UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard
Syracuse, New York 13202
Paul J. Kaleta, Esq.
Terence A. Burke, Esq.
c/o Niagara Mohawk Holdings, Inc
300 Erie Boulevard
Syracuse, New York 13202
Telephone: (315) 428-6717
Copies to:
Steven J. Agresta, Esq.
Swidler & Berlin, Chartered
3000 K Street, N.W.
Washington, D.C. 20007
Telephone: (202) 424-7757
Janet Geldzahler, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-4000
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
A. Introduction
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Niagara Mohawk Holdings, Inc., a New York corporation ("Holdings"), seeks
authorization from the Securities and Exchange Commission ("Commission") under
Sections 3(a)(1), 9(a)(2) and 10 of the Public Utility Holding Company Act of
1935 (the "1935 Act" or "Act"), in connection with the proposed corporate
reorganization of Niagara Mohawk Power Corporation ("Niagara Mohawk" or the
"Company"), a New York electric and gas utility company. The reorganization is
being proposed in order to implement a comprehensive rate and restructuring plan
for Niagara Mohawk that was recently approved by the New York State Public
Service Commission ("PSC"), hereinafter referred to as the "Settlement
Agreement" or "PowerChoice", a copy of which is filed as Exhibit 1 hereto. A
copy of the PSC Order approving the Settlement Agreement in Opinion 98-8,
Opinion and Order Adopting Terms of Settlement Agreement Subject to
Modifications and Conditions (March 20, 1998) is filed as Exhibit 2 hereto.
Specifically, Holdings applies for the approval of the Commission pursuant
to Section 9(a)(2) of the 1935 Act (i) to acquire all of the outstanding shares
of common stock of Niagara Mohawk ("Niagara Mohawk Common Stock") pursuant to an
Agreement and Plan of Exchange
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("Exchange Agreement"), a copy of which is filed as Exhibit 3 hereto, which will
result in Holdings owning or controlling all of the outstanding Niagara Mohawk
Common Stock, and, indirectly, 86% of the outstanding common stock of Beebee
Island Corporation ("Beebee Island"), a New York corporation, indirectly 67% of
the outstanding common stock of Moreau Manufacturing Corporation ("Moreau"), a
New York corporation, and indirectly 50% of Canadian Niagara Power Company
Limited ("CNP"), a Canadian corporation, each of which is an "electric utility
company" for purposes of the 1935 Act. In addition, Holdings hereby applies
pursuant to Section 3(a)(1) of the 1935 Act for an order exempting Holdings and
each of its subsidiary companies from all provisions of the 1935 Act (except for
Section 9(a)(2) thereof).
The holders of Niagara Mohawk Common Stock ("common shareholders") approved
the Exchange Agreement at their Annual Meeting held on June 29, 1998. The
Exchange Agreement is anticipated to be implemented as soon as practicable after
all regulatory approvals are obtained. Thus, the applicant requests that the
Commission issue an order in this matter by October 15, 1998. The share exchange
(the exchange of the outstanding Niagara Mohawk Common Stock ("Common Stock") on
a share-for-share basis for shares of common stock of Holdings ("Holdings Common
Stock")) pursuant to the Exchange Agreement will become effective immediately
following the close of business on the date of the filing with the New York
Department of State of a certificate of exchange pursuant to Section 913(d) of
the New York Business Corporation Law or at such later time and date as may be
stated in such certificate("Effective Time").
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Niagara Mohawk believes that share exchange described herein will result in
the most efficient and effective corporate structure.
B. Other Regulatory Filings
------------------------
The Federal Energy Regulatory Commission ("FERC") has held that the
transfer of common stock of a public utility company, such as Niagara Mohawk,
from its existing stockholders to a holding company in a transaction such as the
share exchange constitutes a transfer of the "ownership and control" of the
facilities of such utility, and is thus a "disposition of facilities" subject to
FERC review and approval under Section 203 of the Federal Power Act. Niagara
Mohawk has concurrently applied for such approval.
A provision in the Atomic Energy Act requires Nuclear Regulatory Commission
("NRC") consent for the transfer of control of NRC licenses. The NRC staff has
in the past asserted that this provision applies to the creation of a holding
company over an NRC-licensed utility company in a transaction such as the share
exchange. Niagara Mohawk has concurrently applied for NRC approval under the
Atomic Energy Act for the transfer of control, resulting from the share
exchange, of its two licenses, for Nine Mile Point 1 and Nine Mile Point 2,
respectively.
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The New York Public Service Law ("NYPSL") requires approval from the PSC in
order to undertake the reorganization represented by the formation of the
holding company structure. The NYPSL also requires PSC approval for a holding
company to acquire the stock of a utility company pursuant to a share exchange.
The company has obtained PSC approval of the holding company concept and will
make appropriate additional filings with respect to the formation of a holding
company.
C. Proposed Reorganization
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1. Description of Niagara Mohawk
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Niagara Mohawk is a regulated public utility incorporated under the laws of
the State of New York. It is engaged principally in the business of generating,
purchasing, transmitting and distributing electricity, in areas of eastern,
central, northern and western New York State having a total population of
approximately 3.5 million, including the cities of Buffalo, Syracuse, Albany,
Utica, Schenectady, Niagara Falls, Watertown and Troy and purchasing,
transporting and distributing natural gas to the public in areas of eastern,
central, and northern New York State. A map of Niagara Mohawk's service
territory is attached hereto as Exhibit 4. Niagara Mohawk's service territory
will not change as a result of the proposed corporate reorganization. In
providing this service, Niagara Mohawk is subject to regulation by the PSC under
the NYPSL with respect to retail electric and gas rates and to regulation by
FERC with respect to wholesale electric and electric transmission rates. Niagara
Mohawk is currently exempt from registration as
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a holding company under Section 3(a)(2) of the 1935 Act because it is
predominantly a public utility company whose operations as such are confined to
New York State. Niagara Mohawk Power Corp. 51 S.E.C. Docket 1269 (1992).
In addition to its utility operations, Niagara Mohawk owns an unregulated
subsidiary, Opinac North America, Inc. ("Opinac NA"), which, in turn, owns
Opinac Energy Corporation1/, Plum Street Enterprises, Inc. and Plum Street
Energy Marketing, Inc. (a subsidiary of Plum Street Enterprises, Inc.)
(collectively, the "non-utility subsidiaries"), which participate principally in
energy-related services. CNP is owned 50% by Opinac Energy Corporation. CNP owns
a 99.99% interest in Canadian Niagara Wind Power Company, Inc. and Cowley Ridge
Partnership, respectively, which together operate a wind power joint venture in
the Province of Alberta, Canada. Niagara Mohawk also has several other
subsidiaries including NM Uranium Inc., NM Holdings, Inc., Moreau Manufacturing
Corp., Beebee Island Corp., and NM Receivables Corp. II.
Three of these subsidiaries are "public utilities" under the 1935 Act.
Brief descriptions of each public utility are provided below. None of the other
subsidiaries contribute alone or in the aggregate a material amount of revenue
to the consolidated enterprise.
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1/ Opinac Energy Corporation is an exempt holding company under Section
3(a)(5) of the Public Utility Holding Company Act of 1935. Opinac Energy
Corporation, 52 S.E.C. Docket 1475 (1992).
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BEEBEE ISLAND CORP.
Beebee Island operates a 7.7 megawatt hydroelectric generating station
located on the Black River in New York State. Beebee Island is a majority-owned
subsidiary of Niagara Mohawk which owns 5,799 shares of Beebee Island's common
stock and leases an additional 217 shares from another party. The remaining 984
shares of common stock outstanding are owned by Ahlstrom Filtration, Inc. Beebee
Island has contractual arrangements with both owners to sell to them 100% of its
power output in accordance with their ownership percentages. The contracts
provide that Beebee Island be allowed to charge a price for the power sold that
enables Beebee Island to earn a predetermined return on rate base.
Beebee Island is more than 50% directly owned by Niagara Mohawk and is
currently contractually committed to sell power generated by Beebee Island to,
among others, Niagara Mohawk on a wholesale basis. Beebee Island is not an
"exempt wholesale generator," nor is it a "qualifying small producer" as those
terms are defined by FERC regulation. As a result, Beebee Island has been viewed
by FERC as an electric utility under the Federal Power Act ("FPA"), the premise
being that Beebee Island sells electric energy at wholesale.
CANADIAN NIAGARA POWER COMPANY
CNP generates electricity at the William B. Rankine Generating Station
located in the city of Niagara Falls, Ontario and distributes electricity to
residential, commercial and industrial customers in the city of Niagara Falls
and the Town of Fort Erie, Ontario. CNP is 50% owned by
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Opinac Energy Corporation, a Canadian wholly-owned subsidiary of Opinac North
America, a wholly-owned U.S. subsidiary of Niagara Mohawk. The other 50% equity
is owned by Fortis, Inc. CNP has an international electric interconnection with
Niagara Mohawk and both sells and purchases power to Niagara Mohawk at wholesale
at this interconnection, but otherwise conducts its business wholly within
Canada.
MOREAU MANUFACTURING CORP.
Moreau operates a 5.0 megawatt hydroelectric generating station located on
the Hudson River in New York State. Moreau is a majority-owned subsidiary of
Niagara Mohawk, which owns 1,684 shares of Moreau's common stock. The remaining
842 shares of common stock outstanding are owned by Finch, Pruyn and Company.
Moreau has contractual arrangements with both owners to sell to them 100% of its
power output in accordance with their ownership percentages. The contracts
provide that Moreau be allowed to charge a price for the power sold that enables
Moreau to earn a predetermined return on rate base.
Moreau is more than 50% directly owned by Niagara Mohawk and is currently
contractually committed to sell power generated by Moreau to, among others,
Niagara Mohawk on a wholesale basis. Moreau is not an "exempt wholesale
generator," nor is it a "qualifying small producer" as those terms are defined
by FERC regulation. As a result, Moreau has been viewed by FERC as an electric
utility under the FPA the premise being that Moreau sells electric energy at
wholesale.
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2. The Exchange Agreement
----------------------
Niagara Mohawk has caused Holdings to be incorporated under the laws of the
State of New York for the purpose of carrying out the proposed transactions
described in this application. Holdings is currently a direct, wholly-owned
subsidiary of Niagara Mohawk. Holdings owns no utility assets and is not
currently a "public utility company" or a "holding company" for purposes of the
1935 Act.
The Exchange Agreement has been unanimously adopted by the Board of
Directors of Niagara Mohawk and was adopted by the Niagara Mohawk common
shareholders on June 29, 1998. In the share exchange:
(1) each share of Niagara Mohawk Common Stock outstanding immediately prior
to the Effective Time of the share exchange will be exchanged for one new
share of Holdings common stock;
(2) Holdings will become the owner of all outstanding Niagara Mohawk Common
Stock; and
(3) the shares of Holdings common stock held by Niagara Mohawk immediately
prior to the Effective Time will be canceled.
As a result, upon completion of the share exchange, Holdings will become a
holding company, Niagara Mohawk will become a subsidiary of Holdings, and all of
Holdings' common stock outstanding immediately after the share exchange will be
owned by the former holders of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange.
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Following the share exchange certain of Niagara Mohawk's existing
non-utility subsidiaries will be transferred to Holdings and become subsidiaries
of Holdings. Niagara Mohawk's principal non-utility subsidiaries participate in
real estate development of property formerly owned by Niagara Mohawk (NM
Holdings), and in energy-related services (Opinac NA and its subsidiaries). In
addition, Niagara Mohawk holds a single-purpose subsidiary, NM Receivables Corp.
II, established to facilitate the sale of an undivided interest in a designated
pool of customer receivables. The corporate structure immediately prior to and
after the reorganization is shown in Exhibit 5 attached to this application.
After the share exchange occurs, Holdings will have no material assets
other than its ownership of stock of its subsidiaries, which initially will
consist of all of the outstanding Niagara Mohawk Common Stock and thereafter the
common stock of certain of Niagara Mohawk's existing non-utility subsidiaries.
Given its financial condition and contractual restrictions, Niagara Mohawk does
not foresee Holdings making substantial investments in unregulated businesses in
the near future. However, under the terms of the Settlement Agreement, Niagara
Mohawk has a one-year window in which it can adopt the holding company
structure.
The current indebtedness of Niagara Mohawk will continue to be obligations
of Niagara Mohawk and will be neither assumed nor guaranteed by Holdings in
connection with the share
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exchange. Niagara Mohawk's first mortgage bonds will continue to be secured by
first mortgage liens on all of the properties of Niagara Mohawk that are
currently subject to such liens. Such indebtedness will be neither assumed nor
guaranteed by Holdings in connection with the share exchange. The decision to
have the indebtedness of Niagara Mohawk continue as obligations of Niagara
Mohawk is based upon a desire not to alter, or potentially alter, the nature of
the investment represented by such fixed income obligations, namely a direct
investment in a regulated utility.
Shares of Niagara Mohawk preferred stock will not be exchanged in the share
exchange but will continue as shares of preferred stock of Niagara Mohawk.
Therefore, holders of Niagara Mohawk preferred stock will not become holders of
Holdings preferred or common stock as a result of the share exchange. Except as
discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Niagara Mohawk preferred stock. Niagara Mohawk preferred stock will continue to
rank senior to Niagara Mohawk Common Stock as to dividends and as to the
distribution of Niagara Mohawk's assets upon a liquidation.
The restructuring is not expected to affect adversely the holders of
Niagara Mohawk preferred stock. Dividends on Niagara Mohawk preferred stock will
continue to be paid as before, depending upon the earnings, financial condition,
and other relevant factors affecting
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Niagara Mohawk. However, the assets or earnings of Holdings' subsidiaries other
than Niagara Mohawk will not be available to pay dividends on Niagara Mohawk
preferred stock or to make distributions with respect to such preferred stock in
the event of a liquidation if the share exchange is consummated. Appraisal
rights under the New York Business Corporation Law are not available to holders
of Niagara Mohawk preferred stock inasmuch as that preferred stock is not being
exchanged for Holdings stock and will continue as Niagara Mohawk preferred stock
after the holding company restructuring.
The Board of Directors' decision to exchange Niagara Mohawk Common Stock
for Holdings common stock was primarily based on the Board's desire to confer
the expected benefits of the share exchange on those investors who are best
placed to enjoy such benefits, namely the holders of Niagara Mohawk Common
Stock. The Board's decision not to exchange Niagara Mohawk preferred stock in
the share exchange was primarily based on the Board's desire not to alter, or
potentially alter, the nature of the investment decision represented by the
Niagara Mohawk preferred stock (namely, a direct investment in a regulated
utility) and the priority position of the Niagara Mohawk preferred stockholders
with respect to dividends and assets on liquidation.
The consolidated assets and liabilities of Niagara Mohawk and its
subsidiaries before the Effective Time will be the same as the consolidated
assets and liabilities of Holdings and its subsidiaries after the Effective
Time. All the business and operations conducted before the Effective Time by
Niagara Mohawk and its subsidiaries will continue to be conducted after the
Effective Time by Niagara Mohawk and such subsidiaries, as subsidiaries of
Holdings.
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Though Niagara Mohawk expects to sell or liquidate its majority interests
in two of its generation subsidiaries, Beebee Island and Moreau, before or
shortly after the share exchange, Holdings will retain an indirect 50% interest
in CNP, which does not contribute a material part of its income.2/
Niagara Mohawk will continue to be subject to regulation by the PSC after
the share exchange. Niagara Mohawk's utility retail sales, which include sales
of gas transportation and balancing services, will continue to be made primarily
under rate schedules and tariffs filed with and subject to the jurisdiction of
the PSC. In addition, Niagara Mohawk will continue to be subject to regulation
by the PSC, as it has been in the past, regarding issuances of securities,
capital ratio maintenance, and the maintenance of its books and records.
Niagara Mohawk also will continue to be subject to regulation by the FERC
and the NRC. FERC will continue to regulate the terms and conditions of Niagara
Mohawk's transmission of electricity, along with transmission interconnections
and ancillary services, as well as the terms and conditions of its sales of
electric energy for resale. The NRC will continue to review and regulate Niagara
Mohawk's operation of the two Nine Mile Point nuclear units.
_____________________
2/ See Exhibit 13.
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Under the PowerChoice Agreement, Niagara Mohawk is prohibited from making
loans to, or providing guarantees or other credit support for the obligations
of, Holdings or any other subsidiary of Holdings. Likewise, Niagara Mohawk may
not pledge its assets for the obligations of any other entity, including
Holdings or any other subsidiary of Holdings. (See Section 9.2.6, p. 98 of Ex.
1.)
PowerChoice generally prohibits any transaction between Niagara Mohawk and
Holdings or any other subsidiary of Holdings, except for the provision of
certain corporate administrative services, certain "grandfathered" transactions
as listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, Holdings and its subsidiaries are
required by PowerChoice to operate as separate entities. (See Section 9.2.1.1,
p. 93 of Ex. 1) Finally, PowerChoice sets out guidelines for the allocation of
costs among Holdings, Niagara Mohawk and the other subsidiaries of Holdings.
(See Section 9.2.1.3, p. 94 of Ex. 1.)
In order to address concerns regarding the possible diversion of the
attention of Niagara Mohawk's management away from the utility business, as well
as to avoid potential conflicts of interest with the management of Holdings,
PowerChoice contains restrictions regarding the composition of the Boards and
managements of Niagara Mohawk and Holdings and other subsidiaries of Holdings.
Niagara Mohawk's Board of Directors must include at least a majority of outside
directors (i.e., individuals who are neither an officer or director of Holdings
or any of
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its unregulated affiliates). (See Section 9.2.1.2, p. 93 of Ex. 1.) Niagara
Mohawk and the unregulated subsidiaries of holdings will have separate operating
employees and operating officers. (See Section 9.2.5.1, p. 96 of Ex. 1.)
Officers of Holdings may be officers of either Niagara Mohawk or an unregulated
affiliate.
Niagara Mohawk will remain a reporting company under the Securities
Exchange Act of 1934, as amended ("1934 Act"). Prior to the share exchange,
Holdings will apply to have its common stock listed on the New York Stock
Exchange, Inc. ("NYSE"). It is anticipated that Holdings common stock will be
listed and traded on such stock exchange upon consummation of the share
exchange, whereupon Holdings will be required to file reports with the
Commission pursuant to Section 13(a) of the 1934 Act. The Niagara Mohawk Common
Stock will cease to be listed on the NYSE following the share exchange.
The share exchange is subject to the satisfaction of the following
conditions (in addition to approval of the Exchange Agreement by the holders of
Niagara Mohawk Common Stock which occurred on June 29, 1998): (i) all necessary
orders, authorizations, approvals, or waivers from the PSC and all other
regulatory bodies, boards, or agencies have been received, remain in full force
and effect, and do not include, in the sole judgement of the Board of Directors
of Niagara Mohawk, unacceptable conditions; and (ii) shares of Holdings common
stock to be
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issued in connection with the exchange have been listed, subject to official
notice of issuance, by the NYSE.
Holdings has filed with the Commission a Registration Statement on Form S-4
("Registration Statement") under the Securities Act of 1933, as amended. The
Prospectus/Proxy Statement contained in the Registration Statement, a copy of
which is included with this application as Exhibit 6, was filed for the purpose
of (i) registering the shares of Holdings common stock to be issued in exchange
for the Niagara Mohawk Common Stock pursuant to the share exchange and (ii)
complying with the requirements of the 1934 Act in connection with the
solicitation of proxies of the common shareholders.
D. Purpose and Anticipated Effects of the Reorganization
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1. Purpose
-------
As indicated above, the reorganization is an integral part of
implementation of the Settlement Agreement (Ex. 1). PowerChoice is intended to
further the PSC's stated goals in restructuring the utility industry in New York
State into a competitive energy marketplace. See PSC Opinion No. 96-12 in Case
94-E-0952 issued May 20, 1996 (168 P.U.R. 4th 515). The proposed holding company
structure is intended to provide Niagara Mohawk and its subsidiaries with the
financial and regulatory flexibility to compete more effectively in an
increasingly
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competitive energy industry by providing a structure that can accommodate both
regulated and unregulated lines of business.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
for conducting regulated and unregulated businesses within the same corporate
group.
More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
PSC, thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure, financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings would not need PSC approval to issue debt or
equity securities to
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finance the acquisition of the stock or assets of other companies. The ability
to raise capital for acquisitions without prior PSC approval should allow
competition on a level basis with other potential acquirors, some of which are
already holding companies. Under a holding company structure, the issuance of
debt or equity securities by Holdings to finance the acquisition of the stock or
assets of another company should not adversely affect Niagara Mohawk's capital
devoted to and available for regulated utility operations.
2. Anticipated Effects
-------------------
The consummation of the reorganization will have no significant effect on
the common shareholders since their interest and investment in the business of
Niagara Mohawk will be changed only in form and not in substance. The
consolidated assets and liabilities of Niagara Mohawk and its subsidiaries
before the Effective Time will be the same as the consolidated assets and
liabilities of Holdings and its subsidiaries after the Effective Time. All the
business and operations conducted before the Effective Time by Niagara Mohawk
and its subsidiaries will continue to be conducted after the Effective Time by
Niagara Mohawk and such subsidiaries as subsidiaries of Holdings.
The reorganization will have no adverse effect upon the electric and
natural gas utility operations of Niagara Mohawk.
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PowerChoice also provides that Niagara Mohawk will conduct an auction sale
of its non-nuclear generation assets in accordance with the terms of
PowerChoice. Neither Holdings nor any of its subsidiaries, including Niagara
Mohawk, may participate in the auction as a bidder. The auction is estimated to
be completed and resulting transactions closed in the first half of 1999.
The holding company structure is a well-established form of organization
for companies conducting multiple lines of business. It is a common form of
organization for unregulated companies and for those regulated companies, such
as telephone utilities and water utilities, which are not subject to the 1935
Act. In addition, it is utilized by many electric companies which are involved
in unregulated activities. Niagara Mohawk wishes to take advantage of this
opportunity, and desires to do so by utilizing the most efficient and effective
corporate structure.
For the reasons stated above, Niagara Mohawk believes that the
reorganization will have no adverse effect on Niagara Mohawk, Niagara Mohawk
customers, the common shareholders, or the holders of Niagara Mohawk Preferred
Stock or Niagara Mohawk's debt securities.
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E. Additional Information
----------------------
No associate company or affiliate of Holdings or Niagara Mohawk, nor
any affiliate of any associate company of Holdings or Niagara Mohawk, has
any direct or indirect material interest in the proposed transactions
except as stated herein.
For further information, reference is made to the financial statements and
other information in Exhibits 6 through 15 hereto.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The estimated fees, commissions and expenses paid or incurred, or to be
paid or incurred, directly or indirectly, in connection with the reorganization,
by the applicant or any associate company of the applicant, will be set forth in
Exhibit 16 hereto, to be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Sections 3(a)(1), 9(a)(2) and 10 of the 1935 Act are applicable to the
reorganization. Section 9(a)(2) of the 1935 Act requires Commission approval
before any person may become an affiliate within the meaning of Section
2(a)(11)(A) of more than one "public utility company." Consummation of the
reorganization will result in Holdings owning all or a significant percentage of
the outstanding voting securities of more than one "public utility company,"
that is, Niagara Mohawk, Moreau, Beebee Island, and CNP. Thus, the
reorganization will require Commission approval under Sections 9(a)(2) and 10.
In addition, upon consummation of the
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reorganization, Holdings will be a holding company within the meaning of Section
2(a)(7) of the 1935 Act and will be required to register unless it can qualify
for an exemption. Accordingly, Holdings requests an order under Section 3(a)(1),
exempting it from all provisions of the Act except Section 9(a)(2).
The reorganization is an internal corporate restructuring of the type that
the 1995 Report of the Division of Investment Management on The Regulation of
Public Utility Holding Companies ("1995 Report") expressly recommended, for
exemption from sections 9(a) and 10." See 1995 Report at 76. The basis for this
recommendation was a concern that the Commission not unduly impede the work of
other energy regulators.
The reorganization follows years of careful negotiation in a multi-party
collaborative process, overseen by the PSC, which culminated in the Settlement
Agreement. The reorganization is subject to approval by the PSC, in addition to
the FERC and the NRC. Although the Commission has not yet adopted a rule
exempting internal reorganizations, the policy considerations that gave rise to
the Division's recommendation in the 1995 Report should apply to the
Commission's decision in this matter.
The Commission has previously approved numerous matters involving the
formation of a holding company over existing utility properties. See, e.g.,
Atlanta Gas Light Co., Holding Co.
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Act Release No. 26482 (March 5, 1996); SIGCORP, Holding Co. Act Release No.
26431 (Dec. 14, 1995); Providence Energy Corporation, Holding Co. Act Release
No. 26420 (Nov. 30, 1995); PP&L Resources, Inc., Holding Co. Act Release No.
26248 (March 10, 1995); WPS Resources Corporation, Holding Co. Act Release No.
26101 (Aug. 10, 1994); Unicom Corporation, Holding Co. Act Release No. 26090
(July 22, 1994); Illinova Corporation, Holding Co. Act Release No. 26054 (May
18, 1994); KU Energy Corporation, Holding Co. Act Release No. 25409 (Nov. 13,
1991). Further, the Commission has also approved the corporate "unbundling" of
utility operations where appropriate to protect the interests of utility
consumers. See Entergy Corporation, Holding Co. Act Release No. 25136 (August
27, 1990), aff'd in part and remanded in part sub nom. City of New Orleans v.
SEC, 969 F.2d 1163 (D.C. Cir. 1992), on remand, Entergy Corporation, Holding Co.
Act Release No. 26410 (November 17, 1995).
For the reasons explained below, the Commission should grant approval of
the reorganization pursuant to Section 9(a)(2) of the 1935 Act based upon the
transaction's compliance with the applicable standards of Section 10. In
addition, for the reasons described below, the Commission should by order grant
Holdings an exemption pursuant to Section 3(a)(1) from all of the provisions of
the 1935 Act (except for Section 9(a)(2)).
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A. Approval of the Reorganization under Section 9(a)(2)
----------------------------------------------------
The standards for approval are contained in Sections 10(b), 10(c) and 10(f)
of the Act. The reorganization should be found to meet these standards.
1. Section 10(b)
-------------
Section 10(b) requires the Commission to approve the reorganization
pursuant to Section 9(a)(2) unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public utility companies, of a kind or
to an extent detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
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(3) such acquisition will unduly complicate the capital structure of
the holding company system of the applicant or will be detrimental
to the public interest or the interest of investors or consumers or
the proper functioning of such holding company system.
Holdings respectfully submits that no adverse finding should be made under any
of these paragraphs.
a. Detrimental "Interlocking Relations" or "Concentration of Control"
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The reorganization merely involves an internal corporate reorganization
which will result in the imposition of Holdings, a holding company within the
meaning of the 1935 Act, over Niagara Mohawk, Moreau, Beebee Island, and CNP. No
other "public utility company" will be involved in the reorganization. The
consolidated assets and liabilities of Niagara Mohawk and its subsidiaries
before the Effective Time will be the same as the consolidated assets and
liabilities of Holdings and its subsidiaries after the Effective Time. All the
business and operations conducted before the Effective Time by Niagara Mohawk
and its subsidiaries will continue to be conducted after the Effective Time by
Niagara Mohawk and such subsidiaries as subsidiaries of Holdings. The
reorganization will not involve the acquisition of any utility assets not
already owned directly or indirectly by Niagara Mohawk and consequently, the
24
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reorganization should not be deemed to "tend towards interlocking relations ...
of public utility companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers" within the meaning of
Section 10(b)(1).
For the same reasons, the reorganization should not, within the meaning of
Section 10(b)(1), be deemed to tend toward any "concentration of control of
public utility companies" that might be detrimental to the public interest,
consumers, or investors. The reorganization will not involve the acquisition of
any utility assets not already owned directly or indirectly by Niagara Mohawk
and "will therefore have no effect on the concentration of control of public
utility companies." Wisconsin Energy Corp., Holding Co. Act Release No. 24267,
37 SEC Docket 296, 300 (1986). In addition, the competitive impact of the
reorganization will be fully considered by the FERC. A detailed explanation of
the reasons why the reorganization will not adversely affect competition is set
forth in the FERC application filed as Exhibit 20 hereto. The Commission may
appropriately look to FERC in such matters. See City of Holyoke v. SEC, 972 F.2d
358, 363-64, quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527
(D.C. Cir. 1989).
b. Fairness of Consideration and Fees
----------------------------------
Section 10(b)(2) of the 1935 Act requires the Commission to determine
whether the consideration to be given in connection with a proposed acquisition
of securities is reasonable
25
<PAGE>
and bears a fair relation to the investment in and earning capacity of the
utility assets underlying the securities being acquired. As discussed above, the
share exchange involves the exchange of each share of Niagara Mohawk Common
Stock for a share of Holdings common stock. Because the proportion of each
common shareholder's ownership will be unchanged, the consideration is fair and
reasonable. See Wisconsin Energy Corp., 37 SEC Docket at 300.
As stated in Item 2 above, an estimate of the fees and expenses to be paid
in connection with the reorganization is attached as Exhibit 19 hereto. Such
fees and expenses will be reasonable and customary for a transaction of this
kind and will not be material when measured against Niagara Mohawk's
consolidated book value or the earning capacity of its assets.
c. Complication of Capital Structure
---------------------------------
Section 10(b)(3) of the 1935 Act requires the Commission to determine if
the transaction will unduly complicate the capital structure of the holding
company, or will be detrimental to the public, investors or consumers. No such
effect will result from the reorganization.
The reorganization will not involve the creation of any ownership interests
other than those necessary to maintain the basic corporate relationships of the
holding company system to be established. Pursuant to the reorganization,
Holdings will acquire all of the Niagara Mohawk
26
<PAGE>
Common Stock. No minority common stock interest in Niagara Mohawk will remain
and the rights of the existing debt and preferred equity securities holders of
Niagara Mohawk will be unaffected. The consolidated assets and liabilities of
Niagara Mohawk and its subsidiaries before the Effective Time will be the same
as the consolidated assets and liabilities of Holdings and its subsidiaries
after the Effective Time.
All the business and operations conducted before the Effective Time by
Niagara Mohawk and its subsidiaries will continue to be conducted after the
Effective Time by Niagara Mohawk and such subsidiaries, as subsidiaries of
Holdings. Moreover, control of the system will remain in the hands of Niagara
Mohawk common shareholders, who will become the holders of Holdings Common
Stock. Consequently, as the Commission has found in similar circumstances, the
reorganization will not result in any complexity of capital structure contrary
to Section 10(b)(3). See, e.g., CIPSCO, Inc., Holding Co. Act Release No. 25152
(Sept. 18, 1990); Wisconsin Energy Corp., Holding Co. Act Release No. 24267
(Dec. 18, 1986).
The reorganization will have no material effect on the rights of the common
shareholders, with the exception that, after the share exchange, the holders of
Holdings common stock will have certain rights which differ from the rights of
Niagara Mohawk common shareholders.3/
- --------------------
3/ Certain differences between the rights of holders of Holdings common
stock and those of holders of Niagara Mohawk Common Stock are summarized below.
(footnote continued on next page)
27
<PAGE>
2. Section 10(c)
-------------
The relevant provisions of Section 10(c) of the 1935 Act state that the
Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of section 8 or is
detrimental to the carrying out of the provisions of section 11; or
(2) the acquisition of securities or utility assets of a public utility or
holding company unless the Commission finds that such acquisition will
serve the
- -------------------
(footnote continued)...............
Voting Requirements for Significant Transactions: As a result of a recent
change in the BCL, the necessary vote for significant transactions involving
Holdings, such as mergers, consolidations, share exchanges and dissolution, will
be a majority vote, rather than the two-thirds vote applicable to Niagara
Mohawk. The Board of Directors believes this lower vote requirement will
facilitate any transactions deemed to be in the best interests of Holdings and
its shareholders.
Purpose Clause: The corporate purposes for which Niagara Mohawk may engage
in business are generally those related to rendering electric or gas service and
related activities. Holdings is authorized to engage in any and all lawful acts
and activities.
Authorized Shares: Authorized Holdings and Niagara Mohawk common stock is
300,000,000 and 250,000 shares, respectively. Up to approximately 187 million
shares of Holdings common stock may be issued in the share exchange. The
additional authorized but unissued shares of Holding common stock will be
available for issuance under the Dividend Reinvestment and Stock Purchase Plan
and the Option Plan, as well as possibly for stock splits, stock dividends,
equity financings, and for other general corporate purposes (including,
possibly, acquisitions)(none of which is under current consideration).
28
<PAGE>
public interest by tending towards the economical and the efficient
development of an integrated public utility system.
Holdings respectfully submits that the requirements of Section 10(c) are
satisfied.
Neither Section 8 nor Section 11, by their terms, apply to nonregistered
entities. Thus, the Commission's analysis should focus on the standards of
Section 10(c)(2), particularly the requirement that an acquisition tend towards
the economical and the efficient development of an integrated public utility
system.
(a) Economies and Efficiencies
--------------------------
In the context of the formation of a new holding company over an existing
public utility, the Commission has held that the structural change must result
in significant benefits to the holding company system. CIPSCO Inc., Holding Co.
Act Release No. 25152.
As discussed above in Item 1, the holding company structure resulting from
the reorganization will yield significant benefits. A number of economies and
efficiencies would result from the use of a holding company structure. As the
Commission has found in analogous cases, a holding company structure permits
adjustments of a utility's capital ratios to appropriate
29
<PAGE>
levels through dividends to, or equity investments from, the holding company.
See, e.g., WPL Holdings, Inc., Holding Co. Act Release No. 25377 (1991). This
ability to adjust the components of the utility's capital structure would also
increase general financial flexibility, allowing Niagara Mohawk to take
advantage of more attractive financing opportunities that might not otherwise be
available. See CIPSCO Inc., supra.
The reorganization should also help to broaden the holding company system's
financial base and its investment appeal by reducing the system's dependence on
its utility operations. This diversity should also increase financing
alternatives and efficiencies, since financing may be tailored to the specific
needs and circumstances of the individual utility and non-utility businesses. As
the Commission has noted in similar circumstances, "(l)ower-cost financing can
enhance efficient utility operations and benefit ratepayers and senior security
holders." KU Energy Corp., Holding Co. Act Release No. 25409 (Nov. 13, 1991).
The Commission has noted in analogous cases that these kinds of financial
and organizational advantages satisfy Section 10(c)(2). See WPL Holdings, Inc.,
supra. Moreover, a Commission finding of "efficiencies and economies" may be
based "on the potential for economies presented by the acquisition even where
these are not precisely quantifiable." American Electric Power Co., 46 SEC 1299,
1322 (1978). Accord, Centerior Energy Corp., Holding Co. Act Release No. 24073
(April 29, 1986) ("specific dollar forecasts of future savings
30
<PAGE>
are not necessarily required; a demonstrated potential for economies will
suffice even when these are not precisely quantifiable"). In this case, Holdings
believes that the reorganization will provide significant financial and
organizational advantages and the resulting substantial potential economies and
efficiencies should be found to meet the standard of Section 10(c)(2).
(b) Integrated Public Utility System
--------------------------------
The Commission has held that the economical and efficient development of an
existing integrated system satisfies the requirements of Section 10(c)(2) of the
1935 Act. See WPL Holdings, Inc., supra. The electric utility system and the gas
utility system of Niagara Mohawk currently constitute an integrated electric
utility system and an integrated gas utility system within the meaning of
Section 2(a)(29)(A) and (B) of the 1935 Act, respectively, and would remain so
after the reorganization. Niagara Mohawk's service territory is not expected to
change as a result of the proposed corporate reorganization. Consequently, the
standards of Section 10(c)(2) are satisfied.
3. Section 10(f)
-------------
Section 10(f) provides that:
The Commission shall not approve any acquisition . . . under this
section unless it appears to the satisfaction of the Commission that
such State laws as may apply in respect of such acquisition have been
complied with, except where the
31
<PAGE>
Commission finds that compliance with such State laws would be
detrimental to the carrying out of the provisions of section 11.
As indicated in Item 1, the reorganization implements the Settlement
Agreement, which has been approved by the PSC, and the reorganization itself
will be approved by the PSC. In addition, the reorganization will be consummated
in compliance with all other applicable New York laws.
B. The Exemption under Section 3(a)(1)
-----------------------------------
Holdings does not intend to register as a holding company under the 1935
Act. As demonstrated below, Holdings respectfully submits that it should be
granted, by Commission order, an exemption under Section 3(a)(1) of the 1935
Act. Section 3(a)(1) of the 1935 Act makes available an exemption from all of
the provisions of the 1935 Act (except for Section 9(a)(2) thereof) to a
"holding company" if:
such holding company, and every subsidiary company thereof which is a
public-utility company from which such holding company derives, directly or
indirectly, any material part of its income, are predominately intrastate
in character and carry on their business substantially in a single State in
which such holding company and every such subsidiary company thereof are
organized.
32
<PAGE>
Holdings will satisfy such requirements. Holdings, Niagara Mohawk, Moreau, and
Beebee Island all are organized and carry on their business substantially in New
York State, and neither Niagara Mohawk, Holdings, Moreau, nor Beebee Island will
derive any material part of its income from a utility company that carries on
its business and/or is organized outside of New York State.4/ CNP operates in
the Town of Fort Erie, Ontario, Canada, but its income is not a material part of
Niagara Mohawk's income, nor would it be a material part of Holdings' income.5/
Information describing the properties of Niagara Mohawk Holdings, Inc. and
its subsidiaries as required by form U-3A-2 are incorporated in Exhibit 17.
Section 3(a) of the 1935 Act provides that, if an applicant satisfies the
objective requirements for an exemption, the applicant shall be granted the
exemption, "unless and except insofar as [the Commission] finds the exemption
detrimental to the public interest or the interest of investors or consumers."
In assessing whether a proposed exemption is "detrimental," the Commission has
focused upon the presence of state regulation, establishing that federal
- ----------------
4/ None of Niagara Mohawk's other current subsidiaries, Opinac North
America, Opinac Energy Inc., NM Uranium, Inc., NM Holdings, Inc., NM Receivables
Corp. II, or Plum Street, or PSEM qualify as public utility companies and thus
they are not examined for purposes of the 3(a)(1) test.
5/ See Footnote 2 supra
33
<PAGE>
intervention is unnecessary when state control is adequate. See, e.g., KU Energy
Corp., supra; CIPSCO Inc., supra.6/
The Commission should find that sufficient safeguards exist under state law
to ensure that no potential adverse consequences would occur as a result of the
reorganization. As discussed above, the reorganization implements PowerChoice,
which was approved by the PSC, and the reorganization has been submitted for
approval to the PSC, which will review it pursuant to its jurisdiction under New
York law. The Commission has relied in the past upon the public policy decisions
of state public utility commissions when granting approval of restructuring
transactions. See, e.g., KU Energy Corp., supra; CIPSCO Inc., supra. In
addition, as discussed above, Niagara Mohawk will continue to be regulated under
the utility laws of the State of New York and will continue to be subject to
FERC jurisdiction.
ITEM 4. REGULATORY APPROVAL.
In addition to approval by the SEC, the proposed corporate restructuring
requires the approval of the PSC, the FERC, and the NRC. PowerChoice, which
includes a description of the corporate restructuring, has been approved by the
PSC. (See Ex. 2). Concurrent with the filing of this application, Niagara Mohawk
is filing applications with the NRC and the FERC for approval
- -----------------
6/ Furthermore, the Commission Staff has stated its support for greater
flexibility in the administration of existing exemptions in consultation and
cooperation with state regulators. See 1995 Report at 119-20.
34
<PAGE>
to effect the proposed corporate restructuring. Additionally, a compliance
filing with the PSC will be required consistent with PowerChoice and the PSC
order approving it. A copy of the PSC Petition is filed as Exhibit 18 hereto,
and a copy of the PSC's Order pursuant thereto will be filed as Exhibit 19 by
amendment hereto.
The FERC has held that the transfer of common stock of a public utility
company, such as Niagara Mohawk, from its existing shareholders to a holding
company in a transaction such as the share exchange, constitutes a transfer of
the "ownership and control" of the facilities of such utility, and is thus a
"disposition of facilities" subject to FERC review and approval under Section
203 of the Federal Power Act. Niagara Mohawk has applied for such approval and
for the transfer of certain power sales contracts and a tariff associated with
certain of its generation assets. A copy of the FERC application under Section
203 of the Federal Power Act is filed as Exhibit 20 hereto, and a copy of the
FERC order pursuant thereto will be filed as Exhibit 21 by amendment hereto.
A provision in the Atomic Energy Act requires NRC consent for the transfer
of control of NRC licenses. The NRC staff has in the past asserted that this
provision applies to the creation of a holding company over an NRC-licensed
utility company in a transaction such as the share exchange. Niagara Mohawk has
applied for NRC approval under the Atomic Energy Act for the transfer of
control, resulting from the share exchange involving its two licenses, for Nine
Mile
35
<PAGE>
Point 1 and Nine Mile Point 2, respectively. A copy of the NRC application
under the Atomic Energy Act is filed as Exhibit 22 hereto, and a copy of the NRC
order pursuant thereto will be filed as Exhibit 23 by amendment hereto.
No other state or federal commission has jurisdiction over the
reorganization, thus, no other similar application is required to be filed with
any other state or federal regulatory body.
ITEM 5. PROCEDURE.
The reorganization is anticipated to be implemented as soon as practicable.
To facilitate this schedule, Holdings respectfully requests the Commission to
issue and publish promptly the requisite notice under Rule 23 with respect to
the filing of this application to provide for the filing of comments in a time
frame that permits the Commission to enter an order granting and permitting this
application to become effective by October 15, 1998. A form of notice suitable
for publication in the Federal Register is attached hereto as Exhibit 24.
Holdings does not believe that there should be a recommended decision by a
hearing officer or any other responsible officer of the Commission or that there
should be a 30-day waiting period between the issuance of the Commission's order
and the date on which it is to become effective. Holdings requests that the
Commission's order become effective immediately upon the entry thereof. Holdings
consents to the Division of Investment Management assisting
36
<PAGE>
in the preparation of the Commission's decision or order in this matter, unless
such Division opposes this application.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
EDGAR
SUBMISSION
EXHIBIT # DESCRIPTION FILING METHOD NUMBER
<S> <C> <C> <C>
1 PowerChoice Settlement Agreement Incorporated by reference, --
filed with Niagara Mohawk
Form 8K, October 17, 1997,
Exhibit 99-1
2 PSC Order Approving PowerChoice Incorporated by reference, --
Agreement filed with Niagara Mohawk
Form 10K/A Amendment 2, dated
May 29, 1998, Exhibit 10-13
3 Agreement and Plan of Exchange Incorporated by reference, --
filed with Niagara Mohawk
Form S-4 and Amendments filed
May 29, 1998 at Exhibit A-1-
A-4
4 Map of Niagara Mohawk Service Filed herewith 99.1
Territory
5 Corporate Structure Before and Incorporated by reference, --
After Reorganization filed with Niagara Mohawk
Form S-4 and Amendments filed
May 29, 1998, pp 2-3
6 Form S-4 and Amendments Incorporated by reference, --
filed May 29, 1998
7 Niagara Mohawk 1997 10-K and Incorporated by reference, --
Amendments filed 1998
8 Preliminary Opinion of Counsel Filed herewith 8
to SEC
9 Past-Tense Opinion of Counsel To be filed when appropriate --
10 Niagara Mohawk Holdings Inc. Filed herewith 99.2
Unaudited Pro Forma Consolidated
Balance Sheet and Statement as of
March 31, 1998
11 Niagara Mohawk Holdings Inc. Filed herewith 99.3
Unaudited Consolidated Statement
of Income and Retained Earnings
for the Twelve Months Ended
March 31, 1998
12 Niagara Mohawk Holdings Inc. Filed herewith 99.4
Statement of Material Changes Not
in the Ordinary
Course of Business Since 3/31/98
37
<PAGE>
13 Income Statement of Canadian Filed herewith 99.5
Niagara Power Company
14 Certificate of Incorporation and Incorporated by reference, --
By-Laws of Niagara Mohawk filed with Niagara Mohawk
Holdings Inc. Form S-4 and Amendments
filed May 29, 1998 at
Exhibits B & C
15 Certificate of Incorporation and Incorporated by reference --
By-Laws of Niagara Mohawk Certificate of Incorporation,
filed with Annual Report on
Form 10K for the year and
December 31, 1994, and the
By-Laws of Niagara Mohawk
amended as of April 23, 1998
filed in NMPC Form 10 Q/A for
the quarterly period ended
March 31, 1998, both filed
May 29, 1998
16 Fees, Commissions, etc. in To be filed when appropriate --
Connection with Reorganization
17 Description of Properties of Incorporated by reference, --
Niagara Mohawk Holdings, Inc. and filed with Niagara Mohawk
its Subsidiaries Form U-3A-2/A for the year
ended December 31, 1997, filed
on June 24, 1998, at pp 3-8
18 PSC Application for Approval of Filed herewith 99.6
Reorganization
19 PSC Compliance Order To be filed when available
20 FERC Application Under Section 203 Filed herewith 99.7
FPA
21 FERC Order of Approval To be filed when available --
22 NRC Application under Atomic Energy Filed herewith 99.8
Act
23 NRC Order To be filed when available --
24 Federal Register Notice Form Filed herewith 99.9
</TABLE>
38
<PAGE>
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
Holdings does not believe that the reorganization would involve a "major
federal action" nor would it "significantly affect the quality of the human
environment" as those terms are used in Section 102(2)(c) of the National
Environmental Policy Act. The only federal actions related to the reorganization
pertain to the Commission's declaration of the effectiveness of the Registration
Statement, the Commission's approval of this application and granting of the
exemption requested herein, FERC's authorization pursuant to Section 203 of the
Federal Power Act, and the NRC's consent under Section 184 of the Atomic Energy
Act. The reorganization would not result in changes in the operations of Niagara
Mohawk that would have any impact on the environment. No Federal agency has
prepared or is preparing an environmental impact statement with respect to the
reorganization.
39
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this statement to be signed on its
behalf by the undersigned thereunto duly authorized.
Niagara Mohawk Holdings, Inc.
Date: ___________, 1998 By:
[GRAPHIC]
A map showing the service territory of Niagara Mohawk including all of
the localities for which the Company has franchises in the State of New York, as
more particularly listed in Exhibit 19 at Exhibit K thereto.
<TABLE>
<S> <C>
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588 (125 Broad Street)
1701 PENNSYLVANIA AVE, N.W., WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN
</TABLE>
July 22, 1998
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.
Dear Sirs:
We have acted as corporate counsel to Niagara Mohawk Holdings, Inc., a
New York corporation ("Holdings"), in connection with the Agreement and Plan of
Exchange, dated as of May 14, 1998 (the "Exchange Agreement"), between Holdings
and Niagara Mohawk Power Corporation, a New York corporation ("Niagara Mohawk")
and the corporation whose shares will be acquired in the binding share exchange
(the "Exchange") contemplated by the Exchange Agreement. This opinion is
delivered to you in connection with Holdings' Application on Form U-1, as
amended from time to time ("Application"), filed with the Securities and
Exchange Commission ("Commission") under the Public Utility Holding Company Act
of 1935, as amended ("1935 Act").
In connection therewith, we have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, it is our opinion that:
1. Holdings has been duly incorporated and is an existing corporation in
good standing under the laws of the State of New York.
<PAGE>
Securities and Exchange Commission -2-
2. Upon the effectiveness of the Exchange in accordance with the terms of
the Exchange Agreement, the Holdings Common Stock will have been duly
authorized and validly issued and will be fully paid and
nonassessable, and the holders thereof will be entitled to the rights
and privileges appertaining thereto set forth in the Certificate of
Incorporation of Holdings, as such may be amended from time to time.
3. Upon the effectiveness of the Exchange in accordance with the terms of
the Exchange Agreement, all laws of the State of New York applicable
to the Exchange will have been complied with.
4. Upon the effectiveness of the Exchange in accordance with the terms of
the Exchange Agreement, Holdings will legally acquire Niagara Mohawk
Common Stock.
5. The effectiveness of the Exchange will not violate the legal rights of
the holders of any securities issued by Holdings, Niagara Mohawk or
any associate company thereof.
The foregoing opinions are limited to the laws of the State of New York
and we are expressing no opinion as to the effect of the laws of any other
jurisdiction.
In rendering the foregoing opinions, we have relied as to certain
matters on information obtained from the public officials, officers of Niagara
Mohawk and other sources believed by us to be responsible, and we have assumed
that the signatures on all documents examined by us are genuine, assumptions
which we have not independently verified.
<PAGE>
Securities and Exchange Commission -3-
We hereby consent to the filing of this opinion as Exhibit 8
to the Application.
Very truly yours,
/s/ SULLIVAN & CROMWELL
SULLIVAN & CROMWELL
EXHIBIT 10
Niagara Mohawk Holding, Inc.'s balance sheet dated March 31, 1998 and a
statement of income and surplus for the 12 months ended March 31, 1998 (both per
books and pro forma basis) and Niagara Mohawk Holdings, Inc. consolidated
balance sheet dated March 31, 1998 and consolidated statement of income and
surplus for the 12 months ended March 31, 1998 on a pro forma basis.
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS OF DOLLARS)
EXHIBIT 10
PRO FORMA
ADJUSTMENTS NIAGARA CONSOLIDATED NIAGARA
NIAGARA MOHAWK MOHAWK HOLDINGS, MOHAWK POWER
ASSETS HOLDINGS, INC. INC. CORPORATION
<S> <C> <C> <C>
UTILITY PLANT:
Electric plant $ 8,751,846
Nuclear fuel 583,639
Gas plant 1,131,482
Common plant 319,146
Construction work in progress 420,299
----------------- -------------------- -------------------
TOTAL UTILITY PLANT 11,206,412
Less: Accumulated depreciation and amortization (4,308,748 )
----------------- -------------------- -------------------
NET UTILITY PLANT 6,897,664
----------------- -------------------- -------------------
OTHER PROPERTY AND INVESTMENTS:
Investment in subsidiary companies - consolidated 2,739,957
Investment 281,299
----------------- -------------------- -------------------
2,739,957 281,299
----------------- -------------------- -------------------
CURRENT ASSETS:
Cash, including temporary cash investments of $379,920 323,518
Accounts receivable 624,625
Less - Allowance for doubtful accounts (64,500)
Materials and supplies, at average cost:
Coal and oil for production of electricity 22,440
Gas storage 14,367
Other 124,923
Prepaid taxes 78,921
Other 10,720
----------------- -------------------- -------------------
1,135,014
----------------- -------------------- -------------------
REGULATORY ASSETS:
Regulatory tax asset 405,624
Deferred finance charges 239,880
Deferred environmental restoration costs 220,000
Unamortized debt expense 55,314
Postretirement benefits other than pensions 55,524
Other 198,228
----------------- -------------------- -------------------
1,174,570
----------------- -------------------- -------------------
OTHER ASSETS: 72,245
----------------- -------------------- -------------------
$2,739,957 $9,560,792
================= ==================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS OF DOLLARS)
(continued . . . )
EXHIBIT 10
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED CONSOLIDATED
OPINAC NORTH INTER-COMPANY NIAGARA MOHAWK
ASSETS AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
<S> <C> <C> <C>
UTILITY PLANT:
Electric plant $ $ $ 8,751,846
Nuclear fuel 583,639
Gas plant 1,131,482
Common plant 319,146
Construction work in progress 420,299
----------------- ---------------- ------------------
TOTAL UTILITY PLANT 11,206,412
Less: Accumulated depreciation and amortization (4,308,748)
----------------- ---------------- ------------------
NET UTILITY PLANT 6,897,664
----------------- ---------------- ------------------
OTHER PROPERTY AND INVESTMENTS:
Investment in subsidiary companies - consolidated (2,739,957)
Investment 15,677 296,976
----------------- ---------------- ------------------
15,677 (2,739,957 296,976
----------------- ---------------- ------------------
CURRENT ASSETS:
Cash, including temporary cash investments of $379,920 112,738 436,256
Accounts receivable 18,231 132 642,988
Less - Allowance for doubtful accounts (64,500)
Materials and supplies, at average cost:
Coal and oil for production of electricity 22,440
Gas storage 14,367
Other 124,923
Prepaid taxes 78,921
Other 13 10,733
----------------- ---------------- ------------------
130,982 132 1,266,128
----------------- ---------------- ------------------
REGULATORY ASSETS:
Regulatory tax asset 405,624
Deferred finance charges 239,880
Deferred environmental restoration costs 220,000
Unamortized debt expense 55,314
Postretirement benefits other than pensions 55,524
Other 198,228
----------------- ---------------- ------------------
1,174,570
----------------- ---------------- ------------------
OTHER ASSETS: 72,245
----------------- ---------------- ------------------
$146,659 ($2,739,825) $9,707,583
================= ================ ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS OF DOLLARS) EXHIBIT 10
NIAGARA PRO FORMA ADJUSTMENTS CONSOLIDATED NIAGARA
MOHAWK NIAGARA MOHAWK MOHAWK POWER
CAPITALIZATION AND LIABILITIES HOLDINGS, INC. HOLDINGS, INC. CORPORATION
<S> <C> <C> <C>
CAPITALIZATION:
Common stockholders' equity:
Common stock - $.01 par value; authorized
300,000,000 shares: issued 144,419,351 shares $ $1,444 $144,419
Capital stock premium and expense 1,923,953 1,780,978
Retained earnings 814,560 684,834
----------------- ----------------------- --------------------
2,739,957 2,610,231
----------------- ----------------------- --------------------
Cumulative preferred stock -
$100 par value; authorized 3,400,000 shares; issued
2,322,000 shares:
Optionally redeemable 210,000
Mandatorily redeemable 20,400
Cumulative preferred stock -
$25 par value; authorized 19,600,000 shares; issued
11,781,204 shares:
Optionally redeemable 230,000
Mandatorily redeemable 56,210
Cumulative preference stock -
$25 par value; authorized 8,000,000 shares;
issued none
Long-term debt 3,418,299
----------------- ----------------------- --------------------
TOTAL CAPITALIZATION 2,739,957 6,545,140
----------------- ----------------------- --------------------
CURRENT LIABILITIES:
Long-term debt due within one year 67,065
Sinking fund requirements on redeemable preferred stock 10,120
Accounts payable 210,461
Payable on outstanding bank checks 17,380
Customers' deposits 18,689
Accrued taxes 39,055
Accrued interest 76,573
Accrued vacation pay 37,081
Other 119,562
----------------- ----------------------- --------------------
595,986
----------------- ----------------------- --------------------
REGULATORY LIABILITIES:
Deferred finance charges 239,880
----------------- ----------------------- --------------------
OTHER LIABILITIES:
Accumulated deferred income taxes 1,449,025
Employee pension and other benefits 240,526
Deferred pension settlement gain 10,142
Unbilled revenues 28,881
Other 231,212
----------------- ----------------------- --------------------
COMMITMENTS AND CONTINGENCIES: 1,959,786
Liability for environmental restoration 220,000
----------------- ----------------------- --------------------
$ $2,739,957 $9,560,792
================= ======================= ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS OF DOLLARS) EXHIBIT 10
(continued . . .)
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED CONSOLIDATED
OPINAC NORTH INTER-COMPANY NIAGARA MOHAWK
CAPITALIZATION AND LIABILITIES AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
<S> <C> <C> <C>
CAPITALIZATION:
Common stockholders' equity:
Common stock - $.01 par value; authorized
300,000,000 shares: issued 144,419,351 shares 1 ($144,420) $1,444
Capital stock premium and expense 134,576 (1,915,554) 1,923,953
Retained earnings (4,851) (679,983) 814,560
------------------- ----------------- ------------------
129,726 (2,739,957) 2,739,957
------------------- ----------------- ------------------
Cumulative preferred stock -
$100 par value; authorized 3,400,000 shares; issued
2,322,000 shares:
Optionally redeemable 210,000
Mandatorily redeemable 20,400
Cumulative preferred stock -
$25 par value; authorized 19,600,000 shares; issued
11,781,204 shares:
Optionally redeemable 230,000
Mandatorily redeemable ` 56,210
Cumulative preference stock -
$25 par value; authorized 8,000,000 shares;
issued none
Long-term debt 3,418,299
------------------- ----------------- ------------------
TOTAL CAPITALIZATION 129,726 (2,739,957) 6,674,866
------------------- ----------------- ------------------
CURRENT LIABILITIES:
Long-term debt due within one year 67,065
Sinking fund requirements on redeemable preferred stock 10,120
Accounts payable 16,971 132 227,564
Payable on outstanding bank checks 17,380
Customers' deposits 18,689
Accrued taxes 39,055
Accrued interest 76,573
Accrued vacation pay 37,081
Other 435 119,997
------------------- ----------------- ------------------
17,406 132 613,524
------------------- ----------------- ------------------
REGULATORY LIABILITIES:
Deferred finance charges 239,880
------------------- ----------------- ------------------
OTHER LIABILITIES:
Accumulated deferred income taxes (625) 1,448,400
Employee pension and other benefits 240,526
Deferred pension settlement gain 10,142
Unbilled revenues 28,881
Other 152 231,364
------------------- ----------------- ------------------
COMMITMENTS AND CONTINGENCIES: (473) 1,959,313
Liability for environmental restoration 220,000
------------------- ----------------- ------------------
$146,659 ($2,739,825) $9,707,583
=================== ================= ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
ACCOUNTING ENTRY TO RECORD THE REORGANIZATION
BALANCE SHEET AT MARCH 31, 1998
(IN THOUSANDS OF DOLLARS)
EXHIBIT 10
COMPANY LINE DESCRIPTION DEBIT CREDIT
<S> <C> <C> <C>
Niagara Mohawk Holdings, Inc. Investment in subsidiary companies - consolidated 2,739,957
Niagara Mohawk Holdings, Inc. Common stock 144,419
Niagara Mohawk Holdings, Inc. Capital stock premium and expense 1,780,978
Niagara Mohawk Holdings, Inc. Retained Earnings 814,560
<FN>
To record Niagara Mohawk Holdings, lnc.'s investment in subsidiaries.
Remaining entry represents normal consolidating eliminating entries.
</FN>
</TABLE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS OF DOLLARS) EXHIBIT 11
PRO FORMA
NIAGARA ADJUSTMENTS CONSOLIDATED
MOHAWK NIAGARA MOHAWK NIAGARA MOHAWK
HOLDINGS, INC. HOLDINGS, INC. POWER CORPORATION
<S> <C> <C> <C>
OPERATING REVENUES:
Electric $3,295,241
Gas 605,735
--------------- ------------------ -----------------
3,900,976
--------------- ------------------ -----------------
OPERATING EXPENSES:
Fuel for electric generation 189,188
Electricity purchased 1,231,655
Gas purchased 312,431
Other operation and maintenance 893,316
Depreciation and amortization 343,369
Other taxes 472,155
--------------- ------------------ -----------------
3,442,114
--------------- ------------------ -----------------
OPERATING INCOME 458,862
Other income 24,459
--------------- ------------------ ----------------- -
INCOME BEFORE INTEREST CHARGES 483,321
INTEREST CHARGES 271,958
EQUITY IN EARNINGS OF SUBSIDIARY 100,676
PREFERRED DIVIDEND REQUIREMENT OF SUBSIDIARY (37,221)
--------------- ------------------ -----------------
INCOME BEFORE FEDERAL AND FOREIGN INCOME TAXES 63,455 211,363
FEDERAL AND FOREIGN INCOME TAXES 110,687
--------------- ------------------ -----------------
NET INCOME (LOSS) 63,455 100,676
DIVIDENDS ON PREFERRED STOCK 37,221
--------------- ------------------ -----------------
BALANCE AVAILABLE FOR COMMON STOCK 63,455 63,455
RETAINED EARNINGS, MARCH 31, 1997 751,105
DIVIDEND OF SUBSIDIARY AT MARCH 31, 1998 (129,726)
--------------- ------------------ -----------------
RETAINED EARNINGS, MARCH 31, 1998 $63,455 $684,834
=============== ================== =================
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (IN THOUSANDS)
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS OF DOLLARS) EXHIBIT 11
(continued . . .)
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED CONSOLIDATED
OPINAC NORTH INTER-COMPANY NIAGARA MOHAWK
AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
<S> <C> <C> <C>
OPERATING REVENUES:
Electric $3,295,241
Gas 605,735
---------------- -------------- ------------------
3,900,976
---------------- -------------- ------------------
OPERATING EXPENSES:
Fuel for electric generation 189,188
Electricity purchased 1,231,655
Gas purchased 312,431
Other operation and maintenance (2,337) 890,979
Depreciation and amortization 343,369
Other taxes 472,155
---------------- -------------- ------------------
(2,337) 3,439,777
---------------- -------------- ------------------
OPERATING INCOME 2,337 461,199
Other income (2,337) 22,122
---------------- -------------- --------------------
INCOME BEFORE INTEREST CHARGES 483,321
INTEREST CHARGES 271,958
EQUITY IN EARNINGS OF SUBSIDIARY (100,676)
PREFERRED DIVIDEND REQUIREMENT OF SUBSIDIARY 37,221
---------------- -------------- ------------------
INCOME BEFORE FEDERAL AND FOREIGN INCOME TAXES (63,455) 211,363
FEDERAL AND FOREIGN INCOME TAXES 110,687
---------------- -------------- ------------------
NET INCOME (LOSS) (63,455) 100,676
DIVIDENDS ON PREFERRED STOCK 37,221
---------------- -------------- ------------------
BALANCE AVAILABLE FOR COMMON STOCK (63,455) 63,455
RETAINED EARNINGS, MARCH 31, 1997 751,105
DIVIDEND OF SUBSIDIARY AT MARCH 31, 1998 (4,851) 134,577
---------------- -------------- ------------------
RETAINED EARNINGS, MARCH 31, 1998 ($4,851) $71,122 $814,560
================ ============== ==================
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (IN THOUSANDS) 144,412
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK $0.44
</TABLE>
SEC
EXHIBIT 12
NIAGARA MOHAWK HOLDINGS, INC. STATEMENT OF MATERIAL
CHANGES, NOT IN THE ORDINARY COURSE OF BUSINESS
SINCE MARCH 31,1998
On June 30, 1998, Niagara Mohawk Power Corporation completed the consummation of
the Master Restructuring Agreement terminating, restating or amending purchase
power contracts with 14 Independent Power Producers under 27 purchase power
agreements in exchange for approximately $3.6 million in cash and approximately
42.9 million shares of common stock. See Exhibit 6, Niagara Mohawk Holdings,
Inc. Form S-4 Registration Statement No. 333-49769 (and amendments thereto) for
further information regarding this transaction including its pro forma effects
on the financial statements of Niagara Mohawk Power Corporation.
EXHIBIT 13
Income statement of Canadian Niagara Power Company, Limited showing contribution
to the income of Niagara Mohawk Power Corporation and consolidated subsidiaries
for the 12 months ended March 31, 1998.
<PAGE>
Exhibit 13
CANADIAN NIAGARA POWER COMPANY, LIMITED
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(Canadian Dollars)
Operating Revenue C$33,113,135
Expenses:
Operation and Maintenance 11,929,352
Other Taxes 2,662,112
Depreciation and amortization 932,861
-----------
15,524,325
-----------
Operating income 17,588,810
Other income 886,774
-----------
Income before interest charges 18,475,584
-----------
Interest charges 2,386,233
-----------
Income before income taxes 16,089,351
-----------
Income taxes 6,976,475
-----------
Net income C$9,112,876
===========
Niagara Mohawk Ownership Share - 50% C$4,556,438
Weighted Average Exchange Rate 0.7137048
In U.S. Dollars $3,251,952
===========
Note: The earnings of Canadian Niagara Power Company, Limited are accounted
for using the equity method.
NIAGARA MOHAWK POWER CORPORATION
300 Erie Boulevard West
Syracuse, N.Y. 13202
(315) 428-6871
Paul J. Kaleta
Vice President-Law
and General Counsel
July 22, 1998
Hon. John C. Crary, Secretary
NYS Department of Public Service
Three Empire State Plaza
Albany, New York 12223
Re: NIAGARA MOHAWK POWER CORPORATION
CASES 94-E-0098 AND 94-E-0099
HOLDING COMPANY FORMATION
Dear Secretary Crary:
INTRODUCTION
- ------------
Niagara Mohawk Power Corporation (Niagara Mohawk, Company) hereby notifies
the Commission of its intention to form a holding company to separate its
regulated businesses from its unregulated businesses. It is the Company's
belief, as discussed in detail below, that the Settlement Agreement that it
executed, along with nineteen other parties, filed on October 10, 1997 and the
Commission approved in Opinion 98-8, Opinion and Order Adopting Terms of
Settlement Agreement Subject to Modifications and Conditions (March 20, 1998) in
this proceeding, authorizes the creation of this holding company corporate
structure. The Company, therefore, requests that the Commission treat this
filing as a compliance filing and approve it at its next public session.
STATE ADMINISTRATIVE PROCEDURE ACT
- ----------------------------------
Because this filing merely implements the formation of the holding company
corporate structure which, as discussed below, the Commission previously has
approved in full compliance with the State Administrative Procedure Act (SAPA),
the Company requests that the Commission approve this filing at its next public
session. Should the
<PAGE>
Hon. John C. Crary, Secretary
July 22, 1998
Page 2
Commission believe additional SAPA notice is necessary, the Company requests
that the Commission approve this filing at its next public session on an
emergency basis.
Expedited action is required because the Company seeks to complete the
holding company formation no later than December 31, 1999. However, as discussed
below, several other regulatory bodies also must review and approve the
Company's applications for authorization to do so. As a rule, these regulators
look first to the State regulator's decision for guidance. An expedited
Commission approval will assist those other regulators in reaching timely
decisions on the applications before them. If, however, the Commission were to
set this matter for additional notice and comment under SAPA, the benefits of an
early Commission decision will be lost. No party will be prejudiced by such
expedited review because all issues related to the formation of a holding
company for Niagara Mohawk were subject to full public notice and comment when
the Settlement Agreement was under consideration by the Commission.
DESCRIPTION OF HOLDING COMPANY STRUCTURE
- ----------------------------------------
Under the proposed holding company structure, Niagara Mohawk will become a
wholly-owned subsidiary of a new holding company, Niagara Mohawk Holdings, Inc.
(Holdings), a New York corporation. Pursuant to the Agreement and Plan of
Exchange (Exchange Agreement), dated as of May 14, 1998, and unanimously adopted
by the Board of Directors of Niagara Mohawk, the present equity owners of
Niagara Mohawk will become the equity owners of Holdings through a share
exchange. In the share exchange:
1. each share of Niagara Mohawk common stock outstanding immediately
prior to the effective time of the share exchange will be exchanged
for one new share of Holdings common stock;
2. Holdings will become the owner of all outstanding Niagara Mohawk
common stock; and
<PAGE>
Hon. John C. Crary, Secretary
July 22, 1998
Page 3
3. the shares of Holdings common stock held by Niagara Mohawk immediately
prior to the share exchange will be canceled.
The corporate restructuring will result in a change in the identity of the
direct holder of Niagara Mohawk's equity, but no change in the beneficial owners
of that equity, who will merely exchange their Niagara Mohawk shares for shares
in Holdings. The corporate restructuring is more fully described in an excerpt
from the Form S-4 Registration Statement for Holdings, dated May 29, 1998, a
copy of which is attached hereto as Appendix A. A copy of the Exchange
Agreement, which provides for the exchange of the outstanding shares of Niagara
Mohawk common stock on a share-for-share basis for shares of Holdings common
stock, is included in Appendix A as Exhibit A to the S-4 Registration Statement.
On June 29, 1998, Niagara Mohawk common shareholders approved the corporate
restructuring.
DESCRIPTION OF COMPLIANCE FILING
- --------------------------------
In determining that it was required to submit a compliance filing to
effectuate the corporate structure section of the Settlement Agreement, the
Company relied on the terms of the Settlement Agreement itself, and on the
Commission's interpretation of those terms as expressed in Opinion No. 98-8.
The parties' agreement regarding the Company's corporate structure during
the settlement term is reflected in Section 9.1 of the Settlement Agreement.
Section 9.1 states:
Niagara Mohawk shall separate its existing operations, as
indicated below or as described in any petition filed by
Niagara Mohawk within one year of the approval of this
settlement proposing the formation of a holding company in
substantially the same structure described below:
<PAGE>
Hon. John C. Crary, Secretary
July 22, 1998
Page 4
HOLDCO: The HoldCo may be, at the Company's
- ------ option, a legally distinct entity that
directly owns no state or federal
jurisdictional assets and, therefore, is
unregulated or a functionally separate
unit serving the same purposes of a
holding company.
REGCO: RegCo shall be a wholly owned subsidiary
- ----- of HoldCo or a utility parent owning in
whole or in part one or more regulated
and/or unregulated subsidiaries. The
RegCo shall carry on the full range of
Niagara Mohawk's regulated transmission
and electric and gas distribution
services. To the extent not carried on
through a statewide nuclear operating
company and subject to the other
provisions of this settlement regarding
nuclear assets, Niagara Mohawk's nuclear
operations may remain a part of RegCo.
PLUM STREET ENTERPRISES/
UNREGULATED AFFILIATES: Niagara Mohawk may form unregulated or
- ---------------------- lightly regulated affiliates, which may
be owned, in whole or in part, by HoldCo
or may be a subsidiary of a utility
parent under either proposed corporate
structure. If Niagara Mohawk seeks to
form subsidiaries of RegCo, it will be
subject to all applicable regulatory
requirements including Section 107 and
69 of the Public Service Law.
TRANSITION GENCO: Niagara Mohawk may form all subsidiaries
- ---------------- necessary to effectuate the fossil and
hydro asset auction contemplated in this
settlement. Prior to that auction,
Niagara Mohawk may maintain its current
functional unbundling of its fossil and
hydro generation business.
The intent of the first paragraph of that section that states "Niagara
Mohawk shall separate its existing operations, as indicated below," is to set
forth the parties' agreement as to the corporate structure the Company could
implement without additional Commission
<PAGE>
Hon. John C. Crary, Secretary
July 22, 1998
Page 5
approval. If, instead, the Company chooses to deviate from that corporate
structure, it may do so "in any petition filed . . . within one year of the
approval of this settlement."
In Opinion No. 98-8 (mimeo at 10), the Commission described the Settlement
Agreement. With respect to the corporate structure provisions, the Commission
declared that "it allows the company to operate as a holding Company ... ." The
Commission then approved Section 9.1 of the Settlement Agreement without
modification. See Opinion No. 98-8, mimeo at 75.
The Company's compliance filing, therefore, fulfills the requirements of
both the Settlement Agreement and Opinion No. 98-8. The Company requests that
the Commission approve this compliance filing on that basis at its next public
session.
Alternatively, if the Commission believes that additional review is
necessary, the Company requests that this filing (including all attachments) be
deemed a Petition for authority under Public Service Law Sections 70, 107, 108,
and 110 to form a holding company. Attached as Appendix B is the Petition of
Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation for Authority
to Form a Holding Company Structure to Engage in Certain Related Transactions.
FILINGS MADE WITH OTHER JURISDICTIONAL AGENCIES
- ------------------------------------------------
The Company also is filing, concurrently with this submittal, petitions for
requisite authority from the United States Securities and Exchange Commission,
the Federal Energy Regulatory Commission, and the Nuclear Regulatory Commission.
SERVICE ON PARTIES TO CASES 94-E-0098 AND 94-E-0099
- ---------------------------------------------------
The Company is serving a copy of this letter on all parties to these
proceedings. Because the attachments to this filing are voluminous, they are not
included in the service
<PAGE>
Hon. John C. Crary, Secretary
July 22, 1998
Page 6
copies. However, any party who wishes to review the attachments may arrange to
do so at the Company's offices in Syracuse or Albany, or may request a copy of
the attachments, by calling William M. Marinelli at (315) 428-5915.
An original and twenty-five copies of the entire filing is included
herewith. Kindly acknowledge receipt and filing of the enclosures by
date-stamping the enclosed copy of this letter and returning it in the
postage-paid envelope provided for your convenience.
Yours truly,
/s/ Paul J. Kaleta
Paul J. Kaleta
Vice President - Law and General Counsel
/tjb
BY OVERNIGHT COURIER
- --------------------
c w/o enclosures: All Parties on Attached Service List
BY U.S. MAIL
- ------------
Appendix A : Excerpt from S-4 Registration Statement for Holdings, including
Agreement and Plan of Exchange
Appendix B: Petition of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority to Form a Holding Company Structure to
Engage in Certain Related Transactions
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
CASES 94-E-0098 AND 94-E-0099
HOLDING COMPANY FORMATION -
COMPLIANCE FILING
APPENDIX A
<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON MAY 29,1998
REGISTRATION NO. 333-49769
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
NIAGARA MOHAWK HOLDINGS, INC.
(Exact name of registrant as specified in charter)
NEW YORK 4931 16-1549726
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
WILLIAM E. EDWARDS
CHIEF FINANCIAL OFFICER
NIAGARA MOHAWK HOLDINGS, INC.
300 ERIE BOULEVARD WEST 300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202 SYRACUSE, NEW YORK 13202
(315) 474-1511 (315) 474-1511
-------------------------- -------------------------------
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area and telephone number, including
code, of registrant's principal area code, of agent for service)
executive offices)
-------------------------- -------------------------------
COPIES TO:
Janet T. Geldzahler, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement has become effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON STOCK VOTE IN
FAVOR OF APPROVAL OF PROPOSAL NO. 3.
- --------------------------------------------------------------------------------
PROPOSAL 4: HOLDING COMPANY AND ADOPTION OF THE EXCHANGE AGREEMENT
- --------------------------------------------------------------------------------
The Board of Directors of Niagara Mohawk unanimously believes that it is in
the best interests of Niagara Mohawk and its shareholders to restructure Niagara
Mohawk so that it will become a separate subsidiary of a new parent holding
company, with the present holders of Common Stock becoming the holders of the
common stock of the new parent.
To carry out such restructuring, Niagara Mohawk has caused to be
incorporated a New York corporation, Holdings, which now has a nominal amount of
stock outstanding and no present business or properties of its own. All of the
currently outstanding shares of Holdings common stock are owned by Niagara
Mohawk.
The Board of Directors of each of Niagara Mohawk and Holdings has adopted
the Exchange Agreement under which, subject to adoption by Niagara Mohawk's
shareholders and the satisfaction of other conditions, Niagara Mohawk will
become a subsidiary of Holdings through the exchange of the outstanding shares
of Niagara Mohawk Common Stock on a share-for-share basis for shares of Holdings
common stock (referred to in this Prospectus/Proxy Statement as the "share
exchange" or the "exchange"). Following the share exchange, certain of Niagara
Mohawk's existing subsidiaries involved in non-utility operations will be
transferred to Holdings and become subsidiaries of Holdings. See "--The Share
Exchange--Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings".
The Exchange Agreement is attached to this Prospectus/Proxy Statement as Exhibit
A and is incorporated herein by reference.
Niagara Mohawk is subject to regulation by the PSC under the New York Public
Service Law (the "Public Service Law"). The PowerChoice Agreement approved the
holding company restructuring and the terms with which Niagara Mohawk and
Holdings have agreed to comply in their on-going relationships and activities.
REASONS FOR THE HOLDING COMPANY STRUCTURE AND SHARE EXCHANGE
General
The proposed holding company structure is intended to provide Niagara Mohawk
and its subsidiaries with the financial and regulatory flexibility to compete
more effectively in an increasingly competitive energy industry by providing a
structure that can accommodate both regulated and unregulated lines of business.
Niagara Mohawk currently operates under the regulatory constraints of the PSC
that were generally designed to discourage electric utilities from participating
in unregulated businesses and that limit (i) the total amount of the incremental
investment in its unregulated operations, (ii) the amount that can be invested
annually, (iii) the cumulative amount that can be invested in any single line of
business and (iv) the debt-equity ratios of its subsidiaries. Under current
regulations, any time Niagara Mohawk wishes to allocate funds to new unregulated
ventures, it must seek PSC approval. The approval process itself leads to long
delays, forces the Company to reveal its plans to competitors, and gives
competitors the opportunity to intervene in the regulatory approval process and
attempt to gain competitive advantage by seeking restrictions that would
handicap Niagara Mohawk.
The holding company structure proposed here largely would eliminate many of
these regulatory constraints that would otherwise severely limit or handicap
Niagara Mohawk's ability to participate in unregulated business opportunities as
the industry evolves. In approving PowerChoice, the PSC has given the Company 12
months in which to form a holding company.
The holding company structure is a well-established form of organization for
companies conducting multiple lines of business. It is a common form of
organization for unregulated companies and for those regulated companies, such
as telephone utilities and water utilities, which are not subject to the Holding
59
<PAGE>
Company Act. In addition, it is utilized by many electric companies which are
involved in unregulated activities. Niagara Mohawk wishes to take advantage of
this opportunity, and desires to do so by utilizing the most efficient and
effective corporate structure.
More generally, the holding company structure will enable Holdings to engage
in unregulated businesses without obtaining the prior approval of the PSC,
thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings would not need PSC approval to issue debt or
equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior PSC
approval should allow competition on a level basis with other potential
acquirors, some of which are already holding companies. Under a holding company
structure, the issuance of debt or equity securities by Holdings to finance the
acquisition of the stock or assets of another company should not adversely
affect Niagara Mohawk's capital devoted to and available for regulated utility
operations.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
of conducting regulated and unregulated businesses within the same corporate
group.
As discussed below under "--The Share Exchange--Transfer of Niagara Mohawk's
Non-Utility Subsidiaries to Holdings," as part of the holding company
restructuring, certain of the current non-utility subsidiaries of Niagara Mohawk
will be transferred to and become, or become owned through, separate
subsidiaries of Holdings following the share exchange. Niagara Mohawk needs the
financial and regulatory flexibility provided by this holding company structure
to operate in a changing environment and successfully address the new levels of
competition.
Opportunities in the new competitive environment could take many forms,
including joint ventures and strategic alliances in addition to direct
investments in new businesses. All of these opportunities will be easier to
pursue under a holding company structure than they would be under the current
structure.
Strategic alliances with unregulated third party participants and/or
diversification into unrelated fields may also help protect against the market
and financial risks to which Niagara Mohawk is now, and increasingly will be,
exposed. Thus, Holdings may wish to increase its investment in unregulated
energy-related businesses, whether through additional "ground floor "
investment, the acquisition of existing energy and energy services providers, or
the formation of strategic alliances with industry partners.
Holdings will continue to seek to invest in the current lines of business
and, through its subsidiaries, will engage in energy marketing and other
energy-related activities. Although Holdings has not identified other specific
business opportunities, it believes that such activities would likely include
areas with which Niagara Mohawk is already familiar, such as information
systems, environmental services, engineering services, financial services, meter
reading, and billing and collection services. Under a holding company structure,
Holdings should be able to take advantage of opportunities in a timely fashion
and compete more effectively against other energy companies. Except for the
restrictions set forth in the PowerChoice Agreement and discussed in "--The
Share Exchange--The PowerChoice Agreement", Holdings believes it should not
otherwise be required to obtain PSC approval for investments in non-utility
businesses, would not be subject to the limitations imposed under certain
provisions of New York law applicable to Niagara
60
<PAGE>
Mohawk, and thus should be able to compete more effectively against other
entities not subject to similar constraints.
Given its financial condition and contractual restrictions, the Company does
not foresee Holdings making substantial investments in unregulated businesses in
the near future. However, under the terms of the PowerChoice Agreement, Niagara
Mohawk has a one-year window in which it can adopt the holding company
structure.
CERTAIN CONSIDERATIONS
Future Performance of Holdings Common Stock Cannot Be Assured. The purpose
of the share exchange is to establish a holding company structure that will
enhance the ability to take advantage of business opportunities outside of
Niagara Mohawk's present markets . The Board of Directors believes the share
exchange and holding company structure to be in the best interests of Niagara
Mohawk and its shareholders. Nevertheless, the success of Holdings in realizing
its goals and the future performance of Holdings common stock cannot be assured.
Dividends on Holdings Common Stock Will Initially Depend on Common Stock
Dividends Paid by Niagara Mohawk. Holdings does not now, nor will it immediately
after the share exchange, conduct directly any business operations from which it
will derive any revenues. Holdings plans to obtain funds for its own operations
from dividends paid to Holdings by its subsidiaries, and from sales of
securities or debt incurred by Holdings. Dividends on Holdings common stock will
initially depend upon the earnings, financial condition and capital requirements
of Niagara Mohawk, and the dividends that Niagara Mohawk pays to Holdings.
Niagara Mohawk suspended the common stock dividend in 1996 to help stabilize its
financial condition. In making future dividend decisions with respect to Niagara
Mohawk or Holdings, the applicable board would evaluate, along with standard
business considerations, the entity's financial condition, contractual and
regulatory restrictions, competitive pressure on prices, available cash flow and
retained earnings and other strategic considerations. In the future, dividends
from Holdings' subsidiaries other than Niagara Mohawk may also be a source of
funds for dividend payments by Holdings. Payment of Niagara Mohawk dividends to
Holdings will be subject to the prior rights of holders of Niagara Mohawk
preferred stock, First Mortgage Bonds and other long-term debt. In addition,
although it has no present intention to do so, Niagara Mohawk may issue
additional preferred stock in the future to meet its capital requirements. Such
additional preferred stock will also have preferential dividend rights.
The PowerChoice Agreement also imposes the following limitations on the
dividends that Niagara Mohawk may pay to Holdings after the share exchange: net
income available for common dividends plus in each of the following years: 1998:
$50 million, 1999: $75 million, 2000, 2001 and 2002: $100 million, 2003: $80
million, 2004: $60 million, 2005: $40 million, 2006: $20 million, thereafter:
$0. If the Company files a rate case for any year from 2003 to 2007, this
dividend limitation will be reassessed in the rate filing. The Indenture to be
entered into with respect to the Senior Notes will also contain limitations on
the amount of dividends payable with respect to the Common Stock.
Non-Utility Businesses Will Not Be Available as Sources for Dividends on
Niagara Mohawk Preferred Stock. Following consummation of the share exchange,
certain of Niagara Mohawk's non-utility subsidiaries will be transferred to
Holdings, and will not be available to the holders of Niagara Mohawk preferred
stock as a source of cash for the payment of dividends or other amounts.
Non-Utility Businesses. Niagara Mohawk's principal non-utility subsidiaries
that will be transferred to Holdings participate in energy marketing and
brokering, energy services and Canadian electricity generation and distribution.
It is the current intention of Holdings for these non-utility subsidiaries
to engage primarily in energy-related businesses which will not be regulated by
state or federal agencies which regulate public utilities. Such businesses may
encounter competitive and other factors not previously experienced by Niagara
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Mohawk, and may have different, and perhaps greater, investment risks than those
involved in the regulated utility business of Niagara Mohawk. There can be no
assurance that such businesses will be successful or, if unsuccessful, that they
will not have a direct or indirect adverse effect on Holdings. As is the case
now, any losses incurred by such businesses will not be recoverable in utility
rates of Niagara Mohawk. As Holdings engages in more such business activities,
the market price of Holdings' stock will be affected to a lesser extent by the
performance of Niagara Mohawk.
Comparable earnings from Niagara Mohawk's unregulated businesses were $(4.7)
million, or (3.3) cents per share in 1997, $23.2 million, or 16.1 cents per
share in 1996, and $10.3 million, or 7.1 cents per share in 1995.
Niagara Mohawk's total investment in these businesses, computed in
accordance with PSC specifications as a percentage of consolidated
capitalization, was 2.5%, 2.6% and 2.1% as of December 31, 1997, 1996 and 1995,
respectively.
Holdings will obtain funds to invest in non-utility subsidiaries and other
businesses from dividends it receives from Niagara Mohawk, borrowings and other
financings, and dividends Holdings may in the future receive from any
non-utility subsidiaries. There can be no assurance that non-utility
subsidiaries will have earnings or pay any dividends to Holdings in the
foreseeable future.
Implementation of the Rate Plan. The new rate plan contained in the
PowerChoice Agreement will take effect upon the closing of the MRA and will
continue to govern utility rates and charges of Niagara Mohawk even if common
shareholders of Niagara Mohawk do not approve the holding company proposal and
adopt the Exchange Agreement. In that event, Niagara Mohawk will not be able to
realize the benefits it expects from a holding company structure, which Niagara
Mohawk believes is important in the future deregulated competitive environment
of the energy industry. See also "--The Share Exchange--The PowerChoice
Agreement" below.
Certain Restrictions in the PSC Order. As summarized above, the PowerChoice
Agreement imposes certain limitations on the dividends that Niagara Mohawk may
pay to Holdings after the share exchange. See also "--The Share
Exchange--Dividend Policy". The PowerChoice Agreement also contains restrictions
on transactions between Niagara Mohawk and Holdings or any other subsidiary of
Holdings, loans, guarantees or pledges by Niagara Mohawk for the benefit of
Holdings or any other subsidiary of Holdings, and Board and managerial
interlocks between Niagara Mohawk and Holdings or any other subsidiary of
Holdings. See "--The Share Exchange--Regulatory Approvals" and
"--Management--Restriction on Board and Management Interlocks between Holdings
and Niagara Mohawk". There can be no assurance as to the effect, if any, that
such restrictions will have on the business or operations of Holdings, Niagara
Mohawk or the non-utility subsidiaries.
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A. THE SHARE EXCHANGE
EXCHANGE AGREEMENT
The Exchange Agreement has been unanimously adopted by the Boards of
Directors of Niagara Mohawk and Holdings and is subject to adoption by the
holders of at least two-thirds of the outstanding shares of Niagara Mohawk
Common Stock. See "--Vote Required" below. In the share exchange:
(1) each share of Niagara Mohawk Common Stock outstanding immediately prior
to the effective time of the share exchange will be exchanged for one new
share of Holdings common stock;
(2) Holdings will become the owner of all outstanding Niagara Mohawk Common
Stock; and
(3) the shares of Holdings common stock held by Niagara Mohawk immediately
prior to the share exchange will be canceled.
As a result, upon completion of the share exchange, Holdings will become a
holding company, Niagara Mohawk will become a subsidiary of Holdings, and all of
Holdings common stock outstanding immediately after the share exchange will be
owned by the former holders of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange. Following the share exchange, certain
of Niagara Mohawk's existing non-utility subsidiaries will be transferred to
Holdings and become subsidiaries of Holdings. See "--Transfer of Niagara
Mohawk's Non-Utility Subsidiaries to Holdings". The Exchange Agreement is
attached to this Prospectus/Proxy Statement as Exhibit A and is incorporated
herein by reference.
Niagara Mohawk's outstanding preferred stock will not be exchanged in the
share exchange but will continue as shares of Niagara Mohawk preferred stock.
The share exchange will not change the rights of the holders of such shares as
currently provided in Niagara Mohawk's Amended Certificate of Incorporation.
Debt of Niagara Mohawk will remain unchanged and will continue as outstanding
obligations of Niagara Mohawk after the share exchange.
REGULATORY APPROVALS
FEDERAL POWER ACT
The FERC has held that the transfer of common stock of a public utility
company, such as the Company, from its existing stockholders to a holding
company in a transaction such as the share exchange constitutes a transfer of
the "ownership and control" of the facilities of such utility, and is thus a
"disposition of facilities" subject to FERC review and approval under Section
203 of the Federal Power Act. The Company will apply for such approval and for
approval of the transfer of certain power sales contracts and a tariff
associated with certain of its generation assets.
ATOMIC ENERGY ACT
A provision in the Atomic Energy Act requires Nuclear Regulatory Commission
("NRC") consent for the transfer of control of NRC licenses. The NRC Staff has
in the past asserted that this provision applies to the creation of a holding
company over an NRC-licensed utility company in a transaction such as the share
exchange. The Company will apply for NRC approval under the Atomic Energy Act
for the transfer of control resulting from the Share Exchange of its two
licenses, for Nine Mile Point 1 and Nine Mile Point 2, respectively.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The Company is currently exempt from the Public Utility Holding Company Act
of 1935 under Section 3(a)(2) thereof. Holdings will own 100% of the common
stock of the Company, majority interests in Beebee Island Corporation and Moreau
Manufacturing Corporation and 50% of CNP, all of which are public utility
companies for purposes of the Holding Company Act. Section 9(a)(2) of the Act
requires the
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prior approval of the SEC under Section 10 of the Holding Company Act for any
person to become an affiliate of more than one public utility company. Holdings
will apply for such approval. Holdings will also apply to the Commission for an
order exempting Holdings from all provisions of the Holding Company Act, except
Section 9(a)(2) thereof, pursuant to the exemption provided by Section 3(a)(1)
thereof. The basis for such exemption is that the holding company, and every
subsidiary company thereof which is a public-utility company from which the
holding company derives any material part of its income, are predominantly
intrastate in character and are organized in the same state.
PUBLIC SERVICE LAW
The New York Public Service Law ("NYPSL") requires approval from the PSC in
order to undertake the reorganization represented by the formation of the
holding company structure. The NYPSL also requires PSC approval for a holding
company to acquire the stock of a utility pursuant to a share exchange. The
Company has obtained PSC approval of the holding company concept and will make
appropriate additional filings with respect to the formation of a holding
company.
CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE
The share exchange is subject to the satisfaction of the following
conditions (in addition to adoption of the Exchange Agreement by the holders of
Niagara Mohawk Common Stock): (i) all necessary orders, authorizations,
approvals or waivers from the PSC and all other jurisdictive regulatory bodies,
boards or agencies have been received, remain in full force and effect, and do
not include, in the sole judgment of the Board of Directors of Niagara Mohawk,
unacceptable conditions; and (ii) shares of Holdings common stock to be issued
in connection with the exchange have been listed, subject to official notice of
issuance, by the New York Stock Exchange.
Following satisfaction of these conditions, the share exchange will become
effective immediately following the close of business on the date of filing with
the New York Department of State of a certificate of exchange pursuant to
Section 913(d) of the New York Business Corporation Law. Niagara Mohawk cannot
predict when all conditions will be satisfied, but expects that the share
exchange will become effective in the first quarter of calendar 1999.
EXCHANGE OF STOCK CERTIFICATES
If the share exchange is effected, it will not be necessary for holders of
Niagara Mohawk Common Stock to physically exchange their existing stock
certificates for certificates of Holdings common stock. The certificates which
represent shares of Niagara Mohawk Common Stock outstanding immediately prior to
the effective time of the share exchange will automatically represent an equal
number of shares of Holdings common stock immediately after the effective time
and will no longer represent Niagara Mohawk Common Stock. New certificates
bearing the name of Holdings will be issued after the share exchange, if and as
certificates representing shares of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange are presented for exchange or transfer.
Niagara Mohawk preferred stock will not be exchanged but will continue as
shares of Niagara Mohawk preferred stock. The share exchange will not change the
rights of the holders of such shares as provided in Niagara Mohawk's Amended
Certificate of Incorporation. Debt of Niagara Mohawk will remain unchanged and
will continue as outstanding obligations of Niagara Mohawk after the share
exchange.
TRANSFER OF NIAGARA MOHAWK'S NON-UTILITY SUBSIDIARIES TO HOLDINGS
Other than for the transfer of the subsidiaries described under "Certain
Considerations--Non-Utility Businesses" and other de minimis non-utility
investments, and except for dividends or other distributions with respect to
Niagara Mohawk Common Stock held by Holdings, it is expected that Niagara Mohawk
will
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not transfer at less than a fair consideration any of its other assets to
Holdings or any Holdings subsidiaries. Niagara Mohawk will develop accounting
and other procedures to the extent determined to be necessary or appropriate to
insure separation of utility and non-utility businesses. See "--The PowerChoice
Agreement" below.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Shares of Niagara Mohawk Common Stock held in its Dividend Reinvestment and
Common Stock Purchase Plan (including uncertificated whole and fractional
shares) will automatically become a like number of shares of Holdings common
stock at the effective time of the share exchange. At the effective time,
Holdings will succeed to the Plan as in effect immediately prior to the
effective time, and shares of Holdings common stock will be issued under the
Plan on and after the effective time. Holdings will file a post-effective
amendment to Niagara Mohawk's registration statement on Form S-3 for the Plan
shortly after the effective time of the exchange.
AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT
The Boards of Directors of Niagara Mohawk and Holdings may amend any of the
terms of the Exchange Agreement at any time before or after its adoption by the
holders of Niagara Mohawk Common Stock and prior to the effective time, but no
such amendment may, in the sole judgment of the Board of Directors of Niagara
Mohawk, materially and adversely affect the rights of Niagara Mohawk's
shareholders.
The Exchange Agreement may be terminated and the share exchange abandoned at
any time before or after the shareholders of Niagara Mohawk adopt the Exchange
Agreement, and prior to the effective time, if the Board of Directors of Niagara
Mohawk determines, in its sole judgment that consummation of the exchange would,
for any reason, be inadvisable or not be in the best interests of Niagara Mohawk
or its shareholders.
LISTING OF HOLDINGS COMMON STOCK
Holdings is applying to have its common stock listed on the New York Stock
Exchange. It is expected that such listing will become effective at the
effective time of the share exchange. The stock exchange ticker symbol of
Holdings common stock will be "NMK", and quotations will be carried in
newspapers as they have been for Niagara Mohawk Common Stock. Following the
share exchange, Niagara Mohawk Common Stock will no longer trade and will be
delisted and no longer registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
NIAGARA MOHAWK COMMON STOCK MARKET PRICES AND DIVIDENDS
Niagara Mohawk Common Stock is listed and principally traded on the New York
Stock Exchange. The table below sets forth the high and low sales prices of
Niagara Mohawk Common Stock for the fiscal
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periods indicated as reported in The Wall Street Journal as New York Stock
Exchange Composite Transactions. No dividends were paid on the Common Stock
during such period.
PRICE RANGE
----------------------
HIGH LOW
------- -------
($) ($)
Calendar 1996
First Quarter........................ 10 1/8 6 1/2
Second Quarter....................... 8 5/8 6 1/2
Third Quarter........................ 8 7/8 6 3/4
Fourth Quarter....................... 10 7 5/8
Calendar 1997
First Quarter........................ 11 1/8 8 1/8
Second Quarter....................... 9 7 7/8
Third Quarter........................ 10 1/16 8 1/4
Fourth Quarter....................... 10 9/16 9 1/16
Calendar 1998
First Quarter........................ 13 9/16 10 1/8
Second Quarter (through May 28, 1998) 13 11
The closing price of Niagara Mohawk Common Stock on May 28, 1998 was
reported to have been $12 3/16.
DIVIDEND POLICY
Holdings does not now, nor will it immediately after the share exchange,
conduct directly any business operations from which it will derive any revenues.
Holdings plans to obtain funds for its own operations from dividends paid to
Holdings on the stock of its subsidiaries, and from sales of securities or debt
incurred by Holdings. Dividends on Holdings common stock will initially depend
upon the earnings, financial condition and capital requirements of Niagara
Mohawk, and the dividends paid by Niagara Mohawk to Holdings. In the future,
dividends from Holdings' subsidiaries other than Niagara Mohawk may also be a
source of funds for dividend payments by Holdings. Payment of dividends on
Niagara Mohawk Common Stock will continue to be subject to the prior rights of
holders of Niagara Mohawk preferred stock. Niagara Mohawk suspended the common
stock dividend in 1996 to help stabilize its financial condition. In making
future dividend decisions with respect to Niagara Mohawk or Holdings, the
applicable board would evaluate, along with standard business considerations,
the entity's financial condition, contractual restrictions and regulatory
restrictions, competitive pressure on prices, available cash flow and retained
earnings and other strategic considerations.
In addition, as set forth above under "Certain Considerations" the
PowerChoice Agreement contains restrictions on the dividends Niagara Mohawk can
pay Holdings. See "Certain Considerations--Dividends on Holdings Common Stock
Will Initially Depend on Common Stock Dividends Paid by Niagara Mohawk".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Niagara Mohawk and Holdings have received advice from Bryan Cave LLP, their
special tax counsel, that the principal federal income tax consequences of the
share exchange are as summarized below.
