring into a Holdco organization
above $7.5 million will be allocated to regulated activities.
5. It is recognized that the auction of Central Hudson's
Fossil Generation assets described in this Agreement will be a
step that will facilitate a competitive market place for electric
generation. It is further recognized that, because of the
safeguards incorporated herein, the reorganization of Central
Hudson into a Holdco structure will not subject customers of the
regulated utility ("Regco") to unacceptable risks.
6. Until such time as the restructuring into the Holdco
organization is accomplished through the Share Exchange described
subsequently in this Agreement, the total new equity investment
in unregulated subsidiaries of the existing Central Hudson Gas &
Electric Corporation shall be limited to $100 million. Central
Hudson may sell, no later than June 30, 2001, up to $100 million
of securities comprised of debt, common stock (up to 1.0 million
shares) and preferred stock. The proceeds from the securities
will be used to retire outstanding short-term debt balances and
will not, in whole or in part, be chargeable to utility operating
expenses or income. The company has a proper need and basis for
the issuance of securities. The adoption and approval of this
Agreement by the Commission shall constitute all authorizations
within the Commission's authority (including but not limited to
PSL Section 69) for the transfer of funds and for the issuance of such
securities provided that the terms and conditions governing the
issuance of these securities, as are contained in Attachment F,
are followed. Transfers of funds to affiliates prior to the
restructuring into the Holdco organization shall be subject only
to the limitations of the following paragraph.
In the event that, following approval of this Agreement by
the Commission but prior to the restructuring into the Holdco
organization, Central Hudson's senior debt is placed on "Credit
Watch" (or the equivalent) for a rating below BBB- or downgraded
to below BBB- by more than one credit rating agency, transfer of
additional equity to affiliated entities shall be temporarily
halted, pending review on an expedited basis by the Commission of
whether additional equity transfers to subsidiaries would subject
customers of the regulated entity to unacceptable risk. The
limitations of this paragraph shall no longer be applicable upon
the restructuring into the Holdco organization.
There is no limitation in this Agreement on the lines of
businesses in which Holdco or any subsidiary thereof may invest,
or, subject to the limitations of part VII.G. hereof, on the
locations in which such businesses may be conducted or on the use
of any corporate name, trademark, etc. or on the identification
of affiliates.
7. The reorganization of Central Hudson into a Holdco
structure will, subject to receipt of favorable state and federal
tax rulings, be established pursuant to a Plan of Exchange.
Under the Plan of Exchange, all outstanding shares of Central
Hudson Gas & Electric Corporation's Common Stock will be
exchanged on a share-for-share basis for Holdco Common Stock
("Share Exchange"). Upon consummation of the Share Exchange,
each holder of Central Hudson's Common Stock immediately prior to
the Share Exchange will own a corresponding number of shares and
percentage of the outstanding Holdco Common Stock, and Holdco
will own all of the outstanding shares of Central Hudson's Common
Stock. Subsequent to the Share Exchange, the Company will
distribute to Holdco all of the common stock of CHEC, Resources
and Greene Point, which transfers, subject to receipt of
favorable state and federal tax rulings, are currently
anticipated as being made in the form of stock dividends.
8. The Share Exchange is not expected to result in any
change in the then outstanding Preferred Stock or debt securities
of Central Hudson Gas & Electric Corporation, which will continue
to be securities and obligations of Regco after the Share
Exchange.
9. Consummation of the Share Exchange or subsequent
implementing transactions will require certain approvals of the
FERC, the SEC and the Nuclear Regulatory Commission ("NRC"). The
Company intends to file requisite documents and/or applications
with the FERC, SEC and NRC as soon as practicable following the
Commission's adoption and approval of this Agreement.
10. Holdco will file with the SEC for an exemption from
the registration requirements of PUHCA, to the extent necessary.
It is contemplated (although not a condition hereof) that Holdco
will qualify for an exemption from registration under section
3(a)(1) of PUHCA as a "predominantly intrastate" public utility
holding company.
11. The approval of shareholders of Central Hudson's
Common Stock will be required for the reorganization of Central
Hudson into a Holdco organization. The Company will seek
shareholder approval at a Meeting of Shareholders to be held
within a practicable time following the Commission's adoption and
approval of this Agreement. In connection with its solicitation
of proxies to vote at the meeting, Holdco will file a
Registration Statement on Form S-4 with the SEC to register the
Holdco Common Stock to be exchanged for the outstanding Central
Hudson Common Stock and such Registration Statement must become
effective. The Registration Statement will also contain a proxy
statement of Central Hudson describing the corporate
restructuring, which proxy statement will be mailed to Central
Hudson shareholders prior to the anticipated Meeting of
Shareholders.
12. The adoption and approval of this Agreement shall be
deemed to constitute authorization to the Secretary of the
Commission to endorse on behalf of the Commission, upon
presentation by Central Hudson, a Certificate of Exchange
pursuant to Section 108 of Public Service Law (substantially of
the form set forth in Attachment G to this Agreement).
Thereupon, Central Hudson will deliver the Certificate of
Exchange to the New York State Secretary of State for filing.
13. Regulated operations: Regco will offer regulated and
market based wholesale energy services and retail energy services
insofar as the scope of the latter may be revised from time to
time by the Commission. Regco also retains the option of
providing, with Commission approval, the same range of energy
products and services that unaffiliated, unregulated energy
service companies may offer to the customers Regco may be
obligated to serve as an utility.
Regco is expected to engage in retail sales within its
service territory under Commission-approved tariffs. Outside of
its service territory, during the period of time prior to the
auction of Fossil Generation, Regco is expected to market at
wholesale energy, capacity and ancillary services from generating
facilities it owns and maintains. Regco may also market outside
of its service territory at retail energy, capacity and ancillary
services from generating facilities it owns and maintains to the
extent that such sales benefit Regco's customers; such sales will
be treated as if they were sales for resale for purposes of
Central Hudson's FAC. Regco's activities may include wholesale
transactions where it makes purchases or sales through a Power
Exchange, ISO or bilateral transactions with other utilities,
marketers, brokers and energy service companies, within and
outside of its currently existing electric service territory.
Regco shall establish a capital structure that is
appropriate for the financial risk of the entity, as that risk
may change from time to time. In the event of reduction in the
financial risks of Regco, any equity capital of Regco that is no
longer recognized in the establishment of Regco's retail rates
may be redeployed by Regco, including transfer to Holdco or an
affiliate.
14. Unregulated Ventures: Holdco may take advantage of
competitive business opportunities in both energy and non-energy
related businesses by establishing such unregulated affiliates as
it deems appropriate, which will be free to operate in such
places as Holdco may determine. Genco may be a participant in
the generation and energy supply market within and outside of New
York. Notwithstanding any provision of this Agreement which may
be to the contrary, Genco will be subject to regulation by the
Commission to no greater manner or extent than that manner and
extent of Commission regulation imposed upon other owners of
generating facilities legally similar to those owned or operated
by Genco, except for the Cost Allocation Guidelines and Standards
of Conduct set forth in Attachments H and I, respectively,
herein. Further, it is understood and agreed that CHEC's
operations within and outside Central Hudson's service territory
may be expanded, without any further Commission approval, to
provide CHEC with the capacity to function as an ESCO and as a
power marketer, as well as to perform any other legally
permissible services as may be provided for under an amended
Certificate of Incorporation for CHEC, subject to the
clarification that to the extent that the Commission establishes
rules of general applicability for operations by ESCOs, CHEC will
be subject to the same rules. Within six months of Commission
adoption and approval of this Agreement, officers of Central
Hudson (other than the Chairman of the Board and President) will
not be officers of CHEC. In addition, provided that the
safeguards described in Attachments H and I hereof are utilized,
Central Hudson is authorized to establish an Energy Service
Company(ies) or electric marketing or supply functions to sell
energy and related services inside or outside its established
franchise.
15. The Standards of Conduct set forth in Attachment H
shall be applicable to any transactions between an unregulated
affiliate (including Holdco) and Regco; provided, however, that
Attachment H shall apply in lieu of any existing generic retail
standards of conduct (e.g., Case 93-G-0932) and in lieu of any
future generic retail standards of conduct established by the
Commission during the term of this Agreement and provided further
that wholesale transactions and other activities under FERC's
jurisdiction will be governed by the standards of conduct imposed
under FERC's Order 889 Open Access Service Real Time Information
System and Standards of Conduct and the provisions of the
applicable FERC Market-Based Rate Schedules.
16. It is recognized that the schedule for the
restructuring into a Holdco organization is not currently known
and that there will be a period of unknown duration during which
the regulated utility's operations will continue to include
Fossil Generation assets. In recognition of the additional
financing flexibility provided by part VI.B.6 hereof, during such
period of time pending the formation of Holdco, Central Hudson
will apply the Cost Allocation Guidelines and Standards of
Conduct protections, set forth respectively in Attachments H and
I hereof, to any transactions between Central Hudson and any
affiliate.
17. Common Officers: Non-administrative operating
officers of the Regco will not be operating officers of the
unregulated affiliates. No more than five officers of the Regco
may serve, at the same time, as officers of any unregulated
affiliate, except that the Secretary and Treasurer of Regco may
serve in the equivalent position(s) of Holdco and other
affiliates. The line officers of Regco with direct
responsibility for engineering, generation resource acquisition
or customer services may not serve as officers of an affiliate.
18. Transfers of assets other than generation from Regco
to any affiliated entity will be governed by PSL Section 70; transfers
of generation are governed by other provisions of this Agreement.
A one time exclusion from the foregoing limitation is hereby
established for office space/office equipment: In connection
with the Holdco's commencement of operations, Regco may lease
office space (at local market rates) up to a limit of
$400,000/yr. to the Holdco; Regco may transfer to the Holdco
office furniture, equipment and similar assets as are reasonably
required for Holdco's purposes up to a limit of $750,000 (book
value); and Regco may transfer realty to Holdco up to a limit of
$1.0 million (greater of book or market value). Other than as
provided elsewhere in this paragraph, transfers of assets from
Regco to any affiliated entity shall not be made absent any
statutorily-required Commission approval.
19. Regco may provide goods and services to Holdco or any
other affiliate on a tariffed basis or on a fully allocated cost
basis, determined in accordance with the Cost Allocation
Guidelines set forth in Attachment H.
Services from an affiliate to Regco under a management,
construction, engineering or similar contract subject to PSL Section 110
requirements for a written contract will be governed by Section 110,
subject to any applicable FERC requirements. To the extent such
services are not within PSL Section 110 and the Standards of Conduct are
followed, they may be provided pursuant to this Agreement.
Genco may have bilateral sales contract(s) with Regco. Any
such purchases(s) by Regco will be subject to the usually
applicable Commission standards of prudence in purchasing of
supply by Regco.
Other than any purchases of electric energy, capacity or
ancillary services, Holdco or any affiliate may provide goods and
services to Regco at the lower of fully distributed cost or a
price not greater than fair market value.
