FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended.....................June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............to....................
Commission file number....................................1-3268
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 14-0555980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
284 SOUTH AVENUE, POUGHKEEPSIE NEW YORK 12601-4879
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 452-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. Common stock, par value $5.00
per share; 16,862,087 shares outstanding as of June 30, 1999.
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Statement of Income -
Three Months Ended June 30, 1999 and 1998 1
Consolidated Statement of Income -
Six Months Ended June 30, 1999 and 1998 2
Consolidated Balance Sheet - June 30, 1999
and December 31, 1998 3
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 3 Months Ended
June 30,
1999 1998
--------- ----------
(Thousands of Dollars)
Operating Revenues
Electric............................................ $91,200 $90,319
Gas................................................. 18,507 16,681
------- -------
Total - own territory............................. 109,707 107,000
Electric Sales to other utilities................... 7,317 4,717
Gas Sales to other utilities........................ 11 389
------- -------
117,035 112,106
------- -------
Operating Expenses
Operation:
Fuel used in electric generation.................. 18,797 16,642
Purchased electricity............................. 11,570 11,286
Purchased natural gas............................. 8,026 6,896
Other expenses of operation....................... 23,299 23,836
Maintenance......................................... 8,414 6,792
Depreciation and amortization....................... 11,700 11,413
Taxes, other than income tax........................ 15,346 15,329
Federal income tax.................................. 5,444 5,508
------- -------
102,596 97,702
------- -------
Operating Income...................................... 14,439 14,404
------- -------
Other Income and Deductions
Equity Earnings-Subcos.............................. 85 93
Allowance for equity funds used during construction. 50 83
Federal income tax.................................. (21) 293
Other - net......................................... 1,839 2,001
------- -------
1,953 2,470
------- -------
Income before Interest Charges........................ 16,392 16,874
------- -------
Interest Charges
Interest on mortgage bonds.......................... 3,206 3,559
Interest on other long-term debt.................... 2,541 2,268
Other interest...................................... 1,036 881
Allowance for borrowed funds used during
construction ...................................... (56) (101)
Amortization of (premium) and expense on
debt - net......................................... 228 226
------- -------
6,955 6,833
------- -------
Net Income............................................ 9,437 10,041
Dividends Declared on Cumulative Preferred Stock...... 807 807
------- -------
Income Available for Common Stock..................... 8,630 9,234
Dividends Declared on Common Stock.................... 9,106 9,172
------- -------
Balance Retained in the Business...................... ($476) $62
======= =======
Common Stock:
Average Shares Outstanding (000s)................... 16,862 17,060
Earnings Per Share on Average Shares Outstanding.... $0.51 $0.54
Dividends Declared.................................. $0.54 $0.54
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 6 Months
Ended June 30,
1999 1998
------ ------
(Thousands of Dollars)
Operating Revenues
Electric............................................... $191,945 $191,631
Gas.................................................... 57,462 52,171
-------- --------
Total - own territory................................ 249,407 243,802
Electric Sales to other utilities...................... 13,966 11,571
Gas Sales to other utilities........................... 133 614
-------- --------
263,506 255,987
-------- --------
Operating Expenses
Operation:
Fuel used in electric generation..................... 40,786 36,875
Purchased electricity................................ 19,364 22,649
Purchased natural gas................................ 30,011 26,044
Other expenses of operation.......................... 46,637 48,132
Maintenance............................................ 15,050 12,335
Depreciation and amortization.......................... 23,400 22,662
Taxes, other than income tax........................... 32,060 32,537
Federal income tax..................................... 16,729 16,346
-------- --------
224,037 217,580
-------- --------
Operating Income......................................... 39,469 38,407
-------- --------
Other Income and Deductions
Equity Earnings-Subcos................................. (837) 48
Allowance for equity funds used during construction.... 112 190
Federal income tax..................................... 101 573
Other - net............................................ 3,735 3,452
-------- --------
3,111 4,263
-------- --------
Income before Interest Charges........................... 42,580 42,670
-------- --------
Interest Charges
Interest on mortgage bonds............................. 6,646 7,118
Interest on other long-term debt....................... 4,918 4,350
Other interest......................................... 2,134 1,772
Allowance for borrowed funds used during construction.. (123) (231)
Amortization of (premium) and expense on debt - net.... 464 453
-------- --------
14,039 13,462
-------- --------
Net Income............................................... 28,541 29,208
Dividends Declared on Cumulative Preferred Stock......... 1,615 1,615
-------- --------
Income Available for Common Stock........................ 26,926 27,593
Dividends Declared on Common Stock....................... 18,211 18,333
-------- --------
Balance Retained in the Business......................... $ 8,715 $ 9,260
======== ========
Common Stock:
Average Shares Outstanding (000s)...................... 16,862 17,146
Earnings Per Share on Average Shares Outstanding....... $1.59 $1.61
Dividends Declared..................................... $1.08 $1.075
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
----------- ------------
(Thousands of Dollars)
Utility Plant
Electric.......................................... $1,242,168 $1,222,743
Gas............................................... 162,946 158,165
Common............................................ 97,754 94,271
Nuclear fuel...................................... 42,319 42,317
---------- ----------
1,545,187 1,517,496
Less: Accumulated depreciation................... 618,216 597,383
Nuclear fuel amortization.................. 36,869 35,381
---------- ----------
890,102 884,732
Construction work in progress..................... 33,261 43,512
---------- ----------
Net Utility Plant............................. 923,363 928,244
---------- ----------
Other Property and Plant............................. 25,568 19,059
---------- ----------
Investments and Other Assets
Prefunded Pension Costs....................... 43,128 40,218
Other......................................... 18,458 18,209
---------- ----------
Total Investments and Other Assets........ 61,586 58,427
---------- ----------
Current Assets
Cash and cash equivalents..................... 5,270 10,499
Accounts receivable from customers-net of
allowance for doubtful accounts............. 54,134 45,564
Accrued unbilled utility revenues............. 9,511 15,233
Other receivables............................. 2,160 4,555
Fuel, materials and supplies, at average cost. 26,382 23,587
Special deposits and prepayments.............. 14,845 34,823
---------- ----------
Total Current Assets...................... 112,302 134,261
---------- ----------
Deferred Charges
Regulatory assets ............................ 142,091 149,261
Unamortized debt expense...................... 5,467 5,062
Other......................................... 24,327 21,724
--------- ----------
Total Deferred Charges.................... 171,885 176,047
Total Assets........................ $1,294,704 $1,316,038
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1999 1998
CAPITALIZATION AND LIABILITIES (Unaudited) (Audited)
----------- ------------
(Thousands of Dollars)
Capitalization
Common Stock Equity:
Common stock, 30,000,000 shares authorized;
shares issued ($5 par value):
1999 - 17,554,987
1998 - 17,554,987............................... $ 87,775 $ 87,775
Paid-in capital..................................... 284,465 284,465
Retained earnings................................... 142,002 133,287
Reacquired Capital Stock............................ (27,143) (27,143)
Capital stock expense............................... (6,167) (6,204)
---------- ----------
Total Common Stock Equity....................... 480,932 472,180
---------- ----------
Cumulative Preferred Stock
Not subject to mandatory redemption............... 21,030 21,030
Subject to mandatory redemption................... 35,000 35,000
---------- ----------
Total Cumulative Preferred Stock................. 56,030 56,030
---------- ----------
Long-term Debt...................................... 382,547 356,918
---------- ----------
Total Capitalization............................ 919,509 885,128
---------- ----------
Current Liabilities
Current maturities of long-term debt............... 3,313 39,507
Notes payable...................................... 750 18,000
Accounts payable................................... 27,617 23,591
Accrued taxes and interest......................... 3,663 6,334
Dividends payable.................................. 9,913 9,913
Accrued vacation................................... 4,344 4,400
Customer deposits.................................. 4,331 4,248
Other.............................................. 5,421 7,932
---------- ----------
Total Current Liabilities....................... 59,352 113,925
---------- ----------
Deferred Credits and Other Liabilities
Regulatory liabilities............................. 79,597 81,065
Operating reserves................................. 6,787 5,995
Other.............................................. 28,244 27,251
---------- ----------
Total Deferred Credits and Other Liabilities....... 114,628 114,311
---------- ----------
Accumulated Deferred Income Tax ..................... 201,215 202,674
---------- ----------
Total Capitalization and Liabilities............... $1,294,704 $1,316,038
========== ==========
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 6 Months Ended
June 30,
1999 1998
--------- --------
Operating Activities: (Thousands of Dollars)
Net Income.................................................. $28,541 $29,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization & nuclear fuel amortization. 25,503 24,067
Deferred income taxes, net............................. 3,624 (308)
Allowance for equity funds used during construction.... (112) (190)
Nine Mile 2 Plant deferred finance charges, net........ (2,428) (2,428)
Provision for uncollectibles........................... 1,200 1,300
Accrued pension costs.................................. (5,763) (5,850)
Deferred gas costs..................................... 6,019 3,148
Deferred gas refunds................................... (82) (1,410)
Other, net............................................. (554) (549)
Changes in current assets and liabilities, net:
Accounts receivable and unbilled revenues.............. (1,653) 8,431
Fuel, materials and supplies........................... (2,795) 3,001
Special deposits and prepayments....................... 19,978 1,660
Accounts payable....................................... 4,026 (8,435)
Accrued taxes and interest............................. (2,671) 2,026
Other current liabilities.............................. (2,484) (1,370)
------- -------
Net Cash Provided by Operating Activities................. 70,349 52,301
------- -------
Investing Activities:
Additions to plant........................................(20,512) (24,692)
Allowance for equity funds used during construction....... 112 190
------- -------
Net additions to plant.................................(20,400) (24,502)
Subsidiaries fixed asset additions.........................(5,888) (179)
Nine Mile 2 Plant decommissioning trust fund............... (434) (434)
Other, net................................................. (563) (270)
------- -------
Net Cash Used in Investing Activities.....................(27,285) (25,385)
-------- -------
Financing Activities:
Proceeds from issuance of long-term debt.................. 27,029 -
Net borrowings (repayments) of short-term debt............(17,250) -
Retirement and redemption of long-term debt...............(37,607) (817)
Dividends paid on cumulative preferred and common stock...(19,826) (20,017)
Reacquired capital stock.................................. - (11,841)
Debt Issuance costs....................................... (639) -
------- -------
Net Cash Used in Financing Activities.....................(48,293) (32,675)
------- -------
Net Change in Cash and Cash Equivalents................... (5,229) (5,759)
Cash and Cash Equivalents - Beginning of Year............. 10,499 9,054
------- -------
Cash and Cash Equivalents - End of Period................. 5,270 $ 3,295
======= =======
Supplemental Disclosure of Cash Flow Information
Interest paid (net of amounts capitalized)............. $11,740 $11,872
Federal income tax paid................................ $16,800 $14,700
See Notes to Consolidated Financial Statements
-5-
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - GENERAL
The accompanying consolidated financial statements of Central Hudson Gas &
Electric Corporation (herein the Company) are unaudited but, in the opinion of
management, reflect adjustments (which include normal recurring adjustments)
necessary for a fair statement of the results for the interim periods presented.