Tax Implications to Niagara Mohawk Shareholders. Under section 351 of the
Code, no gain or loss will be recognized by a holder of Niagara Mohawk Common
Stock as a result of the exchange of such holder's Niagara Mohawk Common Stock
solely for Holdings common stock. The tax basis of the Holdings common stock
received in the share exchange will be the same as the exchanging shareholder's
basis in the
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Niagara Mohawk Common Stock surrendered. The holding period of the Holdings
common stock received by each exchanging shareholder will include the holding
period during which such shareholder held the Niagara Mohawk Common Stock
surrendered, provided that such stock was held as a capital asset on the date of
the share exchange. No federal income tax consequences will result from the
share exchange to holders of Niagara Mohawk preferred stock in respect of such
stock.
Tax Implications to Niagara Mohawk and Holdings. No gain or loss will be
recognized by Niagara Mohawk or Holdings as a result of the share exchange. The
basis of the Niagara Mohawk Common Stock received by Holdings will be the same
as the aggregate tax basis that the holders of Niagara Mohawk Common Stock had
in such stock immediately prior to the share exchange. Holdings' holding period
in the Niagara Mohawk Common Stock received in the share exchange will include
the period during which such stock was held by the holders of Niagara Mohawk
Common Stock.
Continuation of Affiliated Group. Consummation of the share exchange will
not result in a termination of the existence of the affiliated group of
corporations of which Niagara Mohawk has been the common parent. Niagara Mohawk
will be included in such affiliated group of corporations of which Holdings will
become the new common parent.
Reporting Requirements. Pursuant to applicable Treasury regulations,
shareholders of Niagara Mohawk Common Stock will be required to attach to their
federal income tax returns a complete statement of all facts pertinent to the
share exchange, including the shareholder's basis in the shares of Niagara
Mohawk Common Stock transferred TO Holdings and the type, number and value of
shares of Holdings common Stock received in the share exchange. In addition,
such shareholders will be required to keep permanent records of any information
relating to the share exchange that is required to be filed with their income
tax returns.
The Bryan Cave opinion is based on certain factual representations received
from Niagara Mohawk and Holdings, and upon the firm's review and analysis of
relevant and currently applicable Code provisions, Treasury regulations, other
administrative pronouncements and judicial decisions. Such opinion is not
binding upon either the Internal Revenue Service or the courts. Authorities
relied upon in the Bryan Cave opinion could be repealed, revoked or modified,
possibly with retroactive effect, so as to result in federal income tax
consequences different from those indicated.
THE FOREGOING FEDERAL INCOME TAX DISCUSSION IS INTENDED TO PROVIDE ONLY A
GENERAL SUMMARY. IT DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO THE SHARE EXCHANGE, INCLUDING TAX CONSEQUENCES
WHICH MAY VARY DEPENDENT ON THE PARTICULAR CIRCUMSTANCES OR SPECIAL TAX STATUS
OF CERTAIN NIAGARA MOHAWK SHAREHOLDERS. NOR DOES IT, OR THE BRYAN CAVE OPINION,
ADDRESS THE CONSEQUENCES OR EFFECT OF ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX
LAWS, OR ANY ESTATE, INHERITANCE OR GIFT TAX LAWS. EACH HOLDER OF NIAGARA MOHAWK
COMMON STOCK IS STRONGLY URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR
REGARDING FEDERAL OR OTHER POSSIBLE TAX CONSEQUENCES ARISING OUT OF THAT
HOLDER'S PARTICIPATION IN THE SHARE EXCHANGE.
NIAGARA MOHAWK EMPLOYEE PLANS
The Exchange Agreement provides that Niagara Mohawk's Employee Savings fund
Plans for Represented and Non-Represented Employees, Dividend Reinvestment and
Common Stock Purchase Plan and 1992 Stock Option Plan (together, the "Niagara
Mohawk Stock Plans"), along with other employee benefit plans maintained by
Niagara Mohawk (collectively with the Niagara Mohawk Stock Plans, the "Niagara
Mohawk Employee Plans"), such as the pension plans, health plans and disability
plans, will be amended to provide for Holdings taking over responsibility for
such Plans upon consummation of the share exchange. The Niagara Mohawk 1992
Stock Option Plan (the "Option Plan") was previously approved by Niagara Mohawk
shareholders.
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Stock Based Plans
If the share exchange is consummated, shares of Niagara Mohawk Common Stock
then held under the Niagara Mohawk Stock Plans will automatically become a like
number of shares of Holdings common stock.
Upon consummation of the share exchange, all outstanding stock options under
Niagara Mohawk's Option Plan will be converted into options to acquire, on the
same terms and conditions as were applicable under such stock options
immediately prior to the share exchange, such number of shares of Holdings
common stock as the holders of such options would have been entitled to receive
pursuant to the share exchange had such holders exercised such stock options in
full immediately prior to the share exchange, at a price per share of Holdings
common stock equal to the per share option price of Niagara Mohawk Common Stock.
Also, a vote in favor of the share exchange will also constitute approval, under
the Option Plan, as then amended, for shares of Holdings common stock, instead
of Niagara Mohawk Common Stock, to be issued and delivered in the future under
such Plan. Holdings may issue future options on its common stock under such
Plan. In addition, performance shares granted and to be granted under such Plan
will be treated in a comparable manner. Holdings will file post-effective
amendments to Niagara Mohawk's registration statements on Form S-8 for the
amended Niagara Mohawk Stock Plans shortly after the effective time of the share
exchange.
Non-Stock Based Plans
Upon consummation of the share exchange, Holdings will take over
responsibility for all of Niagara Mohawk's retirement and other employee benefit
plans, such as the pension plans, health plans and disability plans. Benefits
provided for in these non-stock based plans will not be changed as a result of
the holding company restructuring and share exchange.
TREATMENT OF NIAGARA MOHAWK PREFERRED STOCK
Shares of Niagara Mohawk preferred stock will not be exchanged in the share
exchange but will continue as shares of preferred stock of Niagara Mohawk.
Therefore, holders of Niagara Mohawk preferred stock will not become holders of
Holdings preferred or common stock as a result of the share exchange. Except as
discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Niagara Mohawk preferred stock. Niagara Mohawk preferred stock will continue to
rank senior to Niagara Mohawk Common Stock as to dividends and as to the
distribution of Niagara Mohawk's assets upon any liquidation.
The restructuring is not expected to affect adversely the holders of Niagara
Mohawk preferred stock. Dividends on Niagara Mohawk preferred stock will
continue to be paid as before, depending upon the earnings, financial condition
and other relevant factors affecting Niagara Mohawk. However, the assets or
earnings of Holdings' subsidiaries other than Niagara Mohawk will not be
available to pay dividends on Niagara Mohawk preferred stock or to make
distributions with respect to such preferred stock in the event of a liquidation
if the share exchange is consummated. See "--Transfer of Niagara Mohawk's
Non-Utility Subsidiaries to Holdings" above. Appraisal rights under the New York
Business Corporation Law are not available to holders of Niagara Mohawk
preferred stock inasmuch as that preferred stock is not being exchanged for
Holdings stock and will continue as Niagara Mohawk preferred stock after the
holding company restructuring.
After the share exchange, Niagara Mohawk will continue to be subject to the
periodic reporting requirements of the Securities Exchange Act of 1934.
The Board of Directors considered the effects on the holders of the Niagara
Mohawk Common Stock and the holders of Niagara Mohawk preferred stock in
determining that the share exchange should only involve the Niagara Mohawk
Common Stock. The Board's decision to exchange Niagara Mohawk
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Common Stock for Holdings common stock was primarily based on the Board's desire
to confer the expected benefits of the share exchange on those investors who are
best placed to enjoy such benefits, namely the holders of Niagara Mohawk Common
Stock. Even if the Niagara Mohawk preferred stock were to be exchanged for
preferred stock of Holdings, investors in such preferred stock would continue to
receive fixed dividend payments in respect of their investment. The expected
benefits of the share exchange include those discussed above, such as increased
flexibility in operating Holdings' unregulated businesses and enhanced ability
to take advantage of the new business opportunities in a timely manner. The
Board's decision not to exchange Niagara Mohawk preferred stock, in the share
exchange was primarily based on the Board's desire not to alter, or potentially
alter, the nature of the investment decision represented by the Niagara Mohawk
preferred stock (namely, a direct investment in a regulated utility) and the
priority position of the holders of Niagara Mohawk preferred stock with respect
to dividends and assets on liquidation. As to holders of Niagara Mohawk
preferred stock, the benefits of continuing as investors in Niagara Mohawk's
regulated utility business outweigh any loss of access to the return on future
investments made by the unregulated businesses of Holdings. In that regard,
investors in priority position securities, such as the holders of Niagara Mohawk
preferred stock, benefit to the extent that such securities have been issued by
the corporate entity that holds directly and/or has unrestricted access to the
principal assets of the enterprise. As discussed above under the caption
"Certain Considerations", the funds required to pay dividends on Holdings common
stock for a period of time following the share exchange are expected to be
derived predominately from dividends paid by Niagara Mohawk. If the Niagara
Mohawk preferred stock also were to be exchanged pursuant to the share exchange
and become preferred stock of Holdings, the funds required to pay dividends on
that preferred stock would also be derived predominately from dividends paid by
Niagara Mohawk. Although it has no present intention to do so, it is expected
that Niagara Mohawk may need to issue preferred stock in the future to meet its
capital requirements. The preferred stock that would be issued by Niagara Mohawk
would have preference over the Common Stock as to the payment of dividends and,
therefore, would reduce the amount of funds available to Niagara Mohawk for the
payment of dividends to Holdings. As a result, the conversion of the Niagara
Mohawk preferred stock to Holdings preferred stock would result in the dividend
payments and distributions upon liquidation with respect to those shares being
subordinated to the dividend and distribution rights of any newly created
preferred stock of Niagara Mohawk.
TREATMENT OF NIAGARA MOHAWK DEBT, ASSETS AND LIABILITIES, AND BUSINESS
The current indebtedness of Niagara Mohawk will continue to be obligations
of Niagara Mohawk and will be neither assumed nor guaranteed by Holdings in
connection with the share exchange. Niagara Mohawk's first mortgage bonds will
continue to be secured by first mortgage liens on all of the properties of
Niagara Mohawk that are currently subject to such liens. Such indebtedness will
be neither assumed nor guaranteed by Holdings in connection with the share
exchange. The decision to have the indebtedness of Niagara Mohawk continue as
obligations of Niagara Mohawk is based upon a desire not to alter, or
potentially alter, the nature of the investment represented by such fixed income
obligations, namely a direct investment in a regulated utility.
The consolidated assets and liabilities of Niagara Mohawk and its
subsidiaries immediately before the Effective Time will be the same as the
consolidated assets and liabilities of Holdings and its subsidiaries immediately
after the Effective Time. All the business and operations conducted immediately
before the Effective Time by Niagara Mohawk and its subsidiaries will continue
to be conducted immediately after the Effective Time by Niagara Mohawk and such
subsidiaries as subsidiaries of Holdings.
HOLDINGS CAPITAL STOCK
Holdings' certificate of incorporation and by-laws will govern certain
rights of Holdings' shareholders after the share exchange as discussed under
this caption and under "--Comparative Shareholders' Rights" below.
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The following statements with respect to Holdings common stock are based on
certain provisions of Holdings' certificate of incorporation and by-laws and on
New York law. Holdings' certificate of incorporation is attached as Exhibit B
hereto and is incorporated herein by reference and Holdings' by-laws are
attached as Exhibit C hereto and are incorporated herein by reference.
Holdings is authorized to issue 300,000,000 shares of common stock and
50,000,000 shares of preferred stock. Holdings preferred stock may be issued
from time to time in series as Holdings' Board of Directors may determine, and
the respective dividend rates, redemption terms (if any), amounts payable on
liquidation, voting rights (if any), number of votes per share, conversion
rights (if any), and other terms will be fixed by Holdings' Board of Directors
with respect to any such series prior to issuance.
When issued in the share exchange, shares of Holdings common stock will be
fully paid and nonassessable. Holders of Holdings common stock and preferred
stock are not entitled to preemptive rights.
Dividends
Subject to prior rights of Holdings preferred stock (if any should become
outstanding), Holdings common stock is entitled to such dividends as may be
declared by Holdings' Board of Directors, and Holdings may purchase or otherwise
acquire outstanding shares of common stock, out of funds legally available
therefor.
As noted above, the PowerChoice Agreement and the terms of Niagara Mohawk's
debt imposes certain limitations on the dividends that Niagara Mohawk may pay to
Holdings after the share exchange. At least initially after the exchange,
dividends on Holdings common stock will depend on dividends paid by Niagara
Mohawk on its Common Stock owned by Holdings.
Liquidation Rights
Upon liquidation of Holdings, any net assets remaining after payment to the
holders (if any) of Holdings preferred stock of the full amounts to which they
are entitled to receive are distributable pro rata to the holders of Holdings
common stock.
Voting Rights
Holders of Holdings common stock are entitled to one vote per share. There
are no cumulative voting rights. Holdings' Board of Directors is divided into
three classes, with directors elected generally to serve for terms of three
years.
Transfer Agent and Registrar
The transfer agent and registrar for Holdings common stock will be The Bank
of New York of New York, NY.
Indemnification and Limitation of Liability
As do the Niagara Mohawk By-Laws, the Holdings by-laws will provide that
Holdings shall indemnify to the full extent permitted by law any person made, or
threatened to be made, a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of Holdings, or serves at the request of Holdings with any other
enterprise as a director, officer or employee; expenses incurred by any such
person in defending any such action, suit or proceeding will be paid or
reimbursed by Holdings promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by Holdings. No amendment of
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this by-law provision will impair the rights of any person arising at any time
with respect to events occurring prior to such amendment.
As does Niagara Mohawk's Certificate of Incorporation, Holdings' certificate
of incorporation provides that a director shall not be personally liable to
Holdings or its shareholders for damages for any breach of duty in such
capacity, except to the extent that such exemption is not permitted under the
BCL (presently, such exemption is not permitted for acts or omissions in bad
faith or involving intentional misconduct or a knowing violation of law, or if
the director personally gained in fact a financial profit or other advantage to
which the director was not legally entitled or if such act violated Section 719
of the BCL). Any amendment, modification or repeal of such liability limitation
provision may not apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment, modification or repeal.
Possible Effect of Certain Holdings Provisions and the BCL
It is not the intention of the Board of Directors to discourage legitimate
offers to enhance shareholder value. However, certain provisions of Holdings'
certificate of incorporation and by-laws may have the effect of discouraging
unilateral tender offers or other attempts to take over and acquire the business
of Holdings. These provisions, all of which are already contained in Niagara
Mohawk's Certificate of Incorporation or By-Laws or otherwise apply to Niagara
Mohawk, might discourage a potentially interested purchaser from attempting a
unilateral takeover bid for Holdings on terms which some shareholders might
favor. If they discourage potential takeover bids, these provisions might limit
the opportunity for Holdings' shareholders to sell their shares at a premium
over then prevailing market prices.
Non-Cumulative Voting. Neither Niagara Mohawk nor Holdings provides for
cumulative voting in the election of directors. The procedure known as
cumulative voting permits shareholders to multiply the number of votes to which
they may be entitled by the total number of directors to be elected in the same
election by the holders of the class or classes of shares of which their shares
are a part and to cast their whole number of votes for one candidate or to
distribute them among any two or more candidates.
Under cumulative voting, it is possible for representation on the Board of
Directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Board of Directors
believes that each director should represent all shareholders, rather than the
interests of any special constituency, and that the presence on Holdings' Board
of one or more directors representing such a constituency could disrupt and
impair the efficient management of Holdings. The lack of cumulative voting could
discourage the accumulation of blocks of Holdings common stock and therefore
could tend to make temporary increases in the market price of Holdings common
stock, which could result therefrom, less likely to occur. Therefore, in these
limited instances, shareholders may not be able to sell their shares of Holdings
common stock at a market price temporarily influenced by this type of activity.
Advance Notice of Business to be Brought Before Shareholder Meetings. As
under Niagara Mohawk's By-Laws, under Holdings' by-laws shareholders must
provide Holdings prior written notice of any business to be brought before an
annual or special meeting (including the nomination of directors) in order for
it to be considered. With respect to any annual meeting, such by-laws require
the written notice to be received by the Secretary of Holdings no earlier than
90 days nor later than 60 days prior to the date of the annual meeting, except
that if the date of the annual meeting is first publicly announced less than 70
days prior to the date of the meeting, such by-laws require the written notice
to be received by the Secretary of Holdings not more than 10 days after such
public announcement. These by-law provisions provide a more orderly procedure
for conducting shareholder meetings and provide the Board of Directors with a
meaningful opportunity prior to shareholder meetings to inform shareholders, to
the extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together
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with any recommendation of the Board of Directors. Also, by requiring advance
notice of nominations by shareholders, these by-law provisions afford the Board
of Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the Board
of Directors, to inform shareholders about such qualifications.
On the other hand, these by-law provisions may provide sufficient time for
Holdings to institute litigation or take other steps to respond to such
business, or to prevent such business from being acted upon, if such response or
prevention is thought to be necessary or desirable. With respect to the election
of directors, these by-law provisions may tend to inhibit shareholders who do
not have any intention of controlling Holdings or its Board of Directors from
participating in the nomination process; such provisions may also provide
sufficient time for Holdings to institute litigation or take other steps to
prevent the nominee from being elected or serving if such prevention is thought
to be necessary or desirable.
"Blank-Check" Preferred Stock. Holdings' certificate of incorporation will
authorize the issuance of 50,000,000 shares of Holdings preferred stock. In
addition, after giving effect to the share exchange, approximately 113 million
shares of Holdings common stock will be authorized but unissued and not reserved
for issuance. An effect of the existence of unissued Holdings common stock and
preferred stock may be to enable the Holdings Board of Directors to render more
difficult or discourage a transaction to obtain control of Holdings. Such shares
might be issued by the Board of Directors without shareholder approval in
transactions that might prevent or render more difficult or costly the
completion of a takeover transaction, as by diluting voting or other rights of
the proposed acquiror. In this regard, Holdings' certificate of incorporation
(as does Niagara Mohawk's) will grant the Board of Directors broad power to
establish the rights and preferences of the authorized and unissued preferred
stock, one or more classes or series of which could be issued entitling holders
to vote separately as a class on any proposed merger or consolidation, to
convert such stock into shares of Holdings common stock or possibly other
securities, to demand redemption at a specified price under prescribed
circumstances related to a change of control, or to exercise other rights
designed to impede a takeover.
Section 912 of the New York Business Corporation Law. Section 912 of the BCL
would prohibit a "business combination" (as defined in Section 912, generally
including mergers, sales and leases of assets, issuances of securities and
similar transactions) by Holdings or a subsidiary with an "interested
shareholder" (as defined in Section 912, generally the beneficial owner of 20
percent or more of Holdings' voting stock) within five years after the person or
entity becomes an interested shareholder, unless (i) prior to the person or
entity becoming an interested shareholder, the business combination or the
transaction pursuant to which such person or entity became an interested
shareholder shall have been approved by Holdings' Board of Directors, or (ii)
the business combination is approved by the holders of a majority of the
outstanding voting stock of Holdings, excluding shares held by the interested
shareholder, at a meeting called for such purpose not earlier than five years
after such interested shareholder's stock acquisition date, or pursuant to a
stringent "fair price" formula.
Section 70 of the New York Public Service Law. Under Section 70 of the
Public Service Law, unless authorized by the PSC, no gas corporation or electric
corporation may directly or indirectly acquire the stock or bonds of any other
corporation incorporated for, or engaged in, the same or a similar business, or
proposing to operate or operating under a franchise from New York State or any
other state or any other municipality. In general, no stock corporation other
than a gas corporation or electric corporation or street railroad corporation
may purchase or acquire, take or hold, more than ten percent (10%) of the voting
capital stock of any gas corporation or electric corporation organized or
existing under or by virtue of the laws of New York unless with the consent of,
and subject to the terms and conditions set by, the PSC. No consent may be given
by the PSC to any such acquisition unless it has been shown that such
acquisition is in the public interest. Any contract, assignment, transfer or
agreement for transfer of any stock in violation of Section 70 will be void and
of no effect, and no such transfer or assignment may be made upon the books of
any such gas corporation or electric corporation, or will be recognized as
effective for any purpose. An
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"electric corporation" is defined to generally include any corporation, company,
partnership and person owning, operating or managing any electric plant for use
by others than itself and its tenants, or except where electricity is generated
solely from co-generation, small buyers or alternative energy production
facilities or distributed from such facilities to users located near such a
facility.
Other Provisions. Some other provisions of Holdings' certificate of
incorporation and by-laws may also tend to discourage potential offers to take
over and acquire the business of Holdings. Holdings' Board of Directors will be
divided into three classes, with directors in each class generally being elected
to serve a three-year term. Also, special shareholder meetings may be called
only by the Chairman of the Board of Directors or by the Board pursuant to a
resolution adopted by a majority of the entire Board. Holdings' certificate of
incorporation also provides that directors may not be removed without cause by
the shareholders, except in the case of a director elected by the holders of any
class or series of stock (other than Holdings common stock), voting as a class
or series, when so entitled by the applicable provisions of Holdings'
certificate of incorporation. Finally, certain provisions (relating to, for
example, limitation on director liabilities, the ability to call special
meetings of shareholders, presiding at meetings of shareholders, classified
Board of Directors, election and removal of directors, advance notice
requirements for shareholder proposals and nomination of directors at
shareholder meetings, and indemnification) may only be amended by the
affirmative vote of not less than two-thirds of the shares entitled to vote at a
shareholder meeting or, with respect to By-Law amendments affecting such
provisions, two-thirds of the entire Board. Niagara Mohawk's Certificate of
Incorporation and By-Laws presently contain a number of these provisions.
COMPARATIVE SHAREHOLDERS' RIGHTS
Niagara Mohawk and Holdings are both New York corporations. When the share
exchange becomes effective, holders of Niagara Mohawk Common Stock will become
holders of Holdings common stock, and their rights will be governed by Holdings'
certificate of incorporation and by-laws instead of those of Niagara Mohawk.
Certain differences between the rights of holders of Holdings common stock
and those of holders of Niagara Mohawk Common Stock are summarized below. Such
summary is qualified in its entirety by reference to the information included in
the exhibits hereto, in exhibits to the Registration Statement of which this
Prospectus/Proxy Statement is a part, and in materials incorporated herein by
reference.
Voting Requirements for Significant Transactions. As a result of a recent
change in the BCL, the necessary vote for significant transactions involving
Holdings, such as mergers, consolidations, share exchanges and dissolution, will
be a majority vote, rather than the two-thirds vote applicable to Niagara
Mohawk. The Board of Directors believes this lower vote requirement will
facilitate any transactions deemed to be in the best interests of Holdings and
its shareholders.
Purpose Clause. The corporate purposes for which Niagara Mohawk may engage
in business are generally those related to rendering electric or gas service and
related activities. Holdings is authorized to engage in any and all lawful acts
and activities.
Authorized Shares. Authorized Holdings and Niagara Mohawk Common Stock is
300,000,000 and 185,000,000, subject to increase to 250,000,000 shares if
Proposal 3 is adopted, shares, respectively. As of the record date for the
Annual Meeting, there were 144,419,351 shares of Niagara Mohawk Common Stock
issued and outstanding. Up to approximately 187 million shares of Holdings
common stock may be issued in the share exchange. The additional authorized but
unissued shares of Holdings common stock will be available for issuance under
the Dividend Reinvestment and Stock Purchase Plan and the Option Plan, as well
as possibly for stock splits, stock dividends, equity financings, and for other
general corporate purposes (including, possibly, acquisitions) (none of which is
under current consideration).
In addition, as of the record date, there were 3,400,000 shares of
Cumulative Preferred Stock, par value $100 per share, of which 2,322,000 shares
were issued and outstanding, and 19,600,000 shares of
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Cumulative Preferred Stock, par value $25 per share, of which 11,681,204 shares
were issued and outstanding. There will be 50,000,000 authorized shares of
Holdings preferred stock, all of which are unissued.
Preferred Stock. The respective Boards of Directors of Holdings and Niagara
Mohawk are authorized to issue preferred stock in series.
The voting rights and certain preferences of the Niagara Mohawk preferred
stock are determined in Niagara Mohawk's certificate of incorporation. Niagara
Mohawk preferred stock is generally not entitled to vote but only has limited
voting rights as required by law and as set out in the Niagara Mohawk's
certificate of incorporation, which rights generally arise only in the event of
certain arrearages in payment of dividends and certain corporate transactions
affecting Niagara Mohawk preferred stock. Niagara Mohawk preferred stock is
subject to redemption and sinking fund provisions. After the share exchange,
outstanding Niagara Mohawk preferred stock will continue as equity securities of
Niagara Mohawk with the same preferences, designations, relative rights,
privileges and powers, and subject to the same restrictions, limitations and
qualifications, as were applicable to outstanding Niagara Mohawk preferred stock
prior to the share exchange.
Holdings' certificate of incorporation will not establish voting rights,
preferences or other rights with respect to Holdings preferred stock. Holdings'
Board of Directors is given full authority to establish and designate each
particular series of preferred stock and to fix the rights, preferences and
limitations of each particular series, and the relative rights, preferences and
limitations between series, as follows: (i) the serial designation; (ii) the
number of shares in such series; (iii) the dividend rate or rates and the date
or dates upon which such dividends shall be payable; (iv) whether dividends on
such series will be cumulative, and, if so, from which date or dates; (v)
liquidation preferences; (vi) redemption terms, if any; (vii) provisions
relating to sinking or other similar funds; (viii) provisions relating to the
conversion or exchange of shares of such series into shares of any class of
stock (except that conversion or exchange may not be made into shares having
superior dividend or liquidation preferences); (ix) the voting rights, if any,
in addition to those required by law and the number of votes per share; and (x)
any other relative rights, preferences or limitations of such series not
inconsistent with the Holdings' certificate of incorporation or with applicable
law.
Management believes that the ability to issue Holdings preferred stock will
provide important flexibility to Holdings.
Par Value. The par value of Holdings preferred stock differs from those of
Niagara Mohawk preferred stocks. A designated par value is not required under
the BCL and in modern corporate practice par value does not serve any useful
purpose. It is anticipated that the difference in par values will not affect the
market value of Holdings preferred stock.
The par value per share of Holdings common stock, $0.01, was reduced from
the $1.00 par value per share of Niagara Mohawk Common Stock to save on filing
fees in New York.
Classified Board. As is the case with Niagara Mohawk, Holdings' certificate
of incorporation and bylaws will provide (i) for the Board to determine the
number of directors; and (ii) for the division of the Board into three classes
with directors in each class generally being elected for a three-year term. See
"--Management" below.
Other Provisions. Holdings' certificate of incorporation will provide that
directors may not be removed without cause by the shareholders, except in the
case of a director elected by the holders of any class or series of stock (other
than Holdings common stock), voting as a class or series, when so entitled by
the applicable provisions of Holdings' restated certificate of incorporation.
Also, certain provisions (relating to, for example, preferred stock, limitation
on director liabilities, the ability to call special meetings of shareholders,
classified Board of Directors, election and removal of directors, advance notice
requirements for shareholder proposals and nomination of directors at
shareholder meetings) may only be amended by the affirmative vote of not less
than two-thirds of the shares then entitled to vote at
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shareholder meetings. Other provisions of Holdings' certificate of incorporation
or by-laws may be amended, repealed or adopted by a vote of the shareholders of
Holdings at the time entitled to vote at any shareholder meeting or, in the case
of the Holdings by-laws, by the Board of Directors of Holdings.
See also "--Holdings Capital Stock".
BUSINESS
Niagara Mohawk is engaged in the generation, purchase, transmission,
distribution and sale of electricity and the purchase, distribution, sale and
transportation of natural gas in New York State. Niagara Mohawk provides
electric service to its customers in areas of central, northern and western New
York having a total population of approximately 3.5 million, including the
cities of Buffalo, Syracuse, Albany, Utica, Schenectady, Niagara Falls,
Watertown and Troy. Niagara Mohawk sells, distributes and transports natural gas
in areas of central, northern and eastern New York contained within its electric
service territory having a total population of approximately 1.7 million.
Niagara Mohawk owns or has a significant ownership interest in seven principal
fossil and nuclear electric generating facilities providing it with a total
capacity of approximately 5,299 megawatts of electricity.
Niagara Mohawk's principal non-utility subsidiaries participate in real
estate development of property formerly owned by Niagara Mohawk and
energy-related services. In addition, Niagara Mohawk holds a single-purpose
subsidiary established to facilitate the sale of an undivided interest in a
designated pool of customer receivables. Certain of these subsidiaries will be
transferred to and therefor become separate subsidiaries of Holdings after the
share exchange.
After the share exchange occurs, Holdings will have no material assets other
than its ownership of stock of its subsidiaries, which initially will consist of
all of Niagara Mohawk's outstanding common stock and thereafter the common stock
of certain Niagara Mohawk's existing non-utility subsidiaries. See "--Transfer
of Niagara Mohawk's Non-Utility Subsidiaries to Holdings". It is expected that,
in the future, Holdings will expand into some other businesses and ventures.
REGULATION OF HOLDINGS AND NIAGARA MOHAWK
Regulation of Holdings.
Holdings must comply with the PowerChoice Agreement. As discussed and
referred to above under "--The PowerChoice Agreement", there are restrictions on
transactions between Niagara Mohawk and Holdings and other Holdings
subsidiaries, restrictions on loans, guarantees or pledges for the benefit of
Holdings and other Holdings subsidiaries, and restrictions on Board and
managerial interlocks between Niagara Mohawk and Holdings and other Holdings
subsidiaries.
As a result of the share exchange, Holdings will become a "public utility
holding company" under the Holding Company Act. Though Niagara Mohawk expects to
sell or liquidate its majority interests in two of its generation subsidiaries,
Beebee Island Corporation and Moreau Manufacturing Corporation, Holdings will
retain an indirect 50% interest in CNP which does not contribute a material part
of its income.
In 1994 the SEC issued a release soliciting the views of interested parties
on a study being conducted by its staff to develop recommendations regarding
certain Congressional concerns and the needs of those affected by regulation
under the Holding Company Act. In June 1995 the staff completed its study and
issued a report which concluded that significant changes were needed in the
current regulatory scheme. The SEC staff report viewed the Holding Company Act
as unnecessarily restrictive in many regards which could prevent companies from
responding effectively to changes now occurring in the utility industry. Among
the staff report's recommendations were three legislative options for the SEC to
offer to Congress--repeal of the Holding Company Act with legislation to
continue federal protection of consumers, unconditional repeal of the Holding
Company Act, or a broadening of the SEC's authority to exempt holding companies
where state regulation was adequate. Pending legislative action, the staff
report recommended that the SEC act administratively to modernize and simplify
holding company regulation, reduce delays in current administration, and
minimize regulatory overlap, including rulemaking proposals
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and significant changes in the SEC's past interpretations under the Act. One of
these proposals was a rule to exempt most energy-related diversification within
investment limitations. Niagara Mohawk cannot predict whether Congress will take
any action to significantly modify or repeal the Holding Company Act, or whether
the SEC will take action to revise or modify significantly its Holding Company
Act rules, decisions and interpretations.
Regulation of Niagara Mohawk. Niagara Mohawk will continue to be subject to
regulation by the PSC after the share exchange. Niagara Mohawk's utility retail
sales, which include sales of gas, transportation and balancing services, will
continue to be made primarily under rate schedules and tariffs filed with and
subject to the jurisdiction of the PSC. See "--The PowerChoice Agreement" below.
In addition, Niagara Mohawk will continue to be subject to regulation by the
PSC, as it has been in the past, regarding issuances of securities, capital
ratio maintenance, and the maintenance of its books and records.
Niagara Mohawk also will continue to be subject to regulation by the FERC
and the NRC. FERC will continue to regulate the terms and conditions of Niagara
Mohawk's transmission of electricity, along with transmission interconnections
and ancillary services, as well as the terms and conditions of its sales of
electric energy for resale. FERC will also continue to regulate Niagara Mohawk's
disposition of any capacity on interstate gas pipelines to which it has rights
under firm contracts. The NRC will continue to review and regulate Niagara
Mohawk's operation of the two Nine Mile Point nuclear units.
THE POWERCHOICE AGREEMENT
Prohibitions of Affiliate Loans, Guarantees and Pledges. Under the
PowerChoice Agreement, Niagara Mohawk is prohibited from making loans to, or
providing guarantees or other credit support for the obligations of, Holdings or
any other subsidiary of Holdings. Likewise, Niagara Mohawk may not pledge its
assets for the obligations of any other entity, including Holdings or any other
subsidiary of Holdings.
Prohibitions of Affiliate Transactions and Other Restrictions. The
PowerChoice Agreement generally prohibits any transaction between Niagara Mohawk
and Holdings or any other subsidiary of Holdings, except for the provision of
certain corporate administrative services, certain "grandfathered" transactions
as listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, Holdings and its subsidiaries are
required by the PowerChoice Agreement to operate as separate entities, and the
PowerChoice Agreement prescribes capital ratio maintenance requirements for
Niagara Mohawk. Finally, the PowerChoice Agreement sets out guidelines for the
allocation of costs among Holdings, Niagara Mohawk and the other subsidiaries of
Holdings.
Restrictions on Board and Management Interlocks. In order to address
concerns regarding the possible diversion of the attention of Niagara Mohawk's
management away from the utility business, as well as to avoid potential
conflicts of interest with the management of Holdings, the PowerChoice Agreement
contains restrictions regarding the composition of the Boards and managements of
Niagara Mohawk and Holdings and other subsidiaries of Holdings. See
"--Management--Restrictions on Board and Management Interlocks between Holdings
and Niagara Mohawk".
The PowerChoice Agreement will continue to govern Niagara Mohawk's utility
rates and charges even if common shareholders do not approve the holding company
proposal and adopt the Exchange Agreement at Niagara Mohawk's Annual Meeting. In
that event, Niagara Mohawk will not be able to realize the benefits it expects
from a holding company structure, which it believes is necessary in the future
deregulated competitive environment of the energy industry.
STATUTORY APPRAISAL RIGHTS
Holders of shares of Niagara Mohawk Common Stock are not entitled to
appraisal rights under the BCL as a result of the exchange.
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B. MANAGEMENT
DIRECTORS AND OFFICERS OF HOLDINGS
Holdings' certificate of incorporation and by-laws divides Holdings' Board
of Directors into three classes, which will become effective prior to the share
exchange, with directors in each class generally being elected for a three-year
term. Holdings' by-laws will permit the Board of Directors to fix from time to
time the number of directors, and the Board has fixed its initial size at 3, to
be increased to 14, effective as of the effective time of the share exchange. A
vote in favor of the share exchange will also constitute ratification of the
make-up of Holdings' Board of Directors.
Presently William E. Davis, Albert J. Budney, Jr. and William F. Edwards are
the directors of Holdings. Immediately prior to the effective time of the share
exchange, Mr. Edwards will resign and Niagara Mohawk, as such sole shareholder,
will elect all of the then current Niagara Mohawk directors to the Board of
Holdings in the same classes as they presently serve. As of the effective time
of the share exchange, Mr. Budney will resign from the Board of Niagara Mohawk,
Mr. Davis will serve on the Boards of Directors of both Holdings and Niagara
Mohawk and the remaining Niagara Mohawk directors will be Darlene D. Kerr and
John H. Mueller. After completion of the share exchange, Holdings' Board
vacancies may be filled by action of Holdings' Board of Directors. Holdings also
contemplates amending the certificate of incorporation and by-laws of Niagara
Mohawk following the share exchange to reflect more appropriate provisions for a
subsidiary.
The following individuals are officers of Holdings:
William E. Davis Chairman and Chief Executive Officer
Albert J. Budney, Jr. President
William F Edwards Chief Financial Officer
Kapua A. Rice Secretary
In addition, prior to the share exchange, Gary J. Lavine will become Chief
Legal Officer and Steven W. Tasker will become Chief Accounting Officer.
For further information concerning persons to become directors or officers
of Holdings, see "Proposal 1: Nomination and Election of Directors--Nominees for
Class I Directors", "--Continuing Class II Directors", "--Continuing Class III
Directors" and "--Security Ownership of Directors and Executive Officers".
RESTRICTIONS ON BOARD AND MANAGEMENT INTERLOCKS BETWEEN HOLDINGS AND NIAGARA
MOHAWK
In order to address concerns regarding the possible diversion of the
attention of Niagara Mohawk's management away from the utility business, as well
as to avoid potential conflicts of interest with the Board and management of
Holdings, the PowerChoice Agreement sets forth the following restrictions
regarding the composition of the managements of Niagara Mohawk and Holdings.
Composition of the Boards of Directors. Niagara Mohawk's Board of Directors
must include at least a majority of outside directors (i.e., not an officer of
either Holdings or any of its unregulated affiliates).
Separation of Employees and Officers. Niagara Mohawk and the unregulated
subsidiaries of Holdings will have separate operating employees and operating
officers. Officers of Holdings may be officers of either Niagara Mohawk or an
unregulated affiliate.
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C. OTHER INFORMATION
VALIDITY OF HOLDINGS COMMON STOCK
The validity of the shares of Holdings common stock to be issued in the
share exchange will be passed upon by Sullivan & Cromwell, general counsel to
Niagara Mohawk and Holdings, 125 Broad Street, New York, New York 10004.
EXPERTS
The consolidated financial statements incorporated by reference herein have
been audited by Price Waterhouse LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
COSTS
The Board of Directors considered the financial cost to Niagara Mohawk of
implementing the share exchange, including the expenses associated with
obtaining required approvals, the costs of this proxy solicitation and the other
expenses incurred in connection with registering the Holdings common stock with
the Commission. In the Board's view, these expenses, although in some cases
significant, are acceptable in light of the benefits to Niagara Mohawk of the
share exchange.
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AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated as of May
14,1998, is between Niagara Mohawk Power Corporation, a New York corporation and
the corporation whose shares of Common Stock, par value $1.00 per share, will be
acquired pursuant to the "Exchange" provided for in this Agreement (the "Subject
Corporation"), and Niagara Mohawk Holdings, Inc., a New York corporation and the
corporation which will acquire the foregoing shares of Common Stock of the
Subject Corporation (the "Acquiring Corporation"). The Subject Corporation and
the Acquiring Corporation are hereinafter referred to, collectively, as the
"Corporations".
WITNESSETH:
WHEREAS, the authorized capital of the Subject Corporation is
$1,215,000,000, consisting of (a) 185,000,000 shares of Common Stock, par value
$1.00 per share ("Subject Corporation Common Stock"), of which 144,419,351
shares are issued and outstanding (which number of issued and outstanding shares
is subject to change prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the Dividend Reinvestment and Common Stock Purchase Plan
("DRIP") and the Employee Savings Fund Plans for Represented and Non-Represented
Employees (each an "Employee Plan" and collectively the "Employee Plans") of the
Subject Corporation and the issuance of Subject Corporation Common Stock
pursuant to the Master Restructuring Agreement of the Subject Corporation, dated
as of July 9, 1997, as amended, (b) 3,400,000 shares of Cumulative Preferred
Stock, par value $100 per share ("Subject Corporation $100 Preferred Stock"), of
which 2,322,000 shares are issued and outstanding, (c) 19,600,000 shares of
Cumulative Preferred Stock, par value $25 per share ("Subject Corporation $25
Preferred Stock"), of which 11,681,204 shares are issued and outstanding and (d)
8,000,000 shares of Preference Stock, par value $25 per share ("Preference
Stock"), no shares of which are outstanding.
WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 300,000,000
shares of Common Stock, par value $0.01 per share ("Acquiring Corporation Common
Stock"), of which 100 shares are issued and outstanding and owned by the Subject
Corporation and 50,000,000 shares of Preferred Stock, par value $0.01 per share,
no shares of which are outstanding.
WHEREAS, the Boards of Directors of the Corporations deem it desirable and
in the best interests of the Corporations and the shareholders of the Subject
Corporation that, at the Effective Time, (a) the Acquiring Corporation acquire
and become the owner and holder of each share of Subject Corporation Common
Stock issued and outstanding at the Effective Time, (b) each share of Subject
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring Corporation
Common Stock, and (c) each holder of shares of Subject Corporation Common Stock
issued and outstanding immediately prior to the Effective Time becomes the
holder of a like number of shares of Acquiring Corporation Common Stock, all on
the terms and conditions hereinafter set forth; and
WHEREAS, the Boards of Directors of the Corporations have each approved and
adopted this Agreement, and the Board of Directors of the Subject Corporation
has recommended that the shareholders of the Subject Corporation approve and
adopt the Exchange and this Agreement pursuant to Section 913 of the New York
Business Corporation Law (the "BCL").
NOW, THEREFORE, the Corporations hereby agree as follows:
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ARTICLE I
The Exchange and this Agreement shall be submitted to the holders of Subject
Corporation Common Stock for approval and adoption as provided by Section 913 of
the BCL. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding Subject Corporation Common Stock shall be necessary to
approve and adopt the Exchange and this Agreement.
ARTICLE II
Subject to the terms and conditions of this Agreement, the Exchange shall
become effective immediately following the close of business on the date of
filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time and
date at and on which the Exchange becomes effective being referred to herein as
the "Effective Time").
ARTICLE III
A. At the Effective Time:
(1) each share of Subject Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be automatically
exchanged for one share of Acquiring Corporation Common Stock, which shares
shall be fully paid and nonassessable by the Acquiring Corporation;
(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;
(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;
(4) each share of Subject Corporation Common Stock held under the DRIP
or an Employee Plan (including fractional and uncertificated shares)
immediately prior to the Effective Time shall be automatically exchanged for
a like number of shares (including fractional and uncertificated shares) of
Acquiring Corporation Common Stock, which shares shall be held under and
pursuant to the DRIP or be issued under such Employee Plan, as the case may
be, as hereinafter provided;
(5) each unexpired and unexercised option to purchase Subject
Corporation Common Stock ("Subject Corporation Stock Option") under the 1992
Stock Option Plan (the "Option Plan"), whether vested or unvested, will be
automatically converted into an option (a "Substitute Option") to purchase a
number of shares of Acquiring Corporation Common Stock equal to the number
of shares of Subject Corporation Common Stock that could have been purchased
immediately prior to the Effective Time (assuming full vesting) under such
Subject Corporation Stock Option, at a price per share of Acquiring
Corporation Common Stock equal to the per share option exercise price
specified in such Subject Corporation Stock Option. In accordance with
Section 424(a) of the Internal Revenue Code of 1986, as amended, each
Substitute Option shall provide the option holder with rights and benefits
that are no less and no more favorable to him than were provided under the
Subject Corporation Stock Option; and
(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement.
B. Shares of Subject Corporation $100 Preferred Stock, Subject Corporation
$25 Preferred Stock and Subject Corporation Preference Stock shall not be
exchanged or otherwise affected by or in connection with the Exchange. Each
share of Subject Corporation $100 Preferred Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding following the Exchange and shall continue to be one share of Subject
Corporation $100 Preferred Stock of the
A-2
<PAGE>
applicable series designation. Each share of Subject Corporation $25 Preferred
Stock issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding following the Exchange and shall continue
to be one share of Subject Corporation $25 Preferred Stock of the applicable
series designation.
C. As of the Effective Time, the Acquiring Corporation shall succeed to the
DRIP as in effect immediately prior to the Effective Time, and the DRIP shall be
appropriately modified to provide for the issuance or delivery of Acquiring
Corporation Common Stock on and after the Effective Time pursuant thereto.
D. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation Common
Stock, and the Acquiring Corporation shall agree to issue or deliver Acquiring
Corporation Common Stock, and (2) the Option Plan shall also be appropriately
amended to provide for the issuance of options by the Acquiring Corporation to
purchase Acquiring Corporation Common Stock, in each case on and after the
Effective Time pursuant thereto.
ARTICLE IV
A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:
(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;
(2) such orders, authorizations, approvals or waivers from the New
York Public Service Commission and all other jurisdictive regulatory bodies,
boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions; and
(3) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange.
ARTICLE V
Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Subject Corporation Common Stock
may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of Acquiring
Corporation Common Stock as the shares of Subject Corporation Common Stock
previously represented by the certificate or certificates surrendered. Until so
surrendered or presented for exchange or transfer, each outstanding certificate
which, immediately prior to the Effective Time, represents Subject Corporation
Common Stock shall be deemed and shall be treated for all purposes to represent
the ownership of the same number of shares of Acquiring Corporation Common Stock
as though such surrender or exchange or transfer had taken place. The holders of
Subject Corporation Common Stock at the Effective Time shall have no right at
and after the Effective Time to have their shares of Subject Corporation Common
Stock transferred on the stock transfer books of the Subject Corporation (such
stock transfer books being deemed closed for this purpose at the Effective
Time), and at and after the Effective Time such stock transfer books may be
deemed to be the stock transfer books of the Acquiring Corporation.
A-3
<PAGE>
ARTICLE VI
A. This Agreement may be amended, modified or supplemented, or compliance
with any provision hereof may be waived, at any time prior to the Effective Time
(including, without limitation, after receipt of the affirmative vote of holders
of Subject Corporation Common Stock as provided in Article IV(I) hereof), by the
mutual consent of the Boards of Directors of the Subject Corporation and the
Acquiring Corporation at any time prior to the Effective Time; provided,
however, that no such amendment, modification, supplement or waiver shall be
made or effected if such amendment, modification, supplement or waiver would, in
the sole judgment of the Board of Directors of the Subject Corporation,
materially and adversely affect the shareholders of the Subject Corporation.
B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of Subject
Corporation Common Stock as provided in Article IV(1) hereof, if the Board of
Directors of the Subject Corporation determines, in its sole judgment, that
consummation of the Exchange would for any reason be inadvisable or not in the
best interests of the Subject Corporation or its shareholders.
IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization and
approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.
Niagara Mohawk Power Corporation
By: William E. Davis
---------------------------------------
William E. Davis
Chairman of the Board and Chief
Financial Officer
Niagara Mohawk Holdings, Inc.
By: William E Edwards
---------------------------------------
William F Edwards
Chief Financial Officer
A-4
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
CASES 94-E-0098 AND 94-E-0099
HOLDING COMPANY FORMATION -
COMPLIANCE FILING
APPENDIX B
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- -------------------------------------------------------
IN THE MATTER OF THE APPLICATION OF NIAGARA MOHAWK
HOLDINGS, INC. AND NIAGARA MOHAWK POWER CORPORATION FOR CASE 98-
AUTHORITY UNDER SECTIONS 70, 107, 108 AND 110 OF THE
PUBLIC SERVICE LAW TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS.
- -------------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. AND
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
NIAGARA MOHAWK POWER CORPORATION
300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202
(315) 428-6593
PAUL J. KALETA, ESQ., VICE PRESIDENT - LAW AND GENERAL COUNSEL
M. MARGARET FABIC, ESQ., CHIEF COUNSEL - ENERGY DELIVERY
ADAMS, DAYTER & SHEEHAN, LLP
39 N. PEARL STREET
ALBANY, NEW YORK 12207
(518) 463-3385
TIMOTHY P. SHEEHAN, ESQ.
OF COUNSEL
SWIDLER & BERLIN, CHARTERED
3000 K STREET, NW SUITE 300
WASHINGTON, DC 20007
(202) 424-7500
STEVEN J. AGRESTA, ESQ.
J. PHILLIP JORDAN, ESQ.
OF COUNSEL
DATED: JULY 20, 1998
<PAGE>
TABLE OF CONTENTS
INTRODUCTION
DESCRIPTION OF THE CORPORATE RESTRUCTURING
A. Description of Share Exchange
B. Description of Ratepayer Protections
CONDITIONS TO THE FORMATION OF HOLDCO
Exhibit A - Holdings' Certificate of Incorporation
Exhibit B - Holdings' By-Laws
Exhibit C - Statement of Financial Condition
Exhibit D - Agreement and Plan of Exchange
Exhibit E - Proposed Corporate Structure Chart
1
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- -------------------------------------------------------
IN THE MATTER OF THE APPLICATION OF NIAGARA MOHAWK
HOLDINGS, INC. AND NIAGARA MOHAWK POWER CORPORATION FOR CASE 98-
AUTHORITY UNDER SECTIONS 70, 107, 108 AND 110 OF THE
PUBLIC SERVICE LAW TO FORM A HOLDING COMPANY STRUCTURE PETITION
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS.
- -------------------------------------------------------
TO THE PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK:
INTRODUCTION
Niagara Mohawk Holdings, Inc. (Holdings) and Niagara Mohawk Power
Corporation (Niagara Mohawk), Petitioners herein, hereby apply for authority
under Sections 70, 107, 108 and 110 of the Public Service Law and the associated
Regulations (16 NYCRR Parts 39 and 56) to form a holding company structure to
engage in certain related transactions, and in support thereof, respectfully
show:
1. Holdings is a corporation duly organized and existing under the laws of
the State of New York, having its principal office in the City of Syracuse,
County of Onondaga, State of New York. The name Niagara Mohawk Holdings, Inc.
may be changed prior to the Effective Time of the share exchange (as described
below) at the discretion of the Board of Directors of Holdings. Holdings has
been incorporated for the purpose of carrying out the proposed transactions
described in this Petition. Holdings currently is a direct, wholly-owned
subsidiary of Niagara Mohawk.
2
<PAGE>
2. Niagara Mohawk is a corporation duly organized and existing under the
Transportation Corporations Law of the State of New York, having its principal
office in the City of Syracuse, County of Onondaga, State of New York. Niagara
Mohawk is engaged principally in the generation, purchase, transmission, and
distribution of electricity, and the purchase, transportation and distribution
of natural gas for light, heat, and power in the State of New York. In addition
to its utility operations, Niagara Mohawk owns an unregulated subsidiary, Opinac
North America, Inc. (Opinac NA), which, in turn, owns Opinac Energy
Corporation,1/ Plum Street Enterprises, Inc. and Plum Street Energy Marketing,
Inc. (a subsidiary of Plum Street Enterprises, Inc.) (PSEM) (collectively, the
non-utility subsidiaries, which participate principally in energy-related
services. CNP is owned 50% by Opinac Energy Corporation. CNP owns a 99.99%
interest in Canadian Niagara Wind Power Company, Inc. and Cowley Ridge
Partnership, respectively, which together operate a wind power joint venture in
the Province of Alberta, Canada. Niagara Mohawk also has several other
subsidiaries including NM Uranium Inc., NM Holdings, Inc., Moreau Manufacturing
Corp. (Moreau), Beebee Island Corp. (Beebee), and NM Receivables Corp. II.
Although Niagara Mohawk is not the acquirer of securities and therefore not the
petitioner as described in Section 39.1 of the Public Service Commission's
(Commission) Regulations (16 NYCRR ss.39.1), Niagara Mohawk joins Holdings in
presenting this petition to the Commission as an integral participant in the
transaction.
3. A certified copy of Niagara Mohawk's Certificate of Incorporation was
duly filed with the Commission in proceedings designated as Case No. 12733. All
other amendments to the Certificate of Incorporation have been filed in other
numbered
- -------------
1/ Opinac Energy Corporation is an exempt holding company under Section
3(a)(5) of the Public Utility Holding Company Act of 1935. Opinac Energy
Corporation, 52 S.E.C. Docket 1475 (1992).
3
<PAGE>
proceedings. A certified copy of Holdings' Certificate of Incorporation is filed
with this Petition as Exhibit A. Holdings' By-Laws are filed herewith as Exhibit
B.
4. A Statement of Financial Condition of Niagara Mohawk at June 30, 1997,
the most recent period available, is filed with this Petition as Exhibit C.
Additional financial data from the Niagara Mohawk 1997 PSC Annual Report is
incorporated herein by reference.
5. Petitioners are filing this Petition in order to separate Niagara
Mohawk's businesses that are regulated by the Commission from Niagara Mohawk's
businesses that are not so regulated, by creating a new holding company to own
both the shares of Niagara Mohawk and the shares of the corporations in which
the unregulated businesses are housed. Niagara Mohawk and the other parties to
the Settlement Agreement reached in Cases 94-E-0098 and 94-E-0099 (PowerChoice)
agreed to the formation of the holding company. The Commission also indicated
its approval of the holding company structure in its Opinion 98-8. Niagara
Mohawk Power Corp., Cases 94-E-0098 and 94-E-0099, Opinion and Order Adopting
Terms of Settlement Agreement Subject to Modifications and Conditions (March 20,
1998).
6. Pursuant to the provisions of Section 913 of the Business Corporation
Law, Petitioners propose to reorganize their operation by forming a holding
company structure pursuant to an Agreement and Plan of Exchange (Exchange
Agreement). The Exchange Agreement has been unanimously adopted by the Board of
Directors of Niagara Mohawk and was adopted by the Niagara Mohawk common
shareholders on June 29, 1998. A copy of the Exchange Agreement is filed
herewith as Exhibit D.
4
<PAGE>
7. Petitioners believe that a holding company structure offers important
protections to ratepayers from the risks associated with the introduction of
competition. Such protections are described below.
8. Petitioners seek Commission consent, permission and authority under
Sections 70, 107, 108 and 110 of the Public Service Law to take such steps as
are necessary to form a holding company structure, and permission and authority
under those sections and such other statutory and regulatory provisions as may
be required to permit the consummation of the transactions described in this
Petition.
DESCRIPTION OF THE CORPORATE RESTRUCTURING
A. DESCRIPTION OF SHARE EXCHANGE
9. Upon Commission approval of this Petition, and the receipt of necessary
stockholder and other regulatory approvals described below, Petitioners propose
to reorganize their operations by forming a holding company structure pursuant
to the Exchange Agreement. Under the terms of the Exchange Agreement, all of the
shares of outstanding Holdings common stock, which will then be owned by Niagara
Mohawk, will be canceled and all outstanding shares of Niagara Mohawk common
stock will be exchanged on a share-for-share basis for Holdings common stock
(the Exchange), subject to the rights of the holders of Niagara Mohawk common
stock to exercise their appraisal rights. Upon consummation of the Exchange,
each person who owned Niagara Mohawk common stock immediately prior to the
Exchange (other than stockholders who exercise their appraisal rights) will own
a corresponding number of shares and percentage of the
5
<PAGE>
outstanding Holdings common stock, and Holdings will own all of the outstanding
shares of Niagara Mohawk common stock.
10. At or before the effective date of the Exchange (the Effective Time),
the following events shall have occurred or conditions have been satisfied,
except as otherwise agreed to in writing by Niagara Mohawk:
- Issuance of a final (and non-appealable) Commission order granting
Niagara Mohawk the authority sought by this Petition upon the terms and
conditions set forth herein.
- Issuance of final (and non-appealable) orders from the United States
Securities and Exchange Commission (SEC), Federal Energy Regulatory
Commission (FERC), and Nuclear Regulatory Commission (NRC) regarding the
transactions contemplated by the Petition.
- Petitioners' acceptance of the aforesaid orders, and corporate and
stockholder approval of, and receipt of any required consents under any
agreement to which Petitioners are a party in connection with, the
Exchange and the transactions contemplated by this Petition.
11. As a result, upon completion of the Exchange, Holdings will become a
holding company, Niagara Mohawk will become a regulated, wholly-owned subsidiary
of Holdings, and all of Holdings' common stock outstanding immediately after the
Exchange will be owned by the former holders of Niagara Mohawk common stock
outstanding immediately prior to the Exchange. Following the Exchange, certain
of Niagara Mohawk's existing non-utility subsidiaries will be transferred to
Holdings and become subsidiaries of Holdings. Niagara Mohawk's principal
non-utility subsidiaries participate in real estate development of property
formerly owned by Niagara Mohawk, (NM Holdings) and in
6
<PAGE>
energy-related services (Opinac NA and its subsidiaries). In addition, Niagara
Mohawk holds a single-purpose subsidiary, NM Receivables, established to
facilitate the sale of an undivided interest in a designated pool of customer
receivables. Certain of these subsidiaries will be transferred to, and therefore
become separate subsidiaries of, Holdings after the Exchange. Though Niagara
Mohawk expects to sell or liquidate its majority interests in two of its
generation subsidiaries, Beebee Island and Moreau, before or shortly after the
share exchange, Holdings will retain an indirect 50% interest in CNP.
12. A chart of the proposed corporate structure before and after the
Effective Time is attached hereto as Exhibit E.
13. The Exchange will not result in any change in the outstanding Preferred
Stock or debt securities of Niagara Mohawk, which will continue to be securities
and obligations of Niagara Mohawk after the Exchange.
14. In connection with Holding's commencement of operations, pursuant to
the PowerChoice Settlement Agreement, Niagara Mohawk may lease office space to
Holdings at fair market value and transfer to Holdings at fair market value
office furniture, equipment, and other non-generation assets.
15. In addition to the Commission's approval, consummation of the proposed
reorganization will require the approval of the SEC, the FERC, and the NRC.
Petitioners are filing applications with the SEC, FERC, and the NRC concurrently
with this filing.
16. Holdings will also file for an exemption from the registration
requirements of the Public Utility Holding Company Act of 1935 (1935 Act), to
the extent necessary. It is
7
<PAGE>
contemplated that Holdings will qualify for an exemption from registration under
the 1935 Act as a "predominantly intrastate" public utility holding company,
under Section 3(a)(1) of the 1935 Act.
17. The approval of the holders of the Niagara Mohawk common stock is
required to effect the transactions described herein. Niagara Mohawk received
stockholder approval at the June 29, 1998 Annual Meeting of Stockholders.
B. DESCRIPTION OF RATEPAYER PROTECTIONS
18. The proposed separation of regulated and unregulated businesses
protects Niagara Mohawk's ratepayers in several respects. Niagara Mohawk and the
unregulated affiliates would maintain separate books and records and thereby
provide a better structure for regulators to assure that there is no
cross-subsidization of costs or transfer of business risk from unregulated to
regulated businesses. The proposed holding company structure will ensure that
Niagara Mohawk is insulated from any losses and profits resulting from
unregulated activities and that such losses or profits will flow to the
stockholders of Holdings so that Niagara Mohawk and its ratepayers would not be
harmed by unregulated activities. The proposed holding company structure will
help to streamline the regulatory process and thereby further the Commission's
goals by permitting the Commission to devote its finite resources to the
regulatory needs of ratepayers.
19. Because the operations of Holdings' unregulated subsidiaries will be
structurally separate from Niagara Mohawk's operations under a holding company
structure, any change in the financial results of the unregulated businesses
would have no effect on Niagara Mohawk or Niagara Mohawk's credit. Under the
holding company
8
<PAGE>
structure, Niagara Mohawk's access to the debt and equity markets would be based
on Niagara Mohawk's operating and financial results alone, and the debt/equity
ratios of Holding's unregulated subsidiaries would have no adverse impact on the
credit quality of Niagara Mohawk.
20. Niagara Mohawk and its ratepayers, creditors, and other stakeholders
would be structurally insulated from the obligations and liabilities of the
unregulated businesses under New York corporate law.
21. A holding company structure will facilitate the management of the
capitalization ratios of Niagara Mohawk so that ratepayers would not be harmed
by a capital structure which was not tailored to the needs of a regulated
business. A holding company structure also will permit the use of financing
techniques that are more directly suited to the particular requirements,
characteristics, and risks of unregulated operations without affecting the
capital structure or creditworthiness of Niagara Mohawk and will increase
financial flexibility by allowing the design and implementation of the
capitalization ratios appropriate for the capital and business requirements of
each subsidiary.
22. To compete effectively in the emerging competitive energy marketplace,
Niagara Mohawk must have the same degree of flexibility in doing business that
is enjoyed by its current and potential competitors. Niagara Mohawk must not be
unduly burdened by excessive constraints and conditions, particularly when such
constraints are not shared by its competitors, many of whom are large,
aggressive and well-capitalized affiliates of out-of-state utility and
industrial companies.
9
<PAGE>
23. As discussed above, the holding company structure protects ratepayers
from the risks of the unregulated businesses by separating the operations of
regulated businesses from the unregulated businesses. In addition, the
Commission already possesses a broad array of regulatory mechanisms to ensure
that ratepayers are adequately protected. The Commission has authority under the
Public Service Law with respect to setting utility rates (Sections 65, 66, and
72), the issuance of securities (Section 69), transfers of assets (Section 70),
loans to stockholders (Section 106), the use of utility revenues (Section 107),
approval of certificates of merger and certain certificates of amendment
(Section 108), affiliate transactions (Section 110) and other matters to
sufficiently safeguard the ratepayers' interests. Niagara Mohawk believes that
the Commission can protect ratepayers and prevent Holdings and its affiliates
from gaining any unfair competitive advantage without imposing additional unduly
burdensome operating constraints on Holdings and its affiliates, including
Niagara Mohawk.
24. The circumstances surrounding Niagara Mohawk's proposed reorganization
differ from the circumstances surrounding prior occasions where the Commission
has imposed conditions on utilities seeking to establish unregulated affiliates.
While such conditions may have been appropriate under the old regulatory regime
and under the specific circumstances surrounding such prior occasions, such
conditions are not appropriate in the emerging competitive energy marketplace.
The constraints included in Section 9 of the PowerChoice Settlement Agreement
previously filed and approved by the Commission in this proceeding, along with
the existing statutory tools of the Commission and FERC and the federal and
state anti-trust laws, will be adequate to protect ratepayers and ensure that
robust competition develops.
10
<PAGE>
OTHER MATTERS
25. Petitioners reserve the right to amend and withdraw this Petition at
any time prior to its acceptance of an order of the Commission with respect to
the Petition. Petitioners further request that any such order by its terms
permit Petitioners (even after unconditionally accepting such order) to decide
not to consummate the transactions described herein if, in Petitioners' opinion,
consummation would not result in material benefit, or would result in material
detriment, to Petitioners.
26. All communications and notices in connection with this proceeding
should be addressed to:
Paul J. Kaleta, Esq.
M. Margaret Fabic, Esq.
300 Erie Boulevard West
Syracuse, New York 13202
(315) 428-6593
WHEREFORE, Petitioners, Niagara Mohawk Holdings, Inc. and Niagara Mohawk
Power Corporation, respectfully request Commission consent, permission, and
authority under Sections 70, 107, 108, and 110 of the Public Service Law to take
such steps as are necessary to form a holding company structure; and Commission
consent, permission, and authority under such other statutory and regulatory
provisions as may be required to permit the consummation of the transactions
contemplated herein.
NIAGARA MOHAWK POWER CORPORATION
BY:________________________________________
PAUL J. KALETA
VICE PRESIDENT - LAW AND GENERAL COUNSEL
DATED: JULY 20, 1998
11
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF ONONDAGA )
William F. Edwards, being duly sworn, deposes and says that he is Senior
Vice President and Chief Financial Officer of Niagara Mohawk Power Corporation
and that he is _______________________________________ of Niagara Mohawk
Holdings, Inc., the Petitioners herein named; that he has read the foregoing
application and knows the contents thereof; that the same is true of his own
knowledge except as to those matters therein stated to be alleged upon
information and belief, and that has to those matters he believes them to be
true.
---------------------------------------------
WILLIAM F. EDWARDS
SUBSCRIBED AND SWORN TO BEFORE ME
THIS______ DAY OF_________________, 1998.
- -----------------------------------------
NOTARY PUBLIC
12
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of the Application of Niagara Mohawk
Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority Under Sections 70, 107, Case 98-
108 and 110 of the Public Service Law to Form a
Holding Company Structure to Engage in Certain
Related Transactions.
- --------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. and
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
EXHIBIT A
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
I, KAPUA A. RICE, Secretary of Niagara Mohawk Power Corporation, HEREBY
CERTIFY that the attached is a true and complete copy of the Certificate of
Incorporation of Niagara Mohawk Holdings, Inc.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Niagara Mohawk Power Corporation this 17th day of July, 1998.
/s/ Kapua A. Rice
--------------------------
Kapua A. Rice
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NIAGARA MOHAWK HOLDINGS, INC.
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
FIRST. The name of the corporation is Niagara Mohawk Holdings, Inc. (the
"Corporation").
SECOND. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Business Corporation
Law of the State of New York, provided that any act or activity requiring the
consent or approval of any State official, department, board, agency or other
body shall not be engaged in without such consent or approval first being
obtained.
THIRD. The office of the Corporation within the State of New York is to be
located in the City of Syracuse, County of Onondaga.
FOURTH. The aggregate number of shares which the Corporation shall have
authority to issue is (a) three hundred million (300,000,000) shares of common
shares with a par value of $0.01 per share (the "Common Stock") and fifty
million (50,000,000) shares of Preferred Stock, with a par value of $0.01 per
share (the "Preferred Stock").
The designations, relative rights, preferences and limitations of the shares
of such classes of stock are as follows:
A. The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series of Preferred Stock, and the Board
of Directors is expressly authorized, prior to issuance, in the resolution
or resolutions providing for the issue of shares of each particular series,
to establish and designate each particular series and to fix the rights,
preferences and limitations of each particular series, and the relative
rights, preferences and limitations between series, as follows:
(i) The distinctive serial designation of such series which shall
distinguish it from other series;
(ii) The number of shares included in such series, which number
(except where otherwise provided by the Board of Directors in creating
such series) may be increased (but not above the total number of
authorized shares of Preferred Stock) or decreased (but not below the
number of the outstanding shares of such series) from time to time by
the Board of Directors; provided that if the number of shares is
decreased, the shares constituting such decrease shall be restored to
the status of authorized but unissued shares of Preferred Stock;
(iii) The annual or other dividend rate or rates (or method of
determining such rate or rates) for shares of such series and the date
or dates upon which such dividends shall be payable;
(iv) Whether dividends on the shares of such series shall be
cumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates (or method for determining such date
or dates) from which dividends on the shares of such series shall be
cumulative;
(v) The amount or amounts per share which shall be paid out of the
assets of the Corporation to the holders of the shares of such series
upon voluntary or involuntary liquidation, dissolution, or winding up
of the Corporation;
B-1
<PAGE>
(vi) The price or prices (cash or otherwise) at which, the period
or periods within which and the terms and conditions upon which, if
any, the shares of such series may be purchased, redeemed or acquired
(by exchange or otherwise), in whole or in part;
(vii) Provision or provisions, if any, for the Corporation to
purchase, redeem or acquire (by exchange or otherwise), in whole or in
part, shares of such series pursuant to a sinking or other similar
fund, and the price or prices (cash or otherwise) at which, the period
or periods within which and the terms and conditions upon which the
shares of such series shall be so purchased, redeemed or acquired, in
whole or in part, pursuant to such provision or provisions;
(viii) The period or periods within which and the terms and
conditions, including the price or prices or the rate or rates of
conversion or exchange and the terms and conditions of any adjustments
thereof, upon which, if any, the shares of such series shall be
convertible or exchangeable, in whole or in part, at the option of the
holder, the Corporation or another person into shares of any class of
stock or into shares of any series of any class or cash, other
property, indebtedness or other securities of the Corporation or
another corporation;
(ix) The voting rights, if any, of the shares of such series in
addition to those required by law, including the number of votes per
share (which may be fractional or more or less than one); and
(x) Any other relative rights, preferences or limitations of the
shares of such series not inconsistent with applicable law.
B. Except as may from time to time be required by law and except as
otherwise may be provided by the Board of Directors in accordance with
paragraph A of this Article 4 in respect of any particular series of
Preferred Stock, all voting rights of the Corporation shall be vested
exclusively in the holders of the Common Stock who shall be entitled to one
vote per share on all matters.
FIFTH. The Secretary of State of the State of New York is designated as
agent of the Corporation upon whom process in any action or proceeding against
it may be served. The address to which the Secretary of State shall mail a copy
of any process against the Corporation served upon him is 300 Erie Boulevard
West, Syracuse, New York 13202, Attn: Corporate Secretary.
SIXTH. Subject to the voting provisions of Article 10, By-laws of the
Corporation may be adopted, amended or repealed by the Board of Directors of the
Corporation by the vote of a majority of the directors present at a meeting of
the board at which a quorum is present.
SEVENTH. No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe for or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation.
EIGHTH. Subject to the rights, if any, of holders of any class or series of
Preferred Stock, now or hereafter authorized, special meetings of shareholders
may be called only by the Chairman of the Board or by the Board of Directors
pursuant to resolution adopted by a majority of the total number of directors
which the Corporation would have if there were no vacancies.
NINTH. The following provisions shall relate to the Board of Directors of
the Corporation:
A. The size of the Board of Directors shall be fixed by or pursuant to
the By-Laws. The Board of Directors shall be divided into three classes
designated Class I, Class II and Class III. Such classes shall be as nearly
equal in number as the then total number of directors constituting the
entire Board permits. At the first annual meeting of shareholders, or any
special meeting in lieu thereof, Class I, Class II and Class III directors
shall be elected for terms expiring at the next succeeding annual meeting,
the second succeeding annual meeting and the third succeeding annual
meeting, respectively,
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and until their respective successors are elected and qualified. At each
annual meeting of shareholders after such first annual (or special) meeting
of shareholders, the directors chosen to succeed those in the class whose
terms then expire shall be elected by shareholders for terms expiring at the
third succeeding annual meeting after election, or for such lesser term for
which one or more may be nominated in a particular case in order to assure
that the number of directors in each class shall be appropriately
constituted and until their respective successors are elected and qualified.
Newly created directorships or any decrease in directorships resulting from
increases or decreases in the number of directors shall be so apportioned
among the classes of directors as to make all the classes as nearly equal in
number as possible. Vacancies on the Board of Directors at any time for any
reason except the removal of directors without cause may be filled by a
majority of the directors then in office, although less than a quorum. If
the number of directors is increased by the Board of Directors and any newly
created directorships are filled by the Board, there shall, to the extent
required by New York law, be no classification of the additional directors
until the next annual meeting of shareholders.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock, now or hereafter authorized, shall have
the right, voting separately or by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by any
provisions of the Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into one or more classes pursuant to
this Article 9A unless expressly provided by such provisions.
B. Directors may be removed for cause by a vote of shareholders
entitled to vote thereon. Directors shall not be removed without cause by
shareholders, except in the case of a director elected by the holders of any
class or series of Preferred Stock, now or hereafter authorized, voting as a
class or series, when so entitled by the provisions of the Certificate of
Incorporation applicable thereto.
TENTH. In addition to any vote that may be required by law or in the
Certificate of Incorporation in respect of any class or series of Preferred
Stock, now or hereafter authorized, the provisions of Articles 6, 7, 8, 9, 10,
11 and 12 of the Certificate of Incorporation shall not be amended or repealed,
or a new provision adopted inconsistent therewith, without the affirmative vote
of not less than two-thirds of the shares entitled to vote thereon at such
annual or special meeting of shareholders at which any such action is proposed.
ELEVENTH. Except as otherwise provided in the Certificate of Incorporation
in respect of any class or series of Preferred Stock, now or hereafter
authorized, the By-laws of the corporation may be amended or repealed, or new
By-Laws may be adopted, either (a) by a vote of shareholders entitled to vote at
any annual or special meeting of shareholders, or (b) by a vote of the majority
of the entire Board of Directors at any regular or special meeting of directors;
provided, however, that any amendment or repeal of, or the adoption of any new
By-Law or provision inconsistent with, Article I (Sections 1.2, 1.13 or 1.14),
Article II (Sections 2.2, 2.3, or 2.7) or Article VI (Sections 6.6 or 6.7) of
the By-Laws, if by action of such shareholders, shall be only upon the
affirmative vote of not less than two-thirds of the shares entitled to vote
thereon at such annual or special meeting of shareholders at which any such
action is proposed and, if by action of the Board of Directors, shall be only
upon the approval of not less than two-thirds of the entire Board of Directors
at any regular or special meeting of directors.
TWELFTH. Except as may be provided by the Board of Directors in accordance
with paragraph A of Article 4 in respect of any particular series of Preferred
Stock, any action required or permitted to be taken by the shareholders of the
corporation must be taken at a duly called annual or special meeting of such
holders and may not be taken by any consent in writing by such holders. Except
as otherwise provided for herein or required by law, special meetings of
shareholders of the corporation for any purpose or purposes may be called only
by the Chairman of the Board, the President or the Board of Directors pursuant
to a resolution stating the purpose or purposes thereof, and any power of
shareholders to call a special meeting is specifically denied.
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THIRTEENTH. A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for any breach of duty as a
director, except to the extent that such exemption from liability or limitation
thereof is not permitted under the Business Corporation Law as currently in
effect or as it may hereafter be amended. No amendment, modification or repeal
of this Article THIRTEENTH shall adversely affect any right or protection of a
director that exists at the time of such amendment, modification or repeal.
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of the Application of Niagara Mohawk
Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority Under Sections 70, 107, Case 98-
108 and 110 of the Public Service Law to Form a
Holding Company Structure to Engage in Certain
Related Transactions.
- --------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. and
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
EXHIBIT B
<PAGE>
BY-LAWS
OF
NIAGARA MOHAWK HOLDINGS, INC.
ARTICLE I
SHAREHOLDERS
Section 1.1. Annual Meeting. A meeting of shareholders shall be held
annually for the election of directors at such date and time as may be
designated by the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of the shareholders may be
called by the Chairman of the Board or by the Board of Directors pursuant to
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies, to be held at such date and
time as may be stated in the notice of the meeting. At any special meeting only
such business may be transacted which is related to the purpose or purposes set
forth in the notice of such special meeting given pursuant to Section 1.4 of
these By-laws.
Section 1.3. Place of Meetings. Meetings of shareholders shall be held at
such place, within or without the State of New York, as may be fixed by the
Board of Directors. If no place is so fixed, such meetings shall be held at the
principal office of the Corporation in the State of New York.
Section 1.4. Notice of Meetings. Written notice of each meeting of
shareholders shall be given stating the place, date and hour of the meeting.
Notice of a special meeting of shareholders shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting and
shall state the purpose or purposes for which the meeting is called. If, at any
meeting of shareholders, action is proposed to be taken which would, if taken,
entitle objecting shareholders to receive payment for their shares, the notice
of such meeting shall include a statement of that purpose and to that effect and
shall be accompanied by a copy of Section 623 of the New York Business
Corporation Law as then in effect or an outline of its material terms. A copy of
the notice of each meeting of shareholders shall be given, personally or by
first class mail, not fewer than ten nor more than sixty days before the date of
the meeting, or shall be given by third class mail not less than twenty-four nor
more than sixty days before the date of the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, with postage thereon prepaid, directed
to the shareholder at his or her address as it appears on the record of
shareholders, or, if he or she shall have filed with the Secretary of the
Corporation a written request that notices to him or her be mailed to some other
address, then directed to him or her at such other address. When a meeting of
shareholders is adjourned to another time or place, it shall not be necessary to
give any notice of the adjourned meeting if the time and place to which the
meeting is adjourned are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted on the original date of the meeting. However, if after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record on the new record date entitled to notice under this Section 1.4.
Section 1.5. Waiver of Notice. Notice of meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him or her.
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Section 1.6. Inspectors. Voting at meetings of shareholders shall be
conducted by inspectors. The Board of Directors, in advance of any shareholders'
meeting, shall appoint one or more inspectors to act at the meeting or any
adjournment thereof. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding thereat. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his or her ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote thereat, the inspectors shall make a report
in writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them.
Section 1.7. List of Shareholders at Meetings. A list of shareholders as of
the record date, certified by the Secretary or any Assistant Secretary or by a
transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
Section 1.8. Qualification of Voters. Every shareholder of record shall be
entitled at every meeting of shareholders to one vote for every share standing
in his or her name on the record of shareholders, unless otherwise provided in
the certificate of incorporation. If the certificate of incorporation provides
for more or less than one vote for any share on any matter, every reference in
these by-laws to a majority or other proportion of shares shall be construed to
refer to such majority or other proportion of the votes of such shares. Treasury
shares as of the record date and shares held as of the record date by another
domestic or foreign corporation of any type or kind, if a majority of the shares
entitled to vote in the election of directors of such other corporation is held
as of the record date by the Corporation, shall not be shares entitled to vote
or to be counted in determining the total number of outstanding shares. Shares
held by an administrator, executor, guardian, conservator, committee or other
fiduciary, except a trustee, may be voted by him or her or it, either in person
or by proxy, without transfer of such shares into his or her or its name. Shares
held by a trustee may be voted by him or her or it, either in person or by
proxy, only after the shares have been transferred into his or her or its name
as trustee or into the name of his or her or its nominee. Shares standing in the
name of another domestic or foreign corporation of any type or kind may be voted
by such officer, agent or proxy as the by-laws of such corporation may provide,
or, in the absence of such provision, as the board of directors of such
corporation may determine. A shareholder shall not sell his or her vote or issue
a proxy to vote to any person for any sum of money or anything of value except
as permitted by law.
Section 1.9. Quorum of Shareholders. The holders of a majority of the votes
of shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business, provided that when a specified
item of business is required to be voted on by a class or series, voting as a
class, the holders of a majority of the votes of shares of such class or series
shall constitute a quorum for the transaction of such specified item of
business. When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders. The shareholders present in
person or by proxy and entitled to vote may, by a majority of the votes cast,
adjourn the meeting despite the absence of a quorum.
Section 1.10. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy. No proxy shall be
valid after the expiration of eleven months from the date thereof unless
otherwise
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provided in the proxy. Every proxy shall be revocable at the pleasure of the
shareholder executing it, except as otherwise provided by law. The authority of
the holder of a proxy to act shall not be revoked by the incompetence or death
of the shareholder who executed the proxy unless, before the authority is
exercised, written notice of an adjudication of such incompetence or of such
death is received by the Secretary or any Assistant Secretary.
Section 1.11. Vote or Consent of Shareholders. Directors shall, except as
otherwise required by law or by the certificate of incorporation, be elected by
a plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in the election. Whenever any corporate action, other
than the election of directors, is to be taken by vote of the shareholders, it
shall, except as otherwise required by law or by the certificate of
incorporation, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon. Whenever
shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
Written consent thus given by the holders of all outstanding shares entitled to
vote shall have the same effect as a unanimous vote of shareholders.
Section 1.12. Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of such meeting,
nor more than fifty days prior to any other action. If no record date is fixed:
(1) the record date for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if no notice is given,
the day on which the meeting is held; and (2) the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the resolution of the Board of Directors relating thereto is adopted.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 1.13. Advance Notice of Shareholder Proposals. At any annual or
special meeting of shareholders, proposals by shareholders and persons nominated
for election as directors by shareholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
certificate of incorporation and by-laws of the Corporation. Notice of any
proposal to be presented by any shareholder or of the name of any person to be
nominated by any shareholder for election as a director of the Corporation at
any meeting of shareholders shall be delivered to the Secretary of the
Corporation at its principal executive office not less than 60 nor more than 90
days prior to the date of the meeting; provided, however, that if the date of
the meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than 70 days prior to the date of the meeting, such advance
notice shall be given not more than ten days after such date is first so
announced or disclosed. Public notice shall be deemed to have been given more
than 70 days in advance of the annual meeting if the Corporation shall have
previously disclosed, in these by-laws or otherwise, that the annual meeting in
each year is to be held on a determinable date, unless and until the Board
determines to hold the meeting on a different date. Any shareholder who gives
notice of any such proposal shall deliver therewith the text of the proposal to
be presented and a brief written statement of the reasons why such shareholder
favors the proposal and setting forth such shareholder's name and address, the
number and class of all shares of each class of stock of the Corporation
beneficially owned by such shareholder and any material interest of such
shareholder in the proposal (other than as a shareholder). Any shareholder
desiring to nominate any person for election as a director of the Corporation
shall deliver with such notice a statement in writing setting forth the name of
the person to be
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nominated, the number and class of all shares of each class of stock of the
Corporation beneficially owned by such person, the information regarding such
person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K
adopted by the Securities and Exchange Commission (or the corresponding
provisions of any regulation subsequently adopted by the Securities and Exchange
Commission applicable to the Corporation), such person's signed consent to serve
as a director of the Corporation if elected, such shareholder's name and
address and the number and class of all shares of each class of stock of the
Corporation beneficially owned by such shareholder. As used herein, shares
"beneficially owned" shall mean all shares as to which such person, together
with such person's affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all
shares as to which such person, together with such person's affiliates and
associates, has the right to become the beneficial owner pursuant to any
agreement or understanding, or upon the exercise of warrants, options or rights
to convert or exchange (whether such rights are exercisable immediately or only
after the passage of time or the occurrence of conditions). The person presiding
at the meeting, in addition to making any other determinations that may be
appropriate to the conduct of the meeting, shall determine whether such notice
has been duly given and shall direct that proposals and nominees not be
considered if such notice has not been given.
Section 1.14. Organization. Meetings of shareholders shall be presided over
by the Chairman of the Board, if any, or in the absence of the Chairman of the
Board by the President, or in the absence of the President by a Vice President,
or in the absence of the foregoing persons by a chairman designated by the Board
of Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting. The order of business at each
such meeting shall be as determined by the chairman of the meeting. The chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as are necessary
or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof and the opening and closing of the
voting polls.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Power of Board and Qualification of Directors. The business of
the Corporation shall be managed under the direction of the Board of Directors.
Each director shall be at least eighteen years of age. No person who has reached
age 70 by January 1 in the year such director would otherwise stand for election
shall, following their initial election, stand for reelection as a director.
Section 2.2. Number of Directors. The number of directors constituting the
entire Board of Directors shall be the number, not less than three, fixed from
time to time by a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies, provided that no decrease shall shorten the term of any incumbent
director.
Section 2.3. Election, Terms and Vacancies. The Board of Directors shall be
divided into three classes designated Class I, Class II and Class III. Such
classes shall be as nearly equal in number as the then total number of directors
constituting the entire Board permits. At the first annual meeting of
shareholders, or any special meeting in lieu thereof, Class I, Class II and
Class III directors shall be elected for terms expiring at the next succeeding
annual meeting, the second succeeding annual meeting and the third succeeding
annual meeting, respectively, and until their respective successors are elected
and qualified. At each annual meeting of shareholders after such first annual
(or special) meeting shareholders, the directors chosen to succeed those in the
class whose terms then expire shall be elected by shareholders for
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terms expiring at the third succeeding annual meeting after election, or for
such lesser term for which one or more may be nominated in a particular case in
order to assure that the number of directors in each class shall be
appropriately constituted and until their respective successors are elected and
qualified. Newly created directorships or any decrease in directorships
resulting from increases or decreases in the number of directors shall be so
apportioned among the classes of directors as to make all the classes as nearly
equal in number as possible. Vacancies on the Board of Directors at any time for
any reason except the removal of directors without cause may be filled by a
majority of the directors then in office, although less than a quorum. If the
number of directors is increased by the Board of Directors and any newly created
directorships are filled by the Board, there shall, to the extent required by
New York law, be no classification of the additional directors until the next
annual meeting of shareholders.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock, now or hereafter authorized, shall have
the right, voting separately or by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by any
provisions of the Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into one or more classes pursuant to
this Section 2.3 unless expressly provided by such provisions.
Section 2.4. Quorum of Directors and Action by the Board. Unless a greater
proportion is required by law or by the certificate of incorporation, one third
of the entire Board of Directors shall constitute a majority for the transaction
of business or of any specified item of business. Except where otherwise
provided by law or in the certificate of incorporation or these by-laws, the
vote of a majority of the directors present at a meeting at the time of such
vote, if a quorum is then present, shall be the act of the Board. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting if all members of the Board consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consents by
the members of the Board shall be filed with the minutes of the proceedings of
the Board. Except as otherwise provided by law, all corporate action to be taken
by the Board of Directors shall be taken at a meeting of the Board or by
unanimous written consent. Any one or more members of the Board of Directors may
participate in a meeting of the Board by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, and participation by such means
shall constitute presence in person at such meeting.
Section 2.5. Meetings of the Board. An annual meeting of the Board of
Directors shall be held in each year as soon as practicable after the annual
meeting of shareholders. Regular meetings of the Board shall be held at such
times as may be fixed by the Board. Special meetings of the Board may be held at
any time whenever called by the Chairman of the Board, if any, the President or
any two directors. Meetings of the Board of Directors shall be held at such
places within or without the State of New York as may be fixed by the Board for
annual and regular meetings and in the notice of meeting for special meetings.
If no place is so fixed, meetings of the Board shall be held at the principal
office of the Corporation. No notice need be given of annual or regular meetings
of the Board of Directors. Notice of each special meetings of the Board shall be
given to each director either by mail not later than the third business day
prior to the meeting or by telegram, by facsimile transmission, by written
message or orally to the director not later than noon, New York time, on the day
prior to the meeting. Notices shall be deemed to have been given by mail when
deposited in the United States mail, by telegram at the time of filing, by
facsimile transmission upon confirmation of receipt, and by messenger at the
time of delivery by the messenger. Notices by mail, telegram, facsimile
transmission or messenger shall be sent to each director at the address or
facsimile number designated by him or her for that purpose, or, if none has been
so designated, at his or her last known residence or business address. Notice of
a meeting of the Board of Directors need not be given to any director who
submits a signed waiver of notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him or her. A notice or waiver of notice need not specify
the purpose of any meeting of the Board of Directors. A
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majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of a
meeting to another time or place shall be given in the manner described above to
the directors who were not present at the time of the adjournment and, unless
such time and place are announced at the meeting, to the other directors.
Section 2.6. Resignation. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors or to the Chairman of
the Board, if any, or the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective.
Section 2.7. Removal of Directors. Directors may be removed for cause by a
vote of shareholders entitled to vote thereon. Directors shall not be removed
without cause by shareholders, except in the case of a director elected by the
holders of any class or series of Preferred Stock, now or hereafter authorized,
voting as a class or series, when so entitled by the provisions of the
Certificate of Incorporation applicable thereto.
Section 2.8. Compensation of Directors. The Board of Directors shall have
authority to fix the compensation of directors for services in any capacity,
which shall be a charge to be paid by the Corporation. The Board of Directors
may elect or appoint members of the Board as officers, members of committees, or
agents of the Corporation, may assign duties to be performed and may fix the
amount of the respective salaries, fees or other compensation therefor, and the
amount so fixed shall be a charge to be paid by the Corporation. In addition to
any other compensation provided pursuant to these by-laws, each director shall
be entitled to receive a fee, in amount as fixed from time to time by resolution
of the Board of Directors, for attendance at any meeting of the Board, or of any
committee of the Board, together with his expenses of attendance, if any.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 3.1. Executive and Other Committees of Directors. The Board of
Directors, by resolution adopted by a majority of the entire Board, shall
designate from among its members an Executive Committee, an Audit Committee and
a Finance Committee and may designate such other committees, each consisting of
one or more directors, and each of which, to the extent provided in the
resolution, shall have all the authority of the Board, except that no such
committee shall have authority as to (1) the submission to shareholders of any
action that needs shareholders' approval; (2) the filling of vacancies in the
Board or in any committee thereof, (3) the fixing of compensation of the
directors for serving on the Board or on any committee thereof; (4) the
amendment or repeal of the by-laws, or the adoption of new by-laws; or (5) the
amendment or repeal of any resolution of the Board which, by its terms, shall
not be so amendable or repealable. The Board of Directors may designate one or
more directors as alternate members of any such committee, who may replace any
absent member or members at any meeting of such committee. Unless the Board of
Directors otherwise provides, each committee designated by the Board may adopt,
amend and repeal rules for the conduct of its business. In the absence of a
provision by the Board or a provision in the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote of
a majority of the members present at a meeting at the time of such vote if a
quorum is then present or the unanimous written consent of all members thereof
shall be the act of such committee, any one or more members of such committee
may participate in a meeting of such committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time and participation by such
means shall constitute presence in person at such meeting, and in other respects
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws. Each
such committee shall serve at the pleasure of the Board of Directors.
C-6
<PAGE>
Section 3.2. Executive Committee. When the Board of Directors is not in
session, the Executive Committee shall have all of the authority of the Board of
Directors, except it shall have no authority as to the matters specified in
Section 3.1. The Chairman of the Board shall be Chairman of the Executive
Committee. The members of the Executive Committee shall serve at the pleasure of
the Board of Directors.
Section 3.3. Audit Committee. The Audit Committee shall recommend to the
Board of Directors the accounting firm to be selected by the Board or to be
recommended by it for shareholder approval, as independent auditor of the
Corporation and its subsidiaries; act on behalf of the Board in meeting and
reviewing with the independent auditors, the chief internal auditor and the
appropriate corporate officers matters relating to corporate financial reporting
and accounting procedures and policies, adequacy of internal controls and the
scope of the respective audits of the independent auditors and the internal
auditor; review the results of such audits with the respective auditing agency
and reporting thereon to the Board; review and make recommendations to the Board
concerning the independent auditor's fees and services; review interim and
annual financial reports and disclosures and submit to the Board any
recommendations it may have from time to time with respect to financial
reporting and accounting practices and policies; be consulted, and its consent
obtained, prior to the selection or termination of the chief internal auditor;
oversee matters involving compliance with corporate business ethics policies
including the work of the Business Ethics Council; review management's
assessment of financial risks; authorize special investigations and studies, as
appropriate, in fulfillment of its function as specified herein or by resolution
of the Board of Directors; and perform any other duties or functions deemed
appropriate by the Board of Directors. The Committee will conduct a
self-assessment at least every three years of its performance in relation to its
powers and responsibilities. The membership of such committee shall consist only
of directors of the Corporation who are not, and have not been, officers of the
company.
Section 3.4. Finance Committee. The Finance Committee shall exercise such
powers of the Board of Directors as shall be provided in one or more resolutions
of the Board of Directors with respect to the issuance by the Corporation of
securities and evidences of indebtedness and the participation by the
Corporation in other financing transactions and with respect to the
authorization of the making, modification, alteration, termination or abrogation
of notes, bills, mortgages, sales, deeds, financing leases, liens and contracts
of the Corporation and shall further be empowered to take any action in
connection with the determination of the terms of any securities, evidences of
indebtedness or other financing transactions of the Corporation the issuance of
which by the Corporation or the participation in which by the Corporation shall
have theretofore been approved by the Board of Directors, and shall further
perform any other duties or functions deemed appropriate by the Board of
Directors.
ARTICLE IV
OFFICERS
Section 4.1. Officers. The officers of the Corporation shall consist of a
Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, a
Controller, a Treasurer, and such Assistant Secretaries, Assistant Controllers
and Assistant Treasurers and other officers as shall be elected or appointed by
the Board of Directors. The Board of Directors may elect or appoint a General
Counsel upon such terms and with such powers and duties as it may prescribe and
may also designate the General Counsel an officer of the Corporation.
Section 4.2. Election. The officers of the Corporation shall be elected or
appointed by the Board of Directors at the meeting of the Board held after each
annual meeting of the stockholders. The Chairman of the Board and the President
shall be elected or appointed by the Board of Directors from among their number.
Any number of Vice-Presidents, the Secretary, the Controller, the Treasurer and
other officers established pursuant to resolution of the Board of Directors
shall also be elected or appointed by the Board of Directors.
C-7
<PAGE>
Section 4.3. Term of Office. The officers of the Corporation shall hold
office until the meeting of the Board of Directors held after the next annual
meeting of the stockholders and until their successors are elected and have
qualified, unless a shorter term is fixed or unless removed, subject to the
provisions of law, by the Board of Directors. The Chairman of the Board, the
President, any Vice- President, the Secretary, the Controller or the Treasurer
may be removed at any time, with or without cause, by the Board of Directors
provided that notice of the meeting at which such action shall have been taken
shall set forth such action as one of the purposes of such meeting. Any other
officer of the Corporation may be removed at any time, with or without cause, by
the Board of Directors. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors at any time to serve
the remaining current term of that office.
Section 4.4. Chairman of the Board. There shall be a chairman of the Board
of Directors, with the official title "Chairman of the Board", who shall be the
chief executive officer of the Corporation. The Chairman of the Board shall
preside at meetings of the stockholders, the Board of Directors and the
Executive Committee. He shall recommend to the Board policies to be followed by
the Corporation, and, subject to the Board, shall have general charge of the
policies and business of the Corporation and general supervision of the details
thereof, and shall supervise the operation, maintenance and preservation of the
properties of the Corporation. He shall keep the Board of Directors informed
respecting the business of the Corporation. He shall have authority to sign on
behalf of the Corporation all contracts and other documents or instruments to be
signed or executed by the Corporation, and, in all cases where the duties and
powers of subordinate officers and agents of the Corporation are not
specifically prescribed by the by-laws or by resolutions of the Board of
Directors, the Chairman of the Board may prescribe such duties and powers. He
shall perform such other duties as may from time to time be assigned to him by
the Board of Directors.
Section 4.5. President. The President shall have the direction of and
responsibility for the operations of the Corporation and such other powers and
duties as the Board of Directors or the Chairman of the Board shall designate
from time to time and, in the absence or inability to act of the Chairman of the
Board, shall have the powers and duties of the Chairman of the Board. The
President, unless some other person is thereunto specifically authorized by vote
of the Board of Directors, shall have authority to sign all contracts and other
documents and instruments of the Corporation.
Section 4.6. The Vice-Presidents. The Vice-Presidents may be designated by
such title or titles and in such order of seniority as the Board of Directors
may determine. The Vice-Presidents shall perform such of the duties and exercise
such of the powers of the President on behalf of the Corporation as may be
assigned to them respectively from time to time by the Board of Directors or by
the Chairman of the Board or the President, and, subject to the control of the
Board, shall have authority to sign on behalf of the Corporation all contracts
and other documents or instruments necessary for the conduct of the business of
the Corporation. The Vice-Presidents shall perform such other duties as may from
time to time be assigned to them respectively by the Board of Directors or the
Chairman of the Board or the President.
Section 4.7. The Secretary and Assistant Secretaries. The Secretary shall
cause notices of all meetings of stockholders and directors to be given as
required by law, the corporate charter, and these by-laws. He shall attend all
meetings of stockholders and of the Board of Directors and keep the minutes
thereof. He shall affix the corporate seal to and sign such instruments as
require the seal and his signature and shall perform such other duties as
usually pertain to his office or as are required of him by the Board of
Directors or the Chairman of the Board or the President.
Any Assistant Secretary may, in the absence or disability of the Secretary,
or at his request, perform the duties and exercise the powers of the Secretary,
and shall perform such other duties as the Board of Directors, the Chairman of
the Board, the President or the Secretary shall prescribe.
The Secretary or any Assistant Secretary may certify under the corporate
seal as to the corporate charter or these by-laws or any provision thereof, the
acts of the Board of Directors or any committee
C-8
<PAGE>
thereof, the tenure, signatures, identity and acts of officers of the
Corporation or other corporate facts, and any such certificate may be relied
upon by any person or Corporation to whom the same shall be given until receipt
of written notice to the contrary.
In the absence of the Secretary and of an Assistant Secretary, the
stockholders or the Board of Directors may appoint a secretary pro tem to
record the proceedings of their respective meetings and to perform such other
acts pertaining to said office as they may direct.
Section 4.8. The Controller and Assistant Controllers. The Controller shall
be the chief accounting officer of the Corporation. He shall have general
supervision of the accounting and financial reporting policies of the
Corporation, and shall recommend policies and procedures and shall render
current and periodic reports of financial status to the Chairman of the Board,
the President and the Board of Directors. He shall perform such other duties as
usually pertain to his office or as are required of him by the Board of
Directors or the Chairman of the Board or the President.
Any Assistant Controller may, in the absence or disability of the
Controller, or at his request perform the duties and exercise the powers of the
Controller and shall perform such other duties as the Board of Directors, the
Chairman of the Board, the President or the Controller shall prescribe.
Section 4.9. The Treasurer and Assistant Treasurers. The Treasurer is
authorized and empowered to receive and collect all moneys due the Corporation
and to receipt for the same. He shall be empowered to execute on behalf of the
Corporation all instruments, agreements and certificates necessary or
appropriate to effect the issuance by the Corporation of securities or evidences
of indebtedness or to permit the Corporation to enter into and perform any other
financing transactions to the extent the foregoing are within the ordinary
course of business of the Corporation or have been authorized by the Board of
Directors or a committee thereof. He shall cause to be entered in books of the
Corporation to be kept for that purpose full and accurate accounts of all moneys
received by and paid on account of the Corporation. He shall make and sign such
reports, statements, and instruments as may be required of him by the Board of
Directors or by laws of the United States or the State of New York, or by
commission, bureau, department or agency created under any such laws, and shall
perform such other duties as usually pertain to his office or as are required of
him by the Board of Directors or the Chairman of the Board or the President.
Any Assistant Treasurer may, in the absence or disability of the Treasurer,
or at his request, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties as the Board of Directors, the Chairman of
the Board, or the President, or the Treasurer shall prescribe.
