NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
FORM 10-K
---------
ANNUAL REPORT
For Fiscal Year Ended December 31, 1997
To
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General development of business. . . . . . . . . . 3
(b) Financial information about industry segments. . . 3
(c) Narrative description of business
Principal business. . . . . . . . . . . . . . . . 3
New product or segment. . . . . . . . . . . . . . 4
Sources and availability of raw materials . . . . 4
Franchises . . . . . . . . . . . . . . . . . . . 5
Seasonal business . . . . . . . . . . . . . . . . 5
Working capital items . . . . . . . . . . . . . . 5
Single customer . . . . . . . . . . . . . . . . . 5
Backlog of orders . . . . . . . . . . . . . . . . 5
Business subject to renegotiation . . . . . . . . 5
Competitive conditions. . . . . . . . . . . . . . 5
Research and development. . . . . . . . . . . . . 6
Environmental matters . . . . . . . . . . . . . . 6
Water quality . . . . . . . . . . . . . . . . . 6
Air quality . . . . . . . . . . . . . . . . . . 7
Waste disposal. . . . . . . . . . . . . . . . . 8
Number of employees. . . . . . . . . . . . . . . . 8
(d) Financial information about foreign and domestic
operations and export sales. . . . . . . . . . . . 8
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal proceedings. . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of matters to a vote of security holders. . 17
Executive officers of the Registrant . . . . . . . . . . . . . . 17
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters. . . . . . . . . . . . . . . . . 18
Item 6. Selected financial data. . . . . . . . . . . . . . . . 19
Item 7. Management's discussion and analysis of financial
condition and results of operations. . . . . . . . . 20
Item 7A. Quantitative and qualitative disclosures about
market risk. . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
TABLE OF CONTENTS (Cont'd)
Page
Item 8. Financial statements and supplementary data. . . . . . 33
Financial Statements
Consolidated Statements of Income. . . . . . . . . . 33
Consolidated Balance Sheets. . . . . . . . . . . . . 34
Consolidated Statements of Cash Flows. . . . . . . . 36
Consolidated Statements of Changes in
Common Stock Equity. . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . 38
Report of Independent Accountants. . . . . . . . . . . 56
Financial Statement Schedules
II. Consolidated Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . 57
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure. . . . . . . . . 58
PART III
Item 10. Directors and executive officers of the Registrant . . 58
Item 11. Executive compensation . . . . . . . . . . . . . . . . 58
Item 12. Security ownership of certain beneficial owners
and management . . . . . . . . . . . . . . . . . . . 58
Item 13. Certain relationships and related transactions . . . . 58
PART IV
Item 14. Exhibits, financial statement schedules, and
reports on Form 8-K
(a) List of documents filed as part of this report
Financial statements . . . . . . . . . . . . . . 58
Financial statement schedules. . . . . . . . . . 58
Exhibits
Exhibits delivered with this report. . . . . . 59
Exhibits incorporated herein by reference. . . 59
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . 64
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-3103-2.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Exact name of Registrant as specified in its charter)
New York 15-0398550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 3287, Ithaca, New York 14852-3287
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (607) 347-4131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
First Mortgage Bonds, 7 5/8% Series
due 2001 (Due November 1, 2001) New York Stock Exchange
3.75% Cumulative Preferred Stock
(Par Value $100) New York Stock Exchange
7.40% Cumulative Preferred Stock
(Par Value $25) New York Stock Exchange
Adjustable Rate Cumulative Preferred
Stock, Series B (Par Value $25) New York Stock Exchange
Common Stock (Par Value $6.66 2/3) New York Stock Exchange
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
4 1/2% Cumulative Preferred Stock (Series 1949) (Par Value $100)
4.15% Cumulative Preferred Stock (Par Value $100)
4.40% Cumulative Preferred Stock (Par Value $100)
4.15% Cumulative Preferred Stock (Series 1954) (Par Value $100)
* * * * * * * * * * *
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
* * * * * * * * * * *
The aggregate market value as of March 13, 1998, of the
common stock held by non-affiliates of the Registrant was
$2,507,759,424.
Common stock - 64,508,281 shares outstanding as of March 13,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
Document 10-K Part
The company has incorporated by reference
certain portions of its Proxy Statement
dated March 11, 1998, which was filed
with the Commission prior to April 30, 1998. III
<PAGE>
PART I
Item 1. Business
(a) General development of business
New York State Electric & Gas Corporation (company) was
organized under the laws of the State of New York in 1852.
The following general developments have occurred in the
business of the company since January 1, 1997:
Regulatory and Rate Matters
(See Item 7 - Competitive Conditions and Rate Matters.)
(b) Financial information about industry segments
(See Item 7 - Competitive Conditions - Electric Industry,
Holding Company Structure and Note 12 to the Consolidated
Financial Statements.)
(c) Narrative description of business
(See Item 7 - Competitive Conditions - Electric Industry,
Restructuring Plan, Holding Company Structure and Generation
Business.)
(i) Principal business
The company's principal business is generating, purchasing,
transmitting and distributing electricity and purchasing,
transporting and distributing natural gas. The service
territory, 99% of which is located outside the corporate limits
of cities, is in the central, eastern and western parts of the
State of New York. The service territory has an area of
approximately 19,800 square miles and a population of 2,400,000.
The larger cities in which the company serves both electricity
and natural gas are Binghamton, Elmira, Auburn, Geneva, Ithaca
and Lockport. The company serves approximately 811,000 electric
customers and 241,000 natural gas customers. Its service
territory reflects a diversified economy, including high-tech
firms, light industry, colleges and universities, agriculture and
recreational facilities. No customer accounts for 5% or more of
either electric or natural gas revenues. For the years 1997, 1996
and 1995, 84%, 84% and 85%, respectively, of operating revenue
was derived from electric service with the balance derived from
natural gas service.
The 1997 peak load of 2,404 megawatts (mw), was set on
January 17, 1997. This is 207 mw less than the all-time peak of
2,611 mw set on January 19, 1994. Power supply capability to
meet peak loads is currently 3,077 mw. This is composed of 2,557
mw of generating capacity (89% coal-fired, 8% nuclear and 3%
hydroelectric) and 1,145 mw of purchases offset by 625 mw of firm
sales. The purchases are composed of 551 mw from nonutility
generators (NUGs) and 594 mw from the New York Power Authority
(NYPA). Most purchases from NYPA are hydroelectric power.
<PAGE>
On January 18, 1997, the company experienced its 1997
maximum peak daily sendout for natural gas of 413,309 dekatherms.
This exceeded, by 9,686 dekatherms, the previous year peak of
403,623 dekatherms set on February 5, 1996.
(ii) New product or segment
(See Item 7 - Competitive Conditions - Natural Gas
Industry, Joint Venture with Central Maine Power Company.)
(iii) Sources and availability of raw materials
Electric
(See Item 7 - Competitive Conditions - Electric Industry,
Generation Business.)
In 1997, approximately 89% of the company's generation was
coal-fired steam electric, 9% nuclear and 2% hydroelectric power.
About 44% of the company's steam electric generation in 1997 was
supplied from its one-half share of the output from the Homer
City Generating Station, which is owned in common with
Pennsylvania Electric Company. An additional 30% was supplied
from the company's Kintigh Generating Station, and the remaining
26% was supplied from its other generating stations which are
located in New York State.
Coal
Coal for the New York generating stations is obtained
primarily from Pennsylvania and West Virginia. Of the 3.2
million tons of coal purchased for the New York generating
stations in 1997, approximately 89% was purchased under
contract and the balance on the open market. Coal purchased
under contract is expected to be approximately 93% of the
estimated 3.0 million tons to be purchased in 1998.
The annual coal requirement for the Homer City
Generating Station is approximately 5.1 million tons, the
majority of which is obtained under long-term contracts.
During 1997, approximately 68% of Homer City Generating
Station coal was obtained under these contracts. The
company anticipates obtaining approximately 96% of the 1998
requirements under these contracts. The balance will be
purchased under short-term contracts and, when necessary, on
the open market.
Nuclear
During the fall of 1996, Niagara Mohawk Power Corpora-
tion (Niagara Mohawk), the operator of Nine Mile Point
nuclear generating unit No. 2 (NMP2), in which the company
has an 18% interest, installed reload No. 5 into the reactor
core at NMP2. This refueling will support NMP2 operations
through the spring of 1998. Reload No. 6 is scheduled for
May 1998 and will support operations through the spring of
2000. Enrichment services are under contract with the U.S.
Enrichment Corporation for 100% of the enrichment
requirements through 1998 and 75% of the requirements
through 2003. Fuel fabrication services are under contract
through 2004. Approximately 81% of the uranium and
conversion requirements are under contract through 2003.
Natural Gas
(See Item 7 - Competitive Conditions - Natural Gas Industry,
Seneca Lake Storage Project.)
The natural gas supply mix includes long-term, short-term
and spot natural gas purchases transported on both firm and
interruptible transportation contracts. During 1997, about 58%
of the company's natural gas supply was purchased from various
suppliers under long-term and short-term sales contracts and 42%
was purchased on the monthly spot natural gas market to maximize
natural gas cost savings. The company's natural gas supply is
expected to be purchased in 1998 in a similar proportion as in
1997. The company uses risk management techniques such as
natural gas future and option contracts to manage the company's
exposure to fluctuations in natural gas commodity prices.
(iv) Franchises
The company has, with minor exceptions, valid franchises
from the municipalities in which it renders service to the
public. In 1997, the company obtained authorization from the
Public Service Commission of the State of New York (PSC) for
natural gas distribution service in the towns of Enfield,
Dansville, Lowville, Martinsburgh, Plattsburgh, Turin and West
Turin, and the villages of Lowville, Lyons Falls and Turin.
(v) Seasonal business
Sales of electricity are highest during the winter months
primarily due to space heating usage and fewer daylight hours.
Sales of natural gas are highest during the winter months
primarily due to space heating usage.
(vi) Working capital items
The company has been granted, through the ratemaking
process, an allowance for working capital to operate its ongoing
electric and natural gas utility services.
(vii) Single customer - Not applicable
(viii) Backlog of orders - Not applicable
(ix) Business subject to renegotiation - Not applicable
(x) Competitive conditions
(See Item 7 - Competitive Conditions and Accounting
Issues.)
<PAGE>
(xi) Research and development
Expenditures on research and development in 1997, 1996 and
1995 amounted to $10.9 million, $11.9 million and $13.1 million,
respectively, principally for the company's internal research
programs and for contributions to research administered by the
Electric Power Research Institute, the Empire State Electric
Energy Research Corporation, the New York Gas Group and the New
York State Energy Research and Development Authority. These
expenditures are designed to improve existing technologies and to
develop new technologies for the production, distribution and
customer use of energy.
(xii) Environmental matters
(See Item 3 - Legal proceedings, Item 7 - Accounting
Issues and Notes 8, 9 and 10 to the Consolidated
Financial Statements.)
The company is subject to regulation by the federal
government and by state and local governments in New York and
Pennsylvania with respect to environmental matters and is also
subject to the New York State Public Service Law requiring
environmental approval and certification of proposed major
transmission facilities.
The company continually assesses actions that may need to be
taken to comply with changing environmental laws and regulations.
Any additional compliance programs will require changes in the
company's operations and facilities and increase the cost of
electric and natural gas service. Historically, rate recovery
has been authorized for environmental compliance costs.
Capital additions to meet environmental requirements during
the three years ended December 31, 1997 were approximately $31
million and are estimated to be $7 million for 1998, $4 million
for 1999 and $6 million for 2000.
Water quality
The company is required to comply with federal and state
water quality statutes and regulations including the Clean Water
Act (Water Act). The Water Act requires that generating stations
be in compliance with federally issued National Pollutant
Discharge Elimination System Permits (NPDES Permits) or state
issued State Pollutant Discharge Elimination System Permits
(SPDES Permits), which reflect water quality considerations for
the protection of the environment. The company has SPDES Permits
for its six coal-fired generating stations in New York and NMP2.
The company's Homer City Generating Station in Pennsylvania has a
NPDES permit.
In connection with the issuance of permits under the Water
Act, the company has conducted studies of the effects of its coal
pile operations on groundwater quality at its Greenidge,
Jennison, Milliken and Hickling Generating Stations. New York
State groundwater standards are sometimes exceeded at certain
locations at each of those stations. Studies at Greenidge
Generating Station indicate that elevated levels of groundwater
constituents do not appear to be attributable to the coal pile.
The remedial work at Goudey, Jennison and Milliken Generating
Stations was completed in 1988, 1995 and 1997, respectively. The
remedial action, if required, at Hickling and Greenidge
Generating Stations is estimated to cost $1.4 million. Results
of data evaluation of groundwater conditions at Goudey Generating
Station have improved and an assessment of groundwater conditions
will be made in 1998. Groundwater monitoring data for Kintigh
and Homer City Generating Stations does not indicate facility-
induced groundwater contamination.
Air quality
The company is required to comply with federal and state air
quality statutes and regulations. All stations have the required
federal or state operating permits. Stack tests and continuous
emissions monitoring indicate that the stations are generally in
compliance with permit emission limitations, although occasional
opacity exceedances occur. Efforts continue in the
identification and elimination of the causes of opacity
exceedances. The company and Pennsylvania Electric Company may
find it necessary either to upgrade or install additional
equipment at the Homer City Generating Station in order to
consistently meet the particulate emission requirements.
The Clean Air Act Amendments of 1990 (1990 Amendments) limit
emissions of sulfur dioxide and nitrogen oxides and require
emissions monitoring. The U. S. Environmental Protection Agency
(EPA) allocates annual sulfur dioxide allowances to each of the
company's coal-fired generating stations based on statutory
emissions limits. A sulfur dioxide allowance represents an
authorization to emit one ton of sulphur dioxide during or after
a specified calendar year.
The costs of controlling toxic emissions under the 1990
Amendments, if required, cannot be estimated at this time, since
the type and level of reductions that may be required is
dependent on several studies currently being performed by the
EPA. Regulations may be adopted at the state level that would
limit toxic emissions even further, at an additional cost to the
company.
The company estimates that it will have sulfur dioxide
allowances in excess of the affected coal-fired generating
stations' actual emissions during Phase I, which began January 1,
1995. The company's present strategy is to bank excess sulfur
dioxide allowances for use in later years. Phase II begins
January 1, 2000. The company estimates that it will meet Phase
II emissions requirements through the year 2004, by using sulfur
dioxide allowances banked during Phase I together with the
company's Phase II annual sulfur dioxide allowances. This
strategy could be modified due to changes in market or business
conditions, or the outcome of the company's auction of its coal-
fired generating stations.
<PAGE>
Waste disposal
The company has received or applied for SPDES Permits, Solid
Waste Disposal Facilities Permits and applicable local permits
for its active ash disposal sites for its New York generating
stations. Groundwater standards have been exceeded in areas
close to portions of the Milliken and Weber ash disposal sites.
Corrective actions have been taken and studies are continuing to
monitor the effectiveness of the corrective actions.
The company has received NPDES permits, a Solid Waste
Disposal Permit and applicable local permits for its active ash
disposal site for the Homer City Generating Station and for the
active refuse disposal site for the Homer City Coal Cleaning
Plant.
Niagara Mohawk has contracted with the U.S. Department of
Energy (DOE) for disposal of high level radioactive waste (spent
fuel) from NMP2. The company is reimbursing Niagara Mohawk for
its 18% share of the costs under the contract (currently
approximately $1 per megawatt hour of net generation). The DOE's
schedule for start of operations of their high level radioactive
waste repository will be no sooner than 2010. The company has
been advised by Niagara Mohawk that the NMP2 Spent Fuel Storage
Pool has a capacity for spent fuel that is adequate until 2014.
If further DOE schedule slippage should occur, construction of
pre-licensed dry storage facilities would extend the on-site
storage capability for spent fuel at NMP2 beyond 2014.
(xiii) Number of employees
The company had 3,968 employees as of December 31, 1997.
(d) Financial information about foreign and domestic operations
and export sales - Not applicable
<PAGE>
Item 2. Properties
(See Item 7 - Competitive Conditions - Electric Industry,
Restructuring Plan, Holding Company Structure and Generation
Business.)
The company's electric system includes coal-fired, nuclear,
hydroelectric and internal combustion generating stations,
substations and transmission and distribution lines, all of which
are located in the State of New York, except for the Homer City
Generating Station and related facilities which are located in
the Commonwealth of Pennsylvania. Generating facilities are:
Name and location of station Generating
Coal-fired capability (mw)
Goudey (Johnson City, N.Y.) 126
Greenidge (Dresden, N.Y.) 106 (1)
Hickling (East Corning, N.Y.) 45 (1)
Jennison (Bainbridge, N.Y.) 67
Milliken (Lansing, N.Y.) 305
Kintigh (Somerset, N.Y.) 675
Homer City (Homer City, Pa.) 953 (2)
-----
Total coal-fired 2,277
Nuclear
NMP2 (Oswego, N.Y.) 207 (3)
Hydroelectric (Various - 9 locations) 66
Internal combustion (Various - 2 locations) 7
-----
Total - all stations 2,557
=====
(1) The company has one unit at each of the Greenidge and
Hickling Generating Stations, with a combined capability of
91 megawatts, on long-term cold standby. Units on long-term
cold standby require more than 14 days to be brought on-line.
(2) Company's 50% share of the generating capability.
(3) Company's 18% share of the generating capability.
The company owns 434 substations having an aggregate
transformer capacity of 13,325,390 kilovolt-amperes. The
transmission system consists of 4,540 circuit miles of line. The
distribution system consists of 33,812 pole miles of overhead
lines and 2,070 miles of underground lines.
The company's natural gas system consists of the
distribution of natural gas through 760 miles of transmission
pipelines (over 3-inch equivalent) and 6,104 miles of
distribution pipelines (under 3-inch equivalent).
Somerset Railroad Corporation (SRC), a wholly-owned
subsidiary, owns a rail line consisting of 15 1/2 miles of track
and related property rights in Lockport, Newfane and Somerset,
New York that is used primarily to transport coal and other
materials to the Kintigh Generating Station.
The company's first mortgage bond indenture constitutes a
direct first mortgage lien on substantially all of the company's
properties. Substantially all of the properties of SRC, other
than rolling stock, are subject to a lien of a mortgage and
security agreement.
Item 3. Legal proceedings
(See 1(c)(xii) - Environmental matters and Item 7 - Competitive
Conditions and Rate Matters.)
The company is unable to predict the ultimate disposition of
the matters referred to below in (a), (b), (d), (f), (g), (h),
(i), the first paragraph in (c) and the first three paragraphs in
(e). However, since the PSC has allowed the company to recover
in rates remediation costs for certain of the sites referred to
in the preceding sentence, there is a reasonable basis to
conclude that the company will be permitted to recover in rates
any remediation costs that it may incur for all of the sites
referred to in the preceding sentence. Therefore, the company
believes that the ultimate disposition of the matters referred to
below in (a), (b), (d), (f), (g), (h), (i), the first paragraph
in (c) and the first three paragraphs in (e) will not have a
material adverse effect on its results of operations or financial
position.
(a) By letter dated February 29, 1988, the New York State
Department of Environmental Conservation (NYSDEC) notified the
company that it had been identified as a potentially responsible
party (PRP) for investigation and remediation of the disposal of
hazardous wastes at the Lockport City Landfill Site (Lockport
Site) in Lockport, New York. The Lockport Site is listed on the
New York State Registry of Inactive Hazardous Waste Disposal
Sites (New York State Registry). Five other PRPs were identified
in the NYSDEC letter. The company believes that remediation
costs at the Lockport Site might rise to $4 million. The
Lockport Site has been remediated by the site owner, the City of
Lockport. By letter dated May 2, 1988, the company notified the
NYSDEC that it declined to finance remediation costs because it
believed that the NYSDEC had not demonstrated that a significant
threat to public health or the environment existed as a result of
hazardous waste disposal at the Lockport Site.
(b) By letter dated December 10, 1990, the NYSDEC notified the
company that it had been identified as a PRP for investigation
and remediation of hazardous wastes at the Schreck's scrapyard
site (Schreck's Site) in the City of North Tonawanda, New York.
The Schreck's Site is listed on the New York State Registry.
Seven other PRPs were identified in the NYSDEC letter. On
February 3, 1992, the NYSDEC again notified the company that it
had been identified as a PRP for investigation and remediation
costs at the Schreck's Site, this time listing eight other PRPs.
The company was offered an opportunity to conduct remediation or
finance remediation costs at the Schreck's Site, failing which
the NYSDEC might remediate the Schreck's Site itself and commence
an action to recover its costs and damages. By letter dated
April 1, 1992, the company notified the NYSDEC that it believed
it had no responsibility for the alleged contamination at the
Schreck's Site, and it declined to conduct remediation or finance
remediation costs. NYSDEC completed the soil remediation at the
Schreck's Site in February 1994 at a cost of $2.6 million.
Monitoring for groundwater contamination continues at the site.
<PAGE>
(c) By letter dated June 7, 1991, the NYSDEC notified the
company that it had been identified as a PRP at the Pfohl
Brothers Landfill, an inactive hazardous waste disposal site
(Pfohl Site) in Cheektowaga, New York. The Pfohl Site is listed
on the National Priorities List and the New York State Registry.
The NYSDEC offered the company an opportunity to enter into
negotiations with it to undertake the investigation and remedia-
tion of the Pfohl Site. The NYSDEC informed the company that if
it declined such negotiations, the NYSDEC would perform the
necessary work at the Pfohl Site using the Hazardous Waste
Remedial Fund and would seek recovery of its expenses from the
company. On July 3, 1991, the company responded to the NYSDEC by
declining to negotiate to undertake work at the Pfohl Site and
noted that the NYSDEC had not shown any significant
responsibility on the part of the company for the situation at
the Pfohl Site. The company believes that remediation costs at
the Pfohl Site will be $35 million to $55 million. By letter
dated April 2, 1992, the NYSDEC again notified the company that
it had been identified as a PRP for the Pfohl Site and offered
the company an opportunity to conduct or finance the on-site
remedial design and action. This notice letter was also sent to
19 other PRPs. Ten of these other PRPs have agreed to perform
the remedial work required by the NYSDEC. By letter dated June
1, 1992, the company notified the NYSDEC that it declined to
perform such remedial work because it believed that it was not a
significant contributor to the Pfohl Site. The company believes
the PRPs currently involved in conducting remediation at the
Pfohl Site were much larger contributors. In May 1995 the
company agreed to participate in a process for allocating
remedial costs at the Pfohl Site with the other PRPs. The company
contributed $20,000 toward past costs, which sum is subject to
that allocation process. In October 1997 the PRPs agreed upon an
allocation formula under which the company would be responsible
for approximately $266,000 to $418,000.
Five actions were commenced against the company and
approximately 24 other defendants in the New York State Supreme
Court, Erie County (State Court) (on January 17, 1995, April 7,
1995, June 14, 1995, January 10, 1997 and October 30, 1997), by
plaintiffs who allegedly resided or worked near or recreated at
the Pfohl Site in Cheektowaga, New York, claiming damages for
personal injuries, wrongful death and loss of consortium
allegedly caused by exposure to hazardous chemicals from the
Pfohl Site. On December 12, 1997, the action commenced on
October 30, 1997, was removed to the United States District Court
for the Western District of New York (District Court). The
plaintiffs allege that the defendants are strictly liable, and
were negligent or grossly negligent, for disposing of hazardous
and toxic materials at the Pfohl Site, and the plaintiffs in the
State Court actions seek compensatory and punitive damages that
total $103.5 million in the aggregate. The company believes that
the actions against it are without merit and will defend these
actions vigorously.
<PAGE>
On November 18, 1997, a class action was commenced in the
State Court against the company and approximately 23 other
defendants by plaintiffs who allegedly resided or worked near or
recreated at the Pfohl Site, claiming unspecified damages for
medical monitoring and surveillance services for personal
injuries allegedly caused by exposure to hazardous chemicals from
the Pfohl Site. This action was remanded to the District Court
on December 22, 1997. The plaintiffs have moved to remand this
case to the State Court and a decision is pending from the
District Court. The company believes this action against it is
without merit and will defend this action vigorously.
In 1995, four actions were commenced against approximately
11 defendants, and in 1996, an action was commenced against 13
defendants, by plaintiffs who allegedly resided or worked near or
recreated at the Pfohl Site for personal injuries, wrongful
death, and loss of consortium allegedly caused by exposure to
hazardous chemicals from the Pfohl Site. The plaintiffs allege
that the defendants are strictly liable, and were negligent or
grossly negligent, for disposing of hazardous and toxic materials
at the Pfohl Site, and they seek compensatory and punitive
damages. The company was not named as a defendant in those
actions. Third-party actions were commenced in the four 1995
actions against the company and ten other third-party defendants
in the District Court (two on April 27, 1995, one on June 9,
1995, and one on November 7, 1995), by third-party plaintiffs who
were named as defendants in the main actions. A third-party
action was commenced in the District Court on August 23, 1996,
against the company and ten other third-party defendants. In
each of the five actions, the third-party plaintiffs allege that
the company and the other third-party defendants are liable for
all or a part of any damages recovered by the plaintiffs.
Recovery in those third-party actions depends on the plaintiffs
recovering money damages against the third-party plaintiffs in
the main actions. The company believes that the actions against
it are without merit and will defend them vigorously.
(d) By letter dated January 21, 1992, the NYSDEC notified the
company that it had been identified as a PRP at the Peter Cooper
Corporation's Landfill Site (Peter Cooper Site) in the village of
Gowanda, New York. Three other PRPs were identified in the
NYSDEC letter. The NYSDEC letter also notified the company that
state surface water and groundwater standards had been exceeded
at the Peter Cooper Site and offered the company an opportunity
to conduct or finance a remedial program. NYSDEC indicated that
if the company did not agree to enter into a consent order it
would perform the necessary work itself or seek a court order
requiring the company to conduct the work. The company believes
that remediation costs at the Peter Cooper Site might rise to $16
million. By letter dated May 12, 1992, the company notified the
NYSDEC that it believed it had no responsibility for the alleged
contamination at the Peter Cooper Site, and it declined to
conduct remediation or finance remediation costs.
<PAGE>
(e) By letter dated April 20, 1992, the EPA notified the company
that it had been identified as a PRP at the Bern Metals Removal
Site (Bern Metals Site) in Buffalo, New York. Six other PRPs
have been identified by the EPA. The EPA has taken response
actions at the Bern Metals Site, including investigation,
excavation, and removal of drums and contaminated soil, and
implementation of measures to prevent surface water run-off. The
EPA demanded that the company reimburse the EPA Hazardous
Substances Superfund $2 million in response costs incurred to
date by the EPA, with interest accruing from the date of the
demand. In September 1995 the company and the EPA reached
agreement on a consent order under which the company will pay the
sum of $10,000 in return for a covenant by the EPA not to sue the
company for the EPA's response costs, and to protect the company
from claims of contribution by other PRPs for such costs incurred
to date. The order is awaiting final government approval.
In addition to the foregoing, the NYSDEC, by letter dated
July 21, 1992, notified the company that it had been identified
as a PRP at the Bern Metals Site, which the NYSDEC defined to
include an adjacent property known as the Universal Iron & Metal
Site (Bern Metals/Universal Iron Site). The Bern
Metals/Universal Iron Site is listed on the New York State
Registry. The NYSDEC also identified eight other PRPs for the
Bern Metals/Universal Iron Site. The NYSDEC has requested that
the company, and the eight other identified PRPs, enter into
negotiations in which the company and the other identified PRPs
would agree to finance or conduct a Remedial Investigation and
Feasibility Study (RI/FS) designed to determine what further
remediation or removal actions may be appropriate for the Bern
Metals/Universal Iron Site. By letter dated December 3, 1992,
the company declined to negotiate with NYSDEC to finance or
conduct an RI/FS for the Bern Metals/Universal Iron Site, because
the company believes it was only a very small contributor to the
Bern Metals Site and had no involvement with the Universal Iron &
Metal Site.
An RI/FS was performed at the Bern Metals/Universal Iron
Site by certain of the other PRPs, and a proposed remedial action
plan identifying the preferred remedy and summarizing the other
alternatives considered has been issued for the site. The
NYSDEC, by letter dated March 22, 1996, to the company and six of
the other eight PRPs, inquired whether the company and such six
other PRPs were willing to conduct or finance the design and
implementation of the remedial alternative once it was selected.
The NYSDEC informed the company that if the company declined to
enter into negotiations with NYSDEC for such purpose, NYSDEC
might remediate the Bern Metals/Universal Iron Site itself using
the Hazardous Waste Remedial Fund and would seek recovery of its
expense from the company. On March 29, 1996, NYSDEC issued a
Record of Decision which provided for remedial action. The total
cost of remediation is estimated to be $2.7 million. Without
admitting any liability or responsibility and without prejudice
to any defenses it might have, the company, on October 9, 1997,
entered into an Order on Consent with NYSDEC and four other PRPs
pursuant to which the company and such PRPs will, subject to
NYSDEC approval, design the remedy for the Bern Metal/Universal
Iron Site.
On September 11, 1996, the company was named as a third-
party defendant by Niagara Frontier Transportation Authority
(NFTA) claiming contributions for costs that might be recovered
against NFTA in an action filed by EPA in the United States
District Court for the Western District of New York. Fifty-five
other third-party defendants were sued in addition to the
company. NFTA is seeking contributions for response costs
incurred by EPA at the Universal Iron Site. The company believes
that the action against it is without merit and will defend it
vigorously.
(f) By letter dated April 20, 1992, the EPA notified the company
that the EPA had reason to believe that the company was a PRP for
the Clinton-Bender Removal Site (Clinton-Bender Site) in Buffalo,
New York. Five other PRPs have been identified by the EPA. Nine
private residential lots and one commercial property at the
Clinton-Bender Site were contaminated with lead, allegedly due to
run-off from the adjacent Bern Metals Site. The EPA ordered the
company to perform the necessary removal work at the Clinton-
Bender Site and the company is remediating the site in
conjunction with four other identified PRPs. The total cost of
the removal actions to be performed at the Clinton-Bender Site is
estimated to be $3.1 million. The removal work is substantially
complete. The company and the other participating parties are
seeking to recover from other PRPs, not participating in the
remedial action at the Clinton-Bender Site, costs that the
company and other participating parties have incurred or will
incur.
(g) By letter dated February 12, 1993, NYSDEC notified the
company that it had been identified as a PRP for remediation of
hazardous wastes at the Booth Oil Site (Booth Oil Site) in North
Tonawanda, New York. The Booth Oil Site is listed on the New
York State Registry. Nineteen other PRPs were identified in the
NYSDEC letter. Booth Oil Company is a waste oil re-refiner and
recycler. The company had sent waste oils to Booth Oil Company
for disposal as had numerous other companies in the Buffalo area.
According to NYSDEC, the Booth Oil Site is contaminated with
PCBs, lead, and other substances. NYSDEC has requested that the
company and the other identified PRPs conduct remediation at the
Booth Oil Site pursuant to an Order on Consent to be negotiated
with NYSDEC. The company estimates that the present value of
costs for remedial alternatives range from $8.5 million to $21.7
million. The company has been actively involved both in trying
to persuade NYSDEC to name additional PRPs and in examining the
process that led to the NYSDEC treatment alternatives. Other
named PRPs have also been involved in these efforts. The PRPs
and NYSDEC have agreed to study an alternative concept for
remediation of the Booth Oil Site.
<PAGE>
(h) On June 14, 1994, the company was served with a summons and
complaint joining the company as a defendant in an action that
was filed in the United States District Court for the Northern
District of New York. The plaintiffs are five companies which
have been required by the EPA to conduct remedial activities at
the Rosen Brothers Site (Rosen Site) in the City of Cortland, New
York. The Rosen Site was the location of a scrap metal
processing operation and industrial waste disposal site between
approximately 1971 and 1985, and it is now allegedly contaminated
with hazardous substances including heavy metals, solvents and
PCBs. The Rosen Site is listed on the National Priorities List
and the New York State Registry. Among other claims, the
plaintiffs seek contribution under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA)
from the company and sixteen other defendants for the costs of
complying with the EPA order to remediate the Rosen Site. The
plaintiffs allege that the company was a contributor of
transformers that may have contained polychlorinated biphenyls
(PCBs). Liability under CERCLA may be joint and several.
By letter dated August 16, 1994, the EPA notified the
company that the EPA had reason to believe that the company was a
PRP for the Rosen Site and requested that the company participate
in the RI/FS then being prepared for the Rosen Site by the other
named PRPs. By letter dated October 20, 1994, the company
declined to participate in this study because it believed that no
facts had been established showing that it was responsible for
any contamination at the Rosen Site. The EPA has selected a
remedy for the Rosen Site estimated to cost $4.3 million. The
plaintiffs have allegedly spent approximately $3 million in
response costs.
The company received an administrative order from the EPA on
March 11, 1998, ordering the company and 15 other parties to
perform certain removal actions at the Rosen Site. The total
cost of these removal actions is estimated to be between $450,000
and $600,000.
(i) The company responded on October 3, 1995, to a request for
information by the EPA concerning alleged disposal of PCBs at
facilities owned or operated by PCB Treatment, Inc. in Kansas
City, Kansas and Kansas City, Missouri. On September 27, 1996,
the company entered into an Order on Consent with the EPA under
which the company and at least nine other companies will perform
the first phase of remedial activity, a Removal Site Evaluation
and Engineering Evaluation/Cost Analysis, at the two facilities
operated by PCB Treatment, Inc. The cost to the company of its
obligations under this Order on Consent is not expected to exceed
$96,000. By letter dated September 16, 1997, the EPA notified
1,251 entities, including the company, of their potential
liability at the two facilities and informed the recipients of
additional response activities, which the recipients may be asked
to perform or finance at a later date.
<PAGE>
(j) Ten purported class action lawsuits were commenced against
the company and some or all of its directors in the New York
State Supreme Court (Broome County, New York County, Kings County
and Tompkins County) on or about July 16, 1997, and various dates
thereafter through August 1997. The lawsuits allege, among other
things, that the plaintiffs are being deprived of the opportunity
to realize the full value of their investment in the company as a
result of the defendants' failure to fulfill their fiduciary
duties and seek to maximize shareholder value in light of the
offer by CalEnergy Company, Inc. (CalEnergy) to negotiate a
transaction by which CalEnergy would acquire all outstanding
shares of the company's common stock for $27.50 per share. The
lawsuits seek generally, among other things, injunctive and
declaratory relief requiring the defendants to fulfill their
fiduciary duties to maximize shareholder value, and as to certain
of the actions, damages. On October 23, 1997, a Consolidated
Amended and Supplemental Class Action Complaint in the New York
State Supreme Court (New York County) was served on the company
and all of its directors. The lawsuit consolidates, amends and
supplements the ten purported class action lawsuits and
incorporates claims from the federal action described in the next
paragraph.
A lawsuit was commenced on or about August 12, 1997, against
the company and its directors in the United States District Court
for the Southern District of New York. The lawsuit seeks, among
other things, declaratory and injunctive relief ordering the
defendants to correct alleged misleading disclosures and
omissions relating to director removal provisions in documents
filed by the company with the Securities and Exchange Commission
in connection with the CalEnergy tender offer.
The company and counsel for the plaintiffs have agreed to
settle and dismiss the lawsuits referred to in the two
immediately preceding paragraphs on terms that do not include the
payment of any money to the purported class plaintiffs. The
company has agreed not to oppose a petition for fees and expenses
by counsel for the purported class in an amount not to exceed
$275,000 and to pay up to that amount as awarded by the court.
<PAGE>
Item 4. Submission of matters to a vote of security holders -
Not applicable.
* * * * * * * * * *
Executive officers of the Registrant
Positions, offices and
business experience -
Name Age January 1993 to date
Wesley W. von Schack 53 Chairman, President and Chief Execu-
tive Officer, September 1996 to date;
Chairman, President, Chief Executive
Officer and a Director of DQE, Inc.
and Duquesne Light Company to August
1996.
Michael I. German 47 Executive Vice President, May 1997 to
date; Senior Vice President-Gas
Business Unit, December 1994 to May
1997; Senior Vice President, American
Gas Association, Arlington, Virginia,
to December 1994.
Gerald E. Putman 47 Senior Vice President-Economic
Development and Public Policy, May
1997 to date; Senior Vice President-
Customer Service Business Unit,
January 1995 to May 1997; Vice
President-Fuel Supply and Operation
Services, May 1993 to January 1995;
Vice President-East Region Electric,
to May 1993.
Sherwood J. Rafferty 50 Senior Vice President and Chief
Financial Officer, February 1996 to
date; Vice President and Treasurer,
to February 1996.
Jeffrey K. Smith 49 Senior Vice President-Corporate
Development, May 1997 to date; Vice
President-Generation, January 1995 to
May 1997; Executive Assistant to the
Chairman, President and Chief
Executive Officer, February 1994 to
January 1995; Assistant to the Senior
Vice President-Electric Business
Unit, to February 1994.
Ralph R. Tedesco 44 Senior Vice President-Customer
Service Business Unit, May 1997 to
date; Vice President-Strategic Growth
Business Unit, February 1994 to May
1997; Executive Assistant to the
Chairman, President and Chief
Executive Officer, to February 1994.
<PAGE>
Executive officers of the Registrant (Cont'd)
Positions, offices and
business experience -
Name Age January 1993 to date
Daniel W. Farley 42 Vice President and Secretary.
Gary L. Sickles 48 Vice President-Generation, May 1997
to date; Manager Plant Operations-
Corporate, February 1994 to May 1997;
Station Manager-Central, to February
1994.
Gary J. Turton 50 Vice President and Controller,
February 1996 to date; Controller,
December 1994 to February 1996;
Assistant Controller, to December
1994.
Denis E. Wickham 49 Vice President-Electric Resource
Planning.
Robert D. Kump 36 Treasurer, February 1996 to date;
Director of Financial Services,
February 1995 to February 1996;
Manager-Investor Relations, October
1993 to February 1995; Specialist-
Investor Relations, to October 1993.
The company has entered into an agreement with Wesley W. von
Schack which provides for his employment as Chairman, President
and Chief Executive Officer of the company for a term ending on
September 8, 2000. The company also entered into an agreement
with Michael I. German which provides for his employment as
Executive Vice President of the company for a term ending on
February 28, 2001. Both agreements provide for automatic one-
year extensions unless either party to an agreement gives notice
that such agreement is not to be extended.
Each officer holds office for the term for which he is
elected or appointed, and until his successor shall be elected
and shall qualify. The term of office for each officer extends
to and expires at the meeting of the Board of Directors
following the next annual meeting of shareholders.
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters
See Note 6 and Note 13 to the Consolidated Financial
Statements.
<PAGE>
Item 6. Selected financial data
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
(Thousands - except per share amounts)
Operating
revenues $2,129,989 $2,067,532 $2,017,228 $1,898,855 $1,800,149
Net income $184,553(1) $178,241(2) $196,690 $187,645(3) $166,028(4)
Earnings per share $2.57(1) $2.37(2) $2.49 $2.37(3) $2.08(4)
Dividends paid
per share $1.40 $1.40 $1.40 $2.00 $2.18
Average shares
outstanding 68,153 71,127 71,503 71,254 69,990
Book value per share
of common stock
(year end) $26.71 $25.41 $24.38 $23.28 $22.89
Interest
charges, net $123,199 $122,729 $129,567 $136,092 $141,099
Depreciation and
amortization $198,559 $189,401 $184,770 $178,326 $164,568
Other taxes $206,446 $206,715 $210,910 $210,729 $204,962
Capital
expenditures $123,907 $214,815 $164,301 $248,221 $267,838
Total assets $5,028,681 $5,059,681 $5,114,331 $5,230,685 $5,287,958
Long-term
obligations,
capital leases
and redeemable
preferred stock $1,475,224 $1,505,814 $1,606,448 $1,776,081 $1,755,629
(1) Includes the effect of fees related to an unsolicited tender offer that
decreased net income by $17 million and decreased earnings per share by 24
cents.
(2) Includes the effect of the writedown of the investment in EnerSoft
Corporation that decreased net income by $10 million and earnings per share
by 14 cents.
(3) Includes the effect of the 1993 production-cost penalty that decreased net
income by $8 million and decreased earnings per share by 12 cents.
(4) Includes the effect of restructuring expenses that decreased net income by
$17 million and decreased earnings per share by 25 cents.
<PAGE>
Item 7. Management's discussion and analysis of financial
condition and results of operations
Liquidity and Capital Resources
Competitive Conditions
A major focus of the company during 1997 was the
restructuring of the electric utility industry. The transition
to a competitive electricity market and other significant changes
will shape the future of the company's electric, natural gas and
energy services businesses and provide a base for increasing
shareholder value.
Electric Industry
The PSC issued an Order in its Competitive Opportunities
Proceeding in May 1996, increasing the pace of change for the
state's electric industry. The overall objective of this
proceeding, which began in August 1994, was to identify
regulatory and ratemaking practices to guide the transition to a
more competitive electric industry. The company filed its
proposed restructuring plan with the PSC in October 1997.
Restructuring Plan: The PSC approved the company's restructuring
plan, with minor modifications, in January 1998. It will save
customers an estimated $725 million by the end of the settlement
period. It will eliminate a 7% increase in electricity prices
previously approved by the PSC. Prices will be reduced 5% in
each of the next five years for eligible industrial, commercial
and public authority customers who are heavy users of
electricity. The plan will cap overall average prices for all
other customers for four years and reduce their prices an
additional 5% at the beginning of the fifth year. All of the
company's retail customers will be able to begin choosing their
electricity supplier by August 1, 1999.
The restructuring plan allows for the formation of a holding
company, provides for the auction of the company's seven
coal-fired generating stations and completion of the auction
transactions by August 1, 1999, and allows the company to put up
for sale its 18% interest in NMP2. The restructuring plan also
provides a reasonable opportunity for the company to recover all
prudently incurred investments made in the past.
The company believes that under the restructuring plan its
electric and natural gas delivery business will continue to meet
the criteria of Statement of Financial Accounting Standards No.
71, Accounting for the Effects of Certain Types of Regulation.
Upon the PSC's approval of the company's restructuring plan in
January 1998 the company's coal-fired generation business
discontinued application of Statement 71 and applied Statement of
Financial Accounting Standards No. 101, Regulated Enterprises --
Accounting for the Discontinuation of Application of FASB
Statement No. 71. The application of Statement 101 to that
business did not affect the company's financial position or
results of operations because any above-market generation costs
will be recovered by the regulated electric and natural gas
delivery business.
Holding Company Structure: Subject to the receipt of necessary
approvals, the company will form a holding company. Subsidiaries
under the holding company will include an electric and natural
gas delivery company, a generation company and an energy services
company. The electric and natural gas delivery company will be a
regulated utility transmitting and delivering electricity,
transporting and delivering natural gas, and generating
electricity from its nuclear and hydroelectric stations. The
generation company will produce electricity from its coal-fired
stations. The energy services company will conduct activities
such as providing energy, financial and environmental services.
Applications for the necessary approvals for the formation
of a holding company were made to the FERC, the SEC and the NRC.
The FERC approved the company's application in December 1997 and
the SEC and the NRC approved the company's applications in March
1998.
At the 1998 Annual Meeting, shareholders will vote on a plan
of share exchange, pursuant to which, all of the outstanding
shares of the company's common stock will be exchanged on a
share-for-share basis for the common stock of the holding
company.
Generation Business: The company, on February 11, 1998,
transferred its seven coal-fired generating stations to its
generation subsidiary and commenced transferring associated
assets and liabilities (collectively, the generation assets) to
such subsidiary. The company will conduct an auction of the
generation assets and complete the auction process by August 1,
1999. A company affiliate is permitted to participate as a
bidder on some or all of the generation assets. Any shortfall
between the auction proceeds, net of taxes, and the book value of
the generation assets, less funded deferred taxes, will be
recovered by the regulated portion of the company through a
competitive transition charge.
Petition to the FERC on NUGs: The company continues to seek ways
to terminate or renegotiate existing onerous NUG contracts that
it was ordered to sign, and thus reduce its NUG overpayment
burdens. NUG power purchases, including termination costs,
totaled $324 million in 1997, and the company estimates that
those purchases will total $340 million in 1998, $348 million in
1999 and $356 million in 2000.
<PAGE>
The company petitioned the FERC in February 1995, asking for
relief from having to pay approximately $2 billion more than its
avoided costs for power purchased over the term of two NUG
contracts. The FERC denied that petition in April 1995 and
denied the company's subsequent request for a rehearing. The
company believes that the overpayments under the two contracts
violate the Public Utility Regulatory Policies Act of 1978.
