<PAGE>
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: August 29, 1997
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
PSC SETTLEMENT AGREEMENT
The New York State Public Service Commission ("PSC"), by order issued and
effective May 20, 1996 in its "Competitive Opportunities" proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry. On March 13, 1997, Con Edison, the PSC staff and certain other parties
to the proceeding entered into a settlement agreement, dated March 12, 1997,
with respect to the proceeding. On August 20, 1997, the PSC requested the
parties to negotiate certain modifications to the March 1997 settlement
agreement.
On August 29, 1997, Con Edison and the PSC staff entered into a modified
settlement agreement (the "Settlement Agreement"). The Settlement Agreement is
subject to PSC approval. A PSC order with respect to the Settlement Agreement is
expected in September 1997.
The Settlement Agreement provides for a transition to a competitive
electric market by instituting "retail access", a rate plan for the five-year
transition period of the Settlement Agreement (the "Transition"), a reasonable
opportunity to recover prior utility investments and commitments that may not be
recoverable in a competitive electric market (often referred to as "strandable"
costs), the divestiture by Con Edison to unaffiliated third parties of at least
50 percent of its New York City fossil-fueled generating capacity and, subject
to Con Edison shareholder and other approvals, a corporate reorganization into a
holding company structure.
The Settlement Agreement reflects the following significant modifications
to the March 1997 settlement agreement:
- the reductions to generation-related revenues that Con Edison will
provide over the Transition will increase from $655 million to
approximately $890 million. (These amounts are exclusive of
additional revenue reductions from lower gross receipt taxes.)
- the additional depreciation that Con Edison will provide for its
generating units will be reduced from $395 million to $110 million.
- the retail access program has been accelerated to begin with up to
500 megawatts of customer load within nine months (rather than 12
months) after PSC approval of the Settlement Agreement and to make
it available to all of its customers by the earlier of 18 months
(rather 24 months) after the ISO (defined below) becomes fully
operational or December 31, 2001 (rather than 2002).
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- the generation capacity divestiture program has been modified to
require Con Edison to submit a detailed divestiture plan to the PSC
within six months (rather than 12 months) of the PSC's approval of
the Settlement Agreement and to initiate the divestiture process
with respect to at least 30 percent of its New York City
fossil-fueled generating capacity within 90 days after the later of
PSC approval of the divestiture plan or implementation by the ISO of
certain rules related to New York City capacity. In addition, the
Settlement Agreement requires that net gains from sales of
generation up to prescribed amounts be utilized to further reduce
rates during the Transition, rather than after the end of the
Transition.
In August 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("FASB") published its consensus that utilities subject to plans
that, like the Settlement Agreement, use a transition period to recover stranded
costs must discontinue the use of Statement of Financial Accounting Standards
("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation,"
for the separable portions of their businesses that are being deregulated and
apply the standards in SFAS No. 101, "Regulated Enterprises-Accounting for the
Discontinuation of Application of FASB Statement No. 71." Con Edison is still
reviewing the consensus, and is unable to determine the extent to which it may
become ineligible to apply SFAS No. 71 to certain portions of its business under
the Settlement Agreement. However, assuming the PSC approves the Settlement
Agreement, Con Edison does not expect that discontinuation of SFAS No. 71 for
the separable portion of its business that is being deregulated will have a
material adverse effect on Con Edison's financial position.
The following is a summary of the material provisions of the Settlement
Agreement, including those provisions that remain unchanged from the March 1997
settlement agreement, and is qualified in its entirety by reference to the
Settlement Agreement, a copy of which is filed as an exhibit to this report.
Retail Access. Con Edison will implement an energy and capacity retail access
program that will permit its customers to choose alternative energy suppliers.
The delivery of electricity to customers will continue to be through the
Company's transmission and distribution systems. The program will begin with up
to 500 megawatts of customer load within 9 months following PSC approval of the
Settlement Agreement. This schedule is contingent upon timely approval of a
retail access implementation plan and retail access tariffs to be filed by Con
Edison with the PSC and the Federal Energy Regulatory Commission ("FERC"), as
applicable. The program will be expanded in increments and Con Edison will
target the phase-in of retail access to make it available to all of its
customers by the earlier of 18 months after an independent system operator (the
"ISO"), which is to administer the wholesale electric market in New York,
becomes fully operational or December 31, 2001. This schedule is subject to
adjustment as circumstances warrant. In general, Con Edison's delivery rates for
retail access customers during the Transition will equal the rate applicable to
other comparable Con Edison customers less a rate representing the market value
of the energy and capacity being supplied for customers by the other sellers.
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Rate Plan. The rate plan reduces the generation-related revenues that Con Edison
would have received over the five-year Transition had current rate levels
remained in effect by approximately $890 million, exclusive of additional
revenue reductions from lower gross receipts taxes. The gross receipts tax
reductions will result from lower customer billings and from a law enacted in
July 1997 to reduce the New York State gross receipts tax. Rates will be further
reduced for any net after-tax gains up to prescribed levels from the sale of
generating capacity (see "Divestiture Commitment," below). If such net gains are
achieved, the total revenue reductions over the Transition will be approximately
$1.4 billion, inclusive of gross receipts tax savings. Financing savings from
securitization of strandable costs (see "Recovery of Prior Investments and
Commitments," below) will be utilized for additional rate reductions. In
general, base electric rates will not otherwise be changed during the Transition
except in the event of changes in costs above anticipated annual levels
resulting from legal or regulatory requirements (including a requirement or
interpretation resulting in Con Edison's refunding its tax-exempt debt),
inflation in excess of a 4 percent annual rate, property tax increases and
environmental costs, or in the event Con Edison's rate of return becomes
unreasonable for the provision of safe and adequate service.
The Settlement Agreement also provides, among other things, for a
non-bypassable system benefits charge to recover, to the extent not otherwise
recovered, the costs of required research and development, energy efficiency
programs and programs to assist low-income customers, and a penalty mechanism
(estimated maximum, $26 million per year) for failure to maintain certain
service quality and reliability standards.
For any rate year during the Transition, 50 percent of any earnings in
excess of a rate of return of 12.9 percent on electric common equity will be
retained for shareholders and 50 percent will be applied for customer benefit,
with one-half of the amount to be applied to a reduction of rates or as
otherwise determined by the PSC and the balance to be deferred and applied to
reduce the Company's generating plant balances through additional depreciation
expense. The rate of return calculation will exclude any incentives and reflect
any amounts by which the rate of return for earlier Transition rate years fell
below 11.9 percent. This earnings sharing will end beginning in the year in
which Con Edison fulfills it divestiture commitment (see "Divestiture
Commitment," below) or in which 15 percent of the service area peak load
(excluding the existing load served by the New York Power Authority) is supplied
other than by Con Edison.
The Settlement Agreement supersedes the provisions of Con Edison's 1995
electric rate agreement prescribing overall electric revenue levels for the 12
months ending March 31, 1998. The Settlement Agreement also eliminates the
provisions of the 1995 electric rate agreement for incentives or penalties
related to the Enlightened Energy program and customer service performance, the
Electric Revenue Adjustment and related Revenue per Customer mechanisms (the
"modified ERAM"), earnings sharing and reconciliation of amounts included in
base rates with actual costs for pensions and other post-employment benefits,
capacity charges under Con Edison's contracts with non-utility generators of
electricity ("NUGs"), Enlightened Energy
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program and renewable energy expenses, property taxes and research and
development expenses. The Settlement Agreement also requires the reversal of all
related balances on Con Edison's books of account at March 31, 1997, the net
effect of which is not material. An incentive-based fuel adjustment clause,
initially similar to the partial pass-through fuel adjustment clause under the
1995 electric rate agreement, will be in effect during the Transition.
Divestiture Commitment. Con Edison has agreed to divest to unaffiliated third
parties at least 50 percent of its New York City fossil-fueled generating
capacity no later than December 2002, unless the PSC determines that such
divestiture should be delayed or reduced (to maximize sales price or address
other developments). Divestiture could also be delayed under certain other
circumstances. Con Edison fossil-fueled generating units not divested to
unaffiliated third parties will be transferred to an unregulated affiliate of
Con Edison by December 2002. It is expected that Con Edison will retain
ownership of its Indian Point 2 nuclear generating unit.
Con Edison has agreed to submit a detailed divestiture plan to the PSC
within six months of the PSC's approval of the Settlement Agreement and to
initiate the divestiture process with respect to at least 30 percent of its New
York City fossil-fueled generating capacity within 90 days after the later of
PSC approval of the divestiture plan or implementation by the ISO of certain
rules related to New York City capacity. The PSC could approve the divestiture
plan as submitted or modify it to address market power or other concerns.
After-tax gains and losses from the divestiture of generation to
unaffiliated third parties or transfer to an affiliate will be deferred. Any net
gains up to prescribed levels on the sale of fossil generation will be used to
further reduce rates. (See "Rate Plan," above). Additional net gains, if any, or
net losses will be reflected in the strandable costs to be recovered following
the Transition. (See "Recovery of Prior Utility Investments and Commitments,"
below.)
Recovery of Prior Investments and Commitments. Potential strandable costs for
Con Edison are those prior utility investments and commitments that may not be
recoverable in a competitive retail electric market. Investments for which there
could be strandable costs include Con Edison's fossil-fueled generating plants
and Con Edison's Indian Point 2 nuclear generating unit. Commitments for which
there could be strandable costs include decommissioning of Con Edison's nuclear
generating operations and capacity charges under Con Edison's contracts with
NUGs.
During the Transition, Con Edison will continue to recover its potential
electric strandable costs in the rates it charges all customers. Con Edison will
also provide for $75 million of additional depreciation for its fossil-fueled
generating units and $35 million for its Indian Point 2 nuclear unit. In
addition, as indicated above, certain "excess" earnings will be applied as an
offset to strandable costs. (See "Rate Plan," above.)
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Following the Transition, Con Edison will be given a reasonable
opportunity to recover remaining electric strandable costs, as adjusted for any
net gain in excess of a certain amount and any net loss from divestiture or
transfer of Con Edison generating capacity (see "Divestiture Commitment,"
above), including a reasonable return on investments, through a non-bypassable
charge to customers. For remaining fossil-related strandable costs, the recovery
period will be 10 years and for the Indian Point 2 nuclear unit, the recovery
period will be the then-remaining life of the unit. With respect to its NUG
contracts, Con Edison will be permitted to recover at least 90 percent of the
amount by which the actual costs of its purchases under the contracts exceed
market value after the Transition. Any potential disallowance after the
Transition will be limited to the lower of (i) 10 percent of the above-market
costs or (ii) $300 million (in 2002 dollars). The potential disallowance will be
offset by NUG contract mitigation achieved by Con Edison after the beginning of
the Transition period and 10 percent of the gross proceeds of generating unit
sales to third parties. Con Edison will be permitted a reasonable opportunity to
recover any costs subject to disallowance that are not offset by these two
factors if it makes good faith efforts in implementing provisions of the
Settlement Agreement leading to the development of a competitive electric market
in its service territory and the development of an ISO.
Any financing savings from "securitization" of Con Edison's strandable
costs are expected to be applied to further reduce customer rates. Subject to
satisfying any conditions of any securitization legislation enacted in New York
State, Con Edison could transfer its right to recover from customers the payment
for the strandable costs to a financing entity that would in return remit to Con
Edison the proceeds of debt issued by the financing entity. The debt, which
would be non-recourse to Con Edison, would be secured by, and repaid from, the
future customer payments.
Corporate Structure. The Settlement Agreement authorizes Con Edison to create a
holding company and establishes guidelines governing transactions among
affiliates. The formation of the holding company is subject to the approval of
Con Edison's shareholders, approval of FERC and the consent of the Nuclear
Regulatory Commission.
Upon formation of the holding company, Con Edison will become a subsidiary
of the holding company, and Con Edison's common shareholders will automatically
become the shareholders of the holding company. Con Edison's existing
subsidiaries, ProMark Energy, Inc., and Gramercy Development, Inc. will be
transferred to the holding company. ProMark Energy was formed by Con Edison in
1993 to market gas and related services, and is expanding its operations to
become a full-service energy service company. Gramercy Development was formed by
Con Edison in late 1996 to invest in energy infrastructure development projects
and the marketing of Con Edison's technical services. It is expected that
Gramercy Development will develop other opportunities in both the energy and
non-energy fields domestically and internationally. The holding company may
establish other subsidiaries from time to time, including one or more subsidiary
holding companies to hold its Con Edison stock and the stock of other
subsidiaries.
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The Settlement Agreement limits the dividends that Con Edison could pay to
the holding company to not more than 100 percent of income available for
dividends calculated on a two-year rolling average basis. Excluded from "income
available for dividends" will be non-cash charges to income resulting from
accounting changes or charges to income resulting from significant unanticipated
events. The limitation will not apply to dividends necessary to transfer to the
holding company proceeds from major transactions, such as asset sales, or to
dividends reducing Con Edison's capital ratio to a level appropriate to Con
Edison's business risk.
Without PSC approval, Con Edison is prohibited from making loans to, or
guaranteeing the obligations of, the holding company or any other subsidiary of
the holding company, or pledging its assets as security for the indebtedness of
the holding company or any affiliate of the holding company. Con Edison and the
holding company's other subsidiaries must operate as separate entities, and
transfers of assets, services and information between Con Edison and its
affiliates are subject to certain restrictions. Con Edison and the holding
company's other subsidiaries must have separate operating employees, and
non-administrative operating officers of Con Edison may not be operating
officers of any of the holding company's other subsidiaries. Transfers of
employees from Con Edison to the holding company's other subsidiaries are also
restricted.
Litigation. Pursuant to the Settlement Agreement, Con Edison will terminate an
appeal of the November 1996 rejection by the Supreme Court of the State of New
York of a challenge to the PSC's May 20, 1996 order.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Exhibits
10 Agreement and Settlement, dated August 29, 1997, between Consolidated Edison
Company of New York, Inc. and the Staff of the New York State Public Service
Commission (without Appendices).
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: JOAN S. FREILICH
JOAN S. FREILICH
Senior Vice President and
Chief Financial Officer
DATE: August 29, 1997
<PAGE>
BEFORE THE NEW YORK STATE
PUBLIC SERVICE COMMISSION
- ---------------------------------------------------------------x
In the Matter of Consolidated Edison Company :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12, :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and :
certain related transactions.
PSC Case No. 96-E-0897 :
- ----------------------------------------------------------------x
AGREEMENT AND SETTLEMENT
Dated: August 29, 1997
<PAGE>
4
TABLE OF CONTENTS
I. INTRODUCTION________________________________________________________1
1. The Commission's May 20, 1996 Order_______________________________1
a. Procedural History and Background_________________________________1
b. The Requirements of the May 20, 1996 Order________________________2
c. Con Edison's October 1, 1996 Filing_______________________________3
2. Negotiations Among The Parties____________________________________3
II. RATE PLAN__________________________________________________________4
Objectives and Time Period Covered___________________________________4
Paragraph 1____________________________________________________________4
Paragraph 2____________________________________________________________5
Paragraph 3____________________________________________________________5
Rate and Revenue Levels______________________________________________5
Paragraph 4____________________________________________________________5
Paragraph 5____________________________________________________________6
Paragraph 6____________________________________________________________8
Paragraph 7____________________________________________________________9
Applicability of Case 94-E-0334 Settlement Agreement_________________9
Paragraph 8____________________________________________________________9
Paragraph 9____________________________________________________________9
Pensions/OPEBs and Exceptions to Base Rate Freeze___________________11
Paragraph 10__________________________________________________________11
Paragraph 11__________________________________________________________11
Paragraph 12__________________________________________________________13
Disposition of Strandable Costs_____________________________________14
Paragraph 13__________________________________________________________14
Paragraph 14__________________________________________________________16
Paragraph 15__________________________________________________________19
Comprehensive Nature of Settlement Agreement________________________20
Paragraph 16__________________________________________________________20
Reporting___________________________________________________________20
Paragraph 17__________________________________________________________20
Calculation and Disposition of Certain Earnings_______________________20
Paragraph 18__________________________________________________________20
Rate Design and Revenue Allocation____________________________________21
19. Case 94-E-0334 Rate Design Changes______________________________21
20. Unbundled Tariffs_______________________________________________22
21. Residential Time-of-Use Rates___________________________________22
22. Industrial Employment Growth____________________________________23
23. Low Income Rate Program_________________________________________24
24. RY1 Through RY5 Tariffs Implementing This Agreement_____________24
25. Rate Design Flexibility_________________________________________24
26. System Benefits Charge Program__________________________________25
27. Miscellaneous Rate Provisions___________________________________26
28. Economic Development Rate Programs______________________________27
29. Retail Access Tariff and Retail Access Regulation_______________27
30. Regulatory Reform, Customer Operations Procedures, and Classification of
Facilities 29
31. NYPA____________________________________________________________29
(i) Revenue Deficiency Under the 1994 Cost-of-Service Study_________29
(ii) ISO And Standard Cost Recovery_________________________________29
(iii)_____________________________________________________________ 32
32. Fuel Adjustment Clause__________________________________________33
33. Customer Service and Electric Service Reliability Incentives____35
34. SC No. 11 Buy-Back Energy Rates________________________________35
III. RETAIL ACCESS PROGRAM____________________________________________36
Objectives and Phase-in Target Dates________________________________36
Paragraph 1___________________________________________________________36
Paragraph 2___________________________________________________________38
Paragraph 3___________________________________________________________38
Paragraph 4___________________________________________________________38
Paragraph 5___________________________________________________________39
Retail Access Prior to A Fully Operational ISO______________________39
Paragraph 6___________________________________________________________39
Paragraph 7___________________________________________________________40
Paragraph 8___________________________________________________________40
Retail Access After A Fully Operational ISO_________________________41
Paragraph 9___________________________________________________________41
Paragraph 10__________________________________________________________42
Paragraph 11__________________________________________________________42
IV. DIVESTITURE_______________________________________________________44
1. Requirements for Divestiture_____________________________________44
2. Divestiture Parameters and Methodology__________________________44
3. Divestiture Plan Procedures______________________________________45
4. Post-Rate Plan Period____________________________________________46
V. CORPORATE STRUCTURE________________________________________________46
1. Formation of Holding Company_____________________________________46
2. Functional Unbundling____________________________________________47
3. The RegCo________________________________________________________43
4. Affiliate Relations - In General_________________________________48
5. Transfer of Assets_______________________________________________49
6. Personnel________________________________________________________49
7. Provision of Services and Goods__________________________________50
8. Maintaining Financial Integrity__________________________________51
9. Standards of Competitive Conduct_________________________________52
10. Access to Books and Records and Reports_________________________49
11. Independent Auditor_____________________________________________54
12. Royalty_________________________________________________________54
13. Miscellaneous___________________________________________________50
VI. RESTRUCTURING-RELATED ACTIONS_____________________________________56
VII. CUSTOMER EDUCATION PROGRAM_______________________________________52
VIII. MISCELLANEOUS___________________________________________________57
1. Provisions Not Separable: Effect of Commission Modifications____57
2. Provisions Not Precedent_________________________________________53
Appendix A - Miscellaneous Tariff Changes
Appendix B - SBC Amounts
Appendix C - Other Rate Changes
Appendix D - 25 Cycle System
Appendix E - NYPA Load
Appendix F - Fuel Targets
Appendix G - Service/Reliability Incentives
Appendix H - Corporate Structure
Appendix I - Cost Guidelines
Appendix J - Privilege
Appendix K- SC No. 11 Buy-Back Rates
<PAGE>
BEFORE THE NEW YORK STATE
PUBLIC SERVICE COMMISSION
- -------------------------------------------------------------x
In the Matter of Consolidated Edison Company :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12, :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and :
certain related transactions.