Section 4.10. Additional Officers. In addition to the officers provided for
by these by-laws, the Board of Directors may, from time to time, designate and
appoint such other officers as may be necessary or convenient for the
transaction of the business and affairs of the Corporation. Such other officers
shall have such powers and duties as may be assigned to them by resolution of
the Board of Directors.
Section 4.11. Officers Holding Two or More Offices. Any two or more of the
above-mentioned offices may be held by the same person, except that the
President shall not also be the Secretary, but no officer shall execute or
verify any instrument in more than one capacity if such instrument be required
by law or otherwise to be executed or verified by any two or more officers.
Section 4.12. Duties of Officers May be Delegated. In case of the absence of
any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
and to the extent specified, the powers or duties of any officer to any other
officer, or to any director.
Section 4.13. Compensation. The compensation of all officers with an
assigned salary level above the scale of Salary Grade N as prescribed in the
Salary Administration Program, as adopted by the Board of Directors, shall be
fixed by the Board of Directors. The compensation of all other officers and
employees
C-9
<PAGE>
shall be fixed by the Chairman of the Board or by the President in accordance
with the Salary Administration Program.
Section 4.14. Bonds. The Board of Directors may require any officer, agent
or employee of the Corporation to give a bond to the Corporation, conditional
upon the faithful performance of his duties, with one or more sureties and in
such amount as may be satisfactory to the Board of Directors. The premium
payable to any surety company for such bond shall be paid by the Corporation.
ARTICLE V
FORMS OF CERTIFICATES AND LOSS AND
TRANSFER OF SHARES
Section 5.1. Forms of Share Certificates. The shares of the Corporation
shall be represented by certificates, in such forms as the Board of Directors
may prescribe, signed by the Chairman of the Board or the President or a
Vice-President and the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation itself or its employee or if the
shares are listed on a national securities exchange. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he or she were such officer
at the date of issue. If the Corporation is authorized to issue shares of more
than one class, each certificate representing shares issued by the Corporation
shall set forth upon the face or back of the certificate, or shall state that
the Corporation will furnish to any shareholder upon request and without charge,
a full statement of the designation, relative rights, preferences and
limitations of the shares of each class authorized to be issued and the
designation, relative rights, preferences and limitations of each series of any
class of preferred shares authorized to be issued in series so far as the same
have been fixed and the authority of the Board of Directors to designate and fix
the relative rights, preferences and limitations of other series. Each
certificate representing shares shall state upon the face thereof (1) that the
Corporation is formed under the laws of the State of New York; (2) the name of
the person or persons to whom issued; and (3) the number and class of shares,
and the designation of the series, if any, which such certificate represents.
Section 5.2. Transfers of Shares. Shares of the Corporation shall be
transferable on the record of shareholders upon presentation to the Corporation
or a transfer agent of a certificate or certificates representing the shares
requested to be transferred, with proper endorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Corporation or
its transfer agent may require.
Section 5.3. Lost, Stolen or Destroyed Share Certificates. The Corporation
may issue a new certificate for shares in place of any certificate theretofore
issued by it, alleged to have been lost or destroyed, and the Corporation may
require the owner of the lost or destroyed certificate, or such owner's legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate or the issuance of any such new certificate.
ARTICLE VI
OTHER MATTERS
Section 6.1. Corporate Seal. The Board of Directors may adopt a corporate
seal, alter such seal at pleasure, and authorize it to be used by causing it or
a facsimile to be affixed or impressed or reproduced in any other manner.
Section 6.2. Fiscal Year. The fiscal year of the Corporation shall be fixed
by the Board of Directors.
C-10
<PAGE>
Section 6.3. When Notice or Lapse of Time Unnecessary. Whenever for any
reason the Corporation or the Board of Directors or any committee thereof is
authorized to take any action after notice to any person or persons or after the
lapse of a prescribed period of time, such action may be taken without notice
and without the lapse of such period of time if at any time before or after such
action is completed the person or person s entitled to such notice or entitled
to participate in the action to be taken or, in the case of a shareholder, his
or her attorney-in-fact, submit a signed waiver of notice of such requirements.
Section 6.4. Books to be Kept. The Corporation shall keep (a) correct and
complete books and records of account, (b) minutes of the proceedings of the
shareholders, Board of Directors and each committee and (c) a current list of
the directors and officers and their residence addresses; and the Corporation
shall also keep at its office located in the county of Onondaga in the State of
New York or at the office of its transfer agent or registrar in the State of New
York, if any, a record containing the names and addresses of all shareholders,
the number and class of shares held by each and the dates when they respectively
became the owners of record thereof. Any of the foregoing books, minutes or
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.
Section 6.5. Interest of Directors and Officers in Transactions. In the
absence of fraud, no contract or other transaction between the Corporation and
one or more of its directors, or between the Corporation and any other
Corporation, firm, association or other entity in which one or more of its
directors are directors or officers, or have a substantial financial interest,
shall be either void or voidable, irrespective of whether such interested
director or directors are present at the meeting of the Board of Directors, or
of a committee thereof, which approves such contract or transaction and
irrespective of whether his, her or their votes are counted for such purpose:
(1) If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship, officership
or financial interest are disclosed in good faith or known to the Board of
Directors, or a committee thereof, and the Board or committee approves such
contract or transaction by a vote sufficient for such purpose without
counting the vote of such interested director or, if the votes of the
disinterested directors are insufficient to constitute an act of the Board
under Section 2.4 of these by-laws, by unanimous vote of the disinterested
directors; or
(2) If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship, officership
or financial interest are disclosed in good faith or known to the
shareholders entitled to vote thereon, and such contract or transaction is
approved by vote of such shareholders.
If a contract or other transaction between the Corporation and one or more
of its directors, or between the Corporation and any other Corporation, firm,
association or other entity in which one or more of its directors are directors
or officers or have a substantial financial interest, is not so approved, the
Corporation may avoid the contract or transaction unless the party or parties
thereto shall establish affirmatively that the contract or transaction was fair
and reasonable as to the Corporation at the time it was approved by the Board, a
committee or the shareholders. Notwithstanding the foregoing, no loan, except
advances in connection with indemnification, shall be made by the Corporation to
any director unless it is authorized by vote of the shareholders. For this
purpose, shares of the director who would be the borrower shall not be shares
entitled to vote.
Section 6.6. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the full extent permitted by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The
C-11
<PAGE>
rights provided to any person by this by-law shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer or employee as provided
above. No amendment of this by-law shall impair the rights of any person arising
at any time with respect to events occurring prior to such amendment. For
purposes of this by-law, the term "Corporation" shall include any predecessor of
the Corporation and any constituent Corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprise" shall include any Corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise; service "at the request of the
Corporation" shall include service as a director, officer or employee of the
Corporation which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its participants
or beneficiaries; any excise taxes assessed on a person with respect to an
employee benefit plan shall be deemed to be indemnifiable expenses; and action
taken or omitted by a person with respect to an employee benefit plan which such
person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
Section 6.7. Amendments. Except as otherwise provided in the Certificate of
Incorporation in respect of any class or series of Preferred Stock, now or
hereafter authorized, the By-Laws of the Corporation may be amended or repealed,
or new By-Laws may be adopted, either (a) by a vote of shareholders entitled to
vote at any annual or special meeting of shareholders, or (b) by a vote of the
majority of the entire Board of Directors at any regular or special meeting of
directors; provided, however, that any amendment or repeal of, or the adoption
of any new By-Law or provision inconsistent with, Article I (Sections 1.2, 1.13
or 1.14), Article II (Sections 2.2, 2.3, or 2.7) or Article VI (Sections 6.6 or
6.7) of these By-Laws, if by action of such shareholders, shall be only upon the
affirmative vote of not less than two-thirds of the shares entitled to vote
thereon at such annual or special meeting of shareholders at which any such
action is proposed and, if by action of the Board of Directors, shall be only
upon the approval of not less than two thirds of the entire Board of Directors
at any regular or special meeting of directors.
C-12
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of the Application of Niagara Mohawk
Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority Under Sections 70, 107, Case 98-
108 and 110 of the Service Law to Form a
Holding Company Structure to Engage in Certain
Related Transactions.
- --------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. and
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
EXHIBIT C
<PAGE>
Index to Exhibits
(A) Statement of financial condition of Niagara Mohawk Power Corporation as of
June 30, 1997, as prescribed by the Commission's Rules (16 NYCRR 3.1).
(B) Statement in explanation of changes in specific accounts between December
31, 1996 and June 30, 1997.
(C) Summary of changes in utility plant and depreciation reserve accounts for
the period December 31, 1996 through June 30, 1997.
(D) Analysis of adjustments to utility plant for the period December 31, 1996
through June 30, 1997.
(E) Analysis of adjustments to depreciation reserve for the period December 31,
1996 through June 30, 1997.
(F) Explanation of changes in non-utility property for the period December 31,
1996 through June 30, 3997.
(G) Reimbursement margin from December 31, 1996 through June 30, 1997.
(H) Construction budget for the years 1997 through 2001.
<PAGE>
Exhibit A
Sheet 1 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997
1. CAPITAL STOCK AUTHORIZED BY CERTIFICATE OF INCORPORATION, AS LAST AMENDED:
Preferred Stock with a par value of one hundred dollars ($100 each),
3,400,000 shares
Preferred Stock with a par value of twenty five dollars ($25 each),
19,600,000 shares
Preference Stock with a par value of twenty five dollars ($25 each),
8,000,000 shares
Common Stock with $1 par value, 185,000,000 shares
2&3. CAPITAL STOCK AUTHORIZED BY THE COMMISSION AND ISSUED BY THE COMPANY:
<TABLE>
<CAPTION>
Authorized $ $
Case Date of and Issued Outstanding Par Value $
Class Number Order Series Shares Shares Value Received Premium
- --------- ------ ----- ------ ---------- ----------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PREFERRED
(09-29-48 3.40% 200,000 200,000 100 20,030,000 30,000 Note A
12733 (amended 3.60% 350,000 350,000 100 35,497,000 497,000 Note B
(09-20-49 3.90% 240,000 240,000 100 24,554,000 554,000 Note C
16720 05-04-54 4.10% 210,000 210,000 100 21,000,000
18346 05-13-57 5.25% 200,000 200,000 100 20,000,000
18737 02-17-58 4.85% 250,000 250,000 100 25,000,000
24455 08-02-67 6.10% 250,000 250,000 100 25,000,000
26290 08-01-72 7.72% 400,000 400,000 100 40,154,800 154,800
26438 06-12-73 7.45% 330,000 222,000 100 33,000,000
(09-24-74
26770 (amended 10.60% 60,000 - 100 6,000,000
(10-22-74
26864 08-07-75 11.75% 300,000 - 100 30,000,000
27044 09-14-76 9.75% 1,200,000 - 25 30,000,000
27252 01-17-78 8.375% 1,600,000 100,000 25 40,000,000
27660 02-19-80 9.75% 1,020,000 - 25 25,500,000
27769 03-26-81 12.25% 700,000 - 25 17,500,000
27769 03-26-81 12.50% 620,000 - 25 15,500,000
27923 04-22-81 12.75% 250,000 - 100 25,000,000
28149 04-21-82 15.00% 800,000 - 25 20,000,000
28202 01-12-83 (a) 1,200,000 1,200,000 25 30,000,000
28454 (
28455 (06-29-83 10.75% 1,600,000 - 25 40,000,000
25650 10.13% 250,000 - 100 25,000,000
28651 )12-21-83 10.13% 1,000,000 - 25 25,000,000
28784 (
28785 (05-30-84 (b) 2,000,000 1,750,000 25 50,000,000
28834 01-30-85 12.75% 1,000,000 - 25 25,000,000
28835 )
28836 01-30-85 (c) 2,000,000 2,000,000 25 50,000,000
28837 (
28894 (12-17-86 8.75% 3,000,000 - 25 75,000,000
29273 07-15-87 8.70% 1,000,000 - 25 25,000,000
89-M-079 07-11-91 7.85% 914,005 914,005 25 22,850,125
93-M-0981 05-16-94 9.50% 6,000,000 6,000,000 25 150,000,000
PREFERENCE:
27318 05-09-78 7.75% 1,360,000 - 25 34,000,000
<FN>
(a) Adjustable rate, Series A
(b) Adjustable rate, Series B
(c) Adjustable rate, Series C
</FN>
</TABLE>
<PAGE>
Exhibit A
Sheet 2 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
2&3. CAPITAL STOCK AUTHORIZED BY THE COMMISSION AND ISSUED BY THE COMPANY:
(Cont'd)
<TABLE>
<CAPTION>
$ Par Value $
Case Order Authorized or Issued Value $
Class Number Dated Shares Stated Value Shares Received Premium
- ----- ------ ----- ---------- ------------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Common: ( 9,580,989 10 9,580,989 Note D
(9-29-48 1,928,627 No-Class A 1,928,627 Note E
12733 (amended 7,473,172 No 7,473,172 Note E
(9-20-49 2,121,490 No 2,082,864.3 Note F
15593 12-18-51 1,000,000 No 1,000,000 22,643,000
16083 2-10-53 1,000,000 No 1,000,000 26,939,000
18134 1-07-57 1,454,680 No 1,414,368 Note G
18714 3-25-58 9,936 No 9,936 Note H
21886 10-10-61 700,000 No 700,000 31,343,900
23554 3-19-65 27,360,680 8 27,360,680 Note I
23754 10-19-65 41,750 8 41,750 Note J 751,500
23957 3-29-66 1,400,000 8 1,400,000 31,722,600 20,522,600
24401 8-02-67 39,372 8 39,3728 Note K3 536,444
24984 1-21-69 14,628 8 14,628 Note L 285,975
25021 2-18-69 8,250 8 8,250 Note M
25748 8-18-70 2,886,468 8 2,886,468 37,235,268 14,143,524
25977 1-26-71 2,000,000 8 2,000,000 35,160,000 19,160,000
26373 3-06-73 3,000,000 8 3,000,000 43,905,000 19,905,000
26511 11-20-73 3,500,000 8 3,500,000 44,100,000 16,100,000
26628 5-24-74 3,500,000 8 3,300,000 29,964,000 3,564,000
(12-10-74 3,600,000 8 3,000,000 30,585,000 6,585,000
26770 (amended 500,000 (a) 1 500,000 6,258,477 5,758,477
(6-11-75 900,000 (b) 1 900,000 11,172,879 10,272,879
)8-07-75 3,000,000 3,000,000 31,950,000 28,950,000
26864 )amended 500,000 (c) 1 (275,886 (b) 3,790,894 3,515,008
)10-28-75 (224,114 (a) 3,041,167 2,817,053
27011 8-10-76 750,000 (c) 1 )491,000 (b) 7,357,523 6,866,523
)259,000 (a) 3,763,377 3,504,377
27023 7-07-76 4,000,000 1 4,000,000 51,580,000 47,580,000
27128 3-15-77 1,500,000 (c) 1 (796,970 (b) 12,159,874 11,362,904
(703,030 (a) 10,815,587 10,112,557
27226 10-13-77 65,000 (d) 1 47,595 735,363 687,768
27343 5-24-78 3,500,000 1 3,500,000 48,265,000 44,765,000
27368 6-19-78 1,500,000 (c) 1 (784,306 (b) 11,124,249 10,339,943
(715,694 (a) 14,919,718 14,204,024
27456 3-06-79 2,250,000 (c) 1 )1,258,454 (b) 12,272,886 11,014,432
)991,546 (a) 11,523,270 10,531,724
27569 8-22-79 3,500,000 1 3,500,000 44,730,000 41,230,000
27649 6-11-80 4,000,000 1 4,000,000 54,460,000 50,460,000
27661 3-05-80 4,500,000 1 (2,335,340 (a) 27,659,391 25,324,051
(2,164,660 (b) 26,154,127 23,989,467
27802 8-29-80 200,000 (d) 1 200,000 2,462,618 2,262,618
27924 6-18-81 5,000,000 1 5,000,000 57,500,000 52,500,000
27999 7-01-81 3,000,000 1 3,000,000 (a) 39,474,671 36,474,671
28000 7-01-81 3,000,000 1 3,000,000 (b) 40,899,688 37,899,688
28150 6-23-82 5,000,000 1 5,000,000 76,000,000 71,000,000
28151 (7-14-82 1,000,000 1 1,000,000 17,122,526 16,122,526
(amended
(1-26-83
28262 8-11-82 1,000,000 1 1,000,000 (d) 15,686,480 14,686,480
28294 9-22-82 5,000,000 1 5,000,000 (a) 78,152,135 73,152,135
28318 11-04-82 4,000,000 1 3,616,720 (b)(1) 55,914,099 52,297,379
28449 5-18-83 2,000,000 1 2,000,000 33,240,000 31,240,000
28460 5-18-83 2,000,000 1 2,000,000 35,180,000 33,180,000
28461 8-17-83 1,000,000 1 1,000,000 14,695,294 13,695,294
28462 11-22-83 1,000,000 1 1,000,000 13,685,000 12,685,000
28652 3-28-84 2,000,000 1 2,000,000 25,370,000 23,370,000
28653 10-03-84 2,000,000 1 2,000,000 32,940,008 30,940,008
28737 5-02-84 4,000,000 1 4,000,000 (a) 67,127,550 63,127,550
28786 8-15-84 1,000,000 1 1,000,000 15,479,768 14,479,768
28878 9-05-84 1,500,000 1 500,000 (d) 8,820,255 8,320,255
28787 10-03-84 1,000,000 1 1,000,000 18,401,846 17,401,846
28943 1-03-85 5,000,000 (b) 1 1,612,131 (1) 29,913,189 28,301,058
28985 2-20-85 2,000,000 1 2,000,000 33,350,000 31,350,000
28986 5-29-85 1,000,000 1 1,000,000 20,288,071 19,288,071
29034 6-13-85 6,000,000 1 5,920,437 (a) 91,160,486 85,240,049
29140 9-19-85 1,000,000 1 234,226 (d)(1) 4,274,624 4,040,398
29079 8-14-85 2,000,000 1 60,354 (1) 1,433,408 1,373,054
29558-29562 8-19-87 5,000,000 1 (3,757,381 (b) 50,780,176 47,022,795
(1,200,001 (d) 16,327,932 15,127,931
<PAGE>
88-M-218 1-12-89 6,000,000 1 0 (1)
89-M-253 2-27-89 6,000,000 1 0 (1)
91-M-1310 3-11-92 7,000,000 1 (1,238,566 (b) 20,802,353 19,563,787
(2,141,802 (a) 39,074,848 36,933,046
91-M-0948 4-29-92 356,460 1 416,597 Note N
92-M-1089 2-19-93 4,494,000 1 4,494,000 99,991,500 95,497,500
<FN>
(a) Sold through Automatic Dividend Reinvestment Plan (DRIP)
(b) Sold through Employees Savings Fund Plan (ESFP)
(c) Sold through DRIP and ESFP
(d) Sold through Employee Stock Ownership Plan
(1) PSC Case Expired
</FN>
</TABLE>
<PAGE>
Exhibit A
Sheet 3 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
2&3. CAPITAL STOCK AUTHORIZED BY THE COMMISSION AND ISSUED BY THE COMPANY:
(Cont'd)
Notes:
A. Shares were exchanged for like amount and series of Central New York
Power Corporation stock.
B. Shares were exchanged for like amount and series of Buffalo Niagara
Electric Corporation stock.
C. Shares were exchanged for like amount and series of New York Power and
Light Corporation stock.
D. Shares were issued to Niagara Hudson Power Corporation in exchange for
the following no par common stock: 1,586,358 shares of Central New
York Power Corporation 1,400,000 shares of New York Power and Light
Corporation 3,000,000 shares of Buffalo Niagara Electric Corporation
E. Shares were issued to Niagara Hudson Power Corporation in exchange for
9,580,989 shares of Niagara Mohawk Power Corporation $10 stated value
common stock.
F. Shares issued to meet the conversion privilege of its Class A stock.
G. Shares issued upon conversion of $45,066,400 principal amount of
Convertible Debentures (cash amounting to $184,403.76 paid in lieu of
5,056.94 fractional shares).
H. Shares were exchanged for 3,312 shares of Cazenovia Electric Company
common stock (subsequently merged into the Company).
I. Shares were issued in place of 13,680,340 common shares (2 for 1
split).
J. Shares were issued upon acquisition of 12,500 shares of capital stock
of the Paul Smith's Electric Light and Power and Railroad Company
(subsequently merged into the Company).
K. Shares were issued upon acquisition of 2,316 shares of capital stock
of the Adams Electric Light Company (subsequently merged into the
Company).
L. Shares were issued upon acquisition of 1,488 shares of capital stock
of the Canton Electric Light and Power Company (subsequently merged
into the Company).
M. Shares were issued upon acquisition of 50 shares of capital stock of
the Ellicottville Electric Light Company (subsequently merged into the
Company).
N. Shares were issued upon acquisition of 200 shares of capital stock of
N.M. Suburban Gas, which in turn acquired Syracuse Suburban Gas
Company, including subsequent common stock issuances in accordance
with the acquisition agreement.
<PAGE>
Exhibit A
Sheet 4 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
4. TERMS OF PREFERENCE
Preferred Stock
3.40% SERIES - $100 par value
This series is designated as Preferred Stock, 3.40% Series, and
provides for a dividend rate of 3.40% per annum. Upon voluntary
dissolution, the holders are entitled to $103.50 per share plus an amount
equal to dividends accrued and unpaid on each share, whether or not earned
or declared. This series is redeemable in whole or in part at the option of
the Company at $103.50 per share plus an amount equal to dividends accrued
and unpaid on each share, whether or not earned or declared.
3.60% SERIES - $100 par value
This series is designated as Preferred Stock, 3.60% Series, and
provides for a dividend rate of 3.60% per annum. Upon voluntary
dissolution, the holders are entitled to $104.85 per share plus an amount
equal to dividends accrued and unpaid on each share whether or not earned
or declared. This series is redeemable in whole or in part at the option of
the Company at $104.85 per share plus an amount equal to dividends accrued
and unpaid on each share, whether or not earned or declared.
3.90% SERIES - $100 par value
This series is designated as Preferred Stock, 3.90% Series, and
provides for a dividend rate of 3.90% per annum. Upon voluntary
dissolution, the holders are entitled to $106 per share plus an amount
equal to dividends accrued and unpaid on each share, whether or not earned
or declared. This series is redeemable in whole or in part at the option of
the Company at $106 per share plus an amount equal to dividends accrued and
unpaid on each share, whether or not earned or declared.
4.10% SERIES - $100 par value
This series is designated as Preferred Stock, 4.10% Series, and
provides for a dividend rate of 4.10% per annum. Upon voluntary
dissolution, the holders are entitled to an amount equal to $102 per share
plus accrued dividends. This series is redeemable in whole or in part at
the option of the Company at $102 per share plus accrued dividends.
4.85% SERIES - $100 par value
This series is designated as Preferred Stock, 4.85% Series, and
provides for a dividend rate of 4.85% per annum. Upon voluntary
dissolution, the holders are entitled to an amount equal to $102 per share
plus accrued dividends. This series is redeemable in whole or in part at
the option of the Company at $102 per share plus accrued dividends.
5.25% SERIES - $100 par value
This series is designated as Preferred Stock, 5.25% Series, and
provides for a dividend rate of 5.25% per annum. Upon voluntary
dissolution, the holders are entitled to an amount equal to $102 per share
plus accrued dividends. This series is redeemable in whole or in part at
the option of the Company at $102 per share plus accrued dividends.
6.10% SERIES - $100 par value
This series is designated as Preferred Stock, 6.10% Series, and
provides for a dividend rate of 6.10% per annum. Upon voluntary
dissolution, the holders are entitled to an amount equal to $101 per share
plus accrued dividends. This series is redeemable in whole or in part at
the option of the Company at $101 per share plus accrued dividends.
7.45 % SERIES - $100 par value
This series is designated as Preferred Stock, 7.45% Series, and
provides a dividend rate of 7.45% per annum. Upon voluntary dissolution,
the holders are entitled to the redemption price at the time applicable,
plus dividends accrued and unpaid on each share, whether or not earned or
declared. This series is redeemable in whole or in part at the option of
the Company at the redemption price of $101.69 per share through June 30,
1998, at $101.45 per share thereafter and through June 30, 1999, at $101.21
per share thereafter and through June 30, 2000, at $100.97 per share
thereafter and through June 30, 2001, at $100.73 per share thereafter and
through June 30, 2002, at $100.49 per share thereafter and through June 30,
2003, at $100.25 per share thereafter and through June 30, 2004, and at
$100.00 per share thereafter, in each case plus an amount equal to
dividends accrued and unpaid on each share, whether or not earned or
declared. As a mandatory sinking fund the Company will call for redemption
and retire on each June 30, 1977 through June 30, 2008, 18,000 shares, and
on June 30, 2009 the balance of the shares outstanding, in each case at a
redemption price of $100 per share, plus an amount equal to the dividends
accrued and unpaid, whether or not earned or declared.
<PAGE>
7.72% SERIES - $100 per value
This series is designated as Preferred Stock, 7.72% Series, and
provides for a dividend rate of 7.72% per annum. Upon voluntary
dissolution, the holders are entitled to an amount equal to $102.36 per
share plus accrued dividends. This series is redeemable in whole or in part
at the option of the Company at $102.36 per share plus accrued dividends.
<PAGE>
Exhibit A
Sheet 5 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
7.85% SERIES - $25 par value
This series is designated as Preferred Stock, 7.85% Series and
provides a dividend rate of 7.85% per annum. Upon voluntary dissolution,
the holders are entitled to the redemption price at the time applicable,
plus dividends accrued and unpaid on each share, whether or not earned or
declared. This series is redeemable in whole or in part at the option of
the Company at the redemption price of $25.56 per share through September
30, 1997, at $25.28 per share thereafter and through September 30, 1998,
and at $25.00 per share thereafter in each case plus an amount equal to
dividends accrued and unpaid on each share, whether or not earned or
declared. As a mandatory sinking fund the Company will call for redemption
and retire on September 30, 1997, 182,801 shares, and on each September 30
thereafter through September 30, 2001, in each case at $25.00 per share
plus accumulated dividends.
8.375% SERIES - $25 par value
This series is designated as Preferred Stock, 8.375% Series, and
provides a dividend rate of 8.375% per annum. Upon voluntary dissolution,
the holders are entitled to an amount equal to the redemption price at the
time applicable, plus accrued dividends. As a mandatory sinking fund, the
Company will call for the redemption and retire on April 1, 1983 and on
each April 1 thereafter to and including April 1, 1997, 100,000 shares and
on April 1, 1998 the balance of shares outstanding, in each case at a
redemption price of $25 per share plus an amount equal to the dividends
accrued and unpaid on such shares, whether or not earned or declared.
9.50% Series - $25 par value
This series is designated as Preferred Stock, 9.50% Series and
provides a dividend rate of 9.50% per annum. Upon voluntary dissolution,
the holders are entitled to an amount equal to the redemption price at the
time applicable, plus accrued dividends. This series is redeemable in whole
or in part at the option of the Company at any time on or after September
30, 1999 at $25.00 per share, in each case plus an amount equal to the
dividends accrued and unpaid on each share, whether or not earned or
declared.
Adjustable Rate Series A - $25 par value
The series is designated as Preferred Stock, Series A and provides a
dividend rate of not less than 6.50% per annum or greater than 13.50% per
annum. The annual dividend per share was 10.00% of par value for the
initial dividend period ended March 31, 1983 and is computed at 1.60% below
the applicable rate in effect for each subsequent period. The applicable
rate for any dividend period will be the highest of (1) the Treasury Bill
Rate (2) the ten year constant maturity rate and (3) the twenty year
constant maturity rate for such dividend period. The amount of dividends
per share payable for each dividend period shall be computed by dividing
the dividend rate for such dividend period by four and applying such rate
against the par value. The dividend rate with respect to each dividend
period will be calculated as promptly as practicable by the Company,
confirmed in writing by independent accountants and published in a
newspaper of general circulation in New York City prior to the new dividend
period. Upon voluntary dissolution, the holders are entitled to receive
$25.00 per share plus accrued dividends.
Adjustable Rate Series B - $25 par value
This series is designated as Preferred Stock, Series B and provides a
dividend rate of not less than 7.50% per annum or greater than 16.50% per
annum. The dividend rate for the initial dividend period ending December
31, 1984 was 13.375% per annum. For each quarterly period thereafter,
dividend will be .625% above the applicable rate. The applicable rate for
each dividend period, determined in advance of such period, will be the
highest of the per annum three-month U.S. Treasury bill rate, the U.S.
Treasury ten year constant maturity rate and the U.S. Treasury twenty year
constant maturity rate. The amount of dividends per share payable for each
dividend period shall be computed by dividing the dividend rate for such
dividend period by four and applying such rate against the par value per
share. The dividend rate with respect to each dividend period will be
calculated as promptly as practical by the Company, confirmed in writing by
independent accountants and published in a newspaper of general circulation
in New York City prior to the new dividend period. Upon voluntary
dissolution, the holders are entitled to receive $25.00 per share plus
accrued dividends. This series is redeemable in whole or in part at the
option of the Company at $25.00 per share, plus accrued dividends. As a
sinking fund, the Company will call for the redemption and retire on
September 30, 1993 and each September 30, thereafter to and including
September 30, 2023, 50,000 shares and on August 15, 2024, 450,000 shares,
in each case at $25.00 per share plus accrued dividends.
<PAGE>
Adjustable Rate Series C - $25 par value
This series is designated as Preferred Stock, Series C and provides an
annual dividend rate of 12.12% for the initial dividend period ending June
30, 1985 and at .40% above the Applicable Rate in effect for each
subsequent period. The dividend rate for any dividend period shall in no
event be less than 7% per annum or greater than 15.50% per annum. The
applicable rate for each dividend period, determined in advance of such
period, will be the highest of the arithmetic average of the two most
recent weekly per annum Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Twenty Year Constant Maturity Rate. The amount of dividends
per share payable for each dividend period shall be computed by dividing
the dividend rate for such dividend period by four and applying such rate
against the par value. The dividend rate with respect to each dividend
period will be calculated as promptly as practicable by the Company,
confirmed in writing by independent accountants and published in a
newspaper of general circulation in New York City prior to the new dividend
period. Upon voluntary dissolution, the holders are entitled to receive
$25.00 per share plus accrued dividends. This series is redeemable in whole
or in part at the option of the Company at $25.00 per share, plus accrued
dividends.
<PAGE>
Exhibit A
Sheet 6 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
ALL SERIES
Accruals of dividends shall not bear interest. Not convertible or
exchangeable for other securities of the corporation. Upon involuntary
dissolution, the holders are entitled to the par value per share plus an
amount equal to each share, whether or not earned or declared.
No voting rights except upon default in payment of dividends in an
aggregate amount equivalent to four full quarterly dividends on all shares
of preferred stock outstanding. Upon such a default and until all dividends
on all shares of preferred stock at time of default shall have been paid or
declared or set apart for payment, the holders of the preferred stock,
voting separately as a class and regardless of series, shall be entitled to
elect a majority of the Board of Directors.
No preemptive rights to subscribe for, purchase or receive any part of
the unissued stock of the Company or any stock of the Company to be issued
by reason of any increase in the authorized capital stock of the Company.
Until dividends declared or set apart for payment for all series of
preferred stock, no dividend to be paid or set apart for payment on the
preference and common stock.
Upon dissolution, voluntary or involuntary, holders of preferred stock
of each series then outstanding entitled to receive the sums per share
fixed for the respective series before any distribution to holders of the
preference and common stock. If assets distributable upon dissolution,
voluntary or involuntary, are insufficient to permit payment to holders of
preferred stock in full, then assets to be distributed ratably among the
holders of respective series of preferred stock in proportion to sums which
would be payable if assets were sufficient.
Legal rights of the Company to purchase or otherwise acquire shares of
preferred stock not limited.
So long as any shares of the preferred stock of any series are
outstanding, the Company is not permitted to do certain things without the
consent of the holders of preferred stock which are set out in subdivisions
(E), (F) and (G) of paragraph (5) of part D of the Article IV of the
Certificate of Consolidation and Certification of Amendment both dated and
filed January 5, 1950.
Preference Stock
No preference stock is currently outstanding.
ALL SERIES
Accruals of dividends shall not bear interest. Not convertible or
exchangeable for other securities of the Company. Upon involuntary
dissolution, the holders are entitled to the par value per share plus an
amount equal to dividends accrued and unpaid on each share, whether or not
earned or declared.
No voting rights except upon default in payment of dividends in an
aggregate amount equivalent to six full quarterly dividends on all shares
of preference stock outstanding. Upon such a default and until all
dividends on all shares of preference stock at time of default shall have
been paid or declared or set apart for payment, the holders of the
preference stock, voting separately as a class and regardless of series,
shall be entitled to elect two members of the Board of Directors.
No preemptive rights to subscribe for, purchase or receive any part of
the unissued stock of the Company or any stock of the Company to be issued
by reason of any increase in the authorized capital stock of the Company.
Dividend payable on last day of March, June, September and December in
each year. Until dividends declared or set apart for payment for all series
of preference stock, no dividend to be paid or set apart for payment on the
common stock.
Upon dissolution, voluntary or involuntary, holders of preference
stock of each series then outstanding entitled to receive the sums per
share fixed for the respective series before any distribution to holders of
the common stock. If assets distributable upon dissolution, voluntary or
involuntary, are insufficient to permit payments to holders of preference
stock in full, then assets to be distributed ratably among the holders of
respective series of preference stock in proportion to sums which would be
payable if assets were sufficient.
<PAGE>
Legal rights of Company to purchase or otherwise acquire shares of
preference stock not limited.
So long as any shares of the preference stock of any series are
outstanding, the Company is not permitted to do certain things without the
consent of the holders of the preference stock which are set out in
subdivisions (D) and (E) of paragraph (7) of Part D of the Article IV of
the Certificate of Consolidation and Certification of Amendment both dated
and filed January 5, 1950.
<PAGE>
Exhibit A
Sheet 7 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
5. TRANSFERS FROM SURPLUS OR OTHER ACCOUNTS TO NON-PAR STOCK ACCOUNTS:
NONE
6&8. BONDS, ETC. AUTHORIZED BY THE COMMISSION AND ISSUED/OUTSTANDING BY THE
COMPANY:
(A) First Mortgage Bonds issued by Niagara Mohawk Power Corporation and
secured by mortgage referred to under 7(a) below:
<TABLE>
<CAPTION>
Face Value
of Bonds
Case Date of Authorized Amount Date of Interest Date of
Number Order and Issued Outstanding Issue Rate % Maturity
- ------ ------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
14626 01/17/50 $40,000,000 (1) 01/01/50 2.75 01/01/80
15062 11/09/50 40,000,000 (1) 10/01/50 2.875 10/01/80
15593 12/19/51 15,000,000 (1) 12/01/51 3.375 12/01181
16083 02/10153 25,000,000 (1) 02/01/53 3.50 02/01/83
16459 10/16/53 40,000,000 (1) 10/01/53 3.25 10/01/83
16888 08/16/54 25,000,000 (1) 08/01/54 3.125 08/01/84
17797 04/24/56 30,000,000 (1) 05/01/56 3.625 05/01/86
18507 08/27/57 50,000,000 (1) 09/01/57 4.875 09/01/87
18984 05/26/58 50,000,000 (1) 06/01/58 3.875 06/01/88
21118 03/22/60 50,000,000 (1) 04/01/60 4.75 04/01/90
21886 10/10/61 40,000,000 (1) 11/01/61 4.50 11/01/91
23405 10/10/64 40,000,000 (1) 12/01/64 4.625 12/01/94
24135 10/11166 45,000,000 (1) 11/01/66 5.875 11/01/96
24455 08/02/67 40,000,000 40,000,000 08/01/67 6.25 08/01/97
24790 07/16/68 60,000,000 60,000,000 08/01/68 6.50 08/01/98
25354 11/12/69 75,000,000 (4) 12/01/69 9.125 12/01/99
25977 01/26/71 65,000,000 (4) 02/01/71 7.375 02/01/01
26204 01/18/72 80,000,000 (4) 02/01/72 7.625 02/01/02
26290 08/01/72 80,000,000 (4) 08/01/72 7.75 08/01/02
26511 11/20/73 80,000,000 (4) 12/01/73 8.25 12/01/03
26726 09/24/74 125,000,000 (1) 10/01/74 12.60 10/01/81
26770 12/10/74 50,000,000 (4) 03/01/75 10.20 03/01/05
26864 08/07/75 50,000,000 (1) 09/01/75 10.625 09/01/85
27185 08/04/77 75,000,000 (4) 08/01/77 8.35 08/01/07
27267 12/20/77 50,000,000 (4) 12/01/77 8.625 12/01/07
27442 12/14/78 50,000,000 (4) 12/01/78 9.50 12/01/03
27569 08/22/79 100,000,000 (4) 09/01/79 9.95 09/01/04
27771 09/24/80 66,350,000 (4) 10/01/80 12.95 10/01/00
27772 02/11/81 13,650,000 (4) 03/01/81 15.00 03/01/91
27773 09/24/80 25,000,000 (4) 03/03/81 12.95 10/01/00
27925 )08/07/81 25,000,000 (4) 08/11/81 14.875 08/11/88
27925 )08/07/81 25,000,000 (4) 09/11/81 14.875 08/11/88
27926 10/01/81 50,000,000 (4) 03/12/82 15.50 03/01/92
27927 03/09/82 30,000,000 (4) 04/01/82 13.50 04/01/12
27928 (06/09/82 75,000,000 (4) 06/17/82 15.75 06/01/92
27930 (
27929 (08/11/82 75,000,000 (4) 08/23/82 16.00 08/01/12
27931 )
28255 (10/26/82 100,000,000 (4) 11/30/82 12.875 11/01/12
28256 (
28353 )02/09/83 100,000,000 (4) 03/02/83 12.875 03/01/13
28354 )
28456 04/06/83 50,000,000 (4) 05/09/83 11.00 05/01/93
28457 06/15/83 50,000,000 (4) 06/24/83 12.50 06/15/13
28463 ( 20,000,000 (1) 04/09/84 12.00 03/01/89
28464 (04/06/83 13,000,000 (4) 04/09/84 12.50 03/01194
( 17,000,000 (4) 04/09184 12.625 03/01/99
28458 )
28468 )02/27/84 100,000,000 (4) 05/02/84 14.75 05/01/91
28648 )
28788 (
28789 (06/13/84 100,000,000 (4) 08/08/84 11.25 07/01/14
28790 (
28830 )09/05/84 56,250,000 (4) 10/30/84 11.375 10/01/14
28831 )09/05/84 13,000,000 (1) 10/30/84 9.125 10/01/89
28905 (11/20/84 30,000,000 (1) 01/31185 13.06 02/01/92
( 20,000,000 (1) 02/28/85 13.06 02/01/92
<PAGE>
28906 )12/19/84 20,000,000 (1) 01/31/85 12.73 02/01/92
) 10,000,000 (1) 02/20/85 12.73 02/20/92
) 20,000,000 (1) 02/28/85 12.68 02/28/92
28646 (
28833 (
28907 (10/30/85 75,000,000 75,000,000 11/20/85 8.875 11/01/25
29043 (
29042 )
29044 )
29269 )03/18/86 150,000,000 (4) 06/16/86 10.00 06/01/16
29270 )
</TABLE>
<PAGE>
Exhibit A
Sheet 8 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
<TABLE>
<CAPTION>
6&8. BONDS, ETC. AUTHORIZED BY THE COMMISSION AND ISSUED/OUTSTANDING BY THE
COMPANY (CONT'D)
Face Value
of Bonds
Case Date of Authorized Amount Date of Interest Date of
Number Order and Issued Outstanding Issue Rate % Maturity
- ------ ------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
29271 (
29272 (05/28/86 150,000,000 (1) 08/5/86 8.875 08/01/94
29308 (
29309 (
29310 (
29354 07/23/86 100,000000 (4) 10/07/86 9.125 10/01/96
29350 07/23/86 100,000,000 (4) 11/20/86 10.0
29476 (04/08/87 100,000,000 (4) 07/15/87 9.625 11/01/16
29477 ( 07/01/97
29553 )04/27/88 200,000,000 (4) 05/12/88 9.875 05/01/98
29557 (
88-M-182 (
88-M-183 (11/16/88 100,000,000 (4) 02/21/89 10.25 02/01/99
88-M-184 (
88-M-254 )03/13/89 100,000,000 (4) 04/12/89 10.375 04/01/99
88-M-255 (
88-M-072 (04/07/89 100,000,000 100,000,000 10/20/89 9.25
88-M-073 ( 10/01/01
89-M-074 (
89-M-075 (
89-M-110 (05/10/90 150,000,000 150,000,000 06/21/90 9.50 06/01/00
89-M-110 (
89-M-110 (05/10/90 150,000,000 150,000,000 11/28/90 9.75 11/01/05
89-M-111 (
90-M-688 (
90-M-689 (12/14/90 150,000,000 150,000,000 03/07/91 9.50 03/01/21
90-M-690 (
90-M-691 (12/11/91 150,000,000 150,000,000 04/14/92 8.75 04/01/22
90-M-692 (
90-M-693 (
91-M-0614 09/26/91 45,600,000 45,600,000 10/29/91 6.625 10/01/13
91-M-0640 08/20/92 115,705,000 115,705,000 07/07/94 7.20 07/01/29
92-M-0152 05/14/92 300,000,000 300,000,000 06/10/92 8.00 06/01/04
92-M-0152 165,000,000 165,000,000 07/23/92 8.50 07/01/23
92-M-0152 220,000,000 220,000,000 08/26/92 7.375 08/01/03
93-M-0110 )03/31/93 85,000,000 85,000,000 04/07/93 6.875 04/01/03
93-M-0110 ) 210,000,000 210,000,000 04/07/93 7.875 04/01/24
93-M-0110 )03/31/93 110,000,000 110,000,000 07/07/93 6.625 07/01/05
93-M-0246 (08/05/93 230,000,000 230,000,000 09/15/93 5.875 09/01/02
93-M-0246 ( 210,000,000 210,000,000 03/04/94 6.875 03/01/01
93-M-0981 05/16/94 275,000,000 275,000,000 05/23/95 7.75 05/15/06
</TABLE>
<TABLE>
<CAPTION>
(B) First Mortgage Bonds issued by Central New York Power Corporation:
<S> <C> <C> <C> <C> <C> <C>
11642 11/15/44 48,000,000 (1) 10/01/44 3.0 10/01/74
</TABLE>
<TABLE>
<CAPTION>
(C) First Mortgage Bonds issued by Buffalo Niagara Electric Corporation:
<S> <C> <C> <C> <C> <C> <C>
11748 12/11/45 56,929,000 (1) 11/01/45 2.75 11/01/75
</TABLE>
<TABLE>
<CAPTION>
(D) First Mortgage Bonds issued by New York Power and Light Corporation:
<S> <C> <C> <C> <C> <C> <C>
11618 04/10/45 50,000,000 (1) 03/01/45 2.75 03/01/75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(E) First Mortgage Bonds issued by Paul Smith's Electric Light and Power
and Railroad Company
<S> <C> <C> <C> <C> <C> <C>
14515 03/20/50 1,100,000 (1) 04/01/50 3.375 04/01/75
(09/15/53
16400 (03/22/54 450,000 (1) 07/01/54 4.50 07/01/79
21302 09/13/60 450,000 (1) 05/01/60 5.50 5/01/85
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(F) Unsecured Convertible Debentures issued by Niagara Mohawk Power
Corporation:
<S> <C> <C> <C> <C> <C> <C>
18134 01/07/57 46,224,200 (2) 2/01/57 4.625 02/01/72
</TABLE>
<TABLE>
<CAPTION>
(G) Promissory notes issued by Niagara Mohawk Power Corporation:
<S> <C> <C> <C> <C> <C> <C>
26630 06/11/74 46,600,000 (4) 06/01/74 8.0 06/01/04
28020 08/19/81 50,000,000 (4) 09/23/81 18.0 09/15/89
28020 08/19/81 17,000,000 (4) 09/23/81 10.0 09/15/89
28981 )
28982 )06/26/85 100,000,000 100,000,000 09/05/85 Various 07/01/15
28983 )
28646 (
28833 (10/30/85 75,000,000 75,000,000 12/23/85 Various 12/01/25
</TABLE>
<PAGE>
Exhibit A
Sheet 9 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
<TABLE>
<CAPTION>
6&8. BONDS, ETC. AUTHORIZED BY THE COMMISSION AND ISSUED/OUTSTANDING BY THE
COMPANY (CONT'D)
Face Value
of Bonds
Case Date of Authorized Amount Date of Interest Date of
Number Order and Issued Outstanding Issue Rate % Maturity
- ------ ------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
28907
29043
29357 )09/10/86 50,000,000 50,000,000 12/18/86 Various 12/01/26
29352
29353 (12/17/86 100,000,000 (1) Various Various Various
29415
29474
29475 )04/08/87 100,000,000 (1) Various Various Various
29478
88M-256 (
88M-257 (05/03/89 100,000,000 20,000,000 Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(H) New York State Energy Research And Development Authority (NYSERDA)
Unsecured Promissory Note:
<S> <C> <C> <C> <C> <C> <C>
28015 10/14/81 9,600,000 (1) Various Various 07/14/82
</TABLE>
<TABLE>
<CAPTION>
(I) NYSERDA Tax Exempt Revenue Notes:
<S> <C> <C> <C> <C> <C> <C>
28465
28466 )06/29/83 56,000,000 (1) Various Various Various
28467
29416 (12/17/86 25,760,000 25,760,000 03/26/87 Various 03/01/27
29417
29512
29513 )04/08/87 93,200,000 93,200,000 07/16/87 Various 07/01/27
88-M-078 (
88-M-079 (09/28/88 69,800,000 69,800,000 12/28/88 Various 12/01/23
</TABLE>
<TABLE>
<CAPTION>
(J) Revolving Credit and Term Loan Agreement: (commercial paper notes)
<S> <C> <C> <C> <C> <C> <C>
27753 07/09/80 50,000,000 (1) Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(K) Revolving Credit Agreement - Oswego Facilities Trust:
<S> <C> <C> <C> <C> <C> <C>
27493 09/21/83 100,000,000 (4) Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(L) Liability for Nuclear Fuel Disposal Costs:
<S> <C> <C> <C> <C> <C> <C>
28525 03/20/84 111,440,548 111,440,548 03/20/84 Various 1998
</TABLE>
<TABLE>
<CAPTION>
(M) Unsecured Promissory Notes:
<S> <C> <C> <C> <C> <C> <C>
28465 05/30/84 20,000,000 (1) 07/31/84 15.02% 07/31/90
28465 05/30/84 30,000,000 (1) 08/27/84 15.02% 08/27/90
</TABLE>
<TABLE>
<CAPTION>
(N) Swiss Franc Bonds issued by Niagara Mohawk Power Corporation:
<S> <C> <C> <C> <C> <C> <C>
28980 08/14/85 50,000,000 (1) 11/14/85 5.50% 12/15/95
</TABLE>
<TABLE>
<CAPTION>
(0) Obligation Under Capital Leases - Noncurrent:
<S> <C> <C> <C> <C> <C> <C>
- - - - 27,949,088 Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(P) Revolving Credit and Loan Agreement:
<S> <C> <C> <C> <C> <C> <C>
28875 09/19/84 25,000,000 (1) 12/31/86 Various Various
93-M-0981 05/16/96 200,000,000 (1) Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(Q) NUG Contract Termination Liability
<S> <C> <C> <C> <C> <C> <C>
- - - - 11,600,000 Various Various Various
</TABLE>
<TABLE>
<CAPTION>
(R) Senior Debt Facility:
<S> <C> <C> <C> <C> <C> <C>
12733 12/13/95 105,000,000 105,000,000 Various Various 06/30/99
<FN>
(1) Repaid on date of maturity.
(2) Converted into 1,414,368 shares of common stock at $31.75 per
share (cash paid in lieu of 5,056.94 fractional shares)
$45,066,400 Redeemed for cash on 10/01 /59 616,1 00 shares
Redeemed for cash on 09/19/60 541,700 shares Conversion
privilege - 02/01/57 - 09/19/60
(3) Partially redeemed through sinking fund requirements and/or
other options under the mortgage agreements.
(4) Partial or full repayment prior to maturity.
</FN>
</TABLE>
<PAGE>
Sheet 10 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
DESCRIPTION OF MORTGAGES:
(A) The original Mortgage Trust Indenture of Central New York Power Corporation
(name changed to Niagara Mohawk Power Corporation) dated October 1, 1937,
and supplemental indentures dated as of the following dates: December 1,
1938, April 15, 1939, July 1, 1940, January 1, 1942, October 1, 1944, June
1, 1945, August 17, 1948, December 31, 1949, January 1, 1950, October 1,
1950, October 19, 1950, December 1, 1951, February 1, 1953, February 20,
1953, October 1, 1953, August 1, 1954, April 25, 1956, May 1, 1956,
September 1, 1957, June 1, 1958, March 15, 1960, April 1, 1960, November 1,
1961, December 1, 1964, October 1, 1966, July 15, 1967, August 1, 1967,
August 1, 1968, December 1, 1969, February 1, 1971, February 1, 1972,
August 1, 1972, December 1, 1973, October 1, 1974, March 1, 1975, August 1,
1975, March 15, 1977, August 1, 1977, December 1, 1977, March 1, 1978,
December 1, 1978, September 1, 1979, October 1, 1979, June 15, 1980,
September 1, 1980, March 1, 1981, August 1, 1981, March 1, 1982, April 1,
1982, June 1, 1982, August 1, 1982, November 1, 1982, March 1, 1983, May 1,
1983, June 15, 1983, March 1, 1984, May 1, 1984, July 1, 1984, October 1,
1984, January 31, 1985, February 1, 1985, February 15, 1985, November 1,
1985, June 1, 1986, August 1, 1986, October 1, 1986, November 1, 1986, July
1, 1987, May 1, 1988, February 1, 1989, April 1, 1989, October 1, 1989,
June 1, 1990, November 1, 1990, March 1, 1991 and October 1, 1991, April 1,
1992, June 1, 1992, July 1, 1992, August 1, 1992, April 1, 1993, July 1,
1993, September 1, 1993, March 1, 1994, July 1, 1994, May 1, 1995 and March
20, 1996 were given by Niagara Mohawk Power Corporation (Central New York
Power Corporation prior to January 5, 1950) to the Marine Midland Trust
Company of New York (Now Marine Midland Bank) as Trustee. Marine Midland
Bank was replaced as Trustee by Bankers Trust Company as of March 19, 1996.
The amount of the indebtedness authorized to be secured thereby is
unlimited. The amount of indebtedness actually incurred by Niagara Mohawk
Power Corporation was $6,340,555,000 (for Niagara Mohawk Power Corporation
and its prior companies, the amount of indebtedness actually incurred was
$6,497,484,000) and the amount presently outstanding is $2,841,305,000.
This mortgage covers all major properties of Niagara Mohawk Power
Corporation.
<PAGE>
Exhibit A
Sheet 11 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
9. AFFILIATED INTEREST:
NONE
10. OTHER INDEBTEDNESS:
Notes Payable $ --
Other current and accrued liabilities 699,231,602
Total $699,231,602
11. INTEREST ACCRUED FROM DECEMBER 31, 1996 TO JUNE 30, 1997:
Interest on Mortgage Bonds @ 6-5/8% $ 3,643,750
Interest on Mortgage Bonds @ 5-7/8% 6,756,250
Interest on Mortgage Bonds @ 6-1/4% 1,250,000
Interest on Mortgage Bonds @ 6-1/2% 1,950,000
Interest on Mortgage Bonds @ 6-7/8% 2,921,875
Interest on Mortgage Bonds @ 6-5/8% 1,510,500
Interest on Mortgage Bonds @ 7-7/8% 8,268,750
Interest on Mortgage Bonds @ 9-1/4% 4,625,000
Interest on Mortgage Bonds @ 9-1/2% 7,125,000
Interest on Mortgage Bonds @ 9-3/4% 7,312,500
Interest on Mortgage Bonds @ 9-1/2% 7,125,000
Interest on Mortgage Bonds @ 8-7/8% 3,328,125
Interest on Mortgage Bonds @ 8-3/4% 6,562,500
Interest on Mortgage Bonds @ 8-1/2% 7,012,500
Interest on Mortgage Bonds @ 8.00% 12,000,000
Interest on Mortgage Bonds @ 7-3/8% 8,112,500
Interest on Mortgage Bonds @ 7.20% 4,165,380
Interest on Mortgage Bonds @ 6-7/8% 7,218,750
Interest on Mortgage Bonds @ 7-3/4% 10,656,250
Interest on NYSERDA Notes @ Various 8,550,283
Interest on Medium Term Notes Series C 997,000
Interest on Senior Debt Facility @ Various 3,928,932
Interest on Nuclear Fuel Disposal Costs 1,790,680
------------
Total interest on long-term debt $126,811,525
============
<PAGE>
EXHIBIT A
SHEET 12 OF 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
11. INTEREST ACCRUED FROM DECEMBER 31, 1996 TO JUNE 30, 1997:
Interest on Customer Deposits $ 436,838
Interest on Suppliers Refunds 8,616
Interest on Refunds Due to Incorrect Charges on Customer Bills 84,602
Interest on Nine Mile 2 Co-Tenancy Inventory Carrying Cost 1,137,762
Interest on Salina Meadows and various leases 130,271
Interest on late payments to unregulated generators (166,471)
Interest on tax assessments 23,236
Interest on gas contingency reserve balance 510,486
Interest on early payment of gas supplier invoices (316,641)
Interest on municipal street lighting audits 263,972
Interest on cogeneration settlement (Indeck-Yerkes) 60,060
---------
Total Other Interest Expense 2,172,731
=========
<PAGE>
Exhibit A
Sheet 13 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1991 TO DECEMBER 31, 1991:
Preferred Stock:
3.40% Series ($ 3.40 per share) $ 680,000
3.60% Series ($ 3.60 per share) 1,260,000
3.90% Series ($ 3.90 per share) 936,005
4.10% Series ($ 4.10 per share) 861,001
4.85% Series ($ 4.85 per share) 1,212,503
5.25% Series ($ 5.25 per share) 1,050,003
6.10% Series ($ 6.10 per share) 1,525,001
7.45% Series ($ 7.60 per share) 2,525,550
7.72% Series ($ 7.72 per share) 3,088,000
10.60% Series ($ 10.60 per share) 742,000
9.75% Series ($ 2.5876 per share)(First) 1,115,156
8.375% Series ($ 2.1340 per share) 1,517,969
8.75% Series ($ 2.1875 per share) 6,562,500
12-50% Series ($ 3.125 per share) 1,159,679
12-25% Series ($ 3.0625 per share) 1,258,061
8.70% Series ($ 12.175 per share) 2,175,000
7.85% Series ($ 1.9625 per share) 343,798
Adjustable Rate Series A 2,268,750
10.75% Series ($2.6875 per share) 430,000
Adjustable Rate Series B 4,906,250
Adjustable Rate Series C 4,793,750
----------
Common Stock ($0.32 per share) $ 40,410,976
43,551,890
----------
$ 83,962,866
============
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1992 TO DECEMBER 31, 1992:
Preferred Stock:
3.40% Series ($ 3.40 per share) $ 680,000
3.60% Series ($ 3.60 per share) 1,260,000
3.90% Series ($ 3.90 per share) 936,005
4.10% Series ($ 4.10 per share) 861,001
4.85% Series ($ 4.85 per share) 1,212,503
5.25% Series ($ 5.25 per share) 1,050,002
6.10% Series ($ 6.10 per share) 1,525,001
7.45% Series ($ 7.45 per share) 2,391,450
7.72% Series ($ 7.72 per share) 3,088,000
10.60% Series ($10.60 per share) 159,000
9.75% Series ($ 2.4375 per share) 954,281
8.375% Series ($ 2.1340 per share) 1,308,594
7.85% Series ($ 1.9625 per share) 1,793,735
Adjustable Rate Series B 4,343,750
Adjustable Rate Series A 1,980,000
Adjustable Rate Series C 4,231,250
8.75% Series ($2.1875 per share) 6,562,500
8.70% Series.($2.175 per share) 2,175,000
---------
Common Stock ($.76 per share) $ 36,512,072
103,784,290
-----------
$140,296,362
============
<PAGE>
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1993 TO DECEMBER 31, 1993:
Preferred Stock:
3.40% Series ($3.40 per share) $ 680,000
3.60% Series ($3.60 per share) 1,260,000
3.90% Series ($3.90 per share) 936,005
4.10% Series ($4.10 per share) 861,000
4.85% Series ($4.85 per share) 1,212,503
5.25% Series ($5.25 per share) 1,050,002
6.10% Series ($6.10 per share) 1,525,001
7.45% Series ($7.45 per share) 2,257,350
7.72% Series ($7.72 per share) 3,088,000
9.75% Series ($9.75 per share) 793,406
8.375% Series ($8.375 per share) 1,099,219
7.85% Series ($7.85 per share) 1,793,735
Adjustable Rate Series B 3,898,438
Adjustable Rate Series A 1,950,001
Adjustable Rate Series C 3,775,000
8.75% Series 3,937,500
8.70% Series 7,740,000
---------
Common Stock ($.95 per share) $ 31,857,160
133,908,204
-----------
$165,765,364
============
<PAGE>
Exhibit A
Sheet 14 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1994 TO DECEMBER 31, 1994:
Preferred Stock:
3.40% Series ($ 3.40 per share) $680,000
3.60% Series ($ 3.60 per share) 1,260,000
3.90% Series ($ 3.90 per share) 936,005
4.10% Series ($ 4.10 per share) 861,000
4.85% Series ($ 4.85 per share) 1,212,503
5.25% Series ($ 5.25 per share) 1,050,002
6.10% Series ($ 6.10 per share) 1,525,001
7.45% Series ($ 7.60 per share) 2,123,250
7.72% Series ($7.72 per share) 3,088,000
7.85% Series ($7.85 per share) 1,793,735
8.375% Series ($8.375 per share)(First) 889,844
8.70% Series 870,000
8.75% Series 1,312,500
9.50% Series 5,700,000
9.75% Series ($9.75 per share) 632,531
Adjustable Rate Series A 1,950,001
Adjustable Rate Series B 3,900,469
Adjustable Rate Series C 3,887,500
---------
Common Stock ($1.09 per share) $ 33,672,341
156,060,222
-----------
$189,732,563
============
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1995 TO DECEMBER 31, 1995:
Preferred Stock:
3.40% Series ($ 3.40 per share) $ 680,000
3.60% Series ($ 3.60 per share) 1,260,000
3.90% Series ($ 3.90 per share) 936,004
4.10% Series ($ 4.10 per share) 861,001
4.85% Series ($ 4.85 per share) 1,212,502
5.25% Series ($ 5.25 per share) 1,050,002
6.10% Series ($ 6.10 per share) 1,525,001
7.45% Series ($ 7.45 per share) 1,989,150
7.72% Series ($ 7.72 per share) 3,088,000
7.85% Series ($ 7.85 per share) 1,793,735
8.375% Series ($ 8.375 per share) 680,469
8.70% Series 217,500
9.50% Series 14,250,010
9.75% Series ($ 9.75 per share) 471,656
Adjustable Rate Series A 1,957,501
Adjustable Rate Series B 3,723,125
Adjustable Rate Series C 3,900,000
---------
Common Stock ($ 1.12 per share) $ 39,595,656
161,650,599
-----------
$201,246,255
============
<PAGE>
DIVIDENDS DECLARED AND PAID FROM JANUARY 1, 1996 TO DECEMBER 31, 1996:
Preferred Stock:
3.40% Series ($3.40 per share) $ 680,000
3.60% Series ($3.60 per share) 1,260,000
3.90% Series ($3.90 per share) 936,004
4.10% Series ($4.10 per share) 861,001
4.85% Series ($4.85 per share) 1,212,502
5.25% Series ($5.25 per share) 1,050,002
6.10% Series ($6.10 per share) 1,525,001
7.45% Series ($7.45 per share) 1,855,050
7.72% Series ($7.72 per share) 3,088,000
7.85% Series ($7.85 per share) 1,793,735
8.375% Series ($8.375 per share) 471,094
9.50% Series 14,250,010
9.75% Series ($9.75 per share) 263,250
Adjustable Rate Series A 1,950,001
Adjustable Rate Series B 3,410,156
Adjustable Rate Series C 3,675,000
---------
$ 38,280,806
--
Common Stock (no dividend declared) $ 38,280,806
============
<PAGE>
Exhibit A
Sheet 15 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
13. CONTINGENT ASSETS AND CONTINGENT LIABILITIES AND UNPAID CUMULATIVE
DIVIDENDS ACCRUED
(a) Statement of Contingent Assets and Contingent Liabilities.
LONG-TERM CONTRACTS FOR THE PURCHASE OF ELECTRIC POWER: At January 1,
1997, the Company had long-term contracts to purchase electric power
from the following generating facilities owned by New York Power
Authority (NYPA):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Expiration date Purchased capacity Estimated annual
Facility of contract in Kw. capacity cost
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Niagara - hydroelectric project........................... 2007 936,000 $26,176,000
St. Lawrence - hydroelectric project...................... 2007 104,000 1,300,000
Blenheim-Gilboa - pumped storage generating station....... 2002 270,000 7,500,000
Fitzpatrick - nuclear plant............................... 2014 110,000(1) 4,785,000
- ---------------------------------------------------------------------------------------------------------------------------------
1,420,000 $39,761,000
========================================================== ================== ====================== ==========================
</TABLE>
(a) 110,000 Kw through May 1997; 26,000 Kw thereafter
The purchase capacities shown above are based on the contracts
currently in effect. The estimated annual capacity costs are subject to price
escalation and are exclusive of applicable energy charges. The total cost of
purchases under these contracts was approximately, in millions, $93.3, $92.5 and
$85.1 for the years 1996, 1995 and 1994, respectively.
Under the requirements of the Federal Public Utility Regulatory
Policies Act of 1978, the Company is required to purchase power generated by
Independent Power Producers (IPPs), as defined therein. The Company has 157 IPP
contracts, of which 148 are on line, amounting to approximately 2,710 MW of
capacity at December 31, 1996. Of this amount 2,406 MW is considered firm. The
following table shows the payments for fixed and other capacity costs, and
energy and related taxes the Company estimates it will be obligated to make
under these contracts without giving effect to the IPP agreement-in-principle.
The payments are subject to the tested capacity and availability of the
facilities, scheduling and price escalation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In thousands of dollars)
Schedulable Fixed Costs
-----------------------
Year Capacity Other Energy and Taxes Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $223,880 $ 40,510 $ 873,030 $1,137,420
1998 247,740 41,420 906,590 1,195,750
1999 252,130 42,450 943,720 1,238,300
2000 242,030 44,080 974,080 1,260,190
2001 244,620 45,650 1,042-380 1,332,650
- -------------------------------------------------------------------------------
</TABLE>
The capacity and other fixed costs relate to contracts with 11
facilities where the Company is required to make capacity and other fixed
payments, including payments when a facility is not operating but available for
service. These 11 facilities account for approximately 774 MW of capacity, with
contract lengths ranging from 20 to 35 years. The terms of these existing
contracts allow the Company to schedule energy deliveries from the facilities
and then pay for the energy delivered. The Company estimates the fixed payments
under these contracts will aggregate to approximately $8
<PAGE>
Exhibit A
Sheet 16 of 23
billion dollars over their terms, using escalated contract rates. Contracts
relating to the remaining facilities in service at December 31, 1996,
require the Company to pay only when energy is delivered, except when the
Company decides that it would be better to pay a particular project a reduced
energy payment to have the project reduce its high priced energy deliveries as
described below. The Company currently recovers schedulable capacity through
base rates and energy payments, taxes and other schedulable fixed costs through
the fuel adjustment clause (FAC). The Company paid approximately $1,088 million,
$980 million and $960 million in 1996, 1995 and 1994 for 13,800,000 MWh,
14,000,000 MWh and 14,800,000 MWh, respectively, of electric power under all IPP
contracts.
On March 10, 1997, the Company and 19 developers of IPP projects
jointly announced an agreement-in-principle to terminate or restructure 44 power
purchase contracts. These contracts represent more than 90% of the Company's
above-market power costs under all existing IPP contracts. The agreement
contemplates that the Company would terminate or restructure the 44 power
contracts in exchange for approximately $3.6 billion in cash and/or marketable
debt securities, and 46 million shares of the Company's common stock,
representing approximately 25% of the anticipated fully diluted outstanding
common shares. The new debt will be subordinate to existing first mortgage
bonds. The value of the common equity will vary depending on the market value of
the shares at closing. In addition, the Company and several IPPs would enter
into new agreements that would further compensate the IPPs and hedge prices for
specific amounts of power. As noted in the Company's 1996 Form 10-K filed with
the Securities and Exchange Commission. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Announced
Agreement-in-Principle to Terminate or Restructure 44 IPP Contracts,"
implementation of these arrangements are subject to a number of contingencies.
Separate from the agreement-in-principle, the Company has negotiated
three long term and sixteen limited term contract amendments whereby the Company
can reduce the energy deliveries from the facilities. These reduced energy
agreements resulted in a reduction of IPP deliveries of approximately 984,000
Mwh during 1996. The Company expects to continue efforts of these types into the
future, to control its power supply and related costs, but at this time cannot
predict the outcome of such efforts.
SALE OF CUSTOMER RECEIVABLES: The parent Company has established a
single-purpose, wholly-owned financing subsidiary, NM Receivables Corp., whose
business consists of the purchase and resale of an undivided interest in a
designated pool of customer receivables, including accrued unbilled revenues.
For receivables sold, the Company has retained collection and administrative
responsibilities as agent for the purchaser. As collections reduce previously
sold undivided interests, new receivables are customarily sold. NM Receivables
Corp. has its own separate creditors which, upon liquidation of NM Receivables
Corp., will be entitled to be satisfied out of its assets prior to any value
becoming available to its equity holders. The sale of receivables are in fee
simple for a reasonably equivalent value and are not secured loans. Some
receivables have been contributed in the form of a capital contribution to NM
Receivables Corp. in fee simple for reasonably equivalent value, and all
receivables transferred to NM Receivables Corp. are assets owned by NM
Receivables Corp. in fee simple and are not available to pay the parent
Company's creditors.
At June 30, 1997 and December 31, 1996, $250 million of receivables had
been sold by NM Receivables, Corp. to a third party. The undivided interest in
the designated pool of receivables was sold with limited recourse. The agreement
provides for a formula based loss reserve pursuant to which additional customer
receivables are assigned to the purchaser to protect against bad debts. At
December 31, 1996, the amount of additional receivables assigned to the
purchaser, as a loss reserve, was approximately $85.8 million. Although this
represents the formula-based amount of credit exposure at December 31, 1996
under the agreement, historical losses have been
<PAGE>
Exhibit A
Sheet 17 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
substantially less.
To the extent actual loss experience of the pool receivables exceeds
the loss reserve, the purchaser absorbs the excess. Concentrations of credit
risk to the purchaser with respect to accounts receivable are limited due to the
Company's large, diverse customer base within its service territory. The Company
generally does not require collateral, i.e., customer deposits.
TAX ASSESSMENTS: The Internal Revenue Service (IRS) has conducted an
examination of the Company's federal income tax returns for the years 1989 and
1990 and issued a Revenue Agents' Report. The IRS has raised an issue concerning
the deductibility of payments made to IPPs in accordance with certain contracts
that include a provision for a tracking account. A tracking account represents
amounts that these mandated contracts required the Company to pay IPPs in excess
of the Company's avoided costs, including a carrying charge. The IRS proposes to
disallow a current deduction for amounts paid in excess of the avoided costs of
the Company. Although the Company believes that any such disallowances for the
years 1989 and 1990 will not have a material impact on its financial position or
results of operations, it believes that a disallowance for these above-market
payments for the years subsequent to 1990 could have a material adverse affect
on its cash flows. To the extent that contracts involving tracking accounts are
terminated or restated or amended under the MRA with IPPs as described in the
Company's June 30, 1997 Form 10-Q filed with the Securities and Exchange
Commission, then it is possible that the effects of any proposed disallowance
would be mitigated. The Company is vigorously defending its position on this
issue. The IRS has commenced its examination of the Company's federal income tax
returns for the years 1991 through 1993.
LITIGATION: In March 1993, Inter-Power of New York, Inc. (Inter-Power),
filed a complaint against the Company and certain of its officers and employees
in the NYS Supreme Court. Inter-Power alleged, among other matters, fraud,
negligent misrepresentation and breach of contract in connection with the
Company's alleged termination of a power purchase agreement (PPA) in January
1993. The plaintiff sought enforcement of the original contract or compensatory
and punitive damages in an aggregate amount that would not exceed $1 billion,
excluding pre-judgment interest.
In early 1994, the NYS Supreme Court dismissed two of the plaintiff's
claims; this dismissal was upheld by the Appellate Division, Third Department of
the NYS Supreme Court. Subsequently, the NYS Supreme Court granted the Company's
motion for summary judgment on the remaining causes of action in Inter-Power's
complaint. In August 1994, Inter-Power appealed this decision and on July 27,
1995, the Appellate Division, Third Department affirmed the granting of summary
judgment as to all counts, except for one dealing with an alleged breach of the
PPA relating to the Company's having declared the agreement null and void on the
grounds that Inter-Power had failed to provide it with information regarding its
fuel supply in a timely fashion. This one breach of contract claim was remanded
to the NYS Supreme Court for further consideration. Discovery on this one breach
of contract claim is currently in progress.
The Company is unable to predict the ultimate disposition of this
lawsuit. However, the Company believes it has meritorious defenses and intends
to defend this lawsuit vigorously, but can neither provide any judgment
regarding the likely outcome nor provide any estimate or range of possible loss.
Accordingly, no provision for liability, if any, that may result from this
lawsuit has been made in the Company's financial statements.
ENVIRONMENTAL CONTINGENCIES: The public utility industry typically
utilizes and/or generates in its operations a broad range of potentially
hazardous wastes and by-products. The Company believes it is handling identified
wastes and by-products in a manner consistent with federal, state and local
requirements and has implemented an environmental audit program to
<PAGE>
Exhibit A
Sheet 18 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
identify any potential areas of concern and assure compliance with such
requirements. The Company is also currently conducting a program to investigate
and restore, as necessary to meet current environmental standards, certain
properties associated with its former gas manufacturing process and other
properties which the Company has learned may be contaminated with industrial
waste, as well as investigating identified industrial waste sites as to which it
may be determined that the Company contributed. The Company has also been
advised that various federal, state or local agencies believe certain properties
require investigation and has prioritized the sites based on available
information in order to enhance the management of investigation and remediation,
if necessary.
The Company is currently aware of 89 sites with which it has been or
may be associated, including 45 which are Company-owned. With respect to
non-owned sites, the Company may be required to contribute some proportionate
share of remedial costs.
Investigations at each of the Company-owned sites are designed to (1)
determine if environmental contamination problems exist, (2) if necessary,
determine the appropriate remedial actions required for site restoration and (3)
where appropriate, identify other parties who should bear some or all of the
cost of remediation. Legal action against such other parties will be initiated
where appropriate. After site investigations are completed, the Company expects
to determine site-specific remedial actions and to estimate the attendant costs
for restoration. However, since technologies are still developing the ultimate
cost of remedial actions may change substantially.
Estimates of the cost of remediation and post-remedial monitoring are
based upon a variety of factors, including identified or potential contaminants;
location, size and use of the site; proximity to sensitive resources; status of
regulatory investigation and knowledge of activities at similarly situated
sites; and the United States Environmental Protection Agency figure for average
cost to remediate a site. Actual Company expenditures are dependent upon the
total cost of investigation and remediation and the ultimate determination of
the Company's share of responsibility for such costs, as well as the financial
viability of other identified responsible parties since clean-up obligations are
joint and several. The Company has denied any responsibility in certain of these
potentially responsible party (PRP) sites and is contesting liability
accordingly.
As a consequence of site characterizations and assessments completed to
date and negotiations with PRP'S, the Company has accrued a liability in the
amount of $225 million, which is reflected in the Company's Consolidated Balance
Sheets at June 30, 1997 and December 31, 1996. This liability represents the low
end of the range of its share of the estimated cost for investigation and
remediation. The potential high end of the range is presently estimated at
approximately $850 million, including approximately $340 million in the unlikely
event the Company is required to assume 100% responsibility at non-owned sites.
in addition, the Company has recorded a regulatory asset representing the
remediation obligations to be recovered from ratepayers.
Where appropriate, the Company has provided notices of insurance claims
to carriers with respect to the investigation and remediation costs for
manufactured gas plant, industrial waste sites and sites for which the Company
has been identified as a PRP. The Company has settled some of these claims and
continues to pursue others, but is unable to predict what the final ratemaking
disposition will be.
<PAGE>
Exhibit A
Sheet 19 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
14. ANALYSIS OF MISCELLANEOUS PAID-IN CAPITAL CREDITS
<TABLE>
<CAPTION>
Contribution by Niagara Hudson Power Corporation on January 5, 1950 of:
<S> <C> <C>
Capital stocks of certain subsidiaries
at aggregate stated values $7,356,600
Other investments 52,277 $7,408,877
----------
Amount of cash received upon liquidation of
Niagara Hudson Power Corporation in
excess of the estimated liabilities 500,000
Contributions in aid of construction acquired
upon merger of Old Forge Electric Corporation
credited to unearned surplus pursuant to the
commission's order dated March 18, 1952 -
Case 13343 28,773
Unearned surplus of the Oswego Canal Company
acquired upon merger as of March 31, 1952,
less write-down of its utility plant by
$67,212.60 209,084
Transfer of the excess amounts reflected in the
depreciation reserve balances at December 31,
1951 pursuant to the Commission's order
dated July 8, 1953 in Case 14808 18,258,503
Excess of book value over purchase price of
Capital stock of the Woodville Electric
Light and Power Company - Case 17894 5,164
Refund of deposits for script certificates of
Niagara Hudson Power Corporation which
expired January 5, 1958 124,121
Proceeds per Court Order dated January 23, 1961
covering sale of unexchanged shares of Niagara
Mohawk Power Corporation common stock (5,173 shares) 204,267
Excess at January 17, 1966 of the book value of
Paul Smith's Electric Light and Power and Railroad
Company ($1,848,871) over 41,750 shares of the
Company's common stock at market of $26 per share
($1,085,500) given therefore - Case 23754 by order
dated October 15, 1965 763,371
To record subsidiaries on the "Equity" basis:
Excess book value over the cost of investments at the
date of acquisition of Canadian Niagara Power Co., Ltd.
($3,547,284) and St. Lawrence Power Co. ($903,145) as
previously recorded on Company's books. Ownership of these
companies was transferred to Opinac Energy Corporation
(formerly Opinac Investments, Limited) during 1982. 4,360,429
Excess of book value over the cost of investment carried
on the Company's books at date of acquisition of Moreau
Manufacturing Corporation 477,984
-----------
Total Credits $32,340,573
</TABLE>
<PAGE>
Exhibit A
Sheet 20 of 23
FINANCIAL CONDITION OF
NIAGARA MOHAWK POWER CORPORATION
JUNE 30, 1997 (CONT'D)
14. ANALYSIS OF MISCELLANEOUS PAID-IN CAPITAL DEBITS:
<TABLE>
<S> <C> <C>
Transfer to Common Capital Stock as authorized by the
Commission in Case 16389 by order dated August 18, 1953 $18,258,503
Excess of carrying value of lands, etc. relating to the
St. Lawrence Project over the consideration received pursuant
to the Commission's ordeproject over January 26, 1959 -
Case 15212 5,271,767
Transferred to Accumulated Provision for Depreciation of Electric
Plant in Service an amount previously credited to Miscellaneous
Paid-in Capital, representing the excess of the book value of
Paul Smith's Electric Light and Power and Railroad Company,
$1,848,872 over 41,750 shares of $8 per common stock
of Company, $1,085,500 as authorized by PSC - Case 23754 763,371
Excess of the cost of investment carried on the Company's books
over the book value at date of acquisition of Beebee Island
Corporation to record subsidiary on the "Equity" basis. 62,872
------------
Total Debits 24,356,513
------------
Balance June 30, 1997 $ 7,984,060
===========
</TABLE>
15. AMORTIZATION OF DEFERRED DEBITS AND DEFERRED CREDITS OR OTHER
BALANCE SHEET ACCOUNTS:
Capital Stock Expense:
Miscellaneous Amortization:
Capital stock expense is being amortized by debiting account 425 -
Miscellaneous Amortization as any series of stock is and retired
in accordance with sinking fund provisions.
Amortization of Debt Discount and Expense:
Original amounts of debt discount and expense applicable to
bonds outstanding are being amortized in equal annual
installments over the lives of the issues, by
debiting account 428 - Amortization of Debt Discount
and Expense. Also included in the debt expense being
amortized are refunding premiums, commission and
expenses relating to long-term debt reacquired prior
to maturity.
Amortization of Premium on Debt:
Original amounts of premium applicable to bonds outstanding are
being amortized in equal annual installments over the lives of the
issues, by crediting account 429 - Amortization of Premium on Debt
- Credit.
16. INCOME STATEMENTS AND BALANCE SHEETS:
Detailed income statement for the 6 and 12 months ending June 30,
1997 and balance sheet at June 30, 1997 are attached.
<PAGE>
Exhibit A
Sheet 21 of 23
NIAGARA MOHAWK POWER CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
Utility Operating Income: JUNE 30, 1997 JUNE 30, 1997
- ------------------------ ------------------------ -----------------
<S> <C> <C> <C>
400 Operating Revenues................................................ $2,109,951,296 $3,970,529,486
------------------------ -----------------
401 Operating Expenses................................................ 1,242,291,501 2,449,116,397
402 Maintenance Expenses.............................................. 100,974,015 196,429,971
403 Depreciation Expense.............................................. 167,872,325 331,724,346
404 Amortization of Limited-Term Electric Plant....................... 165,236 370,784
405 Amortization of Other Utility Plant............................... 384,817 682,541
406 Amortization of Utility Plant Acquisition Adjustments............. 17,098 32,933
407 Amortization of Property Losses................................... 581,201 1,402,241
408.1 Taxes Other Than Income........................................... 241,018,385 468,478,892
409.1 Federal Income Taxes.............................................. 56,910,000 93,736,768
410.1 Provision for Deferred Income Taxes............................... 104,027,000 152,701,000
411.1 Provision for Deferred Income Taxes - Credit...................... (61,587,000) (117,578,000)
411.4 Investment Tax Credit Adjustment.................................. -- (7,806,000)
------------------------ -----------------
Total Operating Expenses.......................................... 1,852,654,578 3,569,291,873
------------------------ -----------------
Net Operating Revenues............................................ 257,297,718 401,237,613
------------------------ -----------------
412 Revenues from Utility Plant Leased to Others...................... 861,900 1,830,282
413 Expenses of Utility Plant Leased to Others........................ 8,205 16,410
------------------------ -----------------
Total Utility Operating Income.................................... 258,151,413 403,051,485
------------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
Other Income:
- ------------
<S> <C> <C> <C>
418 Non-Opearting Rental Income....................................... (118,839) (264,035)
418.1 Equity in Earnings of Subsidiary Companies........................ 1,664,788 11,584,697
419 Interest and Dividend Income...................................... 11,382,711 20,105,845
419.1 Allowance for Funds Used During Construction...................... 4,818,389 9,316,589
421 Miscellaneous Non-Operating Income................................ 4,083,398 8,556,862
421.l Gain on Disposition of Property................................... (188,231) (110,819)
------------------------ -----------------
Total Other Income................................................ 21,642,216 49,189,139
------------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
Other Income Deductions:
- -----------------------
<S> <C> <C> <C>
421.2 Loss on Disposition of Property................................... 818,027 1,055,491
425 Miscellaneous Amortization........................................ 237,912 544,820
426 Miscellaneous Income Deductions................................... 1,848,148 1,184,237
------------------------ ----------------
Total Other Income Deductions..................................... 2,904,087 2,784,548
------------------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
Taxes - Other Income and Deductions:
- -----------------------------------
<S> <C> <C> <C>
408.2 Taxes Other Than Income Taxes.................................. 247,834 491,957
409.2 Miscellaneous Income Tax Adjustments........................... 4,805,000 13,001,000
410.2 Provisions for Deferred Income Taxes........................... -- 2,038,000
411.2 Provisions for Deferred Income Taxes - Credit.................. (4,686,000) (12,173,000)
420 Investment Tax Credit.......................................... (6,350,000) (8,210,000)
------------------------ ----------------
Total Taxes - Other Income and Deductions...................... (5,983,166) (4,852,043)
------------------------ ----------------
Net Other Income and Deductions................................ 24,721,295 51,256,634
------------------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
Interest Charges:
- -----------------
<S> <C> <C> <C>
427 Interest on Long-Term Debt..................................... 126,811,525 254,172,492
428 Amortization of Debt Discount and Expense...................... 10,222,522 18,935,761
429 Amortization of Premium on Debt - Credit....................... (105,273) (223,047)
431 Other Interest Expense......................................... 2,172,731 9,012,462
------------------------ ----------------
Total Interest Charges......................................... 139,101,505 281,897,668
------------------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
Extraordinary Items:
- -------------------
<S> <C> <C> <C>
435 Extraordinary Deductions....................................... -- 103,637,399
409.3 Income Taxes, Extraordinary Items.............................. -- (36,273,000)
------------------------ ----------------
Total Extraordinary Items................................. -- (67,364,399)
------------------------ ----------------
Net Income................................................ $143,771,203 $105,046,052
======================== ================
</TABLE>
<PAGE>
Exhibit A
Sheet 22 of 23
NIAGARA MOHAWK POWER CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
Assets and Other Debits June 30, 1997
- ----------------------- ----------------------
<S> <C> <C>
101 Electric Plant in Service................................................................... $8,584,124,635
101 Gas Plant in Service........................................................................ 1,069,735,282
104 Electric Plant Leased to Others............................................................. 3,829,650
105 Electric Plant Held for Future Use.......................................................... 15,291,221
106 Completed Construction Not Classified - Electric............................................ 117,193,015
106 Completed Construction Not Classified - Gas................................................. 27,510,315
107 Construction Work in Progress............................................................... 259,280,151
108 Accumulated Provision for Depreciation of Electric Plant in Service......................... (3,186,307,168)
108 Accumulated Provision for Depreciation of Gas Plant in Service.............................. (310,396,220)
109 Accumulated Provision for Depreciation of Electric Plant Leased to Others................... (975,537)
111 Accumulated Provision for Amortization and Depletion Electric Plant in Service.............. (14,377,625)
112 Accumulated Provision for Amortization of Electric Plant Leased to Others................... (102,260)
118.1 Common Utility Plant........................................................................ 312,558,332
119.1 Accumulated Provision for Depreciation and Amortization of Common Utility Plant............. (50,297,270)
120 Nuclear Fuel Assemblies..................................................................... 575,750,535
120.5 Accumulated Provision for Amortization of Nuclear Fuel Assemblies........................... (493,805,133)
----------------------
Net Utility Plant........................................................................... 6,889,011,923
----------------------
121 Non-Utility Property (net of reserve)....................................................... 515,272
122 Accumulated Provision for Depreciation and Amortization of Non-Utility Property............. (578,973)
123.1 Investment in Companies..................................................................... 473,679,233
124 Other Investments........................................................................... 123,143
128 Other Special Funds......................................................................... 213,729,224
----------------------
Total Other Property and Investments........................................................ 687,467,899
----------------------
131 Cash........................................................................................ 11,775,978
133 Dividend Special Deposits................................................................... 100
134 Other Special Deposits...................................................................... 7,228,298
135 Working Funds............................................................................... 2,392,808
136 Temporary Cash Investments.................................................................. 462,360,191
141 Notes Receivable............................................................................ 158,162
142 Customer Accounts Receivable................................................................ 4,393,120
143 Other Accounts Receivable................................................................... 15,491,464
146 Accounts Receivable from Associated Companies............................................... (1,822,799)
150 Materials and Supplies...................................................................... 138,895,135
164.1 Gas Stored Underground...................................................................... 23,686,881
165 Prepayments................................................................................. 62,093,819
171 Interest and Dividends Receivable........................................................... 3,826,368
172 Rents Receivable............................................................................ 3,308,692
174 Miscellaneous Current and Accrued Assets.................................................... 6,238,432
----------------------
Total Current and Accrued Assets............................................................ 740,026,649
----------------------
181 Unamortized Debt Expense.................................................................... 115,319,899
182 Extraordinary Property Losses............................................................... 14,191,613
183 Preliminary Survey and Investigation Charges................................................ 2,188,354
184 Clearing Accounts........................................................................... (981,973)
185 Temporary Facilities........................................................................ (60,734)
186 Miscellaneous Deferred Debits............................................................... 1,237,411,743
188 Investment in Research and Development...................................................... (2,383,567)
190 Accumulated Deferred Income Taxes........................................................... 444,321,503
----------------------
Total Deferred Debits....................................................................... 1,810,006,838
----------------------
Total Assets and Other Debits............................................................... $10,126,513,309
======================
</TABLE>
<PAGE>
Exhibit A
Page 23 of 23
NIAGARA MOHAWK POWER CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
Liabilities and Other Credits June 30, 1997
- ----------------------------- ----------------------
<S> <C> <C>
201 Common Stock Issued...................................................................... $144,390,619
204 Preferred Stock Issued................................................................... 532,550,125
207 Premium on Capital Stock................................................................. 1,485,117,797
209 Reduction in Par or Stated Value of Capital Stock........................................ 325,858,036
210 Gain on Resale or Cancellation of Reacquired Stock....................................... 652,172
211 Miscellaneous Paid-In Capital............................................................ 7,984,060
214 Capital Stock Expense.................................................................... (21,011,205)
215 Appropriated Retained Earnings........................................................... 1,461,630
216 Unappropriated Retained Earnings......................................................... 639,291,237
216.1 Unappropriated Undistributed Subsidiary Earnings......................................... 142,251,130
217 Reacquired Capital Stock................................................................. (1,250,000)
----------------------
Total Proprietary Capital................................................................ 3,257,295,601
----------------------
221 Bonds.................................................................................... 2,841,305,000
224 Other Long-Term Debt..................................................................... 689,749,636
225 Unamortized Premium on Long-Term Debt.................................................... 800,750
226 Unamortized Discount on Long-Term Debt - Debit........................................... (11,099,421)
----------------------
3,520,755,965
----------------------
232 Accounts Payable......................................................................... 194,215,807
234 Accounts................................................................................. (137,210)
235 Customer Deposits........................................................................ 16,414,690
236 Taxes Accrued............................................................................ 93,297,343
237 Interest Accrued......................................................................... 63,325,455
239 Matured Long-Term Debt................................................................... 22,291
241 Tax Collections Payable.................................................................. 218,153
242 Miscellaneous Current and Accrued Liabilities............................................ 331,875,073
----------------------
Total Current and Accrued Liabilities.................................................... 699,231,602
----------------------
253 Other Deferred Credits................................................................... 828,195,129
255 Accumulated Deferred Investment Tax Credits.............................................. 174,131,418
282 Accumulated Deferred Income Taxes - Liberalized Depreciation............................. 1,443,497,594
283 Accumulated Deferred Income Taxes - Other................................................ 203,406,000
----------------------
Total Deferred Credits................................................................... 2,649,230,141
----------------------
Total Liabilities and Other Credits...................................................... $10,126,513,309
======================
</TABLE>
<PAGE>
Exhibit B
Sheet 1 of 9
NIAGARA MOHAWK POWER CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
Assets and Other Debits June 30, 1997 December 31, 1996
---------------------- ---------------------
<S> <C> <C> <C>
101 Electric Plant in Service.............................................. $ 8,564,124,635 $ 8,547,804,076
10l Gas Plant in Service................................................... 1,069,735,282 1,066,823,007
104 Electric Plant Leased to Others........................................ 3,829,650 3,890,971
105 Electric Plant Held for Future Use..................................... 15,291,221 15,291,221
106 Completed Construction Not Classified - Electric....................... 117,193,015 44,433,213
106 Completed Construction Not Classified - Gas............................ 27,510,315 814,501
107 Construction Work in Progress.......................................... 259,280,151 279,991,646
108 Accumulated Provision for Depreciation of Electric Plant in Service.... (3,186,307,168) (3,044,310,628)
108 Accumulated Provision for Depreciation of Gas Plant in Service......... (310,396,220) (296,152,223)
109 Accumulated Provision for Depreciation of Electric Plant Leased
to Others........................................................... (975,537) (969,065)
111 Accumulated Provision for Amortization and Depletion Electric
Plant in Service.................................................... (14,377,625) (13,992,808)
112 Accumulated Provision for Amortization of Electric Plant Leased to
Others............................................................. (102,260) (100,527)
118.1 Common Utility Plant................................................... 312,558,332 292,591,189
119.1 Accumulated Provision for Depreciation and Amortization of Common
Utility Plant....................................................... (50,297,270) (43,177,042)
120 Nuclear Fuel Assemblies................................................ 575,750,535 573,041,073
120.5 Accumulated Provision for Amortization of Nuclear Fuel Assemblies...... (493,805,133) (480,861,596)
----------------- -----------------
NET UTILITY PLANT...................................................... 6,889,011,923 6,945,117,008
----------------- -----------------
121 Non-Utility Property (net of reserve).................................. 515,272 872,398
122 Accumulated Provision for Depreciation and Amortization of
Non-Utility Property................................................ (578,973) (573,351)
123.1 Investment in Companies................................................ 473,679,233 401,220,514
124 Other Investments...................................................... 123,143 123,143
128 Other Special Funds................................................... 213,729,224 198,023,653
----------------- -----------------
TOTAL OTHER PROPERTY AND INVESTMENTS................................... 687,467,899 599,666,357
----------------- -----------------
131 Cash................................................................... 11,775,978 29,050,447
133 Dividend Special Deposits.............................................. 100 100
134 Other Special Deposits................................................. 7,228,298 6,977,512
135 Working Funds.......................................................... 2,392,808 3,113,875
136 Temporary Cash Investments............................................. 462,360,191 176,039,453
141 Notes Receivable....................................................... 158,162 159,645
142 Customer Accounts Receivable........................................... 4,393,120 15,561,912
143 Other Accounts Receivable.............................................. 15,491,464 45,096,369
145 Notes Receivable from Associated Companies............................. -- 6,096,000
146 Accounts Receivable from Associated Companies.......................... (1,822,799) 111,011,606
150 Materials and Supplies................................................. 138,895,135 141,699,402
164.1 Gas Stored Underground................................................. 23,686,881 43,430,750
165 Prepayments............................................................ 62,093,819 18,241,655
171 Interest and Dividends Receivable...................................... 3,826,368 1,190,805
172 Rents Receivable....................................................... 3,308,692 6,441,683
174 Miscellaneous Current and Accrued Assets............................... 6,238,432 5,988,192
----------------- -----------------
TOTAL CURRENT AND ACCRUED ASSETS....................................... 740,026,649 610,099,406
----------------- -----------------
l81 Unamortized Debt Expense............................................... 115,319,899 125,027,930
182 Extraordinary Property Losses.......................................... 14,191,613 14,675,298
183 Preliminary Survey and Investigation Charges........................... 2,188,354 1,733,401
184 Clearing Accounts...................................................... (981,973) 2,880
185 Temporary Facilities................................................... (60,734) (29,651)
186 Miscellaneous Deferred Debits.......................................... 1,237,411,743 1,240,842,959
188 Investment in Research and Development................................. (2,383,567) (2,894,332)
190 Accumulated Deferred Income Taxes...................................... 444,321,503 473,177,000
----------------- -----------------
TOTAL DEFERRED DEBITS.................................................. 1,810,006,838 1,852,535,485
----------------- -----------------
TOTAL ASSETS AND OTHER DEBITS.......................................... $10,126,513,309 $10,007,418,256
================= =================
</TABLE>
<PAGE>
Exhibit B
Sheet 2 of 9
NIAGARA MOHAWK POWER CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
Liabilities and Other Credits June 30, 1997 December 31, 1996
---------------------- ---------------------
<S> <C> <C>
201 Common Stock Issued.................................................... $ 144,390,619 $ 144,365,214
204 Preferred Stock Issued................................................. 532,550,125 536,850,125
207 Premium on Capital Stock............................................... 1,485,117,797 1,484,903,283
209 Reduction in Par or Stated Value of Capital Stock...................... 325,858,036 325,858,036
210 Gain on Resale or Cancellation of Reacquired Stock..................... 652,172 652,172
211 Miscellaneous Paid-In Capital.......................................... 7,984,060 7,984,060
214 Capital Stock Expense.................................................. (21,011,205) (21,033,822)
215 Appropriated Retained Earnings......................................... 1,461,630 1,291,758
216 Unappropriated Retained Earnings....................................... 639,291,237 515,993,277
216.1 Unappropriated Undistributed Subsidiary Earnings....................... 142,251,130 140,586,342
217 Reacquired Capital Stock............................................... (1,250,000) (1,250,000)
----------------- -----------------
TOTAL PROPRIETARY CAPITAL.............................................. 3,257,295,601 3,136,200,445
----------------- -----------------
221 Bonds.................................................................. 2,841,305,000 2,841,305,000
224 Other Long-Term Debt................................................... 689,749,636 691,882,346
225 Unamortized Premium on Long-Term Debt.................................. 800,750 906,023
226 Unamortized Discount on Long-Term Debt - Debit......................... (11,099,421) (11,613,912)
----------------- -----------------
3,520,755,965 3,522,479,457
----------------- -----------------
232 Accounts Payable....................................................... 194,215,807 297,950,000
234 Accounts Payable to Associated Companies............................... (137,210) 1,043,232
235 Customer Deposits...................................................... 16,414,690 15,505,536
236 Taxes Accrued.......................................................... 93,297,343 7,011,360
237 Interest Accrued....................................................... 63,325,455 63,014,529
239 Matured Long-Term Debt................................................. 22,291 22,291
241 Tax Collections Payable................................................ 218,153 2,136,246
242 Miscellaneous Current and Accrued Liabilities.......................... 331,875,073 328,371,435
----------------- -----------------
TOTAL CURRENT AND ACCRUED LIABILITIES.................................. 699,231,602 715,054,629
----------------- -----------------
253 Other Deferred Credits................................................. 828,195,129 817,695,725
255 Accumulated Deferred Investment Tax Credits............................ 174,131,418 180,325,000
282 Accumulated Deferred Income Taxes - Liberalized Depreciation........... 1,443,497,594 1,421,550,000
283 Accumulated Deferred Income Taxes - Other.............................. 203,406,000 214,113,000
----------------- -----------------
TOTAL DEFERRED CREDITS................................................. 2,649,230,141 2,633,683,725
----------------- -----------------
TOTAL LIABILITIES AND OTHER CREDITS.................................... $10,126,513,309 $10,007,418,256
================= =================
</TABLE>
<PAGE>
Exhibit B
Sheet 3 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30, 1997
<S> <C>
Investment in Companies
Balance on December 31, 1996....................................................................... $401,220,514
Balance on June 30, 1997........................................................................... 473,679,233
--------------
$72,458,719
==============
Additional Equity Contribution in NM Receivables Corporation................................... $76,000,000
Increase Earnings for NM Receivables Corporation............................................... 2,453,923
Increase in NM Uranium, Inc.................................................................... 1,758,526
Increase Earnings for NM Holdings, Inc......................................................... 146,036
Increase in Land Transfers to NM Holdings, Inc................................................. 84,629
Increase Earnings for Moreau Manufacturing Corporation......................................... 5,854
Decrease in NM Suburban Gas, Inc. (due to consolidation with NMPC)............................. (6,317,393)
Lower Earnings for Opinac Energy Corporation................................................... (920,052)
Transfer Sheridan Land Loss Reserve to NM Holdings, Inc........................................ (731,830)
Lower Earnings for Beebee Island Corporation................................................... (20,974)
--------------
$72,458,719
==============
Other Special Funds
Balance on December 31, 1996....................................................................... $198,023,653
Balance on June 30, 1997........................................................................... 213,729,224
--------------
$15,705,571
==============
Increase in Nuclear Decommissioning Trust...................................................... $15,376,845
Increase in NYSERDA Interest Collateral on Deposit with Citibank (Senior Credit Facility)...... 150,586
Increase in SERP Trust Fund.................................................................... 133,098
Increase in Executive Deferred Compensation.................................................... 68,220
Decrease in Special Severance & Retirement Allowance Plan Trust................................ (23,178)
--------------
$15,705,571
==============
Temporary Cash Investments
Balance on December 31, 1996....................................................................... $176,039,453
Balance on June 30, 1997........................................................................... 462,360,191
--------------
286,320,738
==============
Increase in Miscellaneous Temporary Investments................................................ $286,331,315
Decrease Investment in Roseton................................................................. (10,577)
--------------
$286,320,738
==============
Customer Accounts Receivable
Balance on December 31, 1996....................................................................... $15,561,912
Balance on June 30, 1997........................................................................... 4,393,120
--------------
($11,168,792)
==============
Decrease in Customers' Other Sales............................................................. ($7,129,067)
Decrease in Customers' NERAM Surcharge......................................................... (4,158,228)
Decrease in Customers' Cash Over & (Short)..................................................... (56,959)
Increase in Gas Revenue Sharing Surcharge...................................................... 175,462
--------------
($11,168,792)
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 4 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30, 1997
<S> <C>
Other Accounts Receivable
Balance on December 31, 1996....................................................................... $45,096,369
Balance on June 30, 1997........................................................................... 15,491,464
--------------
($29,604,905)
==============
Lower Miscellaneous Accounts Receivable........................................................ ($26,731,228)
Lower Other Work In Progress - Jobbing......................................................... (2,330,916)
Lower Anticipated Nuclear Inventory Proceeds................................................... (771,250)
Decrease in NYS Relocation Projects............................................................ (60,941)
Decrease in Receivable from DRIP/ESFP.......................................................... (56,968)
Lower Property Damage Claims................................................................... (32,695)
Decrease in Freight Discount................................................................... (500)
Increase in Transportation Equipment Auction................................................... 292,580
Decrease in Receivable from Officers & Employees............................................... 54,800
Higher Personal Expense Advances............................................................... 18,105
Increase in Receivable for Oswego #6........................................................... 12,598
Higher Net Miscellaneous Receivables........................................................... 1,510
--------------
($29,604,905)
==============
Notes Receivable from Associated Companies
Balance on December 31, 1996....................................................................... $6,096,000
Balance on June 30, 1 997.......................................................................... 0
--------------
Decrease in Notes Rec. from NM Suburban Gas, Inc. (due to consolidation with NMPC)............. ($6,096,000)
==============
Accounts Receivable from Associated Companies
Balance on December 31, 1996....................................................................... $111,011,606
Balance on June 30, 1997........................................................................... (1,822,799)
--------------
($112,834,405)
==============
Decrease in Accounts Receivable from NM Receivables Corporation................................ ($112,039,329)
Decrease in Accounts Receivable from Plum Street Enterprises, Inc.............................. (674,513)
Decrease in Accounts Receivable from NM Suburban Gas, Inc...................................... (288,119)
Decrease in Accounts Receivable from Beebee Island Corporation................................. (34,306)
Decrease in Accounts Receivable from Opinac Energy Corporation................................. (413)
Increase in Accounts Receivable from Canadian Niagara Power Corporation, Limited............... 107,951
Increase in Accounts Receivable from Moreau Manufacturing Company.............................. 74,423
Increase in Accounts Receivable from NM Holdings, Inc.......................................... 19,901
--------------
($112,834,405)
==============
Materials and Supplies
Balance on December 31, 1996....................................................................... $141,699,402
Balance on June 30, 1997........................................................................... 138,895,135
--------------
($2,804,267)
==============
Lower Nine Mile Point Material and Supplies.................................................... ($6,388,522)
Lower Steam Plant Fuel......................................................................... (1,871,842)
Lower Obsolete Material Inventory Reserve - Energy Distribution................................ (220,282)
Lower Stores Expense Unallocated............................................................... (13,688)
Higher Material and Supplies - General......................................................... 4,039,653
Higher Computer Hardware Costs................................................................. 915,116
Lower Obsolete Material Inventory Reserve - Generation......................................... 460,068
Increase in Nine Mile Point Inventory Reserve.................................................. 220,809
Higher MIMS transfer to Nine Mile Point........................................................ 52,235
Higher Undistributed Fuel Stock Expense........................................................ 2,186
--------------
($2,804,267)
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 5 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30, 1997
<S> <C>
Gas Stored Underground
Balance on December 31, 1996....................................................................... $ 43,430,750
Balance on June 30, 1997........................................................................... 23,686,881
--------------
Lower Inventory Withdrawals Compared to Injections............................................. ($19,743,869)
==============
Prepayments
Balance on December 31, 1996....................................................................... $ 18,241,655
Balance on June 30, 1997........................................................................... 62,093,819
--------------
$ 43,852,164
==============
Higher Prepaid Taxes (principally real estate taxes)........................................... $ 45,627,107
Lower Prepaid Insurance........................................................................ (994,061)
Decrease in Advances for Operation and Maintenance of Sacandaga and
Stillwater Reservoir and Roseton Generating Station......................................... (780,882)
--------------
$43,852,164
==============
Interest and Dividends Receivable
Balance on December 31, 1996....................................................................... $ 1,190,805
Balance on June 30, 1997........................................................................... 3,826,368
--------------
$2,635,563
==============
Higher Interest on Commercial Paper, CD's, and Other Short Term Investments.................... $ 2,678,767
Higher Interest on Temporary Cash Investments - IPP............................................ 3,260
Decrease in Miscellaneous Interest and Dividends Receivable.................................... (46,464)
--------------
$2,635,563
==============
Rents Receivable
Balance on December 31, 1996....................................................................... $ 6,441,683
Balance on June 30, 1997........................................................................... 3,308,692
--------------
Decrease in Miscellaneous Rents Receivable..................................................... ($3,132,991)
==============
Unamortized Debt Expense
Balance on December 31, 1996....................................................................... $ 125,027,930
Balance on June 30, 1997........................................................................... 115,319,899
--------------
($9,708,031)
==============
Amortization of First Mortgage Bonds........................................................... ($ 6,290,771)
Amortization of Senior Credit Facility......................................................... (2,923,984)
Amortization of LILCO G&R Bonds................................................................ (260,074)
Amortization of NYSERDA Notes.................................................................. (226,690)
Amortization of Medium Term Notes.............................................................. (6,449)
Amortization of Revolving Credit Agreement..................................................... (63)
--------------
($9,708,031)
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 6 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30,1997
<S> <C>
Miscellaneous Deferred Debits
Balance on December 31, 1996....................................................................... $1,240,842,959
Balance on June 30, 1997........................................................................... 1,237,411,743
--------------
($3,431,216)
==============
Lower Deferred GAC Surcharge/Refund Adjustment................................................. ($31,454,249)
Lower Deferred Fuel Costs...................................................................... (3,858,343)
SFAS 109 (Regulatory Tax Asset) Adjustment..................................................... (3,703,000)
Lower Unrecovered FERC 191 Gas Costs........................................................... (2,400,004)
Amortization of Other Postretirement Benefits.................................................. (2,137,214)
Amortization of Bank Facility Agreement Line of Credit Fees.................................... (1,968,598)
Amortization of Deferred Nine Mile 2 Outage Costs.............................................. (1,950,837)
Amortization of Other Postemployment Benefits.................................................. (1,896,885)
Amortization of Deferred VERP Costs............................................................ (1,148,000)
Amortization of Nuclear Outages Deferred Replacement Power Costs............................... (427,500)
Lower LNG Amortization Surcharge............................................................... (242,041)
Amortization of Capital Stock Expense.......................................................... (215,298)
Amortization of Deferred Nine Mile 2 Costs and Carrying Charges................................ (72,673)
Lower Deferred Rate Implementation Revenues.................................................... (38,300)
Lower Roseton Station Operation Costs.......................................................... (18,292)
Amortization of Excess AFUDC - Electric Plant in Service....................................... (17,098)
Lower Accrued Interest on Supplier Refunds..................................................... (8,616)
Lower CTI Freight Bill Payments................................................................ (6,186)
Lower Excess NMU Deferred Costs................................................................ (5,472)
Amortization of Deferred Week 53 Payroll....................................................... (4,556)
Amortization of Unamortized Loss on Reaquired Debt............................................. (3,616)
Higher Other Work in Progress - Other.......................................................... 21,808,800
Higher Deferred Nine Mile 1 Outage Costs....................................................... 13,172,400
Increase in IPP Action Plan Implementation Costs............................................... 5,196,630
Increase in Uncollectible Accounts Receivable Recoverable in Rates............................. 3,100,000
Higher Gas Supply Realignment Costs............................................................ 2,309,555
Higher IPP Buyout Initiative Costs............................................................. 1,447,894
Increase in Deferred Take-or-Pay Direct Billed Charges......................................... 629,028
Higher Nine Mile 1 Prepaid Low-Level Waste Costs............................................... 275,750
Higher Nine Mile 2 Prepaid Low-Level Waste Costs............................................... 194,404
Higher Dunkirk Deferred Property Taxes......................................................... 5,461
Higher Office Supplies Contract Payments....................................................... 3,100
Higher Other Work in Progress - Retirement of OPP.............................................. 2,540
--------------
$3,431,216
==============
Accumulated Deferred Income Taxes
Balance on December 31, 1996....................................................................... $473,177,000
Balance on June 30, 1997........................................................................... 444,321,503
--------------
Decrease in Statutory Rate Deferred Taxes...................................................... ($28,855,497)
==============
Preferred Stock Issued
Balance on December 31, 1996................................................................... $536,850,125
Balance on June 30, 1997....................................................................... 532,550,125
--------------
Sinking Fund Payments.......................................................................... ($4,300,000)
==============
Unappropriated Retained Earnings
Balance on December 31, 1996....................................................................... $515,993,277
Balance on June 30, 1997........................................................................... 639,291,237
--------------
$123,297,960
==============
Increase in Net Income (excluding Subsidiary Earnings)......................................... $142,106,416
Preferred Dividends............................................................................ (18,808,456)
--------------
$123,297,960
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 7 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30,1997
<S> <C>
Other Long-Term Debt
Balance on December 31, 1996....................................................................... $691,882,346
Balance on June 30, 1997........................................................................... 689,749,636
--------------
($2,132,710)
==============
Increase in Revolving Credit Agreement.........................................................