These condensed unaudited quarterly consolidated financial statements do not
contain the detail or footnote disclosures concerning accounting policies and
other matters which would be included in annual consolidated financial
statements and, accordingly, should be read in conjunction with the audited
Consolidated Financial Statements (including the notes thereto) included in the
Company's Annual Report, on Form 10-K, for the year ended December 31, 1998
(Company's 10-K Report).
Due to the seasonal nature of the Company's operations, financial results
for interim periods are not necessarily indicative of trends for a twelve-month
period.
NOTE 2 - REGULATORY MATTERS
Reference is made to Note 2 - Regulatory Matters to the Consolidated
Financial Statements of the Company's 10-K Report under the caption "Impact of
Amended Settlement Agreement on Accounting Policies."
At June 30, 1999, net regulatory assets associated with the fossil-fueled
generating assets totaled $593,000. The Company did not charge against income
any of these net regulatory assets because recovery of such assets is considered
probable under the Amended Settlement Agreement.
Holding Company Restructuring
As reported in the Company's 10-K Report, the Company has received
approval from its shareholders and regulators to form a holding company. It is
expected that the holding company restructuring will occur by October 1999. The
timing will be coordinated with the transfer of up to $100 million in equity (as
authorized by the Public Service Commission of the State of New York,
hereinafter the "PSC") from the Company to unregulated operations. As of June
30, 1999, $25.5 million has been transferred.
- 6 -
<PAGE>
NOTE 3 - SEGMENTS AND RELATED INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was adopted by the Company during the fourth quarter of 1998 (see
Note 10 to the Consolidated Financial Statements included in the Company's 10-K
Report).
The Company's reportable operating segments are its electric and gas
operations. The Company's "Other Segment" consists primarily of Central Hudson
Enterprises Corporation and CH Resources, Inc., both of which are non-regulated
energy businesses and which are currently accounted for under the equity method
of accounting for subsidiaries. The results of operations influence earnings per
share but not revenues as reflected in the following table. All of the segments
currently operate in the northeast region of the United States.
Certain additional information regarding these segments is set forth in
the following table.
- 7 -
<PAGE>
Central Hudson Gas & Electric Segment Disclosure - FAS 131
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, 1999 June 30,1999
(Thousands of Dollars) (Thousands of Dollars)
Elect. Gas Other Total Elect. Gas Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external $98,500 $18,300 $ - $116,800 $205,873 $57,145 $ - $263,018
customers
Intersegment revenues 17 218 - 235 38 450 - 488
Total revenues 98,517 18,518 - 117,035 205,911 57,595 - 263,506
Earnings per share .40 .10 .01 .51 1.21 .43 (.05) 1.59
Quarter Ended Six Months Ended
June 30, 1998 June 30, 1998
(Thousands of Dollars) (Thousands of Dollars)
Elect. Gas Other Total Elect. Gas Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external $95,026 $16,839 $ - $111,865 $203,161 $52,215 $ - $255,376
customers
Intersegment revenues 10 231 - 241 41 570 - 611
Total revenues 95,036 17,070 - 112,106 203,202 52,785 - 255,987
Earnings per share .40 .13 .01 .54 1.16 .45 - 1.61
- 8 -
</TABLE>
<PAGE>
NOTE 4 - NEW ACCOUNTING STANDARDS - DERIVATIVE AND HEDGING
ACCOUNTING
Reference is made to the subcaption "Derivatives and Hedging Accounting"
under the caption "New Accounting Standards and Other FASB Projects" of Note 1 -
Summary of Significant Accounting Policies, to the Consolidated Financial
Statements of the Company's 10-K Report. The Financial Accounting Standards
Board issued FASB Statement No. 137 in June 1999 amending FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, to defer the
effective date by one year to all fiscal quarters of all fiscal years beginning
after June 15, 2000. This proposed change is made in response to requests to
consider delaying the effective date to provide more time to study, understand
and implement the provisions of the Statement. Entities had also requested more
time to complete information system modifications, particularly those related to
the year 2000 issue. The Company anticipates that it will implement this
Statement sometime before the required implementation date of January 1, 2001.
The Company had no outstanding energy trading derivative instruments as of
the end of the quarter. Efforts are ongoing with regard to full implementation
of an energy trading risk management program. During the first six months of the
year, the Company purchased some natural gas futures contracts to hedge a
portion of the price risk associated with its gas supply portfolio; however,
these financial instruments did not expose the Company to a high level of risk
or have a material impact on the Company's financial position or results of
operation.
The Company's exposure to commodity price risks related to its purchases
of natural gas, fuel for electric generation and other power supplies are
mitigated by its electric and gas cost adjustment clauses. These adjustment
mechanisms provide for the return or collection of costs to/from customers for
costs below or in excess of base costs included in rates. In addition, the PSC,
in a Memorandum and Resolution effective April 13, 1999, authorized the
inclusion of risk management costs as a recoverable component of the Gas
Adjustment Clause. The Memorandum and Resolution defines risk management costs
as "costs associated with transactions that are intended to reduce price
volatility or reduce overall costs to customers. These costs include transaction
costs, and gains and losses associated with transactions made in commodities
exchanges and with other risk management entities."
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company faces a number of contingencies which arise during the normal
course of business and which have been discussed in Note 9 - Commitments and
Contingencies to the
- 9 -
<PAGE>
Consolidated Financial Statements included in the Company's 10-K Report. Except
for what is disclosed in Part II of this Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999, and all documents previously filed with
the Securities and Exchange Commission in 1999, there have been no material
changes in the subject matters discussed in said Note 9.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The growth of retained earnings in the first six months of 1999
contributed to the increase in the book value of common stock from $28.00 at
December 31, 1998 to $28.52 at June 30, 1999 and the increase in the common
equity ratio from 51.0% at December 31, 1998 to 52.4% at June 30, 1999.
For the six months ended June 30, 1999, cash expenditures related to the
construction program of the Company amounted to $20.4 million. The cash
requirements for such expenditures were funded from internal sources.
The Company has $52 million of committed short-term credit facilities
available. In order to diversify its sources of short-term financing, the
Company has also entered into short-term credit facilities with several
commercial banks. At June 30, 1999, the Company had $750,000 of short-term debt
outstanding and had cash and cash equivalents totaling $5.3 million.
Authorization from the PSC limits the short-term borrowing amount the Company
may have outstanding, at any time, to $52 million in the aggregate.
The Company, on March 1, 1999, redeemed its 8.375% $16.7 million tax
exempt pollution control bonds issued by the New York State Energy Research
Development Authority (NYSERDA) due December 1, 2028. The bonds were refinanced
with lower cost NYSERDA tax exempt pollution control bonds supported by the
Company's Promissory Note of $16.7 million at a fixed rate of 4.20% for their
initial term of five years and thereafter, are subject to repricing. (See
caption "First Mortgage Bonds" included in Note 7 to the Consolidated Financial
Statements of the Company's 10-K Report.)
The Company, on August 3, 1999, refinanced its fixed rate 7-3/8% series
1984 tax exempt pollution control bonds issued by NYSERDA, $33.4 million
principal amount, by the issuance through NYSERDA of a new series of tax exempt
pollution control bonds at a fixed rate of 5.45% (discounted to 99.75% to yield
5.468%). The maturity of these bonds, which are supported by the Company's
promissory note of $33.4 million, was extended from October 1, 2014 to August 1,
2027 but they may be redeemed any time after
- 10 -
<PAGE>
August 1, 2009, at the Company's option. The 7-3/8% series will be redeemed on
October 1, 1999.
The Company, on August 3, 1999, refinanced its 1985 tax exempt pollution
control bonds ($72.25 million principal amount) and its 1987 tax exempt NYSERDA
pollution control bonds ($43.60 million principal amount) by the issuance,
through NYSERDA, of several series of tax exempt pollution control bonds, in an
aggregate principal amount of $115.85 million, in multi-modal form, and
supported by the Company's promissory note of $115.85 million. The new bonds
will be set in a form of variable rate known as "Dutch Auction" mode. A Dutch
Auction is an offering of a certain amount of short-term, tax exempt debt
(generally 35 days) to investors on an auction-bid basis. Prospective investors'
bids are reviewed by an auction agent who determines the rate that will place or
clear all of the offered debt. The maturity of these new bonds reflects
effectively an extension of the maturity of the 1985 pollution control bonds
from November 1, 2020 to August 1, 2028, and an extension of the maturity of the
1987 pollution control bonds from June 1, 2027 to August 1, 2028 (except that
the maturity of those 1987 pollution control bonds subject to the federal
alternative minimum tax effectively will be extended from June 1, 2027 to July
1, 2034). The 1985 refinanced pollution control bonds will be redeemed on
November 1, 1999 and the 1987 refinanced pollution control bonds will be
redeemed on September 1, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 4 of the Notes to Financial Statements regarding commodity price
risk.
The Company manages its interest rate risk through the issuance of
fixed-rate debt with varying maturities and through economic refundings of debt
through optional refunding. A portion of the Company's long-term debt consists
of variable rate debt for which interest is reset on a periodic basis reflecting
current market conditions. The difference between costs associated with actual
interest rates and costs embedded in current tariffs are deferred for eventual
passback or recovery to or from customers.
EARNINGS PER SHARE
Earnings per share of common stock were $.51 for the second quarter of
1999, as compared to $.54 for the second quarter of 1998, a decrease of 6%.
Earnings per share of common stock were $1.59 for the first six months ended
June 30, 1999, as compared to $1.61 for the six months ended June 30, 1998, a
decrease of 1%.
- 11 -
<PAGE>
Earnings per share for the quarter ended June 30, 1999 decreased $.03 per
share as compared to the same quarter last year. The decrease in earnings
results from a net increase in operating expenses and a reduction in other
income. Operating expenses increased due primarily to increased maintenance
costs related to a scheduled major outage at one of the Company's electric
generating plants in preparation for anticipated high electric usage during the
summer and to the costs of the Company's tree trimming operations which are
designed to improve overall electric reliability. The reduction in other income
is due largely to a decrease in federal income tax credits. Earnings from
subsidiary operations (also included in other income) were unchanged from last
year even with start-up costs incurred for generating plant acquisitions. These
increases were moderated by a reduction in other expenses, notably workers'
compensation insurance and employee benefits and in addition, a 6% reduction in
labor expenses reflecting the Company's continuing efforts to improve employee
productivity. Moreover, operating revenues increased 4% due largely to incentive
amounts earned by the Company from sales for resale, increased revenues from
electric and gas sales to residential customers and amounts related to the
Company's fuel and gas cost adjustment.
