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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 13, 1995
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
New York 1-1217 13-5009340
(State of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
4 Irving Place, New York, NY 10003
(Address of principal executive offices)
Registrant's telephone number: (212) 460-4600
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
TENTATIVE ELECTRIC RATE SETTLEMENT
As previously reported, in April 1994 the Company filed with
the New York State Public Service Commission (PSC) for a $191.3
million electric rate increase to become effective April 1, 1995.
On September 9, 1994, PSC staff filed a recommendation for an
electric rate reduction of $199 million, and on September 23,
1994 the Company revised its electric rate increase request to
$223 million. On December 30, 1994, the PSC's Administrative Law
Judges ("ALJs") hearing the case issued a recommended decision
which, if adopted by the PSC, would provide for a $23 million,
one-year rate increase.
On January 19, 1995, the Company, the PSC staff and other
parties to the rate case announced that they had reached an
agreement in principle resolving the issues in the case. On
February 3, 1995, the Company and the PSC staff signed a detailed
written agreement reflecting this resolution. The agreement has
been submitted to the PSC for approval, and the PSC is expected
to act on the agreement in March 1995. If approved, the
agreement would be effective for a three year period beginning
April 1, 1995 but could be extended. The currently effective
agreement, the 1992 electric rate settlement, expires March 31,
1995. The principal features of the new settlement agreement are
as follows:
LIMITED INCREASES IN BASE REVENUES
There will be no increase in base electric revenues for the
first rate year of the agreement (the twelve months ending March
31, 1996). However, differences between actual and projected
amounts for certain expense items during the first rate year will
be reconciled and deferred for charging or crediting to
customers. These items include pension and retiree health
benefit expense, costs incurred under IPP contracts, and certain
demand side management and renewable energy expenses. Property
tax differences will be similarly reconciled and charged or
credited to customers, except that the Company will absorb (or
retain) 14 percent of any property tax increase or decrease from
the forecast amounts.
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For each of the second and third rate years, Con Edison will
change its rates to provide for projected increases or decreases
in each year in pension and retiree health benefit costs, IPP
contract costs, and demand side management and renewable energy
costs. During the second and third rate years, differences
between the projected and actual amounts of these items, and
property taxes, will be reconciled and deferred for charging or
crediting to customers as in the case of the first rate year,
including the 86 percent/14 percent sharing between customers and
the Company of property tax changes from the levels projected for
the first rate year.
Unlike previous multi-year rate settlements, there will be
no increases in rates to cover general escalation, wage and
salary increases or carrying costs on increased utility plant
investment. The rates effective April 1, 1995 will give the
customer the benefit of labor productivity achieved during the
term of the 1992 electric rate settlement. Under the proposed
settlement agreement, subject to the earnings sharing provisions
discussed below, the Company will retain the benefit of further
productivity gains achieved in excess of the productivity gain
forecast for the first rate year.
RETURN ON EQUITY AND EQUITY RATIO
The settlement is premised on a rate of return on common
equity of 11.1 percent in the first rate year and assumes a 52
percent common equity ratio throughout the term of the agreement.
Base rates in the second and third rate years will be adjusted
for changes in the allowed return on equity. The allowed rate of
return on equity is to be adjusted for each succeeding rate year
by adding to or subtracting from 11.1 percent one-half of the
difference in 30-year Treasury bond rates from a January/February
1995 base, with a maximum change of 100 basis points (1 percent)
from the previous rate year.
Costs for debt and preferred stock will not be updated from
the levels projected for the first rate year.
EARNINGS SHARING
Following each rate year the Company's actual return on
equity will be calculated, using actual capitalization ratios and
debt and preferred stock costs, but excluding any earnings from
the incentives discussed below. The Company will retain 100
percent of any earnings up to 50 basis points above the allowed
rate of return for that rate year. The Company will retain 50
percent of earnings exceeding the allowed rate of return by more <PAGE>
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than 50 basis points but not more than 150 basis points and the
balance will be deferred for customer benefit. The Company will
retain 25 percent of earnings that exceed the allowed rate of
return by more than 150 basis points; one third of the balance
will be deferred for customer benefit and two-thirds will be
applied to reduce rate base balances in a manner to be determined
by the Company.
CONTESTED POWER PURCHASES AND IPP TERMINATION COSTS
A major portion of the rate decrease which had been proposed
by the PSC staff was based on proposed disallowances of costs
associated with the Company's largest IPP contract, with Sithe
Energies, Inc., and with a contract with the New York Power
Authority ("NYPA") relating to NYPA's Blenheim-Gilboa pumped-
storage plant. The settlement agreement resolves the staff
allegations by providing that "no future ratemaking disallowances
based on grounds of imprudence [relating to the Sithe or
Blenheim-Gilboa contracts] . . . will be permitted."
The settlement agreement also provides for full recovery by
the Company of all IPP contract termination costs incurred to
date, and permits the Company to petition the PSC to defer the
costs of new IPP contract terminations or modifications, if any,
during the term of the settlement agreement.
INCENTIVE PROVISIONS
The settlement agreement, like the 1992 electric rate
settlement, includes provisions which permit the Company to earn
additional incentive amounts, not subject to the earnings sharing
provisions, by attaining certain objectives for (a) the Company's
Enlightened Energy (demand side management) program, (b) fuel
costs, and (c) customer service. There would also be penalties
for failing to achieve minimum objectives, and there is a
penalty-only incentive mechanism designed to encourage the
Company to maintain its high level of service reliability.
