SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification Number
- ------------ ------------------------------- ---------------------
0-25595 NIAGARA MOHAWK HOLDINGS, INC. 16-1549726
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
315.474.1511
1-2987 NIAGARA MOHAWK POWER CORPORATION 15-0265555
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
315.474.1511
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(Each class is registered on the New York Stock Exchange)
Registrant Title and Class
- ---------- -----------------
Niagara Mohawk Common Stock ($0.01 par value)
Holdings, Inc.
Niagara Mohawk Power Preferred Stock ($100 par value-cumulative):
Corporation 3.40% Series 3.90% Series 4.85% Series 6.10% Series
3.60% Series 4.10% Series 5.25% Series 7.72% Series
Preferred Stock ($25 par value-cumulative):
Adjustable Rate Series A, C & D
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Registrant Market Value at March 17, 2000
- ---------- ------------------------------
Niagara Mohawk Holdings, Inc. $2,216,000,000
Niagara Mohawk Power Corporation Not applicable
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Shares
Outstanding at
Registrant Title March 17, 2000
- ---------- ----- -------------
Niagara Mohawk Holdings, Inc. Common Stock, $0.01 par value 177,364,863
Niagara Mohawk Power Corporation Common Stock, $1.00 par value 187,364,863
(all held by Niagara Mohawk
Holdings, Inc.)
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF NIAGARA MOHAWK HOLDINGS,
INC.'S PROXY STATEMENTS RELATING TO THE 2000 ANNUAL MEETING OF SHAREHOLDERS
ARE INCORPORATED BY REFERENCE INTO PART III (ITEMS 10, 11 AND 12).
<PAGE>
FILING FORMAT
This Annual Report on Form 10-K is a combined annual report being filed
separately by two registrants: Niagara Mohawk Holdings, Inc. ("Holdings") and
Niagara Mohawk Power Corporation ("Niagara Mohawk"). Holdings became the
holding company for Niagara Mohawk on March 18, 1999. (See Part II, Item 8.
Financial Statements and Supplementary Data, 1. Summary of Significant
Accounting Policies - Corporate Structure and Principles of Consolidation).
Except where the context clearly indicates otherwise, any references in this
report to "Holdings" includes all subsidiaries of Holdings including Niagara
Mohawk. Niagara Mohawk makes no representation as to the information contained
in this report in relation to Holdings and its subsidiaries other than Niagara
Mohawk.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN FORM 10-K
INDEX
- -----
PART I
------
Glossary of Terms
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
-------
Item 5. Market for the Registrants' Common Equity and Related Stockholders
Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
GLOSSARY OF TERMS
-----------------
TERM DEFINITION
- ---- ----------
AFC Allowance for Funds Used During Construction
CNG CNG Transmission Corporation, an interstate natural gas pipeline
regulated by FERC
CTC Competitive transition charges: a mechanism established in Niagara
Mohawk's PowerChoice agreement to recover stranded costs from
customers
DEC New York State Department of Environmental Conservation
DOE U. S. Department of Energy
Dth Dekatherm: one thousand cubic feet of gas with a heat content of
1,000 British Thermal Units per cubic foot
EBITDA A non-GAAP measure of cash flow which is calculated as: earnings
before interest charges, interest income, income taxes,
depreciation and amortization, amortization of nuclear fuel,
allowance for funds used during construction, MRA regulatory asset
amortization, and extraordinary items
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
GRT Gross Receipts Tax
GWh Gigawatt-hour: one gigawatt-hour equals one billion watt-hours
IPP Independent Power Producer: any person that owns or operates, in
whole or in part, one or more Independent Power Facilities,
including the purchasers of Niagara Mohawk's generation assets
IPP Party Independent Power Producers that were a party to the MRA
KW Kilowatt: one thousand watts
KWh Kilowatt-hour: a unit of electrical energy equal to one kilowatt
of power supplied or taken from an electric circuit steadily for
one hour
MRA Master Restructuring Agreement - a Niagara Mohawk agreement,
including amendments thereto, which terminated, restated or amended
certain IPP Party power purchase agreements effective June 30, 1998
MRA Recoverable costs to terminate, restate or amend IPP Party
regulatory contracts, which have been deferred and are being amortized and
asset recovered under Niagara Mohawk's PowerChoice agreement
MW Megawatt: one million watts
MWh Megawatt-hour: one thousand kilowatt-hours
Net Cash Reflects interest charges (net of allowance for funds used during
Interest construction) less the non-cash impact of the net amortization of
discount on long-term debt and interest accrued on the Nuclear
Waste Policy Act disposal liability less interest income
NRC U. S. Nuclear Regulatory Commission
NYISO New York Independent System Operator
NYPA New York Power Authority
NYPP New York Power Pool
NYSERDA New York State Energy Research and Development Authority
PowerChoice Niagara Mohawk's five-year electric rate agreement, which
incorporates the MRA agreement, approved by the PSC in an order
dated March 20, 1998, and became effective September 1, 1998
PPA Power Purchase Agreement: long-term contracts under which a utility
is obligated to purchase electricity from an IPP at specified rates
Provider of The entity that will provide electric or gas commodity to its
last resort customers who are unable or unwilling to obtain an alternative
supplier
PRP Potentially Responsible Party
PSC New York State Public Service Commission
PURPA Public Utility Regulatory Policies Act of 1978, as amended. One
of five bills signed into law on November 8, 1978, as the National
Energy Act. It sets forth procedures and requirements applicable
to state utility commissions, electric and natural gas utilities
and certain federal regulatory agencies. A major aspect of this
law is the mandatory purchase obligation from qualifying
facilities.
SFAS Statement of Financial Accounting Standards No. 71
No. 71 "Accounting for the Effects of Certain Types of Regulation"
SFAS Statement of Financial Accounting Standards No. 101
No. 101 "Regulated Enterprises - Accounting for the Discontinuance of
Application of FASB Statement No. 71"
SFAS Statement of Financial Accounting Standards No. 106
No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions"
SFAS Statement of Financial Accounting Standards No. 109
No. 109 "Accounting for Income Taxes"
SFAS Statement of Financial Accounting Standards No. 121
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of"
Stranded Regulated utility costs that may become unrecoverable due to a
costs change in the regulatory environment
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
Unit 2 Nine Mile Point Nuclear Station Unit No. 2
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
PART I
------
Certain statements included in this Annual Report on Form 10-K are
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934 that involve risk and uncertainty, including the improvement in
Holdings and Niagara Mohawk's cash flow upon the implementation of the MRA and
PowerChoice, the timing and outcome of the proposed future sale of Niagara
Mohawk's remaining fossil and nuclear generation assets, the planned repayment
of debt, the effects of Niagara Mohawk's transition to a new customer service
system, and the collection of accounts receivable and the corresponding bad debt
expense. These forward-looking statements are based upon a number of
assumptions, including assumptions regarding PowerChoice and regulatory actions
to continue to support such an agreement. Actual future results and
developments may differ materially depending on a number of factors, including
regulatory changes either by the federal government or the PSC, uncertainties
regarding the ultimate impact on Holdings and Niagara Mohawk as the regulated
electric and gas industries are further deregulated and electricity and gas
suppliers gain open access to Niagara Mohawk's retail customers, challenges to
PowerChoice under New York laws, the timing and extent of changes in commodity
prices and interest rates, the effects of weather, the length and frequency of
outages at Niagara Mohawk's two nuclear plants, the results from Niagara
Mohawk's proposed sale of its generation assets, the effects of transition to a
new customer service system, including efforts made by Niagara Mohawk to collect
from customers, and the economic conditions of Niagara Mohawk's service
territory.
ITEM 1. BUSINESS
On March 18, 1999, Niagara Mohawk Power Corporation ("Niagara Mohawk") was
reorganized into a holding company structure in accordance with its Agreement
and Plan of Exchange between Niagara Mohawk and Niagara Mohawk Holdings, Inc.
("Holdings"). Niagara Mohawk's outstanding common stock was exchanged on a
share-for-share basis for Holdings' common stock. Niagara Mohawk's preferred
stock and debt were not exchanged as part of the share exchange and continue as
shares and debt of Niagara Mohawk. In addition, to further complete the holding
company structure, Niagara Mohawk, on March 31, 1999, distributed its ownership
in the stock of Opinac North America, Inc. ("Opinac") as a dividend to Holdings.
As a result, Holdings has two subsidiaries, (1) Niagara Mohawk, which is
primarily a regulated electric and gas utility, and (2) Opinac, which is mainly
involved in unregulated activities in the energy business. Opinac and its
subsidiaries consist of an energy marketing company, and have investments in
energy related and services businesses, a development stage telecommunications
company (Telergy, Inc.), and a research and development company (EVonyx, Inc.)
that has developed and intends to commercialize new fuel cell and battery
technology.
Holdings was organized in 1998 under the laws of New York State. Niagara Mohawk
was organized in 1937 under the laws of New York State and is engaged
principally in the regulated energy delivery business in New York State.
Niagara Mohawk provides electric service, and sells, distributes, and transports
natural gas to approximately 1,600,000 electric and 540,000 gas customers in
areas of central, northern and western New York State. Niagara Mohawk comprises
98% of Holdings' total assets and 94% of Holdings' total revenues. See Part II,
Item 8. Financial Statements and Supplementary Data - Note 11. - Segment
Information.
GENERAL
-------
Until recent years, the electric and gas utility industry operated in a
relatively stable business environment, subject to traditional cost-of-service
regulation. The investment community, both shareholders and creditors,
considered utility securities to be of low risk and high quality. Regulators
upheld the utilities' rights to provide service in its franchise areas in
exchange for the utility company's obligation to provide universal service to
customers in its service territory, subject to cost-of-service regulation. Such
regulation often encouraged regulators and other governmental bodies to use
utilities as vehicles to advance social programs and collect taxes. In general,
prices were established based on cost-of-service, including a fair rate of
return and utilities were allowed to fully recover all prudently incurred costs.
Cash flows were relatively predictable, as was the industry's ability to sustain
dividend payout and interest coverage ratios.
Consequently, Niagara Mohawk's past electricity and gas prices reflected
traditional utility regulation. As such, Niagara Mohawk's electricity prices
have included both state-mandated purchased power costs from IPPs, at costs far
exceeding Niagara Mohawk's actual avoided costs, and the costs of high taxes in
the state of New York. Avoided costs are the costs Niagara Mohawk would
otherwise incur to generate power if it did not purchase electricity from
another source.
While Niagara Mohawk was experiencing rising prices, rapid technological
advances have significantly reduced the price of new generation and
significantly improved the performance of smaller scale generation units.
Actions taken by other utilities throughout the country to lower their prices,
including those in areas with already relatively low prices, increased the
threat of industrial relocation and the need to offer discounts to industrial
customers.
Recognizing the competitive trends in the electric utility industry and the
impracticability of remedying the situation through a series of customer rate
increases, in mid-1996, Niagara Mohawk began comprehensive negotiations to
terminate, amend or restate a substantial portion of above market PPAs in an
effort to mitigate the escalating cost of these PPAs as well as to prepare
Niagara Mohawk for a more competitive environment. These negotiations led to
the MRA and the PowerChoice agreement.
In 1998, Niagara Mohawk finalized these agreements and believes that they will
significantly improve its financial outlook. Niagara Mohawk and the PSC agreed
to a five-year rate plan and Niagara Mohawk agreed to divest its fossil and
hydro generation assets, representing 4,217 MW of capacity and approximately
$1.0 billion of net book value.
As part of the MRA, Niagara Mohawk terminated during 1998, 18 PPAs for 1,092 MW,
restated 8 PPAs for 535 MW and amended one PPA for 42 MW in exchange for $3.934
billion in cash and 20.5 million shares of Niagara Mohawk common stock.
Management believes that the MRA and the PowerChoice agreement provide Niagara
Mohawk with financial stability and create an improved platform from which to
build value. The primary objective of the MRA was to convert a large and
growing off-balance sheet payment obligation that threatened the financial
viability of Niagara Mohawk into a fixed and manageable capital obligation. The
lower contractual obligations resulting from the MRA significantly improved cash
flow which is primarily dedicated to reduce indebtedness incurred to fund the
MRA. With the improved cash flow and proceeds from the generation asset sales,
Niagara Mohawk redeemed approximately $1.1 billion in debt during 1999. With
the PowerChoice agreement, Niagara Mohawk has lowered prices beginning on
September 1, 1998, for its industrial, commercial and residential electric
customers for a period of three years, and provides reasonable certainty of
prices for the years thereafter. The PowerChoice agreement and the MRA also
facilitate the creation of a competitive electricity supply market in Niagara
Mohawk's service territory. Niagara Mohawk is actively pursuing other
opportunities to reduce its payments to IPPs that were not party to the MRA.
A major priority during 1999 was to complete the work begun in 1998. During
1999, Niagara Mohawk completed the sale of its coal-fired generation plants, its
hydroelectric generation plants, and its oil and gas-fired generation plant in
Oswego. During 1999, Niagara Mohawk also announced an agreement to sell its oil
and gas-fired generation plant in Albany and entered into an agreement to sell
its ownership share of the Roseton oil and gas-fired plant by no later than
January 1, 2003. In addition, Niagara Mohawk announced in June 1999 an
agreement to sell its nuclear assets. The sale is contingent upon Niagara
Mohawk receiving the necessary regulatory approvals, and management cannot
determine at this time whether a sale will occur. Niagara Mohawk's nuclear
assets are still being recovered under cost-of-service rates.
Also during 1999, Niagara Mohawk completed the transition of all customers to
retail access. This means that all of Niagara Mohawk's customers are now able
to choose both their electricity and gas supplier. On September 1, 1999,
Niagara Mohawk implemented its second phase of rate reductions, as outlined in
its PowerChoice agreement.
The transition to the holding company structure was also completed during 1999.
The holding company structure is intended to provide Holdings 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.
The holding company structure will permit Holdings to participate in unregulated
business opportunities as the industry evolves.
In the near term, Holdings and Niagara Mohawk believe the greatest opportunity
for improving its financial condition will come from paying down debt and
repurchasing Holdings' common stock. During 1999, Niagara Mohawk repaid
approximately $1.1 billion in debt and repurchased 10 million shares of
Holdings' common stock. Niagara Mohawk will continue to emphasize operational
excellence and seek to improve margins through cost reductions. In addition,
Holdings intends to pursue unregulated business opportunities through Opinac.
For a discussion of events that occurred during 1999, including the
restructuring of the regulated electric utility business, other federal and
state regulatory initiatives, and Niagara Mohawk's efforts to address
deregulation and its financial condition, see Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
The following topics are discussed under the general heading of "Business."
Where applicable, the discussions make reference to the various other items of
this Form 10-K.
TOPIC
Regulation and Rates
Electric Supply Planning
Purchased Power
Fuel for Electric Generation
Electric Delivery Planning
Nuclear Operations
Gas Supply
Gas Delivery
Financial Information About Segments
Environmental Matters
Research and Development
Construction Program
Insurance
Employee Relations
Seasonality
In addition, for a discussion of Holdings and Niagara Mohawk's properties, see
Item 2. Properties - Electric Delivery and Gas Delivery. For a discussion of
Holdings' treatment of working capital items, see Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Financial Position, Liquidity and Capital Resources."
REGULATION AND RATES
--------------------
Several critical initiatives have been undertaken by various regulatory bodies
and Niagara Mohawk that have had, and are likely to continue to have, a
significant impact on the shape of Niagara Mohawk and the utility industry. See
Part II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - PowerChoice and the Restructuring of the Regulated
Electric Utility Business, Other Federal and State Regulatory Initiatives for a
discussion of these initiatives.
POWERCHOICE AGREEMENT. For a discussion of Niagara Mohawk's PowerChoice
agreement and its MRA, see Part II, Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - PowerChoice and the
Restructuring of the Regulated Electric Utility Business.
MULTI-YEAR GAS RATE AND RESTRUCTURING PROPOSAL. For a discussion of Niagara
Mohawk's proposed three-year gas rate settlement agreement that was filed with
the PSC on March 11, 1999, see Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Federal and
State Regulatory Initiatives - Gas Multi-Year Rate and Restructuring Proposal.
ELECTRIC SUPPLY PLANNING
------------------------
Under the PowerChoice agreement, the PSC approved Niagara Mohawk's plan to
divest its fossil and hydro generation assets, which is a key component in its
PowerChoice agreement to lower average electricity prices and provide customer
choice. During 1999, Niagara Mohawk completed the sale of its coal-fired
generation assets, its hydro generation assets, and its oil and gas-fired plant
at Oswego. During 1999, Niagara Mohawk also announced agreements to sell its
oil and gas-fired plant at Albany and its nuclear generation assets. The sale
of the nuclear assets is uncertain, because it is subject to significant
regulatory approval. See Part II, Item 8. Financial Statements and
Supplementary Data - Note 3. - Nuclear Operations. Niagara Mohawk has also
signed an agreement to sell its interest in the Roseton oil and gas-fired
generation plant. As a result of these generation asset sales, Niagara Mohawk
has entered into various agreements to purchase its power needs from the buyers
of the generation assets. Niagara Mohawk will purchase any additional power
needs on the open market through the NYISO. The NYISO commenced operations
in December 1999 as a result of a FERC ruling which promotes competition by
requiring public utilities owning, operating, or controlling interstate
transmission facilities to file tariffs which offer others the same
transmission services they provide for themselves, under comparable terms and
conditions. One result of the formation of the NYISO was the dissolution of
the NYPP. See the "Purchased Power" discussion below for a description of the
various types of power purchase agreements. For a discussion of the results of
the generation asset sales to date, the status of the pending generation asset
sales, a discussion of the formation of the NYISO, and a discussion of power
contracts, see Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - PowerChoice and the
Restructuring of the Regulated Electric Utility Business - Generation Asset
Sales, and FERC Order 888 - Open Access and Item 8. Financial Statements and
Supplementary Data - Note 8. - Commitments and Contingencies and Note 9. - Fair
Value of Financial and Derivative Financial Instruments.
PURCHASED POWER
---------------
As a result of Niagara Mohawk's ongoing divestiture of its generation assets,
Niagara Mohawk will need to rely more on purchases of electricity from external
sources. Niagara Mohawk has entered into agreements to purchase a portion of
its energy needs and will purchase any remaining needs through purchase options
or the open market through the NYISO. See Part II, Item 8. Financial Statements
and Supplementary Data - Note 8. - Commitments and Contingencies - Long-Term
Contracts for the Purchase of Electric Power, for a further discussion of these
commitments. Niagara Mohawk has also entered into several financial agreements
to hedge the price of electricity. See Part II, Item 8. Financial Statements
and Supplementary Data - Note 9. - Fair Value of Financial and Derivative
Financial Instruments for a discussion of these agreements. The following is a
summary of Niagara Mohawk's main sources of purchased power:
POWER PURCHASE AGREEMENTS (PPAs)
- --------------------------------
- - PURPA CONTRACTS: In 1999, Niagara Mohawk purchased 6,768,000 MWh or about
18% of its total power supply from IPPs, which is a 30% reduction from 1998.
This amount includes payments to the IPP Parties under put contracts as
described in more detail below. For a discussion of Niagara Mohawk's efforts
to reduce its IPP costs, see Item 3. Legal Proceedings; Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - PowerChoice and the Restructuring of the Regulated Electric
Utility Business; and Part II, Item 8. Financial Statements and Supplementary
Data - Note 2. - Rate and Regulatory Issues and Contingencies, Note 8. -
Commitments and Contingencies - Long-Term Contracts for the Purchase of
Electric Power and Note 9. - Fair Value of Financial and Derivative Financial
Instruments.
- - PUT CONTRACTS: As a part of the MRA, Niagara Mohawk signed put agreements
with approximately one-third of the IPP Parties whereby the IPP Parties have
an option to put the physical delivery of energy to Niagara Mohawk at market
prices. These put agreements will be in effect until the NYISO meets certain
volume and capacity conditions for a consecutive six-month period. During
1999, Niagara Mohawk purchased from the IPP Parties 2,782,000 MWh or about 7%
of its total supply of electric power received as part of these put
agreements.
- - FOSSIL/HYDRO CONTRACTS: As part of the sale of Niagara Mohawk's fossil
and hydro generation assets, Niagara Mohawk entered into agreements with the
buyers of these assets for the purchase of capacity and energy. During 1999,
these purchases amounted to 3,490,000 MWh or about 9% of Niagara Mohawk's
total power supply requirements. These purchases became effective at the
time each of the asset sales were completed. The contracts with the buyers
of the coal-fired generation plant converted to financial agreements upon
the start up of the NYISO. The agreement signed as part of the sale of the
Albany oil and gas-fired generation plant is a financial agreement. See Part
II, Item 8. Financial Statements and Supplementary Data - Note 8. -
Commitments and Contingencies - Long-Term Contracts for the Purchase of
Electric Power, for a further discussion of these PPAs.
- - NUCLEAR CONTRACTS: If Niagara Mohawk is successful in selling its nuclear
assets, Niagara Mohawk anticipates it would enter into PPAs to purchase
energy and capacity at negotiated prices. The negotiated prices may be above
projected market prices during the term of the PPAs. Niagara Mohawk would
pay only for delivered output from the units. See Part II, Item 8. Financial
Statements and Supplementary Data - Note 3. - Nuclear Operations and Note
8. - Commitments and Contingencies - Long-Term Contracts for the Purchase of
Electric Power, for a further discussion of the agreements.
NEW YORK POWER AUTHORITY
- ------------------------
Niagara Mohawk presently has contracts to purchase electricity from a number
of generation facilities owned by the NYPA. In 1999, these purchases
amounted to 7,908,000 MWh, or about 21 percent of Niagara Mohawk's total
power supply requirements. A large portion of this supply is resold to
Niagara Mohawk's "Expansion and Replacement" customers in western New York.
Niagara Mohawk credits to its residential customers, pursuant to the terms
of the agreements with NYPA, a portion of the low cost power purchased from
NYPA hydropower sources. Refer to Part II, Item 8. Financial Statements and
Supplementary Data - Note 8. - Commitments and Contingencies - Long-Term
Contracts for the Purchase of Electric Power, for a table that summarizes the
NYPA generation source, amounts of power, and the contract expiration dates
for NYPA electricity which Niagara Mohawk was entitled to purchase as of
January 1, 2000.
OTHER PURCHASED POWER
- ---------------------
Power purchased in 1999 from sources other than those noted above (other
utilities, NYPP, NYISO), amounted to 4,398,000 MWh, representing
approximately 12% of Niagara Mohawk's total power supply requirements.
Purchases from other utilities have and will continue to decrease in the
future, however, purchases made through the NYISO at market prices will
increase.
Opinac's wholly owned subsidiary, Niagara Mohawk Energy, Inc. ("Niagara Mohawk
Energy"), purchases its electricity for resale within and outside New York
State, through short-term (forward contracts) or spot market purchases.
FUEL FOR ELECTRIC GENERATION
----------------------------
During 1999, Niagara Mohawk completed the sale of its coal-fired generation
plants and its oil and gas-fired generation plant at Oswego. Niagara Mohawk
announced during 1999 an agreement to sell its Albany oil and gas-fired
generation plant. Niagara Mohawk has also entered into an agreement to sell its
interest in the Roseton plant by no later than January 1, 2003. Niagara Mohawk
is attempting to sell its interest in nuclear generation assets. The nuclear
sale is contingent upon regulatory approval.
The PowerChoice agreement eliminated Niagara Mohawk's fuel adjustment clause,
which in the past has provided for partial pass-through to customers of fuel and
purchased power cost fluctuations from amounts forecast. See Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - PowerChoice and the Restructuring of the Regulated Electric Utility
Business, for a further discussion of the completed and pending sales of Niagara
Mohawk's generation assets.
NATURAL GAS. The Albany Steam Station has the capability to use natural gas, as
well as residual oil, as a fuel for electric generation. This dual-fuel
capability permits the use of the lower cost fuel depending on fuel market
conditions. During 1997, 1998, and 1999, natural gas was the predominant fuel
used. During 1997 and part of 1998, generation at this station had been
curtailed significantly because of the requirement to purchase IPP power and the
existence of excess capacity in the region. However, since the completion of
the MRA, there was a significant increase in the use of Albany Steam Station.
The output of the Albany Steam Station increased between 1997 and 1998 from 412
Gwh to 1,110 Gwh.
Niagara Mohawk purchased all natural gas for the Albany Steam Station from the
spot market. This gas was purchased as an interruptible supply.
Niagara Mohawk has a 25% ownership interest in Roseton Steam Station Units No. 1
and 2 (the "Roseton Units"). Both Roseton Units have dual fuel capability with
residual oil as the primary fuel and natural gas as the alternate fuel. Central
Hudson Gas and Electric Corporation ("Central Hudson"), a co-owner and the
operator of the Roseton Steam Station, has one contract for the supply of up to
approximately 100,000 Dths per day of natural gas for use at the Roseton Units.
In addition, Central Hudson purchases additional natural gas on the spot market
when economical. The natural gas supply is used primarily during off peak
months (April through October of each year), minimizing the exposure to
interruption. In 1999, approximately 1.5 million Dth (Niagara Mohawk's share)
of gas were used at the Roseton Units.
The annual average cost of natural gas burned by Niagara Mohawk, including the
Roseton Steam Station, was as follows:
Cost 1999* 1998 1997
- ----------------------------------------------
per million BTU $3.04 $2.35 $2.50
per Dth 3.04 2.35 2.50
* - Includes natural gas burned at the Oswego plant through October 22, 1999
RESIDUAL OIL. Fuel sulfur content standards instituted by New York State
require 1.5% sulfur content fuel oil to be burned at the Albany Steam Station.
All oil requirements were met on the spot market. At December 31, 1999, there
were approximately 236,000 barrels of oil, or a 45-day supply, at the Albany
Steam Station, based on recent burn projections. The price of 1.5% sulfur
residual oil for Albany at December 31, 1999 was $22.00 per barrel. The fuel
oil prices quoted include the $2.75 per barrel Petroleum Business Tax imposed
by New York State.
Central Hudson has arranged for the supply of residual oil for the Roseton
Units. All oil requirements are met on the spot market.
The annual average cost of residual oil burned by Niagara Mohawk, including
the Roseton Steam Station was as follows:
Cost 1999* 1998 1997
- -----------------------------------------------
per million BTU $ 3.01 $ 3.09 $ 4.50
per Dth 19.06 19.45 25.58
* - Includes oil burned at the Oswego plant through October 22, 1999
NUCLEAR. The supply of fuel for Niagara Mohawk's Nine Mile Point nuclear
generation plants involves: (1) the procurement of uranium concentrates, (2)
the conversion of uranium concentrates to uranium hexafluoride, (3) the
enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblies
and (5) the disposal of spent fuel and radioactive wastes.
Agreements for nuclear fuel materials and services for Unit 1 and Unit 2 (in
which Niagara Mohawk has a 41% interest) have been made through the following
years:
Unit No. 1 Unit No. 2
----------------------
Uranium Concentrates 2002 2002
Conversion 2002 2002
Enrichment 2003 2003
Fabrication 2007 2006
Arrangements have been made for procuring a portion of the uranium, conversion
and enrichment requirements through the years listed above, leaving the
remaining portion of the requirements uncommitted. Enrichment services are
under contract with the U.S. Enrichment Corporation for up to 100% of the
requirements through the year 2003. Up to approximately 80% and 90% of the
uranium and conversion requirements are under contract through the year 2003
for Unit 1 and Unit 2, respectively. The uncommitted requirements for nuclear
fuel materials and services are expected to be obtained through long-term
contracts or secondary market purchases. If the sale of Niagara Mohawk's two
nuclear plants occurs, Niagara Mohawk would not incur any liability for future
commitments under these nuclear fuel contracts upon the sale of its interest in
the two plants.