The reduction in earnings for the six months ended June 30, 1999 as
compared to the same period in 1998 results primarily from an increase in
expenses, other than fuel and purchased electricity costs; an increase in
amortization and depreciation on the Company's plant and equipment and a
reduction in other income. As with the comparative results for the quarter ended
June 30, 1999, the increase in expenses is reflective of costs incurred for
electric generating plant maintenance and tree trimming operations. The decrease
in other income results largely from costs incurred for the expansion and
startup operations of one of the Company's unregulated affiliates and from a
reduction in federal income tax credits. These reductions to earnings were
partially offset by an increase in electric and gas net operating revenues (less
fuel and purchased electricity costs) due to an increase in sales, particularly
to residential and commercial customers. Earnings were also favorably impacted
by the Company's common stock repurchase program.
RESULTS OF OPERATIONS
The following table reports the variation in the results of operations for
the three months and the six months ended June 30, 1999 compared to the same
periods in 1998:
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<PAGE>
3 MONTHS ENDED JUNE 30,
INCREASE
1999 1998 (DECREASE)
(Thousands of Dollars)
Operating Revenues............... $117,035 $112,106 $ 4,929
Operating Expenses............... 102,596 97,702 4,894
------- ------- -------
Operating Income................. 14,439 14,404 35
Other Income..................... 1,953 2,470 (517)
------- ------- -------
Income before Interest
Charges......................... 16,392 16,874 (482)
Interest Charges................. 6,955 6,833 122
------- ------- -------
Net Income....................... 9,437 10,041 (604)
Dividends Declared on Cumulative
Preferred Stock................. 807 807 0
------- ------- -------
Income Available for Common
Stock........................... $ 8,630 $ 9,234 $ (604)
======= ======= =======
6 MONTHS ENDED JUNE 30,
INCREASE
1999 1998 (DECREASE)
(Thousands of Dollars)
Operating Revenues............... $263,506 $255,987 $ 7,519
Operating Expenses............... 224,037 217,580 6,457
------- ------- -------
Operating Income................. 39,469 38,407 1,062
Other Income..................... 3,111 4,263 (1,152)
------- ------- -------
Income before Interest
Charges......................... 42,580 42,670 (90)
Interest Charges................. 14,039 13,462 577
------- ------- -------
Net Income....................... 28,541 29,208 (667)
Dividends Declared on Cumulative
Preferred Stock................. 1,615 1,615 0
------- ------- -------
Income Available for Common
Stock........................... $ 26,926 $ 27,593 $ (667)
======= ======= =======
OPERATING REVENUES
Operating revenues increased $4.9 million (4%) for the second quarter of
1999 as compared to the second quarter of 1998 and increased $7.5 million (3%)
for the six months ended June 30, 1999. Details of these revenue changes by
electric and gas segments are as follows:
- 13 -
<PAGE>
INCREASE (DECREASE) FROM PRIOR PERIOD
SECOND QUARTER SIX MONTHS
Electric Gas Electric Gas
(Thousands of Dollars)
Customer Sales*........ $ 74 $1,037** $1,134 $3,189**
Sales to Other
Utilities.............. 2,600 (378) 2,394 (481)
Fuel and Gas Cost
Adjustment............. 912 928 665 2,898
Deferred Revenues....... 506*** (258) (918)*** (783)
Miscellaneous........... (611) 119 (566) (13)
----- ----- ----- -----
$3,481 $1,448 $2,709 $4,810
===== ===== ===== =====
*Includes Energy Delivery Service revenues.
**Both firm and interruptible revenues.
***Includes the deferral and restoration of revenues related to the Company's
Retail Access Program under its Amended and Restated Settlement Agreement as
described under the caption "Competitive Opportunities Proceeding Settlement
Agreement" of Note 2 to the Notes to Consolidated Financial Statements in
Item 8 of the Company's 10-K Report.
SALES
The Company's sales vary seasonally in response to weather conditions.
Generally electric sales peak in the summer and gas sales peak in the winter.
Total kilowatt-hour sales of electricity within the Company's service
territory increased 2%, and sales of natural gas to firm customers increased 8%,
for the second quarter of 1999 as compared to the second quarter of 1998. For
the six months ended June 30, 1999, electric sales increased 4% and gas sales to
firm customers increased 10% compared to the same period last year. Changes in
sales by major customer classifications, including energy supplied by others,
are set forth below.
INCREASE (DECREASE) FROM PRIOR PERIOD
SECOND QUARTER SIX MONTHS
Electric Gas Electric Gas
Residential.............. 4% 9% 4% 7%
Commercial............... 3 7 4 10
Industrial............... - 4 1 5
Interruptible............ N/A 31 N/A 21
As indicated, interruptible gas sales increased in both periods, resulting
primarily from an increase in boiler gas usage for electric generation.
- 14 -
<PAGE>
Billing heating degree days were 9% higher for the quarter ended June 30,
1999 and 7% higher for the six months ended June 30, 1999 when compared to the
same periods in 1998 which increased usage in both periods related to colder
weather.
OPERATING EXPENSES
The following table reports the variation in the operating expenses for
the three months and six months ended June 30, 1999 compared to the same periods
in the prior year:
INCREASE (DECREASE) FROM PRIOR PERIOD
SECOND QUARTER SIX MONTHS
Amount Percent Amount Percent
(Thousands of Dollars)
Operating Expenses
Fuel and Purchased
Electricity............ $2,439 9% $ 626 1%
Purchased Natural
Gas..................... 1,130 16 3,967 15
Other Expenses of
Operation............... (537) (2) (1,495) (3)
Maintenance.............. 1,622 24 2,715 22
Depreciation and
Amortization............ 287 3 738 3
Taxes, Other than Income
Tax..................... 17 - (477) (2)
Federal Income tax....... (64) (1) 383 2
----- -- ------ --
Total.......... 4,894 5 $ 6,457 3
===== ======
Fuel and purchased electricity costs increased $2.4 million (9%) for the
second quarter of 1999 largely attributable to an increase in sales for resale.
Purchased natural gas costs increased $1.1 million (16%) for the second
quarter of 1999 resulting primarily from an increase in deferred gas costs
related to the gas cost adjustment. Purchased natural gas costs increased $4.0
million (15%) for the six months ended June 30, 1999 due both to an increase in
sales, primarily to residential and commercial customers, and an increase in the
restoration of deferred gas costs related to the Company's gas cost adjustment.
Other expenses of operation decreased $1.5 million (3%) for the six months
ended June 30, 1999, primarily due to a reduction in labor expense reflecting
the Company's continuing efforts to improve employee productivity and the
receipt of dividends related to workers' compensation insurance and employee
benefits.
Maintenance expenses increased $1.6 million (24%) for the second quarter
of 1999 and $2.7 million (22%) for the six months ended June 30, 1999 primarily
due to increased costs related to
- 15 -
<PAGE>
tree trimming operations and scheduled maintenance performed on one of the
Company's electric generating plants for a major outage.
COMMON STOCK DIVIDENDS
Reference is made to the caption "Common Stock Dividends and Price Ranges"
of Part II, Item 7 of the Company's 10-K Report, for a discussion of the
Company's dividend payments. On June 25, 1999, the Board of Directors of the
Company declared a quarterly dividend of $.54 per share, payable August 2, 1999
to shareholders of record as of July 9, 1999 maintaining the $.54 per share
level established one year ago.
OTHER MATTERS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and the documents incorporated by
reference contain statements which, to the extent they are not recitations of
historical fact, constitute "forward- looking statements" within the meaning of
the Securities Litigation Reform Act of 1995 (Reform Act). The statements will
contain words such as "believes," "expects," "intends," "plans," and other
similar words. All such forward-looking statements are intended to be subject to
the safe harbor protection provided by the Reform Act. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. A number of important factors
affecting the Company's business and financial results could cause actual
results to differ materially from those stated in the forward-looking
statements. Those factors include weather, energy supply and demand,
developments in the legislative, regulatory and competitive environment,
electric and gas industry restructuring and cost recovery and certain
environmental matters as well as such other factors as set forth in the
Company's 10-K Report and all documents subsequently filed with the Securities
and Exchange Commission. The Company undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Given these uncertainties, undue reliance should not be placed on these
forward-looking statements.
LABOR RELATIONS
Reference is made to the subcaption "Labor Relations" under the caption
"Other Matters" of Item 1 - Business, of the Company's 10-K Report. The Company
has agreements with the International Brotherhood of Electrical Workers ("IBEW")
Locals 2218 and 320 for its unionized employees, representing production
- 16 -
<PAGE>
and maintenance employees, customer representatives, service workers and
clerical employees (excluding persons in managerial, professional or supervisory
positions), which agreements were renegotiated effective July 1, 1998.
Local 2218 and Local 320 merged on August 1, 1999, and will continue as
Local 320. There will be no impact to the Company as a result of the merger. The
contracts remain in effect for Non- Production Plant Workers through April 30,
2003 and Production
Plant Workers through August 31, 2003.
CH RESOURCES, INC.
Reference is made to the subcaption "CH Resources, Inc." under the caption
"Other Matters" of Item 1 - Business, of the Company's 10-K Report.
In June 1999, CH Resources acquired a 50 megawatt coal- burning fluidized
bed electric cogeneration plant in Niagara Falls, New York.
THE YEAR 2000 ISSUE
Reference is made to the caption "The Year 2000 Issue" of Item 7 of the
Company's 10-K Report for a discussion related to the Year 2000 issue with the
following updates noted:
Regarding the Year 2000 problem project, on June 1, 1999, Company
officials reported to NERC and announced that they believe that all of the
utility's computerized components considered to be "mission critical" to the
safe and reliable flow of energy and to the protection of the environment have
been remediated and are Year 2000 ready, but the Company plans to continue its
vigilance to be sure that it is prepared for the unexpected on New Year's Eve
1999 and beyond.
As part of the Y2K readiness plan, the Company employees will be on duty
at key customer service locations on New Year's Eve 1999 and, if necessary,
thereafter. The Company will also continue testing of its computerized systems
to ensure that all remediations perform properly within a coordinated
environment, as well as taking part in industry readiness drills. The Company is
also developing a comprehensive Contingency Plan. Response to Y2K-related
emergencies will be also coordinated with local emergency services agencies, as
is done during storms and other emergencies.
The Company also has established a hot-line for more information,
available toll-free to customers, and has additional data available on its
website.
- 17 -
<PAGE>
Regarding total project costs, of a total estimate of $3.0 million,
approximately $2.2 million has been expended through June 1999, including $1.1
million of internal labor charges. The Company does not expect final costs to
exceed this estimate; however, no assurances can be given.