20. Regco's Issuance of Securities; Debt Rating: Except
for New York State Energy Research and Development Authority
Pollution Control Revenue Bond obligations of Central Hudson
which may be assignable to Genco, subsequent to the restructuring
into the Holdco organization, Regco will continue to be the
obligor for any long-term debt and preferred stock of Central
Hudson. Subsequent to the restructuring into the Holdco
organization, debt or preferred stock issuances to the public by
Regco or issuances of common stock by Regco to Holdco will be
made pursuant to PSC authorization under Section 69 of the Public
Service Law.
Regco will maintain a debt rating separate and distinct
from that of Holdco.
21. Downgrade Notice: If Holdco or Regco experiences a
downgrade of its senior debt, or is placed on credit
watch/review, by a credit rating agency, Regco will promptly
notify the Director - Office of Accounting & Finance of the
Department of Public Service ("Director - OA&F"), along with the
reason(s) stated by the rating agency(ies) for such occurrence.
22. Dividend Payment Policies: Subsequent to the initial
two years of operation of Holdco, dividends from Regco to Holdco
will not exceed a rate equivalent to 100% of the annual average
income available for common, calculated on a two-year rolling
average basis. During the first two years of Holdco operations,
dividends from Regco to Holdco shall not exceed the income
available for common equity realized during the time period for
which the dividend payment is applicable.
In the event of a downgrade of Regco's senior debt rating
below BBB+ by more than one credit rating agency, if the stated
reason(s) for the downgrade is the performance of or concerns
about the financial condition of Holdco or any affiliate other
than Regco, dividends will be limited to a rate of not more than
75% of the average annual income available for dividends, on a
two-year rolling average basis.
In the event that Regco's senior debt is placed on "Credit
Watch" (or the equivalent) for a rating below BBB by more than
one credit rating agency, if the stated reason(s) for the
downgrade is the performance of or concerns about the financial
condition of Holdco or any affiliate other than Regco, dividends
will be limited to a rate of not more than 50% of the average
annual income available for dividends, on a two-year rolling
average basis.
In the event of a downgrade of the Regco's senior debt
rating below BBB- by more than one credit rating agency, if the
action is stated as being due in substantial part to the
performance of or concerns about the financial condition of
Holdco or any affiliate other than Regco, no dividends will be
paid by Regco to Holdco until Regco's senior debt rating has been
restored to BBB- or higher by all credit rating agencies then
rating Regco. Within 30 days after the downgrade, Regco will
provide the Director - OA&F a written description of the actions
that management plans to take to address the downgrade. Any
transfer from Regco to Holdco or other affiliate of the auction
incentive or other proceeds of an auction of Fossil Generation is
not subject to the limitations on transfer of dividends from
Regco to Holdco described in this paragraph unless there is a
downgrade of the senior debt of Regco to below BBB- and the
stated reasons for the downgrade are, in substantial part, the
performance of or concerns about the financial condition of
Holdco or any affiliate other than Regco.
23. Prohibitions on Loans, Guarantees and Pledges: After
the reorganization of Central Hudson into the Holdco organization
and except as may be consistent with other provisions of this
Agreement, Regco will not make loans to Holdco or any other
affiliate, nor will Regco guarantee or otherwise provide
enforceable credit support for the obligations (notes,
debentures, debt and other securities) of Holdco or any other
affiliate. Assets of Regco will be pledged only for obligations
of Regco and no utility assets will be pledged as security for
indebtedness of Holdco or any other affiliate, absent prior
Commission approval.
24. Limitations on Transfer of Regco Employees and
Transfer Fees: For a two year period following the Effective Date
of this Agreement, Central Hudson may not transfer employees to
any affiliate for purposes of marketing products or services
within Central Hudson's existing service territory.
Following reorganization into the Holdco organization,
Regco may transfer its employees to Holdco and to any of Holdco's
other affiliates on a permanent basis provided, however, that the
number of employees transferred from Regco shall not exceed 20
per year and provided that the restriction of the above paragraph
shall be applicable for two years from the Effective Date of this
Agreement, but not beyond. A one-time amount of 20% of annual
base salary for each employee transferred shall be credited by
Holdco to Regco. Employees whose primary function is associated
with Fossil Generation and who are transferred in connection with
the auction of Fossil Generation are excluded from such numerical
restrictions and one-time credits. Transfers of union
represented employees are expected to occur consistent with any
applicable collective bargaining agreement provisions.
25. Compensation of Regco Employees: The compensation of
Regco officers and employees will be based on the performance of
Regco. The compensation of Regco officers and employees in the
form of bonuses will not be based on the performance of any
affiliated entity; provided, however, that the form of such
compensation may include Holdco common stock. In addition, the
compensation of officers holding positions in both Holdco and
Regco may be based on the service and performance of both Holdco
(including affiliates) and Regco.
26. Benefit Plans: Employees of unregulated affiliates of
Holdco will not participate in the pension and other post
employment benefit plans of Regco, except for any common officers
with Regco, as permitted by this Agreement, and except for
twenty-five employees of the current unregulated affiliate, CHEC.
Any treatment of pension or other post employment benefit plan
will be void if such treatment results in a disqualification of
the plan by the IRS or in any plan failing to meet ERISA
requirements. The separation of pension and other post
employment benefit plans associated with unregulated affiliates
is being done to be consistent with the existing Commission
Policy on Pensions and OPEBs (effective September 7, 1993 in Case
91-M-0890) and Central Hudson may petition the Commission to
change this separation to reflect any amendments to this policy
or changes in its application. The costs of pension and other
post employment benefit plans will be allocated among the
affiliates in accordance with the Cost Allocation Guideline.
27. Insurance: Holdco and its affiliates, including
Regco, may be covered by common property/casualty and other
business insurance policies, and the costs of such policies shall
be allocated among Holdco and its affiliates in accordance with
the Cost Allocation Guidelines.
28. The "Cost Allocation Guidelines" included herein as
Attachment G shall apply to any transactions between an
unregulated affiliate and Regco.
29. Legal Services: The same law firm may represent Regco
and any affiliate on any matter, provided that on any matter
involving an intercorporate transaction in which the interests of
Regco may be adverse to the interests of the affiliate, Regco
will take appropriate steps to protect Regco's interests
vigorously and independently (such as having separate attorneys
if a single law firm is used and maintaining separations, such as
a Chinese wall, between such attorneys or having separate law
firms). Other than in connection with corporate governance and
corporate administrative services matters, the same individual
lawyers of a law firm which represents Regco may not perform
legal services for unregulated subsidiaries of Holdco (other than
Genco or CHEC). If the same law firm represents the Regco and
Holdco or the non-utility affiliates, protections will be
maintained among the lawyers performing legal services for each
of the entities to ensure that non-public information regarding
one entity will not be transmitted to another entity. 30. Staff will
have the same access to all books and
records of Holdco, subject to the provisions of paragraphs 32 and
33, as it is permitted pursuant to the PSL concerning Regco.
Staff will have access on reasonable notice and subject to the
confidentiality and privilege rules of paragraphs 32 and 33, to
the books and records of all other Holdco subsidiaries to the
extent necessary to audit and monitor any transactions which have
occurred between Regco and subsidiaries, to the extent the Holdco
has access to such books and records.
31. Annual Report and Meeting with Staff: By April 30th
of each year, Regco will file with the Director - OA&F the
following annual reports, which shall receive "Trade Secret"
protection:
1) Annual Report of Affiliate Transactions, which will
contain: (i) the cost allocations followed in
connection with transactions between Regco and its
affiliates; (ii) an itemization of all asset transfers
over the threshold between Regco and Holdco or any
affiliate, the aggregate amount, and price at which
such assets are transferred and, to the extent
available, the original cost of items above $500,000
and the net book value at the time of transfer; (iii)
the number of all Regco employees transferred to or
hired by Holdco from Regco and the aggregate
corresponding payment for such transfers and (iv) a
list of all persons not employed by Regco who
participate in any Regco or common employee benefit
program. A summary of non-tariffed transfers of goods
and services will also be included. The Report will
include a certification that the management employees
of Holdco, Regco and each other affiliate are familiar
with the Cost Allocation Guidelines and Standards of
Conduct requirements provided for herein. An officer
will also certify that the Cost Allocation Guidelines
and Standards of Conduct have been followed during the
reporting period.
2) Annual Report of Non-Utility Investments, which will
contain: (i) a description of all non-utility
investments made by Holdco during the fiscal year; (ii)
condensed financial statements (income statement,
balance sheet and statement of cash flows) for each
non-utility affiliate for the fiscal year and (iii) a
narrative description of the results of operations of
the non-utility affiliates for the fiscal year in
question. Each such report also will include any
published material from credit rating agencies
describing or discussing the effect of Holdco's
investments in non-utility investments on Regco's
credit rating.
A senior officer of Holdco and Regco will meet annually
with Staff to review Regco's capital attraction plans and
activities, respectively, including Regco's Board of Directors'
certification and demonstration that Regco has retained or has
access to sufficient capital to maintain and upgrade its plant,
works and system as required for the continued provision of safe
and adequate service.
32. Privileged Information: Nothing in this Agreement
shall require Holdco, or Regco or any affiliate to provide Staff
access to, or to make disclosure to Staff of any information as
to which the entity in possession of such information would be
entitled to assert a legal privilege, such as the attorney-client
privilege, if, either (i) the privilege could be asserted against
Staff or any other party in a proceeding before the Commission,
or (ii) providing Staff access to or making disclosure of such
information to Staff would impair in any manner the right of the
entity in possession of such information to assert such privilege
against third parties.
If Staff seeks access to or disclosure of any information
that either Holdco, Regco or any affiliate believes is exempt
from access or disclosure, counsel for the entity asserting such
privilege will so inform the requesting party, detailing, to the
extent practical without destroying the privilege, the reasons
why the privilege is being claimed in sufficient detail to permit
Staff to determine whether or not to dispute the claim of
privilege. If Staff decides to dispute such claim, it may
request that the Commission or an administrative law judge
conduct an in camera review of such information to determine
whether it is, in fact, exempt from access or disclosure. Such
determination will be subject to review by the Commission and, if
necessary, judicial review.
33. Confidentiality of Records: Holdco and Regco will
designate as confidential any non-public information to or of
which Staff requests access or disclosure, and which Holdco or
Regco believe is entitled to be treated as a trade secret. Each
member of Staff who is accorded access to, or to whom disclosure
is made of, designated confidential portions of books and
records, financial information, contracts, minutes, memoranda,
business plans, and the like, will agree in writing to maintain
such information as confidential, other than information that has
been, or may in the future be, made public. The definition of
"information that previously has been made public" will mean
information that either (i) has been disclosed by either Holdco,
or Regco or any other affiliate in financial or other literature
to the financial community or to the public at large, (ii)
appears in documents contained in the public files of a local,
state or federal agency, body or court and which has not been
accorded trade secret protection or (iii) information that
otherwise is in the public domain.