The cost of fuel utilized at Unit 1 and Unit 2 was as follows:
Cost per million BTU 1999 1998 1997
- -------------------------------------------------------
Unit 1 $0.52 $0.51 $0.54
Unit 2 0.48 0.45 0.49
For a discussion of Niagara Mohawk's treatment of its nuclear assets under
PowerChoice, its nuclear fuel disposal costs and the disposal of nuclear wastes,
the recovery of nuclear fuel costs through rates and for further information
concerning costs relating to decommissioning of the nuclear generation plants,
see Item 8. Financial Statements and Supplementary Data - Note 1. - Summary of
Significant Accounting Policies - Depreciation, Amortization and Nuclear
Generation Plant Decommissioning Costs and Note 3. - Nuclear Operations.
ELECTRIC DELIVERY PLANNING
--------------------------
See Part II. Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - PowerChoice and the Restructuring of the Regulated
Electric Utility Business - FERC Order 888 - Open Access, as to how Niagara
Mohawk's transmission system will be managed under the NYISO and FERC Order 2000
regarding a December 1999 FERC proposal to create a regional transmission
organization.
As of January 1, 2000, Niagara Mohawk had approximately 128,000 miles of
transmission and distribution lines for electric delivery. Evaluation of these
facilities relative to NYISO, Northeast Power Coordinating Council, and North
American Electric Reliability Organization, planning criteria and anticipated
Niagara Mohawk internal and external demands is an ongoing process intended to
maintain the reliability of electric service while minimizing the capital
requirements for expansion of these facilities. Niagara Mohawk continually
reviews the adequacy of its electric delivery facilities and establishes capital
requirements to support new load growth.
NUCLEAR OPERATIONS
------------------
The scheduled refueling and maintenance outage at Unit 2 began on March 3,
2000 and is currently estimated to last approximately six weeks.
See Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Other Federal and State Regulatory
Initiatives - NRC and Nuclear Operating Matters and PSC Staff's Tentative
Conclusions on the Future of Nuclear Generation and Part II, Item 8.
Financial Statements and Supplementary Data - Note 2. - Rate and Regulatory
Issues and Contingencies and Note 3. - Nuclear Operations.
GAS SUPPLY
----------
The majority of Niagara Mohawk's gas sales are for residential and commercial
space and water heating. Consequently, the demand for natural gas by Niagara
Mohawk's customers is seasonal and influenced by weather factors. Niagara
Mohawk purchases its natural gas for sale to its customers under firm and spot
contracts, which is transported under both firm and interruptible transportation
contracts. During 1999, about 82% of Niagara Mohawk's natural gas supply was
purchased under firm contracts and 18% was purchased under spot contracts. The
spot contracts are generally for commitments less than 30 days. See Part II.
Item 8. Financial Statements and Supplementary Data - Note 8. - Commitments and
Contingencies - Gas Supply, Storage and Pipeline Commitments. In addition,
Niagara Mohawk has a commitment with CNG to provide gas storage capability until
March 2002. See Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Other Federal and State
Regulatory Initiatives - Future of the Natural Gas Industry, for a discussion of
the PSC's 1998 proposal, that natural gas utilities exit the business of
purchasing natural gas for customers.
Niagara Mohawk Energy purchases its gas for resale both within and outside New
York State, through short term (futures contracts) and spot market purchases.
GAS DELIVERY
------------
Niagara Mohawk sells, distributes and transports natural gas to a geographic
territory that generally extends from Syracuse to Albany. The northern reaches
of the system extend to Watertown and Glens Falls. Not all of Niagara Mohawk's
distribution areas are physically interconnected with one another by its own
facilities. Presently, 9 separate distribution areas are connected directly
with CNG, an interstate natural gas pipeline regulated by the FERC, via 17
delivery stations. Niagara Mohawk also has two direct connections with Iroquois
Gas Transmission and one with Empire State Pipeline.
FINANCIAL INFORMATION ABOUT SEGMENTS
------------------------------------
See Part II, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 8. Financial Statements and Supplementary
Data - Note 11. - Segment Information.
ENVIRONMENTAL MATTERS
---------------------
GENERAL. Niagara Mohawk's operations and facilities are subject to numerous
federal, state and local laws and regulations relating to the environment
including, among other things, requirements concerning air emissions, water
discharges, site remediation, hazardous materials handling, waste disposal and
employee health and safety. While Niagara Mohawk devotes considerable resources
to environmental compliance and promoting employee health and safety, the impact
of future environmental health and safety laws and regulations on Niagara Mohawk
cannot be predicted with certainty.
In compliance with environmental statutes and consistent with its strategic
philosophy, Niagara Mohawk performs environmental investigations and analyses
and installs, as required, pollution control equipment, including, among other
things, effluent monitoring instrumentation and materials storage/handling
facilities designed to prevent or minimize releases of potentially harmful
substances. Expenditures for environmental matters for 1999 totaled
approximately $31.9 million, of which approximately $8.6 million was capitalized
as pollution control or plant environmental surveillance equipment and
approximately $23.3 million was charged to operating expense for remediation,
operation of environmental monitoring and waste disposal programs. Expenditures
for 2000 are estimated to total $33.0 million, of which $3.1 million is expected
to be capitalized and $29.9 million charged to operating expense. Anticipated
expenditures for 2001 are estimated to total $34.1 million, of which $2.1
million is expected to be capitalized and $32.0 million charged to operating
expense. The expenditures for 2000 and 2001 include the estimated costs for
Niagara Mohawk's expected proportionate share of the costs for site
investigation and remediation of waste sites discussed under "Solid/Hazardous
Waste" below, but exclude costs for the fossil and hydro generation plants.
Costs for site investigation and remediation are included in operating expense
to the extent actual costs exceed the amount provided for in rates, in which
case, the excess costs are deferred for future recovery through cost-of-service
based rates.
Niagara Mohawk believes it is probable that costs associated with environmental
compliance will continue to be recovered through the ratemaking process. For a
discussion of the circumstances regarding Niagara Mohawk's continued ability to
recover these types of expenditures in rates, see Part II, Item 8. Financial
Statements and Supplementary Data - Note 2. - Rates and Regulatory Issues and
Contingencies.
ISO 14001. During 1997, Niagara Mohawk had its fossil and nuclear generation
plants (Oswego, Albany, Huntley and Dunkirk Steam Stations and Nine Mile Point)
certified to the ISO 14001 environmental management system standard. The
registration audits of these facilities were conducted by Advanced Waste
Management Systems. Niagara Mohawk's investment recovery facility was
registered to ISO 14001 in October 1999. Niagara Mohawk's position has been,
and continues to be, that an effective environmental management system is
necessary to prudently manage environmental issues and minimize environmental
liabilities.
Once Niagara Mohawk completes the sales of its remaining generation assets,
Niagara Mohawk will no longer be responsible for meeting the related
environmental requirements. The following discussion of air, water and solid
waste matters presents Niagara Mohawk's plans for addressing environmental
requirements in the event Niagara Mohawk were to retain ownership of its
remaining generation assets.
AIR. Niagara Mohawk is required to comply with applicable federal and state air
quality requirements pertaining to emissions into the atmosphere from its
fossil-fired generation stations and other air emission sources.
Phase II requirements associated with Title IV of the Clean Air Act (targeted
for the year 2000 and beyond) will require owners of fossil plants to further
reduce their SO2. Possible options for Phase II SO2 compliance, beyond those
considered for Phase I compliance, include fuel switching, installation of flue
gas desulfurization or clean coal technologies, repowering and the use of
emission allowances created under the Clean Air Act. Appropriate deployment of
these options will be determined by the new owners of the Albany plant.
In September 1994, the states comprising the Northeast Ozone Transport
Commission (New York State included) signed a Memorandum of Understanding that
called for each member state to develop regulations for two additional phases of
NOx reduction beyond RACT (referred to as Phase II and Phase III NOx
reductions). In Phase II, air emission sources located in upstate New York
(which included all of Niagara Mohawk's air emission sources) had to reduce NOx
emissions by May 1999 by 55% relative to 1990 levels. In Phase III, these air
emission sources will have to reduce NOx emissions in May 2003 by 75% relative
to 1990 levels. The Memorandum of Understanding provides that the specified
reductions in Phase III may be modified if evidence shows that alternative NOx
reductions, together with other emission reductions, will satisfy the air
quality standard across the region. The DEC has finalized regulations governing
the Phase II NOx reduction program in New York State, which was implemented
beginning May 1, 1999. The DEC has also issued proposed Phase III NOx reduction
regulations. Since Phase III NOx reductions will not be required until the year
2003, this should not have an impact on Niagara Mohawk as a result of the
pending sale of the Albany Steam Station.
Niagara Mohawk has spent less than $1.0 million in capital expenditures during
1997 through 1999 to comply with the Clean Air Act. For a discussion of Niagara
Mohawk's negotiations with the DEC on a Consent Decree addressing past opacity
excursions and future opacity compliance issues, see Item 3. Legal Proceedings.
WATER. Niagara Mohawk is required to comply with applicable federal and state
water quality requirements, including the Clean Water Act, in connection with
the discharge of condenser cooling water and other wastewaters from its
steam-electric generation stations and other facilities. A wastewater discharge
permit was issued by DEC for the Albany Steam Station. This permit must be
renewed every five years. Conditions of the permits typically require that
studies be performed to determine the effects of station operation on the
aquatic environment in the station vicinity and to evaluate various technologies
for mitigating losses of aquatic life. This should not have an impact on
Niagara Mohawk due to the pending sale of Albany plant.
LOW LEVEL RADIOACTIVE WASTE. See Part II, Item 8. Financial Statements and
Supplementary Data - Note 3. - Nuclear Operations - Low Level Radioactive Waste.
SOLID/HAZARDOUS WASTE. The public utility industry typically utilizes and/or
generates in its operations a broad range of hazardous and potentially hazardous
wastes and by-products. Niagara Mohawk 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 compliance with such requirements.
Niagara Mohawk is also currently conducting a program to investigate and
remediate, as necessary, to meet current environmental standards, certain
properties associated with former gas manufacturing and other properties which
Niagara Mohawk has learned may be contaminated with industrial waste, as well as
investigating identified industrial waste sites as to which it may be determined
that Niagara Mohawk has contributed. Niagara Mohawk 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.
See Part II, Item 8. Financial Statements and Supplementary Data - Note 8. -
Commitments and Contingencies - Environmental Contingencies for a discussion of
the sites which are Niagara Mohawk owned.
With respect to sites not owned by Niagara Mohawk, but for which it has been or
may be associated as a PRP, Niagara Mohawk has recorded a liability of $90
million, representing its current estimate of its share of the total cost to
investigate and remediate these sites. Total costs to investigate and remediate
all non-owned sites is estimated to be approximately $245 million, but it is
unlikely that Niagara Mohawk will be required to assume 100% of the
responsibility for these sites. Niagara Mohawk has denied any responsibility
for certain of these PRP sites and is contesting liability accordingly. Twelve
of the PRP sites are included on the National Priorities List ("NPL"). Niagara
Mohawk estimates that its share of the liability for these 12 sites is not
material and has included the amount in the determination of the amounts
accrued.
Estimates of Niagara Mohawk's potential liability for sites not owned by Niagara
Mohawk, but for which it has been identified as an alleged PRP, have been
derived by estimating the total cost of site cleanup and then applying Niagara
Mohawk's contribution factor to that estimate where appropriate. Estimates of
the total cleanup costs are determined by using all available information from
investigations conducted by Niagara Mohawk and other parties, negotiations with
other PRPs and, where no other basis is available at the time of estimate, the
EPA figure for average cost to remediate a site listed on the NPL as disclosed
in the Federal Register of June 23, 1993 (58 Fed. Reg. 119). A contribution
factor is calculated when there is a reasonable basis for it, that uses either a
pro rata share based upon the total number of PRPs named or otherwise identified
or the percentage agreed upon with other PRPs through steering committee
negotiations or by other means. In some instances, Niagara Mohawk has been
unable to determine a contribution factor and has included in the amount accrued
the total estimated costs to remediate the sites. Actual Niagara Mohawk
expenditures for these sites are dependent upon the total cost of investigation
and remediation and the ultimate determination of Niagara Mohawk's share of
responsibility for such costs as well as the financial viability of other PRPs
since cleanup obligations are joint and several.
In May 1997, the DEC executed an Order of Consent (the "1997 Order") which
serves to keep the annual cash requirement for certain site investigation and
remediation ("SIR") level (at approximately $15 million per year), and which
provides for an annual site prioritization mechanism. Niagara Mohawk has a
carryover from prior years underspending of approximately $12.6 million, of
which it anticipates reducing by $5 million in 2000. As executed, the 1997
Order expands the scope of the original 1992 Order, which covered 21 former MGP
sites, to encompass all additional sites with which Niagara Mohawk has been
associated. The agreement is supported by the decision analysis approach, which
Niagara Mohawk and the DEC will continue to revise on an annual basis to address
SIR progress and site priorities relative to establishing the annual cost cap,
as well as determining Niagara Mohawk's liability for these sites. The Saratoga
Springs and Harbor Point MGP sites are being investigated and remediated
pursuant to separate regulatory Consent Orders with the EPA and the DEC,
respectively. However, the annual costs associated with the remediation of
these sites are included in the cash requirements under the amended 1997 Order.
PowerChoice and Niagara Mohawk's gas settlement provide for the recovery of SIR
costs during the settlement periods. Niagara Mohawk believes future costs,
beyond the settlement periods, will continue to be recovered in rates. Based
upon this assessment, a regulatory asset has been recorded in the amount of $240
million, representing the future recovery of remediation obligations accrued to
date. As a result, Niagara Mohawk does not believe SIR costs will have a
material adverse effect on its results of operations or financial condition.
See also Part II, Item 8. Financial Statements and Supplementary Data - Note 2.
- - Rate and Regulatory Issues and Contingencies.
RESEARCH AND DEVELOPMENT
------------------------
Niagara Mohawk maintains a research and development ("R&D") program aimed at
improving the delivery and use of energy products and finding practical
applications for new and existing technologies in the energy business. These
efforts include:
- - improving efficiency
- - minimizing environmental impacts
- - improving facility availability
- - minimizing maintenance costs
- - promoting economic development
- - improving the quality of life for its customers with new electric and gas
technologies
R&D expenditures in 1997 through 1999 were not material to Holdings or Niagara
Mohawk's results of operations or financial condition.
CONSTRUCTION PROGRAM
--------------------
See Part II, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financial Position, Liquidity and Capital Resources
- - Construction and Other Capital Requirements and Part II, Item 8. Financial
Statements and Supplementary Data - Note 8. - Commitments and Contingencies -
Construction Program.
INSURANCE
---------
As of January 31, 2000, Holdings' directors and officers liability insurance was
renewed. This coverage includes nuclear operations and insures the directors
and officers against obligations incurred as a result of their indemnification
by Holdings. The coverage also insures the directors and officers against
liabilities for which they may not be indemnified by Holdings, except for a
dishonest act or breach of trust. In addition, the policy covers all of
Holdings subsidiaries. For a discussion of nuclear insurance, see Part II, Item
8. Financial Statements and Supplementary Data - Note 3. - Nuclear Operations -
Nuclear Liability Insurance and - Nuclear Property Insurance.
EMPLOYEE RELATIONS
------------------
Niagara Mohawk's work force at December 31, 1999 numbered approximately 7,400,
of whom approximately 68% were union members. It is estimated that
approximately 78% of Niagara Mohawk's total labor cost is applicable to
operation and maintenance and approximately 22% is applicable to construction
and other accounts.
All of Niagara Mohawk's non-supervisory production and clerical workers subject
to collective bargaining are represented by the International Brotherhood of
Electrical Workers ("IBEW"). In April 1996, Niagara Mohawk and the IBEW agreed
on a five-year, three-month labor agreement, which provides for wage increases
of approximately 2% to 3% in each of the subsequent four years.
Niagara Mohawk's work force decreased during 1999 as a result of the sale of its
fossil and hydro generation assets. In addition, Niagara Mohawk's work force
should also decrease during 2000 as a result of the closing on the sale of the
Albany plant and could decrease by approximately 1,300 if the nuclear generation
plants are sold.
Opinac's wholly owned subsidiary, Niagara Mohawk Energy, has approximately 100
employees.
SEASONALITY
-----------
See Item 2. Properties - Electric Delivery and Part II, Item 8. Financial
Statements and Supplementary Data - Note 12. - Quarterly Financial Data
(unaudited).
<PAGE>
ITEM 2. PROPERTIES
ELECTRIC DELIVERY
-----------------
NIAGARA MOHAWK: During 1999, Niagara Mohawk completed the sale of its
coal-fired generation plants, its hydro electric plants, its oil and gas-fired
plant in Oswego, and its interest in Beebee Island and Feeder Dam hydro plants
and their output. As of December 31, 1999, Niagara Mohawk owned and operated
one fossil fuel steam plant, had a 25% interest in the Roseton Steam Station
and its output, and owned and operated two nuclear plants. During 1999,
Niagara Mohawk announced plans to sell these remaining generation assets.
The sale of the nuclear generation assets is uncertain, because it is subject
to significant regulatory approval. See Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
PowerChoice and the Restructuring of the Regulated Electric Utility Business,
for a discussion of the sales and announced sales of Niagara Mohawk's generation
assets.
The following is a list of Niagara Mohawk's major remaining generation stations
at December 31, 1999:
<TABLE>
<CAPTION>
Niagara Mohawk's
Share of
Nominal Net
Percent Capability
Station Location Ownership Energy Source in MW
- ------------------------ ---------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Albany . . . . . . . . . Hudson River 100% Oil/Natural Gas 400
Roseton. . . . . . . . . Hudson River 25% Oil/Natural Gas 300
Nine Mile Point (Unit 1) Lake Ontario 100% Nuclear 613
Nine Mile Point (Unit 2) Lake Ontario 41% Nuclear 469
</TABLE>
As of December 31, 1999, Niagara Mohawk's electric transmission and distribution
systems were composed of:
- - 952 substations with a rated transformer capacity of approximately
28,500,000 kilovoltamperes
- - approximately 8,000 circuit miles of overhead transmission lines
- - approximately 1,100 cable miles of underground transmission lines
- - approximately 113,100 conductor miles of overhead distribution lines
- - about 5,800 cable miles of underground distribution cables
Only a part of Niagara Mohawk's transmission and distribution lines are
located on property owned by Niagara Mohawk.
There is seasonal variation in electric customer load. In 1998 and 1999,
Niagara Mohawk's maximum hourly demand occurred in the summer. Prior to 1998,
Niagara Mohawk's maximum hourly demand occurred in the winter. The maximum
simultaneous hourly demand (excluding economy and emergency sales to other
utilities) on the electric system of Niagara Mohawk for the 12 months ended
December 31, 1999 occurred on July 16, 1999 and was 6,098 KWh.
OPINAC: Holdings' unregulated subsidiary, Opinac, through its subsidiary Opinac
Energy Corporation, owns a 50 percent interest in Canadian Niagara Power Company
Limited ("CNP") (owner and operator of the 76.8 MW Rankine hydroelectric plant)
which distributes electric power within the province of Ontario.
The electric system of Niagara Mohawk and CNP is directly interconnected with
other electric utility systems in Ontario, Quebec, New York, Massachusetts,
Vermont and Pennsylvania, and indirectly interconnected with most of the
electric utility systems through the Eastern Interconnection of the United
States.
GAS DELIVERY
------------
Niagara Mohawk distributes gas purchased from suppliers and transports gas owned
by others. As of December 31, 1999, Niagara Mohawk's natural gas delivery
system was comprised of approximately 12,000 miles of pipelines and mains. Only
a part of these natural gas pipelines and mains are located on property owned by
Niagara Mohawk.
SUBSIDIARIES
------------
Holdings has two subsidiaries as follows:
(1) Niagara Mohawk, the regulated subsidiary which has the following
subsidiaries:
(a) NM Uranium, Inc. - has an interest in a uranium mining operation in
Live Oak County, Texas, which is now in the process of reclamation and
restoration.
(b) NM Properties, Inc. - engages in real estate development and
divestiture of property formerly owned by Niagara Mohawk.
(c) NM Receivables - facilitates the sale of an undivided interest in a
designated pool of customer receivables, including accrued unbilled
revenues. NM Receivables, LLC is owned by Niagara Mohawk (over 99.99%)
and by NM Receivables Corp. II, which is a wholly owned subsidiary of
Niagara Mohawk.
(2) Opinac, the unregulated subsidiary which owns:
(a) Opinac Energy Corporation - a Canadian corporation which has portfolio
investments and owns a 50 percent interest in CNP. CNP is an electric
company, which has operations in the province of Ontario, Canada. CNP
generates electricity at its Rankine hydro plant for the wholesale
market and for its distribution system in Fort Erie, Ontario.
(b) Niagara Mohawk Energy, Inc. - was incorporated in the state of Delaware
and is an unregulated company that offers energy-related services.
(c) An investment in a development stage telecommunications company
(Telergy, Inc.).
(d) An investment in a research and development company (EVonyx, Inc.) that
has developed and intends to commercialize, new fuel cell and battery
technology.
NATIVE AMERICAN MATTERS
-----------------------
Niagara Mohawk owns and operates approximately 50 miles of electric transmission
lines, over approximately 350 acres, crossing the Seneca Nation, Cattaraugus and
Allegheny Reservations, which range from 230 kilovolts to 34.5 kilovolts. In
1991, the Seneca Nation ("Nation") opened discussions alleging the invalidity of
the right-of-way agreements for these transmission lines. While discussions
between the Nation and Niagara Mohawk were suspended in mid-1992, in 1997, the
Nation asked Niagara Mohawk to reopen the discussions. On September 30, 1998,
the Nation filed, in the U.S. District Court for the Western District of New
York, a civil action to eject Niagara Mohawk from the Nation's land and is also
seeking financial relief from Niagara Mohawk. The litigation has been suspended
since October 1999, as a result of Niagara Mohawk and the Nation reaching a
tentative settlement. Niagara Mohawk and the Nation are currently negotiating
the terms and conditions of a settlement agreement and a new right-of-way
agreement for the electric transmission lines on the Seneca Reservations. The
terms of the tentative settlement agreement are not material to Niagara Mohawk's
results of operation or financial position. Niagara Mohawk is unable to predict
whether this tentative settlement agreement will be finalized, whether the terms
of such an agreement will materially change, or the outcome of litigation, if a
settlement is not finalized.
Niagara Mohawk has also held discussions with other Native American nations and
was involved in legal proceedings regarding the PSC's jurisdiction over their
territories, Niagara Mohawk's right to provide service to individuals located
within these territories, the validity of franchise agreements within their
territories, and Niagara Mohawk's right to collect stranded costs. The
potential outcome of these discussions could lead to, but is not limited to,
more formalized litigation proceedings. Niagara Mohawk intends to continue
these discussions and defend its position, but is unable to predict the timing
or outcome of these matters.
MORTGAGE LIENS
--------------
Substantially all of Niagara Mohawk's operating properties are subject to a
mortgage lien securing its mortgage debt.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
For a detailed discussion of additional legal proceedings, see Part II, Item 8.
Financial Statements and Supplementary Data - Note 8. - Commitments and
Contingencies - Environmental Contingencies. See also Item 1. Business -
Environmental Matters - Solid/Hazardous Waste, Item 2. Properties - Native
American Matters, and Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - PowerChoice and the
Restructuring of the Regulated Electric Utility Business. Holdings and Niagara
Mohawk are unable to predict the ultimate disposition of the matters referred to
below. In addition, consistent with PowerChoice and its gas settlement
agreement, Niagara Mohawk believes that it is probable that it will continue to
recover these types of expenditures in cost-of-service based rates. See also
Part II, Item 8. Financial Statements and Supplementary Data - Note 2. - Rate
and Regulatory Issues and Contingencies.
1. On June 22, 1993, Niagara Mohawk and 20 other industrial entities, as
well as the owner/operator of the Pfohl Brothers Landfill near Buffalo, New
York, were sued in New York State Supreme Court, Erie County, by a group of
residents living in the area surrounding the landfill. The plaintiffs seek
compensation for alleged economic loss and property damage claimed to have
resulted from exposure to contamination associated with the landfill. In
addition, since January 18, 1995, Niagara Mohawk has been named as a
defendant or third party defendant in a series of toxic tort actions filed
in federal or state courts in the Buffalo area. These actions allege
exposure on the part of plaintiffs or plaintiffs' decedents to toxic
chemicals emanated from the landfill, resulting in the alleged causation of
property damage and/or physical injury. The plaintiffs seek compensatory
and punitive damages so far totaling approximately $60 million. Niagara
Mohawk has filed answers responding to the claims put forth in these suits,
denying liability as to any of the claimed conditions or damages and intends
to continue to vigorously defend against each claim.
Niagara Mohawk is unable to predict at this time the probable outcome of
these proceedings, which at present remain in the discovery stage. Niagara
Mohawk, through participation in the Pfohl Brothers Landfill Site Committee,
is assisting in the design and implementation of a remedial program which is
expected to be memorialized in an administrative consent order to be
executed during the second quarter of 2000. In the context of remedial cost
allocation procedures conducted on behalf of the Committee, it has been
determined that Niagara Mohawk's contribution of industrial wastes to the
landfill was minor. Further, it is Niagara Mohawk's position that any
materials attributable to Niagara Mohawk, which may have been disposed of at
the landfill are not causally related to any physical condition alleged by
plaintiffs in the various lawsuits associated with the landfill. Niagara
Mohawk does not believe that the outcome of these proceedings will have a
material adverse effect on its results of operations or financial condition.
2. On February 4, 1994, Niagara Mohawk notified NorCon Partners, LP ("NorCon")
of its demand for adequate assurance that NorCon would perform all of
their future repayment obligations as required by agreement.
On March 7, 1994, NorCon filed a complaint in the U.S. District Court
seeking to enjoin Niagara Mohawk from terminating a PPA between the parties
and seeking a declaratory judgment that Niagara Mohawk has no right to
demand additional security or other assurances of NorCon's future
performance under the PPA. On March 26, 1997, the U.S. Court of Appeals
for the Second Circuit ordered that the question of whether there exists
under New York commercial law the right to demand firm security on an
electric contract should be certified to the New York Court of Appeals,
the highest New York court, for an advisory ruling. The Second Circuit
order effectively stayed the U.S. District Court's order against Niagara
Mohawk, pending final disposition by the New York Court of Appeals. A
motion to stay further proceedings was made since this contract was included
in the MRA.
NorCon subsequently dropped out of the MRA, and arguments were held on
October 22, 1998 in the New York Court of Appeals at the request of Niagara
Mohawk. A settlement agreement was reached on October 14, 1999 between
Niagara Mohawk and NorCon to terminate the PPA, which also settles Niagara
Mohawk's original demand for adequate assurance for future performance.
The settlement agreement also included payments to General Electric Capital
Corporation and Louis Dreyfus Natural Gas Corporation as a result of the
termination of the PPA. This settlement agreement was finalized and
implemented with the execution of comprehensive settlement documents and
payment of settlement funds on December 2, 1999. The settlement payment by
Niagara Mohawk totaled $125 million, which has been deferred. Niagara
Mohawk has petitioned the PSC to amortize this deferral over an eight-year
period.
3. In November 1993, Fourth Branch Associates Mechanicville ("Fourth
Branch") filed an action against Niagara Mohawk and several of its officers
and employees in the New York State Supreme Court, seeking compensatory
damages of $50 million, punitive damages of $100 million, and injunctive
and other related relief. The lawsuit grows out of Niagara Mohawk's
termination of a contract for Fourth Branch to operate and maintain a
hydroelectric plant Niagara Mohawk owned in the Town of Halfmoon, New York.
Fourth Branch's complaint also alleges claims based on the inability of
Fourth Branch and Niagara Mohawk to agree on terms for the purchase of
power from a new facility that Fourth Branch hoped to construct at the
Mechanicville site. In January 1994, Niagara Mohawk filed a motion to
dismiss Fourth Branch's complaint. By order dated November 7, 1995, the
Court granted Niagara Mohawk's motion to dismiss the complaint in its
entirety. Fourth Branch filed an appeal from the Court's order. On
January 30, 1997, the Appellate Division modified the November 7, 1995
court decision by reversing the dismissal of the fourth and fifth causes
of action set forth in Fourth Branch's complaint. Discovery proceedings
are in progress with respect to the two causes of action.