DIRECTORS OF THE COMPANY
Reference is made to the caption "Directors and Executive Officers of the
Company," Part III, Item 10, of the Company's 10-K Report.
Effective May 28, 1999, Stanley J. Grubel was appointed to the Board of
Directors of the Company. He will also serve on the Committee on Compensation
and Succession. He is the Chief Executive Officer of MiCRUS, an advanced
semiconductor manufacturing company located in East Fishkill, New York, since
January 1, 1995.
MiCRUS, which was formed as a joint venture between IBM and Cirrus Logic,
Inc., began operations on January 1, 1995, currently employs 1,000 workers, and
is a major customer of the Company.
Prior to his present position with MiCRUS, he was with IBM since 1965,
including his 1990 appointment as IBM East Fishkill's Semiconductor Plant
Manager.
He is currently a member of the Boards of Directors of the New York
Business Council, Mid-Hudson Pattern for Progress, Asyst Technologies, and also
serves as Chairman of the Marist College
School of Management's Advisory Council.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Asbestos Litigation. For a discussion of lawsuits against the Company
involving asbestos, see Note 9 - Commitments and Contingencies, under the
caption "Asbestos Litigation," in Part II, Item 8 of the Company's Annual
Report, on Form 10-K, for the fiscal year ended December 31, 1998 ("10-K Annual
Report").
Since 1987, the Company has been involved as a defendant in the "mass
tort" asbestos litigation in the United States District Courts for the Southern
and Eastern Districts of New York and the New York State Supreme Court, County
of New York. This litigation involves thousands of plaintiffs who seek large
amounts of compensatory and punitive damages from numerous defendants for death
and injuries allegedly caused by exposure to asbestos. As of June 30, 1999, the
Company has been a defendant in approximately 1,665 such individual lawsuits.
Many of these
- 18 -
<PAGE>
lawsuits have been disposed of without any payment by the Company, or for
immaterial amounts. While the amounts demanded in all the remaining lawsuits
total several billions of dollars, it is the Company's opinion, based on its
experience in such litigation and on information and relevant circumstances
known to it at this time, that these lawsuits will not have a material adverse
effect on the Company's financial position. However, if the Company were
ultimately held liable under these lawsuits and insurance coverage were not
available, the cost thereof could have a material adverse effect (a reasonable
estimate of which cannot be made at this time) on the financial condition of the
Company if the Company could not recover all or a substantial portion thereof in
rates. The Company's insurance does not extend to punitive damages.
The Company is insured under successive comprehensive general liability
policies issued by a number of insurers, has put such insurers on notice of the
asbestos lawsuits and has demanded indemnification and reimbursement for its
defense costs. In December 1994, the Company commenced a lawsuit against eight
such insurers in the New York State Supreme Court, Dutchess County. By order
dated October 2, 1998, the Court granted a motion by Central Hudson against one
insurer, Travelers Casualty and Surety Company (f/k/a The Aetna Casualty and
Surety Company) (Travelers), seeking a declaration that Travelers owed Central
Hudson the cost of defense in the underlying asbestos litigation. Travelers has
since paid Central Hudson $3,181,029.94, consisting of the undisputed portion of
Central Hudson's past defense costs together with prejudgment interest.
Travelers has made this payment subject to the October 2, 1998 order of the
Court and without prejudice to its rights to appeal or to seek contribution from
the other insurers and from Central Hudson.
Item 5. Other Information
(a) Nine Mile 2 Plant. Reference is made to Item 7 of the 10-K Annual
Report and to the subcaption "Nuclear Operations" thereunder for the
announcement of Niagara Mohawk Power Corporation ("Niagara Mohawk") and New York
State Electric and Gas Corporation ("NYSEG") that they plan to pursue the sale
of their nuclear assets, including the Nine Mile 2 Plant, which Plant is
described in Note 3 of the Notes to Financial Statements referred to in Item 8
of the 10-K Annual Report, in which Plant the Company has a co-tenancy interest.
Both Niagara Mohawk and NYSEG, on or about June 28, 1999, advised the
Company that each has entered into an agreement to sell its interest in the Nine
Mile 2 Plant to AmerGen Energy Company, L.L.C. ("Amergen").
The Company can make no prediction as to whether such sales will be
completed and, if completed, what effect same will have
- 19 -
<PAGE>
on the Company's interest and rights related to the Nine Mile 2 Plant. The
Company, at its election, has superior contractual rights to acquire the Nine
Mile 2 Plant interests of Niagara Mohawk and/or NYSEG proposed to be sold on the
same terms and conditions as set forth in the Amergen Agreements. The Company
has not made any determination with respect to whether or not it will make such
elections.
(b) Hazardous Waste. Reference is made to Item 1 of the 10-K Annual Report
and the subcaption thereunder "Environmental Quality - Toxic Substances and
Hazardous Wastes" for a discussion of sites at which gas manufacturing plants
owned or operated by the Company or its predecessors were once located.
In February 1999, Registrant was notified by the New York State Department
of Environmental Conservation ("NYSDEC") that it had received information as to
three (3) of such sites which led the NYSDEC to suspect that hazardous waste has
been disposed of at such sites (located in Beacon and Poughkeepsie, New York)
and that the NYSDEC would perform a Preliminary Site Assessment ("PSA") at each
such site. Such studies would be supplemental to earlier studies performed at
such sites, as described under such subcaption.
The Company expects that it will perform the PSA's itself under consent
orders, currently being discussed with the NYSDEC. The Company can make no
prediction as to the outcome of this matter.
Item 6. Exhibits and Reports of Form 8-K
(a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
(12) -- Statement Showing Computation of the Ratio of
Earnings to Fixed Charges and the Ratio of
Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
(27) -- Financial Data Schedule, pursuant to Item 601(c)
of Regulation S-K.
(10) Material contracts
(i) 89-- Agreement, dated as of April 1, 1999, between
Registrant and Arch Coal Sales Company, Inc. for
the Sale and Purchase of Coal. Certain portions
- 20 -
<PAGE>
of said Agreement setting forth or relating to pricing
provisions are omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment under the rules of said Commission.
(b) Reports on Form 8-K. During the period covered by this Report on Form
10-Q, the Company filed the following Current Report on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Registrant)
By: /s/ Donna S. Doyle
Donna S. Doyle
Controller
Authorized Officer and Chief
Accounting Officer
Dated: August 5, 1999
- 21 -
<TABLE>
<CAPTION>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
1999 Year Ended December 31,
(Thousands of Dollars)
3 Months 6 Months 12 Months 1998 1997(1) 1996(1) 1995
Ended Ended Ended
June 30 June 30 June 30
--------- --------- ---------
Earnings:
<S> <C> <C> <C> <C> <C> <C> <C>
A. Net Income $ 9,437 $ 28,541 $ 51,877 $ 52,544 $ 55,086 $ 56,082 $ 52,722
B. Federal Income Tax 5,465 16,628 29,483 28,627 26,237 31,068 28,687
-------- -------- -------- -------- -------- -------- --------
C. Earnings before Income Taxes $ 14,902 $ 45,169 $ 81,360 $ 81,171 $ 81,323 $ 87,150 $ 81,409
======== ======== ======== ======== ======== ======== ========
D. Fixed Charges
Interest on Mortgage Bonds 3,206 6,646 13,753 14,225 14,237 15,112 16,862
Interest on Other Long-Term Debt 2,541 4,918 9,457 8,890 8,860 8,505 9,063
Other Interest 1,036 2,134 4,003 3,639 2,647 2,626 1,917
Interest Portion of Rents 248 503 999 1,004 1,020 1,094 1,522
Amortization of Premium & Expense
on Debt 228 464 935 924 906 940 1,069
-------- -------- -------- -------- -------- -------- --------
7,259 14,665 29,147 28,682 27,670 28,277 30,433
-------- -------- -------- -------- -------- -------- --------
E. Total Earnings $ 22,161 $ 59,834 $110,507 $109,853 $108,993 $115,427 $111,842
======== ======== ======== ======== ======== ======== ========
Preferred Dividend Requirements:
F. Allowance for Preferred Stock
Dividends Under IRC Sec 247 $ 807 $ 1,615 $ 3,230 $ 3,230 $ 3,230 $ 3,230 $ 4,903
G. Less Allowable Dividend Deduction 32 64 127 127 127 127 528
-------- -------- -------- -------- -------- -------- --------
H. Net Subject to Gross-up 775 1,551 3,103 3,103 3,103 3,103 4,375
I. Ratio of Earnings before Income
Taxes to Net Income (C/A) 1.579 1.583 1.568 1.545 1.476 1.554 1.544
-------- -------- -------- -------- -------- -------- --------
J. Pref. Dividend (Pre-tax) (HxI) 1,224 2,455 4,865 4,794 4,580 4,822 6,755
K. Plus Allowable Dividend Deduction 32 64 127 127 127 127 528
-------- -------- -------- -------- -------- -------- --------
L. Preferred Dividend Factor 1,256 2,519 4,992 4,921 4,707 4,949 7,283
M. Fixed Charges (D) 7,259 14,665 29,147 28,682 27,670 28,277 30,433
-------- -------- -------- -------- -------- -------- --------
N. Total Fixed Charges
and Preferred Dividends $ 8,515 $ 17,184 $ 34,139 $ 33,603 $ 32,377 $ 33,226 $ 37,716
======== ======== ======== ======== ======== ======== ========
O. Ratio of Earnings to Fixed
Charges (E/D) 3.05 4.08 3.79 3.83 3.94 4.08 3.68
======== ======== ======== ======== ======== ======== ========
P. Ratio of Earnings to Fixed Charges
and Preferred Dividends (E/N) 2.60 3.48 3.24 3.27 3.37 3.47 2.97
======== ======== ======== ======== ======== ======== ========
(1)Restated to properly reflect the exclusion of AFUDC from fixed charges.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $923,363
<OTHER-PROPERTY-AND-INVEST> $87,154
<TOTAL-CURRENT-ASSETS> $112,302
<TOTAL-DEFERRED-CHARGES> $171,885
<OTHER-ASSETS> $0
<TOTAL-ASSETS> $1,294,704
<COMMON> $87,775
<CAPITAL-SURPLUS-PAID-IN> $251,155
<RETAINED-EARNINGS> $142,002
<TOTAL-COMMON-STOCKHOLDERS-EQ> $480,932
$35,000
$21,030
<LONG-TERM-DEBT-NET> $382,547
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $750
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $3,313
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $371,132
<TOT-CAPITALIZATION-AND-LIAB> $1,294,704
<GROSS-OPERATING-REVENUE> $263,506
<INCOME-TAX-EXPENSE> $16,729
<OTHER-OPERATING-EXPENSES> $207,308
<TOTAL-OPERATING-EXPENSES> $224,037
<OPERATING-INCOME-LOSS> $39,469
<OTHER-INCOME-NET> $3,111
<INCOME-BEFORE-INTEREST-EXPEN> $42,580
<TOTAL-INTEREST-EXPENSE> $14,039
<NET-INCOME> $28,541
$1,615
<EARNINGS-AVAILABLE-FOR-COMM> $26,926
<COMMON-STOCK-DIVIDENDS> $18,211
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $70,349
<EPS-BASIC> $1.59
<EPS-DILUTED> $0
</TABLE>
Exhibit (10)(i)89
THIS EXHIBIT CONTAINS CONFIDENTIAL INFORMATION WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
TERM COAL PURCHASE AGREEMENT
BETWEEN
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
AND
ARCH COAL SALES COMPANY, INC., AGENT
FOR THE INDEPENDENT OPERATING SUBSIDIARIES OF
ARCH COAL, INC.