In the event that Staff receives any information
designated as confidential pursuant to the procedures described
herein and desires to use such information publicly in a
proceeding before the Commission, such party will first notify
counsel for Holdco and Regco of the nature of such information as
well as its intention to use such information in such proceeding
and afford Holdco and/or Regco the opportunity to apply to the
presiding administrative law judge for a ruling designed to
maintain the confidentiality of such information under Part 6-1
of the Commission's Rules of Procedure. Staff may object to any
such application on the grounds that such information is not
entitled to be treated as a trade secret under Part 6-1.
In the event that a member of Staff receives any
information designated as confidential pursuant to the procedures
described herein and desires to use or refer to such information
in a memorandum or other document which may become an "agency
record" as that term is defined in the New York Freedom of
Information Law, Staff first will notify the Regco or Holdco of
the nature of such information as well as its intended use, and
afford Regco and/or Holdco the opportunity to apply under Part 6-1 of the
Commission's Rules of Procedure for a protective order
designed to maintain the confidentiality of such information.
Staff may object to any such application on the grounds that such
information is not entitled to be treated as a trade secret under
Part 6-1.
34. Lists and Copies of Securities and Exchange Commission
Filings: A list of all filings made with the SEC by Holdco or
any of its affiliates will be provided quarterly to the Director-OA&F, along
with an acknowledgment that, upon request, Staff will
be provided with a copy of any such filing not subject to
confidentiality provisions before the SEC. Any Holdco or
affiliate 8-k filings will be provided promptly to Staff.
35. At the start of the year 1998, 1999, 2000 and 2001,
unregulated operations shall be charged $250,000 per year, which
shall be credited to a sub account of A/C 253-Other Deferred
Credits. Such transactions shall be a full and permanent
satisfaction of any obligation in the nature of a royalty from
Central Hudson.
VII. AUCTION OF FOSSIL GENERATION
A. Auction Generally.
Central Hudson will auction its Fossil Generation in
accordance with the terms herein. It is the intent of the
parties that the transfer of Fossil Generation be completed no
later than June 30, 2001. Central Hudson will take commercially
reasonable steps to complete the auction in order that a closing
may occur no later than June 30, 2001, and retains its discretion
to decide to effectuate the closing at an earlier date. However,
nothing in this Agreement shall preclude Central Hudson from
seeking Commission approval for a sale or transfer of any
generating facility or interest in any generating facility at any
time.
B. Auction Objectives.
The objectives of the auction are i) to determine the Fair
Market Value of Central Hudson's Fossil Generation, thus tending
to maximize the proceeds from the sale/transfer of the assets;
and ii) to establish a mechanism for the transfer of the Fossil
Generation from the regulated T&D operations of Central Hudson.
C. Auction Principles.
The auction of the Central Hudson Fossil Generation will be
carried out through a process that is designed to result in fair
and equitable treatment of all parties, including Central
Hudson's customers, employees, and investors and will be neutral
in relation to divestiture to a third party or transfer to a
Central Hudson affiliate. Central Hudson is not required to take
any action not commercially reasonable, considering the relevant
circumstances at the time.
Any Fossil Generation assets/liabilities not sold at
auction will remain assets/liabilities of the regulated utility
and the regulated utility shall have a reasonable opportunity to
recover such prudently incurred costs in rates.
Central Hudson retains the right to reach a negotiated
outcome with the bidders in the auction and the right to reject
any or all bids, provided however, that neither negotiations nor
bid rejection will be utilized by Central Hudson to advantage any
bid by its affiliate.
Recognizing that as of the time of the auction of Fossil
Generation, Central Hudson may have full requirements customers,
the Auction Plan may include specifications for contracts for
capacity or energy sales back to the regulated T&D operations for
periods not to exceed five years.
D. Auction Procedures and Criteria.
The auction will be conducted pursuant to an Auction Plan.
Central Hudson will submit an Auction Plan for review and
approval by the Commission, under PSL Section 70 to the extent
applicable, of the conformance of the Auction Plan with the
objectives, principles and criteria for the auction set forth in
this Part of this Agreement. Absent an order disapproving the
Auction Plan, it shall be deemed approved 180 days after the date
on which it was filed.
The auction process will be specified in the Auction Plan,
and may include one or more auctions. Generally, the auction
process will include criteria for qualifying bidders, screening
provisions concerning bidders, mechanisms for providing
information concerning the Fossil Generation to qualifying
bidders (see Attachment J) and rules governing procedures for
submitting bids. Central Hudson will provide potential or actual
bidders with pertinent information concerning the Fossil
Generation facilities. A minimum bid will be required unless
otherwise specified in the Auction Plan.
The Auction Plan will be based on the premise that a
Central Hudson affiliate will bid and therefore an independent
auctioneer will be utilized. The Auction Plan filed with the
Commission will specify the name, mailing address and duties of
the independent auctioneer selected by Central Hudson. The
selection and duties of the independent auctioneer will be
subject to approval by the Commission as part of the approval
procedure previously stated.
The scope of the auction may include all assets and
liabilities associated with Fossil Generation. Such assets and
liabilities include:
1) environmental liabilities,
2) pension surplus,
3) land and property rights,
4) equipment and facilities,
5) existing facility agreements with other parties,
6) inventories,
7) control systems,
8) land,
9) outstanding contractual obligations or contracts,
10) Severance Facilities, and
11) known, unknown, asserted and unasserted liabilities and
all subsequent liabilities related to, or arising out
of the construction or operation of the generating
facilities. The purchaser may be required to indemnify
Central Hudson and hold it harmless against any such
liabilities. To the extent that no such
indemnification is obtainable in the auction, Central
Hudson may defer the prudently incurred portion of such
liabilities for subsequent collection from customers in
the manner to be specified by later Order of the
Commission. In addition, all Severance Costs will be
recovered, to the extent commercially achievable, in
the auction and to the extent not recovered in the
auction, in the ratemaking process.
All bids will be submitted to the independent auctioneer;
any Central Hudson affiliate bid will follow the same procedures
as all other bidders. All bid evaluations will be maintained as
confidential by the independent auctioneer; depending on the type
of auction used, bids may also be received and otherwise
maintained as confidential by the independent auctioneer. The
bid format may allow options to include or exclude specific items
of the above list (e.g., environmental, pension surplus).
The Auction Plan will specify the procedures by which the
independent auctioneer will seek information from bidders or
conduct negotiations with bidders.
The independent auctioneer will be permitted to obtain
information from Central Hudson after bids have been received,
provided that the independent auctioneer will disseminate any
responses it receives equally to all then active bidders. Once
the bidding process has commenced, no informal communications
between Central Hudson and the independent auctioneer will occur
on any topic that may affect the conduct or outcome of the
auction.
The independent auctioneer will produce a written
(confidential) Assessment and Recommendation that will be
provided to Central Hudson for final decision. In the event that
the Central Hudson affiliate is in the independent auctioneer's
final bidding group, its Assessment will rank the bids of the
final bidding group in dollar value and in non-dollar terms and
make a recommendation as to the most advantageous bid.
The independent auctioneer will be an organization
unaffiliated with Central Hudson (or affiliate thereof) and will
have no conflict of interest with any bidder (or affiliate
thereof). The independent auctioneer will not advise any
potential bidder concerning the Central Hudson auction after
accepting the engagement from Central Hudson. The independent
auctioneer will be required to make continuing disclosure to
Central Hudson of any engagements concerning any potential bidder
and provide continuing representations that any such engagements
do not represent a conflict of interest. The auction process and
procedures are to be neutral in relation to divestiture to a
third party or transfer to a Central Hudson affiliate.
E. Conditions Precedent to Obligation to Conduct Auction
The parties recognize that certain conditions need to be
satisfied prior to the conduct of the auction, including, but not
limited to:
1) fulfillment of SEQRA requirements,
2) such other authorization as may be required under law,
3) application to the NRC seeking a determination that the
auction will not adversely affect Central Hudson's
license rights,
4) implementation of an operational statewide ISO, which
is expected to include LBMP (confirmed by audit), a
two-settlement system, a long-term capacity market, and
at least one power exchange.
F. Closing on Sale of Fossil Generation.
There is no obligation of either purchaser or seller to
close absent PSC Section 70 approval. Conditions of closing,
including requirements for Severance Facilities, required FERC
approvals, resolution of any issues as Con Edison or NMPC may
have as non-operating co-tenants of Roseton, and such other
conditions as are appropriate and commercially reasonable will be
set forth in the Auction Plan.
G. Future Ownership of Generation.
Nothing herein is intended to restrict the right of Central
Hudson (or Holdco/affiliate) to own or operate any form of
generation outside of the existing electric franchise territory.
However, as a part of the mutual concessions of this Agreement
and as a permanent resolution of any question concerning Central
Hudson's rights to ownership of generation, Central Hudson
(including all affiliates) will not own central station
generation (exclusive of on-site generation) within the existing
electric franchise territory (other than at the
Roseton/Danskammer site) in addition to that already owned. In
addition, for a period of five years from the closing for the
transfer of Fossil Generation or the last closing, in the event
that more than one closing occurs, Central Hudson (including all
affiliates) will not own more than 1700MW of electric generating
capability from any source or sources located or to be located at
the Roseton/Danskammer site. These mutual concessions and
commitments shall survive the termination of this Agreement.
Nothing in this Agreement is intended to restrict Central
Hudson's capacity to enter into wholesale power transactions.
H. Auction Incentive.
The Commission's adoption and approval of this Agreement
shall be deemed to constitute final Commission authorization to
retention by Central Hudson of an Auction Incentive if Central
Hudson's affiliate does not bid on any of the existing Fossil
Generation assets. The Auction Incentive is equal to the
percentage of the gross proceeds from the auction determined in
accordance with the table below, applied to the gross sale price;
provided, however, that the total amount of the Auction Incentive
shall not exceed $17.5 million after tax.
Gross Sale Price "No Bid" Incentive
Up to Net Book 5% of the gross sales
Value price up to N.B.V.
("N.B.V.")
N.B.V. and Above plus 10% of the
above gross sales price above
N.B.V.
The Auction Incentive is applicable to the gross amount of
the winning bid (including valuation for any non-cash portions of
the winning bid) and is not to be reduced for purposes of
calculating the incentive by the costs of the auction or any
other reductions. Central Hudson is authorized to retain the
incentive at the closing, out of the proceeds received at the
closing. The Auction Incentive will not be recognized for
purposes of the computation of the achieved rate of return by
Central Hudson provided for in part IV.I of this Agreement, or
otherwise in the ratemaking process. The following provisions
shall be made for taxes arising out of the auction and Auction
Incentive:
1) taxes on the Auction Incentive calculated on the
portion of the sale price up to net book value shall be
provided for in the ratemaking process;
2) taxes on any gain arising upon the auction shall be
provided for in the ratemaking process, except that
taxes on the part of the Auction Incentive calculated
on the portion of the gross sale price that is above
net book value shall be the responsibility of
shareholders.
I. Represented Employees.
The parties recognize that union represented employee
rights on transfer of Fossil Generation are matters of collective
bargaining. The parties also recognize that union represented
employee related transition costs, including retraining, out-placement,
severance, early retirement and represented employee
retention programs are also matters of collective bargaining.