Interest on Nuclear Fuel Disposal Costs........................................................ $2,879,428
Decrease in IPP Contract Termination (settlement agreement payment)............................ (3,300,000)
Decrease in Non-Current Obligations Under Capital Leases....................................... 1,712,138)
--------------
($2,132,710)
==============
Accounts Payable
Balance on December 31, 1996....................................................................... $297,950,000
Balance on June 30, 1997........................................................................... 194,215,807
--------------
($103,734,193)
==============
Decrease in Accounts Payable Vouchers.......................................................... ($217,634,078)
Decrease in Accounts Payable Outstanding Checks................................................ (10,918,366)
Decrease in Accounts Payable Nuclear Invoice Accrual........................................... (7,975,081)
Decrease in Accounts Payable Contractor Retention.............................................. (769,667)
Increase in Purchase Power/Gas Invoice Accrual................................................. 124,249,767
Increase in Accounts Payable Payroll........................................................... 6,365,870
Increase in Accounts Payable Roseton Liability................................................. 1,468,795
Increase in Procurement Card Purchases......................................................... 555,739
Increase in Other Accounts Payable............................................................. 498,140
Increase in Employee Expense Accounts.......................................................... 144,214
Increase in Office Supplies Contract Costs..................................................... 86,528
Increase in Meal Allowance..................................................................... 74,665
Increase in Miscellaneous Catalog Items........................................................ 51,605
Increase in LOOP Regulated Energy.............................................................. 43,730
Increase in Fastener Contract Costs............................................................ 18,595
Increase in Limited Value Order Check Charges.................................................. 5,351
--------------
($103,734,193)
==============
Taxes Accrued
Balance on December 31, 1996....................................................................... $7,011,360
Balance on June 30, 1997........................................................................... 93,297,343
--------------
$86,285,983
==============
Increase in Accrued Real Estate Taxes.......................................................... $66,336,036
Increase in Accrued Federal Income Tax......................................................... 17,025,691
Increase in Accrued State Gross Income Tax..................................................... 4,144,814
Increase in Accrued Gross Earnings Tax......................................................... 1,147,330
Increase in Sales and Use Tax.................................................................. (1,515,646)
Decrease in Accrued Federal Old Age Benefits Tax............................................... (495,089)
Decrease in State Unemployment Tax............................................................. (284,841)
Decrease in Federal Unemployment Tax........................................................... (54,694)
Decrease in Municipal Gross Income Tax......................................................... (17,618)
--------------
$86,285,983
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 8 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30,1997
<S> <C>
Miscellaneous Current and Accrued Liabilities
Balance on December 31, 1996.. .................................................................... $328,371,435
Balance on June 30, 1997... ....................................................................... 331,875,073
--------------
$3,503,638
==============
Increase in Liability for Co-tenant Avances to Nine Mile 2..................................... $7,531,121
Increase in Accrued Pensions - Funding......................................................... 6,608,863
Increase Liability for RG&E Advance to Oswego 6................................................ 1,606,684
Increase in OPEB Internal Reserve.............................................................. 773,000
Higher Workers' Compensation Insurance Claims.................................................. 254,765
Higher Other Postemployment Benefit Liability.................................................. 186,700
Higher Department of Energy Citronelle Refund.................................................. 153,069
Increase in Liability for Roseton Generating Station........................................... 128,872
Increase in Week 53 Payroll Liability Accrual.................................................. 88,500
Increase in Executive Deferred Compensation Liability.......................................... 68,220
Higher Accrued Vacation Pay at End of Year..................................................... 47,844
Increase in Liability for Salina Meadows Lease................................................. 37,073
Increase in Accued Expenses - HYDRA-CO. Enterprises, Inc. Sale................................. 26,431
Increase in NYSDEC Salmon River Fund........................................................... 11,966
Increase in Liability and Property Damage Insurance on Relocation Projects..................... 11,570
Increase in Net Miscellaneous.................................................................. 358
Decrease in GAC - Tariff Customer Refund....................................................... (8,039,974)
Decrease in Other Current and Accrued Liabilities - Other...................................... (3,233,808)
Decrease in NYPA - Fitzpatrick Contract Liability.............................................. (828,422)
Decrease in Natural Gas Refund................................................................. (819,878)
Decrease in Other Payroll Deductions........................................................... (613,177)
Decrease in Supplemental Executive Retirement Plan Liability................................... (126,409)
Lower Outstanding Dividend Checks.............................................................. (119,165)
Decrease in Unclaimed Accounts Payable Checks.................................................. (57,907)
Decrease in Liability for Separation Allowance Costs........................................... (55,981)
Decrease in Optional Cash Dividend Reivestment Plan............................................ (51,026)
Decrease in Human Resource Non-Qualified Pension Enhancement Plan.............................. (30,462)
Decrease in Obligations Under Capital Leases - Current......................................... (29,575)
Decrease in Unclaimed Dividends Payments....................................................... (25,614)
--------------
$3,503,638
==============
Other Deferred Credits
Balance on December 31, 1996....................................................................... $817,695,725
Balance on June 30, 1997........................................................................... 828,195,129
--------------
$10,499,404
==============
Increase in Environmental Insurance Recoveries (net)........................................... $31,275,951
Increase in Gas Contigency Reserve............................................................. 15,537,075
Increase in Other Postretirement Benefit....................................................... 1,694,163
Increase in Nine Mile 2 Refueling Outage Cost Revenue Deferred................................. 1,203,438
Increase in Low-Level Radwaste Disposal Liability.............................................. 725,608
Increase in IPP Capital Reimbursement.......................................................... 275,303
Increase in Proceeds from Sale of Allowances................................................... 191,370
Increase in Other Deferred Credits - Miscellaneous............................................. 124,061
Increase in Net Miscellaneous.................................................................. 1,321
Decrease in Accrued Unbilled Revenues Deferred................................................. (29,900,000)
Decrease in Deferred Pension Settlement Gain................................................... (3,415,500)
Decrease in Liability for IPP Overgeneration Adjustments....................................... (2,139,580)
Decrease in MERIT Overcollection............................................................... (1,552,170)
Decrease in Deferred DIRAM Revenue............................................................. (1,401,758)
Decrease in Gas Non-Core Revenue Sharing....................................................... (620,996)
Decrease in Deferred Pension Expense........................................................... (599,315)
Decrease in Gas Customer Service Penalty....................................................... (576,000)
Decrease in IPP Operation & Maintenance Reimbursement.......................................... (129,087)
Decrease on Gain on Sale of Volney-Marcy Transmission Line..................................... (92,772)
Decrease in Gain on Redemption of Bonds........................................................ (43,121)
Decrease in Purchase of Emission Reduction Credits............................................. (31,500)
Decrease in Net Gain on Sale of Utility Property............................................... (27,087)
--------------
10,499,404
==============
</TABLE>
<PAGE>
Exhibit B
Sheet 9 of 9
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN THE FOLLOWING ACCOUNTS
AT DECEMBER 31, 1996 IN COMPARISON WITH JUNE 30, 1997
<S> <C>
Accumulated Deferred Investment Tax Credits
Balance on December 31, 1996....................................................................... $180,325,000
Balance on June 30, 1997........................................................................... 174,131,418
--------------
Decrease in Accumulated Deferred Investment Tax Credits........................................ $6,193,582
==============
Accumulated Deferred Income Taxes - Liberalized Depreciation
Balance on December 31, 1996....................................................................... $1,421,550,000
Balance on June 30, 1997........................................................................... 1,443,497,594
--------------
Increase in Statutory Rate..................................................................... $21,947,594
==============
Accumulated Deferred Income Taxes - Other
Balance on December 31, 1996....................................................................... $214,113,000
Balance on June 30, 1997........................................................................... 203,406,000
--------------
($10,707,000)
==============
Increase in Statutory Rate..................................................................... ($10,930,000)
Increase in Previously Flowed Through.......................................................... 223,000
--------------
($10,707,000)
==============
</TABLE>
<PAGE>
EXHIBIT C
NIAGARA MOHAWK POWER CORPORATION
SUMMARY OF CHANGES IN UTILITY PLANT AND DEPRECIATION RESERVE ACCOUNTS
FOR THE PERIOD DECEMBER 31, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
Utility Plant
-------------
Balance Balance
December 31, 1996 Debits Credits June 30, 1997
----------------- ------ ------- -------------
<S> <C> <C> <C> <C>
Utility Plant (Beginning Balance)...... $10,824,680,897
Plant in Service:
Additions........................ $153,834,026
Retirements...................... $13,472,185
Adjustments...................... 1,767,570
Construction Work in Progress:
Net Change.......................... 20,711,495
Nuclear Fuel Assemblies:
Net Change.......................... 2,709,462
Utility Plant (Ending Balance)......... $10,945,273,135
--------------- ------------ ----------- ---------------
TOTAL............................ $10,824,680,897 $156,543,488 $35,951,250 $10,945,273,135
=============== ============ =========== ===============
</TABLE>
<TABLE>
<CAPTION>
Depreciation Reserve
--------------------
Balance Balance
December 31, 1998 Debits Credits June 30, 1997
----------------- ------ ------- -------------
<S> <C> <C> <C> <C>
Depreciation Reserve (Beginning Balance) $3,879,563,888
Plant in Service:
Accruals.......................... $171,205,407
Gross Salvage..................... 1,509,845
Retirements...................... $14,445,611
Cost of Removal.................. 4,767,941
Adjustments...................... 10,190,724
Nuclear Fuel Assemblies:
Amortization........................ 12,943,537
Retirement Work in Progress:
Net Change -
Retirement of Property........... 1,167,677
Removal Costs.................... 2,268,987
Gross Salvage.................... 1,162,673
Depreciation Reserve (Ending Balance).. $4,056,261,212
-------------- ------------ ----------- --------------
TOTAL............................ $3,879,563,888 $198,179,863 $21,482,539 $4,056,261,212
============== ============ =========== ==============
</TABLE>
<PAGE>
EXHIBIT D
NIAGARA MOHAWK POWER CORPORATION
ANALYSIS OF ADJUSTMENTS TO UTILITY PLANT
FOR THE PERIOD DECEMBER 31, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
Contra Accounts
---------------------------------------------
<S> <C> <C> <C>
Number Title Reason for Adjustments Amount
- ------ -------------------------------- --------------------------------------------- -----------------
102 Electric Plant Purchased To transfer balances between Electric Plant ($277)
Purchased and Electric Plant in Service.
121 Other Physical Property To transfer property between OPP - (29,928)
Pledged and Electric Plant in Service.
123.1 Investment in Subsidiary Companies To transfer property between NM Holdings 4,348
and Electric Plant in Service.
243 Obligations Under Capital Leases - Adjustment for amortization of capital (29,575)
Current leases.
227 Obligations Under Capital Leases - Adjustment for amortization of capital (1,712,138)
Non Current leases. -----------
TOTAL............................................................................ ($1,767,570)
===========
</TABLE>
<PAGE>
EXHIBIT E
NIAGARA MOHAWK POWER CORPORATION
ANALYSIS OF ADJUSTMENTS TO DEPRECIATION RESERVE
FOR THE PERIOD DECEMBER 31, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
Contra Accounts
---------------------------------------------
Number Title Reason for Adjustments Amount
- ------ -------------------------------- --------------------------------------------- ----------------
<S> <C> <C> <C>
108E Accumulated Depreciation - Electric To transfer balances between Accumulated $625
Plant in Service Depreciation - Electric Plant in Service to
Accumulated Depreciation - Electric Plant
Leased from Others and Accumulated Depreciation
- Common Plant in Service.
108E Accumulated Depreciation - Electric To transfer balances between Accumulated 2,178
Plant Leased from Depreciation - Electric Plant Leased from
Others to Accumulated Depreciation -
Electric Plant in Service and Accumulated
Depreciation - Common Plant in Service.
108G Accumulated Depreciation - Gas Plant To transfer balances between Accumulated (5,058)
in Service Depreciation - Gas Plant in Service and
Accumulated Depreciation - Common Plant
in Service.
119.1 Accumulated Depreciation - Common To transfer balances between Accumulated (82,955)
Plant in Service Depreciation - Common Plant in Service to
Accumulated Depreciation - Electric Plant
in Service, Accumulated Depreciation - Electric
Plant Leased from Others, Accumulated
Depreciation - Gas Plant in Service, and
Accumulated Depreciation - Common Plant in
Service.
119.1 Accumulated Depreciation - Common To transfer balances between Accumulated 85,210
Plant Leased from Others Depreciation - Common Plant Leased from
Others to Accumulated Depreciation -
Common Plant in Service.
123.1 Investment in Subsidiary Companies To transfer NM Suburban Gas depreciation 2,146,413
- NM Suburban Gas reserve to Niagara Mohawk Power Corp.
128 Other Special Funds To record 1997 earnings on Nine Mile Point
nuclear decommissioning external trust 8,044,311
---------
TOTAL............................................................................ $10,190,724
===========
</TABLE>
<PAGE>
EXHIBIT F
NIAGARA MOHAWK POWER CORPORATION
EXPLANATION OF CHANGES IN NON-UTILITY PROPERTY
FOR THE PERIOD DECEMBER 31, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
Non-Utility Plant (net of reserve)
- ----------------------------------
<S> <C> <C>
Gross Balance December 31, 1996.................................. $5,097,398
Less: Reserve Balance December 31, 1996...................... 4,225,000 $872,398
----------
Balance June 30, 1997............................................ 4,740,272
Less: Reserve Balance June 30, 1997.......................... 4,225,000 515,272
---------- ---------
NET CHANGE....................................................... ($357,126)
=========
Transfer of Other Physical Property - Unpledged
- -----------------------------------------------
Oswego Steam RR Fuel Oil Delivery Facility (C)................... $1,133
Hindsdale Station (C) ........................................ 61
Long Branch Station (C).......................................... 44,481
Tully Station (C)................................................ 2,860
Evans Mills (C).................................................. 1,936
Franklin Street Station (C)...................................... 4,907
Schoharie Development (E)........................................ 416
Schuylerville Lighting Arrester House (E)........................ 100
Fort Plain - Marshville 3 (E).................................... 1,379
----------
TOTAL TRANSFER OF OTHER PHYSICAL PROPERTY - UNPLEDGED................ $57,273
New Purchases of Other Physical Property - Unpledged
Transferred Employees' Properties................................ (357,259)
Sale of Other Physical Property - Pledged
Station 1 Buffalo (W)............................................ 7,356
Land Sale Correction (W)......................................... 137
Portville Station (W)............................................ (283) (Nl)
Fredonia Station (W)............................................. 4,488
Langsford Station (W)............................................ 703
Perrysburg Station (W)........................................... 132
Pavillion Station (W)............................................ 500
Station 5 Buffalo (W)............................................ 4,295
East Olean Station (W)........................................... 643
Shawnee Road Station (W)......................................... 1,073
Oswego RR Fuel Oil Facility (C).................................. (1,133)
Hinsdale Station (C)............................................. (61)
Long Branch Station (C).......................................... (44,481)
Tully Station (C)................................................ (2,860)
Evans Mills Station (C).......................................... (1,936)
Franklin Street Station (C)...................................... (4,907)
Delta Lake Station (C)........................................... 2,381
Schoharie Development Land (E)................................... (416)
Schuylerville - Lightning Arrester House (E)..................... (100)
Unused Land - New Scotland Transmission (E)...................... (24,292)(Nl)
Fort Plain - Marshville Transmission (E)......................... (1,379)
Spier - Rotterdam Lines (E)...................................... (5,250)(Nl)
December 1996 Error Corrected (E)................................ (836)
Hadley Station (E)............................................... 106
Watervliet Station (E)........................................... 8,980
-------
TOTAL SALES OF OTHER PHYSICAL PROPERTY - PLEDGED............. (57,140)
---------
NET CHANGE....................................................... ($357,126)
=========
(N1) Transferred to NM Holdings
</TABLE>
<PAGE>
EXHIBIT G
NIAGARA MOHAWK POWER CORPORATION
REIMBURSEMENT MARGIN
FOR THE PERIOD DECEMBER 31, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
(SFAS 71 AMOUNTS EXCLUDED)
Balance Balance
December 31, 1996 Net Activity June 30, 1997
----------------- ------------ -------------
<S> <C> <C> <C>
Deferrals:
Add: Deferred Debits:
Unamortized Debt Expense...................................... $138,002,451 ($12,260,963) $125,741,488
Extraordinary Property Losses................................. 20,598,618 (875,085) 19,723,533
Preliminary Survey and Investigation Charges.................. 1,949,301 662,492 2,611,793
Clearing Accounts............................................. 2,880 (216,248) (213,368)
Temporary Facilities.......................................... (29,651) (18,553) (48,204)
Miscellaneous Deferred Debits................................. 1,369,981,181 (32,124,604) 1,337,856,577
Investment in Research and Development........................ (2,894,332) 595,892 (2,298,440)
Accumulated Deferred Income Taxes............................. 473,408,000 (22,329,420) 451,078,580
------------- ------------- -------------
Net Deferred Debits........................................... 2,001,018,448 (66,566,489) 1,934,451,959
Less: Deferred Credits:
Other Deferred Credits........................................ 848,797,611 12,270,176 861,067,787
Accumulated Deferred Investment Tax Credits 180,325,000 (6,354,582) 173,970,418
Accumulated Def. Income Taxes - Accelerated Amortization...... - - -
Accumulated Def. Income Taxes - Liberalized Depreciation...... 1,483,398,000 (6,946,406) 1,476,451,594
Accumulated Def. Income Taxes - Other......................... 202,515,000 14,092,000 216,607,000
Liability for Environmental Restoration Costs................. 225,000,000 - 225,000,000
------------- ------------- -------------
Net Deferred Credits.......................................... 2,940,035,611 13,061,188 2,953,096,799
------------- ------------- -------------
NET DEFERRAL................................................................. (939,017,163) (79,627,677) (1,018,644,840)
Working Capital Allowance (Forecasted - Actual Not Available)................ 380,000,000 (22,309,000) 357,691,000
Net Utility Plant............................................................ 6,945,117,009 (56,105,086) 6,889,011,923
------------- ------------- -------------
REIMBURSABLE PLANT AND WORKING CAPITAL....................................... 6,386,099,846 (158,041,763) 6,228,058,083
Long-Term Securities Issued to Date:
Long-Term Debt:
Bonds......................................................... 2,841,305,000 - 2,841,305,000
Other Long-Term Debt (less RCA)............................... 691,882,346 (2,944,229) 688,938,117
Unamortized Premium on Long-Term Debt......................... 906,023 (122,819) 783,204
Unamortized Discount on Long-Term Debt........................ (11,844,234) 619,803 (11,224,431)
Less: Long-Term Debt Due Within One Year...................... 44,600,000 - 44,600,000
------------- ------------ -------------
Net Long-Term Debt............................................ 3,477,649,135 (2,447,245) 3,475,201,890
Preferred Stock:
Preferred Stock Issued........................................ 536,850,125 (4,300,000) 532,550,125
Less: Sinking Fund Requirement............................... 8,870,000 - 8,870,000
------------- ------------ -------------
Net Preferred Stock........................................... 527,980,125 (4,300,000) 523,680,125
Common Stock:
Common Stock Issued........................................... 144,365,214 54,137 144,419,351
Premium on Capital Stock...................................... 1,484,903,283 425,694 1,485,328,977
Reduction in Par or Stated Value of Capital Stock............. 325,858,036 - 325,858,036
Gain on Resale or Cancellation of Reacquired Stock............ 652,171 - 652,171
Miscellaneous Paid-In Capital................................. 7,984,060 - 7,994,060
Capital Stock Expense......................................... (21,033,822) 22,617 (21,011,205)
------------- ------------ -------------
Net Common Stock.............................................. 1,942,728,942 502,448 1,943,231,390
------------- ------------ -------------
TOTAL LONG-TERM SECURITIES................................................... 5,948,358,202 (6,244,797) 5,942,113,405
------------- ------------ -------------
TOTAL REIMBURSEMENT MARGIN................................................... 437,741,644 (151,796,966) 285,944,678
<PAGE>
Investments in Subsidiaries*................................................. 176,342,601 (5,887,248) 170,455,353
------------- ------------- -------------
*Excludes $224,877,913 for NMR in 12/96 and $303,223,880 in 6/97. (NMR
was created in 9/97 and is used as a financing vehicle by the Company.)
REIMBURSEMENT MARGIN BEFORE NEW ENCUMBRANCES................................. 261,399,043 (145,909,718) 115,489,325
Encumbrances:
Case 93-M-0981 Preferred Stock, First Mortgage Bonds, or Common Stock.... 355,000,000 - 355,000,000
Case 95-M-1141 Revolving Credit Agreement................................ 125,000,000 - 125,000,000
Case 95-M-1141 Term Loan Agreement....................................... 150,000,000 - 150,000,000
------------- ------------ -------------
Total Encumbrances....................................................... 630,000,000 - 630,000,000
------------- ------------ -------------
Reimbursement Margin (Encumbered Reserve).................................... ($368,600,957) ($145,909,718) ($514,510,675)
============= ============ =============
</TABLE>
<PAGE>
EXHIBIT H
NIAGARA MOHAWK POWER CORPORATION
CAPITAL BUDGET SUMMARY ($000)
1997-2001
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Generation Business Group:
Nine Mile Point No. 1......................... $8,645 $9,086 $9,416 $9,407 $9,401
Nine Mile Point No. 2 (NMPC Share)............ 3,557 7,250 3,813 3,811 3,807
Nine Mile Point Common (NMPC Share)........... 2,144 1,359 871 882 892
-------- -------- -------- -------- --------
SUBTOTAL NUCLEAR GENERATION............... 14,346 17,695 14,100 14,100 14,100
Albany Steam Station.......................... 600 600 600 600 600
Dunkirk Steam Station......................... 4,252 4,786 2,794 5,770 3,750
Huntley Steam Station......................... 2,100 8,357 5,745 1,475 1,300
Hydro Generation.............................. 12,200 12,977 13,050 12,976 13,085
Oswego Steam Station.......................... 500 500 500 500 500
Roseton Steam Station......................... 600 600 750 750 750
Other Fossil/Hydro Generation Projects........ 3,600 2,095 1,095 1,095 1,095
-------- -------- -------- -------- --------
SUBTOTAL FOSSIL & HYDRO GENERATION........ 23,852 29,915 24,534 23,166 21,080
-------- -------- -------- -------- --------
TOTAL GENERATION BUSINESS GROUP........ 38,198 47,610 38,634 37,266 35,180
-------- -------- -------- -------- --------
Energy Distribution Business Group:
Customer Service.............................. 300 323 335 347 358
Electric Marketing............................ 120 129 134 139 143
Engineering and Support Services.............. 38,112 46,025 43,513 36,445 37,447
Finance/Operations Support.................... 5,100 328 1,132 2,116 2,119
Quality & Systems Improvement................. 1,300 3,200 3,300 3,300 3,100
Re-Engineering Project........................ 1,000 - - - -
Special Projects.............................. 15,824 15,894 16,450 16,695 17,654
NM Gas........................................ 51,747 51,830 51,480 51,450 51,350
Regional Control.............................. 2,321 2,344 2,367 2,391 2,414
Capital Region - Distribution................. 12,918 14,001 14,139 14,278 14,416
Capital Region - Transmission................. 7,909 8,582 8,975 9,270 9,571
Central Region - Distribution................. 12,271 12,310 12,432 12,554 12,676
Central Region - Transmission................. 2,285 3,424 2,183 2,202 2,220
Frontier Region - Transmission................ 4,424 5,262 4,689 4,118 4,200
Genesee Region - Transmission................. 1,140 1,220 1,169 1,587 1,618
Mohawk Valley Region - Distribution........... 6,366 6,207 6,269 6,330 6,392
Mohawk Valley Region - Transmission........... 2,518 1,138 1,122 1,130 1,138
Northeast Region - Distribution............... 9,067 8,947 9,035 9,124 9,212
Northeast Region - Transmission............... 2,642 3,197 3,191 3,284 3,366
Northern Region - Distribution................ 7,941 7,864 7,942 8,020 8,097
Northern Region - Transmission................ 1,831 1,960 1,870 1,780 1,842
Southwest Region - Transmission............... 1,422 1,942 1,637 2,143 2,195
Western Regions - Distribution................ 17,913 16,948 17,116 17,283 17,451
Other Transmission Projects & Equipment....... 7,679 7,690 8,060 8,130 8,200
-------- -------- -------- -------- --------
SUBTOTAL ELECTRIC DELIVERY................ 100,647 103,036 102,196 103,624 105,008
-------- -------- -------- -------- --------
TOTAL ENERGY DISTRIBUTION
BUSINESS GROUP....................... 214,150 220,765 218,540 214,116 217,179
-------- -------- -------- -------- --------
Finance:
Controller.................................... 4,333 4,200 4,301 4,400 4,500
Treasurer..................................... 271 598 253 266 261
-------- -------- -------- -------- --------
TOTAL FINANCE............................. 4,604 4,798 4,554 4,666 4,761
-------- -------- -------- -------- --------
Human Resources:
Human Resources Equipment..................... 605 232 207 513 268
Other Post Employment Benefits (OPEB's)....... 3,009 3,203 2,987 3,077 3,170
-------- -------- -------- -------- --------
TOTAL HUMAN RESOURCES..................... 3,614 3,435 3,194 3,590 3,438
-------- -------- -------- -------- --------
Information Technology:
Customer Service System....................... 17,225 16,368 - - -
Other I/T Projects............................ 14,947 4,912 4,179 3,650 3,759
-------- -------- -------- -------- --------
TOTAL INFORMATION TECHNOLOGY.............. 32,172 21,280 4,179 3,650 3,759
-------- -------- -------- -------- --------
EXECUTIVE/AUDITS.................................. 10 40 75 20 35
LEGAL & CORPORATE RELATIONS....................... 300 300 300 300 300
-------- -------- -------- -------- --------
TOTAL NIAGARA MOHAWK POWER CORP............... $293,048 $298,228 $269,476 $263,608 $264,652
======== ======== ======== ======== ========
</TABLE>
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of the Application of Niagara Mohawk
Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority Under Sections 70, 107, Case 98-
108 and 110 of the Public Service Law to Form a
Holding Company Structure to Engage in Certain
Related Transactions.
- --------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. and
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
EXHIBIT D
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated as of May
14,1998, is between Niagara Mohawk Power Corporation, a New York corporation and
the corporation whose shares of Common Stock, par value $1.00 per share, will be
acquired pursuant to the "Exchange" provided for in this Agreement (the "Subject
Corporation"), and Niagara Mohawk Holdings, Inc., a New York corporation and the
corporation which will acquire the foregoing shares of Common Stock of the
Subject Corporation (the "Acquiring Corporation"). The Subject Corporation and
the Acquiring Corporation are hereinafter referred to, collectively, as the
"Corporations".
WITNESSETH:
WHEREAS, the authorized capital of the Subject Corporation is
$1,215,000,000, consisting of (a) 185,000,000 shares of Common Stock, par value
$1.00 per share ("Subject Corporation Common Stock"), of which 144,419,351
shares are issued and outstanding (which number of issued and outstanding shares
is subject to change prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the Dividend Reinvestment and Common Stock Purchase Plan
("DRIP") and the Employee Savings Fund Plans for Represented and Non-Represented
Employees (each an "Employee Plan" and collectively the "Employee Plans") of the
Subject Corporation and the issuance of Subject Corporation Common Stock
pursuant to the Master Restructuring Agreement of the Subject Corporation, dated
as of July 9, 1997, as amended, (b) 3,400,000 shares of Cumulative Preferred
Stock, par value $100 per share ("Subject Corporation $100 Preferred Stock"), of
which 2,322,000 shares are issued and outstanding, (c) 19,600,000 shares of
Cumulative Preferred Stock, par value $25 per share ("Subject Corporation $25
Preferred Stock"), of which 11,681,204 shares are issued and outstanding and (d)
8,000,000 shares of Preference Stock, par value $25 per share ("Preference
Stock"), no shares of which are outstanding.
WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 300,000,000
shares of Common Stock, par value $0.01 per share ("Acquiring Corporation Common
Stock"), of which 100 shares are issued and outstanding and owned by the Subject
Corporation and 50,000,000 shares of Preferred Stock, par value $0.01 per share,
no shares of which are outstanding.
WHEREAS, the Boards of Directors of the Corporations deem it desirable and
in the best interests of the Corporations and the shareholders of the Subject
Corporation that, at the Effective Time, (a) the Acquiring Corporation acquire
and become the owner and holder of each share of Subject Corporation Common
Stock issued and outstanding at the Effective Time, (b) each share of Subject
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring Corporation
Common Stock, and (c) each holder of shares of Subject Corporation Common Stock
issued and outstanding immediately prior to the Effective Time becomes the
holder of a like number of shares of Acquiring Corporation Common Stock, and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Boards of Directors of the Corporations have each approved and
adopted this Agreement, and the Board of Directors of the Subject Corporation
has recommended that the shareholders of the Subject Corporation approve and
adopt the Exchange and this Agreement pursuant to Section 913 of the New York
Business Corporation Law (the "BCL").
NOW, THEREFORE, the Corporations hereby agree as follows:
A-1
<PAGE>
ARTICLE I
The Exchange and this Agreement shall be submitted to the holders of Subject
Corporation Common Stock for approval and adoption as provided by Section 913 of
the BCL. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding Subject Corporation Common Stock shall be necessary to
approve and adopt the Exchange and this Agreement.
ARTICLE II
Subject to the terms and conditions of this Agreement, the Exchange shall
become effective immediately following the close of business on the date of
filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time and
date at and on which the Exchange becomes effective being referred to herein as
the "Effective Time").
ARTICLE III
A. At the Effective Time:
(1) each share of Subject Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be automatically
exchanged for one share of Acquiring Corporation Common Stock, which shares
shall be fully paid and nonassessable by the Acquiring Corporation;
(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;
(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;
(4) each share of Subject Corporation Common Stock held under the DRIP
or an Employee Plan (including fractional and uncertificated shares)
immediately prior to the Effective Time shall be automatically exchanged for
a like number of shares (including fractional and uncertificated shares) of
Acquiring Corporation Common Stock, which shares shall be held under and
pursuant to the DRIP or be issued under such Employee Plan, as the case may
be, as hereinafter provided;
(5) each unexpired and unexercised option to purchase Subject
Corporation Common Stock ("Subject Corporation Stock Option") under the 1992
Stock Option Plan (the "Option Plan"), whether vested or unvested, will be
automatically converted into an option (a "Substitute Option") to purchase a
number of shares of Acquiring Corporation Common Stock equal to the number
of shares of Subject Corporation Common Stock that could have been purchased
immediately prior to the Effective Time (assuming full vesting) under such
Subject Corporation Stock Option, at a price per share of Acquiring
Corporation Common Stock equal to the per share option exercise price
specified in such Subject Corporation Stock Option. In accordance with
Section 424(a) of the Internal Revenue Code of 1986, as amended, each
Substitute Option shall provide the option holder with rights and benefits
that are no less and no more favorable to him than were provided under the
Subject Corporation Stock Option; and
(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement.
B. Shares of Subject Corporation $100 Preferred Stock, Subject Corporation
$25 Preferred Stock and Subject Corporation Preference Stock shall not be
exchanged or otherwise affected by or in connection with the Exchange. Each
share of Subject Corporation $100 Preferred Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding following the Exchange and shall continue to be one share of Subject
Corporation $100 Preferred Stock of the
A-2
<PAGE>
applicable series designation. Each share of Subject Corporation $25 Preferred
Stock issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding following the Exchange and shall continue
to be one share of Subject Corporation $25 Preferred Stock of the applicable
series designation.
C. As of the Effective Time, the Acquiring Corporation shall succeed to the
DRIP as in effect immediately prior to the Effective Time, and the DRIP shall be
appropriately modified to provide for the issuance or delivery of Acquiring
Corporation Common Stock on and after the Effective Time pursuant thereto.
D. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation Common
Stock, and the Acquiring Corporation shall agree to issue or deliver Acquiring
Corporation Common Stock, and (2) the Option Plan shall also be appropriately
amended to provide for the issuance of options by the Acquiring Corporation to
purchase Acquiring Corporation Common Stock, in each case on and after the
Effective Time pursuant thereto.
ARTICLE IV
A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:
(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;
(2) such orders, authorizations, approvals or waivers from the New York
Public Service Commission and all other jurisdictive regulatory bodies,
boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions; and
(3) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange.
ARTICLE V
Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Subject Corporation Common Stock
may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of Acquiring
Corporation Common Stock as the shares of Subject Corporation Common Stock
previously represented by the certificate or certificates surrendered. Until so
surrendered or presented for exchange or transfer, each outstanding certificate
which, immediately prior to the Effective Time, represents Subject Corporation
Common Stock shall be deemed and shall be treated for all purposes to represent
the ownership of the same number of shares of Acquiring Corporation Common Stock
as though such surrender or exchange or transfer had taken place. The holders of
Subject Corporation Common Stock at the Effective Time shall have no right at
and after the Effective Time to have their shares of Subject Corporation Common
Stock transferred on the stock transfer books of the Subject Corporation (such
stock transfer books being deemed closed for this purpose at the Effective
Time), and at and after the Effective Time such stock transfer books may be
deemed to be the stock transfer books of the Acquiring Corporation.
A-3
<PAGE>
ARTICLE VI
A. This Agreement may be amended, modified or supplemented, or compliance
with any provision hereof may be waived, at any time prior to the Effective Time
(including, without limitation, after receipt of the affirmative vote of holders
of Subject Corporation Common Stock as provided in Article IV(1) hereof), by the
mutual consent of the Boards of Directors of the Subject Corporation and the
Acquiring Corporation at any time prior to the Effective Time; provided,
however, that no such amendment, modification, supplement or waiver shall be
made or effected if such amendment, modification, supplement or waiver would, in
the sole judgment of the Board of Directors of the Subject Corporation,
materially and adversely affect the shareholders of the Subject Corporation.
B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of Subject
Corporation Common Stock as provided in Article IV(1) hereof), if the Board of
Directors of the Subject Corporation determines, in its sole judgment, that
consummation of the Exchange would for any reason be inadvisable or not in the
best interests of the Subject Corporation or its shareholders.
IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization and
approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.
Niagara Mohawk Power Corporation
By: William E. Davis
-----------------------------------
William E. Davis
Chairman of the Board and
Chief Financial Officer
Niagara Mohawk Holdings, Inc.
By: William F. Edwards
-----------------------------------
William F. Edwards
Chief Financial Officer
A-4
<PAGE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
- --------------------------------------------------
In the Matter of the Application of Niagara Mohawk
Holdings, Inc. and Niagara Mohawk Power
Corporation for Authority Under Sections 70, 107, Case 98-
108 and 110 of the Public Service Law to Form a
Holding Company Structure to Engage in Certain
Related Transactions.
- --------------------------------------------------
PETITION OF NIAGARA MOHAWK HOLDINGS, INC. and
NIAGARA MOHAWK POWER CORPORATION
FOR AUTHORITY TO FORM A HOLDING COMPANY STRUCTURE
TO ENGAGE IN CERTAIN RELATED TRANSACTIONS
EXHIBIT E
<PAGE>
<TABLE>
<CAPTION>
PRESENT STRUCTURE
-----------
| NIAGARA |
| MOHAWK |
-----------
|
|
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------
| | | | | |
| | | | | |
- --------------- --------------- ------------------ ------------- ---------------- ----------
| NM Holdings | | NM Uranimum | | NM Receivables | | Opinac NA | | Beebee Island | | Moreau |
- --------------- --------------- ------------------ ------------- ---------------- ----------
|
|
--------------- -----------------
| Plum Street | | Opinac Energy |
| Enterprises | | |
--------------- -----------------
|
| 50%
|
-----------------
| CNP |
-----------------
</TABLE>
<TABLE>
<CAPTION>
PROPOSED STRUCTURE
--------------------------------
| Niagara Mohawk Holdings, Inc.|
--------------------------------
|
|
---------------------------------------------------------------------
| |
| |
------------- -----------
| Opinac NA | | Niagara |
| | | Mohawk |
------------ -----------
| |
| |
<S> <C> <C> <C> <C> <C> <C>
----------------- -----------------------------------------------------------------------
| | | | | | |
| | | | | | |
- --------------- ---------- ------------------ --------------- ------------- ---------- ----------
| Plum Street | | Opinac | | NM Receivables | | NM Holdings | | NM Uranium | | Beebee | | Moreau |
| Enterprises | | Energy | | | | | | | | Island | | |
- --------------- ---------- ------------------ --------------- -------------- ---------- ----------
|
| 50%
|
----------
| CNP |
----------
</TABLE>
Exhibit 20
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. ________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
I. INTRODUCTION
Niagara Mohawk Power Corporation ("NMPC" or the "Applicant") requests that
the Commission authorize implementation of a corporate restructuring plan that
will create a holding company structure. Because the corporate restructuring
would be deemed to result in a "disposition of jurisdictional facilities," see
Central Hudson Gas & Electric Corp., 84 FERC Sec. 62,010 (1998); Central Vermont
Public Service Corp., 39 F.E.R.C. Para. 61,295 (1987), NMPC seeks this
authorization under Section 203 of the Federal Power Act (the "FPA"), 16 U.S.C.
Sec. 824b, and applicable Commission regulations, 18 C.F.R. Part 33. The
corporate restructuring will create a holding company that will hold directly
the common stock of NMPC. The corporate restructuring will have no effect on the
jurisdictional facilities, rates, or services of NMPC and will be consistent
with the public interest.
NMPC respectfully requests that the Commission approve this application by
September 15, 1998. This is approximately the same time frame in which NMPC
anticipates receiving its other
-1-
<PAGE>
regulatory approvals, and will permit it to proceed as expeditiously as possible
with the corporate restructuring.
II. DESCRIPTION OF THE NEW HOLDING COMPANY STRUCTURE
Under the proposed holding company structure, NMPC will become a
wholly-owned subsidiary of a new holding company, Niagara Mohawk Holdings, Inc.
("Holdings"),1/ a New York corporation. The present equity owners of NMPC will
become the equity owners of Holdings. The corporate restructuring will result in
a change in the identity of the direct holder of NMPC's equity, but no change in
the beneficial owners of that equity, who will merely exchange their NMPC shares
for shares in Holdings. The corporate restructuring is more fully described in
the Agreement and Plan of Exchange ("Exchange Agreement"), which provides for
the exchange of the outstanding shares of NMPC common stock on a share-for-share
basis for shares of Holdings common stock, and an excerpt from the Form S-4
Registration Statement for Holdings, dated May 29, 1998, attached hereto as
Exhibit H.
III. BACKGROUND
NMPC is an investor-owned public utility organized in 1937 under the laws
of New York state. NMPC is engaged principally in the generation, purchase,
transmission, distribution, and sale
- ------------------
1/ The name Niagara Mohawk Holdings, Inc. may be changed prior to the
effective time of the share exchange (as hereinafter defined) at the discretion
of the Board of Directors of Holdings.
-2-
<PAGE>
of electricity and the purchase, distribution, sale, and transportation of gas.
NMPC supplies electricity at both retail and wholesale.
As of January 1, 1998, NMPC's electric transmission and distribution
systems were composed of 952 substations with a rated transformer capacity of
approximately 28,500,000 kilovolt amperes, approximately 8,000 circuit miles of
overhead transmission lines, 1,100 cable miles of underground transmission
lines, 113,100 miles of overhead distribution lines, and 5,800 cable miles of
underground distribution cables. NMPC's generating facilities consist of four
fossil fuel steam plants (as well as a 25% interest in the Roseton steam plant),
two nuclear fuel steam plants, various diesel generating units, and 72
hydroelectric plants.2/
NMPC is a "public utility" as defined in Section 201(e) of the Federal
Power Act, 16 U.S.C. Sec. 824(e). NMPC sells electric energy at wholesale to,
and transmits electric energy in interstate commerce for, other electric
utilities under rate schedules and tariffs approved by the Commission.
NMPC's utility operations are also subject to regulation by the New York
Public Service Commission (the "NYPSC") pursuant to New York's Public Service
Law (the "PSL"). The
- ----------------
2/ Pursuant to orders of the New York Public Service Commission described
infra, NMPC has committed to separate, to the fullest degree practical, its
competitive generation business from the monopoly wires business. That
commitment included implementation of NMPC's Non-Nuclear Generation Asset
Divestiture Plan, which was approved in PSC Cases 94-E-0098 and 94-E-0099, ORDER
AUTHORIZING PROCESS FOR THE AUCTION OF GENERATING FACILITIES (May 6, 1998). All
of the non-nuclear generating facilities described herein are subject to that
auction. 1998). All of the non-nuclear generating facilities described herein
are subject to that auction.
-3-
<PAGE>
NYPSC's jurisdiction includes supervision over NMPC's retail rates and issuances
for bonds, capital stock and certain other securities, and investments by NMPC
in other entities, including certain subsidiaries.
NMPC is an "exempt" holding company under the Public Utility Holding
Company Act of 1935 ("1935 Act"). It must obtain approval of the corporate
restructuring from the Securities and Exchange Commission (the "SEC") under
Section 9(a)(2) of the 1935 Act. Holdings will file with the SEC a claim of
exemption under Section 3(a)(1) of the 1935 Act from the obligation to register
as a holding company.
In addition to its utility operations, NMPC owns an unregulated subsidiary,
Opinac North America, Inc., which, in turn, owns Opinac Energy Corporation3/ and
Plum Street Enterprises, Inc. and Plum Street Energy Marketing, Inc. (subsidiary
of Plum Street Enterprises, Inc.) (collectively, the "non-utility
subsidiaries"), which participate principally in energy-related services.
Canadian Niagara Power Company, Limited ("CNP") is owned 50% by Opinac Energy
Corporation. CNP owns a 99.99% interest in Canadian Niagara Wind Power Company,
Inc. and Cowley Ridge Partnership, respectively, which together operate a wind
power joint venture in the Province of
- --------------------
3/ Opinac Energy Corporation is an exempt holding company under Section
3(a)(5) of the Public Utility Holding Company Act of 1935. OPINAC ENERGY
CORPORATION, 52 S.E.C. Docket 1475 (1992).
-4-
<PAGE>
Alberta, Canada. NMPC also has several other subsidiaries including NM Uranium
Inc., NM Holdings, Inc., Moreau Manufacturing Corp., Beebee Island Corp., and NM
Receivables Corp.
Subject to the approval of various applications and requests filed with the
SEC, the NYPSC, the Nuclear Regulatory Commission (the "NRC"), and this
Commission, NMPC proposes to form the holding company structure discussed above,
whereby NMPC will become a subsidiary of Holdings. The NMPC shareholders have
already approved the formation of the holding company at its Annual Meeting held
on June 29, 1998. As part of the proposal, NMPC's non-regulated subsidiaries
will be transferred to Holdings. The resulting corporate structure will more
clearly separate NMPC's regulated and non-regulated businesses. This separation
is consistent with federal and state initiatives for the restructuring of the
electric utility industry.4/
The corporate restructuring is also consistent with a Settlement Agreement
(the "Settlement"), dated October 10, 1997, among the Staff of the NYPSC , NMPC,
and other parties which provides for fundamental changes to the structure of
NMPC's business. The Settlement was approved by the NYPSC on March 20, 1998.5/
Among other things, the Settlement calls for NMPC
- -----------------
4/ E.g., Order No. 888: Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services By Public Utilities, 75 F.E.R.C. Para.
61,080 (1996), reaff'd and clarified, Order No. 888-A, 78 F.E.R.C. Para. 61,220
(1997); NYPSC Opinion 96-12, Cases 94-E-0952, et. al., Opinion and Order
Regarding Competitive Opportunities for Electric Service. (1996).
5/ Niagara Mohawk Power Corp., Cases 94-E-0098 and 94-E-0099, et al., Opinion
and Order Adopting Terms of Settlement Agreement Subject to Modification and
Conditions (March 20, 1998) (the "Settlement Order").
-5-
<PAGE>
to divest all its hydro and fossil generation assets. NMPC's nuclear assets will
remain part of its regulated business. NMPC will continue to distribute
electricity through its transmission and distribution systems, but, by the end
of 1999, all of NMPC's customers will be able to choose their electricity
supplier in a competitive market. Electric rates will be unbundled into separate
charges for transmission, distribution, customer service, electric supply, and a
non-bypassable competitive transition charge (the "CTC"). Finally, the
Settlement allows NMPC to form, at its election, the holding company structure
discussed herein. Under the Settlement, NMPC may form a holding company within
one year of that approval. The Settlement is more fully described in the
Settlement Order, a copy of which is attached hereto as Exhibit J.
IV. PUBLIC INTEREST STANDARDS
The Commission has held that the transfer of a public utility's common
stock from its existing shareholders to a holding company constitutes a transfer
of the ownership and control of the utility's jurisdictional facilities and is
thus "a disposition of facilities" subject to Commission review and approval
under Section 203 of the FPA. See, e.g., Central Hudson Gas & Electric Corp., 84
FERC Sec.62,010 (1998); Illinois Power Co., 67 F.E.R.C. Para. 61,136 (1994);
Central Vermont Public Service Corp., 39 F.E.R.C. Para. 61,295 (1987). Because
NMPC's proposed restructuring would entail the transfer of the ownership of its
common stock from existing shareholders to Holdings, NMPC is seeking approval
under Section 203 and the Commission's regulations thereunder.
-6-
<PAGE>
The proposed holding company structure is intended to provide NMPC with the
financial and regulatory flexibility to compete more effectively in an
increasingly competitive energy industry by providing a structure that can more
easily accommodate both regulated and unregulated lines of business. NMPC
currently operates under the regulatory constraints of the NYPSC that were
generally designed to discourage electric utilities from participating in
unregulated businesses and that limit (i) the total amount of incremental
investment in unregulated operations, (ii) the amount that can be invested
annually, (iii) the cumulative amount that can be invested in any single line of
business, and (iv) the debt-equity ratios of its subsidiaries. Under current
regulations, any time NMPC wishes to allocate funds to new unregulated ventures,
it must seek NYPSC approval. The approval process itself leads to long delays,
forces the Company to reveal its plans to competitors, and gives competitors the
opportunity to intervene in the regulatory approval process and attempt to gain
competitive advantage by seeking restrictions that would handicap NMPC. The
holding company structure proposed herein would largely eliminate many of these
regulatory constraints that would otherwise severely limit or handicap NMPC's
ability to participate in unregulated business opportunities as the industry
evolves.
The holding company structure is a well-established form of organization
for those companies conducting multiple lines of business. It is a common form
of organization for unregulated companies and for those regulated companies,
such as telephone utilities and water utilities, which are not subject to the
1935 Act. In addition, the holding company structure is utilized by many
electric utilities which are involved in unregulated activities.
-7-
<PAGE>
More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
NYPSC, thereby enabling Holdings to pursue unregulated business opportunities in
a timely manner. Under the new corporate structure, financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require NYPSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings will not need NYPSC approval to issue debt
or equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior NYPSC
approval should allow competition on a level basis with other potential
acquirers, some of which are already holding companies. Under the holding
company structure, the issuance of debt or equity securities by Holdings to
finance the acquisition of stock or assets of another company should not
adversely affect NMPC's capital devoted to and available for regulated utility
operations.
The holding company structure separates the operations of unregulated and
regulated businesses. As a result, it provides a better structure for regulators
to assure that there is no cross-subsidization of costs or transfer of business
risk from unregulated to regulated lines of business. A holding company
structure also makes it easier for investors to analyze and value individual
lines of business. Moreover, the use of a holding company structure provides
legal protection against the imposition of liability on regulated utilities for
the results of unregulated business activities. In
-8-
<PAGE>
short, the holding company structure is a highly desirable form of conducting
regulated and unregulated businesses within the same corporate group.
The Commission is obligated to approve a proposed disposition of facilities
under FPA Section 203 if it is "consistent with the public interest." The
applicant need not show a positive public benefit, Entergy Services, Inc., 65
FERC Para. 61,332 (1993); Central Vermont Public Service Corp., 39 F.E.R.C. at
61,190, n. 14. Rather, [o]nly an absence of negative detriment [to the public
interest] is required." Id. See also Pacific Power and Light Co. v. F.P.C., 11
F.2d 1014, 1016 (9th Cir. 1962). The Commission routinely has found that the
disposition of facilities in connection with the creation of holding companies
is consistent with the public interest. New York State Electric and Gas Corp.,
81 FERC Para. 62,201 (1997); Boston Edison Co. and BEC Energy, 80 FERC Para.
61,274 (1997). The disposition of facilities in the present situation is very
similar to the disposition of facilities in the New York State Electric and Gas
case. 81 FERC Para. 62,201 (1997). In both instances, an electric and gas
company filed to transfer ownership and control of jurisdictional facilities,
through a transfer of common stock from existing shareholders to a newly formed
holding company.
The proposed corporate restructuring is in the public interest as evaluated
against the three factors set forth in the Commission's recently issued Merger
Policy Statement: (1) effect on rates,
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<PAGE>
(2) effect on competition, and (3) effect on regulation.6/
A. THE PROPOSED RESTRUCTURING WILL NOT AFFECT OPERATING COSTS OR RATE LEVELS.
The proposed corporate restructuring will have no affect on either NMPC's
operating costs or its rate levels. The transaction costs of the restructuring
will not affect NMPC's retail or wholesale rates because these costs will not be
included in rates. Any future changes in NMPC's wholesale power or transmission
rates will continue to be subject to Commission review and acceptance under the
FPA.
B. THE PROPOSED RESTRUCTURING WILL NOT HAVE AN ADVERSE EFFECT ON COMPETITION.
Market power in wholesale electric markets results from the ownership or
control of generation assets, transmission assets, or other inputs that could be
used as barriers to entry. See, e.g., Kansas City Power and Light Co., 67
F.E.R.C. Para. 61,183, at 61,556-558 (1994). NMPC's proposed corporate
restructuring will have no effect on the ownership or control of such assets and
inputs and thus will not adversely affect competition.
- ---------------------
6/ Order No. 592, Inquiry concerning the Commission's Merger Policy Under the
Federal Power Act; Policy Statement, Docket No. RM96-6-000. 61 Fed. Reg. 68,595,
68,605 (issued December 18, 1996) ("Merger Policy Statement"). The Merger Policy
Statement addresses public utility mergers subject to the Commission's
jurisdiction under Section 203(a) of the FPA. While the instant Application does
not involve a "merger" between electric public utilities, but rather the
corporate restructuring of an electric public utility, NMPC has addressed each
of the criteria set forth in the Merger Policy Statement to demonstrate that the
Corporate restructuting is in the public interest.
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<PAGE>
Further, the Settlement, of which the concept of the corporate
restructuring is a part, is being effected substantially as a response to the
NYPSC's policy of increasing competitive choices for New York ratepayers. In
approving the Settlement, the NYPSC stated: "The terms of the Settlement ...
will offer a generally sound regulatory framework for Niagara Mohawk, its
competitors, and its customers in the transition to fully competitive generation
and energy services markets." Settlement Order at 74.
Moreover, the auction of NMPC's non-nuclear generating facilities,
described supra, also will facilitate development of the competitive market.
Thus, the effect of the restructuring on competition in the electric power
industry either will be neutral or will offer positive benefits by enhancing
competition.
C. THE PROPOSED RESTRUCTURING WILL NOT IMPAIR THE EFFECTIVENESS OF STATE OR
FEDERAL REGULATION.
The proposed corporate restructuring will not impair effective regulation
of NMPC's utility operations by either state or federal agencies. NMPC's utility
services rates and facilities will continue to be regulated by the NYPSC and the
Commission. Indeed, because of the increase in the existing operational
delineation between NMPC and its unregulated subsidiaries which will result, the
corporate restructuring will enhance the auditing of utility costs and revenues.
* * *
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<PAGE>
For the foregoing reasons, NMPC's proposed corporate restructuring is
compatible with the public interest and should be authorized by the Commission.
V. SUPPORTING INFORMATION
In support of this Application, and pursuant to 18 C.F.R. Sec. 33.2, NMPC
states the following:
a. The exact name and the address of the Applicant's principal business
office and each company whose activities are involved:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
b. Names and addresses of persons authorized to receive notices and
communications concerning this Application:
Paul J. Kaleta, Esq.
Vice President--Law and General Counsel
M. Margaret Fabic, Esq.
Chief Counsel--Energy Delivery
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
(315) 428-6593
Steven J. Agresta, Esq.
J. Phillip Jordan, Esq.
Swidler & Berlin
3000 K Street NW Suite 300
Washington, DC 20007
(202) 424-7757
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<PAGE>
c. Designation of the territories served, by counties and States:
NMPC is engaged principally in the business of generating, purchasing,
transmitting and distributing electricity and purchasing, transporting and
distributing natural gas. NMPC's service territory is located entirely within
New York State. NMPC's service territory has an area of approximately 24,000
square miles and a population of 3.5 million. The largest cities in which NMPC
serves either or both electricity and natural gas are Buffalo, Syracuse, Albany,
Utica, Schenectady, Niagara Falls, Watertown and Troy. The following counties in
New York are all of the counties in which NMPC provides retail electric
services: Onondaga, Cayuga, Chenango, Cortland, Franklin, Hamilton, Herkimer,
Jefferson, Lewis, Madison, Oneida, Oswego, St. Lawrence, Allegany, Cattaraugus,
Chautauqua, Erie, Genesee, Livingston, Monroe, Niagara, Ontario, Orleans,
Seneca, Wayne, Wyoming, Albany, Clinton, Columbia, Dutchess, Essex, Fulton,
Greene, Montgomery, Orange, Otsego, Rensselaer, Saratoga, Schenectady,
Schoharie, Warren, and Washington.
d. General statement briefly describing the facilities owned or operated
for transmission of electric energy in interstate commerce or for the sale of
electric energy at wholesale in interstate commerce:
As of January 1, 1998, NMPC's electric transmission and distribution
systems were composed of 952 substations with a rated transformer capacity of
approximately 28,500,000 kilovolt
-13-
<PAGE>
amperes, approximately 8,000 circuit miles of overhead transmission lines, 1,100
cable miles of underground transmission lines, 113,100 miles of overhead
distribution lines, and 5,800 cable miles of underground distribution cables.
All of NMPC's electric transmission facilities are located in the State of
New York.
NMPC's generating facilities currently consist of four fossil fuel steam
plants (as well as a 25% interest in the Roseton steam plant), two nuclear fuel
steam plants, various diesel generating units, and 72 hydroelectric plants, and
has a majority interest in Beebee Island and Feeder Dam hydro plants and their
output. NMPC also purchases substantially all the output of 93 other
hydroelectric facilities.
e. Whether the application is for disposition of facilities by sale, lease,
or otherwise, and a description of the consideration, if any, and the method of
arriving at the amount thereof.
The "disposition of facilities" deemed to occur solely from the creation of
a holding company over NMPC does not involve any consideration or sales price.
f. Statement of the facilities to be disposed of, giving a description of
their present use and proposed use after disposition. State whether the proposed
disposition includes all the operating facilities of the parties to the
transactions:
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<PAGE>
The creation of a holding company over NMPC is deemed to be a "disposition"
for purposes of the FPA of all of NMPC's facilities, including all operating
facilities. However, after the holding company structure is implemented, title,
possession and use of all utility property, subject to the terms of the
Settlement, will still be held by NMPC, which will be a wholly owned subsidiary
of Holdings.
g. Statement (in the form prescribed by the Commission's Uniform System of
Accounts for Public Utilities as Licensees) of the cost of the facilities
involved in the disposition:
After the proposed corporate restructuring, all of the physical facilities
currently owned by NMPC will, subject to the terms of the Settlement, continue
to be owned by NMPC, and NMPC will be a wholly owned subsidiary of Holdings.
Therefore, NMPC incorporates herein by reference the statements contained in its
FERC Form No. 1 for the year ended December 31, 1997, relating to the cost of
NMPC's net utility plant.
h. Statement as to the effect of the proposed transaction upon any contract
for the purchase, sale, or interchange of electric energy:
The proposed corporate restructuring will have no effect on any of NMPC's
contracts for the purchase, sale, or interchange of electric energy. The Master
Restructuring Agreement ("MRA")
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<PAGE>
between NMPC and 14 independent power producers, consummated on June 30, 1998,
terminates, restates, or amends 27 power purchase agreements, representing
nearly 1700 MW of capacity.
i. Statement as to whether any application with respect to the transaction
or any part thereof is required to be filed with any other federal or state
regulatory body:
The proposed corporate restructuring requires the approval of the NYPSC,
the SEC pursuant to the 1935 Act, and the NRC. The Settlement, which includes a
description of the corporate restructuring, has been approved by the NYPSC in
the Settlement Order. Concurrent with the filing of this Application, NMPC is
filing applications with the NRC, and the SEC for approval to effect the
proposed corporate restructuring. Additionally, a compliance filing with the
NYPSC will be required consistent with the Settlement and the Settlement Order.
No similar application is required to be filed with any other State or federal
regulatory body. The SEC, NRC and NYPSC filings are attached hereto as Exhibit
G.
j. The facts relied upon to show that the proposed disposition will be
consistent with the public interest:
Reference is hereby made to the prior discussion in Section IV of this
Application.
k. Brief statement of franchises held, showing date of expiration, if not
perpetual:
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<PAGE>
A listing of the franchises held by NMPC and their dates of expiration is
attached hereto as Exhibit K. The proposed corporate restructuring does not
involve a transfer of any franchises and there will be no change in franchised
territories as a result of the proposed corporate restructuring.
l. Form of notice suitable for publication in the Federal Register, briefly
summarizing the application in such a way as to acquaint the public with its
scope and purpose:
A form of Notice suitable for publication in the Federal Register, pursuant
to 18 C.F.R. Sec. 35.8, is attached hereto as Exhibit L. In addition, enclosed
with Exhibit L is a 3 1/2" diskette containing the notice of filing in
WordPerfect 5.1 for DOS.
VI. REQUIRED EXHIBITS
The following exhibits required by Section 33.3 of the Commission's
regulations are filed herewith, except as noted below. All exhibits are relevant
only to, and therefore address only, NMPC.
Exhibit A -- Resolutions of the Board of Directors dated May 14, 1998
authorizing the proposed corporate restructuring.
Exhibit B -- A statement of the measure of control or ownership exercised by
or over NMPC and the nature and extent of any intercorporate
relationships.
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<PAGE>
Exhibit C -- Balance sheets and supporting plant schedules for the 12-month
period ended December 31, 1997 on an actual basis in the form
prescribed for Statements A and B of the FERC Annual Report Form
No. 1. and pro forma balance sheets.
Exhibit D -- A statement of all known contingent liabilities excepting minor
items.
Exhibit E -- Income statements for the 12-month period ended December 31, 1997
on an actual basis in the form prescribed for Statement C of the
FERC Annual Report Form No. 1 and pro forma income statements.
Exhibit F -- An analysis of retained earnings for the period covered by the
income statements referred to in Exhibit E and pro forma retained
earnings statements.
Exhibit G -- Copies of applications or requests filed with the NYPSC, the NRC,
and the SEC. Copies of agency orders will be filed with the
Commission after they have been issued.
Exhibit H -- Copies of the Agreement and Plan of Exchange between NMPC and
Holdings.
Exhibit I -- A map showing NMPC's properties and interconnections and the
principal cities of the area served.
In addition, NMPC has attached the following exhibits:
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<PAGE>
Exhibit J Niagara Mohawk Power Corp., Cases 94-E-0098 and 94-E-0099, et
al., Opinion and Order Adopting Terms of Settlement Agreement
Subject to Modifications and Conditions (Mar. 20, 1998)
(Settlement Order)
Exhibit K List of Franchises
Exhibit L Form of Notice suitable for publication in the Federal Register
(hard copy and 3 1/2" diskette in Word Perfect 5.1 for DOS)
WHEREFORE, Niagara Mohawk Power Corporation respectfully requests that the
Commission approve this Application and authorize the proposed corporate
restructuring under the terms and conditions set forth herein.
Respectfully submitted,
NIAGARA MOHAWK POWER CORPORATION
By: /s/ Paul J. Kaleta
-------------------------------
Name: Paul J. Kaleta
Title: Vice President -- Law and
General Counsel
Paul J. Kaleta, Esq. Steven J. Agresta
Vice President -- Law and General Counsel J. Phillip Jordan
M. Margaret Fabic, Esq. Swidler & Berlin, Chtd.
Chief Counsel -- Energy Delivery 3000 K Street, N.W., Suite 300
Niagara Mohawk Power Corporation Washington, D.C. 20007-5116
300 Erie Boulevard West Voice (202) 424-7501
Syracuse, New York 13202 Fax (202) 424-7692
Voice (315) 428-6593
Fax (315) 428-6407
Dated: July 22, 1998
-19-
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. ________________
STATE OF NEW YORK )
COUNTY OF ONONDAGA ) s:
AFFIDAVIT OF WILLIAM F. EDWARDS
William F. Edwards, being duly sworn, states that he is the Senior Vice
President and Chief Financial Officer of Niagara Mohawk Power Corporation
("NMPC"); that he is authorized on the part of NMPC to sign and file with the
Federal Energy Regulatory Commission the foregoing Application; and that said
request is true and correct to the best of his knowledge, information and
belief.
----------------------------------
William F. Edwards
SUBSCRIBED and SWORN to before me,
a Notary Public, this ____ day
of _________, 1998.
- ----------------------------------
Notary Public
-20-
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
I, STEVEN W. TASKER, Vice President and Controller of Niagara Mohawk Power
Corporation, a corporation organized and existing under the laws of the State of
New York, HEREBY CERTIFY that I have reviewed Exhibits C, D, E and F annexed
hereto and they are true and correct to the best of my knowledge.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 20th day of
July, 1998.
-----------------------------
Steven W. Tasker
Vice President and Controller
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
I, M MARGARET FABIC, Chief Counsel--
Energy Delivery of Niagara Mohawk Power
Corporation, a corporation organized and existing under the laws of State of New
York, HEREBY CERTIFY that I have reviewed Exhibits B, G and I annexed hereto and
they are true and correct to the best of my knowledge.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 20th day of
July, 1998.
-----------------------------
M. Margaret Fabic
Chief Counsel-Energy Delivery
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. __________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT A
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
I, KAPUA A. RICE, Secretary of Niagara Mohawk Power Corporation, a
corporation organized and existing under the laws of the State of New York,
HEREBY CERTIFY:
1. That a meeting of the Board of Directors of Niagara Mohawk Power
Corporation was duly called and held on May 14, 1998, pursuant to law and
the By-Laws of said Corporation;
2. That a quorum of the Board of Directors was present at said meeting and
acted throughout;
3. That at said meeting resolutions, a true and correct copy of which is
annexed hereto, were duly adopted by the Board of Directors;
4. That said resolutions have not been in any respect amended, rescinded
or annulled, but remain in full force and effect;
5. That the Secretary or any Assistant Secretary of said Corporation is
authorized by provision of the By-Laws of said Corporation to certify as
to the acts of the Board of Directors.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
corporate seal of Niagara Mohawk Power Corporation this 23rd day of June, 1998.
/s/ Kapua A. Rice
----------------------------
Kapua A. Rice
Secretary
<PAGE>
APPROVAL OF BINDING SHARE EXCHANGE
AGREEMENT FOR HOLDING COMPANY:
After discussion, on motion duly made, seconded and carried by the
affirmative vote of all directors present, the following resolutions were
adopted:
RESOLVED, That the Agreement and Plan of Exchange (the "Exchange
Agreement") with Niagara Mohawk Holdings, Inc. ("Holdings") attached as
Exhibit A to the draft prospectus/proxy statement circulated to the
Board is hereby adopted and approved and the Chairman and Chief
Executive Officer or the President of Niagara Mohawk Power Corporation
(the "Corporation") is hereby authorized, empowered and directed to
execute and deliver the Exchange Agreement in substantially such form,
with such changes theretin, if any, as he may approve, whether upon
suggestion of counsel or otherwise; and be it further
RESOLVED, That any of the officers of the Corporation are, and
each of them is, authorized and empowered to file or cause to be filed
a Certificate of Exchange with the Department of State of the State of
New York, in the event that the Exchange Agreement is adopted and
approved by holders of shares of Common Stock of Niagara Mohawk Power
Corporation; and be it further
RESOLVED, That, if and when the share exchange becomes effective,
the Corporation's Dividend Reinvestment and Common Stock Purchase Plan
as in effect immediately prior to the effective time be appropriately
amended, so that shares of Common Stock of Holdings will be issued
under such Plan on and after the effective time; and be it further
RESOLVED, That, if and when the share exchange becomes effective,
the Employee Savings Fund Plans for Represented and Non-Represented
Employees and the 1992 Stock Option Plan (together the "Stock Plans"),
as in effect immediately prior to the effective time be appropriately
amended, so that shares of Common Stock of the Holdings will be issued
under such Plans on and after the effective time, and all stock options
previously the obligations of the Corporation shall be assumed by
Holdings.
RESOLVED, that the appropriate officers of the Corporation be, and
each of them are, hereby authorized and empowered to take or cause to
be taken such other and
<PAGE>
-2-
further action as they in their discretion may deem necessary or
desirable to carry out the intent and purposes of the foregoing
resolutions and any such action heretofore taken by such officers is
hereby approved, ratified and confirmed.
5/14/98
APPROVED BY THE BOARD OF DIRECTORS
May 14 1998
KAPUA A. RICE
SECRETARY
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. __________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT B
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULAOTRY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. ________________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
EXHIBIT B
Upon implementation of the proposed corporate restructuring described
in this Application, Niagara Mohawk Holdings, Inc. (Holdings) will own or
control, directly or indirectly, 100% of all the common stock of Niagara Mohawk
Power Corporation (Niagara Mohawk) and all of the subsidiaries of both
companies, with the following exceptions. Holdings will own 50% of the common
stock of Canadian Niagara Power, 67% of the common stock of Moreau Manufacturing
Corp. and 86% of Beebee Island Corp., each of which is a public utility.
However, Niagara Mohawk expects to sell or liquidate its majority interests in
two of its generation subsidiaries, Beebee Island and Moreau, before or shortly
after the share exchange, Holdings will retain an indirect 50% interest in CNP.
Holdings will exercise no measure of control or ownership over any
other public utility, bank, trust company, banking association, firm that is
authorized by law to underwrite or participate in the marketing of securities of
a public utility, or company that supplies electric equipment.
1
<PAGE>
The officers of Holdings will be as follows:
Chairman of the Board and William E. Davis
Chief Executive Officer
President Albert J. Budney, Jr.
Chief Financial Officer William F. Edwards
Chief Legal Officer Gary J. Lavine, Esq.
Chief Accounting Officer Steven W. Tasker
Secretary Kapua A. Rice
The directors of Holdings will be:
Salvatore H. Alfiero William F. Allyn
Albert J. Budney, Jr. Lawrence Burkhardt, III
Douglas M. Costle William E. Davis
William J. Donlon Anthony H. Gioia
Bonnie Guiton Hill Clark A. Johnson
Henry A. Panasci, Jr. Patti McGill Peterson
Donald B. Riefler Stephen B. Schwartz
By application pursuant to Federal Power Act Section 305(b) dated June
29, 1998, Mr. Alfiero has requested authority to hold the following interlocking
positions:
Position Corporation Classification
- -------- ----------- --------------
Director Niagara Mohawk Power Corporation Public Utility
(Niagara Mohawk)
Director Phoenix Home Mutual Insurance Co. Firm authorized by law to
(Phoenix) underwrite or market utility
securities
Director Marine Midland Bank (Marine) Bank authorized by law to
underwrite or market utility
securities
Director Southwire Company (Southwire) Electrical equipment manufacturer
Phoenix, which is engaged in the insurance annuity business, is not
authorized by law to underwrite or market utility securities. However, Phoenix
also is the ultimate corporate parent of Phoenix Equity Planning Corporation
(PEPCO) and W.S. Griffith & Co., Inc., (Griffith) which are authorized to market
utility securities. For purposes of Section 305(b), the activities of PEPCO and
Griffith may be imputed by FERC to Phoenix for
2
<PAGE>
purposes of determining whether an interlocking directorate exists between a
public utility and a bank, trust company, banking association, or firm that is
authorized by law to underwrite or participate in the marketing of utility
securities. The same imputation rule applies to Marine, a commercial bank whose
ultimate corporate parent, HSBC Holdings plc, also is the ultimate corporate
parent of HSBC Securities, Inc., which is authorized by law to participate in
the marketing of utility securities.
Mr. Alfiero serves as an outside director of Phoenix, Marine, and
Southwire, and will serve as an outside director of Niagara Mohawk. Mr. Alfiero
does not expect to be intimately involved in the day-to-day affairs of such
companies or their subsidiaries or affiliates.
In addition, Messrs. Allyn, Budney, Costle, Davis and Ms. McGill
Peterson hold interlocking positions between public utilities and certain other
entities, as previously reported on FERC 561:Annual Report of Interlocking
Positions.
The officers of Niagara Mohawk are as follows:
Chairman of the Board and William E. Davis
Chief Executive Officer
President and Chief Albert J. Budney, Jr.
Operating Officer
Chief Financial Officer William F. Edwards
Senior Vice President and John H. Mueller
Chief Nuclear Officer
Senior Vice Presidents David J. Arrington
Darlene D. Kerr
Gary J. Lavine
3
<PAGE>
Vice Presidents Richard B. Abbott
Joseph T. Ash
Nicholas J. Ashooh
Thomas H. Baron
John T. Conway
Kim A. Dahlberg
Edward J. Dienst
Theresa A. Flaim
Paul J. Kaleta, Esq.
Michael J. Kelleher
Samuel F. Manno
Douglas R. McCuen
Clement E. Nadeau
Arthur W. Roos
Richard H. Ryzcek
William J. Synwoldt
Steven W. Tasker
Carl D. Terry
Stanley W. Wilczek
Secretary Kapua A. Rice
The Directors of Niagara Mohawk will be:
William E. Davis
Darlene D. Kerr
John Mueller
4
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. __________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT C
<PAGE>
FERC
EXHIBIT C
BALANCE SHEET AND SUPPORTING PLANT SCHEDULES
Niagara Mohawk Power Corporation's balance sheet and supporting plant schedules
are set forth in its FERC Form No. 1 for the year ended Decembert 31, 1997
(Resubmission No. 1, June 1998) (at pages 110-113 and 200-203), which is
incorporated herein by reference. The pro forma balance sheet for the year ended
December 31, 1997 reflecting the proposed transaction follows. Pro forma
supporting plant schedules are not presented since they are unaffected by the
proposed transaction.
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
EXHIBIT C
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED
ADJUSTMENTS NIAGARA
NIAGARA NIAGARA MOHAWK
MOHAWK MOHAWK POWER
ASSETS HOLDINGS, INC. HOLDINGS, INC. CORPORATION
------ -------------- -------------- -----------
<S> <C> <C> <C>
UTILITY PLANT:
Electric plant $8,752,865
Nuclear fuel 577,409
Gas plant 1,131,541
Common plant 319,409
Construction work in progress 294,650
----------- ----------- -----------
TOTAL UTILITY PLANT 11,075,874
Less: Accumulated depreciation and amortization 4,207,830
----------- ----------- -----------
NET UTILITY PLANT 6,868,044
----------- ----------- -----------
OTHER PROPERTY AND INVESTMENTS:
Investment in subsidiary companies - consolidated 2,727,527
Investment 266,861
----------- ----------- -----------
2,727,527 266,861
----------- ----------- -----------
CURRENT ASSETS:
Cash, including temporary cash investments of
$315,708 355,569
Accounts receivable 531,922
Less-Allowance for doubtful accounts (62,500)
Materials and supplies, at average cost:
Coal and oil for production of electricity 27,642
Gas storage 38,502
Other 118,308
Prepaid taxes 15,518
Other 19,390
----------- ----------- -----------
1,044,351
----------- ----------- -----------
REGULATORY ASSETS:
Regulatory tax asset 399,119
Deferred finance charges 239,880
Deferred environmental restoration costs 220,000
Unamortized debt expense 57,312
Postretirement benefits other than pensions 56,464
Other 204,049
----------- ----------- -----------
1,176,824
----------- ----------- -----------
75,864
----------- ----------- -----------
OTHER ASSETS $ 2,727,527 $9,431,944
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
(continued . . .) EXHIBIT C
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED
CONSOLIDATED INTER- NIAGARA
OPINAC NORTH COMPANY MOHAWK
ASSETS AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
------ ------------- ------------- --------------
<S> <C> <C> <C>
UTILITY PLANT:
Electric plant $ $8,752,865
Nuclear fuel 577,409
Gas plant 1,131,541
Common plant 319,409
Construction work in progress 294,650
----------- ----------- -----------
TOTAL UTILITY PLANT 11,075,874
Less: Accumulated depreciation and amortization 4,207,830
----------- ----------- -----------
NET UTILITY PLANT 6,868,044
----------- ----------- -----------
OTHER PROPERTY AND INVESTMENTS:
Investment in subsidiary companies - consolidated (2,727,527)
Investment 104,848 371,709
----------- ----------- -----------
104,848 (2,727,527) 371,709
----------- ----------- -----------
CURRENT ASSETS:
Cash, including temporary cash investments of
$315,708 22,663 378,232
Accounts receivable 23,002 (180) 554,744
Less-Allowance for doubtful accounts (62,500)
Materials and supplies, at average cost:
Coal and oil for production of electricity 27,642
Gas storage 945 39,447
Other 118,308
Prepaid taxes 15,518
Other 919 20,309
----------- ----------- -----------
47,529 (180) 1,091,700
----------- ----------- -----------
REGULATORY ASSETS:
Regulatory tax asset 399,199
Deferred finance charges 239,880
Deferred environmental restoration costs 220,000
Unamortized debt expense 57,312
Postretirement benefits other than pensions 56,464
Other 204,049
----------- ----------- -----------
1,176,824
----------- ----------- -----------
75,864
----------- ----------- -----------
OTHER ASSETS $152,377 ($2,727,707) $9,584,141
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
EXHIBIT C
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED
ADJUSTMENTS NIAGARA
NIAGARA NIAGARA MOHAWK
MOHAWK MOHAWK POWER
HOLDINGS, INC. HOLDINGS, INC. CORPORATION
-------------- -------------- -----------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholders' equity:
Common stock-$.01 par value; authorized 300,000,000
shares: issued 144,419,351 shares 1,444 144,419
Capital stock premium and expense 1,922,663 1,779,688
Retained earnings 803,420 671,852
----------- ----------- -----------
2,727,527 2,595,959
----------- ----------- -----------
Cumulative preferred stock -
$100 par value; authorized 3,400,000 shares;
issued 2,322,000 shares:
Optionally redeemable 210,000
Mandatorily redeemable 20,400
Cumulative preferred stock -
$25 par value; authorized 19,600,000 shares;
issued 11,781,204 shares:
Optionally redeemable 230,000
Mandatorily redeemable 56,210
Cumulative preference stock -
$25 par value; authorized 8,000,000 shares; issued none
Long-term debt 3,417,381
----------- ----------- -----------
TOTAL CAPITALIZATION 2,727,527 6,529,950
----------- ----------- -----------
CURRENT LIABILITIES:
Long-term debt due within one year 67,095
Sinking fund requirements on redeemable preferred stock 10,120
Accounts payable 243,082
Payable on outstanding bank checks 23,720
Customers' deposits 18,372
Accrued taxes 9,005
Accrued interest 62,643
Accrued vacation pay 36,532
Other 63,767
----------- ----------- -----------
534,336
----------- ----------- -----------
REGULATORY LIABILITIES:
Deferred finance charges 239,880
----------- ----------- -----------
OTHER LIABILITIES:
Accumulated deferred income taxes 1,387,659
Employee pension and other benefits 240,211
Deferred pension settlement gain 12,438
Unbilled revenues 43,281
Other 24,189
----------- ----------- -----------
1,907,778
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES:
Liability for environmental restoration 220,000
----------- ----------- -----------
$ 2,727,527 $9,431,944
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
(continued . . .) EXHIBIT C
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED
CONSOLIDATED INTER- NIAGARA
OPINAC NORTH COMPANY MOHAWK
AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
------------- ------------- --------------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common stockholders' equity:
Common stock-$.01 par value; authorized 300,000,000
shares: issued 144,419,351 shares 1 (144,420) 1,444
Capital stock premium and expense 133,568 (1,913,256) 1,922,663
Retained earnings (2,001) (669,851) 803,420
----------- ----------- -----------
131,568 (2,727,527) 2,727,527
----------- ----------- -----------
Cumulative preferred stock -
$100 par value; authorized 3,400,000 shares;
issued 2,322,000 shares:
Optionally redeemable 210,000
Mandatorily redeemable 20,400
Cumulative preferred stock -
$25 par value; authorized 19,600,000 shares;
issued 11,781,204 shares:
Optionally redeemable 230,000
Mandatorily redeemable 56,210
Cumulative preference stock -
$25 par value; authorized 8,000,000 shares; issued none
Long-term debt 3,417,381
----------- ----------- -----------
TOTAL CAPITALIZATION 131,568 (2,727,527) 6,661,518
----------- ----------- -----------
CURRENT LIABILITIES:
Long-term debt due within one year 67,095
Sinking fund requirements on redeemable preferred stock 10,120
Accounts payable 20,193 (180) 263,095
Payable on outstanding bank checks 23,720
Customers' deposits 18,372
Accrued taxes 9,005
Accrued interest 62,643
Accrued vacation pay 36,532
Other 989 64,756
----------- ----------- -----------
21,182 (180) 555,338
----------- ----------- -----------
REGULATORY LIABILITIES:
Deferred finance charges 239,880
----------- ----------- -----------
OTHER LIABILITIES:
Accumulated deferred income taxes (627) 1,387,032
Employee pension and other benefits 240,211
Deferred pension settlement gain 12,438
Unbilled revenues 43,281
Other 254 224,443
----------- ----------- -----------
(373) 1,907,405
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES:
Liability for environmental restoration 220,000
----------- ----------- -----------
$152,377 ($2,727,707) $9,584,141
=========== =========== ===========
</TABLE>
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC.
ACCOUNTING ENTRY TO RECORD THE REORGANIZATION
BALANCE SHEET AT DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
EXHIBIT C
<TABLE>
<CAPTION>
SUBSIDIARY LINE DESCRIPTION DEBIT CREDIT
<S> <C> <C> <C>
Niagara Mohawk Holdings, Inc. Investment in subsidiary companies - consolidated 2,727,527
Niagara Mohawk Holdings, Inc. Common stock 144,420
Niagara Mohawk Holdings, Inc. Capital stock premium and expense 1,913,256
Niagara Mohawk Holdings, Inc. Retained Earnings 669,851
</TABLE>
To record Niagara Mohawk Holdings, Inc's investment in subsidiaries.
Remaining entry represents normal consolidating eliminating entries.
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT D
<PAGE>
FERC
EXHIBIT D
---------
STATEMENT OF ALL KNOWN CONTINGENT LIABILITIES
As of the date of this application, the material contingent liabilities of
Niagara Mohawk Power Corporation, not including minor items such as damage
claims and similar items involving relatively small amounts, are set forth in
Niagara Mohawk Power Corporation's (NMPC) Annual Report on Form 10-K/A for the
year ended December 31, 1997, and NMPC's Quarterly Report on Form 10-Q/A for the
quarter ended March 31, 1998, appropriate excerpts of which are attached hereto.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excerpt from Niagara Mohawk Power Corporation Form 10 K/A for the Year
ended December 31, 1997.
NOTE 2. RATE AND REGULATORY ISSUES AND CONTINGENCIES
The Company's financial statements conform to GAAP, including the accounting
principles for rate-regulated entities with respect to its regulated operations.
Substantively, these principles permit a public utility, regulated on a
cost-of-service basis, to defer certain costs which would otherwise be charged
to expense, when authorized to do so by the regulator. These deferred costs are
known as regulatory assets, which in the case of the Company are approximately
$937 million, net of approximately $240 million of regulatory liabilities at
December 31, 1997. These regulatory assets are probable of recovery. The portion
of the $937 million which has been allocated to the nuclear generation and
electric transmission and distribution business is approximately $810 million,
which is net of approximately $240 million of regulatory liabilities. Regulatory
assets allocated to the rate-regulated gas distribution business are $127
million. Generally, regulatory assets and liabilities were allocated to the
portion of the business that incurred the underlying transaction that resulted
in the recognition of the regulatory asset or liability. The allocation methods
used between electric and gas are consistent with those used in prior regulatory
proceedings.
The Company concluded as of December 31, 1996 that the termination, restatement
or amendment of IPP contracts and implementation of PowerChoice was the probable
outcome of negotiations that had taken place since the PowerChoice announcement.
Under PowerChoice, the separated non-nuclear generation business would no longer
be rate-regulated on a cost-of-service basis and, accordingly, regulatory assets
related to the non-nuclear power generation business, amounting to approximately
$103.6 million ($67.4 million after tax or 47 cents per share) was charged
against 1996 income as an extraordinary non-cash charge.
The PSC in its written order issued March 20, 1998 approving PowerChoice,
determined to limit the estimated value of the MRA regulatory asset that can be
recovered from customers to approximately $4,000 million. The ultimate amount of
the regulatory asset to be established may vary based on certain events related
to the closing of the MRA. The estimated value of the MRA regulatory asset
includes the issuance of 42.9 million shares of common stock, which the PSC in
determining the recoverable amount of such asset, valued at $8 per share.
Because the value of the consideration to be paid to the IPP Parties can only be
determined at the MRA closing, the value of the limitation on the recoverability
of the MRA regulatory asset is expected to be recorded as a charge to expense in
the second quarter of 1998 upon the closing of the MRA. The charge to expense
will be determined as the difference between $8 per share and the Company's
closing common stock price on the date the MRA closes, multiplied by 42.9
million shares. Using the Company's common stock price on March 26, 1998 of $12
7/16 per share, the charge to expense would be approximately $190 million (85
cents per share).
Under PowerChoice, the Company's remaining electric business (nuclear generation
and electric transmission and distribution business) will continue to be
rate-regulated on a cost-of-service basis and, accordingly, the Company
continues to apply SFAS No. 71 to these businesses. Also, the Company's IPP
contracts, including those restructured under the MRA and those not so
restructured will continue to be the obligations of the regulated business.
<PAGE>
The EITF of the FASB reached a consensus on Issue No. 97-4 "Deregulation of the
Pricing of Electricity - Issues Related to the Application of SFAS No. 71 and
SFAS No. 101" in July 1997. As discussed previously, the Company discontinued
the application of SFAS No. 71 and applied SFAS No. 101 with respect to the
fossil and hydro generation business at December 31, 1996, in a manner
consistent with the EITF consensus.
In addition, EITF 97-4 does not require the Company to earn a return on
regulatory assets that arise from a deregulating transition plan in assessing
the applicability of SFAS No. 71. In the event the MRA and PowerChoice are
implemented, the Company believes that the regulated cash flows to be derived
from prices it will charge for electric service over 10 years, including the
CTC, assuming no unforeseen reduction in demand or bypass of the CTC or exit
fees, will be sufficient to recover the MRA regulatory asset and to provide
recovery of and a return on the remainder of its assets, as appropriate. In the
event the Company could no longer apply SFAS No. 71 in the future, it would be
required to record an after-tax non-cash charge against income for any remaining
unamortized regulatory assets and liabilities. Depending on when SFAS No. 71 was
required to be discontinued, such charge would likely be material to the
Company's reported financial condition and results of operations and the
Company's ability to pay dividends. The PowerChoice agreement, while having the
effect of substantially depressing earnings during its five-year term, will
substantially improve operating cash flows.
With the implementation of PowerChoice, specifically the separation of
non-nuclear generation as an entity that would no longer be cost-of-service
regulated, the Company is required to assess the carrying amounts of its
long-lived assets in accordance with SFAS No. 121. SFAS No. 121 requires
long-lived assets and certain identifiable intangibles held and used by an
entity to be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable or when
assets are to be disposed of. In performing the review for recoverability, the
Company is required to estimate future undiscounted cash flows expected to
result from the use of the asset and/or its disposition. The Company has
determined that there is no impairment of its fossil and hydro generating
assets. To the extent the proceeds resulting from the sale of the fossil and
hydro assets are not sufficient to avoid a loss, the Company would be able to
recover such loss through the CTC. The PowerChoice agreement provides for
deferral and future recovery of losses, if any, resulting from the sale of the
non-nuclear generating assets. The Company believes that it will be permitted to
record a regulatory asset for any such loss in accordance with EITF 97-4. The
Company's fossil and hydro generation plant assets had a net book value of
approximately $1.1 billion at December 31, 1997.
As described in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Master Restructuring Agreement and the
PowerChoice Agreement," the conclusion of the termination, restatement or
amendment of IPP contracts, and closing of the financing necessary to implement
such termination, restatement or amendment, as well as implementation of
PowerChoice, is subject to a number of contingencies. In the event the Company
is unable to successfully bring these events to conclusion, it is likely that
application of SFAS No. 71 would be discontinued. The resulting non-cash
after-tax charges against income, based on regulatory assets and liabilities
associated with the nuclear generation and electric transmission and
distribution businesses as of December 31, 1997, would be approximately $526.5
million or $3.65 per share. Various requirements under applicable law and
regulations and under corporate instruments, including those with respect to
issuance of debt and equity securities, payment of common and preferred
dividends and certain types of transfers of assets could be adversely impacted
by any such write-downs,
<PAGE>
The Company has recorded the following regulatory assets on its Consolidated
Balance Sheets reflecting the rate actions of its regulators:
REGULATORY TAX ASSET represents the expected future recovery from ratepayers of
the tax consequences of temporary differences between the recorded book bases
and the tax bases of assets and liabilities. This amount is primarily timing
differences related to depreciation. These amounts are amortized and recovered
as the related temporary differences reverse. In January 1993, the PSC issued a
Statement of Interim Policy on Accounting and Ratemaking Procedures that
required adoption of SFAS No. 109 on a revenue-neutral basis.
DEFERRED FINANCE CHARGES represent the deferral of the discontinued portion of
AFC related to CWIP at Unit 2 which was included in rate base. In 1985, pursuant
to PSC authorization, the Company discontinued accruing AFC on CWIP for which a
cash return was being allowed. This amount, which was accumulated in deferred
debit and credit accounts up to the commercial operation date of Unit 2, awaits
future disposition by the PSC. A portion of the deferred credit could be
utilized to reduce future revenue requirements over a period shorter than the
life of Unit 2, with a like amount of deferred debit amortized and recovered in
rates over the remaining life of Unit 2. PowerChoice provides for netting, and
thereby elimination of the debit and credit balances of deferred finance
charges.