CENTRAL HUDSON CONTRACT # 21102
<PAGE>
TABLE OF CONTENTS
Article Page
I. TERM OF AGREEMENT 2
II. DELIVERIES 3
III. SPECIFICATIONS & QUALITY & WEIGHTS 8
IV. PRICE AND PAYMENT 11
V. ADJUSTMENT IN PRICE FOR QUALITY 13
VI. SAMPLING AND ANALYSIS 15
VII. FREEZE CONDITIONING 18
VIII. CHANGES IN LAW 18
IX. OTHER GOVERNMENTAL LEGISLATION, REGULATIONS AND ORDERS 19
X. FORCE MAJEURE 21
XI. FAVORED NATION 23
XII. RESERVES 23
XIII. EMPLOYEE INTEREST 24
XIV. WAIVER 24
XV. NOTICES 25
XVI. GOVERNING LAW 26
XVII. FINALITY 26
XVIII. AMENDMENTS 26
XIX. TITLES 26
XX. INTERPRETATION 27
XXI. AGREEMENT FOR BENEFIT OF PARTIES ONLY 27
XXII. ASSIGNMENT - TERMINATION 27
XXIII. NO IMPLIED WARRANTIES 28
XXIV. LIMITATION ON DAMAGES 28
XXV. COUNTERPARTS 28
XXVI. REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES 29
ATTACHMENT I: ROSETON DOCK AND HUDSON RIVER LIMITATIONS AND
VESSELS THAT HAVE CALLED AT THE ROSETON DOCK
<PAGE>
This Agreement, made and entered into as of the 1ST day of
April, 1999 by and between Central Hudson Gas & Electric Corporation, a New York
corporation, with its principal office at 284 South Avenue, Poughkeepsie, New
York 12601-4879, (hereinafter referred to as "Buyer") and Arch Coal Sales
Company, Inc., a Delaware corporation, Agent for the Independent Operating
Subsidiaries of Arch Coal, Inc., with its principal office at City Place One,
Suite 350, St. Louis, Missouri 63141, (hereinafter referred to as "Seller").
WITNESSETH
WHEREAS, Mingo Logan Coal Company, ("Mingo Logan"), an
independent operating subsidiary of Arch Coal, Inc., has mining and loading
facilities known as the Mingo Logan Operations (Primary Source) and Whereas
Seller markets coal from other independent operating subsidiaries of Arch Coal,
Inc. (Secondary Sources), (such Mingo Logan and other Arch subsidiaries
facilities being collectively referred to herein as the "Operations") and which
Operations (except as hereinafter provided) are the source of coal to be sold
and purchased hereunder; and,
WHEREAS, Seller is the authorized agent for the independent
operating subsidiaries of Arch Coal, Inc. and is duly authorized to contract for
the sale of coal on behalf of such subsidiaries and otherwise represent such
subsidiaries, all as hereinafter set forth; and,
WHEREAS, Buyer is a consumer of coal and desires to purchase
coal from Seller; and,
WHEREAS, the parties hereto wish to enter into a coal supply
agreement based on the terms and conditions hereof.
NOW THEREFORE, the parties hereto for good and valuable mutual
consideration, and intending to be legally bound, hereby agree as follows:
1
<PAGE>
ARTICLE I
TERM OF AGREEMENT
The term of this Agreement shall be for a period commencing 1
April 1999 and continuing until midnight, 31 December 2001, unless sooner
terminated as provided for herein.
In recognition of the pending Auction of the Danskammer
Generating Station, and to provide the successful purchaser in such Auction (the
"New Owner") with maximum flexibility, Seller agrees to forgo deliveries under
this Agreement in contract year 2001 provided written notice electing such
cancellation is received from the New Owner by July 1, 2000.
2
<PAGE>
ARTICLE II
DELIVERIES
Section 1. Quantities/Delivery Schedule: The quantities of
coal to be sold and purchased hereunder shall be stated in terms of Cargoes,
with each cargo consisting of 38,000 Net Tons (+ or - 5% ). The total annual
quantity shall include Firm Cargoes and Option Cargoes. Delivery of all cargoes
shall be made by oceangoing vessels during ten (10) day layday periods scheduled
by Buyer two (2) months prior to the delivery month.
Subject to Article IV, Price and Payment, the annual cargoes are shown
below;
1st Cargo
Year Firm Cargoes Option Cargoes Loaded By
---- ------------ -------------- ---------
1999 4 2 May 30
2000 6 3 March 31
2001 6 3 March 31
OPTION CARGOES: Every third cargo each year will be an
Option Cargo. Delivery of any Option Cargo shall be subject to; (1) Buyer's need
for additional coal and (2) Seller's acceptance of revised pricing equal to the
lower of (i) the delivered cost per million BTU's of quoted spot coal for the
calendar quarter in which delivery is to occur; (ii) other fuel that can be used
in the Danskammer coal- burning units; or (iii) the equivalent cost of purchased
energy. Prices quoted by Buyer and accepted by Seller include all transportation
components. Buyer shall provide pricing for the Option Cargoes when scheduling
same and Seller shall have until the fifteenth (15th) of the month following to
indicate acceptance of the Option Cargo pricing. If Buyer fails to quote an
Option Cargo price at the time of scheduling, the Option Cargo will be priced at
the then existing Base Price as specified herein.
Upon Buyer's written request, Seller can elect to skip an
Option Cargo delivery and replace it with the delivery of a Firm Cargo
obligation. The quantity represented by the skipped cargo (i.e. 38,000 tons)
will be banked in a tonnage
3
<PAGE>
account. From time to time, Buyer will provide Seller the right to ship all or a
portion of the banked tons towards its spot coal requirements. If Seller elects
not to match the competitive spot price (on a delivered cost per million BTU
basis), the tonnage account will be reduced by the amount which was offered by
Seller under a valid spot coal solicitation. The banked tonnage account will be
zeroed out, with no remaining obligations thereto for either Buyer or Seller,
upon an event as provided herein that causes the termination of this agreement.
For water-borne deliveries, the Buyer will provide to Seller
the ten (10) day delivery window for the Vessel. Ten (10) days prior to the
scheduled arrival, the vessel's ETA will be reduced to a five (5) day window by
the Seller.
Buyer will be scheduling and receiving other deliveries of
coal and oil during the Contract Term. The Roseton Dock which is used for both
oil and coal deliveries can handle only one vessel at a time. Therefore, if
Seller's vessel arrives outside of its five (5) day delivery window and within
the time frame of another scheduled fuel delivery, Seller will hold Buyer
harmless as to any and all demurrage charges associated with either delivery,
for those charges which are the direct result of Seller's vessel arrival outside
of its allotted window.
Section 1.2 Limitations on Quantities: Not withstanding any of
the above, Buyer will not be obligated to purchase coal from Seller under this
Agreement if Buyer is unable to utilize such coal at its Danskammer Plant
because of Economic or Environmental reasons.
Section 2. Passage of Title: The coal purchased hereunder
shall be delivered solely by water or combination of rail and water to Buyer
(basis DES Roseton Dock - Incoterms 1990). Title to and risk of loss of the coal
supplied hereunder shall pass to Buyer as coal passes from the vessel's conveyor
into the receival hopper at the Roseton Dock.
Section 3. Quality Notification: The Parties recognize
the Buyer's need to know the quality of the coal prior to receipt of the
shipment at the Danskammer Plant
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and notice thereof shall be provided to Buyer in accordance with Article VI
hereof.
Section 4. Foreign Cargoes: In the case of any foreign cargoes
offered by Seller and accepted by Buyer, the Seller shall submit, two days prior
to loading, a writen loading plan which lists the source of the coal inventories
at the load facility, the average (or projected) quality of each pile, and the
quantity of each pile to be loaded. The loading plan should include a brief
description of the method to be used to blend the coals into a homogenous
mixture prior to loading. The Buyer or Buyer's agent shall have access to the
Seller's facilities to inspect the coal inventory and loading equipment and
shall have the option of collecting and analyzing samples of the individual
piles prior to loading. The coal blend shall be sampled in 5,000-ton sub-lots as
it is loaded and analyzed expeditiously by a mutually agreed upon independent
coal testing laboratory. The Seller shall notify the Buyer by telephone,
telegram, or TWX of the average "as received" analytical results of the shipment
within 48 hours of the load date. The additional results (AFT, HGI, Ultimate
Analysis and Mineral Ash Analysis) of the composite sample shall be reported
within 72 hours.
Section 5. Shipping Notice: For each shipment of coal
hereunder, Seller shall promptly mail or courier to Buyer's Danskammer Plant and
to the Roseton Administrative Offices, Central Hudson Gas & Electric
Corporation, 992-994 River Road, Newburgh, New York 12550, a shipping notice
showing weight, type of car and number of each railway car contained in the
shipment, shipping date and origin mine; or in the case of water-borne
deliveries the B/L date, total B/L weights, name of Vessel and ETA Roseton Dock.
Both rail and water detail will be provided in the case of rail/water shipments.
Section 6. Delivery by Rail/Water: This Agreement is based on
the loading of railcars at Seller's Operations and movement of those cars to a
port for loading on a vessel and ultimate delivery DES at the Roseton Dock. The
Seller is responsible for both the rail and vessel movements. Coal deliveries to
the Roseton Dock can only be made in Belt Self Unloading Vessels that meet the
Roseton Dock and Hudson River limitations as described in Attachment I herein.
However, the Seller and its Agents are responsible for the safe passage of
Vessels under their control in all
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CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
waters and any limitations thereon, whether or not they are included in
Attachment I. Should the loss of either of these transportation components
prevent Seller from making a scheduled delivery forcing the Buyer to replace the
lost tonnage, then Buyer will not be required to makeup the replaced tonnage.