:
P.S.C. Case No. 96-E-0897
- -------------------------------------------------------------x
AGREEMENT AND SETTLEMENT
I. INTRODUCTION
1. The Commission's May 20, 1996 Order
a. Procedural History and Background
In 1993, the Public Service Commission (the "Commission") initiated
a proceeding aimed at addressing numerous issues related to potential
competition in the regulated energy markets in New York State. Case 93-M-0229,
Proceeding on Motion of the Commission to Address Competitive Opportunities
Available to Customers of Electric and Gas Service and Develop Criteria for
Utility Responses, Order Instituting Proceeding (March 19, 1993) (changed to
Case 94-E-0952, by order dated November 30, 1994, to reflect new focus on
electric service) (the "COB proceeding").
On July 11, 1994, the Commission issued its Opinion and Order
Regarding Flexible Rates, Opinion No. 94-15, Case 93-M-0229 (July 11, 1994).
In the July 11, 1994 order, the Commission announced "a possible second phase
of this proceeding: an investigation into the appropriate market structure
and regulatory regime for the future." Id. at 32.
On August 9, 1994, the Commission instituted phase II of the COB
proceeding, Order Instituting Phase II of Proceeding, Case 93-M-0229 (August 9,
1994). This phase of the COB proceeding was intended "to identify regulatory and
ratemaking practices that will assist in the transition to a more competitive
electric industry designed to increase efficiency in the provision of
electricity while maintaining safety, environmental, affordability, and service
quality goals." Id. at 1-2. Parties to phase II of the COB proceeding were urged
to work together to "examine issues related to the establishment of a fully
efficient wholesale market for electricity and any pricing reforms necessary to
reflect those market efficiencies in retail customer rates." Id. at 3.
<PAGE>
On June 7, 1995, the Commission adopted "final principles" to
guide the transition to greater competition in the electric industry. See
Opinion No. 95-7, Case 94-E-0952 (June 7, 1995).
On December 21, 1995, Administrative Law Judge Judith A. Lee and
Ronald Liberty, then-Deputy Director of the Energy and Water Division, issued a
Recommended Decision addressing implementation of the restructuring principles.
On May 20, 1996, the Commission issued its Opinion and Order Regarding
Competitive Opportunities for Electric Service, Opinion No. 96-12 ("May 20, 1996
order").
b. The Requirements of the May 20, 1996 Order
The Commission's stated vision for the electric utility industry
is "(1) effective competition in the generation and energy services sectors;
(2) reduced prices resulting in improved economic development for the State
as a whole; (3) increased consumer choice of supplier and service company;
(4) a system operator that treats all participants fairly and ensures
reliable service; (5) a provider of last resort for all consumers and the
continuation of a means to fund necessary public policy programs; (6) ample
and accurate information for consumers to use in making informed decisions;
and (7) the availability of information that permits adequate oversight of
the market to ensure its fair operation." Id. at 24-25. In its May 20, 1996
order, the Commission directed Consolidated Edison Company of New York, Inc.
("Con Edison" or "the Company") and four other electric utilities to each
file a rate/restructuring plan consistent with the Commission's policy and
vision for increased competition. Id. at 74-75; see also id. at 92.
The Commission stated that these utility plans "should address, at a
minimum," matters including "(1) the structure of the utility both in the short
and long term, . . . a description of how that structure complies with our
vision and, in cases where divestiture is not proposed, effective mechanisms
that adequately address resulting market power concerns; (2) a schedule for the
introduction of retail access to all of the utility's customers, and a set of
unbundled tariffs that is consistent with the retail access program; (3) a rate
plan to be effective for a significant portion of the transition" and numerous
other issues relating to strandable costs, load pockets, energy services, and a
system benefits charge. Id. at 75-76, 90.
In addition, the Commission directed the utilities to collaborate
with the Department of Public Service Staff ("Staff") and other interested
parties to "accomplish technical studies" on subjects including load pockets,
market prices, energy services companies and reporting requirements.
Collaborative efforts were also directed on public educational forums and on
"necessary FERC filings," which have centered on development of the Independent
System Operator and Power Exchange. Id. at 63-64.
c. Con Edison's October 1, 1996 Filing
On October 1, 1996, Con Edison filed a rate/restructuring plan in
response to the May 20, 1996 order (the "October 1, 1996 plan"). The October 1,
1996 plan proposed a
2
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transition to a competitive electric market, including a
plan for retail competition, a multi-year rate plan, and a corporate
reorganization into a holding company structure.
2. Negotiations Among The Parties
The Commission established Case 96-E-0897 to examine Con Edison's
plan, and the Hon. Judith A. Lee was appointed as presiding Administrative Law
Judge. Nearly 70 parties intervened and about 40 actively participated in the
proceeding. By Order Establishing Procedures and Schedule (issued October 9,
1996 as a one-Commissioner order and confirmed by the full Commission on October
24, 1996) ("the October 9 order"), the Commission established a schedule for
this proceeding. Stating that "a negotiated outcome is preferable to a litigated
outcome," the Commission stated that "discussions and negotiations among the
parties are strongly encouraged" and established a "90-day [negotiating]
period." Id., p. 3. To facilitate negotiations, the Commission's October 9 order
waived certain of its settlement guidelines (Id.; Case 90-M-0255, Settlement and
Stipulation Agreements, Opinion No. 92-2, issued March 24, 1992).
Over the period of October 15 to December 20, 1996, Con Edison
conducted a series of twelve "technical" meetings with the parties to this
proceeding at which the Company provided detailed presentations on its October
1, 1996 plan, provided supporting data, and answered parties' questions and
listened to their observations and concerns. Also during this period, the
parties conducted extensive discovery of Con Edison. Following notice of
impending settlement negotiations filed with the Secretary of the Commission and
sent to all parties, Con Edison and the parties, including Staff, began
settlement negotiations on November 20, 1996 to determine whether they could
reach accord on a negotiated settlement of the issues presented by the
Commission's vision for the electric industry and Con Edison's plan. All-party
negotiation conferences were conducted on November 20, 22, 26, December 6 and
11, 1996, and February 25, 1997, and numerous other conferences among various
parties were conducted as well.
On November 4 and 26, and December 16, 1996, Judge Lee conducted
procedural conferences at which the parties, inter alia, reported on the
progress of settlement negotiations. At these conferences, the Judge monitored
the progress of the parties to assure compliance with the scheduling mileposts
of the Commission's October 9 order. The Secretary of the Commission
subsequently issued notice of various extensions of the negotiating period to
facilitate settlement negotiations. In her December 20, 1996 Notice, Judge Lee
stated that it was the "Commission's explicit preference for a negotiated
resolution of this proceeding instead of a litigated outcome" and urged the
parties "to continue to make good faith efforts to reach a settlement, if at all
possible." Case 96-E-0897, Procedural Ruling, December 20, 1996, pp. 2-3.
On January 16, 1997, the Company and Staff informed the parties that
they had made significant progress in resolving the issues to this case and that
they were seeking to prepare a detailed settlement proposal. On March 13, 1997,
an "Agreement and Settlement" dated March 12, 1997 ("the March 12, 1997
settlement agreement") was submitted to the Commission and served on all
parties. By orders issued March 27, 1997 and April 9, 1997, the Commission set
procedures for consideration of the settlement. Four days of hearings were
conducted to review
3
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the March 12, 1997 settlement agreement. A Recommended
Decision was issued June 20, 1997, and, as a result of the recommendations
contained therein, the parties attempted to negotiate changes to the March 12,
1997 settlement agreement and all-parties' settlement conferences were held on
July 11, July 17 and July 30, 1997; however, no changes were made prior to the
Commission's scheduled August 20, 1997 consideration of the March 12, 1997
settlement agreement. At its August 20, 1997 session, the Commission requested
Staff to seek to negotiate certain modifications to the March 12, 1997
settlement, with any such modifications to be filed by August 29, 1997, for
consideration by the Commission at its September 10, 1997 session. Accordingly,
a further all-parties' meeting was held on August 26. The undersigned have
agreed to the terms set forth in this settlement agreement.
The issues involved in this proceeding are complex, and their
resolution is likely to have long-term impacts on the New York City metropolitan
area, including impacts on the cost of electric service, on the way electricity
is provided in Con Edison's service area and on Con Edison's business.
Nevertheless, after thorough investigation and discussion, the parties to this
settlement have agreed to resolve these complex and vital issues by settlement
rather than litigation. The signatories believe that this settlement gives fair
consideration to the interests of Con Edison's customers, investors and other
stakeholders and will facilitate implementation of the Commission's vision for a
competitive electric industry as stated in its May 20, 1996 order.
II. RATE PLAN
Objectives and Time Period Covered
1. The Commission's May 20, 1996 order envisioned that a "rate plan"
be established "to be effective for a significant portion of the
transition." May 20, 1996 order, p. 76. The parties have agreed to the
elements of such a "rate plan." The rate plan is designed with several
objectives, including the following: to provide ratepayers with meaningful
rate reductions during the transition to competition in order to enhance
the economic vitality of the service area; to establish reasonable rate
and revenue levels over an extended period to facilitate the transition to
competition; to provide Con Edison with opportunities to earn reasonable
rates of return on shareholder investment required for the development of
the electric energy infrastructure in New York City and Westchester
County; to resolve difficult rate and rate-related issues arising from the
transition, including the rate treatment of "strandable" costs; and to
provide the Company with the ability to maintain the integrity and
reliability of the electricity supply and delivery systems in its service
territory.
2. The rate plan covers the five-year period ending March 31,
2002. The first year of the plan ("RY1") is the twelve months ending
March 31, 1998. The second rate year ("RY2") is the twelve months
ending March 31, 1999. The third rate year ("RY3") is the twelve
months ending March 31, 2000. The fourth rate year ("RY4") is the
twelve months ending March 31, 2001. The fifth rate year ("RY5") is
the twelve months ending March 31, 2002. The rate plan (Section II.
11, 15, 16) also establishes certain principles to be considered in
establishing revenue requirements in the period following RY5.
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3. This rate plan covers Con Edison's rates and charges for
retail electric sales and for electric delivery services. As currently
effective, Con Edison's rates and charges for electric service are
contained in Con Edison's Schedule for Electricity Service PSC No. 9
Electricity (this rate schedule and successors thereto are referred to
herein as "PSC No. 9" or the "PSC No. 9 rate schedule"); in the PASNY
No. 4 (FERC No. 96) Delivery Service Rate Schedule Implementing and
Part of the Service Agreement between the Power Authority of the State
of New York (PASNY) and the Consolidated Edison Company of New York,
Inc. (the Company), dated March 10, 1989, for the delivery by the
Company of Power and Associated Energy to Authority Public Customers
(this rate schedule and successors thereto are referred to herein as
"PASNY No. 4" or the "PASNY No. 4 rate schedule"); and in the Economic
Development Delivery Service No. 2 (FERC Nos. 92 and 96) Economic
Development Delivery Service Rate Schedule Implementing and Part of:
(1) the "Service Agreement for the Delivery of Power and Energy"
between the Power Authority of the State of New York ("PASNY") and the
Consolidated Edison Company of New York, Inc. ("the Company"), dated
March 10, 1989, for the Delivery by the Company of Power and Associated
Energy to Authority Economic Development Customers; (2) the "Agreement
for the Delivery of Power and Energy from the James A. FitzPatrick
Power Project" between the County of Westchester, acting through the
Westchester Public Utility Service Agency and the Company, made April
24, 1987; and (3) the "Agreement between the City of New York and
Consolidated Edison Company of New York, Inc. for the Delivery of Power
and Energy from the James A. FitzPatrick Nuclear Power Project" between
the City of New York, acting through the New York Public Utility
Service and the Company, made October 23, 1987 (this rate schedule and
successors thereto are referred to herein as "EDDS" or the "EDDS rate
schedule"). An additional tariff covering retail access will be
established pursuant to Section III of this Agreement.
Rate and Revenue Levels
4. The rate plan: (i) reduces PSC No. 9 rates and, therefore,
the revenues that Con Edison will receive over the five-year period
ending March 31, 2002 compared to the level it would receive had the
PSC No. 9 schedule in effect as of the date of this rate settlement
remained in effect; (ii) implements rate design changes to the PSC No.
9 rate schedule in order to implement rate design provisions of the
Case 94-E-0334 settlement agreement and to facilitate the transition to
competition; and (iii) provides a framework for the transition to
competition. This transition framework addresses mitigation and
recovery of stranded costs, allocation of certain cost reductions and
benefits that many expect to flow from the transition to competition,
encourages the future infrastructure investments essential to support
continued electric reliability, makes limited provision for increased
costs associated with unanticipated developments possible during the
transition, and provides incentives to maintain service quality and
reliability during the transition.
5. Rates of all service classes in the PSC No. 9 rate schedule
will be reduced under the rate plan. The allocation of these revenue
benefits to the rate years covered by the rate plan and to the affected
customers are set forth in the table below:
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Revenue Reductions (incl. grt)
($millions)
P.S.C. No. 9 RY1 Cumulative Revenue
Customer Group (6 mos.)RY2 RY3 RY4 RY5 Reduction by end of RY5
SC 4 Rate II and
9 - Rate II
Revenue 9.4 38.6 60.2 84.2 102.9 295.3
reductions
Est. % avg. bill 2% 4.1% 6.4% 9% 11%
reduction
All other1
revenue
reductions 43.4 84.0 143.7 213.9 274.0 759.0
Fixed reductions
Est. % avg. bill 2.1% 2.1% 3.5%0 5.2% 6.6%
reduction
Potentia - - 86.2 14.9 143.7 344.8
additional
reductions 2.1% 2.1% 5.5% 7.9% 10%
Est. % fixed &
potential
reductions
industrial
employment 4.3 8.6 8.8 8.9 8.9 39.5
growth program
per Section II.22
Total revenue 57.1 131.2 298.9 421.9 529.5 $1,438.6
reductions -
fixed and potential
1
"All other" customer classes in PSC No. 9 rate schedule are Service
Classification ("SC") No. 1 (residential and religious), 2 (general-small), 3
(back-up service), 4 - Rates I and III (commercial and industrial-
redistribution), 5 (electric traction systems), 6 (public and private street
lighting), 7 (residential and religious - heating), 8 (multiple dwelling
redistribution), 9 - Rates I and III (general-large), 10 (supplementary
service), 12 (multiple dwelling-space heating) and 13 (bulk power-high
tension-housing developments).
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As per Section II.13, the above revenue reductions to the "all other"
customer group include $86.2 million in RY 3, $114.9 million in RY 4 and
$143.7 million in RY 5 if the Company, in implementing the divestiture
program prescribed in Section IV, achieves the net gains on the sale of
fossil generation supported by the witness for the City of New York. The
parties estimate that additional rate reductions in the indicated amounts
would be achieved if the sales of plants yield these estimated prices and
30 percent of the Company's in-City generation were sold by RY 3, 40
percent by RY 4 and 50 percent by RY 5, and the gains were amortized over
a five-year period. If net gains in these amounts are available to allow
implementation of these further reductions, then by RY 5 revenues for all
PSC No. 9 customer classes will have been reduced by at least 10 percent.
Available securitization-related savings, as per Section II.6, and the
amortization-schedule adjustments, as per Section II.13, may also be
utilized as required to achieve the potential reductions for "all other"
customers.
6. The rate and revenue benefits reflected in Section II.5 are
subject to being increased during the transition. Additional savings can
be derived from successful implementation of state programs authorizing
"securitization" of certain generation and purchased power costs, from the
successful implementation of utility tax reform in New York and from the
efficiency benefits of a competitive electricity market. Pending
securitization legislation in New York would authorize the Commission to
issue rate orders guaranteeing the application of specific utility revenue
streams to trusts or other financing vehicles established for the purpose
of financing (at lower cost) generation and generation-related assets and
liabilities viewed as strandable under a fully competitive electric
market. Legislation to reform the method of utility taxation in the state
from a revenue-based method to an income-based method has also been under
consideration and would be consistent with the need expressed in the May
20, 1996 order (pp. 91-92) to "ease the high tax burdens" in the state.