DEFERRED ENVIRONMENTAL RESTORATION COSTS represent the Company's share of the
estimated costs to investigate and perform certain remediation activities at
both Company owned sites and non-owned sites with which it may be associated.
The Company has recorded a regulatory asset representing the remediation
obligations to be recovered from ratepayers. PowerChoice and the Company's gas
settlement provide for the recovery of these costs over the settlement periods.
The Company believes future costs, beyond the settlement periods, will continue
to be recovered in rates. See Note 9 - "Environmental Contingencies."
UNAMORTIZED DEBT EXPENSE represents the costs to issue and redeem certain
long-term debt securities which were retired prior to maturity. These amounts
are amortized as interest expense ratably over the lives of the related issues
in accordance with PSC directives.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS represent the excess of such costs
recognized in accordance with SFAS No. 106 over the amount received in rates. In
accordance with the PSC policy statement, postretirement benefit costs other
than pensions are being phased-in to rates over a five-year period and amounts
deferred will be amortized and recovered over a period not to exceed 20 years.
Substantially all of the Company's regulatory assets described above are being
amortized to expense and recovered in rates over periods approved in the
Company's electric and gas rate cases, respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
See Note 2.
LONG-TERM CONTRACTS FOR THE PURCHASE OF ELECTRIC POWER: At January 1, 1998, the
Company had long-term contracts to purchase electric power from the following
generating facilities owned by NYPA:
<PAGE>
<TABLE>
<CAPTION>
Expiration date Purchased Estimated annual
Facility of Contract capacity in MW capacity cost
- --------------------------------- ---------------- --------------- -----------------
<S> <C> <C> <C>
Niagara - hydroelectric project 2007 951 $27,369,000
St. Lawrence - Hydroelectric 2007 104 1,300,000
project
Blenheim-Gilboa - pumped 2002 270 7,500,000
storage generating station
- --------------------------------- ---------------- --------------- ----------------
1,325 $36,169,000
================================= ================ =============== =================
</TABLE>
The purchase capacities shown above are based on the contracts currently in
effect. The estimated annual capacity costs are subject to price escalation and
are exclusive of applicable energy charges. The total cost of purchases under
these contracts and the recently cancelled contract with Fitzpatrick nuclear
plant was approximately, in millions, $91.0, $93.3 and $92.5 for the years 1997,
1996 and 1995, respectively. In May 1997, the Company cancelled its commitment
to purchase 110 MW of capacity from the Fitzpatrick facility. The Company
continues to have a contract with Fitzpatrick to purchase for resale up to 46 MW
of power for NYPA's economic development customers.
Under the requirements of PURPA, the Company is required to purchase power
generated by IPPs, as defined therein. The Company has 141 PPAs with 148
facilities, of which 143 are on line, amounting to approximately 2,695 MW of
capacity at December 31, 1997. Of this amount 2,382 MW is considered firm. The
following table shows the payments for fixed and other capacity costs, and
energy and related taxes the Company estimates it will be obligated to make
under these contracts without giving effect to the MRA.
The payments are subject to the tested capacity and availability of the
facilities, scheduling and price escalation.
<PAGE>
- -------------------------------------------------------------------
(In thousands of dollars)
SCHEDULABLE FIXED COSTS VARIABLE COSTS
------------------------- ------------------------------
ENERGY AND
YEAR CAPACITY OTHER TAXES TOTAL
- ------ ----------- ----------- -------------- -------------
1998 $247,740 $41,420 $ 906,590 $1,195,750
1999 252,130 42,450 943,720 1,238,300
2000 242,030 44,080 974,080 1,260,190
2001 244,620 45,650 1,042,380 1,332,650
2002 248,940 47,330 1,063,830 1,360,100
====== =========== =========== ============= =============
The capacity and other fixed costs relate to contracts with 11 facilities, where
the Company is required to make capacity and other fixed payments, including
payments when a facility is not operating but available for service. These 11
facilities account for approximately 774 MW of capacity, with contract lengths
ranging from 20 to 35 years. The terms of these existing contracts allow the
Company to schedule energy deliveries from the facilities and then pay for the
energy delivered. The Company estimates the fixed payments under these contracts
will aggregate to approximately $8 billion over their terms, using escalated
contract rates. Contracts relating to the remaining facilities in service at
December 31, 1997, require the Company to pay only when energy is delivered,
except when the Company decides that it would be better to pay a particular
project a reduced energy payment to have the project reduce its high priced
energy deliveries as described below. The Company currently recovers schedulable
capacity through base rates and energy payments, taxes and other schedulable
fixed costs through the FAC. The Company paid approximately $1,106 million,
$1,088 million and $980 million in 1997, 1996 and 1995 for 13,500,000 MWh,
13,800,000 MWh and 14,000,000 MWh, respectively, of electric power under all IPP
contracts.
On July 9, 1997, the Company announced the MRA to terminate, restate or amend
certain IPP power purchase contracts. As a result of negotiations, the MRA
currently provides for the termination, restatement or amendment of 28 PPAs with
15 IPPs, in exchange for an aggregate of approximately $3,616 million in cash
and 42.9 million shares of the Company's common stock and certain fixed price
swap contracts. Under the terms of the MRA, the Company would terminate PPAs
representing approximately 1,180 MW of capacity and restate contracts
representing 583 MW of capacity. The restated contracts are structured to be in
the form of financial swaps with fixed prices for the first two years changing
to an indexed pricing formula thereafter. The contract quantities are fixed for
the full ten year term of the contracts. The MRA also requires the Company to
provide the IPP Parties with a number of fixed price swap contracts with a term
of seven years beginning in 2003. The terms of the MRA have been and continue to
be modified.
Since 1996, the Company has negotiated 2 long term and several limited term
contract amendments whereby the Company can reduce the energy deliveries from
the facilities. These reduced energy agreements resulted in a reduction of IPP
deliveries of approximately 1,010,000 MWh and 984,000 MWh during 1997 and 1996,
respectively.
SALE OF CUSTOMER RECEIVABLES: The Company has established a single-purpose,
wholly-owned financing subsidiary, NM Receivables Corp., whose business consists
of the purchase and resale of an undivided interest in a designated pool of
customer receivables, including accrued unbilled revenues. For receivables sold,
the Company has retained
<PAGE>
collection and administrative responsibilities as agent for the purchaser. As
collections reduce previously sold undivided interests, new receivables are
customarily sold. NM Receivables Corp. has its own separate creditors which,
upon liquidation of NM Receivables Corp., will be entitled to be satisfied out
of its assets prior to any value becoming available to the Company. The sale of
receivables are in fee simple for a reasonably equivalent value and are not
secured loans. Some receivables have been contributed in the form of a capital
contribution to NM Receivables Corp. in fee simple for reasonably equivalent
value, and all receivables transferred to NM Receivables Corp. are assets owned
by NM Receivables Corp. in fee simple and are not available to pay the parent
Company's creditors.
At December 31, 1997 and 1996, $144.1 and $250 million, respectively, of
receivables had been sold by NM Receivables, Corp. to a third party. The
undivided interest in the designated pool of receivables was sold with limited
recourse. The agreement provides for a formula based loss reserve pursuant to
which additional customer receivables are assigned to the purchaser to protect
against bad debts. At December 31, 1997, the amount of additional receivables
assigned to the purchaser, as a loss reserve, was approximately $64.4 million.
Although this represents the formula-based amount of credit exposure at
December 31, 1997 under the agreement, historical losses have been substantially
less.
To the extent actual loss experience of the pool receivables exceeds the loss
reserve, the purchaser absorbs the excess. Concentrations of credit risk to the
purchaser with respect to accounts receivable are limited due to the Company's
large, diverse customer base within its service territory. The Company generally
does not require collateral, i.e., customer deposits.
TAX ASSESSMENTS: The Internal Revenue Service ("IRS") has conducted an
examination of the Company's federal income tax returns for the years 1989 and
1990 and issued a Revenue Agents' Report. The IRS has raised an issue concerning
the deductibility of payments made to IPPs in accordance with certain contracts
that include a provision for a tracking account. A tracking account represents
amounts that these mandated contracts required the Company to pay IPPs in excess
of the Company's avoided costs, including a carrying charge. The IRS proposes to
disallow a current deduction for amounts paid in excess of the avoided costs of
the Company. Although the Company believes that any such disallowances for the
years 1989 and 1990 will not have a material impact on its financial position or
results of operations, it believes that a disallowance for these above-market
payments for the years subsequent to 1990 could have a material adverse affect
on its cash flows. To the extent that contracts involving tracking accounts are
terminated or restated or amended under the MRA with IPP Parties as described in
Note 2, the effects of any proposed disallowance would be mitigated with respect
to the IPP Parties covered under the MRA. The Company is vigorously defending
its position on this issue. The IRS is currently conducting its examination of
the Company's federal income tax returns for the years 1991 through 1993.
ENVIRONMENTAL CONTINGENCIES: The public utility industry typically utilizes
and/or generates in its operations a broad range of hazardous and potentially
hazardous wastes and by-products. The Company believes it is handling identified
wastes and by-products in a manner consistent with federal, state and local
requirements and has implemented an environmental audit program to identify any
potential areas of concern and aid in compliance with such requirements. The
Company is also currently conducting a program to investigate and restore, as
necessary to meet current environmental standards, certain properties associated
with its former gas manufacturing process and other properties which the Company
has learned may be contaminated
<PAGE>
with industrial waste, as well as investigating identified industrial waste
sites as to which it may be determined that the Company contributed. The Company
has also been advised that various federal, state or local agencies believe
certain properties require investigation and has prioritized the sites based on
available information in order to enhance the management of investigation and
remediation, if necessary.
The Company is currently aware of 124 sites with which it has been or may be
associated, including 76 which are Company-owned. The number of owned sites
increased as the Company has established a program to identify and actively
manage potential areas of concern at its electric substations. This effort
resulted in identifying an additional 32 sites. With respect to non-owned sites,
the Company may be required to contribute some proportionate share of remedial
costs. Although one party can, as a matter of law, be held liable for all of the
remedial costs at a site, regardless of fault, in practice costs are usually
allocated among PRPs.
Investigations at each of the Company-owned sites are designed to (1) determine
if environmental contamination problems exist, (2) if necessary, determine the
appropriate remedial actions and (3) where appropriate, identify other parties
who should bear some or all of the cost of remediation. Legal action against
such other parties will be initiated where appropriate. After site
investigations are completed, the Company expects to determine site-specific
remedial actions and to estimate the attendant costs for restoration. However,
since investigations are ongoing for most sites, the estimated cost of remedial
action is subject to change.
Estimates of the cost of remediation and post-remedial monitoring are based upon
a variety of factors, including identified or potential contaminants; location,
size and use of the site; proximity to sensitive resources; status of regulatory
investigation and knowledge of activities and costs at similarly situated sites.
Additionally, the Company's estimating process includes an initiative where
these factors are developed and reviewed using direct input and support obtained
from the DEC. Actual Company expenditures are dependent upon the total cost of
investigation and remediation and the ultimate determination of the Company's
share of responsibility for such costs, as well as the financial viability of
other identified responsible parties since clean-up obligations are joint and
several. The Company has denied any responsibility at certain of these PRP sites
and is contesting liability accordingly.
As a consequence of site characterizations and assessments completed to date and
negotiations with PRPs, the Company has accrued a liability in the amount of
$220 million, which is reflected in the Company's Consolidated Balance Sheets at
December 31, 1997. The potential high end of the range is presently estimated at
approximately $650 million, including approximately $285 million in the unlikely
event the Company is required to assume 100% responsibility at non-owned sites.
The amount accrued at December 31, 1997, incorporates the additional electric
substations, previously mentioned, and a change in the method used to estimate
the liability for 27 of the Company's largest sites to rely upon a decision
analysis approach. This method includes developing several remediation
approaches for each of the 27 sites, using the factors previously described, and
then assigning a probability to each approach. The probability represents the
Company's best estimate of the likelihood of the approach occurring using input
received directly from the DEC. The probable costs for each approach are then
calculated to arrive at an expected value. While this approach calculates a
range of outcomes for each site, the Company has accrued the sum of the expected
values for these sites. The amount accrued for the Company's remaining sites is
determined through feasibility studies or engineering estimates, the Company's
estimated share of a PRP allocation or where no better estimate is available,
the low end of a range of possible outcomes. In addition, the Company has
recorded a regulatory asset
<PAGE>
representing the remediation obligations to be recovered from ratepayers.
PowerChoice provides for the continued application of deferral accounting for
cost differences resulting from this effort.
In October 1997, the Company submitted a draft feasibility study to the DEC,
which included the Company's Harbor Point site and five surrounding non-owned
sites. The study indicates a range of viable remedial approaches, however, a
final determination has not been made concerning the remedial approach to be
taken. This range consists of a low end of $22 million and a high end of $230
million, with an expected value calculation of $51 million, which is included in
the amounts accrued at December 31, 1997. The range represents the total costs
to remediate the properties and does not consider contributions from other PRPs.
The Company anticipates receiving comments from the DEC on the draft feasibility
study by the spring of 1999. At this time, the Company cannot definitively
predict the nature of the DEC proposed remedial action plan or the range of
remediation costs it will require. While the Company does not expect to be
responsible for the entire cost to remediate these properties, it is not
possible at this time to determine its share of the cost of remediation. In May
1995, the Company filed a complaint pursuant to applicable Federal and New York
State law, in the U.S. District Court for the Northern District of New York
against several defendants seeking recovery of past and future costs associated
with the investigation and remediation of the Harbor Point and surrounding
sites. In a motion currently pending before the court, the New York State
Attorney General has moved to dismiss the Company's claims against the State of
New York, the New York State Department of Transportation, the Thruway Authority
and Canal Corporation. The Company has opposed this motion. The case management
order presently calls for the close of discovery on December 31, 1998. As a
result, the Company cannot predict the outcome of the pending litigation against
other PRPs or the allocation of the Company's share of the costs to remediate
the Harbor Point and surrounding sites.
Where appropriate, the Company has provided notices of insurance claims to
carriers with respect to the investigation and remediation costs for
manufactured gas plant, industrial waste sites and sites for which the Company
has been identified as a PRP. To date, the Company has reached settlements with
a number of insurance carriers, resulting in payments to the Company of
approximately $36 million, net of costs incurred in pursuing recoveries. Under
PowerChoice the electric portion or approximately $32 million will be amortized
over 10 years. The remaining portion relates to the gas business and is being
amortized over the three year settlement period.
CONSTRUCTION PROGRAM: The Company is committed to an ongoing construction
program to assure delivery of its electric and gas services. The Company
presently estimates that the construction program for the years 1998 through
2002 will require approximately $1.4 billion, excluding AFC and nuclear fuel.
For the years 1998 through 2002, the estimates, in millions, are $328, $269,
$264, $275 and $300, respectively, which includes $26, $25, $22, $20 and $38,
respectively, related to non-nuclear generation. The impact of the ice storm
(see Note 13) on the construction program will not be known until restoration
efforts have been completed. These amounts are reviewed by management as
circumstances dictate.
Under PowerChoice, the Company will separate, through sale or spin-off, the
Company's non-nuclear power generation business from the remainder of the
business.
GAS SUPPLY, STORAGE AND PIPELINE COMMITMENTS: In connection with its gas
business, the Company has long-term commitments with a variety of suppliers and
pipelines to purchase gas commodity, provide gas storage capability and
transport gas commodity on
<PAGE>
interstate gas pipelines. The table below sets forth the Company's estimated
commitments at December 31, 1997, for the next five years, and thereafter.
(In thousands of dollars)
Year Gas Supply Gas Storage/Pipeline
---- ---------- --------------------
1998 $103,990 $95,720
1999 78,380 99,490
2000 56,110 81,550
2001 53,140 60,170
2002 39,860 26,610
Thereafter 155,560 71,130
With respect to firm gas supply commitments, the amounts are based upon volumes
specified in the contracts giving consideration for the minimum take provisions.
Commodity prices are based on New York Mercantile Exchange quotes and
reservation charges, when applicable. For storage and pipeline capacity
commitments, amounts are based upon volumes specified in the contracts, and
represent demand charges priced at current filed tariffs.
At December 31, 1997, the Company's firm gas supply commitments extend through
October 2006, while the gas storage and transportation commitments extend
through October 2012. Beginning in May 1996, as a result of a generic rate
proceeding, the Company was required to implement service unbundling, where
customers could choose to buy natural gas from sources other than the Company.
To date the migration has not resulted in any stranded costs since the PSC has
allowed utilities to assign the pipeline capacity to the customers choosing
another supplier. This assignment is allowed during a three-year period ending
March 1999, at which time the PSC will decide on methods for dealing with the
remaining unassigned or excess capacity. In September 1997, the PSC indicated
that it is unlikely utilities will be allowed to continue to assign pipeline
capacity to departing customers after March 1999. The Company is unable to
predict how the PSC will resolve these issues.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excerpt from Niagara Mohawk Power Corporation Form 10Q/A for the
quarterly period ended March 31, 1998.
NOTE 2. CONTINGENCIES
ENVIRONMENTAL ISSUES: The public utility industry typically utilizes
and/or generates in its operations a broad range of hazardous and
potentially hazardous wastes and by-products. The Company believes it is
handling identified wastes and by-products in a manner consistent with
federal, state and local requirements and has implemented an
environmental audit program to identify any potential areas of concern
and aid in compliance with such requirements. The Company is also
currently conducting a program to investigate and restore, as necessary
to meet current environmental standards, certain properties associated
with its former gas manufacturing process and other properties which the
Company has learned may be contaminated with industrial waste, as well
as investigating identified industrial waste sites as to which it may be
determined that the Company contributed. The Company has also been
advised that various federal, state or local agencies believe certain
properties require investigation and has prioritized the sites based on
available information in order to enhance the management of
investigation and remediation, if necessary.
The Company is currently aware of 126 sites with which it has been or
may be associated, including 78 which are Company-owned. The number of
owned sites increased as the Company has established a program to
identify and actively manage potential areas of concern at its electric
substations. This effort resulted in identifying an additional 32 sites.
With respect to non-owned sites, the Company may be required to
contribute some proportionate share of remedial costs. Although one
party can, as a matter of law, be held liable for all of the remedial
costs at a site, regardless of fault, in practice costs are usually
allocated among PRPs.
Investigations at each of the Company-owned sites are designed to (1)
determine if environmental contamination problems exist, (2) if
necessary, determine the appropriate remedial actions and (3) where
appropriate, identify other parties who should bear some or all of the
cost of remediation. Legal action against such other parties will be
initiated where appropriate. After site investigations are completed,
the Company expects to determine site-specific remedial actions and to
estimate the attendant costs for restoration. However, since
investigations are ongoing for most sites, the estimated cost of
remedial action is subject to change.
Estimates of the cost of remediation and post-remedial monitoring are
based upon a variety of factors, including identified or potential
contaminants; location, size and use of the site; proximity to sensitive
resources; status of regulatory investigation and knowledge of
activities at similarly situated sites. Additionally, the Company's
estimating process includes an initiative where these factors are
developed and reviewed using direct input and support obtained from the
New York State Department of Environmental Conservation ("DEC"). Actual
Company expenditures are dependent upon the total cost of investigation
and remediation and the ultimate determination of the Company's share of
responsibility for such costs, as well as the financial viability of
other identified
<PAGE>
responsible parties since clean-up obligations are joint and several.
The Company denied any responsibility at certain of these PRP sites and
is contesting liability accordingly.
As a consequence of site characterizations and assessments completed to
date and negotiations with PRPs, the Company has accrued a liability in
the amount of $220 million, which is reflected in the Company's
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997. The
potential high end of the range is presently estimated at approximately
$650 million, including approximately $285 million in the unlikely event
the Company is required to assume 100% responsibility at non-owned
sites. The amount accrued at March 31, 1998 and December 31, 1997
incorporates the additional electric substations, previously mentioned,
and a change in the method used to estimate the liability for 27 of the
Company's largest sites to rely upon a decision analysis approach. This
method includes developing several remediation approaches for each of
the 27 sites, using the factors previously described, and then assigning
a probability to each approach. The probability represents the Company's
best estimate of the likelihood of the approach occurring using input
received directly from the DEC. The probable costs for each approach are
then calculated to arrive at an expected value. While this approach
calculates a range of outcomes for each site, the Company has accrued
the sum of the expected values for these sites. The amount accrued for
the Company's remaining sites is determined through feasibility studies
or engineering estimates, the Company's estimated share of a PRP
allocation or where no better estimate is available, the low end of a
range of possible outcomes. In addition, the Company has recorded a
regulatory asset representing the remediation obligations to be
recovered from ratepayers. PowerChoice provides for the continued
application of deferral accounting for cost differences resulting from
this effort.
In October 1997, the Company submitted a draft feasibility study to the
DEC, which included the Company's Harbor Point site and five surrounding
non-owned sites. The study indicates a range of viable remedial
approaches, however, a final determination has not been made concerning
the remedial approach to be taken. This range consists of a low end of
$22 million and a high end of $230 million, with an expected value
calculation of $51 million, which is included in the amounts accrued at
March 31, 1998 and December 31, 1997. The range represents the total
costs to remediate the properties and does not consider contributions
from other PRPs. The Company anticipates receiving comments from the DEC
on the draft feasibility study by the summer of 1999. At this time, the
Company cannot definitively predict the nature of the DEC proposed
remedial action plan or the range of remediation costs it will require.
While the Company does not expect to be responsible for the entire cost
to remediate these properties, it is not possible at this time to
determine its share of the cost of remediation. In May 1995, the Company
filed a complaint, pursuant to applicable Federal and New York State
law, in the U.S. District Court for the Northern District of New York
against several defendants seeking recovery of past and future costs
associated with the investigation and remediation of the Harbor Point
and surrounding sites. The New York State Attorney General moved to
dismiss the Company's claims against the State of New York, the New York
State Department of Transportation and the Thruway Authority and Canal
Corporation under the Comprehensive Environmental Response, Compensation
and Liability Act. The Company opposed this motion. On April 3, 1998,
the Court denied the New York State Attorney General's motion as it
pertains to the Thruway Authority and Canal Corporation, and granted the
motion relative to the State of New York and the Department of
Transportation. The case management order presently calls for the close
of discovery on
<PAGE>
December 31, 1998. As a result, the Company cannot predict the outcome
of the pending litigation against other PRPs or the allocation of the
Company's share of the costs to remediate the Harbor Point and
surrounding sites.
Where appropriate, the Company has provided notices of insurance claims
to carriers with respect to the investigation and remediation costs for
manufactured gas plant industrial waste sites and sites for which the
Company has been identified as a PRP. To date, the Company has reached
settlements with a number of insurance carriers, resulting in payments
to the Company of approximately $36 million, net of costs incurred in
pursuing recoveries. Under PowerChoice the electric portion or
approximately $32 million will be amortized over 10 years. The remaining
portion relates to the gas business and is being amortized over the
three year settlement period.
TAX ASSESSMENTS: The Internal Revenue Service ("IRS") has conducted an
examination of the Company's federal income tax returns for the years
1989 and 1990 and issued a Revenue Agents' Report. The IRS has raised an
issue concerning the deductibility of payments made to IPPs in
accordance with certain contracts that include a provision for a
tracking account. A tracking account represents amounts that these
mandated contracts required the Company to pay IPPs in excess of the
Company's avoided costs, including a carrying charge. The IRS proposes
to disallow a current deduction for amounts paid in excess of the
avoided costs of the Company. Although the Company believes that any
such disallowances for the years 1989 and 1990 will not have a material
impact on its financial position or results of operations, it believes
that a disallowance for these above-market payments for the years
subsequent to 1990 could have a material adverse affect on its cash
flows. To the extent that contracts involving tracking accounts are
terminated or restated or amended under the MRA with IPP Parties as
described in Note 3, the effects of any proposed disallowance would be
mitigated with respect to the IPP Parties covered under the MRA. The
Company is vigorously defending its position on this issue. The IRS is
currently conducting its examination of the Company's federal income tax
returns for the years 1991 through 1993.
NOTE 3. RATE AND REGULATORY ISSUES AND CONTINGENCIES
The Company's financial statements conform to GAAP, including the
accounting principles for rate-regulated entities with respect to its
regulated operations. As discussed below, the Company discontinued
application of regulatory accounting principles to the Company's fossil
and hydro generation business. Substantively, SFAS No. 71 permits a
public utility, regulated on a cost-of-service basis, to defer certain
costs which would otherwise be charged to expense, when authorized to do
so by the regulator. These deferred costs are known as regulatory
assets, which in the case of the Company are approximately $935 million,
net of approximately $240 million of regulatory liabilities at March 31,
1998. These regulatory assets are probable of recovery. The portion of
the $935 million which has been allocated to the nuclear generation and
electric transmission and distribution business is approximately $811
million, which is net of approximately $240 million of regulatory
liabilities. Regulatory assets allocated to the rate-regulated gas
distribution business are $124 million. Generally, regulatory assets and
liabilities were allocated to the portion of the business that incurred
the underlying transaction that resulted in the recognition of the
regulatory asset or liability. The allocation methods used between
electric and gas are consistent with those used in prior regulatory
proceedings.
<PAGE>
The Company concluded as of December 31, 1996, that the termination,
restatement or amendment of IPP contracts and implementation of
PowerChoice was the probable outcome of negotiations that had taken
place since the PowerChoice announcement. Under PowerChoice, the
separated non-nuclear generation business would no longer be
rate-regulated on a cost-of-service basis and, accordingly, regulatory
assets related to the non-nuclear power generation business, amounting
to approximately $103.6 million ($67.4 million after tax or 47 cents per
share) were charged against 1996 income as an extraordinary non-cash
charge.
The PSC, in its written order issued March 20, 1998 approving
PowerChoice, determined to limit the estimated value of the MRA
Regulatory Asset that can be recovered from customers to approximately
$4 billion. The ultimate amount of the MRA Regulatory Asset to be
established may vary based on certain events related to the closing of
the MRA. The estimated value of the MRA Regulatory Asset includes the
issuance of 42.9 million shares of common stock, which the PSC, in
determining the recoverable amount of such asset, valued at $8 per
share. Because the value of the consideration to be paid to the IPP
Parties can only be determined at the MRA closing, the value of the
limitation on the recoverability of the MRA Regulatory Asset is expected
to be recorded as a charge to expense in the second quarter of 1998 with
the closing of the MRA. The charge to expense will be detemiined by the
difference between $8 per share and the Company's closing common stock
price on the date the MRA closes, multiplied by 42.9 million shares.
Using the Company's common stock price on March 26, 1998 of $12 7/16 per
share, the charge to expense would be approximately $190 million (85
cents per share).
As a result of amendments to the MRA dated April 22 and May 7, 1998, the
amount of cash compensation to be paid to the IPP Parties was increased
a net amount of approximately $15 million to $3.631 billion. The net
increase in cash compensation was partly in exchange for net reductions
in future payment obligations. The Company proposes, subject to PSC
approval, to adjust the MRA Regulatory Asset as a consequence of the
amendments. The amortization periods related to components of changes to
the cash compensation will generally correspond to the changes in cash
flow resulting from the amendments. The Company expects that the net
amount of annual MRA Regulatory Asset amortization to be slightly higher
in the period beyond PowerChoice.
Under PowerChoice, the Company's remaining electric business (nuclear
generation and electric transmission and distribution business) will
continue to be rate-regulated on a cost-of-service basis and,
accordingly, the Company continues to apply SFAS No. 71 to these
businesses. Also, the Company's IPP contracts, including those
restructured under the MRA, will continue to be the obligations of the
regulated business.
The EITF of the FASB reached a consensus on Issue No. 97-4 "Deregulation
of the Pricing of Electricity - Issues Related to the Application of
SFAS No. 71 and SFAS No. 101" in July 1997. As discussed previously, the
Company discontinued the application of SFAS No. 71 and applied SFAS No.
101 with respect to the fossil and hydro generation business at December
31, 1996, in a manner consistent with EITF 97-4.
EITF 97-4 does not require the Company to earn a return on regulatory
assets that arise from a deregulating transition plan in assessing the
applicability of SFAS No. 71. The Company believes that the regulated
cash flows to be derived from prices it will charge for electric service
over the next 10 years, including the Competitive Transition Charge
("CTC") assuming no unforeseen reduction in demand or bypass of the CTC
or exit fees,
<PAGE>
will be sufficient to recover the MRA Regulatory Asset and to provide
recovery of and a return on the remainder of its assets, as appropriate.
In the event the Company could no longer apply SFAS No. 71 in the
future, it would be required to record an after-tax non-cash charge
against income for any remaining unamortized regulatory assets and
liabilities. Depending on when SFAS No. 71 was required to be
discontinued, such charge would likely be material to the Company's
reported financial condition and results of operations and adversely
affect the Company's ability to pay dividends. It is expected that the
PowerChoice agreement, while having the effect of substantially
depressing earnings during its five-year term, will substantially
improve operating cash flows.
With the implementation of PowerChoice, specifically the separation of
non-nuclear generation as an entity that would no longer be
cost-of-service regulated, the Company is required to assess the
carrying amounts of its long-lived assets in accordance with SFAS No.
121. SFAS No. 121 requires long-lived assets and certain identifiable
intangibles held and used by an entity to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable or when assets are to be
disposed of. In performing the review for recoverability, the Company is
required to estimate future undiscounted cash flows expected to result
from the use of the asset and/or its disposition. The Company has
determined that there is no impairment of its fossil and hydro
generating assets. To the extent the proceeds resulting from the sale of
the fossil and hydro assets are not sufficient to avoid a loss, the
Company would be able to recover such loss through the CTC. The
PowerChoice agreement provides for deferral and future recovery of
losses, if any, resulting from the sale of the non-nuclear generating
assets. The Company believes that it will be permitted to record a
regulatory asset for any such loss in accordance with EITF 97-4. The
Company's fossil and hydro generation plant assets had a net book value
of approximately $1.1 billion at March 31, 1998.
As described in Form 10-K/A for fiscal year ended December 31, 1997,
Part II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Master Restructuring Agreement
and the PowerChoice Agreement," the conclusion of the termination,
restatement or amendment of IPP contracts, and closing of the financing
necessary to implement such termination, restatement or amendment, as
well as implementation of PowerChoice, is subject to a number of
contingencies. In the event the Company is unable to successfully bring
these events to conclusion, it is likely that application of SFAS No. 71
would be discontinued. The resulting non-cash after-tax charges against
income, based on regulatory assets and liabilities associated with the
nuclear generation and electric transmission and distribution businesses
as of March 31, 1998, would be approximately $527 million or $3.65 per
share. Various requirements under applicable law and regulations and
under corporate instruments, including those with respect to issuance of
debt and equity securities, payment of common and preferred dividends
and certain types of transfers of assets could be adversely impacted by
any such write-downs.
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT E
<PAGE>
FERC
EXHIBIT E
---------
ACTUAL AND PRO FORMA INCOME STATEMENTS
Niagara Mohawk Power Corporation's income statement is set forth in its FERC
Form No. 1 for the year ended December 31, 1997 (Resubmission No. 1, June 1998)
(at pages 114-117), which is incorporated herein by reference. The pro forma
income statement for the year ended December 31, 1997 reflecting the proposed
transaction follows.
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
EXHIBIT E
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED
ADJUSTMENTS NIAGARA
NIAGARA NIAGARA MOHAWK
MOHAWK MOHAWK POWER
HOLDINGS, INC. HOLDINGS, INC. CORPORATION
-------------- -------------- -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Electric 3,309,441
Gas 656,963
----------- ----------- -----------
3,966,404
----------- ----------- -----------
OPERATING EXPENSES:
Fuel for electric generation 179,455
Electricity purchased 1,236,108
Gas purchased 345,610
Other operation and maintenance 837,606
Depreciation and amortization 339,641
Other taxes 471,469
----------- ----------- -----------
3,409,889
----------- ----------- -----------
OPERATING INCOME 556,515
OTHER INCOME 27,321
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 583,836
INTEREST CHARGES 273,906
EQUITY IN EARNINGS OF SUBSIDIARY 183,335
PREFERRED DIVIDEND REQUIREMENT OF SUBSIDIARY (37,397)
----------- ----------- -----------
INCOME BEFORE FEDERAL AND FOREIGN INCOME TAXES 145,938 309,930
FEDERAL AND FOREIGN INCOME TAXES 126,595
----------- ----------- -----------
NET INCOME (LOSS) 145,938 183,335
DIVIDENDS ON PREFERRED STOCK 37,397
----------- ----------- -----------
BALANCE AVAILABLE FOR COMMON STOCK 145,938 145,938
RETAINED EARNINGS, JANUARY 1, 1997 657,482
CORPORATE RESTRUCTURING (131,568)
----------- ----------- -----------
RETAINED EARNINGS, DECEMBER 31, 1997 $145,938 $671,852
=========== =========== ===========
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (IN THOUSANDS)
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
UNAUDITED CONSOLIDATED OF STATEMENT INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
(continued . . . ) EXHIBIT E
PRO FORMA FINANCIAL STATEMENTS
CONSOLIDATED
CONSOLIDATED INTER- NIAGARA
OPINAC NORTH COMPANY MOHAWK
AMERICA, INC. ELIMINATIONS HOLDINGS, INC.
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING REVENUES:
Electric 3,309,441
Gas 656,963
----------- ----------- -----------
3,966,404
----------- ----------- -----------
OPERATING EXPENSES:
Fuel for electric generation 179,455
Electricity purchased 1,236,108
Gas purchased 345,610
Other operation and maintenance (2,234) 835,282
Depreciation and amortization 339,641
Other taxes 471,469
----------- ----------- -----------
(2,234) 3,407,565
----------- ----------- -----------
OPERATING INCOME 2,324 558,839
OTHER INCOME (2,324) 24,997
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 583,836
INTEREST CHARGES 273,906
EQUITY IN EARNINGS OF SUBSIDIARY (183,335)
PREFERRED DIVIDEND REQUIREMENT OF SUBSIDIARY 37,397
----------- ----------- -----------
INCOME BEFORE FEDERAL AND FOREIGN INCOME TAXES (145,938) 309,930
FEDERAL AND FOREIGN INCOME TAXES 126,595
----------- ----------- -----------
NET INCOME (LOSS) (145,938) 183,335
DIVIDENDS ON PREFERRED STOCK 37,397
----------- ----------- -----------
BALANCE AVAILABLE FOR COMMON STOCK (145,938) 145,938
RETAINED EARNINGS, JANUARY 1, 1997 657,482
CORPORATE RESTRUCTURING (2,001) 133,569
----------- ----------- -----------
RETAINED EARNINGS, DECEMBER 31, 1997 ($2,001) ($12,369) 803,420
=========== =========== ===========
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (IN THOUSANDS) 144,404
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK $1.01
</TABLE>
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT F
<PAGE>
FERC
EXHIBIT F
---------
STATEMENT OF RETAINED EARNINGS
A statement of retained earnings for the period covered by the income statement
referred to in Exhibit E is set forth in Niagara Mohawk Power Corporation's
Form No. 1 for the year ended December 31, 1997 (Resubmission No. 1, June 1998)
(at pages 118-119), which is incorporated herein by reference. A pro forma
statement of retained earnings is not presented since it unaffected by the
proposed transaction, as indicated in Exhibit E.
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT G
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No. _________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT H
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
I, KAPUA A. RICE, Secretary of Niagara Mohawk Power Corporation, HEREBY
CERTIFY that the attached is a true and complete copy of the Agreement and Plan
of Exchange, dated as of May 14, 1998, between Niagara Mohawk Power Corporation
and Niagara Mohawk Holdings, Inc.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Niagara Mohawk Power Corporation this 16th day of July, 1998.
/s/ Kapua A. Rice
------------------------
Kapua A. Rice
Secretary
<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON MAY 29,1998
REGISTRATION NO. 333-49769
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
NIAGARA MOHAWK HOLDINGS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
NEW YORK 4931 16-1549726
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
WILLIAM F. EDWARDS
CHIEF FINANCIAL OFFICER
NIAGARA MOHAWK HOLDINGS, INC.
300 ERIE BOULEVARD WEST 300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202 SYRACUSE, NEW YORK 13202
(315) 474-1511 (315) 474-1511
- ------------------------------------------ ---------------------------------------
(Address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, of telephone number, including area
registrant's principal executive offices) code, of agent for service)
- ------------------------------------------- -----------------------------------------
</TABLE>
COPIES TO:
Janet T. Geldzahler, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON STOCK VOTE IN
FAVOR OF APPROVAL OF PROPOSAL NO. 3.
- --------------------------------------------------------------------------------
PROPOSAL 4: HOLDING COMPANY AND ADOPTION OF THE EXCHANGE AGREEMENT
- --------------------------------------------------------------------------------
The Board of Directors of Niagara Mohawk unanimously believes that it is in
the best interests of Niagara Mohawk and its shareholders to restructure Niagara
Mohawk so that it will become a separate subsidiary of a new parent holding
company, with the present holders of Common Stock becoming the holders of the
common stock of the new parent.
To carry out such restructuring, Niagara Mohawk has caused to be
incorporated a New York corporation, Holdings, which now has a nominal amount of
stock outstanding and no present business or properties of its own. All of the
currently outstanding shares of Holdings common stock are owned by Niagara
Mohawk.
The Board of Directors of each of Niagara Mohawk and Holdings has
adopted the Exchange Agreement under which, subject to adoption by Niagara
Mohawk's shareholders and the satisfaction of other conditions, Niagara Mohawk
will become a subsidiary of Holdings through the exchange of the outstanding
shares of Niagara Mohawk Common Stock on a share-for-share basis for shares of
Holdings common stock (referred to in this Prospectus/Proxy Statement as the
"share exchange" or the "exchange"). Following the share exchange, certain of
Niagara Mohawk's existing subsidiaries involved in non-utility operations will
be transferred to Holdings and become subsidiaries of Holdings. See "--The Share
Exchange--Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings".
The Exchange Agreement is attached to this Prospectus/Proxy Statement as Exhibit
A and is incorporated herein by reference.
Niagara Mohawk is subject to regulation by the PSC under the New York
Public Service Law (the "Public Service Law"). The PowerChoice Agreement
approved the holding company restructuring and the terms with which Niagara
Mohawk and Holdings have agreed to comply in their on-going relationships and
activities.
REASONS FOR THE HOLDING COMPANY STRUCTURE AND SHARE EXCHANGE
General
The proposed holding company structure is intended to provide Niagara
Mohawk and its subsidiaries with the financial and regulatory flexibility to
compete more effectively in an increasingly competitive energy industry by
providing a structure that can accommodate both regulated and unregulated lines
of business. Niagara Mohawk currently operates under the regulatory constraints
of the PSC that were generally designed to discourage electric utilities from
participating in unregulated businesses and that limit (i) the total amount of
the incremental investment in its unregulated operations, (ii) the amount that
can be invested annually, (iii) the cumulative amount that can be invested in
any single line of business and (iv) the debt-equity ratios of its subsidiaries.
Under current regulations, any time Niagara Mohawk wishes to allocate funds to
new unregulated ventures, it must seek PSC approval. The approval process itself
leads to long delays, forces the Company to reveal its plans to competitors, and
gives competitors the opportunity to intervene in the regulatory approval
process and attempt to gain competitive advantage by seeking restrictions that
would handicap Niagara Mohawk.
The holding company structure proposed here largely would eliminate many of
these regulatory constraints that would otherwise severely limit or handicap
Niagara Mohawk's ability to participate in unregulated business opportunities as
the industry evolves. In approving PowerChoice, the PSC has given the Company 12
months in which to form a holding company.
The holding company structure is a well-established form of organization
for companies conducting multiple lines of business. It is a common form of
organization for unregulated companies and for those regulated companies, such
as telephone utilities and water utilities, which are not subject to the Holding
59
<PAGE>
Company Act. In addition, it is utilized by many electric companies which are
involved in unregulated activities. Niagara Mohawk wishes to take advantage of
this opportunity, and desires to do so by utilizing the most efficient and
effective corporate structure.
More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
PSC, thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings would not need PSC approval to issue debt or
equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior PSC
approval should allow competition on a level basis with other potential
acquirors, some of which are already holding companies. Under a holding company
structure, the issuance of debt or equity securities by Holdings to finance the
acquisition of the stock or assets of another company should not adversely
affect Niagara Mohawk's capital devoted to and available for regulated utility
operations.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
of conducting regulated and unregulated businesses within the same corporate
group.
As discussed below under "-The Share Exchange-Transfer of Niagara Mohawk's
Non-Utility Subsidiaries to Holdings," as part of the holding company
restructuring, certain of the current non-utility subsidiaries of Niagara Mohawk
will be transferred to and become, or become owned through, separate
subsidiaries of Holdings following the share exchange. Niagara Mohawk needs the
financial and regulatory flexibility provided by this holding company structure
to operate in a changing environment and successfully address the new levels of
competition.
Opportunities in the new competitive environment could take many forms,
including joint ventures and strategic alliances in addition to direct
investments in new businesses. All of these opportunities will be easier to
pursue under a holding company structure than they would be under the current
structure.
Strategic alliances with unregulated third party participants and/or
diversification into unrelated fields may also help protect against the market
and financial risks to which Niagara Mohawk is now, and increasingly will be,
exposed. Thus, Holdings may wish to increase its investment in unregulated
energy-related businesses, whether through additional "ground floor" investment,
the acquisition of existing energy and energy services providers, or the
formation of strategic alliances with industry partners.
reena
Holdings will continue to seek to invest in the current lines of
business and, through its subsidiaries, will engage in energy marketing and
other energy-related activities. Although Holdings has not identified other
specific business opportunities, it believes that such activities would likely
include areas with which Niagara Mohawk is already familiar, such as information
systems, environmental services, engineering services, financial services, meter
reading, and billing and collection services. Under a holding company structure,
Holdings should be able to take advantage of opportunities in a timely fashion
and compete more effectively against other energy companies. Except for the
restrictions set forth in the PowerChoice Agreement and discussed in "--The
Share Exchange--The PowerChoice Agreement", Holdings believes it should not
otherwise be required to obtain PSC approval for investments in non-utility
businesses, would not be subject to the limitations imposed under certain
provisions of New York law applicable to Niagara
60
<PAGE>
Mohawk, and thus should be able to compete more effectively against other
entities not subject to similar constraints.
Given its financial condition and contractual restrictions, the Company
does not foresee Holdings making substantial investments in unregulated
businesses in the near future. However, under the terms of the PowerChoice
Agreement, Niagara Mohawk has a one-year window in which it can adopt the
holding company structure.
CERTAIN CONSIDERATIONS
Future Performance of Holdings Common Stock Cannot Be Assured. The purpose
of the share exchange is to establish a holding company structure that will
enhance the ability to take advantage of business opportunities outside of
Niagara Mohawk's present markets. The Board of Directors believes the share
exchange and holding company structure to be in the best interests of Niagara
Mohawk and its shareholders. Nevertheless, the success of Holdings in realizing
its goals and the future performance of Holdings common stock cannot be assured.
Dividends on Holdings Common Stock Will Initially Depend on Common Stock
Dividends Paid by Niagara Mohawk. Holdings does not now, nor will it immediately
after the share exchange, conduct directly any business operations from which it
will derive any revenues. Holdings plans to obtain funds for its own operations
from dividends paid to Holdings by its subsidiaries, and from sales of
securities or debt incurred by Holdings. Dividends on Holdings common stock will
initially depend upon the earnings, financial condition and capital requirements
of Niagara Mohawk, and the dividends that Niagara Mohawk pays to Holdings.
Niagara Mohawk suspended the common stock dividend in 1996 to help stabilize its
financial condition. In making future dividend decisions with respect to Niagara
Mohawk or Holdings, the applicable board would evaluate, along with standard
business considerations, the entity's financial condition, contractual and
regulatory restrictions, competitive pressure on prices, available cash flow and
retained earnings and other strategic considerations. In the future, dividends
from Holdings' subsidiaries other than Niagara Mohawk may also be a source of
funds for dividend payments by Holdings. Payment of Niagara Mohawk dividends to
Holdings will be subject to the prior rights of holders of Niagara Mohawk
preferred stock, First Mortgage Bonds and other long-term debt. In addition,
although it has no present intention to do so, Niagara Mohawk may issue
additional preferred stock in the future to meet its capital requirements. Such
additional preferred stock will also have preferential dividend rights.
The PowerChoice Agreement also imposes the following limitations on the
dividends that Niagara Mohawk may pay to Holdings after the share exchange: net
income available for common dividends plus in each of the following years: 1998:
$50 million, 1999: $75 million, 2000, 2001 and 2002: $100 million, 2003: $80
million, 2004: $60 million, 2005: $40 million, 2006: $20 million, thereafter:
$0. If the Company files a rate case for any year from 2003 to 2007, this
dividend limitation will be reassessed in the rate filing. The Indenture to be
entered into with respect to the Senior Notes will also contain limitations
on the amount of dividends payable with respect to the Common Stock.
Non-Utility Businesses Will Not Be Available as Sources for Dividends on
Niagara Mohawk Preferred Stock. Following consummation of the share exchange,
certain of Niagara Mohawk's non-utility subsidiaries will be transferred to
Holdings, and will not be available to the holders of Niagara Mohawk preferred
stock as a source of cash for the payment of dividends or other amounts.
Non-Utility Businesses. Niagara Mohawk's principal non-utility subsidiaries
that will be transferred to Holdings participate in energy marketing and
brokering, energy services and Canadian electricity generation and distribution.
It is the current intention of Holdings for these non-utility subsidiaries
to engage primarily in energy-related businesses which will not be regulated by
state or federal agencies which regulate public utilities. Such businesses may
encounter competitive and other factors not previously experienced by Niagara
61
<PAGE>
Mohawk, and may have different, and perhaps greater, investment risks than those
involved in the regulated utility business of Niagara Mohawk. There can be no
assurance that such businesses will be successful or, if unsuccessful, that they
will not have a direct or indirect adverse effect on Holdings. As is the case
now, any losses incurred by such businesses will not be recoverable in
utility rates of Niagara Mohawk. As Holdings engages in more such business
activities, the market price of Holdings' stock will be affected to a lesser
extent by the performance of Niagara Mohawk.
Comparable earnings from Niagara Mohawk's unregulated businesses were
$(4.7) million, or (3.3) cents per share in 1997, $23.2 million, or 16.1 cents
per share in 1996, and $10.3 million, or 7.1 cents per share in 1995.
Niagara Mohawk's total investment in these businesses, computed in
accordance with PSC specifications as a percentage of consolidated
capitalization, was 2.5%, 2.6% and 2.1% as of December 31, 1997, 1996 and 1995,
respectively.
Holdings will obtain funds to invest in non-utility subsidiaries and other
businesses from dividends it receives from Niagara Mohawk, borrowings and other
financings, and dividends Holdings may in the future receive from any
non-utility subsidiaries. There can be no assurance that non-utility
subsidiaries will have earnings or pay any dividends to Holdings in the
foreseeable future.
Implementation of the Rate Plan. The new rate plan contained in the
PowerChoice Agreement will take effect upon the closing of the MRA and will
continue to govern utility rates and charges of Niagara Mohawk even if common
shareholders of Niagara Mohawk do not approve the holding company proposal and
adopt the Exchange Agreement. In that event, Niagara Mohawk will not be able to
realize the benefits it expects from a holding company structure, which Niagara
Mohawk believes is important in the future deregulated competitive environment
of the energy industry. See also "-The Share Exchange-The PowerChoice Agreement"
below.
Certain Restrictions in the PSC Order. As summarized above, the PowerChoice
Agreement imposes certain limitations on the dividends that Niagara Mohawk may
pay to Holdings after the share exchange. See also "-The Share Exchange-Dividend
Policy". The PowerChoice Agreement also contains restrictions on transactions
between Niagara Mohawk and Holdings or any other subsidiary of Holdings, loans,
guarantees or pledges by Niagara Mohawk for the benefit of Holdings or any other
subsidiary of Holdings, and Board and managerial interlocks between Niagara
Mohawk and Holdings or any other subsidiary of Holdings. See "--The Share
Exchange-Regulatory Approvals" and "--Management--Restriction on Board and
Management Interlocks between Holdings and Niagara Mohawk". There can be no
assurance as to the effect, if any, that such restrictions will have on the
business or operations of Holdings, Niagara Mohawk or the non-utility
subsidiaries.
62
<PAGE>
A. THE SHARE EXCHANGE
EXCHANGE AGREEMENT
The Exchange Agreement has been unanimously adopted by the Boards of
Directors of Niagara Mohawk and Holdings and is subject to adoption by the
holders of at least two-thirds of the outstanding shares of Niagara Mohawk
Common Stock. See "--Vote Required" below. In the share exchange:
(1) each share of Niagara Mohawk Common Stock outstanding immediately prior
to the effective time of the share exchange will be exchanged for one new
share of Holdings common stock;
(2) Holdings will become the owner of all outstanding Niagara Mohawk Common
Stock; and
(3) the shares of Holdings common stock held by Niagara Mohawk immediately
prior to the share exchange will be canceled.
As a result, upon completion of the share exchange, Holdings will become a
holding company, Niagara Mohawk will become a subsidiary of Holdings, and all of
Holdings common stock outstanding immediately after the share exchange will be
owned by the former holders of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange. Following the share exchange, certain
of Niagara Mohawk's existing non-utility subsidiaries will be transferred to
Holdings and become subsidiaries of Holdings. See "--Transfer of Niagara
Mohawk's Non-Utility Subsidiaries to Holdings". The Exchange Agreement is
attached to this Prospectus/Proxy Statement as Exhibit A and is incorporated
herein by reference.
Niagara Mohawk's outstanding preferred stock will not be exchanged in the
share exchange but will continue as shares of Niagara Mohawk preferred stock.
The share exchange will not change the rights of the holders of such shares as
currently provided in Niagara Mohawk's Amended Certificate of Incorporation.
Debt of Niagara Mohawk will remain unchanged and will continue as outstanding
obligations of Niagara Mohawk after the share exchange.
REGULATORY APPROVALS
FEDERAL POWER ACT
The FERC has held that the transfer of common stock of a public utility
company, such as the Company, from its existing stockholders to a holding
company in a transaction such as the share exchange constitutes a transfer of
the "ownership and control" of the facilities of such utility, and is thus a
"disposition of facilities" subject to FERC review and approval under Section
203 of the Federal Power Act. The Company will apply for such approval and for
approval of the transfer of certain power sales contracts and a tariff
associated with certain of its generation assets.
ATOMIC ENERGY ACT
A provision in the Atomic Energy Act requires Nuclear Regulatory Commission
("NRC") consent for the transfer of control of NRC licenses. The NRC Staff has
in the past asserted that this provision applies to the creation of a holding
company over an NRC-licensed utility company in a transaction such as the share
exchange. The Company will apply for NRC approval under the Atomic Energy Act
for the transfer of control resulting from the Share Exchange of its two
licenses, for Nine Mile Point 1 and Nine Mile Point 2, respectively.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The Company is currently exempt from the Public Utility Holding Company Act
of 1935 under Section 3(a)(2) thereof. Holdings will own 100% of the common
stock of the Company, majority interests in Beebee Island Corporation and Moreau
Manufacturing Corporation and 50% of CNP, all of which are public utility
companies for purposes of the Holding Company Act. Section 9(a)(2) of the Act
requires the
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prior approval of the SEC under Section 10 of the Holding Company Act for any
person to become an affiliate of more than one public utility company. Holdings
will apply for such approval. Holdings will also apply to the Commission for an
order exempting Holdings from all provisions of the Holding Company Act, except
Section 9(a)(2) thereof, pursuant to the exemption provided by Section 3(a)(1)
thereof. The basis for such exemption is that the holding company, and every
subsidiary company thereof which is a public-utility company from which the
holding company derives any material part of its income, are predominantly
intrastate in character and are organized in the same state.
PUBLIC SERVICE LAW
The New York Public Service Law ("NYPSL") requires approval from the PSC in
order to undertake the reorganization represented by the formation of the
holding company structure. The NYPSL also requires PSC approval for a holding
company to acquire the stock of a utility pursuant to a share exchange. The
Company has obtained PSC approval of the holding company concept and will make
appropriate additional filings with respect to the formation of a holding
company.
CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE
The share exchange is subject to the satisfaction of the following
conditions (in addition to adoption of the Exchange Agreement by the holders of
Niagara Mohawk Common Stock): (i) all necessary orders, authorizations,
approvals or waivers from the PSC and all other jurisdictive regulatory bodies,
boards or agencies have been received, remain in full force and effect, and do
not include, in the sole judgment of the Board of Directors of Niagara Mohawk,
unacceptable conditions; and (ii) shares of Holdings common stock to be issued
in connection with the exchange have been listed, subject to official notice of
issuance, by the New York Stock Exchange.
Following satisfaction of these conditions, the share exchange will become
effective immediately following the close of business on the date of filing with
the New York Department of State of a certificate of exchange pursuant to
Section 913(d) of the New York Business Corporation Law. Niagara Mohawk cannot
predict when all conditions will be satisfied, but expects that the share
exchange will become effective in the first quarter of calendar 1999.
EXCHANGE OF STOCK CERTIFICATES
If the share exchange is effected, it will not be necessary for holders of
Niagara Mohawk Common Stock to physically exchange their existing stock
certificates for certificates of Holdings common stock. The certificates which
represent shares of Niagara Mohawk Common Stock outstanding immediately prior to
the effective time of the share exchange will automatically represent an equal
number of shares of Holdings common stock immediately after the effective time
and will no longer represent Niagara Mohawk Common Stock. New certificates
bearing the name of Holdings will be issued after the share exchange, if and as
certificates representing shares of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange are presented for exchange or transfer.
Niagara Mohawk preferred stock will not be exchanged but will continue as
shares of Niagara Mohawk preferred stock. The share exchange will not change the
rights of the holders of such shares as provided in Niagara Mohawk's Amended
Certificate of Incorporation. Debt of Niagara Mohawk will remain unchanged and
will continue as outstanding obligations of Niagara Mohawk after the share
exchange.
TRANSFER OF NIAGARA MOHAWK'S NON-UTILITY SUBSIDIARIES TO HOLDINGS
Other than for the transfer of the subsidiaries described under "Certain
Considerations-Non-Utility Businesses" and other de minimis non-utility
investments, and except for dividends or other distributions with respect to
Niagara Mohawk Common Stock held by Holdings, it is expected that Niagara Mohawk
will
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not transfer at less than a fair consideration any of its other assets to
Holdings or any Holdings subsidiaries. Niagara Mohawk will develop accounting
and other procedures to the extent determined to be necessary or appropriate to
insure separation of utility and non-utility businesses. See "--The PowerChoice
Agreement" below.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Shares of Niagara Mohawk Common Stock held in its Dividend Reinvestment and
Common Stock Purchase Plan (including uncertificated whole and fractional
shares) will automatically become a like number of shares of Holdings common
stock at the effective time of the share exchange. At the effective time,
Holdings will succeed to the Plan as in effect immediately prior to the
effective time, and shares of Holdings common stock will be issued under the
Plan on and after the effective time. Holdings will file a post-effective
amendment to Niagara Mohawk's registration statement on Form S-3 for the Plan
shortly after the effective time of the exchange.
AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT
The Boards of Directors of Niagara Mohawk and Holdings may amend any of the
terms of the Exchange Agreement at any time before or after its adoption by the
holders of Niagara Mohawk Common Stock and prior to the effective time, but no
such amendment may, in the sole judgment of the Board of Directors of Niagara
Mohawk, materially and adversely affect the rights of Niagara Mohawk's
shareholders.
The Exchange Agreement may be terminated and the share exchange abandoned
at any time before or after the shareholders of Niagara Mohawk adopt the
Exchange Agreement, and prior to the effective time, if the Board of Directors
of Niagara Mohawk determines, in its sole judgment, that consummation of the
exchange would, for any reason, be inadvisable or not be in the best interests
of Niagara Mohawk or its shareholders.
LISTING OF HOLDINGS COMMON STOCK
Holdings is applying to have its common stock listed on the New York Stock
Exchange. It is expected that such listing will become effective at the
effective time of the share exchange. The stock exchange ticker symbol of
Holdings common stock will be "NMK", and quotations will be carried in
newspapers as they have been for Niagara Mohawk Common Stock. Following the
share exchange, Niagara Mohawk Common Stock will no longer trade and will be
delisted and no longer registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
NIAGARA MOHAWK COMMON STOCK MARKET PRICES AND DIVIDENDS
Niagara Mohawk Common Stock is listed and principally traded on the New
York Stock Exchange. The table below sets forth the high and low sales prices of
Niagara Mohawk Common Stock for the fiscal
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periods indicated as reported in The Wall Street Journal as New York Stock
Exchange Composite Transactions. No dividends were paid on the Common Stock
during such period.
PRICE RANGE
--------------------
HIGH LOW
---- ----
($) ($)
Calendar 1996
First Quarter........................... 10 1/8 6 1/2
Second Quarter.......................... 8 5/8 6 1/2
Third Quarter........................... 8 7/8 6 3/4
Fourth Quarter.......................... 10 7 5/8
Calendar 1997
First Quarter........................... 11 1/8 8 1/8
Second Quarter.......................... 9 7 7/8
Third Quarter........................... 10 1/16 8 1/4
Fourth Quarter.......................... 10 9/16 9 1/16
Calendar 1998
First Quarter........................... 13 9/16 10 1/8
Second Quarter (through May 28, 1998)... 13 11
The closing price of Niagara Mohawk Common Stock on May 28, 1998 was
reported to have been $12 3/16.
DIVIDEND POLICY
Holdings does not now, nor will it immediately after the share exchange,
conduct directly any business operations from which it will derive any revenues.
Holdings plans to obtain funds for its own operations from dividends paid to
Holdings on the stock of its subsidiaries, and from sales of securities or debt
incurred by Holdings. Dividends on Holdings common stock will initially depend
upon the earnings, financial condition and capital requirements of Niagara
Mohawk, and the dividends paid by Niagara Mohawk to Holdings. In the future,
dividends from Holdings' subsidiaries other than Niagara Mohawk may also be a
source of funds for dividend payments by Holdings. Payment of dividends on
Niagara Mohawk Common Stock will continue to be subject to the prior rights of
holders of Niagara Mohawk preferred stock. Niagara Mohawk suspended the common
stock dividend in 1996 to help stabilize its financial condition. In making
future dividend decisions with respect to Niagara Mohawk or Holdings, the
applicable board would evaluate, along with standard business considerations,
the entity's financial condition, contractual restrictions and regulatory
restrictions, competitive pressure on prices, available cash flow and retained
earnings and other strategic considerations.
In addition, as set forth above under "Certain Considerations", the
PowerChoice Agreement contains restrictions on the dividends Niagara Mohawk can
pay Holdings. See "Certain Considerations--Dividends on Holdings Common Stock
Will Initially Depend on Common Stock Dividends Paid by Niagara Mohawk".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Niagara Mohawk and Holdings have received advice from Bryan Cave LLP, their
special tax counsel, that the principal federal income tax consequences of the
share exchange are as summarized below.
Tax Implications to Niagara Mohawk Shareholders. Under section 351 of the
Code, no gain or loss will be recognized by a holder of Niagara Mohawk Common
Stock as a result of the exchange of such holder's Niagara Mohawk Common Stock
solely for Holdings common stock. The tax basis of the Holdings common stock
received in the share exchange will be the same as the exchanging shareholder's
basis in the
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Niagara Mohawk Common Stock surrendered. The holding period of the Holdings
common stock received by each exchanging shareholder will include the holding
period during which such shareholder held the Niagara Mohawk Common Stock
surrendered, provided that such stock was held as a capital asset on the date of
the share exchange. No federal income tax consequences will result from the
share exchange to holders of Niagara Mohawk preferred stock in respect of such
stock.
Tax Implications to Niagara Mohawk and Holdings. No gain or loss will be
recognized by Niagara Mohawk or Holdings as a result of the share exchange. The
basis of the Niagara Mohawk Common Stock received by Holdings will be the same
as the aggregate tax basis that the holders of Niagara Mohawk Common Stock had
in such stock immediately prior to the share exchange. Holdings' holding period
in the Niagara Mohawk Common Stock received in the share exchange will include
the period during which such stock was held by the holders of Niagara Mohawk
Common Stock.
Continuation of Affiliated Group. Consummation of the share exchange will
not result in a termination of the existence of the affiliated group of
corporations of which Niagara Mohawk has been the common parent. Niagara Mohawk
will be included in such affiliated group of corporations of which Holdings will
become the new common parent.
Reporting Requirements. Pursuant to applicable Treasury regulations,
shareholders of Niagara Mohawk Common Stock will be required to attach to their
federal income tax returns a complete statement of all facts pertinent to the
share exchange, including the shareholder's basis in the shares of Niagara
Mohawk Common Stock transferred to Holdings and the type, number and value of
shares of Holdings common Stock received in the share exchange. In addition,
such shareholders will be required to keep permanent records of any information
relating to the share exchange that is required to be filed with their income
tax returns.
The Bryan Cave opinion is based on certain factual representations received
from Niagara Mohawk and Holdings, and upon the firm's review and analysis of
relevant and currently applicable Code provisions, Treasury regulations, other
administrative pronouncements and judicial decisions. Such opinion is not
binding upon either the Internal Revenue Service or the courts. Authorities
relied upon in the Bryan Cave opinion could be repealed, revoked or modified,
possibly with retroactive effect, so as to result in federal income tax
consequences different from those indicated.
THE FOREGOING FEDERAL INCOME TAX DISCUSSION IS INTENDED TO PROVIDE ONLY A
GENERAL SUMMARY. IT DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO THE SHARE EXCHANGE, INCLUDING TAX CONSEQUENCES
WHICH MAY VARY DEPENDENT ON THE PARTICULAR CIRCUMSTANCES OR SPECIAL TAX STATUS
OF CERTAIN NIAGARA MOHAWK SHAREHOLDERS. NOR DOES IT, OR THE BRYAN CAVE OPINION,
ADDRESS THE CONSEQUENCES OR EFFECT OF ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX
LAWS, OR ANY ESTATE, INHERITANCE OR GIFT TAX LAWS. EACH HOLDER OF NIAGARA MOHAWK
COMMON STOCK IS STRONGLY URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR
REGARDING FEDERAL OR OTHER POSSIBLE TAX CONSEQUENCES ARISING OUT OF THAT
HOLDER'S PARTICIPATION IN THE SHARE EXCHANGE.
NIAGARA MOHAWK EMPLOYEE PLANS
The Exchange Agreement provides that Niagara Mohawk's Employee Savings Fund
Plans for Represented and Non-Represented Employees, Dividend Reinvestment and
Common Stock Purchase Plan and 1992 Stock 0ption Plan (together, the "Niagara
Mohawk Stock Plans"), along with other employee benefit plans maintained by
Niagara Mohawk (collectively with the Niagara Mohawk Stock Plans, the "Niagara
Mohawk Employee Plans"), such as the pension plans, health plans and disability
plans, will be amended to provide for Holdings taking over responsibility for
such Plans upon consummation of the share exchange. The Niagara Mohawk 1992
Stock Option Plan (the "Option Plan") was previously approved by Niagara Mohawk
shareholders.
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Stock Based Plans
If the share exchange is consummated, shares of Niagara Mohawk Common Stock
then held under the Niagara Mohawk Stock Plans will automatically become a like
number of shares of Holdings common stock.
Upon consummation of the share exchange, all outstanding stock options
under Niagara Mohawk's Option Plan will be converted into options to acquire, on
the same terms and conditions as were applicable under such stock options
immediately prior to the share exchange, such number of shares of Holdings
common stock as the holders of such options would have been entitled to receive
pursuant to the share exchange had such holders exercised such stock options in
full immediately prior to the share exchange, at a price per share of Holdings
common stock equal to the per share option price of Niagara Mohawk Common Stock.
Also, a vote in favor of the share exchange will also constitute approval, under
the Option Plan, as then amended, for shares of Holdings common stock, instead
of Niagara Mohawk Common Stock, to be issued and delivered in the future under
such Plan. Holdings may issue future options on its common stock under such
Plan. In addition, performance shares granted and to be granted under such Plan
will be treated in a comparable manner. Holdings will file post-effective
amendments to Niagara Mohawk's registration statements on Form S-8 for the
amended Niagara Mohawk Stock Plans shortly after the effective time of the share
exchange.
Non-Stock Based Plans
Upon consummation of the share exchange, Holdings will take over
responsibility for all of Niagara Mohawk's retirement and other employee benefit
plans, such as the pension plans, health plans and disability plans. Benefits
provided for in these non-stock based plans will not be changed as a result of
the holding company restructuring and share exchange.
TREATMENT OF NIAGARA MOHAWK PREFERRED STOCK
Shares of Niagara Mohawk preferred stock will not be exchanged in the share
exchange but will continue as shares of preferred stock of Niagara Mohawk.
Therefore, holders of Niagara Mohawk preferred stock will not become holders of
Holdings preferred or common stock as a result of the share exchange. Except as
discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Niagara Mohawk preferred stock. Niagara Mohawk preferred stock will continue to
rank senior to Niagara Mohawk Common Stock as to dividends and as to the
distribution of Niagara Mohawk's assets upon any liquidation.
The restructuring is not expected to affect adversely the holders of
Niagara Mohawk preferred stock. Dividends on Niagara Mohawk preferred stock will
continue to be paid as before, depending upon the earnings, financial condition
and other relevant factors affecting Niagara Mohawk. However, the assets or
earnings of Holdings' subsidiaries other than Niagara Mohawk will not be
available to pay dividends on Niagara Mohawk preferred stock or to make
distributions with respect to such preferred stock in the event of a liquidation
if the share exchange is consummated. See "--Transfer of Niagara Mohawk's
Non-Utility Subsidiaries to Holdings" above. Appraisal rights under the New York
Business Corporation Law are not available to holders of Niagara Mohawk
preferred stock inasmuch as that preferred stock is not being exchanged for
Holdings stock and will continue as Niagara Mohawk preferred stock after the
holding company restructuring.
After the share exchange, Niagara Mohawk will continue to be subject to the
periodic reporting requirements of the Securities Exchange Act of 1934.
The Board of Directors considered the effects on the holders of the Niagara
Mohawk Common Stock and the holders of Niagara Mohawk preferred stock in
determining that the share exchange should only involve the Niagara Mohawk
Common Stock. The Board's decision to exchange Niagara Mohawk
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Common Stock for Holdings common stock was primarily based on the Board's desire
to confer the expected benefits of the share exchange on those investors who are
best placed to enjoy such benefits, namely the holders of Niagara Mohawk Common
Stock. Even if the Niagara Mohawk preferred stock were to be exchanged for
preferred stock of Holdings, investors in such preferred stock would continue to
receive fixed dividend payments in respect of their investment. The expected
benefits of the share exchange include those discussed above, such as increased
flexibility in operating Holdings' unregulated businesses and enhanced ability
to take advantage of the new business opportunities in a timely manner. The
Board's decision not to exchange Niagara Mohawk preferred stock in the share
exchange was primarily based on the Board's desire not to alter, or potentially
alter, the nature of the investment decision represented by the Niagara Mohawk
preferred stock (namely, a direct investment in a regulated utility) and the
priority position of the holders of Niagara Mohawk preferred stock with respect
to dividends and assets on liquidation. As to holders of Niagara Mohawk
preferred stock, the benefits of continuing as investors in Niagara Mohawk's
regulated utility business outweigh any loss of access to the return on future
investments made by the unregulated businesses of Holdings. In that regard,
investors in priority position securities, such as the holders of Niagara Mohawk
preferred stock, benefit to the extent that such securities have been issued by
the corporate entity that holds directly and/or has unrestricted access to the
principal assets of the enterprise. As discussed above under the caption
"Certain Considerations", the funds required to pay dividends on Holdings common
stock for a period of time following the share exchange are expected to be
derived predominately from dividends paid by Niagara Mohawk. If the Niagara
Mohawk preferred stock also were to be exchanged pursuant to the share exchange
and become preferred stock of Holdings, the funds required to pay dividends on
that preferred stock would also be derived predominately from dividends paid by
Niagara Mohawk. Although it has no present intention to do so, it is expected
that Niagara Mohawk may need to issue preferred stock in the future to meet its
capital requirements. The preferred stock that would be issued by Niagara Mohawk
would have preference over the Common Stock as to the payment of dividends and,
therefore, would reduce the amount of funds available to Niagara Mohawk for the
payment of dividends to Holdings. As a result, the conversion of the Niagara
Mohawk preferred stock to Holdings preferred stock would result in the dividend
payments and distributions upon liquidation with respect to those shares being
subordinated to the dividend and distribution rights of any newly created
preferred stock of Niagara Mohawk.
TREATMENT OF NIAGARA MOHAWK DEBT, ASSETS AND LIABILITIES, AND BUSINESS
The current indebtedness of Niagara Mohawk will continue to be obligations
of Niagara Mohawk and will be neither assumed nor guaranteed by Holdings in
connection with the share exchange. Niagara Mohawk's first mortgage bonds will
continue to be secured by first mortgage liens on all of the properties of
Niagara Mohawk that are currently subject to such liens. Such indebtedness will
be neither assumed nor guaranteed by Holdings in connection with the share
exchange. The decision to have the indebtedness of Niagara Mohawk continue as
obligations of Niagara Mohawk is based upon a desire not to alter, or
potentially alter, the nature of the investment represented by such fixed income
obligations, namely a direct investment in a regulated utility.
The consolidated assets and liabilities of Niagara Mohawk and its subsidiaries
immediately before the Effective Time will be the same as the consolidated
assets and liabilities of Holdings and its subsidiaries immediately after the
Effective Time. All the business and operations conducted immediately before the
Effective Time by Niagara Mohawk and its subsidiaries will continue to be
conducted immediately after the Effective Time by Niagara Mohawk and such
subsidiaries as subsidiaries of Holdings.
HOLDINGS CAPITAL STOCK
Holdings' certificate of incorporation and by-laws will govern certain
rights of Holdings' shareholders after the share exchange as discussed under
this caption and under "--Comparative Shareholders' Rights" below.
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The following statements with respect to Holdings common stock are based on
certain provisions of Holdings' certificate of incorporation and by-laws and on
New York law. Holdings' certificate of incorporation is attached as Exhibit B
hereto and is incorporated herein by reference and Holdings' by-laws are
attached as Exhibit C hereto and are incorporated herein by reference.
Holdings is authorized to issue 300,000,000 shares of common stock and
50,000,000 shares of preferred stock. Holdings preferred stock may be issued
from time to time in series as Holdings' Board of Directors may determine, and
the respective dividend rates, redemption terms (if any), amounts payable on
liquidation, voting rights (if any), number of votes per share, conversion
rights (if any), and other terms will be fixed by Holdings' Board of Directors
with respect to any such series prior to issuance.
When issued in the share exchange, shares of Holdings common stock will be
fully paid and nonassessable. Holders of Holdings common stock and preferred
stock are not entitled to preemptive rights.
Dividends
Subject to prior rights of Holdings preferred stock (if any should become
outstanding), Holdings common stock is entitled to such dividends as may be
declared by Holdings' Board of Directors, and Holdings may purchase or otherwise
acquire outstanding shares of common stock, out of funds legally available
therefor.
As noted above, the PowerChoice Agreement and the terms of Niagara Mohawk's
debt imposes certain limitations on the dividends that Niagara Mohawk may pay to
Holdings after the share exchange. At least initially after the exchange,
dividends on Holdings common stock will depend on dividends paid by Niagara
Mohawk on its Common Stock owned by Holdings.
Liquidation Rights
Upon liquidation of Holdings, any net assets remaining after payment to the
holders (if any) of Holdings preferred stock of the full amounts to which they
are entitled to receive are distributable pro rata to the holders of Holdings
common stock.
Voting Rights
Holders of Holdings common stock are entitled to one vote per share. There
are no cumulative voting rights. Holdings' Board of Directors is divided into
three classes, with directors elected generally to serve for terms of three
years.
Transfer Agent and Registrar
The transfer agent and registrar for Holdings common stock will be The Bank
of New York of New York, NY.
Indemnification and Limitation of Liability
As do the Niagara Mohawk By-Laws, the Holdings by-laws will provide that
Holdings shall indemnify to the full extent permitted by law any person made, or
threatened to be made, a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of Holdings, or serves or served at the request of Holdings with any
other enterprise as a director, officer or employee; expenses incurred by any
such person in defending any such action, suit or proceeding will be paid or
reimbursed by Holdings promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by Holdings. No amendment of
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this by-law provision will impair the rights of any person arising at any time
with respect to events occurring prior to such amendment.
As does Niagara Mohawk's Certificate of Incorporation, Holdings'
certificate of incorporation provides that a director shall not be personally
liable to Holdings or its shareholders for damages for any breach of duty in
such capacity, except to the extent that such exemption is not permitted under
the BCL (presently, such exemption is not permitted for acts or omissions in bad
faith or involving intentional misconduct or a knowing violation of law, or if
the director personally gained in fact a financial profit or other advantage to
which the director was not legally entitled or if such act violated Section 719
of the BCL). Any amendment, modification or repeal of such liability limitation
provision may not apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment, modification or repeal.
Possible Effect of Certain Holdings Provisions and the BCL
It is not the intention of the Board of Directors to discourage legitimate
offers to enhance shareholder value. However, certain provisions of Holdings'
certificate of incorporation and by-laws may have the effect of discouraging
unilateral tender offers or other attempts to take over and acquire the business
of Holdings. These provisions, all of which are already contained in Niagara
Mohawk's Certificate of Incorporation or By-Laws or otherwise apply to Niagara
Mohawk, might discourage a potentially interested purchaser from attempting a
unilateral takeover bid for Holdings on terms which some shareholders might
favor. If they discourage potential takeover bids, these provisions might limit
the opportunity for Holdings' shareholders to sell their shares at a premium
over then prevailing market prices.
Non-Cumulative Voting. Neither Niagara Mohawk nor Holdings provides for
cumulative voting in the election of directors. The procedure known as
cumulative voting permits shareholders to multiply the number of votes to which
they may be entitled by the total number of directors to be elected in the same
election by the holders of the class or classes of shares of which their shares
are a part and to cast their whole number of votes for one candidate or to
distribute them among any two or more candidates.
Under cumulative voting, it is possible for representation on the Board of
Directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Board of Directors
believes that each director should represent all shareholders, rather than the
interests of any special constituency, and that the presence on Holdings' Board
of one or more directors representing such a constituency could disrupt and
impair the efficient management of Holdings. The lack of cumulative voting could
discourage the accumulation of blocks of Holdings common stock and therefore
could tend to make temporary increases in the market price of Holdings common
stock, which could result therefrom, less likely to occur. Therefore, in these
limited instances, shareholders may not be able to sell their shares of Holdings
common stock at a market price temporarily influenced by this type of activity.
Advance Notice of Business to be Brought Before Shareholder Meetings. As
under Niagara Mohawk's By-Laws, under Holdings' by-laws shareholders must
provide Holdings prior written notice of any business to be brought before an
annual or special meeting (including the nomination of directors) in order for
it to be considered. With respect to any annual meeting, such by-laws require
the written notice to be received by the Secretary of Holdings no earlier than
90 days nor later than 60 days prior to the date of the annual meeting, except
that if the date of the annual meeting is first publicly announced less than 70
days prior to the date of the meeting, such by-laws require the written notice
to be received by the Secretary of Holdings not more than 10 days after such
public announcement. These by-law provisions provide a more orderly procedure
for conducting shareholder meetings and provide the Board of Directors with a
meaningful opportunity prior to shareholder meetings to inform shareholders, to
the extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together
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with any recommendation of the Board of Directors. Also, by requiring advance
notice of nominations by shareholders, these by-law provisions afford the Board
of Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the Board
of Directors, to inform shareholders about such qualifications.
On the other hand, these by-law provisions may provide sufficient time for
Holdings to institute litigation or take other steps to respond to such
business, or to prevent such business from being acted upon, if such response or
prevention is thought to be necessary or desirable. With respect to the election
of directors, these by-law provisions may tend to inhibit shareholders who do
not have any intention of controlling Holdings or its Board of Directors from
participating in the nomination process; such provisions may also provide
sufficient time for Holdings to institute litigation or take other steps to
prevent the nominee from being elected or serving if such prevention is thought
to be necessary or desirable.
"Blank-Check" Preferred Stock. Holdings' certificate of incorporation will
authorize the issuance of 50,000,000 shares of Holdings preferred stock. In
addition, after giving effect to the share exchange, approximately 113 million
shares of Holdings common stock will be authorized but unissued and not reserved
for issuance. An effect of the existence of unissued Holdings common stock and
preferred stock may be to enable the Holdings Board of Directors to render more
difficult or discourage a transaction to obtain control of Holdings. Such shares
might be issued by the Board of Directors without shareholder approval in
transactions that might prevent or render more difficult or costly the
completion of a takeover transaction, as by diluting voting or other rights of
the proposed acquiror. In this regard, Holdings' certificate of incorporation
(as does Niagara Mohawk's) will grant the Board of Directors broad power to
establish the rights and preferences of the authorized and unissued preferred
stock, one or more classes or series of which could be issued entitling holders
to vote separately as a class on any proposed merger or consolidation, to
convert such stock into shares of Holdings common stock or possibly other
securities, to demand redemption at a specified price under prescribed
circumstances related to a change of control, or to exercise other rights
designed to impede a takeover.
Section 912 of the New York Business Corporation Law. Section 912 of
the BCL would prohibit a "business combination" (as defined in Section 912,
generally including mergers, sales and leases of assets, issuances of securities
and similar transactions) by Holdings or a subsidiary with an "interested
shareholder" (as defined in Section 912, generally the beneficial owner of 20
percent or more of Holdings' voting stock) within five years after the person or
entity becomes an interested shareholder, unless (i) prior to the person or
entity becoming an interested shareholder, the business combination or the
transaction pursuant to which such person or entity became an interested
shareholder shall have been approved by Holdings' Board of Directors, or (ii)
the business combination is approved by the holders of a majority of the
outstanding voting stock of Holdings, excluding shares held by the interested
shareholder, at a meeting called for such purpose not earlier than five years
after such interested shareholder's stock acquisition date, or pursuant to a
stringent "fair price" formula.
Section 70 of the New York Public Service Law. Under Section 70 of the
Public Service Law, unless authorized by the PSC, no gas corporation or electric
corporation may directly or indirectly acquire the stock or bonds of any other
corporation incorporated for, or engaged in, the same or a similar business, or
proposing to operate or operating under a franchise from New York State or any
other state or any other municipality. In general, no stock corporation other
than a gas corporation or electric corporation or street railroad corporation
may purchase or acquire, take or hold, more than ten percent (10%) of the voting
capital stock of any gas corporation or electric corporation organized or
existing under or by virtue of the laws of New York unless with the consent of,
and subject to the terms and conditions set by, the PSC. No consent may be given
by the PSC to any such acquisition unless it has been shown that such
acquisition is in the public interest. Any contract, assignment, transfer or
agreement for transfer of any stock in violation of Section 70 will be void and
of no effect, and no such transfer or assignment may be made upon the books of
any such gas corporation or electric corporation, or will be recognized as
effective for any purpose. An
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"electric corporation" is defined to generally include any corporation, company,
partnership and person owning, operating or managing any electric plant for use
by others than itself and its tenants, or except where electricity is generated
solely from co-generation, small buyers or alternative energy production
facilities or distributed from such facilities to users located near such a
facility.
Other Provisions. Some other provisions of Holdings' certificate of
incorporation and by-laws may also tend to discourage potential offers to take
over and acquire the business of Holdings. Holdings' Board of Directors will be
divided into three classes, with directors in each class generally being elected
to serve a three-year term. Also, special shareholder meetings may be called
only by the Chairman of the Board of Directors or by the Board pursuant to a
resolution adopted by a majority of the entire Board. Holdings' certificate of
incorporation also provides that directors may not be removed without cause by
the shareholders, except in the case of a director elected by the holders of any
class or series of stock (other than Holdings common stock), voting as a class
or series, when so entitled by the applicable provisions of Holdings'
certificate of incorporation. Finally, certain provisions (relating to, for
example, limitation on director liabilities, the ability to call special
meetings of shareholders, presiding at meetings of shareholders, classified
Board of Directors, election and removal of directors, advance notice
requirements for shareholder proposals and nomination of directors at
shareholder meetings, and indemnification) may only be amended by the
affirmative vote of not less than two-thirds of the shares entitled to vote at a
shareholder meeting or, with respect to By-Law amendments affecting such
provisions, two-thirds of the entire Board. Niagara Mohawk's Certificate of
Incorporation and By-Laws presently contain a number of these provisions.
COMPARATIVE SHAREHOLDERS' RIGHTS
Niagara Mohawk and Holdings are both New York corporations. When the share
exchange becomes effective, holders of Niagara Mohawk Common Stock will become
holders of Holdings common stock, and their rights will be governed by Holdings'
certificate of incorporation and by-laws instead of those of Niagara Mohawk.
Certain differences between the rights of holders of Holdings common stock
and those of holders of Niagara Mohawk Common Stock are summarized below. Such
summary is qualified in its entirety by reference to the information included in
the exhibits hereto, in exhibits to the Registration Statement of which this
Prospectus/Proxy Statement is a part, and in materials incorporated herein by
reference.
Voting Requirements for Significant Transactions. As a result of a recent
change in the BCL, the necessary vote for significant transactions involving
Holdings, such as mergers, consolidations, share exchanges and dissolution, will
be a majority vote, rather than the two-thirds vote applicable to Niagara
Mohawk. The Board of Directors believes this lower vote requirement will
facilitate any transactions deemed to be in the best interests of Holdings and
its shareholders.
Purpose Clause. The corporate purposes for which Niagara Mohawk may engage
in business are generally those related to rendering electric or gas service and
related activities. Holdings is authorized to engage in any and all lawful acts
and activities.
Authorized Shares. Authorized Holdings and Niagara Mohawk common stock is
300,000,000 and 185,000,000, subject to increase to 250,000,000 shares if
Proposal 3 is adopted, shares, respectively. As of the record date for the
Annual Meeting, there were 144,419,351 shares of Niagara Mohawk Common Stock
issued and outstanding. Up to approximately 187 million shares of Holdings
common stock may be issued in the share exchange. The additional authorized but
unissued shares of Holdings common stock will be available for issuance under
the Dividend Reinvestment and Stock Purchase Plan and the Option Plan, as well
as possibly for stock splits, stock dividends, equity financings, and for other
general corporate purposes (including, possibly, acquisitions) (none of which is
under current consideration).
In addition, as of the record date, there were 3,400,000 shares of
Cumulative Preferred Stock, par value $100 per share, of which 2,322,000 shares
were issued and outstanding, and 19,600,000 shares of
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Cumulative Preferred Stock, par value $25 per share, of which 11,681,204 shares
were issued and outstanding. There will be 50,000,000 authorized shares of
Holdings preferred stock, all of which are unissued.
Preferred Stock. The respective Boards of Directors of Holdings and Niagara
Mohawk are authorized to issue preferred stock in series.
The voting rights and certain preferences of the Niagara Mohawk preferred
stock are determined in Niagara Mohawk's certificate of incorporation. Niagara
Mohawk preferred stock is generally not entitled to vote but only has limited
voting rights as required by law and as set out in the Niagara Mohawk's
certificate of incorporation, which rights generally arise only in the event of
certain arrearages in payment of dividends and certain corporate transactions
affecting Niagara Mohawk preferred stock. Niagara Mohawk preferred stock is
subject to redemption and sinking fund provisions. After the share exchange,
outstanding Niagara Mohawk preferred stock will continue as equity securities of
Niagara Mohawk with the same preferences, designations, relative rights,
privileges and powers, and subject to the same restrictions, limitations and
qualifications, as were applicable to outstanding Niagara Mohawk preferred stock
prior to the share exchange.
Holdings' certificate of incorporation will not establish voting rights,
preferences or other rights with respect to Holdings preferred stock. Holdings'
Board of Directors is given full authority to establish and designate each
particular series of preferred stock and to fix the rights, preferences and
limitations of each particular series, and the relative rights, preferences and
limitations between series, as follows: (i) the serial designation; (ii) the
number of shares in such series; (iii) the dividend rate or rates and the date
or dates upon which such dividends shall be payable; (iv) whether dividends on
such series will be cumulative, and, if so, from which date or dates; (v)
liquidation preferences; (vi) redemption terms, if any; (vii) provisions
relating to sinking or other similar funds; (viii) provisions relating to the
conversion or exchange of shares of such series into shares of any class of
stock (except that conversion or exchange may not be made into shares having
superior dividend or liquidation preferences); (ix) the voting rights, if any,
in addition to those required by law and the number of votes per share; and (x)
any other relative rights, preferences or limitations of such series not
inconsistent with the Holdings' certificate of incorporation or with applicable
law.
Management believes that the ability to issue Holdings preferred stock will
provide important flexibility to Holdings.
Par Value. The par value of Holdings preferred stock differs from those of
Niagara Mohawk preferred stocks. A designated par value is not required under
the BCL and in modern corporate practice par value does not serve any useful
purpose. It is anticipated that the difference in par values will not affect the
market value of Holdings preferred stock.
The par value per share of Holdings common stock, $0.01, was reduced from
the $1.00 par value per share of Niagara Mohawk Common Stock to save on filing
fees in New York.
Classified Board. As is the case with Niagara Mohawk Holdings' certificate
of incorporation and by-laws will provide (i) for the Board to determine the
number of directors; and (ii) for the division of the Board into three classes
with directors in each class generally being elected for a three-year term. See
"--Management" below.
Other Provisions. Holdings' certificate of incorporation will provide that
directors may not be removed without cause by the shareholders, except in the
case of a director elected by the holders of any class or series of stock (other
than Holdings common stock), voting as a class or series, when so entitled by
the applicable provisions of Holdings' restated certificate of incorporation.
Also, certain provisions (relating to, for example, preferred stock, limitation
on director liabilities, the ability to call special meetings of shareholders,
classified Board of Directors, election and removal of directors, advance notice
requirements for shareholder proposals and nomination of directors at
shareholder meetings) may only be amended by the affirmative vote of not less
than two-thirds of the shares then entitled to vote at
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shareholder meetings. Other provisions of Holdings' certificate of incorporation
or by-laws may be amended, repealed or adopted by a vote of the shareholders of
Holdings at the time entitled to vote at any shareholder meeting or, in the case
of the Holdings by-laws, by the Board of Directors of Holdings.
See also "--Holdings Capital Stock".
BUSINESS
Niagara Mohawk is engaged in the generation, purchase, transmission,
distribution and sale of electricity and the purchase, distribution, sale and
transportation of natural gas in New York State. Niagara Mohawk provides
electric service to its customers in areas of central, northern and western New
York having a total population of approximately 3.5 million, including the
cities of Buffalo, Syracuse, Albany, Utica, Schenectady, Niagara Falls,
Watertown and Troy. Niagara Mohawk sells, distributes and transports natural gas
in areas of central, northern and eastern New York contained within its electric
service territory having a total population of approximable 1.7 million. Niagara
Mohawk owns or has a significant ownership interest in seven principal fossil
and nuclear electric generating facilities providing it with a total capacity of
approximately 5,299 megawatts of electricity.
Niagara Mohawk's principal non-utility subsidiaries participate in real
estate development of property formerly owned by Niagara Mohawk and
energy-related services. In addition, Niagara Mohawk holds a single-purpose
subsidiary established to facilitate the sale of an undivided interest in a
designated pool of customer receivables. Certain of these subsidiaries will be
transferred to and therefor become separate subsidiaries of Holdings after the
share exchange.
After the share exchange occurs, Holdings will have no material assets
other than its ownership of stock of its subsidiaries, which initially will
consist of all of Niagara Mohawk's outstanding common stock and thereafter the
common stock of certain Niagara Mohawk's existing non-utility subsidiaries. See
"--Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings". It is
expected that, in the future, Holdings will expand into some other businesses
and ventures.
REGULATION OF HOLDINGS AND NIAGARA MOHAWK
Regulation of Holdings.
Holdings must comply with the PowerChoice Agreement. As discussed and
referred to above under "--The PowerChoice Agreement", there are restrictions on
transactions between Niagara Mohawk and Holdings and other Holdings
subsidiaries, restrictions on loans, guarantees or pledges for the benefit of
Holdings and other Holdings subsidiaries, and restrictions on Board and
managerial interlocks between Niagara Mohawk and Holdings and other Holdings
subsidiaries.
As a result of the share exchange, Holdings will become a "public utility
holding company" under the Holding Company Act. Though Niagara Mohawk expects to
sell or liquidate its majority interests in two of its generation subsidiaries,
Beebee Island Corporation and Moreau Manufacturing Corporation, Holdings will
retain an indirect 50% interest in CNP which does not contribute a material part
of its income.
In 1994 the SEC issued a release soliciting the views of interested parties
on a study being conducted by its staff to develop recommendations regarding
certain Congressional concerns and the needs of those affected by regulation
under the Holding Company Act. In June 1995 the staff completed its study and
issued a report which concluded that significant changes were needed in the
current regulatory scheme. The SEC staff report viewed the Holding Company Act
as unnecessarily restrictive in many regards which could prevent companies from
responding effectively to changes now occurring in the utility industry. Among
the staff report's recommendations were three legislative options for the SEC to
offer to Congress-repeal of the Holding Company Act with legislation to continue
federal protection of consumers, unconditional repeal of the Holding Company
Act, or a broadening of the SEC's authority to exempt holding companies where
state regulation was adequate. Pending legislative action, the staff report
recommended that the SEC act administratively to modernize and simplify holding
company regulation, reduce delays in current administration, and minimize
regulatory overlap, including rulemaking proposals
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and significant changes in the SEC's past interpretations under the Act. One of
these proposals was a rule to exempt most energy-related diversification within
investment limitations. Niagara Mohawk cannot predict whether Congress will take
any action to significantly modify or repeal the Holding Company Act, or whether
the SEC will take action to revise or modify significantly its Holding Company
Act rules, decisions and interpretations.
Regulation of Niagara Mohawk. Niagara Mohawk will continue to be subject to
regulation by the PSC after the share exchange. Niagara Mohawk's utility retail
sales, which include sales of gas, transportation and balancing services, will
continue to be made primarily under rate schedules and tariffs filed with and
subject to the jurisdiction of the PSC. See "--The PowerChoice Agreement" below.
In addition, Niagara Mohawk will continue to be subject to regulation by the
PSC, as it has been in the past, regarding issuances of securities, capital
ratio maintenance, and the maintenance of its books and records.
Niagara Mohawk also will continue to be subject to regulation by the FERC
and the NRC. FERC will continue to regulate the terms and conditions of Niagara
Mohawk's transmission of electricity, along with transmission interconnections
and ancillary services, as well as the terms and conditions of its sales of
electric energy for resale. FERC will also continue to regulate Niagara Mohawk's
disposition of any capacity on interstate gas pipelines to which it has rights
under firm contracts. The NRC will continue to review and regulate Niagara
Mohawk's operation of the two Nine Mile Point nuclear units.
THE POWERCHOICE AGREEMENT
Prohibitions of Affiliate Loans, Guarantees and Pledges. Under the
PowerChoice Agreement, Niagara Mohawk is prohibited from making loans to, or
providing guarantees or other credit support for the obligations of, Holdings or
any other subsidiary of Holdings. Likewise, Niagara Mohawk may not pledge its
assets for the obligations of any other entity, including Holdings or any other
subsidiary of Holdings.
Prohibitions of Affiliate Transactions and Other Restrictions. The
PowerChoice Agreement generally prohibit any transaction between Niagara Mohawk
and Holdings or any other subsidiary of Holdings, except for the provision of
certain corporate administrative services, certain "grandfathered" transactions
as listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, Holdings and its subsidiaries are
required by the PowerChoice Agreement to operate as separate entities, and the
PowerChoice Agreement prescribes capital ratio maintenance requirements for
Niagara Mohawk. Finally, the PowerChoice Agreement sets out guidelines for the
allocation of costs among Holdings, Niagara Mohawk and the other subsidiaries of
Holdings.
Restrictions on Board and Management Interlocks. In order to address
concerns regarding the possible diversion of the attention of Niagara Mohawk's
management away from the utility business, as well as to avoid potential
conflicts of interest with the management of Holdings, the PowerChoice Agreement
contains restrictions regarding the composition of the Boards and managements of
Niagara Mohawk and Holdings and other subsidiaries of Holdings. See
"--Management--Restrictions on Board and Management Interlocks between Holdings
and Niagara Mohawk".
The PowerChoice Agreement will continue to govern Niagara Mohawk's utility
rates and charges even if common shareholders do not approve the holding company
proposal and adopt the Exchange Agreement at Niagara Mohawk's Annual Meeting. In
that event, Niagara M hawk will not be able to realize the benefits it expects
from a holding company structure, which it believes is necessary in the future
deregulated competitive environment of the energy industry.
STATUTORY APPRAISAL RIGHTS
Holders of shares of Niagara Mohawk Common Stock are not entitled to
appraisal rights under the BCL as a result of the exchange.
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B. MANAGEMENT
DIRECTORS AND OFFICERS OF HOLDINGS
Holdings' certificate of incorporation and by-laws divides Holdings' Board
of Directors into three classes, which will become effective prior to the share
exchange, with directors in each class generally being elected for a three-year
term. Holdings' by-laws will permit the Board of Directors to fix from time to
time the number of directors, and the Board has fixed its initial size at 3, to
be increased to 14, effective as of the effective time of the share exchange. A
vote in favor of the share exchange will also constitute ratification of the
make-up of Holdings' Board of Directors.
Presently William E. Davis, Albert J. Budney, Jr. and William F. Edwards
are the directors of Holdings. Immediately prior to the effective time of the
share exchange, Mr. Edwards will resign and Niagara Mohawk, as such sole
shareholder, will elect all of the then current Niagara Mohawk directors to the
Board of Holdings in the same classes as they presently serve. As of the
effective time of the share exchange, Mr. Budney will resign from the Board of
Niagara Mohawk, Mr. Davis will serve on the Boards of Directors of both Holdings
and Niagara Mohawk and the remaining Niagara Mohawk directors will be Darlene D.
Kerr and John H. Mueller. After completion of the share exchange, Holdings'
Board vacancies may be filled by action of Holdings' Board of Directors.
Holdings also contemplates amending the certificate of incorporation and by-laws
of Niagara Mohawk following the share exchange to reflect more appropriate
provisions for a subsidiary.
The following individuals are officers of Holdings:
William E. Davis Chairman and Chief Executive Officer
Albert J. Budney, Jr. President
William F. Edwards Chief Financial Officer
Kapua A. Rice Secretary
In addition, prior to the share exchange, Gary J. Lavine will become Chief
Legal Officer and Steven W. Tasker will become Chief Accounting Officer.
For further information concerning persons to become directors or officers
of Holdings, see "Proposal 1: Nomination and Election of Directors-Nominees for
Class I Directors", "--Continuing Class II Directors", "Continuing Class III
Directors" and "--Security Ownership of Directors and Executive Officers".
RESTRICTIONS ON BOARD AND MANAGEMENT INTERLOCKS BETWEEN HOLDINGS AND NIAGARA
MOHAWK
In order to address concerns regarding the possible diversion of the
attention of Niagara Mohawk's management away from the utility business, as well
as to avoid potential conflicts of interest with the Board and management of
Holdings, the PowerChoice Agreement sets forth the following restrictions
regarding the composition of the managements of Niagara Mohawk and Holdings.
Composition of the Boards of Directors. Niagara Mohawk's Board of Directors
must include at least a majority of outside directors (i.e., not an officer of
either Holdings or any of its unregulated affiliates).
Separation of Employees and Officers. Niagara Mohawk and the unregulated
subsidiaries of Holdings will have separate operating employees and operating
officers. Officers of Holdings may be officers of either Niagara Mohawk or an
unregulated affiliate.
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C. OTHER INFORMATION
VALIDITY OF HOLDINGS COMMON STOCK
The validity of the shares of Holdings common stock to be issued in the
share exchange will be passed upon by Sullivan & Cromwell, general counsel to
Niagara Mohawk and Holdings, 125 Broad Street, New York, New York 10004.