Buyer will provide a safe berth, free of wharfage or dockage
charges, to which Vessels may proceed and from which they may depart, and where
they may always lie safely afloat. With assistance as necessary from Buyer's
dockside personnel (Buyer will provide shore-side labor for line handling during
docking/undocking procedures), it shall be the responsibility of Seller to
secure the Vessel to Buyer's berth prior to such discharging of coal. Vessels
can be berthed/deberthed any time during the day or night and docking/undocking
will only be constrained through directions given by the docking/undocking pilot
if such a pilot is required.
If upon arrival of the Vessel, the discharge berth at Roseton
Dock is open and ready to receive the Vessel for immediate docking, Seller's
Vessel will tender its notice of readiness to start discharging coal provided
that the Vessel is in all respects ready to start discharging coal from its
conveyor boom into Buyer's dockside hopper. Buyer will receive the coal from the
tip of the Vessel's conveyor at an average minimum rate of X,XXX short tons/hour
and a maximum rate not to exceed X,XXX short tons/hour. Buyer's belt scale
results will be used as documentation of the Vessel's unloading rate. In
addition, Seller will be responsible for demurrage charged by other vessels held
out due to Seller's Vessel's inability to offload at an average minimum rate of
X,XXX short tons per hour and/or by Seller's Vessel arrival outside of its five
(5) day delivery window.
Any delays experienced shore-side preventing the Vessel from
achieving its X,XXX short tons/hour average minimum rate will count as laytime.
Allowed laytime is defined as follows:
Cargo Size in Short Tons = allowed hours
X,XXX Short Tons/Hour
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<PAGE>
CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
If upon arrival of the Vessel, the discharge berth at Roseton
Dock is not available for immediate docking, Seller's Vessel will tender its
notice of readiness WIBON, WIFPON, WCCON from the closest practical safe
anchorage and laytime will start counting provided the Vessel arrives within
Seller's five (5) day delivery window and the Roseton Dock is occupied.
Subsequent shifting time from anchorage to berth will not count as laytime.
Section 7. Importer of Record: For substitute imported coal,
Seller will act as importer of record on behalf of Buyer. Usual and customary
costs incurred in clearing cargo will be reimbursed by Buyer to Seller as per a
statement from the Customs Broker.
Section 8. Liability for Certain System Damage:If Buyer's coal
unloading system or equipment is damaged or forced to shut down as the result of
receiving foreign or oversized material from the Vessel, then the Seller shall
be liable for any damage and/or delays associated with the unauthorized delivery
of this extraneous material.
Section 9. Demurrage at Discharge Berth: At the end of each
calendar year of the contract Term, Buyer and Seller will reconcile the
deliveries for the year to determine if Buyer has failed to receive all the
contract coal at the average rate as specified herein. If Buyer has used more
time to receive the annual tonnage than allowed, Buyer will reimburse Seller for
excess laytime used at the rate of USD $XX,XXX for each 24 hours, fractions
prorata.
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<PAGE>
CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
ARTICLE III
SPECIFICATIONS & QUALITY & WEIGHTS
Section 1. Origin: The Primary Source of coal for deliveries
hereunder shall be from the Mingo Logan Operations and such coal shall meet the
specifications herein. Coals from other sources shall not be shipped without the
prior written approval of Buyer.
Section 2. As Received Quality Specifications: The coal
delivered hereunder shall conform to the following Typical Specifications on an
"as received" basis determined on a per Vessel basis. The quality of the coal
delivered by Seller shall be determined in accordance with Article VI.
Typical Minimum Maximum ASTM
Method
As Received:
Moisture % X XX D 3173
Volatiles % XX XX XX D 3175
Fixed Carbon % XX XX XX D 3172
Ash % X.X -- XX.X D 3174
BTU/LB XX,XXX XX,XXX -- D 3286
Sulphur % X.XX X.XX X.XX D3177/4239
SO2 (LBS./MMBTU) X.XX -- X.X Calculated
Grind (HGI) XX XX (1) XX D 409-85
Ash Fusion (Reducing)
(I.D., Deg. F) X,XXX X,XXX -- D 1587
Coal Fines:
(A) 1/4" Round Hole -- -- XX% D4749
(B) 35 Mesh U.S. Standard -- -- XX% D4749
(1) Subject to approval by Buyer.
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THIS COAL SHALL BE FREE OF EXTRANEOUS MATERIAL AND SHALL HAVE A MAXIMUM TOP SIZE
OF TWO INCHES.
(A) Coal defined as zero times one quarter inch round hole.
(B) Coal fines defined as zero by 0.5 mm (35 mesh U.S. Standard
sieve or 32 mesh Tyler sieve).
Section 3. Buyer's Remedies Related to Quality Specifications:
In lieu of any other remedies related to Seller's failure to meet the quality
specifications provided for in Section 2 above, except for the price adjustments
for quality provided for in Article V herein, Buyer shall have the rights and
remedies described in this Section 3 upon Seller's failure to deliver coal in
accordance with the specifications set forth in Section 2 of this Article III.
Buyer's ability to use the coal being dependent on the coal
meeting the specifications set forth above, it is agreed that Buyer shall have
the right to reject any and all shipments which fail to meet any of the
individual shipment as received rejection limits shown below:
INDIVIDUAL SHIPMENT REJECTION LIMITS (As Received)
Sulphur (By Weight) 0.7% Maximum
Volatiles 30% Minimum
Ash Fusion (I.D. - Degrees F) 2,500 Minimum(1)
Grind (HGI) 43 Minimum
Gross Calorific Value (BTU/LB) 2,750 Minimum
SO2/Million BTU 1.1 LBS. Maximum
(1) Lower value subject to approval by Buyer.
Seller shall pay all freight, diversion, demurrage, testing
and other expenses in connection with any such rejected shipment, or shipments
found to be nonconforming, unless such shipment is accepted by Buyer.
Furthermore, Seller certifies that it will not make any shipment shown by
sampling and analyses (as provided in Article VI) to exceed the individual
shipment rejection limits.
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Section 4. Seller's Duty of Care: Seller shall, at all times
exercise reasonable care and diligence in its efforts to ship to Buyer coal
which conforms to the specifications as set forth above in Section 2. Nothing in
this Article III shall be construed to relieve Seller of its obligation to
conduct its mining and operations in a competent manner, consistent with good
industry practices, so as to produce coal which will meet the specifications as
set forth in Section 2 above.
Section 5. Weights: For rail/water deliveries, The Seller
shall submit to Buyer the certified rail weights provided by the origin carrier
within five (5) working days after the certified weights become available.
For water only deliveries, the weight of coal sold hereunder
shall be determined by an Independent Marine Survey(s) of the Vessel at the Load
Port or by Independent Marine Survey(s) at Buyer's Discharge Port if Seller's
Vessel has multiple Discharge Ports. The Buyer, Seller or their Agents reserve
the right to witness any or all Marine Surveys.
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<PAGE>
CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
ARTICLE IV
PRICE AND PAYMENT
Section 1. Price: The Base Price of the Firm cargoes of
coal sold hereunder is fixed at $ XX.XX per short ton DES Roseton Dock. Option
Cargoes will be priced in accordance with ARTICLE II, Section 1.
Section 2. Price Reopener: On or before July 1st 1999 & 2000,
Buyer and Seller will enter into negotiations to fix the Base Price for coal
delivered hereunder for the ensuing year. Unless otherwise agreed, this
Agreement will terminate on December 31st of the then current contract year if
negotiations for the following year have not been completed by October 31st.
Submission of Analysis: In addition to Seller's notifications
provided for in Article II, Section 3, Seller shall submit to Buyer the
analytical data on said shipments from the Operations as obtained by the
Independent Laboratory for each shipment within five days after each shipment.
Section 3. Invoice: An invoice for any adjustments for quality
as hereinafter defined, and all coal shipped from the Operations based on
weights determined in accordance with Article III Section 5 will be submitted by
the Seller to the Buyer. The coal shipped will be invoiced at the Price as
defined in ARTICLE IV, Section 1.
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Section 4. Taxes: All taxes due on cargo in U.S.A. upon
transfer of title per Incoterms (1990) are for Buyer's account.
Section 5. Vessel Costs: All usual and customary Vessel costs,
including but not limited to docking, are for the account of the Seller (i.e.,
pilots, tugs).
Section 6. Payment: Buyer shall make payment to Seller within
thirty (30) calendar days from vessel Bill of Lading Date. There shall be no
discount for early payment. Payments due on a Saturday shall be made on the
prior Friday and those due on a Sunday shall be made on the following Monday.
Payments due on a Holiday shall be made on the following week day.
Payment shall be made by wire transfer as directed by Seller
upon written notice to Buyer.
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<PAGE>
CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
ARTICLE V
ADJUSTMENT IN PRICE FOR QUALITY
Section 1. BTU Value (Gross Calorific Value As Received Basis
- - BTU/LB): The Price to be paid to Seller by Buyer is based upon coal with
XX,XXX BTU/LB heat content (BTU Value) for each net ton of coal in each
shipment. The BTU Value of the coal sold hereunder may vary, and the Price for
such coal shall be adjusted to compensate for variations in BTU Value, as
described below.
Section 2. Adjustment for BTU Value: If the BTU Value of the
coal shipment is between XX,XXX BTU/LB and XX,XXX BTU/LB (inclusive), there will
be no adjustment for BTU Value variation. If the BTU Value is less than XX,XXX
BTU/LB or greater than XX,XXX BTU/LB, the Price for a shipment shall be
adjusted, based upon variations from the XX,XXX BTU/LB BTU Value, as follows:
[a] For a coal shipment with a BTU Value greater than XX,XXX
BTU/LB, a premium shall be paid by Buyer to Seller at the rate of $X.XX per 100
BTU/LB, fractions pro rata above XX,XXX BTU/LB;
[b] For a coal shipment with a BTU Value less than XX,XXX
BTU/LB but greater than XX,XXX BTU/LB, a penalty shall be deducted from the
Price at the rate of $X.XX per 100 BTU/LB, fractions pro rata below XX,XXX
BTU/LB;
[c] For a coal shipment with a BTU Value less than XX,XXX
BTU/LB but greater than XX,XXX BTU/LB, a penalty shall be deducted from the
Price at the rate of $ .XX per 100 BTU/LB, fractions pro rata below XX,XXX
BTU/LB.
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<PAGE>
CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
Section 3. Adjustments for Ash Value: The Price to be paid to
Seller by Buyer is based upon coal with an ash content (Ash Value) of XXXXX
percent (X%) by weight of the "as received" analysis of the coal. If the Ash
Value is between X.X% and X.X% there will be no adjustment for Ash Value. If the
Ash Value is less than X.X% then a premium of $.XXX per ton shall be paid to
Seller for each X.X% Ash Value variation below X.X%. If the Ash Value is greater
than X.X% but less than X% then a penalty of $.XXX per ton shall be deducted
from the Price for each X.X% Ash Value variation in excess of X.X%. If the Ash
Value is greater than X% but less than XX% then a penalty of $.XX per ton for
each X.X% of ash greater than X.X% shall be deducted from the Price.