Progress has recently been made in utility tax reform and the gross
receipts tax reductions prescribed by Chapter 389 of the 1997 Laws of the
State of New York, which will be flowed through to customers under the
Statement of Percentage Increase in Rates and Charges to the Company's
electric rate schedule, are reflected in the revenue benefits reflected in
Section II.5. Under this settlement agreement, unless otherwise required
by law, the financing savings resulting from securitization will be
applied to benefit the PSC No. 9 customers; if net gains on the sale of
generation plants were not available in amounts that would bring the
percentage revenue reductions to the "all other" group of customers to the
same percentage reductions provided to the SC Nos. 4 Rate II and 9 Rate II
customers under Section II.5, then such securitization savings would first
be applied to equalize the percentage reductions to these groups. Savings
in excess of that level would be allocated to customers based on class
revenue ratios. Tax reform savings, if achieved, are, unless otherwise
required by law, anticipated to be applied to the benefit of the customers
currently bearing the tax expenses under the Company's rate schedules.
While it is difficult to predict the extent of the efficiency savings that
will be produced by competition both during and after the transition, the
achieved efficiency benefits of competition should accrue to all.
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7. Other than as provided in Sections II. 11, 12, 25, 27 of
this settlement agreement, the base rates established in the Company's PSC
No. 9, PASNY No. 4, and EDDS rate schedules for RY1 through RY5 in
compliance with the Commission order approving this settlement agreement
will neither be increased nor decreased prior to April 1, 2002, from the
rate levels to be set forth in the rate schedules following Commission
approval of this settlement agreement. The Company's "base rates" are the
demand, energy and customer charges in the PSC No. 9, PASNY No. 4, EDDS
and retail access rate schedules; "base rates" do not include the fuel
adjustment (applicable to PSC No. 9), the Statement of Percentage Increase
in Rates and Charges (covering revenue and similar taxes), the Statement
of Case 96-E-0897 Adjustments (Section II.11 herein) and the system
benefits charge (Section II.26 herein). The rate plan precludes the
Company from increasing rates due to increased costs or lower sales levels
prior to April 1, 2002, except as provided in Sections II. 11, 12 of this
settlement agreement. The rate plan has the immediate impact of
eliminating the $87.1 million electric rate increase filed on October 2,
1996 to implement the Case 94-E-0334 settlement agreement. This
disposition of the Case 94-E-0334 settlement agreement equates to an
additional estimated total five-year savings to customers of $436 million.
The plan also requires the Company to absorb expected inflation through
March 31, 2002.
Applicability of Case 94-E-0334 Settlement Agreement
8. Con Edison's current electric rates are governed by the
Case 94-E-0334 settlement agreement. The third year in the Case
94-E-0334 settlement agreement is the twelve months ending March 31,
1998, and the third rate year, therefore, covers the same twelve months
as RY1 of the rate plan. As stated in Section II.7, the parties agree
that, in light of the rate plan, the provisions of the Case 94-E-0334
settlement agreement prescribing overall electric revenue levels for
Con Edison for the twelve months ended March 31, 1998, will be
superseded by this settlement agreement. The other provisions of the
Case 94-E-0334 settlement agreement (e.g., rate design, incentive
----
mechanisms) will be implemented as prescribed in Section II.9 below and
in Sections II. 19, 31, 32 of this settlement agreement.
9. Implementation of the principal accounting and general ratemaking
provisions of the Case 94-E-0334 settlement agreement in RY1 will be as
follows:
(i) the revenue requirement increase for the third rate
year (12 months ending March 31, 1998) (Case
94-E-0334 settlement agreement, pp. 14-18) is agreed
to be eliminated and all credits and debits recorded
in order to implement the ratemaking provisions of
the Case 94-E-0334 settlement agreement as of March
31, 1997 will be reversed and the effects of such
reversals reflected in income; the Company will
provide to Staff journal entries implementing this
prescribed accounting within 30 days following
Commission approval of this settlement agreement.
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(ii) the revenue per customer clause (Case 94-E-0334
settlement agreement, p. 16 and Appendix C) will be
terminated beginning with the month of April 1997.
(iii)the following expenses required to be reconciled (in full or in
part) under the Case 94-E-0334 settlement agreement will no longer
be subject to reconciliation beginning with the month of April 1997
(except insofar as reconciliation of them is implemented for the
system benefits charge per Section II. 26 herein): demand-side
management expenses, independent power production capacity charges,
Home Insulation and Energy Conservation Act expenses, pension and
other post-employment benefits ("pension/OPEBs") expenses, research
and development expenses, renewables expenses and property tax
expenses (Case 94-E-0334 settlement agreement, pp. 9-10, 17).
Recovery of pensions/OPEBs is subject to Section II.10 of this
settlement agreement; recovery of property tax expense is subject to
Section II.11 of this settlement agreement.
(iv) the following provisions of the Case 94-E-0334 settlement agreement
will not be effective for RY1 of the rate plan or thereafter: the
demand-side management incentive, the customer service incentive,
the electric service reliability incentive, the earnings
calculations provision and the "miscellaneous provisions" provision
(Case 94-E-0334 settlement agreement, Sections F, K, L, M and P
[except subsection (iv) thereof, "nuclear refueling expense"],
respectively).
(v) the following provisions of the Case 94-E-0334
settlement agree-ment, as implemented in Section II.
19, 31, 32 of this settlement agreement, will
continue in effect in RY1: the electric fuel
adjust-ment, buy back rates and marginal energy costs
provision, and the rate design and revenue allocation
provision (Case 94-E-0334 settlement agreement,
Sections G and H and Appendix D, respectively).
Pensions/OPEBs and Exceptions to Base Rate Freeze
10. The Commission's policy statement on accounting and
ratemaking for pensions/OPEBs was issued in 1993 and scheduled for
re-examination beginning in 1998. Case 91-M-0890, Statement of Policy
and Order Concerning the Accounting and Ratemaking Treatment for
Pensions and Postretirement Benefits other than Pensions, issued
September 7, 1993, p. 5. The parties have considered the application
of the policy statement to Con Edison in view of the rate plan. The
parties agree that, subject to approval of the settlement agreement by
the Commission, effective April 1, 1997, the policy statement will no
longer apply to Con Edison's electric, gas and steam rates and to its
accounting policies, and the Company may determine to implement the
"corridor"
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approach for pensions/OPEBs in accordance with Statement of
Financial Accounting Standards Nos. 87 and 106. Con Edison agrees that
during the term of the rate plan, it will fund its pensions/OPEBs
expense to the maximum extent possible on a tax-effective basis. Con
Edison also intends to manage its pension/OPEB expenses in a manner
designed to produce equivalent levels of expense, subject to the
implementation of the "corridor," after the rate plan period as if it
had still been subject to the Commission's "true-up" policy. The
Company's Annual Report to the Commission will contain information
regarding pension/OPEB funding and expense levels that will enable
Staff to verify that the Company's expense and funding levels are
consistent with the foregoing objectives.
11. The Company's PSC No. 9, PASNY No. 4, EDDS and retail
access base electric rates are subject to adjustment prior to March 31,
2002 for the following:
(i) If any law, rule, regulation, order, or other
requirement or interpretation (or any repeal or
amendment of an existing rule, regulation, order
or other requirement) of a state, local or federal
government body (including a requirement or
interpretation resulting in Con Edison's refunding
its tax-exempt debt and including income or other
state, local and federal tax and state, local and
federal fees and levies but excluding local
property tax), results in a change in Con Edison's
annual utility costs, compared to the levels in
the year ending March 31, 1997, in excess of $7.5
million in any year, Con Edison will defer on its
books of account the total effect of all such
annual cost changes in excess of $7.5 million,
with any such deferrals to be reflected in rates
as set forth in this paragraph.
(ii) Con Edison's local property taxes are estimated to be $525.9
million in RY1, $540.1 million in RY2, $554.6 million in RY3,
$569.6 million in RY4, and $585.0 million in RY5. These rate-year
estimates will be adjusted for the purposes of this subparagraph
solely to reflect reductions in property taxes actually
experienced due to the retirement, sale or transfer of generating
units. Con Edison will defer on its books of account the full
amount of its actual property taxes above these estimated levels
(as adjusted as per the preceding sentence), with any such
deferrals to be reflected in rates as set forth in this
paragraph. The foregoing excludes the effects of property tax
refunds. Eighty-six percent of any property-tax refund received
by the Company in the RY1 through RY5 period will be deferred for
the benefit of customers; the remaining 14 percent will be
retained by the Company.
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(iii)Con Edison will defer on its books of account and reflect in
rates as prescribed by this paragraph the following environmental
costs: (i) site investigation and remediation ("SIR") costs for
electric operations in excess of $5 million annually (SIR costs
are the costs Con Edison incurs to investigate, remediate, or pay
damages (including natural resource damages but excluding
personal injury damages) with respect to industrial and hazardous
waste or contamination, spills, discharges and emissions for
which Con Edison is responsible); and (ii) environmental
compliance, prevention and improvement costs (excluding SIR
costs) in excess of $10 million in annual revenue requirement
(i.e., expenses plus carrying charges on capital additions not
reflected in the Company's 1997-2001 capital forecast) (these
costs are the costs of complying with legislative, regulatory,
judicial or other government rules or policies, including consent
decrees, related to the environment, and the costs of proactive
environmental initiatives not required by law, undertaken either
by the Company alone or in conjunction with others to improve the
environment). Any costs deferred under this subparagraph will be
net of recoveries of these costs under insurance policies or from
third parties. Amounts deferred hereunder will not be included as
a cost of divestiture (Section IV.2 herein)
(iv) If in any rate year covered by the rate plan, the GDP Implicit
Price Deflator as measured by Blue Chip Economic Indicators
increases by an amount greater than four percent, Con Edison
will, in such rate year, defer on its books of account an amount
equal to the product of the actual experienced percentage
increase above 4 percent times the escalation base in effect for
that rate year, with such deferred amount to be reflected in
rates as set forth in this paragraph. The escalation base in RY1
will be $1,050 million; the escalation base in RY2 through RY5
will be the escalation base in RY1 increased by the actual
percentage increase in the GDP Implicit Price Deflator in the
succeeding rate year or rate years except that the escalation
base will be reduced to reflect reductions in operations and
maintenance production expenses due to the retirement, sale or
transfer of generating units. Expenses deferred under this
subparagraph will be deferred in each succeeding year through RY5
but such succeeding deferrals will be netted against the amount
by which escalation in a succeeding or preceding rate year falls
below four percent multiplied by the escalation base for that
year. If the GDP Implicit Price Deflator is no longer published
or is re-constituted so as to make it unusable, a
11
<PAGE>
suitable alternative means of inflation measurement will be
determined by the Commission.
(v) Deferrals of extraordinary expenses, including
extraordinary operating and maintenance or capital
costs, not covered by subparagraphs (i) through
(iv) above, will be on petition to the Commission
and subject to such materiality and other
standards as may then apply as per PSC Case No.
94-M-0667, In the Matter of Developing Guidelines
for Use in Deferral Accounting in Ratemaking
Matters for All Regulated Utilities or other
Commission determination.
Amounts deferred on Con Edison's books of account under this paragraph and
Section II.22 and VI.2 herein, whether they are credits or debits, will be
reflected in rates through rate adjustments to be implemented in RY3 and
RY5 of the rate plan. Deferred debits or credits remaining on the
Company's books after RY5 will be reflected in rates set after March 31,
2002. Interest on deferred debits and credits will be applied at the
Commission-determined unadjusted customer deposit rate. Any rate
adjustment effective under this paragraph will be implemented pursuant to
the "Statement of Case 96-E-0897 Adjustments" to be effective under the
Company's rate schedules pursuant to this settlement agreement beginning
in RY3. The Statement and changes thereto will be filed with the
Commission and annexed to the Company's rate schedules. The Statement will
set forth any adjustments to become applicable under this paragraph on a
cents per kWhr basis for energy-only service classifications and on a
cents per kWhr and kW basis for demand-billed service classifications.
Such rate adjustments will be based on each class' relative contribution
to total pure base electric revenues; generation related costs will not be
allocated to the PASNY No. 9 and EDDS tariffs.
12. If a circumstance occurs which, in the judgment of the
Commission, so threatens the Company's economic viability or ability to
maintain safe and adequate service as to warrant an exception to this
undertaking, Con Edison shall be permitted to file for an increase in
base electricity rates at any time under such circumstances. Con
Edison may seek a general rate increase should its forecast return on
common equity fall below 8 percent (pro-formed to a common equity
capitalization of 52 percent).
The parties recognize that the Commission reserves the authority to act on
the level of Con Edison's base electricity rates pursuant to the
provisions of the Public Service Law should it determine that intervening
circumstances have such a substantial impact upon the range of Con
Edison's earnings levels or equity costs envisioned by the agreement as to
render the Company's electric rates unjust or unreasonable for the
provision of safe and adequate service.
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Disposition of Strandable Costs
13. Strandable costs are "those costs incurred by utilities
that may become unrecoverable during the transition from regulation to
a competitive market for electricity." May 20, 1996 order, p. 46. Con
Edison's October 1, 1996 plan estimated its strandable electric
generation costs to range from $4.7 billion to $6.2 billion, with about
60 percent of such costs attributable to costs of required power
purchase contracts between Con Edison and non-utility generators
("NUGs"). The parties have not agreed to any estimate of strandable
costs but as part of the rate plan have agreed on the rate treatment to
be utilized for such costs.
Con Edison's October 1, 1996 plan maintained that to date the Company had
mitigated the ratepayer impacts of strandable costs attributable to NUGs
by $2.2 billion and its other generation costs by additional, substantial
amounts. The parties have agreed to the following steps toward reducing
generation costs under the rate plan:
(i) In developing the unbundled tariffs prescribed by Section
II.20, the revenue reductions set forth in Section II.5
herein, exclusive of gross receipts taxes, will be
allocated to the generation component of the applicable PSC
No. 9 rates. These reductions reflect the mitigation of
generation-related costs borne by ratepayers in the RY1
through RY5 period while additional mitigation of
strandable costs is carried out as prescribed in the
subparagraphs below.
(ii) During RY1 through RY5, Con Edison will continue to
depreciate its generation plant at the rates prescribed by
the Case 94-E-0334 settlement agreement. Con Edison
commits, in furtherance of the rate plan, to mitigate
strandable costs of its fossil generating units through the
application of credits (reductions) to its generation plant
balances during the period RY1 through RY5 in a total
amount of $75 million above the depreciation accruals
authorized by the Case 94-E-0334 settlement agreement.
These credits will be recorded as depreciation expense for
the Company's steam-electric generating stations (i.e.,
Waterside and 74th Street). Con Edison will record this
increased depreciation expense in RY 3 and RY4. Con
Edison will notify Staff of the plant as to which these
depreciation expense accruals are to be made under this
subparagraph 30 days prior to the application of such
accruals.
(iii) Mitigation of strandable costs will also be addressed through
the application of 25 percent of the Company's common equity
earnings in excess of 12.9 percent (calculated per Section
III.18 herein) against generation-related plant balances
during the period prescribed in Section II.18.
(iv) NUG contract cost mitigation efforts will continue in the
RY1 through RY5 period and thereafter as per Section II.14
herein. As an additional incentive
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to mitigate NUG costs during the RY1 through RY5 period, the
Company will, subject to Section II.14.(i)(c), retain (a) the
full reductions in fixed NUG costs during the five-year
period, and (b) thirty percent of reductions in variable NUG
costs for a period of eighteen months, resulting from the
renegotiation, termination, "buyout" or "buydown" of NUG
contracts, exclusive of the financing-related savings
resulting from securitization. The Company will petition
the Commission to defer costs of contract terminations,
"buyout" or "buydown" for recovery pursuant to the
parameters set forth in Section II.15(ii) herein. After
RY5, the net benefits of any NUG contract renegotiation,
termination, "buyout" or "buydown" will be included in the
calculation of mitigated amounts as prescribed by Section
II.14(i)(a) and, in addition, allocated for ratemaking
purposes as follows: 25 percent will be applied to credit
(reduce) generation plant balances; 75 percent will be
applied directly to rates in a manner to be determined by
the Commission.
(v) The Company commits to mitigate the strandable costs of its
IP2 unit through the application of credits (reductions) to
its nuclear generation plant balances by $35 million over
the rate plan period above the depreciation accruals
authorized by the Case 94-E-0334 settlement agreement. Con
Edison will notify Staff of the depreciation accruals made
under this subparagraph 30 days prior to the application of
each such accrual.
(vi) Section IV of this agreement requires Con Edison to develop
and submit a plan for the divestiture of electric
generating plant and prescribes a minimum divestiture
commitment by Con Edison. The Company will seek to
mitigate strandable costs by developing a divestiture plan
that yields the maximum sales or transfer price reasonably
achievable under such plan. After-tax gains or losses
resulting from the divestiture of generation during the
rate plan (or the transfer to an affiliate), inclusive of
divestiture costs per Section IV of this agreement, will be
deferred on the Company's books of account. As indicated
in Section II.5, net gains from the sale of fossil
generation, if realized, will be used to reduce rates of
the "all other" customer groups, by up to $86.2 million in
RY 3, $114.9 million in RY4 and $143.7 million in RY5. Any
net gains from the sale of fossil generation (including
offset against any net losses from such sales), will be
amortized on the Company's books and reflected in rates
over a five-year period unless the Commission prescribes a
different amortization period in order to meet these rate
reduction assumptions. Interest at the
Commission-determined customer deposit rate will be accrued
commencing with the start of such amortization. The
parties understand that rate reductions consistent with the
levels of net plant sale gains identified in this
subparagraph and in Section II.5 will not be implemented
unless net gains in the amount required to cover the
reductions have been realized, and these reductions are
therefore conditioned on such gains being actually
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available to cover the rate reductions.The objective of
achieving the indicated net plant gains will be factored
into the implementation of the divestiture program,
balanced with other relevant factors. If a five-year
amortization of net gains would produce rate decreases in
excess of these indicated targeted amounts, any excess will
be deferred for disposition by the Commission.