Such transition costs as are reasonable shall be recovered by
Central Hudson as Strandable Costs.
J. Commission Action Upon Auction.
The Commission shall consider any transfer of assets to the
successful bidder in an expedited proceeding under PSL Section
70. The Section 70 proceeding will include evaluation of any bid
options that may ultimately be accepted by Central Hudson in the
auction process. Other than as may be approved by the Commission
in the Section 70 approval, any pension surplus as of the time of
the closing for the transfer of the asset following the auction
shall remain with the regulated utility.
In the event that the ultimately selected bidder is not
Central Hudson's affiliate, the Section 70 proceeding will be
based on a rebuttable presumption that the process was conducted
appropriately. In the event that the Central Hudson affiliate is
the ultimately selected bidder, Central Hudson will demonstrate
in the Section 70 proceeding that the process was conducted in
accordance with the principles, objectives and criteria of this
Agreement and in accordance with the Auction Plan.
For any transfer or sale of generation assets, the
Commission shall apply the standard of Fair Market value. Fair
Market Value at the time of transfer shall be determined on the
basis of the auction process described in this Agreement.
VIII. STRANDABLE COSTS
A. Recovery of Strandable Costs.
Central Hudson shall have a reasonable opportunity to
recover all prudently incurred, verifiable and appropriately
mitigated Strandable Costs. Recovery will be achieved through
competitively neutral non-bypassable wires charges or other non-bypassable
means, which will commence June 30, 2001 unless, prior
to that date, the Fossil Generation is transferred from the
regulated utility to another entity (whether affiliated or not),
in which event, Central Hudson will file with the Commission a
request for a change in base rates that would be effective
subject to refund as of the date of such transfer of the Fossil
Generation and the non-bypassable recovery of Strandable Costs
would commence.
Ratepayers shall have the opportunity for recovery of any
proceeds from the sale of Fossil Generation, net of Auction
Incentive, auction expenses, severance costs, severance
facilities and taxes, to the extent that such net proceeds exceed
the net book value (Attachment K). The net proceeds above net
book value will be disposed of as follows: First to offset
Fossil Generation regulatory assets unrecognized in the auction;
second, to the extent of any proceeds remaining after the first
item, to reduce the book costs of NM2 unless, prior to Central
Hudson's realization of the auction proceeds, Central Hudson's
investment in NM2 has been fully recovered or a proceeding of the
nature identified in part IV.L. of this Agreement with that
objective is then pending; and third, to the extent that any
proceeds remain after the first and second items, to other
ratepayer benefits. In the event that the sale price is at a
level below Central Hudson's then current net book value
(including associated deferred taxes and Transaction Costs), the
difference will be preserved for recovery as a Strandable Cost.
The amount of Fossil Generation Strandable Costs to be
recovered in non-bypassable wires charges cannot be forecast at
this time due, among other factors, to uncertainties surrounding
the amount of proceeds that might be realized from auctions of
Fossil Generation. The amount of Fossil Generation Strandable
Costs will include the elements in the following list:
1) The difference between Fair Market Value of Fossil
Generation assets/liabilities (determined through the auction
process described herein) and their net book value;
2) Net production-related regulatory assets;
3) The net cost of divested IPP contracts (established as
the net cost to dispose of the contracts);
4) the Regco portion of the incremental costs incurred in
implementing a restructuring into a Holdco organization, the
incremental costs of developing an auction, the otherwise
unrecovered portion of Severance Costs, and the incremental costs
incurred by Central Hudson in developing and implementing the
ISO/PE not recovered in FERC jurisdictional rates; and
5) Mitigators (other than as related to Fossil
Generation), to the extent actually realized:
a. Accumulated "excess earnings" above the 10.6% ROE
cap of this Agreement;
b Retail access fund balance;
c. Other Deferred Credits (including those from Case
92-E-1055 and Customer Service Incentive);
d. Unbilled revenues related to Fossil Generation,
based on sales from the last full billing period until the date
of sale of the Fossil Generation;
e. Excess depreciation reserve of assets, where
applicable and approved by FERC;
f. Cost savings to Central Hudson from implementation
of any adopted "statewide nuclear solution" other than
securitization, which on a net basis produces benefits to Central
Hudson not presently recognized as of the date hereof.
The net result of the above determination may be either
positive or negative. Any generation-related assets and
liabilities not transferred pursuant to the Fossil Generation
auction or recognized in the strandable cost determination will
be recognized for recovery through non-bypassable charges of the
regulated T&D operations.
The post-October 1, 1997 incremental costs incurred by
Central Hudson in developing the auction shall be fully deferred
and fully recoverable.
B. Treatment of Net Proceeds
on Sale of Fossil Generation.
The consideration received by Central Hudson in any Fossil
Generation auction shall, up to the net book value of the asset
or interest (including associated deferred taxes), be available
for investment in unregulated operations without further
Commission approval or authorization.
IX. GENERIC ISSUES
The outcomes of any of the following possible global
generic issues shall be applied to Central Hudson in accordance
with part XIII.B. of this Agreement, below:
- -- ISO
- -- Load Pocket/Market Power
- -- Reporting Requirements
- -- Nuclear
- -- ESCOs (including Metering/Billing)
- -- Bulk Transmission/Local Distribution Definition
X. MONITORING AND REPORTING REQUIREMENTS
RELATED TO THIS AGREEMENT
This part identifies information Central Hudson has agreed
to provide to Staff as part of this Agreement. Other than listed
below, Central Hudson is not required to submit reports by this
Agreement.
A. Data on Retail Access Customer Information (monthly and
YTD):
1. Number of S.C. No. 13 customers taking EVOP
tariff
2. Load penetration level of S.C. No. 13 EVOP
customers
3. Number of S.C. No. 13 customers taking Retail
Access tariff
4. Load penetration of S.C. No. 13 Retail Access
tariff customers
5. Number of small industrial/commercial customers
taking Retail Access tariff
6. Load penetration of small industrial/commercial
customers taking Retail Access tariff
7. Number of residential customers taking Retail
Access tariff
8. Load penetration of residential customers
taking Retail Access tariff
9. List of ESCOs/Marketers providing service
within Central Hudson's area
10. Measure of Retail Access in/out movement
B. Reporting of Credit Balances
Provide the total of the Debit and Credit entries
annually and the period to date Balance for the
following deferrals:
1. Funds available for S.C. No. 13 Retail Access
program;
2. Funds available for Small Industrial/Commercial
Customers' Retail Access program;
3. Funds available for Residential Customers'
Retail Access program;
4. Excess/Deficient Earnings variation from 10.6%
Return on Equity (within 90 days after the end
of the computation period consistent with
Attachment B);
5. Mirror CWIP;
6. Replacement for Mirror CWIP at expiration of
its amortization;
7. Itemized list(excluding 1-6, above) of each
Deferral Balance to be used as a potential
offset to Strandable Costs at the end of this
Agreement.
C. FAC Mechanics/Reporting
Except as provided herein, Central Hudson will continue to
provide the same support documentation as is currently supplied
for purposes of establishing monthly FAC targets and actual
monthly FAC charges. Central Hudson will supply, with its annual
FAC target filing, the derivation of the monthly per-kwh charges
designed, as discussed in part IV.D., to capture fuel savings
associated with the Coal Dock Project. Central Hudson will file
such reasonable information needed to support calculations
required under any revised FAC or similar mechanism that may be
instituted in response to the establishment of the ISO/PE, as
described in part IV.D., above.
D. Financing Reporting.
The reports called for by Attachment F.
E. Holdco Reports.
The reports called for by parts VI.B.31 and 34.
F. Downgrade Reports.
The reports called for by parts VI.B.6 and 22.
XI. RATE UNBUNDLING
A. Retail Access Tariffs and
Competitive Transition Charges ("CTC").
During the term of this Agreement, Central Hudson will
provide retail access customers with tariffs that have been
developed to include CTCs, as described in this Agreement. CTCs
will be used to offset lost revenues due to Retail Access during
the term of this Agreement and will be applied to those customers
who elect to participate in the Retail Access options set forth
herein.
These tariffs will be developed with the objective of
minimizing cost shifting between classes and within classes of
customers. CTC charges may vary by service class and may include
KW, KWH or customer charges (or combinations thereof), consistent
with the pricing principles of the existing rates, and will be
non-bypassable.
B. Unbundled Tariffs.
Commencing July 1, 2001, unbundled tariffs will be
available.
XII. ITEMS FROM CASE 92-E-1055
A. West Delaware Hydro Contract.
In Opinion No. 94-3, the Commission determined that Staff
had developed a prima facie showing of imprudence related to an
amendment to the West Delaware Hydro Associates ("WDHA")
contract. As a result, Central Hudson was assigned the burden of
establishing that its actions were prudent. In final resolution
of the WDHA prudence matter from Case No. 92-E-1055, the parties
agree that for ratemaking purposes the prices for power provided
under the contract will be reduced from 8.99 cents/kwh to 4.812
cents/kwh for the period 1998-2003. Based upon this ratemaking
treatment, the remainder of the 1992 contract is approved for
recovery in rates through 2003, and the 1992 contract will be
deemed terminated for rate making purposes as of the end of 2003.
After 2003, Central Hudson is not required by this Agreement to
make purchases from the Project.
B. DSM Prudence.
In Opinion No. 94-3, at pages 37-45, the Commission
directed that Central Hudson "should provide in its next rate
case filing, a comparison of its results to the cost-effectiveness of all ESCO
offers that were available prior to
July 19, 1993...." Central Hudson will file such a comparison
within six months of the Effective Date of this Agreement.
XIII. OTHER PROVISIONS
A. Term of Agreement.
This Agreement shall become effective as of the Effective
Date and shall continue in effect until June 30, 2001; provided
however that the obligations of parts III.F., III.G., III.L.,
VI.B, VII.G. and VII.H., XII.A., XIII.B and XIII.C and
Attachments H and I of this Agreement shall survive the
termination of this Agreement.
B. Effect of Agreement.
At such time as the Commission adopts this Agreement (and
the time for judicial review of such decision shall have run, or
judicial review thereof shall have been determined in the
Commission's favor), Central Hudson agrees to withdraw from the
pending Article 78 proceeding styled In the Matter of The Energy
Association of New York State, Inc., et al. v. Public Service
Commission, et al., Albany County Index No. 5830-96; Appellate
Division-Third Department Case No. 78608. The withdrawal of the
Article 78 Proceeding will be effected through a Stipulation of
Withdrawal, mutually agreed upon between Central Hudson and the
Commission. After the Stipulation is adopted by the Commission,
the Stipulation will be filed with the Court then having
jurisdiction of the Article 78 matter.
Central Hudson is also making the following additional
concessions, which include, but are not limited to:
1. freezing electric base rates until 6/30/01 or until the
sale of Fossil Generation and associated rate change,
whichever occurs first;
2. allocating earnings in excess of the authorized rate of
return to Strandable Costs and ratepayer benefits;
3. establishing funding of rate reductions to customers,
Retail Access and the EVOP energy value option and
enhanced economic development tariffs during the
transition period;
4. auctioning and restructuring of Fossil Generation no
later than 6/30/01; and
5. making full Retail Access available to all customers in
2001.