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ARTICLE VI
SAMPLING AND ANALYSES
A recognized independent laboratory ("Independent
Laboratory"), experienced in the sampling and analyzing of coal, shall be
mutually agreed upon by Buyer and Seller, and shall be engaged by each Party to
perform the sampling, sample preparation, and analysis of the coal shipped
hereunder from the Primary Source. The Independent Laboratory shall sample
shipments at the Operations and it shall perform its sampling and analysis in
accordance with standards approved by the American Society for Testing and
Materials ("ASTM"). Buyer reserves the right to request additional sampling and
analysis from that required herein for coal shipped from a Secondary Source.
During the loading of the rail cars at domestic operations, or
barges or ships for offshore cargoes, sample increments shall be collected by
the most reliable, practical and mutually agreeable procedures in accordance
with either ASTM D2234 (manual) or D4702 (mechanical). The frequency and mass of
the increments shall be in accordance with ASTM standards. The Independent
Laboratory shall divide the sampled material into four (4) sample splits
identified as follows: (a) Laboratory analysis, (b) Referee split, (c) Seller's
split and (d) Buyer's split. The Buyer or Buyer's Agent shall have access to
witness all sampling, sample preparation, screen testing and sealing of samples.
The Independent Lab shall provide upon request the splits of the train samples
to the Buyer or Buyer's Agent and/or Seller as soon as the sample is prepared.
The Independent Laboratory shall properly identify, seal, and retain the referee
splits of each train sample for a period of 60 days so that the Buyer or Seller
may analyze such samples. The Buyer's Agent will be permitted to place a
suitable seal on Referee samples.
The composite sample for each train shall be analyzed by the
Independent Laboratory for total moisture, ash, sulfur, volatile, and gross
calorific value (BTU/LB) (Proximate Analysis) and the results (wet & dry)
reported to Seller and Buyer/Buyer's Agent upon completion of testing. The
certified analysis shall be the weighted mathematical average for each train's
values for moisture, ash, volatile, sulfur,
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<PAGE>
and calorific value.
A physical composite sample of the trains comprising a vessel
cargo shall be prepared and analyzed by the Independent Laboratory for
grindability index (HGI), ash fusion temperature, mineral ash, mercury and
ultimate analysis. The cost of the laboratory services for such sampling and
analyzing of the coal in each shipment shall be paid for by the Buyer and
Seller, equally.
If the Buyer or Seller should question the correctness of the
analyses made by the Independent Laboratory, they may, within 30 days after the
Vessel unloading, notify the other Party in writing to request that the Referee
splits be analyzed by a second mutually agreeable Independent Laboratory. This
notification should specify which analytical parameter or parameters are in
dispute. The Independent Laboratory shall provide the Referee Laboratory with
the properly identified sealed Referee train samples.
The integrity of the moisture in reserve samples is the most
difficult to preserve. Therefore, if the moisture value is in dispute, the
governing result will be the higher of the averaged value reported by the
Independent and Referee Laboratory. Other analytical parameters shall be
determined on a 'dry basis' and corrected to the 'as received' basis using the
governing moisture.
The following are the acceptable tolerance for other test
parameters: Ash +/- 0.3%; Sulphur +/- 0.03%; Volatile +/- 0.5%; Calorific Value
+/- 100 BTU/LB Dry Basis; Ash Fusion Temperature I.D. +/- 75 Degrees F. and HGI
3. Should the results fall within these tolerances, the results of the
Independent Laboratory will stand. Should the results fall outside the
tolerance, then the Referee analyses shall be the governing result.
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<PAGE>
Should the grindability (HGI) result be in dispute, the
Referee Laboratory will prepare the physical composite sample from the Referee
samples to perform the HGI test. If the HGI test result of the Referee
Laboratory is within tolerance (3), the original laboratory result will stand.
If out of tolerance, the Referee results will be the governing analysis.
The cost of this Referee analysis will be paid by the Party
requesting the check analysis.
Neither Party shall require the other Party to use equipment
or procedures which exceed the requirements of ASTM.
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ARTICLE VII
FREEZE CONDITIONING
Section 1. Freeze Conditioning Agent: Seller shall apply a
freeze conditioning agent ("FCA") at no cost to Buyer in conformance with the
directives of the origin railroad and good industry practice.
Section 2. Buyer's Approval: Seller shall use an FCA with a
Diethylene Glycol base that has been preapproved in writing by Buyer. Seller
shall have the right to use any of the approved FCA's but shall not change from
one FCA to another without notifying Buyer, such notification to be confirmed in
writing. On or before October 1st of each contract year Seller shall provide
updated Material Safety Data Sheets (MSDS) for each FCA anticipated for use on
contract deliveries. Buyer will thereafter provide Seller with an updated list
of approved FCA's.
ARTICLE VIII
CHANGES IN LAW
Seller hereby certifies that it is in substantial compliance
with the rules, practices and standards issued by any governmental agencies
having jurisdiction with respect to applicable legislation, regulations, rules
or mandates which were in effect as of 23 June 1998.
Seller and Buyer recognize that this coal purchase is of
limited duration with annual price reopeners and therefore agree that there
shall be no inter-year adjustment in price as a result of enactment,
modification, or revision of any federal, state or local legislation or
regulations, rules or mandates issued pursuant thereto after such above date,
which affects the bituminous coal industry with respect to the reclamation,
conservation, environmental protection, mine safety, mine working conditions and
practices, ventilation, health, employee retirement programs, occupational
hazards, research and reclamation and conservation of mine areas, which
increases or decreases Seller's cost of producing coal under this Agreement.
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ARTICLE IX
OTHER GOVERNMENTAL LEGISLATION, REGULATIONS AND ORDERS
Section 1. Compliance with Law: Each Party shall use its best
efforts to comply with the provisions of all applicable federal, state and other
governmental laws and any applicable orders and/or regulations, or any
amendments or supplements thereto, which have been, or may at any time be,
issued by a governmental agency.
Section 2. Effect Upon Buyer's Obligations: The Parties hereto
recognize the possibility that, during the Term of this Agreement, federal,
state or local legislative or regulatory bodies or the courts may impose or
enforce regulations, restrictions or standards, or revise existing regulations,
restrictions or standards which in Buyer's sole discretion will make it
impossible or impractical for Buyer to utilize the coal thereafter to be
delivered hereunder at the Danskammer Plant. Such regulations or restrictions
could pertain to, but would not necessarily be limited to coal quality. If any
such regulations or restrictions are imposed and if as a result thereof Buyer,
in its sole discretion, decides that it will be impossible or impractical for
Buyer to utilize the coal, Buyer shall so advise Seller and thereupon Buyer and
Seller shall promptly consider what corrective steps they can take in the mining
and preparation of the coal and in the handling and combustion of the coal at
the Danskammer Plant, and if in Buyer's judgment such steps will not, without
unreasonable expense to Buyer, make it possible and practical for Buyer to
utilize the coal thereafter to be delivered hereunder without violating such
regulations or restrictions, Buyer shall have the right, upon notice to Seller,
to terminate this Agreement without further obligation to Seller hereunder.
Section 3. Effect Upon Seller's Obligations: In the event of
the enactment of any new federal, state or other governmental law, or the
promulgation of any regulation or order thereunder which may prohibit (or
restrict so as to effectively prohibit) mining, processing or shipping, as may
be applicable, of the coal specified in this Agreement, Seller shall be relieved
of its obligation upon the effective date of implementation (compliance date) of
such law, regulation or order to deliver the total quantity of coal to be
delivered under this Agreement to the extent of the amount of tonnage
represented by the percentage of production of such mining, processed or
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<PAGE>
shipped coal so affected by such law, regulation or order to the total amount of
coal produced, and processed to meet the quantity requirements of this
Agreement.
Section 4. Election to Reduce Tonnage or Terminate: In the
event either party elects to invoke Section 2 or 3, above, the party so invoking
shall notify the other party in writing and said notice shall state the
notifying party's election to terminate this Agreement or reduce the tonnage to
be delivered thereunder, effective on a specified date, which said date shall
not be earlier than the effective date of the implementation (compliance date)
of such law, regulation or order giving rise to the termination; provided,
however, that notwithstanding anything to the contrary herein, said specified
date shall in no event be earlier than sixty days after the date of delivery of
said notice.
Section 5. Effect of Termination: If either party elects to
terminate this Agreement under the provisions of Section 2, 3 and/or 4 of this
Article , then no party shall have, after the effective date of such
termination, any further obligation or liability under this Agreement ,
provided, however, that such termination shall not affect any rights or
obligations existing under this Agreement for coal shipped or required to be
shipped prior to the effective date of said termination.
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ARTICLE X
FORCE MAJEURE
No Party shall be subject to liability to the other Party for
failure to perform in conformity with this Agreement where such failure results
from an event or occurrence beyond the control of the party affected thereby,
whether foreseen, foreseeable or unforeseeable, which wholly or partially
prevents the mining, preparation, loading or shipping of coal by Seller or the
receiving, unloading or utilization of coal by Buyer. Such events shall include,
by way of illustration but not by way of limitation, acts of God, war,
insurrection, riots, nuclear disaster, strikes, labor disputes, labor and
material shortages, fires, explosions, floods, river freezeups, breakdowns or
damage to mines, plant equipment or facilities (including emergency outages of
equipment or facilities to make repairs to avoid breakdowns thereof or damage
thereto), interruptions to transportation, railway car shortages, embargoes,
orders or acts of civil or military authority, laws, regulations or
administrative rulings. The provisions of the above sentence shall not excuse a
Party from performing unless such Party shall give reasonable notice to the
other Party and furnish reasonable information as to the cause of inability to
perform and probable extent thereof within ten (10) calendar days after such
cause occurs. Failure to give such notice and furnish such information within
the time specified shall be deemed a waiver of all rights under this Article for
such period of time during which notice was not given. No suspension or
reduction by reasons of force majeure shall invalidate the remainder of this
Agreement but, on the removal of the cause, shipments shall resume at the
specified rate. During such periods when force majeure conditions result in a
reduction in deliveries, Seller shall equitably prorate shipments among its
customers. Nothing herein contained shall be construed as requiring Seller or
Buyer to accede to any demands of labor, or labor unions, or suppliers, or other
parties which Seller or Buyer considers unacceptable. Deficiencies in shipments
so caused shall not be made up except by mutual consent.