EXPERTS
The consolidated financial statements incorporated by reference herein
have been audited by Price Waterhouse LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
COSTS
The Board of Directors considered the financial cost to Niagara Mohawk of
implementing the share exchange, including the expenses associated with
obtaining required approvals, the costs of this proxy solicitation and the other
expenses incurred in connection with registering the Holdings common stock with
the Commission. In the Board's view, these expenses, although in some cases
significant, are acceptable in light of the benefits to Niagara Mohawk of the
share exchange.
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated as of May 14
1998, is between Niagara Mohawk Power Corporation, a New York corporation and
the corporation whose shares of Common Stock, par value $1.00 per share, will be
acquired pursuant to the "Exchange" provided for in this Agreement (the "Subject
Corporation"), and Niagara Mohawk Holdings, Inc., a New York corporation and the
corporation which will acquire the foregoing shares of Common Stock of the
Subject Corporation (the "Acquiring Corporation"). The Subject Corporation and
the Acquiring Corporation are hereinafter referred to, collectively, as the
"Corporations".
WITNESSETH:
WHEREAS, the authorized capital of the Subject Corporation is
$1,215,000,000, consisting of (a) 185,000,000 shares of Common Stock, par value
$1.00 per share ("Subject Corporation Common Stock"), of which 144,419,351
shares are issued and outstanding (which number of issued and outstanding shares
is subject to chance prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the Dividend Reinvestment and Common Stock Purchase Plan
("DRIP") and the Employee Savings Fund Plans for Represented and
Non-Represented Employees (each an "Employee Plan" and collectively the
"Employee Plans") of the Subject Corporation and the issuance of Subject
Corporation Common Stock pursuant to the Master Restructuring Agreement of the
Subject Corporation, dated as of July 9, 1997, as amended, (b) 3,400,000 shares
of Cumulative Preferred Stock, par value $100 per share ("Subject Corporation
$100 Preferred Stock"), of which 2,322,000 shares are issued and outstanding,
(c) 19,600,000 shares of Cumulative Preferred Stock, par value $25 per share
("Subject Corporation $25 Preferred Stock"), of which 11,681,204 shares are
issued and outstanding and (d) 8,000,000 shares of Preference Stock, par value
$25 per share ("Preference Stock"), no shares of which are outstanding.
WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 300,000,000
shares of Common Stock, par value $0.01 per share ("Acquiring Corporation Common
Stock"), of which 100 shares are issued and outstanding and owned by the Subject
Corporation and 50,000,000 shares of Preferred Stock, par value $0.01 per share,
no shares of which are outstanding.
WHEREAS, the Boards of Directors of the Corporations deem it desirable and
in the best interests of the Corporations and the shareholders of the Subject
Corporation that, at the Effective Time, (a) the Acquiring Corporation acquire
and become the owner and holder of each share of Subject Corporation Common
Stock issued and outstanding at the Effective Time, (b) each share of Subject
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring Corporation
Common Stock, and (c) each holder of shares of Subject Corporation Common Stock
issued and outstanding immediately prior to the Effective Time becomes the
holder of a like number of shares of Acquiring Corporation Common Stock, all on
the terms and conditions hereinafter set forth; and
WHEREAS, the Boards of Directors of the Corporations have each approved and
adopted this Agreement, and the Board of Directors of the Subject Corporation
has recommended that the shareholders of the Subject Corporation approve and
adopt the Exchange and this Agreement pursuant to Section 913 of the New York
Business Corporation Law (the "BCL").
NOW, THEREFORE, the Corporations hereby agree as follows:
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ARTICLE I
The Exchange and this Agreement shall be submitted to the holders of
Subject Corporation Common Stock for approval and adoption as provided by
Section 913 of the BCL. The affirmative vote of the holders of at least
two-thirds of the issued and outstanding Subject Corporation Common Stock shall
be necessary to approve and adopt the Exchange and this Agreement.
ARTICLE II
Subject to the terms and conditions of this Agreement, the Exchange shall
become effective immediately following the close of business on the date of
filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time and
date at and on which the Exchange becomes effective being referred to herein as
the "Effective Time").
ARTICLE III
A. At the Effective Time:
(1) each share of Subject Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be automatically
exchanged for one share of Acquiring Corporation Common Stock, which shares
shall be fully paid and nonassessable by the Acquiring Corporation;
(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;
(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;
(4) each share of Subject Corporation Common Stock held under the DRIP
or an Employee Plan (including fractional and uncertificated shares)
immediately prior to the Effective Time shall be automatically exchanged
for a like number of shares (including fractional and uncertificated
shares) of Acquiring Corporation Common Stock, which shares shall be held
under and pursuant to the DRIP or be issued under such Employee Plan, as
the case may be, as hereinafter provided;
(5) each unexpired and unexercised option to purchase Subject
Corporation Common Stock ("Subject Corporation Stock Option") under the
1992 Stock Option Plan (the "Option Plan"), whether vested or unvested,
will be automatically converted into an option (a "Substitute Option") to
purchase a number of shares of Acquiring Corporation Common Stock equal to
the number of shares of Subject Corporation Common Stock that could have
been purchased immediately prior to the Effective Time (assuming full
vesting) under such Subject Corporation Stock Option, at a price per share
of Acquiring Corporation Common Stock equal to the per share option
exercise price specified in such Subject Corporation Stock Option. In
accordance with Section 424(a) of the Internal Revenue Code of 1986, as
amended, each Substitute Option shall provide the option holder with rights
and benefits that are no less and no more favorable to him than were
provided under the Subject Corporation Stock Option; and
(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement.
B. Shares of Subject Corporation $100 Preferred Stock, Subject Corporation
$25 Preferred Stock and Subject Corporation Preference Stock shall not be
exchanged or otherwise affected by or in connection with the Exchange. Each
share of Subject Corporation $100 Preferred Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding following the Exchange and shall continue to be one share of Subject
Corporation $100 Preferred Stock of the
A-2
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applicable series designation. Each share of Subject Corporation $25 Preferred
Stock issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding following the Exchange and shall continue
to be one share of Subject Corporation $25 Preferred Stock of the applicable
series designation.
C. As of the Effective Time, the Acquiring Corporation shall succeed to the
DRIP as in effect immediately prior to the Effective Time, and the DRIP shall be
appropriately modified to provide for the issuance or delivery of Acquiring
Corporation Common Stock on and after the Effective Time pursuant thereto.
D. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation Common
Stock, and the Acquiring Corporation shall agree to issue or deliver Acquiring
Corporation Common Stock, and (2) the Option Plan shall also be appropriately
amended to provide for the issuance of options by the Acquiring Corporation to
purchase Acquiring Corporation Common Stock, in each case on and after the
Effective Time pursuant thereto.
ARTICLE IV
A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:
(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;
(2) such orders, authorizations, approvals or waivers from the New
York Public Service Commission and all other jurisdictive regulatory
bodies, boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions; and
(3) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange.
ARTICLE V
Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Subject Corporation Common Stock
may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of Acquiring
Corporation Common Stock previously represented by the certificate or
certificates surrendered. Until so surrendered or presented for exchange or
transfer, each outstanding certificate which, immediately prior to the Effective
Time, represents Subject Corporation Common Stock shall be deemed and shall be
treated for all purposes to represent the ownership of the same number of shares
of Acquiring Corporation Common Stock as though such surrender or exchange or
transfer had taken place. The holders of Subject Corporation Common Stock at the
Effective Time shall have no right at and after the Effective Time to have their
shares of Subject Corporation Common Stock transferred on the stock transfer
books of the Subject Corporation (such stock transfer books being deemed closed
for this purpose at the Effective Time), and at and after the Effective Time
such stock transfer books may be deemed to be the stock transfer books of the
Acquiring Corporation.
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ARTICLE VI
A. This Agreement may be amended, modified or supplemented, or compliance
with any provision hereof may be waived, at any time prior to the Effective Time
(including, without limitation, after receipt of the affirmative vote of holders
of Subject Corporation Common Stock as provided in Article IV(1) hereof), by the
mutual consent of the Boards of Directors of the Subject Corporation and the
Acquiring Corporation at any time prior to the Effective Time; provided,
however, that no such amendment, modification, supplement or waiver shall be
made or effected if such amendment, modification, supplement or waiver would, in
the sole judgment of the Board of Directors of the Subject Corporation,
materially and adversely affect the shareholders of the Subject Corporation.
B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of Subject
Corporation Common Stock as provided in Article IV(1) hereof), if the Board of
Directors of the Subject Corporation determines, in its sole judgment, that
consummation of the Exchange would for any reason be inadvisable or not in the
best interests of the Subject Corporation or its shareholders.
IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization and
approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.
Niagara Mohawk Power Corporation
By: William E. Davis
--------------------------------------
William E. Davis
Chairman of the Board and Chief
Financial Officer
Niagara Mohawk Holdings, Inc.
By: William F. Edwards
--------------------------------------
William F. Edwards
Chief Financial Officer
A-4
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UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT I
<PAGE>
NIAGARA MOHAWK
[MAP]
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
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EXHIBIT J
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
OPINION NO. 98-8
CASE 94-E-0098 - Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of Niagara Mohawk Power
Corporation for the Electric Service.
CASE 94-E-0099 - Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of Niagara Mohawk Power
Corporation for Electric Street Lighting Service.
OPINION AND ORDER ADOPTING TERMS
OF SETTLEMENT AGREEMENT SUBJECT
TO MODIFICATIONS AND CONDITIONS
Issued and Effective: March 20, 1998
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CASES 94-E-0098 and 94-E-0099
TABLE OF CONTENTS
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Page
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INTRODUCTION 1
General Background 2
Procedural History 3
SUMMARY OF THE MRA AND THE SETTLEMENT 7
EXCEPTIONS 10
Master Restructuring Agreement 10
1. Prudence 11
2. Escrow Account 13
3. Steam Host and Power
Producer Dealings 16
4. Third-Party Releases and
Ratemaking Presumptions 17
5. Discussion and Conclusion 18
PowerChoice Settlement Provisions 22
1. The General Public Interest Standard 22
2. The Settlement's Revenue Decreases 26
a. Exceptions 26
b. Replies 27
c. Discussion 29
3. The Settlement's Duration 30
4. Customer Charges 33
5. Stranded Cost Recovery 36
a. Exceptions 36
b. Replies 38
c. Discussion 40
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CASES 94-E-0098 and 94-E-0099
TABLE OF CONTENTS
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6. Enron/Wepco Rate Proposals 42
a. Energy Backout Rate 42
b. Niagara Mohawk Energy Sales to ESCOs 44
c. Alternative Residential Rate Design 45
7. Generation Auction Incentives 46
8. Nuclear Generation Facilities 49
9. Niagara Mohawk's Identity
and Royalty Payments 51
a. Use of the Corporate Name 51
b. Royalty Payments 52
10. Generic and Case-Specific
Determinations 54
11. State Environmental Quality
Review Act Findings 56
12. Other Matters 58
a. Cost Allocation Manual
Review Procedures 58
b. Disclosure of Social Security Numbers 59
c. Future Tax Refunds 60
d. Residential Hydroelectric Allotments 61
e. PULP's Legal Arguments 62
f. Standard Performance Contracts 65
g. Local Taxes and the CTC 66
h. Additional Public Comments 67
i. Recently Settled and Corrected Matters 67
j. Finch's Exceptions 69
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CASES 94-E-0098 and 94-E-0099
TABLE OF CONTENTS
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k. Recovery of Costs Associated With
Termination of Gas Transportation
and Peak Shaving Agreements 73
l. Service Quality Incentive 73
CONCLUSION 74
ORDER 75
APPENDICES
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
COMMISSIONERS:
John F. O'Mara, Chairman
Maureen O. Helmer
Thomas J. Dunleavy
CASE 94-E-0098 - Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of Niagara Mohawk Power
Corporation for Electric Service.
CASE 94-E-0099 - Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of Niagara Mohawk Power
Corporation for Electric Street Lighting Service.
OPINION NO. 98-8
OPINION AND ORDER ADOPTING TERMS
OF SETTLEMENT AGREEMENT SUBJECT
TO MODIFICATIONS AND CONDITIONS
(Issued and Effective March 20, 1998)
BY THE COMMISSION:
INTRODUCTION
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On October 10, 1997, Niagara Mohawk Power Corporation (Niagara Mohawk
or the company) filed a Settlement Agreement (Settlement) addressing electric
rate, corporate structure, and competitive market matters. In addition to the
company, the Settlement was executed by Department of Public Service Staff
(Staff); the Settling Independent Power Producers (SIPPs); the Independent Power
Producers of New York, Inc. (IPPNY); Sithe/Independence Power Partners, L.P.;
Multiple Intervenors (MI); the Steam Host Action Group (SHAG); Pace Energy
Project; Natural Resources Defense Council; Adirondack Council; Association for
Energy Affordability; New York Rivers United; New York State Community Action
Association; Joint Supporters by The E Cubed Company; National Association of
Energy Services Companies; IBEW Local 97; State Department of Economic
Development, Empire State Development Corporation, and the Job
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CASES 94-E-0098 and 94-E-0099
Development Authority (jointly DED); and, the New York Power Authority (NYPA).
The Settlement includes the Master Restructuring Agreement (MRA) that
Niagara Mohawk entered into with 16 independent power producers to ameliorate
the above-market prices the company pays for electricity. Both the Settlement
and the MRA are considered in this opinion and order.
General Background
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In 1990, Niagara Mohawk charged among the lowest electricity prices of
the investor-owned utilities operating in New York, even taking into account its
costs for two nuclear generation plants. However, between 1990 and 1995, the
company's average retail prices rose by 25% and some customers experienced 35%
increases in their total bills. Several factors contributed to this dramatic
change. For one thing, the company's external costs grew rapidly during the
early 1990's. By 1995, they had become nearly half of Niagara Mohawk's total
costs. In addition, gross receipts and real property taxes increased the
company's costs.
By far, the single largest factor contributing to the company's higher
electric prices was increased payments to independent power producers (IPPs)
pursuant to power purchase agreements (PPAs) containing prices exceeding the
market value of electricity. In 1995, for example, Niagara Mohawk's total
payments to IPPs exceeded $1 billion. These payments were expected to increase
over the next 20 years at a rate faster than the forecast rate of inflation.
Niagara Mohawk's financial difficulties have been compounded by
economic recession in its service territory. From 1990 to 1995, electric sales
did not grow appreciably. Even today, growth lags in comparison with the
downstate region. While economic growth, and other factors, have helped to
moderate electricity prices elsewhere, Niagara Mohawk's electric rates remain
relatively high.
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CASES 94-E-0098 and 94-E-0099
In 1993, the company began to reduce its internal costs by implementing
a substantial work force reduction. Over five years, it managed to decrease its
departmental expenses by almost ten percent and capital spending by a third.
With respect to external costs, Niagara Mohawk sought to monitor the IPPs'
qualifying facility status, to curtail purchases from IPPs, and it requested
assurances from the IPPs that ratepayers will ultimately receive the anticipated
benefits of front-loaded contracts that were supported in rates. It also sought
to limit the amount paid for IPP generation in excess of contract quantities and
to eliminate statutory requirements mandating IPP purchases. The company also
challenged various property tax assessments and lobbied for legislative tax
reforms. While some of its efforts were successful, Niagara Mohawk did not
manage to reduce its external costs appreciably.
Finally, during the 1990's, Niagara Mohawk was under constant pressure
to reduce electric prices from customers with access to competitive
alternatives. It was also strongly encouraged to stop increasing electric rates.
Procedural History
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These cases began in February 1994 when Niagara Mohawk filed a proposal
for a traditionally-derived electric rate increase for 1995 and proposed
electric price caps for the succeeding four years. The company's 1995 rate
proposal was fully litigated; Staff and other parties responded to the
company's multi-year rate proposal with alternatives of their own. Following the
first round of hearings, new rates were set for 1995 and these proceedings were
bifurcated.1 We directed Niagara Mohawk to continue to devise an acceptable
multi-year plan addressing its rate levels, the company's financial
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1 Cases 94-E-0098 et al., Order Setting Electric, Electric Street Lighting,
and Gas Rates (issued April 21, 1995); Opinion No. 95-21 (issued December
21, 1995).
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CASES 94-E-0098 and 94-E-0099
security, customer service quality, and certain regulatory changes needed to
stimulate competition in the marketplace.
During the summer of 1995, the parties met regularly to address these
matters. Administrative Law Judge Jeffrey E. Stockholm served as a Settlement
Judge and he aided the parties in their efforts to achieve a negotiated
resolution of the issues.1 Initially, the company provided the parties pertinent
information about its financial condition and stated its position on electric
restructuring issues.
In October 1995, Niagara Mohawk submitted, only for settlement
discussion purposes, a comprehensive, multi-year rate and restructuring proposal
commonly referred to as "PowerChoice".2 For the next nine months, the parties
continued negotiations and we developed our approach to restructuring New York's
electric utilities. In May 1996, the electric service competitive opportunities
decision was issued.3 Niagara Mohawk was explicitly excepted from the filing
requirements of that decision as it had already submitted its PowerChoice
proposal.4
In June 1996, progress in the PowerChoice settlement discussions
stalled while Niagara Mohawk focused its efforts on separate negotiations with
the IPPs. Completion of these efforts was necessary for Niagara Mohawk to be
able to draft a revised PowerChoice proposal for the parties to consider. On
July 9, 1997, the company executed the MRA with 16 SIPPs whose 29 PPAs represent
more than 80% of Niagara Mohawk's above-market costs.
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1 Later on, Administrative Law Judges Jaclyn A. Brilling and Judith A. Lee
also provided the parties assistance in their settlement efforts.
2 Niagara Mohawk decided to make the PowerChoice proposal public to promote a
better understanding of the changes under consideration.
3 Cases 94-E-0952 et al., Competitive Opportunities Proceeding, Opinion No.
96-12 (issued May 20, 1996).
4 Ibid., pp. 74-75.
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CASES 94-E-0098 and 94-E-0099
Thereafter, on July 23, 1997, the PowerChoice settlement discussions
resumed and the company presented a new settlement offer taking into account the
MRA. Negotiations facilitated by the Settlement Judge culminated on October 10,
1997 when the Settlement was filed.
In accordance with the October 17, 1997 ruling that set the schedule
for these proceedings, the parties prefiled testimony supporting and opposing
the Settlement.1 Evidentiary hearings began on November 18, 1997 and ran for
three days. Between November 25 and December 4, 1997 public statement hearings
were held at ten locations throughout the company's service territory. Oral
statements and written comments were received from residential, commercial, and
industrial customers and their representatives. Statements and comments were
also received from local government officials and participants in the emerging
competitive electric market.
On December 29, 1997, Administrative Law Judge William Bouteiller's
recommended decision was issued. The Judge recommended that the MRA be accepted
and the financing needed to implement it be approved. He also recommended that
the Settlement be adopted subject to three modifications that would shorten it
from five to three years, eliminate those customer charge increases that would
increase customers' bills, and permit some customers to use on-site generation
and to form municipal systems without having to pay some or all of their share
of the company's stranded costs.2
Briefs on exceptions to the recommended decision were filed on January
9, 1998 by Niagara Mohawk; Staff; the State Consumer Protection Board (CPB); the
State Department of Law (DOL); the SIPPs; the National Power Lenders Forum
(NPLF); MI; SHAG; Norcen Energy Resources Limited (Norcen); DED; IPPNY; the
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1 Cases 94-E-0098 and 94-E-0099, Ruling Setting Case Schedule, (issued October
17, 1997).
2 The Judge presented various other recommendations that are discussed below
in the context of the parties' exceptions.
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CASES 94-E-0098 and 94-E-0099
Federal Executive Agencies and the Department of Defense (USEA);1 Retail
Council of New York and the Buffalo Commercial Building Association (Retail
Council); the City of Oswego;2 Public Utility Law Project of New York, Inc.
(PULP); Enron Capital & Trade Resources Corp. and Wheeled Electric Power Company
(Enron/Wepco); Finch, Pruyn & Company, Inc. (Finch); New York State Electric Gas
Corporation (NYSEG); Novus Engineering, P.C.; The Wing Group for the Retail
Service Communities; and, the City of Buffalo.3
Briefs opposing exceptions were filed on January 16, 1997 by all but
nine of the parties filing exceptions4 and by Central Hudson Gas & Electric
Corporation, Long Island Lighting Company, and Rochester Gas and Electric
Corporation (jointly Central Hudson/LILCO/RG&E); New York Coalition for On-Site
Power Generation (Coalition); ENtrust, LLC; and, ANR Pipeline and Empire State
Pipeline.5
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1 USEA generally supports the recommended decision and takes no specific
exceptions to it.
2 The Cities of Fulton and Cohoes, the New York State Conference of Mayors,
and the New York State Assessors' Association join in the brief filed by the
City of Oswego.
3 The City of Buffalo's brief was filed by Council Member Alfred T. Coppola.
4 DOL, NPLF, IPPNY, USEA, Retail Council, NYSEG, PULP, The Wing Group, and the
City of Buffalo did not file briefs opposing exceptions.
5 Written comments continued to be submitted after the recommended decision
was issued, including those from the Niagara Chapter of the Sierra Club,
State Senator James W. Wright, the New York State Wide Senior Action
Council, Inc., and the Genesee Memorial Hospital.
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CASES 94-E-0098 and 94-E-0099
SUMMARY OF THE MRA AND THE SETTLEMENT1
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The MRA will terminate, restate, or amend 29 PPAs and provide the SIPPs
about $3.6 billion in cash,2 46 million shares of Niagara Mohawk common stock,
and a portfolio of financial and physical delivery contracts. Currently, the 29
PPAs affect 1800 MW of capacity and, on average, 11,500 gWh of energy per year
for the next five years. They require Niagara Mohawk to pay substantially more
than it would cost the company either to generate the same amount of electricity
or to purchase it from others.
Initially, the MRA reduces by about 5,000 gWh Niagara Mohawk's annual
purchases from the SIPPs and makes this electricity available for purchase in
the competitive energy market. Most of the electricity remaining under contract
to Niagara Mohawk will be subject to financial instruments that allow generators
to participate fully in the competitive market. New contracts for 5,000-8,000
gWh annually will be executed and indexed to the cost of competitive natural gas
supplies.
Various conditions and requirements must be satisfied before Niagara
Mohawk and the SIPPs will close the MRA, including the negotiation of restated
and amended contracts and their obtaining third-party consents to terminate the
existing PPAs and other agreements. The SIPPs expect to enter into new
arrangements to restructure their projects economically. Niagara Mohawk must
complete its financing arrangements. Both sides must obtain approvals from their
boards of directors, shareholders, and partners. While one or more of the SIPPs
may, under certain circumstances, drop out of the MRA, Niagara Mohawk remains
obliged to close it as long as the company's benefits are not adversely affected
by the loss of a particular SIPP.
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1 This section summarizing the MRA and the Settlement is provided for the
convenience of the reader. It does not take precedence over the MRA's or the
Settlement's terms.
2 $50 million of this amount may either be paid in short-term notes or cash at
the company's option.
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CASES 94-E-0098 and 94-E-0099
The Settlement itself runs for five years. It would reduce average
residential and commercial prices by 3.2% during its first three years relative
to 1995 levels, including anticipated reductions in the New York State gross
receipts tax. Tariff rates for the industrial class would be reduced to below
6(cent)/kWh which is a reduction of 25% by 2000. Because some industrial
customers are already receiving discounts, not all customers will experience the
25% reduction.
During the settlement term, Niagara Mohawk could defer certain
unanticipated costs (above the forecasted amounts) for environmental
remediation, nuclear decommissioning, and changes in governmental requirements.
But it would eliminate the existing fuel adjustment clause (FAC) and various
other bill surcharge mechanisms.
In the fourth and fifth years of the settlement period, Niagara Mohawk
could file for rate increases, but they would be capped at one percent annually
for increases in transmission, distribution, nuclear, customer service costs,
and changes in the competitive transition charge (CTC). Beyond this amount, the
company's recovery of deferred costs, certain surcharges, and any auction
incentive it earns is limited by the rate of inflation.
The Settlement allows Niagara Mohawk to recover its MRA-related costs.
A MRA-related regulatory asset would be established and this liability would be
paid off over the next ten years, if not sooner. The Settlement also provides
the company a reasonable opportunity to recover its strandable costs; however,
Niagara Mohawk has agreed to forgo most of the earnings it would otherwise
receive, and the proposed rate plan is premised on the limited recovery of the
company's carrying charges for the MRA-related regulatory asset. Thus, the
company would absorb over the next five years approximately $2 billion of its
stranded costs due to electric industry restructuring by accepting a very low
equity return during the Settlement's term. Otherwise, stranded costs are
recoverable from all customers through the CTC, other fees, and access charges.
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CASES 94-E-0098 and 94-E-0099
The Settlement provides for the divestiture of Niagara Mohawk's fossil
and hydro generation assets either at auction or by being spun off to a separate
entity. If the auction produces viable results, winning bids would be selected
within eleven months of Commission approval of an auction plan. The Settlement
allows the company to retain for shareholders a percentage of the auction sale
proceeds as an incentive to obtain the maximum amount. Niagara Mohawk may keep
its generation assets that receive no positive bids at auction.
The Settlement allows Niagara Mohawk's nuclear facilities to remain
with the regulated business while the Commission and the company explore
statewide resolutions to nuclear power issues. If this matter is not resolved
this way, the company would have to file, no later than 24 months, a plan that
analyzes all available solutions for the nuclear facilities, including the
feasibility of an auction, transfer, or divestiture. Niagara Mohawk would be
allowed to pass through to customers its replacement power costs if a nuclear
plant is prudently retired.
This year, large industrial and commercial customers would have full
retail access and, by the end of 1999, all customers would be able to choose
their own electricity suppliers. Niagara Mohawk would continue to deliver
electricity over its transmission and distribution facilities, and it would
continue to be the provider of last resort for customers who do not choose
another supplier.
The Settlement proposes to decrease electric energy charges and to
increase the customer charges that residential and small commercial customers
pay. While the classes would, on the whole, experience an overall 3.2% revenue
decrease, about 44% of residential and 55% of small commercial customers' bills
would increase slightly if this Settlement provision were approved.
Under the Settlement, electric rates would be unbundled into separate
charges for transmission, distribution, customer service, electric commodities,
and the CTC. Customers will have bundled and unbundled service options, and the
ability to choose
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a fixed or floating CTC. Niagara Mohawk would charge its customers the actual
market price for the electricity it provides. Customers who purchase electricity
from a competing supplier would see Niagara Mohawk's energy charge "backed out"
of their utility bills. Certain customer service costs would also be backed out
of customers' bills.
To ensure that customers obtain quality service from Niagara Mohawk,
the Settlement includes an incentive mechanism that exposes the company to up to
a $6.6 million loss annually if its performance does not measure up to specified
standards. To assist low-income customers, the Settlement requires Niagara
Mohawk to expand its Low Income Customer Assistance Program (LICAP) and make it
available to all qualified customers.
The Settlement provides for a third-party administrator for the system
benefits charge and $15 million during each of its first three years for
demand-side management, research and development, and low-income energy
efficiency programs. The Settlement also contains a number of other
environmental and public policy provisions, including those concerning the
development of an environmental disclosure mechanism, wind and photovoltaic
generation, the donation and sale of land holdings of significance to the
environment, and the retirement of sulfur dioxide allowances. It also allows the
company to operate as a holding company and contains rules for affiliate
transactions and standards for competitive conduct. No additional royalty
payments for affiliated companies would be required other than those subsumed by
the proposed rate plan. The Settlement also addresses tax refunds Niagara Mohawk
may receive, and the disposal of certain real estate interests the company no
longer needs pursuant to an Occupancy Cost Reduction Initiative.
EXCEPTIONS
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Master Restructuring Agreement
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Two parties, PULP and the City of Oswego, except to the Judge's
recommendation to accept the MRA and approve the financing needed to execute it.
Five other parties--the SIPPs,
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CASES 94-E-0098 and 94-E-0099
NPLF, Niagara Mohawk, SHAG, and DED--except to the recommendations about the
need for an escrow account to control the payment of the MRA proceeds, and
whether we should oversee negotiations between the steam hosts and power
producers. Finally, Norcen seeks certain ratemaking presumptions for any costs
Niagara Mohawk incurs to obtain third-party releases from the existing PPAS. The
parties' arguments are summarized first, followed by a discussion and our
conclusions on these matters.
1. Prudence
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PULP claims the Settlement's proponents did not demonstrate that the
MRA is prudent and that ratepayers should bear its costs. PULP says they failed
to meet their burden of proof and that the Judge skirted the issue by limiting
his finding. It insists that the MRA's prudence must be addressed directly but,
it says, the record is deficient and precludes an affirmative finding.
PULP believes the proponents should have compared the MRA to other
alternatives, including a continuation of the status quo. Because Niagara Mohawk
did not provide a quantitative, present value analysis of competing
alternatives, PULP claims there is no way of knowing whether it is prudent for
the company to incur debt to finance the MRA.
PULP also objects to the SIPPs acquiring almost 25% of Niagara Mohawk's
common stock. It claims such an ownership interest guarantees the SIPPs two
seats on the company's board of directors that they could use to influence
company decisions.1 Rather than support corporate policies that benefit
ratepayers, shareholders, and competition, PULP says these directors would favor
the SIPPs' interests.
Instead of obtaining cash and common stock, PULP considers it
preferable that the SIPPs receive utility debt, such
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1 The SIPPs deny that the MRA provides them any seats on the board of
directors. They say it only requires Niagara Mohawk to select two directors
from a list of ten candidates who are not affiliated with the SIPPs but who
are acceptable to them.
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as notes and bonds. Alternatively, it contends Niagara Mohawk should have
followed through with its plan to acquire the SIPPs' facilities through
eminent domain proceedings. PULP fears that the SIPPs will use their MRA
proceeds to purchase Niagara Mohawk generating plants at auction and thereby
control the price of electricity in the upstate region. If this were to occur,
PULP says, it would defeat our efforts to establish a competitive electricity
market.
Finally, PULP challenges any suggestion that Niagara Mohawk must take
steps to avoid bankruptcy now. It insists that the company has cash resources to
sustain it to the year 2000 and there is ample time for Niagara Mohawk to strike
a better deal than the one presented here. If need be, PULP says, the company
could obtain temporary rate relief were a true emergency to arise. Thus, PULP
urges that other alternatives be explored, including a merger and consolidation
of Niagara Mohawk with another electric distribution company, before the MRA is
accepted.
The City of Oswego also criticizes the MRA, saying it is neither the
only alternative nor the best one available. Rather than worry about bankruptcy,
the City says an approach should be established to provide sufficient rate
reductions for residential customers, to avoid adverse consequences for local
municipalities, and to better serve the public interest.
In response to PULP and Oswego, Niagara Mohawk insists the MRA is
prudent, that bankruptcy is the likely alternative, and that corporate
insolvency would not serve the public interest.1 As to PULP's call for a net
present value analysis, the company says the MRA payments are less than those
required by the existing contracts and it denies that the MRA's benefits can be
determined by this measure alone. In addition to providing
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1 As to when the company would become bankrupt, Niagara Mohawk concedes that
its insolvency is not imminent; however, it says, steps must be taken to
arrest its financial demise. Since it sees no better approach emerging in
the future, the company urges that the MRA be approved.
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CASES 94-E-0098 and 94-E-0099
financial savings, Niagara Mohawk points out that the MRA permits it to
restructure long-term IPP payments and its debt obligations. It also notes that
the MRA provides a basis for rate reductions and a quick transition to
competition in the generation market. Also, by forgoing a return on the
MRA-related regulatory asset, the company says, it will bear a large portion of
the costs of the financing without obtaining recovery from ratepayers.
Niagara Mohawk urges us to reject PULP's alternatives, noting that the
MRA was produced through years of litigation and arms length bargaining. The
company denies that the SIPPs could gain corporate control with their equity
interest since they cannot act in concert in a competitive market, and because
any SIPP with more than a two percent equity interest must execute a written
agreement to remain independent of the other power producers.
The SIPPs add that they have neither the intent nor the ability to
control Niagara Mohawk's transmission and distribution system, nor can they
influence unduly its board of directors. They point to the large number of
producers, their diverse ownership and geographical locations, and to the
competition among them. Rather than keep their Niagara Mohawk common stock, the
SIPPs say it is more likely they will use it to settle creditors' claims.
2. Escrow Account
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The SIPPs, NPLF, and PULP except to the Judge's recommendation that the
SIPPs provide steam hosts, and others, reasonable assurances of their ability to
pay claims and judgments with the MRA-related proceeds and other assets. Absent
such assurances, the Judge recommended that we carefully consider the need for
an escrow account to serve this purpose.
The SIPPs agree with the Judge's recommendations concerning other SHAG
proposals; however, with respect to the need for any "reasonable assurances,"
they insist that nothing in
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CASES 94-E-0098 and 94-E-0099
the record suggests that they would breach contracts, deplete assets, or attempt
to avoid their responsibilities.
The SIPPs note that detailed contracts control their relationships with
the steam hosts and that the contracts were executed by knowledgeable
executives. The SIPPs also claim there are ample assets available to meet their
obligations,1 and that they are required by state and federal law to deal fairly
with suppliers, contractors, and creditors.2 Given the prevailing contracts and
applicable law, the SIPPs insist that no further assurances are needed. They
urge us not to provide the steam hosts any new or better rights than those
bargained for in the respective contracts.
NPLF also considers it unwise to require the SIPPs to provide any
assurances to steam hosts beyond those in their contracts. It objects to the use
of regulatory authority either to obtain additional assurances or to review the
adequacy of any assurances due the steam hosts. NPLF says it is better to
refrain from overseeing power producer/steam host transactions. According to
NPLF, an escrow mechanism, or any similar process, could adversely affect the
SIPPs' secured creditors and prevent the MRA's consummation.3
As to any potential Niagara Mohawk liability to the SIPPs' contractors
and suppliers related to the PPAS, the SIPPs say that the MRA provides the
company adequate protection because
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1 In addition to MRA-related proceeds, the SIPPs claim they have physical
assets and contractual rights with substantial value.
2 The SIPPs observe that the New York Debtor and Creditor Law and the Federal
Bankruptcy Code protect creditors against fraudulent conveyances and the
improper depletion of assets. They also note that the Delaware, New York,
and Illinois Revised Uniform Limited Partnership Acts protect creditors by
prohibiting limited partnerships from making distributions that result in
liabilities exceeding assets.
3 PULP and the Retail Council are also opposed to the establishment of an
escrow account to benefit the steam hosts. They believe the steam hosts'
contracts should determine their rights.
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CASES 94-E-0098 and 94-E-0099
it can insist on adequate releases (or indemnification) or Niagara Mohawk can
refuse to close the deal. Niagara Mohawk insists that it is not a party to the
SIPPs' dealings with the steam hosts and it has no liability to them. It prefers
to remain out of these matters.
In response to the parties who oppose an escrow account, SHAG insists
one is needed to address concerns about the power producers' contract
performances, and to protect thousands of jobs in the upstate region it asserts
are otherwise at risk. SHAG fears the power producers will pursue a strategy of
protracted litigation and force them to incur significant costs that they may
not be able to recover without an escrow account. In SHAG's opinion, the
assurances the SIPPs have provided to date are inadequate.
SHAG adds that the applicable state and federal statutes do not
preclude limited partnerships from making wrongful distributions--they merely
provide an injured party a cause of action against a partner who receives a
fraudulent conveyance. SHAG insists that an escrow account is needed to preserve
the MRA proceeds before they can be conveyed to others.
As to the possibility of protracted litigation between IPPs and steam
hosts, SHAG says its members cannot afford to incur the operational problems and
service interruptions that lawsuits may engender. It also suggests Niagara
Mohawk may have to be involved if the disputes go to court. If litigation
ensues, SHAG also says there could be job losses and damage to the upstate
economy.
Given that the MRA is, in part, attributable to governmental urgings
that the SIPPs modify the existing PPAS, SHAG considers it proper for us to
require an escrow account for the benefit of contractors, suppliers, and
creditors which would serve the public interest by forestalling economic harm to
them. SHAG also doubts that the MRA would unravel if an escrow account were
established. It insists that the steam hosts are not seeking to improve their
positions or take unfair advantage of the power producers. SHAG concludes,
saying the steam hosts have
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CASES 94-E-0098 and 94-E-0099
provided reasonable estimates of their costs and damages if the SIPPs cease to
perform their contractual duties.
3. Steam Host and Power Producer Dealings
--------------------------------------
Contrary to the Judge's recommendation, SHAG urges us to oversee the
negotiations between SIPPs and steam hosts. It claims only we are in a position
to assist the parties and address their concerns. According to SHAG, performance
delays, interruptions, and uncertain thermal supplies would adversely affect the
steam hosts' competitive positions and their capital investments. It asks us to
promote good faith negotiations and determine when SIPPs may terminate service
to steam hosts. It also proposes that we address regulatory issues that may
arise between the parties and ameliorate the steam hosts' economic losses by
exempting them from the CTC, other fees, and access charges, when necessary.
DED agrees with SHAG that steam hosts should be relieved of the CTC and
other charges and fees. It urges that such relief not be limited to SHAG members
but also be made available to other similarly situated firms. DED believes
Niagara Mohawk should be kept whole by ratepayers for any revenues it loses. DED
also argues that steam host relief is important to the State's economy.
The SIPPs respond that there is little need for us to oversee
negotiations with steam hosts. They say there is no strategy to protract
negotiations or to assume a litigation stance. The SIPPs point to instances
where steam hosts and power producers have reached agreements, and cases where
power producers have offered to continue to provide thermal energy under
existing contracts. Thus, the SIPPs surmise that only a few steam hosts are
threatening the MRA by seeking our involvement in their negotiations.
In its reply, Niagara Mohawk opposes SHAG's and DED's request that
steam hosts be relieved of the CTC and other transition charges. The company
highlights its poor financial
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CASES 94-E-0098 and 94-E-0099
condition, emphasizes its substantial contribution to the Settlement, and
complains that relieving steam hosts of the CTC would unfairly burden the
company further. In response to DED's proposal that lost revenues be collected
from other customers, Niagara Mohawk points out that residential, commercial,
and other industrial customers' rates are already too high and should not be
increased further to pick up stranded costs that should properly be allocated to
the steam hosts.
4. Third-Party Releases and Ratemaking Presumptions
------------------------------------------------
Norcen, a natural gas supplier to three SIPPs which has "backstop
agreements" with Niagara Mohawk,1 considers the MRA imprudent to the extent it
does not avoid potential negative effects on third parties such as it. To
mitigate the MRA's adverse consequences, Norcen proposed that any costs Niagara
Mohawk incurs to obtain third-party consents and releases be presumed to be
recoverable in rates. It also proposed that any costs the company incurs to
unsuccessfully block third-party rights be presumed to be unrecoverable. The
Judge recommended against these presumptions, and Norcen excepts.
Norcen says its approach does not require any final determinations now
and it only provides the company the benefit of rebuttable presumptions. It
claims such presumptions are the regulatory norm for circumstances like these
and they should be made explicit.
Next, Norcen says Niagara Mohawk can afford to make payments to third
parties even taking its MRA financing costs into account. It suggests that any
additional costs be recovered from ratepayers through the CTC.
Finally, Norcen criticizes the Judge for observing that third parties
should look primarily to the SIPPs, and not Niagara Mohawk, for their
compensation. In response, it points to the
- --------
1 According to Norcen, these agreements are separate contracts in which
Niagara Mohawk has undertaken independent obligations otherwise undertaken
by the IPPs.
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CASES 94-E-0098 and 94-E-0099
backstop agreements Niagara Mohawk executed and says the company has a direct
contractual relationship with Norcen for which it is responsible. If the SIPPs
do not cover the full enterprise value created by the PPAs, then Norcen believes
Niagara Mohawk should remain liable to third parties that have valid claims
against it.1
In response, Niagara Mohawk urges us not to establish any ratemaking
presumptions at this time. The company says they are unnecessary and premature
until a court determines that Niagara Mohawk is liable to Norcen. The SIPPs also
ask us not to prejudge Norcen's claims against the company. They say the way the
MRA works, ratepayers do not have any financial risks or liabilities running to
Norcen. Finally, ANR Pipeline and Empire State Pipeline urge that no third-party
entities affected by the MRA or the Settlement be given preferential treatment.
It says none of the third-party interests should receive any precedence over the
others.
5. Discussion and Conclusion
-------------------------
Several parties correctly suggest that the MRA's prudence is the first
matter that must be decided in these proceedings because much depends upon this
determination. To the MRA's credit, few parties have challenged it even though
all recognize this issue as one of the most important in these cases. Only PULP
and Oswego present alternatives to the MRA and urge us either to postpone a
decision or to explore a different avenue. The other parties who raise issues
about the MRA do not challenge it; rather, they either assume it will be
implemented and seek to assure that their own interests are protected, or they
simply seek our assistance to avoid commercial disputes.
Beginning with the procedural issues, we find that the record in these
cases is sufficiently developed to evaluate the
- --------
1 In its reply brief, Norcen addresses the reasonable assurances the SIPPs
provided in response to the Judge's request and says they are inadequate.
Like the steam hosts, Norcen urges that an escrow account be established to
protect its interests.
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CASES 94-E-0098 and 94-E-0099
MRA's prudence. The Settlement's proponents executed their responsibilities and
fulfilled their burden of going forward by providing direct testimony supporting
the reasonableness of the MRA and the Settlement. Such testimony was provided by
the Settlement's primary sponsors, including the company, the SIPPs, Staff, and
DED.1 We also find that the Settlement's opponents were afforded ample
opportunity to challenge the MRA's merits and to provide us all the information
they consider relevant to the MRA's prudence, including alternatives.
Turning to the substantive issues, we find that the MRA is a reasonable
method to restructure the company's finances and provide Niagara Mohawk the
means to provide safe and adequate service, at just and reasonable rates, in New
York's emerging competitive electric market. Among other things, the MRA is
projected to result in new contracts with IPPs that will afford Niagara Mohawk
greater operating flexibility, allowing it to make fewer purchases on a "must
take" basis. The new contracts will also give Niagara Mohawk greater flexibility
to make purchases from IPPs when needed, at lower per kWh rates. The anticipated
cumulative effect of these changes is that Niagara Mohawk, and ultimately
ratepayers, will avoid future rate increases previously forecast to total 20% or
more over the next few years.2 Indeed, our analysis suggests these new
arrangements will yield ratepayer benefits on a net present value basis of
approximately $0.5 billion if the future payment streams are discounted at 10%,
and more if a lower discount rate were assumed.3 Additionally, the MRA
permanently resolves many of the
- --------
1 See, for example, Tr. 12,565-12,568; 12,779-12,795; 13,039-13,042;
13,066-13,073; 13,288-13,292.
2 See Tr. 13,040.
3 The analysis values the transfer of Niagara Mohawk's stock to the SIPPs
based on the company's valuation of the regulatory asset as presented in
Appendix C to the Settlement. Our prudence determination is premised on that
value.
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CASES 94-E-0098 and 94-E-0099
most difficult issues recently faced by Niagara Mohawk, short of a utility
bankruptcy, which no party advocates.
Nor are we troubled by Niagara Mohawk using a portion of its common
stock to pay the SIPPs. The proponents have convincingly demonstrated that the
SIPPs cannot use their combined interests in the company to improperly influence
its operations. Were they to attempt to do so, we would investigate any such
circumstances and take proper steps to preclude improper manipulations of the
competitive market.
The opponents of the MRA have also failed to establish that there is
any serious alternative that would produce the same or greater benefits than the
MRA. PULP, for example, suggests a continuation of the status quo, including the
prospects for rate increases, is preferable to the MRA because the company might
be able to avoid making payments to the SIPPs by moving closer towards
bankruptcy. However, we consider PULP's proposal inferior because of its greater
risk of rate increases and for courting the uncertain and adverse effects of a
Niagara Mohawk bankruptcy on the rates and service of this and other New York
utilities. If efforts were made to put off the restructuring of the company's
finances, such action would create pressure for higher rates as more uneconomic
purchase power obligations came due. It would also leave the steam hosts and
other third parties far more vulnerable than they are under the MRA. In any
event, we would continue to face the same issues that are before us now as they
would not disappear. We could not put off these matters for long and there is no
reason to believe any better solution than the MRA would be presented.
PULP suggests that the SIPPs would accept lower payments if the company
were closer to insolvency. However, there is no evidence that the proximity of
bankruptcy proceedings would lead to the results PULP envisions. The
reorganization of the company in a bankruptcy proceeding would entail great
uncertainty, and we are not convinced that the public interest is best served by
pursuing any such course.
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CASES 94-E-0098 and 94-E-0099
However, we are concerned about the effect of the MRA on steam hosts.
We agree that it is an important public interest consideration bearing on
whether we should approve and find prudent the MRA, because the potential
effects on steam hosts could have a substantial impact on the economy in Niagara
Mohawk's service territory. If satisfactory arrangements between the SIPPs and
steam hosts had not been reached, the public interest would not have been
served. Consequently, to the extent such arrangements had not been reached we
would not have approved the MRA.
When we first considered these proceedings in early February 1998, we
expressed a strong interest in obtaining prompt resolutions of the issues
remaining between the SIPPs and the SHAG members in order to serve the public
interest, protect the State's economy, and minimize the risk that the MRA might
not close. Such results benefit ratepayers by making clear and certain the
company's obligations during the rate plan. Consequently, our Staff assisted
these parties and they managed to resolve their private disputes in all cases
except one pertaining to Encogen Four Partners, Ltd. (Encogen) and Outokumpu
American Brass, Inc. (American Brass). Thus, we are satisfied that acceptable
steam host/SIPP arrangements have been reached in all cases except one.
We hereby find the MRA to be in the public interest and Niagara
Mohawk's conduct to be prudent to the extent that satisfactory SIPP/steam host
arrangements are reached. Consequently, if the one outstanding dispute cannot be
resolved to the mutual satisfaction of the parties or the Commission, Niagara
Mohawk should not proceed to consummate the MRA as concerns Encogen.1
With respect to the parties' exceptions urging us to place the
MRA-related proceeds in an escrow account to ensure
- --------
1 As Niagara Mohawk has agreed in the Settlement Agreement, this finding of
prudence carries with it no entitlement to recovery by Niagara Mohawk of any
return on the regulatory asset associated with the MRA, either during the
term of the Settlement or thereafter.
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CASES 94-E-0098 and 94-E-0099
their availability for steam hosts, the treatment described above adequately
addresses these interests. And as to third-party claims, we are satisfied that
no liabilities will flow to Niagara Mohawk from the SIPPs' dealings.
Finally, there is no need for us to adopt any of the ratemaking
presumptions that Norcen proposes. We accept Niagara Mohawk's and the SIPP's
representations that their resolution of the matters pertaining to Norcen are
not expected to result in any additional costs for ratepayers.1
PowerChoice Settlement Provisions
- ---------------------------------
1. The General Public Interest Standard
------------------------------------
Our Settlement Guidelines establish the following standards for
assessing a proposed settlement and determining whether it should be approved:
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.
In judging a settlement, the Commission shall give weight to
the fact that a settlement reflects the agreement by normally
adversarial parties.2
The PowerChoice Settlement proponents maintain, and the Judge
generally found, that these criteria are satisfied. However, the opponents,
principally PULP and the City of Oswego,
- --------
1 The parties' exceptions concerning the CTC are discussed elsewhere in this
opinion and order.
2 Cases 90-M-0225 et al., Settlement Procedures, Opinion No. 92-2 (issued
March 24, 1992) Appendix B, p.8.
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<PAGE>
CASES 94-E-0098 and 94-E-0099
claim that the Settlement is generally not in the public interest.
PULP argues that the changes to the rate plan recommended by the Judge
demonstrate that the Settlement is not in the public interest. Moreover, PULP
contends the Settlement is contrary to law and inconsistent with desirable
public policy objectives even if all of the Judge's recommended changes were
adopted. Only to the extent PULP's position is accepted in its entirety would
this party conclude that the Settlement is in the public interest.
In general, PULP prefers that restructuring of the electric industry
proceed pursuant to legislation. Also, rather than rely on the company's
historical operating data and information provided in other proceedings, PULP
would prefer that Niagara Mohawk provide more recent financial data and
forecasts to set electric rates for 1998 and subsequent years.
The City of Oswego meanwhile contends a better analysis of the
Settlement's impacts on local municipal units is needed before its
reasonableness can be determined. Until the Settlement's effects on local
business, employment, and municipal revenues are fully known and detailed, the
City maintains, the requirements of the State Environmental Quality Review Act
(SEQRA) cannot be completed and action on the Settlement should wait.
Niagara Mohawk responds to PULP's general arguments.1 Comparing the
Settlement with the vision and goals provided by our Competitive Opportunities
decision,2 the company observes that the Settlement reduces electric prices,
aids the State's economy, creates a competitive market, and provides customers
retail access. It also points out that the Settlement was negotiated in full
compliance with our rules and guidelines and
- --------
1 The company, Staff, and MI also respond to the specific points
supporting PULP's and Oswego's general opposition to the Settlement.
Such points are addressed below.
2 Cases 94-E-0952 et al., supra, Opinion No. 96-12.
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CASES 94-E-0098 and 94-E-0099
describes it as properly balanced, protecting ratepayers and investors and
helping ensure the company's long-term viability. All of this is demonstrated,
according to the company, in the Settlement's specific provisions. And, as a
wide range of interests--20 parties in all--have endorsed the Settlement,
Niagara Mohawk says, this is strong proof that the public interest and the
State's environmental, social, and economic policies are well served by the
Settlement.
Niagara Mohawk also points to the Settlement's specific benefits to
refute PULP. The company points, for example, to the rate reductions for all
customer classes, lower energy charges approaching marginal costs, and
cost-based customer charges. It highlights as well the Settlement's few cost
deferrals and surcharges, and the elimination of the fuel adjustment clause.
Niagara Mohawk also contends the Settlement will achieve electric
generation competition because the divestiture of its non-nuclear facilities
will end its vertical integration and control over the generation market. In the
next two years, the company goes on, energy suppliers will move into the
industrial, commercial, and residential sectors and, by the end of 1999, all
customers will be able to choose their own unbundled energy services.
Niagara Mohawk contends, as well, that the public interest is served by
its corporate and financial structure changes ending the current arrangements
with the SIPPs, allowing competitive markets to form, and segregating monopoly
services from competitive ventures. The company says it expects to halt its
financial deterioration, avoid bankruptcy, and recover uneconomic stranded costs
without disturbing the operation of the competitive marketplace. And it will
abide by the rules governing affiliate relationships and protecting competitive
conduct.
In sum, according to the company, no other alternative provides as much
benefit and serves the public interest as well as the Settlement. No other
party, it says, has laid out an alternative approach that accomplishes as much
as the Settlement.
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CASES 94-E-0098 and 94-E-0099
Any continuation of the status quo, the company warns, will require rate
increases to cover its rising costs. Finally, Niagara Mohawk points to the low
earnings it will experience for the next three to five years as convincing proof
that it is making every effort to serve the public interest through this
Settlement.
Responding to the City of Oswego, Niagara Mohawk contends its electric
rates in a competitive market should not be made to cover the cost of government
services for localities that may lose tax revenues due to electric industry
restructuring. The company also maintains that, on the whole, the Settlement
will provide substantial economic and social benefits for the entire service
territory by creating new business opportunities, generating jobs, and promoting
economic development. In this context, Niagara Mohawk believes the local impacts
of concern to Oswego do not provide good reason to forgo the sale of the
company's generation facilities, which is essential to electric generation
competition.
Many of PULP's and Oswego's public interest criticisms and concerns are
discussed below in the context of our issue-specific findings and in the overall
discussion and conclusion at the end of this opinion and order. These include,
for example, those about the Settlement's proposed rate design, the adequacy and
fairness of the proposed rate reductions, and compliance with SEQRA. At this
point, however, we observe that legislative action, while possible, is not
necessary for us to evaluate the Settlement's reasonableness or to implement its
terms. Furthermore, legislation proposed to date does not provide the level of
benefits created by the Settlement. Also, it is not necessary for us to have
more recent financial results and forecasts in order to evaluate the
Settlement's reasonableness. Staff conducted an examination of the company's
financial condition over the Settlement term which provides us an ample basis
for evaluating the Settlement's rate plan. In sum, we conclude that the
Settlement, as modified and conditioned by this opinion and order, is in the
public interest.
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CASES 94-E-0098 and 94-E-0099
2. The Settlement's Revenue Decreases
----------------------------------
a. Exceptions
----------
CPB, PULP and Retail Council consider the 3.2% revenue decreases
proposed for the residential and small commercial customer classes to be too
small and urge that the classes receive greater decreases.
CPB excepts to the Judge's recommendation against the ratemaking
adjustments it proposed. At a minimum, CPB believes a 5.2% revenue decrease
should apply to these classes and it can be achieved by reducing the company's
bad debt expense, increasing the forecast of electric sales, and increasing the
amortization period for the MRA-related regulatory asset. Several other parties
also propose changes in the amortization of the MRA-related regulatory asset or
in the term of the MRA debt financing.1
CPB says residential and commercial customers expect to see lower rates
from the changes in the electric industry. CPB notes that these customers
experienced substantial rate increases in recent years and it remains
unpersuaded that a valid cost basis exists to raise customer charges now.2 Lower
prices for residential and small commercial customers, CPB says, would help to
improve the economic condition of the service territory. It also believes that
Niagara Mohawk's long-term financial viability would improve were lower electric
prices implemented for all customers.
Retail Council and PULP complain about the disparity in the revenue
decreases the Settlement would provide to large industrial and commercial
customers, on the one hand, and to small commercial and residential customers,
on the other. PULP believes there are sufficient programs currently available to
- --------
1 CPB specifically proposes that the amortization period for the MRA-related
asset be extended by a year. Enron/Wepco consider a one to three year
extension of the MRA debt financing proper while PULP does not quantify the
extension it recommends.
2 Customer charges are addressed below.
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<PAGE>
CASES 94-E-0098 and 94-E-0099
provide electric rate relief to large industrial customers and the Settlement's
provisions are not needed.
Retail Council argues that the Settlement's industrial rate provisions
are flawed and the record does not support disparate rate reductions for the
various classes. According to it, economic development and business growth are
more apt to come from the commercial and service sectors than from industry.
Assuming there are insufficient funds to provide large decreases for the
commercial and service sectors, Retail Council contends that all classes should
receive comparable revenue reductions.
If any customers are to receive disparate rate reductions, PULP urges
that low-income customers' rates be reduced by 25%. It says these customers are
the neediest and least able to afford even modest bill increases.
b. Replies
-------
In response to CPB's proposal for larger revenue decreases, Staff and
the company say there are no funds available to finance such reductions. They
also say any extension of the payment period for the MRA-related debt or the
amortization period of the regulatory asset is undesirable. According to Staff,
an extension would only shift these costs to future ratepayers and increase the
total amount (and the interest payments) ratepayers would have to pay. Staff
urges that the company's cash flow not be adversely affected, and the company
agrees that its cash flow is needed to sustain its operations.
Niagara Mohawk says an extension of the MRA financing is contrary to
strandable cost minimization and would unnecessarily extend the transition to
competition. The company also contends an extension of the financing period
would be unfair to it to the extent it agreed to give up some earnings for the
next few years on the condition it can repay the MRA-related debt promptly and
thus improve its financial condition. The company concludes by saying an
extension of the MRA financing could endanger its ability to obtain this
financing and thereby upset the Settlement.
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CASES 94-E-0098 and 94-E-0099
Niagara Mohawk and Staff fail to see any merit in CPB's proposed
adjustments to bad debt expense and electric sales. They are unaware of any
support for CPB's position on bad debt, and they are concerned about increasing
the company's financial risk exposure. As to the projected sales, Staff observes
that CPB did not provide its own sales forecast but compared the company's
projections with actual sales.
Niagara Mohawk also challenges CPB's policy arguments for an additional
two percent rate decrease for residential customers. It insists that the
proposed industrial rate reductions are needed to produce competitive, electric
rates, particularly if NYPA sales are ignored. The company also disputes the
extent to which small businesses can reasonably be expected to drive the upstate
economy and provide economic growth. Given that the upstate area remains
vulnerable to loss of load and usage reductions from industrial and large
commercial accounts, the company insists that the Settlement's industrial rate
reductions are of paramount importance.
MI also disputes CPB's claim about the economic advantages of expanding
large industry versus smaller businesses. Like Niagara Mohawk, MI contends that
existing industrial rates remain unattractive, even taking into account low-cost
hydropower that is available in limited quantities to specified customers. MI
insists that small businesses, by themselves, cannot rehabilitate the upstate
region or provide sufficient amounts of sustained economic growth. It says
industrial growth is needed to cure the lag in the State's economy dating back
to 1989.
Staff questions the wisdom of PULP's proposal to use the limited amount
of rate reductions available to reduce only low-income customers' rates. Staff
contends it would be better to use the amount available to improve the local
economy and thereby provide assistance to more customers. Staff also notes that
the Settlement's LICAP program, its provider of last resort provisions, the
service quality standards, and the revenue reduction for the residential class,
all enure to the benefit of low-income customers.
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CASES 94-E-0098 and 94-E-0099
c. Discussion
----------
We agree that the largest possible rate decrease overall, and the
decreases for the residential and commercial classes, are important objectives.
In recent cases involving other electric companies, we did not approve the
parties' proposed settlements until we were satisfied that all reasonable means
for obtaining the greatest amount of rate decreases were exhausted. In this
case, we are satisfied that a full examination of the company's ability to
provide rate decreases was made and it suggests decreases larger than
anticipated in the Settlement cannot reasonably be granted at this time.
However, to implement the Settlement in a manner that ensures that S.C. 1
(residential) and S.C. 2 (commercial) customers experience the tariff rate
reductions projected from the Settlement relative to current rate levels, we
shall require the company to reduce its energy charges using as the base year
the most current twelve-month period or the 1995 base year levels as set forth
in the agreement, whichever base year results in the lowest first year rate
level.
With respect to CPB's proposals to further reduce the company's total
revenue requirements based on a forecast of the company's bad debt expense and
an increase in the company's projection of future electric sales, we find these
projections are too speculative to support any further rate decreases at this
time.
As to various parties' proposals to adjust the term of the MRA
financing or extend the amortization of the MRA-related asset on the company's
books, we find the Settlement reasonable and adopt it without any change. In
reaching this decision, we have balanced the need for reductions in Niagara
Mohawk's bundled electric rates with the company's need to be able to finance
the MRA and we conclude that the Settlement, as proposed, is fairly balanced.
Concerning various parties' suggestions that more economic development
can be obtained by shifting more of the overall revenue reduction from the
industrial customers to the
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CASES 94-E-0098 and 94-E-0099
commercial and residential customer classes, we are not persuaded that any such
substantial changes should be made. To begin, industrial load is more
contestable to the extent industrial customers have a greater ability to shift
production. Lower industrial rates help maintain total load and ensure
contribution to total costs, benefiting all ratepayers. While it may be true
that some economic growth could be stimulated by reducing electric rates for
commercial and retail customers more than the amount the Settlement provides,
and by reducing the cost of electricity for residential customers, we are not
willing to sacrifice the improvements that the Settlement provides in the
electric rates for large industrial customers, which provide substantial net
employment opportunities in the upstate region. Moreover, if the amount
available to reduce rates were used to provide all classes of customers the same
percentage reductions, residential and small commercial customers would only see
slightly greater reductions--4.3% instead of the Settlement's 3.2% reductions.1
In sum, the larger reductions for the industrial class provide a significant
opportunity for economic development as well as a contribution to total fixed
costs to the benefit of all customers.
Finally, as to PULP's proposal for a 25% rate decrease for low-income
customers, the Settlement's LICAP provisions provide substantial benefits
designed to assist needy customers. Before we would entertain a proposal like
PULP's, the expanded LICAP program should be fully implemented and its results
evaluated. Finally, we conclude implementation of PULP's proposal, with the
limited resources available, would provide less benefit to the economy overall
in comparison with the Settlement.
3. The Settlement's Duration
-------------------------
Rather than commit to a five-year settlement term, the Judge
recommended that we adopt the Settlement only for three
- --------
1 Tr. 13,048.
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CASES 94-E-0098 and 94-E-0099
years. He expressed concern about the possibility of electric rate increases in
2001 and 2002, and recommended that the company file in the normal course for
any rate increases in either of these years. Niagara Mohawk, Staff, NPLF, MI,
and DED except.
Niagara Mohawk says the period need not be shortened because the
Settlement does not assure it any rate relief for 2001 and 2002. The company
points out that the Settlement requires it to fully justify any request it makes
for these years and it caps the request at one percent for each year. If this
limit is not adopted, Niagara Mohawk says ratepayers may otherwise be exposed to
greater rate increases.
Niagara Mohawk also says it negotiated for a reasonably assured revenue
stream in the Settlement's fourth and fifth years. Without an assurance of
adequate revenues in these years, the company says it would be exposed to higher
financial risks than it can stand. It also expresses concern that other
important Settlement provisions, including the collection of any generation sale
auction incentive and recovery of certain deferred and nuclear generation costs,
would be undermined if the Settlement's term were shortened.
NPLF is also concerned about Niagara Mohawk's financial risks absent
the five-year Settlement. It says a shorter period would threaten the viability
of the financing needed for the MRA.
Staff explains that the Settlement does not provide the company
automatic rate increases in 2001 or 2002, and it emphasizes the amount Niagara
Mohawk may seek in these years is limited. Staff also contends it is desirable
to preserve advantageous Settlement features that apply in the fourth and fifth
years, including the service quality incentives, the LICAP enrollment targets,
and the affiliate transaction rules and competitive conduct standards.
MI points out that the Settlement places a "hard cap" on the amount by
which rates can increase. While it would have preferred an absolute prohibition
on rate increases, MI considers this aspect of the Settlement to be a reasonable
compromise. MI also sees benefits in various Settlement provisions for 2001 and
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CASES 94-E-0098 and 94-E-0099
2002, including those concerning optional five-year contracts for large
industrial and commercial customers and those allowing certain customers to
extend their current contracts for the full Settlement term.1
DED also supports a five-year Settlement for reasons similar to those
already discussed. The provisions for 2001 and 2002 of primary interest to DED
are those governing S.C. 11 contracts and the transition plan for the Economic
Development Zone Rider.
In response to these exceptions, various parties continue to state
concerns about customers being exposed to higher rates in 2001 and 2002. CPB,
Oswego, and PULP, for example, generally favor a three-year rate plan.
CPB says that even if the rate increases for 2001 and 2002 are not
automatic, they remain a real possibility due to the Settlement's provisions.
Similarly, PULP says electricity prices for residential customers could escalate
significantly under the Settlement due to market changes in energy rates, higher
customer charges, company cost increases, deferrals, and surcharges.
The parties' exceptions are granted and the Settlement will be approved
for five years. As many proponents point out, the Settlement offers substantial
benefits in the fourth and fifth years. While the Judge is properly concerned
about rate stability in the fourth and fifth years, we are satisfied such
stability will be afforded by the Settlement. This is because, as some parties
point out, any rate increase requests in those years is not automatic and they
will be subject to full review. The company's possible rate increases for
non-commodity costs are capped at one percent and those increases, together with
surcharges and deferral recoveries, are subject to an overall
- --------
1 While MI seeks to preserve a five-year rate option for industrial customers
that would lock in their Niagara Mohawk electric commodity and CTC charges,
Enron/Wepco is concerned that the company will use this option to provide
large customers below market rates and preclude marketers from competing for
their business.
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inflation cap. Moreover, our current forecasts suggest the need for increases in
these years will not be great and they can be ameliorated by anticipated savings
related to recent interest rate reductions.1 Finally, we are concerned that
shortening the Settlement's term to three years could adversely affect the terms
and maturity of the MRA-related debt issues, if not their feasibility overall.
In sum, the risks of significant rate increases are sufficiently minimized that
the Settlement should be approved for its full term.
4. Customer Charges
----------------
The Settlement proposes to increase the customer charges for
residential and small commercial customers over the next three years as energy
rates decline. For low-use customers, the higher customer charges would increase
their electric bills by modest dollar amounts.
The Judge recommended against any customers experiencing bill increases
due to the Settlement, seeing such results as contrary to the objective of
decreasing customers' electricity costs. The company and Staff except, while
CPB, DOL, PULP and Oswego oppose the Settlement's proposed customer charge
increases and the exceptions.
- --------
1 The financial forecasts supporting the Settlement (Appendix C to the
agreement) are premised in part on an assumed average interest rate of 8.5%
for the senior subordinated notes needed to finance the MRA. Since the time
those forecasts were made, interest rates have declined. While the actual
interest rates on the senior subordinated notes will not be known until the
company issues the notes in the near future, we are requiring the company to
defer the interest rate savings between the forecasted 8.5% and the actual
rate for each of the five years of the settlement period. To the extent the
Commission reduces rates beyond the levels in PowerChoice or the company
applies for a rate increase in the fourth or fifth year, as allowed by the
Settlement's terms, the deferred interest rate savings may be used to fund
such reductions or offset any such increase that may be authorized. To the
extent a deferred interest rate savings balance remains at the end of the
fifth year, we will decide at that time how best to use the deferred
savings.
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CASES 94-E-0098 and 94-E-0099
The excepting parties insist there are good reasons for the
Settlement's rate design provisions. The company, for example, contends it is
proper to align energy rates with marginal energy costs. Staff agrees, noting
the benefits of economically efficient pricing that customers should see in a
competitive energy market.
The company and Staff point out the customer charge proposal also will
help to eliminate the inherent unfairness of large-use customers paying for
costs that small-use customers should bear. Niagara Mohawk also emphasizes that
it prefers to recover its fixed costs through customer charges so any decline in
sales will not affect the recovery of these costs. Given its generally poor
financial condition, the resulting revenue stability will help minimize the
company's risks.
Anticipating arguments that customer charges should not be increased
for low-income, low-use residential customers who may not be able to afford
modestly higher bills, Niagara Mohawk and Staff say LICAP provides them
sufficient assistance. Staff also notes that many low-income customers who use
large amounts of electricity stand to benefit substantially from the proposed
changes.
Finally, highlighting the Settlement's substantial advantages for
average and high-use residential customers, Staff points out that under the
Settlement energy charges would decrease by about 17%. It notes that small
commercial customers would also see significant energy rate savings. Staff
believes that such reductions would improve economic development in the service
territory, making it more attractive for small businesses to expand their
operations.1
In response, CPB denies that low-use customer rates and costs are out
of line. According to CPB, there is conflicting cost of service evidence on this
point and, in a competitive
- --------
1 Staff observes that the Retail Council Supports the Settlement's rate
design approach for small commercial customers.
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CASES 94-E-0098 and 94-E-0099
environment, a new study may be needed to adequately address its differences
with Staff. On the basis of the cost data CPB would credit, it says that
non-heat (low-use) customers are not being subsidized by high-use, electric
heating customers. CPB also believes that many low-income, low-use residential
customers would experience unacceptable bill increases were the Settlement
approved. And it remains concerned that higher minimum bills will lead to lower
sales, greater uncollectibles, and customer disconnections.
Retail Council characterizes the Judge's rate design recommendations as
regressive and counterproductive. It urges that the electric bill components be
realigned, as the Settlement provides, to more accurately reflect marginal
customer and energy costs. In this regard, it says the Settlement's rate design
provisions are better than the Judge's status quo recommendations.
If we adopt any customer charge increases, PULP says we should also
adopt its low-income rate proposal. DOL urges us not to allow any bill increases
pursuant to the Settlement. Oswego responds to Staff by claiming that many
residential customers may be worse off by the Settlement's effects on local
employment, disposable income, and municipalities with utility generation
facilities.
The Settlement's proponents have offered valid reasons why it would be
beneficial to increase the customer charges applicable to the residential and
small commercial customer classes. In previous rate proceedings, we have
permitted these charges to increase for many of the reasons that the proponents
have advanced here. But this portion of the Settlement has generated substantial
public reaction. At a time when we are fostering a transition to competition and
economic development, the Settlement's proposed customer charges would have the
undesirable effect of increasing the bills for many of the company's residential
and small commercial customers. This holds the potential for customer confusion
and skepticism about the benefits of competition. In these circumstances, we
shall
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CASES 94-E-0098 and 94-E-0099
exercise our discretion on this rate design matter and defer a final
decision on this aspect of the Settlement until unbundled rates are filed for
residential and small commercial customers. No changes from base period levels
will be made in these charges for now.
5. Stranded Cost Recovery
----------------------
a. Exceptions
----------
The Judge generally recommends the use of a competitive transition
charge (CTC) and a system of access charges and other fees to provide Niagara
Mohawk the revenues it needs to pay the stranded costs associated with
restructuring its above-market purchase power agreements and divestiture of its
fossil generation facilities. However, he also recommends that some amount of
stranded cost bypass be allowed for on-site generation and municipalities.
Numerous exceptions to these recommendations have been filed by Niagara Mohawk,
Staff, MI, PULP, CPB, Enron, Novus, and The Wing Group.
Niagara Mohawk contends that stranded cost bypass for self-generators
and municipalities would be unfair to the remaining ratepayers and would
constitute poor public policy. It maintains as well that uneconomic on-site
generation should be discouraged and that all customers should pay stranded
costs, other than the $2 billion the company will absorb during the term of the
Settlement.
The company observes that the debt needed to finance the MRA can only
be obtained if it has sufficient revenues. If any customers are allowed to
bypass the CTC, access charges, and other fees, the company contends, the debt
market may not be sufficiently assured of Niagara Mohawk's ability to repay the
MRA-related debt. This could prevent the financing or result in higher debt
costs. The company also doubts that any amount of stranded cost bypass can
reasonably be controlled and limited.
Staff agrees that stranded cost bypass must be prevented in order to
finance the MRA. Given the company's already poor financial condition, Staff is
concerned about any
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CASES 94-E-0098 and 94-E-0099
loopholes for customers to bypass the CTC. Staff also supports access charges
and other fees to recover embedded investments and discharge commitments before
customers can be allowed to bypass the system. Staff distinguishes between
economic and uneconomic on-site generation and notes that only uneconomic
alternatives to the company's services are discouraged under the Settlement.
While MI supports the Settlement, it also believes that customers who
have determined that on-site generation is a viable alternative should be
allowed to obtain backup service from Niagara Mohawk without paying a CTC,
access charges, or other fees. If the Judge's recommendations on this matter
were to be adopted, it proposes that the parties devise suitable criteria for an
on-site generation program. PULP opposes stranded cost bypass by any customers
other than perhaps large industrial and commercial customers who have
competitive alternatives.1
CPB opposes the CTC mechanism altogether, claiming it is
anti-competitive. According to CPB, Niagara Mohawk should simply reduce its
rates, achieve greater efficiencies, and absorb any stranded costs it cannot
recover within these constraints. It fears the company will use the CTC to
engage in predatory pricing and thereby harm the competitive market. It is also
concerned about the CTC being used to reverse the modest rate decreases that
residential and small commercial customers obtain from the Settlement.
Enron/Wepco oppose the CTC to the extent the level of this charge can
vary over time, or "float" pursuant to the Settlement's terms. Like CPB, they
say the charge is incompatible with the operation of a competitive market. They
contend the floating CTC will be a significant barrier to entry
- --------
1 With respect to these customers, PULP believes we should reconsider whether
they should be able to avoid making CTC payments. In general, PULP considers
it inequitable for stranded cost recovery to shift from some customers to
others. It suggests that the existing exemption for customers with flexible
negotiated rates cease when their contracts end. Only in those cases where
the CTC would force a customer off the system would PULP support a waiver.
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CASES 94-E-0098 and 94-E-0099
by competitors, precluding them from offering consumers a fixed-price product in
competition with Niagara Mohawk's. These parties urge that a fixed CTC be
established from the start. They claim customers can be assured of rate
decreases without Niagara Mohawk's floating CTC and they point to other
settlements that contain fixed CTCs and provide specified rate decreases for
bundled service.
Novus, meanwhile, urges establishment of an on-site generation program
that does not have the Settlement's "suppressing" effects. Specifically, it
proposes that up to 8 MW of load currently served by Niagara Mohawk be allowed
to convert to on-site generation without having to pay access charges. It says
this amount of self-generation would have virtually no impact on the company but
would allow some beneficial self-generation to develop in the service territory.
Finally, The Wing Group, on behalf of various local communities
interested in municipalization, points to substantial amounts of customer
dissatisfaction with the rates Niagara Mohawk charges. It urges that all types
of on-site generation be exempt from stranded cost recovery.
b. Replies
-------
Niagara Mohawk insists that no substantial amount of CTC bypass can be
tolerated. Responding to MI, the company says it is inappropriate for this
party, as a signatory to the agreement, to support any Settlement modifications,
even those proposed by the Judge.
In response to CPB, Niagara Mohawk reiterates that it will absorb $2
billion of stranded costs and that it should not be asked to absorb any more.
Staff says CPB has misconceptions about the proposed CTC and explains that the
CTC is included in the company's bundled rates, which will be unbundled and
reduced during the Settlement term. According to Staff, the overall Settlement
approach enhances competition and does not allow the company to use the CTC to
abuse the marketplace.
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CASES 94-E-0098 and 94-E-0099
The company opposes PULP's proposal for ratepayers and shareholders to
share stranded costs as this too would increase the amount of stranded costs for
it to absorb. Staff responds to PULP's criticism of the rates applicable to
large industrial and commercial customers by stating that the CTC applies to
these customers despite any energy discounts they may receive to remain on the
electric system.
Responding to Enron/Wepco, Niagara Mohawk and Staff say a floating CTC
guarantees that customers experience fixed and stable prices, which are
important to several parties who executed the Settlement and to ratepayers
generally during the transition period. The company also says it cannot afford
to undercollect stranded costs, and a fixed CTC applicable to all customers
would expose it to this risk. Finally, Niagara Mohawk says Enron/Wepco can only
speculate that a floating CTC will hinder competition since no one knows how
retail marketers will offer their services and products. If it interferes with
competition, the company says we can modify the transition process accordingly.
Staff says that Enron/Wepco only present theoretical arguments against
a floating CTC that do not pertain here. Staff insists it is not possible to
implement a fixed CTC for all customers immediately without exposing the company
to an unacceptable amount of financial risk. Further, Staff argues that Enron
ignores the relationship between the wholesale market and retail rates.
According to it, the mixture of fixed and floating CTCs provided in the
Settlement carefully balances the hedged and unhedged power facing Niagara
Mohawk in the wholesale market. Staff concludes that the Settlement's mix of
fixed and floating CTC options represents the best retail package that could be
fashioned given the existing and restructured IPP contracts.
Responding to The Wing Group, Niagara Mohawk says this party cannot
credibly oppose the company's recovery of stranded
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CASES 94-E-0098 and 94-E-0099
costs given that it is affiliated to a firm that wants full recovery of its
strandable costs.1
Various other parties oppose the company's and Staff's positions and
urge that a limited amount of stranded cost bypass be allowed for on-site
generation and municipal interests. These parties include Oswego, ENtrust,
Coalition, Finch, and Novus. They doubt that a limited amount of CTC bypass for
these interests would expose the company to any large risks, and they urge that
competition from on-site generation not be precluded. They note that this
alternative has been historically available to customers and they claim it
should not be forestalled now.
c. Discussion
----------
We previously determined that it is prudent for Niagara Mohawk to
execute the MRA in order to reduce the financial burdens due to its uneconomic
purchase power contracts with the IPPs. This significant transaction benefits
all the company's customers by mitigating a long-standing problem and by making
the transition to a competitive generation market possible. A non-avoidable CTC
is both an important element to Niagara Mohawk's ability to issue over $3
billion of debt to fund the IPP buyout and a reasonable means to recover the
costs of the MRA from all who benefit from it. Were any customers who currently
use the company's generation resources able to bypass the CTC, aside from
grandfathering self-generation investments already made, this would unfairly
require the remaining customers on the system to pay costs which are fairly and
properly attributable to departing or bypassing customers. To ensure that the
CTC remains manageable, and does not become too large a burden for any group of
customers, we will approve the Settlement's terms imposing certain fees in
limited circumstances and structuring backup rates to recover stranded costs
from on-site generators. We note that the Settlement states that the access fees
related to on-
- --------
1 This point refers to The Wing Group's affiliation to Western Resources,
Inc.
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CASES 94-E-0098 and 94-E-0099
site generators taking back-up service are designed to discourage uneconomic
bypass. Consistent with this goal, we will require that the company's
implementing tariff be designed to avoid any harsh results for customers who can
demonstrate that, as of October 10, 1997, they had made a decision to proceed
with and had made a substantial investment in on-site generation, effectively
grandfathering them from the effects of the new rates.1
Any municipality that forms its own electric system will be required to
pay for the generation facility costs that are attributable to the customers who
transfer to municipal service. Consequently, we are granting the Settlement
proponents' exceptions concerning stranded cost recovery.2
With respect to CPB's and Enron/Wepco's concerns about the CTC being
anti-competitive, their arguments are unpersuasive. The application of this
charge to all customers helps to ensure that all generation will compete on an
equal footing, thus furthering development of a competitive market. Through our
continuing oversight of the company, and by enforcing applicable Settlement
provisions, we shall ensure that Niagara Mohawk does not engage in predatory
pricing, or any other anti-competitive behavior during the transition to a
competitive market or after a fully competitive market is established. Also, the
CTC cannot be rigidly fixed for all customers initially without sacrificing the
rate decreases that customers are expecting to see in the company's bundled
rates pursuant to the Settlement.
- --------
1 Such customers shall be considered the same as existing S.C. 7 customers
under Settlement Sec.4.11.4.1. To implement this requirement, we are
directing Niagara Mohawk to file a proposal within two weeks and interested
parties will have ten days to comment on it.
2 MI proposed that the parties meet to consider ways to implement the Judge's
recommendations but no such meetings are necessary.
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CASES 94-E-0098 and 94-E-0099
6. Enron/Wepco Rate Proposals
--------------------------
a. Energy Backout Rate
-------------------
The Judge recommends that we reject Enron/Wepco's proposal to increase
the amount to be backed out of Niagara Mohawk's bundled rates when customers
obtain commodity services from other marketers. He considered the Settlement's
provisions covering this matter adequate for the limited period before the
independent system operator (ISO) begins to operate. He saw no need to expend
any substantial resources to devise a better administrative method for setting
this credit before a fully competitive market emerges. Enron/Wepco except.
These parties say the Settlement's backout rate is too low and
anti-competitive because it does not reflect all the costs that they claim an
equally efficient rival would bear. At a minimum, Enron/Wepco urge that the
backout rate be adjusted for property taxes, and that the New York Power Pool's
(NYPP's) 18% reserve requirement be substituted for the 14% figure the company
estimates assumed. They say there is no reason not to use the NYPP's reserve
requirements for 1998.
With respect to property taxes that were excluded from Niagara Mohawk's
original estimates, Enron/Wepco attempt to demonstrate how this item could
affect the calculation of generation costs. Enron/Wepco say that Niagara Mohawk
forecasted $15/kW for capacity without accounting for property taxes. In 1997,
the average real estate taxes the company paid on its steam stations was
$22.50/kW. Thus, they maintain that an equally efficient competitor should
receive a $37.50/kW capacity credit. In addition to this, Enron/Wepco point to
other costs (administrative and general costs, depreciation, and allowances for
funds used during construction) excluded from the Settlement's backout rate. In
sum, they say the Settlement's backout rate provisions are so low as to preclude
rivals from entering the market.
Enron/Wepco insist that a properly designed backout rate should cover
up to three to five years worth of generation costs. But, they say, the
Settlement's provisions neither cover
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CASES 94-E-0098 and 94-E-0099
the costs for this period nor do they otherwise reflect long-run incremental
costs that are more properly used to set backout rates.
Finally, as a check on Niagara Mohawk's backout rate, Enron/Wepco
compared it to the then available backout rate proposal in the NYSEG case. They
say that the Judge's recommendations here are inconsistent with those made by a
different Judge in the NYSEG case, which they prefer.
In response, Niagara Mohawk insists that the parties negotiated a
proper backout rate, and the forecasts of market prices they relied upon are
reliable. It says the long-run incremental cost (LRIC) method Enron/Wepco favor
should not be used to administratively set the backout rate because past
attempts to do this resulted in much too high prices for independent power
production. According to Niagara Mohawk, competition currently exists in the
generation market and it requires no stimulation before the ISO operates and the
company divests its generation facilities.
Niagara Mohawk admits that the Settlement's backout rate is low but
says it is not because the rate omits costs. It insists that the low backout
rate reflects low market prices and a surplus of electricity that is driving
energy prices down.
Addressing property taxes specifically, Niagara Mohawk says the
Settlement's backout rate need not be adjusted for this cost because an equally
efficient ESCO can purchase electric commodities in the open market and need not
build or operate any generation facilities. Thus, an ESCO may never incur any
property taxes and, the company says, it would be incorrect to adjust the
backout rate for this.
With respect to NYPP reserve requirements, Niagara Mohawk insists a 14%
requirement is reasonable for 1998. It says the current 18% standard is not
pertinent because the New York State Reliability Council is expected to only
require a 14% reserve when the ISO begins to operate later this year. In any
event, Niagara Mohawk says this item has only a small effect on the backout
rate.
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CASES 94-E-0098 and 94-E-0099
Finally, the company says whatever the settlement in the NYSEG case is,
it is not good precedent here and its circumstances are distinguishable in any
event due to different financial circumstances between the two utility
companies.
Staff criticizes Enron/Wepco's backout rate proposal for not reflecting
the current market price of power and as posing a serious risk to the proper
development of a competitive market. Like Niagara Mohawk, it observes that
marketers purchase power in the open market from competing suppliers at market
prices. Because rivals need only incur these market prices, Staff suggests no
specific allowance is needed to cover Niagara Mohawk's property taxes or any of
its other costs. Staff concludes that it is market prices, not Enron/Wepco's
LRIC approach, that provide the proper backout rate.
The company and Staff are correct that the backout rate proposed here
requires no change and this Settlement provision is approved. As the company
notes, competition has begun and market-based transactions are occurring. The
backout rate is properly pegged to a market price and the forecast of such
prices negotiated by the proponents is both reasonable and the only such
forecast presented here. Finally, we concur that the financial risks faced by
Niagara Mohawk and NYSEG are different--among them being Niagara Mohawk's
agreement to accept poor earnings--and, in any event, the NYSEG settlement is
not precedential.
b. Niagara Mohawk Energy Sales to ESCOs
------------------------------------
Enron/Wepco proposed that Niagara Mohawk be required to sell energy to
them and other marketers at the same price backed out of the company's bundled
rates. The company responded, saying it would sell to them but only if it had
hedged power left from meeting its retail customers' needs. The Judge accepted
Niagara Mohawk's response; however, Enron/Wepco continue to urge that the
company be unconditionally required to provide them energy at the Settlement
back-out rate. They point to the Dairylea pilot program and other utility
companies' retail access programs where this approach was used. They say a
similar stop-
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CASES 94-E-0098 and 94-E-0099
gap measure is needed here so competition can begin without ESCOs incurring
losses.
Niagara Mohawk responds that it may not have sufficient amounts of
hedged power to provide electric commodities to ESCOs. And, it says, the company
should not be required to bear the financial risk of providing unhedged
commodities to marketers.
Requiring Niagara Mohawk to sell at its backout rate is reasonable only
to the extent the company has a sufficiently hedged wholesale supply. And the
company is willing to sell to ESCOs up to that point. Beyond it, however, the
effect of any such requirement would be to expose the company to an unknown,
potentially significant risk, at a time when it is already in a weak position.
For this reason, Enron/Wepco's approach is not reasonable here and its exception
on this point is denied.
c. Alternative Residential Rate Design
-----------------------------------
The Judge found that the record did not demonstrate sufficiently the
merits of Enron/Wepco's alternative rate design for the residential class. He
recommended that the proposal be examined further and addressed when the company
presents its unbundled tariffs for this class. This approach is similar to the
one we adopted in the Orange & Rockland rate restructuring case. Enron/Wepco and
Niagara Mohawk except.
Enron/Wepco urge that their alternative rate design be adopted now
since, they believe, they have shown its clear advantages, including additional
revenues for Niagara Mohawk. They also say there would be no adverse customer
impacts under their proposal as residential customers' total bills would remain
the same as those produced by the current rate design. But, they say, customers
would benefit from the new design's lower usage-sensitive energy prices.
On the other hand, Niagara Mohawk excepts to further consideration for
the Enron/Wepco proposal when it files unbundled rates. It says the proposal has
never been tried or fully analyzed. It also contends that the proposal presents
unacceptable financial risks and it fears that no additional
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CASES 94-E-0098 and 94-E-0099
revenues would materialize. According to Niagara Mohawk, Enron/Wepco
overestimate the price elasticity for the proposed price change. And, the
company is not sure that customers would like the alternative design which it
considers to be impractical and too costly to administer.
Enron/Wepco respond by denying their proposal creates any financial
risk for the company and they stand by their price elasticity estimates.
According to them, there is no good reason to delay a move to lower energy
rates, given that customer charges can be adjusted to maintain overall bill
levels. They say that a similar approach has worked well in the
telecommunications industry and suggest this could also work in the electric
industry.
Staff responds to Enron/Wepco, saying the Judge properly put off their
alternative to when the unbundled tariffs are filed. It says this is the best
way to deal with the controversy and uncertainty surrounding the proposal.
We shall adopt the Judge's recommendation to handle this matter just as
we did in the Orange & Rockland case.1 This rate design proposal is basically
the same as the one we previously considered in the Orange and Rockland case,
and it has not been adequately developed for us to consider adopting it. The
proposal may therefore be raised again by Enron/Wepco and be explored further
when unbundled rates for the residential and small commercial customers are
filed.
7. Generation Auction Incentives
-----------------------------
The Judge recommends we adopt CPB's proposal to limit the financial
incentive payments to Niagara Mohawk when it divests its fossil and
hydro-generation facilities to 10% of any gain. However, contrary to the CPB
proposal that the ratepayer share of the sale proceeds be used to fund rate
reductions, the
- --------
1 Case 96-E-0900, Orange and Rockland Utilities, Inc. - Electric
Rates/Restructuring, Opinion No. 97-20 (issued December 31, 1997), mimeo pp.
16-18.
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CASES 94-E-0098 and 94-E-0099
Judge recommends instead that it be used to pay off stranded costs. Niagara
Mohawk, Staff, IPPNY, CPB, PULP, and Oswego except.
The company and Staff support the Settlement's auction incentive
provisions. Concerning the proposed incentive payments for any sales made below
book cost, they insist that the plants' remaining original costs are irrelevant
because the auction seeks bids based on future expectations of electric
generation costs and revenues, not the plants' historic value. The company also
contends that ratepayers are fully responsible for its stranded costs;
therefore, they benefit from any proceeds obtained at auction even if the plants
are sold at a loss.
In further support of the Settlement's incentive provisions, the
company and Staff claim they properly align ratepayer and shareholder interests
and the graduated payment feature reflects the fact that higher bids and sales
prices are harder to obtain. Nonetheless, if higher than expected prices are
achieved, they say, the Settlement precludes the company from enjoying a
windfall. These proponents claim the Judge's proposal lacks these attributes.
Niagara Mohawk, Staff, and IPPNY also maintain that incentives greater
than the Judge proposes are needed to maximize the sale price of the generation
facilities. IPPNY notes that the Settlement's auction incentive provisions are
designed to discourage the company from rejecting bids and to promote an auction
over a spin-off of the generation facilities to another entity.
These three parties assert that the auction incentive provisions are
integral to the Settlement and shareholders expect higher equity earnings, if
the auction proves to be successful, in exchange for otherwise accepting lower
earnings. Niagara Mohawk also argues it is entitled to the full incentive
contained in the Settlement, given its willingness to divest its non-nuclear
generation facilities. Similarly, Staff points to the benefits of the company's
withdrawal from the State's electric
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CASES 94-E-0098 and 94-E-0099
generation market and argues such action warrants a strong incentive.
CPB excepts to the recommendation that the auction proceeds be used to
pay stranded costs. It urges that they be used instead to provide residential
and small commercial customers greater rate decreases. Only after larger rate
reductions are achieved for these customers would CPB use any auction proceeds
to reduce stranded costs. CPB argues that public acceptance of the Settlement
can only be gained with larger rate decreases and the auction proceeds provide a
painless way to obtain them. It suggests that a similar issue in the Orange &
Rockland rate restructuring case was resolved as it proposes.
PULP is opposed to divestiture by Niagara Mohawk until comprehensive
legislation is passed. Alternatively, it urges that additional hearings or
proceedings be held concerning the company's generation divestiture plan filed
on December 1, 1997.
Oswego urges that comments on the company's December 1997 divestiture
plan not be considered until after we act on the Settlement (a decision already
made). However, until the economic and other effects of divestiture of
generation facilities are fully evaluated and the impacts on local communities
are known, Oswego says we should not find the Settlement to be in the public
interest. According to Oswego, Niagara Mohawk has not provided sufficient
concessions to warrant as large a financial incentive as the Settlement
provides.
In response to PULP and Oswego, Niagara Mohawk sees no need for further
hearings or legislative action. The company also suggests we fully addressed the
merits of utility generation divestiture in our Competitive Opportunities
decision and argues our prior conclusions are not undermined by the record here.
In response to Staff and the company, CPB insists that Niagara Mohawk
should not receive an incentive for sales made below book value because
ratepayers will have to pay for more stranded costs as a result. It argues the
company should only be rewarded for obtaining a gain. As to the amount of an
incentive
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CASES 94-E-0098 and 94-E-0099
the company should be allowed to earn, CPB says a 10% incentive is ample and
anything more, in its view, would be excessive.
We find with respect to Niagara Mohawk's non-nuclear generation units,
except for the Oswego facilities,1 15% of any gain the company achieves above
net book value is a sufficient and proper incentive for it to obtain the best
possible prices for these facilities at auction. As to Oswego's and PULP's
procedural proposals, having decided to approve the Settlement with the
modifications presented herein, we will next consider Niagara Mohawk's
divestiture plan and the parties' comments concerning it. Given the ample record
in these proceedings, there is no need for any additional hearings concerning
the divestiture of the company's non-nuclear generation facilities.
8. Nuclear Generation Facilities
-----------------------------
The Settlement provides that:
[t]he nuclear assets held by Niagara Mohawk will remain part
of [the transmission and distribution company] as a separate
business unit until they are either transferred or divested.
Niagara Mohawk will continue to pursue statewide solutions
for its nuclear assets through discussions in formation of
NYNOC and in any generic proceedings established by the
Commission. Statewide solutions for nuclear plants will be
explored before other potential solutions.
. . .
Absent a statewide solution, Niagara Mohawk commits to file a
detailed plan, analyzing the proposed solutions for its
nuclear assets, within 24 months of this Settlement
Agreement. The plan will consider the feasibility of auction,
transfer, and/or divestiture of Niagara Mohawk's nuclear
assets. The detailed plan will undergo an
- --------
1 We are approving the Settlement's incentive provisions for the auction of
the Oswego Steam Station.
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appropriate level of Commission review and approval to be
concluded on an expedited basis.1
The Judge recommends approval of this Settlement provision, and NYSEG
excepts. Rather than pursue a statewide solution or consider a Niagara Mohawk
plan thereafter, NYSEG urges that the company be required to auction its nuclear
assets now to resolve this issue expeditiously. It considers the Settlement too
open ended and insists that a continuation of the status quo is intolerable and
contrary to our goal of obtaining complete divestiture of all utility generation
facilities. NYSEG takes no solace in the fact that nuclear generation matters
are currently being considered in Case 94-E-0952.
Niagara Mohawk, Central Hudson/LILCO/RG&E, and Staff respond to NYSEG.
The company says the Settlement approach is best because it neither delays the
resolution of nuclear matters nor forestalls their proper consideration. It
considers Case 94-E-0952 a better place to determine whether a nuclear auction
should be pursued.
The other utility companies agree with Niagara Mohawk on the latter
point and dispute NYSEG's assertion that an auction would provide certainty.
They say there are regulatory approval problems inherent with an auction that
may not be easily resolved.
Staff responds that the Settlement is neither adverse to nor
inconsistent with NYSEG's preference for a nuclear auction because that result
is not precluded. Staff insists that all worthy alternatives should be examined
in Case 94-E-0952 before a decision is reached.
It is clear that the disposition of Nine Mile 2 directly involves the
other utilities and any resolution would affect each of them. Rather than seek
to resolve such matters here, the Settlement properly acknowledges the currently
ongoing
- --------
1 Settlement Sec.3.3.1.
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statewide efforts and provides a reasonable period for Niagara Mohawk to
submit its own proposal if the ongoing efforts fail. Moreover, we are
considering divestiture of nuclear generation in Case 94-E-0952 and we have no
plans to delay that proceeding. NYSEG's exception is therefore denied.
9. Niagara Mohawk's Identity and Royalty Payments
----------------------------------------------
a. Use of the Corporate Name
-------------------------
Enron/Wepco proposed that Niagara Mohawk's affiliates be precluded from
using the corporate name and logo in their marketing, particularly in the
company's service territory. The Judge did not recommend their proposal and
these parties except.
Enron/Wepco say the Niagara Mohawk affiliates will obtain a competitive
advantage from using the company name but it does not provide them with any
greater efficiency, which should be the primary determinant of whether a
competitor succeeds. In contrast, they say, new market entrants will have to
expend substantial sums to establish their own brand names. Alternatively, if
the affiliates are allowed to use the utility name, Enron/Wepco urge that a
royalty be imposed to capture the name's value. These parties say one or the
other approach is needed to ensure that affiliates do not dominate the energy
services market simply by virtue of their association with the incumbent
utility.
Niagara Mohawk replies that its affiliates should be allowed to use its
name. It says the name's value is uncertain but, in any event, its use should
not be restricted nor should its affiliates be handicapped from the start. Other
potential competitors, according to Niagara Mohawk, are large, well-funded, and
fast becoming known to the consuming public. In this context, the company says
there is no reason to place it at a competitive disadvantage.
We are not persuaded that a utility must be denied the use of its name
and identity in its own service territory for competitors to be able to enter
the market and compete
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successfully. Whether or not a utility affiliate is known to operate in the
same market, competitors will, in any event, have to establish themselves and
advertise. The exception is denied.
b. Royalty Payments
----------------
The Settlement provides that the rate plan:
. . .shall be in lieu of any and all "royalty" payments that
could or might be asserted to be payable by any affiliate or
imputed to [Niagara Mohawk] or credited to [Niagara Mohawk]
customers at any time, including after the expiration of this
Settlement.1
The Judge recommends that royalty payments not be required during the
term of the Settlement because the company's low earnings during this period
could reasonably be considered to subsume a royalty. However, he recommends that
we not accept this provision to the extent it would exempt the company and its
affiliates from making royalty payments indefinitely, even beyond the term of
the agreement. The company, Staff, and PULP except.
Niagara Mohawk says its low earnings under the Settlement and the $2
billion of stranded costs it is absorbing warrants permanent elimination of any
royalty. As elsewhere, it insists that this provision is integral to the deal it
struck. And it insists that the company's affiliates should not be hindered in
their future competitive efforts by having to make any such payments.
The company believes that changes in the electric industry since the
Commission first adopted its royalty policy support the Settlement's approach.
It also points to our approval of a recent settlement involving Consolidated
Edison Company of New York, Inc. as precedent supporting approval of this
Settlement provision.
- -------
1 Settlement Sec.9.3.1.
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For its part, Staff points to the Settlement's affiliate transaction
rules and its code of competitive conduct as reasons for eliminating royalty
payments. It observes that, once the royalty requirement is dropped and
affiliates begin to use the corporate name, it will become more difficult to
apply the royalty concept fairly thereafter. Staff therefore argues against any
reexamination of this matter at the Settlement's end.
If Niagara Mohawk forms a holding company, PULP contends unregulated
affiliates that use the corporate name and advertise their affiliation should be
required to pay royalties to compensate the regulated utility company for the
competitive value of this use. The company's current financial condition,
according to PULP, is no excuse for not requiring a royalty, especially given
that a royalty would be a beneficial source of new revenues. Further, PULP
contends Niagara Mohawk should receive substantial royalty payments given that
the Settlement allows the company to pay up to $625 million of dividends to a
new parent company.