Niagara Mohawk and Fourth Branch had also entered into negotiations under
a FERC mediation process. As a result of these negotiations, Niagara Mohawk
had proposed to sell the hydroelectric plant to Fourth Branch for an amount
which would not be material. In addition, the proposal included a provision
that would require the discontinuance of all litigation between the parties.
Attempts to implement this proposal were unsuccessful, and Niagara Mohawk
informed FERC that its participation in the mediation efforts was concluded.
On January 14, 1997, the FERC Administrative Law Judge issued a report to
FERC recommending that the mediation proceeding be terminated, leaving
outstanding a Fourth Branch complaint to FERC that alleges anti-competitive
conduct by Niagara Mohawk. Niagara Mohawk has made a motion to dismiss
Fourth Branch's antitrust complaint before the FERC, which motion was
opposed by Fourth Branch.
During July 1998, Fourth Branch commenced a condemnation proceeding in
Federal District Court to obtain title to the project property and also has
made a unilateral offer of settlement before FERC. Niagara Mohawk served an
answer with various affirmative defenses. On July 30, 1998, Fourth Branch
moved for Summary Judgment. Niagara Mohawk opposed Fourth Branch's motion
and cross-moved for summary judgment in favor of Niagara Mohawk. The Court
granted Niagara Mohawk's motion for summary judgment on September 1, 1999.
On September 10, 1999, Fourth Branch filed an amended unilateral offer of
settlement with FERC. On September 30, 1999, Niagara Mohawk filed its
response and objection to the amended offer of settlement. On November 23,
1999, FERC issued a comprehensive order rejecting Fourth Branch's unilateral
offer of settlement, dismissing Fourth Branch's complaint of
anti-competitive conduct against Niagara Mohawk and determining that there
has been an implied surrender by Fourth Branch and Niagara Mohawk of the
FERC license for the Mechanicville Project. On December 23, 1999, Fourth
Branch filed a petition for rehearing of the Commission's decision.
Niagara Mohawk is unable to predict the ultimate disposition of the lawsuit
and FERC case referred to above. However, Niagara Mohawk believes it has
meritorious defenses and intends to defend them vigorously. No provision
for liability, if any, that may result from this lawsuit has been made in
Niagara Mohawk's financial statements.
4. The DEC, in response to an EPA audit of DEC enforcement policies, which
found enforcement of air regulation violations to be insufficient, began an
initiative to address this issue in 1997. As a result, the DEC began to
pursue consent orders from all New York utilities for past opacity
variances. The consent order also includes various opacity reduction
measures and stipulated penalties for future excursions after execution of
a consent order. Niagara Mohawk is in the process of finalizing a mutually
agreeable consent order. Niagara Mohawk believes that the penalties for
past opacity variances will be immaterial to its results of operations.
The stipulated penalties for future excursions will be negotiated between
the new owners of the fossil generation plants and the DEC.
5. In July 1998, the Public Utility Law Project of New York, Inc. (PULP) and
others sought a declaratory judgment, declaring Niagara Mohawk's PowerChoice
agreement unlawful, null and void and injunctive relief in the Supreme Court
of the state of New York, Albany County against the PSC and Niagara Mohawk
to enjoin the defendants to halt all their actions and expenditures to
implement the rules for the provision of retail energy services contained
in the PowerChoice agreement. The PSC and Niagara Mohawk filed motions
seeking to dismiss this action. By a decision dated March 2, 2000, Albany
County Supreme Court granted the motions to dismiss PULP's action. PULP
will have 30 days following service of the decision and order with notice
of entry in which to file a notice of appeal. Niagara Mohawk is unable to
predict the outcome of this matter.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANTS
---------------------------------
All executive officers of Holdings and Niagara Mohawk are elected on an annual
basis at the Organizational meeting of their Board of Directors or upon the
filling of a vacancy. There are no family relationships between any of the
executive officers. There are no arrangements or understandings between any of
the officers listed below and any other person pursuant to which he or she was
selected as an officer.
<TABLE>
<CAPTION>
Age at
Executive 12/31/99 Current and Prior Positions Date Commenced
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William E. Davis (1) 57 Chairman of the Board and Chief Executive Officer May 1993
Albert J. Budney Jr. (2) 52 President April 1995
Corporate Managing Vice President-UtiliCorp Power Prior to joining
Services Group (at Unit of UtiliCorp United, Inc. Niagara Mohawk
President-Missouri Public Service (Operating Division of January 1993
UtiliCorp United, Inc.)
Darlene D. Kerr (3) 48 Executive Vice President and Chief Operating Officer April 1999
Executive Vice President-Energy Delivery September 1998
Senior Vice President-Energy Distribution December 1995
Senior Vice President-Electric Customer Service January 1994
David J. Arrington (1) 48 Senior Vice President-Human Resources & Chief Administrative April 1999
Officer (Niagara Mohawk)
Senior Vice President & Chief Administrative Officer (Holdings) March 1999
Thomas H. Baron (3) 55 Senior Vice President-Field Operations October 1998
Vice President-Fossil/Hydro Generation & Environmental Affairs April 1998
Vice President-Fossil & Hydro Generation May 1991
Edward J. Dienst (3) 44 Senior Vice President-Asset Management & Energy Delivery April 1999
Senior Vice President-Customer Delivery & Asset Management October 1998
Vice President-Energy Delivery May 1996
Vice President-Regional Operations April 1994
William F. Edwards (1) 42 Senior Vice President and Chief Financial Officer March 1999 (Holdings)
Sept 1997 (Niagara Mohawk)
Vice President-Financial Planning December 1995
Executive Assistant of the Chief Executive Officer and President July 1993
Gary J. Lavine (2) 49 Senior Vice President and Chief Legal Officer March 1999
Senior Vice President-Legal & Corporate Relations May 1993
John H. Mueller (3) 53 Senior Vice President and Chief Nuclear Officer January 1998
Site Vice President of Commonwealth Edison's Zion Plant August 1996
Vice President of Nuclear Energy (for Nebraska Public Power July 1994
District, owner and operator of the Cooper nuclear plant)
Theresa A. Flaim (1) 50 Vice President-Strategic Planning May 1999 (both)
Vice President-Corporate Strategic Planning March 1999 (Holdings)
May 1994 (Niagara Mohawk)
Kapua A. Rice (1) 48 Corporate Secretary April 1998 (Holdings)
Sept 1994 (Niagara Mohawk)
Steven W. Tasker (1) 42 Vice President-Controller March 1999 (Holdings)
Dec 1993 (Niagara Mohawk)
</TABLE>
1 - Executive is an officer of both Holdings and Niagara Mohawk
2 - Executive is an officer of only Holdings
3 - Executive is an officer of only Niagara Mohawk
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
HOLDING COMPANY FORMATION. On March 18, 1999, Niagara Mohawk Power Corporation
("Niagara Mohawk") was reorganized into a holding company structure in
accordance with its Agreement and Plan of Exchange between Niagara Mohawk and
Niagara Mohawk Holdings, Inc. ("Holdings"). Niagara Mohawk's outstanding
common stock was exchanged on a share-for-share basis for Holdings' common
stock. Niagara Mohawk's preferred stock and debt were not exchanged as part
of the share exchange and continue as shares and debt of Niagara Mohawk.
HOLDINGS COMMON STOCK. Holdings is authorized to issue 300 million shares of
common stock. Holdings' common stock (par value $0.01) and certain of Niagara
Mohawk's preferred series are listed on the New York Stock Exchange ("NYSE").
Holdings' common stock is also traded on the Boston, Cincinnati, Midwest,
Pacific and Philadelphia stock exchanges. Holdings' common stock options are
traded on the American Stock Exchange. The ticker symbol is "NMK."
Holdings' common stock has been traded on the NYSE since March 19, 1999. Prior
to that date, the market prices on the table below refer to Niagara Mohawk's
common stock.
<TABLE>
<CAPTION>
1999 1998
-------- ---------
HIGH LOW High Low
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
1st Quarter $16 7/16 $ 13 1/16 $13 9/16 $ 10 1/8
2nd Quarter 16 1/16 13 1/8 15 1/4 11
3rd Quarter 16 1/8 14 5/8 16 3/8 14 3/4
4th Quarter 16 3/16 13 13/16 16 1/2 13 15/16
</TABLE>
For a discussion regarding Holdings and Niagara Mohawk's common stock dividend,
see Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Position, Liquidity and Capital Resources -
Common Stock Dividend below.
The holders of Holdings' common stock are entitled to one vote per share and may
not cumulate their votes for the election of Directors. Upon any dissolution,
liquidation or winding up of Holdings' business, the holders of common stock are
entitled to receive a pro rata share of all of Holdings' assets remaining and
available for distribution after the full amounts to which holders (if any) of
Holdings' preferred stock are entitled have been satisfied.
After the closing of the MRA (see Part II, Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations - PowerChoice and the
Restructuring of the Regulated Electric Utility Business - The MRA Agreement,
IPP Parties and their designees owned approximately 20.5 million shares of
Niagara Mohawk's common stock, representing approximately 11% of Niagara
Mohawk's voting securities. These shares were also exchanged on March 18,
1999 on a share-for-share basis for Holdings' common stock. Pursuant to the
MRA, any IPP Party that received 2% or more of the outstanding common stock
and any designee of IPP Parties that received more than 4.9% of the outstanding
common stock upon the consummation of the MRA, together with certain but not
all affiliates (collectively, "2% Shareholders"), entered into certain
shareholder agreements (the "Shareholders Agreements"). Pursuant to each
Shareholder Agreement, the 2% Shareholders agree that for five years from the
consummation of the MRA, they will not acquire more than an additional 5% of
the outstanding common stock (resulting in ownership in all cases of no more
than 9.9%) or take any actions to attempt to acquire control of Holdings,
other than certain permitted actions in response to unsolicited actions by
third parties. The 2% Shareholders generally vote their shares on a
"pass-through" basis, in the same proportion as all shares held by other
shareholders are voted, except that they may vote in their discretion (i)
for extraordinary transactions and (ii) for directors when there is a
pending proposal to acquire Holdings.
In 1999, the PSC approved Niagara Mohawk's petition to purchase up to $800
million of Holdings' common stock. Holdings and Niagara Mohawk's Board of
Directors have approved a program to repurchase 20 million shares through
December 31, 2001. See Part II, Item 8. - Financial Statements and
Supplementary Data, Note 4. - Capitalization, for a further discussion of
the shares repurchased.
As of January 1, 2000, there were approximately 53,600 holders of record of
common stock of Holdings and about 2,900 holders of record of Niagara Mohawk's
preferred stock. The chart below summarizes common stockholder ownership by
size of holding:
<TABLE>
<CAPTION>
Size of Holding Total Total
(Shares) Stockholders Shares Held
- ---------------- ------------ -----------
<S> <C> <C>
1 to 99. . . . . 27,710 699,760
100 to 999 . . . 23,736 5,634,474
1,000 or more. . 2,157 171,030,629
------------ -----------
53,603 177,364,863
============ ===========
</TABLE>
HOLDINGS PREFERRED STOCK. Holdings is authorized to issue 50 million shares of
preferred stock with a par value of $0.01. No preferred stock had been issued
as of December 31, 1999.
NIAGARA MOHAWK COMMON STOCK. Niagara Mohawk is authorized to issue 250 million
shares of common stock with a par value of $1.00. As of December 31, 1999,
Niagara Mohawk has 187,364,863 shares outstanding, which are all held by
Holdings and are not traded.
The indenture securing Niagara Mohawk's mortgage debt provides that retained
earnings shall be reserved and held unavailable for the payment of dividends on
common stock to the extent that expenditures for maintenance and repairs plus
provisions for depreciation do not exceed 2.25% of depreciable property as
defined therein. Such provisions have never resulted in a restriction of
Niagara Mohawk's retained earnings.
NIAGARA MOHAWK PREFERRED STOCK. The share exchange and the formation of the
holding company structure did not change the rights of holders of the
outstanding shares of Niagara Mohawk's preferred stock. Niagara Mohawk's
preferred stock continues to rank senior to Niagara Mohawk's common stock
(which are held by Holdings) as to dividends and as to distribution of Niagara
Mohawk's assets upon any liquidation.
Whenever dividends on Niagara Mohawk's preferred stock are in default in an
amount equivalent to four full quarterly dividends and thereafter until all
dividends thereon are paid or declared and set aside for payment, the holders
of such preferred stock can elect a majority of the Board of Directors of
Niagara Mohawk. Whenever dividends on any preference stock are in default
in an amount equivalent to six full quarterly dividends and thereafter until
all dividends thereon are paid or declared and set aside for payment, the
holders of such stock can elect two members to the Board of Directors of
Niagara Mohawk. No dividends on preferred stock are now in arrears and no
preference stock is now outstanding.
Niagara Mohawk paid preferred dividends on March 31, June 30, September 30,
and December 31. Niagara Mohawk estimates that none of the 1999 preferred
stock dividends will constitute a return of capital, and therefore, all of
such dividends are subject to federal tax as ordinary income.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of Holdings for
1999 and for Niagara Mohawk (Holdings' predecessor) for each of the five years
during the period ended December 31, 1999, which has been derived from the
audited financial statements of Holdings and Niagara Mohawk, and should be read
in connection therewith. As discussed in Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8. -
Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements, the following selected financial data is not likely to be indicative
of Holdings' or Niagara Mohawk's future financial condition, results of
operations or cash flows.
<TABLE>
<CAPTION>
HOLDINGS NIAGARA MOHAWK
1999** 1999** 1998 1997 1996* 1995
----------- ---------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS: (000'S)
Operating revenues . . . . . . . . . . $4,084,186 $ 3,827,340 $ 3,826,373 $3,966,404 $3,990,653 $3,917,338
Net income (loss). . . . . . . . . . . (35,088) (2,061) (120,825) 183,335 110,390 248,036
- -------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
COMMON STOCK DATA:
Book value per share at year end . . . $ 16.78 *** $ 16.92 $ 18.89 $ 17.91 $ 17.42
Market price at year end. . . . . . . 13 15/16 *** 16 1/8 10 1/2 9 7/8 9 1/2
Ratio of market price to
book value at year end. . . . . . . 83.1% *** 95.3% 55.6% 55.1% 54.5%
Basic and diluted earnings (loss) per
average common share. . . . . . . . ($0.19) *** ($0.95) $ 1.01 $ 0.50 $ 1.44
Rate of return on common equity. . . . (1.1)% *** (5.3)% 5.5% 2.8% 8.4%
Dividends paid per common share. . . . - *** - - - $ 1.12
CAPITALIZATION: (000'S)
Common equity. . . . . . . . . . . . . $2,976,089 $ 2,785,171 $ 3,170,142 $2,727,527 $2,585,572 $2,513,952
Non-redeemable preferred stock . . . . 440,000 440,000 440,000 440,000 440,000 440,000
Mandatorily redeemable
preferred stock . . . . . . . . . . 61,370 61,370 68,990 76,610 86,730 96,850
Long-term debt . . . . . . . . . . . . 5,042,588 5,042,588 6,417,225 3,417,381 3,477,879 3,582,414
- -------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
Total . . . . . . . . . . . . . . 8,520,047 8,329,129 10,096,357 6,661,518 6,590,181 6,633,216
Long-term debt maturing
within one year . . . . . . . . . . 613,740 613,740 312,240 67,095 48,084 65,064
- -------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
Total . . . . . . . . . . . . . . $9,133,787 $ 8,942,869 $10,408,597 $6,728,613 $6,638,265 $6,698,280
- -------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
CAPITALIZATION RATIOS: (including
long-term debt maturing within
one year)
Common stock equity. . . . . . . . . . 32.6% 31.1% 30.5% 40.5% 39.0% 37.5%
Preferred stock. . . . . . . . . . . . 5.5 5.6 4.9 7.7 7.9 8.0
Long-term debt . . . . . . . . . . . . 61.9 63.3 64.6 51.8 53.1 54.5
</TABLE>
* Amounts include extraordinary item for the discontinuance of regulatory
accounting principles
** Amounts include extraordinary item for the early extinguishment of debt,
see Note 4. - Capitalization
*** Holdings owns all of Niagara Mohawk's shares of common stock
<PAGE>
<TABLE>
<CAPTION>
HOLDINGS NIAGARA MOHAWK
1999** 1999** 1998 1997 1996* 1995
------------ ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:
EBITDA, as defined (000's) . . . . . . . $ 1,259,500 $ 1,262,500 $ 990,500 $ 961,500 $ 957,500 $ 929,100
Net cash interest, as defined (000's). . $ 397,100 $ 404,700 $ 345,500 $ 226,900 $ 244,500 $ 260,500
Ratio of EBITDA to net cash
interest. . . . . . . . . . . . . . 3.2 3.1 2.9 4.2 3.9 3.6
Ratio of earnings to fixed charges . . . 0.95 1.01 0.57 2.02 1.57 2.29
Ratio of earnings to fixed charges
and preferred stock dividends . . . . N/A 0.94 0.52 1.67 1.31 1.90
Other ratios (% of operating revenues):
Fuel, electricity purchased
and gas purchased. . . . . . . . . 36.7% 33.0% 39.6% 44.4% 43.5% 40.3%
Other operation and maintenance
expenses . . . . . . . . . . . . . 22.3 23.2 24.5 21.1 23.3 20.9
Depreciation and amortization . . . . 8.5 9.0 9.3 8.6 8.3 8.1
Amortization of the MRA
regulatory asset . . . . . . . . . 9.5 10.1 3.4 - - -
Federal and foreign income taxes,
and other taxes. . . . . . . . . . 10.6 11.3 10.3 15.1 13.6 17.3
Operating income. . . . . . . . . . . 12.9 13.9 4.4 14.1 13.1 17.5
Balance available for common
stock. . . . . . . . . . . . . . . (0.9) *** (4.1) 3.7 1.8 5.3
MISCELLANEOUS: (000'S)
Gross additions to utility plant . . . . $ 298,081 $ 298,081 $ 392,200 $ 290,757 $ 352,049 $ 345,804
Total utility plant. . . . . . . . . . . 9,792,291 9,792,291 11,431,447 11,075,874 10,839,341 10,649,301
Accumulated depreciation
and amortization. . . . . . . . . . . 3,904,049 3,904,049 4,553,448 4,207,830 3,881,726 3,641,448
Total assets . . . . . . . . . . . . . . 12,670,435 12,445,608 13,861,187 9,584,141 9,427,635 9,477,869
</TABLE>
* Amounts include extraordinary item for the discontinuance of regulatory
accounting principles
** Amounts include extraordinary item for the early extinguishment of debt,
see Note 4. - Capitalization
*** Holdings owns all of Niagara Mohawk's shares of common stock
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The electric utility industry in the United States has experienced a
deregulatory climate in recent years whereby federal and state regulatory
initiatives have sought to provide separation of the vertically integrated
energy generation, transmission and distribution functions and promote
competition and lower prices. This unbundling of services has led to some
restructuring throughout the industry. Niagara Mohawk's response to these
developments was to formulate a restructuring strategy and a multi-year rate
plan which enables it to exit the generation business, reduce the amount of
its over-market purchase power obligations, recover its stranded costs and
lower prices to customers. Implementation of this restructuring strategy
commenced in 1998 with the regulatory approval of the rate plan and the
consummation of the MRA, and 1999 was a year punctuated by the further
execution of the restructuring strategy. Key events were:
- - On March 18, 1999, Niagara Mohawk was reorganized into a holding company
structure providing Holdings and its subsidiaries with financial and
regulatory flexibility to compete more effectively in an increasingly
competitive energy industry.
- - On June 11, 1999, Niagara Mohawk completed the sale transactions of its two
coal-fired generation plants; on July 29, 1999, Niagara Mohawk completed the
sale of its hydroelectric generation plants; and on October 22, 1999, Niagara
Mohawk completed the sale of its oil and gas-fired plant at Oswego. In
addition, on October 6, 1999, Niagara Mohawk announced an agreement to sell
its oil and gas-fired generation plant at Albany.
- - On June 24, 1999, Niagara Mohawk announced an agreement to sell its nuclear
generation assets to AmerGen Energy Company, LLC ("AmerGen"). However, on
December 21, 1999, Rochester Gas & Electric Corporation ("RG&E") notified
Niagara Mohawk of its intent to exercise its rights to purchase the nuclear
generation assets. The PSC Staff has informed Niagara Mohawk that they
believed that the terms of the proposed sale are not consistent with the
public interest standard in the Public Service Law, but discussions with
AmerGen and other interest parties would continue.
- - Niagara Mohawk redeemed approximately $1.1 billion in debt.
- - In the fourth quarter, Niagara Mohawk commenced a multi-year program to
repurchase shares of Holdings' common stock. The repurchases are aimed at
managing Holdings' capital structure to competitive norms within the
utility industry.
- - The PSC established a formal proceeding on the methodology to determine
exit fees.
- - Niagara Mohawk implemented a new customer service system, which continues to
experience transition issues in customer satisfaction, incremental costs and
PSC scrutiny.
POWERCHOICE AND THE RESTRUCTURING OF THE REGULATED ELECTRIC UTILITY BUSINESS
- ----------------------------------------------------------------------------
The PSC approved the PowerChoice agreement on March 20, 1998 and the rate plan
was implemented beginning September 1, 1998. The PowerChoice agreement outlined
Niagara Mohawk's future structure in the regulated electric business. During
1999 and 1998, Niagara Mohawk has worked toward the implementation of all phases
of PowerChoice and has implemented other federal and state orders that promote
deregulation as described below:
POWERCHOICE RATE REDUCTIONS AND RETAIL CHOICE OF ELECTRICITY SUPPLIER. The
PowerChoice agreement established a five-year electric rate plan that reduces
class average residential and commercial prices by an aggregate of 3.2% over
the first three years, beginning September 1, 1998. On September 1, 1999,
Niagara Mohawk implemented its second phase of rate reductions. The reduction
in prices includes certain savings that result from approved reductions of the
GRT. Industrial customers are currently receiving average reductions of 25%
relative to 1995 tariffs; this decrease includes discounts previously offered
to some industrial customers through optional and flexible rate programs. As
part of PowerChoice, Niagara Mohawk has retained the flexibility to address
specific competitive challenges for energy intensive customers through
individual rate negotiations.
Effective August 1, 1999, all of Niagara Mohawk's customers were able to choose
their electricity supplier. As of December 31, 1999, 6,658 (4.25%) of Niagara
Mohawk's commercial and industrial customers or approximately 14.56% of eligible
load, and 4,325 (0.31%) residential customers or approximately 0.36% of eligible
load, have chosen an electricity supplier other than Niagara Mohawk. See "FERC
Order 888 - Open Access" below for a discussion of open transmission access as
a result of the formation of the NYISO. Niagara Mohawk will continue to
distribute electricity through its transmission and distribution systems for all
customers, regardless of supplier, and will be provider of last resort for those
customers who do not exercise their right to choose a new electricity supplier.
If a customer chooses an alternative supplier, Niagara Mohawk, as allowed under
PowerChoice, will continue to charge the customer for delivery of the energy and
for a non-bypassable CTC charge. Niagara Mohawk will also give a credit to the
customer for any services provided by the alternative energy supplier that were
provided by Niagara Mohawk in the past.
During the term of the PowerChoice agreement, Niagara Mohawk is permitted to
defer certain incremental costs associated primarily with environmental
remediation, nuclear decommissioning and related costs, and changes in laws,
regulations, rules and orders. In the fourth and fifth years of the rate plan,
Niagara Mohawk can request an annual increase in prices subject to a cap of 1%
of the all-in price, excluding commodity costs (e.g., transmission,
distribution, nuclear, and forecasted CTC). In addition to the price cap, the
PowerChoice agreement provides for the recovery of deferrals established in
years one through four and the generation sale incentive. See Part II, Item 8.
Financial Statements and Supplementary Data - Note 2. Rate and Regulatory Issues
and Contingencies - Deferred Loss on the Sale of Assets, for a discussion of the
generation sale incentive. The aggregate of the price cap increase and recovery
of deferrals is subject to an overall limitation of general inflation. Any
remaining unamortized deferrals at the end of year five will be recovered over
a period not to exceed five years beginning in year six.
Beginning in year four of PowerChoice, Niagara Mohawk can continue to recover
the cost variations in the indexed swap contracts entered into as part of the
MRA, resulting from the indexing provisions of these contracts. As these
indexed swap contracts and other contracts expire, the fluctuations in market
price of unhedged energy will be billed to customers through a commodity
adjustment clause in the CTC. Niagara Mohawk may need to reassess its hedging
strategy if the PSC renders a decision regarding provider of last resort.
The PowerChoice agreement further provides that Niagara Mohawk shall have a
reasonable opportunity to recover its stranded costs, including those associated
with the MRA and the contracts entered into as part of the MRA, through a CTC
and, under certain circumstances, through exit fees or in rates for back up
service. See "FERC Order 888 - Stranded Cost Recovery in the Case of
Municipalization" for a further discussion of stranded costs and exit fees.
Niagara Mohawk's rates under PowerChoice are designed to permit recovery of the
MRA regulatory asset and to permit recovery of, and a return on, the remainder
of its assets, as appropriate.
GENERATION ASSET SALES. Niagara Mohawk has completed the sale of its
coal-fired generation plants, its hydro generation plants, and its oil and
gas-fired generation plant at Oswego. Niagara Mohawk has also announced an
agreement to sell its Albany oil and gas-fired generation plant. Niagara Mohawk
expects to complete the Albany sales transaction in the first quarter of 2000.
In May 1999, Niagara Mohawk entered into an agreement with Central Hudson Gas &
Electric Corporation ("Central Hudson"), subject to regulatory approval, to sell
its interest in the Roseton plant to Central Hudson, at approximately net book
value by no later than January 1, 2003. For a further discussion of these
sales, see Part II, Item 8. - Financial Statements and Supplementary Data, Note
2. - Rate and Regulatory Issues and Contingencies. For a discussion on how
Niagara Mohawk used the proceeds from the sale of its generation assets, see
"Liquidity and Capital Resources."
Niagara Mohawk signed agreements with the buyers of the plants for energy and
capacity at negotiated prices, which are above market, based on current energy
price forecasts. While the PPAs with the buyers of the formerly owned fossil
and hydro assets, which were entered into as an integral part of the sales, are
above market, they are designed to help Niagara Mohawk meet rate reduction and
price cap commitments as well as expected demand as the provider of last resort.
The PPAs that convert to either swap agreements or swaptions (swap agreement
with a call option) act as hedges against a substantial rise in power costs.
See Part II, Item 8. - Financial Statements and Supplementary Data - Note 2. -
Rate and Regulatory Issues and Contingencies, Note 8. - Commitments and
Contingencies, and Note 9. - Fair Value of Financial and Derivative Financial
Instruments, for a further discussion of the terms of these agreements.
Niagara Mohawk expects to incur a net loss, mainly attributable to the Oswego
oil and gas-fired plant, on the sale of the fossil and hydro generation assets
of approximately $150 million. The PowerChoice agreement provides for deferral
and future recovery of the net losses resulting from the sale of the assets.
For a further discussion of the loss incurred on these sales, the regulatory
treatment of such loss, and the factors that may cause the amount of loss to
change, see Part II, Item 8. Financial Statements and Supplementary Data, Note
2. - Rate and Regulatory Issues and Contingencies.
After the fossil and hydro sales are completed, Niagara Mohawk has agreed not
to own any non-nuclear generation assets in the state of New York, subject to
certain exceptions provided in the PowerChoice agreement.
The PowerChoice agreement stipulated that absent a statewide solution, Niagara
Mohawk would file a detailed plan for analyzing other proposals regarding its
nuclear assets, including the feasibility of an auction, transfer and/or
divestiture of such facilities, within 24 months of PowerChoice. On June 24,
1999, Niagara Mohawk announced an agreement to sell its nuclear generation
assets to AmerGen. The sale to AmerGen was subject to a previously existing
agreement among the five co-owners of Unit 2 that gives the co-owners the right
to match a third-party purchase offer. On December 21, 1999, RG&E, a 14%
co-owner of Unit 2, submitted a notice stating it would match the AmerGen offer.