The company petitioned the United States Court of Appeals
for the District of Columbia in June 1995 to review the FERC's
decision. The Court of Appeals issued a decision in July 1997
stating that it lacks jurisdiction to rule on the company's
appeal of the FERC's refusal to modify the power purchase
contracts. The Court of Appeals said the company may pursue its
claim in the United States District Court.
The company commenced an action in the United States
District Court for the Northern District of New York in August
1997. The complaint asks the District Court to either reform the
two NUG contracts by reducing the price the company must pay for
electricity under the two contracts, or send the matter back to
the FERC or to the PSC with direction that they modify such
contracts. The complaint also seeks restitution of all monies
paid above the company's avoided costs.
FERC Orders 888 and 889: The FERC issued Orders 888 and 889 in
April 1996, adopting final rules to facilitate the development of
competitive wholesale electricity markets by opening up
transmission services and to address the resulting stranded
costs. In subsequent orders the FERC generally affirmed Orders
888 and 889. Various parties, including the company, have filed
petitions for review of these orders with the United States
Courts of Appeals in various circuits.
In Order 888 the FERC directed all public utilities to file
a compliance open-access transmission tariff on or before July 9,
1996. In Order 888-A the FERC directed all public utilities to
file a revised compliance tariff by July 14, 1997. The FERC has
approved the company's transmission tariffs.
Under the compliance tariff, the company must offer
transmission service to its wholesale customers on terms
comparable to those it applies to itself, and offer and/or
provide certain ancillary services.
The FERC accepted, in February 1997, a compliance filing of
the New York Power Pool, of which the company is a member, in
response to Order 888. NYPP members submitted additional filings
to the FERC in 1997 proposing the restructuring of the NYPP by
establishing an ISO, a Power Exchange and a New York State
Reliability Council. NYPP members have requested FERC approval
of the proposed market structure so that an ISO can be in place
in 1998. The company is unable to predict the outcome of these
filings and their ultimate effect on the company's financial
position or results of operations.
Natural Gas Industry
The company's natural gas business continues to grow and
build on its successes of recent years. During 1997 the company
added new franchises, completed the expansion of its Seneca Lake
Storage Project and signed an agreement with Central Maine Power
Company to form a jointly-owned natural gas distribution company
to serve Maine and New Hampshire customers by the end of 1998.
New Franchises: The company is moving forward with its plans to
increase its natural gas business through the expansion of
natural gas service in existing franchise areas and the
acquisition of new franchises. A total of 10 new franchises were
approved by the PSC during 1997. The company began construction
of a 14-mile natural gas pipeline in September 1997 to extend
service into Lewis County, New York. The company began serving
four large customers in December 1997. The company is also
expanding its distribution systems in Cobleskill and the
Plattsburgh area, building from two large pipelines completed in
December 1996.
Seneca Lake Storage Project: The company's Seneca Lake Storage
Project, consisting of a natural gas storage cavern, a compressor
station and two natural gas transmission pipelines, began service
in December 1996. The facility is located north of Watkins Glen
on the west side of Seneca Lake. The project's primary purposes
are to ensure an adequate natural gas supply to customers and to
support economic growth in southern and central New York. The
project has also allowed the company to increase supply
flexibility and retire two inefficient and expensive propane
plants, and will eventually reduce pipeline demand charges.
The company received approval from the PSC in May 1997 for
an expansion of the project's compressor station. The expansion,
which increased the cavern's working gas storage capacity from
800 million to 1.45 billion cubic feet of natural gas and the
compressor station's deliverability from 80,000 to 145,000
dekatherms per day, will allow for growth in the company's
wholesale natural gas business through the sale of storage
capacity. The FERC, in October 1997, approved the company's
January 1997 application to provide short-term firm and
interruptible storage service in interstate commerce at market-
based rates. The expansion began commercial operation on
November 1, 1997.
Joint Venture with Central Maine Power Company: The company and
CMP signed an agreement in November 1997 to form a jointly-owned
company to distribute natural gas to Maine and New Hampshire
customers in areas not currently served by a natural gas utility.
The company anticipates that construction will begin in the
summer of 1998, with initial service to customers by the end of
1998. Various regulatory approvals are required before the joint
venture can operate a new gas distribution service. The
<PAGE>
opportunity for new retail distribution of natural gas also
depends on other parties' involvement. Either of two new natural
gas pipelines from Canada, the proposals for which are currently
under federal and state regulatory review, must be completed.
Role of Local Distribution Companies: The PSC Staff issued for
comment in September 1997 its position paper regarding the role
of natural gas local distribution companies in the sale of
natural gas in New York State. The PSC Staff recommends five
years for LDCs to transition from being both sellers and
distributors of natural gas to being only distributors. The
company filed comments in November 1997 opposing the PSC Staff's
position. Reply comments to the positions of other parties were
filed in December 1997. Further proceedings are at the
discretion of the PSC.
Accounting Issues
Statement 71: During 1997 the FASB's Emerging Issues Task Force
issued guidance related to the continued application of Statement
71 during the electric utility industry's transition to
competition. Accordingly, upon PSC approval of the company's
restructuring plan in January 1998, the company's coal-fired
generation business discontinued application of Statement 71 and
applied Statement 101. The application of Statement 101 to that
business did not affect the company's financial position or
results of operations because any above-market generation costs
will be recovered by the regulated portion of the company.
Although the company believes it will continue to meet the
criteria of Statement 71 for its regulated operations, it cannot
predict what effect a competitive market or future PSC actions
will have on its ability to continue to do so. If the company
could no longer meet the criteria of Statement 71 for all or a
separable part of its regulated business, the company may have to
record as expense or revenue certain regulatory assets and
regulatory liabilities and may have to record as a loss the
amount for power purchase contracts with NUGs that is above the
estimated competitive market price of power. These items are
currently recovered in rates.
The company had $581 million and $604 million, respectively,
of regulatory assets, and $261 million and $269 million,
respectively, of regulatory liabilities on its balance sheets at
December 31, 1997 and 1996. The company also had power purchase
contracts with NUGs that, on a present value basis, are more than
$1.5 billion above the estimated competitive market price of
power at December 31, 1997.
<PAGE>
Statement 130: The FASB issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, in
June 1997. Statement 130 establishes standards for the reporting
and display of comprehensive income and its components in a full
set of financial statements. Comprehensive income includes
charges or credits to equity that are not the result of
transactions with owners. The company will adopt Statement 130
in the first quarter of 1998. This adoption is not expected to
have a material effect on the company's financial position or
results of operations.
Energy Services
The company makes investments through its subsidiary, NGE
Enterprises, Inc., in providers of energy, financial and
environmental services.
XENERGY, Inc. is an energy services, information systems and
energy consulting company serving utilities, governmental
agencies and end-use energy consumers. XENERGY's 1997 revenues
were comparable to revenues for 1996, and are expected to grow in
1998.
XENERGY has been successful in securing customers under
pilot programs for retail electricity competition. Building on
the experience it has gained through participation in such
programs in Massachusetts and New Hampshire since 1996, and its
leadership in the energy management business, XENERGY has been
named buyer's agent for two aggregation groups that will begin
purchasing electricity in competitive markets in 1998. XENERGY
believes that its role as a buyer's agent for these aggregated
groups will be a model for the way companies will buy lower-cost
power in a restructured electricity market.
During 1996 it was determined that EnerSoft Corporation, a
computer software and real-time information and trading systems
company, no longer fit the company's strategic focus. As a
result, the company took a $10 million (14 cents per share)
charge against earnings in 1996 to write down NGE's investment in
EnerSoft, and exited that business in December 1996.
The company's net investment in NGE was $20 million, $17
million and $34 million as of December 31, 1997, 1996 and 1995,
respectively. Net losses related to NGE were $4 million, $21
million and $12 million for the years ended December 31, 1997,
1996 and 1995, respectively.
<PAGE>
Rate Matters
Electric Rate Settlement
The company's restructuring plan, with minor modifications,
was approved by the PSC in January 1998, and is effective for a
five-year period. (See Restructuring Plan.) The restructuring
plan supersedes the company's previous three-year electric rate
settlement agreement, which was to expire on July 31, 1998.
The restructuring plan, in addition to the key elements
described earlier, includes a 12% return on equity cap and a 9%
floor, exclusive of any common stock repurchases, during each of
the five years of the restructuring plan and the ability to
accelerate depreciation and amortization of certain assets.
Customers will receive any net savings realized from
securitization legislation, reductions in the gross receipts tax
and 80% of NUG contract cost savings that result from contract
termination or restructuring. There will be no fuel adjustment
clause, no sharing of flexible rate discounts and only a limited
opportunity for uncontrollable cost recovery for the next five
years.
Natural Gas Rate Settlement
The company's natural gas rate settlement agreement, which
was authorized by the PSC in December 1995, freezes natural gas
prices from December 15, 1995, until July 31, 1998. The company
is currently negotiating with the PSC Staff and others to set
rates for the next four years.
An earnings sharing mechanism in the natural gas agreement
provides that the average of the earned equity returns, exclusive
of service quality awards or penalties, will be determined for
the three years, and half of the three-year average of net
earnings in excess of 14%, if any, will be reserved for
customers.
The natural gas agreement eliminated, effective August 1,
1995, the gas adjustment clause and the weather normalization
clause, which were used to collect from, or refund to, customers,
amounts resulting from changes in the cost of purchased natural
gas and the effect of unusually warm or cold weather on natural
gas sales. The company uses risk management techniques such as
natural gas future and option contracts to manage the company's
exposure to fluctuations in natural gas commodity prices. Such
contracts allow the company to fix margins on sales of natural
gas generally forecasted to occur over the next 18 months. The
cost or benefit of natural gas future and option contracts is
included in the commodity cost when the related sales commitments
are fulfilled. Gains and losses resulting from the use of those
contracts for 1997 and 1996 were not material to the company's
financial position or results of operations. The company does
not hold or issue financial instruments for trading or
speculative purposes.
Environmental Matters
The company continually assesses actions needed to comply
with changing environmental laws and regulations. Any additional
compliance programs will require changes in the company's
operations and facilities and may increase the cost of electric
and natural gas service.
The Clean Air Act Amendments of 1990 limit emissions of
sulfur dioxide and nitrogen oxides and require emissions
monitoring. The EPA allocates annual sulfur dioxide allowances
to each of the company's coal-fired generating stations based on
statutory emissions limits. A sulfur dioxide allowance
represents an authorization to emit one ton of sulfur dioxide
during or after a specified calendar year.
The company estimates that it will have sulfur dioxide
allowances in excess of the affected coal-fired generating
stations' actual emissions during Phase I, which began in January
1995. The company's present strategy is to bank excess sulfur
dioxide allowances for use in later years. It is estimated that
the company will meet Phase II, which begins January 1, 2000,
emissions requirements through the year 2004, by using sulfur
dioxide allowances banked during Phase I together with the
company's Phase II annual sulfur dioxide allowances. This
strategy could be modified due to changes in market or business
conditions, or the outcome of the company's auction of its coal-
fired generating stations.
Investing and Financing Activities
Investing Activities
Capital expenditures for the company's electric and natural
gas businesses, including nuclear fuel and AFDC, totaled $124
million in 1997, $215 million in 1996 and $164 million in 1995.
Expenditures in those three years, which were financed entirely
with internally generated funds, were primarily for the extension
of service, the Seneca Lake Storage Project, necessary
improvements to existing facilities and compliance with
environmental requirements.
Capital expenditures, including nuclear fuel and AFDC,
projected for 1998, 1999 and 2000 are $134 million, $152 million
and $146 million, respectively, and are expected to be financed
entirely with internally generated funds.
In accordance with the terms of certain benefit trust
agreements, the company deposited $52 million into external trust
funds in July 1997. Those agreements cover employee severance
agreements, certain employee and director retirement plans and
<PAGE>
certain other employee and director plans. The obligation to
make such deposits arose as a result of an unsolicited tender
offer to acquire the company. The company will be able to
withdraw the funds by the end of the third quarter of 1998.
Financing Activities
The company's current capital structure provides it with the
flexibility required to compete in a competitive energy market.
In June 1997 the company completed a four million share
common stock repurchase program that was initiated in September
1996. Common stock equity was reduced by $47 million and $40
million in 1997 and 1996, respectively, as a result of those
repurchases.
The company's other financing-related activities during 1997
consisted of:
- The repayment, at maturity, of $25 million of 5 5/8% Series
first mortgage bonds on January 1, 1997.
- The redemption, at par, of the remaining $23 million of
9 7/8% Series first mortgage bonds, due February 1, 2020,
pursuant to a sinking fund provision in the company's
mortgage indenture.
- The repayment, at maturity, of $25 million of 6 1/4% Series
first mortgage bonds on September 1, 1997.
- The repayment of approximately $71 million of commercial
paper.
The PSC authorized the continuation of the company's
advanced approval of financings in February 1998. That
authorization covers issuances of long-term debt, preferred
stock, common stock, renegotiation or amendments to the revolving
credit agreement, and authorization to enter into derivative or
other risk management transactions with respect to current or
future financings. The PSC also authorized the company to
repurchase up to $300 million of common stock. The company
initiated a common stock repurchase program in February 1998.
The company uses short-term, unsecured notes, usually
commercial paper, to finance certain refundings and for other
corporate purposes. There was $58 million and $129 million of
commercial paper outstanding at December 31, 1997 and 1996,
respectively, at weighted average interest rates of 6.3% and
5.8%, respectively.
The company also has a revolving credit agreement with
certain banks that provides for borrowing up to $200 million
until December 31, 2001. There were no amounts outstanding under
this agreement during 1997 or 1996.
<PAGE>
Forward-Looking Statements
This Form 10-K contains certain forward-looking statements
that are based upon management's current expectations and
information currently available and are subject to risks and
uncertainties that could cause actual results to differ
materially from those projected in such statements. Whenever
used in this report, the words "anticipate," "believe,"
"estimate," "expect," "project," or similar expressions are
intended to identify forward-looking statements. In addition to
the assumptions and other factors referred to specifically in
connection with such statements, factors that could cause actual
results to differ materially from those contemplated in any
forward-looking statements include, among others, regulatory
developments; the rapidly changing and increasingly competitive
electric and natural gas utility markets; the ability to obtain
adequate and timely rate relief; cost recovery, including the
potential effect of stranded costs; legal or administrative
proceedings; business conditions; technological developments;
changes in the cost or availability of capital; labor
developments; nuclear or environmental incidents; factors
affecting the utility industry in general, such as deregulation
and unbundling of energy services; weather conditions; changes in
fuel supply or cost; and other considerations that may be
disclosed from time to time in the company's publicly
disseminated documents and filings. The company undertakes no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Computer Software Changes for the Year 2000
Many of the company's computer systems must be modified due
to certain programming limitations in recognizing dates beyond
the year 1999. The company is addressing this issue to ensure
the availability and integrity of its financial systems and the
reliability of its operating systems. The company has
established a process for evaluating and, where necessary,
correcting any programming limitations. Costs associated with
this process are estimated to total $13 million, of which $4
million had been incurred through December 31, 1997. It is
expected that the process will be completed by June 1999. The
company believes its process will properly address this issue and
prevent any adverse financial or operational effects.
<PAGE>
Results of Operations
1997 1996
over over
1996 1995
1997 1996 1995 Change Change
(Thousands, except per share amounts)
Total Operating Revenues $2,129,989 $2,067,532 $2,017,228 3% 2%
Operating Income $442,668 $457,543 $472,144 (3%) (3%)
Earnings Available for
Common Stock $175,211 $168,711 $177,969 4% (5%)
Average Shares Outstanding 68,153 71,127 71,503 (4%) (1%)
Earnings Per Share $2.57 $2.37 $2.49 8% (5%)
Earnings Per Share Excluding
Certain Charges $2.81 $2.51 $2.49 12% 1%
Dividends Per Share $1.40 $1.40 $1.40 - -
Earnings per Share
Earnings per share for 1997 were 20 cents higher than for
1996. An increase in electric wholesale deliveries added 16
cents, lower costs of natural gas purchased added 15 cents and a
reduction in the number of common shares outstanding added 11
cents to earnings per share in 1997. In 1996 a charge of 14
cents per share was recorded by NGE Enterprises, Inc. to write
down an investment in EnerSoft Corporation. Those increases were
partially offset by a charge in 1997 of 24 cents per share for
fees related to an unsolicited tender offer, and the price of NUG
power that decreased earnings 13 cents per share.
Earnings per share for 1996 were 12 cents lower than 1995
earnings per share. Without a charge of 14 cents per share to
write down an investment in EnerSoft Corporation, 1996 earnings
per share would have been two cents higher than the prior year.
Higher electric and natural gas retail deliveries, mainly due to
a combination of cold weather in the first quarter of 1996 and
additional customers, added five cents per share to earnings.
Lower interest charges in 1996 added nine cents per share to
earnings and a reduction in preferred stock dividends, primarily
due to the redemption of $100 million of 8.95% preferred stock,
net of related interest expense on commercial paper, added 10
cents per share to earnings. Earnings per share were reduced 15
cents primarily due to increases in mandated purchases of power
from NUGs. Higher operating costs further decreased earnings six
cents per share.
Interest Expense
Interest expense, before the reduction for allowance for
borrowed funds used during construction, decreased $1 million in
1997 and $6 million in 1996. Both decreases were primarily the
result of the retirement of certain issues of long-term debt.
<PAGE>
Operating Results for the Electric Business Segment
1997 1996
over over
1996 1995
1997 1996 1995 Change Change
(Thousands)
Retail Deliveries -
Megawatt-hours 13,238 13,216 13,093 - 1%
Operating Revenues $1,792,164 $1,723,147 $1,708,297 4% 1%
Operating Expenses $1,411,820 $1,322,885 $1,286,969 7% 3%
Operating Income $380,344 $400,262 $421,328 (5%) (5%)
Electric retail deliveries were flat for 1997 compared to
1996.
Electric retail deliveries increased in 1996 primarily
because of cold weather in the first quarter and additional
customers.
Operating Revenues: Electric operating revenues for 1997
increased $69 million over 1996 due to a $70 million increase in
wholesale deliveries.
The $15 million increase in electric operating revenues for
1996 was primarily due to higher retail deliveries, which added
$14 million to revenues. An increase in wholesale deliveries
added $12 million to revenues and changes in prices effective
August 1995, net of the effect of eliminating the fuel adjustment
clause, added $6 million to revenues. Those increases were
partially offset by an increase in regulatory deferrals of $21
million.
Operating Expenses: Electric operating expenses increased $89
million in 1997 primarily due to a $49 million increase in
electricity purchased, due to purchases for wholesale deliveries
and the price of NUG power, a $19 million increase in operating
costs, primarily due to fees related to an unsolicited tender
offer, and an $11 million increase in fuel costs, due to
increased electric generation.
Electric operating expenses rose $36 million in 1996.
Electricity purchases, mostly required purchases from NUGs,
increased operating expenses $42 million. That increase was
partially offset by an $8 million decrease in fuel used in
electric generation.
<PAGE>
Operating Results for the Natural Gas Business Segment
1997 1996
over over
1996 1995
1997 1996 1995 Change Change
(Thousands)
Retail Deliveries -
Dekatherms 59,324 61,542 58,535 (4%) 5%
Operating Revenues $337,825 $344,385 $308,931 (2%) 11%
Operating Expenses $275,501 $287,104 $258,115 (4%) 11%
Operating Income $62,324 $57,281 $50,816 9% 13%
Natural gas deliveries decreased in 1997 primarily due to
one low-margin customer that closed its cogeneration plant.
Excluding the loss of that customer, natural gas deliveries
increased 2%.
Natural gas deliveries increased in 1996 due to a
combination of cold weather in the first quarter and additional
customers.
Operating Revenues: The $7 million decrease in natural gas
operating revenues for 1997 was primarily due to lower retail
deliveries that reduced revenues $12 million and a $3 million
decrease in other revenues. Those decreases were partially
offset by a more favorable sales mix that added $9 million to
revenues.
Natural gas operating revenues for 1996 increased $35
million over 1995 revenues. A change in rate structure effective
December 1995 and changes in rates effective August 1995 added
$20 million to revenues. Higher retail deliveries added $9
million to revenues and an increase in transportation of
customer-owned gas added $4 million to revenues for the year.
Operating Expenses: Natural gas operating expenses decreased $12
million in 1997 due to a decrease in the cost of natural gas
purchased of $16 million, partially offset by an increase in
operating costs of $3 million that was primarily for fees related
to an unsolicited tender offer.
Comparing 1996 to 1995, natural gas operating expenses rose
$29 million. An increase in natural gas purchased, due to higher
commodity costs and higher deliveries, added $23 million and an
increase in certain operating costs added $5 million to expenses.
Item 7A. Quantitative and qualitative disclosure about market
risk.
Not applicable
<PAGE>
Item 8. Financial statements and supplementary data
New York State Electric & Gas Corporation
Consolidated Statements of Income
Year Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . . $1,792,164 $1,723,147 $1,708,297
Natural gas . . . . . . . . . . . . . . 337,825 344,385 308,931
---------- ---------- ----------
Total Operating Revenues. . . . . . . 2,129,989 2,067,532 2,017,228
---------- ---------- ----------
Operating Expenses
Fuel used in electric generation. . . . 233,180 222,102 229,759
Electricity purchased . . . . . . . . . 409,883 360,753 318,440
Natural gas purchased . . . . . . . . . 164,661 180,866 157,476
Other operating expenses. . . . . . . . 364,219 342,455 326,922
Maintenance . . . . . . . . . . . . . . 110,373 107,697 116,807
Depreciation and amortization . . . . . 198,559 189,401 184,770
Other taxes . . . . . . . . . . . . . . 206,446 206,715 210,910
---------- ---------- ----------
Total Operating Expenses. . . . . . . 1,687,321 1,609,989 1,545,084
---------- ---------- ----------
Operating Income. . . . . . . . . . . . . 442,668 457,543 472,144
Interest Charges, Net . . . . . . . . . . 123,199 122,729 129,567
Other Income and Deductions . . . . . . . 17,203 48,630 30,023
---------- ---------- ----------
Income Before Federal Income Taxes. . . . 302,266 286,184 312,554
Federal Income Taxes. . . . . . . . . . . 117,713 107,943 115,864
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . 184,553 178,241 196,690
Preferred Stock Dividends . . . . . . . . 9,342 9,530 18,721
---------- ---------- ----------
Earnings Available for Common Stock . . . $175,211 $168,711 $177,969
========== ========== ==========
Earnings Per Share. . . . . . . . . . . . $2.57 $2.37 $2.49
Average Shares Outstanding. . . . . . . . 68,153 71,127 71,503
The notes on pages 38 through 55 are an integral part of the financial
statements.
<PAGE>
New York State Electric & G as Corporation
Consolidated Balance Sheets
December 31 1997 1996
- ------------------------------------------------------------------------------
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $8,168 $8,253
Special deposits . . . . . . . . . . . . . . . . . . . 3,170 31,364
Accounts receivable, net . . . . . . . . . . . . . . . 189,008 189,043
Fuel, at average cost. . . . . . . . . . . . . . . . . 43,706 36,472
Materials and supplies, at average cost. . . . . . . . 41,561 43,044
Prepayments. . . . . . . . . . . . . . . . . . . . . . 68,452 47,169
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . . . . . . . . 2,148 3,424
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 356,213 358,769
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,234,725 5,177,365
Natural gas. . . . . . . . . . . . . . . . . . . . . . 576,683 529,023
Common . . . . . . . . . . . . . . . . . . . . . . . . 152,034 151,290
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,963,442 5,857,678
Less accumulated depreciation. . . . . . . . . . . . . 2,093,274 1,933,599
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,870,168 3,924,079
Construction work in progress. . . . . . . . . . . . . 52,104 58,285
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,922,272 3,982,364
Other Property and Investments, Net . . . . . . . . . . 143,449 99,221
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 243,129 269,767
Environmental remediation costs . . . . . . . . . . . 82,900 32,100
Unamortized debt expense. . . . . . . . . . . . . . . 76,418 80,745
Demand-side management program costs. . . . . . . . . 64,466 71,425
Other . . . . . . . . . . . . . . . . . . . . . . . . 113,637 149,561
---------- ---------
Total regulatory assets. . . . . . . . . . . . . . . . 580,550 603,598
Other assets . . . . . . . . . . . . . . . . . . . . . 26,197 15,729
---------- ----------
Total Regulatory and Other Assets. . . . . . . . . . 606,747 619,327
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . $5,028,681 $5,059,681
========== ==========
The notes on pages 38 through 55 are an integral part of the financial
statements.
<PAGE>
New York State Electric & Gas Corporation
Consolidated Ba lance Sheets
December 31 1997 1996
- ------------------------------------------------------------------------------
(Thousands)
Liabilities
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $38,240 $83,488
Commercial paper . . . . . . . . . . . . . . . . . . . 58,000 129,300
Accounts payable and accrued liabilities . . . . . . . 124,981 121,123
Interest accrued . . . . . . . . . . . . . . . . . . . 20,500 22,195
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 6,146 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . 79,631 71,324
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 327,498 427,430
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 99,126 109,065
Deferred income taxes . . . . . . . . . . . . . . . . 81,986 94,004
Other . . . . . . . . . . . . . . . . . . . . . . . . 79,709 65,471
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 260,821 268,540
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 753,722 751,553
Other postretirement benefits . . . . . . . . . . . . 117,760 95,195
Environmental remediation costs . . . . . . . . . . . 82,900 32,100
Other . . . . . . . . . . . . . . . . . . . . . . . . 73,021 74,627
---------- ----------
Total other liabilities . . . . . . . . . . . . . . . 1,027,403 953,475
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,450,224 1,480,814
---------- ----------
Total Liabilities. . . . . . . . . . . . . . . . . . 3,065,946 3,130,259
Commitments . . . . . . . . . . . . . . . . . . . . . . - -
Preferred Stock Redeemable Solely at the
Option of the Company . . . . . . . . . . . . . . . . 134,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements . . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock ($6.66 2/3 par value, 90,000 shares
authorized and 67,508 and 69,670 shares outstanding
at December 31, 1997 and 1996, respectively). . . . . 462,250 464,469
Capital in excess of par value . . . . . . . . . . . . 811,648 816,384
Retained earnings. . . . . . . . . . . . . . . . . . . 568,844 489,129
Treasury stock, at cost (1,829 shares) . . . . . . . . (39,447) -
---------- ----------
Total Common Stock Equity. . . . . . . . . . . . . . 1,803,295 1,769,982
---------- ----------
Total Liabilities and Stockholders' Equity . . . . . $5,028,681 $5,059,681
========== ==========
The notes on pages 38 through 55 are an integral part of the financial
statements.
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $184,553 $178,241 $196,690
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 198,559 189,401 184,770
Deferred fuel and purchased gas. . . . . . . . . 1,313 1,066 15,022
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . 5,884 28,928 52,362
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 35 6,791 (40,169)
Inventory. . . . . . . . . . . . . . . . . . . . (5,751) (1,025) 19,286
Accounts payable and accrued liabilities . . . . 3,858 3,486 10,281
Other, net . . . . . . . . . . . . . . . . . . . . 67,792 52,144 14,913
-------- -------- --------
Net Cash Provided by Operating Activities . . . 456,243 459,032 453,155
-------- -------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (123,768)(214,373)(163,401)
Proceeds from governmental and other sources . . . 1,443 2,977 5,621
Expenditures for other property and investments. . (57,803) (916) (3,145)
-------- -------- --------
Net Cash Used in Investing Activities. . . . . . (180,128)(212,312)(160,925)
-------- -------- --------
Financing Activities
Issuance of pollution control notes. . . . . . . . - - 37,000
Repurchase of common stock . . . . . . . . . . . . (7,245) (40,198) -
Treasury stock acquired, net . . . . . . . . . . . (39,447) - -
Repayments of first mortgage bonds and
preferred stock, including net premiums. . . . . (73,000)(171,478) (92,395)
Changes in funds set aside for first
mortgage bond repayments . . . . . . . . . . . . 25,000 (25,000) -
Long-term notes, net . . . . . . . . . . . . . . . (5,203) (2,581) (5,504)
Commercial paper, net. . . . . . . . . . . . . . . (71,300) 100,680 (123,280)
Dividends on common and preferred stock. . . . . . (105,005)(111,323)(118,940)
-------- -------- --------
Net Cash Used in Financing Activities. . . . . . (276,200)(249,900)(303,119)
-------- -------- --------
Net Decrease in Cash and Cash Equivalents . . . . . (85) (3,180) (10,889)
Cash and Cash Equivalents, Beginning of Year. . . . 8,253 11,433 22,322
-------- -------- --------
Cash and Cash Equivalents, End of Year. . . . . . . $8,168 $8,253 $11,433
======== ======== ========
The notes on pages 38 through 55 are an integral part of the financial
statements.
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporat ion
Consolidated Statements of Changes in Common Stock Equity
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Outstanding Capital in
$6.66 2/3 Par Value Excess of Retained Treasury
Shares Amount Par Value Earnings Stock Total
Balance, January 1, 1995 71,503 $476,686 $841,624 $346,547 - $1,664,857
Net income 196,690 196,690
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (8,196) (8,196)
- mandatory (10,525) (10,525)
Common stock ($1.40 per share) (100,104) (100,104)
Amortization of capital stock
issue expense 818 818
Balance, December 31, 1995 71,503 476,686 842,442 424,412 - 1,743,540
Net income 178,241 178,241
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (7,955) (7,955)
- mandatory (1,575) (1,575)
Common stock ($1.40 per share) (99,611) (99,611)
Common stock repurchase (1,833) (12,217) (27,981) (40,198)
Premium paid on preferred stock
redemption, net (4,383) (4,383)
Amortization of capital stock
issue expense 1,923 1,923
Balance, December 31, 1996 69,670 464,469 816,384 489,129 - 1,769,982
Net income 184,553 184,553
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (7,767) (7,767)
- mandatory (1,575) (1,575)
Common stock ($1.40 per share) (95,496) (95,496)
Common stock repurchase (333) (2,219) (5,026) (7,245)
Treasury stock acquired, net (1,829) 56 $(39,447) (39,391)
Amortization of capital stock
issue expense 234 234
Balance, December 31, 1997 67,508 $462,250 $811,648 $568,844 $(39,447) $1,803,295
The notes on pages 38 through 55 are an integral part of the financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1 Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the company's
subsidiaries, Somerset Railroad Corporation and NGE Enterprises,
Inc.
Utility plant
The cost of repairs and minor replacements is charged to the
appropriate operating expense accounts. The cost of renewals and
betterments, including indirect costs, is capitalized. The
original cost of utility plant retired or otherwise disposed of
and the cost of removal less salvage are charged to accumulated
depreciation.
Depreciation and amortization
Depreciation expense is determined using straight-line
rates, based on the average service lives of groups of
depreciable property in service. Depreciation accruals were
equivalent to 3.5% of average depreciable property for 1997, 1996
and 1995. Amortization expense includes the amortization of
certain regulatory assets authorized by the PSC.
Accounts receivable
The company has an agreement that expires in November 2001
to sell, with limited recourse, undivided percentage interests in
certain of its accounts receivable from customers. The agreement
allows the company to receive up to $152 million from the sale of
such interests. At December 31, 1997 and 1996, accounts
receivable on the consolidated balance sheets are shown net of
$152 million of interests in accounts receivable sold. All fees
associated with the program are included in other income and
deductions on the consolidated statements of income and amounted
to approximately $9 million in 1997 and 1996, and $10 million in
1995. Accounts receivable on the consolidated balance sheets are
also shown net of an allowance for doubtful accounts of $7
million at December 31, 1997 and 1996. Bad debt expense was $17
million, $19 million and $18 million in 1997, 1996 and 1995,
respectively.
<PAGE>
Income taxes
The company files a consolidated federal income tax return
with SRC and NGE. Deferred income taxes are provided on all
temporary differences between financial statement basis and
taxable income in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
Investment tax credits, which reduce federal income taxes
currently payable, were deferred and are being amortized over the
estimated lives of the applicable properties.
Utility operations
The company had been accounting for the economic effects of
regulation on all of its utility operations in accordance with
Statement of Financial Accounting Standards No. 71, Accounting
for the Effects of Certain Types of Regulation. During 1997 the
FASB's Emerging Issues Task Force issued guidance related to the
continued application of Statement 71 during the electric utility
industry's transition to competition. Accordingly, upon PSC
approval of the company's restructuring plan in January 1998, the
company's coal-fired generation business discontinued application
of Statement 71 and applied Statement of Financial Accounting
Standards No. 101, Regulated Enterprises -- Accounting for the
Discontinuation of Application of FASB Statement 71. The
application of Statement 101 to that business did not affect the
company's financial position or results of operations because any
above-market generation costs will be recovered by the regulated
electric and natural gas delivery business.
Regulatory assets and liabilities
Pursuant to Statement 71, the company capitalizes, as
regulatory assets, incurred costs that are probable of recovery
in future electric and natural gas rates. The company also
records as regulatory liabilities, obligations to customers to
refund previously collected revenue or to spend revenue collected
from customers on future costs. In accordance with the company's
restructuring plan and current natural gas rate settlement
agreement, the company is no longer deferring most costs that
were previously subject to deferral accounting.
<PAGE>
The company's regulatory assets and liabilities consisted of
the following:
December 31 1997 1997 1996 1996
Liabil- Liabil-
Assets ities Assets ities
(Thousands)
Unfunded future federal
income taxes $243,129 - $269,767 -
Deferred income taxes - unfunded
future federal income taxes - $99,126 - $109,065
Environmental remediation costs 82,900 - 32,100 -
Deferred income taxes - 81,986 - 94,004
Unamortized debt expense 76,418 - 80,745 -
DSM program costs 64,466 - 71,425 -
NUG termination agreements 44,579 - 43,991 -
Other postretirement benefits 14,494 - 18,417 -
Other 54,564 79,709 87,153 65,471
-------- -------- -------- --------
Total $580,550 $260,821 $603,598 $268,540
======== ======== ======== ========
Unfunded future federal income taxes and deferred income
taxes are amortized as the related temporary differences reverse.
Unamortized debt expense is amortized over the lives of the
related debt issues. DSM program costs, other regulatory assets
and other regulatory liabilities are amortized over various
periods in accordance with the company's restructuring plan and
current natural gas rate settlement agreement. The company is
earning a return on all regulatory assets for which the company
has spent funds.
The company's restructuring plan provides that any above-
market generation costs will be transferred to the regulated
electric and natural gas delivery business and recovered through
a nonbypassable competitive transition charge. The regulatory
assets and regulatory liabilities of the coal-fired generation
business will be recovered by the regulated electric and natural
gas delivery business. If the company could no longer meet the
criteria of Statement 71 for all or a separable part of its
electric and natural gas delivery business, the company may have
to record as expense or revenue certain of its regulatory assets
and regulatory liabilities and may have to record as a loss the
amount for power purchase contracts with NUGs that is above the
estimated competitive market price of power. These items are
currently recovered in rates.
Consolidated Statements of Cash Flows
The company considers all highly liquid investments with a
maturity or put date of three months or less when acquired to be
cash equivalents. Those investments are included in cash and
cash equivalents on the consolidated balance sheets.
<PAGE>
Total income taxes paid were $111 million, $98 million and
$55 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Interest paid, net of amounts capitalized, was $107 million,
$112 million and $118 million for the years ended December 31,
1997, 1996 and 1995, respectively.
Risk management
The company uses risk management techniques such as natural
gas future and option contracts to manage the company's exposure
to fluctuations in natural gas commodity prices. Such contracts
allow the company to fix margins on sales of natural gas
generally forecasted to occur over the next 18 months. The cost
or benefit of natural gas future and option contracts is included
in the commodity cost when the related sales commitments are
fulfilled. Gains and losses resulting from the use of those
contracts for 1997 and 1996 were not material to the company's
financial position or results of operations. The company does
not hold or issue financial instruments for trading or
speculative purposes.
Stock-based compensation
The company accounts for its stock-based compensation plans
in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, as permitted by
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. Total stock-based compensation
cost recognized in the income statement for the year ended
December 31, 1997, in accordance with Opinion 25, was the same as
if the company accounted for its plans in accordance with
Statement 123.
Estimates
Preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1997 presentation.
<PAGE>
2 Income Taxes
Year ended December 31 1997 1996 1995
(Thousands)
Current $111,829 $79,015 $63,502
Deferred, net
Accelerated depreciation 29,070 52,572 55,493
AMT credit (5) 310 18,009
Miscellaneous (18,125) (17,617) (14,926)
ITC (5,056) (6,337) (6,214)
-------- -------- --------
Total $117,713 $107,943 $115,864
======== ======== ========
The company's effective tax rate differed from the statutory rate
of 35% due to the following:
Year ended December 31 1997 1996 1995
(Thousands)
Tax expense at statutory rate $105,792 $100,165 $109,396
Depreciation not normalized 16,854 20,542 19,774
ITC amortization (6,359) (6,337) (6,214)
Research & Development credit 1,239 83 (5,547)
Other, net 187 (6,510) (1,545)
-------- -------- --------
Total $117,713 $107,943 $115,864
======== ======== ========
<PAGE>
The company's deferred tax assets and liabilities consisted of
the following:
December 31 1997 1996
(Thousands)
Current Deferred Tax Assets $2,148 $3,424
======== ========
Noncurrent Deferred Taxes
Depreciation $775,943 $761,794
Unfunded future federal
income taxes 99,126 109,065
Accumulated deferred ITC 114,640 119,696
Future income tax benefit - ITC (40,087) (41,847)
Other (16,399) 4,529
-------- --------
Total Noncurrent Deferred
Tax Liabilities 933,223 953,237
Valuation allowance 1,611 1,385
Less amounts classified as
regulatory liabilities
Deferred income taxes - unfunded
future federal income taxes 99,126 109,065
Deferred income taxes 81,986 94,004
-------- --------
Noncurrent Deferred Income Taxes $753,722 $751,553
======== ========
3 Bank Loans and Other Borrowings
The company has a revolving credit agreement with certain
banks that provides for borrowing up to $200 million through
December 31, 2001. The revolving credit agreement does not
require compensating balances. The company had no outstanding
loans under the revolving credit agreement at December 31, 1997
or 1996. At the option of the company, the interest rate on
borrowings is related to the prime rate, the London Interbank
Offered Rate or the interest rate applicable to certain
certificates of deposit. The agreement also provides for the
payment of a commitment fee that can fluctuate from .10% to .25%
depending on the credit ratings of the company's first mortgage
bonds. The commitment fee was .125% at December 31, 1997, 1996
and 1995.
The company uses short-term unsecured notes, usually
commercial paper, to finance certain refundings and for other
corporate purposes. The weighted average interest rates on
commercial paper balances at December 31, 1997, 1996 and 1995
were 6.3%, 5.8% and 6.1%, respectively.
<PAGE>
4 Energy Services
The company makes investments through its subsidiary, NGE
Enterprises, Inc., in providers of energy, financial and
environmental services.
The company's net investment in NGE was $20 million, $17
million and $34 million as of December 31, 1997, 1996 and 1995,
respectively, the majority of which is included in other property
and investments, net on the consolidated balance sheets. Net
losses related to NGE of $4 million, $21 million and $12 million
for the years ended December 31, 1997, 1996 and 1995,
respectively, are included in other income and deductions on the
consolidated statements of income.
5 Long-Term Debt
At December 31, 1997 and 1996, long-term debt was:
Amount
Maturity Interest
Dates Rates 1997 1996
(Thousands)
First mortgage
bonds (1) 1998 to 2023 6 1/2% to 9 7/8% $830,000 $903,000
Pollution control
notes (2) 2006 to 2034 3.65% to 6.15% 613,000 613,000
Long-term notes 12/31/00 28,000 29,900
Various long-term notes 12,569 15,809
Obligations under capital leases 12,269 10,699
Unamortized premium and discount on debt, net (7,374) (8,106)
---------- ----------
1,488,464 1,564,302
Less debt due within one year - included
in current liabilities 38,240 83,488
---------- ----------
Total $1,450,224 $1,480,814
========== ==========
At December 31, 1997, long-term debt and capital lease
payments that will become due during the next five years are:
1998 1999 2000 2001 2002
(Thousands)
$38,240 $4,754 $30,049 $51,766 $151,462
(1) The company's first mortgage bond indenture constitutes a
direct first mortgage lien on substantially all utility plant.
The mortgage also provides for a sinking and improvement fund.
This provision requires the company to make an annual cash
deposit with the Trustee equivalent to 1% of the principal amount
of all bonds delivered and authenticated by the Trustee prior to
January 1 of that year (excluding any bonds issued on the basis
of the retirement of bonds). The company satisfied the
requirement by depositing $23 million in cash in 1997. The funds
were used to redeem, at par, $23 million of 9 7/8% Series first
mortgage bonds, due February 2020, in February 1997.
(2) Fixed-rate pollution control notes totaling $306 million
were issued to secure the same amount of tax-exempt pollution
control revenue bonds issued by a governmental authority. The
interest rates range from 5.70% to 6.15%.
Adjustable-rate pollution control notes totaling $132
million were issued to secure the same amount of tax-exempt
adjustable-rate pollution control revenue bonds (Adjustable-rate
Revenue Bonds) issued by a governmental authority. The
Adjustable-rate Revenue Bonds bear interest at rates ranging from
3.65% to 3.80% through dates preceding various annual interest
rate adjustment dates. On the annual interest rate adjustment
dates the interest rates will be adjusted, or at the option of
the company, subject to certain conditions, a fixed rate of
interest may become effective. Bond owners may elect, subject to
certain conditions, to have their Adjustable-rate Revenue Bonds
purchased by the Trustee.
Multi-mode pollution control notes totaling $175 million
were issued to secure the same amount of tax-exempt multi-mode
pollution control refunding revenue bonds (Multi-mode Revenue
Bonds) issued by a governmental authority. The Multi-mode
Revenue Bonds have a structure that allows the interest rates to
be based on a daily rate, a weekly rate, a commercial paper rate,
an auction rate, a term rate or a fixed rate. Bond owners may
elect, while the Multi-mode Revenue Bonds bear interest at a
daily or weekly rate, to have their bonds purchased by the
Registrar and Paying Agent. The maturity dates of the Multi-mode
Revenue Bonds are February 1, 2029, June 1, 2029, and October 1,
2029, and can be extended subject to certain conditions. At
December 31, 1997, the interest rate for the multi-mode pollution
control notes was at the daily rate. The weighted average
interest rate for all three series was 3.42%, excluding letter of
credit fees, for the year ended December 31, 1997.
The company has irrevocable letters of credit that support
certain payments required to be made on the Adjustable-rate
Revenue Bonds and Multi-mode Revenue Bonds, and that expire on
various dates. If the company is unable to extend the letter of
credit that is related to a particular series of Adjustable-rate
Revenue Bonds, that series will have to be redeemed unless a
fixed rate of interest becomes effective. Multi-mode Revenue
Bonds are subject to mandatory purchase upon any change in the
interest rate mode and in certain other circumstances. Payments
made under the letters of credit in connection with purchases of
Adjustable-rate Revenue Bonds and Multi-mode Revenue Bonds are
repaid with the proceeds from the remarketing of those Bonds. To
the extent the proceeds are not sufficient, the company is
required to reimburse the bank that issued the letter of credit.
<PAGE>
6 Preferred Stock
At December 31, 1997 and 1996, serial cumulative preferred stock
was:
Shares
Par Value Authorized
Per Redeemable and Amount
Series Share Prior to Per Share Outstanding(1) 1997 1996
(Thousands)
Redeemable solely at the option of the company:
3.75% $100 $104.00 150,000 $15,000 $15,000
4 1/2%(1949) 100 103.75 40,000 4,000 4,000
4.15% 100 101.00 14,000 1,400 1,400
4.40% 100 102.00 55,200 5,520 5,520
4.15% (1954) 100 102.00 35,200 3,520 3,520
6.48% 100 102.00 300,000 30,000 30,000
7.40% (2) 25 12/1/98 26.85 1,000,000 25,000 25,000
Thereafter 25.00
Adjustable
Rate (3) 25 12/1/98 27.50 2,000,000 50,000 50,000
Thereafter 25.00
-------- --------
Total $134,440 $134,440
======== ========
Subject to mandatory redemption requirements:
6.30% (4) 100 1/1/99 103.15 250,000 $25,000 $25,000
======== ========
At December 31, 1997, there were no preferred stock redemptions
or annual redeemable preferred stock sinking fund requirements
for the next five years.