Following RY5 (March 31, 2002), Con Edison will reconcile the
remaining book cost of plant to the "market values" defined by
divestiture (including deferred gains or losses) and the
balance thereof (positive or negative) will be reflected in
the post-rate plan period rates consistent with Section II.15
below.
14. Consistent with the Commission's order in the COB case, it
is the objective of the parties to allow the Company a reasonable
opportunity to recover the above-market costs of NUG contracts after
RY5, while at the same time putting recovery of a portion of such
stranded NUG costs at some reasonable degree of risk. Such recovery
would be contingent upon the Company's success in mitigating these
stranded costs or, to the extent stranded costs are not reduced or
eliminated through mitigation, upon the implementation of the
provisions of this settlement agreement intended to carry out the
transition to a competitive electricity market.
Accordingly, the Company would be at risk for the disallowance of the
lesser of (i) 10 percent of the actual or then estimated (on a net present
value basis) above-market costs in each rate year after RY5 of all of the
Company's now existing NUG contracts, and (ii) a maximum total of $300
million (net present value at the end of RY5), subject to the following
two provisions:
(i) The Company will have the following opportunities to mitigate its
stranded costs and thereby reduce or eliminate the disallowance
risk.
a. if NUG contract costs are mitigated at any time after the
beginning of RY1 (e.g., through successful renegotiation of NUG
contracts concluded after, but not prior to, the beginning of
RY1), the total reduction in NUG costs after RY5 (other than
the 30 percent of mitigated variable NUG costs that may
continue to be retained by the Company after RY5 pursuant to
Section 13.iv) and 100 percent of reductions in NUG costs
subject to flow through to ratepayers during RY1 through RY5
resulting from such mitigation will offset the amount at risk
for disallowance; provided, however, that if the stranded costs
under a NUG contract are mitigated not for reasons directly or
indirectly related to the Company's efforts (including contract
enforcement and administration), but for totally unforeseen and
unnatural reasons (i.e., the destruction of a plant), such
stranded costs would be considered fully mitigated but the
resulting savings would not offset the remaining amount at
risk. All the Company's NUG contracts would be potential
sources of mitigation and NUG costs will be treated as a total,
so that mitigation of an amount greater than 10 percent of
above-
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market costs in one contract would be credited against
other stranded NUG costs in determining the reduction in the
Company's allowance risk.
b. to the extent payments under NUG contracts are securitized, the
financing-related savings are expected to flow to ratepayers
and would not offset any amounts at risk for disallowance. If
as part of securitization the Company negotiates a buydown of
the contract or the NUG contract is terminated through a
buy-out, all above-market contract costs, even if securitized,
would continue to be considered stranded costs for the purposes
of determining the Company's 10 percent disallowance risk, and
any reductions in total expected payments under the contract
negotiated by the Company would offset any amounts at risk for
disallowance.
c. this settlement agreement (Section II.13.iv) provides that the
Company will retain the benefit of all mitigation in fixed NUG
costs achieved during RY1 through RY5 and 30 percent of
mitigation in variable NUG costs achieved during RY1 through
RY5 for a period of 18 months. The Company will have the option
to defer any and all such savings, in order to apply them
towards disallowed NUG costs; provided, however, that if it
later develops that the Company is able to achieve the 10
percent mitigation target without applying those deferred
savings toward mitigation, it may then credit the deferred
savings to income.
d. the settlement agreement provides for mitigation and
divestiture of the Company's fossil generating units. Ten
percent of the proceeds of divestiture (sale to third parties)
of such generation will be applied as an offset to the amount
of NUG costs at risk under this paragraph.
e. the Company would have the option of absorbing any ratemaking
disallowance after RY5 in a lump-sum amount, with the amount of
such absorption (only insofar as it relates to estimation of
stranded costs remaining) to be subject to the Commission's
approval. The Company would thereafter be permitted to retain
all savings resulting from later mitigation efforts up to the
lump sum amount absorbed by the Company.
(ii) For any amounts of stranded costs at risk that are not
mitigated or eliminated through the mitigation efforts described
in the previous subparagraph (i), the Company will nevertheless be
permitted a reasonable opportunity to recover such amounts if the
Company makes good faith efforts in implementing provisions of
this agreement leading to development of a competitive electric
market in the service area. The parties recognize that the
development of a competitive electric market will depend to a
large extent on developments outside the Company's control, and
the Commission's assessment of the Company's efforts will reflect
this fact. The Commission would not disallow an opportunity for
recovery provided that the Company's efforts were otherwise
sufficient. The Commission will consider the Company's actions in
the following
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broad areas: divestiture, retail access, price
levels and NUG mitigation. Each of these broad areas contain
efforts that the Commission will consider in assessing the
Company's success. For divestiture, the Company's development of a
comprehensive divestiture plan, the pace and magnitude of the
divestiture process, the successful development of a competitive
electric market, and the Company's actions to facilitate the
development of the ISO, will all be considered. For retail access,
the Company's implementation of retail access in relation to the
targets set for retail access, including timing regarding the
scope and participation in retail access, and the Company's
interactions with energy service companies and marketers in the
program will be considered as well as the extent to which the
Company facilitates the substantial construction of new generation
capacity. The Company's success in implementing the affiliate
relationship rules of this agreement, without substantial verified
(i.e., substantiated) complaints of non-compliance will also be
considered. Concerning NUG mitigation, in addition to the
quantifiable mitigation addressed in the preceding subparagraph
(i), the Company's participation in available programs to
securitize above-market payments will also be considered.
Regarding price levels, the level of base electric rates in the
post-RY5 period will be considered; this consideration will
reflect experienced inflation since RY1 and the trend in prices
charged by similarly-situated utilities. These activities are
illustrative of the steps to be taken towards development of the
market, and it is not the parties' expectation that the actions or
lack thereof taken as to any single action or category would mean
that full allowance or disallowance would result; the intent will
be to reasonably assess the Company's actions leading to the
transition on a generalized or overall basis.
15. The parties recognize the extensive litigation already
conducted and related policy differences over the recovery of
strandable costs. In light of the numerous factors and trade-offs
reflected in this agreement, and subject to the limitation prescribed
by Section II.14 herein, the parties agree that, subject to approval of
this settlement agreement by the Commission, Con Edison will be given a
reasonable opportunity to recover stranded and strandable costs
remaining at March 31, 2002, including a reasonable return on
investments. Parameters under which recovery will be carried out
including, where applicable, the time period during which this
reasonable opportunity is to be afforded, are as follows:
(i) charges for all customers served under the PSC No. 9 and retail
access tariffs (and for PASNY No. 4 and EDDS customers to the extent
set forth in Section II.31 herein) will reflect a non-bypassable
charge for the continued collection of generation and
generation-related costs as set forth in Sections II.29 and III.7,
11 herein.
(ii) the recovery period of NUG termination, "buy-out" or "buy-down"
costs, if securitized, will be determined by the Commission at
the time of securitization, but such recovery is expected to
match the life of the securitized bonds. The
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recovery period of non-securitized NUG termination, "buy-out" or a
"buy-down" costs, if any, will also be determined by the Commission,
but not exceed the life of the specific contract. The recovery
period of purchases made under NUG contracts will be the life of
the contract.
(iii) for IP2, in the absence of securitization, the unit's costs,
including above-market costs, and decommissioning expense for IP2
and the retired Indian Point No. 1 unit, will be recovered over a
period no longer than the end of the unit's license term in the year
2013. Reconciliation of estimated and actual decommissioning costs
may be reflected in rates after 2013.
(iv) for fossil generation, in the absence of securitization, stranded
costs remaining after RY5 will be recovered over a period not to
exceed the 10-year period ending March 31, 2012.
(v) recovery of Con Edison's other stranded costs will be over a period
to be determined by the Commission.
(vi) the Company will petition the Appellate Division of the
Supreme Court for permission to withdraw its December 24, 1996
appeal in Energy Ass'n of N.Y.S. v. Public Service Commission,
----------------------- -------------------------
Albany County Index No. 5830-96, with prejudice, following
final Commission approval of this agreement (i.e., when any
----
appeals from such approval are exhausted or the time to appeal
has expired). Until this petition is granted, the Company
will discontinue its appeal to the extent it is able to do so
without forfeiting the right to appeal.
Comprehensive Nature of Settlement Agreement
16. The foregoing reflects the parties' efforts to resolve complex
revenue requirement and rate level issues in this proceeding. In this
proceeding, the issues involved difficult questions arising from stranded cost
recovery as well as issues arising from the corporate restructuring under review
in this proceeding, including the issue of the need for and measurement of an
imputation of "royalties." In developing the rate plan, the parties intended to
develop a comprehensive plan that accounts for both typical revenue-requirement
issues such as expected productivity achievement as well as for claims regarding
stranded cost recoverability and the payment of "royalties." The rate plan is
intended as a permanent and comprehensive resolution of the Company's revenue
requirement in RY1 through RY5, of the principles under which stranded and
strandable costs will be recovered after RY5 (pursuant to Section II.13-15
herein), and of claims that the Company should record as revenues royalties
collected or imputed from its parent, affiliates or subsidiaries both before and
after RY5 beyond any amounts specifically required by this settlement agreement.
The plan resolves these issues on a basis that will allow the Company to remain
under the Statement of Financial Accounting Standards No. 71 requiring regulated
companies to follow cost-based ratemaking.
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Reporting
17. The Company will make available to Staff, for its review,
unbundled financial statements in the fourth quarter of 1997. The Company will
also report to the Commission Staff, no later than 90 days after the close of
each rate year (RY1 through RY5), the utility common equity earnings and
supporting computations for the preceding rate year.
Calculation and Disposition of Certain Earnings
18. The Company will calculate its rate of return on common equity
capital following RY1 through RY5. The Company will allocate the revenue
equivalent of its earnings in excess of 12.9 percent in any rate year as
follows: 50 percent will be retained by the investors; 25 percent will be
applied to the benefit of utility customers through rate reductions or as
otherwise determined by the Commission; and 25 percent will be applied to the
Company's generation plant, as depreciation expense, to reduce plant balances.
The earnings for any rate year will be calculated on a per books basis excluding
the effects of incentives prescribed by Section II.11(ii), 13(iv) and 32 herein.
In calculating earned return to determine if sharing is to be implemented, the
Company will include amounts by which its earnings fell below 11.9 percent
(excluding the effects of incentives) in any earlier rate year (RY1 through RY4)
of this settlement agreement. The Company will not be subject to the earnings
sharing prescribed by this paragraph beginning with the first rate year (i) in
which the Company has divested (sold to third parties) 50 percent or more of the
in-City fossil plants (measured in megawatt-rated capacity) owned by Con Edison
as of the date of this settlement agreement (net of later re-ratings or
retirements) or (ii) in which 15 percent or more of the service area peak load
(excluding load served by NYPA as of the date of this agreement) is supplied by
other than Con Edison.
Rate Design and Revenue Allocation
19. Case 94-E-0334 Rate Design Changes
The following rate design changes to the PSC No. 9 rates prescribed by the
Case 94-E-0334 settlement agreement will be implemented beginning on April 1,
1997 (or the date the Company's tariffs implementing RY1 of this settlement
agreement become effective, if later):
(i) The Case 94-E-0334 settlement agreement (Appendix D, p. 7),
prescribes that the customer charge in PSC No. 9 for SC Nos. 1
(residential and religious), 2 (small -general) and 7
(residential and religious-heating) will be gradually increased
over a seven-year period. The annual increase of $0.57 per month
is to take effect each April 1 through RY5, with the increase in
revenues due to the customer-charge increase deducted from the
energy charge revenue for the affected service classification.
This Case 94-E-0334 settlement provision will continue in effect
under the rate plan.
(ii) The Case 94-E-0334 settlement agreement (Appendix D, pp. 6-7)
prescribes that the energy charges in PSC No. 9 for SC No. 4-Rate
II (commercial and industrial-redistribution), 8-Rate II
(multiple dwellings-redistribution), 9-Rate II (general-
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large), 12-Rate II, (multiple dwelling space heating) and 13 (bulk
power-high tension-housing developments) will be reduced on April
1, 1997 and on April 1, 1998 (if rates were changed at that time
pursuant to the Case 94-E-0334 settlement agreement). The
reduction in the energy charge would equal 25 percent of the
difference between the level of marginal energy costs adopted in
Case 94-E-0334 and the level of the energy charge for the
affected classes in effect at the time of the Case 94-E-0334
settlement agreement. The reduction in revenues associated with
this change would be offset in full by adjusting the generation,
transmission and distribution charges in the affected
classifications. This Case 94-E-0334 settlement provision will
be implemented under the rate plan by implementing the scheduled
reduction in energy charges effective April 1, 1997 and April 1,
1998, offsetting the associated revenue reduction in full by
increases to the transmission and distribution charges in the
affected classification.
20. Unbundled Tariffs
Con Edison's October 1, 1996 plan included sample unbundled tariffs for
two of its PSC No. 9 service classifications (SC No. 1 - residential and
religious and SC No. 9 - general-large). The sample tariffs disaggregate the
major cost components of Con Edison's electric system (i.e., generation
capacity, energy, transmission and distribution) to provide improved information
about the cost structure on which the rates are based. The sample PSC No. 9
tariffs would not permit customers to purchase individual elements of the
Company's major cost components. The Company agrees to continue with the process
of reformatting its PSC No. 9 rate schedule to reflect the October 1, 1996
approach to "unbundling" or "disaggregating" major cost components to provide
improved information to consumers and, on Commission approval of this settlement
agreement, will file such unbundled rates for PSC No. 9 rate schedule by January
15, 1998 for all classes to become effective April 1, 1998:
(i) The unbundled PSC No. 9 rate components will be based on the "1994
Electric Embedded Cost of Service Study" ("1994 embedded cost
study") that the Company provided to the parties in this proceeding
and will include generation, transmission and distribution
components, and per Section II.26 of this settlement agreement, a
system benefits component. The unbundled tariffs will be
revenue-neutral on a class-by-class basis.
(ii) The unbundling process begun in this settlement agreement is
expected ultimately to lead to customers having the ability to
choose from among the unbundled cost elements set forth in the
tariffs. The Commission will not be precluded from implementing such
service unbundling following approval of this settlement agreement.
It is the intention of the parties that any such unbundling be
consistent with the principle that the purchasers of such unbundled
services not be subsidized by the Company or its other customers and
that stranded costs resulting from such unbundling be allocated
consistent with this no-subsidy principle.
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21. Residential Time-of-Use Rates
There currently exists a mandatory TOU (time-of-use) rate for large-use
residential customers (SC Nos. 1 and 7). The parties agree that the provision of
TOU service will be voluntary beginning in October 1997 and, in anticipation of
this change, the mandatory TOU customers have been informed that, subject to the
Commission's approval of this settlement provision, commencing on the
anniversary date they first received mandatory TOU service, they will be billed
on the conventional rate or, if the customer so requests, on the voluntary TOU
rate. The Company will recover the resulting revenue shortfalls either through
rate adjustment when shortfalls are experienced or through deferred accounting,
but the amounts to be recovered will be reduced by the amount of the late
payment charge revenue recovered per Appendix A, Section 2.v herein.
22. Industrial Employment Growth
The Company will make provision in SC No. 4 -Rate II (commercial and
industrial - redistribution) and SC No. 9 - Rate II (general - large) providing
"industrial employment growth" credits, to industrial customers served
thereunder. The term "industrial customers" to determine eligibility for the
credits will include any mandatory SC No. 4 - Rate II or SC No. 9 Rate II
account, other than governmental customers, where 75 percent or more of the
account's electric usage is used directly for manufacturing, i.e., the assembly
of goods to create a new product, the processing, fabrication or packaging of
goods, including biotechnology products, electronic products and recycling; and,
research and development by customers having greater than 2,000 workers engaged
in research and development in the Con Edison service area. Industrial
employment growth credits will not be available to retail establishments,
restaurants, hotels, hospitals, schools, cultural, religious or public
institutions or customers engaged in provision of services such as financial,
insurance, real estate, legal or similar services. Customers taking service
under Rider I (Area Development Rate), Rider J (Business Incentive Rate), Rider
L (Economic Development Zones) or Rider O (Curtailable Electric Service) will
not be eligible for industrial employment growth credits. Customers will not be
eligible for industrial employment growth credits until written application for
such credits is made by the customer and accepted by the Company. The industrial
employment growth credits will, for each customer served thereunder, constitute
the equivalent of a twenty-five percent reduction, exclusive of any
separately-stated system benefits charge implemented per Section II.26 herein,
from the applicable rates and charges under Rate II of SC Nos. 4 and 9 in effect
as of the date of this settlement agreement. The Company will provide notice of
the availability of this rate to all customers currently served under Rate II of
SC 4 and 9.
The annual revenue reductions reflected in Section II.5 herein for large
industrial customers reflect certain assumptions about the numbers of existing
PSC No. 9 customers eligible for this program. If the actual revenue shortfall
for this program (i.e., the difference in revenues calculated under the
applicable rates and charges under Rate II of SC Nos. 4 or 9 in effect as of the
date of this settlement agreement and under the applicable industrial employment
growth
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credits) in any rate year (RY 1 through RY5) varies from the revenue
reduction level attributable to this program per Section II.5 herein, the
variation will be deferred and reflected in the Statement of Case 96-E-0897
Adjustments per Section II.11 herein. In calculating revenue variations under
this subparagraph, the Company will exclude revenue variations due to increases
in load after a customer commences service under this program, and it will
exclude the entire load of customers commencing manufacturing operations in the
service territory after the date of this settlement agreement.