On January 26, 2000, the PSC Staff had informed the ALJ and all parties,
including Niagara Mohawk, that they believed the terms of the proposed nuclear
sale were not in the public interest. The PSC Staff is continuing its
discussions with AmerGen, as well as exploring other options, including
giving other interested parties the opportunity to put forth competing
proposals. Niagara Mohawk cannot predict the outcome of this proceeding, but
is committed to pursue the sale of Unit 1 and Unit 2. Notwithstanding this
commitment, because of the regulatory hurdles that must be overcome, Niagara
Mohawk does not believe that such a sale is any more likely to occur than
other possible scenarios, including the possible continued operation of the
plants by Niagara Mohawk for the remainder of their useful lives. For a further
discussion regarding the details of the sale agreement, the status of the sale,
the proposed regulatory and accounting treatment of the announced sale, the
PPAs signed as part of the agreement, and the treatment under PowerChoice in
the event a sale does not occur, see Part II, Item 8. - Financial Statements
and Supplementary Data, Note 2. - Rate and Regulatory Issues and Contingencies,
Note 3. - Nuclear Operations and Note 9. - Commitments and Contingencies.
THE MRA AGREEMENT. As a result of various federal and state requirements,
Niagara Mohawk was required to enter into contracts to purchase electricity from
IPPs in quantities in excess of its own demand and at prices in excess of those
available to it. In mid-1996, Niagara Mohawk began comprehensive negotiations
to terminate, amend or restate a substantial portion of above-market PPAs in an
effort to mitigate the escalating cost of these PPAs as well as to prepare
Niagara Mohawk for a more competitive environment. These negotiations led to
the MRA and the PowerChoice agreement.
The MRA was consummated on June 30, 1998 with 14 IPPs. The MRA allowed Niagara
Mohawk to terminate, estate or amend 27 PPAs which represented approximately
three-quarters of its over-market purchased power obligations. Niagara Mohawk
terminated 18 PPAs for 1,092 MW of electric generating capacity, restated 8 PPAs
representing 535 MW of capacity and amended 1 PPA representing 42 MW of
capacity. Niagara Mohawk paid the IPP Parties an aggregate of $3.934 billion in
cash, of which $3.212 billion was obtained through a public market offering of
senior unsecured debt, $303.7 million from the public sale of 22.4 million
shares of common stock, and the remainder from cash on hand. In addition,
Niagara Mohawk issued 20.5 million shares of common stock to the IPP Parties.
PowerChoice provided that the MRA and the contracts executed as part of the MRA
were prudent and accordingly, PSC approval of PowerChoice allowed Niagara Mohawk
to record a regulatory asset for the costs of the MRA, which is being amortized
over a period generally not to exceed ten years. Niagara Mohawk's rates under
PowerChoice were designed to permit recovery of the MRA regulatory asset. In
approving PowerChoice, the PSC limited the estimated value of the MRA regulatory
asset that could be recovered, which resulted in a charge to the second quarter
of 1998 earnings of $263.2 million upon the closing of the MRA. The PowerChoice
agreement, while having the effect of substantially depressing earnings during
its five-year term, substantially improves operating cash flow. The ability of
Niagara Mohawk to improve earnings in the period subsequent to PowerChoice will
depend on the outcome of the regulatory process to set prices at that time.
The MRA has the effect of reducing Niagara Mohawk's IPP payments by more than
$500 million annually as compared to leaving the pre-existing contracts in
place, net of purchases of power at market price. The resulting improvement in
cash flow and the proceeds from the sale of the generation assets have allowed
Niagara Mohawk to repay debt and repurchase Holdings' common stock.
Under the terms of the MRA, Niagara Mohawk has no continuing obligation to
purchase energy from the terminated IPP Parties. The restated contracts with
eight PPAs reflect economic terms and conditions that are more favorable to
Niagara Mohawk than the previous PPAs. See Part II, Item 7A. - Quantitative
and Qualitative Disclosures About Market Risk, and Part II, Item 8. - Financial
Statements and Supplementary Data, Note 8. - Commitments and Contingencies and
Note 9 - Fair Value of Financial and Derivative Financial Instruments, for a
further discussion regarding the remaining payments to the IPP Parties for the
purchase of electric power and the payments made under the swap agreements.
Niagara Mohawk is actively pursuing other opportunities to reduce its payments
to IPPs that were not party to the MRA. Niagara Mohawk is permitted to defer
and amortize the cost of any additional IPP contract buyouts. In 1999, there
have been four IPP contracts for approximately 127 MW terminated for a total
consideration (cash and/or notes) of $229.2 million. Niagara Mohawk estimates
that it will have reduced IPP payments by approximately $60 million annually,
net of purchases of power at market price as a result of these contract buyouts.
Deferred costs associated with IPP buyouts must generally be amortized over
five years, unless PSC approval is obtained for a different amortization
period. Niagara Mohawk retains the annual net savings from the buyouts during
the remaining term of PowerChoice to offset the amortization expense. Niagara
Mohawk is negotiating buyouts and amendments of other IPP contracts, but is
unable to determine the timing and outcome of these negotiations.
FORMATION OF A HOLDING COMPANY STRUCTURE. Niagara Mohawk was reorganized into
a holding company structure in accordance with its Agreement and Plan of
Exchange with Niagara Mohawk Holdings, Inc. on March 18, 1999. The outstanding
shares of Niagara Mohawk's common stock, $1.00 par value, were exchanged on a
share-for-share basis for Holdings' common stock, par value of $0.01. Niagara
Mohawk then became a subsidiary of Holdings. Niagara Mohawk's preferred stock
and debt were not exchanged and remained securities of Niagara Mohawk. The
holding company structure was completed March 31, 1999 with the Niagara Mohawk
dividend transfer of Opinac North America Inc. ("Opinac") to Holdings.
The holding company structure provides Holdings 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 businesses (energy related
services and telecommunications). The holding company structure permits
Holdings to participate in unregulated business opportunities as the industry
evolves. The PowerChoice agreement provides for affiliate rules to be abided
by Holdings and its affiliated companies, including the allocation of costs
for providing goods and services.
FERC ORDER 888. In April 1996, FERC issued Order 888, which promotes
competition by requiring that public utilities owning, operating, or controlling
interstate transmission facilities file tariffs which offer others the same
transmission services they provide for themselves, under comparable terms and
conditions. FERC Order 888 required the NYPP to file reformed power pooling
agreements that establish open, non-discriminatory membership provisions and
modify any provisions that are unduly discriminatory or preferential. In
addition, the FERC Order also provides for the recovery of prudent and
verifiable stranded costs where the wholesale customer was able to obtain
alternative power supplies as a result of Order 888's open access mandate.
As a result of Order 888, there have been several developments during the past
few years as follows:
- - OPEN ACCESS
-----------
The NYISO commenced formal operations on December 1, 1999. Niagara Mohawk
views this progress as an important step toward a more competitive market for
wholesale electricity supply service in New York State, consistent with its
PowerChoice restructuring agreement.
Twice annually, Niagara Mohawk will be required to sell to the NYISO all of
its transmission capacity, except such transmission capacity grandfathered
under pre-existing Transmission Service Agreement ("TSAs"), for a subsequent
six month period. In turn, Niagara Mohawk will purchase any additional
transmission capacity it needs through the competitive bid process of the
NYISO. Approximately $70 - $75 million, or three-quarters of Niagara
Mohawk's annual transmission revenues, are derived from the grandfathered
TSAs. These grandfathered TSAs have various expiration dates, with the more
significant TSAs not expiring until 2013 and beyond. Niagara Mohawk expects
that total transmission revenues will decline from $100 million in 1999 to
$75 million in 2000, which is due to the transition from Niagara Mohawk's
transmission tariffs to the NYISO tariffs. Niagara Mohawk cannot determine
the long-term impact of the NYISO on its transmission revenues due to lack
of market experience in pricing and capacity needs.
- - STRANDED COST RECOVERY IN THE CASE OF MUNICIPALIZATION
------------------------------------------------------
Order 888 stated that it would provide for the recovery of prudent and
verifiable wholesale stranded costs where the wholesale customer was able to
obtain alternative power supplies as a result of Order 888's open access
mandate. Order 888 left to the states the issue of retail stranded cost
recovery. Where newly created municipal electric utilities required
transmission service from the displaced utility, the FERC stated that it
would entertain requests for stranded cost recovery since such
municipalization is made possible by open access. The FERC also reserved
the right to consider stranded costs on a case-by-case basis if it appeared
that open access was being used to circumvent stranded cost review by any
regulatory agency.
In November 1997, FERC issued Order 888-B. This Order clarified that the
FERC recognizes the existence of concurrent state jurisdiction over stranded
costs arising from municipalization. The FERC acknowledged in Order 888-B
that the states may be first to address the issue of retail-turned-wholesale
stranded costs, and stated that it will give the states substantial deference
where they have done so.
In approving PowerChoice, the PSC authorized changes to Niagara Mohawk's
Retail Tariff providing for the recovery of stranded costs in the case of
municipalization regardless of whether the new municipal utility requires
transmission service from Niagara Mohawk. The calculation of stranded costs
is governed by this Retail Tariff, which became effective on April 6, 1998.
A number of communities served by Niagara Mohawk are considering
municipalization and have requested an estimate of their stranded cost
obligation.
The Village of Lakewood ("Lakewood") is considering municipalization. In
August 1997, Niagara Mohawk provided Lakewood with an estimate of its
stranded cost obligation in response to a formal request under FERC Order
888. In June 1998, Lakewood filed a petition with FERC seeking a
determination that it would not be responsible for any of Niagara Mohawk's
stranded costs if it created a new municipal electric system.
On December 11, 1998, the FERC issued an order granting Niagara Mohawk's
request for clarification that Order 888 does not preempt the exit fee
provision of the Retail Tariff and directing that the Lakewood case be held
in abeyance pending the resolution of Lakewood's stranded cost obligation
under Niagara Mohawk's Retail Tariff.
During 1999, the PSC established a formal proceeding in this matter. Niagara
Mohawk filed its direct case on September 3, 1999, which supported a revised
estimate of exit fees of $18.0 million. Lakewood filed its direct case on
October 18, 1999, which supported an exit fee of approximately $5 million.
The PSC Staff filed their direct case on October 25, 1999, which supported an
exit fee of $15.6 to $16.7 million. Rebuttal testimony was filed on November
10, 1999 and a hearing for the purpose of cross-examination of all testimony
was held on December 1 and 2, 1999. Niagara Mohawk expects the PSC to render
a decision by the second quarter of 2000. Niagara Mohawk is unable to
predict the outcome of this matter.
While the municipalization of Lakewood would not have a material impact on
Niagara Mohawk's results of operation and financial position, the outcome of
this matter will likely define the methodology to determine exit fees. There
have been other challenges to the determination and recovery of stranded
costs through the application of CTCs and exit fees as follows:
In early October 1998, the Alliance for Municipal Power ("AMP"), a group of
21 towns and villages in St. Lawrence and Franklin Counties pursuing
municipalization, and Alfred P. Coppola ("Coppola"), a Councilman from the
city of Buffalo, commenced a proceeding in Albany County Supreme Court that
challenged the PSC's decision to approve PowerChoice and the PSC's decision
that denied the petitions of Alliance for Municipal Power and Coppola for
rehearing before the Commission. The proceeding sought to vacate the
decision of the PSC approving PowerChoice provisions relating to the
determination and recovery of strandable costs through the application of
a competitive transition charge and exit fees. The PSC has made a motion to
dismiss the proceeding in this matter. On March 11, 1999, the Albany County
Supreme Court dismissed in its entirety the petition of Coppola and also
dismissed AMP's petition to the extent that it challenged the determination
and recovery of stranded costs through the application of CTCs and exit fees.
However, the Court did order the PSC to respond to AMP's claim that the PSC
failed to act on discovery requests seeking information about exit fees.
Niagara Mohawk has provided AMP with an updated exit fee estimate of $150
million (PSC method) to $272 million (FERC method). The range is dependent
on whether the formula prescribed by the PSC in PowerChoice or the method
defined by FERC is used. During the first quarter of 1999, AMP filed a
motion to re-argue with the Supreme Court and has also filed a notice of
appeal from the decision of the lower court. On June 29, 1999, the Albany
County Supreme Court denied AMP's motion to re-argue and renew the case.
AMP failed to perfect on a timely basis, its appeal, which failure may
be excused by the court for good reason. Niagara Mohawk is unable to predict
what future actions, if any, AMP will take with respect to this matter. If
these 21 communities withdrew from Niagara Mohawk's system, Niagara Mohawk
would experience a potential revenue loss of approximately two percent per
year. In addition, the impact on Niagara Mohawk's electric margin is
considered to be immaterial. However, suspension of PowerChoice or
renegotiation of its material terms could have a material adverse effect
on Holdings and Niagara Mohawk's results of operations, financial condition,
and future cash flows.
Niagara Mohawk has also prepared exit fee stranded cost estimates for several
other municipalities and customers, including the city of Buffalo. Niagara
Mohawk is unable to predict whether these other municipalities or customers
will pursue a withdrawal from Niagara Mohawk's system or the amount of
stranded costs it may receive as a result of any withdrawals.
FERC ORDER 2000. In December 1999, FERC issued Order 2000, which requires all
public utilities that own, operate or control interstate electric transmission
to file a proposal for a Regional Transmission Organization ("RTO") by October
15, 2000. Alternatively, FERC Order 2000 requires such utilities to provide a
description of any efforts made by the utility to participate in an RTO, the
reasons for not participating and any obstacles to participation, and any plans
for further work toward participation. RTOs are required to be operational by
December 15, 2001. Niagara Mohawk is currently evaluating FERC Order 2000
and believes that the current NYISO structures provides for much of the FERC
mandate under Order 2000. However, at this time, it is difficult to determine
how the NYISO may be impacted by an RTO and what financial consequences, if
any, may result from the formation of an RTO.
OTHER REGULATORY RESTRUCTURING PROCEEDINGS. The PSC continues to assess other
functions in the regulated electric and gas business to lower consumer rates and
increase customer choice. The PSC is considering opening competition to such
functions as metering, billing, collections and customer service. On January
13, 1999, the PSC adopted a set of Uniform Business Practices for Retail Access
designed to streamline and make more uniform the manner in which the local
utilities interact with natural gas and electricity marketers, energy services
companies and customers who purchase energy in New York State's evolving
competitive market.
During the latter part of 1999, the PSC required the New York State utilities
to file tariffs providing a backout credit against utility prices to large
electric customers (greater that 50KW) choosing to have their meter services
performed by someone other than their local utility. The backout credit is an
estimate of costs the utilities incur to provide meter services to these
customers. The PSC has stated a preference for using long run avoided costs to
establish backout credits, and in the absence of long run avoided cost
estimates, the use of embedded, or fully allocable costs of the avoided
activities. Embedded costs may exceed the costs the utility could actually
avoid when not providing a service to customers that have chosen an alternative,
creating stranded costs. The PSC has postponed the implementation of these
rates until March 29, 2000. Due to the limited scope of the PSC's order on
metering, the impact on Niagara Mohawk's results of operations should be
minimal. The exposure could grow, however, if the scope of the metering
proposal is expanded, or other services are required to be opened to
competition using embedded cost as a backout credit.
Niagara Mohawk will continue to participate with the PSC and other parties as
New York State moves forward with a competitive utility industry, but it cannot
predict the outcome of the results and the impact on its PowerChoice agreement.
OTHER FEDERAL AND STATE REGULATORY INITIATIVES
- ----------------------------------------------
GAS MULTI-YEAR RATE AND RESTRUCTURING PROPOSAL. Niagara Mohawk filed a
three-year gas rate and restructuring proposal on March 11, 1999, in
anticipation of the expiration of its 1996 three-year gas rate settlement
agreement, which expired on November 1, 1999. Niagara Mohawk is currently
negotiating with the PSC and other parties, but has not reached a final
agreement. However, on October 15, 1999, and January 12, 2000, the PSC
approved an interim arrangement that freezes delivery rates at current levels,
subject to refund if the permanent rates are lower and allows the pass through
to customers the benefits of lowered pipeline costs. In addition, the interim
arrangement minimizes Niagara Mohawk's exposure to stranded costs. The interim
agreement also included provisions for the implementation of both unbundled gas
rates and a return to a full gas cost collection mechanism (gas adjustment
clause "GAC") effective November 1, 1999. In addition, Niagara Mohawk is
allowed to recover all commodity costs along with fixed capacity costs for
capacity actually used to serve customers. It also provides that, pending
resolution of the issue in that case, costs for capacity upstream of CNG that
are not actually required for sales customer demands or offset by assignment
and secondary market release (stranded capacity costs) are not recoverable
beginning November 1, 1999. However, the potential for stranded costs are not
considered material to Niagara Mohawk's results of operations or financial
condition. The exposure may increase in the future as additional customers
select alternative suppliers. Niagara Mohawk is continuing to work with the
PSC and other interested parties to reach a final settlement, but it cannot
predict the timing or outcome of such a settlement.
FUTURE OF THE NATURAL GAS INDUSTRY. In November 1998, the PSC issued its Policy
Statement concerning the Future of the Natural Gas Industry in New York State
and Order Terminating Capacity Assignment ("PSC Policy Statement"). The PSC
envisions a transitional time frame of three to seven years for local gas
distribution companies ("LDC") to exit the business of purchasing natural gas
(the "merchant" function). The PSC established a process comprising three basic
elements, to be pursued in parallel in the exiting of the merchant function:
1. Addressing the issues involved in the exiting of the merchant function on
a utility-by-utility basis as part of the LDCs individual rate plans;
2. Collaboration among staff, LDCs, marketers, pipelines and other
stakeholders of generic issues such as operational and reliability issues,
protocols and information systems requiring a status report by April 1,
1999; and
3. Coordination of issues faced by electric utilities, including provider of
last resort issues and a plan to allow competition in other areas, such as
metering, billing and information services.
In December 1998, Niagara Mohawk notified the PSC that its specific operational
and reliability requirements continue to warrant certain mandatory capacity
assignment and inclusion of capacity costs in transportation rates after April
1, 1999. Niagara Mohawk will continue to assign CNG capacity until a final
determination is reached in the current rate and restructuring case. The PSC
noted in its PSC Policy Statement that it will provide LDCs with a reasonable
opportunity to recover these strandable costs if they can demonstrate compliance
with the PSC's directives to minimize such costs.
As a result of the collaborative process established in the PSC Policy
Statement, on August 19, 1999, the PSC issued an order requiring that marketers
serving firm customers have firm, primary delivery point capacity for the five
winter months of November through March, but allowed an alternative for
marketers, only for the 1999 - 2000 heating season, to have firm secondary
delivery point capacity and to pay the LDC a standby charge to provide backup
service. LDCs that implemented this Order would be presumed to have met the
PSC's directive to minimize their stranded costs.
Niagara Mohawk believes that it has taken numerous actions to reduce its
capacity obligations and its potential stranded costs, but is unable to predict
the outcome of this matter. Niagara Mohawk has addressed the issues from the
PSC Policy Statement in its three-year gas rate and restructuring proposal filed
on March 11, 1999 and as noted above, Niagara Mohawk is currently working with
the PSC and other interested parties to reach a final settlement. For a
discussion of Niagara Mohawk's long term supply, transportation and storage
commitments, see Part II, Item 8. - Financial Statements and Supplementary Data,
Note 8. - Commitments and Contingencies.
NRC AND NUCLEAR OPERATING MATTERS. On September 24, 1999, Niagara Mohawk
announced that it had begun a comprehensive program to enhance the operating
performance of Unit 1 and Unit 2. Previous internal and external performance
reviews, including a review by the NRC, outlined the need for operational
improvements. Niagara Mohawk has implemented a phased improvement program
designed to strengthen organizational capability to improve more rapidly and
address challenges more effectively. Niagara Mohawk also established a
contractual partnership with PECO Energy, a partner in AmerGen, to provide
additional management and expertise. Niagara Mohawk incurred approximately
$1.0 million in expense during 1999 for this performance improvement program
and has budgeted an additional $5.9 million in expense and $2.8 million for
capital improvements for the six months ending June 30, 2000. Any delay in the
timing or outcome of the nuclear asset sale will affect the cost of the
improvement program.
Niagara Mohawk also experienced several outages with its two nuclear plants,
including the scheduled refueling outage, during 1999. The following summarizes
the two most significant of the outages:
- - UNIT 1: Unit 1 had a scheduled refueling and maintenance outage that
began on April 11, 1999. During the core shroud reinspection, indications of
crack growth on vertical welds were found. The growth rate identified was
consistent with findings noted in earlier inspections at Unit 1. After
careful examination and analysis, Niagara Mohawk decided to install a repair
modification on two of the shroud's vertical welds. A damaged tie rod,
previously installed to address horizontal shroud cracks, was also identified.
As a result, all four tie rods were repaired to correct a design deficiency.
The plant returned to service on June 16, 1999. The incremental costs
associated with the refueling and maintenance outage at Unit 1 was $10.8
million, including $6.3 million of replacement power costs.
- - UNIT 2: On June 24, 1999, Unit 2 automatically shut down due to a
malfunction in a device that controls water flow level to the reactor vessel.
Unit 2 returned to full power on July 26, 1999. The incremental costs
associated with the outage at Unit 2 were $11.4 million, including $10.6
million of replacement power costs.
PSC STAFF'S TENTATIVE CONCLUSIONS ON THE FUTURE OF NUCLEAR GENERATION. On
August 27, 1997, the PSC requested comments on its staff's tentative conclusions
that beyond the transition period (the period covered by the various New York
utility restructuring agreements, including PowerChoice), nuclear generation
should operate on a competitive basis.
In October 1997, the majority of utilities with interests in nuclear power
plants, including Niagara Mohawk, requested that the PSC reconsider its staff's
nuclear proposal, and the utilities recommended that a more formal process be
developed to address issues relating to competition, sale of nuclear plants,
responsibility for decommissioning, disposal of spent fuel, safety, and
environmental benefits of fuel diversity.
On March 20, 1998, the PSC issued an opinion and order instituting a further
inquiry into the matters addressed in the PSC Staff's tentative conclusions
regarding the treatment of nuclear generation in the future. The Order
concluded that the proposals contained in the Staff Report required more
extensive examination, and directed that the examination begin with a
collaborative process and move to litigation on particular issues if necessary.
A collaborative proceeding commenced on January 20, 1999.
The matters addressed in the inquiry include:
- - Market treatment for nuclear power
- - The feasibility of mandated divestiture and its likely consequences
- - Decommissioning issues
- - Effects of PSC Staff's proposal on municipalities
The proceeding has been delayed due to the PSC Staff's attention devoted to the
sale of Unit 1 and Unit 2.
As noted above, Niagara Mohawk has announced an agreement to sell its nuclear
generation assets, but is unable to determine the outcome of such a sale. See
Part II, Item 8. - Financial Statements and Supplementary Data, Note 2. - Rate
and Regulatory Issues and Contingencies and Note 3. - Nuclear Operations, for a
further discussion of the agreement.
At December 31, 1999, the net book value of Niagara Mohawk's nuclear generation
assets (including materials, supplies and nuclear fuel) was approximately $1.6
billion, excluding the reserve for decommissioning. In addition, Niagara Mohawk
has other nuclear-related assets of approximately $0.5 billion. These assets
include the decommissioning trusts and regulatory assets, primarily related to
the flow-through to customers of prior income tax benefits.
YEAR 2000 READINESS DISCLOSURE
------------------------------
Niagara Mohawk has not experienced any significant problems related to the year
2000-date rollover. In general, however, all problems related to the year
2000-date rollover may not yet have become apparent. There are other critical
dates, such as leap year, that could cause similar computer problems. While
Niagara Mohawk believes its efforts to date have successfully addressed the
problems, there can be no assurance until the passage of time, that no further
problems will occur, including with respect to Niagara Mohawk's third party
business partners.
Niagara Mohawk incurred total year 2000 readiness project costs of $26.0 million
through December 31, 1999 of which $16.3 million was expensed and $9.7 million
was capitalized. Niagara Mohawk estimates that program costs for 2000 will
approximate $4.5 million, of which approximately $3.9 million will be expensed
and $0.6 million will be capitalized.
RESULTS OF OPERATIONS
---------------------
This results of operations section includes the results of both Holdings and
Niagara Mohawk. Holdings' prior period results are the same as Niagara Mohawk's
results, except for the treatment of preferred stock dividends paid by Niagara
Mohawk and the manner in which unregulated business activities are consolidated
in the financial statements. See Part II, Item 8. - Financial Statements and
Supplementary Data, Note 1. - Summary of Significant Accounting Policies, for a
further discussion of the formation of the holding company structure during
1999.
Holdings:
- ---------
Holdings experienced a loss in 1999 of $35.1 million or 19 cents per share, as
compared to a loss of $157.4 million or 95 cents per share in 1998 and earnings
of $145.9 million or $1.01 per share in 1997.
Earnings for 1999 reflect the impact of Niagara Mohawk's lower purchased power
costs, partially offset by increased interest charges, resulting in improved
earnings by $108.0 million or 58 cents per share. However, the amortization of
the MRA regulatory asset had a non-cash adverse earnings impact of $167.5
million or 90 cents per share. Earnings for 1999 were also negatively impacted
by Niagara Mohawk's early redemption of First Mortgage Bonds, Senior Notes and
Medium Term Notes, which required a charge to earnings of $23.8 million or 13
cents per share and is reflected as an extraordinary item. See Part II, Item 8.
- - Financial Statements and Supplementary Data, Note 4. - Capitalization, for a
further discussion of the extraordinary item. As discussed in more detail
below, Niagara Mohawk implemented a Customer Service System in February 1999.
Additionally, earnings in 1999 were reduced by $23.8 million, or 13 cents per
share, because of the costs related to the new Customer Service System, and
by $21.0 million, or 11 cents per share, because of higher bad debt expense.
The repurchase of Holdings' common stock has not had a significant impact on
earnings per share for the year ended December 31, 1999, since earnings per
share is based upon the weighted average shares outstanding. However, the
effect on earnings per share in the future should increase.
Results for 1998 were negatively impacted by a non-cash write-off of $171.1
million or $1.03 per share associated with the portion of the MRA regulatory
asset disallowed in rates by the PSC and by the regulatory treatment of the MRA
regulatory asset. The January 1998 ice storm and the September 1998 windstorm
also negatively impacted 1998 earnings by $50.6 million, or 30 cents per share,
which reflected Niagara Mohawk's estimate of incremental, non-capitalized costs
to restore power and rebuild its electric system. In addition, per share
results for the year ended December 31, 1998, were diluted by the issuance of
42.9 million shares of common stock in connection with the MRA.
Niagara Mohawk:
- ---------------
Niagara Mohawk had a net loss of $2.1 million after the extraordinary item. The
preferred dividend requirements reduced the balance available for common stock
to a greater loss of $38.9 million. This loss as compared to 1998 and 1997 is
explained above in the discussion of Holdings' loss for the same period.
The following discussion and analysis highlights items that significantly
affected Holdings and Niagara Mohawk's operations during the three-year period
ended December 31, 1999. This discussion and analysis is not likely to be
indicative of future operations or earnings, particularly in view of the
consummation of the MRA and implementation of PowerChoice, including the sale of
Niagara Mohawk's generation assets. It should also be read in conjunction with
Item 8. - Financial Statements and Supplementary Data, and other financial and
statistical information appearing elsewhere in this report.
CUSTOMER SERVICE SYSTEM. In mid-February 1999, Niagara Mohawk implemented a
new Customer Service System ("CSS"). The CSS replaced existing order, billing,
collection and other infrastructural systems and is designed to provide
real-time information as well as a more flexible and streamlined billing system.
The new CSS also provides retail access and unbundled bill functionality
required under PowerChoice and addresses Year 2000 compliance. These
capabilities could not be developed in the previous systems.
Niagara Mohawk, like other companies that have implemented similar CSS
projects, has experienced a transition period, characterized by significantly
higher customer call volumes and complaints, billing and data accumulation
issues, and other problems that impact productivity and costs. The
transition was also complicated by changes in the information and choices
provided to customers pursuant to PowerChoice. Niagara Mohawk has taken steps
prior to and during the transition period to prioritize and respond to problems.