(1) At December 31, 1997, there were 1,610,600 shares of $100 par
value preferred stock, 7,800,000 shares of $25 par value
preferred stock and 1,000,000 shares of $100 par value preference
stock authorized but unissued.
(2) The company is restricted in its ability to redeem this
Series prior to December 1, 1998.
(3) The payment on this Series, for April 1, 1998, is at an
annual rate of 5.03% and subsequent payments can vary from an
annual rate of 4% to 10%, based on a formula included in the
company's Certificate of Incorporation. The company is
restricted in its ability to redeem this Series prior to December
1, 1998.
(4) On January 1 of each year from 2004 through 2008, the company
must redeem 12,500 shares at par, and on January 1, 2009, the
company must redeem the balance of the shares at par. This
Series is redeemable at the option of the company at $103.15 per
share prior to January 1, 1999. The $103.15 price will be
reduced annually by 63 cents for the years ending 1999 through
<PAGE>
2002; thereafter, the redemption price is $100.00. The company
is restricted in its ability to redeem this Series prior to
January 1, 2004.
Dividend Limitations: Common stock dividends are limited if
common stock equity falls below 25% of total capitalization, as
defined in the company's Certificate of Incorporation.
7 Retirement Benefits
Pensions
The company has a noncontributory retirement annuity plan
that covers substantially all employees. Benefits are based
principally on the employee's length of service and compensation
for the five highest paid consecutive years during the last 10
years of service. It is the company's policy to fund pension
costs accrued each year to the extent deductible for federal
income tax purposes.
Net pension benefit included the following components:
Year ended December 31 1997 1996 1995
(Thousands)
Service cost: Benefits
earned during the year $19,317 $18,593 $16,391
Interest cost on PBO 50,951 46,070 45,400
Actual return on plan assets (213,382) (138,957) (185,816)
Net amortization and deferral 116,389 58,162 111,209
-------- -------- --------
Net pension benefit $(26,725) $(16,132) $(12,816)
======== ======== ========
The funded status of the plan was:
December 31 1997 1996
(Thousands)
Actuarial present value of ABO
Vested $513,431 $472,786
Nonvested 101,181 52,272
-------- --------
Total $614,612 $525,058
======== ========
Fair value of plan assets $(1,176,184) $(995,795)
Actuarial present value of PBO 746,008 679,778
-------- --------
Plan assets in excess of PBO (430,176) (316,017)
Unrecognized net transition asset 44,660 51,898
Unrecognized net gain 372,046 275,531
Unrecognized prior service cost (28,307) (26,464)
-------- --------
Net pension asset $(41,777) $(15,052)
======== ========
<PAGE>
December 31 1997 1996
Assumptions used to determine actuarial valuations
Discount rate used to determine PBO 7.0% 7.25%
Rate of compensation increase
used to determine PBO 4.25% 4.75%
Long-term rate of return on plan
assets for net pension benefit 8.5% 8.0%
Plan assets primarily consist of domestic and international
equity securities; U.S. agency, corporate and Treasury bonds; and
cash equivalents.
Postretirement benefits other than pensions
The company has postretirement benefit plans, such as a
comprehensive health insurance plan and a prescription drug plan,
that provide certain benefits for retired employees and their
dependents. Substantially all of the company's employees who
retire under the company's pension plan may become eligible for
those benefits at retirement. The postretirement benefit plans
were unfunded as of December 31, 1997 and 1996.
The net periodic postretirement benefits cost other than
pensions (below) recognized on the income statements for 1997,
1996 and 1995 represent the portion of costs related to Statement
of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, that the company
has been allowed to collect from its customers. The company has
deferred $14 million and $18 million of Statement 106 costs as of
December 31, 1997 and 1996, respectively. The company expects to
recover any deferred Statement 106 amounts by the year 2000.
Net postretirement benefits cost other than pensions
included the following components:
Year ended December 31 1997 1996 1995
(Thousands)
Service cost: Benefits accumulated
during the year $7,010 $6,436 $5,412
Interest cost on APBO 17,075 15,795 15,228
Amortization of transition obligation
over 20 years 10,330 10,330 10,330
Amortization of gain (3,565) (3,246) (4,575)
Deferral for future recovery (11,766) (8,950) (7,742)
------- ------- -------
Net periodic postretirement
benefits cost $19,084 $20,365 $18,653
======= ======= =======
<PAGE>
The status of the plans for postretirement benefits other
than pensions, as reflected in the company's consolidated balance
sheets, was as follows:
December 31 1997 1996
(Thousands)
APBO
Retired employees $103,762 $103,912
Fully eligible active plan
participants 22,693 15,259
Other active plan employees 132,429 107,022
-------- --------
Total APBO 258,884 226,193
Less unrecognized transition
obligation 154,948 165,278
Less unrecognized net gain (13,824) (34,280)
-------- --------
Accrued postretirement liability $117,760 $95,195
======== ========
An 8.0% annual rate of increase in the per capita costs of
covered health care benefits was assumed for 1998, gradually
decreasing to 5% by the year 2003. Increasing the assumed health
care cost trend rates by 1% in each year would increase the APBO
as of January 1, 1998, by $42 million and increase the aggregate
of the service cost and interest cost components of the net
postretirement benefits cost for 1997 by $5 million. Discount
rates of 7.0% and 7.25% were used to determine the APBO in 1997
and 1996, respectively.
8 Jointly-Owned Generating Stations
Nine Mile Point unit 2
The company has an undivided 18% interest in the output and
costs of NMP2, which is operated by Niagara Mohawk Power
Corporation. Ownership of NMP2 is shared with Niagara Mohawk
41%, Long Island Lighting Company 18%, Rochester Gas and Electric
Corporation 14% and Central Hudson Gas & Electric Corporation 9%.
The company's share of the rated capability is 207 megawatts.
The company's share of net utility plant investment, excluding
nuclear fuel, was approximately $591 million and $610 million, at
December 31, 1997 and 1996, respectively. The accumulated
provision for depreciation was approximately $162 million and
$144 million, at December 31, 1997 and 1996, respectively. The
company's share of operating expenses is included in the
consolidated statements of income.
As part of its restructuring plan, the company will put up
for sale its 18% interest in NMP2.
<PAGE>
Nuclear insurance
Niagara Mohawk maintains public liability and property
insurance for NMP2. The company reimburses Niagara Mohawk for
its 18% share of those costs.
The public liability limit for a nuclear incident is
approximately $8.3 billion. Should losses stemming from a
nuclear incident exceed the commercially available public
liability insurance, each licensee of a nuclear facility would be
liable for up to $76 million per incident, payable at a rate not
to exceed $10 million per year. The company's maximum liability
for its 18% interest in NMP2 would be approximately $14 million
per incident. The $76 million assessment is subject to periodic
inflation indexing and a 5% surcharge should funds prove
insufficient to pay claims associated with a nuclear incident.
The Price-Anderson Act also requires indemnification for
precautionary evacuations whether or not a nuclear incident
actually occurs.
Niagara Mohawk has procured property insurance for NMP2
aggregating approximately $2.8 billion through the Nuclear
Insurance Pools and the NEIL. In addition, the company has
purchased NEIL insurance coverage for the extra expense that
would be incurred by purchasing replacement power during
prolonged accidental outages. Under NEIL programs, should losses
resulting from an incident at a member facility exceed the
accumulated reserves of NEIL, each member, including the company,
would be liable for its share of the deficiency. The company's
maximum liability per incident under the property damage and
replacement power coverages is approximately $2 million.
Nuclear plant decommissioning costs
Based on the results of a 1995 decommissioning study, the
company's 18% share of the cost to decommission NMP2 is $155
million in 1998 dollars ($422 million in 2026 when NMP2's
operating license will expire). The estimated annual
contribution needed to cover the company's share of costs as
outlined in the study is approximately $4 million.
The company's estimated liability for decommissioning NMP2
using the NRC's minimum funding requirement is approximately $83
million in 1998 dollars. The company's electric rates currently
include an annual allowance for decommissioning of $2 million in
1998, which approximates the NRC's minimum funding requirement,
and $4 million in subsequent years. Decommissioning costs are
charged to depreciation and amortization expense and are
recovered over the expected life of the plant. In its
restructuring plan, approved by the PSC in January 1998, the
company used the 1995 decommissioning study as a basis for
calculating the amount of decommissioning costs.
<PAGE>
The company has established a Qualified Fund under
applicable provisions of the federal tax law to comply with NRC
funding regulations. The balance in the fund, including
reinvested earnings, was approximately $13 million and $11
million at December 31, 1997 and 1996, respectively. Those
amounts are included on the consolidated balance sheets in other
property and investments, net. The related liability for
decommissioning is included in other liabilities - other. At
December 31, 1997, the external trust fund investments were
classified as available-for-sale, and their carrying value
approximated fair value.
In 1996 the Financial Accounting Standards Board issued an
exposure draft, Accounting for Certain Liabilities Related to
Closure and Removal of Long-Lived Assets. The exposure draft
proposes that companies recognize the present value of estimated
decommissioning costs. If the final statement includes that
requirement, the estimated liability the company would have to
recognize on its balance sheet related to decommissioning NMP2 is
approximately $80 million, based on the 1995 decommissioning
study.
Homer City
The company has an undivided 50% interest in the output and
costs of the Homer City Generating Station, which comprises three
generating units. The station is owned with Pennsylvania
Electric Company and is operated by its affiliate, GPU
Generation, Inc. The company's share of the rated capability is
953 megawatts, and its net utility plant investment was
approximately $262 million and $269 million at December 31, 1997
and 1996, respectively. The accumulated provision for
depreciation was approximately $190 million and $181 million, at
December 31, 1997 and 1996, respectively. The company's share of
operating expenses is included in the consolidated statements of
income.
GPU, Inc., the parent company of GPU Generation, announced
in October 1997 that they will sell their non-nuclear generating
stations, including their 50% interest in Homer City. The
company's restructuring plan calls for the company to auction its
coal-fired generating stations, including its 50% interest in
Homer City, and completion of the auction transactions by August
1, 1999. The company does not expect these transactions to have
an adverse effect on its financial position or results of
operations.
<PAGE>
9 Commitments
Capital expenditures
The company has commitments in connection with its capital
expenditure program and estimates that expenditures, including
nuclear fuel and AFDC, for 1998, 1999 and 2000 will approximate
$134 million, $152 million and $146 million, respectively, and
are expected to be financed entirely with internally generated
funds. The program is subject to periodic review and revision.
Capital expenditures will be primarily for the extension of
service, necessary improvements to existing facilities and
compliance with environmental requirements.
Nonutility generator power purchase contracts
During 1997, 1996 and 1995 the company expensed
approximately $324 million, $320 million and $284 million,
respectively, for NUG power, including termination costs. The
company estimates that NUG power purchases, including termination
costs, will total $340 million in 1998, $348 million in 1999 and
$356 million in 2000.
10 Environmental Liability
The company has been notified by the EPA and the NYSDEC, as
appropriate, that it is among the PRPs who may be liable to pay
for costs incurred to remediate certain hazardous substances at
nine waste sites, not including the company's inactive gas
manufacturing sites, which are discussed below. With respect to
the nine sites, six sites are included in the New York State
Registry of Inactive Hazardous Waste Sites and two of the sites
are also included on the National Priorities list.
Any liability may be joint and several for certain of those
sites. The company has recorded an estimated liability of $1
million related to six of the nine sites, which is reflected in
the company's consolidated balance sheets at December 31, 1997.
The ultimate cost to remediate the sites may be significantly
more than the estimated amount and will depend on such factors as
the remedial action plan selected, the extent of site
contamination and the portion attributed to the company.
The company has a program to investigate and perform
necessary remediation at its known inactive gas manufacturing
sites. In March 1994 and October 1996 the company entered into
Orders on Consent with the NYSDEC requiring the company to
investigate and, where necessary, remediate 34 of the company's
38 known inactive gas manufacturing sites. With respect to the
38 sites, eight sites are included in the New York State
Registry.
<PAGE>
The company's estimate for all costs related to
investigation and remediation of the 38 sites is a range of $81
million to $182 million at December 31, 1997. That estimate is
based on both known and potential site conditions and multiple
remediation alternatives for each of the sites. The estimate has
not been discounted and is based on costs in 1996 dollars that
the company expects to incur through the year 2017. The estimate
could change materially, based on facts and circumstances derived
from site investigations, changes in required remedial action,
changes in technology relating to remedial alternatives and
changes to current laws and regulations.
The liability to investigate and perform remediation, as
necessary, at the known inactive gas manufacturing sites, is
reflected in the company's consolidated balance sheets at
December 31, 1997 and 1996, in the amount of $81 million and $31
million, respectively. The company has recorded a corresponding
regulatory asset, since it expects to recover such expenditures
in rates. The company has notified and entered into negotiations
with its former and current insurance carriers so that it may
recover from them certain of the cleanup costs.
11 Fair Value of Financial Instruments
Certain of the company's financial instruments had carrying
amounts and estimated fair values, based on the quoted market
prices for the same or similar issues of the same remaining
maturities, as follows:
December 31 1997 1997 1996 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands)
Other investments - external
trust funds $53,049 $53,708 - -
Preferred stock subject
to mandatory redemption
requirements $25,000 $24,315 $25,000 $22,531
First mortgage bonds $822,626 $882,616 $894,894 $938,873
Pollution control notes $613,000 $625,149 $613,000 $623,666
The carrying amount for the following items approximates
estimated fair value because of the short maturity, within one
year, of those instruments: cash and cash equivalents, commercial
paper and interest accrued.
Special deposits include restricted funds that are set aside
for preferred stock and long-term debt redemptions. The carrying
amount approximates fair value because the special deposits have
been invested in securities with a short-term maturity, within
one year.
<PAGE>
12 Industry Segment Information
Certain information pertaining to the electric and natural
gas operations of the company follows:
Electric Natural Gas
1997 1996 1995 1997 1996 1995
(Thousands)
Operating
Revenues $1,792,164 $1,723,147 $1,708,297 $337,825 $344,385 $308,931
Income $380,344 $400,262 $421,328 $62,324 $57,281 $50,816
Depreciation and
amortization $183,304 $176,906 $172,831 $15,255 $12,495 $11,939
Capital
expenditures $78,667 $132,190 $119,159 $45,240 $82,625 $45,142
Identifiable
assets* $4,273,100 $4,376,814 $4,525,541 $588,773 $550,196 $493,537
* Assets used in electric, natural gas and energy services operations not
included above were $166,808, $132,671 and $95,253 at December 31, 1997, 1996
and 1995, respectively. They consist primarily of cash and cash equivalents,
special deposits, prepayments and subsidiaries' assets.
<PAGE>
13 Quarterly Financial Information (Unaudited)
Quarter ended March 31 June 30 Sep. 30 Dec. 31
(Thousands, except per share amounts)
1997 1997 1997 1997
Operating revenues $588,137 $470,370 $492,829 $578,653
Operating income $167,527 $82,743 $80,826 $111,572
Net income $81,977 $26,275 $28,277(1) $48,024
Earnings available
for common stock $79,662 $23,923 $25,929(1) $45,697
Earnings per share $1.15 $.35 $.38(1) $.68
Dividends per share $.35 $.35 $.35 $.35
Average shares outstanding 69,353 68,279 67,503 67,504
Common stock price (3)
High $24.50 $22.50 $27.19 $35.75
Low $21.25 $20.63 $20.81 $25.75
1996 1996 1996 1996
Operating revenues $622,056 $454,667 $457,986 $532,823
Operating income $196,353 $74,924 $74,285 $111,981
Net income $98,676 $20,882 $11,052(2) $47,631
Earnings available
for common stock $96,343 $18,496 $8,616(2) $45,256
Earnings per share $1.35 $.26 $.12(2) $.65
Dividends per share $.35 $.35 $.35 $.35
Average shares outstanding 71,503 71,503 71,416 70,096
Common stock price (3)
High $26.38 $24.50 $24.88 $22.63
Low $21.88 $22.00 $21.13 $20.38
(1) Includes the effect of fees related to an unsolicited tender offer that
decreased net income and earnings available for common stock by $17
million and decreased earnings per share by 24 cents.
(2) Includes the effect of the writedown of the investment in EnerSoft
Corporation that decreased net income and earnings available for common
stock by $10 million and decreased earnings per share by 14 cents.
(3) The company's common stock is listed on the New York Stock Exchange. The
number of shareholders of record at December 31, 1997, was 38,238.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_______________________
To the Shareholders and Board of Directors,
New York State Electric & Gas Corporation and Subsidiaries
Ithaca, New York
We have audited the consolidated financial statements and the
financial statement schedule of New York State Electric & Gas
Corporation and Subsidiaries listed in Item 14(a) of this Form
10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of New York State Electric & Gas Corporation
and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
New York, New York
January 30, 1998
<PAGE>
<TABLE>
<CAPTION>
NEW YORK STATE ELECTRIC & GAS CORPORATION
SCHEDULE II - Consolidated Valuation and Qualifying Accounts
(Thousands of Dollars)
Years Ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C> <C> <C>
Beginning End
Classification of Year Additions Write-offs (a) Adjustments of Year (b)
1997
Allowance for Doubtful
Accounts - Accounts
Receivable $6,806 $17,345 $(17,350) - $6,801
Deferred Tax Asset
Valuation Allowance $1,385 $226 - - $1,611
1996
Allowance for Doubtful
Accounts - Accounts
Receivable $6,785 $18,858 $(18,937) $100(c) $6,806
Deferred Tax Asset
Valuation Allowance $2,852 $158 $(1,625) - $1,385
1995
Allowance for Doubtful
Accounts - Accounts
Receivable $7,198 $17,891 $(18,304) - $6,785
Deferred Tax Asset
Valuation Allowance $2,211 $641 - - $2,852
(a) Uncollectible accounts charged against the allowance, net of recoveries.
(b) Represents an estimate of the write-offs that will not be recovered in rates.
(c) Due to acquisition of KENETECH Energy Management, Inc. in 1996.
</TABLE>
<PAGE>
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure - None
PART III
Item 10. Directors and executive officers of the Registrant
Incorporated herein by reference to the information in Proposal 2 under
the captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement dated March 11, 1998.
The information regarding executive officers is on pages 17 - 18 of this
report.
Item 11. Executive compensation
Incorporated herein by reference to the information in Proposal 2 under
the captions "Executive Compensation," "Employment, Change in Control and Other
Arrangements," "Directors' Compensation," "Report of Executive Compensation and
Succession Committee" and "Stock Performance Graph" in the Company's Proxy
Statement dated March 11, 1998.
Item 12. Security ownership of certain beneficial owners and management
Incorporated herein by reference to the information in Proposal 2 under
the caption "Security Ownership of Management" in the Company's Proxy Statement
dated March 11, 1998.
Item 13. Certain relationships and related transactions
Incorporated herein by reference to the information in Proposal 2 under
the caption "Election of Directors" in the Company's Proxy Statement dated
March 11, 1998.
PART IV
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Included in Part II of this report:
a) Consolidated Balance Sheets as of December 31, 1997 and 1996
b) For the three years ended December 31, 1997:
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stock Equity
c) Notes to Consolidated Financial Statements
d) Report of Independent Accountants
2. Financial statement schedule
Included in Part II of this report:
For the three years ended December 31, 1997:
II. Consolidated Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
not required, are inapplicable or the required information is presented in the
Consolidated Financial Statements or notes thereto.
3. Exhibits
(a)(1) The following exhibits are delivered with this report:
Exhibit No.
(A)10-35 - Amended Employee Invention and Confidentiality Agreement with
J. H. Roskoz.
(A)10-41 - Employment Agreement for M. I. German.
(A)10-44 - 1998 Non-Statutory Stock Option Award Agreement.
(A)10-45 - Separation Agreement with J. H. Roskoz.
12 - Computation of Ratio of Earnings to Fixed Charges.
21 - Subsidiaries.
23 - Consent of Coopers & Lybrand L.L.P. to incorporation by
reference into certain registration statements.
27 - Financial Data Schedule.
99-1 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
99-4 - Opinion and Order of the PSC adopting terms of settlement
subject to modifications and conditions.
(a)(2) The following exhibits are incorporated herein by reference:
Exhibit No. Filed in As Exhibit No.
3-1 - Restated Certificate of Incorporation of the
Company pursuant to Section 807 of the Business
Corporation Law filed in the Office of the
Secretary of State of the State of New York on
October 25, 1988 - Registration No. 33-50719 . . . 4-11
3-2 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 17, 1989 - Registration No. 33-50719 . . 4-12
3-3 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on May 22, 1990 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-13
3-4 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 31, 1990 - Registration No. 33-50719 . . 4-14
3-5 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on February 6, 1991 - Registration No. 33-50719 . . 4-15
3-6 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 15, 1991 - Registration No. 33-50719 . . 4-16
3-7 - Certificate of Merger of Columbia Gas of New York,
Inc. into the Company filed in the Office of the
Secretary of State of the State of New York on
April 8, 1991 - Registration No. 33-50719 . . . . . 4-20
_____________________________
(A) Management contract or compensatory plan or arrangement.
Exhibit No. Filed in As Exhibit No.
3-8 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on May 28, 1992 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-17
3-9 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on October 20, 1992 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-18
3-10 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on October 14, 1993
Registration No. 33-50719 . . . . . . . . . . . . . 4-19
3-11 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 10, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-11
3-12 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 20, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-12
3-13 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 20, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-13
3-14 - Certificates of the Secretary of the Company concern-
ing consents dated March 20, 1957 and May 9, 1975 of
holders of Serial Preferred Stock with respect to
issuance of certain unsecured indebtedness -
Registration No. 2-69988. . . . . . . . . . . . . . 4-7
3-15 - By-Laws of the company as amended January 10, 1997 -
Company's 10-K for the year ended December 31, 1996 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . .
4-1 - First Mortgage dated as of July 1, 1921 executed by
the Company under its then name of "New York State
Gas and Electric Corporation" to The Equitable Trust
Company of New York, as Trustee (The Chase Manhattan
Bank is Successor Trustee) - Registration No. 33-4186. 4-1
Supplemental Indentures to First Mortgage dated as of July 1, 1921:
4-2 - No. 37 - Registration No. 33-31297. . . . . . . . . 4-2
4-3 - No. 39 - Registration No. 33-31297. . . . . . . . . 4-3
4-4 - No. 43 - Registration No. 33-31297. . . . . . . . . 4-4
4-5 - No. 51 - Registration No. 2-59840 . . . . . . . . . 2-B(46)
4-6 - No. 74 - Registration No. 2-59840 . . . . . . . . . 2-B(69)
4-7 - No. 75 - Registration No. 2-59840 . . . . . . . . . 2-B(70)
4-8 - No. 103- Registration No. 33-43458. . . . . . . . . 4-8
4-9 - No. 104- Registration No. 33-43458. . . . . . . . . 4-9
4-10 - No. 105- Registration No. 33-52040. . . . . . . . . 4-8
4-11 - No. 106- Company's 10-K for year ended
December 31, 1992 - File No. 1-3103-2. . . 4-23
4-12 - No. 107- Company's 10-K for year ended
December 31, 1992 - File No. 1-3103-2. . . 4-24
4-13 - No. 108- Registration No. 33-50719. . . . . . . . . 4-8
4-14 - No. 109- Registration No. 33-50719. . . . . . . . . 4-9
Agreements and amendments with the Power Authority of the State of New York:
Exhibit No. Filed in As Exhibit No.
10-1 - Letter Agreement dated February 3, 1982 relating to
transmission services - Registration No. 2-82192. . 10-1
10-2 - Amendment dated December 21, 1989 to the Letter
Agreement dated February 3, 1982 relating to trans-
mission services - Company's 10-K for year ended
December 31, 1989 - File No. 1-3103-2 . . . . . . 10-4
10-3 - Transmission Agreement dated December 12, 1983,
with respect to connection of the Company's Kintigh
(Somerset) Generating Station to the Niagara-Edic
345 kv transmission system - Company's 10-K for year
ended December 31, 1988 - File No. 1-3103-2 . . . . 10-6
10-4 - Amendment dated December 21, 1989 to the Transmission
Agreement dated December 12, 1983, with respect to
connection of the Company's Kintigh (Somerset) Gener-
ating Station to the Niagara-Edic 345 kv transmission
system - Company's 10-K for the year ended December
31, 1989 File No. 1-3103-2. . . . . . . . . . . . . 10-7
* * * * * * * * * *
10-5 - New York Power Pool Agreement dated July 11, 1985 -
Company's 10-K for year ended December 31, 1988 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-7
10-6 - Transmission Agreement dated January 10, 1990, between
New York State Electric & Gas Corporation and Niagara
Mohawk Power Corporation, with respect to remote load
and generation wheeling service for the Company -
Company's 10-K for year ended December 31, 1990 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-17
10-7 - Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company - Company's
10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . . 10-14
10-8 - Amendment No. 1 dated as of October 1, 1985 to the
Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company -
Company's 10-K for year ended December 31, 1986 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-11
10-9 - Amendment No. 2 dated as of August 28, 1986 to the
Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company -
Company's 10-K for year ended December 31, 1986 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-12
10-10 - Basic Agreement dated as of September 22, 1975
between New York State Electric & Gas Corporation
and others concerning Nine Mile Point Nuclear
Station, Unit No. 2 - Registration No. 2-54903. . . 5-0
10-11 - Nine Mile Point Nuclear Station Unit 2 Operating
Agreement effective as of January 1, 1993 among
New York State Electric & Gas Corporation and
others - Company's 10-K for the year ended
December 31, 1992 - File No. 1-3103-2 . . . . . . . 10-18
<PAGE>
Exhibit No. Filed in As Exhibit No.
10-12 - Coal Hauling Agreement dated as of March 9, 1983
between Somerset Railroad Corporation and New
York State Electric & Gas Corporation -
Registration No. 2-82352. . . . . . . . . . . . . . 10
(A)10-13 - Retirement Plan for Directors - Company's 10-K
for the year ended December 31, 1991 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-26
(A)10-14 - Retirement Plan for Directors Amendment No. 1 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-21
(A)10-15 - Retirement Plan for Directors Amendment No. 2 -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-15
(A)10-16 - Retirement Plan for Directors Amendment No. 3 -
Company's 10-K for year ended December 31, 1996 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-16
(A)10-17 - Form of Deferred Compensation Plan for Directors -
Company's 10-K for year ended December 31, 1989 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-22
(A)10-18 - Deferred Compensation Plan for Directors Amendment
No. 1 - Company's 10-K for year ended December
31, 1993 - File No. 1-3103-2. . . . . . . . . . . . 10-23
(A)10-19 - Director Share Plan - Company's 10-K for the year
ended December 31, 1996 - File No. 1-3103-2 . . . . 10-19
(A)10-20 - Deferred Compensation Plan for the Director Share
Plan - Company's 10-K for the year ended December
31, 1996 - File No. 1-3103-2. . . . . . . . . . . . 10-20
(A)10-21 - Supplemental Executive Retirement Plan as amended
through Amendment No. 11 - Company's 10-K for the
year ended December 31, 1996 - File No. 1-3103-2. . 10-21
(A)10-22 - Supplemental Executive Retirement Plan Amendment
No. 12 - Company's Schedule 14D-9, dated July 30,
1997. . . . . . . . . . . . . . . . . . . . . . . . 22
(A)10-23 - Amended and Restated Annual Executive Incentive
Plan - Company's 10-K for the year ended December
31, 1996 - File No. 1-3103-2. . . . . . . . . . . . 10-22
(A)10-24 - Amended and Restated Annual Executive Incentive
Plan Amendment No. 1- Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . . . . . . 2
(A)10-25 - Long-term Executive Incentive Share Plan -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-43
(A)10-26 - Long-term Executive Incentive Share Plan Amendment
No. 1 - Company's Schedule 14D-9 dated July 30,
1997. . . . . . . . . . . . . . . . . . . . . . . . 3
(A)10-27 - Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement - Company's 10-K for year
ended December 31, 1995 - File No. 1-3103-2 . . . . 10-44
(A)10-28 - Employment Contract for A. E. Kintigh - Company's
10-K for year ended December 31, 1988 - File
No. 1-3103-2. . . . . . . . . . . . . . . . . . . . 10-26
(A)10-29 - Form of Severance Agreement for Senior Vice
Presidents - Company's 10-K for year ended December
31, 1993 - File No. 1-3103-2. . . . . . . . . . . . 10-47
_____________________________
(A) Management contract or compensatory plan or arrangement.
Exhibit No. Filed in As Exhibit No.
(A)10-30 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 1 - Company's 10-K for year
ended December 31, 1995 - File No. 1-3103-2 . . . . 10-50
(A)10-31 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 2 - Company's Schedule
14D-9, dated July 30, 1997. . . . . . . . . . . . . 4
(A)10-32 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 3 - Company's Schedule
14D-9, dated July 30, 1997. . . . . . . . . . . . . 5
(A)10-33 - Employee Invention and Confidentiality Agreement
(Existing Executive) - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . . . . . . 9
(A)10-34 - Employee Invention and Confidentiality Agreement
(Existing Executive) Amendment No. 1 - Company's
Schedule 14D-9, dated July 30, 1997 . . . . . . . . 10
(A)10-36 - Deferred Compensation Plan for Salaried Employees -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-53
(A)10-37 - Employment Agreement for W. W. von Schack -
Company's 10-Q for quarter ended September 30,
1996 - File No. 1-3103-2. . . . . . . . . . . . . . 10-54
(A)10-38 - Employment agreement for W. W. von Schack Amendment
No. 1 - Company's 10-Q for quarter ended September
30, 1996 - File No. 1-3103-2. . . . . . . . . . . . 10-55
(A)10-39 - Employment Agreement for W. W. von Schack Amendment
No. 2 - Company's Schedule 14D-9, dated July 30,
1997. . . . . . . . . . . . . . . . . . . . . . . . 11
(A)10-40 - Employment Agreement for W. W. von Schack Amendment
No. 3 - Company's Schedule 14D-9, dated July 30,
1997. . . . . . . . . . . . . . . . . . . . . . . . 12
(A)10-42 - 1997 Stock Option Plan - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . . . . . . 20
(A)10-43 - Non-Statutory Stock Option Award Agreement -
Company's Schedule 14D-9, dated July 30, 1997 . . . 21
99-3 - Order of the PSC modifying and approving the
Agreement Concerning the Competitive Rate and
Restructuring Plan of New York State Electric & Gas
Corporation - Registration No. 333-37997. . . . . . 99-3
_____________________________
(A) Management contract or compensatory plan or arrangement.
<PAGE>
The company agrees to furnish to the Commission, upon request, a copy of
the Revolving Credit Agreement dated as of July 31, 1992, as amended, between
the company, The Chase Manhattan Bank, as Agent, and certain banks; a copy of
the Participation Agreements dated as of June 1, 1987 and December 1, 1988
between the company and New York State Energy Research and Development
Authority (NYSERDA) relating to Adjustable Rate Pollution Control Revenue Bonds
(1987 Series A), and (1988 Series A), respectively; a copy of the Participation
Agreements dated as of March 1, 1985, October 15, 1985, and December 1, 1985
between the company and NYSERDA relating to Annual Tender Pollution Control
Revenue Bonds (1985 Series A), (1985 Series B), and (1985 Series D),
respectively; a copy of the Participation Agreements dated as of February 1,
1993, February 1, 1994, June 1, 1994, October 1, 1994 and December 1, 1994
between the company and NYSERDA relating to Pollution Control Refunding Revenue
Bonds (1994 Series A), (1994 Series B), (1994 Series C), (1994 Series D), and
(1994 Series E), respectively; a copy of the Participation Agreement dated as
of December 1, 1993 between the company and NYSERDA relating to Solid Waste
Disposal Revenue Bonds (1993 Series A); a copy of the Participation Agreement
dated as of December 1, 1994 between the company and the Indiana County
Industrial Development Authority relating to Pollution Control Refunding
Revenue Bonds (1994 Series A); a copy of the Credit Agreement dated as of March
9, 1983, as amended, between Somerset Railroad Corporation and The Chase
Manhattan Bank, and a copy of the Revolving Credit Agreement dated as of June
30, 1994, as amended, between XENERGY, Inc. and The First National Bank of
Boston. The total amount of securities authorized under each of such
agreements does not exceed 10% of the total assets of the company and its
subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NEW YORK STATE ELECTRIC & GAS CORPORATION
Date: March 27, 1998 By Gary J. Turton
Gary J. Turton
Vice President and Controller
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER
Date: March 27, 1998 By Wesley W. von Schack
Wesley W. von Schack
Chairman, President,
Chief Executive Officer and
Director
PRINCIPAL FINANCIAL OFFICER
Date: March 27, 1998 By Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER
Date: March 27, 1998 By Gary J. Turton
Gary J. Turton
Vice President and Controller
<PAGE>
Signatures (Cont'd)
Date: March 27, 1998 By Richard Aurelio
Richard Aurelio
Director
Date: March 27, 1998 By James A. Carrigg
James A. Carrigg
Director
Date: March 27, 1998 By Alison P. Casarett
Alison P. Casarett
Director
Date: March 27, 1998 By Joseph J. Castiglia
Joseph J. Castiglia
Director
Date: March 27, 1998 By Lois B. DeFleur
Lois B. DeFleur
Director
Date: March 27, 1998 By Everett A. Gilmour
Everett A. Gilmour
Director
Date: March 27, 1998 By Paul L. Gioia
Paul L. Gioia
Director
<PAGE>
Signatures (Cont'd)
Date: March 27, 1998 By John M. Keeler
John M. Keeler
Director
Date: March 27, 1998 By Allen E. Kintigh
Allen E. Kintigh
Director
Date: March 27, 1998 By Ben E. Lynch
Ben E. Lynch
Director
Date: March 27, 1998 By Alton G. Marshall
Alton G. Marshall
Director
Date: March 27, 1998 By Walter G. Rich
Walter G. Rich
Director
<PAGE>
EXHIBIT INDEX
* 3-1 -- Restated Certificate of Incorporation of the company
pursuant to Section 807 of the Business Corporation Law
filed in the Office of the Secretary of State of the
State of New York on October 25, 1988.
* 3-2 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 17, 1989.
* 3-3 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on May 22, 1990.
* 3-4 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 31, 1990.
* 3-5 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on February 6, 1991.
* 3-6 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 15, 1991.
* 3-7 -- Certificate of Merger of Columbia Gas of New York, Inc.
into the company filed in the Office of the Secretary of
State of the State of New York on April 8, 1991.
* 3-8 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on May 28, 1992.
* 3-9 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 20, 1992.
* 3-10 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 14, 1993.
* 3-11 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 10, 1993.
* 3-12 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 20, 1993.
* 3-13 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 20, 1993.
* 3-14 -- Certificates of the Secretary of the company concerning
consents dated March 20, 1957 and May 9, 1975 of holders
of Serial Preferred Stock with respect to issuance of
certain unsecured indebtedness.
* 3-15 -- By-Laws of the company as amended January 10, 1997.
* 4-1 -- First Mortgage dated as of July 1, 1921 executed by the
company under its then name of "New York State Gas and
Electric Corporation" to The Equitable Trust Company of
New York, as Trustee (The Chase Manhattan Bank is
Successor Trustee).
___________________________________
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX (Cont'd)
Supplemental Indentures to First Mortgage dated as of July 1, 1921:
* 4-2 -- No. 37 * 4-7 -- No. 75 * 4-11 -- No. 106
* 4-3 -- No. 39 * 4-8 -- No. 103 * 4-12 -- No. 107
* 4-4 -- No. 43 * 4-9 -- No. 104 * 4-13 -- No. 108
* 4-5 -- No. 51 * 4-10 -- No. 105 * 4-14 -- No. 109
* 4-6 -- No. 74
Agreements and Amendments with the Power Authority of the State of New
York:
* 10-1 -- Letter Agreement dated February 3, 1982 relating to
transmission services.
* 10-2 -- Amendment dated December 21, 1989 to the Letter
Agreement dated February 3, 1982 relating to
transmission services.
* 10-3 -- Transmission Agreement dated December 12, 1983, with
respect to connection of the company's Kintigh
(Somerset) Generating Station to the Niagara-Edic 345 kv
transmission system.
* 10-4 -- Amendment dated December 21, 1989 to the Transmission
Agreement dated December 12, 1983, with respect to
connection of the company's Kintigh (Somerset)
Generating Station to the Niagara-Edic 345 kv
transmission system.
* * * * * * * * * *
* 10-5 -- New York Power Pool Agreement dated July 11, 1985.
* 10-6 -- Transmission Agreement dated January 10, 1990, between
New York State Electric & Gas Corporation and Niagara
Mohawk Power Corporation, with respect to remote load and
generation wheeling service for the company.
* * * * * * * * * *
Coal Sales Agreement and Amendments between New York State Electric &
Gas Corporation and Consolidation Coal Company:
* 10-7 -- Agreement dated December 21, 1983.
* 10-8 -- Amendment No. 1 dated as of October 1, 1985.
* 10-9 -- Amendment No. 2 dated as of August 28, 1986.
* * * * * * * * * *
___________________________________
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX (Cont'd)
* 10-10 -- Basic Agreement dated as of September 22, 1975 between
New York State Electric & Gas Corporation and others
concerning Nine Mile Point Nuclear Station, Unit No. 2.
* 10-11 -- Nine Mile Point Nuclear Station Unit 2 Operating
Agreement effective as of January 1, 1993 among New York
State Electric & Gas Corporation and others.
* 10-12 -- Coal Hauling Agreement dated as of March 9, 1983 between
Somerset Railroad Corporation and New York State
Electric & Gas Corporation.
(A)* 10-13 -- Retirement Plan for Directors.
(A)* 10-14 -- Retirement Plan for Directors Amendment No. 1.
(A)* 10-15 -- Retirement Plan for Directors Amendment No. 2.
(A)* 10-16 -- Retirement Plan for Directors Amendment No. 3.
(A)* 10-17 -- Form of Deferred Compensation Plan for Directors.
(A)* 10-18 -- Deferred Compensation Plan for Directors Amendment
No. 1.
(A)* 10-19 -- Director Share Plan.
(A)* 10-20 -- Deferred Compensation Plan for the Director Share Plan.
(A)* 10-21 -- Supplemental Executive Retirement Plan as amended
through Amendment No. 11.
(A)* 10-22 -- Supplemental Executive Retirement Plan Amendment No. 12.
(A)* 10-23 -- Amended and Restated Annual Executive Incentive Plan.
(A)* 10-24 -- Amended and Restated Annual Executive Incentive Plan
Amendment No. 1.
(A)* 10-25 -- Long-Term Executive Incentive Share Plan.
(A)* 10-26 -- Long-Term Executive Incentive Share Plan Amendment
No. 1.
(A)* 10-27 -- Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement.
(A)* 10-28 -- Employment Contract for A. E. Kintigh.
(A)* 10-29 -- Form of Severance Agreement for Senior Vice Presidents.
(A)* 10-30 -- Form of Severance Agreement for Senior Vice Presidents
Amendment No. 1.
(A)* 10-31 -- Form of Severance Agreement for Senior Vice Presidents
Amendment No. 2.
(A)* 10-32 -- Form of Severance Agreement for Senior Vice Presidents
Amendment No. 3.
(A)* 10-33 -- Employee Invention and Confidentiality Agreement
(Existing Executive).
(A)* 10-34 -- Employee Invention and Confidentiality Agreement
(Existing Executive) Amendment No. 1.
(A) 10-35 -- Amended Employee Invention and Confidentiality Agreement
with J. H. Roskoz.
(A)* 10-36 -- Deferred Compensation Plan for Salaried Employees.
(A)* 10-37 -- Employment Agreement for W. W. von Schack.
(A)* 10-38 -- Employment Agreement for W. W. von Schack Amendment
No. 1.
(A)* 10-39 -- Employment Agreement for W. W. von Schack Amendment
No. 2.
(A)* 10-40 -- Employment Agreement for W. W. von Schack Amendment
No. 3.
(A) 10-41 -- Employment Agreement for M. I. German.
___________________________________
* Incorporated by reference.
(A) Management contract or compensatory plan or arrangement.
EXHIBIT INDEX (Cont'd)
(A)* 10-42 -- 1997 Stock Option Plan.
(A)* 10-43 -- Non-Statutory Stock Option Award Agreement.
(A) 10-44 -- 1998 Non-Statutory Stock Option Award Agreement.
(A) 10-45 -- Separation Agreement with J. H. Roskoz.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries.
23 -- Consent of Coopers & Lybrand L.L.P. to incorporation by
by reference into certain registration statements.
27 -- Financial Data Schedule.
99-1 -- Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 -- Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
*99-3 -- Order of the PSC modifying and approving the Agreement
Concerning the Competitive Rate and Restructuring Plan
of New York State Electric & Gas Corporation.
99-4 -- Opinion and Order of the PSC adopting terms of
settlement subject to modifications and conditions.
___________________________________
* Incorporated by reference.
(A) Management contract or compensatory plan or arrangement.
EXHIBIT NO. 10-35
AMENDMENT
Amendment Number Two (2) to Employee Invention and
Confidentiality Agreement Existing Executive, by and between, New
York State Electric & Gas Corporation (the "Company") and Jack H.
Roskoz ("me" or "I") is made and entered into this 3rd day of
November, 1997.
WHEREAS the Company and I are parties to a certain Employee
Invention and Confidentiality Agreement dated May 28, 1997 (the
"Agreement"), which was amended by Agreement dated July 2, 1997.
WHEREAS the Company and I now wish to amend that Agreement
to increase the period of noncompetition from one (1) year to two
(2) years; to modify the provisions relating to Consideration and
Wage Maintenance; and to otherwise modify the Agreement to
reflect my retirement effective January 1, 1998;
It is therefore agreed:
1. Section 7 - Nonsolicitation of the Agreement is
amended to read as follows:
Subject to the provisions of Section 10 and
independent of any obligations I might have under Section 9,
for a period of two (2) years after termination of my
employment with the Company for any reason or for no reason,
I will not, directly or indirectly, (a) divert or attempt to
divert any person, concern or entity which is furnished
services by the Company from doing business with the Company
or otherwise to change its relationship with the Company; or
(b) induce or attempt to induce any customer or supplier of
the Company to cease being a customer or supplier of the
company or otherwise to change its relationship with the
Company; or (c) render services, directly or indirectly, to
any Conflicting Product to any customer or supplier, or
prospective customer or supplier, of the Company with whom I
had direct or indirect contact or about whom I may have
acquired any knowledge during the two (2) years prior to
termination of my employment with the Company.
2. Section 8 - Solicitation of Employees of the
Agreement is amended to read as follows:
I agree that, during my employment with the
Company and for a period of two (2) years following
termination of my employment with the Company for any or no
reason, I shall not, directly or indirectly, solicit or
induce, or attempt to solicit or induce, any employee of the
Company to leave the Company for any reason whatsoever, or
hire or solicit the services of any employee of the Company.
3. Section 9 - Restrictions on Competition of the
Agreement is amended to read as follows:
<PAGE>
Subject to the provisions of Section 10 and
independent of any obligations that I might have under
Section 7, for a period of two (2) years after termination
of my employment with the Company for any reason or for no
reason, I will not render services, directly or indirectly,
within the Territory to or for any Conflicting Organization,
whether as principal or as agent, officer, director,
employee, consultant, shareholder, or otherwise, alone or in
association with any other person, corporation, or entity.
I may, however, accept employment or perform services in the
Territory to or for a Conflicting Organization whose
business is diversified, and which as to the part of the
business in which I am engaged is not a Conflicting
Organization, provided that the Company, prior to my
accepting such employment or performing such services, shall
receive separate written assurances satisfactory to the
Company from such Conflicting Organization and from me, that
I will not render services directly or indirectly in
connection with any Conflicting Product. I recognize that
the Company conducts or intends to conduct business within
the Territory, and therefore, I agree that this restriction
is reasonable and necessary to protect the Company s
business. Further, I agree that the Company may modify the
Territory, upon advance notice to me, in response to changes
in the Company s business or as my duties and
responsibilities change or evolve.
4. Section 10 - Consideration and Wage Maintenance of
the Agreement is amended to read as follows:
10.1 In consideration for my agreements as
contained herein, the Company agrees to pay to me a one-time
cash payment of One Thousand Five Hundred Dollars
($1,500.00). I acknowledge that I have already received
this one-time cash payment.