In response to PULP, Niagara Mohawk argues that the Settlement's
corporate structure and dividend payment provisions are reasonable and supported
by the record. The company maintains that the rate plan subsumes an unquantified
but certain sum to compensate for the use of the corporate name and argues that
royalty requirements are fast becoming obsolete in any event. Staff replies that
PULP is also incorrect to suggest there will be any additional money available
to pay a royalty.
For its part, CPB urges us not to rule out the possibility of an
explicit royalty payment at a later date. It says it is best to reserve the
right to examine this issue after the company's current circumstances are
resolved and when it can be considered as a matter of long-term policy.
It is permissible for the proponents of rate settlements to address the
issue of royalty charges in any rate plan they submit, as the parties have done
here. And, if a rate plan is otherwise acceptable, we would not necessarily
reject it if it contained no explicit amount earmarked as such. Instead,
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we examine a proposed settlement as a whole to determine whether it is
reasonable. In this instance, we are satisfied with the rate plan being proposed
for the next five years and we see no need to impute or ascribe any additional
royalty amounts to the company, either as a matter of general policy or on the
basis of arguments presented here. We therefore reject PULP's and Enron/Wepco's
exceptions.
As to whether the company should be subject to any royalty payments
subsequent to the rate plan's five-year term, we are adopting the Settlement
subject to the condition we will not preclude parties from raising and having
the issue considered again, with any royalty to be effective, if ever, after
this Settlement ends.
10. Generic and Case-Specific Determinations
----------------------------------------
The Judge accepted the Settlement's dividing line between those issues
which would be fully resolved here on a company-specific basis and those which
would be resolved in generic cases. Enron/Wepco except to this recommendation to
the extent the Settlement's affiliate transaction rules and competitive code of
conduct would remain in place for the Settlement's term even if intervening
generic decisions are different. Similarly, they except to the extent the
Settlement would establish specific creditworthiness requirements for ESCOs that
operate in Niagara Mohawk's service territory.
Enron/Wepco contend the negotiations that produced the Settlement
should not dictate our policies to foster competition. They complain the
Settlement's provisions restrict our flexibility to address competitive market
developments, and claim the Settlement's rules are too inflexible, impairing
competition and barring us from taking remedial action when necessary. These
parties ask that we reserve the right to apply different rules and codes
produced on a generic basis.
As to the Settlement's creditworthiness requirements for ESCOs,
Enron/Wepco again claim the provisions will impede
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CASES 94-E-0098 and 94-E-0099
competition.1 They say the company does not require as much security as it seeks
to obtain from ESCOs. Accordingly, they contend these requirements amount to an
unfair barrier to entry that should be rejected. The details of implementing
retail access, they say, should be the subject of further proceedings rather
than be codified by the Settlement.
Niagara Mohawk responds that the Settlement is intended to protect the
company, during its term, from adverse financial impacts that could occur were
changes made to our regulatory approach to affiliate relations. Staff observes
that the Settlement's standards for competitive conduct do not provide the
company any license to act improperly. Staff adds that the Settlement contains
procedures for resolving competitor complaints and violations of its standards.
Thus, Staff sees no reason why such matters should be referred to a generic
proceeding.
As to the Settlement's ESCO creditworthiness requirements, the company
says they are needed to protect against the risk of an ESCO's default, in which
case Niagara Mohawk would be obligated to pay for power needed to serve affected
customers until they switch to another provider. Staff responds that the
Settlement's creditworthiness requirement is commensurate with the company's
financial exposure inasmuch as defaulting ESCOs may owe the company for three
months or more of service.
We find no need or reason to disturb the Judge's recommendations on
these matters. We find that the Settlement's affiliate relationship rules and
its code of competitive conduct are reasonable in the context of the overall
agreement. Also, the Settlement's ESCO creditworthiness provisions are justified
given the extent of the company's financial exposure. Accordingly, Enron/Wepco's
exceptions are denied.
- --------
1 Enron/Wepco specifically object to the requirement that ESCOs provide
security equal to their customers' two highest monthly usage levels
multiplied by the company's highest monthly on-peak energy buyback rate.
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CASES 94-E-0098 and 94-E-0099
As a final matter in this category, we note that the Settlement
requires all customers in S.C. 3 and above to have an hourly interval meter
whether or not they select an alternative energy supplier.1 Under the
Settlement, such customers would bear the incremental cost of a new meter unless
we decided otherwise as a matter of general policy. S.C. 3A and 4 customers
already have such meters but S.C. 3 customers may have to obtain them by May
1999.
We plan to consider, as a generic matter, whether customers should be
required to bear the cost of new meters and we may adopt new metering standards
for use in 1999. Therefore, Niagara Mohawk customers will not be required to
purchase any replacement meters until the standards for 1999 are known.
11. State Environmental Quality Review Act Findings
-----------------------------------------------
On May 3, 1996, in conformance with the State Environmental Quality
Review Act (SEQRA), we issued a Final Generic Environmental Impact Statement
(FGEIS) which evaluated the action adopted in Case 94-E-0952, the generic
Competitive Opportunities Proceeding. The individual electric utility companies
were subsequently required to provide individual environmental assessments of
their restructuring proposals. Niagara Mohawk provided its Environmental
Assessment Form (EAF) and SEQRA recommendation on August 26, 1997. The company
supplemented its EAF on November 4, 1997 and addressed the environmental
implications of Settlement provisions that differed from the company's original
proposal. Parties to these proceedings were requested to provide their comments
on the supplemented EAF either by December 3, 1997 or with their trial
- --------
1 Settlement Sec.8.3.2.
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CASES 94-E-0098 and 94-E-0099
briefs. Comments on this matter were received from various parties, including
SHAG, MI, and Oswego.1
The information provided by Niagara Mohawk in its EAF, the parties'
comments and responses, 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.
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 would reasonably be expected.
No impacts were found to be associated with the Settlement's treatment
of the competitive transition charge (CTC).
Localized community economic impacts may occur (e.g., due to reduced
tax receipts or employment at existing generating stations), but these would be
balanced by positive effects in other localities.
Another potential concern is the possible increase in air pollution
that could accompany increased demand for electric energy. It is possible that
increases in energy demand will result from the Settlement's decrease in rates
and in DSM expenditures: 0.50% average annual increased demand over the
1997-2012 period from the former and 0.13% increased demand from the latter.
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; and the lower DSM expenditures do not consider ESCO DSM
spending. Staff's view is that the actual growth rates
- --------
1 The final Environmental Assessment Form is Appendix C. The substantive
comments received are considered here and in the EAF. As a procedural
matter, Oswego excepts, contending we have failed to comply with the
requirements of SEQRA to date. However, as detailed above, the process we
have used complies fully with the applicable requirements. Moreover, the
attached EAF addresses the substantive and environmental concerns that were
raised by Oswego and other parties.
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CASES 94-E-0098 and 94-E-0099
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, as a
matter of discretion, monitoring of the restructuring and environmental impacts
is being implemented 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. We note,
however, that we will act in the future on the company's plan for auctioning its
generation assets. Additional SEQRA analysis may be required at that time.
12. Other Matters
-------------
a. Cost Allocation Manual Review Procedures
----------------------------------------
The Settlement requires Niagara Mohawk to file a cost allocation manual
with the Director of the Office of Accounting and Finance that will become
effective 30 days after it is submitted if the Director accepts the company's
filing.1 The Judge recommended that the National Electrical Contractors
Association (NECA) and other interested parties be allowed to examine the
company's proposed manual and submit comments to the Director for his
consideration.
On exceptions, Niagara Mohawk says acceptance of the Judge's
recommendation would change the Settlement which did not contemplate an
opportunity for anyone to submit comments concerning the manual. The company
also says it did not expect the Director to approve the manual but merely to
accept it for filing purposes. While Niagara Mohawk does not object to NECA
- --------
1 Settlement Sec.9.2.1.3.
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CASES 94-E-0098 and 94-E-0099
inspecting its proposed manual, it is opposed to NECA, or any other party,
slowing the process the Settlement envisions.
We adopt the Judge's recommendation allowing anyone interested in the
company's cost allocation manual to submit timely comments to the Director of
the Office of Accounting and Finance before he accepts the proposed manual. If
need be, the Director can postpone the effective date of the manual, or any
subsequently proposed amendments and supplements, beyond the 30-day period
stated in the Settlement if additional time is required to consider any comments
he receives. If the company submits a proposed manual which the Director
considers to be unacceptable, our understanding of the Settlement is that he has
the authority to refuse to accept the company's filing. In any event, by
allowing parties to file comments we do not intend that there be any delay in
this process.
b. Disclosure of Social Security Numbers
-------------------------------------
DOL proposed that Niagara Mohawk be required to inform customers in all
instances that provision of social security numbers to an ESCO is not necessary
to obtain electric service. The Judge recommended against the proposal.
On exceptions, DOL urges that customers be notified of their right to
decline to provide their social security information and that such action will
not adversely affect service. DOL says customers should know that they can keep
this information private to avoid its misuse.
Niagara Mohawk responds that it complies with laws that apply to social
security numbers and it knows of no customer who has been injured by having been
asked to provide the company this form of identification. It urges us to refrain
from imposing new disclosure requirements that neither Congress nor the
Legislature has seen fit to impose.
DOL also presented its concerns about the use of social security
numbers in a recent rulemaking proceeding, Case 96-M-0706, in which we changed
some of our consumer protection rules to streamline their operation, remove
burdens on
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CASES 94-E-0098 and 94-E-0099
utility companies, and maintain adequate customer protections. In that
case, we said:
In its comments on the Revised Rulemaking, [DOL] again
argues for a prohibition on social security numbers, or
that potential customers should at least be informed
that disclosure is voluntary and no harmful consequences
will come to those who refuse to supply it. [DOL] does
not offer any new reasons why the use of social security
numbers should be prohibited; we will not revise the
proposal on this matter. However, we do agree that
potential customers should not be coerced into revealing
social security numbers or left with the impression that
refusal to reveal a social security number will result
in harmful consequences. If customers are asked for a
social security number, they should also be made aware
that they are not required to give it, and that other
identification will be accepted.1
The rule we adopted applies to this situation and all ESCOs; this
statement addresses adequately the concerns DOL raised in these cases.
c. Future Tax Refunds
------------------
The Settlement seeks to streamline the handling of future tax refunds
and deficiency assessments. The company would keep any refunds of up to $500,000
each and it would not be able to recover any liabilities up to this amount.
Refunds and liabilities exceeding this amount would be deferred for disposition
after the Settlement term.2 According to the Settlement, the company would not
file a formal notice of the tax refunds it receives nor would additional
hearings be convened.3
- --------
1 Case 96-M-0706, Consumer Protection Rule Amendments, Memorandum and
Resolution Adopting Amendments To 16 NYCRR Part 11 (issued February 17,
1998), p. 6.
2 Settlement Sec.11.1.2.
3 Id.
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CASES 94-E-0098 and 94-E-0099
In response to DOL's objection to this proposed procedure, the Judge
recommended that the company continue to provide formal notice of its refunds
and that a decision on whether to hold a hearing be made after such notice is
provided. The Judge supported the Settlement's substantive treatment of future
refunds and recommended that the company have the benefit of a rebuttable
presumption that the Settlement results should apply.
On exceptions, Niagara Mohawk urges that the Settlement's approach to
future refunds be adopted in its entirety. It insists that notice and hearings
should not be needed for any refunds under $500,000.
In response, CPB urges us to preserve the option to hold a hearing in
any instance that may warrant one. It agrees with Niagara Mohawk that hearings
are not needed for trivial matters but, it says, that should be decided after
notice is provided.
The notice requirements implementing PSL Sec.113(2), set forth at 16
NYCRR Sec.89.3, will be followed since they are not burdensome and we reserve
the right to schedule a hearing upon the filing of such notice. However, we will
establish a rebuttable presumption that all refunds received during the
Settlement's term should be accounted for and applied as the Settlement
provides. The Settlement provision is adopted subject to this change or
condition.
d. Residential Hydroelectric Allotments
------------------------------------
PULP objects to the Settlement's method for providing residential
customers the benefit of certain low-cost hydroelectric power to which they are
entitled. Rather than include this cost in the company's base rates, it would
prefer to see hydropower separately stated on customers' bills without any
markups. PULP says its approach is consistent with the move to unbundled
charges, and it asserts its proposal should be adopted to ensure residential
customers receive their full allocation of this low-cost electricity.
Essentially, PULP is concerned
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CASES 94-E-0098 and 94-E-0099
customers may end up paying more for NYPA hydropower based on its market value.
The Judge recommended against this proposal because PULP did not show
the Settlement would deprive residential customers of any of the benefits of
their allocation of this power. PULP excepts, requesting that further
proceedings be established at which Niagara Mohawk would prove the Settlement
approach is the best means to provide hydropower benefits to residential
customers.
Niagara Mohawk responds, pointing to testimony and other information
establishing that residential customers will continue to receive all their
hydropower benefits of approximately $45 million per year. Similarly, Staff
affirms that unbundling electricity charges will have no impact on the
customers' hydropower benefits and they will receive them no matter who is their
chosen supplier. Staff notes also that NYPA, the authority charged with the
responsibility of administering this power, supports the Settlement, among other
reasons, because it ensures residential customers will continue to receive their
full hydropower benefits.
Having considered PULP's points, we find that the Judge's
recommendation properly resolves this matter. For the reasons offered by the
Judge and the parties, PULP's exception is denied.
e. PULP's Legal Arguments
----------------------
PULP excepts to the Settlement's approach for implementing competition
in the electric industry and claims we lack authority to implement its
provisions. First, it objects to an expansion of LICAP through 2002 because it
generally does not include customers who receive public assistance. It claims
that these customers should have the same opportunity to obtain favorable credit
terms as non-recipients of public assistance and that LICAP violates the Equal
Credit Opportunity Act (ECOA).1
- --------
1 Specifically, 15 U.S.C. Sec.1691(a)(2).
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CASES 94-E-0098 and 94-E-0099
PULP insists that LICAP coverage of public assistance customers in the Child
Assistance Program and the company's willingness to test a pilot program for
public assistance customers is not enough to satisfy the ECOA's requirements.
Next, PULP claims the Settlement's utility generation divestiture
provisions would adversely affect the company's ability to provide adequate
service, as the company would no longer own and operate facilities needed to
supply customers. At most, it believes that the Settlement's proponents should
have developed a proposal for comprehensive restructuring legislation rather
than pursue generation divestiture through the Settlement.
Similarly, PULP objects to the Settlement provisions contemplating that
ESCOs will sell electricity to the public. PULP insists that they cannot do so
without satisfying statutory requirements applicable to electric utility
companies. It says all market entrants should be required to provide the
customer service and rate protections that public utilities are currently
required to provide.
PULP also says the Settlement's retail access plan is impermissible.
Rather than allow the market to set electricity prices, PULP says administrative
action must set just and reasonable prices for adequate service. PULP doubts
that adequate competition will emerge to protect customers' interests and it
would prefer to see legislation establish competition in the electric industry.
At a minimum, PULP urges us to condition the Settlement's approval on the
formation of an adequate competitive electric market in which no sellers can
exercise market power. It objects to any relaxation of the service rules
applicable to electric utilities for the benefit of the ESCOs.
Finally, PULP claims that, before we can establish any competitive
opportunities policies, legislation should address the impacts of such changes
on municipalities. As tax bases and local employment may suffer, PULP urges
legislation be passed to address these matters.
In response, Niagara Mohawk and Staff insist that PULP is viewing the
applicable legal requirements too restrictively
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CASES 94-E-0098 and 94-E-0099
and it is ignoring recent case law that supports the approach being used here.
Staff also says PULP's legal arguments have already been presented, considered,
and rejected.
With the exception of PULP's challenge to Niagara Mohawk's LICAP, this
party has not presented any new legal arguments or theories that we have not
already considered and rejected. They deserve no further consideration here and
PULP's exceptions on them are denied for reasons explained elsewhere.1
As to LICAP, we are satisfied it does not violate the Equal Credit
Opportunity Act. To begin, LICAP is not primarily intended to be a mechanism for
providing credit to customers. Instead, it is a means for the company to control
its uncollectibles and the amount of bad debt it incurs, benefiting all
customers. Moreover, even if the ECOA applies, a creditor does not violate the
law if a refusal to extend credit to a public assistance recipient is made
pursuant to a program otherwise expressly authorized for a class of
disadvantaged persons.2 The LICAP proposal targets such a group, while taking
into account the limited resources available for such a program in the
circumstances presented. Finally, to the company's credit, it has agreed to
substantially enlarge the scope of this program and make it applicable to more
public assistance recipients. The company has also not ruled out the possibility
that a suitable program to decrease arrears and uncollectibles might be
developed for other public assistance customers. For all of these reasons,
PULP's exceptions to the LICAP recommendations are denied.
- --------
1 See, for example, Case 94-E-0952, Competitive Opportunities, Opinion and
Order Deciding Petitions for Clarification and Rehearing, Opinion No. 97-17
(issued November 18, 1997), mimeo pp. 29-35.
2 15 U.S.C. Sec. 1691(c)(1).
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CASES 94-E-0098 and 94-E-0099
f. Standard Performance Contracts
------------------------------
With respect to system benefits charges (SBC), the Settlement says:
[n]othing in this agreement will prohibit the Statewide
administrator from allocating a significant portion of
the total SBC revenues derived from Niagara Mohawk's
customers to be disbursed within Niagara Mohawk's
service territory through competitive standard
performance contracts which provide for stipulated
pricing for energy efficiency, consistent with any
generic guidelines for SBC expenditures separately
developed from this proceeding by the PSC.1
In its initial trial brief in these cases, NAESCO supported the
Settlement's SBC provisions. Pointing to this provision, NAESCO said it
supported the competitive distribution of energy efficiency funds through a
standard performance contract mechanism with stipulated pricing. The Judge
recited NAESCO's position in the recommended decision and MI, another Settlement
supporter, excepts.
MI disputes NAESCO's characterization of the provision and says its
clear language does not provide support for standard performance contracts.
According to MI, this provision merely preserves the matter for a future generic
proceeding and the Settlement would permit such contracts to be used in the
Niagara Mohawk service territory if they are allowed as a matter of general
policy. NAESCO does not respond to MI's description of this section.
MI is correct that the Settlement only establishes that the use of
standard performance contracts is not barred by the agreement. Whether such
contracts should be employed remains open for further consideration.
- --------
1 Settlement Sec.7.1.2.
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CASES 94-E-0098 and 94-E-0099
g. Local Taxes and the CTC
-----------------------
The City of Oswego claimed that the Settlement would adversely affect
its tax structure and eliminate a significant source of its tax revenues. It
proposed that lost tax revenues, due to reductions in the value of utility
generation assets, be included in the CTC as part of the transition to a
competitive, electric generation market. The Judge recommended that this
proposal be rejected and Oswego excepts.
Oswego says the Commission has the authority, and the public interest
would be well served, to require that local taxing jurisdictions recover lost
tax revenue through the CTC. However, Niagara Mohawk urges that local
municipalities not be allowed to recover the cost of governmental and local
services in utility charges applicable to all customers. The company says it is
unfair to burden customers elsewhere with the costs for local services, which do
not benefit and cannot be controlled by them.
Staff responds that Oswego's tax problems are not due to the
Settlement. It observes that the Settlement neither changes the City's tax base
nor alters Oswego's assessment of the company's property. If anything, Staff
says, the Settlement serves Oswego's interests by providing for three-year
energy purchase contracts for the generation units that are sold. The allowance
made for such contracts presumes that property taxes will continue to apply.
The City of Oswego's proposal to include "stranded taxes" in the CTC is
denied. We agree with the company that there are inequities in including any
such amounts in the CTC that applies to all customers. Staff is also correct
that the Settlement provides the City, and other municipalities that host
utility generation facilities, a transition period with the
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CASES 94-E-0098 and 94-E-0099
energy purchase contracts Niagara Mohawk expects to execute with the firms that
buy its plants.1
h. Additional Public Comments
--------------------------
The recommended decision considered the comments made by customers and
their representatives at the public statement hearings and in correspondence.
Written comments from persons interested in the Settlement continued to be
submitted after the recommended decision was issued. For example, substantial
comments about numerous Settlement provisions have been received from The Wing
Group, a City of Buffalo Council Member, and a Washington, D.C. public utility
consultant. Comments have also been received from the Sierra Club in the Niagara
region, and the Statewide Senior Action Council, which reinforce the statements
made by their respective members at the public statement hearings. Various firms
interested in self-generation and customers interested in municipal power have
also continued to submit comments on the Settlement's provisions, all of which
have been considered.
i. Recently Settled and Corrected Matters
--------------------------------------
By letter dated January 22, 1998, Niagara Mohawk notified us that, as
contemplated by the Settlement, various parties had considered the details of an
implementation mechanism for the expanded LICAP program and had reached an
agreement. These parties arrived at a performance incentive mechanism that
contains annual enrollment, service, and workshop goals for the company to meet.
Niagara Mohawk's failure to achieve these goals would subject the company to
financial penalties of up to
- --------
1 We are aware that Niagara Mohawk is participating in ongoing negotiations
with the City of Oswego, County, and School District representatives on the
future tax status of the company's facilities in Oswego. We consider such
negotiations between municipalities and utility companies to be a beneficial
means for resolving such issues, absent legislation.
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CASES 94-E-0098 and 94-E-0099
$1.1 million per year. The company will also provide quarterly and annual
reports concerning its progress and performance.
By letter dated January 23, 1998, the company also notified us that
various parties have agreed on provisions for the customer service backout
credit, as provided by the Settlement. Niagara Mohawk's revenue exposure for
these credits is limited to $30 million during the first three years covered by
the Settlement. This amount is allocated among the company's service classes
and, if the class allocations are reached, access to the credits will be
restricted. Staff will review the company's subscription levels, historical
data, and its calculations when the available amounts may be exhausted. ESCOs
will also be informed of the amounts that remain available to them.
While we received these agreements after briefs opposing exceptions
were filed, the parties to these proceedings were on notice that these matters
would be considered and that the details of the LICAP performance incentive
mechanism and a customer service backout credit would be submitted to us for
consideration with the Settlement. This approach drew no objections when it was
presented nor has any party criticized the specific provisions that have been
reached. Accordingly, we will adopt the agreed-upon terms for these two
additional issues.
Finally, by letter dated February 13, 1998, Niagara Mohawk notified us
that a provision the parties had intended to include in the Settlement was
inadvertently omitted. The Settlement eliminates Niagara Mohawk's fuel
adjustment clause (FAC). However, when the FAC ends, the company will have
either a positive or negative deferred fuel balance that must either be paid
back to customers or collected from them. The settling parties intended to
include in the Settlement a provision to flow through the deferred fuel balance
to customers over two monthly billing cycles. To accomplish this, the company
has provided a revision for Settlement Sec.4.3.1. We accept this revision to the
Settlement to the extent it allocates to customers deferred costs or benefits
properly allocable to them.
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CASES 94-E-0098 and 94-E-0099
j. Finch's Exceptions
------------------
Finch urges us to adopt and apply four general principles to on-site
generation:
(1) Supplemental service rates for on-site generators
should be the same as the rates that apply to full
service customers in the same service category;
(2) Backup and maintenance service rates for on-site
generators should be set using the same cost method that
is used to develop rates for similar full requirements
customers;
(3) On-site generators should be given the option to
obtain firm service at the same rates that apply to
similar customers without on-site generation; and,
(4) Customers with existing on-site generation
facilities should not be transferred to a new service
class that would substantially increase the rates
applicable to them.
Finch complains that the Settlement proponents have not provided a
proposed tariff for the on-site generation parties to examine and see how the
Settlement would actually apply to them. It insists that only a smattering of
general concepts has been offered for consideration. Finch is concerned about
such things as the amount of the proposed access charges, the applicable energy
rates, surcharges, and reconciliations. It also claims that the proponents do
not share a common understanding of the Settlement's on-site generation rate,
tariff, and stranded cost provisions. Given such uncertainties as these, Finch
says, it is impossible for on-site generation customers to determine how the
Settlement specifically affects them. It believes this portion of the Settlement
should be rejected and Niagara Mohawk should be required to provide a specific
proposal for consideration now.
Also with respect to the Settlement's on-site generation provisions,
Finch claims they are unduly discriminatory, unjust and unreasonable, and not in
the public
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CASES 94-E-0098 and 94-E-0099
interest. It says they are contrary to the Public Service Law, the Public
Utility Regulatory Policies Act (PURPA), and the Federal Energy Regulatory
Commission (FERC) regulations implementing PURPA. Further, it maintains they are
anti-competitive and preclude on-site generators from using economically
competitive alternatives.
In response to Finch, the company points out that this party entered
the proceedings after the close of the record, did not contribute to the record,
and did not participate in the settlement process. Nonetheless, the company
responds to Finch's policy and legal arguments.
As to Finch's concerns about rate discrimination, Niagara Mohawk says
the existing and proposed service classes for on-site generators are based on
their common characteristics and cost of service. It points out that such
customers require continuous connections to the company's system for backup
power and, as a group, they have distinguishable load and cost characteristics.
The company contends that the Settlement's provisions for these customers are
designed to recover the fixed costs associated with each customer's historic
level of usage and to recover a proper share of stranded costs. Thus, the
company says Finch errs in claiming that the Settlement's S.C. 7 provisions are
not cost based.
With respect to whether the intended revisions for S.C. 7 should have
been submitted with the Settlement, Niagara Mohawk says the Settlement contains
the complete proposal for revising the service classification and nothing more
is needed for it to be approved. Given the complexity of these proceedings and
large amount of activity they require, the company claims it is reasonable for
action on the S.C. 7 tariff revisions to follow the Settlement's approval.
Concerning the claim that the on-site generation rate proposal violates
state and federal statutes and regulations, Niagara Mohawk denies Finch's
assertion. The company insists that the Settlement's provisions are consistent
with PURPA and FERC regulations requiring that accurate data and consistent
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CASES 94-E-0098 and 94-E-0099
systemwide costing principles be used to set all customers' rates. Finch objects
to the rate reductions for customers other than on-site generators; but, the
company says this aspect of the Settlement is not discriminatory. Niagara Mohawk
points out that the parties vigorously negotiated allocation of the rate
decreases and applying the rate decreases to full service customers is fully
justified.
Next, Niagara Mohawk says on-site generators must pay stranded costs
because the company stands ready to serve their load requirements at any time.
According to the company, the valid reasons for not treating on-site generators
the same as full requirement customers include the need to discourage uneconomic
bypass and to avoid shifting costs to other ratepayers.
Finally, the company says the Settlement's on-site generation
provisions are clear and it will not have any difficulties submitting a revised
S.C. 7 that complies with the Settlement. To the extent any party's view of the
Settlement's requirements differs from the company's, it says any such matters
can be resolved when the revised tariffs are filed.
MI says Finch's claims of disparate treatment should not be credited
because the Settlement does not produce or require any such results. MI suggests
that Finch wait and see the new, on-site generation tariffs the company
proposes, and the results of Niagara Mohawk's generation auction, before it
launches any such charges.
MI is correct that Finch's concerns about the actual rates and charges
Niagara Mohawk will file to implement, the Settlement's provisions applicable to
on-site generation are premature and should await the company's tariff filing.
When the tariff is submitted, Finch and other parties will have an opportunity
to examine it and provide their comments.
In any event, Finch's broad criticisms and legal challenge of the
Settlement's on-site generation provisions are rejected. Like all other classes
of Customers, the on-site generators that subscribe to Niagara Mohawk's backup
and
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CASES 94-E-0098 and 94-E-0099
supplemental services must bear a portion of the company's stranded costs in
fairness to all other customers who must also pay these costs. Moreover, it is
reasonable to revise the S.C. 7 tariff due to the company's restructuring and
the transition being made to a competitive market. During the transition period,
uneconomic alternatives should not be encouraged as the company must be assured
of a reasonable opportunity to pay its MRA-related costs.
We have examined Finch's claims of discrimination and anti-competitive
rates and find that the Settlement's on-site generation provisions do not
violate any state or federal requirements that preclude undue discrimination and
anticompetitive behavior. The Settlement proponents have detailed and supported
the Settlement's acceptable approach to this class of customers. Clear
differences exist between these customers and the company's full requirements
customers supporting the separate classifications and the differing treatment
they receive under the Settlement. There is, therefore, no need to adopt Finch's
four general principles for on-site generators. The principles we normally
adhere to design rates and to allocate revenue requirements will continue to
apply except to the extent the Settlement requires any departures for its proper
implementation.
Finally, as discussed above, in making the transition from the existing
S.C. 7 tariff to the revised tariff required by the Settlement, we are concerned
that there not be any harsh impact for customers who, as of October 10, 1997,
decided to implement on-site generation and have made a substantial investment.
Niagara Mohawk will be required to present a proposal addressing this concern,
and the parties may comment on it, before we consider the company's revised
tariffs for S.C. 7. To the extent any other matters require our attention, there
will be ample opportunity for the parties to state specific concerns in their
comments on the company's on-site generation tariff revisions.
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CASES 94-E-0098 and 94-E-0099
k. Recovery of Costs Associated With
Termination of Gas Transportation
and Peak Shaving Agreements
----------------------------------
Appendix B of the Settlement provides that the company would continue
to recover, solely from gas customers, lost revenues or additional costs
incurred in connection with new peak shaving and gas transportation contracts,
in effect extending the terms and duration of the Stipulation and Agreement
among the parties in Cases 95-G-1095 and 95-G-0091. We approve the gas-
customer-only recovery mechanism to the extent it is limited to lost revenues
and replacement costs incurred between now and October 31, 1999, as provided in
the Gas Stipulation and Agreement. However, without fuller explanation of the
relative benefits of restructuring the peak shaving and transportation
contracts, we are unwilling at this time to extend this gas-customers-only
recovery mechanism beyond October 31, 1999. We shall review the appropriate
allocation between the gas and electric departments at the time the company
files its proposed recovery mechanism of such lost revenues and replacement
costs beyond October 31, 1999.
l. Service Quality Incentive
-------------------------
Section 6 of the Settlement describes a service quality incentive whose
total value is $6.6 million (30 basis points) per year. The total would be
allocated one half to a customer service performance inventive and the balance
would be for a service reliability incentive. The company is not now providing
high levels of service and it will continue to face serious financial pressures.
In these circumstances, a strong incentive is appropriate. To ensure that the
company remains focused on its service obligations during the Settlement term,
this provision is adopted subject to the modification that the $6.6 million is
doubled and all the maximum dollar penalties associated with various scored
intervals are doubled accordingly.
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CASES 94-E-0098 and 94-E-0099
CONCLUSION
----------
The terms of the Settlement and the Master Restructuring Agreement,
summarized and discussed above, will offer a generally sound regulatory
framework for Niagara Mohawk, its competitors, and its customers in the
transition to fully competitive generation and energy services markets. Among
other things, the Settlement and MRA reverse the upward spiral of rate increases
experienced by ratepayers in the past and replace it with significant rate
decreases. These rate reductions, brought about primarily by the company's
absorption of up to $2 billion in revenue losses, savings from the MRA, and
reduced taxes, avoid the need to consider the company's alternative pending
request for a $3.25 million (10.5%) rate increase and the prospect of further
rate increases driven by uneconomic power purchase contracts.1 The majority of
the nominal revenue reductions will be enjoyed by the residential and commercial
classes. At the same time, significant rate reductions will be implemented for
large industrial and commercial customers, reductions which are essential to
attract and retain jobs and boost the economy of upstate New York. Other
important benefits include the company's prompt divestiture of its fossil and
hydro generation and the restructuring of a substantial amount of IPP generation
capacity to market pricing. In 1999, all customers will have the ability to
choose their energy supplier. These benefits, in our view, would not be achieved
by any of the alternatives that have been presented or that we are otherwise
aware of, including the bankruptcy alternative and the various legislative
proposals now pending.
Having reviewed the Settlement's terms, the recommended decision, the
parties' exceptions, the public's comments, and the Environmental Assessment
Form prepared for us by our Staff, we find that there are several terms that are
not satisfactory under the circumstances presented. They are discussed in detail
above.
- --------
1 Niagara Mohawk's contractual commitments to the IPPs alone have been
rising by $50 million per year. Tr. 13,040.
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CASES 94-E-0098 and 94-E-0099
Such items include the terms for the proposed cost recovery shift from energy to
customer charges for the residential and small commercial classes, the base
period for implementing the S.C. 1 and S.C. 2 rate reductions, the prejudgment
of a royalty treatment beyond the Settlement's term, the incentive for
divestiture of non-Oswego fossil and hydro generation, service quality
penalties, recovery of certain lost gas revenues and new gas costs, and the
disposition of certain tax refunds.
These and other terms of concern to us are adopted subject to the
conditions or modifications described above or, in the case of the proposed
customer charge increases, are not adopted at this time. With the modifications
and conditions, the Settlement and Master Restructuring Agreement satisfy the
objectives enumerated in Opinion No. 96-12 and meet the criteria states in our
Settlement Guidelines.
Accordingly, the terms of the Settlement and the Master Restructuring
Agreement are adopted with all the modifications and changes discussed in this
opinion and order. Inasmuch as those terms and our modifications and conditions
are interrelated, if any term, modification, or condition is modified, vacated,
or otherwise materially affected on judicial review, we may re-examine our
entire decision.
The Commission Orders:
- ---------------------
1. The terms of the Niagara Mohawk Power Corporation PowerChoice
Settlement Agreement, Exhibit 97-1 in these proceedings, including the revisions
submitted by letters dated December 9, 1997 and February 13, 1998, and the
supplements submitted by letters dated January 22 and 23, 1998, subject to the
modifications and conditions described in this opinion and order, are adopted
and incorporated as part of this opinion and order.
2. Niagara Mohawk Power Corporation is directed to cancel the suspended
tariff amendments and supplements listed in Appendix B concurrent with the
effective date of tariffs filed in
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CASES 94-E-0098 and 94-E-0099
conjunction with the implementation of the PowerChoice Settlement Agreement,
the PowerChoice Implementation Date.
3. The company is directed to file as soon as is reasonably possible,
but not later than May 19, 1998, tariff amendments implementing the Settlement.
The amendments shall become effective on not less than sixty (60) day's notice.
The company shall serve copies of its compliance filing upon all parties to this
proceeding. Any comments on the filing must be received at the Commission's
offices within 45 days of service of the company's proposed amendments. The
amendments shall not become effective on a permanent basis until approved by the
Commission. The requirement of the Public Service Law that newspaper publication
be completed prior to the effective date of the amendments is waived, but the
company is directed to file with the Commission, not later than six weeks
following the effective date of the amendments, proof that a notice of the
changes set forth in the amendments and their effective date has been published
for four consecutive weeks in a newspaper having general circulation in the
service territory of the company.
4. Sections 4.5.1.2, 4.6.1.2 and 4.6.2.1 of the agreement addressing
the rebalancing of customer and energy charges shall be modified as follows:
Monthly customer charges for residential, small
commercial non-demand and demand metered customers shall
be fixed at $9.67, $14.65, and $27.22, respectively, at
this time.
The parties may address the customer charge/energy charge rebalancing issues
presented in these proceedings commensurate with the review period preceding
Commission approval of unbundled tariffs for these customers.
5. The primary tariff filings directed in Clause 3 above required to
effectuate initial implementation of the PowerChoice Settlement Agreement shall
include unbundled retail access tariffs for Customer Groups I and II, as defined
in Sec.8.2 of the agreement, bundled (standard) tariffs for all remaining
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CASES 94-E-0098 and 94-E-0099
customers not included in the above, and shall reflect the price
reductions specified in Sec.4.0 of the agreement and otherwise described herein.
Subsequent unbundled tariff filings for customers in Groups III, IV and V should
be made at least ninety (90) days prior to each group's scheduled date for
obtaining retail access.
6. Niagara Mohawk Power Corporation is directed to file by no later
than April 3, 1998 a tariff amendment, to become effective on one day's notice
on a temporary basis, to grandfather the electric rates applicable to on-site
generators who can demonstrate that as of October 10, 1997 they had made a
decision to proceed with and had a substantial investment in self-generation.
The company shall serve copies of its proposal upon all parties to this
proceeding. Any comments on the proposal must be received at the Commission's
offices within 10 days of service of the company's proposal. The amendments
shall not become effective on a permanent basis until approved by the
Commission. The requirement of the Public Service Law that newspaper publication
be completed prior to the effective date of the amendments is waived, but the
company is directed to file with the Commission, not later than six weeks
following the effective date of the amendments, proof that a notice of the
changes set forth in the amendments and their effective date has been published
for four consecutive weeks in a newspaper having general circulation in the
service territory of the company.
7. Niagara Mohawk is authorized to file tariff amendments, to become
effective on not less than one day's notice on a temporary basis, to implement
the open access charges for municipalizations. Any comments on the proposal must
be received at the Commission's office within 10 days of service of the
company's proposal. The amendments shall not become effective on a permanent
basis until approved by the Commission. The requirement of the Public Service
Law that newspaper publication be completed prior to the effective date of the
amendments is waived, but the company is directed to file with the Commission,
not later than six weeks following the effective date of the
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CASES 94-E-0098 and 94-E-0099
amendments, proof that a notice of the changes set forth in the amendments and
their effective date has been published for four consecutive weeks in a
newspaper having general circulation in the service territory of the company.
8. To the extent exceptions to the recommended decision issued in these
proceedings on December 29, 1997 are not moot, or are otherwise granted, they
are denied.
9. The potential environmental impacts of these terms are within the
bounds and thresholds evaluated in the 1996 FGEIS, and, therefore, no further
SEQRA action is necessary in these cases at this time.
10. Niagara Mohawk, in cooperation with Staff, shall monitor the
environmental impacts of electric restructuring resulting from this order.
11. Niagara Mohawk is authorized to include the following
decommissioning related activities in its cost of service for Nine Mile 1:
rampdown, wet fuel storage, dry fuel storage, and radioactive dismantlement
costs in the amount of $23,227,000 in each year commencing on April 1, 1998
through 2009, unless and until the Commission orders otherwise. The company is
authorized to deposit $18,494,000 of its Nine Mile1 decommissioning
authorization in a tax qualified nuclear decommissioning fund and $4,733,000 in
a non-qualified nuclear decommissioning fund. The company is also authorized to
include in its cost of service, the following decommissioning related activities
for its 41% share of Nine Mile 2: rampdown, wet fuel storage, dry fuel storage,
and radioactive dismantlement costs in the amount of $4,776,000 which it is
authorized to deposit in each year commencing on April 1, 1998 through 2026 in a
tax qualified nuclear decommissioning fund, unless and until the Commission
orders otherwise. These plant decommissioning authorizations are based on plant
specific studies escalated using the estimated escalation factors described
below. The estimated decommission related activities of Nine Mile 1 and the
company's 41% share of Nine Mile 2, in 1998 dollars, are $518 million and $262
million, respectively. Using an escalation
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<PAGE>
CASES 94-E-0098 and 94-E-0099
factor of 3.5%, the Nine Mile Unit 1 radioactive decommissioning costs are
estimated to be approximately $901 million in 2009, and the company's share of
the Nine Mile 2 radioactive decommissioning cost is estimated to be about $802
million in 2026. The funding assumptions are based upon the DECON method of
decommissioning and are assumed to be incurred between 2009 and 2041 for Nine
Mile 1 and between 2026 and 2045 for Nine Mile 2. These time periods presently
represent the respective years over which each plant is assumed to be
decommissioned. An after-tax trust fund earning rate of 6.3% was used for the
Nine Mile 1 trust fund and a 6.9% rate for the Nine Mile 2 trust fund. All
applicable costs collected from ratepayers shall be deposited by the company in
external trust funds on a quarterly basis.
12. For each of the five years of the Settlement period, Niagara Mohawk
Power Corporation is directed to defer any interest rate savings related to the
senior subordinated notes or other debt instruments used to finance the MRA
buyout. The savings will be calculated by comparing the actual interest rate(s)
to the 8.5% interest rate forecasted for such debt as included in Appendix C of
the Settlement. The savings will be included in Account 253, Other Deferred
Credits, until such time as the Commission utilizes the deferred savings.
13. Niagara Mohawk Power Corporation shall submit a written statement
of unconditional acceptance of the modifications and conditions contained in
this opinion and order, signed and acknowledged by a duly authorized officer of
the company by April 3, 1998. The company's statement should be filed with the
Secretary of the Commission and served on the parties to these proceedings.
14. Cases 94-E-0098 and 94-E-0099 are continued.
By the Commission,
(SIGNED) JOHN C. CRARY
Secretary
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CASES 94-E-0098 and 94-E-0099 APPENDIX A
Page 1 of 4
APPEARANCES
-----------
FOR DEPARTMENT OF PUBLIC SERVICE STAFF:
Elizabeth H. Liebschutz, Esq. and Jane C. Assaf, Esq.
Staff Counsel, Three Empire State Plaza, Albany,
New York 12223-1350.
FOR NIAGARA MOHAWK POWER CORPORATION:
M. Margaret Fabic, Esq., Chief Counsel, 300 Erie Boulevard
West, Syracuse, New York 13202.
Swidler & Berlin (by J. Phillip Jordan, Esq. and William
B. Glew, Jr., Esq.), 3000 K Street, N.W., Suite 300,
Washington DC 20007.
Adams, Dayter & Sheehan, LLP. (by Timothy P.
Sheehan, Esq.), 39 North Pearl Street,
Albany, New York 12207.
FOR SETTLING INDEPENDENT POWER PRODUCERS:
Read and Laniado (by Howard J. Read, Esq. and
Sam M. Laniado, Esq.), 25 Eagle Street,
Albany, New York 12207.
FOR NEW YORK STATE CONSUMER PROTECTION BOARD:
James F. Warden, Jr., Esq., Five Empire State Plaza,
Albany, New York 12223.
FOR CITY OF COHOES:
Peter Henner, Esq., P.0. Box 326,
Clarksville, New York 1204l.
FOR CITIES OF FULTON AND OSWEGO:
Paul V. Nolan, Esq., 5515 North 17th Street,
Arlington, Virginia 22205.
FOR PUBLIC UTILITY LAW PROJECT:
Gerald Norlander, Esq., 90 State Street,
Albany, New York 12207.
FOR NEW YORK STATE ELECTRIC & GAS CORPORATION:
Huber, Lawrence & Abell (by Amy A. Davis, Esq.),
605 Third Avenue, New York, New York 10158.
<PAGE>
CASES 94-E-0098 and 94-E-0099 APPENDIX A
Page 2 of 4
APPEARANCES
-----------
FOR RETAIL COUNCIL OF NEW YORK:
Cohen, Dax & Koenig, P.C. (by Paul Rapp, Esq.),
90 State Street, Albany, New York 12207.
FOR MULTIPLE INTERVENORS AND STEAM HOST ACTION GROUP:
Couch, White, Brenner, Howard & Feigenbaum
(by Algird White, Esq., Leonard Singer, Esq., and
Doreen Saia, Esq.), 540 Broadway, P.O. Box 22222,
Albany, New York 12201-2222.
FOR ENRON CAPITAL & TRADE RESOURCE CORP.:
Bracewell & Patterson, L.L.P. (by Randall S.
Rich, Esq.), 2000 K Street N.W., Suite 500,
Washington, DC 20006.
FOR NORCEN ENERGY RESOURCES LIMITED:
Brady & Berliner (by Peter G. Hirst, Esq.), 1225 19th Street N.W.,
Washington DC 20036.
FOR CONSOLIDATED NATURAL GAS TRANSMISSION CORPORATION:
Whiteman, Osterman & Hanna (by Thomas O'Donnell, Esq. and
Michael Whiteman Esq.), One Commerce Plaza,
Albany, New York 12260.
FOR FINGER LAKES CHAPTER, NECA, INC.:
McMahon, Kublick, McGinty & Smith P.C. (by Jan
Kublick, Esq.), 500 South Selina Street,
Syracuse, New York 13202.
FOR EMPIRE STATE DEVELOPMENT AND NEW YORK STATE DEPARTMENT OF
ECONOMIC DEVELOPMENT:
Gloria Kavanah, Esq., One Commerce Plaza, Room 931,
Albany, New York 12245.
FOR CITIZENS UTILITY BOARD:
Robert Ceisler, 146 Washington Avenue,
Albany, New York 12210.
FOR ANR PIPELINE:
William Malcolm, Esq., 500 Renaissance Center,
Detroit, Michigan 48243.
<PAGE>
CASES 94-E-0098 and 94-E-0099 APPENDIX A
Page 3 of 4
APPEARANCES
-----------
FOR SITHE ENERGIES USA, INC.:
Read and Laniado (by Craig M. Indyke, Esq.),
25 Eagle Street, Albany, New York 12207.
FOR LOCAL 97, IBEW:
Thomas P. Primero, Jr., Agent, 890 Third Street, Albany,
New York 12206.
Blitman & King (by Donald D. Oliver, Esq.), The
500 Building, 500 South Salina Street,
Syracuse, New York 13202.
FOR COASTAL GAS MARKETING COMPANY:
Cullen & Dykman (by Gerard A. Maher, Esq.),
177 Montague Street, Brooklyn, New York 11201-3611.
FOR NEW YORK STATE DEPARTMENT OF LAW:
Richard W. Golden, Esq., 120 Broadway, New York,
New York 10271.
FOR U.S. EXECUTIVE AGENCIES:
Robert A. Ganton, Esq., U.S. Department of Army,
901 North Stuart Street, Suite 713,
Arlington, Virginia 22203-1837.
FOR JOINT SUPPORTERS, CNG ENERGY SERVICES CORPORATION, AND NATIONAL ASSOCIATION
OF ENERGY SERVICE COMPANIES:
Ruben S. Brown, The E Cubed Company, 201 West 70th Street, Suite 41E,
New York, New York 10023.
FOR ENTRUST, LLC:
David A. Schilling, President, 100 Clinton Square,
Suite 450, 126 North Salina Street, Syracuse, New York
13202.
FOR ROCHESTER GAS AND ELECTRIC CORPORATION, CENTRAL HUDSON GAS & ELECTRIC
CORPORATION, AND LONG ISLAND LIGHTING COMPANY:
Nixon, Hargrave, Devans & Doyle (by Richard N. George,
Esq.), P.0. Box 1051, Clinton Square,
Rochester, New York 14603.
<PAGE>
CASES 94-E-0098 and 94-E-0099 APPENDIX A
Page 4 of 4
APPEARANCES
-----------
FOR NEW YORK POWER AUTHORITY:
Eric J. Schmaler, 1633 Broadway, New York,
New York 10019.
FOR WHEELED ENERGY POWER COMPANY OF NEW YORK:
Joel Blau, 32 Windsor Court, Delmar, New York 12054.
FOR NEW YORK POWER FORUM:
Cohen, Dax & Koenig, P.C. (by John W. Dax), 90 State
Street, Suite 1030, Albany, New York 12207.
<PAGE>
CASES 94-E-0098 and 94-E-0099 APPENDIX B
Page 1 of 2
Amendments to Schedule P.S.C. No. 207 - Electricity
Original Leaves Nos. 71-U, 101-B, 101-C, 101-D,
101-E, 101-F, 101-G, 101-H
First Revised Leaves Nos. 79-N, 83-A7, 87-A4, 87-A5
Second Revised Leaves Nos. 70-C2, 70-H, 71-C, 79-0,
87-F2, 106-B, 165
Third Revised Leaves Nos. 97-A, 100, 151
Fourth Revised Leaves Nos. 57-A, 70-E, 106-A
Fifth Revised Leaves Nos. 57-Bl, 70-I
Sixth Revised Leaves Nos. 57-B, 105
Seventh Revised Leaves Nos. 57-C, 106
Eighth Revised Leaf No. 79-I
Ninth Revised Leaf No. 79-F
Eleventh Revised Leaf No. 83-A3
Twelfth Revised Leaf No. 83-A4
Thirteenth Revised Leaves Nos. 67, 79
Fifteenth Revised Leaf No. 55-B
Seventeenth Revised Leaf No. 70-D
Eighteenth Revised Leaf No. 2
Nineteenth Revised Leaf No. 55-A
Twentieth Revised Leaf No. 101-A
Twenty-First Revised Leaf No. 56
Twenty-Second Revised Leaves Nos. 58, 99, 102
Twenty-Third Revised Leaves Nos. 57, 98
Twenty-Sixth Revised Leaf No. 95
Twenty-Ninth Revised Leaf No. 85
Thirtieth Revised Leaf No. 103
Thirty-First Revised Leaves Nos. 87-C, 97, 101
Thirty-Fifth Revised Leaves Nos. 55, 104
Forty-First Revised Leaves Nos. 3, 89
Forty-Third Revised Leaf No. 81
Forty-Ninth Revised Leaf No. 83
Fifty-Fourth Revised Leaf No. 94
Fifty-Fifth Revised Leaf No. 80
Fifty-Sixth Revised Leaf No. 88
Fifty-Seventh Revised Leaf No. 84
Fifty-Eighth Revised Leaf No. 78
Supplements Nos. 207, 215, 217 and 223 to Schedule P.S.C. No. 207
- Electricity
<PAGE>
CASES 94-E-0098 and 94-E-0099 APPENDIX B
Page 1 of 2
Amendments to Schedule P.S.C. 213 - Electricity (Street Lighting)
First Revised Leaf No. 80
Second Revised Leaf No. 78
Third Revised Leaves Nos. 44, 79, 81, 84
Twelfth Revised Leaves Nos. 9, 47
Sixteenth Revised Leaf No. 55
Seventeenth Revised Leaf No. 20
Eighteenth Revised Leaf No. 49
Twenty-Fifth Revised Leaf No. 43
Twenty-Seventh Revised Leaf No. 46
Thirtieth Revised Leaf No. 45
Thirty-Fourth Revised Leaves Nos. 30, 33, 34, 36,
40, 41
Thirty-Fifth Revised Leaves Nos. 28-A, 31, 37
Thirty-Sixth Revised Leaves Nos. 5, 6, 26, 28
Thirty-Seventh Revised Leaves Nos. 27, 38, 39
Thirty-Eighth Revised Leaves Nos. 16, 32, 35
Thirty-Ninth Revised Leaves Nos. 15, 29
Fortieth Revised Leaf No. 13
Forty-Second Revised Leaf 14
Forty-Third Revised Leaf 25
Supplements Nos. 67, 68, 69 and 70 to Schedule P.S.C. No. 207
- Electricity
<PAGE>
CASES 94-E-0098 and 94-E-0099
APPENDIX C
<PAGE>
617.20
State Environmental Quality Review
ENVIRONMENTAL ASSESSMENT FORM
PROJECT INFORMATION
- --------------------------------------------------------------------------------
1. APPLICANT/SPONSOR:
NIAGARA MOHAWK POWER CORPORATION (NMPC)
2. PROJECT NAME: ELECT. RATE/RESTRUCTURING - CASE 94-E-0098, 94-E-0099
- --------------------------------------------------------------------------------
3. PROJECT LOCATION: NMPC SERVICE 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, 94-E-0098 AND 94-E-0099 - 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, SS.SS. 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?
|X|Yes |_|No If yes, list agency(s) name and permit/approval. STATIONARY
SOURCES OWNED AND OPERATED BY NMPC 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: FEBRUARY 13, 1998
----------------------------------- ------------------------
Signature /S/ JOHN SMOLINSKY
- --------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 action? 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 NIAGARA MOHAWK POWER CORPORATION
(THE CORPORATION) 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.
NYS DEPARTMENT OF PUBLIC SERVICE FEBRUARY 13, 1998
- ----------------------------------- --------------------------------------
Name of Lead Agency Date
CHIEF, ENVIRONMENTAL COMPLIANCE AND
JOHN H. SMOLINSKY OPERATIONS
- ----------------------------------- --------------------------------------
Print or Type Name of Responsible Title of Responsible Officer
Officer in Lead Agency
/s/ John Smolinsky /s/ Martin
- ----------------------------------- --------------------------------------
Signature of Responsible Officer Signature of Preparer (If different
in Lead Agency from responsible officer)
<PAGE>
ENVIRONMENTAL ASSESSMENT FORM
I. BACKGROUND
On May 3, 1996, the Commission issued a Final Generic Environmental
Impact Statement (FGEIS) in the Competitive Opportunities proceeding which
addressed the environmental impacts of a policy supporting increased competition
in electric markets. Alternative approaches to achieving electric competition,
including a no-action alternative, were studied.
In Opinion No. 96-121/ issued May 20, 1996, the Commission set forth
its findings with respect to the FGEIS (p.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 to ensure that specific
mitigation measures are implemented if needed. Finally, the Commission
will support and assist efforts
- --------
1/ Cases 94-E-0952, et al., In the Matter of Competitive Opportunities
Proceeding Regarding Electric Service, Opinion No. 96-12 (issued May 20,
1996).
<PAGE>
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 August 26, 1997, Niagara Mohawk submitted its Environmental
Assessment Form (EAF) and SEQRA recommendation in connection with its initially
proposed PowerChoice restructuring plan in Case 94-E-0098 and Case 94-E-0099.
This proposal served as the basis for negotiations between the company, Staff
and interested parties. On October 10, 1997, the company, Staff and many of the
interested parties signed a restructuring settlement.
On November 4, 1997, the company filed a supplement to its EAF which
addressed the environmental implications of areas
- --------
1 Ibid, p. 78, n. 1.
2 Cases 94-E-0952, et al., Competitive Opportunities Proceeding Rehearing
Petitions, Opinion No. 96-17 (issued October 24, 1996).
-2-
<PAGE>
where the negotiated settlement differed from the original proposal. On November
12, 1997, Administrative Law Judge Bouteiller issued a procedural ruling which
requested parties in Case 94-E-0098 to file initial comments on the supplemented
EAF by December 3, 1997. Comments were received from the Steam Host Action Group
(SHAG) and Multiple Intervenors (MI) on that date. No other parties submitted
formal comments at that time. However, a number of parties, including the City
of Oswego, commented on the EAF or on environmental issues in their briefs.
SEQRA and Commission Approval of the Niagara Mohawk 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 Niagara Mohawk'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.
- --------
1/ Cases 94-E-0952, et al., Competitive Opportunities Proceeding, Opinion
No. 96-12 (issued May 20, 1996), p. 76.
-3-
<PAGE>
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.
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 Niagara Mohawk's EAF, party
comments submitted in response to the company's EAF, and on additional analysis
by Department Staff. In addition, the EAF will consider certain generic comments
raised by Public Interest Intervenors in its May 13, 1997 petition requesting
that the Commission order the filing of supplemental environmental impact
statements in all restructuring cases. The Assessment consists of:
Section II - summarizes the proposed settlement agreement.
Section III - summarizes the Environmental Assessment Form
submitted by the company.
Section IV - summarizes party comments on the company's EAF.
Section V - Staff's analysis of the environmental impacts of the
proposed settlement.
Section VI - recommends mitigation and monitoring plan.
Section VII - Staff's overall conclusions and recommendations.
II. NMPC Proposed Restructuring Settlement
--------------------------------------
Under the proposal, residential and smaller commercial customers would
receive rate reductions phased in over the first three years of the settlement
which would amount to an average reduction of 3.2% by the year 2000. Large
industrial customers
- --------
1/ 6 NYCRR Part 617.10(d).
-4-
<PAGE>
would receive reductions in their NMPC rates which would average 13% by the year
2000.
The agreement requires the company to auction virtually all of its
non-nuclear generation and prohibits the company and its subsidiaries from
owning generation in New York in the future. The company's nuclear generation
will be placed in a separate business unit but retained pending a statewide
solution to the nuclear issue.
The plan also provides for phase-in of retail access for all customers
by December of 1999. A competitive transition charge (CTC) will be charged all
customers in order to collect stranded costs.
The plan establishes a $10 million fund which will be used for programs
such as retraining, outplacement and early retirement of its employees to
mitigate any employment impacts caused by the auction or retirement of its
generating plants.
Under the plan, the company would continue its current program to
remediate pollution at coal gas production sites. The plan also provides for the
continuation of low income programs and for the institution of a $15 million per
year System Benefits Charge to be used for RD&D energy conservation and other
public benefit programs. The company has also agreed to retire 5000 S02
allowances and to transfer ownership or conservation easements for a number of
land parcels in the Adirondacks to New York State.
In a separate but related action, the company negotiated an agreement
(the Master Restructuring Agreement or MRA) with certain Independent Power
Producers (IPPs) which are currently selling power to NMPC under "must run"
contracts which are unfavorable to the company. This agreement will modify or
terminate the contracts of the settling IPPs. A number of these IPPs also
provide steam under contract to industrial customers (Steam Hosts).
III. The NMPC Environmental Assessment Form (EAF)
--------------------------------------------
On August 26, 1997, Niagara Mohawk filed an EAF covering the
environmental impacts of NMPC's July 23 PowerChoice
-5-
<PAGE>
Proposal. Subsequently, the company's proposal was modified as a result of
settlement negotiations, culminating in an Agreement filed October 10, 1997. On
November 4, 1997, the company filed a supplement to the EAF which addressed
additional areas of environmental concern raised by details of the final
settlement. In comprehensiveness and analytic depth, the NMPC EAF exceeds those
submitted by other utilities in their restructuring cases.
As the basis for much of its EAF, NMPC ran a series of PROMOD computer
analyses which simulated plant dispatching under various scenarios associated
with the PowerChoice Proposal. The scenarios differed from one another in terms
of assumed demand levels, IPP operations, Demand Side Management levels, and the
early retirement of nuclear and certain fossil units, but encompassed the likely
range of outcomes from PowerChoice. The company compared these scenarios to an
NMPC-generated "no-action" base case and to the PROMOD runs contained in the
FGEIS. The company reports that the potential air quality impacts associated
with the scenarios fell well within the limits projected in the FGEIS scenarios.
The company argues that since existing generating facilities in New
York have received permits which allow operation up to design capacity, and
since operation at full design capacity was considered in the permitting
process, changes in plant operation due to PowerChoice will not have significant
aquatic or water quality effects beyond those already considered and found
acceptable.
The company notes that while PowerChoice will have overall beneficial
effects on the State's economy, a more competitive environment could result in
localized socio-economic impacts, including loss of employment and tax revenues,
if some existing NMPC or IPP plants are retired earlier than they otherwise
would have been. Other communities might benefit from the construction of new
competitive plants. Statewide employment levels should rise as an indirect
effect of lower electricity prices.
The company's supplemented EAF also addressed the question of the
indirect effect of the MRA on IPP steam hosts.
-6-
<PAGE>
The company estimates that, at most, only 14 million mmBtu per year of steam
production, or about 15% of the total IPP steam production, will be retired or
mothballed as a result of the MRA. Only about 5% of that 14 million mmBtu is
currently being used by steam hosts. Since this is only 0.07% of the over 1
billion mmBtu annual steam production in the NMPC system, the incremental air
quality impacts of any changes in emissions resulting from steam hosts running
less efficient boilers to replace IPP steam are immaterial and fall within the
limits considered in the FGEIS.
The company notes in its supplemented EAF that the donation of SO2
allowances, the $15 million per year SBC fund and the negotiated transfer of
environmentally significant land parcels will result in environmental benefits
not considered in the July 23 PowerChoice proposal.
The company also states that the PowerChoice proposal will not affect
the company's existing Site Investigation and Remediation (SIR) program--which
is designed to identify and mitigate polluted sites owned by the company.1/
IV. Comments on the Niagara Mohawk EAF
----------------------------------
On November 4, 1997, NMPC submitted a supplemented EAF which addresses
issues arising from the negotiated agreement. Comments on the EAF were received
from the Steam Host Action Group (SHAG) and Multiple Intervenors (MI) on
December 3, 1997. Other parties, including the City of Oswego, addressed
environmental issues in their briefs.
Comments Submitted on the Supplemented EAF
- ------------------------------------------
SHAG's comments addressed only one issue--the potential socio-economic
effects of changes in contracts between NMPC and certain IPPs on some industrial
customers who purchase cogenerated steam from the IPPS. For a number of years,
NMPC has
- --------
1/ These are primarily sites where coal gas was produced for illumination
during the 19th century which were acquired by NMPC during the period of
consolidation of smaller utilities which resulted in the creation of NMPC.
-8-
<PAGE>
had "must run" contracts to purchase power at above market prices from a number
of IPPs. Many of those IPPS have had "steam host" customers who purchased steam
or hot water which was produced as a byproduct of electric generation. Part of
the negotiated settlement is a Master Restructuring Agreement (MRA) which sets
the ground rules whereby NMPC and certain of these IPPs will modify or terminate
their contracts.
SHAG states in its comments on the EAF that the termination of
contracts between IPPs and NMPC may lead some IPPs to breach their contracts
with the steam hosts. This might increase the costs of the steam hosts or
disrupt their operations. In either event, layoffs and economic harm to
communities containing the steam hosts might follow. SHAG states that these
issues are not adequately addressed in the company's supplemented EAF and urges
the Commission to take steps to mitigate the impacts of the MRA on its members.
In its comments, MI states that the EAF adequately addresses all
potential environmental impacts and that no further action under SEQRA is
required. MI does support, however, SHAG's request that the Commission adopt
measures to mitigate the potential effects of the MRA on steam hosts.
Related Comments in Initial Briefs
- ----------------------------------
Several parties also addressed the EAF, or environmental issues arising
from the proposed settlement, in their initial briefs on the proposed
settlement.
PULP's position was that environmental matters had not been adequately
considered in the proceeding to comply with the provisions of the State
Environmental Quality Review Act (SEQRA), but did not specify in what ways the
proceeding had failed.
The initial briefs of SHAG referred to its comments (summarized above)
on the EAF.
The City of Oswego challenged both the SBC and renewable energy
projects proposed in the settlement as wasteful and the company's proposed
conservation land donations as illegal, and faulted the EAF for not dealing
adequately with potential socio-economic impacts of power plant closures which
-8-
<PAGE>
might result from the sale of NMPC generating units.
The Cities of Fulton and Cohoes and the NYS Assessors Association
adopted Oswego's comments on the EAF by reference in its initial brief.
Empire State Development, while supporting the settlement, suggested
that the Commission monitor the compliance of parties with provisions of the
settlement which require good faith efforts to mitigate the effects of the MRA
on steam hosts.
The National Association of Energy Services Companies (NAESCO) endorsed
the settlement in general and specifically singled out and supported the
proposed level of system benefit spending and provisions in the settlement by
which NMPC commits to investigating the use of DSM and distributed generation to
mitigate T&D related problems.
The Consumer Protection Board, while taking no position on the effects
of divestiture on local community taxes and employment, did note that recent
sale prices of generation assets in California indicated communities might see
tax increases resulting from divestiture. In addition, it endorsed the
establishment of an SBC at the level specified in the settlement and declined to
take a position on the adequacy of the EAF.
Multiple Intervenors recapitulated in the brief the environmental
positions it took in its comments on the supplemented EAF.
The Settling Independent Power Producers endorsed the settlement
agreement and the MRA and opposed the positions of the City of Oswego and SHAG
with regards to impacts of the settlement and the MRA. SIPP stated that they
believed that the potential costs and disruption to industrial operations
claimed by SHAG were exaggerated and could be mitigated by negotiations between
SIPP and SHAG members without Commission involvement.
Niagara Mohawk stated in its brief that the supplemented EAF it had
submitted had fully satisfied the requirements of SEQRA.
Generic Comments on Utility EAFs
- --------------------------------
On May 13, 1997, the Public Interest Intervenors (PII)
-9-
<PAGE>
moved for the Department of Public Service Staff to prepare supplemental
environmental impact statements (SEISs) in several restructuring cases. At the
time the petition was filed, Niagara Mohawk had not yet submitted an
Environmental Assessment Form. In its petition, PII identified a number of
claimed deficiencies in the EAFs which had been filed at that date. Some of
PII's comments were generic in nature and, in our understanding, were intended
to apply to all utilities; some were specific to particular utilities. Even
though NMPC had not submitted an EAF at the time of the PII petition and even
though PII did not comment on the NMPC EAF subsequently, Staff summarizes below
generic points raised by PII in May which are generally relevant to the NMPC
EAF.
o PII noted that the FGEIS considered using a system benefits charge
(SBC)--which would pay for certain energy efficiency, low income and
R&D activities not likely to be undertaken by a deregulated
utility--as a means of mitigating some environmental impacts. It
asserted that the Commission made a decision in Opinion No. 96-12
that the SBC should be funded at approximately the current levels of
activity and that the SBC charge proposed in several of the plans it
reviewed were below this threshold.
o While the system benefits charge is intended to provide for energy
efficiency services (beyond those arising from market forces), it is
anticipated that utilities will continue to offer some DSM services.
PII asserts that some utilities' proposed DSM budgets will be lower
than in previous years as a result of the restructuring plan and
that will have negative environmental impacts.
o PII noted that although the proposed agreements provided for
transition to market pricing of generation, T&D services would
remain under a traditional form of regulation. PII argued that
traditional regulation contains inherent incentives for a utility to
increase sales and inflate rate base and that the Commission is
therefore required to order an SEIS.
o Several settlements reviewed by PII include provision for a
Competitive Transition Charge
-10-
<PAGE>
(CTC) which would allow the company to recover certain non-marginal
costs of utility electric plants. PII argued that, by providing a
mechanism for the recovery of these costs, the agreement would
subsidize the operation of utility plants, giving the companies an
unfair price advantage when bidding energy sales to an ISO and
result in those plants operating more than is economically
efficient. Environmental impacts would ensue if the utility plants
were run in lieu of other plants which are both more economically
efficient and more environmentally benign.
o PII noted that load pockets have been identified in several
utilities' service territories and that construction of new
transmission facilities may be required to mitigate these load
pockets. PII asserted that these facilities will have environmental
impacts which should be evaluated in an SEIS.
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 broadly relevant to NMPC.
We note that several of the environmental groups represented by PII are
signatories to the NMPC settlement agreement2/ and that neither PII nor any of
its member
- --------
1/ Cases 94-E-0952, et al., Ruling on the Motion for Supplemental Environmental
Impact Statements, (issued June 19, 1997), p. 17.
2/ The following PII members are signatories to the settlement: NRDC, PACE, the
Adirondack Council, New York Rivers United and the Association for Energy
Affordability.
-11-
<PAGE>
environmental groups have commented on the NMPC EAF or raised environmental
impact issues.
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. Instead, this analysis will deal with
issues identified by Staff, by comments on the Niagara Mohawk EAF and with
general comments offered by parties on other utility restructuring EAFs. The
issues to be examined are primarily those for which it is reasonable to believe
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 Niagara Mohawks
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 FAF will address the
question of whether any likely effect of the Niagara Mohawk restructuring plan
would cause sales growth in excess of the levels contemplated in the Final
Generic Environmental Impact Statement (FGEIS).
There appear to be three realistic ways in which restructuring could
have significant impacts on electric sales: reduced rates and price elasticity;
effects of rate of return regulation; and reduced use of energy efficiency. The
following paragraphs examine each of these effects.
-12-
<PAGE>
1. Price Elasticity Effects
------------------------
If electric prices drop as a result of utility rate reductions
incorporated in restructuring agreements and/or as a result of 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 based on
estimated sales increases that could result from decreases in electric prices,
given the best information then available to staff economists. The high sales
scenario assumed that the compounding statewide electric sales growth would be
about 2.2% per year.
This scenario was compared to a FGEIS base case "evolving regulatory
model" scenario. The base case assumed incremental sales growth of 1.2%. 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%
per year.1/
PROMOD simulation of comparative plant dispatching under these
scenarios showed that, compared to the evolving regulatory model, the high sales
model would result in a 2.9% increase in S02, emissions, a 5.5% increase in NOx
and a 12% increase in C02 by 2012. The Commission determined that, although the
FGEIS showed the possibility of detrimental incremental air quality impacts
"consistent with the 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
- --------
1/ To provide a sense of scale, estimated NYPP sales for 1996 were about
144,500 GWH and NMPC sales were 37,355 GWH. Under the FGEIS comparative
scenarios, a 1.0% per year incremental growth rate would result in
additional statewide sales of about 1,445 GWH in 1997 due to price
elasticity and additional NMPC sales of about 374 GWH.
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<PAGE>
possible."1/
Niagara Mohawk accounted for roughly 26% of NYPP sales in 1996. In
analyzing the significance of any potential incremental sales growth
attributable to the Niagara Mohawk restructuring plan, it is reasonable to focus
on Niagara Mohawk's pro rata share of the sales growth and impacts considered in
the FGEIS and ask whether Niagara Mohawks incremental sales growth due to price
elasticity effects resulting from restructuring would be likely to be
significantly greater than the average statewide incremental sales growth due to
restructuring.
Recently, Staff of the Office of Energy Efficiency and Environment
(OEEE), with the assistance of the Office of Regulatory Economics (ORE) of the
DPS, performed an elasticity analysis using the rate reductions in the Niagara
Mohawk settlement. The results (see Attachment A, Table B) show that the
settlement rate reductions are likely to produce a 0.50% incremental annual
increase in demand compared to the FGEIS base case over the same 15 year
modeling period used in the FGEIS. This is only half the incremental sales
increase modeled in the FGEIS high sales scenario.
It is important to note that this elasticity analysis estimates only
the additional sales growth which would result from the rate reductions in the
settlement agreement. It does not consider other important factors, such as
population growth, general economic growth and the prices of competitive energy
sources, which also help to determine overall sales growth, and so should not be
interpreted as a sales forecast.
2. Regulation of the T&D Utility
-----------------------------
While the proposed settlement provides for a transition to a more
competitive market for generation, the
- --------
1/ Cases 94-E-0952, et al., In the Matter of Competitive Opportunities
Regarding Electric Service, Opinion and Order 96-12 (issued May 20, 1996),
pg. 81.
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T&D portion of Niagara Mohawk would remain a regulated utility with rate of
return regulation. In its May 13, 1997 petition, PII argued that rate of return
regulation gives the T&D utility incentives to promote sales and to build
uneconomic rate base. According to PII, these incentives could result in
environmental impacts which should be considered in a separate SEIS.
For several years, a revenue decoupling mechanism (NERAM) was in effect
for NMPC which was intended to remove the linkage between increased sales and
increased company profits. However, in 1995 the Commission approved the
discontinuation of the general NERAM revenue reconciliation mechanism, but
allowed continuation of a limited mechanism for recovery of lost revenues due to
DSM. As discussed below, the company's expenditures on DSM declined sharply
after 1995. It did not request recovery of DSM lost revenues after that date.
The Agreement proposes discontinuation of this DSM lost revenue
recovery mechanism. Its discontinuation is unlikely to have a material effect on
the company's already much reduced DSM programs or to act as an incentive to
promote sales and to build an uneconomic rate base.
3. Lower Energy Efficiency Effect
------------------------------
For a number of years, the New York commission has encouraged utilities
to promote end use energy efficiency (DSM). This encouragement has included
review and approval of utility DSM plans and budgets and various incentive and
cost recovery mechanisms. For all New York utilities, including Niagara Mohawk,
the levels of DSM expenditures and energy savings have declined drastically in
recent years. Niagara Mohawk's DSM expenditures peaked at $65.9 million in 1992
and its incremental annual DSM energy savings peaked at 324.6 GWH, also in 1992.
By 1996, its DSM expenditures had declined to only $0.8 million and its DSM
incremental energy savings goal had declined to only 29.9 GWH. While the company
had budgeted $2.7 million for DSM in
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1997, by mid-year it had only spent about $0.1 million. We estimate 1997
incremental DSM savings at about 6 GWH based on mid-year achievements. The
company plans to continue to offer limited DSM programs to customers, but no
specific sum is included in the settlement for these activities. As discussed
below, money is allocated for a System Benefits Charge (SBC) which will include
energy efficiency programs.
Staff examined the possibility that DSM budget reductions could reduce
the energy conservation measures taken by NMPC customers and result in
incremental increases in electric sales beyond the base case.
In the FGEIS, the base case "evolving regulatory model" scenario and
the "high sales" scenario included annual incremental Niagara Mohawk DSM energy
savings of 112 GWH1/ for the years 1997 and beyond. Another scenario in the
FGEIS estimated the sales and environmental impacts of halting all DSM
activities; the sales and environmental impacts of this "No incremental utility
DSM" scenario were shown to be much smaller than those of the "high sales
scenario."
The FGEIS did not consider a scenario that assumed both high sales and
no incremental DSM, so Staff evaluated the plausibility that a realistic
combination of low Niagara Mohawk DSM and high Niagara Mohawk sales growth could
result in sales greater than those postulated in the FGEIS "high sales
scenario." Staff has re-analyzed the impact of energy efficiency programs on
NMPC sales growth using a value of 29.9 GWH for 1996, 6.0 GWH for 1997 and 0 GWH
for the years 1998 through 2012 and compared that to the DSM impact analysis
underlying the FGEIS high sales scenario. We calculate that, averaged over the
FGEIS modeling period (1997 through 2012), the elimination of all energy
efficiency sales reductions after 1997 would increase
- --------
1/ The assumed level of DSM was equivalent to the company's 1996 DSM goal. No
provision was made in the base case for energy efficiency sales reductions
resulting from programs funded by a system benefits charge.
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<PAGE>
sales by only 0.13% a year.
This analysis probably overstates the effects of reductions in utility
DSM programs on the availability of energy efficiency services for two reasons.
First, as discussed below, the Agreement provides substantial funding for an
SBC, much of which will be used to provide energy efficiency programs or
information. Secondly, (as observed in the FGEIS) retail competition will result
in the development of a competitive ESCO market in which some ESCO's will
probably offer energy efficiency services as a way of distinguishing themselves
from competitors.
As discussed above, the price elasticity effects of the settlement rate
reductions would increase sales by an average rate of 0.50% a year over the 15
year period compared to the FGEIS base case. If the effects of no DSM are added,
the likely incremental sales increases due to the settlement are about 0.63%.
This is well below the 1.0% incremental growth considered in the FGEIS high
sales scenario.
B. System Benefits Charge
----------------------
The settlement provides for an SBC funded at a level of $15 million a
year. The City of Oswego has objected to the establishment of an SBC as
wasteful. However, in adopting the FGEIS, the Commission found that an SBC is
necessary to mitigate the environmental effects of the reduction in utility DSM
programs and provide for the continuation of other important public benefit
programs.
In its May 13, 1997 comments, PII argued that restructuring agreements
should provide for SBCs funded at the levels of utility DSM expenditures current
when the Commission adopted the FGEIS. Staff believes that the proposed level of
funding is compatible with the FGEIS and that no further analysis is required.
C. Effect of Restructuring on Retirement
or Construction of New Generation,
Plant Dispatch or Fuel Purchase
-------------------------------------
Another potential factor that could, in
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NY12528: 98044.1
<PAGE>
concept, affect New York's environment is the direct or indirect effect of the
Niagara Mohawk restructuring plan on the mix of fuels burned or plants run to
meet electric sales in Niagara Mohawk's territory. The following section will
analyze whether there is any reason to believe that the Niagara Mohawk plan
would result in impacts that are greater than or different in nature or
causation from those already addressed in the FGEIS.
1. Construction of New Generating Plants
-------------------------------------
Projections in the FGEIS suggest that new capacity will be required on
the New York State system within several years. This capacity might be provided
by constructing new facilities, repowering existing. plants, additional firm
power imports or a combination of the above. It is also possible that some
investors will find it attractive to construct new power plants (or refurbish
existing less efficient plants) to compete as merchant plants in the new open
power market being established by the Commission.
If new or repowered plants in excess of 80 MW, or significant
transmission construction is required, those projects will be subject to full
environmental review under Articles X and VII of the Public Service Law. In any
event, under current air quality regulations (particularly the emissions offset
policies for NOx) construction of new facilities tends to improve air quality
for critical emissions.
2. Transfer of Ownership of NMPC
Non-Nuclear Generation
-----------------------------
Under the Agreement, the company is required to auction its non-nuclear
generation. The company has prepared an auction plan which will be the subject
of a separate Commission proceedings. The potential environmental consequences
of the auction are beyond the scope of this EAF. Staff will examine the auction
plan and advise the Commission about whether a separate SEQRA analysis of the
auction is required.
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<PAGE>
However, the City of Oswego and other parties have raised concerns
about the possible effects of the settlement agreement on existing NMPC plants.
It is possible to make some general observations about the possible
environmental impacts of the divestiture of the company's generation assets.
It is likely that the company's lowest cost generating facilities will
be acquired by another owner. These plants may be operated in much the same
fashion by the new owners as they have been by NMPC. In general, the permitting
and licensing restrictions and environmental standards which apply to these
plants under Niagara Mohawk's ownership will continue to apply. However, it is
possible that competitive pressures will cause the new owners to seek to cut
environmental expenditures in non-mandated areas. Such problems could be
mitigated through specific agreements between NMPC and bidders if required by
the auction plan.
The company estimates that most plant staff will be retained by new
owners, but it is possible that transfer of these low operating cost plants
would result in replacement of some existing NMPC employees or a reduction in
work force.
The effect of divestiture on higher cost plants is more speculative. It
is possible that new owners will acquire some or all of these less efficient
plants and invest money to make them more competitive. Even plants with high
operating costs may have significant advantages over "green field" sites in
terms of existing transmission links and fuel access, as well as community
acceptance and relative ease of environmental licensing. We note that Niagara
Mohawk is currently in the early stages of an Article X licensing proceeding for
the repowering of its Albany Steam Station. This application is intended
expressly to increase the value of that facility to prospective bidders.
The combination of incentives for prompt
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<PAGE>
auctioning of these sites and the opportunity for NMPC to recover much of its
stranded costs may mean that currently inefficient plants will be available at
reasonable prices to developers. The result could be a willingness to invest in
plant refurbishment to make them competitive in the market. The transfer of
ownership from a regulated utility to an unregulated owner may also provide an
opportunity for the new owner to negotiate lower property tax payments--further
improving the plant's competitiveness.
3. Retirement of NMPC Generating Facilities
----------------------------------------
If no market for a given facility is revealed by the auction,
retirement of that facility is a likely outcome. However, retirement of a major
NMPC generating facility could have a variety of local fiscal, economic,
employment and other environmental impacts. The City of Oswego cited concerns
about the potential local impacts of retirement of the Oswego Steam Station.
The potential impact of early plant retirements was considered by the
Commission in the FGEIS. The FGEIS concluded that accelerated retirement of less
efficient plants is an unavoidable potential consequence of a more competitive
electric industry. It further concluded that such changes could have significant
adverse impacts on individuals and communities. Impacts discussed in the EAF
included local economic impacts, decreased employment and reduced local tax
revenues. While the EAF predicted that competition would lead to lower electric
rates and an enhanced economy which would more than offset these impacts on a
statewide basis, it stated that permanent displacement of some workers might
result and that not all communities would share equally in the benefits of
competition.
In Opinion No. 96-12, 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." One measure adopted by the
Commission was a charge to Staff to monitor
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<PAGE>
and, if indicated, mitigate specific impacts that may occur. The Settlement
includes a commitment from the company to establish a $10 million fund which
will be used for programs such as retraining, outplacement and early retirement
of its employees to mitigate any employment impacts caused by the auction or
retirement of its generating plants.
The potential impacts on the City of Oswego, and other communities
potentially affected, fall within the range considered in the FGEIS and no
further analysis is required in this proceeding.
4. Effect of Competitive Transition Charge
(CTC) on Plant Dispatch
---------------------------------------
The proposed Settlement includes a provision which will allow the
company to partially recover its above-market generation costs through a
non-avoidable CTC charge. In its motion filed on May 13, 1997 in Case 96-E-0952,
PII contended that since potential competitors will not receive a similar income
stream, companies receiving a CTC would offer generation to the ISO at a
subsidized and uneconomic price. This, PII asserted, could result in a company
operating less efficient and dirtier plants than the competitive plants which
would have operated in the absence of the CTC.
However, under the provisions of the proposed settlement, collection of
NMPC's stranded costs is not dependent on operating a Niagara Mohawk plant
(i.e., is not marginal revenue). Both Niagara Mohawk and any competitors would
face the same short term decision criterion. They would maximize profits (or
minimize losses) on existing facilities by selling on the market whenever the
clearing price equals or exceeds their marginal operating costs--as they
themselves calculate marginal costs given their best information.
While not addressed in any filed comments, some parties in public
hearings have objected to the collection of the CTC from customers who choose to
install solar panels or other renewable technologies to
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<PAGE>
supply their power but remain connected with the company for back-up. They
contend that, by increasing their costs, the CTC slows the development of
renewable energy and incrases environmental impacts. It appears to Staff that
even-handed application of the CTC merely puts all power sources on an even
footing. Since the CTC costs avoided by installers of renewable equipment would
be ultimately born by other ratepayers or company stockholders, special
exemptions from the CTC would constitute an indirect and uneconomic subsidy. If
subsidies for renewables are in the public interest, they can be provided
directly through the SBC or through legislative action.
4. Fuel Burned by Niagara Mohawk
-----------------------------
Various Niagara Mohawk units have the capacity to burn either coal, oil
or gas within existing air quality limits. Decisions about which fuel to burn at
these facilities will continue to be based on economic considerations and
unrelated to restructuring regardless of ownership.
D. Effects of the MRA
------------------
For a number of years the company has been locked into "must run"
contracts requiring it to purchase power, whenever offered, at above-market
prices. Most of these plants are either small hydro-electric facilities or
modern gas-fired cogenerators. In July of 1997, the company reached a Master
Restructuring Agreement with 29 IPPs representing 80% of the company's
above-market costs. Under the MRA, the settling IPPs agreed to "restructure,
amend or replace" their current contracts in return for payments from NMPC,
purchase by NMPC or other contract modifications.
1. Potential Air Quality Impacts of
Changes in IPP Contracts
--------------------------------
It is not feasible to predict how the operation of each of these plants
will be changed by the MRA. However, in general, the MRA could impact the
operation of the settling IPP plants through changes in the dispatch of the IPPs
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<PAGE>
and changes in steam sales to steam hosts. According to NMPC estimates, at most
about 15% of the total IPP steam production would be retired or moth balled due
to the MRA. The remainder will continue operating but will either enter into
bilateral contracts or bid into the market on a basis that reflects true
marginal costs.
The FGEIS examined the possibility that all the "must run" IPP
contracts in New York State would be renegotiated so that these plants would be
economically dispatched. The model used for the FGEIS showed that economic
dispatch of IPPs would result in increased S02 emissions and decreased NOx and
C02 emissions, relative to the base case, during most of the study period.
However, during the later years of the period, economic dispatch of IPPs would
result in lower S02 emissions.
In Opinion No. 96-12, which adopted the FGEIS, the Commission observed
that the analysis of retail market structures (which included consideration of
economic dispatch of IPPs) forecast that competition would result in greater air
quality impacts than the no action alternative, but that moving towards
competition was still desirable when these effects were balanced against the
likely economic benefits of the policy.
The proposed MRA would have smaller effects than those reported in the
FGEIS since the FGEIS assumed that all the IPPs in the state with "must run"
contracts would be economically dispatched, while the MRA affects only some of
the IPPs having contracts with NMPC. It should be noted that, although there is
likely to be a temporary increase in S02 emissions resulting from the MRA, NMPC
has agreed to permanently donate 5,000 S02 allowances to the Adirondack Council
for retirement.
Many of the IPP units affected by the MRA have steam hosts which
currently purchase byproduct steam or hot water from generating activities. To
the extent that IPPs are retired or mothballed, the steam hosts may have to
build new auxiliary boilers or refurbish retired boilers. Niagara Mohawk, in its
EAF, estimates that the steam host steam requirements
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directly affected by retirement of settling IPPs would represent only about 0.8%
of total IPP steam production. In addition, it is possible that changes in the
operation of an IPP1/ due to renegotiation of contracts with NMPC could result
in a higher steam price or limited steam availability and thus cause increased
operation of auxiliary boilers. These single purpose boilers could be less
efficient and somewhat more polluting than the cogeneration units they replace.
In general, we would assume that the indirect air quality impacts of
increased operation of new or existing auxiliary steam host boilers would have
only marginal air quality impacts since most steam hosts currently served by an
adjacent gas fired IPP would probably have relatively easy physical access to
clean burning natural gas to feed their own boilers2 and since the amount of
steam involved is relatively low in the context of this assessment.
2. Potential Socio-economic Impacts of Interruption
of Steam Supply to Steam Hosts
-----------------------------------------------
As noted above, it is possible that the MRA, which modifies or
terminates contracts between NMPC and a number of IPPs, may affect the price or
availability of steam or hot water currently provided by these IPPs to
industrial steam hosts. This could have a variety of impacts on the costs or
operations of the steam hosts. For example:
- steam prices charged to the steam hosts could rise
because of changes in the cogenerators' revenue
structure;
- steam hosts may have to change production schedules
because cogenerators operate less frequently or less
regularly;
- --------
1 For example, if a cogenerator which formerly ran around the clock under a
"must run" contract, moved to a more limited or irregular operating regime
under economic dispatch.
2 The possible economic and employment impacts of changes or discontinuation
of IPP steam sales to steam hosts will be discussed in another section of
this EAF.
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<PAGE>
- steam may no longer be available from cogenerators who
cease operation;
- the installation or refurbishment of auxiliary
boilers to replace cogenerated steam may result in
higher capital and operating costs or in disruption
of steam host operations during the period of
permitting and construction.
Such changes could have short term effects on profits, worker incomes,
employment and local economies if, for example, production curtailments and
layoffs or reduced shifts were required during a transition period. Long term
local socio-economic impacts might result if the steam host saw a major
permanent change in its capital or operating costs which made it less
competitive in the market.
These adverse local socio-economic impacts would be balanced by
positive socio-economic impacts on a larger scale. In many cases, IPPs sought
out steam hosts primarily to become "qualifying facilities" (QFs) under the
Public Utilities Regulatory Policy Act of 1978 (PURPA) and thus eligible for
legislatively mandated above-market price must-run contracts with Niagara
Mohawk. As a result of the MRA, these plants will be dispatched economically
based on their marginal costs. The resulting improvement in economic efficiency
will lower costs and benefit ratepayers and the state's economy.
This is not to say that the local economic disruption which might be
caused by the MRA is inconsequential. However, it is likely that such impacts
can be adequately mitigated. We note that the parties to the settlement have
committed (section 13.8) to "pursue diligently ways to minimize any economic or
operational difficulties due to changes in IPP steam production which could
occur as a result of the MRA..."
E. Effect of Restructuring Plan on Construction
of New Transmission Facilities
--------------------------------------------
In its EAF, Niagara Mohawk states that no new transmission facilities
are required to implement the October 10 agreement. it is possible, however,
that load pockets could
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occur within the franchise in certain combinations of load and weather.
Load pockets are of potential concern in a competitive environment
because the owner of facilities in the load pocket could exercise market power
during load pocket conditions unless there were sufficient competing generation
sources within the load pocket. In many areas of the NMPC franchise there is a
mix of generating facilities owned by NMPC and IPPs. Where this diversity of
ownership occurs, the exercise of market power is less likely to occur. However,
ownership of NMPC facilities is likely to change within the next few years
because NMPC has committed to auctioning its non-nuclear generation. Conceivably
the ownership of generation could become more dispersed in some areas (lessening
market power concerns) and more concentrated in other regions (increasing the
potential market power of owners).
Additional transmission could be constructed by the regulated T&D
utility to prevent the exercise of market power. The construction of new
transmission facilities can be anticipated to have a variety of environmental
impacts. These were discussed generically in the FGEIS. However, any
construction of significant new transmission would require environmental review
and approval by the Public Service Commission under Article VII of the Public
Service Law. Under this law the Commission is obligated to weigh the costs and
benefits of the transmission addition and to consider alternatives.
In many situations, the Commission could take other steps to relieve or
prevent market power which would not have incremental environmental impacts. For
example, it could impose requirements on Niagara Mohawk's auction process which
would limit the amount of generation any one bidder could buy in a potential
load pocket, or could require purchasers to enter into special contracts with
the T&D utility which would limit or index prices which could be charged during
load pocket conditions. In some situations the Commission might encourage T&D
utilities to offer targeted DSM programs to prevent the
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<PAGE>
exercise of market power. In Section 7.2(l) of the settlement, the company
committed itself to evaluate and implement cost effective alternatives to major
T&D projects including DSM and distributed generation.
F. Miscellaneous Environmental Issues
----------------------------------
1. Remediation of Coal Gas Sites
-----------------------------
For several years the company has been conducting a site remediation
program designed primarily to clean up environmental damage at old coal gas
sites which the company had acquired during its consolidation. Section 2.6.5.2
of the settlement commits the company to continue this effort. No incremental
environmental impacts are anticipated.
2. Environmentally Significant Lands
Owned By Niagara Mohawk
---------------------------------
The company currently owns extensive undeveloped land associated
primarily with its hydro facilities. Some portions of this land have
considerable ecological or scenic value. Divestiture of these hydro facilities
could result in the development of these lands and the loss of their ecological
values. However, in sections 7.2 (iv through x) the company commits to donate or
sell conservation and development right easements to the State of New York for
these critical parcels. No incremental negative environmental impacts are
anticipated.
3. Environmental Disclosure
------------------------
Various parties suggested that some customers in a competitive power
market may wish to consider environmental values in their power purchase
decisions. In the absence of reliable and consistently presented information on
the generation sources used by suppliers, customers may be unable to make
informed decisions based on environmental as well as economic considerations. A
well defined environmental disclosure program would encourage the use of
environmentally responsible generation sources.
Section 7.2 (xvi) of the settlement states that the company and Staff
have agreed to "...work with load serving entities and others to develop and
implement, where feasible, meaningful and cost effective, an approach to
providing
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<PAGE>
customers with fuel mix and emission characteristics of the generation sources
relied upon by the load serving entity."
VI. Mitigation of Impacts--Monitoring
---------------------------------
It is important to note that the FGEIS explicitly recognized that "the
likely environmental effects of a shift to a more competitive market for
electricity are not fully predictable1/ due to the absence of precedence,
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 Niagara
Mohawk's restructuring plan.
In Opinion 96-12 (Opinion and Order Regarding Competitive Opportunities
for Electric Service), 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 benefits charge;
and (3) assisting efforts undertaken by other agencies to address interstate
pollution transport."
Staff analysis of the Niagara Mohawk restructuring plan shows 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.
Environmental impacts which could be monitored are described in Section
6.2.3 of the Final Generic Environmental Impact Statement (FGEIS) issued May 3,
1996 in Case 94-E-0952 (Competitive Opportunities Regarding Electric Service).
In addition, this EAF discuss a number of activities and environmental changes
that would be important to monitor during
- -------------------
1 FGEIS, p. 77.
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the transition to competition. Examples of environmental issues that could
require monitoring include:
o imported electricity from the midwest,
o SO2 and NOX emissions,
o retirement of Niagara Mohawk power plants,
o in-state and out-of-state purchased generation,
o fuel mixture of generation,
o reduction in environmental RD&D,
o loss of environmentally significant land,
o new electric and gas transmission line construction,
o acid precipitation in the Adirondacks and Catskills, and
o mitigation of load pockets.
The proposed environmental monitoring plan currently being developed by
Staff will 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 significance. Staff anticipates
Niagara Mohawk's cooperation in the development and implementation of this
monitoring plan.
VII. Conclusions
-----------
We have considered the proposed October 10 settlement agreement and
have analyzed the potential impacts of that agreement on the environment. We
have compared these likely impacts to those addressed in the FGEIS. Our 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 other parties commenting
on the Niagara Mohawk EAF.
We conclude that the Niagara Mohawk 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
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no further SEQRA compliance is required with regard to the transitional
restructuring plan for this company.
Although no further SEQRA compliance is required before Commission
action on the NMPC restructuring agreement, the Commission should institute
mechanisms for monitoring and, if indicated, mitigating some of the potential
impacts of restructuring. Staff is developing a proposed monitoring plan for the
Commission's consideration.
In the future, the Commission will be asked to act on NMPC's detailed
auction plan. Staff is considering the potential impacts of the auction plan and
will advise the Commission on the possible need for an EAF on that action.
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ATTACHMENT
Page 1 of 4
APPENDIX
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 Energy Efficiency and
Environment with the assistance of 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). No other growth inducing factors are included, so the analysis only
reflects the incremental impact of rate changes. 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' 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 B
is based on the price reductions from the Agreement and is the scenario used in
the EAF. Other scenarios explore alternative hypothetical rate reductions.
Tables A through E then calculate the year by year increase in sales
due to competition (short-run, long-run and total), the cumulative change in
sales, and the annual average rate of sales growth. 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. The end of the five year settlement period and the end of the 15
year modeling period are highlighted.