If circumstances arise such that a vessel delivering coal
under this Agreement, is prevented from discharging all or part of its cargo at
the discharge port, by reason of breakdown or failure of the shore-side
equipment that is necessary to receive and take away the cargo from the vessel,
then in order to mitigate economic
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CONFIDENTIAL INFORMATION REPRESENTED IN THIS FILING BY AN "X" HAS
BEEN REDACTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
loss the Buyer shall have the right, by notice in writing to Seller, to order
the vessel to a safe and accessible berth or anchorage (the substitute berth)
where she can safely discharge without risk, in which event upon the completion
of cargo unloading, at such substitute berth or anchorage, all conditions of the
applicable Bill of Lading shall apply.
If Buyer declares a substitute berth, then time shall stop
counting twelve (12) hours after declaration, or when the vessel sails,
whichever is sooner and shall recommence when the vessel tenders notice at the
substitute berth or anchorage. Time is to count at the substitute berth as it
would have at the original berth, with exception of turn time. Total time used
at the discharging berths will be the sum of time at the original berth (Roseton
Dock) and the time used at the substitute berth.
In the event that Buyer declares a substitute berth or
anchorage for the vessel to discharge or complete discharge, Buyer to compensate
Seller as follows:
All reasonably incurred vessel diversion costs including
out-of-pocket costs such as pilot dues, tug assistance, port
harbor dues, etc., plus the actual cost of the vessel used in
such diversion at a rate not to exceed $ XX,XXX per day
calculated on a pro rata basis. The total of the vessel diversion
costs as identified above plus the actual cost of the vessel used
in such diversion shall not exceed $ XX,XXX per occurrence.
All loss of value of coal carried aboard the vessel (calculated
using Buyer's DES coal price as the basis).
If circumstances arise such that Seller is unable to make
delivery of the contracted volume of coal, for any reason, then in order to
mitigate economic loss, Seller will compensate Buyer for coal not shipped as
follows:
All freight, diversion, demurrage, testing and other expenses.
The differential between the value of coal to be delivered
(calculated using Buyer's DES coal price as the basis) and the
cost of replacement coal or energy as delivered to the Danskammer
Plant.
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ARTICLE XI
FAVORED NATION
If, during the Term of this Agreement, Seller enters into a
term coal sales agreement with another domestic U.S. utility company for
Seller's direct sale to such other utility, and such agreement contains terms
and conditions which are substantially the same as this Agreement's terms and
conditions, including, without limitation, provisions for; (1) a term which ends
within two years of the initial Term of this Agreement; (2) delivery and
acceptance of coal with the same quality and quantity; and (3) Seller's price
per ton of such coal thereunder is less than the price per ton under this
Agreement, then Seller shall notify Buyer in writing within sixty (60) days of
Seller's entering into such agreement. Then, upon Buyer's written notice, Seller
shall promptly agree to an amendment of this Agreement to afford Buyer pricing
provisions substantially the same as such other contract, provided however, any
such amendment shall include terms and conditions as favorable to Seller as are
included in such other contract.
ARTICLE XII
RESERVES
The Coal reserves owned by or otherwise available to Seller
are located in Mingo and Logan Counties, West Virginia and are accessible to the
Norfolk Southern Railway and are part of the mining properties constituting the
Primary Sources. The total quantity of suitable and economically recoverable
coal of the quality to meet Seller's maximum obligation to Buyer under this
Agreement is equal to the annual tons each year times the number of years
remaining in the contract Term as per Article I contained herein. Seller shall
not enter into other agreements for the production and sale of coal from the
above reserves which production and sale would reduce or impair the amount of
reserves required to meet its obligations during the remaining Term of this
Agreement.
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Buyer shall have the right from time to time, whenever deemed
desirable by Buyer, to audit at Buyer's expense; (1) said reserves owned or
otherwise available to Seller; and (2) Seller's commitments for the purpose of
determining if Seller has sufficient reserves which are not otherwise committed
to comply with the reserve requirements of this Agreement. Buyer may at its
discretion have any such audit conducted by an independent firm or firms
acceptable to Seller.
ARTICLE XIII
EMPLOYEE INTEREST
Seller represents to Buyer that Seller has not given and will
not give, directly or indirectly, anything of value to any employee or other
representative of Central Hudson Gas & Electric Corporation with the view of
securing this Agreement or obtaining favorable treatment with respect to the
performance of this Agreement. If such representation is untrue, or becomes
untrue, Buyer shall have the right to declare this Agreement null and void or to
terminate it, to sue for damages and to take such other action as may be
provided by law. If Seller obtains knowledge at any time that any such employee
has a direct or indirect interest in Seller or its affiliates, (excluding
routine purchases in the open market by such employee of securities issued by
Seller or its parent corporations) it will immediately inform Buyer of such
fact.
ARTICLE XIV
WAIVER
The failure of any party to insist in any one or more
instances upon strict performance of any of the provisions of this Agreement or
to take advantage of any of its rights hereunder shall not be construed as a
future waiver of any such provisions or the relinquishment of any such rights,
but the same shall continue and remain in full force and effect for the term of
this Agreement.
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ARTICLE XV
NOTICES
Notices and other communications provided for or required
herein shall be given (effective, if written, when presented for delivery by
postal authorities when sent by postage prepaid, certified mail) or by facsimile
as follows:
TO BUYER:
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
284 SOUTH AVENUE
POUGHKEEPSIE, NEW YORK 12601-4879
ATTENTION: MR. DONALD L. DU BOIS, JR.
DIRECTOR OF FUELS
PHONE: (914) 486-5844
FAX: (914) 486-5626
TO SELLER:
ARCH COAL SALES COMPANY, INC.
CITY PLACE ONE, SUITE 350
ST. LOUIS, MISSOURI 63141
ATTENTION: MR. JOHN W. EAVES
PHONE: (314) 994-2835
FAX: (314) 994-2719
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ARTICLE XVI
GOVERNING LAW
This Agreement shall be construed, enforced and performed in
accordance with the laws of the State of New York.
ARTICLE XVII
FINALITY
This Agreement is intended as the final, complete and
exclusive statement of the terms of the Agreement among the Parties. The Parties
agree that parol or extrinsic evidence may not be used to vary or contradict the
express terms of this Agreement. No waiver of any provision hereof shall be
effective, unless set forth in a written instrument authorized and executed with
the same formality as this Agreement.
ARTICLE XVIII
AMENDMENTS
This Agreement may be modified or amended at any time by
mutual agreement of the parties, provided that such modification or amendment
shall be in writing and executed by the duly authorized representatives of the
parties.
ARTICLE XIX
TITLES
The titles of the articles and sections of this Agreement have
been inserted as a matter of convenience for reference only.
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ARTICLE XX
INTERPRETATION
No understandings, agreements or trade customs not expressly
stated in or required to be applied in accordance with the terms of this
Agreement shall be binding on the Parties in the interpretation or performance
hereof unless such understandings, agreements or trade customs are reduced to
writing and signed by the respective Parties.
ARTICLE XXI
AGREEMENT FOR BENEFIT OF PARTIES ONLY
Buyer agrees to indemnify, including reasonable attorneys
fees, defend, and hold Producer/Seller harmless from any and all claims of any
broker, consultant, finder or like agent with whom Buyer has dealt, or is
alleged to have dealt, regarding this Agreement. Producer/Seller agrees to
indemnify, including reasonable attorneys' fees, defend, and hold Buyer harmless
against any and all claims of any broker, consultant, finder or like agent with
whom Producer/Seller has dealt, or is alleged to have dealt regarding this
Agreement.
ARTICLE XXII
ASSIGNMENT - TERMINATION
All of the rights and obligations of this Agreement shall
inure to and be binding upon the legal representatives, successors and permitted
assigns of the Parties hereto. No assignment shall impose upon the non-assigning
Party any obligation or burden in excess of those obligations or burdens as
exist between the original Parties to this Agreement. This Agreement or any
interest herein shall not be assigned without the prior written consent of the
other Parties, which consent shall not be unreasonably withheld.
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Subject to the provisions of the Federal Bankruptcy Code, this
Contract shall not be deemed an asset of either Seller or Buyer and, upon five
(5) days prior written notice, either such Party may terminate this Agreement
without penalty at any time in the event the other such Party enters into any
voluntary or involuntary receivership, bankruptcy, or insolvency proceedings in
any applicable national jurisdiction.
ARTICLE XXIII
NO IMPLIED WARRANTIES
Seller's only warranties with respect to performance of its
obligations hereunder are those expressly set forth in this Agreement and no
implied warranties, including fitness for a particular purpose, shall be implied
therefrom.
ARTICLE XXIV
LIMITATION ON DAMAGES
Except as provided herein, neither party shall be liable for
any indirect, special, consequential, or punitive damages arising in connection
with the performance or nonperformance of any obligations under this Agreement.
ARTICLE XXV
COUNTERPARTS
This Agreement is being executed in several counterparts, each
of which is an original and all of which together constitute but one and the
same Agreement.
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ARTICLE XXVI
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
Each party warrants and represents to the other that:
(i) it has all requisite power, authority, licenses,
permits, permissions, approvals and franchises, corporate or otherwise, to
execute and deliver this Agreement and perform its obligations hereunder;
(ii) its execution, delivery, and performance of this
Agreement has been duly authorized by, or is in accordance with, its organic
instruments, this Agreement has been duly executed and delivered for it by the
signatories so authorized, and this Agreement constitutes its legal, valid and
binding obligation enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights in
general and by general principles of equity;
(iii) its execution, delivery, and performance of this
Agreement will not result in a breach or violation of, or constitute a default
under, any agreement, lease or instrument to which it is a party or by which it
or its properties may be bound or affected; and
(iv) it has not received any notice, nor to the best of its
knowledge is there pending or threatened any notice, of any violation of any
applicable laws, ordinances, regulations, rules, decrees, awards, permits or
orders which would materially adversely affect its ability to perform hereunder.
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IN WITNESS WHEREOF, each Party hereto has caused this
Agreement to be executed in its behalf by its proper officer thereunder duly
authorized, all as of the day and year first above written.
BUYER: CENTRAL HUDSON GAS & ELECTRIC CORPORATION
BY ______/s/ Allan R. Page______________________________________
ITS Executive Vice President - Energy Resources and Development
SELLER: ARCH COAL SALES COMPANY, INC.
BY _____/s/ John W. Eaves_______________________________________
ITS ____President_______________________________________________
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Attachment I
Roseton Dock and Vessel Limitations:
- - LOA - 890 Feet Maximum
- - Beam - No Restriction
- - Water Depth in Berth - 36+ Feet MLW
(Operational Draft 31 Feet MLW Channel at Haverstraw is Limiting)
Current List of Vessels which have Delivered Coal to Roseton:
- - Ambassador
- - Atlas
- - Bauta
- - Ballangen
- - Bernhard Oldendorff
- - Energy Enterprise
- - Nelvana
- - Thornhill