10.2 If I am entitled to receive Severance
Payments as defined in the Severance Agreement based upon
the circumstances surrounding termination of my employment
with the Company, then such Severance Payments, and other
rights and benefits to which I am entitled under the
Severance Agreement, shall constitute additional
consideration for my covenants, obligations and agreements
contained in this Agreement and I will not be entitled to
receive any payments set forth in Section 10.3, below.
10.3 If I am not entitled to receive Severance
Payments as defined in the Severance Agreement based upon
the circumstances surrounding termination of my employment
with the Company, then as additional consideration for
entering into this Agreement, should the Company terminate
my employment for any or no reason or upon my retirement at
the end of business on December 31, 1997, the Company will
pay me severance benefits in the total amount of $451,000
(the Separation Payments). The Separation Payments will be
paid in installments as follows:
1. During the first year following my
termination or retirement, the Separation Payments
will be paid in twelve (12) equal monthly
installments of $25,916.66 subject to withholding
for federal and state income taxes, FICA, and such
other and further deductions as may be required by
law.
2. During the second year following my
termination or retirement, the separation payments
will be paid in twelve (12) equal monthly
installments of $11,666.66, subject to withholding
for federal and state income taxes, FICA, and such
other and further deductions as may be required by
law.
10.3.1 Delete
10.3.2 Delete
10.3.3 Delete
10.3.4 Delete
10.3.5 Delete
5. Appendix C and D of the Agreement is deleted.
6. If I should die after termination or retirement,
the balance of the payments not yet made under this
Agreement shall be payable to my wife, Ruth W. Roskoz, if
living, if not to my daughter, Jennifer B. Roskoz.
Except as herein modified, the Agreement is hereby
ratified and confirmed.
Jack H. Roskoz
Jack H. Roskoz
New York State Electric & Gas Corporation
By: Richard R. Benson
Title: November 3, 1997
EXHIBIT 10-41
EMPLOYMENT AGREEMENT
AGREEMENT made this 1st day of March, 1998, between New York
State Electric & Gas Corporation, a New York corporation (the
"Company"), and Michael I. German (the "Executive").
The Board of Directors of the Company (the "Board") desires
to provide for the employment of the Executive as a member of the
Company's management, in the best interest of the Company and its
shareholders. The Executive is willing to commit himself to
serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the
Executive wish to enter into an employment agreement on the terms
and conditions set forth below. Accordingly, in consideration of
the premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms
used in this Agreement, unless otherwise defined herein, are
provided in the last Section hereof.
2. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company,
on the terms and conditions set forth herein, during the term of
this Agreement (the "Term").
3. Term of Agreement. The Term will commence on the date
hereof and end on February 28, 2001, unless further extended as
hereinafter provided. Commencing on March 1, 1999 and each March
1, thereafter, the Term of this Agreement shall automatically be
extended for one (1) additional year unless, not later than the
November 30 immediately preceding each such March 1, the Company
(upon authorization by the Board) or the Executive shall have
given notice not to extend this Agreement; provided, however, if
a Change-in-Control shall have occurred during the Term of this
Agreement, Sections 5.4, 6, 7 and 10 through 20 of this Agreement
and the second paragraph of Section 5.2 of this Agreement shall
continue in effect until at least the end of the Change-in-
Control Protective Period (whether or not the Term of the
Agreement shall have expired for other purposes).
4. Position and Duties. The Executive shall serve as
Executive Vice President of the Company and shall have such
responsibilities, duties and authority that are consistent with
such position as may from time to time be assigned to the
Executive by the Board. The Executive shall devote substantially
all his working time and efforts to the business and affairs of
the Company; provided, however, that the Executive may also serve
on the boards of directors or trustees of other companies and
organizations, as long as such service does not substantially
interfere with the performance of his duties hereunder.
<PAGE>
5. Compensation and Related Matters.
5.1 Base Salary. The Company shall pay the Executive
a base salary ("Base Salary") during the period of the
Executive's employment hereunder, which shall be at an initial
rate of Three Hundred Twenty-Five Thousand Dollars ($325,000) per
annum. The Base Salary shall be paid in substantially equal bi-
weekly installments, in arrears. The Base Salary may be
discretionarily increased by the Board from time to time as the
Board deems appropriate in its reasonable business judgment. The
Base Salary in effect from time to time shall not be decreased
during the Term. During the period of the Executive's employment
hereunder, the Board shall make an annual review of the
Executive's compensation.
Compensation of the Executive by Base Salary payments
shall not be deemed exclusive and shall not prevent the Executive
from participating in any other compensation or benefit plan of
the Company. The Base Salary payments (including any increased
Base Salary payments) hereunder shall not in any way limit or
reduce any other obligation of the Company hereunder, and no
other compensation, benefit or payment hereunder shall in any way
limit or reduce the obligation of the Company to pay the
Executive's Base Salary hereunder.
5.2 Benefit Plans. The Executive shall be entitled to
participate in or receive benefits under any "employee benefit
plan" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended from time to time
("ERISA")) or employee benefit arrangement made available by the
Company now or during the period of the Executive's employment
hereunder to its executives and key management employees, subject
to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements; provided,
however, that there shall be no duplication of the benefits
created by this Agreement. The Executive's participation in such
employee benefit plans and arrangements shall be on an
appropriate level, as determined by the Board.
If the Executive's service with the Company from
December 5, 1994 exceeds five full years, the Company shall pay
to the Executive a monthly pension supplement that results in the
Executive receiving a total monthly pension based upon two years
of service for each of the Executive's first five years of
service. Specifically, the monthly pension supplement shall be
equal to the amount by which (i) the total monthly payments that
would be due to the Executive under the Company's Retirement
Benefit Plan and the Company's Supplemental Executive Retirement
Plan if the Executive's monthly benefits under those two plans
were calculated by giving the Executive credit for two years of
service for each of the Executive's actual first five years of
service exceeds (ii) the actual total monthly amounts that are
due under those two plans.
5.3 Expenses. Upon presentation of reasonably
adequate documentation to the Company, the Executive shall
receive prompt reimbursement from the Company for all reasonable
and customary business expenses incurred by the Executive in
accordance with the Company policy in performing services
hereunder.
5.4 Vacation. The Executive shall be entitled to five
(5) weeks of vacation during each year of this Agreement, or such
greater period as the Board shall approve, without reduction in
salary or other benefits.
6. Compensation Related to Disability or Termination
(Other Than Certain Post-Termination Payments).
6.1 During the Term of this Agreement (or, if later,
at any time prior to the end of the Change-in-Control Protective
Period), during any period that the Executive fails to perform
the Executive's full-time duties with the Company as a result of
incapacity due to physical or mental illness, the Company shall
pay the Executive's Base Salary to the Executive at the rate in
effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement
maintained by the Company during such period, until the
Executive's employment is terminated by the Company for
Disability; provided, however, that such Base Salary payments
shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such Base Salary
payment under disability benefit plans of the Company or under
the Social Security disability insurance program, which amounts
were not previously applied to reduce any such Base Salary
payment. Subject to Sections 7, 8, 9 and 10 hereof, after
completing the expense reimbursements required by Section 5.3
hereof and making the payments and providing the benefits
required by this Section 6.1, the Company shall have no further
obligations to the Executive under this Agreement.
6.2 If the Executive's employment shall be terminated
for any reason during the Term of this Agreement (or, if later,
prior to the end of the Change-in-Control Protective Period), the
Company shall pay the Executive's Base Salary (to the Executive
or in accordance with Section 14.2 if the Executive's employment
is terminated by his death) through the Date of Termination at
the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any
compensation or benefit plan, program or arrangement maintained
by the Company during such period. Subject to Sections 6.1, 7,
8, 9 and 10 hereof, after completing the expense reimbursements
required by Section 5.3 hereof and making the payments and
providing the benefits required by this Section 6.2, the Company
shall have no further obligations to the Executive under this
Agreement.
7. Normal Post-Termination Payments Upon Termination of
Employment. If the Executive's employment shall be
terminated for any reason during the Term of this Agreement (or,
if later, prior to the end of the Change-in-Control Protective
Period), the Company shall pay the Executive's normal post-
termination compensation and benefits to the Executive as such
payments become due. Subject to Section 10.1 hereof and the
second paragraph of Section 5.2 hereof, such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements (other
than this Agreement).
8. Termination of Employment (During the Term and Prior
to a Change-in-Control) by the Company Without Cause.
If the Company shall terminate the Executive's employment during
the Term and prior to a Change-in-Control, without Cause (and not
for Disability or in connection with the Executive's Retirement
or the Executive's death), then in lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive, within the
five days immediately following the Date of Termination, a lump
sum amount equal to the present value (calculated using a
discount at the appropriate corresponding United States Treasury
Bill rate) of the aggregate Base Salary otherwise payable to the
Executive through the end of the Term.
9. Post-Termination Continuation of Welfare Benefit
Plan Coverage. If the termination of the Executive's
employment is described in Section 8 hereof, the Company shall
maintain in full force and effect, for the continued benefit of
the Executive for the number of years (including partial years)
remaining in the Term, each "employee welfare benefit plan" (as
described in Section 3(1) of ERISA) in which the Executive was
entitled to participate immediately prior to the Date of
Termination, provided that the Executive's continued
participation is possible under the general terms and provisions
of such plans. In the event that the Executive's participation
in any such plan is barred, the Company shall arrange to provide
the Executive with benefits substantially similar to those which
the Executive would otherwise have been entitled to receive under
the plan from which his continued participation is barred.
10. Severance Payments.
10.1 The Company shall pay the Executive the payments
described in this Section 10.1 (the "Severance Payments") upon
the termination of the Executive's employment following a Change-
in-Control and prior to the end of the Change-in-Control
Protective Period, in addition to the payments and benefits
described in Sections 6 and 7 hereof, unless such termination is
(i) by the Company for Cause, (ii) by reason of death, Disability
or Retirement, or (iii) by the Executive without Good Reason.
For purposes of the immediately preceding sentence, if a
termination of the Executive's employment occurs prior to a
Change-in-Control, but following a Potential Change-in-Control in
which a Person has entered into an agreement with the Company the
consummation of which will constitute a Change-in-Control, such
termination shall be deemed to have followed a Change-in-Control
and to have been (i) by the Company without Cause, if the
Executive's employment is terminated without Cause at the
direction of such Person, or (ii) by the Executive with Good
Reason, if the Executive terminates his employment with Good
Reason and the act (or failure to act) which constitutes Good
Reason occurs following such Potential Change-in-Control and at
the direction of such Person.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination,
in lieu of any lump sum payment with respect to aggregate
Base Salary otherwise payable pursuant to Section 8 hereof,
and in lieu of any severance benefit otherwise payable to
the Executive, the Company shall pay to the Executive a lump
sum severance payment, in cash, equal to three (3) times the
sum of:
(i) the higher of the Executive's annual Base Salary
in effect immediately prior to the occurrence of
the event or circumstance upon which the Notice of
Termination is based or the Executive's annual
Base Salary in effect immediately prior to the
Change-in-Control, and
(ii) the incentive compensation award the Executive
would have received under the Annual Executive
Incentive Plan, or any successor annual executive
incentive compensation plan, for the year in which
the Date of Termination occurs, calculated in
accordance with Article XI (A) (iii) of the Annual
Executive Incentive Plan or any comparable
provision in any successor annual executive
incentive compensation plan, without, however,
giving effect to any pro-rata adjustments
contained in said provisions.
(B) Notwithstanding any provision of the Company's
Annual Executive Incentive Plan, or any successor annual
executive incentive compensation plan, the Company shall pay
to the Executive a lump sum amount, in cash, equal to the
sum of (i) any incentive compensation which has been
allocated or awarded to the Executive for a completed fiscal
year preceding the Date of Termination under the Annual
Executive Incentive Plan, or any successor annual executive
incentive compensation plan, but has not yet been either (x)
paid (pursuant to Section 6.2 hereof or otherwise) or (y)
deferred pursuant to the Deferred Compensation Plan for
Salaried Employees, and (ii) a pro-rata portion to the Date
of Termination of the aggregate value of any contingent
incentive compensation award to the Executive for any
uncompleted fiscal year under the Annual Executive Incentive
Plan or any successor annual executive incentive
compensation plan, calculated as to each such award in
accordance with Article XI (A) (iii) of the Annual Executive
Incentive Plan or any comparable provision in any successor
annual executive incentive compensation plan.
(C) In determining the retirement benefits to which
the Executive is entitled under the Company's Supplemental
Executive Retirement Plan, the Executive shall be given an
additional two (2) years of service credit at the
Executive's highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of
Termination and shall be deemed to be two (2) years older
than he is; provided that if the Executive does not have at
least ten (10) years of service credit under the Company's
Supplemental Executive Retirement Plan after such additional
two (2) years of service credit, the Executive shall be
deemed to have at least ten (10) years of service credit
under the Supplemental Executive Retirement Plan; such
benefits shall be determined without regard to any amendment
to the Supplemental Executive Retirement Plan made
subsequent to a Change-in-Control and on or prior to the
Date of Termination, which amendment adversely affects in
any manner the computation of retirement benefits
thereunder.
(D) For a thirty-six (36) month period after the Date
of Termination, the Company shall arrange to provide the
Executive with life, disability, accident and health
insurance benefits substantially similar to those which the
Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such
benefits subsequent to a Change-in-Control if the Executive
terminated his employment for Good Reason or was terminated
without Cause). Benefits otherwise receivable by the
Executive pursuant to this Section 10.1(D) shall be reduced
to the extent comparable benefits are actually received by
or made available to the Executive without cost during the
thirty-six (36) month period following the Executive's
termination of employment (and any such benefits actually
received by the Executive shall be reported to the Company
by the Executive). If the benefits provided to the
Executive under this Section 10.1(D) shall result in a
Gross-Up Payment pursuant to Section 10.2, and these Section
10.1(D) benefits are thereafter reduced pursuant to the
immediately preceding sentence because of the receipt of
comparable benefits, the Gross-Up Payment shall be
recalculated so as to reflect that reduction, and the
Executive shall refund to the Company an amount equal to any
calculated reduction in the Gross-Up Payment, but only if,
and to the extent, the Executive receives a refund of any
Excise Tax previously paid by the Executive pursuant to
Section 10.2 hereof.
10.2 (A) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
the Executive on account of a Change-in-Control, whether paid or
payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment
("Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 10.2(C)
hereof, all determinations required to be made under this Section
10.2, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be used in
arriving at such determinations, shall be made by the Company's
principal outside accounting firm (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Board
and the Executive within fifteen (15) business days of the Date
of Termination and/or such earlier date(s) as may be requested by
the Company or the Executive (each such date and the Date of
Termination shall be referred to as a "Determination Date", for
purposes of this Section 10.2(B) and Section 10.3 hereof). All
fees and expenses of the Accounting Firm shall be borne solely by
the Company. The initial Gross-Up Payment, if any, as determined
pursuant to this Section 10.2(B), shall be paid by the Company to
the Executive within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure
to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the
Accounting Firm under this Section 10.2(B) shall be binding upon
the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section
10.2(C) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(C) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of an
Underpayment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty (30) day period
following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 10.2(C),
the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(D) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 10.2(C)
hereof, the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 10.2(C)
hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 10.2(C)
hereof, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven and
shall not be required to be repaid.
10.3 The payments provided for in Section 10.1 hereof
(other than Section 10.1(C) and (D)) shall be made not later than
the fifth day following each Determination Date, provided,
however, that if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined by the
Executive, of the minimum amount of such payments to which the
Executive is clearly entitled and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day
after each Determination Date. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the
Company to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
10.4 The Company also shall pay to the Executive all
legal fees and expenses incurred by the Executive as a result of
a termination which entitles the Executive to the Severance
Payments (including all such fees and expenses, if any, incurred
in disputing any such termination or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement
or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to
any payment or benefit provided hereunder). Such payments shall
be made within five (5) business days after delivery of the
Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably
may require.
11. Termination Procedures.
11.1 Notice of Termination. During the Term of this
Agreement (and, if longer, until the end of the Change-in-Control
Protective Period), any purported termination of the Executive's
employment (other than by reason of death) shall be communicated
by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 15 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board which
was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of conduct
set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
11.2 Date of Termination. "Date of Termination", with
respect to any purported termination of the Executive's
employment during the Term of this Agreement (or prior to the end
of the Change-in-Control Protective Period, if a Change-in-
Control shall have occurred), shall mean (i) if the Executive's
employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day
period), and (iii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than
sixty (60) days, respectively, from the date such Notice of
Termination is given).
<PAGE>
12. No Mitigation. The Company agrees that, if the
Executive's employment by the Company is terminated during the
Term (or, if later, prior to the end of the Change-in-Control
Protective Period), the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable
to the Executive by the Company hereunder. Further, the amount
of any payment or benefit provided for hereunder (other than
pursuant to Section 10.1(D) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the Company, or
otherwise.
13. Confidentiality and Noncompetition.
13.1 The Executive will not, during or after the Term,
disclose to any entity or person any information which is treated
as confidential by the Company and to which the Executive gains
access by reason of his position as an employee or director of
the Company.
13.2 If, at any time prior to the end of the Term (or,
if later, the end of the Change-in-Control Protective Period),
the Executive terminates his own employment without Good Reason
(and not in connection with his Disability, Retirement or death)
or the Company terminates his employment with Cause, then for a
twelve-month period immediately following his Date of
Termination, the Executive shall not, except as permitted by the
Company upon its prior written consent, enter, directly or
indirectly, into the employ of or render or engage in, directly
or indirectly, any services to any person, firm or corporation
within the "Restricted Territory," which is a major competitor of
the Company with respect to products which the Company is then
producing or services the Company is then providing (a
"Competitor"). However, it shall not be a violation of the
immediately preceding sentence for the Executive to be employed
by, or render services to, a Competitor, if the Executive renders
those services only in lines of business of the Competitor which
are not directly competitive with the primary lines of business
of the Company or are outside of the Restricted Territory. For
purposes of this Section 13.2, the "Restricted Territory" shall
be the states of Maryland, New Jersey, New York and Pennsylvania.
14. Successors; Binding Agreement.
14.1 In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change-in-Control,
except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed
the Date of Termination.
14.2 This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive shall die
while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate
upon the death of the Executive) if the Executive had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the
Executive's estate.
15. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall
be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
New York State Electric & Gas Corporation
4500 Vestal Parkway East
Binghamton, NY 13902-3607
Attention: Corporate Secretary
To the Executive:
Michael I. German
8 Meadowood Lane
Binghamton, NY 13901
16. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Executive
and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein
and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or written, by any officer, employee or
representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained
herein is hereby terminated and cancelled. The validity,
interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York. All
references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such
sections. There shall be withheld from any payments provided for
hereunder any amounts required to be withheld under federal,
state or local law and any additional withholding amounts to
which the Executive has agreed. The obligations under this
Agreement of either the Company or the Executive which by their
nature and terms require satisfaction after the end of the Term
(or after the end of the Change-in-Control Protective Period)
shall survive such event and shall remain binding upon such
party.
17. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
19. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to
and determined by the Board and shall be in writing. Any denial
by the Board of a claim for benefits under this Agreement shall
be delivered to the Executive in writing and shall set forth the
specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the
Board a decision of the Board within sixty (60) days after
notification by the Board that the Executive's claim has been
denied. To the extent permitted by applicable law, any further
dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in
Binghamton, New York in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
<PAGE>
20. Definitions. For purposes of this Agreement, the
following terms shall have the meaning indicated below:
(A) "Base Salary" shall have the meaning stated in
Section 5.1 hereof.
(B) "Beneficial Owner" shall have the meaning defined
in Rule 13-d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the
Company.
(D) "Cause" for termination by the Company of the
Executive's employment, for purposes of this Agreement, shall
mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual
or anticipated failure after the issuance of a Notice of
Termination for Good Reason by the Executive pursuant to Section
11.1) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive
in conduct which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful"
unless done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company.
(E) A "Change-in-Control" shall be deemed to have
occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied during the Term:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by
such Person any securities acquired directly from the
Company or its affiliates) representing 25% or more of
the combined voting power of the Company's then
outstanding securities; or
(II) during any period of two consecutive years (not
including any period prior to the date of this
Agreement), individuals who at the beginning of such
period constitute the Board and any new director (other
than a director designated by a Person who has entered
into an agreement with the Company to effect a
transaction described in paragraph (I), (III) or (IV)
of this Change-in-Control definition or a director
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitations of proxies or
consents by or on behalf of a Person other than the
Board) whose election by the Board or nomination for
election by the Company's stockholders was approved by
a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved, cease for any
reason to constitute a majority thereof; or
(III) the shareholders of the Company approve a merger
or consolidation of the Company with any other
corporation, other than (i) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of
the Company, at least 75% of the combined voting power
of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no
Person acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or
substantially all the Company's assets.
(F) "Change-in-Control Protective Period" shall mean
the period from the occurrence of a Change-in-Control until the
later of (i) the second anniversary of such Change-in-Control or,
(ii) if such Change-in-Control shall be caused by the shareholder
approval of a merger or consolidation, as described in Section
15(E)(III) hereof, the second anniversary of the consummation of
such merger or consolidation, provided, however, that in the
event that the agreement providing for such merger or
consolidation, as described in Section 15(E)(III) hereof, is
terminated without consummation of such merger or consolidation,
the Change-in-Control Protective Period shall expire 90 days
following such termination, unless there has occurred another
event constituting a Change-in-Control, in which case the Change-
in-Control Protective Period shall expire upon the date described
herein with respect to such subsequent Change-in-Control.
(G) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(H) "Company" shall mean New York State Electric & Gas
Corporation and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law,
or otherwise (except in determining, under Section 20(E) hereof,
whether or not any Change-in-Control of the Company has occurred
in connection with such succession).
(I) "Date of Termination" shall have the meaning
stated in Section 11.2 hereof.
(J) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as
a result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time
performance of the Executive's duties with the Company for the
maximum number of months applicable to the Executive under the
Company's Disability Policy for Salaried Employees (but in no
event for less than six (6) consecutive months), the Company
shall have given the Executive a Notice of Termination for
Disability, and, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to
the full-time performance of the Executive's duties.
(K) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(L) "Excise Tax" shall have the meaning stated in
Section 10.2(A) hereof.
(M) "Executive" shall mean the individual named in the
first paragraph of this Agreement.
(N) "Good Reason" for termination by the Executive of
the Executive's employment shall mean the occurrence (without the
Executive's express written consent) after any Change-in-Control,
or after any Potential Change-in-Control under the circumstances
described in the second sentence of Section 10.1 hereof (treating
all references in paragraphs (I) through (VII) below to a
"Change-in-Control" as references to a "Potential Change-in-
Control), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or
failure to act described in paragraphs (I), (V), (VI) or (VII)
below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in
respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as an
executive officer of the Company or a substantial
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior
to the Change-in-Control (including, without
limitation, any such alteration attributable to the
fact that the Company may no longer be a public
company);
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date
hereof or as the same may be increased from time to
time;
(III) the relocation of the Company's principal
executive offices to a location more than fifty (50)
miles from the location of such offices immediately
prior to the Change-in-Control or the Company's
requiring the Executive to be based anywhere other than
the Company's principal executive offices except for
required travel on the Company's business to an extent
substantially consistent with the Executive's present
business travel obligations;
(IV) the failure by the Company, without the
Executive's consent, to pay to the Executive any
portion of the Executive's current compensation, or to
pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the
date such compensation is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the Change-in-Control
which is material to the Executive's total
compensation, including but not limited to the
Company's Annual Executive Incentive Plan, Long Term
Executive Incentive Share Plan, and Supplemental
Executive Retirement Plan, or any substitute plans
adopted prior to the Change-in-Control, unless an
equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount
of benefits provided and the level of the Executive's
participation relative to other participants, as
existed at the time of the Change-in-Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially
similar to those enjoyed by the Executive under any of
the Company's pension, life insurance, medical, health
and accident, or disability plans in which the
Executive was participating at the time of the Change-
in-Control, the taking of any action by the Company
which would directly or indirectly materially reduce
any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the
time of the Change-in-Control, or the failure by the
Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled
to under Section 5.4 hereof, or the failure by the
Company to provide the Executive with the pension
supplement it agreed to provide pursuant to the second
paragraph of Section 5.2 hereof; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
11.1; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's
employment for Good Reason shall not be affected by the
Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(O) "Gross-Up Payment" shall have the meaning stated
in Section 10.2(A) hereof.
(P) "Notice of Termination" shall have the meaning
stated in Section 11.1 hereof.
(Q) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof; however, a Person shall not include (i)
the Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(R) "Potential Change-in-Control" shall be deemed to
have occurred if the conditions set forth in any one of the
following paragraphs shall have been satisfied during the Term:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of
a Change-in-Control;
(II) the Company or any Person publicly announces
an intention to take or to consider taking actions
which, if consummated, would constitute a Change-in-
Control;
(III) any Person (x) is or becomes the Beneficial
Owner, directly or indirectly, (y) discloses directly
or indirectly to the Company (or publicly) a plan or
intention to become the Beneficial Owner, directly or
indirectly, or (z) makes a filing under the Hart-Scott-
Rodino Anti-Trust Improvements Act of 1976, as amended,
with respect to securities to become the Beneficial
Owner, directly or indirectly, of securities of the
Company representing 9.9% or more of the combined
voting power of the Company's then outstanding
securities; or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential
Change-in-Control has occurred.
(S) "Retirement" shall be deemed the reason for the
termination by the Company or the Executive of the Executive's
employment if such employment is terminated in accordance with
the Company's retirement policy, not including early retirement,
generally applicable to its salaried employees, as in effect
immediately prior to the Change-in-Control, or in accordance with
any retirement arrangement established with the Executive's
consent with respect to the Executive.
(T) "Severance Payments" shall mean those payments
described in Section 10.1 hereof.
(U) "Term" shall have the meaning stated in Section 3
hereof.
NEW YORK STATE ELECTRIC & GAS
CORPORATION
By Wesley W. Von Schack
Name: WESLEY W. VON SCHACK
Title: Chairman, President and
Chief Executive Officer
Michael German
MICHAEL I. GERMAN
EXHIBIT NO. 10-44
NEW YORK STATE ELECTRIC & GAS CORPORATION
1998 STOCK OPTION AWARD AGREEMENT
1. Pursuant to the provisions of the 1997 Stock Option
Plan, as it may be amended from time to time (hereinafter called
the "Plan"), of New York State Electric & Gas Corporation
(hereinafter called the "Company"), the Company hereby grants to
________________ (hereinafter called the "Optionee"), subject in
all respects to the terms and conditions of the Plan and subject
further to the terms and conditions herein set forth, the right
and option to purchase from the Company all or any part of an
aggregate of _______ shares of Common Stock ($6.66 2/3 Par Value)
of the Company at the purchase price of $_____ per share
(hereinafter called the "Option"). Capitalized terms not
defined herein shall have the same definitions as in the Plan.
2. The Option is a Non-Statutory Stock Option and is
intended not to qualify as an Incentive Stock Option under
Section 422 of the Code.
3. Except as otherwise provided herein, the Option is not
exercisable in any part between the time of its grant, February
5, 1998 ("Option Grant Date") and January 1, 1999. Upon the
expiration of this period of time and subject to the provisions
for termination and acceleration provided herein, the Option will
become exercisable in installments as follows: The Option may be
exercised on and after January 1, 1999 in aggregate as to no more
than 33 1/3% of the total number of shares originally optioned,
rounded to the next whole number; on and after January 1, 2000 in
aggregate as to no more than 66 2/3% of the total number of
shares originally optioned, rounded to the next whole number; and
on January 1, 2001 as to all optioned shares which have not
previously been exercised. Partial exercises of the Option shall
be made only with respect to whole shares of the Company's Common
Stock. In no event may the Option granted hereunder be exercised
after February 5, 2008 ("Option Expiration Date").
4. In addition to the grant of the Option hereunder, the
Optionee is hereby granted Stock Appreciation Rights in tandem
with the Option which entitle the Optionee to receive from the
Company, upon the exercise of such Stock Appreciation Rights, an
amount equal to the excess of the Fair Market Value of a share of
the Company's Common Stock, determined on the date of the
exercise, over the exercise price of the Option. Stock
Appreciation Rights shall be exercisable under the same terms and
conditions contained in Article 3 herein and shall expire on the
Option Expiration Date. Upon their exercise, Stock Appreciation
Rights shall be settled in cash. The exercise of Stock
Appreciation Rights granted shall result in the corresponding
cancellation of the Option to the extent of the number of shares
of the Company's Common Stock as to which Stock Appreciation
Rights are exercised. The exercise of the Option shall result in
the corresponding cancellation of the Stock Appreciation Rights
to the extent of the number of shares of the Company's Common
Stock as to which the Option is exercised. The Option and the
Stock Appreciation Rights are collectively referred to
hereinafter as "Awards".
5. Neither the Option nor any right hereunder shall be
assignable or transferrable by the Optionee or be subject to any
lien, obligation or liability of the Optionee, except that the
Option may be transferred:
(a) by the Optionee by will or the laws of descent and
distribution;
(b) by the Optionee, with the prior written consent of
the committee administering the Plan
("Committee"), by gift to (i) the Optionee's
spouse or a child or grandchild of the Optionee or
of the Optionee's spouse, or (ii) a trust or an
estate in which the Optionee or the Optionee's
spouse or a child or grandchild of the Optionee or
of the Optionee's spouse has a substantial
interest; and
(c) by the Optionee, with the prior written consent of
the Committee, pursuant to a domestic relations
order as defined in Section 414 of the Code, or
any successor provision.
In the event of a transfer, the Option shall continue to be
subject to all the terms and conditions contained herein and the
Optionee shall remain obligated to pay to the Company, upon the
exercise of the Option by the Optionee's transferee, amounts
sufficient to satisfy any applicable federal, state and local
withholding tax requirements. The Option may not be further
transferred by the Optionee's transferee, except by will or the
laws of descent and distribution. Moreover, the Committee may
require a transferee who acquires the Option pursuant to
Subsections (b) or (c) above to furnish to the Company, as a
condition to the issuance of shares upon the exercise of the
Option, an agreement (in such form as the Committee may specify)
that is executed by the transferee and that contains such
provisions, including representations and restrictions as to the
transferability of the shares, as are required by the Committee.
In the event of the termination of the employment of the
Optionee, the Option shall be exercisable by the Optionee's
transferee only to the extent specified, and during the
applicable periods set forth, in Section 11 hereof.
A transfer of all or any portion of the Option shall result
in the concurrent transfer of the related tandem Stock
Appreciation Rights. Stock Appreciation Rights may not be
transferred by themselves.
6. Unless otherwise provided by the Committee, the Option,
or any portion thereof, shall be exercised by a written notice
(in such form as the Committee may specify) that is addressed to
the Secretary of the Company and that specifies the number of
shares with respect to which it is being exercised and the total
exercise price. The written notice shall be accompanied by the
payment of the exercise price in cash or the equivalent payable
to the Company, or, unless otherwise provided by the Committee,
by tendering (either actually or by delivery of a Committee-
approved form attesting to stock ownership) previously acquired
shares of the Company's Common Stock which are owned by the
Optionee (or the Optionee's transferee) and which are not subject
to any pledge or other security interest, or by any combination
of the foregoing. With respect to shares tendered in lieu of the
payment of cash or cash equivalents, such shares shall be valued
on the basis of their Fair Market Value on the date of exercise.
Unless otherwise provided by the Committee, an Option shall not
be deemed exercised until the date ("Exercise Date") that both a
written notice of exercise and the payment of the exercise price
in the form required herein is provided to the Company in
accordance with the provisions of Section 10 hereof.
The Committee, in its sole discretion, may, in lieu of
delivering shares covered by the exercised Option, settle the
exercise of the Option by means of a cash payment to the Optionee
(or the Optionee's transferee) equal to the difference between
the Fair Market Value of the Company's Common Stock determined on
the Exercise Date and the Option Price. The Committee shall at
the same time return to the Optionee (or the Optionee's
transferee) any payment for the shares covered by the Option.
Unless otherwise provided by the Committee, (i) the Stock
Appreciation Rights shall be exercised by delivery of a written
notice that is addressed to the Secretary of the Company and that
specifies the number of shares with respect to which the Stock
Appreciation Right is being exercised, and (ii) the Exercise Date
with respect to a Stock Appreciation Right shall be the date the
written notice of exercise of the Stock Appreciation Right is
provided to the Company in accordance with the provisions of
Section 10 hereof.
7. As a condition to the issuance of shares of Common
Stock of the Company under the Option, the Optionee shall remit
(or cause to be remitted) to the Company an amount sufficient to
satisfy any applicable federal, state and local withholding tax
requirements. An Optionee may, totally or in part, satisfy this
obligation by electing to have shares withheld (with the consent
of the Optionee's transferee, in the event the Option is
exercised by a transferee) or by delivering other shares having a
Fair Market Value equal to the amount required to be withheld,
provided that this election is made in writing on or prior to the
date of the exercise of the Option. The Fair Market Value of any
shares so withheld or delivered shall be determined as of the
date the taxes are required to be withheld.
8. Except as otherwise provided herein, to the extent that
all or any portion of the exercise price, or taxes incurred in
connection with the exercise of the Option, are paid by the
Optionee by surrendering shares of the Company's Common Stock
(or, in the case of the payment of taxes, by the withholding of
shares) then, concurrently with such surrender or withholding,
the Optionee shall be granted as an additional option a
replacement option, subject in all respects to the provisions of
the Plan, including but not limited to Article V thereof. The
replacement option, to the extent permissible, shall cover the
number of shares of the Company's Common Stock surrendered to pay
the exercise price plus the number of shares surrendered or
withheld to satisfy the Optionee's tax liability and shall have
an exercise price equal to 100% of the Fair Market Value of the
Company's Common Stock determined on the date such replacement
option is granted. The replacement option shall not be
exercisable for six months from the date of its grant and shall
expire on the Option Expiration Date. No replacement option
shall be issued after August 5, 2007. Replacement options shall
be issued with respect to options which are themselves
replacement options. Notwithstanding the foregoing, neither the
surrender of shares in connection with the exercise of the Option
(or a replacement option) by the Optionee's transferee, nor the
surrender or withholding of shares in connection with the payment
of any taxes incurred with respect to such an exercise, shall
result in the grant of a replacement option to any party.
9. The Company shall, on or as soon as practicable after
the date of the exercise of all or a portion of the Option,
deliver to the Optionee (or the Optionee's transferee) a
certificate or certificates for the appropriate number of shares
of the Company's Common Stock (or in the event that the Company
is using a book entry system, make the appropriate book entry).
Notwithstanding anything to the contrary contained in the Plan or
this Agreement, the Company shall not be required to issue shares
of Common Stock until all applicable legal, listing, registration
and regulatory requirements or approvals relating to the issuance
have been satisfied or obtained. The shares of the Company's
Common Stock issued upon the exercise of an Option may not be
transferred except in accordance with all applicable federal and
state securities laws, rules and regulations. Certificates
issued to transferees of the Optionee may contain legends
reflecting any restrictions on transferability imposed by the
Company in order to comply with such laws, rules and regulations.
The Company shall not be required to register any shares issued
to any transferees of the Optionee.
10. All notices under this Agreement shall be in writing.
Notices, other communications and payments provided for in this
Agreement shall be deemed to have been duly given or made when
delivered in person or when mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
Company at the address set forth below or to the Optionee at the
address set forth on the signature page of this Agreement or to
such substitute address as either party may have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual receipt:
<PAGE>
Corporate Secretary
New York State Electric & Gas Corporation
4500 Vestal Parkway East
Binghamton, New York 13902
11. Termination of Employment.
(a) In the event that the Optionee ceases to be an
employee of the Company by reason of death,
retirement, or permanent disability, the Awards
may be exercised by the Optionee or by the
Optionee's legal representative or representatives
or by the persons entitled to do so under the
Optionee's will or the laws of descent and
distribution, to the extent the Awards are then
otherwise exercisable, during the one-year period
following the date the Optionee ceases to be an
employee of the Company, but not after the
expiration of such period.
(b) In the event that the Optionee ceases to be an
employee of the Company by reason of termination
by the Company of the Optionee's employment for
cause (as determined in the sole discretion of the
Committee), the Awards shall expire to the extent
that they are unexercised at the time of such
termination of employment.
(c) In the event that the Optionee ceases to be an
employee of the Company for any reason other than
death, retirement, permanent disability or
termination of employment by the Company for
cause, the Awards shall expire to the extent that
they are unexercised at the time such Optionee
ceases to be an employee of the Company unless
otherwise determined by the Committee in its sole
discretion.
12. In the event of any change in the number of outstanding
shares of the Company's Common Stock or the Common Stock price by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination, exchange of
shares or other similar corporate change, then in any such event
the number and kind of shares subject to the Awards and the
exercise price per share may be appropriately adjusted consistent
with such change in such manner as the Committee in its sole
discretion may deem equitable. Any adjustments made by the
Committee shall be conclusive and binding for all purposes of the
Plan.
In the event of the dissolution or complete liquidation of
the Company, or upon a reorganization, merger or consolidation of
the Company which results in the outstanding shares of the
Company's Common Stock subject to this Option being changed into
or exchanged for property (including cash), rights or securities
not issued by the Company, or any combination thereof, or the
sale of all or substantially all of the Company's assets to, or
the acquisition of shares of the Company representing more than
seventy-five percent (75%) of the voting power of the stock of
the Company then outstanding by, another corporation or person,
the Awards shall terminate, unless provision is made in writing
in connection with such transaction for the assumption of the
Awards, or the substitution for the Awards of an award covering
the shares of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments in accordance
with the provisions hereinabove as to the number and kind of
shares awarded and their exercise price, in which event the
Awards shall continue in the manner and under the terms so
provided.
Notwithstanding anything to the contrary contained herein,
in the event of the formation of a holding company ("Holding
Company") over New York State Electric & Gas Corporation pursuant
to a binding share exchange, the Awards shall, without further
action, be deemed to be converted into awards covering the
equivalent number of shares of the Holding Company, with the same
terms and conditions as set forth herein.
In such event, the references to "Company" in Sections 11
and 13 hereof shall be to the "Holding Company and its
affiliates" and the references to "Company" in the other sections
of this Agreement shall be to the "Holding Company".
13. The Awards shall not confer upon the Optionee any right
with respect to the continuance of employment with the Company,
nor shall it affect any right which the Company may have to
terminate the employment of the Optionee.
14. The Optionee (or Optionee's transferee) shall not be
entitled to the rights of a stockholder with respect to any
shares of the Company's Common Stock subject to the Option prior
to the date of issuance of a certificate or certificates for such
shares (or in the event that the Company is using a book entry
system, the date the Company makes the appropriate book entry).
No adjustment shall be made for dividends or distributions or
other rights with respect to such shares for which the record
date is prior to the date the stock certificate or certificates
are issued (or appropriate book entry is made).
15. A copy of the Plan has been delivered to the Optionee
prior to the execution hereof and is on file at the Company's
corporate offices in Binghamton and Ithaca, New York.
16. This Agreement shall be governed by the laws of the
State of New York, other than its conflicts of laws provisions.
In the event of an inconsistency between any term of the Plan and
any term of this Agreement, the terms of the Plan shall govern.
17. Notwithstanding anything to the contrary contained in
any other Section of this Agreement, the Options and Stock
Appreciation Rights granted hereunder shall become immediately
exercisable upon the occurrence of a Potential Change in Control.
For purposes of this Section 17, the following terms shall
have the meanings indicated below:
(a) "Beneficial Owner" shall have the meaning defined
in Rule 13d-3 of the Exchange Act.
(b) A "Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of
the following paragraphs shall have been
satisfied:
(i) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities
of the Company (not including in the
securities beneficially owned by such Person
any securities acquired directly from the
Company or its affiliates) representing 25%
or more of the combined voting power of the
Company's then outstanding securities; or
(ii) during any period of two consecutive years
(not including any period prior to the date
of this Agreement), individuals who at the
beginning of such period constitute the Board
and any new director (other than a director
designated by a Person who has entered into
an agreement with the Company to effect a
transaction described in paragraph (I), (III)
or (IV) of this Change in Control definition
or a director whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to
the election or removal of directors or other
actual or threatened solicitations of proxies
or consents by or on behalf of a Person other
than the Board) whose election by the Board
or nomination for election by the Company's
stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose election
or nomination for election was previously so
approved, cease for any reason to constitute
a majority thereof; or
(iii)the shareholders of the Company approve a
merger or consolidation of the Company with
any other corporation, other than (i) a
merger or consolidation which would result in
the voting securities of the Company out-
standing immediately prior thereto continuing
to represent (either by remaining outstanding
or by being converted into voting securities
of the surviving entity), in combination with
the ownership of any trustee or other
fiduciary holding securities under an
employee benefit plan of the Company, at
least 75% of the combined voting power of the
voting securities of the Company or such
surviving entity outstanding immediately
after such merger or consolidation, or (ii) a
merger or consolidation effected to implement
a recapitalization of the Company (or similar
transaction) in which no Person acquires more
than 50% of the combined voting power of the
Company's then outstanding securities; or
(iv) the shareholders of the Company approve a
plan of complete liquidation of the Company
or an agreement for the sale or disposition
by the Company of all or substantially all
the Company's assets.
(c) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(d) A "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee
or other fiduciary holding securities under an
employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly
or indirectly, by the stockholders of the Company
in substantially the same proportions as their
ownership of stock of the Company.
(e) A "Potential Change in Control" shall be deemed to
have occurred if the conditions set forth in any
one of the following paragraphs shall have been
satisfied:
(i) the Company enters into an agreement, the
consummation of which would result in the
occurrence of a Change in Control;
(ii) the Company or any Person publicly announces
an intention to take or to consider taking
actions which, if consummated, would
constitute a Change in Control;
(iii)any Person (x) is or becomes the Beneficial
Owner, directly or indirectly, (y) discloses
directly or indirectly to the Company (or
publicly) a plan or intention to become the
Beneficial Owner, directly or indirectly, or
(z) makes a filing under the Hart Scott
Rodino Antitrust Improvements Act of 1976, as
amended, with respect to securities to become
the Beneficial Owner, directly or indirectly,
of securities of the Company representing
9.9% or more of the combined voting power of
the Company's then outstanding securities; or
(iv) the Committee adopts a resolution to the
effect that, for purposes of this Agreement,
a Potential Change in Control has occurred.
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:_____________________________________
Vice President and Secretary
Dated: February 5, 1998
<PAGE>
ACCEPTED AND AGREED TO:
Optionee acknowledges receipt of a copy of the Plan and
represents that Optionee is familiar with the terms and
provisions contained therein. Optionee hereby accepts the Awards
subject to all of the terms and provisions of the Plan. Optionee
hereby agrees to accept as binding, conclusive and final all
decisions and interpretations of the Committee as to any
questions arising under the Plan, the Option and the Stock
Appreciation Rights.
__________________________
EXHIBIT NO. 10-45
SEPARATION AGREEMENT,
GENERAL RELEASE AND WAIVER
This Separation Agreement, General Release and Waiver is
made and entered into as of the 3rd day of November, 1997 by and
between JACK H. ROSKOZ (hereinafter referred to as "Employee")
and NEW YORK STATE ELECTRIC & GAS CORPORATION (hereinafter
referred to as the "NYSEG").
WITNESSETH:
WHEREAS, Employee has been employed by NYSEG since June 18,
1962 and has held the position of Executive Vice-President since
January 1, 1995; and
WHEREAS, Employee s employment with NYSEG shall terminate
effective midnight December 31, 1997 as a result of his voluntary
retirement on that date; and
WHEREAS, Employee and NYSEG desire to settle fully and
finally all rights and obligations between them including, but in
no way limited to, any rights and obligations that might arise
out of Employee s employment with NYSEG, and the termination
thereof;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, it is agreed as follows:
1. Employee understands, acknowledges and agrees that his
employment with NYSEG will terminate as of December 31, 1997. A
copy of Employee s resignation as Executive Vice-President of
NYSEG is attached. After December 31, 1997, Employee will no
longer be authorized to act on behalf of NYSEG as an employee in
any manner or to incur any expense or obligation in the name of
NYSEG.
2. Provided that Employee does not revoke this Separation
Agreement, General Release and Waiver as provided in Paragraph
17, NYSEG agrees to pay Employee as follows:
a. Severance Pay in the amount of Thirty Three
Thousand Dollars ($33,000.00) payable in calendar year 1998, on
or before January 15, 1998.
b. Benefits under NYSEG s Supplemental Executive
Retirement Plan (SERP), commencing on or about January 1, 1998.