<PAGE>
ATTACHMENT
Page 2 of 4
NIAGARA MOHAWK PRICE ELASTICITY IMPACT
--------------------------------------
Sales ch = (price elasticity * % price ch) + lambda * (sales ch lag 1)
A. %Res
Delta %Tl/Yr Lambda SR Elas LR Elas
1.0 1.35 0.71 0.33 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
- ---- -------- -------- ----- ------ ----
1998 0.439 0.000 0.439 0.439 0.44
1999 0.439 0.313 0.752 1.191 0.59
2000 0.439 0.537 0.976 2.167 0.72
2001 0.000 0.697 0.697 2.865 0.71
2002 0.000 0.498 0.498 3.363 0.66
2003 0.000 0.356 0.356 3.718 0.61
2004 0.000 0.254 0.254 3.973 0.56
2005 0.000 0.182 0.182 4.154 0.51
2006 0.000 0.130 0.130 4.284 0.47
2007 0.000 0.093 0.093 4.376 0.43
2008 0.000 0.066 0.066 4.442 0.40
2009 0.000 0.047 0.047 4.490 0.37
2010 0.000 0.034 0.034 4.523 0.34
2011 0.000 0.024 0.024 4.548 0.32
2012 0.000 0.017 0.017 4.565 0.30
B. %Res
Delta %T1/Yr Lambda SR Elas LR Elas
3.2 2.31 0.71 0.33 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
---- -------- -------- ----- ------ ----
1998 0.751 0.000 0.751 0.751 0.75
1999 0.751 0.536 1.287 2.037 1.01
2000 0.751 0.919 1.670 3.707 1.22
2001 0.000 1.193 1.193 4.899 1.20
2002 0.000 0.852 0.852 5.751 1.12
2003 0.000 0.608 0.608 6.360 1.03
2004 0.000 0.435 0.435 6.794 0.94
2005 0.000 0.310 0.310 7.105 0.86
2006 0.000 0.222 0.222 7.326 0.79
2007 0.000 0.158 0.158 7.485 0.72
2008 0.000 0.113 0.113 7.598 0.67
2009 0.000 0.081 0.081 7.679 0.62
2010 0.000 0.058 0.058 7.736 0.57
2011 0.000 0.041 0.041 7.778 0.54
2012 0.000 0.029 0.029 7.807 0.50
<PAGE>
ATTACHMENT
Page 3 of 4
NIAGARA MOHAWK
Sales ch = (price elasticity * % price ch) + lambda * (sales ch lag 1)
C. %Res
Delta %Tl/Yr Lambda SR Elas LR Elas
5.0 2.73 0.71 0.33 1.14
Cumu-
Year SR Sales LR Sales Total lative Rate
---- -------- -------- ----- ------ ----
1998 0.887 0.000 0.887 0.887 0.89
1999 0.887 0.633 1.520 2.407 1.20
2000 0.887 1.086 1.973 4.380 1.44
2001 0.000 1.409 1.409 5.789 1.42
2002 0.000 1.006 1.006 6.795 1.32
2003 0.000 0.719 0.719 7.514 1.21
2004 0.000 0.514 0.514 8.028 1.11
2005 0.000 0.367 0.367 8.394 1.01
2006 0.000 0.262 0.262 8.656 0.93
2007 0.000 0.187 0.187 8.844 0.85
2008 0.000 0.134 0.134 8.977 0.78
2009 0.000 0.095 0.095 9.073 0.73
2010 0.000 0.068 0.068 9.141 0.68
2011 0.000 0.049 0.049 9.190 0.63
2012 0.000 0.035 0.035 9.224 0.59
D. %Res
Delta %Tl/Yr Lambda SR Elas LR Elas
7.0 3.64 0.71 0.33 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
---- -------- -------- ----- ------ ----
1998 1.185 0.000 1.185 1.185 1.18
1999 1.185 0.846 2.031 3.215 1.59
2000 1.185 1.451 2.635 5.850 1.91
2001 0.000 1.882 1.882 7.733 1.88
2002 0.000 1.344 1.344 9.077 1.75
2003 0.000 0.960 0.960 10.037 1.61
2004 0.000 0.686 0.686 10.723 1.47
2005 0.000 0.490 0.490 11.213 1.34
2006 0.000 0.350 0.350 11.563 1.22
2007 0.000 0.250 0.250 11.813 1.12
2008 0.000 0.179 0.179 11.992 1.03
2009 0.000 0.128 0.128 12.119 0.96
2010 0.000 0.091 0.091 12.210 0.89
2011 0.000 0.065 0.065 12.275 0.83
2012 0.000 0.046 0.046 12.322 0.78
<PAGE>
ATTACHMENT
Page 4 of 4
NIAGARA MOHAWK
Sales ch = (price elasticity * % price ch) + lambda * (sales ch lag 1)
E. %Res Delta %T1/Yr Lambda SR Elas LR Elas
9.0 4.55 0.71 0.33 1.14
Cumu- Annual
Year SR Sales LR Sales Total lative Rate
---- -------- -------- ----- ------ ----
1998 1.477 0.000 1.477 1.477 1.48
1999 1.477 1.055 2.532 4.010 1.99
2000 1.477 1.809 3.286 7.296 2.37
2001 0.000 2.347 2.347 9.643 2.33
2002 0.000 1.677 1.677 11.319 2.17
2003 0.000 1.198 1.198 12.517 1.98
2004 0.000 0.855 0.855 13.372 1.81
2005 0.000 0.611 0.611 13.983 1.65
2006 0.000 0.436 0.436 14.419 1.51
2007 0.000 0.312 0.312 14.731 1.38
2008 0.000 0.223 0.223 14.954 1.27
2009 0.000 0.159 0.159 15.113 1.18
2010 0.000 0.114 0.114 15.226 1.10
2011 0.000 0.081 0.081 15.308 1.02
2012 0.000 0.058 0.058 15.366 0.96
F. LARGE SMALL RES/ WGTED PRICE
IND IND/COM OTHER AVG PER YR
--- ------- ----- --- ------
Sales Weight 0.31 0.32 0.37
SR Price Elas. 0.43 0.31 0.25 0.33
LR Price Elas. 1.28 1.17 0.99 1.14
Price Red. A 10.00 2.00 1.00 4.11 1.35
Price Red. B 13.31 5.56 3.22 7.10 2.31
Price Red. C 15.00 6.00 5.00 8.42 2.73
Price Red. D 20.00 8.00 7.00 11.35 3.64
Price Red. E 25.00 10.00 9.00 14.28 4.55
Lambda (1- SR Elas/LR Elas): 0.71
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT K
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 1
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Adams, Town of Jefferson Elec Trans Perpetual
C Adams, Town of Jefferson Electric Perpetual
C Adams, Town of Jefferson Gas Perpetual
C Adams, Village of Jefferson Electric Perpetual
C Adams, Village of Jefferson Gas Perpetual
C Albion, Town of Jefferson Electric Perpetual
C Albion, Town of Oswego Electric Perpetual
C Alexandria Bay, Village of Jefferson Electric Perpetual
C Alexandria, Town of Jefferson El. Spec.Loc. Perpetual
C Alexandria, Town of Jefferson Gas & Electric Perpetual
C Altamont, Town of Franklin Electric Perpetual
C Altmar, Village of Oswego Electric Perpetual
C Amboy, Town of Oswego Electric Perpetual
C Annsville, Town of Oneida El. Trans/Dist. Perpetual
C Antwerp, Town of Jefferson Electric Perpetual
C Antwerp, Village of Jefferson Electric Perpetual
C Ava, Town of Oneida Electric Perpetual
C Baldwinsville, Village of Onondaga Electric Perpetual
C Baldwinsville, Village of Onondaga Gas Perpetual
C Baldwinsville, Village of Onondaga Gas Trans Sp Lo Perpetual
C Baldwinsville, Village of Onondaga Gas Trans/Dist. Perpetual
C Baldwinsville, Village of Onondaga Gas-Correction Perpetual
C Bangor, Town of Franklin Gas & Electric Perpetual
C Belmont, Town of Franklin Elec. Ltd. Area Perpetual
C Black Brook, Town of Clinton Electric Perpetual
C Black River, Village of Jefferson Electric Perpetual
C Black River, Village of Jefferson Gas Perpetual
C Bloomingdale, Village of Essex Electric Perpetual
C Bombay, Town of Franklin El. Ltd. Area Perpetual
C Bombay, Town of Franklin Electric 8/14/2015 99 years
C Boonville, Town of Oneida Elec. Trans. Perpetual
C Boonville, Town of Oneida Electric Perpetual
C Boylston, Town of Oswego El. Trans.(map) Perpetual
C Boylston, Town of Oswego Electric Not Shown
C Brandon, Town of Franklin Electric Perpetual
C Brasher, Town of St. Lawrence Electric Perpetual
C Brighton, Town of Franklin Electric Perpetual
C Brownville, Town of Jefferson El. Trans/Dist. Perpetual
C Brownville, Town of Jefferson Electric 50 Years
C Brownville, Town of Jefferson Gas Perpetual
C Brownville, Village of Jefferson Electric Not Shown
C Brownville, Village of Jefferson Electric Perpetual
C Brownville, Village of Jefferson Electric 4/18/38 10 years
C Brownville, Village of Jefferson Gas Perpetual
C Brushton, Village of Franklin Electric Perpetual
C Brutus, Town of Cayuga Electric Perpetual
C Camden, Town of Oneida El. Trans/Dist. Perpetual
C Camden, Village of Oneida El. Trans/Dist. Perpetual
C Camillus, Town of Onondaga El. Trans/Dist. Perpetual
C Camillus, Town of Onondaga EI.Trans.Sp.Loc Perpetual
C Camillus, Town of Onondaga Gas Trans/Dist Perpetual
C Camillus, Town of Onondaga Gas-correction Perpetual
C Camillus, Village of Onondaga Electric Perpetual
C Camillus, Village of Onondaga Gas Perpetual
C Camillus, Village of Onondaga Gas-correction Perpetual
C Canastota, Village of Madison Electric Perpetual
C Canastota, Village of Madison Gas 2/27/54 50 years
C Canastota, Village of Madison Gas & Electric Perpetual
C Canastota, Village of Madison Gas & Electric 14/14/52 50 Years
C Canton, Town of St. Lawrence El. Spec. Loc. Perpetual
C Canton, Town of St. Lawrence Elec Spec Loc Not Stated
C Canton, Town of St. Lawrence Elec Spec Loca Perpetual
C Canton, Town of St. Lawrence Electric Perpetual
C Canton, Town of St. Lawrence Electric 8/6/27 10 Years, Rnwb.
C Canton, Village of St. Lawrence Electric Perpetual
C Cape Vincent, Town of Jefferson Gas & Electric Perpetual
C Cape Vincent, Village of Jefferson Electric Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 2
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Carthage, Village of Jefferson Electric Perpetual
C Carthage, Village of Jefferson Gas Perpetual
C Castorland, Village of Lewis Electric Not Shown
C Cazenovia, Town of Madison El. Tran.Sp.Loc. Perpetual
C Cazenovia, Town of Madison Electric Perpetual
C Cazenovia, Town of Madison Gas Perpetual
C Cazenovia, Town of Madison Gas Trans/Dist. Perpetual
C Cazenovia, Village of Madison Electric Perpetual
C Cazenovia, Village of Madison Gas Perpetual
C Central Square, Village of Oswego Electric Perpetual
C Champion, Town of Jefferson Electric Perpetual
C Champion, Town of Jefferson Gas Perpetual
C Chaumont, Village of Jefferson Electric & Gas Perpetual
C Chittenango, Village of Madison Electric Perpetual
C Chittenango, Village of Madison Gas Perpetual
C Cicero, Town of Onondaga El Trans Sp Loc Perpetual
C Cicero, Town of Onondaga El Trans/Dist. Perpetual
C Cicero, Town of Onondaga El. trans sp lo Perpetual
C Cicero. Town of Onondaga Electric Perpetual
C Cicero, Town of Onondaga Gas Trans/Dist Perpetual
C Clare, Town of St. Lawrence Electric Perpetual
C Clay, Town of Onondaga El Trans Sp Lo Perpetual
C Clay, Town of Onondaga El. Trans/Dist Perpetual
C Clay, Town of Onondaga Electric Perpetual
C Clay, Town of Onondaga Gas Trans/Dist Perpetual
C Clayton, Town of Jefferson Electric Perpetual
C Clayton, Village of Jefferson Electric Perpetual
C Clayville, Village of Oneida Electric Perpetual
C Clayville, Village of Oneida Gas Trans/Dist. Perpetual
C Cleveland, Village of Oswego Electric Perpetual
C Clifton, Town of St. Lawrence Electric Perpetual
C Clinton, Village of Oneida El Trans Sp Loc Perpetual
C Clinton, Village of Oneida Gas/El Trs/Dst. Perpetual
C Cold Brook, Village of Herkimer Electric Perpetual
C Cold Brook, Village of Herkimer Gas Perpetual
C Colton, Town of St. Lawrence Electric Perpetual
C Colton, Town of St. Lawrence Electric 7/14/18 Five Years
C Colton, Town of St. Lawrence Electric 7/12/23 Five Years
C Columbia, Town of Herkimer Elec Ltd Area Perpetual
C Constable, Town of Franklin Electric Perpetual
C Constableville, Village of Lewis Electric Perpetual
C Constantia, Town of Oswego Electric Perpetual
C Copenhagen, Village of Lewis Electric Perpetual
C Cornwall, Township of Stormont Electric 7/5/46 20 years
C Cornwall, Township of Stormont Electric 4/18/52 5 yrs frm order
C Cornwall, Township of Stormont Electric 9/19/57 5 years
C Cortland, City of Cortland Electric 1/l/23 25 years
C Cortland, City of Cortland Electric 4/30/2001 50 Years
C Cortlandville, Town of Cortland Elec.Trs.Sp.Loc Perpetual
C Cortlandville, Town of Cortland Electric Perpetual
C Croghan, Town of Lewis Electric Perpetual
C Croghan, Village of Lewis Electric Perpetual
C Cuyler, Town of Cortland El Trns Sp Loc Perpetual
C Cuyler, Town of Cortland Electric Perpetual
C Danube, Town of Herkimer Elec Ltd Area Perpetual
C Danube, Town of Herkimer Gas Ltd Area Perpetual
C DeRuyter, Town of Madison Electric Perpetual
C DeRuyter, Town of Madison Gas Perpetual
C DeRuyter, Village of Madison Electric Perpetual
C DeRuyter, Village of Madison Gas Trans/Dist. Perpetual
C Deerfield, Town of Oneida El.Trans.Sp.Loc Perpetual
C Deerfield, Town of Oneida Elec Spec Loc Perpetual
C Deerfield, Town of Oneida Electric Perpetual
C Deerfield, Town of Oneida Gas Perpetual
C Deferiet, Village of Jefferson Electric Perpetual
C Deferiet, Village of Jefferson Gas Perpetual
C Dekalb, Town of St. Lawrence Elec Spec Loc Perpetual
C Dekalb, Town of St. Lawrence Electric Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 3
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Denmark, Town of Lewis Elec. Trans. Perpetual
C Denmark, Town of Lewis Electric Perpetual
C Depeyster, Town of St. Lawrence Electric Perpetual
C Dewitt, Town of Onondaga Elec Spec Loc 5/1/06 5 Years
C Dewitt, Town of Onondaga Elec. Trans. Perpetual
C Dewitt, Town of Onondaga Electric Perpetual
C Dewitt, Town of Onondaga Gas Spec Loc Perpetual
C Dewitt, Town of Onondaga Gas Trs Sp Loc Perpetual
C Dexter, Village of Jefferson Electric Perpetual
C Dexter, Village of Jefferson Electric 10/17/26 20 Years
C Dexter, Village of Jefferson Gas No Term Shown.
C Diana, Town of Lewis Electric Perpetual
C Diana, Town of Lewis Electric (Map) Perpetual
C Dickinson, Town of Franklin Electric Perpetual
C Dolgeville, Village of Herkimer Electric Perpetual
C Dolgeville, Village of Herkimer Electric 11/21/37 25 years
C Dolgeville, Village of Herkimer Gas Perpetual
C Duane, Town of Franklin Electric Perpetual
C East Syracuse, Village of Onondaga Electric Perpetual
C Eastwood, Village of Onondaga El. Trans/Dist. Perpetual
C Eastwood, Village of Onondaga Gas Spec Loc. Perpetual
C Edwards, Town of St. Lawrence El. Trans/Dist. Perpetual
C Edwards, Town of St. Lawrence Elec Spec Loc. Perpetual
C Edwards, Town of St. Lawrence Electric Perpetual
C Edwards, Village of St. Lawrence El Trans/Dist. No term shown
C Elbridge, Town of Onondaga El Tr/Dst Spec Perpetual
C Elbridge, Town of Onondaga Electric Perpetual
C Ellisburg, Town of Jefferson Electric Perpetual
C Ellisburg, Town of Jefferson Gas Perpetual
C Ellisburg, Village of Jefferson Electric Perpetual
C Evans Mills, Village of Jefferson Electric
C Evans Mills, Village of Jefferson Gas Perpetual
C Fabius, Town of Onondaga Electric Perpetual
C Fabius, Town of Onondaga Electric (Map) Perpetual
C Fabius, Town of Onondaoa Gas Corr. Note Shown
C Fabius, Town of Onondaga Gas Trans/Dist Perpetual
C Fabius, Village of Onondaga Electric Perpetual
C Fabius, Village of Onondaga Gas Corr. None Shown
C Fabius, Village of Onondaga Gas Trans/Dist Perpetual
C Fairfield, Town of Herkimer Elec Ltd Area Perpetual
C Fairfield, Town of Herkimer Electric Perpetual
C Fayetteville, Village of Onondaga Electric Perpetual
C Fayetteville, Village of Onondaga Gas Perpetual
C Fenner, Town of Madison El Trns Spec. Perpetual
C Fenner, Town of Madison Electric Perpetual
C Fine, Town of St. Lawrence Electric Perpetual
C Florence, Town of Oneida El Trans/Dist. Perpetual
C Floyd, Town of Oneida El. Trans/Dist. Perpetual
C Floyd, Town of Oneida Gas Perpetual
C Forestport, Hamlet of Oneida El Trans/Dist, Perpetual
C Forestport, Town of Oneida El Trans/Dist. Not shown
C Forestport, Town of Oneida El Trans/Dist. Perpetual
C Fort Covington, Town of Franklin Electric Perpetual
C Fort Covington, Village of Franklin Electric Perpetual
C Fowler, Town of St. Lawrence Electric Perpetual
C Frankfort, Town of Herkimer Electric Perpetual
C Frankfort, Town of Herkimer Gas Perpetual
C Frankfort, Village of Herkimer El Tr. Spec Loc Perpetual
C Frankfort, Village of Herkimer El Tr. Spec Loc Perpetual
C Frankfort, Village of Herkimer Gas Perpetual
C Franklin, Town of Franklin Electric Perpetual
C Fulton, City of Oswego El E Side River Perpetual
C Fulton, City of Oswego El W Side River 6/13/98 99 years
C Fulton, City of Oswego El W Side River 6/12/2037 50 years
C Fulton, Village of Oswego Gas Perpetual
C Galen, Town of Wayne Electric Perpetual
C Geddes. Town of Onondaga El Tr Spec Loc. Perpetual
C Geddes, Town of Onondaga El Trans/Dist Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 4
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Geddes, Town of Onondaga Electric Perpetual
C Geddes, Town of Onondaga Electric 9/25/27 Ten Years
C Geddes, Town of Onondaga Gas Trans/Dist Perpetual
C German Flatts, Town of Herkimer Electric Perpetual
C German Flatts, Town of Herkimer Gas Perpetual
C Glen Park, Village of Jefferson Electric Perpetual
C Glen Park, Village of Jefferson Gas Perpetual
C Gouverneur, Town of St. Lawrence El Spec. Loc. Perpetual
C Gouverneur, Town of St. Lawrence El. Spec Loc. Perpetual
C Gouverneur, Town of St. Lawrence El. Spec. Loc. Perpetual
C Gouverneur, Town of St. Lawrence El. Trans/Dist. Perpetual
C Gouverneur, Town of St. Lawrence Elec Spec. Loc. Perpetual
C Gouverneur, Village of St. Lawrence Electric Perpetual
C Granby, Town of Oswego El. Bridge Rgts Perpetual
C Granby, Town of Oswego Electric Perpetual
C Granby, Town of Oswego Gas Perpetual
C Greig, Town of Lewis Electric Perpetual
C Hammond, Town of St. Lawrence El. Ltd. Area Perpetual
C Hammond, Village of St. Lawrence Electric Perpetual
C Hannibal, Town of Oswego Electric Perpetual
C Hannibal, Town of Oswego Gas Perpetual
C Hannibal, Village of Oswego Electric Perpetual
C Hannibal, Village of Oswego Gas Perpetual
C Harrietstown, Town of Franklin Electric Perpetual
C Harrisburg, Town of Lewis Electric Perpetual
C Harrisville, Village of Lewis Electric Perpetual
C Hastings, Town of Oswego El. Spec. Loc. Perpetual
C Hastings, Town of Oswego Electric Perpetual
C Henderson, Town of Jefferson Electric Perpetual
C Herkimer, Town of Herkimer El Spec. Loc. Perpetual
C Herkimer, Town of Herkimer El. Spec. Loc. Perpetual
C Herkimer, Town of Herkimer Electric Perpetual
C Herkimer, Town of Herkimer Gas Perpetual
C Herkimer, Village of Herkimer Electric Perpetual
C Herkimer, Village of Herkimer Gas Perpetual
C Hermon, Town of St. Lawrence Electric Perpetual
C Hermon, Town of St. Lawrence Electric Supply current*
C Hermon, Village of St. Lawrence Electric Perpetual
C Hermon, Village of St. Lawrence Electric 9/29/33 10 w/ren. priv.
C Herrings, Village of Jefferson Electric Perpetual
C Herrings, Village of Jefferson Gas Perpetual
C Heuvelton, Village of St. Lawrence Electric Perpetual
C Highmarket, Town of Lewis Electric Perpetual
C Holland Patent, Village of Oneida El. Trans/Dist. Perpetual
C Holland Patent, Village of Oneida Gas Trans/Dist. Perpetual
C Homer, Town of Cortland El. Tr Spec Loc Perpetual
C Homer, Town of Cortland El. Trans/Dist. Perpetual
C Homer, Town of Cortland Electric 11/10/52 25 years
C Homer, Village of Cortland Electric Perpetual
C Homer, Village of Cortland Electric 6/22/48 25 years
C Hopkinton, Town of St. Lawrence Electric Perpetual
C Hounsfield, Town of Jefferson Electric Perpetual
C Hounsfield, Town of Jefferson Gas Perpetual
C Ilion, Village of Herkimer El Tr Spec Loc. Perpetual
C Ilion, Village of Herkimer Gas Perpetual
C Ilion, Village of Herkimer Gas Spec. Loc. Perpetual
C Indian Lake, Town of Hamilton El Spec. Loc. Perpetual
C Kirkland, Town of Oneida El Trans/Dist 1/30/2005 50 years
C Kirkland, Town of Oneida Electric Perpetual
C Kirkland, Town of Oneida Gas & Elec. Perpetual
C Kirkland, Town of Oneida Gas & Elec. 1/31/55 50 years
C Kirkland, Town of Oneida Gas Trans/Dist 1/30/2005 50 years
C Lacona, Village of Oswego Electric Perpetual
C Lacona, Village of Oswego Gas Perpetual
C Lafayette, Town of Onondaga Electric Perpetual
C Lafayette, Town of Onondaga Gas Corr. None Shown
C Lafayette, Town of Onondaga Gas Trans/Dist Perpetual
C Lawrence, Town of St. Lawrence Electric Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 5
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Lee, Town of Oneida Electric Perpetual
C Lee, Town of Oneida Gas Trans/Dist. Perpetual
C Lenox, Town of Madison El Trans/Dist. Perpetual
C Lenox, Town of Madison Gas Trans/Dist. Perpetual
C Leray, Town of Jefferson Electric Perpetual
C Leray, Town of Jefferson Gas Perpetual
C Lewis County Lewis County Electric Various Frnchs
C Lewis, Town of Lewis Electric Perpetual
C Leyden, Town of Lewis El Trans (Plan) Perpetual
C Leyden, Town of Lewis El Trans/Dist
C Leyden, Town of Lewis Electric Perpetual
C Lincklaen, Town of Chenanqo Electric Perpetual
C Lincoln, Town of Madison El Trans/Dist Perpetual
C Lincoln, Town of Madison Electric Perpetual
C Lincoln, Town of Madison Electric None shown
C Lincoln, Town of Madison Gas Perpetual
C Lincoln, Town of Madison Gas Trans Only Perpetual
C Lisbon, Town of St. Lawrence El Spec. Loc. Perpetual
C Lisbon, Town of St. Lawrence Elec Spec Loc Perpetual
C Lisbon, Town of St. Lawrence Electric Perpetual
C Litchfield, Town of Herkimer El Ltd. Area Perpetual
C Little Falls, City of Herkimer El Trans Sp Loc 9/10/68 50 years
C Little Falls, City of Herkimer Electric Perpetual
C Little Falls, City of Herkimer Electric 11/20/56 50 years
C Little Falls, City of Herkimer Gas None shown
C Little Falls, City of Herkimer Gas 5/16/1868 15 years
C Little Falls, Town of Herkimer El Spec. Loc. Perpetual
C Little Falls, Town of Herkimer El Tr Spec Loc. Perpetual
C Little Falls, Town of Herkimer Electric Perpetual
C Little Falls, Town of Herkimer Gas Perpetual
C Liverpool, Village of Onondaga El Trans/Dist. Perpetual
C Liverpool, Village of Onondaga Gas Perpetual
C Long Lake, Town of Hamilton Electric Perpetual
C Lorraine, Town of Jefferson Electric Perpetual
C Louisville, Town of St. Lawrence Electric Perpetual
C Lowville, Town of Lewis Electric Perpetual
C Lowville, Village of Lewis Electric Perpetual
C Lyme, Town of Jefferson Gas & Elec Perpetual
C Lyons Falls, Village of Lewis Electric Perpetual
C Lyons, Town of Wayne Electric Perpetual
C Lyons, Village of Wayne Electric Perpetual
C Lyonsdale, Town of Lewis El Trans/Dist
C Lyonsdale, Town of Lewis Electric Perpetual
C Lysander Onondaga Gas Trans. Perpetual
C Lysander, Town of Onondaga El Trs/Dst Loc. Perpetual
C Lysander, Town of Onondaga Electric Perpetual
C Lysander, Town of Onondaga Gas Perpetual
C Macomb, Town of St. Lawrence Electric Perpetual
C Macomb, Town of St. Lawrence Electric see remarks
C Macomb, Town of St. Lawrence Electric (Map) no term shown
C Madrid, Town of St. Lawrence El Spec. Loc. Perpetual
C Madrid, Town of St. Lawrence Electric Perpetual
C Malone, Town of Franklin Electric Perpetual
C Malone, Village of Franklin Electric Perpetual
C Malone, Village of Franklin Electric 17/22/1891 5 years
C Malone, Village of Franklin Electric 4/8/47 40 years
C Malone, Village of Franklin Gas Perpetual
C Manheim, Town of Herkimer Electric Perpetual
C Manheim, Town of Herkimer Gas Perpetual
C Manlius, Town of Onondaga El Spec. Loc. Perpetual
C Manlius, Town of Onondaga Electric Perpetual
C Manlius, Town of Onondaga Gas Perpetual
C Mannsville, Village of Jefferson Electric Perpetual
C Mannsville, Village of Jefferson Gas Perpetual
C Marcellus, Town of Onondaga El Trans. only Perpetual
C Marcy, Town of Oneida El Trs Ltd Area Perpetual
C Marcy, Town of Oneida El. Ltd. Area Perpetual
C Marcy, Town of Oneida Electric Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 6
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Marcy, Town of Oneida Gas Perpetual
C Martinsburg, Town of Lewis El Spec. Loc. Perpetual
C Martinsburg, Town of Lewis Electric
C Martinsburg, Town of Lewis Electric Perpetual
C Martinsburg, Town of Lewis Electric 6/17/75 50 years
C Massena, Town of St. Lawrence Electric Perpetual
C Massena, Village of St. Lawrence Electric Perpetual
C McGraw (formerly McGrawville), Village of Cortland Electric 12/7/05 see remarks
C Mentz, Town of Cayuga Electric Perpetual
C Mexico, Town of Oswego Electric Perpetual
C Mexico, Town of Oswego Gas Perpetual
C Mexico, Village of Oswego Electric Perpetual
C Mexico, Village of Oswego Gas Perpetual
C Middleville, Village of Herkimer Electric Perpetual
C Minetto, Town of Oswego El Spec. Loc. Perpetual
C Minetto, Town of Oswego Electric (Only) Perpetual
C Minetto, Town of Oswego Gas Perpetual
C Minoa, Village of Onondaga Electric Perpetual
C Minoa, Village of Onondaga Gas Perpetual
C Minoa, Village of Onondaga Gas Trans/Dist Perpetual
C Mohawk, Village of Herkimer El Trs Spec Loc Perpetual
C Mohawk, Village of Herkimer Gas Perpetual
C Moira, Town of St. Lawrence Electric Perpetual
C Montague, Town of Lewis Electric Perpetual
C Montezuma, Town of Cayuga Electric Perpetual
C Morehouse, Town of Hamilton El Trans/Dist Perpetual
C Morristown, Town of St. Lawrence El. Spec. Loc. Perpetual
C Morristown, Town of St. Lawrence Electric Perpetual
C Morristown, Village of St. Lawrence Electric Perpetual
C Munnsville, Village of Madison El Trans/Dist Perpetual
C Norfolk, Town of St. Lawrence El Trans Sp Loc Perpetual
C Norfolk, Town of St. Lawrence Electric Perpetual
C Norfolk, Town of St. Lawrence Electric 10/2/42 20 years
C North Elba, Town of Essex Electric Perpetual
C North Syracuse, Village of Onondaga Electric Perpetual
C North Syracuse, Village of Onondaqa Gas Perpetual
C Norway, Town of Herkimer Electric Perpetual
C Norwood, Village of St. Lawrence El Trans Sp Loc Perpetual
C Norwood, Village of St. Lawrence Electric 10/l/42 20 years
C Norwood, Village of St. Lawrence Electric 2/11/79 50 years
C Norwood, Village of St. Lawrence Electric 2/12/2004 25 years
C Ogdensburg, City of St. Lawrence El Spec Loc Perpetual
C Ogdensburg, City of St. Lawrence El Spec Loc 2/24/26 20 years
C Ogdensburg, City of St. Lawrence El Trans Sp Loc Perpetual
C Ogdensburg, City of St. Lawrence Electric Perpetual
C Ogdensburg, City of St. Lawrence Gas Perpetual
C Ohio, Town of Herkimer Electric Perpetual
C Oneida Castle, Village of Oneida Electric Perpetual
C Oneida Castle, Village of Oneida Gas Perpetual
C Oneida, City of Madison Gas 7/l/39 15 years
C Oneida, City of Madison Gas Spec Loc 6/30/2004 Perpetual
C Oneida, Village of Madison Electric Perpetual
C Onondaga Indian Nation Onondaga Electric 2/8/2039 99 years
C Onondaga, Town of Onondaga Electric Perpetual
C Onondaga, Town of Onondaga Gas Perpetual
C Onondaga, Town of Onondaga Gas Spec Loc Perpetual
C Ontario, Province of None Shown Electric 10/27/47 20 years
C Ontario, Province of Stormont Electric 10/5/70 20 years
C Oppenheim, Town of Fulton Electric Perpetual
C Oriskany, Village of Oneida Electric Perpetual
C Oriskany, Village of Oneida Gas Trans/Dist Perpetual
C Orleans, Town of Jefferson Electric Perpetual
C Orleans, Town of Jefferson Gas/Elec Sp Loc Perpetual
C Orwell, Town of Oswego Electric Perpetual
C Osceola, Town of Lewis El Ltd Area Perpetual
C Osceola, Town of Lewis Elec Trans/Dist Perpetual
C Osnabruck, Township of Stormont Electric 2/8/57 20 years
C Oswegatchie, Town of St. Lawrence El Spec Loc Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 7
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Oswegatchie, Town of St. Lawrence Elec Spec Loc 11/23/35 20 years
C Oswegatchie, Town of St. Lawrence Electric 1 frm lighting
C Oswego, City of Oswego Elec Spec Loc Perpetual
C Oswego, City of Oswego Electric Perpetual
C Oswego, City of Oswego Gas Perpetual
C Oswego, Town of Oswego Elec Spec Loc. Perpetual
C Oswego, Town of Oswego Electric Perpetual
C Oswego, Town of Oswego Gas Trans/Dist. Perpetual
C Otisco, Town of Onondaga Elec Spec Loc. Perpetual
C Otisco, Town of Onondaga Gas Perpetual
C Palermo, Town of Oswego Electric Perpetual
C Palermo, Town of Oswego Gas Perpetual
C Pamelia, Town of Jefferson El Trans/Dist Perpetual
C Pamelia, Town of Jefferson Gas Perpetual
C Paris, Town of Oneida Electric Perpetual
C Paris, Town of Oneida Gas Trans/Dist Perpetual
C Parish, Town of Oswego Electric Perpetual
C Parish, Village of Oswego Electric Perpetual
C Parishville, Town of St. Lawrence Electric Perpetual
C Philadelphia, Town of Jefferson El Not Exclusiv Perpetual
C Philadelphia, Town of Jefferson El Tr Penstock Perpetual
C Philadelphia, Town of Jefferson Electric Perpetual
C Philadelphia, Village of Jefferson El Tr Spec Loc. Perpetual
C Phoenix, Village of Oswego El Tr Spec Loc. Perpetual
C Phoenix, Village of Oswego Electric Perpetual
C Phoenix, Village of Oswego Gas Perpetual
C Phoenix, Village of Oswego Gas Trans/Dist Perpetual
C Piercefield, Town of St. Lawrence Electric Perpetual
C Pierrepont, Town of St. Lawrence Elec Spec Loc. Perpetual
C Pierrepont, Town of St. Lawrence Electric Perpetual
C Pinckney, Town of Lewis Electric Perpetual
C Pitcairn, Town of St. Lawrence Electric Perpetual
C Poland, Village of Herkimer El. Trans./Dist Perpetual
C Poland, Village of Herkimer Electric (Plan) 6/l/56 49 years
C Poland, Village of Herkimer Gas Perpetual
C Pompey, Town of Onondaga El. Spec. Loc. Perpetual
C Pompey, Town of Onondaga Electric Perpetual
C Pompey, Town of Onondaga Gas Perpetual
C Port Leyden, Village of Lewis Electric Perpetual
C Potsdam, Town of St. Lawrence El. Spec. Loc. Perpetual
C Potsdam, Town of St. Lawrence Electric Perpetual
C Potsdam, Village of St. Lawrence El Trans Sp Loc Perpetual
C Potsdam, Village of St. Lawrence Electric Perpetual
C Preble, Town of Cortland Electric Perpetual
C Prospect, Village of Oneida Electric Perpetual
C Prospect, Village of Oneida Gas Trans/Dist. Perpetual
C Pulaski, Village of Oswego Electric Perpetual
C Pulaski, Village of Oswego Gas Perpetual
C Redfield, Town of Oswego Electric Perpetual
C Remsen, Town of Oneida El. Trans/Dist. Perpetual
C Remsen, Village of Oneida Electric Perpetual
C Remsen, Village of Oneida Gas Trans/Dist. Perpetual
C Rensselaer Falls, Village of St. Lawrence Electric
C Richland, Town of Oswego Electric Perpetual
C Richland, Town of Oswego Gas Perpetual
C Richville, Village of St. Lawrence Electric Perpetual
C Rodman, Town of Jefferson Electric None Shown.
C Rodman, Town of Jefferson Electric None Shown.
C Rome, City of Oneida Gas & Electric Perpetual
C Rossie, Town of St. Lawrence Electric
C Rossie, Town of St. Lawrence Electric None Shown.
C Rossie, Town of St. Lawrence Electric Perpetual
C Russell, Town of St. Lawrence El. Spec. Loc. Perpetual
C Russell, Town of St. Lawrence Electric Perpetual
C Russia, Town of Herkimer Electric Perpetual
C Rutland, Town of Jefferson Gas Perpetual
C Rutland, Town of Jefferson Gas & El Trans. Perpetual
C Sackets Harbor, Village of Jefferson El. Trans/Dist. Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 8
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Sackets Harbor, Village of Jefferson Electric 5/8/55 50 years
C Sackets Harbor, Village of Jefferson Gas Perpetual
C Salina, Town of Onondaga El. Spec. Loc. Perpetual
C Salina, Town of Onondaga Electric Perpetual
C Salina, Town of Onondaga Gas Perpetual
C Salina, Town of Onondaga Gas Spec. Loc. Perpetual
C Salisbury, Town of Herkimer Electric Perpetual
C Salisbury, Town of Herkimer Gas Perpetual
C Sandy Creek, Town of Oswego Electric Perpetual
C Sandy Creek, Town of Oswego Gas Perpetual
C Sandy Creek, Village of Oswego Electric Perpetual
C Sandy Creek, Village of Oswego Gas Perpetual
C Santa Clara, Town of Franklin Electric Perpetual
C Saranac Lake, Village of Essex/Franklin Electric Perpetual
C Saranac, Town of Clinton Electric Perpetual
C Savannah, Town of Wayne Electric Perpetual
C Savannah, Village of Wayne Electric Perpetual
C Schroeppel, Town of Oswego El Tr Spec Loc. Perpetual
C Schroeppel, Town of Oswego Elec. Trans.Map Perpetual
C Schroeppel, Town of Oswego Electric Perpetual
C Schroeppel, Town of Oswego Gas Not Shown
C Schroeppel, Town of Oswego Gas Perpetual
C Schuyler, Town of Herkimer El Sp Loc-Plan Perpetual
C Schuyler, Town of Herkimer Electric Perpetual
C Schuyler, Town of Herkimer Gas Perpetual
C Scott, Town of Cortland Electric Perpetual
C Scriba, Town of Oswego Electric Perpetual
C Scriba, Town of Oswego Gas Perpetual
C Seneca Falls, Town of Seneca Electric Perpetual
C Sherrill, City of Oneida Gas 10/9/78 50 years
C Sherrill, City of Oneida Gas 2/12/81 50 years frm 12
C Sherrill, City of Oneida Gas 2/3/2031 50 Years
C Skaneateles, Town of Onondaga Electric Perpetual
C Skaneateles, Town of Onondaga Gas Perpetual
C Skaneateles, Village of Onondaga El Tr Spec Loc. Perpetual
C Skaneateles, Village of Onondaga Gas Perpetual
C Solon, Town of Cortland Electric Perpetual
C Solvay, Village of Onondaga El Spec. Loc. Perpetual
C Solvay, Village of Onondaga El Tr Lim Area Perpetual
C Solvay, Village of Onondaga El Tr Spec Loc. Perpetual
C Solvay, Village of Onondaga Electric Perpetual
C Solvay, Village of Onondaga Gas Perpetual
C St. Armand, Town of Essex Electric Perpetual
C St. Lawrence County St. Lawrence Electric Not Shown
C St. Regis Indian Reservation Franklin El. Spec. Loc. 10/2/2045 99 years
C St. Regis Indian Reservation Franklin Electric 10/2/2045 99 years
C Steuben, Town of Oneida El Trans/Dist. Perpetual
C Stockbridge, Town of Madison El Trans/Dist. Perpetual
C Stockholm, Town of St. Lawrence EI.Tr.Spec.Loc. Perpetual
C Stockholm, Town of St. Lawrence Electric NotShown
C Stockholm, Town of St. Lawrence Electric Perpetual
C Stratford, Town of Fulton El. Ltd. Area Perpetual
C Sullivan, Town of Madison El. Spec. Loc. Perpetual
C Sullivan, Town of Madison El. Trans. Perpetual
C Sullivan, Town of Madison El. Trans/Dist. Perpetual
C Sullivan, Town of Madison Electric Perpetual
C Sullivan, Town of Madison Gas Perpetual
C Syracuse, City of Onondaga Elec. Subwav Perpetual
C Syracuse, City of Onondaga Electric Perpetual
C Syracuse, City of Onondaga Gas Perpetual
C Syracuse, City of Onondaga Steam,HW,HA,Ga Perpetual
C Theresa, Town of Jefferson El. Ltd. Area Perpetual
C Theresa, Town of Jefferson Electric Perpetual
C Theresa, Village of Jefferson Electric 4/23/00 5 years w/opt.
C Throop, Town of Cayuga Electric Perpetual
C Trenton, Town of Oneida El. Trans/Dist. Perpetual
C Trenton, Town of Oneida Gas
C Trenton, Village of Oneida Electric Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 9
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Trenton, Village of Oneida Gas Trans/Dist. Perpetual
C Truxton, Town of Cortland El Tr Spec. Loc. Perpetual
C Truxton, Town of Cortland Electric Perpetual
C Tully, Town of Onondaga Electric Perpetual
C Tully, Town of Onondaga Gas Perpetual
C Tully, Town of Onondaga Gas Corr. Not Shown
C Tully, Village of Onondaga Electric Perpetual
C Tully, Village of Onondaga Gas Perpetual
C Tully, Village of Onondaga Gas Corr. Not Shown.
C Tupper Lake, Village of Franklin El Trans Lines Perpetual
C Turin, Town of Lewis El. Trans/Dist.
C Turin, Town of Lewis Elec (Blueprnt) Perpetual
C Turin, Town of Lewis Elec. (Map) Not Shown
C Turin, Town of Lewis Electric Perpetual
C Turin, Town of Lewis Electric 11/5/75 50 years
C Turin, Village of Lewis Electric Perpetual
C Tyre, Town of Seneca Electric Perpetual
C United Stormont, Dundas, Glengarry Cos as above Electric 20 years
C United Stormont, Dundas, Glengarry Cos as above Electric 1/29/46 20 years
C United Stormont, Dundas, Glengarry Cos as above Electric 6/20/66 20 years
C Utica, City of Oneida El Tr Spec. Loc. Perpetual
C Utica, City of Oneida Electric Perpetual
C Utica, City of Oneida Gas Perpetual
C Van Buren, Town of Onondaga El. Spec. Loc. Perpetual
C Van Buren, Town of Onondaga El. Trans/Dist. Perpetual
C Van Buren, Town of Onondaga Gas Perpetual
C Vernon, Town of Oneida Elec Spec. Loc. Perpetual
C Vernon, Town of Oneida Elec Trans/Dist Perpetual
C Vernon, Town of Oneida Gas Trans/Dist Perpetual
C Vernon, Village of Oneida Electric Perpetual
C Vernon, Village of Oneida Electric 5/13/34 20 years
C Vernon, Village of Oneida Gas Trans/Dist Perpetual
C Verona, Town of Oneida Elec Spec. Loc. Perpetual
C Verona, Town of Oneida Elec Trans/Dist Perpetual
C Verona, Town of Oneida Electric Perpetual
C Verona, Town of Oneida Gas 1/31/2004 50 years
C Vienna, Town of Oneida Elec Spec. Loc. Perpetual
C Vienna, Town of Oneida Elec Spec. Loc. 12/3/26 5 years
C Virgil, Town of Cortland Elec Tr Sp Loc. Perpetual
C Virgil, Town of Cortland Electric Perpetual
C Volney, Town of Oswego El Tr Spec Loc Perpetual
C Volney, Town of Oswego Elec Bridge Rts Perpetual
C Volney, Town of Oswego Electric Perpetual
C Volney, Town of Oswego Gas Perpetual
C Waddington, Village of St. Lawrence Electric Perpetual
C Wampsville, Village of Madison Electric Perpetual
C Wampsville, Village of Madison Gas Trans/Dist Perpetual
C Waterloo, Town of Seneca Electric Perpetual
C Watertown, City of Jefferson El Trans/Dist. 9/16/2003 50 years
C Watertown, City of Jefferson Electric 9/17/53 50 years
C Watertown, City of Jefferson Gas Perpetual
C Watertown, City of Jefferson Gas 12/23/2003 50 years
C Watertown, City of Jefferson Gas & Steam Perpetual
C Watertown, Town of Jefferson Steam, Gas, El. Perpetual
C Watertown, Town of Jefferson Electric Perpetual
C Watertown, City of Jefferson Gas Perpetual
C Watson, Town of Lewis Electric Perpetual
C Watson, Town of Lewis Electric 5/26/76 50 years
C Waverly, Town of Franklin Electric Perpetual
C Webb, Town of Herkimer El Spec. Loc. Perpetual
C West Carthage, Village of Jefferson Electric Perpetual
C West Carthage, Village of Jefferson Gas Perpetual
C West Monroe, Town of Oswego Electric Perpetual
C West Monroe, Town of Oswego Gas Perpetual
C West Turin, Town of Lewis Elec. Trans. Perpetual
C West Turin, Town of Lewis Electric Perpetual
C Western, Town of Oneida Electric Perpetual
C Western, Town of Oneida Gas Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 10
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
C Westmoreland, Town of Oneida El. Trans/Dist. Perpetual
C Westmoreland, Town of Oneida El. Trans/Dist Perpetual
C Westmoreland, Town of Oneida Electric No term listed
C Westmoreland, Town of Oneida Gas Trans/Dist. Perpetual
C Westville, Town of Franklin Electric Perpetual
C Whitesboro, Village of Oneida El. Spec. Loc. Perpetual
C Whitesboro, Village of Oneida Electric Perpetual
C Whiteboro, Village of Oneida Gas Perpetual
C Whitestown, Town of Oneida Electric Perpetual
C Whitestown, Town of Oneida Gas Perpetual
C Williamstown, Town of 0swego El.Trans/Dist. Perpetual
C Wilna, Town of Jefferson Electric Perpetual
C Wilna, Town of Jefferson Gas Perpetual
C Worth, Town of Jefferson El.Trans/Dist. Perpetual
C Worth, Town of Jefferson Electric Perpetual
C Yorkville, Village of Oneida Electric None shown.
C Yorkville, Village of Oneida Gas Perpetual
======== ======================================== =================== ========================== ============== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 1
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
E City of Albany Albany Electric Not Limited
E City of Amsterdam Montgomery Electric Not Limited
E City of Hudson Columbia Electric Not Limited
E City of Hudson Columbia Electric 6/4/61 50 years
E City of Johnstown Fulton Gas & Electric Not Limited
E City of Rensselaer Rensselaer Gas & Electric Not Limited
E City of Schenectady Schenectady Electric Not Limited
E City of Troy Rensselaer Electric Not Limited
E City of Utica Oneida Electric Not Limited
E City of Watervliet Albany Electric Not Limited
E City of Watervliet Albany Gas & Electric Not Limited
(was Village of W. Troy)
E Town of Amsterdam Montgomery Electric Not Limited
E Town of Argyle Washington Electric Not Limited
E Town of Arietta Hamilton Electric Not Limited
E Town of Athens Greene Electric Not Limited
E Town of Ballston Saratoga Electric Not Limited
E Town of Benson Hamilton Electric Not Limited
E Town of Berne Albany Electric Not Limited
E Town of Bethlehem Albany Electric Not Limited
E Town of Bleecker Fulton Electric Not Limited
E Town of Blenheim Schoharie Electric Not Limited
E Town of Bolton Warren Gas & Electric Not Limited
E Town of Broadalbin Fulton Electric Not Limited
E Town of Broome Schoharie Electric Not Limited
E Town of Brunswick Rensselaer Electric Not Limited
E Town of Caldwell Warren Electric Not Limited
E Town of Cambridge Washington Electric Not Limited
E Town of Canajoharie Montgomery Electric Not Limited
E Town of Carlisle Scoharie Electric Not Limited
E Town of Carmel Putnam Electric Not Limited
E Town of Caroga Fulton Electric Not Limited
E Town of Catskill Greene Electric Not Limited
E Town of Cazenovia Madison Electric Not Limited
E Town of Charleston Montgomery Electric Not Limited
E Town of Charlton Saratoga Electric Not Limited
E Town of Chatham Columbia Electric Not Limited
E Town of Cherry Valley Otsego Electric Not Limited
E Town of Chester Warren Gas & Electric Not Limited
E Town of Claverack Columbia Electric Not Limited
E Town of Clermont Columbia Electric Not Limited
E Town of Clifton Park Saratoga Electric Not Limited
E Town of Clinton Clinton/Dutches Electric Not Limited
E Town of Cobleskill Schoharie Electric Perpetual
E Town of Coeymans Albany Electric Not Limited
E Town of Colonie Albany Electric Not Limited
E Town of Corinth Saratoga Electric Not Limited
E Town of Cortlandville Cortland Electric Not Limited
E Town of Coxackie Greene Electric Not Limited
E Town of Crown Point Essex Electric 1/17/2015 99 years
E Town of Cuyler Cortland Electric Not Limited
E Town of Danube Herkimer Electric Not Limited
E Town of Day Saratoga Electric Not Limited
E Town of Decatur Otsego Electric Not Limited
E Town of Deerfield Oneida Electric Not Limited
E Town of Dresden Yates Electric Not Limited
E Town of Duanesburg Schenectady Electric Not Limited
E Town of East Fishkill Dutchess Electric Not Limited
E Town of East Greenbush Rensselaer Electric Not Limited
E Town of Easton Madison Electric Not Limited
E Town of Edinburgh Saratoga Electric Not Limited
E Town of Ephratah Fulton Electric Not Limited
E Town of Esopus Ulster Electric Not Limited
E Town of Esperance Schoharie Electric Not Limited
E Town of Fabius Onondaga Electric Not Limited
E Town of Fenner Madison Electric Not Limited
E Town of Florida Montgomery Electric Not Limited
E Town of Fort Ann Washington Electric Not Limited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 2
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
E Town of Fort Edward Washington Electric Not Limited
E Town of Fulton Scoharie Electric Not Limited
E Town of Gallatin Columbia Electric Not Limited
E Town of Galway Saratoga Electric Not Limited
E Town of German Flats Herkimer Electric Not Limited
E Town of Germantown Columbia Electric Not Limited
E Town of Ghent Columbia Electric Not Limited
E Town of Glen Montgomery Electric Not Limited
E Town of Glenville Schenectady Electric Not Limited
E Town of Grafton Rensselaer Electric Not Limited
E Town of Granville Washington Electric Not Limited
E Town of Greenfield Saratoga Electric Not Limited
E Town of Greenport Columbia Electric Not Limited
E Town of Greenport Columbia Electric 10/4/17 Surrendered
E Town of Greenwich Washington Electric Not Limited
E Town of Guilderland Albany Electric Not Limited
E Town of Hadley Saratoga Electric Not Limited
E Town of Hague Warren Electric & Gas Not Limited
E Town of Halfmoon Saratoga Electric Not Limited
E Town of Halfmoon Saratoga Electric & Gas Not Limited
E Town of Hampton Washington Electric Not Limited
E Town of Hartford Washington Electric Not Limited
E Town of Herkimer Herkimer Electric Not Limited
E Town of Homer Cortland Electric Not Limited
E Town of Hoosick Rensselaer Electric Not Limited
E Town of Hope Hamilton Electric Not Limited
E Town of Horicon Warren Gas & Electric Not Limited
E Town of Hyde Park Dutchess Electric Not Limited
E Town of Indian Lake Hamilton Electric Not Limited
E Town of Jackson Washington Electric Not Limited
E Town of Johnsburg Warren Electric Not Limited
E Town of Johnstown Fulton Electric Not Limited
E Town of Kent Putnam Electric Not Limited
E Town of Kinderhook Columbia Electric Not Limited
E Town of Kingsbury Washington Electric Not Limited
E Town of Kirkland Oneida Electric Not Limited
E Town of Knox Albany Electric Not Limited
E Town of LaGrange Dutchess Electric Not Limited
E Town of Lake Pleasant Hamilton Electric Not Limited
E Town of Lenox Madison Electric Not Limited
E Town of Lincoln Madison Electric Not Limited
E Town of Little Falls Herkimer Electric Not Limited
E Town of Livingston Columbia Electric Not Limited
E Town of Luzerne Warren Electric Not Limited
E Town of Malta Saratoga Electric Not Limited
E Town of Manheim Herkimer Electric Not Limited
E Town of Marcy Oneida Electric Not Limited
E Town of Maryland Otsego Electric Not Limited
E Town of Mayfield Fulton Electric Not Limited
E Town of Mayfield Fulton Electric 8/17/2025 99 years
E Town of Middleburgh Schoharie Electric Not Limited
E Town of Milan Dutchess Electric Not Limited
E Town of Milton Ulster Electric Not Limited
E Town of Minden Montgomery Electric Not Limited
E Town of Minerva Essex Electric Not Limited
E Town of Mohawk Montgomery Electric Not Limited
E Town of Moreau Saratoga Electric Not Limited
E Town of Moriah Essex Electric 2/28/2015 99 years
E Town of Nassau Rensselaer Electric Not Limited
E Town of Nelson Madison Electric Not Limited
E Town of New Baltimore Greene Electric Not Limited
E Town of New Scotland Albany Electric Not Limited
E Town of Niskayuna Schenectady Electric Not Limited
E Town of North Greenbush Rensselaer Electric Not Limited
E Town of North Hudson Essex Electric Not Limited
E Town of Northampton Fulton Electric Not Limited
E Town of Northumberland Saratoga Electric Not Limited
E Town Of Oppenheim Fulton Electric Not Limited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 3
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
E Town of Palatine Montgomery Electric Not Limited
E Town of Perth Fulton Electric Not Limited
E Town of Petersburg Rensselaer Electric Not Limited
E Town of Phillipstown Putnam Electric Not Limited
E Town of Pittstown Rensselaer Electric Not Limited
E Town of Pleasant Valley Dutchess Electric Not Limited
E Town of Poestenkill Rensselaer Electric Not Limited
E Town of Princetown Schenectady Electric Not Limited
E Town of Providence Saratoga Electric Not Limited
E Town of Putnam Washington Electric Not Limited
E Town of Putnam Valley Putnam Electric Not Limited
E Town of Queensbury Warren Gas & Electric Not Limited
E Town of Richmondville Schoharie Electric Not Limited
E Town of Root Montgomery Electric Not Limited
E Town of Roseboom Otsego Electric Not Limited
E Town of Rosendale Ulster Electric Not Limited
E Town of Rotterdam Schenectady Electric Not Limited
E Town of Sand Lake Rensselaer Electric Not Limited
E Town of Saratoga Saratoga Electric Not Limited
E Town of Saugerties Ulster Electric Not Limited
E Town of Schaghticoke Rensselaer Electric Not Limited
E Town of Schodack Rensselaer Electric Not Limited
E Town of Schoharie Schoharie Electric Not Limited
E Town of Schroon Essex Electric Not Limited
E Town of Schuyler Herkimer Electric Not Limited
E Town of Seward Scoharie Electric Not Limited
E Town of Sharon Scoharie Electric Not Limited
E Town of St. Johnsville Montgomery Electric Not Limited
E Town of Stark Herkimer Electric Not Limited
E Town of Stephentown Rensselaer Electric Not Limited
E Town of Stillwater Saratoga Electric Not Limited
E Town of Stockbridge Madison Electric Not Limited
E Town of Stockport Columbia Electric Not Limited
E Town of Stony Creek Warren Electric Not Limited
E Town of Stratford Fulton Electric Not Limited
E Town of Stuyvesant Columbia Electric Not Limited
E Town of Sullivan Madison Electric Not Limited
E Town of Summit Scoharie Electric Not Limited
E Town of Tachkanic Columbia Electric Not Limited
E Town of Thurman Warren Electric Not Limited
E Town of Ticonderoga Essex Electric Not Limited
E Town of Truxton Cortland Electric Not Limited
E Town of Ulster Ulster Electric Not Limited
E Town of Vernon Oneida Electric Not Limited
E Town of Verona Oneida Electric Not Limited
E Town of Virgil Cortland Electric Not Limited
E Town of Wappinger Dutchess Electric Not Limited
E Town of Warrensburg Warren Electric Not Limited
E Town of Waterford Saratoga Electric Not Limited
E Town of Waterford Saratoga Gas & Electric Not Limited
E Town of Wells Hamilton Electric Not Limited
E Town of Westmoreland Oneida Electric Not Limited
E Town of Westport Essex Electric Not Limited
E Town of White Creek Washington Electric Not Limited
E Town of Whitehall Washington Electric Not Limited
E Town of Whitesboro Oneida Electric Not Limited
E Town of Whitestown Oneida Electric Not Limited
E Town of Wilton Saratoga Electric Not Limited
E Town of Worcester Otsego Electric 11/15/2007 100 years
E Town of Wright Schoharie Electric Not Limited
E Village (now City) of Cohoes Albany Electric Unknown
E Village (now City) of Glens Falls Warren Electric Not Limited
E Village (now City) of Gloversville Fulton Electric Not Limited
E Village (now City) of Oneida Madison Electric Not Limited
E Village (now City) of Saratoga Springs Saratoga Gas & Electric Not Limited
E Village of Altamont Franklin Electric Not Limited
E Village of Ames Montgomery Electric Not Limited
E Village of Argyle Washington Electric Not Limited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 4
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
E Village of Athens Greene Electric Not Limited
E Village of Ballston Spa Saratoga Electric Not Limited
E Village of Broadalbin Fulton Electric 8/17/2025 99 years
E Village of Cambridge Washington Electric Not Limited
E Village of Canajoharie Montgomery Electric Not Limited
E Village of Canastota Madison Electric Not Limited
E Village of Castleton-on-Hudson Rensselaer Electric Not Limited
E Village of Cherry Valley Otsego Electric Not Limited
E Village of Cobleskill Schoharie Electric 2/23/77 30 years
E Village of Cobleskill Schoharie Electric 2/6/2002 25 years
E Village of Corinth Saratoga Electric Not Limited
E Village of Delanson Schenectady Electric Not Limited
E Village of Esperance Schoharie Electric Not Limited
E Village of Fonda Montgomery Electric Not Limited
E Village of Fort Ann Washington Electric Not Limited
E Village of Fort Edward Washington Electric Not Limited
E Village of Fort Johnson Montgomery Electric Not Limited
E Village of Fort Plain Montgomery Electric Not Limited
E Village of Fultonville Montgomery Electric Not Limited
E Village of Galway Saratoga Electric Not Limited
E Village of Green Island Albany Electric Not Limited
E Village of Greenwich Washington Electric Not Limited
E Village of Hagaman Montgomery Electric Not Limited
E Village of Hoosick Falls Rensselaer Electric Not Limited
E Village of Hudson Falls Washington Electric 11/8/05 Surrendered
E Village of Hudson Falls Washington Gas & Electric 6/1/97 50 years
E Village of Kinderhook Columbia Electric Not Limited
E Village of Lake George Warren Electric Not Limited
E Village of Menands Albany Electric Not Limited
E Village of Middleburgh Schoharie Electric Not Limited
E Village of Munnsville Madison Electric Not Limited
E Village of Nassau Rensselaer Electric Not Limited
E Village of Nelliston Montgomery Electric Not Limited
E Village of Northville Suffolk Electric Not Limited
E Village of Oneida Castle Oneida Electric Not Limited
E Village of Palatine Bridge Montgomery Electric Not Limited
E Village of Port Henry Essex Electric 6/19/2005 99 years
E Village of Richmondville Schoharie Electric Not Limited
E Village of Schaghticoke Rensselaer Electric Not Limited
E Village of Schenevus Otsego Electric Not Limited
E Village of Schoharie Schoharie Electric Not Limited
E Village of Schuylerville Saratoga Electric Not Limited
E Village of Scotia Schenectady Electric Not Limited
E Village of Sharon Springs Schoharie Electric Not Limited
E Village of South Glens Falls Saratoga Electric Not Limited
E Village of Speculator Hamilton Electric Not Limited
E Village of St. Johnsville Montgomery Electric Not Limited
E Village of Ticonderoga Essex Electric Not Limited
E Village of Valatie Columbia Electric Not Limited
E Village of Valley Falls Rensselaer Electric Not Limited
E Village of Vernon Oneida Electric Not Limited
E Village of Victory Mills Saratoga Electric Not Limited
E Village of Voorheesville Albany Electric Not Limited
E Village of Wampsville Madison Electric Not Limited
E Village of Waterford Saratoga Electric Not Limited
E Village of Westport Essex Electric Not Limited
E Village of Whitehall Washington Electric Not Limited
======== ======================================== =================== ========================== ============== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 1
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
W City of Batavia Genesee El Trans & Dist 4/1/2006 50 years
W City of Buffalo Erie El Trans & Dist Perpetual
W City of Dunkirk Chautauqua El Trans & Dist 4/l/2007 50 years
W City of Jamestown Chautauqua El Trans & Dist Perpetual
W City of Lackawanna Erie El Trans & Dist Perpetual
W City of Lockport Niagara El Hydro Perpetual
W City of Lockport Niagara El Transmission 3/l/89 50 years
W City of Niagara Falls Niagara El Trans & Dist Perpetual
W City of North Tonawanda Niagara El Trans & Dist 1/6/99 25 years
W City of Rochester Monroe El Trans & Dist Perpetual
W City of Salamanca Cattaraugus El Transmission 2/27/2024 50 years
W City of Salamanca Cattaraugus El Transmission 6/7/2027 50 years
W City of Tonawanda Erie El Trans & Dist Perpetual
W Seneca Nation of Indians Allegany Res. Cattaraugus El Substation 2/19/2031 40 years
W Seneca Nation of Indians Allegany Res. Cattaraugus El Transmission 2/19/2031 40 years
W Seneca Nation of Indians Cattaraugus Cattaraugus El Trans & Dist Permanent
W Tonawanda Nation of Seneca Indians Erie/Genesee El Trans & Dist 4/26/2035 99 years
W Tonawanda Nation of Seneca Indians Erie/Genesee El Transmission 5/24/2022 99 years
W Town of Alabama Genesee El Trans & Dist Perpetual
W Town of Albion Orleans El Trans & Dist Perpetual
W Town of Alexander Genesee El Trans & Dist Perpetual
W Town of Allegany Cattaraugus El Trans & Dist Perpetual
W Town of Alma Allegany El Trans & Dist Perpetual
W Town of Amherst Erie El Trans & Dist Perpetual
W Town of Amity Allegany El Trans & Dist Perpetual
W Town of Andover Allegany El Trans & Dist Perpetual
W Town of Arcade Wyoming El Transmission Perpetual
W Town of Arcadia Wayne El Trans & Dist Perpetual
W Town of Arkwright Chautauqua El Trans & Dist Perpetual
W Town of Ashford Cattaraugus El Trans & Dist Perpetual
W Town of Attica Genesee El Trans & Dist Perpetual
W Town of Avon Livingston El Trans & Dist Perpetual
W Town of Barre Orleans El Trans & Dist Perpetual
W Town of Batavia Genesee El Trans & Dist Perpetual
W Town of Bergen Genesee El Trans & Dist Perpetual
W Town of Bethany Genesee El Trans & Dist Perpetual
W Town of Boston Erie El Transmission Perpetual
W Town of Brant Erie El Trans & Dist Perpetual
W Town of Brighton Monroe El Trans & Dist Perpetual
W Town of Busti Chautauqua El Trans & Dist Perpetual
W Town of Byron Genesee El Trans & Dist Perpetual
W Town of Caledonia Livingston El Trans & Dist Perpetual
W Town of Cambria Niagara El Trans & Dist Perpetual
W Town of Canadice Ontario El Trans & Dist Perpetual
W Town of Carlton Orleans El Trans & Dist Perpetual
W Town of Carroll Chautauqua El Trans & Dist Perpetual
W Town of Carrollton Cattaraugus El Trans & Dist Perpetual
W Town of Centerville Allegany El Trans & Dist Perpetual
W Town of Charlotte Chautauqua El Trans & Dist Perpetual
W Town of Chautauqua Chautauqua El Trans & Dist Perpetual
W Town of Cheektowaga Erie El Trans & Dist Perpetual
W Town of Chili Monroe El Trans & Dist Perpetual
W Town of Clarence Erie El Trans & Dist Perpetual
W Town of Clarendon Orleans El Trans & Dist Perpetual
W Town of Clarkson Monroe El Trans & Dist Perpetual
W Town of Clarksville Allegany El Trans & Dist Perpetual
W Town of Clymer Chautauqua El Trans & Dist Perpetual
W Town of Cold Spring Cattaraugus El Trans & Dist Perpetual
W Town of Collins Erie El Trans & Dist Perpetual
W Town of Concord Erie El Trans & Dist Perpetual
W Town of Concord Erie El Transmission Perpetual
W Town of Conesus Livingston El Trans & Dist Perpetual
W Town of Covington Wyoming El Trans & Dist Perpetual
W Town of Cuba Allegany El Trans & Dist Perpetual
W Town of Darien Genesee El Trans & Dist Perpetual
W Town of Dunkirk Chautauqua El Trans & Dist 4/14/2007 50 years
W Town of East Hamburg Erie El Transmission Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 2
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
W Town of East Otto Cattaraugus El Trans & Dist Perpetual
W Town of Eden Erie El Trans & Dist Perpetual
W Town of Elba Genesee El Trans & Dist Perpetual
W Town of Elko Cattaraugus El Trans & Dist Perpetual
W Town of Ellery Chautauqua El Trans & Dist Perpetual
W Town of Ellicott Chautauqua El Trans & Dist Perpetual
W Town of Ellicottville Cattaraugus El Trans & Dist Perpetual
W Town of Evans Erie El Trans & Dist Perpetual
W Town of Farmersville Cattaraugus El Trans & Dist Perpetual
W Town of Farmington Ontario El Trans & Dist Perpetual
W Town of Franklinville Cattaraugus El Trans & Dist Perpetual
W Town of Freedom Cattaraugus El Trans & Dist Perpetual
W Town of French Creek Chautauqua El Trans & Dist Perpetual
W Town of Friendship Allegany El Trans & Dist Perpetual
W Town of Gaines Orleans El Trans & Dist Perpetual
W Town of Gates Monroe El Trans & Dist Perpetual
W Town of Genesee Allegany El Trans & Dist Perpetual
W Town of Geneseo Livingston El Trans & Dist Perpetual
W Town of Gerry Chautauqua El Trans & Dist Perpetual
W Town of Grand Island Erie El Trans & Dist Perpetual
W Town of Great Valley Cattaraugus El Trans & Dist Perpetual
W Town of Groveland Livingston El Trans & Dist Perpetual
W Town of Hamburg Erie El Trans & Dist Perpetual
W Town of Hamlin Monroe El Trans & Dist Perpetual
W Town of Hanover Chautauqua El Trans & Dist Perpetual
W Town of Harmony Chautauqua El Trans & Dist Perpetual
W Town of Hartland Niagara El Trans & Dist Perpetual
W Town of Henrietta Monroe El Trans & Dist Perpetual
W Town of Hinsdale Cattaraugus El Trans & Dist Perpetual
W Town of Humphrey Cattaraugus El Trans & Dist Perpetual
W Town of Independence Allegany El Trans & Dist Perpetual
W Town of lschua Cattaraugus El Trans & Dist Perpetual
W Town of Kendall Orleans El Trans & Dist Perpetual
W Town of Kiantone Chautauqua El Trans & Dist Perpetual
W Town of Leroy Genesee El Trans & Dist Perpetual
W Town of Lewiston Niagara El Trans & Dist Perpetual
W Town of Lima Livingston El Trans & Dist 3/6/2013 50 years
W Town of Little Valley Cattaraugus El Trans & Dist Perpetual
W Town of Livonia Livinston El Trans & Dist Perpetual
W Town of Lockport Niagara El Trans & Dist Perpetual
W Town of Lyndon Cattaraugus El Trans & Dist Perpetual
W Town of Macedon Wayne El Trans & Dist Perpetual
W Town of Manchester Ontario El Trans & Dist Perpetual
W Town of Mansfield Cattaraugus El Trans & Dist Perpetual
W Town of Mendon Monroe El Trans & Dist Perpetual
W Town of Middlebury Wyominq El Trans & Dist Perpetual
W Town of Mina Chautauqua El Trans & Dist Perpetual
W Town of Mount Morris Livingston El Transmission Perpetual
W Town of Murray Orleans El Trans & Dist Perpetual
W Town of New Albion Cattaraugus El Trans & Dist Perpetual
W Town of New Hudson Allegany El Trans & Dist Perpetual
W Town of Newfane Niagara El Trans & Dist Perpetual
W Town of Newstead Erie El Trans & Dist Perpetual
W Town of Niagara Niagara El Trans & Dist Perpetual
W Town of North Collins Erie El Trans & Dist Perpetual
W Town of North Harmony Chautauqua El Trans & Dist Perpetual
W Town of Oakfield Genesee El Trans & Dist Perpetual
W Town of Ogden Monroe El Trans & Dist Perpetual
W Town of Olean Cattaraugus El Trans & Dist Perpetual
W Town of Orangeville Wyoming El Trans & Dist Perpetual
W Town of Orchard Park Erie El Transmission Perpetual
W Town of Otto Cattaraugus El Trans & Dist Perpetual
W Town of Palmyra Wayne El Trans & Dist Perpetual
W Town of Pavilion Genesee El Trans & Dist Perpetual
W Town of Pembroke Genesee El Trans & Dist Perpetual
W Town of Pendleton Niagara El Trans & Dist Perpetual
W Town of Perrysburg Cattaraugus El Trans & Dist Perpetual
W Town of Phelps Ontario El Trans & Dist Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 3
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
W Town of Pittsford Monroe El Trans & Dist Perpetual
W Town of Poland Chautauqua El Trans & Dist Perpetual
W Town of Pomfret Chautauqua El Trans & Dist 5/9/2005 60 years
W Town of Porter Niagara El Trans & Dist Perpetual
W Town of Portland Chautauqua El Trans & Dist Perpetual
W Town of Portville Cattaraugus El Trans & Dist Perpetual
W Town of Randolph Cattaraugus El Trans & Dist Perpetual
W Town of Red House Cattaraugus El Trans & Dist Perpetual
W Town of Richmond Ontario El Trans & Dist Perpetual
W Town of Ridgeway Orleans El Trans & Dist Perpetual
W Town of Riga Monroe El Trans & Dist Perpetual
W Town of Ripley Chautauqua El Trans & Dist Perpetual
W Town of Royalton Niagara El Trans & Dist Perpetual
W Town of Rush Monroe El Trans & Dist Perpetual
W Town of Salamanca Cattaraugus El Trans & Dist Permanent
W Town of Sardinia Erie El Transmission Permanent
W Town of Scio Allegany El Trans & Dist Permanent
W Town of Shelby Orleans El Trans & Dist Perpetual
W Town of Sheridan Chautauqua El Trans & Dist Perpetual
W Town of Sherman Chautauqua El Trans & Dist Perpetual
W Town of Somerset Niagara El Trans & Dist Perpetual
W Town of South Valley Cattaraugus El Trans & Dist Perpetual
W Town of Stafford Genesee El Trans & Dist Perpetual
W Town of Stockton Chautauqua El Trans & Dist Perpetual
W Town of Sweden Monroe El Trans & Dist Perpetual
W Town of Tonawanda Erie El Trans & Dist Perpetual
W Town of Wellsville Allegany El Transmission Perpetual
W Town of West Bloomfield Ontario El Trans & Dist Perpetual
W Town of West Seneca Erie El unknown No further info
W Town of Westfield Chautauqua El Transmission Permanent
W Town of Wethersfield Wyoming El Transmission Permanent
W Town of Wheatfield Niagara El Trans & Dist 11/29/72 60 years
W Town of Wheatland Monroe El Trans & Dist Permanent
W Town of Willing Allegany El Trans & Dist Permanent
W Town of Wilson Niagara El Trans & Dist Permanent
W Town of Wirt Allegany El Transmission Permanent
W Town of Yates Orleans El Trans & Dist Permanent
W Town of York Livingston El Trans & Dist Permanent
W Town of Yorkshire Cattaraugus El Trans & Dist Permanent
W Tuscarora Nation of Indians Niagara El Trans & Dist 10/18/2036 99 years
W Tuscarora Nation of Indians Niagara El Transmission 3/7/98 10 years
W Village of Akron Erie El Transmission Perpetual
W Village of Albion Orleans El Trans & Dist Perpetual
W Village of Alexander Genesee El Trans & Dist Perpetual
W Village of Allegany Cattaraugus El Trans & Dist Perpetual
W Village of Andover Allegany El Trans & Dist Perpetual
W Village of Angola Erie El Trans & Dist Perpetual
W Village of Arcade Wyoming El Transmission Perpetual
W Village of Attica Genesee El Trans & Dist Perpetual
W Village of Avon Livingston El Trans & Dist Perpetual
W Village of Barker Niagara El Trans & Dist Perpetual
W Village of Bemus Point Chautauqua El Trans & Dist Perpetual
W Village of Bergen Genesee El Trans & Dist No Franchise
W Village of Blasdell Erie El Trans & Dist 10/27/97 25 years
W Village of Brockport Monroe El Trans & Dist 12/6/87 50 years
W Village of Caledonia Livingston El Trans & Dist Perpetual
W Village of Cassadaga Chautauqua El Trans & Dist Perpetual
W Village of Cattaraugus Cattaraugus El Trans & Dist Perpetual
W Village of Celoron Chautauqua El Transmission Perpetual
W Village of Churchville Monroe El Trans & Dist Perpetual
W Village of Clifton Springs Ontario El Trans & Dist Perpetual
W Village of Corfu Genesee El Trans & Dist Perpetual
W Village of Cuba Allegany El Trans & Dist Perpetual
W Village of Delevan Cattaraugus El Trans & Dist Perpetual
W Village of Depew Erie El Trans & Dist 5/6/2006 50 years
W Village of East Randolph Cattaraugus El Trans & Dist Perpetual
W Village of Elba Genesee El Trans & Dist Perpetual
W Village of Ellicottville Cattaraugus El Trans & Dist Perpetual
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday, July 14, 1998 ANSWER Page 4
Frandist Franarea Franco Frantype Endate Franterm
======== ======================================== =================== ========================== ============== ====================
<S> <C> <C> <C> <C> <C>
W Village of Falconer Chautauqua El Transmission 4/17/91 25 years
W Village of Farnham Erie El Trans & Dist Perpetual
W Village of Franklinville Cattaraugus El Trans & Dist Perpetual
W Village of Fredonia Chautauqua El Trans & Dist Perpetual
W Village of Holly Orleans El Transmission Perpetual
W Village of Honeoye Falls Monroe El Trans & Dist Perpetual
W Village of Kenmore Erie El Trans & Dist Perpetual
W Village of Lakewood Chautauqua El Trans & Dist Perpetual
W Village of Lancaster Erie El Trans & Dist 9/9/2006 50 years
W Village of Lasalle Niagara El Trans & Dist Perpetual
W Village of Leroy Genesee El Trans & Dist Perpetual
W Village of Lewiston Niagara El Trans & Dist Perpetual
W Village of Lima Livingston El Trans & Dist Perpetual
W Village of Limestone Cattaraugus El Trans & Dist Perpetual
W Village of Livonia Livingston El Trans & Dist Perpetual
W Village of Lyndonville Orleans El Trans & Dist Perpetual
W Village of Macedon Wayne El Trans & Dist Perpetual
W Village of Machias Cattaraugus El Trans & Dist Perpetual
W Village of Manchester Ontario El Trans & Dist Perpetual
W Village of Mayville Chautauqua El Transmission Perpetual
W Village of Mayville Chautauqua El Transmission 9/24/2012 99 years
W Village of Medina Orleans El Transmission Perpetual
W Village of Middleport Niagara El Trans & Dist Perpetual
W Village of Newark Wayne El Trans & Dist Perpetual
W Village of North Collins Erie El Trans & Dist Perpetual
W Village of North Olean Cattaraugus El Trans & Dist Perpetual
W Village of Oakfield Genesee El Trans & Dist Perpetual
W Village of Olean Cattaraugus El Trans & Dist Perpetual
W Village of Palmyra Wayne El Trans & Dist Perpetual
W Village of Perrysburg Cattaraugus El Trans & Dist Perpetual
W Village of Phelps Ontario El Trans & Dist Perpetual
W Village of Portville Cattaraugus El Trans & Dist Perpetual
W Village of Randolph Cattaraugus El Trans & Dist 10/11/2014 50 years
W Village of Sherman Chautauqua El Trans & Dist Perpetual
W Village of Silver Creek Chautauqua El Transmission Perpetual
W Village of Sinclairville Chautauqua El Trans & Dist Perpetual
W Village of Sloan Erie El Trans & Dist Perpetual
W Village of Wellsville Allegany El Trans & Dist Perpetual
W Village of Westfield Chautauqua El Transmission Permanent
W Village of Williamsville Erie El Trans & Dist Permanent
W Village of Youngstown Niagara El Trans & Dist 4/l/2001 25 years
======== ======================================== =================== ========================== ============== ====================
</TABLE>
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NIAGARA MOHAWK )
POWER CORPORATION ) Docket No.__________________
APPLICATION FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE RESTRUCTURING
--------------------------------------
EXHIBIT L
<PAGE>
(Form of Notice for Federal Register)
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Niagara Mohawk Power Corp. ) Docket No. __________________
NOTICE OF FILING
(_________, 1998)
Take notice that on _________, 1998, Niagara Mohawk Power Corporation ("Niagara
Mohawk") tendered for filing pursuant to Section 203 of the Federal Power Act
an application for Commission approval to effect a corporate reorganization
which involves the creation of a holding company and the transfer of certain
contracts, all as more fully set forth in the application.
Any person desiring to be heard or to protest said filing should file a motion
to intervene or protest with the Federal Energy Regulatory Commission, 888 First
Street, N.E. Washington, D.C. 20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure (18 C.F.R. Sec. 385.211 and Sec.
385.214). All such motions or protests should be filed on or before
____________. Protests will be considered by the Commission in determining the
appropriate action to be taken, but will not serve to make protestants parties
to the proceedings. Any person wishing to become a party must file a motion to
intervene. Copies of the filing and supporting documents are on file with the
Commission and are available for public inspection.
David P. Boergers
Acting Secretary
Exhibit 22
UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
NIAGARA MOHAWK ) Docket Nos. Unit 1-50-220, Unit 2-50-410
POWER CORPORATION ) Operating License Nos. DPR-63, NPF-69
REQUEST FOR CONSENT TO INDIRECT TRANSFER OF CONTROL
OVER THE NINE MILE 1 AND 2 OPERATING LICENSES
IN CONNECTION WITH CREATION OF A NEW HOLDING COMPANY
I. INTRODUCTION
Niagara Mohawk Power Corporation ("NMPC" or the "Company"), pursuant to 10
C.F.R. ss. 50.80, hereby requests Nuclear Regulatory Commission ("NRC" or the
"Commission") consent to the indirect transfer of control over NMPC's interest
in Operating License Nos. DPR-63 and NPF-69 (collectively, the "Operating
Licenses") for, respectively, Unit No. 1 ("Nine Mile 1") and Unit No. 2 ("Nine
Mile 2") (collectively, the "facilities") of the Nine Mile Point Nuclear Power
Station located in Scriba, New York. NMPC is a 100% owner of Nine Mile 1 and a
41% co-owner of Nine Mile 2. NMPC operates both facilities. Commission approval
is necessary in order to allow the creation of a new holding company structure
for NMPC. The restructuring will not affect NMPC's position, responsibility or
commitment as owner and operation of the facilities. NMPC respectfully submits
that the proposed indirect transfer of control over the Operating Licenses is
consistent with applicable provisions of law, Commission regulations, and
Commission orders and will not affect NMPC's qualifications as a licensee.
Accordingly, the request should be granted.
<PAGE>
II. DESCRIPTION OF THE NEW HOLDING COMPANY STRUCTURE
Under the proposed holding company structure, NMPC will become a
wholly-owned subsidiary of a new holding company, Niagara Mohawk Holdings, Inc.
("Holdings"), a New York corporation. Each share of NMPC's common stock will be
exchanged for one new share of Holdings common stock. NMPC's outstanding
preferred stock will not be exchanged but will continue as shares of NMPC's
preferred stock. The corporate restructuring will result in a change in the
identity of the direct holder of NMPC's common stock, but no change in the
beneficial owners of that equity, who will merely exchange their NMPC shares for
shares in Holdings. The corporate restructuring is more fully described in the
Form S-4 Registration Statement for Niagara Mohawk Holdings, Inc. with
Amendments, dated May 29, 1998, a copy of which is attached hereto as Exhibit 1.
NMPC common shareholders approved the corporate restructuring as their Annual
Meeting on June 29, 1998.
III. BACKGROUND
NMPC is a registered public utility incorporated under the laws of New York
State. NLMPC is engaged principally in the generation, purchase, transmission,
distribution, and sale of electricity and the purchase, distribution, sale, and
transportation of gas. Nine Mile 1 and 2 are among the electric generating
facilities owned by NMPC. NMPC supplies electricity at both retail and
wholesale.
-2-
<PAGE>
NMPC utility operations are subject to regulation by the New York Public
Service Commission (the "NYPSC") pursuant to New York's Public Service Law (the
"PSL"). The NYPSC's jurisdiction includes supervision over NMPC's retail rates.
Further, NMPC is a "public utility" as defined in Section 201(e) of the Federal
Power Act, 16 U.S.C. Sec. 824(e). NMPC sells electric energy at wholesale to,
and transmits electric energy in interstate commerce for, other electric
utilities under rate schedules and tariffs approved by the Federal Energy
Regulatory Commission ("FERC"). By virtue of the regulatory authority exercised
by these agencies over NMPC's rates for electricity, NMPC is an "electric
utility" as defined in 10 C.F.R. Sec. 50.2.
In addition to its utility operations, NMPC owns an unregulated subsidiary,
Opinac North American, Inc. ("Opinac NA"), which, in turn, owns Opinac Energy
Corporation,1/ Plum Street Enterprises, Inc. and Plum Street Energy Marketing (a
subsidiary of Plum Street Enterprises) (collectively, the "non-utility
subsidiaries"), which participate principally in energy-related services.
Canadian Niagara Power Co., LTD ("CNP") is owned 50% by Opinac Energy
Corporation. CNP owns a 99.9% interest in Canadian Niagara Wind Power Company
Inc. and Cowley Ridge Partnership, respectively, which together operate a wind
power joint venture in the Province of Alberta, Canada. NMPC also has several
other subsidiaries including NM
- ------------------------
1/ Opinac Energy Corporation is an exempt holding company under Section
3(a)(5) of the Public Utility Holding Company Act of 1935. Opinac Energy
Corporation, 52 S.E.C. Docket 1475 (1992).
-3-
<PAGE>
Uranium Inc., NM Holdings, Inc., Moreau Manufacturing Corp., Beebee Island
Corp., and NM Receivables Corp. II.
Subject to the approval of NMPC shareholders and various regulatory
approvals, including the approval of this Commission, NMPC proposes to form the
holding company structure discussed above, whereby NMPC will become a subsidiary
of Holdings, a New York corporation. As part of the proposal, certain of NMPC's
non-utility subsidiaries will be transferred to Holdings. The resulting
corporate structure will more clearly separate NMPC's regulated and
non-regulated businesses. This separation is consistent with federal and state
initiatives for the restructuring of the electric utility industry.2/
It is also consistent with a Settlement Agreement (the "Settlement"), dated
October 10, 1997, among the Staff of the NYPSC, NMPC, and other parties which
provides for fundamental changes to the structure of NMPC's business. Among
other things, the Settlement calls for NMPC to divest all of its hydro and
fossil generation assets. NMPC's nuclear assets will remain part of its
regulated business. NMPC will continue to distribute electricity through its
transmission and distribution systems, but, by the end of 1999, all of NMPC's
customers will be able to choose their electricity supplier in a competitive
market.
- --------------------
2/ E.g., Order No. 888: Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services By Public Utilities, 75 F.E.R.C. Para.
61,080 (1996), reaff'd and clarified, Order No. 888-A, 78
(footnote continued next page)
-4-
<PAGE>
Electric rates will be unbundled into separate charges for transmission,
distribution, customer service, electric supply, and a non-bypassable
competitive transition charge (the "CTC"). NMPC's nuclear costs will be subject
to cost-of-service regulation. Finally, the Settlement allows NMPC to form, at
its election, the holding company structure discussed herein. The Settlement was
approved by the NYPSC on March 20, 1998.3/ The Settlement is more fully
described in the Settlement Order, a copy of which is attached hereto as Exhibit
2.
More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
PSC, thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings, would not need PSC approval to issue debt
or equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior PSC
approval should allow competition on a level basis with other potential
acquirers, some of which are already holding companies. Under a holding company
structure, the issuance of debt or equity securities by Holdings to finance the
acquisition of stock or assets
- ---------------------
(footnote continued)
F.E.R.C. Para. 61,220 (1997); NYPSC Opinion 96-12, Cases 94-E-0952, et al.,
Opinion and Order Regarding Competitive Opportunities for Electric Service
(1996).
3/ Niagara Mohawk Power Corp., Cases 94-E-0098 and 94-E-0099, et al., Opinion
and Order Adopting Terms of Settlement Agreement Subject to Modification and
Conditions (1998) (the "Settlement Order").
-5-
<PAGE>
of another company should not adversely affect Niagara Mohawk's capital devoted
to and available for regulated utility operations.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
of conducting regulated and unregulated businesses within the same corporate
group.
IV. EFFECT OF NEW HOLDING COMPANY STRUCTURE
The transfer of direct common equity ownership of NMPC to Holdings involves
a change of legal ownership of NMPC and, therefore, a technical change in the
control of NMPC and its interest in the Operating Licenses, which transfer of
control is subject to prior consent of the Commission. See 42 U.S.C. ss. 2234
and 10 C.F.R. ss. 50.80(a). The corporate restructuring will have a minimal
effect on the underlying ownership of NMPC because the existing shareholders of
NMPC will continue to control NMPC indirectly, and NMPC will continue to hold
the Operating Licenses.
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After the corporate restructuring, NMPC will continue to be an electric
utility engaged in the transmission, distribution and, through Nine Mile 1 and
2, the generation of electricity. NMPC will continue to be the owner of Nine
Mile 1 and the co-owner of Nine Mile 2 and will continue to operate both
facilities. No actual transfer of the ownership interest in Nine Mile 1 and 2 or
the Operating Licenses will be effected by the corporate restructuring. Further,
NMPC will continue to recover the costs of owning and operating the plants on a
modified cost-of-service basis through the non-bypassable CTC and will continue
to be regulated by the NYPSC and the FERC. Thus, pursuant to 10 C.F.R. ss.
50.80(c), the corporate restructuring will not affect NMPC's qualifications as a
licensee for Nine Mile 1 and 2, will not affect the status of NMPC as an
"electric utility," and is otherwise consistent with applicable provisions of
law, Commission regulations, and Commission orders.
V. REGULATORY APPROVALS
The proposed corporate restructuring requires the approval of the NYPSC,
the SEC pursuant to the Public Utility Holding Company Act of 1935 and the FERC.
The Settlement, which includes a description of the corporate restructuring, has
been approved by the NYPSC in the Settlement Order. Concurrent with the filing
of this Application, NMPC is filing applications with the FERC and the SEC for
approval to effect the proposed corporate restructuring. Additionally, a
compliance filing with the NYPSC will be required consistent with the
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Settlement and the Settlement Order. No similar application is required to be
filed with any other State or federal regulatory body.
VI. NUCLEAR REGULATORY COMMISSION REVIEW
To assist the NRC in its review of this request, NMPC is providing
information with respect to the following areas which have been the focus of the
NRC's review in prior cases involving the creation of holding companies over NRC
licensees:
1. The new holding company structure will not impair NMPC's ability to
carry out its responsibilities under its NRC licenses, or otherwise
affect the financial health of NMPC.
The corporate restructuring will not have an adverse impact on NMPC's
ability to fulfill its responsibilities under its NRC licenses. Specifically,
the corporate restructuring will not adversely affect the ability of NMPC to
meet its financial obligations with respect to the facilities' future operating
and capital requirements or to meet its funding obligations with respect to the
eventual nuclear decommissioning of the facilities.
The NRC recently addressed the future restructuring of the electric utility
industry and voiced concerns that NRC licensed entities continue to have access
to adequate funds so that funds are available for safe reactor operation and the
payment of decommissioning costs. E.g.,
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Final Policy Statement on the Restructuring and Economic Deregulation of the
Electric Utility Industry, 62 Fed. Reg. 44071 (1997).
With respect to both financial qualification reviews for operating license
applicants and decommission funding assurance reviews, the NRC has distinguished
between an "electric utility" and other licensees. As defined in 10 C.F.R. Sec.
50.2, an "electric utility" is an entity that generates or distributes
electricity the costs of which are recovered by rates set by the entity itself
or by a separate regulatory authority. Investor-owned utilities, such as NMPC,
are included within the meaning of "electric utility." The underlying rationale
for different treatment is that rate regulators typically allow an electric
utility to recover prudently incurred costs of generating, transmitting and
distributing electric services.
The NRC recently proposed revisions to the definition of "electric utility"
in its proposed rulemaking regarding Financial Assurance Requirements for
Decommissioning Nuclear Power Reactors, 62 Fed. Reg. 47588 (1997). The
Commission proposed to revise its definition of "electric utility" to introduce
additional flexibility prior to the deregulation of the electric industry. The
Commission noted that the key component of the revised definition is that a
licensee's rates are established either through cost-of-service mechanisms or
through other non-bypassable charge mechanisms, such as the CTC proposed under
the NMPC/NYPSC Settlement.
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The corporate restructuring will not change the status of NMPC as an
"electric utility," as defined in 10 C.F.R. ss. 50.2. After the holding company
structure is complete, NMPC will retain its nuclear assets and will continue to
be a public utility subject to regulation by the NYPSC with respect to, among
other things, its retail rates. NMPC will continue to recover the costs of
owning and operating the plants on a cost-of-service basis. In addition, FERC
will continue to regulate NMPC's transmission and wholesale electric rates.
Thus, NMPC will remain an "electric utility," as defined in both the
Commission's current and proposed regulations. With regard to the divesture of
NMPC's non-nuclear generating assets, which will be effected by auction, and in
accordance with Commission practice, NMPC agrees to notify the Commission 60
days in advance of any transfer of assets having a depreciated book value
exceeding ten percent (10%) of NMPC's consolidated net utility plant, as
recorded on NMPC's book of accounts. The transfer of such generating assets has
already been approved by the NYPSC in the Settlement Order.
2. The new holding company structure will not adversely affect the
management of NMPC's nuclear operations or its technical
qualifications.
The new holding company structure retains NMPC as a discrete and separate
entity. No responsibility for nuclear operations within NMPC will be changed by
the corporate restructuring. Officer responsibilities at the holding company
level will be primarily administrative and financial in nature and will not
involve operational matters relating to Nine
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Mile 1 and 2. After the corporate restructuring, NMPC will continue to be
responsible for the facilities' day-to-day operations and the technical
qualifications required by the Operating Licenses. No NMPC nuclear management
positions will be changed as a pre-requisite or direct result of the corporate
restructuring.
3. The new holding company structure will not result in NMPC becoming
owned, controlled or dominated by an alien, a foreign corporation, or a
foreign government.
At the time the restructuring becomes effective, Holdings will become the
sole holder of NMPC's common stock, and the current holders of NMPC's common
stock will become holders of the common stock of Holdings on a share-for-share
basis. Therefore, immediately following the implementation of the holding
company structure, the common stock of Holdings will be owned by the previous
holders of NMPC's common stock in the same proportions in which they held NMPC's
common stock. Based upon currently available information, shares of NMPC's
common stock held in foreign accounts represent less than 0.1 percent (0.1%) of
the total outstanding shares of NMPC. Further, all members of the Boards of
Directors of NMPC and Holdings will be United States citizens. Thus, the
corporate restructuring will not result in NMPC being owned, controlled or
dominated by foreign interests.
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VII. THE NEW HOLDING COMPANY STRUCTURE WILL HAVE NO SIGNIFICANT ENVIRONMENTAL
EFFECT
As discussed above, the new holding company structure will have no
significant effect on the operation of Nine Mile 1 and 2. There will be no
physical or operational changes to the facilities as a result. It will not
affect the qualifications or the organizational affiliation of the personnel who
operate and maintain the facilities. Further, it will not increase the
probability or consequences of accidents, no changes will be made in the types
of effluents that may be released offsite, and there will be no significant
increase in the allowable individual or cumulative occupational radiation
exposure. The corporate restructuring would not affect non-radiological
effluents of the facilities and would have no other environmental impact.
Accordingly, NMPC requests that the Commission issue and publish a finding of no
significant radiological environmental impact pursuant to 10 C.F.R. Sec. 51.31
and 51.35.
VIII. CONCLUSION
Based upon the foregoing, NMPC respectfully requests that the Commission
consent to the indirect transfer of control described herein. The common
shareholders approved the reorganization on June 29, 1998. Approvals from the
NYPSC, the SEC and FERC are anticipated by October 15, 1998. NMPC respectfully
requests NRC action on this application by October 1, 1998.
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Respectfully submitted,
NIAGARA MOHAWK POWER CORPORATION
By: /s/ John H. Mueller
--------------------------------
John H. Mueller
Senior Vice-President and
Chief Nuclear Officer
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
[tel/fax nos.]
Dated: July 22, 1998
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UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
NIAGARA MOHAWK POWER ) Docket Nos.
POWER CORPORATION ) Operating License Nos.
STATE OF NEW YORK )
COUNTY OF ___________ )ss.:
AFFIDAVIT OF ______________
_____________, being duly sworn, states that __ is the ______________ of
Niagara Mohawk Power Corporation ("NMPC"); that __ is authorized on the part of
NMPC to sign and file with the Nuclear Regulatory Commission the foregoing
request; and that said request is true and correct to the best of ___ knowledge,
information and belief.
----------------------------------
SUBSCRIBED and SWORN to before me, a Notary Public, this __ day of
_________, 1998.
--------------------------
Notary Public
My Commission Expires:
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EXHIBIT REFERENCE SHEET
EXHIBIT # DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
1 Form S-4 Registration Statement Filed with the Securities and
for Niagara Mohawk Holdings, Inc. Exchange Commission on May 29,
with Amendments dated May 29, 1998 1998
2 Settlement Agreement Filed with Niagara Mohawk 8K,
October 17, 1997, Exhibit 99-1
Exhibit No. 24
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
Niagara Mohawk Holdings, Inc. File No. _____________
NOTICE OF FILING
Take notice that on July __, 1998, Niagara Mohawk Holdings, Inc., a New
York corporation ("Holdings"), filed an application seeking authorization from
the Commission under Sections 3(a)(1), 9(a)(2) and 10 of the Public Utility
Holding Company Act of 1935 (the "1935 Act" or "Act"), in connection with the
proposed corporate reorganization of Niagara Mohawk Power Corporation ("Niagara
Mohawk"), a New York electric and gas utility company.
The application requests authorization (i) to acquire all of the
outstanding shares of common stock of Niagara Mohawk ("Niagara Mohawk Common
Stock") pursuant to a Plan of Exchange ("Plan of Exchange"), and (ii) to engage
in the proposed transactions described in the application, which will result in
Holdings indirectly owning or controlling all of the outstanding Niagara Mohawk
Common Stock, 86% of the outstanding common stock of Beebee Island Corporation
("Beebee Island"), a New York corporation, 67% of the outstanding common stock
of Moreau Manufacturing Corporation ("Moreau"), a New York corporation, and 50%
of Canadian Niagara Power Company Limited ("CNP"), a Canadian corporation, each
of which is an "electric utility company" for purposes of the 1935 Act. In
addition, the application requests an order exempting Holdings and each of its
subsidiary companies from all provisions of the 1935 Act (except for Section
9(a)(2) thereof).
<PAGE>
Under the terms of the Plan of Exchange, all of the outstanding shares
of common stock of Holdings ("Holdings Common Stock"), which will then be owned
by Niagara Mohawk, will be canceled and all of the outstanding shares of Niagara
Mohawk Common Stock will be exchanged on a share-for-share basis for Holdings
Common Stock ("Share Exchange"). Upon consummation of the Share Exchange, each
person who owned Niagara Mohawk Common Stock immediately prior to the Share
Exchange will own a corresponding number of shares and percentage of the
outstanding Holdings Common Stock, and Holdings will own all of the outstanding
shares of Niagara Mohawk Common Stock.
As an additional aspect of the proposed holding company restructuring,
after the effective time of the Share Exchange, certain of Niagara Mohawk's
existing non-utility subsidiaries will be transferred to Holdings and become
subsidiaries of Holdings. Niagara Mohawk's principal non-utility subsidiaries
participate in real estate development of property formerly owned by Niagara
Mohawk (NM Holdings), and in energy-related services (Opinac North America, Inc.
and its subsidiaries). In addition, Niagara Mohawk holds a single-purpose
subsidiary, NM Receivables Corp. II, established to facilitate the sale of an
undivided interest in a designated pool of customer receivables.
Niagara Mohawk, a regulated public utility incorporated under the laws
of the State of New York, is engaged principally in the business of generating,
purchasing, transmitting and distributing electricity, and purchasing,
transporting and distributing natural gas. Niagara Mohawk is currently exempt
from registration as a holding company under Section 3(a)(2) of the
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1935 Act because it is predominantly a public utility company whose operations
are confined to New York State.
Holdings was incorporated under the laws of the State of New York for
the purpose of carrying out the proposed transactions described in this
application. Holdings is currently a direct, wholly-owned subsidiary of Niagara
Mohawk. Holdings does not currently own any utility assets and currently is not
a "public utility company" or a "holding company" for purposes of the 1935 Act.
Holdings, which will indirectly own or control all of the outstanding
common stock of Niagara Mohawk, 86% of the outstanding common stock of Beebee
Island, 67% of the outstanding common stock of Moreau and 50% of CNP after the
effective time of the Share Exchange, will require Commission approval under
Section 9(a)(2) of the 1935 Act. In addition, Holdings is seeking a Commission
order declaring it exempt from all provisions of the Act except Section 9(a)(2).
The shares of Niagara Mohawk Preferred Stock issued and outstanding
immediately prior to the Share Exchange will not be converted or otherwise
affected by the Share Exchange and will continue as equity securities of Niagara
Mohawk with the same preferences, designations, relative rights, privileges and
powers, and subject to the same restrictions, limitations and qualifications, as
were applicable to such securities prior to the Share Exchange.
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The Share Exchange will not result in any change in the outstanding
indebtedness of Niagara Mohawk which will continue to be obligations of Niagara
Mohawk after the Share Exchange. Niagara Mohawk's first mortgage bonds will
continue to be secured by a first mortgage lien on all of the properties of
Niagara Mohawk that are currently subject to such lien. Such indebtedness will
be neither assumed nor guaranteed by Holdings in connection with the Share
Exchange.
The reorganization is an integral part of implementation of the
comprehensive rate and restructuring plan for Niagara Mohawk that was recently
approved by the New York State Public Service Commission ("PSC"), hereinafter
referred to as PowerChoice. PowerChoice is intended to further the PSC's stated
goals in restructuring the utility industry in New York State into a competitive
energy marketplace. See PSC Opinion No. 96-12 in Case 94-E-0952 issued May 20,
1996 (168 P.U.R. 4th 515). The proposed holding company structure is intended to
provide Niagara Mohawk and its subsidiaries with the financial and regulatory
flexibility to compete more effectively in an increasingly competitive energy
industry by providing a structure that can accommodate both regulated and
unregulated lines of business.
Holdings asserts that, following the consummation of the proposed
restructuring, it would be a public-utility holding company entitled to an
exemption under Section 3(a)(1) of the Act because it and each of its
public-utility subsidiaries from which it would derive a material part of its
income would be incorporated in the State of New York, would be predominately
intrastate in character and would carry on their business substantially within
the State of New York.
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All interested persons are referred to the application for complete
statements of the proposed reorganization summarized above. The application is
available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application should submit their views in writing by __________, _____, to the
Secretary, Securities and Exchange Commission, Washington, DC 20549, and serve a
copy on the relevant applicants at the address specified above. Proof of service
(by affidavit or, in the case of an attorney at law, by certificate) should be
filed with the request. Any request for hearing shall identify specifically the
issues of fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any notice or
order issued in the matter. After said date, the application, as filed or as
amended, may be granted.
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