Although the more significant billing and data accumulation issues concerning
customers have been addressed, resolution of the remaining transition issues
will continue into 2000.
The CSS transition period presents several financial exposures. Outstanding
accounts receivables have increased and Niagara Mohawk's bad debt expense for
1999 was $64.0 million as compared to $31.7 million in 1998, with the increase
in 1999 primarily attributable to the added exposure to collection risk.
Niagara Mohawk is taking aggressive action to reduce its outstanding accounts
receivable balance relating to this transition period, so that the reserve for
bad debts can be returned to a level appropriate in the normal course of
business. However, the actions available to Niagara Mohawk are more limited
during the heating season (beginning November 1, 1999 through April 15, 2000),
since under the law, it cannot disconnect service to residential customers
unless a 72-hour notice is given to the residential customer.
The PSC has been evaluating the development and implementation costs of the CSS
project, as well as Niagara Mohawk's response to the transition problems
incurred during implementation. The PSC issued an order in January 2000
directing that remaining billing related problems be corrected, with emphasis on
estimated bills, by March 31, 2000. Niagara Mohawk cannot predict the outcome
or financial consequences, if any, of the PSC's inquiry.
Niagara Mohawk has incurred increased costs to complete the transition to CSS.
Costs incurred prior to implementation of CSS in February 1999 were generally
capitalized. Niagara Mohawk has capitalized $56 million through December 31,
1999, for the entire CSS project. Niagara Mohawk expected to incur costs
chargeable to expense in 1999 for maintenance of CSS. Incurred costs are also
expected to be higher in the first several years subsequent to implementation as
knowledge and experience is transferred from the vendor to Niagara Mohawk.
While implementation requirements are diminishing, Niagara Mohawk may face
additional costs if the PSC seeks other retail access-related initiatives that
would require modifications to CSS. Niagara Mohawk cannot predict the costs of
these potential changes. Niagara Mohawk also experienced higher costs in 1999
as a result of implementing retail access for all customers. Niagara Mohawk
incurred $36.6 million in 1999 for total CSS-related charges to expense,
exclusive of bad debts. Niagara Mohawk had expected to spend $11.2 million
during 1999 for maintenance and knowledge transfer activities. Niagara Mohawk
expects to incur additional costs in 2000, as remaining issues are addressed and
enhancements are made. These amounts are expected to be substantially less than
1999 spending.
REVENUES AND SALES
------------------
REGULATED ELECTRIC REVENUES for 1999 were $3,248 million, and were $3,261
million and $3,309 million in 1998 and 1997, respectively.
Regulated electric revenues for 1999 decreased $13.4 million or 0.4% as compared
to 1998. The new CSS system has converted all customers previously billed on a
bi-monthly basis to a monthly basis, which has resulted in an increase in billed
revenue and sales (GWh), with corresponding decreases in accrued unbilled
revenues. In accordance with PowerChoice, Niagara Mohawk recognizes changes in
accrued unbilled electric revenues in its results of operations, whereas, in the
first eight months of 1998, the effects of the changes in accrued unbilled
revenues were deferred. As a result, miscellaneous revenues, which include the
unbilled revenues, have decreased by approximately $13.3 million. Commercial
revenues have decreased in 1999 due to lower rates under the PowerChoice
agreement and due to commercial customers switching energy providers as a result
of open access. When customers choose an alternative supplier of energy,
Niagara Mohawk continues to collect delivery charges and the CTC, which are
reflected as "Distribution of Energy." The GWh that are delivered to the
customers who have chosen an alternative supplier are not included in Niagara
Mohawk's sales amounts. In circumstances where Niagara Mohawk sells energy to
energy service companies for resale, those revenues are included in "Other
Electric Systems." Overall electric revenues were not materially impacted by
open access. Sales to other electric systems were also lower in 1999 primarily
due to lower sales to one utility. Under PowerChoice, revenues may decline
further as customers choose alternative suppliers and Niagara Mohawk no longer
sells energy to energy service companies. However, Niagara Mohawk expects to
incur less purchased power expense, and will be able to recover its stranded
costs through the CTC. See Item 8. - Financial Statements and Supplementary
Data - Electric Statistics, for a summary of electric revenue and sales data for
the years 1997 through 1999.
The $48.3 million or 1.5% decrease in 1998 regulated electric revenues was
primarily due to a decrease in volume and mix of sales of $72.3 million along
with rate reductions under PowerChoice. The decrease was partially offset by
increases in sales of energy to other electric systems and revenue from the
distribution of energy.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR
(In millions of dollars)
REGULATED ELECTRIC REVENUES 1999 1998 Total
- ------------------------------- --------- ------- -------
<S> <C> <C> <C>
Fuel adjustment clause revenues $ (33.5) $ (4.7) $(38.2)
Changes in volume and mix of
sales to ultimate consumers. 101.6 (72.3) 29.3
Sales to other electric systems (46.9) 11.0 (35.9)
Unbilled revenues . . . . . . . (43.3) (2.3) (45.6)
Distribution of energy. . . . . 25.3 30.2 55.5
PowerChoice rates . . . . . . . (16.6) (10.2) (26.8)
--------- ------- -------
$ (13.4) $(48.3) $(61.7)
========= ======= =======
</TABLE>
REGULATED ELECTRIC KILOWATT-HOUR SALES were 35.4 billion in 1999, 36.4 billion
in 1998 and 37.1 billion in 1997. While sales may continue to decline in 2000
and beyond as customers select alternative energy suppliers, Niagara Mohawk
expects deliveries to remain stable.
Regulated electric sales for 1999 decreased 1.0 billion KWh or 2.8% as compared
to 1998. The decrease is primarily due to a decrease in sales to other electric
systems of 1.9 billion KWh or 53.4% as compared to 1998. Sales to other
electric systems were lower in 1999 primarily due to reduced sales to one
utility. Regulated electric sales were also affected by customers selecting
alternative suppliers and billing customers that had been previously billed
bi-monthly on a monthly basis.
The 1998 decrease of 0.7 billion KWh, or 1.9% as compared to 1997, is related
primarily to a 4.5% decrease in sales to other electric systems. Sales to
ultimate consumers also decreased in 1998 primarily due to warmer weather during
the winter months.
UNREGULATED ELECTRIC REVENUES for 1999 were $217.1 million and were $129.4
million and $86.2 million in 1998 and 1997, respectively.
UNREGULATED ELECTRIC SALES for 1999 were 6.4 billion KWh and were 4.6 billion
KWh and 3.3 billion KWh in 1998 and 1997, respectively.
The unregulated electric revenues and sales are generated entirely from Niagara
Mohawk Energy, Inc. (Niagara Mohawk Energy"). The revenue and sales include
wholesale and retail transactions and reflect Niagara Mohawk Energy's increasing
activity in the competitive energy market.
Detail of the changes in electric revenues and KWh sales by customer group are
highlighted in the table below:
<TABLE>
<CAPTION>
1999
% OF
HOLDINGS' % Increase (decrease) from prior year
ELECTRIC 1999 1998
CLASS OF SERVICE REVENUES REVENUES SALES Revenues Sales
- --------------------------------- --------- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
REGULATED:
Residential 36.1 4.0 6.1 (2.1) (2.6)
Commercial 34.4 (2.3) 2.4 (1.1) 0.1
Industrial 14.0 0.8 2.1 (9.5) (4.8)
Industrial - Special 1.9 2.0 (1.4) 3.3 1.4
Other 1.4 (8.8) (17.0) 1.1 2.6
------ ------ ------ -------- -----
Total to ultimate consumers 87.8 0.7 2.7 (2.8) (1.6)
Other electric systems 1.4 (49.5) (53.4) 13.1 (4.5)
Distribution of energy 1.6 82.3 - 5,565.0 -
Miscellaneous 2.9 (11.6) - (2.6) -
------ ------ ------ -------- -----
Total regulated 93.7 (0.4) (2.8) (1.5) (1.9)
UNREGULATED:
Wholesale and retail 6.3 67.9 39.0 50.1 40.3
------ ------ ------ -------- -----
Total 100.0 2.2 1.9 (0.2) 1.5
</TABLE>
REGULATED GAS REVENUES increased $14.4 million or 2.5% in 1999 primarily as a
result of an increase in residential sales and revenue. The increase in
residential revenues is partly the result of beginning to bill customers on a
monthly basis rather than a bi-monthly basis. Most customers that were billed
on a bi-monthly basis were residential customers. Pursuant to the gas
settlement, change in accrued unbilled revenue are deferred. The increase in
regulated gas revenues is also due to revenue earned from revenue sharing
mechanisms allowed in Niagara Mohawk's gas rates as a result of lowering the
non-commodity cost of gas.
Regulated gas revenues decreased in 1998 by $91.7 million or 14.0% primarily due
to decreased sales to ultimate customers as a result of the migration of
commercial sales customers to the transportation class and due to warmer weather
in the winter months. Regulated gas revenues in 1998 were also negatively
impacted by the regulated gas commodity cost adjustment clause ("CCAC").
Rates for transported gas (excluding aggregation services) yield lower margins
than gas sold directly by Niagara Mohawk. Therefore, sales of gas
transportation services have not had a proportionate impact on earnings,
particularly in instances where customers that took direct service from Niagara
Mohawk move to a transportation-only class. In addition, changes in CCAC
revenues are generally margin-neutral.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR
(In millions of dollars)
REGULATED GAS REVENUES 1999 1998 Total
- ------------------------------------ --------- ------- -------
<S> <C> <C> <C>
Transportation of customer-owned gas $ 3.9 $ (1.6) $ 2.3
CCAC revenues. . . . . . . . . . . . (8.2) (38.5) (46.7)
Revenue sharing mechanisms . . . . . 9.1 3.4 12.5
Spot market sales. . . . . . . . . . (4.5) 2.4 (2.1)
Changes in volume and mix of sales
to ultimate consumers . . . . . . 14.1 (57.4) (43.3)
--------- ------- -------
$ 14.4 $(91.7) $(77.3)
========= ======= =======
</TABLE>
REGULATED GAS SALES in 1999, excluding transportation of customer-owned gas and
spot market sales, were 68.6 million Dth, a 5.5% increase from 1998. The
increase in the regulated gas sales is primarily attributable to colder weather
in the first quarter of 1999, as well as the shift to monthly billing described
above, which increased residential sales. Regulated revenues were also
positively impacted by an increase in transportation volumes of 9.4 million Dth
or 7.3% to customers purchasing gas directly from producers. The increases were
partially offset by decreased spot market sales (sales for resale), which are
generally from higher priced gas available to Niagara Mohawk and, therefore,
yield margins that are substantially lower than traditional sales to ultimate
customers.
Regulated gas sales in 1998, excluding transportation of customer-owned gas and
spot market sales, were 65.0 million Dth and a 17.3% decrease from 1997. The
decrease in 1998 was in all ultimate consumer classes, primarily due to the
warmer weather. Regulated gas revenues were also negatively impacted by a
decrease in transportation volumes of 24.9 million Dth or 16.3% to customers
purchasing gas directly from producers mainly as a result of the termination and
restatement of the PPAs as part of the MRA. The decreases were partially offset
by increased spot market sales (sales for resale), which are generally from
higher priced gas available to Niagara Mohawk and, therefore, yield margins that
are substantially lower than traditional sales to ultimate customers.
UNREGULATED GAS REVENUES for 1999 were $31.6 million and were $36.0 million and
$24.3 million in 1998 and 1997, respectively.
UNREGULATED GAS SALES for 1999 were 11.0 million Dth and were 13.9 million Dth
and 6.8 million Dth in 1998 and 1997, respectively.
The unregulated gas revenues and sales are generated entirely from Niagara
Mohawk Energy. Unregulated gas revenues and sales declined in 1999 due to
reduced opportunities in the wholesale market, which were only partially offset
by increases in the retail market.
Changes in gas revenues and Dth sales by customer group are detailed in the
table below:
<TABLE>
<CAPTION>
1999
% OF
HOLDINGS' % Increase (decrease) from prior year
GAS 1999 1998
CLASS OF SERVICE REVENUES REVENUES SALES Revenues Sales
- --------------------------------------- -------- -------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
REGULATED:
Residential 63.8 3.2 9.3 (13.3) (14.4)
Commercial 17.6 (2.6) (3.0) (25.4) (22.9)
Industrial 0.4 (35.3) (39.8) (44.8) (45.5)
------ ------ ------ ------ ------
Total to ultimate consumers 81.8 1.6 5.5 (16.7) (17.3)
Other gas systems - (17.4) (41.2) (46.9) (39.3)
Transportation of customer-owned gas 9.5 7.3 7.3 (2.8) (16.3)
Spot market sales 0.7 (51.1) (59.3) 37.9 83.6
Miscellaneous 2.8 69.1 - 155.7 -
------ ------ ------ ------ ------
Total regulated 94.8 2.5 5.2 (14.0) (15.6)
UNREGULATED:
Wholesale and retail 5.2 (12.2) (20.5) 48.5 105.0
------ ------ ------ ------ ------
Total 100.0 1.7 3.5 (11.7) (12.2)
</TABLE>
OPERATING EXPENSES
------------------
Niagara Mohawk has taken two significant actions during the last two years that
impact the components of its cost structure. In 1998, the MRA began to have the
effect of lowering purchased power costs from IPPs by more than $500 million
annually, net of purchases of power at market prices, while creating a
regulatory asset that increases amortization expense by approximately $386.5
million per year and increasing interest expense due to the debt incurred to
finance the MRA ($3.45 billion). In 1999, Niagara Mohawk sold its hydro and
most of its fossil assets, which reduced costs of ownership such as fuel,
operating costs, property taxes and depreciation. However, Niagara Mohawk
entered into purchase power contracts with the buyers of the formerly owned
fossil and hydro assets, which were entered into as an integral part of the
fossil/hydro sales, that increased its electricity purchased power costs by
$125.4 million through December 31, 1999. However, this increase was partially
offset by lower fuel costs, which resulted in a net reduction in margin of
approximately $84 million. These purchase power contracts mainly expire in
2003. The proceeds from the sale of assets, combined with the improved cash
flow resulting from the MRA, enabled Niagara Mohawk to reduce debt by over $1.1
billion in 1999, which will reduce interest expense in the future.
Niagara Mohawk's FUEL FOR ELECTRIC GENERATION decreased $50.3 million or 21% in
1999 primarily due to the sale of the two coal-fired generation plants in June
1999 and the sale of the oil and gas-fired generation plant at Oswego in October
1999. Generation from Niagara Mohawk's two nuclear plants was reduced due to
the two significant outages. See "NRC and Nuclear Operating Matters" above for
a discussion of these outages. The decrease in fuel costs was partially offset
by an increase in the generation at the remaining fossil generation plants. In
accordance with PowerChoice, the electric fuel adjustment clause was
discontinued. The fuel adjustment clause provided an adjustment to the
customer's bill if the cost of fuel varied from a specified unit cost. In 1999,
Niagara Mohawk recorded a $3.0 million liability to customers resulting from PSC
audit adjustments of prior years fuel costs. Niagara Mohawk's fuel for electric
generation will continue to decrease in 2000 as the remaining generation assets
are sold.
Niagara Mohawk's ELECTRICITY PURCHASED decreased $195 million or 19.5% in 1999,
as a result of reduced purchases and payments to IPPs. The decrease in IPP
purchases is primarily the result of the MRA, which became effective June 30,
1998, and has had the impact of lowering Niagara Mohawk's average unit cost of
purchased power. The decrease is partially offset by purchases under PPAs from
Niagara Mohawk's previously owned fossil and hydro generation plants. Niagara
Mohawk also increased its electricity purchases from other utilities and the
NYISO in 1999 to meet its remaining load requirements. Niagara Mohawk
anticipates that purchases from other utilities will decrease in the future and
that these purchases will be made through the NYISO at market prices. Future
IPP costs will be further reduced as Niagara Mohawk continues to negotiate
settlements with other IPPs. However, purchased power costs will trend upward
in the future as Niagara Mohawk's generation asset sales are completed and
supply from owned generation is replaced by purchased power. See Part II, Item
8. - Financial Statements and Supplementary Data - Note 8. - Commitments and
Contingencies, for a discussion of the PPAs that Niagara Mohawk is committed to
at December 31, 999.
Regulated electric fuel and purchased power costs decreased in 1998 by 12.3% or
$173.6 million. The decrease is mainly the result of decreased purchases from
the IPPs of $321.9 million. Of this amount, $80 million relates to net
reductions in purchases from IPP Parties for the period between the closing of
the MRA to the PowerChoice implementation date, which were deferred for future
rate making disposition because the time lag between these events was not
contemplated in the PowerChoice agreement. The decrease in IPP purchases is
primarily the result of the MRA agreement. (See "The MRA Agreement" above).
Other purchased power costs decreased $8.2 million. As a result, Niagara
Mohawk's load requirements were met to a greater extent from internal sources,
which resulted in an increase in fuel costs of $58.9 million as compared to
1997.
<TABLE>
<CAPTION>
Regulated Electric Fuel and Purchased Power Costs
(in millions of dollars) % Change from prior year
1999 1998 1997 1999 TO 1998 1998 to 1997
GWH COST Gwh Cost Gwh Cost GWH COST Gwh Cost
- -------------------------------------- -------------- --------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUEL FOR ELECTRIC GENERATION:
Coal. . . . . . . . . . . . . . . . 2,989 $ 44.9 7,988 $ 118.7 7,459 $ 106.4 (62.6) (62.2) 7.1 11.6
Oil . . . . . . . . . . . . . . . . 2,282 74.3 1,669 57.1 701 32.2 36.7 30.1 138.1 77.3
Natural Gas . . . . . . . . . . . . 946 30.6 843 23.3 394 8.6 12.2 31.3 114.0 170.9
Nuclear . . . . . . . . . . . . . . 7,166 36.9 7,842 40.0 6,339 33.0 (8.6) (7.8) 23.7 21.2
Hydro . . . . . . . . . . . . . . . 1,396 - 2,694 - 2,905 - (48.2) - (7.3) -
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Sub-total electric generation. . 14,779 186.7 21,036 239.1 17,798 180.2 (29.7) (21.9) 18.2 32.7
Deferral. . . . . . . . . . . . . . - 3.0 - 0.9 - (0.7) - 233.3 - (228.6)
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Total electric generation. . . . 14,779 189.7 21,036 240.0 17,798 179.5 (29.7) (21.0) 18.2 33.7
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
ELECTRICITY PURCHASED:
IPPs:
Capacity . . . . . . . . . . . . - 13.8 - 127.9 - 220.8 - (89.2) - (42.1)
Energy and taxes . . . . . . . . 6,768 324.9 9,668 605.5 13,520 885.7 (30.0) (46.3) (28.5) (31.6)
Swap payments. . . . . . . . . . - 96.5 - 51.2 - - - 88.5 - 100.0
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Total IPP purchases . . . . . 6,768 435.2 9,668 784.6 13,520 1,106.5 (30.0) (44.5) (28.5) (29.1)
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Fossil/Hydro PPAs:
Capacity . . . . . . . . . . . . - 42.8 - - - - 100.0 100.0 - -
Energy and taxes . . . . . . . . 3,490 80.9 - - - - 100.0 100.0 - -
Swap payments. . . . . . . . . . - 1.7 - - - - 100.0 100.0 - -
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Total Fossil/Hydro purchases. 3,490 125.4 - - - - 100.0 100.0 - -
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Other purchases . . . . . . . . . . 12,306 250.0 8,638 122.0 9,421 130.2 42.5 104.9 (8.3) (6.3)
------ ------ ------ -------- ------ --------- ------ ------ ------ -------
Sub-total regulated purchases. 22,564 810.6 18,306 906.6 22,941 1,236.7 23.3 (10.6) (20.2) (26.7)
Deferral. . . . . . . . . . . . . . - (3.6) - 95.4 - (0.6) - (103.8) - -
------ ------ ------ -------- ------ --------- ------ ------- ------ -------
Total regulated purchases. . . . 22,564 807.0 18,306 1,002.0 22,941 1,236.1 23.3 (19.5) (20.2) (18.9)
------ ------ ------ -------- ------ --------- ------ ------- ------ -------
Total generated and purchased. . . . . 37,343 996.7 39,342 1,242.0 40,739 1,415.6 (5.1) (19.8) (3.4) (12.3)
Losses/Niagara Mohawk use. . . . . . . 1,921 - 2,910 - 3,603 - (34.0) - (19.2) -
------ ------ ------ -------- ------ -------- ------- ------ ------ -------
35,422 $996.7 36,432 $1,242.0 37,136 $1,415.6 (2.8) (19.8) (1.9) (12.3)
====== ====== ====== ======== ====== ======== ======= ====== ====== =======
AVERAGE UNIT COST (CENTS PER KWH)*
Fuel for electric generation . . . . . 1.26 1.14 1.01
Electricity purchased. . . . . . . . . 3.59 4.95 5.39
Combined unit cost. . . . . . . . 2.67 2.91 3.48
* The average unit cost does not include the deferred costs.
</TABLE>
The above table presents the total costs for purchased electricity, while
reflecting only fuel costs for Niagara Mohawk generation. Other costs of power
production, such as property taxes, other operating expenses and depreciation
are included within other income statement line items.
Holdings' FUEL FOR ELECTRIC GENERATION and ELECTRICITY PURCHASED for 1999 is
explained by Niagara Mohawk's activity, as well as an increase in unregulated
supply costs of $69.3 million or 50.8%, primarily due to increased sales
requirements.
Niagara Mohawk's total COST OF GAS PURCHASED decreased 2.0% in 1999 and
decreased 21.3% in 1998. The cost fluctuations generally correspond to sales
volume changes, as well as a decrease in gas prices. Niagara Mohawk sold 1.8,
4.5, and 2.5 million Dth on the spot market in 1999, 1998, and 1997,
respectively. The total cost of gas decreased $5.4 million in 1999. This was
the result of a 2.7% decrease in the average cost per Dth purchased ($7.6
million), a $4.5 million decrease in Dth purchased for spot market sales (sales
for resale), which are generally from higher priced gas, and therefore, yield
margins that are substantially lower than traditional sales to ultimate
consumers, and a $16.9 million decrease in purchased gas costs and certain other
items recognized and recovered through the CCAC. These decreases were offset by
a 6.4 million increase in Dth purchased and withdrawn from storage for ultimate
consumer sales ($23.6 million).
The total cost of gas decreased $73.5 million in 1998. This was the result of
a 19.3 million decrease in Dth purchased and withdrawn from storage for ultimate
consumer sales ($71.7 million), a 1.3% decrease in the average cost per Dth
purchased ($3.5 million) and a $1.0 million decrease in purchased gas costs and
certain other items recognized and recovered through the CCAC. These decreases
were partially offset by a $2.7 million increase in Dth purchased for spot
market sales.
Holdings' GAS PURCHASED expense reflects Niagara Mohawk's activity, as well as a
decrease of $4.8 million during 1999 primarily as a result of lower unregulated
sales.
OTHER OPERATION AND MAINTENANCE EXPENSE for Holdings and Niagara Mohawk have
decreased $37.4 million and $48.7, respectively in 1999. Expenses in 1999 have
decreased in part as a result of the sale of the fossil and hydro generation
assets. Partially offsetting these decreases are incremental costs associated
with the implementation of CSS as discussed above, as well as an increase in bad
debt expense of $32.2 million. Operation and maintenance expense in 1998
reflect two major storms totaling approximately $80.2 million in incremental
costs.
DEPRECIATION AND AMORTIZATION EXPENSE for both Holdings and Niagara Mohawk have
decreased approximately $10.4 million during 1999 primarily as a result of the
sale of Niagara Mohawk's two coal-fired generation plants, its hydro generation
plants and its oil and gas-fired generation plant at Oswego. However, this
decrease is partially offset as a result of placing in service several computer
system projects with depreciable lives that are significantly shorter than
typical transmission and distribution assets.
OTHER TAXES for both Holdings and Niagara Mohawk have decreased as compared to
1998 as a result of a reduction in the New York State GRT tax rate beginning
in October 1998, as well as a reduction in property taxes of $31.9 million in
connection with the sale of Niagara Mohawk's two coal-fired generation plants,
its hydro generation plants, and its oil and gas-fired plant at Oswego.
Other taxes decreased by $11.5 million in 1998 primarily due to a reduction in
GRT taxes of $17.6 million as a result of the lower sales revenue.
In approving PowerChoice, the PSC ordered that any savings from any reduction
in the interest associated with the debt issued in connection with the MRA
financing as compared to assumptions underlying Niagara Mohawk's PowerChoice
filing be deferred for future disposition. Holdings and Niagara Mohawk's OTHER
INCOME decreased in part due to the recording of a regulatory liability relating
to the MRA debt interest rate savings liability of $17.3 million as compared to
1998. The decrease in other income is also due to the recording of
approximately $44.6 million in 1998 on the deferral of MRA financing costs as
ordered by the PSC. These decreases were partially offset by the recording of
the approximately $9.0 million incentive earned under PowerChoice in 1999 on the
sale of the fossil and hydro generation assets.
Although Holdings and Niagara Mohawk's INTEREST CHARGES increased in 1999 mainly
due to the debt incurred to finance the MRA, the annualized level of charges has
decreased since $1.1 billion of debt was repaid during the year. Interest
charges increased in 1998 by $123.3 million after having remained fairly
constant for the years 1996 and 1997. The increase in 1998 is mainly due to the
interest charges incurred on the debt issued in mid-1998 in connection with the
MRA.
DIVIDENDS on Niagara Mohawk's preferred stock did not significantly change
from 1998 to 1999 and from 1997 to 1998. The changes are due to sinking fund
redemptions and variations in dividend rates on the adjustable rate series of
preferred stock. The weighted average long-term debt interest rate and
preferred dividend rate paid, reflecting the actual cost of variable rate
issues, were 7.74% and 7.00%, respectively in 1999 and were 7.46% and 7.00%,
respectively in 1998.
The increase in Holdings and Niagara Mohawk's FEDERAL AND FOREIGN INCOME TAXES
of approximately $86 million, excluding the tax benefit associated with the
extraordinary item, is primarily due to higher book taxable income in 1999 as
compared to 1998. Included in the earnings for 1999 is approximately $16.2
million of previously deferred investment tax credits associated with the two
coal-fired generation plants, the hydro generation plants, and the oil and
gas-fired plant in Oswego, which were sold. Niagara Mohawk believes this
accounting is consistent with applicable tax laws. After adjusting for
Holdings' treatment of Niagara Mohawk's preferred dividends, Holdings' effective
tax rate for 1999 is slightly higher than statutory rates. See Part II, Item 8.
Financial Statements and Supplementary Data - Note 6. Federal and Foreign Income
Taxes for a reconciliation of the tax adjustments.
Niagara Mohawk recorded an EXTRAORDINARY ITEM during 1999 for the early
extinguishment of debt of $23.8 million, net of income taxes. With Niagara
Mohawk's stronger operating cash flows and the proceeds from the sales of its
coal, hydro and its oil and gas generation plants, Niagara Mohawk redeemed over
$820 million in debt prior to its scheduled maturity. The extraordinary item
includes redemption premiums incurred, and the write-off of unamortized debt
expense and debt issuance costs associated with each of the series that was
redeemed.
EFFECTS OF CHANGING PRICES
--------------------------
Niagara Mohawk is especially sensitive to inflation because of the amount of
capital it typically needs and because its prices are regulated using a
rate-base methodology that reflects the historical cost of utility plant.