Each concession is made in return for the following rate and
other assurances by the Commission. These assurances include,
but are not limited to:
1. a specified rate of return, including a fuel adjustment
clause and freezing the overall level of base electric
rates;
2. a competitive transition charge;
3. a reasonable opportunity for the company to recover
prudently incurred Strandable Costs through i)
application of funds from various sources accrued
during the transition period and ii) non-bypassable
charges post-transition;
4. inclusion of the fair market value of auctioned Fossil
Generation in stranded cost calculations;
5. accepting the right of Central Hudson or an affiliate
to bid in the auction under the same terms and
conditions applicable to other bidders;
6. allowing Central Hudson's net investment in NM2 to
remain in rate base absent other treatment, as provided
for herein and
7. authorizing the formation of the Holdco that provides
customer protections and allows Central Hudson to
engage in unregulated activities.
The parties hereby agree that the mutual concessions and
assurances will result in rates that are just and reasonable to
both customers and shareholders through June 30, 2001, and
include the recovery of stranded costs in non-bypassable wires
charges beyond June 30, 2001. The parties agree that the
Commission's approval of this Agreement represents approval of
all of its terms and the parties recognize that the concessions
and assurances of Central Hudson are being made, in substantial
part, in reliance upon later actions of the Commission pursuant
to the terms of this Agreement.
The parties recognize that Central Hudson's participation
in this Agreement is based on the premise that in adopting this
Agreement the Commission will find, in substance, that:
1. the mutual concessions and assurances set forth in this
Agreement are inextricably interrelated;
2. this Agreement will produce just and reasonable rates
throughout the term of this Agreement;
3. the mutual concessions and assurances embodied in this
Agreement justify the opportunity for recovery of
Strandable Costs and the use of non-bypassable wires
charges for that purpose post-June 30,2001;
4. this Agreement is consistent with the Commission's
policy directives in Opinion No. 96-12;
5. this Agreement furthers the public interest.
Furthermore, it is understood by the parties that Central Hudson
will request that the Commission make such findings and the
parties agree not to oppose such a request.
If the Commission does not approve this Agreement in its
entirety without modification, this Agreement will be deemed to
have been disapproved and the parties shall have no obligations
under this Agreement other than to discuss in good faith whether
any alteration of this Agreement or condition to its adoption and
approval that may be specified by the Commission is acceptable to
them. Each party to this Agreement fully reserves its rights in
that event.
Generic determinations by the Commission on the specific
topics listed above in part IX. will be addressed in good faith
by the parties to this Agreement and will provide guidance for
potential tailoring or application that preserves this Agreement
and associated concessions and assurances of Central Hudson and
the Commission. Nothing in this Agreement limits the rights of a
party to challenge the Commission's decisions on "Generic
Issues".
Central Hudson shall have a reasonable opportunity fully to
recover all prudently incurred, verifiable and appropriately
mitigated stranded costs incurred in fulfilling its obligation to
serve and in providing safe and adequate service at just and
reasonable rates during the term of this Agreement, unless and
until the foregoing standard is modified (for prospective
application) by subsequent order of the Commission or action of
other applicable governmental authority.
C. Reservation of Rights.
In the event that the Commission does not approve an
Auction Plan consistent with the terms of this Agreement,
including a plan which permits Central Hudson to participate in
the auction if it so chooses, or if the Commission does not
approve the transfer of assets to the successful bidder(s) as
provided in this Agreement, including a transfer to Central
Hudson's affiliate if it is the winning bidder in the auction,
Central Hudson reserves the right to be excused from its
agreement to restructure its generation and provide Retail Access
to customers who did not previously enroll in the Retail Access
program set forth in this Agreement.
D. Time Line.
The times for various actions to be accomplished by the
various parties are set forth on Attachment D. To the extent
that any conditions precedent for an action set forth on
Attachment D do not occur within the time alloted therefor, any
related obligation of Central Hudson to proceed shall be likewise
extended by an equivalent period of time.
E. Applicable Law.
This Agreement shall be construed in accordance with the
laws of the State of New York.
F. Entire Agreement and Merger.
This Agreement represents the entire agreement among the
parties with respect to the subject matters herein and all prior
understandings are merged into this Agreement.
G. Titles.
The titles of the parts of this Agreement are for the
convenience of the parties.
H. Counterparts.
This Agreement may be executed in counterparts.
WHEREFORE, this Agreement has been executed as of the date
first set forth above by each of the following parties, who, by
its signature, each represents that it is fully authorized to
execute this Agreement and, if executing this Agreement in a
representative capacity, it is fully authorized to execute this
Agreement on behalf of its principals.
[Appropriate Signature Blocks to be added.]
<PAGE>
Signature Page
Central Hudson Gas & Electric Corporation
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Amended and Restated Settlement Agreement dated
January __, 1998 and agrees to the provisions of such Amended and
Restated Settlement Agreement.
Staff of the Department of Public Service
_________________________________________
By:
Dated: January __, 1998
<PAGE>
Signature Page
Central Hudson Gas & Electric Corporation
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Amended and Restated Settlement Agreement dated
January __, 1998 and agrees to the provisions of such Amended and
Restated Settlement Agreement.
Central Hudson Gas & Electric Corporation
_________________________________________
By:
Dated: January __, 1998
<PAGE>
Signature Page
Central Hudson Gas & Electric Corporation
The undersigned party to Public Service Commission Case No.
96-E-0909 has participated in the negotiations among the parties
which led to the Amended and Restated Settlement Agreement dated
January __, 1998 and agrees to the provisions of such Amended and
Restated Settlement Agreement.
Pace Energy Project
_________________________________________________
By:
Dated: January __, 1998
<PAGE>
<PAGE>
<TABLE>
Attachment A : Amortization of Mirror CWIP Credit And Offsetting Deferred Credit
<CAPTION>
Mirror CWIP Amortization Amortization Amortization Net Net
Credit of Mirror Of Deferred Of Deferred Credit Operating
Date Balance CWIP Credit Credit FIT Debit Amortization Income
<S> <C> <C> <C> <C> <C> <C>
Jan/00 4,430,500 500,000 0 0 0 500,000
Feb/00 3,930,500 500,000 0 0 0 500,000
Mar/00 3,430,500 500,000 0 0 0 500,000
Apr/00 2,930,500 500,000 0 0 0 500,000
May/00 2,430,500 500,000 0 0 0 500,000
June/00 1,930,500 500,000 0 0 0 500,000
July/00 1,430,500 500,000 0 0 0 500,000
Aug/00 930,500 500,000 0 0 0 500,000
Sep/00 430,500 430,500 106,900 -37,400 69,500 500,000
Oct/00 0 0 769,200 -269,200 500,000 500,000
Nov/00 0 0 769200 -269200 500,000 500,000
Dec/00 0 0 769200 -269200 500,000 500,000
Jan/01 0 0 769200 -269200 500,000 500,000
Feb/01 0 0 769200 -269200 500,000 500,000
Mar/01 0 0 769200 -269200 500,000 500,000
Apr/01 0 0 769200 -269200 500,000 500,000
May/01 0 0 769200 -269200 500,000 500,000
Jun/01 0 0 769200 -269200 500,000 500,000
</TABLE>
</PAGE>
<PAGE>
ATTACHMENT B
MEASUREMENT PLAN FOR EXCESS EARNINGS
The calculation of excess earnings for electric
operations shall be based on calendar year operating income on a
ratemaking basis and rate base for each year that the settlement
is in effect.
The determination of ratemaking operating income shall
be based on operating income as recognized on the Company's books
and records adjusted for items recorded as non-operating expense,
which are recognized as ratemaking operating expense (e.g.,
Mirror CWIP interest expense on certain of the Company's
Pollution Control Bonds) and any earnings available for the
Company's shareholders under a sharing arrangement between
customers and shareholders (e.g., fuel target incentive mechanism
and Net Sales For Resale).
The measurement of excess earnings will be calculated
by multiplying electric rate base by the pro-forma rate of return
(assuming a 10.6% ROE). This result will be compared to
ratemaking operating income as described above. The excess, if
any, shall be deferred, grossed up for federal income tax, to
offset strandable costs, and any excess over that amount will be
used to provide ratepayer benefits.
Excess earnings also must be measured for periods of
time that are less than a calendar year (partial periods).
Excess earnings for the partial periods will be calculated by
multiplying electric excess earnings for the applicable 12-month
period by the ratio of electric sales for the partial period to
electric sales for the applicable 12-month period. Calendar year
1998 will be the applicable 12-month period for the first year of
the Settlement. The twelve month period preceding the end date
of this Settlement will be the applicable 12-month period for the
last year of the Settlement. Computation of excess earnings will
exclude the capital costs of the coal dock facility already
recovered through the FAC.<PAGE>
ATTACHMENT C
SERVICE QUALITY INCENTIVE PLAN
This Service Quality Incentive Plan (Plan) developed by
Central Hudson Gas & Electric Corporation ("Central Hudson") and
the Staff of the New York State Department of Public Service
("Staff") has been developed in accordance with the Settlement
Agreement dated March 20, 1997. This Plan will be in effect for
the term of this Agreement.
This Plan was developed to be consistent with the
Company's Gas Incentive plan, which was approved by the Public
Service Commission ("Commission") in Central Hudson Gas &
Electric Corporation, Commission Case 95-G-1034.
Several discussions were held resulting in the
development of this mutually acceptable Service Quality Incentive
Plan. The three (3) areas of focus are Customer Satisfaction
Index, keeping scheduled appointments, and Electric Service
Reliability.
The parties believe that the Plan provides fair
consideration to the interests of Central Hudson's customers and
shareholders alike in assuring the provision of safe, adequate,
reliable service at just and reasonable rates.
The parties hereto agree as follows:
Basis Points:
A total of 25.0 Basis Points are associated with this
incentive plan. For the purpose of this Plan, a Basis Point" is
to have the same value as a Basis Point within Central Hudson's
after tax return on common equity on its electric rate base.
Reporting:
Central Hudson will report to Staff monthly on each of
the Service Quality Indicators in this Incentive Plan as part of
the Performance Indicators report. Following the conclusion of
each year in which this Incentive Plan is in effect, Central
Hudson will submit a report summarizing its annual performance in
each area and shall include any resulting effect on earnings due
to that performance under this incentive plan. Central Hudson
will file this report with the Public Service Commission by
March 31 of the following year.
Reopener:
The parties agree to reconvene after January 31, 2000
to consider whether the measures of Service Quality as defined in
this Incentive Plan continue to be warranted.