23. Low Income Rate Program
In its Opinion and Order Approving Settlement in Case 95-E-0964 (Opinion
No. 96-6, dated March 27, 1996), the Commission approved a settlement agreement
establishing a low-income rate program. The program included a targeted rate
component under which the customer charge of certain SC Nos. 1 and 7 customers
would remain fixed at $5.00 per month through March 31, 1999 (id. at 2). The
parties agree to continue the rate component of the low-income settlement in
effect through RY5, following the same revenue-neutrality provisions applicable
to the low-income settlement approved in Opinion No. 96-6, and to continue the
energy efficiency component of the program through October 1999.
24. RY1 Through RY5 Tariffs Implementing This Agreement
Following approval of this agreement, the Company will make a
compliance filing to cover the rate changes required by this agreement for the
period commencing October 1997. Except where this settlement agreement
prescribes specific filing requirements or schedules, all other tariff revisions
will be filed in accordance with generally applicable Commission filing
requirements, and reasonably in advance to allow reasonable Commission review.
25. Rate Design Flexibility
During the term of the agreement, the Company will have the right to seek
to change rates in a revenue-neutral manner as set forth herein. All rate
changes will be filed with the Commission and be subject to its approval and be
consistent with the terms of the settlement agreement. The changes that may be
proposed pursuant to this provision are as follows:
- Reallocation of revenues among customer groups based on changes in the
cost of service not known or foreseen at the time of this settlement
agreement
- Additions, deletions or other changes to rate blocks or seasonal
differentials
- Segmentation of service classes according to consumption levels,
load factors, and end-uses
- Reallocation of revenues within a class between demand, energy and
customer charges, as applicable
- De minimis rate changes.
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Where the Company is to propose more than one rate change to take
effect at approximately the same time, it will, to the extent practicable,
combine such proposals in a single filing with the Commission. Nothing herein is
intended to preclude the Commission from initiating the rate change proposals
covered by this paragraph. Nor is the Company precluded from proposing flexible
rate programs pursuant to the Commission's Opinion and Order Authorizing
Flexible Rates, Opinion No. 94-15, issued July 11, 1994, and the May 20, 1996
order.
26. System Benefits Charge Program
The Commission's May 20, 1996 order (p. 90) stated that "[c]osts required
to be spent on necessary environmental and other public policy programs that
would not otherwise be recovered in a competitive market will generally be
recovered by a non-bypassable system benefits charge." The expenditures
reflected in the SBC are for research and development (R&D), energy efficiency,
environmental protection, and low income programs that are required or approved
by the Commission to be funded by the SBC. In this settlement agreement and
subject to prospective modification by the Commission following resolution of
the generic system benefits charge proceeding (Case 94-E-0952, et al., Order
Modifying Procedure, issued February 6, 1997), expenditure levels for system
benefits charge programs will initially be covered in base rates, but they will
be non-bypassable in any event. Appendix B shows the costs of the programs in
base rates. Staff and the Company support the spending levels for these
activities set forth in Appendix B through October 1999 (approximating 1 mill
per kwhr). Unless the Commission otherwise directs, system benefits charge funds
collected by Con Edison will be administered by Con Edison and will be spent on
system benefits charge measures in Con Edison's service area. The parties agree
that any state-wide fund should not pre-empt program funding for commitments
made prior to the fund's being established.
R&D: R&D programs that Con Edison is required by the
Commission to conduct (excluding NYSERDA contributions)
or that would likely not be funded by the Company in a
competitive environment will be recovered in the SBC.
Energy efficiency: The Company's expenditures for demand side
management ("DSM") as shown in Appendix B are a
reasonable level through October 1999. New energy
efficiency programs that the Company is required by
order of the Commission to conduct in excess of the
expenditure levels shown in Appendix B will be recovered
as a surcharge in the SBC.
Low income: The costs of any new, existing or expanded low income
programs, including low-income energy efficiency
programs, approved or directed by the Commission will
be recovered in the system benefits charge.
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Environmental
Protection: The costs of environmental protection programs,as deemed
necessary by the Commission, that are not likely to be
carried out in a competitive market, including programs
designed to mitigate environmental impacts of electric
industry restructuring.
Mechanism: Costs of programs ordered by the Commission in excess
of the amounts shown in Appendix B will be recovered
through a non-bypassable SBC surcharge. The SBC
formula will be set forth in all rate schedules (PSC
No. 9, PASNY No. 4, EDDS and retail access). The
Company may unbundle the current SBC expenditures
from base rates in a revenue-neutral manner in its
January 15, 1998 filing pursuant to Section II.20
herein. The charge will not be subject to the rate
increase limitation established in Section II.7 of
this settlement agreement and will be set to cover
costs when spending levels are re-set.
The Company's expenditures for R&D and for energy
efficiency, other than those included in the SBC, will
be determined by the Company in its internal budgeting
process, and beginning with the calendar year 1998, a
demand side management plan will no longer be filed with
the Commission. Con Edison will be authorized to pursue
both efficient sales growth and sales reduction
initiatives utilizing customer-focused and other
incentives. The NYPA (PASNY No. 4 and EDDS) SBC
component will exclude generation-related costs.
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27. Miscellaneous Rate Provisions
Con Edison's October 1, 1996 plan contained rate proposals that the
Company maintained were needed in order to facilitate the transition to
competition. Rate changes to implement a minimum monthly charge for
demand-billed customers will be implemented effective April 1, 1998, as provided
in Appendix A and rate changes to reflect the unbundling of certain charges will
be implemented for Con Edison effective as prescribed in Appendix A hereto. In
addition, the Company's October 2, 1996 filing to implement the third-stage of
the Case 94-E-0334 settlement agreement contained proposals to institute a new
real time pricing program; to modify eligibility rules in the provision of
service under Rider J (Business Incentive Rate); and to clarify the PSC No. 9
tariff in respect to demand meter installation procedures and the correction of
a cross-reference in the tariff. These Case 94-E-0334 rate proposals will be
implemented effective as prescribed in Appendix A hereto. The parties agree to
support in principle the Con Edison modified high-tension proposal and DC
service proposals, both contained in Con Edison's October 1, 1996 plan and
described in Appendix C hereto, when filed after the date of this settlement
agreement.
The Company will explore the development of a hedging program to be made
available to full-service customers interested in a full or partial
non-adjustable fixed rate for electric service. The Company will report the
results of its review and submit any proposals resulting therefrom to the
Commission by November 15, 1997.
28. Economic Development Rate Programs
The parties agree that electric rates can be useful in promoting economic
development, and they have reflected this principle in the allocation of rate
reductions in the rate plan. Con Edison's tariffs in effect as of the date of
this settlement agreement provide economic-development rate reductions
principally pursuant to two location-specific programs, Rider I - Area
Development ("ADR") and Rider L Rate Available Under New York State Economic
Development Zones Act ("EDZ") and one service-area wide program, Rider J -
Business Incentive Rate ("BIR"). The parties have agreed in the context of the
rate plan to institute a phase-out of the application of the Company's
location-specific rate programs (Riders I and L), and, accordingly, applications
under those programs will not be accepted after March 31, 1997. The Company will
continue to consider, and will implement on a revenue-neutral basis, new
economic development programs developed during the rate plan. The ADR, EDZ and
BIR rate programs will be adjusted to provide customers approximately the same
level of bill reductions provided under these riders as of the date of this
agreement using a combination of the RY1 through RY5 bill reductions provided to
all similarly-situated business customers under this agreement and
rider-specific bill reductions (except as prescribed in the Commission's March
27, 1997 order in this proceeding (p. 7)).
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29. Retail Access Tariff and Retail Access Regulation
The Company will prepare and file retail access tariffs in order to
implement the retail access program set forth in Section III herein, and the
provisions of Section III will be considered to be part of this "rate plan." At
the outset, the retail access tariffs will include the same number of service
classifications, with the same applicability rules for each class, adapted to a
retail access program, as set forth in PSC No. 9 for the Company's retail sale
of electricity, but Staff and the Company will confer on ways to reduce the
number of service classifications and rate programs applicable under the retail
access tariffs. Pending such effort, the retail access tariffs will be prepared
following the same methods and format utilized in the sample retail access
tariffs included in Appendix 9 to the Company's October 1, 1996 plan. The
following charges in retail access tariffs will equal the charges set forth in
the corresponding PSC No. 9 tariff: customer charge, distribution charge, and
transmission charge. As set forth in Section III, the transportation/delivery
component of the retail access charge will be set to collect the portion of the
generation demand and energy charges set forth in the corresponding PSC No. 9
tariff that are not avoided by the provision of power and energy via the retail
access tariffs. Therefore, the transportation/delivery component of the retail
access tariff will include the generation and energy charges in effect for the
corresponding PSC No. 9 service classification, subject to adjustment as
prescribed in Section III herein.
The Company's retail access tariff will be filed with the Commission and
cover all components of the retail access tariff described herein. If the
Federal Energy Regulatory Commission ("FERC") should require that the
transmission or other component of retail access service be provided under the
Company's "open access" tariff under FERC Order 888 or another FERC tariff, the
Company and Staff will cooperate in the development of retail access tariffs
that carry out the commitments of this settlement agreement. Adjustments will be
made in the rates remaining subject to the Commission's jurisdiction to offset
any differences (positive or negative) in rate levels for retail access service
that are set by FERC compared to the rates provided by this settlement
agreement.
Any generator supplying power on an interstate radial that it paid for
directly and for which it continues to directly or indirectly pay the
maintenance will not be deemed to be taking transmission service for the use of
that line, regardless of the line's ownership. Nor will use of such a radial
line incur any charges of any type for transmission service (e.g., transmission
service charges).
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30. Regulatory Reform, Customer Operations
Procedures, and Classification of Facilities
(i) Legislative action for the prospective repeal of the
mandatory purchase requirements of the Public Utility
Regulatory Policies Act of 1978 ("PURPA") (16 USCss.824a-3)
and Public Service Law Section 66-c (McKinney) is expected
as the transition to competition in the electric utility
industry is implemented. Implementation of these
requirements is a matter of Commission judgment. Case
93-E-0912, Order Denying Petitions For Rehearing, issued
December 27, 1994, pp. 2-4. Therefore, pending repeal of
these requirements, and subject to Commission approval of
this settlement agreement, Con Edison will be permitted to
condition payments under mandated contracts requiring fixed
payments for a period longer than one year upon recovery of
such payments in rates.
(ii) Con Edison will not be responsible for the performance of
energy service companies ("ESCOs"). Con Edison's ESCO will
have the same duties (licensing requirements and load serving
entity ["LSE"] duties) as other ESCOs.
(iii) To facilitate the Company's operations under the rate plan,
provisions of Part 11, Part 13, Part 140, and Part 273 of 16
N.Y.C.R.R. and the requirements for a plain language bill
format adopted in Case 28080, Order Requiring Gas and Electric
Utilities To File Revised Billing Formats (Oct. 31, 1985), are
waived to the extent that any such provisions are inconsistent
with the Company's ability to:
a. institute non-discriminatory procedures which require
an applicant to provide reasonable proof of the
applicant's identity as a condition of service;
b. modify its bill content and format in response to
industry restructuring; provided, however, the
Company's bills will contain the following:
- an explanation of how bills may be paid
- total charges due
- due date
- unit price of energy consumed or other appropriate
itemization of charges (including sales taxes and
other informative tax itemization)
- complete name and address of customer
- unique account number or customer number assigned
to the customer
- meter readings
- period of time associated with each product or service
- name of entity rendering bill
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- local or toll-free telephone number customers may
call with inquiries
c. include non-tariffed items in a bill; provided,
however, that customer payments are credited first to
tariffed items and service cannot be terminated for
failure to pay non-tariffed items.
(iv) Con Edison will be permitted to disclose residential and
non-residential customers' current payment status
information to other service providers to the extent such
information is limited to: whether or not a deposit could
be requested from the customers by Con Edison due to
delinquency, as defined in 16 NYCRRss.11.12(d)(2) or in 16
NYCRRss.13.1(b)(13), or for any reason provided in 16 NYCRR
ss.13.7(a)(1); whether or not a customer could be denied
service by Con Edison due to unpaid bills on an existing or
prior account; or, whether a customer's service could be
terminated by Con Edison, provided that:
- such information is to be used by other service
providers only for the purposes of determining whether
unregulated energy services will be provided to the
customer, whether a deposit will be collected from such
customer, or for other purposes approved by the
Commission;
- ownership of the data remains with Con Edison; and
- such information request is made by a service
provider in response to a bona fide request from the
customer to the service provider for electric service
or with other customer consent.
Changes to Parts 11 and 13 of the Commission's regulations are
expected to be made. If changes are not made, the Company may
petition for further waiver of such rules.
(v) The Company will be permitted to accept credit card payments for
utility service, provided, however, that any costs imposed on Con
Edison associated with the receipt of payment by credit card are to
be considered among the general costs of doing business and will not
be a separate additional charge to the customers whose payments are
made by credit card.
(vi) In its May 20, 1996 order (p. 73), the Commission expected
"filings by each utility" to it and subsequently to FERC "to
distinguish and classify transmission and distribution
facilities." Con Edison's 138 kV feeders, which radially supply
the area substations, are currently classified as transmission
facilities in the Company's records. However, these area
substations supply only local distribution load within the
Company's service area. Therefore, these feeders, along with
ancillary equipment, will be reclassified as distribution
facilities following approval thereof by the Commission
consistent with Commission Opinion No. 97-12 in Case 97-E-0251
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(July 24, 1997), and the FERC. Staff currently supports the
Company's position and planned application to FERC.
31. NYPA
(i) Revenue Deficiency Under the 1994 Cost-of-Service Study
Con Edison's 1994 embedded cost study indicates that the rates and
charges applicable to the PASNY No. 4 rate schedule should be
increased by $22 million annually in order to bring the revenue
contribution provided by this service to the overall average return
(consistent with the tolerance band) for the Con Edison system. The
third year of the Case 94-E-0334 settlement agreement (App. D, p.
3), provides for a $9 million annual increase in NYPA's revenues
from delivery service to take effect beginning April 1, 1997.
Implementation of the Case 94-E0334 increase, would reduce the
indicated revenue deficiency to $13 million annually. The Case
94-E-0334 increase will not be implemented hereunder. The $13
million deficiency is addressed in the Memorandum of Agreement on 25
Cycle Service attached hereto as Appendix.
(ii) ISO And Stranded Cost Recovery
Con Edison's provision of delivery service to NYPA under Con
Edison's PASNY No. 4 and EDDS rate schedules is likely to be
affected by the transition to competition, specifically, the
formation and operation of an ISO may result in NYPA becoming
subject to locational capacity requirements. The cost impacts of an
ISO locational requirement on NYPA service are, however, difficult
to predict at this point in the transition. The parties agree that
when the operation of the ISO begins to impact the service provided
under the PASNY No. 4 and EDDS schedules, the Commission could
authorize the collection of NYPA's ISO locational capacity cost
increases through a transition charge included in Con Edison's fuel
adjustment in amounts the Commission determines to be just and
reasonable. Con Edison will petition the Commission to make such a
determination at such time as NYPA becomes subject to ISO locational
requirements and requests Con Edison to apply to the Commission for
such a determination.
The rates and charges reflected in the PASNY No. 4 rate schedule
will not include transportation/delivery (i.e., stranded cost)
charge component during the rate plan except that the Commission
will consider the institution of such a component to the extent
PASNY No. 4 loads increase in excess of the loads set forth in
Appendix E. A principal factor in such Commission consideration will
be the extent to which the load served by NYPA under PASNY No. 4
includes loads that have transferred from the PSC No. 9 or retail
access schedules to PASNY No. 4 after October 1, 1996. A
transportation/delivery component will not apply to
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EDDS service except that such a component will apply to aggregate
allocations to EDDS customers in excess of 174 MW.
(iii) Con Edison agrees not to challenge, either before NYPA or in the
courts, the allocation of economic development power recommended by
the New York State Economic Development Power Allocation Board dated
December 17, 1996 (agenda item No. 2) or future extensions of such
allocation, including novations.
32. Fuel Adjustment Clause
The incentive electric fuel adjustment prescribed by the Case 94-E-0334
settlement agreement will continue to operate in RY1 through RY5, except as
limited below in paragraph vi:
(i) the 30-70 Company-customer sharing ratio for variations from
targets will be retained.
(ii) the Company's overall cap (i.e., the maximum reward or penalty in
any rate year, including the effect of IP2 generation and its
replacement) will continue to be $35.0 million. The Indian Point 2
sub-cap (i.e., the maximum reward or penalty in any rate year for
the target for the IP2 capacity factor and its replacement
generation) will continue to be $10 million.
(iii)for each rate year through RY5, the capacity factor for IP2 will
continue to be set at an annual period level of 73.5 percent. The
setting of an annual equivalent capacity factor between refuelings
will be in accordance with the Case 94-E-0334 settlement agreement,
p. 25. By April 1, 1997, the Company will provide to Staff a
forecast of the IP2 outage schedule through RY5.
(iv) the fuel targets for RY1 will be based on the PROMOD data base set
forth in Appendix F. The parties will continue to cooperate in
exploring alternate methods for establishing performance-based
incentives, including market-price-based indexing when a visible
energy market is sufficiently developed.
(v) the monthly fuel targets will continue to be calculated using the
monthly adjustments set forth in Appendix F.