Holdings and Niagara Mohawk's consolidated financial statements are based on
historical events and transactions when the purchasing power of the dollar was
substantially different than now. The effects of inflation on most utilities,
including Niagara Mohawk, are most significant in the areas of depreciation and
utility plant. Niagara Mohawk could not replace its utility assets for the
historical cost value at which they are recorded on its books. In addition,
Niagara Mohawk would not replace these with identical assets due to
technological advances and competitive and regulatory changes that have
occurred. In light of these considerations, the depreciation charges in
operating expenses do not reflect the cost of providing service if new
facilities were installed. See Construction and Other Capital Requirements
below for a discussion of Niagara Mohawk's future capital requirements.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------
FINANCIAL POSITION. Holdings and Niagara Mohawk's capital structure at December
31, 1999, and 1998 were as follows:
<TABLE>
<CAPTION>
NIAGARA Holdings and
HOLDINGS MOHAWK Niagara Mohawk
-------- ------------ --------------
% 1999 1999 1998
- ------------------------------ -------- ------------ --------------
<S> <C> <C> <C>
Long-term debt . . . . . . . . 61.9 63.3 64.6
Preferred stock of subsidiary. 5.5 - -
Preferred stock. . . . . . . . - 5.6 4.9
Common equity. . . . . . . . . 32.6 31.1 30.5
</TABLE>
The culmination of the MRA significantly increased the leverage of Niagara
Mohawk and Holdings. However, the anticipated increased operating cash flow
resulting from the MRA and PowerChoice agreement, including the proceeds from
the sale of the fossil and hydro generation assets, and the planned rapid
repayment of debt, should reduce the leverage in the capital structure of both
entities.
Holdings' 1999 ratio of earnings to fixed charges was 0.95 times. Niagara
Mohawk's ratios of earnings to fixed charges for 1998 and 1997 were 0.57 times
and 2.02 times, respectively. The changes in the ratio are primarily due to the
consummation of the MRA during 1998 and the redemption of over $1 billion in
debt during 1999. The MRA and PowerChoice agreement have the effect of
substantially depressing earnings during its five-year term, while at the same
time substantially improving operating cash flows. The primary result of the
MRA was to convert a large and growing off-balance sheet payment obligation that
threatened the financial viability of Niagara Mohawk into a fixed and more
manageable capital obligation.
EBITDA for the 12 months ended December 31, 1999 was approximately $1,260
million for Holdings, an increase of approximately $0.3 billion compared to the
12 months ended December 31, 1998. This increase is generated almost entirely
by Niagara Mohawk. The improvement in EBITDA is derived primarily from the
impacts of the MRA and PowerChoice. EBITDA represents earnings before interest
charges, interest income, income taxes, depreciation and amortization,
amortization of nuclear fuel, allowance for funds used during construction, MRA
regulatory asset amortization, and extraordinary items. The ratio of EBITDA to
net cash interest for 1999 was 3.2 times as compared to 2.9 times in 1998. Net
cash interest is defined as interest charges (net of allowance for funds used
during construction) and less the non-cash impact of the net amortization of
discount on long-term debt and interest accrued on the Nuclear Waste Policy Act
liability and less interest income. The ratio of EBITDA to net cash interest
also improved due to the impacts of the MRA and PowerChoice and Niagara Mohawk's
debt reduction. EBITDA is a non-GAAP measure of cash flows and is presented to
provide additional information about Holdings and Niagara Mohawk's ability to
meet its future requirements for debt service. EBITDA should not be considered
an alternative to net income as an indicator of operating performance or as an
alternative to cash flows, as presented on the Consolidated Statement of Cash
Flows, as a measure of liquidity.
The sales of the generation plants, especially nuclear, will tend to slightly
lower future EBITDA primarily as a result of the PPAs that Niagara Mohawk
entered into with the new owners of the generation assets.
Niagara Mohawk has been reviewing its capital structure in light of its
scheduled debt reduction program, its divestiture of its electric generation
assets and the changing industry. As a result, Niagara Mohawk filed two
petitions with the PSC on July 1, 1999, to refinance its preferred stock to
take advantage of lower dividend rates, and to purchase Holdings' common stock.
See Part II, Item 8. - Financial Statements and Supplementary Data, Note 4. -
Capitalization, for a further discussion of the two petitions and the actions
taken. The impact on earnings per share as a result of these stock purchases
was not significant for the year ended December 31, 1999, since earnings per
share is calculated using the weighted average of common stock outstanding.
However, the impact on future earnings per share will be more significant.
COMMON STOCK DIVIDEND. Niagara Mohawk's Board of Directors omitted its common
stock dividend beginning the first quarter of 1996. This action was taken to
help stabilize Niagara Mohawk's financial condition and provide flexibility as
Niagara Mohawk addressed growing pressure from mandated power purchases and
weaker sales. In making future dividend decisions, the Board of Directors of
Holdings and Niagara Mohawk will evaluate the relative value to shareholders of
dividend payments or the repurchase of common stock, along with standard
business considerations, their financial conditions, limitations on dividend
payments under the PowerChoice agreement, limitations on common stock dividend
payments in senior bank financing agreement if unsecured debt ratings fall below
current levels, the degree of competitive pressure on its prices, the level of
available cash flow and retained earnings and other investments to be made by
unregulated subsidiaries. For the next several years, Niagara Mohawk expects to
dedicate a substantial portion of its future expected positive cash flow to
reduce debt and buy back Holdings' common stock. See Part II, Item 8. -
Financial Statements and Supplementary Data, Note 4. - Capitalization, for a
discussion of the Holdings' common stock repurchased through December 31, 1999.
The PowerChoice agreement limits the amount of common stock dividends that can
be paid by Niagara Mohawk to Holdings, but does not limit the dividends that
Holdings may pay to its shareholders. The limit under PowerChoice is based upon
the amount of net income each year of Niagara Mohawk, plus a specified amount
ranging from $75 million in 1999 to $100 million in 2000, 2001 and 2002 and
declining thereafter through 2007. The limitation excludes one-time dividends
associated with the sale of Niagara Mohawk's generation assets. The dividend
limitation is subject to review after the term of the PowerChoice agreement.
Furthermore, Niagara Mohawk forecasts that earnings for the five-year term of
the PowerChoice agreement will be substantially depressed, as non-cash
amortization of the MRA regulatory asset is occurring (which asset is being
amortized generally over a ten-year period) and the interest costs on
the IPP debt is the greatest. The ability to improve earnings in the period
subsequent to PowerChoice will depend upon the outcome of the regulatory process
to set prices at that time. 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.
During 1999, Holdings did not declare or pay any common stock dividends.
During 1999, Niagara Mohawk paid approximately $64 million in cash dividends
to Holdings, as well as the dividend of Opinac. During January 2000, Niagara
Mohawk paid approximately $36 million in cash dividends to Holdings.
CONSTRUCTION AND OTHER CAPITAL REQUIREMENTS. Niagara Mohawk's total capital
requirements consist of amounts for its construction program, see Item 8. -
Financial Statements and Supplementary Data - Note 8. - Commitments and
Contingencies - Construction Program, working capital needs, maturing debt
issues and sinking fund provisions on preferred stock. Niagara Mohawk's annual
expenditures for the years 1997 to 1999 for construction and nuclear fuel,
including related AFC and overheads capitalized, were $290.8 million, $392.2
million and $298.1 million, respectively. These expenditures, excluding nuclear
fuel and AFC, are budgeted to be approximately $219 million for 2000 and $229
million and $230 million in years 2001 and 2002, respectively. If the nuclear
sale does not occur, Niagara Mohawk estimates that it will incur expenditures
for construction and nuclear fuel of $69 million for 2000 and $32 million and
$67 million for 2001 and 2002, respectively. Capital expenditures were lower
in 1999 as compared to 1998 due in part to the sale of several of Niagara
Mohawk's generation assets. In addition, there were higher capital expenditures
in 1998 of approximately $71 million due to the costs incurred to rebuild a
portion of Niagara Mohawk's regulated transmission and distribution facilities
as a result of several storms. The estimates for 2000 and beyond include
amounts relating to Niagara Mohawk's Albany oil and gas-fired generation plant
through March 2000, its nuclear assets through June 2000 and Niagara Mohawk's
25% interest in the Roseton plant through December 2000. The estimate of
construction additions included in capital requirements for the period 2000 to
2002 will be reviewed by management to give effect to the overall objective of
further reducing construction spending where possible. Any change in the
timing or outcome of these remaining generation asset sales and nuclear sale
will effect Niagara Mohawk's capital expenditure requirements.
Mandatory debt and preferred stock retirements are expected to add approximately
another $618.1 million to the 2000 estimate of capital requirements and are
expected to add approximately $631.8, $547.1, $613.8, and $235.5 million in the
next subsequent four years. The 2000 estimate includes $105 million related to
the senior bank facility discussed below, which is classified as current pending
renegotiation of the facility.
See discussion in "Liquidity and Capital Resources" section below, which
describes how management intends to meet its future financing needs.
LIQUIDITY AND CAPITAL RESOURCES. External financing plans are subject to
periodic revision as underlying assumptions are changed to reflect developments
and market conditions. The ultimate level of financing during the period 2000
through 2004 will be affected by, among other things:
- - Niagara Mohawk's competitive position and the extent to which competition
penetrates its markets;
- - changes in electric and gas prices as a result of regulatory proceedings;
- - potential future actions with respect to IPPs not covered under the MRA;
- - uncertain energy demand due to the weather and economic conditions and
obligations to serve as provider of last resort;
- - the cash tax benefits anticipated because the MRA generated a net tax
operating loss carryforward in 1998;
- - levels of common stock repurchases;
- - levels of common dividend payments, if any, and preferred dividend
payments; and
- - the results of the remaining sales of Niagara Mohawk's generation assets.
The proceeds of the sales of the generation assets are subject to the terms of
Niagara Mohawk's mortgage indenture and the note indenture that was entered into
in connection with the MRA debt financing. Niagara Mohawk has petitioned the
PSC to issue up to an aggregate of $400 million in debt to address its financial
needs arising from the recent and prospective termination or restructuring of
additional IPP contracts. Niagara Mohawk plans to issue at least $200 million
of unsecured debt during the first half of 2000. In addition, Niagara Mohawk
may refinance existing debt to take advantage of lower interest rates.
Niagara Mohawk is obligated to use 85% of the proceeds of the sale of its
generation assets to reduce debt outstanding, as outlined in its Senior Note
indenture. In June 1999, Niagara Mohawk announced an agreement to sell its
nuclear assets to AmerGen for $135 million, which is subject to price
adjustments depending on the timing of the closing. Niagara Mohawk has also
announced on October 6, 1999, an agreement to sell its oil and gas-fired plant
at Albany for $47.5 million. In addition, Niagara Mohawk could also receive up
to an additional $11.5 million if the buyer chooses to pursue the redevelopment
of the Albany plant. For a further discussion of the terms and adjustments to
the generation assets sales agreements, see "Generation Assets Sales" above.
With Niagara Mohawk's stronger operating cash flows and proceeds from sales of
its coal, hydro, and its oil and gas facilities, approximately $1.1 billion of
debt was retired in 1999 consistent with debt reduction goals.
Niagara Mohawk has an $804 million senior bank financing with a bank group,
consisting of a $255 million term loan facility, a $125 million revolving credit
facility and $424 million for letters of credit. The letter of credit facility
provides credit support for the adjustable rate pollution control revenue bonds
issued through the NYSERDA. The interest rate applicable to the senior bank
financing is variable based on certain rate options available under the
agreement and currently approximates 6.625% (but is capped at 15%). As of
December 31, 1999, the amount outstanding under the senior bank financing was
$529 million, consisting of $105 million under the term loan facility and $424
million of letters of credit, leaving Niagara Mohawk with $275 million of
borrowing capability under the financing. The senior bank facility term expires
on June 1, 2000. As a result, the amount outstanding on this facility at
December 31, 1999, $105 million, is shown as a current liability on both
Holdings and Niagara Mohawk's balance sheets. This facility is collateralized
by first mortgage bonds. Niagara Mohawk is currently negotiating a new
financing arrangement with a bank group and believes, as a minimum, it will be
able to obtain $424 million for letters of credit prior to the expiration of
the senior bank facility on June 1, 2000. Opinac had an agreement with a bank
providing for letters of credit totaling up to $25 million which in January 2000
was replaced by a $50 million bank facility secured by certain assets of Opinac.
The facility provides for letters of credit and a $10 million line of credit.
The facility expires September 30, 2000, and as of January 31, 2000, supports
approximately $20 million in letters of credit. Opinac is working to extend
the facility beyond September 20, 2000.
Niagara Mohawk has the ability to issue First Mortgage Bonds to the extent that
there have been maturities since June 30, 1998. Through December 31, 1999,
Niagara Mohawk had $60 million in First Mortgage Bonds maturities.
Ordinarily, construction related short-term borrowings are refunded with
long-term securities on a periodic basis. This approach generally results in a
working capital deficit. Working capital deficits may also be a result of the
seasonal nature of Niagara Mohawk's operations as well as the timing of
differences between the collection of customer receivables and the payments of
fuel and purchased power costs. Niagara Mohawk's current working capital
deficit is largely attributable to amounts due in 2000 for the Senior Notes
incurred as part of the MRA and the current classification of $105 million under
the term loan facility. Niagara Mohawk believes it has sufficient cash flow and
borrowing capacity to fund such deficits as necessary in the near term. In
addition, as noted above, Niagara Mohawk is currently negotiating a new
financing arrangement and expects to have it in place before the current
arrangement expires.
Niagara Mohawk has established a single-purpose, financing subsidiary, NM
Receivables LLC, ("NMR")whose business consists of the purchase and resale of an
undivided interest in a designated pool of Niagara Mohawk customer receivables,
including accrued unbilled revenues. See Part II, Item 8. Financial Statements
and Supplementary Data, Note 8. - Commitments and Contingencies for a further
discussion of this customer receivables program.
At December 31, 1999, and 1998, $215.1 million and $150 million, respectively,
of receivables had been sold by NMR to a third party. The total amount of
receivables that can be sold is $300 million. Niagara Mohawk has the discretion
to increase or decrease the actual amount sold, subject to a cap. 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, 1999, the amount of additional receivables assigned
to the purchaser, as a loss reserve, was approximately $83.2 million.
In the fourth quarter of 1999, NMR was not in compliance with a certain
statistical ratio relating to the pool of receivables sold. The purchaser has
granted a waiver for this period. While NMR is working to return to compliance
with this ratio, it is possible a non-compliance condition could continue to
exist. NMR is unable to predict whether further waivers would be granted.
In December 1998, Niagara Mohawk received a ruling from the Internal Revenue
Service ("IRS") to the effect that the amount of cash and the value of common
stock that was paid to the terminated IPP Parties was deductible and generated a
substantial net operating loss ("NOL") for federal income tax purposes, such
that Niagara Mohawk did not pay federal income taxes for the 1998 tax year.
Further, Niagara Mohawk has carried back unused NOL to the years ended 1996 and
1997, and also for the years 1988 through 1990, which resulted in a tax refund
of $135 million received in January 1999. As a result of the Agreement and Plan
of Exchange between Niagara Mohawk and Holdings on March 18, 1999, (Part II,
Item 8. - Financial Statements and Supplementary Data, Note 1. - Summary of
Significant Accounting Policies, Corporate Structure and Principles of
Consolidation), Holdings will now be the tax filer to benefit from the remaining
tax carryforward. Holdings anticipates that it will be able to utilize the
remaining $2.6 billion NOL carryforward, as of December 31, 1999, to offset
income earned in the future, before the expiration date of the NOLs in 2019.
Holdings' ability to utilize the NOL generated, as a result of the MRA, could
be limited under the rules of section 382 of the Internal Revenue Code if
certain changes in Holdings' common stock ownership were to occur in the future.
In general, the limitation is triggered by a more than 50% change in stock
ownership during an three-year testing period by shareholders that own,
directly or indirectly, 5% or more of the common stock. For purposes of making
the change in ownership computation, the IPP Parties who were issued common
stock pursuant to the MRA, are likely to be considered a separate 5% shareholder
group, as will the purchasers of common stock in the public offering completed
immediately prior to consummation of the MRA. Under the computational rules
prescribed by applicable Treasury regulations, Niagara Mohawk has experienced an
approximate 17 percentage point owner shift in its stock within the three-year
period ending on June 30, 1998, as a result of the distribution of stock to the
IPP Parties and the public offering. During the year 1999, Niagara Mohawk made
several purchases of its parents' common stock. In total, Niagara Mohawk
purchased 10 million shares of Holdings' common stock, which in aggregate would
be treated under Code Section 382 as a redemption. Holdings has performed the
testing required by Section 382 in connection with the purchases of Holdings'
common stock by Niagara Mohawk. Holdings believes it has experienced an
approximate 21 percentage point owner shift in its stock for the three year
period ending on December 31, 1999, which includes the shares issued as part of
the MRA, as well as the stock repurchased by Niagara Mohawk. Thus, if the IPP
Parties, the purchasers in the public offering, and any other five percent
shareholders collectively experience ownership increases totaling 29 percent
or more during any three year testing period that includes the consummation
dates of the public offering, the MRA and the stock purchases by Niagara
Mohawk, the statutory limit could be breached. The rules for determining a
change in stock ownership for purposes of Code Section 382 are extremely
complicated and in many respects uncertain. A stock ownership change
could occur as a result of circumstances that are not within the control of
Holdings. If a more than 50% change in ownership were to occur, Holdings'
remaining usable NOL carryforward would likely be significantly lower in the
future than the NOL carryforward amount which otherwise would be usable absent
the limitation. Consequently, Holdings' net cash position could be
significantly lower as a result of tax liabilities, which otherwise would be
eliminated or reduced through unrestricted use of the NOL carryforward.
NET CASH FROM OPERATING ACTIVITIES increased $4,035.4 million for Holdings and
$4,039.2 million for Niagara Mohawk in 1999 as compared to 1998, primarily
because the 1998 operating cash included the payments to the settling IPPs to
consummate the MRA. The operating cash flows for 1999 also improved due to
Niagara Mohawk's receipt of federal income tax refunds in January 1999 totaling
approximately $135 million and as expected, operating cash flow improved due to
the impacts of the MRA and PowerChoice.
Holdings and Niagara Mohawk's NET CASH FROM INVESTING ACTIVITIES increased
$937.9 and $1,043.6 million, respectively in 1999 as compared to 1998. These
increases are primarily due to the cash received from the sales of the Huntley
and Dunkirk coal-fired generation assets, the hydro generation assets and the
oil and gas-fired plant at Oswego.
Holdings and Niagara Mohawk's NET CASH FROM FINANCING ACTIVITIES decreased
$4,824.9 and $4,978.5 million, respectively due to the early repayment of debt,
and the dividend and related cash transfer of Opinac to Holdings on March 31,
1999. Financing activities during 1998 were positively impacted by the issuance
of the Senior Notes to finance the MRA.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Niagara Mohawk is exposed to various market risks in interest rates, commodity
prices, equity prices and foreign currency valuation because of transactions
conducted in the normal course of business. The financial instruments held or
issued by Niagara Mohawk and Niagara Mohawk Energy, Opinac's energy marketing
subsidiary are used for hedging or cost control and not for trading.
Quantitative and qualitative disclosures are discussed by market risk exposure
category:
- - Interest Rate Risk
- - Commodity Price Risk
- - Equity Price Risk
- - Foreign Currency Exchange Risk
An Exposure Management Committee ("EMC") was set up to monitor and control
efforts to manage these risks. The EMC issues and oversees the Financial Risk
Management Policy (the "Policy") applicable to the regulated company that
outlines the parameters within which corporate managers are to engage in,
manage, and report on various areas of risk exposure. At the core of the Policy
is a condition that Niagara Mohawk will engage in activities at risk, only to
the extent that those activities fall within commodities and financial markets
to which it has a physical market exposure in terms and in volumes consistent
with its core business. That core business is to supply energy, in the form of
electricity and natural gas to customers within Niagara Mohawk's service
territory. The policies of Niagara Mohawk may be revised as its primary markets
continue to change, principally as increased competition is introduced and the
role of Niagara Mohawk in these markets evolves.
Niagara Mohawk Energy maintains a separate Risk Management and Trading Policy
Manual that allows for transactions such as marketing and trading in retail and
wholesale, physically and financially settled, energy based instruments. These
actions expose Niagara Mohawk Energy to a number of risks such as forward price,
deliverability, market liquidity and credit risk. Like Niagara Mohawk's Policy,
the energy trading policy seeks to assure that risks are identified, evaluated
and actively managed.
INTEREST RATE RISK. Niagara Mohawk's exposure to changes in interest rates is
due to its financing through a senior debt facility, several series of
adjustable rate promissory notes and adjustable rate preferred stock. See Note
4. - Capitalization and Note 5. - Bank Credit Arrangements. Under the senior
debt facility, Niagara Mohawk currently has an outstanding term loan of $105
million. The adjustable rate promissory notes are currently valued at $413.8
million, and Niagara Mohawk has $121.3 million outstanding in adjustable rate
preferred stock. Another issue of $150 million of fixed-adjustable rate
preferred stock is fixed at 6.9% for the first five years then adjusts and is
not considered adjustable for this analysis. There is no interest rate cap on
the promissory notes. The interest on the term loan is variable but capped at
15%.
Dividend rates for Niagara Mohawk's preferred stock are indexed to U.S.
government interest bearing securities plus or minus an amount stipulated in
each series and have floors of 6.5% to 7.5% and caps of between 13.5% and 16.5%.
As of December 31, 1999, the rate calculated on the index for each series is
below the floor, therefore, the current rate is equal to the floor. Future
changes in the indexed rate will not result in an exposure to higher dividend
rates until the floor is exceeded. However, for the purposes of the following
sensitivity analysis, a hypothetical one percent increase from the floor
dividend rate is assumed.
Niagara Mohawk also maintains long-term debt at fixed interest rates. A
controlling factor on the exposure to interest rate variations is the mix of
fixed to variable rate instruments maintained by Niagara Mohawk. For 1999 and
1998, adjustable rate instruments comprise 7.5% and 6.4% of total
capitalization; term loan and promissory notes are 9.2% and 7.7% of total
long-term debt. The proportion of adjustable instruments to total
capitalization and debt has increased because of Niagara Mohawk's efforts to
pay down debt in 1999. However, they still remain small in relation to total
capitalization and debt thus, limiting Niagara Mohawk's exposure to interest
rate fluctuations.
If interest rates averaged one percent more in 2000 versus 1999, Niagara
Mohawk's interest expense would increase and income before taxes decrease by
approximately $5.2 million. This figure was derived by applying the
hypothetical one percent variance across the variable rate debt of $518.8
million at December 31, 1999 (the sum of the term loan and promissory notes).
The same one percent increase in Niagara Mohawk's preferred dividend rate
applied against the outstanding balance of $121.3 million would result in an
increase to dividend payments of $1.2 million, assuming that the indexed rate
was between the floor and cap. Under the current rate agreement, prices to
customers are fixed for three years, with limited increases available in years
four and five, if justified by Niagara Mohawk. Changes in the actual cost of
capital from levels assumed in the current rate agreement would create either
exposure or opportunity for Niagara Mohawk until reflected in future prices.
COMMODITY PRICE RISK. Niagara Mohawk is exposed to market fluctuations in the
prices for electricity, natural gas, and oil. Niagara Mohawk does not,
generally, speculate on movements in the underlying prices for these
commodities. Purchases are based on analyses performed in relation to fuel
needs for power generation and customer delivery for electricity and natural
gas. Niagara Mohawk's commodity price risk in regards to power generation will
be eliminated after the sale of the remaining fossil generation plants. Where
possible, Niagara Mohawk takes positions in order to mitigate expected price
increases but only to the extent that quantities are based on expectations of
delivery. Niagara Mohawk attempts to mitigate exposure through a program that
hedges risks as appropriate.
Niagara Mohawk Energy has reduced its amount of trading activity since 1998.
Any trading activities performed are accounted for on a marked-to-market basis
with changes in fair value recognized as a gain or loss in the period of change.
The fair value of open trading positions at December 31, 1999, as well as the
effect of Niagara Mohawk Energy's trading activities were not material to
Holdings' results of operations.
Activities for non-trading purposes generally consist of transactions entered
into to hedge the market fluctuations of contractual and anticipated
commitments. Gas futures and electric forward contracts are used for hedging
purposes. Changes in market value of futures and forward contracts relating to
hedged items are deferred until the physical transaction occurs, at which time,
income or loss is recognized. The fair value of open positions for non-trading
purposes at December 31, 1999, as well as the effect of these activities on
Holdings' results of operations for the same period ending, was not material.
The fair values of futures and forward contracts are determined using quoted
market prices.
The commodity risk exposure of Niagara Mohawk Energy does not constitute a
material risk of loss to Holdings.
With respect to electricity, as customers choose an alternate supplier, Niagara
Mohawk sheds commodity risk. In addition, many large customers that continue
to purchase electricity from Niagara Mohawk have agreed to take market price
risk, further lowering commodity risk. For the remaining customers that have
firm prices, Niagara Mohawk has hedged a significant portion of the commodity
cost through various physical and financial contracts. Under the principles
established in PowerChoice, as these contracts expire, customers who buy
electricity from Niagara Mohawk will bear the commodity price risk for the
amount of energy associated with the expiring contracts.
Niagara Mohawk, as part of the MRA, entered into restated indexed swap contracts
with eight IPPs and financial swap agreements as part of the sale of the Huntley
and Dunkirk coal-fired generation stations. See Note 9. - Fair Value of
Financial and Derivative Financial Instruments, for a more detailed discussion
of these swap contracts.
The fair value of the liability under the swap contracts, based upon the
difference between projected future market prices and projected contract prices
applied to the notional quantities and discounted at 8.5%, is approximately $664
million and is recorded on Niagara Mohawk's balance sheet as a liability for
swap contracts. The discount rate is based upon comparable debt instruments of
Niagara Mohawk. Based upon the PSC's approval of the restated contracts,
including the indexed swap contracts, as part of the MRA and being provided a
reasonable opportunity to recover the estimated indexed swap liability from
customers, Niagara Mohawk has recorded a corresponding regulatory asset. The
amount of the recorded liability and regulatory asset is sensitive to changes in
discount rate, anticipated future market prices and changes in the indices upon
which the indexed swap contracts are based. However, changes in anticipated
future market prices and discount rates will not impact the future cash flow of
Niagara Mohawk when considering the all-in price of the notional quantities of
energy. Specifically, as market prices rise or fall, payments under the indexed
swap contracts move inversely. Similarly, changes in discount rates will not
impact the all-in price. If the indexed contract price were to increase or
decrease by one percent, Niagara Mohawk would see a $15.6 million increase or
decrease in the present value of the projected over-market exposure. If the
market prices were to increase or fall by one percent, Niagara Mohawk would see
a $9.7 million decrease or increase in the projected over-market exposure. If
the discount rate were to increase or decrease to 9.0% or 8.0%, the net present
value of the projected over market exposure would decrease or increase by
approximately $9.3 million.
The cost of natural gas sold to customers fluctuates during the year with prices
most volatile in the winter months. Niagara Mohawk has a policy to reduce the
variability in gas costs over the winter months. Through purchase agreements
limiting or eliminating gas price volatility with three gas suppliers
(approximately 3.2 billion cubic feet ["Bcf"]) and by drawing on stored gas
supplies (approximately 21.5 Bcf), Niagara Mohawk will be able to reduce price
volatility on approximately 50% of the anticipated winter demand.
The rest of the gas needs are met through market-based purchases and are subject
to price fluctuations. On November 1, 1999, the gas commodity cost adjustment
clause ("CCAC") expired and, through an interim agreement with the PSC, was
replaced by a Gas Adjustment Clause ("GAC") that allows for recovery in gas
rates of actual commodity costs and pipeline demand charges. The GAC eliminates
gas commodity and pipeline demand price risk from the earnings of Niagara
Mohawk.
The PSC has mandated that Niagara Mohawk attempt to reduce the price volatility
in the gas commodity portion of customers' bills. In response, Niagara Mohawk's
board has authorized the use of futures, options and swaps to hedge against gas
price fluctuations. The hedging program will be consistent with the Financial
Risk Management Policy and will be monitored by the EMC. Niagara Mohawk intends
to use futures contracts and options traded on the New York Mercantile Exchange
to hedge approximately ten percent of Niagara Mohawk's winter demand.