The Severance and SERP Payments provided for in this Paragraph
shall be subject to withholding for federal and state income
taxes, FICA, and such other and further deductions as may be
required by law.
3. In addition to the consideration provided in Paragraph
2, Employee shall be entitled to receive his pension in
accordance with the provisions of NYSEG s pension plan and shall
also be entitled to receive such other benefits as NYSEG provides
to its retired employees. Employee shall also be entitled to use
his accrued unused vacation prior to December 31, 1997 or be paid
for his accrued unused vacation through December 31, 1997 in
accordance with NYSEG s vacation policy. In addition, Employee
shall be entitled to his pro-rata accruals through December 31,
1997 under the NYSEG Additional Executive Incentive Compensation
Plan and the NYSEG Executive Incentive Share Plan, and shall be
reimbursed for expenses incurred in the course of his duties for
NYSEG through December 31, 1997 in accordance with NYSEG s
existing policies and procedures. Finally, Employee shall be
entitled to benefits to the extent provided in the Employee
Invention and Confidentiality Agreement Existing Executive, as
amended, by and between NYSEG and Employee.
4. Employee has returned or will return to NYSEG prior to
December 31, 1997 all NYSEG information and related reports,
files, memoranda, records, employee identification badges or
cards, keys, computer access codes, software and other property
which Employee received or prepared or helped prepare in
connection with his employment; and Employee has not retained and
will not retain any copies, duplicates, reproductions or excerpts
thereof.
5. Except as expressly provided for in this Agreement and
the Employee Invention and Confidentiality Agreement Existing
Executive, as amended, Employee acknowledges and agrees that
NYSEG owes Employee no wages, bonuses, vacation pay, sick time,
personal time, holidays, severance pay, or other compensation,
benefits, or payments of any kind or nature.
6. As a material inducement to NYSEG to enter into this
Separation Agreement, General Release and Waiver, and in
consideration that NYSEG is paying and/or providing the payment
set forth in Paragraph 2 above, which is a payment to which
Employee would not have been entitled if Employee had not signed
this Separation Agreement, General Release and Waiver, Employee
hereby releases, acquits and forever discharges NYSEG, its
directors, officers, shareholders, employees, representatives,
agents, servants, successors and assigns, and all persons acting
by, through or under or in concert with any of them and any
subsidiaries or affiliates of NYSEG and their directors,
officers, shareholders, employees, representatives, agents,
servants, successors and assigns (collectively "Releasees"), or
any of them, from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies,
damages, actions, causes of actions, suits, rights, demands,
costs, losses, debts and expenses (including attorneys fees and
costs actually incurred) of any nature whatsoever, known or
unknown, suspected or unsuspected, including, but not limited to,
rights under federal, state or local laws prohibiting
discrimination on the basis of sex, race, creed, national origin,
color, religion, marital status, disability, age, or other forms
of discrimination, claims growing out of Employee s employment
relationship with NYSEG and/or the termination of that employment
relationship, which Employee now has, owns, or holds, or claims
to have, own or hold, or which Employee at any time heretofore
had, owned or held, or claimed to have, own or hold, against each
or any of the Releasees. Except as provided for in Paragraph 9
below, the General Release and Waiver set forth above
specifically includes and waives any and all claims, rights,
demands, obligations, losses, causes of action, costs, expenses
and liabilities for compensation and/or exemplary damages and/or
other relief arising under the Age Discrimination in Employment
Act of 1967, as amended, Title VII of the Civil Rights Act of
1964, as amended, and any other federal, state or local law
dealing with discrimination in employment on the basis of sex,
race, creed, national origin, color, religion, marital status,
disability, or age. The General Release and Waiver set forth
above does not and is not intended to waive any rights or claims
that may arise after the date on which Employee executes this
Separation Agreement, General Release and Waiver.
7. The Employee agrees that he will not make or publish
any statements that disparage, denigrate or are otherwise
critical of NYSEG or any other Releasees. NYSEG agrees that it
will not make any statements that disparage, denigrate or are
otherwise critical of Employee.
8. In the event that Employee attempts to revoke this
Agreement on or after its Effective Date or attempts to pursue a
released claim against any of the Releasees, Employee agrees to
pay all costs and expenses incurred by Releasees in defending
against the claim including reasonable attorneys fees. This is
in addition to any other remedy otherwise available to Releasees.
9. NYSEG and Employee agree that this Agreement shall not
affect the rights and responsibilities of the US Equal Employment
Opportunity Commission (hereinafter "EEOC") to enforce the Age
Discrimination in Employment Act of 1967, as amended and other
laws. In addition, NYSEG and Employee agree that this Agreement
shall not be used to justify interfering with Employee s
protected right to file a charge or participate in an
investigation or proceeding conducted by the EEOC. NYSEG and
Employee further agree that the Employee knowingly and
voluntarily waives all rights or claims (that arose prior to
Employee s execution of this Agreement) Employee may have against
the Releasees, or any of them, to receive any benefit or remedial
relief (including, but not limited to, reinstatement, back pay,
front pay, damages, attorneys fees, experts fees) as a
consequence of any investigation or proceeding conducted by the
EEOC and any litigation concerning any facts alleged in any such
charge.
10. Upon and after the effectiveness of this Separation
Agreement, General Release and Waiver, Employee shall cooperate
with NYSEG, its subsidiaries and affiliates without further
compensation or consideration (except for reimbursement of
ordinary, necessary and reasonable business expenses for food,
transportation and/or lodging, if any, incurred in fulfillment of
a specific request from NYSEG for cooperation) in connection with
NYSEG, subsidiary or affiliate business activities that occurred
at any time within the scope of Employee s employment with NYSEG,
such cooperation to include, but not limited to, reasonably
requested sworn testimony concerning such NYSEG, subsidiary or
affiliate business activities. NYSEG agrees to use its best
efforts to limit any specific requests for cooperation in
accordance with this paragraph to five (5) days per year. During
the first two years after the execution of this Agreement, NYSEG
further agrees that specific requests for cooperation which
exceed five (5) days per year will be compensated by NYSEG at the
rate of $1500.00 per day for each day beyond five (5) days in
that year. NYSEG shall not be liable for such compensation
unless Employee s specific cooperation on a matter has been
requested by NYSEG in writing, for a period in excess of five (5)
days.
Beginning in the third year following execution of this
Agreement, and continuing thereafter, specific requests for
cooperation will be compensated by NYSEG at the rate of $1500.00
per day. NYSEG shall not be liable for such compensation unless
Employee s specific cooperation on a matter has been requested by
NYSEG in writing.
11. The parties represent and agree that they will keep the
terms, amount and fact of this Separation Agreement, General
Release and Waiver completely confidential, and that Employee
will not disclose any information concerning this Separation
agreement, General Release and Waiver to anyone except his
immediate family and his private attorney(s) and/or
accountant(s), provided, that they agree to keep said information
confidential and not disclose it to others; and NYSEG agrees not
to disclose any information concerning this Separation Agreement,
General Release and Waiver except to those persons or entities
which have a need for such information.
12. Employee agrees not to seek employment with NYSEG or
any of its subsidiaries or affiliates at any time in the future.
13. NYSEG hereby advises Employee to consult with an
attorney prior to executing the Separation Agreement, General
Release and Waiver. Employee represents and agrees that he fully
understands his right to discuss all aspects of this Separation
Agreement, General Release and Waiver with his private
attorney(s); that to the extent, if any, that he desires, he has
availed himself to this right; and that he has carefully read and
fully understands all of the provisions of this Separation
Agreement, General Release and Waiver; and that he is voluntarily
entering into this Separation Agreement, General Release and
Waiver.
14. Employee represents and acknowledges that in executing
this Separation Agreement, General Release and Waiver he does not
rely and has not relied upon any representation or statement not
set forth herein made by any of the Releasees or by any of the
Releasees agents, representatives, or attorneys with regard to
the subject matter, basis or effect of this Separation Agreement,
General Release and Waiver or otherwise.
<PAGE>
15. Employee and NYSEG understand and acknowledge that this
Separation Agreement, General Release and Waiver shall not in any
way be construed as an admission of wrongdoing or liability on
the part of NYSEG, Employee or any other person.
16. Employee represents and agrees that he fully
understands his right to a period of twenty-one (21) days from
the receipt of this Separation Agreement, General Release and
Waiver within which to consider this Separation Agreement,
General Release and Waiver. If Employee executes this Agreement
at any time prior to the end of the, at least, twenty-one (21)
day period that NYSEG gave Employee in which to consider this
Agreement, such early execution was a knowing and voluntary
waiver of Employee s right to consider the Agreement for at least
twenty-one (21) days and was due to Employee s belief that
Employee had ample time in which to consider and understand this
Agreement, and in which to review this Agreement with an
attorney.
17. For a period of seven (7) days following the execution
of this Separation Agreement, General Release and Waiver,
Employee may revoke this Separation Agreement, General Release
and Waiver by delivering a written letter of revocation to
Richard R. Benson, Director of Human Resources, 4500 Vestal
Parkway East, Binghamton, New York 13903. This Separation
Agreement, General Release and Waiver shall not become effective
or enforceable until the Revocation Period has expired.
18. This Separation Agreement, General Release and Waiver
sets forth the entire agreement between the parties hereto, and
fully supersedes any and all prior agreements or understanding
between the parties hereto pertaining to the subject matter
hereof.
[ The Remainder of This Page Intentionally Left blank]
<PAGE>
IN WITNESS WHEREOF, Employee and NYSEG have executed this
Separation Agreement, General Release and Waiver as of the date
and year written below.
NEW YORK STATE ELECTRIC
& GAS CORPORATION
Jack H. Roskoz By Richad R. Benson
Jack H. Roskoz Richard R. Benson
Dated: November 3, 1997 Dated: November 3, 1997
STATE OF NEW YORK )
) SS.:
COUNTY OF BROOME )
On this 3rd day of November, 1997, before me, the
subscriber, personally came RICHARD R. BENSON, Director of Human
Resources for New York State Electric & Gas Corporation, known to
me to be the same person described in and who executed the within
instrument on behalf of New York State Electric & Gas Corporation
and he duly acknowledged to me that he executed the same.
Joanne M. Whalen
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF BROOME )
On this 3rd day of November, 1997, before me, the
subscriber, personally came JACK H. ROSKOZ, to me known and known
to me to be the same person described in and who executed the
within instrument and he duly acknowledged to me that he executed
the same.
Joanne M. Whalen
Notary Public
<PAGE>
November 3, 1997
New York State Electric and Gas Corporation
4500 Vestal Parkway East
Binghamton, New York 13903
Ladies and Gentlemen:
As a result of my retirement I hereby tender my resignation
as Executive Vice-President of New York State Electric & Gas
Corporation effective midnight December 31, 1997.
I also tender my resignation, effective the same time and
date, as President and Director of the Somerset Railroad
Corporation, and as a Director of Xenergy Corporation.
Sincerely,
Jack H. Roskoz
EXHIBIT 12
NEW YORK STATE ELECTRIC & GAS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Calendar Year
1997 1996 1995 1994 1993
(Thousands of Dollars)
Net Income (Loss) . . . . . $184,553 $178,241 $196,690 $187,645 $166,028
Add:
Federal income tax -
current. . . . . . . . . 115,334 84,861 71,144 75,892 36,024
Federal income tax -
deferred . . . . . . . . 2,379 23,082 44,720 26,569 49,726
-------- -------- -------- -------- --------
Pre-tax income (loss) . 302,266 286,184 312,554 290,106 251,778
Fixed charges . . . . . . . 126,779 127,713 136,703 145,494 153,696
-------- -------- -------- -------- --------
Earnings, as defined. . . . $429,045 $413,897 $449,257 $435,600 $405,474
======== ======== ======== ======== ========
Fixed Charges:
Interest on long-term
debt . . . . . . . . . . $104,122 $108,431 $115,687 $126,083 $134,331
Other interest . . . . . . 13,192 9,752 8,744 6,628 3,878
Amortization of premium
and expense on debt. . . 6,502 6,507 6,488 7,014 7,242
Interest portion of
rental charges . . . . . 2,963 3,023 5,784 5,769 8,245
-------- -------- -------- -------- -------
Total fixed charges,
as defined. . . . . . . . $126,779 $127,713 $136,703 $145,494 $153,696
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges . . . . . . 3.38 3.24 3.29 2.99 2.64
======== ======== ======== ======== ========
EXHIBIT 21
Subsidiaries
Energy East Corporation - Incorporated in the State of New York.
EnerSoft Corporation - Incorporated in the State of Delaware.
KENETECH Energy Management, Inc. - Incorporated in the State of
Massachusetts.
NGE Enterprises, Inc. - Incorporated in the State of Delaware.
NGE Funding Corporation - Incorporated in the State of Delaware.
NGE Generation, Inc. - Incorporated in the State of New York.
Somerset Railroad Corporation - Incorporated in the State of New
York.
XENERGY, Inc. - Incorporated in the State of Massachusetts.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of New York State Electric & Gas Corporation on Form
S-3 (Registration Nos. 33-54155 and 33-50719) and on Form S-8
(Registration Nos. 33-54993, 333-16201 and 333-27517) and in the
registration statement of Energy East Corporation on Form S-4
(Registration No. 333-37997) of our report dated January 30,
1998, on our audits of the consolidated financial statements and
financial statement schedule of New York State Electric & Gas
Corporation and Subsidiaries as of December 31, 1997 and 1996,
and for the years ended December 31, 1997, 1996, and 1995, which
report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,922,272
<OTHER-PROPERTY-AND-INVEST> 143,449
<TOTAL-CURRENT-ASSETS> 356,213
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 606,747
<TOTAL-ASSETS> 5,028,681
<COMMON> 462,250
<CAPITAL-SURPLUS-PAID-IN> 811,648
<RETAINED-EARNINGS> 568,844
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,803,295
25,000
134,440
<LONG-TERM-DEBT-NET> 1,450,224
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 58,000
<LONG-TERM-DEBT-CURRENT-PORT> 38,240
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,519,482
<TOT-CAPITALIZATION-AND-LIAB> 5,028,681
<GROSS-OPERATING-REVENUE> 2,129,989
<INCOME-TAX-EXPENSE> 117,713
<OTHER-OPERATING-EXPENSES> 364,219
<TOTAL-OPERATING-EXPENSES> 1,687,321
<OPERATING-INCOME-LOSS> 442,668
<OTHER-INCOME-NET> (17,203)
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 123,199
<NET-INCOME> 184,553
9,342
<EARNINGS-AVAILABLE-FOR-COMM> 175,211
<COMMON-STOCK-DIVIDENDS> 95,496
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 456,243
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.57
</TABLE>
EXHIBIT 99-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Act of 1934
For the fiscal year ended December 31, 1997
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
--------------------------------------------------------
(Full title of the plan)
New York State Electric & Gas Corporation
--------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P. O. Box 3287, Ithaca, New York 14852-3287
--------------------------------------------------------
(Address of principal executive office)
<PAGE>
REQUIRED INFORMATION
The Tax Deferred Savings Plan for Salaried Employees ("Plan") is
subject to the Employee Retirement Income Security Act of 1974
("ERISA"). Therefore, in lieu of the requirements of Items 1-3
of Form 11-K, the financial statements and schedules of the Plan
for the two fiscal years ended December 31, 1997 and 1996, which
have been prepared in accordance with the financial reporting
requirements of ERISA, are attached hereto as Appendix 1 and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Committee to administer the Tax Deferred Savings Plan
for Salaried Employees has duly caused this Annual Report to be
signed by the undersigned hereunto duly authorized.
New York State Electric & Gas Corporation Tax
Deferred Savings Plan for Salaried Employees
By Richard R. Benson March 6, 1998
Richard R. Benson
Committee Member
By Gerald E. Putman March 6, 1998
Gerald E. Putman
Committee Member
By Sherwood J. Rafferty March 6, 1998
Sherwood J. Rafferty
Committee Member
<PAGE>
APPENDIX 1
NEW YORK STATE ELECTRIC & GAS CORPORATION
TAX DEFERRED SAVINGS PLAN FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997 AND INDEPENDENT ACCOUNTANT'S REPORT
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Year ended December 31, 1997
INDEX
Report of Independent Accountants....................................... 1
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1997......................................... 3
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1996......................................... 5
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1997......................... 7
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1996......................... 9
Notes to Financial Statements ........................................... 11
Line 27a - Schedule of Assets Held for Investment Purposes--
December 31, 1997...................................................... 16
Line 27d - Schedule of Reportable Transactions--Year ended
December 31, 1997 ..................................................... 17
Consent of Independent Accountants ...................................... 18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Tax Deferred Savings Plan for Salaried Employees
Administrative Committee
New York State Electric & Gas Corporation
We have audited the accompanying statements of net assets
available for benefits of the New York State Electric & Gas
Corporation Tax Deferred Savings Plan for Salaried Employees as
of December 31, 1997 and 1996, and the related statements of
changes in net assets available for benefits for the years ended
December 31, 1997 and 1996. These financial statements are the
responsibility of the Plan's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the New York State Electric & Gas
Corporation Tax Deferred Savings Plan for Salaried Employees at
December 31, 1997 and 1996, and the changes in its net assets
available for benefits for the years ended December 31, 1997 and
1996, in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
supplemental schedules of assets held for investment purposes as
of December 31, 1997, and reportable transactions for the year
ended December 31, 1997, are presented for the purpose of
additional analysis and are not a required part of the basic
financial statements but are supplementary information required
by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act
of 1974. The Fund Information in the statements of net assets
available for benefits and the statements of changes in net
assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets
available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in
our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
<PAGE>
The schedule of assets held for investment purposes that
accompanies the Plan's financial statements does not disclose
historical cost of certain plan assets held by the Plan trustee.
Disclosure of this information is required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
February 20, 1998
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1997
<S> <C> <C> <C <C> <C> <C> <C>
Fund Information
----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
----------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $1,136,289 $1,136,289
Common stock of New York State
Electric & Gas Corporation $36,165,704 36,165,704
Other $41,440,213 $43,729,849 $3,678,710 $7,395,876 96,244,648
Loans to participants
----------------------------------------------------------------------------------------
Net assets available for benefits $41,440,213 $43,729,849 $3,678,710 $7,395,876 $36,165,704 $1,136,289 $133,546,641
========================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1997
Fund Information
----------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
-------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $1,136,289 $1,136,289
Common stock of New York State
Electric & Gas Corporation 36,165,704 36,165,704
Other 96,244,648 $5,189,049 $3,482,023 $2,846,368 $1,289,429 109,051,517
Loans to participants $3,458,357 3,458,357
-------------------------------------------------------------------------------------
Net assets available for benefits $133,546,641 $5,189,049 $3,482,023 $2,846,368 $1,289,429 $3,458,357 $149,811,867
=====================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1996
Fund Information
-----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
-----------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $1,120,237 $1,120,237
Common stock of New York State
Electric & Gas Corporation $26,216,251 26,216,251
Other $30,856,044 $32,348,253 $3,103,452 $6,388,691 72,696,440
Loans to participants
-----------------------------------------------------------------------------------------
Net assets available for benefits $30,856,044 $32,348,253 $3,103,452 $6,388,691 $26,216,251 $1,120,237 $100,032,928
=========================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1996
Fund Information
---------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
-------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $1,120,237 $1,120,237
Common stock of New York State
Electric & Gas Corporation 26,216,251 26,216,251
Other 72,696,440 $3,085,090 $1,718,485 $1,399,123 $447,609 79,346,747
Loans to participants $3,325,702 3,325,702
-------------------------------------------------------------------------------------
Net assets available for benefits $100,032,928 $3,085,090 $1,718,485 $1,399,123 $447,609 $3,325,702 $110,008,937
=====================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997
Fund Information
------------------------------------------------------------------------------------------
Capital Government Money Company Guaranteed
Appreciation Equity Obligation Market Stock Investment
Fund Fund Fund Fund Fund Contract Fund Subtotal
------------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair value
of investments $5,617,926 $2,459,893 $68,706 $15,504,934 $23,651,459
Dividends:
New York State Electric & Gas Corp. 1,641,724 1,641,724
Other 2,465,928 5,550,176 207,097 $348,024 8,571,225
Interest on investments $49,302 49,302
Interest on loans to participants
------------------------------------------------------------------------------------------
8,083,854 8,010,069 275,803 348,024 17,146,658 49,302 33,913,710
Contributions:
Employer 1,094,746 1,094,746
Employee 2,687,983 2,116,803 258,047 344,068 1,762,035 7,168,936
Transfers from Hourly Plan 14,498 (4,947) (3,364) (9,612) 1,685 997 (743)
Transfers from other plan 33,425 33,425
Interfund transfers (net) 996,029 2,929,148 180,645 1,373,166 (9,314,999) (19,516) (3,855,527)
------------------------------------------------------------------------------------------
Total additions 11,782,364 13,051,073 711,131 2,089,071 10,690,125 30,783 38,354,547
Deductions
Withdrawal benefits-stock 714,762 714,762
Withdrawal benefits-cash 1,189,704 1,660,597 135,141 1,079,123 14,731 4,079,296
Administrative fees 8,491 8,880 732 2,763 25,910 46,776
------------------------------------------------------------------------------------------
Total deductions 1,198,195 1,669,477 135,873 1,081,886 740,672 14,731 4,840,834
------------------------------------------------------------------------------------------
Net increase 10,584,169 11,381,596 575,258 1,007,185 9,949,453 16,052 33,513,713
Net assets available for benefits
at beginning of year 30,856,044 32,348,253 3,103,452 6,388,691 26,216,251 1,120,237 100,032,928
------------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $41,440,213 $43,729,849 $3,678,710 $7,395,876 $36,165,704 $1,136,289 $133,546,641
==========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information (Continued)
Year Ended December 31, 1997
Fund Information
----------------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
-------------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation)
in fair value of investments $23,651,459 $(468,089) $181,838 $32,915 $4,223 $23,402,346
Dividends:
New York State Electric & Gas Corp. 1,641,724 1,641,724
Other 8,571,225 935,701 234,107 229,884 71,161 10,042,078
Interest on investments 49,302 49,302
Interest on loans to participants $220,975 220,975
------------------------------------------------------------------------------------------
33,913,710 467,612 415,945 262,799 75,384 220,975 35,356,425
Contributions:
Employer 1,094,746 1,094,746
Employee 7,168,936 543,302 352,280 202,848 39,350 8,306,716
Transfers from Hourly Plan (743) 786 43
Transfers from other plan 33,425 33,425
Interfund transfers (net) (3,855,527) 1,180,810 1,019,038 995,640 742,127 (82,088)
-----------------------------------------------------------------------------------------
Total additions 38,354,547 2,192,510 1,787,263 1,461,287 856,861 138,887 44,791,355
Deductions
Withdrawal benefits-stock 714,762 714,762
Withdrawal benefits-cash 4,079,296 87,601 23,122 13,601 14,914 6,232 4,224,766
Administrative fees 46,776 950 603 441 127 48,897
------------------------------------------------------------------------------------------
Total deductions 4,840,834 88,551 23,725 14,042 15,041 6,232 4,988,425
------------------------------------------------------------------------------------------
Net increase 33,513,713 2,103,959 1,763,538 1,447,245 841,820 132,655 39,802,930
Net assets available for benefits
at beginning of year 100,032,928 3,085,090 1,718,485 1,399,123 447,609 3,325,702 110,008,937
-------------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $133,546,641 $5,189,049 $3,482,023 $2,846,368 $1,289,429 $3,458,357 $149,811,867
===========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1996
Fund Information
-----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
-----------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation)
in fair value of investments $1,260,520 $2,962,290 $(82,780) $(5,276,790) $(1,136,760)
Dividends:
New York State Electric & Gas Corp. 1,693,820 1,693,820
Other 1,939,080 2,744,695 198,740 $279,812 5,162,327
Interest on investments $54,848 54,848
Interest on loans to participants
-----------------------------------------------------------------------------------------
3,199,600 5,706,985 115,960 279,812 (3,582,970) 54,848 5,774,235
Contributions:
Employer 1,039,803 1,039,803
Employee 2,363,986 1,812,580 261,395 378,496 2,257,844 7,074,301
Transfers from Hourly Plan 35,431 (6,559) 13,256 (13,792) 57,471 1,341 87,148
Interfund transfers (net) 2,109,738 871,506 (267,122) 1,333,526 (3,809,736) (2,184,402) (1,946,490)
-----------------------------------------------------------------------------------------
Total additions 7,708,755 8,384,512 123,489 1,978,042 (4,037,588) (2,128,213) 12,028,997
Deductions
Withdrawal benefits-stock 745,995 745,995
Withdrawal benefits-cash 453,789 948,226 122,508 470,971 71,191 2,066,685
Administrative fees 9,477 8,896 1,130 3,478 27,681 21 50,683
-----------------------------------------------------------------------------------------
Total deductions 463,266 957,122 123,638 474,449 773,676 71,212 2,863,363
-----------------------------------------------------------------------------------------
Net increase (decrease) 7,245,489 7,427,390 (149) 1,503,593 (4,811,264) (2,199,425) 9,165,634
Net assets available for benefits
at beginning of year 23,610,555 24,920,863 3,103,601 4,885,098 31,027,515 3,319,662 90,867,294
-----------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $30,856,044 $32,348,253 $3,103,452 $6,388,691 $26,216,251 $1,120,237 $100,032,928
=========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information (Continued)
Year Ended December 31, 1996
Fund Information
---------------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
------------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in
fair value of investments $(1,136,760) $140,855 $114,806 $80,165 $15,347 $(785,587)
Dividends:
New York State Electric & Gas Corp. 1,693,820 1,693,820
Other 5,162,327 215,648 89,104 98,208 28,476 5,593,763
Interest on investments 54,848 54,848
Interest on loans to participants $298,343 298,343
------------------------------------------------------------------------------------------
5,774,235 356,503 203,910 178,373 43,823 298,343 6,855,187
Contributions:
Employer 1,039,803 1,039,803
Employee 7,074,301 372,758 224,776 133,889 24,163 7,829,887
Transfers from Hourly Plan 87,148 (208) 86,940
Interfund transfers (net) (1,946,490) 867,394 581,484 389,957 107,710 (55)
------------------------------------------------------------------------------------------
Total additions 12,028,997 1,596,447 1,010,170 702,219 175,696 298,288 15,811,817
Deductions
Withdrawal benefits-stock 745,995 745,995
Withdrawal benefits-cash 2,066,685 24,918 93,115 1,676 1,955 6,007 2,194,356
Administrative fees 50,683 768 510 332 100 52,393
------------------------------------------------------------------------------------------
Total deductions 2,863,363 25,686 93,625 2,008 2,055 6,007 2,992,744
------------------------------------------------------------------------------------------
Net increase 9,165,634 1,570,761 916,545 700,211 173,641 292,281 12,819,073
Net assets available for benefits
at beginning of year 90,867,294 1,514,329 801,940 698,912 273,968 3,033,421 97,189,864
------------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $100,032,928 $3,085,090 $1,718,485 $1,399,123 $447,609 $3,325,702 $110,008,937
==========================================================================================
See notes to financial statements.
</TABLE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1997 and 1996
1. DESCRIPTION OF THE SALARIED PLAN
The New York State Electric & Gas Corporation Tax Deferred Savings
Plan for Salaried Employees (the Salaried Plan) was established
effective January 1, 1985 to provide for before-tax contributions
in accordance with Internal Revenue Code (Code) Section 401(k).
The Salaried Plan is for the exclusive benefit of New York State
Electric & Gas Corporation (company) employees who are eligible to
participate under the Salaried Plan provisions.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on an accrual basis and in
conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Investments
Investments consisting of the company's publicly traded common
stock and various Putnam Investment vehicles are carried at current
value using the market price at closing on the last business day of
the year.
Guaranteed investment contracts are valued at contract value (which
approximates fair market value) which represents contributions plus
interest thereon at the contract rate.
The change during the period between fair value and carrying value
is reflected in the statement of changes in net assets available
for benefits as net appreciation (depreciation) in fair value of
investments.
Contributions
Contributions to the Salaried Plan are allocated to participant
accounts. Participants have full and immediate vesting rights in
employee and employer contributions, investment earnings and other
amounts allocated to their accounts.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contributions (Continued)
During 1996 an employee not covered by a collective bargaining
agreement was eligible for participation in the Salaried Plan
generally upon completion of at least 1,000 hours of service during
the 12 consecutive month period beginning on the date of employment
or any anniversary thereof. Effective January 1, 1997, an employee
may become a participant in the Salaried Plan as of the first day
of any calendar month that commences after the completion of the
employee's first 30 days of employment.
Employee contributions, with certain exceptions, range from 1% to
15% of the participant's base compensation plus any overtime pay.
Subject to limitations stipulated by the Code, a participant's
total contribution could not exceed $9,500 per year in 1997 and
1996.
During 1997 and 1996, the company contributed solely to the Company
Stock Fund an amount equivalent to 25% of the participant's
contributions to any fund (up to 1.5% of the participant's annual
base compensation as of the first day of the year).
Benefit Payments
Distributions from the Capital Appreciation Fund, Equity Fund,
Government Obligation Fund, Money Market Fund, Guaranteed
Investment Contract Fund, Global Growth Fund and the Asset
Allocation Funds are made in cash. Distributions from the Company
Stock Fund are made in either whole shares of the company's common
stock or in cash as specified by the participant and subject to
approval by the Salaried Plan's administrative committee.
As of December 31, 1997, plan assets include approximately
$29,751,766 in amounts allocated to participants who have withdrawn
from the Salaried Plan, due to termination, retirement or
disability but for which disbursement of funds have not yet
occurred.
Loans
Participants may, under certain circumstances, borrow against their
account balances. The principal amount of the loan is subject to
certain limitations as defined in the Salaried Plan document. The
term of the loan may not exceed five years, and the interest rate
established by the Salaried Plan's administrative committee
provides the Salaried Plan with a return commensurate with the
interest rate charged by persons in the business of lending money
for loans which would be made under similar circumstances.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Interest rates range from 6.5% to 10.5%. The loan must be repaid
by payroll deductions over the term of the loan. Loan payments are
credited to an applicable fund based upon the participant's
election. If a participant's employment terminates for any reason,
the loan will become immediately due and payable.
Plan Termination
Although the company has not expressed any intent to terminate the
Salaried Plan, it has the right to discontinue contributions at any
time and terminate the Salaried Plan. In the event of termination
of the Salaried Plan, the net assets of the Salaried Plan are set
aside, first for payment of all Salaried Plan expenses and, second,
for distribution to the participants, based upon the balances in
their individual accounts.
3. INVESTMENTS
Contributions by the participants are invested, at the election of
the participant, in one or a combination of the following nine
funds: (1) the Capital Appreciation Fund, a mutual fund,
consisting primarily of common stock; (2) the Equity Fund, a mutual
fund, consisting primarily of common stock; (3) the Government
Obligation Fund, a mutual fund, consisting of securities that are
backed by the full faith and credit of the United States
Government; (4) the Money Market Fund, a mutual fund, consisting of
money market instruments; (5) the Company Stock Fund, consisting of
common stock of the company; (6) the Global Growth Fund, a mutual
fund, consisting primarily of U.S. and international common stocks;
or (7) the three Asset Allocation funds, consisting primarily of
equity and fixed income securities. Effective January 1, 1992, the
Guaranteed Investment Contract Fund did not accept any new
investments. Prior to November 18, 1988, the Guaranteed Investment
Contract Fund consisted of investments in insurance contracts that
guaranteed an effective annual rate of interest through a specified
period, and effective November 18, 1988, included investments in
securities and other obligations issued by any company that
guaranteed an effective annual rate of interest through a specified
period.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1997 and 1996
4. INCOME TAX STATUS
The company has received a determination letter from the Internal
Revenue Service dated March 24, 1995, that the Salaried Plan
qualifies as a tax deferred savings plan under Sections 401(a) and
401(k) of the Code. The Plan has been amended subsequent to the
receipt of the latest determination letter. However, the Plan's
administrator and tax counsel believe that the Plan is designed and
currently being operated in compliance with the applicable
requirements of the Code.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
All administrative fees are paid by the participants in the
Salaried Plan. Audit and legal fees are paid by the company.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1997 and 1996
6. UNITS OF PARTICIPATION
Total number of units and net asset value per unit during the period from
January 1, 1996 to December 31, 1997, by quarter, are as follows:
Capital Equity Government Money
Appreciation Fund Obligations Market
---------------- ---------------- -------------- ---------------
Units $ Unit Units $ Unit Units $ Unit Units $ Unit
01/01/96 1,548,233 15.25 1,539,275 16.19 235,299 13.19 4,876,371 1.00
03/31/96 1,612,747 16.19 1,596,605 17.05 237,709 12.79 5,696,149 1.00
06/30/96 1,693,416 16.81 1,637,049 17.46 242,029 12.61 5,663,621 1.00
09/30/96 1,759,393 17.55 1,676,201 17.87 240,336 12.63 5,348,973 1.00
12/31/96 1,911,364 16.12 1,792,471 18.02 241,891 12.83 6,309,305 1.00
03/31/97 1,925,779 15.30 1,855,501 18.39 245,466 12.61 6,881,509 1.00
06/30/97 1,918,535 18.03 1,886,520 20.67 246,595 12.87 6,990,751 1.00
09/30/97 1,978,542 20.00 1,929,486 21.80 263,648 13.01 7,163,991 1.00
12/31/97 2,175,339 19.05 2,237,966 19.54 281,032 13.09 7,395,876 1.00
Global Allocation Allocation Allocation
Growth Growth Balanced Conservative
-------------- -------------- -------------- --------------
Units $ Unit Units $ Unit Units $ Unit Units $ Unit
01/01/96 151,584 9.90 80,194 10.00 72,577 9.63 29,715 9.22
03/31/96 191,975 10.58 96,378 10.52 94,230 9.99 34,441 9.32
06/30/96 208,281 10.95 103,612 11.01 100,753 10.36 37,818 9.46
09/30/96 234,567 11.11 118,939 11.41 115,442 10.71 43,153 9.69
12/31/96 284,602 10.82 153,036 11.23 132,538 10.49 46,724 9.58
03/31/97 329,819 10.94 193,179 11.58 154,577 10.71 54,857 9.56
06/30/97 365,081 12.49 207,488 12.64 155,962 11.55 67,673 10.16
09/30/97 405,082 12.99 213,139 13.55 187,029 12.21 76,280 10.62
12/31/97 520,989 9.96 282,403 12.33 255,739 11.13 129,331 9.97
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
Balance Held at Market
Name of Issuer and Title of Issue End of Year Cost ** Value
- ------------------------------------------------------------------------------
Capital Appreciation Fund
*Putnam Voyager Fund 2,175,339 shares $41,440,213
Equity Fund
*Putnam Fund for Growth
and Income 2,237,966 shares 43,729,849
Government Obligation Fund
*Putnam U.S. Government
Income Trust 281,032 shares 3,678,710
Money Market Fund
*Putnam Money Market Fund 7,395,876 shares 7,395,876
Global Growth Fund
*Putnam Global Growth Fund 520,989 shares 5,189,049
Asset Allocation - Growth Portfolio
*Putnam Asset Allocation - Growth
Portfolio 282,403 shares 3,482,023
Asset Allocation - Balanced Portfolio
*Putnam Asset Allocation - Balanced
Portfolio 255,739 shares 2,846,368
Asset Allocation - Conservative
Portfolio
*Putnam Asset Allocation -
Conservative Portfolio 129,331 shares 1,289,429
------------
Total $109,051,517
============
Company Stock Fund
*New York State Electric & Gas
Corporation common stock 1,018,752 shares $36,165,704
===========
Guaranteed Investment Contracts $1,136,289 $1,136,289
=======================
Participant Loans - interest
rates from 6.5% to 10.5% $3,458,357
===========
* Denotes a party-in-interest.
** Information pertaining to the historical cost was not available from the
trustee.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1997
Current Value
of Asset on
Purchase Selling Transaction Net Gain
Description of Assets Price Price Date (Loss)
- -------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of plan assets
Company Stock Fund - Purchases
*New York State Electric
& Gas Corporation
Common Stock $6,820,831 $6,820,831
Company Stock Fund - Sales
*New York State Electric
& Gas Corporation $10,194,254 $10,194,254
Common Stock $12,376,312 12,376,312 $2,182,058
There were no category (i), (ii), or (iv) reportable transactions during 1997.
* Denotes a party-in-interest.
<PAGE>
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-16201) pertaining to the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Salaried Employees of our report dated February 20, 1998, with
respect to the financial statements and schedules of the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Salaried Employees for the year ended December 31, 1997, which
report is included in this Annual Report on Form 11-K.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
March 26, 1998
EXHIBIT 99-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
--------------------------------------------------------
(Full title of the plan)
New York State Electric & Gas Corporation
--------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P. O. Box 3287, Ithaca, New York 14852-3287
--------------------------------------------------------
(Address of principal executive office)
<PAGE>
REQUIRED INFORMATION
The Tax Deferred Savings Plan for Hourly Paid Employees ("Plan")
is subject to the Employee Retirement Income Security Act of 1974
("ERISA"). Therefore, in lieu of the requirements of Items 1-3
of Form 11-K, the financial statements and schedules of the Plan
for the two fiscal years ended December 31, 1997 and 1996, which
have been prepared in accordance with the financial reporting
requirements of ERISA, are attached hereto as Appendix 1 and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Committee to administer the Tax Deferred Savings Plan
for Hourly Paid Employees has duly caused this Annual Report to
be signed by the undersigned hereunto duly authorized.
New York State Electric & Gas Corporation Tax
Deferred Savings Plan for Hourly Paid Employees
By Richard R. Benson March 6, 1998
Richard R. Benson
Committee Member
By Gerald E. Putman March 6, 1998
Gerald E. Putman
Committee Member
By Sherwood J. Rafferty March 6, 1998
Sherwood J. Rafferty
Committee Member
<PAGE>
APPENDIX 1
NEW YORK STATE ELECTRIC & GAS CORPORATION
TAX DEFERRED SAVINGS PLAN FOR HOURLY PAID EMPLOYEES
FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997 AND INDEPENDENT ACCOUNTANT'S REPORT
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Year ended December 31, 1997
INDEX
Report of Independent Accountants...................................... 1
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1997...................................... 3
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1996...................................... 5
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1997...................... 7
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1996...................... 9
Notes to Financial Statements.......................................... 11
Line 27a - Schedule of Assets Held for Investment Purposes--
December 31, 1997.................................................... 16
Line 27d - Schedule of Reportable Transactions--Year ended
December 31, 1997.................................................... 17
Consent of Independent Accountants..................................... 18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Tax Deferred Savings Plan for Hourly Paid Employees
Administrative Committee
New York State Electric & Gas Corporation
We have audited the accompanying statements of net assets
available for benefits of the New York State Electric & Gas
Corporation Tax Deferred Savings Plan for Hourly Paid Employees
as of December 31, 1997 and 1996, and the related statements of
changes in net assets available for benefits for the years ended
December 31, 1997 and 1996. These financial statements are the
responsibility of the Plan's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the New York State Electric & Gas
Corporation Tax Deferred Savings Plan for Hourly Paid Employees
at December 31, 1997 and 1996, and the changes in its net assets
available for benefits for the years ended December 31, 1997 and
1996, in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
supplemental schedules of assets held for investment purposes as
of December 31, 1997, and reportable transactions for the year
ended December 31, 1997, are presented for the purpose of
additional analysis and are not a required part of the basic
financial statements but are supplementary information required
by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act
of 1974. The Fund Information in the statements of net assets
available for benefits and the statements of changes in net
assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets
available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in
our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
<PAGE>
The schedule of assets held for investment purposes that
accompanies the Plan's financial statements does not disclose
historical cost of certain plan assets held by the Plan trustee.
Disclosure of this information is required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
February 20, 1998
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Information
------------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
------------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $934,229 $934,229
Common stock of New York State
Electric & Gas Corporation $41,878,933 41,878,933
Other $31,603,236 $36,449,436 $2,869,360 $8,223,054 79,145,086
Loans to participants
-----------------------------------------------------------------------------------------
Net assets available for benefits $31,603,236 $36,449,436 $2,869,360 $8,223,054 $41,878,933 $934,229 $121,958,248
=========================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1997
Fund Information
-----------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
-------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $934,229 $934,229
Common stock of New York State
Electric & Gas Corporation 41,878,933 41,878,933
Other 79,145,086 $4,593,473 $3,052,861 $2,397,014 $897,356 90,085,790
Loans to participants $3,615,518 3,615,518
-------------------------------------------------------------------------------------
Net assets available for benefits $121,958,248 $4,593,473 $3,052,861 $2,397,014 $897,356 $3,615,518 $136,514,470
=====================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1996
Fund Information
-----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
-----------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $909,182 $909,182
Common stock of New York State
Electric & Gas Corporation $30,474,962 30,474,962
Other $21,069,829 $24,203,575 $2,188,125 $7,090,991 54,552,520
Loans to participants
-----------------------------------------------------------------------------------------
Net assets available for benefits $21,069,829 $24,203,575 $2,188,125 $7,090,991 $30,474,962 $909,182 $85,936,664
=========================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1996
Fund Information
-------------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
--------------------------------------------------------------------------------------
Assets
Investments:
Guaranteed investment contracts $909,182 $909,182
Common stock of New York State
Electric & Gas Corporation 30,474,962 30,474,962
Other 54,552,520 $2,346,254 $1,202,133 $1,076,226 $317,023 59,494,156
Loans to participants $3,271,689 3,271,689
--------------------------------------------------------------------------------------
Net assets available for benefits $85,936,664 $2,346,254 $1,202,133 $1,076,226 $317,023 $3,271,689 $94,149,989
======================================================================================
See notes to financial statements.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997
Fund Information
-----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
-----------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair
value of investments $4,012,004 $1,782,131 $51,898 $18,190,650 $24,036,683
Dividends:
New York State Electric & Gas Corp. 1,938,123 1,938,123
Other 1,855,288 4,543,786 152,689 6,551,763
Interest on investments $367,183 $41,465 408,648
Interest on loans to participants
-----------------------------------------------------------------------------------------
5,867,292 6,325,917 204,587 367,183 20,128,773 41,465 32,935,217
Contributions:
Employer 1,366,877 1,366,877
Employee 3,171,474 2,517,069 259,143 660,812 1,719,575 8,328,073
Interfund transfers (net) 1,893,969 4,106,114 303,454 684,308 (11,013,324) (4,370) (4,029,849)
-----------------------------------------------------------------------------------------
Total additions 10,932,735 12,949,100 767,184 1,712,303 12,201,901 37,095 38,600,318
Deductions
Withdrawal benefits - stock 764,427 764,427
Withdrawal benefits - cash 374,941 698,258 88,320 585,155 11,051 1,757,725
Transfers to Salaried Plan 14,498 (4,947) (3,364) (9,612) 1,685 997 (743)
Administrative fees 9,889 9,928 993 4,697 31,818 57,325
-----------------------------------------------------------------------------------------
Total deductions 399,328 703,239 85,949 580,240 797,930 12,048 2,578,734
-----------------------------------------------------------------------------------------
Net increase 10,533,407 12,245,861 681,235 1,132,063 11,403,971 25,047 36,021,584
Net assets available for benefits
at beginning of year 21,069,829 24,203,575 2,188,125 7,090,991 30,474,962 909,182 85,936,664
-----------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $31,603,236 $36,449,436 $2,869,360 $8,223,054 $41,878,933 $934,229 $121,958,248
=========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information (Continued)
Year Ended December 31, 1997
Fund Information
-------------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
---------------------------------------------------------------------------------------
Additions
Investment Income:
Net appreciation (depreciation)
in fair value of investments $24,036,683 $(498,081) $110,570 $33,286 $290 $23,682,748
Dividends:
New York State Electric & Gas Corp. 1,938,123 1,938,123
Other 6,551,763 828,154 199,394 188,363 51,509 7,819,183
Interest on investments 408,648 408,648
Interest on loans to participants $269,052 269,052
---------------------------------------------------------------------------------------
32,935,217 330,073 309,964 221,649 51,799 269,052 34,117,754
Contributions:
Employer 1,366,877 1,366,877
Employee 8,328,073 585,218 342,257 234,491 77,341 9,567,380
Interfund transfers (net) (4,029,849) 1,378,794 1,231,670 870,006 451,343 98,036
---------------------------------------------------------------------------------------
Total additions 38,600,318 2,294,085 1,883,891 1,326,146 580,483 367,088 45,052,011
Deductions:
Withdrawal benefits - stock 764,427 764,427
Withdrawal benefits - cash 1,757,725 45,015 32,480 4,891 23,259 1,863,370
Transfers to Salaried Plan (743) 786 43
Administrative fees 57,325 1,065 683 467 150 59,690
----------------------------------------------------------------------------------------
Total deductions 2,578,734 46,866 33,163 5,358 150 23,259 2,687,530
----------------------------------------------------------------------------------------
Net increase 36,021,584 2,247,219 1,850,728 1,320,788 580,333 343,829 42,364,481
Net assets available for benefits
at beginning of year 85,936,664 2,346,254 1,202,133 1,076,226 317,023 3,271,689 94,149,989
----------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $121,958,248 $4,593,473 $3,052,861 $2,397,014 $897,356 $3,615,518 $136,514,470
========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1996
Fund Information
-----------------------------------------------------------------------------------------
Guaranteed
Capital Government Money Company Investment
Appreciation Equity Obligation Market Stock Contract
Fund Fund Fund Fund Fund Fund Subtotal
-----------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation)
in fair value of investments $665,174 $2,070,273 $(57,134) $(6,182,420) $(3,504,107)
Dividends:
New York State Electric & Gas Corp. 2,018,810 2,018,810
Other 1,319,941 2,032,642 140,882 3,493,465
Interest on investments $314,406 $39,433 353,839
Interest on loans to participants
---------------------------------------------------------------------------------------
1,985,115 4,102,915 83,748 314,406 (4,163,610) 39,433 2,362,007
Contributions:
Employer 1,270,641 1,270,641
Employee 2,611,340 2,157,860 316,813 691,248 2,496,687 8,273,948
Interfund transfers (net) 2,889,489 1,027,182 (311,124) 1,856,065 (5,215,922) (2,229,905) (1,984,215)
-----------------------------------------------------------------------------------------
Total additions 7,485,944 7,287,957 89,437 2,861,719 (5,612,204) (2,190,472) 9,922,381
Deductions
Withdrawal benefits - stock 926,667 926,667
Withdrawal benefits - cash 262,877 450,334 24,278 199,764 28,917 966,170
Transfers to Salaried Plan 35,431 (6,559) 13,256 (13,792) 57,471 1,341 87,148
Administrative fees 12,367 12,336 1,788 7,603 44,029 11 78,134
-----------------------------------------------------------------------------------------
Total deductions 310,675 456,111 39,322 193,575 1,028,167 30,269 2,058,119
-----------------------------------------------------------------------------------------
Net increase (decrease) 7,175,269 6,831,846 50,115 2,668,144 (6,640,371) (2,220,741) 7,864,262
Net assets available for benefits
at beginning of year 13,894,560 17,371,729 2,138,010 4,422,847 37,115,333 3,129,923 78,072,402
-----------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $21,069,829 $24,203,575 $2,188,125 $7,090,991 $30,474,962 $909,182 $85,936,664
=========================================================================================
See notes to financial statements.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information (Continued)
Year Ended December 31, 1996
Fund Information
------------------------------------------------------------------------
Asset Asset Asset
Subtotal Global Allocation Allocation Allocation
Brought Growth Growth Balanced Conservative Loan
Forward Fund Portfolio Portfolio Portfolio Fund Total
--------------------------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation)
in fair value of investments $(3,504,107) $73,346 $65,077 $48,385 $5,324 $(3,311,975)
Dividends:
New York State Electric & Gas Corp. 2,018,810 2,018,810
Other 3,493,465 163,865 61,017 72,630 17,003 3,807,980
Interest on investments 353,839 353,839
Interest on loans to participants $233,793 233,793
--------------------------------------------------------------------------------------
2,362,007 237,211 126,094 121,015 22,327 233,793 3,102,447
Contributions:
Employer 1,270,641 1,270,641
Employee 8,273,948 425,319 185,155 175,342 42,229 9,101,993
Interfund transfers (net) (1,984,215) 791,571 500,440 356,823 100,576 234,805
--------------------------------------------------------------------------------------
Total additions 9,922,381 1,454,101 811,689 653,180 165,132 468,598 13,475,081
Deductions
Withdrawal benefits - stock 926,667 926,667
Withdrawal benefits - cash 966,170 25,591 2,837 9,944 20,589 13,169 1,038,300
Transfers to Salaried Plan 87,148 (208) 86,940
Administrative fees 78,134 1,018 550 465 154 80,321
---------------------------------------------------------------------------------------
Total deductions 2,058,119 26,401 3,387 10,409 20,743 13,169 2,132,228
---------------------------------------------------------------------------------------
Net increase 7,864,262 1,427,700 808,302 642,771 144,389 455,429 11,342,853
Net assets available for benefits
at beginning of year 78,072,402 918,554 393,831 433,455 172,634 2,816,260 82,807,136
---------------------------------------------------------------------------------------
Net assets available for benefits
at end of year $85,936,664 $2,346,254 $1,202,133 $1,076,226 $317,023 $3,271,689 $94,149,989
=======================================================================================
See notes to financial statements.