(vi) the monthly fuel adjustment will be credited with the actual
reliability-related and other unavoidable energy costs to be
recovered from retail access customers through the
transportation/delivery service charges, as provided in Sections
III.8.(i) and III.11.(i). In addition, the following cost factors
will be fixed in base rates at their actual annualized 1996 cost
levels and will be eliminated from the calculation of the fuel
adjustment and the reward/penalty provisions:
- oil storage and handling charges
- fixed gas transportation charges (i.e., local
transportation facilities use charges)
Furthermore, commencing April 1, 1997 (or the date of the tariffs
filed to implement RY1 in compliance with this settlement agreement
following
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Commission approval, if later), the Company will allocate
to base rates the costs, fixed as of the date of this agreement, of
diversity power (capacity and transmission fixed charges) from
Hydro-Quebec purchased through NYPA, and of the capacity purchased
from NYPA's Indian Point 3 and Poletti stations, and the costs of
the 2.6 cents/kWh fixed "adder" applicable to 6,600 GWH pursuant to
the energy purchase agreement with Sithe Energies, Inc. In addition,
the Company will recover through the fuel adjustment clause (not
subject to the reward/penalty provisions) payments for energy to
Sithe (excluding the 2.6 cents/kWh adder) that would be due absent
the discount to the buy-back tariff rate specified by contract
beginning in the sixth year of the contract term (i.e., payments at
the full buy-back tariff rate). The parties will consider continuing
such recovery after RY5. The base cost of fuel will be established
at 2.2 cents/kilowatthour.
(vii) the incentive applicable to contract renegotiations with NUGs
(including terminations, buyouts or buydowns) set forth in Sections
II.13(iv) will be implemented in a manner to carry out its incentive
objective irrespective of any monthly adjustments for such NUGs
under the preceding paragraph (v). E.g., if the Company successfully
negotiates improved contract terms with a NUG which lower the
Company's energy costs, the incentive set forth in Section II.13
(iv) would be implemented by permitting the Company to collect, in
addition to actual energy costs, thirty percent of the energy cost
reductions through the fuel adjustment clause (not subject to the
reward/penalty provision) for a period of eighteen months.
(viii)when the ISO assumes control of energy dispatch in the state, the
parties will cooperate in revising the framework of the fuel
adjustment and its incentive mechanism as may be necessary to
reflect the spot market purchase price and other applicable costs
resulting from the establishment of the ISO/PE (e.g.,
transmission-related costs). Con Edison will submit a proposed
revised framework within 180 days after the point at which the ISO
assumes control of energy dispatch in the state.
(ix)The Company will amortize over RY1 the deferred fuel and purchased
power costs resulting from the transfers to base rates specified in
paragraph (vi) above. At the end of RY1, the Company will reconcile
the actual costs and the amounts collected, with appropriate credits
or charges for overcollections or undercollections at the time of
this reconciliation.
33. Customer Service and Electric Service Reliability Incentives
To address the importance of a satisfactory level of service to its customers
over the term of this agreement, a customer service and electric service
reliability incentive program will be implemented. This mechanism is set forth
in Appendix G herein.
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34. SC No. 11 Buy-Back Energy Rates
(i) The SC No. 11 Buy-Back energy rates applicable to RY1 were adopted
by the Commission in Case 96-E-0798, Order Adopting Settlement
Agreement, June 24, 1997.
(ii) The SC No. 11 Buy-Back energy rates for transmission-level sellers
applicable to RY2 will be as set forth in Appendix K herein. The
Company will file revised tariff leaves reflecting these energy
rates by February 1, 1998.
(iii) The parties agree that, after the ISO is fully operational, the SC
No. 11 Buy-Back energy rates may, if consistent with PURPA, be based
on appropriate market data to be available from the ISO. To that
end, the parties agree to convene technical conferences during the
month of November 1998 to discuss the method for setting the SC No.
11 Buy-Back energy rates for RY3. The rates applicable to RY 2 set
forth in the preceding sub-paragraph (ii) will not be revised as a
result of such conferences. Among the issues to be addressed during
these conferences are the point in time at which the ISO is
sufficiently developed, both in terms of commercial operation
experience and volume of energy and related products processed, to
yield data that may appropriately be used to determine the SC11
Buy-Back energy rates and the specific market data available from
the ISO which should be so used. If the parties are unable to reach
a consensus by November 30, 1998, the parties will request the
assignment of a settlement judge, and no party will oppose a request
to the settlement judge for evidentiary hearings followed by briefs
and a recommended decision if such request is made by half or more
of the parties.
(iv) In the event that the SC No. 11 Buy-Back energy rates for RY3, or
a part thereof, are to be administratively set (e.g., because of
the unavailability of appropriate ISO market data), and the
parties are unable to reach a consensus on such revised rates for
RY3 by November 30, 1998, then the Company will file proposed
rates for RY3 with the Commission by no later than December 30,
1998, which shall be subject to formal discovery and public
comment under SAPA. The Company's filing will also propose a
procedure for setting rates for RY4.
(v) Nothing in the settlement agreement is intended to affect the
determination of the SC No. 11 Buy-Back capacity rates for RY1
and beyond.
III. RETAIL ACCESS PROGRAM
Objectives and Phase-in Target Dates
1. A capacity and energy retail access program for up to 500 MW will
begin no later than nine months following Commission approval of this settlement
agreement (i.e., by June 1, 1998, assuming approval is obtained no later than
September 30, 1997).
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(i) This schedule is contingent upon approval, within one hundred
and twenty days of the settlement approval order, of the retail
access implementation plan prescribed by the settlement agreement
and the retail access tariffs (to be filed with the Commission
and FERC, as applicable) governing this program substantially as
submitted. Con Edison will file the plan and tariffs, including
operating and enrollment procedures governing this program for at
least the initial twelve months, within thirty days following the
issuance of the settlement approval order. The schedule will be
subject to reasonable change if significant revisions to the plan
or tariffs are required or if approval of the plan and tariffs
are otherwise delayed.
(ii) A total of up to 300 MW will be made available to up to
approximately 100 customers who have real time metering (i. e.,
large TOU customers).
(iii)A total of up to 200 MW will be made available to up to
approximately 160 groups of non-TOU customers from all service
classifications, totaling about 60,000 customers subject to
aggregation rules, to test the use of load shapes instead of real
time metering. A group is a number of customers in a single service
classification with homogenous load characteristics served by a
single LSE. Low income aggregation in multi-family buildings (five
or more units) in low-income neighborhoods and low-income small
home residential aggregation will be targeted. The Company's retail
access implementation plan will include proposals for a program to
encourage participation in this initial phase by small (SC 1, 2 and
7) non-TOU customers. The programs to be considered will include,
among others, a temporary, non-recurring increase to the backout
credit as well as a payment to encourage the enrollment of such
customers during the initial phase. The total one-time incremental
cost of the program will be approximately, but not exceed, $5
million. Any portion of the $5 million not used for the program
will be deferred for credit to the "all other" customer groups
defined in Section II.5 herein.
(iv) The number of non-TOU customers in each service classification will
be set to bring the minimum group size to approximately 1 MW.
(v) Hourly energy usage for customers in the aggregated groups will be
derived from the monthly energy usage through the use of customer
load shapes to be determined by Con Edison from its load research
data subject to Staff review.
(vi) The parties recognize that implementation of retail access within
nine months of Commission approval of this settlement agreement is
contingent upon the timely establishment of the aggregation,
eligibility and other rules applicable to retail access. The
parties will fully cooperate in this development. Within 30 days of
approval of this settlement agreement, the Company will file with
the Commission, with a copy to all parties, a plan and proposed
retail access tariffs outlining the manner in which the Company
will carry out this initial phase (first twelve months) of the
retail access plan. Following the Company's filing, the parties
will collaborate in reviewing the filed plan and in developing
procedures
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for its periodic evaluation. Otherwise eligible
utilities and their affiliates may participate along with other
LSEs in the retail access program except that, if Con Edison or its
affiliates are restricted from participating in retail access
programs being conducted by utilities, participation by such other
utilities and their affiliates in Con Edison's programs will be
similarly restricted.
2. The retail access program will be expanded by 1,000 MW, to a
total of 1,500 MW, within 10 months of the date on which the initial 500 MW
program begins. To the extent feasible, the Company will begin to phase in this
program expansion beginning six months after the initial 500 MW program begins.
Assuming resolution of administrative and operational problems that are likely
to be encountered in implementing the first 500 MW of retail access,
participation will be encouraged from all customer classes, subject to
aggregation and eligibility requirements and other applicable rules.
3. Within 12 months after the beginning of the second phase of the
retail access program, (i.e., the 1,000 MW program expansion) and within each 12
months thereafter, retail access will be expanded by 1,000 MW or more. The
Company would target the phase-in of retail access to make it available to all
customers by the earlier of 18 months after a fully operational ISO is
implemented, or year-end 2001. For purposes of this agreement, the ISO will be
considered to be "fully operational" when energy is being provided via a
competitive wholesale market facilitated by the ISO and upon commencement of the
first period during which capacity is being provided pursuant to a statewide
(i.e., including the Con Edison service area) capacity auction or capacity
rules, or it has been determined that there is to be no separate statewide
capacity program.
4. The parties recognize that even with widespread discussion of
retail access, there has been little actual experience with retail access to
date, particularly on a large scale, and that industry experience to date
indicates that approximately one-half the customers eligible for similar
programs would choose to participate in such programs in the initial period that
retail access is made available. The parties also recognize the need for
customer input and a gradual and orderly phase-in of retail access to allow for
the proper resolution of unexpected, but inevitable, operational difficulties
and customer-related issues. Accordingly, the parties acknowledge that the
retail access objectives and phase-in dates specified herein are targets and
that flexibility to change the program schedule indicated herein as issues and
obstacles are addressed more slowly (or more rapidly) than anticipated is
essential. The schedule, therefore, will (with appropriate Commission oversight)
be subject to adjustment (e.g., via queuing, phasing, or similar procedures) to
address these developments.
5. The parties also acknowledge that the transition to a competitive
market, which is desirable, needs to address the Company's statutory service
obligation. Specifically, the parties acknowledge the Company's concern that it
may be acting in a manner inconsistent with its statutory duty to serve if it
were to make irrevocable commitments toward a competitive capacity market, such
as divesting generation or shutting down generating stations, without
recognizing that Con Edison's ability to carry out its service obligation
reliably may be threatened by such commitments. Con Edison will not be required
to make irrevocable commitments that are inconsistent with its obligations at
the time.
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Retail Access Prior to A Fully Operational ISO
It is the intent of the parties that the rates charged to LSEs for energy and/or
capacity and the rates charged to retail access customers for
transportation/delivery service would not result in subsidization of such LSEs
and retail access customers by the Company or its full service customers and
that stranded costs resulting from retail access be allocated consistent with
this no-subsidy principle. Subject to this principle, the method of determining
the capacity charges to LSEs and the related Generation Capacity Adjustments set
forth below will be re-evaluated prior to the second year of the retail access
program.
6. Energy: LSEs, including Con Edison's ESCO, providing service to
retail access customers will have the option of purchasing energy directly from
suppliers through bilateral arrangements (subject to operational requirements),
or from Con Edison at FERC-filed energy tariff rates. These tariff rates,
expressed on a cents/kWh basis, will be set at the applicable SC No. 11 Buy-Back
energy rates or will reflect the Company's hourly incremental costs, and will be
applicable to energy purchases by LSEs as set forth below. Any LSEs desiring to
purchase energy from Con Edison at the SC No. 11 Buy-Back energy rates will be
required to contract with the Company for the purchase of all or a
pre-determined fixed portion of the LSE's load within thirty days of the
Commission's order setting the applicable SC No. 11 Buy-Back energy rate, but in
no event later than the commencement of the 12-month period for which such
energy rates are fixed. The contracting LSE will be required to purchase the
pre-determined fixed percentage of its energy requirement during all hours of
the year. All other energy purchases by LSEs from the Company, including energy
above contracted-for percentage levels (e.g., during import curtailments), will
be priced at the Company's hourly incremental costs (differentiated, as
necessary, to reflect in-City generation costs). As to bilateral arrangements:
- Deliveries will be scheduled through the NYPP and/or Con Edison and must
be curtailable for reasons such as in-City generation requirements for the
purpose of reliability. LSEs will be required to purchase energy from
in-City sources to replace curtailed deliveries.
- LSEs will be required to provide Con Edison with any necessary data
needed to evaluate this program.
- LSEs will be responsible for delivery to Con Edison's franchise area
border.
- LSEs will be responsible for delivery of sufficient energy to cover all
losses in delivery to customers' premises, with such loss factors
reflected in applicable tariffs.
- Con Edison will verify LSEs' deliveries and will provide balancing
services for LSEs at a charge to be filed with FERC.
- LSEs serving in-City load should have no greater rights (or access) to
the available transmission capacity for energy imports into NYC than their
pro-rata share of such available capacity if the location based marginal
cost transmission congestion contract approach proposed by NYPP is not
approved by FERC in time for its implementation herein.
7. Capacity: LSEs, including Con Edison's ESCO, providing service to
retail access customers, will have the option of purchasing capacity from Con
Edison at FERC-filed capacity tariff rates, expressed on a $/kW-year basis. Such
tariff rates will not, at least for RY1, exceed the PSC No. 9 generation
component charge and will be established annually based on an auction to be
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conducted by the Company for the sale of installed capacity in excess of
capacity required for its full service customers and its in-City capacity
requirements. LSEs will also be able to provide capacity from any other
available source subject to the following:
- LSEs will be required to contract for capacity equal to 118 percent of
the coincident peak load to be supplied.
- Until June 1, 1999, LSEs will be required to contract for capacity from
in-City sources equal to no less than 70 percent of the in-City peak load
to be supplied by such LSEs. During such time, to the extent that the
in-City capacity obtained by LSEs is less than 80 percent of the in-City
peak load to be supplied by such LSEs, Con Edison will maintain existing
in-City generating capacity to cover such difference. Thereafter, until
the ISO establishes locational generation capacity requirement rules
applicable to New York City, LSEs will be required to contract for
capacity from in-City sources equal to 80 percent of the in-City peak load
to be supplied, unless the Commission orders otherwise. The Company will
not be required to contract for or construct in-City generation capacity
to meet LSEs' in-City capacity requirements.
- Capacity obtained from sources other than Con Edison will be subject to
the same reliability requirements to which Con Edison's resources are
subject, such as NYPP rules for capacity reliability/availability,
including installed capacity criteria, and disqualification of capacity
obtained from generators that have committed the same capacity to another
entity.
- Con Edison will prepare and file with the Commission a proposed program
to allow customer-owned emergency generation facilities to address
applicable locational generation requirements. The program will be
designed to cover not greater than 100 MW of emergency generation when
initially effective inclusive of any load participation by NYPA customers.
8. Delivery Service: The transportation/delivery service rate for
all retail access customers will be equal to the full service rate in the
applicable PSC No. 9 tariff (e.g., large commercial retail access customers will
be subject to the rates and charges in the PSC No. 9 tariff rate for large
commercial customers), subject to the adjustments to the energy and generation
capacity components of the full service rate described below. The transmission
and distribution component and customer charge component of the PSC No. 9 rate
will not be impacted.
(i) Energy Adjustment: Subject to any program to encourage participation
in the initial phase of the retail access program by small customers
adopted pursuant to Section III.1.(iii), the applicable PSC No. 9
energy component charge (on a cents/kWh basis, after adjustment to
reflect total actual energy costs net of revenues received from sales
of energy to LSEs) will be credited on a monthly basis for all retail
access customers by an amount equal to the lesser of the SC No. 11
Buy-Back energy rate (including appropriate loss factors) or such
applicable PSC No. 9 energy component charge. The remaining portion of
the energy component charge included in the transportation/ delivery
service rate (e.g., reliability-related and other unavoidable energy
costs) would be subject to adjustment for actual costs as required. To
the extent the energy tariff approved by FERC provides for the recovery
of less than the full energy costs incurred by the Company, including
the
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reliability-related and other unavoidable energy costs, such
shortfall shall be recovered from all retail access customers through
the transportation/delivery service rate.
(ii) Generation Capacity Adjustment: The applicable PSC No. 9 generation
capacity component charge (on a $/kW year basis) will be credited on an
annual basis for all retail access customers by an amount equal to the
ratio of: (1) the actual revenues to be received by Con Edison in such
year from sales of capacity made available at auction, if any,
including capacity sales to LSEs serving Con Edison delivery customers,
plus estimated identifiable capacity-related savings, if any, resulting
to the Company directly from the purchase of capacity by LSEs from
third parties (excluding savings associated with contract terminations
and reductions in capacity purchases from Hydro Quebec and
I.P.3/Poletti), divided by (2) the total amount of capacity made
available for sale at auction to LSEs; provided, however, that the
total credit cannot exceed the then-current-applicable PSC No. 9
generation capacity component charge. To the extent the capacity
tariff rate approved by FERC is less than the filed tariff rate, any
resulting revenue shortfalls shall be recovered from all retail access
customers through the transportation/delivery service rate.
Retail Access After A Fully Operational ISO
9. Energy: Same options and requirements as prior to a
fully operational ISO (as described above, paragraph 6), except that:
- LSEs will also have the option of purchasing energy directly through a
Power Exchange.
- ISO will schedule energy deliveries obtained through bilateral
arrangements.
- ISO will provide for any in-City requirements for energy.
- ISO will provide verification of LSEs' deliveries and balancing
services.
10. Capacity: Same options and requirements as prior to a fully
operational ISO (as described above, paragraph 7), except that ISO reliability
rules will govern. The parties will actively support the expeditious adoption of
in-City capacity requirements by the ISO. In the event that the ISO requires
that LSEs contract for in-City capacity in excess of 70 percent of the in-City
peak load to be supplied prior to June 1, 1999, LSEs will be required to provide
no more than 70 percent of such in-City peak load until June 1, 1999, and Con
Edison will maintain sufficient existing in-City generation capacity to provide
the additional in-City capacity required by the ISO.