EQUITY PRICE RISK. The NRC requires nuclear plant owners to place funds in an
external trust to provide for the cost of decommissioning of the contaminated
portions of nuclear facilities. See Note 3. - Nuclear Operations. Niagara
Mohawk has established qualified and non-qualified trust funds for Unit 1 and
Unit 2. At December 31, 1998, these funds were invested in fixed income
securities, domestic equity securities, and cash equivalents. The fixed income
securities are subject to interest rate fluctuations and the equity securities
to price change in the equity markets. The funds asset allocation was designed
to maximize returns commensurate with Niagara Mohawk's risk tolerance. As of
December 31, 1999, the funds were invested primarily in high grade, short-term
commercial paper. The current fund allocation is designed to guarantee
stability and predictability in the fund balances.
During 1999, Niagara Mohawk announced an agreement to sell its nuclear assets.
The agreement to sell the nuclear generation assets includes the transfer of the
decommissioning trust funds, at an agreed amount, to the buyer. In anticipation
of that sale, and to reduce the risk of a detrimental market shift affecting the
funds, Niagara Mohawk converted all decommissioning assets to high grade,
short-term commercial paper in October and November of 1999. The instruments
purchased have specified coupon rates and maturity dates of generally one to
four months. The fund managers can only purchase the commercial paper from a
list of companies pre-approved based on an excellent credit rating. Remaining
cash is invested in an overnight, short-term investment fund. Due to the makeup
of the funds at December 31, 1999, they no longer experience any substantial
risk of loss due to market shifts or credit risk.
FOREIGN CURRENCY EXCHANGE RISK. Holdings has a foreign currency exchange risk
as a result of its investments in Canada through its non-regulated subsidiary.
Translation adjustments due to exchange rate movement across the value of the
subsidiary is reported in Capitalization as a Foreign Currency Translation
Adjustment (see Note 4. - Capitalization) and is a component of Comprehensive
Income, see "Consolidated Statements of Comprehensive Income." In aggregate,
the risk of loss does not pose a material threat to Holdings' consolidated
results of operations or total capitalization.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A. FINANCIAL STATEMENTS
- - Report of Management
- - Report of Independent Accountants
- - NIAGARA MOHAWK HOLDINGS, INC.
- Consolidated Statements of Income and Retained Earnings for each of the
three years in the period ended December 31, 1999
- Consolidated Statements of Comprehensive Income for each of the three
years in the period ended December 31, 1999
- Consolidated Balance Sheets at December 31, 1999 and 1998
- Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1999
- - NIAGARA MOHAWK POWER CORPORATION
- Consolidated Statements of Income and Retained Earnings for each of the
three years in the period ended December 31, 1999
- Consolidated Statements of Comprehensive Income for each of the three
years in the period ended December 31, 1999
- Consolidated Balance Sheets at December 31, 1999 and 1998
- Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1999
- - Notes to Consolidated Financial Statements
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements of Holdings and Niagara Mohawk and their
subsidiaries were prepared by and are the responsibility of management.
Financial information contained elsewhere in this Annual Report is consistent
with that in the financial statements.
To meet its responsibilities with respect to financial information, management
maintains and enforces a system of internal accounting controls, which is
designed to provide reasonable assurance, on a cost effective basis, as to the
integrity, objectivity and reliability of the financial records and protection
of assets. This system includes communication through written policies and
procedures, an organizational structure that provides for appropriate division
of responsibility and the training of personnel. This system is also tested by
a comprehensive internal audit program. In addition, a Corporate Policy
Register and a Code of Business Conduct (the "Code") supply employees with a
framework describing and defining Holdings' overall approach to business and
require all employees to maintain the highest level of ethical standards as well
as requiring all management employees to formally affirm their compliance with
the Code.
The financial statements have been audited by PricewaterhouseCoopers LLP,
Holdings and Niagara Mohawk's independent accountants, in accordance with
generally accepted auditing procedures. In planning and performing its audit,
PricewaterhouseCoopers LLP considered Holdings and Niagara Mohawk's internal
control structures in order to determine auditing procedures for the purpose of
expressing an opinion on the financial statements, and not to provide assurance
on the internal control structures. The independent accountants' audit does not
limit in any way management's responsibility for the fair presentation of the
financial statements and all other information, whether audited or unaudited, in
this Annual Report. The Audit Committee of Holdings' Board of Directors,
consisting of five outside directors who are not employees, meets regularly with
management, internal auditors and PricewaterhouseCoopers LLP to review and
discuss internal accounting controls, audit examinations and financial reporting
matters. PricewaterhouseCoopers LLP, and Holdings and Niagara Mohawk's internal
auditors have free access to meet individually with the Audit Committee at any
time, without management being resent.
/s/William E. Davis
- -------------------
William E. Davis
Chairman of the Board and
Chief Executive Officer
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings, of comprehensive income
and of cash flows present fairly, in all material respects, the financial
position of Niagara Mohawk Holdings, Inc. and its subsidiaries ("Holdings") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and the
accompanying consolidated balance sheets and the related consolidated statements
of income and retained earnings, of comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Niagara
Mohawk Power Corporation and its subsidiaries ("Niagara Mohawk") at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of management of Holdings and Niagara Mohawk;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
January 27, 2000
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
-------------- ----------- -----------
(in thousands of dollars)
<S> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . $ 3,464,901 $3,390,501 $3,395,611
Gas . . . . . . . . . . . . . . . . . . . . . . . 611,226 601,276 681,230
Other . . . . . . . . . . . . . . . . . . . . . . 8,059 643 1,654
-------------- ----------- -----------
4,084,186 3,992,420 4,078,495
-------------- ----------- -----------
OPERATING EXPENSES:
Electricity purchased . . . . . . . . . . . . . . 1,012,811 1,138,453 1,322,537
Fuel for electric generation. . . . . . . . . . . 189,657 239,982 179,455
Gas purchased . . . . . . . . . . . . . . . . . . 297,641 307,841 371,615
Other operation and maintenance . . . . . . . . . 910,871 948,297 845,758
PowerChoice charge. . . . . . . . . . . . . . . . - 263,227 -
Amortization of MRA regulatory asset. . . . . . . 386,499 128,833 -
Depreciation and amortization . . . . . . . . . . 345,473 355,919 340,239
Other taxes . . . . . . . . . . . . . . . . . . . 415,082 460,940 472,212
-------------- ----------- -----------
3,558,034 3,843,492 3,531,816
-------------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 526,152 148,928 546,679
Other income . . . . . . . . . . . . . . . . . . . . 3,795 60,697 37,157
-------------- ----------- -----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 529,947 209,625 583,836
Interest charges . . . . . . . . . . . . . . . . . . 485,240 397,178 273,906
Preferred dividend requirement of subsidiary . . . . 36,808 36,555 37,397
-------------- ----------- -----------
INCOME (LOSS) BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . . . . . 7,899 (224,108) 272,533
Federal and foreign income taxes . . . . . . . . . . 19,180 (66,728) 126,595
-------------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. . . . . . . (11,281) (157,380) 145,938
Extraordinary item - Loss from the extinguishment
of debt, net of income taxes of $12,819 (Note 4). (23,807) - -
-------------- ----------- -----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . (35,088) (157,380) 145,938
Retained earnings at beginning of year . . . . . . . 646,040 803,420 657,482
-------------- ----------- -----------
Retained earnings at end of year . . . . . . . . . . $ 610,952 $ 646,040 $ 803,420
============== =========== ===========
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (IN THOUSANDS). . . . . . . . . . . . 186,689 166,186 144,404
BASIC AND DILUTED EARNINGS (LOSS) PER AVERAGE SHARE
OF COMMON STOCK BEFORE EXTRAORDINARY ITEM . . . . $ (0.06) $ (0.95) $ 1.01
EXTRAORDINARY ITEM PER AVERAGE SHARE OF
COMMON STOCK. . . . . . . . . . . . . . . . . . . (0.13) - -
-------------- ----------- -----------
BASIC AND DILUTED EARNINGS (LOSS) PER AVERAGE
SHARE OF COMMON STOCK . . . . . . . . . . . . . . $ (0.19) $ (0.95) $ 1.01
============== =========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
-------------------- ----------- ----------
(in thousands of dollars)
<S> <C> <C> <C>
NET INCOME (LOSS). . . . . . . . . . . . . . . $ (35,088) $(157,380) $145,938
-------------------- ---------- ---------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains on securities, net of tax. 113 304 6
Foreign currency translation adjustment . . 5,448 (6,896) (4,567)
Additional minimum pension liability. . . . (5,967) - -
-------------------- ---------- ---------
OTHER COMPREHENSIVE LOSS . . . . . . . . . . . (406) (6,592) (4,561)
-------------------- ---------- ---------
COMPREHENSIVE INCOME (LOSS). . . . . . . . . . $ (35,494) $(163,972) $141,377
==================== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -----------
(in thousands of dollars)
ASSETS
<S> <C> <C>
UTILITY PLANT (NOTE 1):
Electric plant . . . . . . . . . . . . . . . . . . . . . . $ 7,221,762 $ 8,826,650
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . 630,321 604,213
Gas plant. . . . . . . . . . . . . . . . . . . . . . . . . 1,263,168 1,179,716
Common plant . . . . . . . . . . . . . . . . . . . . . . . 364,718 349,066
Construction work in progress. . . . . . . . . . . . . . . 312,322 471,802
------------- -----------
TOTAL UTILITY PLANT . . . . . . . . . . . . . . . . 9,792,291 11,431,447
Less-Accumulated depreciation and amortization . . . . . . 3,904,049 4,553,488
------------- -----------
NET UTILITY PLANT . . . . . . . . . . . . . . . . . 5,888,242 6,877,959
------------- -----------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 484,735 411,106
------------- -----------
CURRENT ASSETS:
Cash, including temporary cash investments
of $90,029 and $122,837, respectively . . . . . . . . . 116,164 172,998
Accounts receivable (less allowance for doubtful accounts
of $61,400 and $47,900, respectively) (Notes 1 and 8) . 373,510 427,588
Materials and supplies, at average cost:
Coal and oil for production of electricity. . . . . . . 9,263 42,299
Gas storage . . . . . . . . . . . . . . . . . . . . . . 39,166 38,803
Other . . . . . . . . . . . . . . . . . . . . . . . . . 90,605 118,855
Refundable federal income taxes. . . . . . . . . . . . . . - 130,411
Prepaid taxes. . . . . . . . . . . . . . . . . . . . . . . 21,489 17,282
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,042 22,208
------------- -----------
674,239 970,444
------------- -----------
REGULATORY ASSETS (NOTE 2):
MRA regulatory asset . . . . . . . . . . . . . . . . . . . 3,686,019 4,045,647
Swap contracts regulatory asset. . . . . . . . . . . . . . 505,723 535,000
Regulatory tax asset . . . . . . . . . . . . . . . . . . . 483,546 425,898
IPP buyout costs . . . . . . . . . . . . . . . . . . . . . 260,873 41,971
Deferred environmental restoration costs (Note 8). . . . . 240,000 220,000
Deferred loss on sale of assets. . . . . . . . . . . . . . 135,229 -
Postretirement benefits other than pensions. . . . . . . . 48,937 52,701
Unamortized debt expense . . . . . . . . . . . . . . . . . 44,903 51,922
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 112,556 95,090
------------- -----------
5,517,786 5,468,229
------------- -----------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 105,433 133,449
------------- -----------
$ 12,670,435 $13,861,187
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------- ------------
(in thousands of dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION (NOTE 4):
COMMON STOCKHOLDERS' EQUITY
Common stock, outstanding 177,364,863 shares. . . . . $ 1,874 $ -
Common stock of Niagara Mohawk, issued
and outstanding 187,364,863 shares . . . . . . . . - 187,365
Treasury stock, at cost - 10,000,000 shares . . . . . (157,167) -
Capital stock premium and expense . . . . . . . . . . 2,546,630 2,362,531
Accumulated other comprehensive income. . . . . . . . (26,200) (25,794)
Retained earnings . . . . . . . . . . . . . . . . . . 610,952 646,040
-------------- ------------
2,976,089 3,170,142
PREFERRED STOCK OF SUBSIDIARY:
Not subject to mandatory redemption . . . . . . . . . 440,000 440,000
Subject to mandatory redemption . . . . . . . . . . . 61,370 68,990
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . 5,042,588 6,417,225
-------------- ------------
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 8,520,047 10,096,357
-------------- ------------
CURRENT LIABILITIES:
Long-term debt due within one year (Note 4). . . . . . . 613,740 312,240
Sinking fund requirements on redeemable preferred stock
of subsidiary (Note 4). . . . . . . . . . . . . . . . 7,620 7,620
Accounts payable . . . . . . . . . . . . . . . . . . . . 288,223 197,124
Payable on outstanding bank checks . . . . . . . . . . . 22,067 39,306
Customers' deposits. . . . . . . . . . . . . . . . . . . 15,255 17,148
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . 1,408 6,254
Accrued interest . . . . . . . . . . . . . . . . . . . . 67,593 132,236
Accrued vacation pay . . . . . . . . . . . . . . . . . . 35,334 38,727
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 67,068 91,877
-------------- ------------
1,118,308 842,532
-------------- ------------
REGULATORY AND OTHER LIABILITIES:
Accumulated deferred income taxes (Notes 1 and 6). . . . 1,568,957 1,511,417
Liability for swap contracts (Note 9). . . . . . . . . . 663,718 693,363
Employee pension and other benefits (Note 7) . . . . . . 226,223 235,376
Unbilled gas revenues (Note 1). . . . . . . . . . . . . 14,552 30,652
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 318,630 231,490
-------------- ------------
2,792,080 2,702,298
-------------- ------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 8):
Liability for environmental restoration. . . . . . . . . 240,000 220,000
-------------- ------------
$ 12,670,435 $13,861,187
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
------------- ------------ ----------
(in thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ (35,088) $ (157,380) $ 145,938
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
PowerChoice charge. . . . . . . . . . . . . . . . . . . . . - 263,227 -
Amortization of the MRA regulatory asset. . . . . . . . . . 386,499 128,833 -
Depreciation and amortization . . . . . . . . . . . . . . . 345,473 355,919 340,239
Amortization of nuclear fuel. . . . . . . . . . . . . . . . 28,285 30,798 25,241
Extraordinary loss on extinguishment of debt, net of taxes. 9,627 - -
Provision for deferred income taxes . . . . . . . . . . . . (8,325) 97,606 46,994
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . (16,100) (12,629) (6,600)
Net accounts receivable (net of changes in accounts
receivable sold) . . . . . . . . . . . . . . . . . . . . 54,078 64,656 (118,939)
Materials and supplies. . . . . . . . . . . . . . . . . . . 21,800 (14,341) (1,306)
Accounts payable and accrued expenses . . . . . . . . . . . 50,358 (38,712) (11,175)
Accrued interest and taxes. . . . . . . . . . . . . . . . . (53,361) 66,842 4,180
MRA regulatory asset. . . . . . . . . . . . . . . . . . . . 2,605 (3,959,508) (7,516)
Deferral of MRA interest rate savings . . . . . . . . . . . 28,006 10,741 -
Refundable federal income taxes . . . . . . . . . . . . . . 130,411 (130,411) -
Change in IPP buyout costs regulatory asset . . . . . . . . (218,902) (41,971) -
Changes in other assets and liabilities . . . . . . . . . . 33,065 59,320 83,122
------------- ------------ ----------
Net cash provided by (used in) operating activities 758,431 (3,277,010) 500,178
------------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions . . . . . . . . . . . . . . . . . . . . . . (271,973) (365,396) (286,389)
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,108) (26,804) (4,368)
Less: Allowance for other funds used during construction . . . . . 5,366 8,626 5,310
------------- ------------ ----------
Acquisition of utility plant. . . . . . . . . . . . . . . . . . (292,715) (383,574) (285,447)
Materials and supplies related to construction . . . . . . . . . . 1,586 (219) 1,042
Accounts payable and accrued expenses related to construction. . . 12,589 (9,678) (2,794)
Proceeds from the sale of generation assets . . . . . . . . . . . 860,080 - -
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . (73,482) (35,069) (115,533)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,272) (18,551) 8,761
------------- ------------ ----------
Net cash provided by (used in) investing activities 490,786 (447,091) (393,971)
------------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Niagara Mohawk common stock. . . . . . . . . . . . . . - 316,389 -
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . - 3,361,178 -
Proceeds from preferred stock from subsidiary. . . . . . . . . . . 150,000 - -
Reduction in preferred stock of subsidiary . . . . . . . . . . . . (157,620) (10,120) (8,870)
Reductions in long-term debt . . . . . . . . . . . . . . . . . . . (1,134,020) (135,000) (44,600)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . (157,167) - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,244) (13,580) 97
------------- ------------ ----------
Net cash provided by (used in) financing activities (1,306,051) 3,518,867 (53,373)
------------- ------------ ----------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . (56,834) (205,234) 52,834
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . 172,998 378,232 325,398
------------- ------------ ----------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,164 $ 172,998 $ 378,232
============= ============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 512,735 $ 315,541 $ 279,957
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . $ (118,052) $ (12,127) $ 82,331
</TABLE>
Supplemental schedule of noncash financing activities:
- - On March 18, 1999, Holdings issued 187,364,863 shares of common stock in a
share-for-share exchange for Niagara Mohawk's outstanding common stock.
- - Niagara Mohawk issued 20,546,264 shares of common stock, valued at $14.75 per
share ($303.1 million) to the IP Parties on June 30, 1998.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
--------------- ----------- ----------
(in thousands of dollars)
<S> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . $ 3,247,757 $3,261,144 $3,309,441
Gas . . . . . . . . . . . . . . . . . . . . . . . 579,583 565,229 656,963
--------------- ----------- ----------
3,827,340 3,826,373 3,966,404
--------------- ----------- ----------
OPERATING EXPENSES:
Electricity purchased . . . . . . . . . . . . . . 807,038 1,001,991 1,236,108
Fuel for electric generation. . . . . . . . . . . 189,657 239,982 179,455
Gas purchased . . . . . . . . . . . . . . . . . . 266,723 272,141 345,610
Other operation and maintenance . . . . . . . . . 889,100 937,798 835,282
PowerChoice charge. . . . . . . . . . . . . . . . - 263,227 -
Amortization of MRA regulatory asset. . . . . . . 386,499 128,833 -
Depreciation and amortization . . . . . . . . . . 344,930 355,417 339,641
Other taxes . . . . . . . . . . . . . . . . . . . 411,842 459,961 471,469
--------------- ----------- ----------
3,295,789 3,659,350 3,407,565
--------------- ----------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 531,551 167,023 558,839
Other income (deductions). . . . . . . . . . . . . . (5,682) 42,602 24,997
--------------- ----------- ----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 525,869 209,625 583,836
Interest charges . . . . . . . . . . . . . . . . . . 485,240 397,178 273,906
--------------- ----------- ----------
INCOME (LOSS) BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . . . . . 40,629 (187,553) 309,930
Federal and foreign income taxes . . . . . . . . . . 18,883 (66,728) 126,595
--------------- ----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. . . . . . . 21,746 (120,825) 183,335
Extraordinary item - Loss from the extinguishment
of debt, net of income taxes of $12,819 ( Note 4) (23,807) - -
--------------- ----------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . (2,061) (120,825) 183,335
Dividends on preferred stock . . . . . . . . . . . . 36,808 36,555 37,397
--------------- ----------- ----------
BALANCE AVAILABLE FOR COMMON STOCK . . . . . . . . . (38,869) (157,380) 145,938
Retained earnings at beginning of year . . . . . . . 646,040 803,420 657,482
Dividend of Opinac to Holdings (Note 1). . . . . . . 144,465 - -
Dividend to Holdings . . . . . . . . . . . . . . . . 63,719 - -
--------------- ----------- ----------
Retained earnings at end of year . . . . . . . . . . $ 398,987 $ 646,040 $ 803,420
=============== =========== ==========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
--------------- ----------- -----------
(in thousands of dollars)
<S> <C> <C> <C>
NET INCOME (LOSS). . . . . . . . . . . . . . . $ (2,061) $ (120,825) $ 183,335
--------------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains on securities, net of tax. 113 304 6
Foreign currency translation adjustment . . 1,309 (6,896) (4,567)
Additional minimum pension liability. . . . (5,967) - -
--------------- ----------- -----------
OTHER COMPREHENSIVE LOSS . . . . . . . . . . . (4,545) (6,592) (4,561)
--------------- ----------- -----------
COMPREHENSIVE INCOME (LOSS). . . . . . . . . . $ (6,606) $ (127,417) $ 178,774
=============== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -----------
(in thousands of dollars)
ASSETS
<S> <C> <C>
UTILITY PLANT (NOTE 1):
Electric plant . . . . . . . . . . . . . . . . . . . . . . $ 7,221,762 $ 8,826,650
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . 630,321 604,213
Gas plant. . . . . . . . . . . . . . . . . . . . . . . . . 1,263,168 1,179,716
Common plant . . . . . . . . . . . . . . . . . . . . . . . 364,718 349,066
Construction work in progress. . . . . . . . . . . . . . . 312,322 471,802
------------- -----------
TOTAL UTILITY PLANT . . . . . . . . . . . . . . . . 9,792,291 11,431,447
Less-Accumulated depreciation and amortization . . . . . . 3,904,049 4,553,488
------------- -----------
NET UTILITY PLANT . . . . . . . . . . . . . . . . . 5,888,242 6,877,959
------------- -----------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 349,718 411,106
------------- -----------
CURRENT ASSETS:
Cash, including temporary cash investments
of $58,276 and $122,837, respectively . . . . . . . . . 72,479 172,998
Accounts receivable (less allowance for doubtful accounts
of $59,400 and $47,900, respectively) (Notes 1 and 8) . 331,222 427,588
Materials and supplies, at average cost:
Coal and oil for production of electricity. . . . . . . 9,263 42,299
Gas storage . . . . . . . . . . . . . . . . . . . . . . 38,252 38,803
Other . . . . . . . . . . . . . . . . . . . . . . . . . 90,605 118,855
Refundable federal income taxes. . . . . . . . . . . . . . - 130,411
Prepaid taxes. . . . . . . . . . . . . . . . . . . . . . . 21,489 17,282
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,668 22,208
------------- -----------
585,978 970,444
------------- -----------
REGULATORY ASSETS (NOTE 2):
MRA regulatory asset . . . . . . . . . . . . . . . . . . . 3,686,019 4,045,647
Swap contracts regulatory asset. . . . . . . . . . . . . . 505,723 535,000
Regulatory tax asset . . . . . . . . . . . . . . . . . . . 483,546 425,898
IPP buyout costs . . . . . . . . . . . . . . . . . . . . . 260,873 41,971
Deferred environmental restoration costs (Note 8). . . . . 240,000 220,000
Deferred loss on sale of assets. . . . . . . . . . . . . . 135,229 -
Postretirement benefits other than pensions. . . . . . . . 48,937 52,701
Unamortized debt expense . . . . . . . . . . . . . . . . . 44,903 51,922
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 112,556 95,090
------------- -----------
5,517,786 5,468,229
------------- -----------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 103,884 133,449
------------- -----------
$ 12,445,608 $13,861,187
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------- ------------
(in thousands of dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION (NOTE 4):
COMMON STOCKHOLDERS' EQUITY
Common stock, issued and outstanding 187,364,863 shares . . . $ 187,365 $ 187,365
Repurchase of Holdings' common stock, at cost . . . . . . . . (157,167) -
Capital stock premium and expense . . . . . . . . . . . . . . 2,361,139 2,362,531
Accumulated other comprehensive income. . . . . . . . . . . . (5,153) (25,794)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 398,987 646,040
-------------- ------------
2,785,171 3,170,142
Non-redeemable preferred stock . . . . . . . . . . . . . . . . . 440,000 440,000
Mandatorily redeemable preferred stock . . . . . . . . . . . . . 61,370 68,990
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 5,042,588 6,417,225
-------------- ------------
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . 8,329,129 10,096,357
-------------- ------------
CURRENT LIABILITIES:
Long-term debt due within one year (Note 4). . . . . . . . . . . 613,740 312,240
Sinking fund requirements on redeemable preferred stock (Note 4) 7,620 7,620
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 244,031 197,124
Payable on outstanding bank checks . . . . . . . . . . . . . . . 22,067 39,306
Customers' deposits. . . . . . . . . . . . . . . . . . . . . . . 15,255 17,148
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 6,246 6,254
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . 67,593 132,236
Accrued vacation pay . . . . . . . . . . . . . . . . . . . . . . 35,334 38,727
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,160 91,877
-------------- ------------
1,078,046 842,532
-------------- ------------
REGULATORY AND OTHER LIABILITIES:
Accumulated deferred income taxes (Notes 1 and 6). . . . . . . . 1,575,335 1,511,417
Liability for swap contracts (Note 9). . . . . . . . . . . . . . 663,718 693,363
Employee pension and other benefits (Note 7) . . . . . . . . . . 226,223 235,376
Unbilled gas revenues (Note 1) . . . . . . . . . . . . . . . . . 14,552 30,652
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318,605 231,490
-------------- ------------
2,798,433 2,702,298
-------------- ------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 8):
Liability for environmental restoration. . . . . . . . . . . . . 240,000 220,000
-------------- ------------
$ 12,445,608 $13,861,187
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
------------ ------------ ----------
(in thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ (2,061) $ (120,825) $ 183,335
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
PowerChoice charge. . . . . . . . . . . . . . . . . . . . . - 263,227 -
Amortization of the MRA regulatory asset. . . . . . . . . . 386,499 128,833 -
Depreciation and amortization . . . . . . . . . . . . . . . 344,930 355,417 339,641
Amortization of nuclear fuel. . . . . . . . . . . . . . . . 28,285 30,798 25,241
Extraordinary loss on extinguishment of debt, net of taxes. 9,627 - -
Provision for deferred income taxes . . . . . . . . . . . . (7,543) 97,606 46,994
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . (16,100) (12,629) (6,600)
Net accounts receivable (net of changes in accounts
receivable sold) . . . . . . . . . . . . . . . . . . . . 84,683 64,656 (118,939)
Materials and supplies. . . . . . . . . . . . . . . . . . . 22,355 (14,341) (1,306)
Accounts payable and accrued expenses . . . . . . . . . . . 21,751 (38,712) (11,175)
Accrued interest and taxes. . . . . . . . . . . . . . . . . (48,666) 66,842 4,180
MRA regulatory asset. . . . . . . . . . . . . . . . . . . . 2,605 (3,959,508) (7,516)
Deferral of MRA interest rate savings . . . . . . . . . . . 28,006 10,741 -
Refundable Federal income taxes . . . . . . . . . . . . . . 130,411 (130,411) -
Change in IPP buyout costs regulatory asset . . . . . . . . (218,902) (41,971) -
Changes in other assets and liabilities . . . . . . . . . . 32,850 59,822 83,720
------------ ------------ ----------
Net cash provided by (used in) operating activities 798,730 (3,240,455) 537,575
------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions . . . . . . . . . . . . . . . . . . . . . . (271,973) (365,396) (286,389)
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,108) (26,804) (4,368)
Less: Allowance for other funds used during construction . . . . . 5,366 8,626 5,310
------------ ------------ ----------
Acquisition of utility plant. . . . . . . . . . . . . . . . . . (292,715) (383,574) (285,447)
Materials and supplies related to construction . . . . . . . . . . 1,586 (219) 1,042
Accounts payable and accrued expenses related to construction. . . 5,436 (9,678) (2,794)
Proceeds from the sale of generation assets. . . . . . . . . . . . 860,080 - -
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . 43,426 (35,069) (115,533)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,866) (18,551) 8,761
------------ ------------ ----------
Net cash used in investing activities 596,497 (447,091) (393,971)
------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . - 316,389 -
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . - 3,361,178 -
Proceeds from preferred stock. . . . . . . . . . . . . . . . . . . 150,000
Reductions of preferred stock. . . . . . . . . . . . . . . . . . . (157,620) (10,120) (8,870)
Reductions in long-term debt . . . . . . . . . . . . . . . . . . . (1,134,020) (135,000) (44,600)
Corporate restructuring to establish holding company . . . . . . . (89,618) - -
Preferred dividends paid . . . . . . . . . . . . . . . . . . . . . (36,808) (36,555) (37,397)
Common stock dividend paid to Holdings . . . . . . . . . . . . . . (63,719) - -
Repurchase of Holdings' common stock . . . . . . . . . . . . . . . (157,167) - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,244) (13,580) 97
------------ ------------ ----------
Net cash provided by (used in) financing activities (1,496,196) 3,482,312 (90,770)
------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . (100,519) (205,234) 52,834
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . 172,998 378,232 325,398
------------ ------------ ----------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,479 $ 172,998 $ 378,232
============ ============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 512,735 $ 315,541 $ 279,957
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . $ (119,999) $ (12,127) $ 82,331
</TABLE>
Supplemental schedule of noncash financing activities:
- - On March 18, 1999, Niagara Mohawk's outstanding common stock was exchanged on
a share-for-share basis for Holdings' common stock.