</TABLE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1997 and 1996
1. DESCRIPTION OF THE HOURLY PLAN
The New York State Electric & Gas Corporation Tax Deferred Savings
Plan for Hourly Paid Employees (the Hourly Plan) was established
effective January 1, 1986 to provide for before-tax contributions
in accordance with Internal Revenue Code (Code) Section 401(k).
The Hourly Plan is for the exclusive benefit of New York State
Electric & Gas Corporation (company) employees who are eligible to
participate under the Hourly Plan provisions.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on an accrual basis and in
conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Investments
Investments consisting of the company's publicly traded common
stock and various Putnam Investment vehicles are carried at current
value using the market price at closing on the last business day of
the year.
Guaranteed investment contracts are valued at contract value (which
approximates fair market value) which represents contributions plus
interest thereon at the contract rate.
The change during the period between fair value and carrying value
is reflected in the statement of changes in net assets available
for benefits as net appreciation (depreciation) in fair value of
investments.
Contributions
Contributions to the Hourly Plan are allocated to participant
accounts. Participants have full and immediate vesting rights in
employee and employer contributions, investment earnings and other
amounts allocated to their accounts.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contributions (Continued)
During 1996 an employee covered by a collective bargaining
agreement was eligible for participation in the Hourly Plan
generally upon completion of at least 1,000 hours of service during
the 12 consecutive month period beginning on the date of employment
or any anniversary thereof. Effective January 1, 1997, an employee
may become a participant in the Hourly Plan as of the first day of
any calendar month that commences after the completion of the
employee's first 30 days of employment.
Employee contributions, with certain exceptions, range from 1% to
15% of the participant's base compensation plus any overtime pay.
Subject to limitations stipulated by the Code, a participant's
total contribution could not exceed $9,500 per year in 1997 and
1996.
During 1997 and 1996, the company contributed solely to the Company
Stock Fund an amount equivalent to 25% of the participant's
contributions to any fund (up to 1.5% of the participant's annual
base compensation as of the first day of the year).
Benefit Payments
Distributions from the Capital Appreciation Fund, Equity Fund,
Government Obligation Fund, Money Market Fund, Guaranteed
Investment Contract Fund, Global Growth Fund and the Asset
Allocation Funds are made in cash. Distributions from the Company
Stock Fund are made in either whole shares of the company's common
stock or in cash, as specified by the participant and subject to
approval by the Hourly Plan's administrative committee.
As of December 31, 1997, plan assets include approximately
$13,014,630 in amounts allocated to participants who have withdrawn
from the Hourly Plan, due to termination, retirement or disability
but for which disbursement of funds have not yet occurred.
Loans
Participants may, under certain circumstances, borrow against their
account balances. The principal amount of the loan is subject to
certain limitations as defined in the Hourly Plan document. The
term of the loan may not exceed five years, and the interest rate
established by the Hourly Plan's administrative committee provides
the Hourly Plan with a return commensurate with the interest rate
charged by persons in the business of lending money for loans which
would be made under similar circumstances.
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Interest rates range from 6.5% to 10.5%. The loan must be repaid
by payroll deductions over the term of the loan. Loan payments are
credited to an applicable fund based upon the participant's
election. If a participant's employment terminates for any reason,
the loan will become immediately due and payable.
Plan Termination
Although the company has not expressed any intent to terminate the
Hourly Plan, it has the right to discontinue contributions at any
time and terminate the Hourly Plan. In the event of termination of
the Hourly Plan, the net assets of the Hourly Plan are set aside,
first for payment of all Hourly Plan expenses and, second, for
distribution to the participants, based upon the balances in their
individual accounts.
3. INVESTMENTS
Contributions by the participants are invested, at the election of
the participant, in one or a combination of the following nine
funds: (1) the Capital Appreciation Fund, a mutual fund,
consisting primarily of common stock; (2) the Equity Fund, a mutual
fund, consisting primarily of common stock; (3) the Government
Obligation Fund, a mutual fund, consisting of securities that are
backed by the full faith and credit of the United States
Government; (4) the Money Market Fund, a mutual fund, consisting of
money market instruments; (5) the Company Stock Fund, consisting of
common stock of the company; (6) the Global Growth Fund, a mutual
fund, consisting primarily of U.S. and international common stocks;
or (7) the three Asset Allocation Funds, consisting primarily of
equity and fixed income securities. Effective January 1, 1992, the
Guaranteed Investment Contract Fund did not accept any new
investments. Prior to November 18, 1988, the Guaranteed Investment
Contract Fund consisted of investments in insurance contracts that
guaranteed an effective annual rate of interest through a specified
period, and effective November 18, 1988, included investments in
securities and other obligations issued by any company that
guaranteed an effective annual rate of interest through a specified
period.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1997 and 1996
4. INCOME TAX STATUS
The company has received a determination letter from the Internal
Revenue Service, dated June 3, 1994, that the Hourly Plan qualifies
as a tax deferred savings plan under Sections 401(a) and 401(k) of
the Code. The Plan has been amended subsequent to the receipt of
the latest determination letter. However, the Plan's administrator
and tax counsel believe that the Plan is designed and currently
being operated in compliance with the applicable requirements of
the Code.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
All administrative fees are paid by the participants in the Hourly
Plan. Audit and legal fees are paid by the company.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1997 and 1996
6. UNITS OF PARTICIPATION
Total number of units and net asset value per unit during the period from
January 1, 1996 to December 31, 1997, by quarter, are as follows:
Capital Equity Government Money
Appreciation Fund Obligations Market
---------------- ---------------- -------------- ---------------
Units $ Unit Units $ Unit Units $ Unit Units $ Unit
01/01/96 911,119 15.25 1,072,991 16.19 162,093 13.19 4,422,847 1.00
03/31/96 969,930 16.19 1,114,522 17.05 169,630 12.79 6,456,405 1.00
06/30/96 1,061,344 16.81 1,169,993 17.46 172,589 12.61 6,268,397 1.00
09/30/96 1,145,709 17.55 1,208,239 17.87 168,490 12.63 6,553,174 1.00
12/31/96 1,303,300 16.12 1,341,891 18.02 170,548 12.83 7,090,710 1.00
03/31/97 1,358,302 15.30 1,408,476 18.39 186,779 12.61 7,097,744 1.00
06/30/97 1,380,272 18.03 1,475,906 20.67 188,508 12.87 7,340,477 1.00
09/30/97 1,463,732 20.00 1,551,289 21.80 190,789 13.01 7,429,360 1.00
12/31/97 1,658,963 19.05 1,865,375 19.54 219,202 13.09 8,223,054 1.00
Global Allocation Allocation Allocation
Growth Growth Balanced Conservative
-------------- -------------- -------------- --------------
Units $ Unit Units $ Unit Units $ Unit Units $ Unit
01/01/96 91,947 9.99 39,383 10.00 45,011 9.63 18,724 9.22
03/31/96 115,061 10.58 51,375 10.52 59,709 9.99 19,667 9.32
06/30/96 147,799 10.95 67,076 11.01 72,131 10.36 20,331 9.46
09/30/96 167,564 11.11 78,838 11.41 80,959 10.71 21,925 9.69
12/31/96 216,844 10.82 106,550 11.23 102,596 10.49 29,464 9.58
03/31/97 246,884 10.94 136,839 11.58 126,436 10.71 48,853 9.56
06/30/97 268,802 12.49 154,139 12.64 137,476 11.55 46,944 10.16
09/30/97 330,922 12.99 177,828 13.55 161,704 12.21 61,263 10.62
12/31/97 461,192 9.96 247,596 12.33 215,365 11.13 90,006 9.97
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
Balance Held at Market
Name of Issuer and Title of Issue End of Year Cost ** Value
- -----------------------------------------------------------------------------
Capital Appreciation Fund
*Putnam Voyager Fund 1,658,963 shares $31,603,236
Equity Fund
*Putnam Fund for Growth
and Income 1,865,375 shares 36,449,436
Government Obligation Fund
*Putnam U.S. Government
Income Trust 219,202 shares 2,869,360
Money Market Fund
*Putnam Money Market Fund 8,223,054 shares 8,223,054
Global Growth Fund
*Putnam Global Growth Fund 461,192 shares 4,593,473
Asset Allocation Growth Portfolio
*Putnam Asset Allocation - Growth
Portfolio 247,596 shares 3,052,861
Asset Allocation Balanced Portfolio
*Putnam Asset Allocation - Balanced
Portfolio 215,365 shares 2,397,014
Asset Allocation Conservative
Portfolio
*Putnam Asset Allocation
Conservative Portfolio 90,006 shares 897,356
-----------
Total $90,085,790
===========
Company Stock Fund
*New York State Electric & Gas
Corporation common stock 1,179,688 shares $41,878,933
===========
Guaranteed Investment Contracts $934,229 $934,229
=======================
Loans to participants - interest
rates from 6.5% to 10.5% $3,615,518
===========
* Denotes a party-in-interest.
** Information pertaining to the historical cost was not available from the
Trustee.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1997
Current Value
of Asset on
Purchase Selling Transaction Net Gain
Description of Assets Price Price Date (Loss)
- -------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of plan assets
Company Stock Fund - Purchases
*New York State Electric
& Gas Corporation
Common Stock $6,502,145 $6,502,145
Company Stock Fund - Sales
*New York State Electric
& Gas Corporation $10,758,893 $10,758,893
Common Stock $13,288,823 13,288,823 $2,529,930
There were no category (i), (ii), or (iv) reportable transactions during 1997.
* Denotes a party-in-interest.
<PAGE>
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-16201) pertaining to the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Hourly Paid Employees of our report dated February 20, 1998, with
respect to the financial statements and schedules of the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Hourly Paid Employees for the year ended December 31, 1997, which
report is included in this Annual Report on Form 11-K.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
March 26, 1998
EXHIBIT NO. 99-4
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
OPINION NO. 98-6
CASE 96-E-0891 - In the Matter of New York State Electric
& Gas Corporation's Plans for Electric
Rate/Restructuring Pursuant to Opinion
No. 96-12.
CASE 93-E-0960 - Proceeding on Motion of the Commission
as to the Rates, Charges, Rules and
Regulations of New York State Electric
and Gas Corporation - Tariff Filing
Governing the Sale of Economic
Development Power Generated by the New
York State Power Authority to Specific
Customers Recommended by the Allocation
Board.
CASES 94-M-0349 et al. - New York State Electric & Gas
Corporation - Electric Rates.
OPINION AND ORDER ADOPTING TERMS OF SETTLEMENT
SUBJECT TO MODIFICATIONS AND CONDITIONS
Issued and Effective: March 5, 1998
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
PROCEDURAL HISTORY 2
The Restructuring Proceeding (Case 96-E-0891) 2
The EDP Proceeding (Case 93-E-0960) 5
The 1995 Rate Settlement (Cases 94-M-0349 et al.) 7
The Proposed Settlement 8
Recommended Decision and Exceptions 9
SETTLEMENT SUMMARY 10
Rate Plan 11
Recovery and Mitigation of Strandable Costs 13
Retail Access and Unbundled Tariffs 15
Corporate Structure 16
Public Policy Programs 16
Market Power 17
STANDARD TO TEST A PROPOSED SETTLEMENT 17
DISCUSSION 18
Rate Plan 19
1. Amount and Allocation of Rate Benefits 19
2. Return on Equity 22
3. Rate Design 23
a. Customer/Energy Charges 23
b. Back-Out Credit 24
Recovery and Mitigation of Strandable Costs 26
Retail Access and Unbundled Tariffs 27
Corporate Structure 28
TABLE OF CONTENTS
Page
Public Policy Programs 30
EDP Delivery Rates 32
Environmental Issues 34
Other Issues 36
1. Customer Service Incentive Program 36
2. Reciprocity 36
3. Cooperation 37
4. Statutory Authority 37
5. NYPA Hydropower 37
STATE ENVIRONMENTAL QUALITY REVIEW ACT (SEQRA) 38
CONCLUSION 40
ORDER 41
APPENDIX A - APPEARANCES
APPENDIX B - LIST OF ABBREVIATIONS
APPENDIX C - ENVIRONMENTAL ASSESSMENT FORM
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
COMMISSIONERS:
John F. O'Mara, Chairman
Maureen O. Helmer
Thomas J. Dunleavy
CASE 96-E-0891 - In the Matter of New York State Electric
& Gas Corporation's Plans for Electric
Rate/Restructuring Pursuant to Opinion
No. 96-12.
CASE 93-E-0960 - Proceeding on Motion of the Commission
as to the Rates, Charges, Rules and
Regulations of New York State Electric
and Gas Corporation - Tariff Filing
Governing the Sale of Economic
Development Power Generated by the New
York State Power Authority to Specific
Customers Recommended by the Allocation
Board.
CASES 94-M-0349 et al. - New York State Electric & Gas
Corporation - Electric Rates.1
OPINION AND ORDER ADOPTING TERMS OF SETTLEMENT
SUBJECT TO MODIFICATIONS AND CONDITIONS
(Issued and Effective March 5, 1998)
BY THE COMMISSION:
INTRODUCTION
This proceeding was established to investigate issues
related to competitive opportunities for electric service2 for
New York State Electric & Gas Corporation (NYSEG or the
company).3 After we encouraged the interested parties to seek a
____________________
1 The proceeding includes the captioned cases and cases
93-E-0284, 93-E-0664, 95-M-0017, 95-E-0425, and 95-E-0426.
See Opinion No. 95-17 (issued September 27, 1995).
2 A list of parties' appearances is attached as Exhibit A.
3 A list of abbreviations used in this document is attached as
Appendix B.
negotiated resolution of the issues raised, a Settlement1 was
filed on October 9, 1997, by NYSEG on behalf of five parties.
In the most general terms, the Settlement, in
accomplishing a major restructuring of NYSEG, provides for
substantial rate benefits for all customers, calls for prompt
divestiture of all NYSEG's fossil generation plants, allows for
competition to develop in the energy services sector, provides
all customers access to the competitive electricity market in
less than 18 months, and fairly addresses public policy and
environmental concerns. This Settlement will enable a robust,
competitive electric market to develop, resulting in widespread
consumer choice. Most importantly, due to the implementation of
the Settlement and the rapid opening of the competitive market,
NYSEG consumers will receive lower average electric bills.
We recently issued an order adopting the terms of the
Settlement subject to certain modifications and conditions.2 The
findings and decision made in that previous order are hereby
incorporated, and this opinion describes the bases for our
decision.
PROCEDURAL HISTORY
The Restructuring Proceeding (Case 96-E-0891)
Opinion No. 96-123 required NYSEG, among other
utilities, to file a proposed plan for rate/restructuring, no
____________________
1 The Settlement, dated October 9,1997, is summarized infra,
and was attached as Appendix A to the Order Adopting Terms of
Settlement Subject to Modifications and Conditions (issued
January 27, 1998). It is referred to in this opinion as "the
Settlement." See Procedural History, infra.
2 Cases 96-E-0891 et al., Order Adopting Terms of Settlement
Subject to Modifications and Conditions (issued January 27,
1998) (January 27 Order). NYSEG unconditionally accepted the
modifications and conditions in a letter dated February 4,
1998.
3 Cases 94-E-0952 et al., In the Matter of Competitive
Opportunities Regarding Electric Service, Opinion No. 96-12
(issued May 20, 1996).
<PAGE>
later than October 1, 1996. The utilities were asked to address
the following matters in the filings: (1) the utility's
structure for both the short and long term; (2) a schedule for
retail access and a set of unbundled tariffs; (3) a rate plan
including mechanisms to reduce rates and address strandable
costs; (4) identification of public policy programs needing
special rate treatment and mechanisms to recover associated
costs; (5) examination of load pockets and proposals to mitigate
market power; and (6) a plan for the provision of energy
services.1
NYSEG's filing was submitted on September 27, 1996, and
shortly thereafter procedures and a schedule were established for
addressing the filing.2 We stated our "strong interest in
expeditiously negotiated resolutions of the individual utility
filings" and expressed our preference for a negotiated resolution
over a litigated outcome.3 To further that goal, the
notification procedures and other parts of the settlement
guidelines were waived.4
We also found it desirable to allow an opportunity for
interested parties and the public to participate. Accordingly, a
90-day period was established for discovery on and analysis of
the filings, and for settlement negotiations; and a subsequent
60-day period was allowed for closing the record if a settlement
____________________
1 These matters were the minimum the Commission asked utilities
to include in their filings. The actual list includes
somewhat more detail about what the filings were expected to
include (ibid., pp. 75-76).
2 Cases 94-E-0952 (et al., supra, Order Establishing Procedures
and Schedule (issued October 9, 1996); approved and confirmed
by the full Commission by Confirming Order (issued October 24,
1996).
3 Cases 94-E-0952 et al., supra, Order Establishing Procedures
and Schedule, p. 3.
4 Id., citing Cases 90-M-0225 et al., Settlement Procedures,
Opinion No. 92-2 (issued March 24, 1992), mimeo, Appendix B.
<PAGE>
by major parties was reached.1 The 90-day period was
subsequently extended by a series of notices issued by the
Secretary at the Chairman's direction.2 Ultimately, March 25,
1997 was set as the date for a settlement or testimony to be
filed.3
In accordance with this schedule and in the absence of
a settlement, the following parties filed testimony on March 25,
1997 responding to NYSEG's September 27, 1996 submittal:
American Association of Retired Persons (AARP), New York State
Consumer Protection Board (CPB), New York State Department of
Economic Development (DED), Enerscope,4 Independent Power
Producers of New York, Inc. and Enron Capital & Trade Resources
____________________
1 Cases 94-E-0952 et al., supra, Order Establishing Procedures
and Schedule, pp. 3-4. During the first 90-day period, the
progress of the NYSEG proceeding was monitored through
procedural conferences held in Albany on November 18, 1996,
and December 20, 1996.
Also, during the first 90-day period, public input was sought
through educational forums and public statement hearings held
in Elmira, Binghamton, and Plattsburgh. Twenty-one speakers,
including Binghamton Mayor Richard Bucci, placed comments on
the record at the public statement hearings. The speakers
generally argued that: NYSEG's rates were too high; NYSEG
should not recover all its stranded costs; management errors
should be the responsibility of stockholders; and, competition
is likely to harm the environment and leave the small consumer
with few benefits. Mayor Bucci noted that, based on his
conversations, uncompetitively high utility rates are ". . .
one of the highest barriers to job creation and job growth."
(Transcript page (Tr.) 86.)
2 Cases 94-E-0952 et al., Notice to the Parties (issued
December 19, 1996); Cases 96-E-0909 et al., Notice to the
Parties (issued January 9, 1997); Cases 96-E-0909 et al.,
Notice to the Parties (issued February 13, 1997);
Case 96-E-0891 et al., Notice to the Parties (issued
February 27, 1997).
3 Cases 96-E-0909 et al., Notice to the Parties (issued
March 11, 1997), pp. 2-4.
4 The Enerscope and RE3SCO testimonies were not admitted because
neither party appeared at the hearings and no alternate
arrangements were made.
<PAGE>
(collectively IPPNY/Enron), Multiple Intervenors (MI), New York
Power Authority (NYPA), Public Interest Intervenors (PII), Retail
Council of New York (Retail Council), RE3SCO Restructuring
Coalition (RE3SCO), Staff of the Department of Public Service
(Staff), and Wheeled Electric Power Company (WEPCO). NYSEG also
submitted direct testimony on March 25, 1997 that updated and, in
some respects, revised its September 27, 1996 filing. Included
in its March filing was a "Proposed Definitive Settlement
Agreement" offering a settlement-based resolution of the issues.1
By letter dated April 10, 1997, the company explained that its
Proposed Definitive Settlement Agreement superseded inconsistent
portions of its March 25 testimony.
At a Procedural Conference on April 16, 1997, a final
schedule of submissions was established. In accordance with that
schedule, NYSEG filed testimony supporting its newest proposal on
April 21, and rebuttal testimony was filed on May 6, 1997 by
Staff, CPB, IPPNY/Enron, MI, and NYPA.
Hearings were held from May 15 through May 22,
generating 3,718 pages of transcript and 204 exhibits. Initial
briefs were filed on June 13, 1997 by NYSEG, Staff, IPPNY/Enron,
MI, the Public Utility Law Project (PULP), DED, PII, Retail
Council, CPB, AARP, NYPA, and WEPCO.2 On June 23, 1997, reply
briefs were filed by Staff, NYSEG, PULP, CPB, WEPCO, DED, NYPA,
MI, IPPNY/Enron, PII, and the Retail Council.
The EDP Proceeding (Case 93-E-0960)
The rates for NYSEG's delivery of NYPA power to
Economic Development Power (EDP) customers were established in a
____________________
1 This document (Exhibit 117) is an offer of settlement. It was
not accepted by any party other than NYSEG.
2 On June 16, 1997, the New York Citizens Utility Board (CUB)
filed an initial brief. Staff moved to strike the brief as
untimely filed and prejudicial (Staff's Reply Brief, p. 1).
Staff's motion was granted by Administrative Law Judge
Stockholm (R.D., p. 4).
settlement agreement dated August 15, 1994.1 Under the
settlement and prior to July 31, 1996, NYSEG was to submit a
successor tariff establishing the terms and conditions for
continuing the EDP service. However, by letter dated July 31,
1996, NYSEG notified the signatories to the 1994 settlement that
it was not proposing any changes to the effective tariff at that
time.
On August 12, 1996, MI filed a petition and motion
requesting that NYSEG be required to file just and reasonable
tariff rates for the delivery of NYPA EDP. MI also asked that
the current tariff for EDP be made temporary and subject to
refund as of August 1, 1996. We granted MI's requested relief to
the extent that the parties were directed to meet with the
assistance of a Settlement Judge to negotiate a resolution of
future EDP rates.2 Despite the efforts of the parties, a
mutually acceptable negotiated resolution could not be found at
that time.
At a procedural conference on December 6, 1996,
however, an interim settlement was reached lowering EDP rates on
a temporary basis retroactive to December 1, 1996. The agreement
among the parties was summarized in a Memorandum of Understanding
(MOU) and corresponding tariffs3 were adopted, effective
February 12, 1997. The parties were subsequently notified that
the EDP rate issues in Case 93-E-0960 would be finally resolved
in conjunction with the issues in the restructuring proceeding.4
____________________
1 The settlement was approved by the Commission in
Case 93-E-0960, Order Approving Agreement and Requiring
Refunds (issued October 31, 1994).
2 Case 93-E-0960, Order Reconvening Proceeding (issued
September 20, 1996).
3 Under the tariffs, EDP customers would be charged $3.12 per kW
per month for service taken from NYSEG at 34.5 kV and above
and $8.53 per kW per month for service taken from NYSEG below
34.5 kV.
4 Case 93-E-0960, Procedural Ruling (issued March 20, 1997).
Testimony directly related to the EDP rate issue was filed by MI,
NYPA, DED, and NYSEG.
1995 Rate Settlement (Cases 94-M-0349 et al.)
In Opinion No. 95-17, a three-year settlement agreement
was approved which replaced the third year of a previous
settlement agreement.1 The 1995 rate settlement included rate
increases for years 2 and 3 of 2.8% and 2.7% respectively, which
were to have been effective on August 1, 1996 and August 1, 1997.
On January 31, 1996, NYSEG filed its proposed revenue
allocation and rate design for the second and third year rate
increases and subsequently submitted draft tariffs on July 18,
1996 for year two. On August 26, 1996, the tariffs were
suspended through December 30, 1996, and NYSEG petitioned for
rehearing. On December 18, 1996, the suspension period was
further extended through June 30, 1997.
On January 16, 1997, the Order Denying Petition for
Rehearing and Requiring Further Proceedings was issued in Case
No. 94-M-0349. In the order, NYSEG's petition for rehearing was
denied and it was determined that whether NYSEG should receive
the rate increases provided under the 1995 rate settlement would
be reviewed in the rate/restructuring proceeding.
By petition dated December 20, 1996, NYSEG sought a
judgment pursuant to Article 78 of the Civil Practice Law and
Rules, seeking inter alia, to allow the approved revenue increase
for year two to be implemented. In a letter dated May 29, 1997,
the company agreed to an extension of the suspension period
applicable to the increases for years two and three pending the
outcome of the rate/restructuring case.
In a letter dated June 2, 1997, NYSEG requested that
Justice Keegan (before whom the Article 78 petition was argued)
retain jurisdiction of the proceeding, but withhold a decision
____________________
1 Cases 94-M-0349 et al., Opinion No. 95-17 (issued September
27, 1995), rehearing denied Cases 94-M-0349 et al., Opinion
No. 96-5 (issued February 6, 1996).
<PAGE>
until such time as the Commission either rejected the terms of
NYSEG's proposal for the extension of the suspension period or
failed to issue a final decision by October 1997. In a variety
of further orders, and finally in accordance with our January 27
Order, the suspension periods were extended through February 4,
1998.
The Proposed Settlement
Throughout the litigation phase of the cases NYSEG and
Staff continued their negotiations. On July 30, 1997, and before
a recommended decision was issued, the company filed a Joint
Statement of Principles executed July 28, 1997, by Staff and the
company, purporting to resolve the cases by agreement.
Negotiations with all parties began on August 5, 1997, and on
August 20 a draft agreement was circulated.
On October 9, 1997, NYSEG submitted an "Agreement
Concerning the Competitive Rate and Restructuring Plan of New
York State Electric & Gas Corporation"1 which purports to resolve
by agreement all issues in the above cases. The Settlement was
signed by Staff, NYSEG, DED, NYPA, the National Association of
Energy Services Companies (NAESCO), and the Joint Supporters.2
At the procedural conference on October 14, 1997, a
schedule was established for submitting statements or testimony
supporting or opposing the proffered Settlement. On October 23,
1997, statements supporting the Settlement were filed by all
signatories. On November 1, statements in opposition were filed
by MI, WEPCO, the New York Department of Law (DOL), PULP, the
____________________
1 The Settlement, entered in the record as Exhibit S-1, was
attached as Appendix A to the January 27 Order.
2 At the public statement hearings on November 4, 1997, System
Council U-7 of the International Brotherhood of Electrical
Workers indicated its support of the Settlement (Tr. 3764-66)
in light of the agreement reached with NYSEG as contained in
Exhibit 207. The Joint Supporters is a voluntary,
unincorporated association comprising ". . . consumers and
providers in favor of competitive opportunities for electric
service" (Joint Supporters' Statement of Support, p. 1).
Retail Council, CPB, IPPNY/Enron, and Tioga/Tompkins Counties
(the Counties).1 In addition, MI and PII filed testimony in
opposition to the settlement on November 1.
Legislative/evidentiary hearings were held on
November 7 and 10 at which witnesses prefiling testimony were
cross-examined, and the parties filing comments were questioned
from the bench. Additional public statement hearings and
educational forums were held on the proposed Settlement in
Lockport (October 30), Plattsburgh (November 3), Johnson City
(November 4 and 17), Auburn (November 13) and Hudson
(November 18) at which a total of 24 people spoke. The most
frequent concerns raised by the speakers included the disparity
between large and small customer rate reductions with the latter
occurring only in year five; the uncertain nature of the rate
reductions due to cost recoupment exceptions within the
Settlement; the absence of specified low-income and demand side
management (DSM) programs; and, an overall lack of balance in the
Settlement allegedly favoring stockholders over ratepayers,
industrial users over residential, and large
industrial/commercial users over small industrial/commercial
users.
The record concerning the proposed settlement includes
transcript pages 3,719-4,310 and 18 exhibits, including those
identified as S-1 through S-15, consisting of the Settlement and
the parties' comments, as well as exhibits 205-207 sponsored by
individual witnesses.
Recommended Decision and Exceptions
On December 3, 1997, Administrative Law Judge Stockholm
issued a recommended decision in which he concluded that the
Settlement contained the necessary framework and many of the
provisions of an acceptable plan, but it should nevertheless be
____________________
1 In correspondence addressed to Secretary Crary dated
November 9 and faxed on November 14, the Western New York
Sustainable Energy Association submitted comments opposing the
settlement.
returned to the parties for further negotiations on a number of
issues. Among other concerns, the Judge concluded that: the
Settlement benefits were not equitably shared by small commercial
and industrial customers; there was a significant possibility
that NYSEG would overearn during the plan; the back-out
generation credit specified in the Settlement could, under some
circumstances, dampen or destroy the competitive market; and, a
low-income program must be maintained by NYSEG during the
transition to competition as a matter of its provider of last
resort (POLR) obligations.
Briefs on exceptions were filed on December 22, 1997 by
Staff, the company, MI, IPPNY/Enron, PULP, PII, the Counties,
CPB, Joint Supporters, NAESCO, and WEPCO.1 Replies to exceptions
were filed on December 17, 1997 by Staff, the company, MI, DED,
IPPNY/Enron, and CPB.
SETTLEMENT SUMMARY
In accordance with our directions, the Settlement
contains a five-year rate plan, provisions concerning the
recovery and mitigation of strandable costs, a phased schedule
for providing retail access and unbundled tariffs, a proposed
holding company corporate structure, a funding source for public
policy programs, reduced delivery rates for EDP power, the
withdrawal of various Article 78 proceedings challenging our
orders,2 and a number of other terms. These terms are briefly
summarized below.3
____________________
1 DOL filed a letter supporting the remand recommendation.
2 The company has agreed to withdraw its court challenges
regarding the company's previously approved rate increases,
the Energy Association challenge to Opinion No. 96-12, and the
company's challenge to the mandated Dairylea retail access
program ordered in Case 96-E-0948 (Settlement, pp. 5, 6, 35).
3 This summary is provided for the reader's convenience. It
does not necessarily describe each provision of the Settlement
and, in all instances, the Settlement's wording and the
modifications and conditions in the January 27 Order govern.
<PAGE>
Rate Plan
Subject to the exceptions noted below, the Settlement
provides for a five-year freeze of all rates, rate reductions of
5% in each of the five years for large customers, and a 5% rate
decrease by year five for all other customers. These rate levels
reflect concessions by the utility (including Gross Receipt Tax
(GRT) reductions) totaling $725 million, of which approximately
$104 million are rate reductions for large users, with the
balance ($621 million) allocated to residential and small
commercial and industrial customers. Of the $725 million total,
approximately $522 million is attributable to the accumulated
forgone revenues associated with the previously approved year two
and year three rate increases.1
Large commercial and industrial customers, who will
receive 5% annual rate decreases, are defined under the
Settlement as all industrial customers with average on-peak
demands of at least 500 kW and all demand-metered customers that
have average load factors of at least 68%.2 In addition,
existing EDP customers will receive 35-56% reductions in
transmission and distribution rates from those in effect prior to
December 1996.3 The Settlement also provides for business
retention, revitalization, and economic development rates, and
includes significant changes to the currently effective Economic
Development Zone Incentive Rates, Economic Revitalization
Incentive Rates, and Service Classification (SC) 13 and 14
____________________
1 Cases 94-M-0349 et al., Opinion No. 95-17 (issued
September 27, 1995).
2 Settlement, p. 10.
3 For example, prior to December 1996, transmission level
customers were paying $6.51/kW/month. As of the December 1996
temporary rate agreement, this amount was lowered to
$3.12/kW/month and under the Settlement it is lowered further
to $2.96/kW/month. In addition, refunds will be issued for
the August to December 1996 period.
<PAGE>
rates.1 The quantified benefits of these new tariffs and
programs are not included in the $725 million and $104 million
figures discussed above.
The Settlement sets an earnings cap target of 12% and
provides that any earnings above that level are to be returned to
consumers as directed by the Commission. In calculating the
return on equity (ROE) for this purpose, the common equity
balance will not reflect any writeoff or writedown of assets, or
the repurchase of common stock. Subject to other provisions in
the Settlement,2 this term allows the company to include within
its ROE cap calculation the cost of accelerating the amortization
or depreciation of its assets. The Settlement also provides
that, should the company's ROE fall below 9.0%, the company may
petition for rate relief.
Regarding rate design issues, the Settlement expresses
the general objective of moving basic service and energy charges
toward marginal costs, while avoiding undue rate shock for any
customer. During the first two years of the plan, rate design
for customers not receiving annual rate decreases will not be
changed. The future rate design for these customers will be
specifically addressed in a filing required no later than
February 1, 1999.
Other provisions of the Settlement might allow the
utility to recover two different types of uncontrollable costs.
The first category involves non-recurring events such as force
majeure, but, to be recoverable, these costs3 must exceed 3% of
the regulatory subsidiary's (RegSub's) net electric income. The
second category of costs that may be recoverable involve mandated
____________________
1 SC 13 and 14 are NYSEG's tariffs for individually negotiated
contracts for business retention and expansion, respectively.
2 For example, in the event the company petitions for recovery
of uncontrollable costs, any recovery may be offset by the
amount of accelerated depreciation or amortization taken by
the company, which, if not taken, would cause the ROE to
exceed 12%.
3 Settlement, Appendix C, p. 1.
accounting, legislative, regulatory, or tax law changes and
variations in certain costs from the levels specified in the
Settlement.1
Recovery and Mitigation of Strandable Costs
NYSEG will initially transfer its coal-fired generating
plants and associated assets and liabilities to a generating
subsidiary (GenSub - see corporate structure discussion infra).
These assets will then be subject to an auction which is to close
no later than August 1, 1999.2 The Settlement permits NYSEG's
GenSub to participate as a bidder in the auction.
The purpose of the auction is to obtain the highest
possible market value for the company's coal generating assets
and to quantify any stranded costs associated with them. If the
result of the auction generates a net amount less than the
company's investment in the plants, the shortfall will be
quantified, booked as a regulatory asset, and recovered through a
competitive transition charge (CTC) over a period to be
determined by the Commission, but not to exceed the weighted-
average remaining life of the auctioned assets. In the event the
auction produces a net amount in excess of the company's
investment, the excess will be used to write-down the company's
stranded investment in the Nine Mile Point II nuclear generating
unit (NMII). Any remaining amounts will be used as directed by
the Commission.
The recovery of all costs, including the strandable
costs of the company's remaining generation assets (i.e., non-
____________________
1 Net increases in the total forecasted levels of nuclear
decommissioning costs, site remediation costs, System Benefits
Charge (SBC) program costs, and NYPA transition costs are
fully recoverable, subject to the accelerated depreciation or
amortization limitation noted above (Settlement, Appendix C,
p. 2).
2 The terms, conditions, and protocols to implement the auction
will be developed between the company and Staff and will be
submitted to the other parties for comments before being filed
for approval.
utility generators (NUGs), NMII, and hydroelectric assets) are
presumed to be recovered through existing rates during the five-
year period of the rate agreement. Following the end of the
five-year period, all remaining RegSub regulatory assets (except
those recovered through the CTC) as well as its hydropower, NUG,
and nuclear fixed costs would be recovered through a non-
bypassable wires charge.
The company has also agreed to propose to its NMII co-
tenants that the nuclear plant be subject to an auction and to
vote in favor of such an auction should the issue come to a vote
among the co-tenants. In the event the auction proceeds are less
than the company's investment in the plant, a regulatory asset
similar to that created for the coal plant assets would be
created, and those stranded costs would be recovered over a
period not to exceed 15 years. Should such an auction occur
during the five year rate plan, the Settlement provides a rate
adjustment to capture any net savings in nuclear operation,
maintenance, fuel, and tax costs realized as a result of the
sale.
Finally, the Settlement provides NYSEG an incentive of
20% of the savings from the renegotiation and/or termination of
above market NUG contracts. The remaining 80% of NUG contract
cost savings will be flowed through to customers, subject to
first reimbursing the company for: (1) any lost revenues
resulting from the implementation of the new EDP rates; (2) any
short-fall in revenues attributable to the new business retention
incentive; and, (3) any claimed uncontrollable costs. According
to the Settlement proponents, the generation auction and the NUG
contract renegotiation incentive fulfill the Commission's
objective of mitigating costs.1
____________________
1 See Cases 96-E-0897 et al., Consolidated Edison - Electric
Rate/Restructuring, Opinion No. 97-16 (issued November 3,
1997), mimeo p. 40.
<PAGE>
Retail Access and Unbundled Tariffs
The Settlement introduces direct retail access for
eligible electric customers1 in three stages. NYSEG has
implemented a pilot program for approximately 12,000 farmers and
250 food processors that will permit those customers to purchase
electricity from other suppliers; this is stage one. On
August 1, 1998, in the second phase of retail access, customers
in the City of Norwich and in NYSEG's Lockport Division
(approximately 22,000 customers) will be provided retail access.
The final stage for the introduction of retail access begins on
August 1, 1999, and covers all remaining eligible customers.
This deadline may be extended either if the company experiences
unacceptable balancing/settlement difficulties, or if the State's
independent system operator (ISO) is not yet functioning.
Prior to the auction of the company's fossil assets,
customers choosing retail access will be provided a generation
credit equal to the market price of electricity plus 4 mills for
customers eligible for the 5% annual rate reductions, and market
price plus one cent for most other customers, subject to a
maximum credit of 3.0 cents per kWh. For the period following
the company's auction of its fossil units, ratepayers choosing
alternative suppliers will be provided a credit of:
(1) 3.23 cents per kWh through July 31, 2000; (2) 3.47 cents per
kWh from August 1, 2000 through July 31, 2001; and (3) 3.71 cents
per kWh from August 1, 2001 through the end of the rate
settlement. In each case, the credits will be net of any CTC
produced as a result of the fossil auction.2 At the end of the
rate plan, all costs related to the auctioned fossil assets
(except the CTC) will be removed from rates.
____________________
1 Separate provisions apply for customers receiving service
under negotiated or incentive rates.
2 The precise calculation of this net generation credit is left
in the Settlement for future determination. The company will
submit its calculation proposal no later than February 1,
1999.
The Settlement identifies the manner in which the
company intends to unbundle its electric rates and the schedule
for doing so. In the second year of the plan, energy and demand
rate elements will be unbundled, showing transmission rates
separately from delivery and power supply rates. In year three
of the plan, delivery and power supply rates will be further
unbundled into power supply, CTC, transmission, distribution, and
customer service categories. Customer service costs, unbundled
on a marginal cost basis,1 will be quantified in accordance with
a study to be filed no later than February 1, 1999, and will
become effective on August 1, 1999.
Corporate Structure
The company proposes to create a holding company
(HoldCo), regulated subsidiary (RegSub), and a generating
subsidiary (GenSub) as soon as possible. RegSub will continue to
be a regulated entity, and, during the rate period of the
Settlement, will continue to be the POLR for ratepayers. GenSub
could end up owning generating assets.
The Settlement also provides a number of terms and
conditions dealing with the relationships among and between
HoldCo and its subsidiaries. The purpose of the standards of
conduct and other affiliate transaction limitations2 is to
preclude anti-competitive actions, including the subsidization of
competitive endeavors by the regulated, monopoly operations.
Public Policy Programs
We expected the utilities to make proposals, including
sources of funding, for various public policy programs that might
not otherwise be sufficiently supported during the transition to
a competitive market. In particular, continued funding was
sought for research and development (R&D), DSM (both generally
____________________
1 All other services will be unbundled on an embedded cost
basis.
2 Settlement, pp. 29-34.
and low-income), and other programs. The Settlement provides
funding of approximately $13 million per year for the first three
years of the rate plan to address such programs (approximately
1.0 mill per kWh), but no specific recommendations are contained
in the Settlement regarding the use of such funds, and the
Settlement is silent regarding both funding and programs for
years four and five. Regarding DSM, the Settlement further
provides that the company need not obtain approval for its 1997
DSM plan, and its petition for approval of that plan would be
withdrawn.
The company's current Fresh Start program, which covers
2,500 low-income customers, is set to expire in 1998. The
company indicates that it has not determined whether the Fresh
Start program would be continued. If this program is not
continued, NYSEG would provide no program to assist low-income
customers.