The Company estimates that it could earn incentive amounts
equivalent to a maximum of 22 basis points of additional equity
rate of return (or a maximum penalty of 22 basis points) under
the Enlightened Energy provision; a maximum incentive (or
penalty) of 50 basis points under the fuel incentive; and a
maximum incentive of 10 basis points (or a maximum penalty of 15
basis points) under the customer service incentive. Under the
service reliability incentive mechanism, the maximum penalty will
be the equivalent of 5 basis points of common equity return. In
general, the Company believes that opportunities for earning
incentives will be more limited under the new settlement
agreement than under the 1992 electric rate settlement.<PAGE>
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PARTIAL PASS-THROUGH FUEL ADJUSTMENT CLAUSE
The fuel incentive is implemented through a "partial pass-
through" fuel adjustment clause ("PPFAC"), which is continued
with certain modifications from the 1992 electric rate
settlement. Under the PPFAC monthly targets are set for fuel and
purchased power costs. The Company will collect, as an
incentive, 30 percent of any savings in actual costs below the
target amount, and must bear 30 percent of any excess of actual
costs over the target. For each rate year of the settlement
there will be a $35 million cap on the maximum incentive or
penalty, with a "sub-cap" (within the $35 million cap) of $10
million for costs associated with generation from the Company's
Indian Point 2 nuclear unit.
MODIFIED ERAM
The settlement agreement continues, in modified form, the
electric revenue adjustment mechanism ("ERAM") introduced in the
1992 electric rate settlement. Under the ERAM, the Company's
electric revenues are adjusted, up or down, to offset variances
of actual electric revenues from those forecast. Such variances
typically result from factors, such as weather and the
Enlightened Energy program, which alter consumption patterns.
The new settlement agreement adds to the ERAM a revenue per
customer ("RPC") mechanism which excludes from adjustment those
variances in the Company's electric revenues which result from
changes in the number of customers in each electric service
classification. A forecast amount of revenue per customer (the
"RPC Factor") is developed for each service classification by
dividing the forecast amount of revenue expected from that
service classification by the average number of customers
expected in that classification during the first rate year. At
the end of each rate year, the RPC Factor for each service
classification is multiplied by the actual average number of
customers in that classification for that rate year. The result
is compared with the actual revenues from that service
classification. The RPC Factor for the following rate year will
be adjusted to return any surplus, or collect any deficiency, to
or from customers in that classification during the following
rate year. The RPC Factors will also be adjusted for the second
and third rate years to reflect any increase or decrease in
allowed base revenues (e.g. because of a change in allowed return
on equity). Thus, the Company will retain additional revenue
attributable to added customers, but will bear the revenue
shortfall resulting from lost customers, while other variances
from forecast revenues will be deferred for subsequent collection
from, or return to, customers, and will not affect the Company's
earnings.
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The RPC mechanism will not apply to delivery service for the
New York Power Authority.
NUCLEAR DECOMMISSIONING EXPENSE AND
OTHER DEPRECIATION
Revenues for each rate year include an annual allowance of
$23.1 million for the cost of decommissioning the Company's
nuclear units (including $1.8 million for the non-nuclear
portions). This represents an increase over the $14.8 million
decommissioning expense allowance (including $3.1 million for the
non-nuclear portions) under the 1992 electric rate settlement.
The Company's request for additional depreciation allowances
for retired generation facilities and acceleration of recovery of
other production plant was deferred by the ALJs for consideration
as part of the PSC's generic "competitive opportunities"
proceeding, and is not reflected in this settlement.
EXTENSION OF AGREEMENT
The proposed settlement stipulates that if the Company
abstains from filing for a general electric rate increase to take
effect at the end of the three-year period, the operation of the
settlement agreement will be extended beyond March 31, 1998, the
end of the third rate year. In such event the provisions for
limited rate changes, adjustment of equity return, earnings
sharing, incentives, and modified ERAM will continue in effect
until changed by the PSC.
PROTECTION FROM REGULATORY
AND LEGISLATIVE ACTIONS
The proposed settlement stipulates that
". . . if there are any new, additional, repealed or
reduced state or local government taxes (other than property
taxes), fees or levies which are not disposed of through a
surcharge or credit, Con Edison shall defer the full change in
expense and reflect such deferral as credits or debits to
customers at the time of the Company's next base rate change or
annual update."
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The proposed settlement further stipulates that
"If any law, rule, regulation, order, or other
requirement (or any repeal or amendment of an existing rule,
regulation, order or other requirement) of the state, local or
federal government results in a change in Con Edison's annual
operating expenses (including income or other federal tax expense
but excluding local property tax) not anticipated in the expense
forecasts on which the rates in the settlement period are based
in an annual amount that would reduce or increase earnings by an
annual amount in excess of one percent of income available to
shareholders, Con Edison will defer the full effect of any such
expense change, with any such deferrals to be reflected in the
next base rate change or annual update."
RESTRICTIONS ON FURTHER CHANGES
In general, the settlement will not permit further changes
in the Company's basic electric rates during the settlement
period (April 1, 1995 - March 31, 1998), except as provided in
the settlement. However, as in prior settlements, there are
limited exceptions, for the protection of both the Company and
the customers.
As noted above, the settlement is subject to the approval of
the PSC. While the PSC may condition its approval on further
changes, the Company is not obliged to accept the settlement with
any such changes that are not agreeable to the Company.<PAGE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
By: RAYMOND J. MCCANN
Raymond J. McCann
Executive Vice President
and Chief Financial
Officer
DATE: February 13, 1995