Implementation:
Central Hudson will implement the three (3) part
Service Quality Incentive plan as follows:
1. Customer Satisfaction Index:
As part of Case 95-G-1034 it was determined that the
Company would use its 1996 Customer Satisfaction Index ("CSI") as
the base value for evaluating its performance in 1997. It was
also determined that prior to January 1, 1998, Central Hudson and
Staff would agree to discuss a revised method for determining the
CSI. A new method has been developed by the Company and
reviewed with Staff in conjunction with the development of this
Plan. It will be used as the basis for evaluation of the
Company's performance under this Incentive Plan and the Incentive
Plan approved in Case 95-G-1034 beginning in 1998.
The total number of Basis Points associated with the
Customer Satisfaction component of this Incentive Plan has been
set at 10.
Survey Process:
Central Hudson will calculate its monthly and annual
CSI performance consistent with the survey methodology defined in
the Central Hudson document entitled "How Did We Do Survey"-
Continuous Improvement through Monitoring Customer Satisfaction
with Key Customer Processes for the duration of this Incentive
Plan.
Calculation of the Monthly Customer Satisfaction Index:
By the 15th day of each month, all customer surveys
received during the prior month will be analyzed and a Customer
Satisfaction Index calculated. Each month, the number of
positive responses received for each of the survey questions is
divided by the total number surveys with a response indicated
received. A weighted value of the eight (8) survey questions
will be calculated and used to determine the Satisfaction Index
for that specific month. The calculation used to determine
monthly Customer satisfaction is shown in Attachment A. At the
end of each calendar year the mathematical mean of all twelve
months will be calculated to represent annual CSI performance.
Base:
Central Hudson will use the mean value for the
Customer Satisfaction Index for the 12 months beginning January
1997 through December 1997 as the base value for evaluating its
future performance.
Earnings Reduction:
Earnings will be reduced if the average CSI for the
current year falls below the Base CSI by more than a defined
deadband. The applicable deadband (Deadband") will be 4.5
percentage points. This represents a maximum error factor of
4.5 percent while maintaining a minimum confidence level of 95
percent in the monthly calculation of CSI value. Both the
confidence level and error factor are based on an expectation
that at least 200 survey responses will be returned for each
question asked monthly. In the event that the Average CSI for
year end 1998 is lower than the average CSI for 1997 by an amount
greater than the Deadband, an earnings reduction will be assessed
as provided for herein.
There will be four (4) levels of earnings reduction
below the Deadband ("Levels"). Each of the first three (3)
Levels immediately below the Deadband, shall be one (1) percent
below the maximum error factor of 4.5 percent. The fourth Level
shall be any value falling below the three (3) Levels referenced
above.
2.5 Basis Points are applied to the first Level below
the Deadband, 5.0 Basis Points are associated with the second
Level below the Deadband, 7.5 Basis Points are applied to the
third Level below the Deadband and 10.0 Basis Points are
associated with the fourth Level below the Deadband. The
applicable Basis Point amount shall not be cumulative and shall
only be applied to a CSI value falling within a specific Level.
For example, if the CSI value were to fall within the fourth
Level, 10 Basis Points would be applicable.
Attachment B is a diagram illustrating the manner in
which this incentive earnings reduction is to be applied.
Application of Earnings Reduction:
If Central Hudson incurs an earnings reduction under
this CSI Incentive Plan, such earnings reduction will be deferred
in a sub-account of Account 253 - Other Deferred Credits for
disposition first as an offset to Strandable Costs and then as
ratepayer benefits.
No Reward:
There will be no reward to Central Hudson in the event
that the CSI for any year equals or exceeds the CSI for the
applicable base year.
Performance Recognition:
Discussions will continue between Staff and the Company
to develop a mechanism for recognizing improved Customer
Satisfaction if a level of 4.5 percentage points above the base
value is achieved.
2. Keeping Scheduled Appointments:
Appointment:
This shall apply to appointments to meet with either
residential or commercial customers. The appointment may by
initiated by either the customer or Central Hudson and may be for
any reason.
Payment:
Except as provided for herein, Central Hudson will
provide a credit of $20.00 to each customer when Central Hudson's
representative fails to arrive at the place of the scheduled
meeting with that customer. These payments cover routine
scheduled appointments and not emergency matters.
Method of Payment/Apology:
Central Hudson will provide a direct credit to the
customer's account. Central Hudson will acknowledge the missed
appointment by a letter to the customer apologizing for the
missed appointment.
Advertising:
Central Hudson will continue to advertise the
"Performance Guarantee - Keeping Scheduled Appointments" program
to its customers.
Monitoring:
Central Hudson will determine whether it kept the
appointment within the applicable "window" as provided for
herein. If Central Hudson fails to keep the appointment, it will
initiate the credit and letter to the customer as provided above.
No action by the customer will be required.
Exemptions:
- - Weather related conditions which affect Central Hudson's
deployment of its personnel;
- - Gas odor or other electric/gas emergency; or
- - When Central Hudson contacts the customer prior to or during
the scheduled appointment time and reschedules the appointment
and this is an acceptable arrangement to the customer.
Rescheduling - Contact with the Customer:
Central Hudson will make a good faith effort to contact
each customer prior to the scheduled time, when the scheduled
appointment cannot be kept.
Window:
The applicable window shall be whatever time has been
agreed to with the Customer and the Company plus two (2) hours.
For example, the window for a 9 AM appointment will be from 9 AM
until 11 AM.
As another alternative, if the customer voluntarily offers to
schedule the appointment for "any time during the day", the
appointment window shall be 8 AM to 4:30 PM.
3. Electric Service Reliability:
The total number of Basis Points associated with the
Electric Reliability component of this Incentive Plan has been
defined as 15. Five (5) Basis Points are associated with the
Frequency component (SAIFI) and 10 are associated with the
Duration Component (CAIDI).
The Electric Service Reliability portion of this
Service Quality Incentive Plan is based on current Commission
standards for electric service interruption duration and
frequency. This proposal was designed to conform to PSC service
standards. Therefore, outages due to major storms and
catastrophic events as defined in 16 NYCRR Part 105 are excluded.
The indices that will be monitored as part of this Service
Quality Incentive Plan represent the total of Central Hudson's
electric customer base. The Plan was designed to reduce total
interruptions customers incur as well as to reduce the length of
time each interruption lasts.
Definitions:
CAIDI (duration) - Average Duration per Interruption
SAIFI (frequency) - Average Number of Interruptions per Customer
Parameters of Performance:
Central Hudson will continue to monitor and report on
all indices referred to in this Service Quality Incentive Plan.
However, incentive penalties will be based on annual performance
beginning January 1, 1998.
Frequency (SAIFI):
The frequency per calendar year shall not exceed 1.20
on an annual basis. If this number is exceeded, Central Hudson
will be subject to an incentive penalty of 2.5 Basis Points. If
the frequency for any calendar year exceeds 1.40, Central Hudson
will be subject to an incentive penalty equal to 5.0 Basis
Points.
Duration (CAIDI):
The duration shall not exceed 2.27 hours for any
calendar year. If this number is exceeded, Central Hudson will
be subject to an incentive penalty of 5.0 Basis Points. If the
average duration per interruption exceeds 2.50 hours in any
calendar year, Central Hudson will be subject to an incentive
penalty equal to 10.0 Basis Points.
Application of Earnings Reduction:
If Central Hudson incurs an earnings reduction under
this Electric Service Reliability Incentive Plan, such earnings
reduction will be deferred in a sub-account of Account 253 -
Other Deferred Credits for disposition first as an offset to
Strandable Costs and then as ratepayer benefits.
No Reward:
There will be no reward to Central Hudson for improved
performance in the CAIDI or SAIFI indices.
Performance Recognition:
Discussions will continue between Staff and the Company
to develop a mechanism for recognizing improved service
reliability performance if levels of 1.10 interruptions per year
and a 1.60 hours duration or less are achieved.
Attachment A
SERVICE QUALITY INCENTIVE
Customer Satisfaction Index
Q1 I have a good overall opinion of Central Hudson.
Q2 I rarely have difficulty getting through to Central
Hudson on the telephone.
Q3 I find it easy to use "The Power Line," Central
Hudson's automated telephone answering system.
Q4 When it is necessary to speak with a Customer Service
Representative they are courteous while handling my concern.
Q5 I was able to have my problem resolved during my first
telephone call.
Q6 The information I received from the Central Hudson
Representative I spoke to was accurate.
Q7 When field work is necessary it is done in a timely
manner.
Q8 Central Hudson Field Representatives are courteous when
working in or around my home or office.
Attachment B
1997
CS
Level 4 Level 3 Level 2 Level 1 Deadband
85% 75% 65% 55% 45%
10.0EP's 7.5EP's 5.0EP's 2.5EP's
Calculation:
Monthly CSI = [ (Q2 + Q3 + Q4 + Q5 + Q6 + Q7 + Q8)/7 + Q1 ] / 2
ATTACHMENT D
TIME LINE FOR CERTAIN ACTIONS
DATE ACTION
1. - Commission issues Final order
approving and adopting Settlement
Agreement.
2. + 15 Days - Central Hudson files FAC
modifications to implement agreement
with respect to Competitive
Transition Charge, Coal Dock
Depreciation and Energy Value Option.
- Tariffs related to the Coal Dock
effective on one day's notice.
- Central Hudson files S.C. No. 13
modifications for discounts and EVOP
- Permits discounting and contracts
- Permit EVOP, redesign rate and
coordinate with FAC
- Central Hudson files modified S.C.
No. 2 and S.C. No 3.
- S.C. No. 2 modifications are
retention revisions
- S.C. No. 3 modifications are
retention and enhanced growth
incentives.
3. + 30 Days - Central Hudson files tariff
amendments to permit Retail Access
for defined residential, commercial
and industrial customers.
- 10 days from PSC approval Central
Hudson will file exemption to FERC
Order 888 tariff for Retail Access
and EVOP.
4. 90 Days Subsequent
to PSC Approval - EVOP and Retail Access become
effective upon FERC approval.
5. + 90 Days - Central Hudson files plan to
functionally separate fossil
generation from T&D and establish
accounting protocols.
- Central Hudson implements plan on
April 1, 1998.
6. + 180 Days - Central Hudson makes the filing
described in part XI of Settlement
Agreement.
7. 180 Days Prior to - Central Hudson files Auction Plan
Auction of Fossil
Generation
8. 1/1/99 - Retail Access - Second Phase
9. 7/1/99 - Retail Access - Progress Report
10. 1/1/00 - Retail Access - Third Phase
- Central Hudson files T&D rate case:
- T&D Rate Case
- T&D Unbundled Rates
11. 11/1/00 - Commission issues order approving
structure, recovery of stranded costs
and setting unbundled rates effective
7/1/01.
12. 11/2/00 - Central Hudson commences processes to
be implemented by 7/1/01, assuming
satisfactory Commission Order.
13. 1/1/01 - Retail Access - Fourth Phase
14. 7/1/01 - Central Hudson Implements:
- Full Retail Access
- Generation / Structural Separation
- Full Stranded Cost Recovery
<PAGE>
ATTACHMENT E: INITIAL ORGANIZATIONAL CHART
HOLDCO
REGCO GENCO CHEC RESOURCES GREENE OTHER
POINT
PHOENIX
<PAGE>
ATTACHMENT F
FINANCING PROVISIONS
Conditions Pertaining to Issuance of Securities
By Central Hudson Gas & Electric Corporation
Pending Restructuring and Operation as Holdco.