Market Power
Vertical market power concerns are satisfied, according
to the settling parties, by the company's agreement to auction
its fossil units and to urge the co-owners of NMII to auction the
nuclear unit. Horizontal market power concerns are addressed
through the standards of conduct prohibiting anti-competitive
activities between and among HoldCo and its subsidiaries. Load
pocket concerns are not directly addressed in the Settlement, but
it is assumed that these concerns will be addressed by the
control requirements of the ISO, once it is established, and the
auction process.
STANDARD TO TEST A PROPOSED SETTLEMENT
Our Settlement Guidelines establish the following
standards for assessing a proposed settlement in light of our
obligation to set just and reasonable rates and a utility's
burden, under the Public Service Law (PSL), of showing the
reasonableness of a rate change it is proposing:
<PAGE>
a. A desirable settlement should strive for a balance
among (1) protection of the ratepayers, (2)
fairness to investors, and (3) the long term
viability of the utility; should be consistent
with sound environmental, social, and economic
policies of the Agency and the State; and should
produce results that were within the range of
reasonable results that would likely have arisen
from a Commission decision in a litigated
proceeding.
b. In judging a settlement, the Commission shall give
weight to the fact that a settlement reflects the
agreement by normally adversarial parties.1
DISCUSSION
The issues are addressed in this opinion in the
following order: the rate plan; retail access; strandable costs;
environmental and public policy programs; and, market power and
corporate structure. In each area, this opinion will address our
overall vision as set forth in Opinion No. 96-12, the findings in
the recommended decision, the parties' exceptions,2 and, where
relevant, the modifications and conditions imposed by our
January 27 order.
____________________
1 Cases 90-M-0225 et al., supra, Opinion No. 92-2, Appendix B,
p. 8.
2 All issues raised in the parties' briefs and comments have
been considered, even if they have not been specifically
mentioned in this opinion.
<PAGE>
Rate Plan
We have emphasized that customers should benefit from
lower rates with competition as compared with what would result
from continued rate regulation.1
The lower rates and forgone rate increases resulting
from the Settlement are addressed in this opinion in terms of the
amount and allocation of the rate benefits, return on equity, and
rate design.
1. Amount and Allocation of Rate Benefits
The recommended decision found that the claimed value
of the forgone rate increases ($522 million) should be reduced to
approximately $350 million to reflect the litigation risk of the
company's position.2 The Judge also concluded that, in the
absence of an anticipated, average return on equity for the rate
plan period, no conclusion was possible on the fairness of the
Settlement between stockholders and customers.3 On the balance
of the Settlement's benefits among the various customer classes,
he concluded that small industrial and commercial customers
received fewer relative benefits than did residential customers.4
____________________
1 We expressed this goal as follows:
Market forces overall are expected to
produce, over time, rates that will be lower
than they would be under a regulated
environment. As we move toward competition,
our expectation is that rates overall will be
reduced.
Cases 94-E-0952 et al., supra, Opinion No. 96-12, mimeo p. 26.
2 R.D., p. 31.
3 The Judge was concerned that the Settlement provided some
significant opportunities to improve NYSEG's earnings, which
might not be reflected in lower rates (R.D., pp. 33-34).
4 It was suggested that providing these groups earlier retail
access or a marginal cost-based tariff for incremental usage
could help to alleviate the imbalance (R.D., pp. 36-37).
On exceptions, Staff argues that shareholders have
surrendered $725 million in value ($522 million in forgone rate
increases, $155 million in rate reductions, $48 million in GRT
reductions) and have agreed to auction their generating plants
and open their franchise territory to competition by August 1999.
These ratepayer benefits are sufficient, Staff contends, to
justify the conclusion that stockholders are contributing a fair
share to resolve the strandable cost problem.
On the balance of the Settlement benefits among
customer groups, Staff argues that new or expanded economic
development, economic revitalization, and business retention
rates, and the expanded applicability of negotiated contracts
under SC 13 and 14 would benefit the small industrial and
commercial customers. Further, the $621 million in value
allocated to the small customers is fairly balanced, according to
Staff, with the $104 million of benefits provided to large
customers.
The company echoes many of the Staff arguments, adding
that the Settlement is better than most other agreements already
approved, even if the Judge's lower estimate of the value of the
Settlement's benefits is accurate. On the intra- and inter-class
balance of the Settlement, the company contends that all small
customers (industrial, commercial, and residential) were subject
to the previously approved rate increases, and, therefore, those
customers all equally benefit from the company's agreement to
forgo these increases.
CPB argues that the rate concessions made by NYSEG are
of virtually no value because the company's rates are already at
unacceptable levels, and it requests an immediate 5% rate
reduction for all customers (rather than in year 5) with rates
thereafter frozen. MI urges that the company's stockholders be
required to absorb at least 50% of stranded costs, and argues
that the availability of the annual 5% rate reductions should be
<PAGE>
expanded to include all SC 7 customers.1 In the alternative, MI
contends the Settlement should be amended at least to allow
customers to qualify for 5% annual decreases if their load factor
is below the 68% threshold only due to energy conservation
efforts.
We have carefully examined the allocation of benefits
and costs under the Settlement and conclude that shareholder rate
and other concessions contribute significantly to the opening of
the market and to the resolution of strandable costs. While the
Judge correctly concluded that a fair value of the forgone rate
increases should reflect inherent litigation risk, even using the
Judge's reduced valuation we nevertheless conclude that the
Settlement is within the range of the other utility agreements.
Accordingly, the Settlement's overall balance between
stockholders and customers is fair and reasonable.
As to the balance of the Settlement's costs and
benefits between and within customer classes, we conclude that a
fair share of the Settlement's benefits has been provided to
large industrial and commercial customers (5% annual reductions)
and to residential customers (forgone rate increases and a 5%
reduction by year five). It appears, however, that the small
industrial customers would not have been subject to any material
portion of the forgone rate increases. It also appears likely
that small commercial customers would not have been subject to as
large a potential increase as residential customers.
Accordingly, the small industrial and small commercial groups do
not share the Settlement benefits equitably with other customers.
Accordingly, we required two changes to the Settlement
for these customers in our January 27 Order. First, we required
that retail access be provided to the small industrial customers
at the beginning of the second phase of the access plan (i.e.,
August 1, 1998). Second, we directed the company to file a
marginal-cost based tariff that would apply to increased usage by
____________________
1 SC 7 is NYSEG's tariff for its largest demand customers
(greater than 500 kW).
small industrial and commercial customers. These rates will
provide focused incentives for business expansion. With the
allocation of these additional benefits to these groups, we
conclude that the Settlement's benefits are fairly allocated
among the company's customers.
2. Return on Equity
The recommended decision concluded that the
reasonableness of the 12% ROE earnings cap and the 9% ROE trigger
for petitioning for rate relief could not be determined without
knowing the financial results expected under the terms of the
Settlement. The recommended decision further suggested that
limitations be placed on the company's ability to reduce its
earnings below 12% through the use of accelerated depreciation
and amortization.1
Staff argues on exceptions that a projection of
anticipated returns under the terms of the Settlement is not
required and points to the Commission's approval of the Con
Edison agreement without substantial reliance on such forecasts.
The 9% ROE trigger is reasonable, Staff contends, because it only
allows NYSEG to file for rate relief and does not provide any
assurance that rate relief would be provided. The 12% earnings
cap, Staff suggests, provides efficiency incentives, and it
further notes that 100% of earnings above 12% are allocated to
the benefit of ratepayers, a significant benefit compared to
other utility agreements where overearnings are shared between
customers and shareholders.
NYSEG agrees with Staff and provides its opinion that
the 12% earnings cap would not likely be reached during the five
year rate plan. It further argues that a limitation need not be
placed on its ability to use earnings above 12% for accelerated
depreciation, because writing-down recoverable, stranded assets
provides a benefit to ratepayers even greater than reducing
rates.
____________________
1 R.D., pp. 34, 38.
The 12% ROE cap and 9% earnings trigger are reasonable.
While it might be helpful to have a reliable estimate of
anticipated returns, the uncertainties involved in the transition
to a competitive market can render such estimates unreliable.
The 12% earnings cap under a price cap regimen is reasonable and
is within the range provided in other utility agreements.
Moreover, while the company will have opportunities to enhance
its earnings, given the company's recent subpar earnings, the
rate reductions, and likely future costs onsets, in particular
non-utility generation costs, we are satisfied that the plan
fairly balances shareholder and ratepayer interests. The 9%
earnings floor, below which the company would be permitted to
petition for a rate increase, also seems reasonable. Because
this provision only allows the company to file a petition, it
provides the company with no significantly greater rights than it
would likely have in any event under the Public Service Law.
However, to preserve our flexibility to apply any such
earnings in a variety of ways for the benefit of ratepayers, we
limited the ability of the company to apply such earnings to
accelerated depreciation or amortization without our prior
approval. We recognize that efforts to accelerate these costs
will ameliorate revenue requirement deficiencies for periods
following the plan, and, at this point, we would prefer to apply
any overearnings to the NMII investment. A final decision will
be made if and when overearnings arise.
3. Rate Design
a. Customer/Energy Charges
The recommended decision suggested that rate design
changes to better align fixed customer costs and energy costs
with tariff charges should be initiated now rather than waiting
until year three of the Settlement as proposed by the
signatories.
Staff excepts, arguing that a freeze in the current
design provides a benefit to small users who would otherwise
experience bill increases. Staff suggests that additional
funding may be available in year three of the rate plan that
could be used to avoid or ameliorate rate redesign bill increases
for low-use customers. The company states that further
negotiations on this issue would be fruitless. CPB agrees with
NYSEG and Staff. IPPNY/Enron urges significant changes now to
better align costs and rates, suggesting that adoption of
marginal-cost energy rates could significantly lower the
magnitude of the company's strandable costs.
It is clear that the significant disparity between
rates and costs of energy and customer service will require a
redesign of the fixed and variable components of customers'
rates. In fact, a number of the agreements we have approved
contain provisions that begin the required realignment. In this
case, however, redesigning residential rates will yield bill
increases for many customers, which will not be ameliorated by
base rate decreases until year five of the plan. Further, as
Staff notes, there may be funds available in year three of the
plan which could be used to offset these impacts. Under the
circumstances of this proceeding, we do not believe it reasonable
to begin the redesign of rates causing bill increases to a large
portion of residential customers.
b. Back-Out Credit
The recommended decision concluded that the levels of
the generation back-out credit1 set forth in the Settlement are
reasonable, but that the back-out credit levels should not be
capped at the Settlement amounts if the market price for
electricity is higher.
Staff excepts, arguing that a market price greater than
the NYSEG back-out credit (which is based on NYSEG's embedded
cost of coal generation) would indicate that the market has been
____________________
1 If a customer who has access to the generation market decides
to purchase generation from a supplier other than the utility,
the customer's bill from the utility would include a
generation back-out credit to reflect the cost of the
commodity no longer supplied by the utility.
slow to develop and that such a result is completely reasonable.
Staff contends that extending the credit to a higher market price
does nothing but subsidize an inefficient market, which could in
turn threaten service reliability.
NYSEG makes similar arguments and indicates that
allowing the back-out credit to float up to market price could
further strand company costs and shift risks to the company,
thereby unbalancing the Settlement. PULP contends that a back-
out credit that exceeds the market is both unsound and illegal.1
MI argues that the back-out credit does not include the cost of
NYSEG's nuclear generation and suggests that a proper back-out
credit would be based on fully unbundled, total generation costs.
IPPNY/Enron argues that setting the back-out credit at
the higher of the Settlement level or the market price does not
provide a penalty for NYSEG's shareholders. In light of the
stranded investment cost recovery otherwise provided in the
Settlement, both it and WEPCO contend that capping the generation
credit under circumstances where the market price of the
electricity exceeds that credit, would do no more than establish
a de facto monopoly in the retail supply market. A higher market
price would not mean, as Staff argues, that the generation market
is inefficient. A great number of causes, including the
imposition of market discipline on generation, could result in
the market price exceeding the Settlement's back-out credit.
During the transition to a competitive market, we will
be monitoring market development in all utility territories and
____________________
1 PULP states that the recommended decision "appears" to
recommend back-out credits that exceed market costs (PULP's
Brief on Exceptions, p. 9). The Judge's concern, however, was
not that the back-out credit should exceed the market price,
but rather, if the market price exceeded the back-out credit,
the market could be destroyed (R.D. pp. 39-40). The Judge's
recommendation was that the back-out credit not be permitted
to fall below the market price. Further, we find, as did the
Judge, that the back-out credits specified in the Settlement
as adopted are in the best interest of NYSEG ratepayers and
that the balance of the rates fairly compensate the company
for the use of its facilities (see PSL Subsection
66(12-b)(b)).
will take those necessary actions to assure that the development
of the market is not unreasonably constrained. One such
constraint might result from a fixed back-out credit lower than
market price. Accordingly, we have reserved the right to revisit
the appropriate level of the back-out credit, if the market price
exceeds the credit levels set forth in the Settlement.1
Recovery and Mitigation of Stranded Costs
In addressing the overall issue of stranded costs, the
recommended decision concluded that the Settlement provisions
establishing ratemaking principles for nuclear generation in the
post-2002 period should not be fixed today. The Judge also
suggested that a full return on all stranded costs as well as a
full return of all stranded costs would not necessarily be
reasonable unless it were determined that shareholders had
contributed significantly to the solution to the stranded cost
problem. Finally, the recommended decision reflected some
misgivings regarding the amortization periods allowed for various
types of company stranded costs.
Staff excepts, arguing that future nuclear ratemaking
principles can be established today and should be approved in the
form set forth in the Settlement. Staff is joined by NYSEG in
arguing that a full recovery of and return on all prudent
stranded costs are reasonable in light of the rate reductions,
rate incentive provisions, and auction terms in the Settlement.2
Finally, Staff argues that the lengthy amortization periods for
stranded costs set forth in the Settlement provide the Commission
flexibility to act depending on future circumstances.
CPB and MI argue that the company's stockholders should
be required to pick up a significant and identified portion of
the company's strandable costs. PII argues that all of the
____________________
1 January 27 Order, p. 5.
2 Our January 27 Order (p. 8) made it clear that the Settlement
provides no more than a reasonable opportunity to recover
prudent costs, subject to our statutory responsibilities.
company's nuclear costs should be subject to the market as soon
as possible, thereby opposing the Settlement which identifies
certain nuclear costs that, subsequent to 2002, will not be
subject to the market.
As we noted in the Con Edison case, significant rate
decreases and avoided rate increases are the equivalent of
strandable cost absorptions by the company's stockholders.1
Further, these rate benefits together with the auction terms and
business incentive provisions in the Settlement lead us to
conclude that stockholders have significantly contributed to the
elimination of strandable costs and to the opening of the
competitive market. Accordingly, allowing the company a
reasonable opportunity to recover its NMII and other strandable
costs, subject to our duty to set just and reasonable rates, is
acceptable. Further, the nuclear ratemaking provisions of the
Settlement will be approved, subject to future generic
pronouncements on nuclear ratemaking. Finally, because the
lengthy amortization periods for stranded costs are simply
maximum periods, the Settlement properly recognizes our
flexibility in future ratemaking.
Retail Access and Unbundled Tariffs
The recommended decision concluded that the retail
access schedule in the Settlement is reasonable and should be
approved. Under the Settlement all customers will be provided
retail access by August 1, 1999.
MI argues that full retail access should be provided to
all customers by early 1998 as suggested in Opinion No. 96-12.
The Counties, on exceptions, limited its earlier request that all
ratepayers in the counties be provided retail access as part of
the company's retail access program in August 1998, suggesting
instead that at least governmental customers within the counties
be provided participation at that time.
____________________
1 Cases 96-E-0897 et al., supra, Opinion No. 97-16, mimeo p. 39.
We conclude that the retail access schedule as adopted1
is reasonable and compares favorably to the schedules approved in
other utility agreements in that all customers will have retail
access by August 1999. For a great variety of reasons,2 it is
simply not possible to completely open the generation market in
early 1998 as requested by MI. We also conclude that the
company's retail access program, as amended, contains a
sufficient number and cross-section of utility customers. NYSEG,
however, should cooperate with the Counties to explore whether
its plan for being included in the 1998 retail access program is
feasible. If participation by the Counties can be accommodated
within the second phase of retail access, we would be prepared to
address any cost impacts on the company.
Corporate Structure
The recommended decision found that the code of conduct
and other corporate restrictions in the Settlement were
reasonable, considering our continuing jurisdiction to oversee
market development and take appropriate action should anti-
competitive activities require it. The Judge also recommended
that royalties for the use of the corporate name by unregulated
subsidiaries not be paid for the duration of the rate plan, but
that the issue be revisited in the future.
WEPCO argues that NYSEG affiliates should not be
permitted to use the NYSEG name in marketing within its own
service territory due to the potential barriers to entry and
other market power difficulties that could be created as a
result. Using a similar argument, CPB urges that NYSEG
affiliates should be permitted to use the NYSEG corporate name
____________________
1 The January 27 Order (p. 4) adjusted the access schedule by
requiring that all non-contract industrial customers, who are
not eligible for the annual rate decreases, should be provided
access by August 1998.
2 For example, neither the ISO nor the power exchange have been
created and a number of utility systems, such as computerized
billing, are not yet ready for the competitive market.
only upon the payment of a royalty to the regulated entity.
WEPCO also argues that an additional rule is required within the
code of conduct that would prohibit the regulated entity and its
unregulated affiliates from representing that customers may gain
an advantage if they deal with an affiliate of the regulated
company. IPPNY/Enron argue that a pre-separation study is
essential to provide a foundation for future reviews of cross-
subsidies and anti-competitive behavior.
In the Rochester Gas and Electric Corporation
proceeding we addressed issues concerning royalties and the use
of the corporate name by unregulated subsidiaries as follows:
RG&E's affiliates will not be prohibited
from using the name of RG&E or competing in
the company's service territory, or be
required to pay a royalty for the use of the
RG&E name and its affiliation. These
concessions were part of the give and take in
the negotiations and will not be disturbed.1
This outcome is also consistent with our approval of the Con
Edison agreement,2 and there is no reason to reach a different
result in this proceeding.
We have also previously addressed the concern that
further rules are required to preclude tying arrangements or
other anti-competitive activities. In Con Edison we concluded
that the standards of conduct in the agreement together with our
ability to establish a forum to consider misconduct allegations
were reasonable under the circumstances.3 We also reiterated our
intention to act swiftly and effectively to eliminate unwarranted
____________________
1 Case 96-E-0898, Rochester Gas and Electric Corporation's Plans
for Electric Rate/Restructuring, Opinion No. 98-1 (issued
January 14, 1998), mimeo p. 41.
2 Case 96-E-0897 et al., supra, Opinion No. 97-16, mimeo p. 49;
Order Adopting Terms of Settlement Subject to Conditions and
Understandings (issued September 23, 1997), Appendix A, p. 51.
3 Ibid., mimeo p. 48.
<PAGE>
barriers to competition. Based on our review of the code of
conduct and other restrictions in the Settlement, our expressed
intent to remedy anti-competitive conduct or other barriers to
competition, and the Settlement provision to address violations
which we have required,1 we conclude that competitors are
protected reasonably and that neither a pre-separation study nor
further changes in the code of conduct are required.
Public Policy Programs
The recommended decision concluded that the funds
provided by the Settlement (approximately $13 million annually or
about 1.0 mill per kWh for the first three years) for DSM, R&D
(not related to transmission and distribution), and low-income
programs were reasonable. It also recommended that the funds be
allocated 70% to DSM, 20% to R&D, and 10% to low-income energy
efficiency based on historic trends. Finally, the Judge strongly
recommended that the company's low-income program (Fresh Start)
be continued and expanded to all eligible customers (basically
doubling the program in size at an annual incremental cost of
about $475,000) and be funded from the public policy program
amounts set aside in the Settlement.
Staff argues that up to the full $13 million could also
be used to fund incremental low-income programs or further rate
reductions. PII argues that a minimum of 1.35 mills per kWh
should be set aside and that low-income programs other than
energy efficiency should be funded from other sources. PII also
argues that NYSEG should not be allowed to administer the funds.
NYSEG repeats some of Staff's arguments and further
states that an allocation of these funds should be left to the
determination of the system benefit charge (SBC) Statewide Fund
Administrator.2 Finally, NAESCO expresses its concern that the
recommended decision failed to affirmatively endorse standard
____________________
1 January 27 Order, p. 7.
2 See Case 94-E-0952, supra, Opinion No. 98-3 (issued
January 30, 1998).
performance contracting with stipulated pricing as contained in
the Settlement.
The continuation of the company's Fresh Start low-
income program is the minimum required to address the concerns we
noted in Opinion No. 96-12.1 Accordingly, we required the
continuation of that program in our January 27 Order (p. 5).
We are also concerned with the scope of Fresh Start.
Under the program only 5,000 NYSEG customers are eligible for
assistance, yet some 37,000 customers receive HEAP assistance
with their energy bills and roughly 200,000 customers are
estimated to be eligible for that low-income assistance.2 In
addition, low-income assistance programs of other utilities
provide benefits such as budget training and assistance,
counseling on Department of Social Services programs like HEAP,
mandatory energy management workshops, etc., which are not
provided under the Fresh Start program.
Accordingly, we have required the company to file with
Staff and interested parties within 30 days of our January 27
Order a proposed affordability plan and budget that will target
approximately 37,000 customers during the five-year rate plan.3
In developing its proposal, the company should consider
approaches taken by Niagara Mohawk, National Fuel Gas
Distribution Corp., Brooklyn Union Gas, and others, and may
propose outside contracting for the program. Interested parties,
including the SBC Fund Administrator, are encouraged to comment
on the company's proposal or submit alternate proposals within
30 days of the company's filing.
____________________
1 Cases 94-E-0952 et al., supra, Opinion No. 96-12, mimeo p. 28,
n. 1.
2 Our January 27 Order (p. 5) incorrectly referred to 37,000
eligible Home Energy Assistance Program (HEAP) customers
rather than 37,000 who are currently receiving HEAP
assistance.
3 January 27 Order, p. 5.
<PAGE>
A portion of the funding for the program (up to
$2.5 million/year for the first three years) will be derived from
the $13 million annual public policy program fund,1 and the
balance (up to $7.5 million over the three year period) will be
derived from the company's sale of excess land. We assume that
the program can become self-supporting due to savings from a
reduction of uncollectibles and arrearages, and the continuation
of contributions from customers who might otherwise leave the
system. Nevertheless, we intend to monitor the cost-
effectiveness and NYSEG's administration of the program.
Unsatisfactory performance on NYSEG's part in program development
or administration could result in the allocation of all funds to
the SBC Fund Administrator. Amounts not spent in any year will
be carried over and used subsequently and not retained by the
company. The future funding and administration of the program
will be re-examined during the third year of the rate plan.
EDP Delivery Rates
The recommended decision found that the rate reductions
(35% to 56%) provided in the Settlement for the delivery of EDP
were entirely reasonable. It also concluded that the failure to
freeze the rates at these reduced levels for the entire period of
the five-year plan was reasonable given the magnitude of the
initial reductions.
MI excepts to the recommended decision and opposes this
part of the Settlement on a number of grounds. First, MI objects
to the EDP wheeling rates, arguing that they are not cost based
and suggesting that they would be lower if they were based on
costs. In support of this position, MI cites the cost of service
evidence it presented in the litigated portion of the proceeding.
Second, MI objects to the continuation of a cap on EDP wheeling
which is not subject to a stranded cost charge. Prior to the
____________________
1 The low-income assistance program elements that can be
supported by SBC funds are defined in Opinion No. 98-3 supra.
The balance of the annual fund will be forwarded to the SBC
Statewide Administrator.
Settlement this cap was 32 MW, which the Settlement expanded to
38 MW. According to MI, any limitation on the amount of EDP
power NYSEG will wheel free of stranded cost charges is contrary
to law and our policies.
MI's arguments concerning the 38 MW wheeling limitation
are not persuasive. Its allegation, for example, that NYPA will
not be able to carry out the Legislature's mandate concerning
EDP,1 is refuted by NYPA's agreement to the Settlement. Nor do
we find that the Settlement, viewed in its entirety, is anti-
competitive. Rather than foreclosing competition in violation of
the antitrust laws,2 the Settlement opens NYSEG's transmission
and distribution system to competition on terms, including
stranded cost recovery mechanisms, that we find just and
reasonable and in the public interest. Finally, we have approved
analogous EDP caps where customers under the cap are not required
to pay (i.e., grandfathered) a CTC to recover stranded costs, but
customers above the cap are.3
MI's complaint that the EDP wheeling rates as reduced
in the Settlement are too high and are not based on costs, is
similarly unconvincing. Staff, NYSEG, and NYPA, normally adverse
parties on this question, reached the compromise in the
Settlement which included substantial rate decreases. If those
decreases are assured during the five-year rate plan, as we
required in our January 27 Order (pp. 7-8), and considering the
other benefits provided to MI's members under the Settlement, we
conclude that the resulting rates are just and reasonable. The
____________________
1 MI's Brief on Exceptions,p. 11.
2 Ibid., p. 12.
3 Case 97-E-0528, Niagara Mohawk Power Corporation, Order
Approving Tariff on Short Notice (issued October 24, 1997);
Order Approving Settlement Agreement (issued May 23, 1997).
Cases 96-E-0897 et al., supra, Order Adopting Terms of
Settlement Subject to Conditions and Understandings,
Appendix A, pp. 30-31. Case 96-E-0900, Orange and Rockland
Utilities, Inc.,'s Plans for Electric Rate/Restructuring,
Order Adopting Terms of Settlement (issued November 26, 1997),
Appendix, p. 33.
fact that the rate levels are the result of negotiations and
compromise rather than the litigation of cost of service studies
does not affect the validity of this conclusion.
Environmental Issues1
The recommended decision concluded that PII's proposed
"Price Cap Plus" form of regulation for the transmission and
distribution (T&D) company is not required and that mandatory
bill disclosures of emissions levels and generation sources is
not necessary to foster a "green" power market.
PII excepts, arguing that its Price Cap Plus plan (a
methodology intended to require consideration of DSM type
alternatives to T&D plant growth) should be adopted, or that
least-cost distribution planning (including environmental
externalities) should be mandated. It also argues that standards
for "green" products and emissions disclosure requirements should
be established through a working group and that an emissions
portfolio standard should be required for all electricity
sellers. CPB argues that bill disclosures of emission levels and
sources should be mandatory.
We have addressed these issues and have approved other
agreements that: require the utilities to consider
environmentally preferable alternatives to major T&D upgrades;
and require the development of a system to inform consumers of
the fuel mix and emission characteristics of their electricity
supplier.2 In addition, the Con Edison agreement as approved
contained provisions binding the company to support the adoption
of energy efficient building codes and standards and requiring
____________________
1 State Environmental Quality Review Act (SEQRA) considerations
are separately discussed infra.
2 Cases 96-E-0897 et al., supra, Order Adopting Terms of
Settlement Subject to Conditions and Understandings,
Appendix A, pp. 54-55. Case 96-E-0900, supra, Order Adopting
Terms of Settlement, Appendix pp. 28, 31; Opinion No. 97-20,
mimeo pp. 24, 27. Case 96-E-0898, supra, Opinion No. 98-1,
mimeo pp. 41-42.
the company to analyze the impacts of performance-based
ratemaking including the relationship between sales, distribution
revenues, and energy efficiency. Finally, as we have previously
recognized, we must carefully consider alternative energy sources
during the transition to competition, and, if opportunities
present themselves (such as through the passage of securitization
legislation), we will evaluate potential ways to accomplish
further environmental benefits through environmental protection
and energy efficiency programs.1 All of the above provisions
have been incorporated into the NYSEG Settlement as approved.2
We have also previously reviewed and declined to adopt
both a requirement that all ESCOs be required to maintain a
specified portfolio of generation types and the Price Cap Plus
form of regulation. In the RG&E proceeding we stated:
PII's price cap plus proposal is not
acceptable because it could lead to increased
rates if productivity is not sufficient to
offset inflation and, in any event, would
require annual regulatory oversight of the
true-up mechanism. In effect, this proposal
runs counter to our objective, which is to
rely more on competition and less on
regulation.3
Our concerns with the emissions portfolio proposal are that it
will tend to increase the average cost of electricity and it will
not likely create a level playing field for competing generation
sources.4 Nothing presented here suggests that a different
resolution would now be appropriate.
____________________
1 Cases 96-E-0897 et al., supra, Opinion No. 97-16, mimeo p. 66.
2 January 27 Order, p. 6, Appendix B.
3 Case 96-E-0898, supra, Opinion No. 98-1, mimeo p. 23; see
also, Case 96-E-0900, supra, Opinion No. 97-20, mimeo, p. 23.
4 Case 96-E-0900, supra, Opinion No. 97-20, mimeo, p. 27.
<PAGE>
Other Issues
1. Customer Service Incentive Program
The Settlement contains a potential 15 basis point (bp)
penalty against the ROE cap based on two indicators of the
reliability of NYSEG's electricity supply.1 While these indicia
are important measures of the service provided by a
wires/transportation company, we prefer that a broader, total
service quality mechanism be used, including measurements of the
company's success in dealing with its customers and resolving
disputes, so long as the company retains its POLR
responsibilities. Accordingly, our January 27 Order required
(p. 6) that three indicia be added to the program,2 measuring the
level of customer satisfaction with company contacts and of our
complaints. Each indicator carries a maximum penalty of 8 bp for
a total annual exposure of 40 bp.
2. Reciprocity
The Settlement provides (p. 24) that another New York
State utility or utility-affiliated load serving entity (LSE) may
compete in NYSEG's territory only to the extent that NYSEG or its
subsidiaries can compete in the other's service territory. While
there might be circumstances when it would be equitable to place
such a constraint on the market, we do not believe it appropriate
to allow NYSEG alone to determine when a competitor may be
excluded. Accordingly, we have required the company to obtain
our approval before any LSE is excluded from NYSEG's territory.3
____________________
1 The indicators are: CAIDI--Customer Average Interpretation
Duration Index; and SAIFI--System Average Interruption
Frequency Index.
2 The additional indicators are the Public Service Commission
complaint rates, an overall customer satisfaction index, and a
contact satisfaction index.
3 January 27 Order, p. 6.
<PAGE>
3. Cooperation
Our January 27 Order also requires NYSEG's commitment
to cooperate in the development of the market infrastructure
(i.e., ISO, power exchange, etc.). This condition is critical as
we move further toward competition for electric service in the
State.1
4. Statutory Authority
PULP argues on exceptions that we lack the legal
authority to approve retail access to all customers and to
establish requirements for energy services companies that differ
from those required of the electric utilities. These arguments
raise generic questions which PULP has raised in court
challenges, other rate/restructuring cases, and in the generic
portion of Case 94-E-0952. To the extent the issues are relevant
to this proceeding, our previous resolutions have disposed of the
arguments.2 The remaining concerns raised by PULP are being
addressed in the generic proceeding. Accordingly, a further
elaboration is not required here.
5. NYPA Hydropower
PULP urges that further negotiations and the
development of a "fuller" record be mandated on the question of
NYPA hydropower benefits allocated to residential customers.
PULP contends that the benefits are "obscured" in the company's
cost studies and that the "record is insufficient to show that
NYPA hydropower will not be sold at a marked up price in
violation of law."3
PULP's concerns cannot be addressed in detail based on
this record, but the questions it raises may be addressed in the
context of the company's unbundling process. It should be noted,
____________________
1 Cases 96-E-0897 et al., supra, Opinion No. 97-16, mimeo p. 60.
2 Ibid., p. 9.
3 PULP's Brief on Exceptions, p. 8.
however, that notwithstanding PULP's concerns, the record does
not support the conclusion that NYPA's hydropower benefits are
being or will be treated in an unlawful manner. Further, NYPA's
agreement to the Settlement suggests that it believes the
hydropower benefits are being allocated in accordance with the
statutory requirements.
STATE ENVIRONMENTAL QUALITY REVIEW ACT1
In conformance with SEQRA, a Final Generic
Environmental Impact Statement (FGEIS) was issued on May 3, 1996,
which evaluated the action adopted in Case 94-E-0952.2 We also
required individual utilities to file an environmental assessment
of their restructuring proposals. NYSEG filed an Environmental
Assessment Form (EAF) concerning the October 9 Settlement on
October 23, 1997.
The information provided by NYSEG in its EAF, the
parties' comments, the Settlement, and other information were
evaluated in order to determine whether the potential impacts
resulting from adopting the Settlement's terms would be within
the bounds and thresholds of the FGEIS adopted in 1996. The
evaluation also considered the conditions and changes to the
Settlement which we imposed in our January 27 Order.
Arguably, all of the potential impacts need not be
considered, given that some result from Type II exempt rate
actions. Nonetheless, the analysis examined all areas in which
impacts could reasonably be expected.
There were no impacts found to be associated with price
cap regulation. The possibility of prudence review is seen as an
important deterrent to excessive infrastructure investments as
well as an incentive for promoting the use of targeted DSM, as
appropriate, to avoid excessive T&D upgrades.
____________________
1 Attached as Appendix C is the Environmental Assessment Form.
2 Opinion No. 96-12 (issued May 20, 1996) sets forth our
findings under SEQRA at mimeo pp. 76-81.
The company asserts it has no plans to either retire
any of its existing electric generating facilities or construct
new generating facilities as a consequence of the Settlement.
While NYSEG has no plans to retire existing facilities, it could
happen under new ownership. This possibility should be
monitored. Any construction of new facilities should improve air
quality for critical emissions.
The Settlement will not result in significant new
transmission line construction impacts. The company's 1997 load
pocket study indicates that under high summer usage two load
pockets may occur. NYSEG has taken steps to eliminate one
potential pocket. The Agreement transfers generation control
within the second pocket, eliminating potential exercise of
market power.
Minor localized community economic impacts may occur
(e.g., due to reduced tax receipts), but these would be balanced
by positive effects in other localities.
A greater source of concern is the possible increase in
air pollution that could accompany increased demand for electric
energy. It is likely that increases in energy demand will result
from the Settlement's decrease in rates (0.48% average annual
increase in demand over the 1998-2012 period) and in DSM
expenditures (0.17% increase in demand). Each of these
incremental growth rates is an upper bound. For example, it is
not clear that all of the rate reductions from the Settlement
should be attributed to restructuring; also, the lower DSM
expenditures do not consider ESCO DSM spending. In our opinion,
the actual growth rates will be substantially less than the
corresponding rates in the FGEIS (1% annual incremental growth
from the "high sales" scenario, and 0.29% from the "no
incremental utility DSM" scenario).
Because of the inherent uncertainty in forecasting
future impacts, monitoring of NYSEG's restructuring and
environmental impacts is being implemented, as a matter of
discretion, and a system benefits charge is being established.
Based on these analyses, the potential environmental
impacts of the Settlement are found to be within the range of
thresholds and conditions set forth in the FGEIS. Therefore, no
further SEQRA action is necessary.
CONCLUSION
Our assessment of this Settlement reflects not only the
diverse interests of those parties who endorsed it, but also the
views of other parties whose comments have been less favorable.
The salient features upon which we focus are the rate plan, the
provisions to develop a competitive market, and the amelioration
of environmental concerns.
The rate plan is intended to promote jobs and economic
development by reducing rates for large industrial and commercial
customers to a level approaching the national average. At the
same time, rate increases of more than one-half billion dollars
applicable to other customers have been eliminated and a rate
reduction will be provided by the final year of the plan.
Furthermore, the residential and small commercial/industrial
reductions could be more appreciable in the event NYSEG's
earnings are significantly higher than it expects. Had we
apportioned the revenue reduction equally among all classes,
customers other than large industrial and commercial customers
would have realized a minimal gain, while the laudatory goal of
promoting job growth and economic development would have been
lost.
With regard to those parties who have advocated a
greater revenue reduction, we believe that by approving the short
timeframe for the full opening of the market, advancing the open
market access date for some customers, and requiring marginal-
cost based tariffs for small commercial and industrial customers,
we have accomplished a comparable outcome.
The competitive aspects of the Settlement are
particularly favorable, as NYSEG's customers will be able to
avail themselves of full retail access sooner than the customers
of any other New York utility except Orange & Rockland and
because NYSEG has now agreed to divest by auction all of its
fossil generating assets. This should contribute to the
development of a robust, competitive electric generation market.
The company's unbundling plan, as well as the auction plan, will
be subject to our approval, and we will ensure that market power
concerns are mitigated. The rate reductions and concessions
together with the development of a competitive electric market
will, therefore, produce just and reasonable rates that we expect
will be lower than they would be otherwise. As to concerns about
potential anti-competitive conduct, we are satisfied that the
standards of conduct and controls on affiliate transactions
(Settlement pp. 29-34) will preclude such conduct, particularly
given that we are authorized to impose remedial actions on RegSub
for any violation of the standards of conduct set forth in the
Settlement.1 Moreover, we have retained our authority to modify
those standards and controls should circumstances warrant.
Finally we are satisfied that the funding provided for
public policy programs and the additional environmental
protections agreed to by NYSEG adequately protect the
environment.
For the reasons stated, NYSEG and the parties
supporting the Settlement have demonstrated that the rate
reductions are reasonable and that the Settlement satisfies the
objectives of Opinion No. 96-12 and our Settlement Guidelines.
We therefore adopt the terms of the Settlement and reaffirm our
order of January 27, 1998, and our view that the development of a
competitive market will produce further consumer benefits.
The Commission orders:
1. The Order Adopting Terms of Settlement Subject to
Modifications and Conditions (issued January 27, 1998) is adopted
in its entirety and is incorporated as part of this opinion and
order.
____________________
1 January 27 Order, p. 7.
2. New York State Electric & Gas Corporation (NYSEG)
shall file its specific plans for the holding company structure
as soon as practicable. At least 20 days before any intermediate
holding companies acquire stock of the utility, NYSEG shall file
with the Commission a detailed description of any such
intermediate holding companies, including copies of filings with
the Securities and Exchange Commission relevant to such
transactions. Such transactions regarding any intermediate
holding companies shall be deemed approved, unless within 45 days
the Commission notifies NYSEG that the provisions are
inconsistent with the Settlement as approved or the January 27,
1998 order in this proceeding.
3. Cases 93-E-0284 and 93-E-0664 are closed.
4. Cases 96-E-0891 and 95-M-0017 are continued.
By the Commission,
JOHN C. CRARY
Secretary
<PAGE>
APPENDIX A
<PAGE>
APPEARANCES
FOR WHEELED ELECTRIC POWER COMPANY
Joel Blau, Esq., 32 Windsor Court, Delmar, New York 12054
FOR THE RETAIL COUNCIL OF NEW YORK
Cohen Dax, & Koenig, P.C. (Paul C. Rapp, Esq.), 90 State
Street, Suite 1030, Albany, New York 12207
FOR CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
John Gallagher, Esq., 4 Irving Place, New York,
New York 10003
FOR MULTIPLE INTERVENORS
Couch, White, Brenner, Howard & Feigenbaum, LLP (Leonard H.
Singer, Esq.), 540 Broadway, Box 2222, Albany,
New York 12201
FOR NEW YORK STATE ELECTRIC & GAS CORPORATION
Huber Lawrence & Abell (Frank J. Miller, Esq.,
Robert G. Grassi, Esq., Amy Davis, Esq., Stuart A. Caplan,
Esq., Seth Davis, Esq.), 605 Third Avenue, 27th Floor,
New York, New York 10158
Robinson, Silverman, Pearce, Arson & Berman (Andrew Irving,
Esq.), 1290 Avenue of the Americas, New York, New York 10104
FOR THE NEW YORK ENERGY EFFICIENCY COUNCIL, INC.
William Hills, 355 Lexington Avenue, 19th Floor, New York,
New York 10017
FOR NEW YORK POWER AUTHORITY
Edgar K. Byham, Esq., 1633 Broadway, New York,
New York 10019
FOR NEW YORK STATE CONSUMER PROTECTION BOARD
Anne F. Curtin, Esq., Joanne DiStefano, Alfred Levine, Esq.,
5 Empire State Plaza, Suite 2101, Albany,
New York 12223-1556
<PAGE>
APPEARANCES
FOR NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT
Gloria Kavanah, Esq., One Commerce Plaza, Albany,
New York 12245
FOR NEW YORK STATE DEPARTMENT OF PUBLIC SERVICE
Leonard Van Ryn, Esq., Nancy Russell, Esq., 3 Empire State
Plaza, Albany, New York 12223-1350
FOR PUBLIC INTEREST INTERVENORS
David Wooley, Esq., Mollie Lampi, Esq., Melanie Pien, Pace
Energy Project, 122 South Swan Street, Albany,
New York 12210
FOR PUBLIC UTILITY LAW PROJECT OF NEW YORK, INC.
Charles J. Brennan, Esq., Gerald Norlander, Esq., Trudi
Renwick, 90 State Street, Suite 601, Albany, New York 12207
FOR INDEPENDENT POWER PRODUCERS OF NEW YORK, INC and ENRON
CAPITAL & TRADE RESOURCES
Read and Laniado, LLP, (Kevin R. Brocks, Esq., Craig Indyke,
Esq.), 25 Eagle Street, Albany, New York, 12207-1901
FOR AMERICAN ASSOCIATION OF RETIRED PERSONS
Ward, Sommer & Moore, L.L.C. (Douglas H. Ward, Esq.,
Michael Moore, Esq.), Plaza Office Center, 122 South Swan
Street, Albany, New York 12210
FOR THE CONSOLIDATED NATURAL GAS COMPANIES
Whiteman Osterman & Hanna (Thomas H. O'Donnell, Esq.,
Meg Carr, Esq.), One Commerce Plaza, Albany, New York 12260
FOR JOINT SUPPORTERS AND NATIONAL ASSOCIATION OF ENERGY SERVICE
COMPANIES
Ruben S. Brown, M.A.L.D., The E Cubed Company, 201 West 70th
Street, Suite 41E, New York, New York 10023
FOR JOINT SUPPORTERS
Glenn Camus, Esq. CNG Energy Services Corp., One Park Ridge
Center, Pittsburgh, Pennsylvania 15275
<PAGE>
APPEARANCES
FOR TIOGA AND TOMPKINS COUNTIES
Gorden M. Boyd, Salerni & Boyd, Inc., 6 Franklin Square,
Saratoga Springs, New York 12866
<PAGE>
CASES 96-E-0891 et al. APPENDIX B
CASE 96-E-0891, et al.
NEW YORK STATE ELECTRIC & GAS CORPORATION
LIST OF ABBREVIATIONS
AARP - American Association of NAESCO - National Association
Retired Persons of Energy Services
bp - Basis Points Companies
CAIDI - Customer Average NMII - Nine Mile Point II
Interruption Duration Index nuclear generating facility
CON EDISON - Consolidated NUG - Non-utility Generator
Edison Company of New York, NYPA - New York Power
Inc. Authority or the Power
CPB - New York State Consumer Authority of the State
Protection Board of New York
CTC - Competitive Transition NYSEG - New York State
Charge Electric & Gas Corporation
CUB - New York Citizens PII - Public Interest
Utility Board Intervenors
DED - New York State POLR - Provider of Last Resort
Department of Economic PSC - New York State Public
Development Service Commission
DOL - New York State PSL - Public Service Law
Department of Law PULP - Public Utility Law
DSM - Demand Side Management Project of New York, Inc.
EAF - Environmental Assessment R.D. - Recommended Decision
Form R&D - Research and Development
EDP - Economic Development RegSub - Regulated Subsidiary
Power of NYSEG HoldCo
Enron - Enron Capital & Trade Retail Council - Retail
Resources Council of New York
FGEIS - Final Generic ROE - Return on Equity
Environmental Impact SAIFI - System Average
Statement Interruption Frequency
GenSub - Generation Subsidiary Index
NYSEG HoldCo SBC - System Benefits Charge
GRT - Gross Receipts Tax SC - Service Classification
HEAP - Home Energy Assistance SEQRA - State Environmental
Program Quality Review Act
HEFPA - Home Energy Fair Staff - New York State
Practices Act Department of Public
HoldCo - Holding Company Owner Service Staff
of GenSub and RegSub Tr. - Transcript
IPPNY - Independent Power WEPCO - Wheeled Electric Power
Producers of New York, Inc. Company
ISO - Independent System
Operator
kW - kilowatt
kWh - kilowatt-hour
LSE - Load Serving Entity
MI - Multiple Intervenors
MOU - Memorandum of
Understanding - Interim
Agreement Regarding EDP
Wheeling by NYSEG
MW - megawatt
CASE 96-E-0891 et al.