11. Delivery Service: Same starting point for determining the
transportation/delivery service rate as prior to a fully operational ISO (as
described above, paragraph 8), except that:
(i)The Company would bid its energy into the ISO/Power Exchange ("PE")
at a price which would be expected to reflect the avoidable (i.e.,
marginal and other "running") energy costs, at a minimum (or at a
higher price, up to the expected market clearing price for energy,
consistent with the market structure that
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develops). Under the Energy Adjustment, the applicable PSC No. 9
energy component charge (after adjustment to reflect total actual
energy costs net of revenues received from the sales of energy
to LSEs) would be credited for all retail access customers by an
amount equal to the lesser of the market price of energy and such
applicable PSC No.9 energy component charge. Any remaining portion
of the energy component charge included in the transportation/delivery
service rate (i.e., unavoidable energy costs not reflected in the
market value of energy) would be subject to adjustment for actual
costs as required.
(ii) To the extent practical and prudent, the Company would bid all of
its capacity into the ISO/PE at a price which would be expected to
reflect the "to go" (or avoidable) costs (or at a higher price,
provided that such price does not exceed total embedded costs,
including unrecovered energy costs, until market power concerns have
been addressed). Under the Generation Capacity Adjustment, subject
to necessary adjustments based upon the operation of the ISO, the
applicable PSC No. 9 generation capacity component charge would be
credited for all retail access customers by the lesser of the market
value of capacity and such applicable PSC No. 9 generation capacity
component charge.
(iii) A system-wide delivery rate will apply until the ISO is
operational and thereafter until the Commission determines based on
consideration of all relevant factors that a separate rate should
apply to Westchester County.
(iv) In bidding its fossil-fueled capacity and energy into the ISO/PE
at a price which would be expected to reflect, at least, the "to go"
or avoidable costs, the Company will consider all costs avoidable as
a result of a generating unit being backed down, taken off line,
placed on cold standby or retired, and will include in its bid all
"to go" costs that are appropriately considered avoidable for the
action that it plans to take if the unit is not successful in that
auction. The Company will have the discretion to choose the action
appropriate for each unit it bids into the ISO/PE. The categories of
avoidable costs to be evaluated include fuel and other variable and
fixed costs such as equipment and supplies, labor and outside
services, allocated administrative and general (A&G) expenses and
property taxes. As a general rule, being backed down would entail
the lowest level of avoidable costs, followed by, in ascending order
of avoidable costs, being taken off line and being placed on cold
standby, and lastly, by retirement.
(v)Until Con Edison sells or transfers all of its fossil units, Staff
will review the appropriateness of Con Edison's energy and capacity
bids associated with any remaining units to ensure that all "to go"
costs are properly bid. To facilitate such review, the Company will
submit to Staff, by June 1, 1998, detailed procedures for
identifying and allocating all direct and indirect costs related to
generation, along with criteria for including such costs in the
Company's bids consistent with the actions that the Company plans to
take if its bids were unsuccessful. The Company's submission will
also include appropriate procedures for bidding generation from
Indian Point No. 2 at applicable "to go" costs. These procedures and
criteria will form the baseline analysis that will guide Con
Edison's bidding actions and facilitate Staff's review of the
appropriateness of those actions. Based
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upon an audit of the
procedures and criteria proposed by Con Edison and by an independent
analysis of the costs of generation, both direct and indirect, Staff
will ascertain and verify, by September 1, 1998, the propriety and
reasonableness of the baseline analysis proposed by the Company,
including the actions that the Company plans to take if its bids
were unsuccessful. No later than thirty days after each bidding
period, Con Edison will provide Staff with the bids that it has
submitted to the ISO/PE. Competitive bid data are considered to be
commercially valuable and, assuming the data qualify for trade
secret protection under then- applicable Commission rules, the
Company's bid data would be subject to trade secret and other
confidentiality protections against disclosure to any party other
than Staff. For capacity bids, these submissions will be made no
less than every six months and no more often than once a month,
depending on the period covered by the capacity auctions. Energy
bids will be submitted no more often than once a month, Staff will
review the bids for conformity to the bidding procedures and
criteria submitted by the Company. In addition, Staff will audit
once a year the details of Con Edison's bids, using the appropriate
baseline analysis, to determine if the "to go" costs are being
appropriately included in the bid for each plant. At such time as
the Company seeks rate recovery of generation costs, the Commission
may disallow recovery of costs related to imprudent bidding actions.
Disposition of Petitions
In light of the retail access plan set forth herein, the retail access
pilot petitions referred to this proceeding in the Commission's Order Concerning
Retail Access Proposals in Case 94-E-0385 (issued February 25, 1997) are
incorporated solely to the extent consistent with this settlement agreement and
denied in all other respects. The petitioners will not be foreclosed from
participating in the retail access program set forth herein for which they are
otherwise eligible.
IV. DIVESTITURE
Consistent with the objective of developing a fully competitive electric
market, the Company commits to divest at least 50 percent of its in-City
electric generating fossil-fueled MW capacity (i.e., the in-city fossil plants,
either in service or on reserve shutdown owned by Con Edison as of the date of
this settlement agreement, net of re-ratings or retirements that occur after the
date of this settlement agreement) by year-end 2002. The Company will develop a
plan with the objective of divesting and transferring all plants, with the
exception of Indian Point No. 2 and its associated gas turbines, to unregulated
entities, including third parties and affiliates, by year-end 2002. This plan
will be designed with the objective of developing a fully competitive electric
market and maximizing the sales proceeds of divestiture.
1. Requirements for Divestiture
The parties agree that the divestiture program outlined herein will be a
major step toward the
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development of a competitive, deregulated electricity market. The Company
will, therefore, implement its divestiture commitment. The only exceptions would
be (i) if the Commission found that the level of divestiture should be delayed
or reduced (for example, to address factors such as the need to maximize the
sales price or avoid a "fire sale" of assets, to address unforeseen legislative,
regulatory, economic, business or other developments, or a force majeure, or to
address the electric system integrity) or (ii) pending issuance of a finding by
the Commission, upon petition by the Company to which parties will be offered
opportunity to comment, that such divestiture commitment by the Company is
consistent with the Company's then-existing obligation to serve the load related
to customers whose loads (and associated locational and reserve margin
requirements) exceed the Company's remaining generation and that the extent of
the Commission's then-existing regulation of electricity prices is not
inconsistent with the objective of maximizing the sales price of assets to be
divested.
2. Divestiture Parameters and Methodology
The divestiture of plants to third parties and the transfer of plants to
the Company's unregulated subsidiary will be carried out through a process that
will result in fair and reasonable treatment of all parties, including Company
investors and customers. This process will be fully developed in the divestiture
plan.
Per Section II.13.vi, after tax gains or losses will reflect the netting
out of divestiture costs (which have been deferred by the Company for recovery),
i.e., the costs of developing and implementing the plan, including the
incremental financial, environmental, transaction and employee costs associated
with the plan, and the divestiture carried out to implement the plan, and any
tax implications thereof. Employee costs will cover divestiture-related costs,
if any, associated with plant and direct-support employees. The use of cash
proceeds from the sale of any plants will be at the discretion of the Company
subject to the provisions of Section V.8 (iii) of this settlement agreement. Any
after-tax gains or losses made on the transfer or sale of divested assets will
be reflected in the determination of stranded costs to be collected after RY5 as
prescribed in Section II.13-15 of this settlement agreement.
The divestiture plan will identify the units to be divested consistent
with the objective of developing a competitive electric market in the service
area without the need for continuing regulation. This includes the objective of
addressing market power issues in the in-city area including the "sub-load
pockets." Resolution of market power issues should not include mitigation
measures such as price controls, revenue caps or other means which could limit
the revenues of the future owner of the generating unit. The divestiture plan
submitted by the Company will also identify how plants and units would be
packaged for sale or transfer; what restrictions, if any, would be placed on the
capacity that any one generating company could purchase; the procedures to be
followed in the sale or transfer of generating assets; key dates and milestones
to achieve the schedule of divestiture; and which properties Con Edison would
make available for sale for the purpose of constructing new generating
facilities by third parties. If the disposition of generating assets is not
proposed to be carried out through a competitive auction process, then the
Company's plan will justify the use of an alternative process. The schedule for
divestiture would provide for the Company to initiate the divestiture process
with respect to at least 30 percent of the in-City fossil-fueled electric
generation within ninety days after the Commission's approval of a divestiture
plan is obtained and, if justified in the Company's plan in order
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to maximize the sales proceeds of divestiture, not later than ninety days
after the ISO in-City capacity requirement rules become effective. Con
Edison's affiliates, consistent with the objective of achieving workable
competition, will be included among the potential transferees in the
Company's divestiture plan, and Con Edison's affiliate would be able to
participate along with other unregulated sellers in the competitive
electric market. As a market participant in the in-City load pocket, the
unregulated affiliate will be allowed to own generation in amounts
comparable to other unregulated unaffiliated market participants and not be
restricted by virtue of its utility affiliation. The plan will also ensure
that the process for, and the terms and conditions of, the transfer of
plant to Con Edison's affiliate would be satisfactory to a neutral third
party (the Commission or another party).
3. Divestiture Plan Procedures
The Company will submit its divestiture plan to the Commission within
six months of the Commission order approving this settlement agreement. The
Company will keep Staff and the parties informed about the development of the
plan and submit to Staff for its comment a draft scope of work for the plan and
the Company will brief Staff on the progress of the plan during its development.
These steps are intended to be informal and informational with minimum intrusion
on the plan's development. No rights of formal discovery or similar procedural
requirements are intended to be provided although the Company will cooperate
with reasonable inquiries during the plan's development and participate in
collaborative efforts requested by Staff. The Company will submit the plan to
the Commission following its completion, and interested parties will be given an
opportunity to file comments on the submitted plan within sixty days of its
submission. If the Company requests an exception from its divestiture
commitment, the Commission will rule on the request expeditiously. If the
Commission otherwise comments on the plan or recommends that to address market
power or other concerns the plan should be modified, the Commission will either
initiate a proceeding to consider such comments or recommendations or request
Con Edison to respond to such comments or recommendations. The parties will
propose to the Commission a schedule for such a proceeding or response that
would allow for a Commission order on the plan by year-end 1998. Thereafter, the
Commission will approve the plan or modify it in a manner consistent with the
terms and conditions prescribed by this Section IV. The parties expect that the
Commission's order on the plan will also identify the plants that should not be
divested due to the need for continued regulation of such plants. The Company
will not challenge the Commission's authority to implement this subparagraph,
including any Commission implementation that modifies the plan submitted by the
Company in a manner consistent with the overall parameters of this Section IV
provided such modifications may be challenged on the grounds that they are
arbitrary, capricious, and an abuse of discretion or not supported by
substantial evidence. Nothing in this subparagraph precludes the Company from
petitioning the Commission separately at any time for authorization to transfer
generation or other plant pursuant to Section 70 of the Public Service Law.
4. Post-Rate Plan Period
Any residual unrecovered costs for fossil generation will be recovered
through charges established as prescribed in Section II.15 of this settlement
agreement.
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V. CORPORATE STRUCTURE
1. Formation of Holding Company
(i) The Company is permitted to reorganize into a holding company
form through the mechanism of a binding share exchange, after
which Con Edison (referred to in this Section as "the RegCo")
will be a subsidiary of the Holding Company ("the HoldCo").* In
addition to Commission and shareholder approval, the approval of
the Federal Energy Regulatory Commission ("FERC") and the consent
of the Nuclear Regulatory Commission ("NRC") will be required to
form the holding company structure.
(ii) Upon the formation of the HoldCo, Con Edison's existing
unregulated subsidiaries, Promark Energy, Inc. (established
pursuant to the Commission's order dated May 13, 1993 in Case
92-G-0841, as amended by order dated January 7, 1994 in Case
92-G-0841, order dated October 12, 1994 in Case 93-G-0996, and
order dated November 16, 1994 in Case 94-G-0294) (the "ESCO"),
and Gramercy Development, Inc., (established pursuant to the
Commission's order dated July 12, 1996 in Case 95-M-0418), will
be transferred to and become direct or indirect subsidiaries of
the HoldCo.
(iii) The HoldCo may form other subsidiaries from time to time, including
an Energy Supply Company. To the extent that the RegCo's existing
fossil-fueled generating stations are retained within the holding
company structure, they will be transferred during the transition
period from the RegCo to the Energy Supply Company in accordance
with the RegCo's divestiture plan, where they will compete in the
unregulated generation market. NUG contracts that are not
securitized would remain with the RegCo.
(iv) An initial organization chart is attached as Appendix H. The
subsidiaries other than the RegCo are referred to collectively as
"the unregulated subsidiaries" or "unregulated affiliates." The
HoldCo may also establish one or more intermediate subsidiary
holding companies to hold its Con Edison common stock and the stock
of its other subsidiaries, provided the Commission's rights under
this settlement agreement are not impaired by such action.
2. Functional Unbundling
(i) Within the RegCo, the operations of its generating system, including
fuel and power purchases, will be functionally unbundled from its
transmission and distribution systems in a "business unit"
structure.
* In the other Sections of this settlement agreement, "Con Edison" and "the
Company" refer to the corporation existing as of the date of the settlement
agreement and, where the settlement agreement applies to periods after formation
of Holdco, to the RegCo.
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(ii) Common services (including administrative, accounting, legal,
purchasing, etc.) will continue to be provided within the RegCo
to all of the RegCo business units.
(iii) The business unit structure contemplates realignment of existing
organizations along functional lines. The latest step in the
realignment was effective on December 1, 1996. The wholesale
electricity purchasing function for franchise area customers was
aligned with the purchase of fuel for fossil generation within the
generation organization. The transmission pricing and planning
functions were aligned within the transmission organization,
increasing the separation of the generation and transmission
functions. Future changes include realignment of the transmission
organization with the distribution organization within the RegCo.
Also the maintenance and construction organization will be realigned
to provide functional separation between transmission and
generation.
3. The RegCo
(i) At the inception of the holding company structure, the RegCo will
continue to own all generation, transmission, electric and gas
distribution and steam systems.
(ii) To the extent the RegCo continues to own generation assets or NUG
contracts, it would be permitted to make wholesale electric
energy sales outside its service territory, retail and wholesale
electric energy sales within its service territory, and retail
electric energy sales outside its service territory until the
RegCo has an unregulated affiliate with all necessary approvals
to make retail sales outside the RegCo's service territory. The
RegCo will be permitted to provide service for the remaining
terms of any contracts for retail sales outside the service
territory in effect on the date the RegCo's authority to make
additional sales otherwise terminates or assign its rights and
obligations, under one or more of such contracts to its
affiliates if permitted by the contract(s).
(iii) The RegCo may also continue to provide certain services, i.e.,
advisory services and maintenance and repair shop services provided
by the Van Nest maintenance facility (until transferred to an
unregulated subsidiary), both within and outside the service
territory. After RY5, Van Nest, if still owned by RegCo, may not
provide any service that the RegCo will stop providing pursuant to
Section V.3(iv).
(iv) Through RY5, to the extent that the RegCo continues to have sales
customers, the RegCo would be permitted to provide the full range
of energy products and services to those sales customers,
including "behind the meter" products and services, except for
any behind the meter service that the Commission determines
generically that the utilities should not provide, in which case
the RegCo would terminate any such existing service(s) by the
later of the date provided in the generic order or three (3)
years from the effective date of the order approving this
settlement. RegCo may, however, elect to provide only basic
commodity service and advise customers to seek energy-related
services from competitive energy
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service companies that offer such products and services. After RY5, the
RegCo will, unless otherwise authorized by the Commission, not provide any
separately offered and separately priced behind-the-meter gas or electric
services that are available from unregulated providers, except: (a) those
services that were part of its historical bundled service and (b) those
reasonably necessary to provide transmission and distribution service
(e.g., services necessary to ensure the safety and adequacy of service;
incidental environmental work).
4. Affiliate Relations - In General
(i) The RegCo and the HoldCo's other subsidiaries will be operated as
separate entities. No unregulated affiliate will be located in the
same building as the RegCo beyond 180 days after its formation. The
RegCo and the HoldCo may occupy the same building.
(ii) Any transfer of assets or the provision of goods or services, other
than tariffed services and corporate services (such as corporate
governance, administrative, legal and accounting services), by the
RegCo to an unregulated subsidiary or an unregulated subsidiary to
the RegCo, will be pursuant to written contracts that will be filed
with the PSC.
(iii) Cost allocation guidelines are attached as Appendix I. These
guidelines will be amended and/or supplemented, if necessary, to
reflect affiliate transactions not contemplated by the initial
guidelines set forth in Appendix I. The Company will file with the
Director of the Office of Accounting and Finance of the Department
of Public Service all amendments and supplements to the guidelines
thirty days prior to making such change(s).
5. Transfer of Assets
(i) Transfers of assets from the RegCo to an affiliate or from an
affiliate to the RegCo will not require prior Commission approval
except for the transfer of generating stations and other assets from
the RegCo whose transfer requires Commission approval under PSL Sec.
70.
(ii) For all assets other than generating stations (whose value will
be determined in the section 70 proceeding), transfers of assets
from the RegCo to an affiliate shall be at the higher of net book
value or fair market value and transfers of assets from an
affiliate to the RegCo shall be on a basis not to exceed fair
market value except that the RegCo may, as part of its
reorganization, transfer to the HoldCo (at no charge) title to
office furniture, equipment and other assets having an aggregate
net book value not to exceed $5 million.
(iii) Fair market value shall be determined in accordance with the cost
allocation guidelines (Appendix I). For example, the RegCo may
transfer to an affiliate any computer software system that the RegCo
is authorized to transfer, without data,
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at a price at which the RegCo would sell such software to an
unaffiliated third party.
(iv) In general, the transfer of generating assets will be consistent
with the divestiture plan.
6. Personnel
(i) The RegCo and the unregulated subsidiaries will have separate
operating employees.
(ii) Non-administrative operating officers of the RegCo will not be
operating officers of any of the unregulated subsidiaries.
(iii) Officers of the HoldCo may be officers of the RegCo.