1. The terms and conditions of all new securities
issued by the company will not be any more restrictive than the
terms and conditions of Central Hudson's most recently issued
similar security. Any material changes in the terms and
conditions, which make the terms and conditions more restrictive
or costly, would be subject to abrogation as described in
paragraph 3.
2. The terms and conditions of all new securities
issued by Central Hudson will in no way restrict the company's
ability to restructure its operations. To the extent that the
company wishes to issue securities with terms and conditions that
restrict its future corporate structure options, the terms and
conditions of the securities would be subject to review through
the Commission's traditional non-abrogation process as described
in paragraph 3. Any filing submitted for such review shall
include a statement describing and identifying the terms and
conditions that restrict the company's ability to restructure its
operations.
3. Central Hudson is authorized to issue the
securities pursuant to the terms and conditions of this order
without consulting staff or the Commission as long as the terms
and conditions of the issuance are comparable to those obtained
by other electric utilities for similar securities under similar
market conditions. Staff will review the terms and conditions of
issuance the company makes to determine if they are reasonable.
If the terms and conditions are not reasonable, the Director of
Accounting and Finance will inform the company that its next
financing must follow the abrogation process. When approval of
debt or preferred stock is subject to abrogation, the company
shall file with the Director of Accounting and Finance or his
designee a copy of the executed purchase contract entered into
for the sale of securities, a statement setting forth the terms
applicable to the securities such as the interest or dividend
rate, maturity, redemption price, the price to be paid to the
company, any initial public offering price and the compensation
to be paid to the underwriters, other costs and expenses of
issuing the securities, and an affidavit of its President, Vice
President or Treasurer stating that the proposed issue is to be
sold on the "most advantageous terms" available. If the approval
of terms granted by this Order is subject to abrogation as set
forth above, Central Hudson expressly agrees that the authority
granted by this Order may be abrogated by an Order issued by one
or more Commissioners within twenty-four hours after submission
by Central Hudson of the purchase contract, statement of terms
and affidavit unless prior to such time the company shall be
advised by the Director of Accounting and Finance or his designee
that the conditions in this Order have been met and that such
authority is not to be abrogated pursuant to the process noted in
this paragraph. In instances where approval of the terms is not
subject to abrogation, Central Hudson shall inform the Office of
Accounting and Finance of the terms of the executed purchase
contract entered into for the sale of securities, and send to the
Director of Accounting and Finance an affidavit of its President,
Vice-President or Treasurer stating that the proposed issue is to
be sold on the most advantageous terms available, and that the
conditions established in paragraphs 1 and 2 are met.
4. Central Hudson Gas & Electric Corporation may
employ interest rate caps, collars and floors to manage any
interest rate risk associated with securities issued under this
authorization.
5. Within 30 days of the issuance of any authorized
common stock (up to 1.0 million shares), Central Hudson will file
with the Commission an executed copy of the documents entered
into for the sale and a verified statement showing the aggregate
number of shares sold, commissions or other compensation paid and
the net proceeds received. The proceeds from the sale of the
authorized common stock shall be not less than 95% of the value
of an equivalent amount of Central Hudson's common stock
immediately prior to the determination of the shares' price.
6. Central Hudson is permitted to amend its
Certificate of Incorporation to reflect the issuance of
additional preferred stock provided that the terms and conditions
of the issuance meet the requirements of paragraphs 1 and 2, or
are approved subject to the abrogation process described in
paragraph 3.
7. Central Hudson shall issue securities pursuant to
this Order solely and exclusively for the purposes permitted
under Public Service Law Section 69. The proceeds from the
issuance of securities shall be applied towards reimbursement of
the company's treasury for equivalent moneys expended for capital
purposes to June 30, 1997. The reimbursement funds shall be used
toward the payment of outstanding short-term securities on the
date of issuance of the said securities. Any remaining funds are
to be used toward expenditures incurred on and after July 1,
1997, for the purposes permitted under Public Service Law Section
69, which shall be over and above the expenditures made for such
purposes through funds originating from credits to the
accumulated provision for depreciation, net salvage, and
accumulated deferred income taxes. Withdrawal of a portion or
all of the said reimbursement funds may be made from time to time
for other utility purposes during the period ending June 30, 2001
or, may be invested in short-term marketable securities on
condition that such temporary withdrawal, to the extent that the
same are not offset by gross additions less funds originating
from credits to the accumulated provisions for depreciation, net
salvage and accumulated deferred income taxes on or after July 1,
1997 are deposited in a special fund in a commercial banking
institution or institutions as soon as practicably possible. The
entire proceeds from the issuance of the securities authorized by
this Order shall be used for the purposes specified above. In no
instance shall any part of the proceeds be used to pay accrued
interest or dividends on the discharged or refunded obligations.
8. Central Hudson shall file with the Director of
Accounting and Finance a verified report in the form prescribed
by 16 NYCRR Section 620.1 The report shall include the date
proceeds were utilized as provided in paragraph 7, the amount,
and the purpose for which such funds were utilized. The company
shall report the cost of its debt or preferred stock relative to
other electric and gas company issues with reference to treasury
securities and any hedging activities undertaken with respect to
the issuance. The company shall maintain at its offices a file
containing the relevant documents on each issue, including a copy
of the underwriting agreement, a report on costs and expenses of
issuance, Board Resolutions, an identification of any new
covenants or terms of debt, the affidavit and any supplemental
indentures. The company shall maintain workpapers (including
journal entries) which reflect a full accounting of the proceeds
from individual issuances and related costs. This information
shall be in sufficient detail to permit verification of all
amounts to the company's books and records.
9. If, upon examination of the uses to which any
proceeds are put, it is determined that any expenditure is not a
reasonable and proper capital charge, or has not been duly
authorized by the Commission, or is in violation of any Order of
the Commission or any provision of law, a sum equal to such
expenditure shall, upon Order of the Commission, promptly be
placed in an account in a commercial banking institution or
institutions and said sum shall be subject to all of the
conditions and restrictions of this Appendix.
11. Central Hudson shall report to the Director of
Accounting and Finance any single financing, as discussed above,
not more than 10 days after the company's financing has been
finalized.
12. The authority granted and the conditions imposed by
this Order shall not be construed as passing upon or otherwise
approving the accuracy of Central Hudson's books, records and
accounts.
13. Central Hudson may not issue any securities
pursuant to the authority granted in this Agreement unless and
until the company has filed, with this Commission, an
unconditional acceptance by Central Hudson agreeing to obey all
the terms, conditions, and requirements of the Commission's Order
concerning the Agreement.
<PAGE>
ATTACHMENT G
FORM OF CERTIFICATE PURSUANT TO PSL Section 108
Certificate of Exchange of Shares of
Central Hudson Gas & Electric Corporation, subject corporation,
for shares of
HoldCo, Inc., acquiring corporation,
under Section 913 of the Business Corporation Law
of the State of New York.
1. The name of the acquiring corporation is ["HoldCo, Inc."]
("Acquiring Corporation").
2. The name of the subject corporation is Central Hudson Gas &
Electric Corporation ("Subject Corporation").
3. Acquiring Corporation has outstanding _____ shares of Common
Stock, par value $____ per share [no par value].
4. Subject Corporation has outstanding _______________ shares
of Common Stock, par value $5.00 per share. The shares of
such Common Stock are entitled to one vote per share, voting
together as a single class. Subject Corporation, in
addition, has out-standing the following classes of
preferred stock, which are not entitled to a vote:
70,300 shares, 4 1/2% Cumulative Preferred Stock
20,000 shares, 4.75% Cumulative Preferred Stock
60,000 shares, Cumulative Preferred Stock, Series D
60,000 shares, 4.96% Cumulative Preferred Stock, Series E
200,000 shares, 6.20% Redeemable Cumulative Preferred Stock
150,000 shares, 6.80% Redeemable Cumulative Preferred Stock
5. The effective date of this exchange will be [January 1,
1999].
6. The Certificate of Incorporation of Acquiring Corporation
was filed in the office of the Secretary of State of the
State of New York on _______________, 1998.
7. The Certificate of Consolidation (Certificate of
Incorporation) of Subject Corporation was filed in the
office of the Secretary of State of the State of New York on
December 31, 1926. The Restated Certificate of
Incorporation of Subject Corporation was filed in the office
of the Secretary of State of the State of New York on August
14, 1989, and amendments thereto were filed in the office of
the Secretary of State of the State of New York on April 5,
1990 and October 19, 1993.
8. Acquiring Corporation is to acquire all of the outstanding
shares of Subject Corporation's Common Stock, through the
exchange of each share of Subject Corporation's Common
Stock, other than shares held in its treasury, held by any
subsidiary of Subject Corporation and dissenting shares, if
any, for one share of Acquiring Corporation's Common Stock.
Subject Corporation's outstanding series of preferred stock,
set forth above, will remain outstanding and are not subject
to any exchange.
9. The exchange was authorized by resolution of the Board of
Directors of Acquiring Corporation adopted on
_______________, 1998, and by resolution of the Board of
Directors of Subject Corporation adopted on ____________,
1998.
10. The exchange was authorized by the affirmative vote of 2/3
of the outstanding shares of the Common Stock of Subject
Corporation voting together as a class on ________________,
1998, pursuant to a notice dated _____________, 1998.
<PAGE>
IN WITNESS WHEREOF, we have signed and verified this
certificate this ____ day of ____________, 1998, and affirm the
statements made herein as true under the penalties of perjury.
On behalf of: [HoldCo, Inc.]
_____________________
[President]
_____________________
[Secretary]
On behalf of:
Central Hudson Gas &
Electric Corporation
______________________
Chairman of the Board and
Chief Executive Officer
______________________
Secretary
<PAGE>
ATTACHMENT H
COST ALLOCATION GUIDELINES
General
These guidelines are intended to establish procedures for
allocating costs that are corporate in nature among and between
holding company corporate affiliates. Allocations will involve
distribution of charges from Central Hudson where corporate
functions will be administered and executed for the benefit of
the holding company and its affiliates as a whole.
For the purposes of these Guidelines, general corporate
functions include all functions previously categorized as
corporate governance functions and corporate administrative
services of Central Hudson. The underlying premise is that
Central Hudson's customers must be protected from costs not
directly related to Central Hudson's activity and corporate
costs, however allocated, will be controlled.
The characterization of costs between direct and allocated
will be maintained. There is no requirement to capture
incidental labor time via time sheet reporting. Further, the
distinction between allocated and common service charges is not
to be construed finely. The underlying rationale is that cost
allocations will be made using a fully distributed costing method
based, directly or indirectly, on causality. Thus, it is
entirely feasible that all costs of general corporate functions
can be allocated on the basis of relevant factors applied to
functional categories.