APPENDIX C
<PAGE>
617.20 Appendix C
State Environmental Quality Review
ENVIRONMENTAL ASSESSMENT FORM
PROJECT INFORMATION
1. Applicant/Sponsor: New York State 2. Project Name: Elect. Rate/
Electric & Gas Corporation Restructuring-Case 96-E-0891
3. Project Location: New York State Electric & Gas Corporation Territory
Municipality NA County NA
4. Precise Location: (Street address and road intersections, prominent
landmarks, etc., or provide map)
NA
5. Proposed action is
___ New ___ Expansion X Modification/alteration
6. Describe project briefly: Cases 94-E-0952 & 96-E-0891 - In the matter of
competitive opportunities regarding electric service, filed in Case 93-M-0229;
Plans for electric rate/restructuring pursuant to Opinion No. 96-12; and the
formation of a holding company pursuant to PSL, Subsections 70, 108 and 110,
and certain related transactions -- Environmental Assessment Form.
7. Amount of land affected: NA
Initially________acres Ultimately ________acres
8. Will proposed action comply with existing zoning or other existing land
use restrictions? NA
___Yes ___No If No, describe briefly
9. What is present land use in vicinity of project? NA
__Residential __Industrial __Commercial __Agricultural
__Park/Forest/Open Space __Other
Describe:
10. Does action involve a permit approval, or funding, now or ultimately from
any other governmental agency (federal, state or local)?
X Yes ___ No If yes list agency(s) name and permit/approvals:
NYS Public Service Commission
11. Does any aspect of the action have a currently valid permit or approval?
___ Yes ___ No If yes, list agency(s) name and permit approval:
Stationary sources owned and operated by New York State Electric & Gas
Corporation have valid, approved certificates to operate.
12. As a result of proposed action will existing permit/approval require
modification? NA
___ Yes ___ No
I CERTIFY THAT THE INFORMATION PROVIDED ABOVE IS TRUE
TO THE BEST OF MY KNOWLEDGE
Agency: NYS Department of Public Service Date: January 26, 1998
Signature: ____________________________________________________________
<PAGE>
Appendix C
PART II - ENVIRONMENTAL ASSESSMENT
A. Does action exceed any Type 1 threshold in 6 NYCRR, Part 617.4? If
yes, coordinate the review process and use the full EAF. ___ Yes X No
B. Will action receive coordinated review as provided for unlisted actions
in 6 NYCRR, Part 617.6? If No, a negative declaration may be superseded by
another involved agency. NA ___ Yes ___ No
C. Could action result in any adverse effects associated with the
following: (Answers may be handwritten, if legible.)
C1. Existing air quality, surface or groundwater quality or quantity,
noise levels, existing traffic patterns, solid waste production or
disposal, potential for erosion, drainage or flooding problems?
Explain briefly.
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C2. Aesthetic, agricultural, archaeological, historic, or other natural
or cultural resources; or community or neighborhood character?
Explain briefly.
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C3. Vegetation or fauna, fish, shellfish or wildlife species,
significant habitats, or threatened or endangered species?
Explain briefly.
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C4. A community's existing plans or goals as officially adopted, or a
change in use or intensity of use of land or other natural
resources? Explain briefly.
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C5. Growth, subsequent development, or related activities likely to be
induced by the proposed legislation? Explain briefly.
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C6. Long term, short term, cumulative, or other effects not identified
in C1-C5? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
C7. Other impacts (including changes in use of either quantity or type
of energy)? Explain briefly:
Expected impacts are within the range of thresholds and
conditions set forth in the FGEIS.
D. Will the project have an impact on the environmental characteristics
that caused the establishment of a critical environmental area (CEA)?
___ Yes X No If Yes, explain briefly:
E. Is there, or is there likely to be, controversy related to potential
adverse environmental impacts? ___ Yes X No If Yes, explain briefly.
<PAGE>
Part III - DETERMINATION OF SIGNIFICANCE (To be completed by Agency)
See the attached Environmental Assessment Form Narrative.
Staff recommends that the Final Generic Environmental Impact Statement
(FGEIS) issued on May 3, 1996 (Case 94-E-0952), with respect to the
proposed action of adopting a policy supporting increased competition in
electric markets be extended in applicability, without modification or
supplementation, to the approval of New York State Electric & Gas
Corporation's (The Company) Agreement and Settlement on the grounds that
the significance of the proposal's anticipated environmental impacts will
not exceed the threshold values examined in the FGEIS. Consequently, no
further State Environmental Quality Review Act (SEQRA) action is necessary
in approving the Proposal.
Staff further recommends that a monitoring program be instituted to provide
a record of changes resulting from the restructuring plan's implementation
to enable confirmation and/or exposition of unexpected outcomes and their
significance, and to assure that specific mitigation measures are
implemented as needed.
New York State Department of Public Service January 26, 1998
Name of Lead Agency Date
John H. Smolinsky
Print or Type Name of Responsible Officer in Lead Agency
Signature of Responsible Officer in Lead Agency
Chief, Environmental Compliance and Operations
Title of Responsible Officer
Signature of Preparer (If different from responsible officer)
<PAGE>
I. BACKGROUND
On May 3, 1996, the Commission issued a FGEIS in the
competitive opportunities proceeding which addressed impacts
associated with the adoption of a policy supporting increased
competition in electric markets, and associated regulatory and
ratemaking practices. Several alternatives, including no-action,
were studied.
In Opinion No. 96-12,1 issued May 20, 1996, the
Commission set forth its findings with respect to the FGEIS (pp.
76-81). The Commission determined that the likely environmental
effects of a shift to a more competitive market for electricity
are not fully predictable but that:
In general, the proposed action will have
environmental impacts that are modest or not
distinguishable from those of alternative actions,
including the no-action alternative... Apart from
the areas of substantial concern noted below, the
FGEIS did not identify reasonably likely significant
adverse impacts.
With respect to air quality impacts related to
oxides of nitrogen and sulfur, it appears likely
that the retail or wholesale electric market
structures would have greater impacts than the no-
action alternative. It appears likely that, in the
absence of mitigation measures, research and
development in environmental and renewables areas
would lose funding if competitive restructuring
moves forward. In addition, there would likely be a
decrease in the amount of cost-effective energy
efficiency during any transition to wholesale or
retail competition...
In order to address the adverse environmental
effects identified above on air quality, energy
efficiency, and research and development, several
mitigation measures will be employed as necessary.
First, a system benefits charge will be used as
appropriate to fund DSM and research and development
in environmental and renewable resource areas during
the transition to competition. Second, the
competitive restructuring will be monitored closely
____________________
1 Cases 94-E-0952, et al., Competitive Opportunities Proceeding,
Opinion No. 96-12 (issued May 20, 1996).
to ensure that specific mitigation measures are
implemented if needed. Finally, the Commission will
support and assist efforts by New York State and
federal agencies to ensure that adverse
environmental impacts to the state's air quality
from upwind sources of air contamination do not
occur as a result of the movement toward
competition.
Notwithstanding the mitigation measures identified,
the proposed action to restructure the electric
industry may result in an unavoidable adverse
environmental impact on air quality related to
oxides of nitrogen and sulfur, loss of some DSM
activity, loss of some research and development
funding in the environmental and renewables areas,
and displacement of workers and local economic loss
where plants are closed. Nevertheless, weighing and
balancing these likely environmental effects of the
shift to competition in the electric industry in New
York with social, economic, and other essential
considerations, leads to the conclusion that
implementing the proposed action toward greater
competition is desirable.
The Commission also recognized that individual utility
proposals might bring to light new concerns. In Opinion No. 96-
12,1 and as further clarified in Opinion No. 96-17,2 it required
each utility to file with its restructuring plans an
Environmental Assessment Form and a recommendation on further
environmental review. The information to be provided was
expected to assist the Commission in determining the need for
additional mitigation measures with respect to company
restructuring.
On October 23, 1997, NYSEG submitted an addendum to the
Environmental Assessment Form (EAF) and SEQRA recommendation in
connection with the Agreement and Settlement dated October 9,
1997 in Case 96-E-0891.
____________________
1 Ibid, p. 78, n. 1.
2 Cases 94-E-0952, et al., Opinion and Order Deciding
Petitions for Clarification and Rehearing, Opinion No. 96-17
(issued July 17, 1996).
SEQRA and Commission Approval of the
New York State Electric & Gas
Restructuring Plan - Options
Before the Commission
The FGEIS issued by the Commission in conformance with
SEQRA in Case 94-E-0952, et al., addressed the following proposed
action:
adoption of a policy supporting increased
competition in electric markets, including a
preferred method to achieve electric competition;
and regulatory and ratemaking practices that will
assist in the transition to a more competitive and
efficient electric industry, while maintaining
safety, environmental, affordability, and service
quality goals.1
Commission approval of NYSEG's proposed restructuring
plan constitutes a "subsequent proposed action." SEQRA
requirements with respect to this "subsequent proposed action"
allow the Commission to pursue one of the four following options:
1. No further State Environmental Quality Review
(SEQRA) compliance is required if a subsequent
proposed action will be carried out in conformance
with the conditions and thresholds established for
such actions in the generic Environmental Impact
Statement (EIS) or its findings statement;
2. An amended findings statement must be prepared if
the subsequent proposed action was adequately
addressed in the generic EIS but was not addressed
or was not adequately addressed in the findings
statement for the generic EIS;
3. A negative declaration must be prepared if a
subsequent proposed action was not addressed or was
not adequately addressed in the generic EIS and the
subsequent action will not result in any
significant environmental impacts; and
____________________
1 Cases 94-E-0952 et al., Competitive Opportunities
Proceeding, Opinion No. 96-12 (issued May 20, 1996), p. 76.
<PAGE>
4. A supplement to the final generic EIS must be
prepared if the subsequent proposed action was not
addressed or was not adequately addressed in the
generic EIS and the subsequent action may have one
or more significant adverse environmental impacts.1
The following environmental assessment will assist in
choosing the appropriate option. The assessment is based on
NYSEG's EAF, on party comments and on analysis by Department
Staff. The Assessment consists of:
- Section II - Description of NYSEG and Its
Rate/Restructuring Settlement;
- Section III - Summary of NYSEG's Environmental
Assessment Form (EAF);
- Section IV - Party Comments on NYSEG's EAF;
- Section V - Staff Analysis;
- Section VI - Mitigation of Impacts -- Monitoring;
- Section VII - Conclusion.
II. DESCRIPTION OF NEW YORK STATE
ELECTRIC AND GAS CORPORATION
AND ITS RATE/RESTRUCTURING SETTLEMENT
NYSEG's service territory covers 18,359 square miles
(about one-third the area of New York State) and has a population
of 2,223,000.2 The territory includes all or parts of 42
counties, 149 cities and villages and 373 towns. At year-end
1995, NYSEG served approximately 804,000 electric customers.
NYSEG's electric service territory is comprised of eleven
noncontiguous electric load areas. NYSEG relies on transmission
____________________
1 6 NYCRR Section 617.10 (d).
2 Wickham, Denis E., February 14, 1997, Testimony presented in
NYSEG Plan: Volume 2 - Electric System Operations, pp. 5-7.
service provided by others to serve a significant portion of its
franchise load.
NYSEG's net system capability (total of all owned
resources, plus firm purchases less firm sales) is approximately
3,500 MW. Of this, 863 MW is remote generation that must be
wheeled over neighboring transmission systems to serve NYSEG's
load requirements. Another 945 MW of NYSEG's system capacity is
remote generation which is located in Pennsylvania, but is
directly tied to the largest NYSEG load area through 424 miles of
345 kV transmission line.
NYSEG purchases approximately 600 MW of its system
capacity from Public Utility Regulatory Policy Act (PURPA)
Qualified Facilities (QFs). NYSEG purchases 1,450 MW of firm
transmission service on a long-term basis.
The total service area peak electric loads in the
summer and winter respectively were 2,276 MW and 2,497 MW in 1995
and 2,213 MW and 2,404 MW in 1996.1 In 1996, NYSEG had a total
energy requirement of 14,787 GWH.
NYSEG's generation capability (2,550 MW - Summer) is
distributed as follows: 8% nuclear; 89% fossil-fueled; and 3%
conventional hydro.2 Electricity is delivered through a
transmission and distribution system consisting of approximately
4,776 miles of transmission and 28,251 miles of distribution
lines.
Utilizing the Commission's definition of a load pocket,
NYSEG has identified a load pocket in the area of Ithaca and
Auburn, surrounding the Milliken Station.3
____________________
1 Report of the Member Electric Systems of the New York Power
Pool, Load & Capacity Data - 1997, (Table I-5), p. 12.
2 Load & Capacity Data - 1997, Table III-2, p. 47.
3 New York State Electric and Gas Corporation, NYSEG Plan:
Volume 2 - Electric Operations, February 14, 1997, "Exhibit
DEW-2: NYSEG Load Pocket Report".
NYSEG's study showed that at 85% or higher peak area
load conditions, 156 MW of generation at Milliken Station must be
on line to provide needed voltage support in the area. The
potential for this voltage condition exists approximately 175
hours per year, and will increase over time. In addition, the
system analysis of this area indicated that one unit at Milliken
Station would be required at half its maximum output (78 MW) to
survive the worst contingency during peak loads.1
NYSEG's Load Pocket Report also identified a potential
pocket in the Northern Oneonta load area. This constraint was
removed by the installation of a voltage regulator at the
Brothertown substation in November 1997.
The proposed Settlement is intended to facilitate
attainment of the Commission's vision for the electric industry
of effective competition in the generation and energy services
sectors, of reducing electric prices, and of increasing choice of
supplier.
The electric price cap and price reduction provisions
of the Agreement cover the five-year period beginning with the
effective date of tariffs implementing the Commission opinion
approving the Agreement.
The Agreement is expected to achieve the Commission's
vision primarily through measures which, as the Recommended
Decision notes, provide for: the establishment of electric rates
for the term of the Settlement "at levels that are, overall,
below their current levels. While rates for all customer classes
would be reduced, large industrial and commercial customers would
receive the most significant price decreases." In general, the
Settlement provides for:
1. lower rates for all customers as contrasted to
those that would have applied under NYSEG's 1995
electric settlement including:
____________________
1 Wickham, Denis E., Ibid, pp. 30-32.
a. rate reductions of 5% on average each year for
five years for industrial customers;
b. forgo second and third year rate increases
provided for in the Commission approved
settlement of September 27, 1995, equaling a
price reduction of about 7%;
c. rate freeze followed by 5% reduction for
residential and commercial customers beginning
in year five;
2. expansion or creation of new programs to further
business retention, revitalization and economic
development;
3. retail access program that will lead to retail
choice of power suppliers for all NYSEG customers
commencing August 1, 1999;
4. mechanism to assess market value of coal fired
generation and interest in nuclear plant;
5. authority to implement a holding company
structure;
6. a rate with the objective of moving basic customer
service charges and incremental demand and energy
use toward marginal cost, while avoiding undue
bill shock for any customer;
7. reasonable unbundling of existing electric rates;
8. extension of gas rate settlement after further
negotiation;
9. maintenance of service quality and retention of
NYSEG as provider of last resort for customers not
served by competitive market.
The cumulative revenue reduction and concessions over
the settlement period amounts to $725 million.
<PAGE>
Rate reductions by customer class will be as follows:1
- large industrial customers with demands of at least
500 kW and all customers with load factors of at
least 68% (22.6%), and
- residential and small business customers (5%).
The Settlement will open up the company's service area
to increased customer choice as a result of the introduction of a
retail access program commencing on August 1, 1998.
Also scheduled to take effect is a restructuring of
NYSEG's operations into functionally separate generation,
distribution, retailing, and overall administrative segments.
Additionally, a holding company will be formed.
Certain functions, such as distribution, will remain as
regulated monopoly services, while others, such as retail
service, will be open to competition. For customers unable or
unwilling to select alternative suppliers of energy and/or
capacity, the Settlement provides for continued service by a
regulated unit of NYSEG.
The Settlement requires that NYSEG offer up its coal-
fired generation facilities for auction, but permits the utility
to participate in the auction. With regard to nuclear
generation, the company's investment in Nine Mile II (operated by
Niagara Mohawk Power Corporation), including liability for
decommissioning, may be auctioned subject to co-tenant,
Commission and Nuclear Regulatory Commission approval.
The Agreement makes available approximately $13 million
per year for the first three years for Public Policy Programs
(herein referred to as the System Benefits Charge or SBC). In
the past, these programs have included Demand Side Management
(DSM), Energy Efficiency, Research and Development and
____________________
1 The rate reduction amounts include the anticipated impacts of
recently enacted reductions in State gross receipts taxes
("GRT"). The rate reductions provided in the Settlement will
be revised accordingly in the event the average GRT rates are
other than anticipated.
Environmental Protection. No specific allocation of funds among
these groups was made.
Further, the Settlement contains provisions responding
to the Commission's directive1 to introduce retail access to farm
and food processor customers on an expedited basis and resolves
pending cases involving judicial review of Commission decisions
as they pertain to NYSEG.
III. SUMMARY OF NEW YORK STATE
ELECTRIC AND GAS CORPORATION'S
ENVIRONMENTAL ASSESSMENT FORM (EAF)
On October 23, 1997, NYSEG submitted an EAF which
assessed anticipated environmental impacts of the company's
October 9, 1997 Settlement. The EAF notes the expectation that
environmental impacts are apt to occur as an indirect rather than
a direct effect of the Settlement inasmuch as it chiefly involves
changes in business entities, practices and services rather than
physical construction. The company utilizes many cross-
references to the Commission's FGEIS in developing its
environmental assessment of possible changes induced by the
Settlement.
The EAF observes that, under the influence of both rate
reductions and the introduction of competition in the sale of
electricity, electric energy use will probably increase. The
company indicates it has no plans to construct new generation in
order to meet the new higher demands.
In the event a generating facility is retired, any
demand in excess of NYSEG's generating capability could be
provided through market transactions.
Plant dispatch, according to the EAF, will be dependent
on a number of factors, including the eventual structure of the
Statewide power exchange and rules of the Independent System
____________________
1 Cases 96-E-0948, et al., Petition of Dairylea Cooperative,
Inc., Order Concerning Retail Access Proposals (issued
February 25, 1997).
Operator, market conditions, and environmental regulations--
especially those imposing air quality and emissions standards.
NYSEG's fossil-fired and hydroelectric units will be run as
needed, on an economic basis, to support the system subject to
applicable environmental laws and regulations.
The EAF notes that to the extent the company's
Settlement brings about an increase in importation of out-of-
state power, it is within the environmental parameters considered
by the Commission in its FGEIS.
Pursuant to the Settlement, the company will have no
further DSM obligations under the terms of the 1995 Rate
Settlement. However, during the term of the Agreement, NYSEG
will continue to fund DSM, low income energy efficiency, R&D and
environmental programs through the SBC to the extent required by
the Commission.
The EAF indicates that, in the near term, NYSEG expects
to continue the operation of its existing generating facilities
with their existing fuel profile. However, under future market
conditions, it is impossible to predict the fuel mixes of
alternative energy sources competing with NYSEG's facilities.
The EAF does not specify any new transmission facility
construction. Although the Settlement does not contain
requirements to implement any specific mitigation measures, a
load pocket study undertaken in response to a Commission order
indicated the need for implementing some type of mitigation
measures. The company has proposed that the ISO control
operation of the Milliken Station during critical peak demand
periods to ensure that it, or a future owner, cannot exercise
market power as a result of the need to operate Milliken Station.
The company has eliminated a potential load pocket in the
Northern Oneonta area by installation of a 46 kV voltage
regulator at the Brothertown substation.
In summary, the EAF concludes that while the Settlement
could result in an increase in overall sales of electricity,
which in turn could increase airborne emissions of various
pollutants, the possible consequences -- regardless of the
uncertainties with respect to eventual fuel mixes and location of
points of emission -- fall within the bounds of the Commission's
analysis and conclusions in the FGEIS. NYSEG's EAF concludes
that no further environmental impact analysis is necessary.
IV. PARTY COMMENTS ON NEW YORK
STATE ELECTRIC AND GAS CORPORATION'S
ENVIRONMENTAL ASSESSMENT FORM (EAF)
On May 13, 1997, the Public Interest Intervenors (PII)
moved for the Department of Public Service Staff to prepare
Supplemental Environmental Impact Statements (SEISs) in several
restructuring cases, including Case 96-E-0891--the NYSEG case.
At the time the petition was filed, several of the
utilities, but not NYSEG, had submitted Environmental Assessment
Forms for their proposed restructuring plans. In its petition, PII
identified a number of claimed deficiencies in the EAFs. Some were
generic in nature and, in our understanding, were intended to apply
to all utilities. The following are the issues raised by PII which
pertain generically to NYSEG.
. The SBC is well below the thresholds and conditions
established in the FGEIS and warrants additional
environmental scrutiny.
. Providing retail choice without environmental
disclosure will have serious environmental
repercussions that should be examined.
. Environmental impacts associated with the
elimination of the existing "revenue per customer
mechanism" and the institution of a price cap form
of regulation for the T&D company must be evaluated.
. Failure to expose the utility's fossil generating
units to full market risk requires environmental
review.
. The environmental impact of new construction needed
to eliminate load pockets/market power must be
addressed, including the consideration of
alternatives.
<PAGE>
. The air quality impacts of the reduced commitment to
energy efficiency should be examined.
. The tax revenue impacts associated with out-of-state
power purchases must be considered.
Chief Administrative Law Judge Lynch considered the PII
petition and reply comments by Staff and several other parties and
recommended that "the final EAFs prepared for Commission use in the
Con Edison and O&R cases consider the potential environmental
effects of T&D price cap regulation for Con Edison and the recovery
of non-variable generation costs in T&D rates for Con Edison and
O&R" but that "in all other respects, there is no reason to
commence preparation of SEISs."1 Nonetheless, Staff's analysis in
Section V will address the issues raised by PII which are relevant
to NYSEG.
PII also filed specific comments2 in this case, raising
three issues. PII claimed that the EAF is inadequate and that a
SEIS was required in that the Company did not allocate SBC funds to
specific programs to mitigate environmental impact. Further, they
argued that least cost investments, such as DSM, which minimize
environmental harm should be considered in transmission and
distribution planning. Finally, PII contends that it is necessary
to require the company to identify the source and emissions of the
power it sells, so that the consumer may make an informed choice.
V. STAFF ANALYSIS
The FGEIS covered the significant generic issues
connected with restructuring at considerable length. The following
analysis will not recapitulate the material in the FGEIS. Nor will
____________________
1 Cases 94-E-0952, et al., Ruling on the Motion for Supplemental
Environmental Impact Statements, (issued June 19, 1997), p. 17.
2 Supplemental Testimony of Ashok Gupt, Natural Resources
Defense Council, on Behalf of Public Interest Intervenors.
November 7, 1997. TR 3946-3950.
<PAGE>
the analysis repeat the material adequately covered in the
company's EAF and summarized in Section III of this memorandum.
Instead, this analysis will deal with issues identified by staff or
by the PII comments on the NYSEG EAF where it is reasonable to
anticipate that unique features of the company's service territory
or restructuring plan might result in environmental impacts not
considered in the FGEIS or in excess of thresholds identified in
the FGEIS.
A. Effects of Restructuring on Overall Level
of Electric Sales in NYSEG Service Territory
A key determinant of the incremental environmental
impacts of restructuring the electric industry in New York is the
effect of restructuring on the overall level of electric sales.
This section of the EAF will address whether any likely effect of
the NYSEG rate/restructuring plan would cause sales growth (and
therefore, air emission increases or other impacts) in excess of
the levels contemplated in the FGEIS.
There appear to be three feasible ways in which
restructuring could have significant impacts on electric sales.
1. Price Elasticity Effects
If electricity prices drop--as a result of utility rate
reductions incorporated in restructuring agreements and/or
competition among the utility and alternative suppliers-- customers
may make the economic decision to consume more electricity. This
is a price elasticity effect. The FGEIS analysis included the
preparation of a statewide "high sales" scenario which estimated
the likely upper bound of sales increases that would result from
credible decreases in electric prices given the best information
then available to staff economists. The scenario assumed that
under the high sales assumptions used in the analysis, the
compounded statewide electric sales growth would be about 2.2% per
year.
This scenario was compared to an FGEIS base case
"evolving regulatory model" scenario. The base case assumed sales
growth of 1.2%.1 Thus, the additional incremental statewide sales
growth likely to result from the high sales scenario compared to
the no-action base case was estimated as about 1.0% a year.2
PROMOD simulation of comparative plant dispatching under
these scenarios showed that compared to the evolving regulatory
model, the high sales model would result in an incremental 2.9%
increase in SO2 emissions, a 5.5% increase in NOX and a 12% increase
in CO2 by 2012. The Commission determined that, although the FGEIS
showed the possibility of detrimental incremental air quality
impacts, "consistent with social, economic and other
considerations, from among the reasonable alternatives available,"
the Commission's restructuring policy "avoids or minimizes adverse
environmental impacts to the maximum extent practicable."3
Recently, Staff of the Office of Regulatory Economics
(ORE) estimated the expected sales growth for NYSEG under a
competitive environment using updated data for many variables.
ORE's forecast shows that NYSEG's incremental sales growth under
the new settlement is likely to be about 0.23%, the average annual
incremental sales growth over the 15 year modeling period used in
the FGEIS. An analysis of the price elasticity of demand using the
current settlement rate reductions (Attachment A, Table C) predicts
____________________
1 The 1994 Power Pool "Load and Capacity Data" (yellow book) was
the source of the pre-restructuring statewide growth forecast
used in the FGEIS. Although the FGEIS did not examine company
specific growth, the company forecasts are available in the
yellow book. For NYSEG, the growth forecast was about 1.1%.
2 To provide a sense of scale, NYPP retail sales for 1996 were
about 110,628 GWH, while NYSEG retail sales were 14,787 GWH.
Under the FGEIS comparative scenarios, a 1.0% per year
incremental growth rate would result in additional statewide
sales of about 1,106 GWH in 1997 and pro rata additional NYSEG
sales of about 148 GWH in 1997.
3 Case 94-E-0952, et al., In the Matter of Competitive
Opportunities Regarding Electric Service, Opinion and Order
No. 96-12 (issued May 20, 1996), p. 81.
an annual average incremental sales growth of about 0.48%. An ORE
high sales forecast shows that the maximum effect of restructuring
would be an incremental growth of about 0.73% per year.
2. Price Cap Regulation
While the proposed settlement provides for a transition
to a more competitive market for generation, the regulated portion
of NYSEG would have rate of return regulation and capped prices.
PII argues that price cap rate of return regulation gives
incentives to promote sales and to make excessive infrastructure
investments. According to PII, these incentives could result in
environmental impacts which should be considered in a separate
SEIS.
The possibility of prudence review will serve as an
important deterrent against excessive infrastructure investments
and might also encourage the company to use energy efficiency as
necessary to avoid upgrades.
3. Lower Energy Efficiency Effect
For all New York utilities, including NYSEG, the levels
of DSM expenditures have declined in recent years. NYSEG's DSM
expenditures peaked at $477 million in 1993 and they achieved an
annualized incremental energy savings of 247.6 GWH. By 1996, its
DSM spending had declined to $4.6 million and its DSM annualized
incremental energy savings was estimated at 60.7 GWH. The proposed
settlement includes provisions to discontinue the Company's 1995
DSM programs. The following analysis assumes no new DSM spending
(worst case). If, however, some of the Agreement's SBC funds are
allocated to DSM, as recommended in the RD, it is not likely that
this worse case will be realized.
The FGEIS base case "evolving regulatory model" scenario
included annualized incremental NYSEG DSM energy savings of 54.4
GWH for the years 1997 and beyond.1 If NYSEG's rate of DSM
____________________
1 Based on the plans for 1996.
achievements is decreased from the levels assumed in the evolving
regulatory scenario to those in the proposed settlement, the
average annual incremental increase in demand (over the 1997-2012
modeling period used in the FGEIS) would be about 0.17%. As a
consequence, modeling indicates NYSEG's cumulative in-state 1997-
2012 emissions would be 0.27% higher for SO2, 0.91% higher for NOx
and 2.28% higher for CO2 than the company's emissions in the
evolving regulatory scenario.
This analysis assumes that emissions are proportional to
load; as a result, these modeled changes in SO2 and NOx emissions,
and those discussed above, probably overestimate actual emission
changes which may result from competition. The utility, or any
successive owner, is expected to operate its generators in a way
that will minimize costs; it can make a number of choices,
including type of fossil fuel and mode of operation. For example,
where possible, pollution abatement equipment will be operated only
to the extent needed to meet regulatory limits. Therefore, even at
reduced load, many facilities are likely to operate near their
emission limits, and an increase in load is unlikely to produce a
proportional change in emission.
B. Effect on Public Benefit Programs
In Opinion 96-12, the Commission set a policy that a non-
bypassable System Benefits Charge (SBC) would be used to fund a
variety of public benefit programs unlikely to be continued by
utilities at historic levels under competition. Part of this fund
would be used to support energy efficiency programs. The
Commission may determine the appropriate level for SBC funding by
NYSEG in this or another proceeding.
C. Effect of Restructuring on Retirement or
Construction of New Generation
Another potential factor that could, in concept, affect
New York's environment is the direct or indirect effect of the
NYSEG restructuring plan on the mix of plants run to meet electric
sales in the company's territory. The following section analyzes
whether the NYSEG plan would result in impacts that are greater
than or different in nature or causation from those already
addressed in the GEIS.
1. Retirement of New York State Electric and
Gas Generating Facilities
Retirement of a major NYSEG generating facility would
change the mix of generation resources available in the region and
thus could have a potential environmental impact, both positive and
negative. In addition, permanent retirement and decommissioning of
a plant could have a variety of local fiscal, economic, employment
and land use impacts. While NYSEG has no plans to retire existing
facilities, there could be retirements under new ownership.
2. Construction of New Generating Facilities
In its EAF, the company asserts that it has no plans to
construct new generating facilities and it is unaware of plans by
others to do so within the NYSEG territory. In any case, under
current air regulations (particularly the emissions offset policy
for NOx), construction of new generation facilities should tend to
improve air quality for critical emissions.
D. Effect of Restructuring Plan on Construction
of New Transmission Facilities
In its EAF, NYSEG states that no new transmission
facilities are required to implement the Settlement. However, the
company's load pocket study indicates that, under conditions of
high summer usage and equipment failures, load pockets may occur.
The company has proposed a mitigation strategy to eliminate market
power potential in the Ithaca/Auburn area without new transmission.
Further, it has installed a voltage regulator to eliminate a
potential pocket in the Oneonta area. Therefore, Staff finds no
significant environmental impacts associated with transmission.
<PAGE>
E. Environmental Disclosure
It is possible that some customers in a retail electric
market will consider the generation source of the power they
utilize and prefer to purchase power from a less polluting or
"green" source. PII has argued that customers will be more likely
to purchase, or even pay a premium for, green power if a
trustworthy source of information on the different environmental
impacts of electricity supplied by different suppliers is
available. An "environmental disclosure" requirement in the
restructuring plan would, it is argued, provide that information to
consumers. PII argues that since environmental disclosure is not
required by the proposed settlement agreement, restructuring would
lead to increased environmental impacts.
However, no allowance was made for the benefits of an
environmental disclosure mechanism in the estimation of any of the
scenarios in the FGEIS. Therefore, any negative effects of not
having an environmental disclosure plan are already inherent in the
worst case FGEIS scenario.
An environmental disclosure program could facilitate
customer choice and could have the potential to somewhat mitigate
the otherwise unavoidable environmental effects of electric
generation through a market based means. However, it would be
appropriate to consider environmental disclosure further as a
generic statewide mitigation measure.
F. Community Economic Impacts
Any effects on communities as a result of the Settlement
will likely occur with respect to employment and taxes.
A positive net effect on employment is anticipated. This
will primarily occur as a result of lower rates, which will induce
economic growth by encouraging expanded business activity and
increasing ratepayer disposable income.
A likely consequence of restructuring is that the opening
up of retail access will create the incentive and opportunity for
electric customers to purchase electricity from suppliers not
subject to the gross receipts taxes. This could have a negative
impact on the revenue flows to taxing jurisdictions. Restructuring
may also result in lower property tax revenues from generating
stations, either through negotiation or as a result of plant
retirements. However, changes in the state and local utility tax
structure are being studied in recognition of competition in the
electric industry and they could counteract any negative impact.1
Positive tax benefits may also occur as a consequence of
stimulated economic development and increased employment
opportunities, but possibly in a different geographic area than the
negative impacts.
VI. MITIGATION OF IMPACTS -- MONITORING
The FGEIS explicitly recognized that "the likely
environmental effects of a shift to a more competitive market for
electricity are not fully predictable"2 due to the absence of
precedents, complexity of the New York electric industry, future
regulatory activities, including those of other states and the
federal government, and the nature and degree of market response.
The same uncertainty persists with respect to NYSEG's restructuring
plan.
In Opinion No. 96-12, the Commission made certain
findings pursuant to the State Environmental Quality Review Act.
The Commission determined that "...adverse environmental impacts
will be avoided or minimized to the maximum extent practicable by
incorporating as conditions to the decision those mitigative
measures that were identified as practicable;.... These mitigation
measures are: (1) monitoring environmental impacts; (2) system
____________________
1 A step in that direction was recently taken by the Legislature
with reductions in the Gross Receipts Tax.
2 FGEIS, p. 77.
<PAGE>
benefits charge; and (3) assisting efforts undertaken by other
agencies to address interstate pollution transport."1
Staff analysis of the NYSEG restructuring plan determined
that its implementation would result in environmental effects which
would most likely be less than the impact values assessed in the
FGEIS. To address any uncertainty and to evaluate unknown
outcomes, a monitoring program as envisioned in the FGEIS should be
developed.
The environmental impacts which could be monitored are
described in Section 6.2.3 of the FGEIS. In addition, this EAF
discusses a number of environmental activities and changes that
would be important to monitor during the transition to competition.
The monitoring should include:
. imported electricity from the midwest,
. SO2 and NOx emissions,
. retirement of NYSEG power plants,
. in-state and out-of-state purchased generation,
. fuel mixture of generation,
. funding for environmental R&D,
. new electric and gas transmission line
construction,
. acid precipitation in the Adirondacks, and
Catskills, and other sensitive receptor areas,
. mitigation of load pockets.
The proposed environmental monitoring plan should be
organized around the major environmental impacts considered in the
FGEIS and this EAF, including information necessary for analysis of
any restructuring environmental impacts, confirmation of expected
impacts and exposition of unexpected outcomes and their
____________________
1 Opinion No. 96-12, p. 81.
<PAGE>
significance. Staff anticipates NYSEG's cooperation in the
development and implementation of this monitoring plan.
VII. CONCLUSION
Staff has considered features of the NYSEG generation,
transmission and distribution systems, the proposed October 9, 1997
Settlement Agreement, and the company's EAF, and has analyzed the
potential impacts of that agreement on the environment. The likely
impacts have been compared to those addressed in the FGEIS. The
analysis has been broadly framed and has looked at limiting cases
in order to encompass any modifications to that agreement likely to
be adopted by the Commission. In our analysis, we have also
considered issues raised by parties commenting on the NYSEG EAF.
It is likely that increases in demand will result from
the settlement's decrease in rates (0.48% average annual increase
in demand over the 1997-2012 modeling period used in the FGEIS),
and from a decrease in DSM expenditures (0.17% annual increase in
demand). These increases are upper bounds and do not consider
mitigating factors such as ESCO spending on DSM. Therefore, actual
growth rates will be less than the corresponding rates in the
FGEIS: 1% annual incremental growth from the "high sales"
scenario, and 0.29% from the "no incremental utility DSM" scenario.
The impacts on emissions from these factors are within the range of
thresholds and conditions set forth in the FGEIS.
We conclude that the NYSEG restructuring plan would not
result in significant new environmental impacts not considered in
the FGEIS, nor would it result in impacts likely to be greater than
those considered in the FGEIS. Therefore, no SEIS is required
under the provisions of SEQRA. Staff recommends that the
Commission determine that no further SEQRA compliance is required
with regard to the transitional restructuring plan for this
company.
Although no further SEQRA compliance is required, it is
appropriate to institute mechanisms for monitoring and, if
indicated, mitigating some of the potential impacts of
restructuring.
<PAGE>
IMPACT OF POSSIBLE RATE DECREASES
ON SALES GROWTH
Several of the potential impacts of deregulation examined
in the Final Generic Environmental Impact Statement (FGEIS) are a
result of the increased sales that are expected to accompany
deregulation. Rate reductions, which are a primary driver of the
increased sales, are not considered explicitly in the FGEIS; rather
it was assumed that, beginning in 1997, sales would increase by an
additional 1% per year for 15 years. That is, if statewide growth
without deregulation is 1.2% per year (as was assumed in the FGEIS
evolving regulatory model), growth with deregulation would be 2.2%.
In each of the restructuring cases, specific rate
reductions are now being considered. Using price elasticity of
demand, these proposed rate reductions now permit the calculation
of an estimate of increased sales to be expected from
restructuring.
The following tables (developed by the Office of
Regulatory Economics) consider both short-run elasticity (the
increase in sales which occurs immediately after the rate
reduction) and long-run elasticity (increases which occur in
subsequent years). The first step in the calculation (Table F) is
to determine the weighted average elasticities based on the
elasticities for each sector (industrial, commercial and
residential) and the fraction of the utility's load in each sector
(sales weight). Also, the average price reduction per year is
calculated based on the expected rate decrease for each sector and
the sales weight.
Five price reduction scenarios (A through E) are
considered. Scenario C uses the price reductions from the
October 9, 1997 Agreement. Scenarios A and B consider smaller
price reductions; Scenarios D and E consider larger price
reductions.
Tables A through E then calculate the year by year
increase in sales due to competition (short-run (SR Sales), long-
run (LR Sales) and total), the cumulative change in sales, and the
annual average rate of sales growth (Annual Rate). Residential
Delta (Res. Delta) is the possible residential rate reduction
considered in the table; Percent Total Impact per Year (%TI/Yr) is
the average price reduction per year from Table F; and Lambda is a
parameter relating short-term and long-term elasticity. The end of
the five year settlement period and the end of the fifteen year
modeling period are highlighted.
<PAGE>
NEW YORK STATE ELECTRIC AND GAS
Sales ch = (price elasticity*% price ch)+lambda*(sales ch lag 1)
A. %Res Delt %Tl/ Yr Lambda SR Elas. LR Elas
2.0 0.59 0.73 0.30 1.10
Year SR Sales LR Sales Total Cumlative Annu.Rate
1998 0.173 0.000 0.173 0.173 0.17
1999 0.173 0.127 0.300 0.473 0.24
2000 0.173 0.219 0.392 0.866 0.29
2001 0.173 0.287 0.460 1.325 0.33
2002 0.173 0.336 0.509 1.835 0.36
2003 0.000 0.372 0.372 2.207 0.36
2004 0.000 0.272 0.272 2.478 0.35
2005 0.000 0.198 0.198 2.677 0.33
2006 0.000 0.145 0.145 2.821 0.31
2007 0.000 0.106 0.106 2.927 0.29
2008 0.000 0.077 0.077 3.005 0.27
2009 0.000 0.056 0.056 3.061 0.25
2010 0.000 0.041 0.041 3.102 0.24
2011 0.000 0.030 0.030 3.132 0.22
2012 0.000 0.022 0.022 3.154 0.21
B. %Res Delt %Tl/ Yr Lambda SR Elas. LR Elas
5.0 1.21 0.73 0.30 1.10
Year SR Sales LR Sales Total Cumlative Annu.Rate
1998 0.359 0.000 0.359 0.359 0.36
1999 0.359 0.262 0.620 0.979 0.49
2000 0.359 0.453 0.812 1.790 0.59
2001 0.359 0.593 0.951 2.742 0.68
2002 0.359 0.695 1.053 3.795 0.75
2003 0.000 0.769 0.769 4.564 0.75
2004 0.000 0.562 0.562 5.126 0.72
2005 0.000 0.410 0.410 5.537 0.68
2006 0.000 0.300 0.300 5.836 0.63
2007 0.000 0.219 0.219 6.055 0.59
2008 0.000 0.160 0.160 6.215 0.55
2009 0.000 0.117 0.117 6.332 0.51
2010 0.000 0.085 0.085 6.417 0.48
2011 0.000 0.062 0.062 6.480 0.45
2012 0.000 0.046 0.046 6.525 0.42
<PAGE>
NEW YORK STATE ELECTRIC AND GAS
Sales ch = (price elasticity*% price ch)+lambda*(sales ch lag 1)
C. %Res Delt %Tl/ Yr Lambda SR Elas. LR Elas
5.0 1.38 0.73 0.30 1.10
Year SR Sales LR Sales Total Cumlative Annu.Rate
1998 0.410 0.000 0.410 0.410 0.41
1999 0.410 0.299 0.709 1.119 0.56
2000 0.410 0.518 0.928 2.047 0.68
2001 0.410 0.678 1.087 3.134 0.77
2002 0.410 0.794 1.204 4.338 0.85
2003 0.000 0.879 0.879 5.218 0.85
2004 0.000 0.642 0.642 5.860 0.82
2005 0.000 0.469 0.469 6.329 0.77
2006 0.000 0.343 0.343 6.672 0.72
2007 0.000 0.250 0.250 6.922 0.67
2008 0.000 0.183 0.183 7.105 0.63
2009 0.000 0.134 0.134 7.238 0.58
2010 0.000 0.098 0.098 7.336 0.55
2011 0.000 0.071 0.071 7.407 0.51
2012 0.000 0.052 0.052 7.459 0.48
D. %Res Delt %Tl/ Yr Lambda SR Elas. LR Elas
8.0 1.88 0.73 0.30 1.10
Year SR Sales LR Sales Total Cumlative Annu.Rate
1998 0.556 0.000 0.556 0.556 0.56
1999 0.556 0.406 0.963 1.519 0.76
2000 0.556 0.703 1.260 2.779 0.92
2001 0.556 0.920 1.476 4.255 1.05
2002 0.556 1.078 1.635 5.890 1.15
2003 0.000 1.194 1.194 7.084 1.15
2004 0.000 0.872 0.872 7.956 1.10
2005 0.000 0.637 0.637 8.593 1.04
2006 0.000 0.465 0.465 9.058 0.97
2007 0.000 0.340 0.340 9.398 0.90
2008 0.000 0.248 0.248 9.646 0.84
2009 0.000 0.181 0.181 9.827 0.78
2010 0.000 0.132 0.132 9.960 0.73
2011 0.000 0.097 0.097 10.057 0.69
2012 0.000 0.071 0.071 10.127 0.65
<PAGE>
NEW YORK STATE ELECTRIC AND GAS
Sales ch = (price elasticity*% price ch)+lambda*(sales ch lag 1)
E. %Res Delt %Tl/ Yr Lambda SR Elas. LR Elas
10.0 2.26 0.73 0.30 1.10
Year SR Sales LR Sales Total Cumlative Annu.Rate
1998 0.668 0.000 0.668 0.668 0.67
1999 0.668 0.488 1.156 1.824 0.91
2000 0.668 0.844 1.513 3.337 1.10
2001 0.668 1.105 1.773 5.110 1.25
2002 0.668 1.295 1.963 7.073 1.38
2003 0.000 1.434 1.434 8.507 1.37
2004 0.000 1.047 1.047 9.555 1.31
2005 0.000 0.765 0.765 10.319 1.24
2006 0.000 0.559 0.559 10.878 1.15
2007 0.000 0.408 0.408 11.286 1.08
2008 0.000 0.298 0.298 11.584 1.00
2009 0.000 0.218 0.218 11.802 0.93
2010 0.000 0.159 0.159 11.961 0.87
2011 0.000 0.116 0.116 12.077 0.82
2012 0.000 0.085 0.085 12.162 0.77
F. LARGE SMALL RES/ WGTED PRICE
IND IND/COM OTHER AVG PER YR
Sales Weights 0.12 0.41 0.47
SR Price Elasticity 0.43 0.31 0.25 0.30
LR Price Elasticity 1.28 1.17 0.99 1.10
Price Reduction A 10.00 2.00 2.00 2.96 0.59
Price Reduction B 15.00 5.00 5.00 6.20 1.21
Price Reduction C 22.60 5.00 5.00 7.11 1.38
Price Reduction D 22.60 8.00 8.00 9.75 1.88
Price Reduction E 25.00 10.00 10.00 11.80 2.26
Lambda (1-(SR Elast/LR Elast)): 0.73