(iv) Employees may be transferred between the RegCo and an unregulated
subsidiary upon mutual agreement. Transferred employees may not
be reemployed by the RegCo for a minimum of 18 months from the
transfer date. Employees returning to the RegCo may not be
transferred to an unregulated subsidiary for a minimum of 18
months from the date of return. The forgoing limitations will
not apply to employees covered by a collective bargaining
agreement.
(v) For employees transferred from the RegCo to an unregulated
subsidiary, the unregulated subsidiary shall compensate the RegCo
with an amount equal to 25 percent of the employee's prior year's
annual salary on a one-time basis, except that there shall be no
compensation (i) for employees transferred to an unregulated
subsidiary not later than six months from the date the HoldCo
becomes the parent of the RegCo or the unregulated subsidiary to
which the employee is transferred is formed, whichever is later;
(ii) for the transfer of employees covered by a collective
bargaining agreement; or (iii) where the employee's transfer is
attributable to the transfer or reduction of a RegCo function or
major asset (e.g., a generating station).
(vi) The foregoing provisions in no way restrict any affiliate from
loaning employees to RegCo to respond to an emergency that threatens
the safety or reliability of service to consumers.
(vii) The compensation of RegCo employees may not be tied to the
performance of any of the unregulated subsidiaries, provided,
however, that stock of the HoldCo may be used as an element of
compensation and the compensation of common officers of the HoldCo
and RegCo may be based upon the operations of the HoldCo and RegCo.
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(viii) The employees of HoldCo, RegCo and the unregulated
subsidiaries may participate in common pension and benefit plans.
7. Provision of Services and Goods
(i) The RegCo may provide corporate services (such as corporate
governance, administrative, legal and accounting) for the HoldCo and
the HoldCo's unregulated subsidiaries may purchase such services
from the RegCo. The services would be provided on a fully-loaded
cost basis.
(ii) The RegCo may provide other services to an unregulated affiliate,
except that the RegCo may not use any of its marketing or sales
employees to provide services to an unregulated affiliate for
business within the RegCo's service territory. The unregulated
affiliate shall compensate the RegCo for the services of
employees performing such services at the higher of the
employees' fully-loaded cost plus 10 percent or the price that
the RegCo charged a third party for such employees' services.
(iii) The unregulated affiliates may provide services to the HoldCo and
the RegCo. Any management, construction, engineering or similar
contract between the RegCo and an affiliate and any contract for the
purchase by the RegCo from an affiliate of electric energy or gas
shall be governed by PSL ss.110, subject to any applicable FERC
requirements. All other goods and services will be provided to the
RegCo at a price that shall not be greater than fair market value,
determined in accordance with the cost allocation guidelines
(Appendix I).
(iv) The RegCo, the HoldCo, and the unregulated affiliates may be covered
by common property/casualty and other business insurance policies.
The costs of such policies shall be allocated among the RegCo, the
HoldCo and the unregulated affiliates in an equitable manner.
8. Maintaining Financial Integrity
(i) The debt of RegCo would be raised directly by the RegCo and would
not be derived from the HoldCo.
(ii) Without the prior permission of the Commission, the RegCo will not
(i) make loans to the HoldCo or any of the unregulated subsidiaries,
(ii) guarantee the obligations of either the HoldCo or any of the
unregulated subsidiaries; (iii) pledge its assets as security for
the indebtedness of the HoldCo or any affiliate.
(iii) The RegCo will not pay out more than 100% of income available for
dividends calculated on a two-year rolling average basis. Excluded
from the calculation of "income available for dividends" for the
purposes of this provision will be non-cash charges to income
resulting from accounting changes or charges to income resulting
from significant unanticipated events. The foregoing restriction
will also
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not apply to dividends necessary to transfer to the HoldCo
revenues from major transactions, such as asset sales, divestiture
or securitization or to dividends reducing the RegCo's equity
capital ratio to a level appropriate to the RegCo's business risk.
Senior management personnel of the RegCo will discuss with senior
Commission Staff personnel, on a confidential basis, the possibility
of the payment of a dividend that would exceed the foregoing
restriction at least 10 business days before declaration of such
dividend.
(iv) The RegCo will be required to certify annually to the Commission
that the RegCo has retained or otherwise has access to sufficient
capital to maintain and upgrade its plant, works and system in order
to continue the provision of safe and reliable service.
(v) Senior management personnel of the RegCo and the HoldCo will meet
annually with senior Commission Staff personnel to discuss, on a
confidential basis, the RegCo's and the HoldCo's activities,
including plans related to capital attraction and financial
performance.
9. Standards of Competitive Conduct
The following standards of competitive conduct shall govern the RegCo's
relationship with any energy supply and energy service affiliates:
(i) There are no restrictions on affiliates using the same name,
trade names, trademarks, service name, service mark or a
derivative of a name, of the HoldCo or the RegCo, or in
identifying itself as being affiliated with the HoldCo or the
RegCo. However, the RegCo will not provide sales leads for
customers in its service territory to any affiliate, including
the ESCO, and will refrain from giving any appearance that the
RegCo speaks on behalf of an affiliate or that an affiliate
speaks on behalf of the RegCo. If a customer requests
information about securing any service or product offered within
the service territory by an affiliate, the RegCo may provide a
list of all companies known to RegCo operating in the service
territory who provide the service or product, which may include
an affiliate, but the RegCo will not promote its affiliate.
(ii) The RegCo will not represent to any customer, supplier, or third
party that an advantage may accrue to such customer, supplier, or
third party in the use of the RegCo's services as a result of that
customer, supplier or third party dealing with any affiliate. This
standard does not prohibit two or more of the unregulated
subsidiaries from lawfully packaging their services.
(iii) All similarly situated customers, including energy services
companies and customers of energy service companies, whether
affiliated or unaffiliated, will pay the same rates for the RegCo's
utility services and the RegCo shall apply any tariff
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provision in the same manner if there is discretion in the
application of the provision.
(iv) Transactions subject to FERC's jurisdiction will be governed by
FERC's orders or standards as applicable.
(v) Release of proprietary customer information relating to customers
within the RegCo's service territory shall be subject to prior
authorization by the customer and subject to the customer's
direction regarding the person(s) to whom the information may be
released. If a customer authorizes the release of information to
a RegCo affiliate and one or more of the affiliate's competitors,
the RegCo shall make that information available to the affiliate
and such competitors on an equal basis.
(vi) The RegCo will not disclose to its affiliate any customer or
marketer information relative to its service territory that it
receives from a marketer, customer or potential customer, which is
not available from sources other than the RegCo, unless it discloses
such information to its affiliate's competitors contemporaneously on
an equal basis to the extent practicable.
(vii) If any competitor or customer of the RegCo believes that the RegCo
has violated the standards of conduct established in this section of
the agreement, such competitor or customer may file a complaint in
writing with the RegCo. The RegCo will respond to the complaint in
writing within twenty (20) business days after receipt of the
complaint. Within fifteen (15) business days after the filing of
such response, the RegCo and the complaining party will meet in an
attempt to resolve the matter informally. If the RegCo and the
complaining party are not able to resolve the matter informally, the
matter will be referred promptly to the Commission for disposition.
(viii)The Commission may impose on the RegCo remedial action (including
redress or penalties, as applicable) for the RegCo's violations of
the standards of competitive conduct. If the Commission finds that
the RegCo has engaged in a consistent pattern of material violations
of the standards of competitive conduct during the course of this
Agreement, it shall provide the RegCo notice of a reasonable
opportunity to remedy such conduct. If the RegCo fails to remedy
such conduct within a reasonable period after receiving such notice,
the Commission may take remedial action with respect to the HoldCo
to prevent the RegCo from further violating the standard(s) at
issue. Such remedial action may include directing the HoldCo to
divest the unregulated subsidiary, or some portion of the assets of
the unregulated subsidiary, that is the subject of the RegCo's
consistent pattern of material violations but exclude directing the
HoldCo to divest the RegCo or imposing a service territory
restriction on the unregulated subsidiary. If the HoldCo is directed
to divest an unregulated subsidiary, it may not thereafter, without
prior Commission approval, use a new or existing subsidiary of the
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HoldCo to conduct within its service territory the same business
activities as the divested subsidiary (e.g., energy services). The
RegCo and the Holdco may exercise any or all of their administrative
and judicial rights to seek a reversal or modification of remedial
actions ordered by the Commission and may seek to obtain any and all
legal and/or equitable relief from such remedial actions, including
but not limited to injunctive relief. Con Edison will not challenge
the Commission's authority to implement this subparagraph.
10. Access to Books and Records and Reports
(i) Staff will have access, on reasonable notice and subject to
appropriate resolution of confidentiality and privilege concerns, to
the books and records of the HoldCo and the HoldCo's majority-owned
subsidiaries.
Staff will have access, on reasonable notice and subject to
appropriate resolution of confidentiality and privilege concerns, to
the books and records of all other HoldCo subsidiaries to the extent
necessary to audit and monitor any transactions which have occurred
between the RegCo and such subsidiaries, to the extent the HoldCo
has access to such books and records.
(ii) The RegCo will supplement the information that the Commission's
regulations require it to report annually with the following
information: Transfers of assets to and from an affiliate, cost
allocations relative to affiliate transactions, identification of
RegCo employees transferred to an affiliate, and a listing of
affiliate employees participating in common benefit plans.
(iii) The HoldCo will provide a list on a quarterly basis to the
Commission of all filings made with the Securities and Exchange
Commission by the HoldCo and any subsidiary of the HoldCo, including
the RegCo.
(iv) A senior officer of the HoldCo and the RegCo will each designate
a company employee, as well as an alternate to act in the absence
of such designee, to act as liaison between the HoldCo, the RegCo
and Staff ("Company Liaisons"). The Company Liaisons will be
responsible for ensuring adherence to the established procedures
and production of information for Staff, and will be authorized
to provide Staff access to any requested information to be
provided in accordance with this Agreement.
(v) Access to books and records shall be subject to claims of privilege
and confidentiality concerns as set forth in Appendix J hereto.
11. Independent Auditor
(i) The Commission may, during the term of this agreement, require that
an independent auditor review the compliance of the HoldCo, the
RegCo and the unregulated subsidiaries with the terms of this
agreement. The identity of the
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independent auditor will be
determined by the Commission. The cost of such audit and review
shall be reasonable under the circumstances and shall be recorded by
RegCo as a deferred debit and be recoverable from ratepayers.
12. Royalty
(i) The rate plan covers all royalties that otherwise would be credited
to RegCo's customers, at any time, including after the expiration of
the agreement.
13. Miscellaneous
(i) If Con Edison has not received shareholder or other regulatory
approvals necessary to form HoldCo prior to issuance of the order
approving the settlement, Con Edison is permitted to use up to 5%
of its consolidated capital to fund unregulated subsidiaries that
currently exist or that it may form and the relationships among
and restrictions on affiliates shall be governed by this
settlement agreement. Accordingly, upon the date of the
Commission's order approving this settlement, the existing
limitations on the services that ProMark may provide are
eliminated. ProMark, which will likely become the ESCO, will be
permitted to offer all the retail and wholesale energy services
and related services and products, both within and outside Con
Edison's service territory, that other unregulated energy service
companies are permitted to offer. Affiliate transactions between
Con Edison and its subsidiaries, including the transfer of assets
and employees and provision of goods and services, shall be
governed in accordance with the terms of this agreement. Con
Edison may, in its sole discretion, continue to seek the
necessary approvals to reorganize into a holding company
structure.
(ii) Upon the date of the Commission's order approving this settlement
agreement, Con Edison's relationships with its existing and future
affiliates will be governed prospectively by this settlement
agreement. Accordingly, the following Commission orders will not
apply to Con Edison:
- Order Approving Use Of Up To $50 Million To Invest In
Unregulated Subsidiaries, issued July 12, 1996, in Case No.
95-M-0418;
- Order Approving Use Of Utility Revenue To Establish A Gas
Marketing Subsidiary, issued May 13, 1993, and Order Denying
Petition For Reconsideration, issued January 7, 1994, in Case
No. 92-G-0841; and
- order approving use up to an additional $26,000,000 of
utility revenue to invest in Con Edison Gas Marketing, Inc.,
filed in 92-G-0841, issued November 16, 1994, in
Case No. 94-G-0294.
Similarly, Section 1.A.v of the June 7, 1994 Agreement and
Settlement Concerning Gas Rates of Consolidated Edison of New York,
Inc. in Case 93-G-0996 and Section L.7 of the October 24, 1996
Settlement Agreement in Case 96-G-0548, which address royalty and
other affiliate issues, will have no prospective
effect.
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(iii) The standards of conduct set forth in this Agreement will apply in
lieu of any existing generic standards of conduct (e.g., the interim
gas standards established in Case 93-G-0932) and in lieu of any
future generic standards of conduct established by the Commission
through RY5 and will continue to apply after RY5 given the Company's
need for stability in rules governing the HoldCo structure.
Thereafter, before the Commission makes any changes to these
standards, it will consider the Company's specific circumstances,
including its performance under the existing standards.
VI. RESTRUCTURING-RELATED ACTIONS
1. Con Edison has an issue of Cumulative Preference Stock 6% Convertible
Series B. At December 31, 1996, 46,305 shares remained outstanding.
Each share of stock is convertible at the option of the holder into 13
shares of common stock and is also redeemable by the Company at a
redemption price of $100. Following the formation of HoldCo, all of
Con Edison's common stock will be held by HoldCo. Con Edison's
preferred stock will remain outstanding stock of Con Edison. To avoid
having an issue of preferred stock that would be convertible into a
minority common stock interest of Con Edison, Con Edison is authorized,
subject to Commission approval of this settlement agreement, to call
for redemption the remaining shares of the 6% Convertible Series B
Cumulative Preference Stock.
2. The transition to competition envisioned by the Commission's May 20,
1996 order and this settlement agreement could have an impact on
Company employees other than as a result of divestiture measures
addressed in Section IV of this settlement agreement. To address this
prospect, incremental retraining costs and severance payment,
outplacement and related costs, if any, incurred in the RY1 through RY5
period and not covered in Section IV will be deferred and reflected in
the Statement of Case 96-E-0897 Adjustments per Section II.11 herein.
The cost of any pension modification intended to promote early
retirement will be amortized to pension expense over a period
approximating the remaining service period for the Company's employees,
and unamortized costs will be reflected in rates after RY5. The
programs covered by this subparagraph will be subject to review to
assure that they are related to the transition to competition and
reasonable compared to the cost and scope of similar programs
implemented by other companies.
The parties recognize that the Company and Local 1-2 Utility Workers'
Union of America, AFL-CIO, are subject to a collective bargaining
agreement effective through June 24, 2000, which includes a provision
entitled "Successor Clause and Notice," but nothing in this settlement
adds to, subtracts from or otherwise modifies any rights, duties or
obligations set forth in said collective bargaining agreement.
3. Nothing in this settlement agreement is intended to preclude the
Commission, at the time it exercises its authority over such actions under
Sections 70 and 108 of the Public Service Law, from allocating to
ratepayers appropriate savings resulting from a merger that takes place
between Con Edison and another electric or gas utility or a purchase of
another gas
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or electric utility by Con Edison or a purchase of Con Edison
by any other utility.
VII. CUSTOMER EDUCATION PROGRAM
Con Edison will continue to develop and implement programs and materials
that will aid its customers in understanding the changes in the electricity
market that are coming and the nature of the services that customers can expect
to receive from the Company in the future. Con Edison's overall goals in
conducting these programs are to enable customers, particularly small customers,
to make informed choices about utility service while understanding their rights
and responsibilities as a utility customer and to get customer input into the
design of the retail access program. For retail access and energy services
choices in the competitive energy market, the Company's efforts would be
complemented by those of the participating providers of competitive services,
who can be expected to provide prospective retail access customers with
information about the energy choices becoming available to consumers. The
program will also attempt to reach out to customers eligible for the industrial
employment growth program.
Con Edison will seek to achieve its goals through outreach and education
activities. The outreach and education program will utilize the core outreach
and education tools currently in use: communication through the Customer
Handbook provided to new residential customers; customer information packages;
"Customer News," which is mailed four or five times each year to all three
million customers; and in-person presentations to groups, including the
Company's Advisory Councils, social services providers' groups, and different
segments of the Company's customer base. The Company will supplement this core
program with a message on the Company's voice response unit telephone service,
which will be available to more than 600,000 callers who contact the Company
each month.
The Company will provide annually to Staff on September 30 of each year
beginning 1998 a summary of its customer education efforts. This submission will
include an assessment of the progress made by these efforts.
VIII. MISCELLANEOUS
1. Provisions Not Separable: Effect of Commission Modifications
The parties have negotiated and accepted this agreement in toto with each
provision in consideration for, in support of, and dependent on the others. If
the Commission does not approve this agreement in its entirety, without
modification, any signatory may withdraw its acceptance of this agreement by
serving written notice on the other parties, and shall be free to pursue its
position in this proceeding without prejudice.
If the Commission approves this settlement agreement or modifies it in a
manner acceptable to the parties, the parties intend that this settlement
thereafter be implemented in accordance with its terms. If a material
modification is thereafter authorized or required by the
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Commission that is unacceptable to any party to this settlement agreement
adversely affected by such modification, then, in addition to any other
remedies a party may have, such party may withdraw from the agreement and
will not be bound thereafter to its provisions.
2. Provisions Not Precedent
The terms and provisions of this agreement apply solely to and are binding
only in the context of the purposes and results of this agreement. None of the
terms and provisions of this agreement and none of the positions taken herein by
any party may be referred to, cited or relied upon by any other party in any
fashion as precedent in any other proceeding before this Commission or any other
regulatory agency or before any court of law except in furtherance of the
purposes and results of this agreement.
Staff of the Department
of Public Service
RICHARD KING
Consolidated Edison Company
of New York, Inc.
JOHN D. MCMAHON
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