I. Transactions Between Central Hudson and its Affiliates
The following procedures set forth the manner in which all
costs associated with work performed by Central Hudson for its
affiliates (including subsidiaries) are to be charged to the
respective affiliates on a monthly basis.
1. Direct Charges are related to authorized services
provided by the appropriate business area. These services are
charged to the entity benefitted on a direct time and materials
basis. Labor costs will include an allocation for fringe
benefits. Business areas will report direct labor through the
payroll system and other charges as appropriate.
2. Allocated Charges have been developed to distribute to
affiliates costs that cannot be directly charged, based on an
average cost per activity as described below:
FUNCTION BASIS OF ALLOCATION
(a) Executive 50% Number of Employees
Salaries/Expenses 50% Net assets of affiliates
as a percentage of total assets
(b) Directors' Fees/Expenses 50% Number of employees
50% Net assets of affiliates as a
percentage of total assets
(c) Property/Casualty underwriter's/brokers'
Directors' & Officers assessment of risk
Liability
Employee-Related (e.g. number of employees
blanket crime, travel,
EPLI)Workers'
Compensation premiums;
losses directly charged.
(d) Human Resources number of employees
(including labor),
Employee Benefits &
Pensions premiums; losses
directly charged.
(e) Information Systems
* Labor direct charge [or number of
employees for "corporate systems"]
* Hardware/software 50% Number of employees
50% Net assets of affiliates as a
percentage of total assets
(g) Treasury, Finance & 50% Number of employees
Accounting; Office 50% Net assets of affiliates
Services and any other as a percentage of total assets
not specified
Note: For cost allocation purposes herein, number of
employees, assets, gross revenues will be determined as
of December 31 of each year. In determining the number
of employees of Genco, employees of Genco hired after
the acquisition of new generating resources will not be
counted for purposes of allocating pension and other
post employment benefit costs. Procedures will be
employed to estimate the annual average number of
employees during the initial year and any other periods
of significant change. Roseton employees will be
counted as 100% to Genco share of Roseton.
The following utility areas or activities have been
identified as serving a general corporate function. The costs
associated with performing these functions will be charged to the
holding company for further allocation to its non-utility
affiliates: Financial Reporting; Taxes; Financial Planning;
Annual Report and Shareholders' Quarterly Reports (including
Production and Mailing Costs).
3. Income Taxes
Income Taxes will be allocated among affiliates on a stand-alone basis
(in accordance with a Tax Sharing Agreement).
4. Other
All allocation factors will be calculated annually. The
methodology will be reviewed and updated as necessary.
Notification must be given to the Controller of any new
intercompany transaction not covered under this procedure.
Finance & Accounting will be responsible for designing an
appropriate allocation method in accordance with the goals and
objectives outlined herein, and for implementing an effective
billing procedure.
II. Transactions Between the Holding Company and its Affiliates
The following procedures set forth the manner in which
holding company costs, whether benefitting an affiliate or of a
general corporate nature, are to be charged to affiliates. The
holding company can be the repository of all corporate
unallocated charges.
1. Direct Charges are related to authorized services
provided by the appropriate holding company functional area.
These services are charged to the benefitting entity on a direct
time and materials basis.
2. Costs that cannot be directly charged to affiliates
will be allocated based on the following:
SERVICE DEPARTMENT OR FUNCTION BASIS OF ALLOCATION
(a) Designated Officers 50% Number of employees
50% Net assets of affiliates
as a percentage of total
assets
(b) Directors' Fees 50% Number of employees
50% Net assets of affiliates
as a percentage of total
assets
(c) Building Services - Square footage occupied by
Corporate Headquarters Holdco divided by total square
footage
The remaining expenses of the holding company represent
costs associated with performing general corporate functions.
These costs will be allocated using a formula based on the sum of
each affiliate operating revenues, capital expenditures,
operation and maintenance expense and capitalization as a
percentage of the sum of all such items on a consolidated basis.
However, this allocation method may be changed as appropriate.
These expenses include but are not limited to the following:
Corporate Secretary & Treasurer's Office; Internal Auditing;
Shareholder Relations; and Costs directly charged and allocated
from the utility to the holding company.
Any modification of these procedures will be filed with the
Office of Accounting & Finance.
<PAGE>
ATTACHMENT I
STANDARDS OF CONDUCT
1. The Regco will not provide market information, sales leads
for customers in its service territory to any affiliate,
including an affiliated energy services company, and will refrain
from giving any appearance that the Regco speaks on behalf of an
affiliate.
2. If a customer requests information about securing any
service or product offered by any affiliate, the Regco may
provide a list of companies known to be operating in the area who
provide the product or service, which may include an affiliate,
but the Regco will not promote its affiliate or participate in
any joint promotion or marketing with an affiliate.
3. The Regco will not imply or represent to any customer,
supplier or third party that any form of advantage may accrue to
such customer, supplier or third party in the use of the Regco's
services as a result of that customer, supplier or third party
dealing with any affiliate. The affiliate will not imply or
represent to any customer, supplier or third party that any form
of advantage may accrue to such customer, supplier or third party
in the use of the Regco's services as a result of that customer,
supplier or third party dealing with any affiliate.
4. Affiliates will pay the same rates as other similarly
situated customers for the Regco's utility services. The Regco
may not give an affiliate preference in any manner over non-affiliated
customers. The Regco shall apply any tariff provision
in the same manner to similarly situated persons, affiliated or
non-affiliated, if there is discretion in the application of the
provision and make such interpretation publically available.
5. To the extent the Regco makes available to an affiliate any
proprietary customer information relating to customers in its
service territory, it shall make the same information available
contemporaneously to competitors of the affiliate, on the same
basis.
6. The Regco will operate at arms-length from its affiliates.
7. Cost Allocation Guidelines (included in Settlement Agreement
as Attachment H) will be employed to assure the proper
allocation, on a fully distributed basis, to the Holdco, the
Regco and their affiliates of the costs of any Regco personnel,
property and services used by either the Holdco or its
affiliates. The costs of operating Holdco and its Subsidiaries
will be accurately and separately accounted for and, where
necessary, appropriately allocated based upon the Cost Allocation
Guidelines.
8. Regco will initially provide Corporate Administrative
Services on it own behalf and on behalf of Holdco and its other
affiliates. However, when the Holdco's investment in the Regco
expressed as the ratio of Regco net assets to Holdco consolidated
net assets, falls to 60% or less, corporate administrative
services will be transferred from Regco to Holdco, unless Regco
shows cause to the PSC why such transfer should not occur. A
centralized internal audit function at the Holdco level will be
created not later than three (3) years after the date of
effecting the holding company restructuring pursuant to the Plan
of Exchange.
9. Other than Holdco, no affiliate of Regco will be located in
the same building as Regco. All officers of Regco must have
their main office located in New York State.
10. Any affiliate (including Holdco) receiving goods or
services from Regco will compensate the Regco in a timely
fashion. Standard commercial terms for payments will be used.
If an affiliate fails to make payment within 45 days from the
date the bill is rendered by Regco, such affiliate shall pay
Regco interest on the outstanding balance at the Other Customer
Capital rate (grossed up for taxes) as determined from time to
time by the Commission. <PAGE>
ATTACHMENT J
ILLUSTRATIVE OUTLINE OF INFORMATION
TO BE PROVIDED IN AUCTION PROCESS
1. At an appropriate stage of the auction process, the Company
will provide a history of the (last five years of data) for
the following for all qualified bidders:
* Capacity Factors;
* Heat Rates;
* Staffing;
* Capital Expenditures;
* Operations and Maintenance Expense;
* Property Taxes;
* Air, Water and Hazardous/Solid Waste Regulation
Exceedances; information on solid waste disposal as
well as thermal emissions to contiguous water bodies;
* Fly Ash Disposal and Re-use Statistics;
* Lost Time Accidents;
* Fuel Type and Quantities of Each;
* Boiler and Turbine Performance Test Results.
2. The Company will provide descriptions of the following
(narrative, photographic and/or diagrammatic):
* Boilers, including mills, fans, pumps, precipitators
and stacks
* Turbines, including rotors, casings, controls and
lubrication
* Feedwater systems, including all pumps, heaters, water
treatment and piping
* Generators, transformers, switchgear
* Major control and instrumentation systems
* Circulating water system, including intakes,
discharges, condensers and piping
* Fuel systems, including coal unloading (water and rail
delivery), coal storage, coal handling, oil unloading,
oil storage, gas transmission lines and regulator
stations
* Ash handling systems and solid waste management
facility
* Fire protection systems
* Continuous emissions monitors and air monitoring
network
* Site security
* 115 KV and 345 KV interconnections
* Black start and emergency power systems
3. The following related information will be provided by the
Company:
* Site maps, tax maps and title report
* Environmental permits (and expiration dates), including
SPDES permits and constructing/operating/fuel use
permits, certificates or licenses
* Amount of pollution control bonds for the facilities
* Status of Cooling Tower Settlement Case
* Status of negotiations with Town of Newburgh on
property tax reductions
* Description of major capital improvements recently
completed or planned for the next two years.
4. The procedures will include providing a bid disclosure
package describing the facilities and other rights or liabilities
to be auctioned to potential bidders under confidentiality
protections, and permitting potential bidders, at a specified
stage or stages of the bidding process, to perform a "due
diligence" investigation concerning the facilities, under
confidentiality protections.
5. The auction process will provide that all of the reporting
responsibilities to Federal, State and local agencies concerning
the units, as well as environmental reporting (e.g., of emissions
data), will be transferred to the purchaser. All operating
permits, to the extent the permits are transferrable, will be
transferred subject to any required regulatory approvals.
<PAGE>
ATTACHMENT K
Illustration of Development of Net Proceeds From
the Sale of Fossil Generation
1. Auction Proceeds $xxx,xxx,xxx
Less: 2. Transaction Costs $xxx,xxx,xxx
3. Auction Incentive xxx,xxx,xxx
4. Severance Costs xxx,xxx,xxx
5. Severance Facilities xxx,xxx,xxx xxx,xxx,xxx
6. Net Pre-Tax Auction Proceeds xxx,xxx,xxx
7. Net Book Value xxx,xxx,xxx
8. Net Pre-tax Proceeds Above Book Value xxx,xxx,xxx
9. Federal and State Taxes (Below) xxx,xxx,xxx
10. Net Proceeds Above Net Book Value $xxx,xxx,xxx
Calculation of Federal and State Taxes:
Auction Proceeds $xxx,xxx,xxx
Less: Deductible Auction Costs (xxx,xxx,xxx)
Auction Proceeds Net of Costs xxx,xxx,xxx
Less: Tax Basis of Assets Sold (xxx,xxx,xxx)
Taxable Gain/(Loss) on Sale $xxx,xxx,xxx
Current Tax at Marginal Statutory Rates $xxx,xxx,xxx
Deferred Income Tax (xxx,xxx,xxx)
Federal Income Tax Expense xxx,xxx,xxx
State Income/Gross Receipts Tax xxx,xxx,xxx
Federal and State Taxes $xxx,xxx,xxx
</PAGE>