- - On March 31, 1999, Niagara Mohawk distributed the stock of Opinac as a
dividend to Holdings, which included cash of $89.6 million.
- - Niagara Mohawk issued 20,546,264 shares of common stock, valued at $14.75
per share ($303.1 million) to the IPP Parties on June 30, 1998.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE AND PRINCIPLES OF CONSOLIDATION: Niagara Mohawk Holdings,
Inc. ("Holdings") is a New York corporation. On March 18, 1999, Niagara Mohawk
Power Corporation ("Niagara Mohawk") was reorganized into a holding company
structure in accordance with an Agreement and Plan of Exchange between Niagara
Mohawk and Holdings. Niagara Mohawk's outstanding common stock was exchanged on
a share-for-share basis for Holdings' common stock. Niagara Mohawk's preferred
stock and debt was not exchanged as part of the share exchange and continue as
obligations of Niagara Mohawk.
On March 31, 1999, Niagara Mohawk distributed its ownership in the stock of
Opinac North America, Inc. ("Opinac") as a dividend to Holdings. As a result,
the net assets and accumulated other comprehensive income of Opinac are no
longer included in Niagara Mohawk's consolidated balance sheet as of December
31, 1999. The dividend completed the holding company structure, with Holdings
owning 100% of the common stock of its two subsidiaries, Niagara Mohawk and
Opinac. Niagara Mohawk and its subsidiaries manage all regulated activities and
comprise approximately 98 percent of the assets and approximately 94 percent of
the revenues of Holdings. Opinac and its subsidiaries manage all other
activities including an energy marketing company and investments in energy
related services businesses, a development stage telecommunications company, and
a research and development company that has developed and intends to
commercialize new fuel cell and battery technology.
Niagara Mohawk is subject to regulation by the PSC and FERC with respect to its
rates for service under a methodology, which establishes prices, based on
Niagara Mohawk's cost. Niagara Mohawk's accounting policies conform to GAAP,
including the accounting principles for rate-regulated entities with respect to
Niagara Mohawk's nuclear, transmission, distribution and gas operations
(regulated business), and are in accordance with the accounting requirements and
ratemaking practices of the regulatory authorities. In 1996, Niagara Mohawk
discontinued the application of regulatory accounting principles to its fossil
and hydro generation operations.
Holdings' consolidated financial statements include the accounts of Holdings'
and its wholly owned subsidiaries. Niagara Mohawk's consolidated financial
statements include its accounts as well as those of its wholly owned
subsidiaries. Inter-company balances and transactions have been eliminated.
The notes to the Consolidated Financial Statements apply to both Holdings and
Niagara Mohawk unless otherwise stated.
The closing of the MRA, which occurred on June 30, 1998, and the implementation
of PowerChoice on September 1, 1998 have depressed and will continue to
substantially depress earnings during the five-year term of PowerChoice. The
ability of Niagara Mohawk to improve earnings in the period subsequent to
PowerChoice will depend on the outcome of the regulatory process to set prices
at that time. However, operating cash flows have substantially improved. The
closing on the sale of the fossil and hydro generation assets at various times
during the year has also affected the comparability of the financial statements.
See Note 2. for a further discussion of the sales.
ESTIMATES: In order to be in conformity with GAAP, management is required to
use estimates in the preparation of Holdings and Niagara Mohawk's financial
statements.
UTILITY PLANT: The cost of additions to utility plant and replacements of
retirement units of property are capitalized. Costs include direct material,
labor, overhead and AFC. Replacement of minor items of utility plant and the
cost of current repairs and maintenance are charged to expense. Whenever
utility plant is retired, its original cost, together with the cost of removal,
less salvage, is charged to accumulated depreciation.
The output of the co-owned generation units, Roseton Units No. 1 and 2 (which
has a capability of 1,200 MW) and Nine Mile Point Nuclear Station Unit No. 2,
and related expenses are shared in the same proportions as the co-tenants'
respective ownership interests. Niagara Mohawk's share of expenses associated
with these plants are included in the appropriate operating expenses in Niagara
Mohawk's Consolidated Statements of Income.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: Niagara Mohawk capitalizes AFC in
amounts equivalent to the cost of funds devoted to plant under construction for
its regulated business. AFC rates are determined in accordance with FERC and
PSC regulations. The AFC rate in effect at December 31, 1999 was 8.86%. AFC is
segregated into its two components, borrowed funds and other funds, and is
reflected in the "Interest charges" and "Other income" sections, respectively,
in both Holdings and Niagara Mohawk's Consolidated Statements of Income. The
amount of AFC credits recorded in each of the three years ended December 31, in
thousands of dollars, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Other income . . $5,366 $ 8,626 $5,310
Interest charges 7,252 10,228 4,396
</TABLE>
The amount of AFC credits in 1999 for fossil and hydro generation, included in
the total above, is $518,000 as compared to $1,034,000 in 1998 and $1,179,000 in
1997.
DEPRECIATION, AMORTIZATION AND NUCLEAR GENERATION PLANT DECOMMISSIONING COSTS:
For accounting and regulatory purposes, Niagara Mohawk's depreciation is
computed on the straight-line basis using the license lives for its nuclear
class of depreciable property and the average service lives for all other
classes. The percentage relationship between the total provision for
depreciation and average depreciable property was approximately 3.4% to 3.6% for
the years 1997 through 1999. Niagara Mohawk performs depreciation studies to
determine service lives of classes of property and adjusts the depreciation
rates when necessary.
Estimated decommissioning costs (costs to remove a nuclear plant from service in
the future) for Niagara Mohawk's Unit 1 and its share of Unit 2 are being
accrued over the service lives of the units, recovered in rates through an
annual allowance and currently charged to operations through depreciation.
Niagara Mohawk currently recognizes the liability for nuclear decommissioning
over the service life of the plants as an increase to accumulated depreciation.
As discussed in Notes 2 and 3, Niagara Mohawk announced an agreement to sell its
nuclear assets. As par of the agreement, Niagara Mohawk will transfer its
decommissioning liability, as well as the decommissioning funds, which will be
increased by Niagara Mohawk to a specified amount at the time of the transfer.
See Note 3. Nuclear Operations - Nuclear Plant Decommissioning, for more
information on the decommissioning fund. Absent such a nuclear sale, Niagara
Mohawk plans to commence decommissioning of both units using a method which
removes or decontaminates the Units' components properly at that time.
Amortization of the cost of nuclear fuel is determined on the basis of the
quantity of heat produced for the generation of electric energy. The cost of
disposal of nuclear fuel, which presently is $.001 per KWh of net generation
available for sale, is based upon a contract with the DOE. These costs are
charged to operating expense as part of fuel for electric generation.
REGULATED REVENUES: Niagara Mohawk bills its customers on a monthly cycle basis
at approved tariffs based on energy delivered and a minimum customer service
charge. Revenues are determined based on these bills plus an estimate for
unbilled energy delivered between the cycle billing date and the end of the
accounting period. In February 1999, a new customer service billing system was
implemented which converted all customers previously billed on a bi-monthly
cycle to a monthly basis. (See Note 8 "Customer Service System" for a further
discussion of this new system). The unbilled revenues included in accounts
receivable at December 31, 1999 and 1998 were $143.9 million and $205.6 million,
respectively.
In accordance with PowerChoice, Niagara Mohawk recognizes changes in accrued
unbilled electric revenues in its results of operations. Previously, Niagara
Mohawk did not recognize accrued unbilled electric revenues in its results of
operations until authorized and used them to reduce future revenue requirements.
Such amounts were included in "Other Liabilities" pending regulatory
disposition. Under the PowerChoice agreement, $8.6 million of unrecognized
unbilled electric revenues as of September 1, 1998, the implementation date of
PowerChoice, were netted with certain other regulatory assets and liabilities
and any subsequent changes in the estimated unbilled electric revenues are
recognized currently in results of operations.
Pursuant to Niagara Mohawk's 1996 three-year gas settlement, changes in accrued
unbilled gas revenues are deferred. At December 31, 1999 and 1998, $14.6
million and $30.7 million, respectively, of unbilled gas revenues remain
unrecognized in results of operations.
Prior to September 1, 1998, Niagara Mohawk's tariffs included an electric fuel
adjustment clause, such that electricity costs above or below the levels allowed
in approved rate schedules, were billed or credited to customers. Niagara
Mohawk, as authorized by the PSC, charged operations for electricity cost
variances in the period of recovery. Under the PowerChoice agreement, the
electric fuel adjustment clause was discontinued as of September 1, 1998.
The 1996 three-year gas settlement agreement established a gas commodity cost
adjustment clause ("CCAC"). Niagara Mohawk's gas CCAC provides for the
collection or pass back of certain increases or decreases from the base
commodity cost of gas as established in the gas settlement agreement. The
maximum annual risk or benefit to Niagara Mohawk is $2.25 million. All savings
or excess costs beyond that amount flow to ratepayers. The PSC approved an
interim gas rate agreement on October 15, 1999 and January 12, 2000 that
included a provision for the implementation of a return to a full gas cost
collection mechanism and termination of the cost sharing mechanism, effective
November 1, 1999.
UNREGULATED REVENUES: Unregulated revenues and the related costs of gas and
electricity are accrued and recorded in the month of delivery, based on contract
price and nominated natural gas and electricity transmission reservation volumes
sold to customers and purchased from suppliers. Adjustments are made to reflect
actual volumes delivered or purchased when the actual volumetric information
becomes available from the transporters.
FEDERAL INCOME TAXES: As directed by the PSC, Niagara Mohawk defers any amounts
payable pursuant to the alternative minimum tax rules. Deferred investment tax
credits are amortized over the useful life of the underlying property. Deferred
investment tax credits related to the assets that have been sold are taken into
income in accordance with IRS rules. Holdings and its United States'
subsidiaries file a consolidated federal income tax return. Income taxes are
allocated to each company based on its taxable income.
STATEMENTS OF CASH FLOWS: Holdings and Niagara Mohawk consider all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents. The consolidated cash flow statements for Holdings and
Niagara Mohawk have been presented to reflect the closing on the sale of the
fossil and hydro generation assets, such that certain individual line items are
net of the effects of the sale. (For example, the change in materials and
supplies was reduced by the sale of inventory to the buyers of the fossil and
hydro generation assets).
TREASURY STOCK: The PSC approved Niagara Mohawk's petition to purchase up to
$800 million of Holdings' common stock. Holdings' Board of Directors has
approved a program to repurchase twenty million shares through December 31,
2001. The cost to acquire Holdings' common stock by Niagara Mohawk is presented
as "Treasury stock" in Holdings' financial statements and as "Repurchase of
Holdings' common stock" on Niagara Mohawk's financial statements. See Note 4
for a discussion of the stock repurchased during 1999.
EARNINGS PER SHARE: Basic earnings per share ("EPS") is computed based on the
weighted average number of common shares outstanding for the period. Treasury
stock is not considered outstanding and thus, reduces the weighted average
shares outstanding. The number of options outstanding at December 31, 1999,
1998 and 1997 that could potentially dilute basic EPS, (but are considered
antidilutive for each period because the options exercise price was greater than
the average market price of common shares), is immaterial. Therefore, the
calculation of both basic and dilutive EPS is the same for each period.
DERIVATIVES: In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from the changes in the
values of the derivatives will be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. Holdings and Niagara
Mohawk will be required to adopt this standard in 2001. Niagara Mohawk has
identified swap contracts, entered into as part of the MRA and generation asset
sales agreements, (see Note 9) as derivative instruments and has recorded a
liability at fair value under SFAS No. 80, "Accounting for Futures Contracts."
These swap contracts qualify as hedges of future purchase commitments and will
continue to qualify as hedges under SFAS No. 133. The financial sharing
agreement entered into as part of the agreement to sell Niagara Mohawk's nuclear
generation assets will be a derivative instrument as defined by SFAS No. 133 and
will be recorded upon the closing of such sale. See Note 8 - "Long-term
Contracts for the Purchase of Electric Power - Nuclear Contracts" for a further
discussion of the financial sharing agreement. Holdings and Niagara Mohawk
continue to assess the applicability of this new standard to other contractual
obligations.
ENERGY TRADING: The Emerging Issues Task Force ("EITF") of the FASB reached a
conclusion on Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities" to be applied for fiscal years beginning
after December 15, 1998. This EITF states that energy trading contracts should
be marked-to-market with the gains and losses included in earnings. Contracts
that are designed as hedges of non-trading activities are outside the scope of
this EITF. Niagara Mohawk's energy contracts and the majority of the marketing
activities of NM Energy are not energy trading as defined by this EITF, and
therefore, Holdings and its subsidiaries do not account for its energy contracts
on a marked-to-market basis.
COMPREHENSIVE INCOME: Comprehensive income is the change in the equity of a
company, not including those changes that result from shareholder transactions.
While the primary component of comprehensive income is reported net income or
loss, the other components of comprehensive income relate to foreign currency
translation adjustments, additional minimum pension liability recognition and
unrealized gains and losses associated with certain investments held as
available for sale. The primary difference in comprehensive income between
Holdings and Niagara Mohawk is the treatment of Niagara Mohawk's preferred
dividends and reported net income or loss.
RECLASSIFICATIONS: Certain amounts from prior years have been reclassified on
the accompanying Consolidated Financial Statements to conform with the 1999
presentation.
Holdings' prior years consolidated financial statements have been prepared from
Niagara Mohawk's prior year consolidated financial statements, except that
accounts have been reclassified to reflect Holdings' structure.
<PAGE>
NOTE 2. RATE AND REGULATORY ISSUES AND CONTINGENCIES
Holdings and Niagara Mohawk's financial statements conform to GAAP, including
the accounting principles for rate-regulated entities with respect to its
regulated operations. 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
Niagara Mohawk are approximately $5.5 billion at December 31, 1999. These
regulatory assets are probable of recovery.
Niagara Mohawk has recorded the following regulatory assets on its Consolidated
Balance Sheets reflecting the rate actions of its regulators:
MRA REGULATORY ASSET
Under PowerChoice, a regulatory asset was established for the costs of the MRA
and represents the costs to terminate, restate, or amend IPP Party contracts.
This regulatory asset is being amortized generally over ten years, beginning
September 1, 1999. Niagara Mohawk's rates under PowerChoice have been designed
to permit recovery of the MRA regulatory asset.
SWAP CONTRACT REGULATORY ASSET
The swap contract regulatory asset represents the expected future recovery of
the swap contract liability. The swap contract liability is the difference
between estimated future market prices and the contract prices for the notional
quantities of power in the restated IPP PPA contracts and in the financial swaps
associated with the PPAs from the sale of the Huntley and Dunkirk coal-fired
generation plants. The portion of this regulatory asset associated with the
restated IPP PPA contracts will be amortized over ten years ending in June 2008,
in accordance with the MRA, as notional quantities are settled. The portion of
this regulatory asset associated with the Huntley and Dunkirk PPAs will be
amortized over the remaining term of the swaps through June 2003. The amount of
this regulatory asset will fluctuate as estimates of future market and contract
prices change over the terms of the contracts. For a further discussion of the
several PPAs and other financial agreements that Niagara Mohawk has entered into
as part of the MRA and the sale of its generation assets, see Note 8 -
"Long-term contracts for the purchase of electric power and Note 9."
REGULATORY TAX ASSET
The 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 recovered and amortized
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.
IPP BUYOUT COSTS
Niagara Mohawk is also permitted to defer and amortize the cost of any
additional IPP contract buyouts. In 1999, there have been four IPP contracts
for approximately 127 MW terminated for a total consideration (cash and/or
notes) of $229.2 million. Niagara Mohawk estimates that it will have reduced
IPP payments by approximately $60 million annually, net of purchases of power
at market price as a result of the contract buyouts. Deferred costs
associated with IPP buyouts will generally be amortized over five years in
accordance with PowerChoice, unless PSC approval is obtained for a different
amortization period. Niagara Mohawk retains the annual net savings of the
buyouts during the remaining term of PowerChoice to offset the amortization
expense. Niagara Mohawk is negotiating buyouts and amendments of other IPP
contracts. Niagara Mohawk is unable to determine the timing and outcome of
these negotiations.
DEFERRED ENVIRONMENTAL RESTORATION COSTS
The deferred environmental restoration costs regulatory asset represents Niagara
Mohawk's share of the estimated costs to investigate and perform certain
remediation activities at both Niagara Mohawk-owned sites and non-owned sites
with which it may be associated. Niagara Mohawk has recorded a regulatory asset
representing the remediation obligations to be recovered from ratepayers.
PowerChoice and Niagara Mohawk's gas rates decisions provide for the recovery of
these costs over the settlement periods. Niagara Mohawk believes future costs,
beyond the settlement periods, will continue to be recovered in rates. See Note
8. - Environmental Contingencies.
DEFERRED LOSS ON THE SALE OF ASSETS
PowerChoice requires Niagara Mohawk to divest its portfolio of fossil and hydro
generation assets. During 1999, Niagara Mohawk completed the sale its
hydroelectric generation plants, its two coal-fired generation plants and its
Oswego oil and gas-fired plant for $860 million. These assets had a combined
net book value of $956.8 million (including materials and supplies and fuel) at
the time of their sale. In addition, there were purchase price adjustments of
$26.7 million, primarily due to a lower amount of fuel being delivered to the
new owners of the Oswego generation assets than originally anticipated and
provided for in the sales agreement.
On October 6, 1999, Niagara Mohawk announced an agreement to sell its Albany oil
and gas-fired plant to PSEG Power LLC ("PSEG") for $47.5 million. The 400 MW
Albany plant has a net book value of approximately $32.0 million (including
materials and supplies and fuel) as of December 31, 1999. Niagara Mohawk could
also receive up to an additional $11.5 million if PSEG chooses to pursue the
redevelopment of the Albany plant and the redevelopment is in service by July 1,
2003. The agreement with PSEG includes a "Post Closing Property Tax Adjustment"
to be settled on the first ten anniversaries of the closing date. If actual
annual property taxes exceed a predetermined amount, Niagara Mohawk will pay
PSEG. If the property taxes are lower, then PSEG will pay Niagara Mohawk. The
predetermined amount is based upon the taxes paid by Niagara Mohawk at the time
of the sale, which should approximate $6.7 million. During the ten years, the
predetermined amount will be lowered by $0.5 million each year. Niagara Mohawk
is pursuing a reduction in the taxes paid on the facility. No amount has been
reflected in the anticipated proceeds from the sale of Albany for the
redevelopment fee or the post closing property tax adjustment. Niagara Mohawk
expects to complete the Albany sale transaction in the first quarter of 2000.
The sale of the Roseton Steam Station, of which Niagara Mohawk owns 25%, is
being pursued by Central Hudson. The remaining ownership interests are Central
Hudson, the operator of the plant (35%), and Consolidated Edison Company of New
York, Inc. (40%). Although Central Hudson stated that it expects to sell this
plant by early 2001, to assure divestiture of this asset, Niagara Mohawk entered
into an agreement with Central Hudson, subject to regulatory approval, to sell
its interest in the plant to Central Hudson at approximately net book value by
no later than January 1, 2003. Niagara Mohawk's share of the plant has a net
book value of approximately $40.8 million (which includes materials and supplies
and fuel) as of December 31, 1999.
The following table summarizes Niagara Mohawk's electric plant assets as of
December 31, 1999 and 1998, showing the impact on Niagara Mohawk's electric
plant from the completed sales through December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1999 1998
(in thousands) ORIGINAL NET BOOK Original Net Book
PLANT TYPE COST VALUE Cost Value
- ----------------------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Unit 1 * $1,504,718 $ 957,884 $1,503,833 $ 985,141
Unit 2 * 749,204 476,934 748,763 490,504
Albany 126,147 27,202 130,476 29,319
Roseton 92,544 34,448 91,871 36,842
Dunkirk - - 274,737 140,878
Huntley - - 399,660 204,868
Oswego - - 622,953 299,743
Hydro - - 448,212 214,351
---------- ---------- ---------- ----------
Total generation 2,472,613 1,496,468 4,220,505 2,401,646
Transmission and
Distribution 4,277,210 2,862,408 4,142,255 2,795,782
Other/General 471,939 313,115 463,890 331,878
---------- ---------- ---------- ----------
Total Electric Plant $7,221,762 $4,671,991 $8,826,650 $5,529,306
========== ========== ========== ==========
* - Excludes nuclear fuel
</TABLE>
The PowerChoice agreement provides for deferral and future recovery of net
losses, if any, resulting from the sale of the fossil and hydro generation asset
portfolio. As of December 31, 1999, Niagara Mohawk has recorded a regulatory
asset of $135.2 million for the net loss on the sale of its two coal-fired
generation plants, its hydro generation assets, and its oil and gas fired plant
at Oswego, which includes $3.0 million in employee-related severance costs. The
net loss is included in Niagara Mohawk's balance sheet as "Deferred Loss on the
Sale of Assets." In accordance with PowerChoice, Niagara Mohawk will not earn a
return on the deferred loss during the PowerChoice period. The amount of this
regulatory asset is subject to change as a result of post closing adjustments on
the sales, transaction costs, the accounting treatment relating to the hydro
PPAs, the amount of severance and other costs and the outcome of the sale of the
remaining fossil assets. Niagara Mohawk has petitioned the PSC to defer, as
part of the regulatory asset associated with the sale of the fossil and hydro
generation assets, the amount by which the actual amount incurred on the hydro
PPAs exceeds the forecasted amount reflected in PowerChoice. After all the
fossil and hydro sales transactions have been completed, Niagara Mohawk
estimates that it will have a net loss (stranded costs) of approximately $150
million, including an estimate of the future deferrable hydro payments. Niagara
Mohawk is required to submit to the PSC a final accounting of the costs and
proceeds from the sale of its assets upon completion of the final sale. Niagara
Mohawk will begin recovery of the loss in 2003, over a period not to exceed the
average remaining life of the assets sold, estimated at 20 years. Niagara
Mohawk has earned an incentive as provided for in PowerChoice of $9.0 million
based on the asset sales concluded in 1999, which is reflected in income in 1999
and is recorded as an other regulatory asset in the Consolidated Balance Sheets.
An additional incentive is expected to be earned upon the completion of the
remaining assets sales of approximately $6.0 million. Niagara Mohawk will begin
recovery of this amount in 2001, over a period not to exceed 5 years.
Niagara Mohawk has also announced an agreement to sell its nuclear generation
assets. Niagara Mohawk estimates its net loss from the nuclear sale to be in
the range of $1,800 to $1,850 million. Niagara Mohawk has petitioned the PSC
for approval to defer this net loss for future recovery, which approval is a
condition of the closing of the sale of the nuclear assets. See Note 3. -
Nuclear Operations, for a complete discussion regarding this announced sale of
Niagara Mohawk's nuclear generation assets and its regulatory treatment.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The postretirement benefits other than pensions regulatory asset represent the
excess of such costs recognized in accordance with SFAS No. 106 over the amount
received in rates. In accordance with a PSC policy statement, postretirement
benefit costs other than pensions were phased into rates generally over a
five-year period and amounts deferred are being amortized and recovered over a
period of approximately 15 years.
UNAMORTIZED DEBT EXPENSE
The unamortized debt expense regulatory asset 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.
OTHER
Included in the other regulatory asset is the accumulation of numerous
miscellaneous regulatory deferrals, including the deferral of nuclear outage
costs, uncollectible accounts receivable, nuclear decontamination and
decommissioning fund costs, and income earned on gas rate sharing mechanisms.
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. EITF 97-4 does not require a company to earn a
return on regulatory assets that arise from a deregulating transition plan in
assessing the applicability of SFAS No. 71. Niagara Mohawk believes that the
regulated cash flows to be derived from prices it will charge for electric
service over the next ten years, including the Competitive Transition Charge
("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 Niagara Mohawk determines, as a result of lower than expected revenues
and/or higher than expected costs, that its net regulatory assets are not
probable of recovery, it can no longer apply the principles of SFAS No. 71 and
would be required to record an after-tax non-cash charge against income for any
remaining unamortized regulatory assets and liabilities. If Niagara Mohawk
could no longer apply SFAS No. 71, the resulting charge would be material to
Holdings and Niagara Mohawk's reported financial condition and results of
operations and adversely effect Niagara Mohawk's, and therefore, Holdings'
ability to pay dividends.
Under PowerChoice, Niagara Mohawk's remaining electric business (electric
transmission, distribution and nuclear business) will continue to be
rate-regulated on a cost-of-service basis and, accordingly, Niagara Mohawk
continues to apply SFAS No. 71 to these businesses. Also, Niagara Mohawk's IPP
contracts, including those restructured under the MRA, as well as the PPAs
entered into in connection with the generation divestiture, will continue to be
the obligations of the regulated business.
<PAGE>
NOTE 3. NUCLEAR OPERATIONS
Niagara Mohawk is the owner and operator of the 613 MW Unit 1 and the operator
and a 41% co-owner of the 1,143 MW Unit 2. The remaining ownership interests
are Long Island Power Authority (LIPA) - 18%; NYSEG - 18%; Rochester Gas and
Electric Corporation (RG&E) - 14%; and Central Hudson - 9%. Unit 1 was placed
in commercial operation in 1969 and Unit 2 in 1988.
ANNOUNCED SALE: On June 24, 1999, Niagara Mohawk announced an agreement to sell
its nuclear assets to AmerGen Energy Company, LLC ("AmerGen"), a joint venture
of PECO Energy Company and British Energy, for approximately $135 million, which
is subject to price adjustments depending on the time of closing. Along with
the asset purchase agreement, Niagara Mohawk also signed PPAs with AmerGen to
purchase energy and capacity at negotiated prices. See Note 8 for a further
discussion of these PPAs under "Long term contracts for the purchase of electric
power."
New York State Electric and Gas Corporation is also a party to the agreement and
has agreed to sell its 18% share of Unit 2 to AmerGen. The sale to AmerGen is
subject to a previously existing agreement among the five co-owners of Unit 2
that gives the co-owners the right to match a third-party purchase offer made
for any share of the plant. On December 21, 1999, RG&E, a 14% co-owner,
submitted a notice stating it would match the AmerGen agreement.
As a condition of the sale transaction, Niagara Mohawk will pre-fund its nuclear
decommissioning trust funds (discussed below) at the closing to a predetermined
amount (which amount is contingent upon tax rulings and the closing date). The
trust funds will be transferred to the buyer at the closing, and the buyer will
assume full responsibility for the decommissioning of Unit 1 and its ownership
share of Unit 2. If the sale occurs on July 1, 2000, Niagara Mohawk estimates
that it will be required to make additional contributions to the decommissioning
trust funds of approximately $90 million.
At December 31, 1999, the net book value of Niagara Mohawk's nuclear generation
assets (including materials, supplies and nuclear fuel) was approximately $1.6
billion, excluding the reserve for decommissioning. In addition, Niagara Mohawk
has other nuclear-related assets of approximately $0.5 billion. These assets
include the decommissioning trusts and regulatory assets, primarily related to
the flow-through to customers of prior income tax benefits.
Because of the uncertainty as to whether the PSC will approve the sale of the
nuclear generating plants on terms acceptable to Niagara Mohawk, and the outcome
of other regulatory approvals, Niagara Mohawk has continued to utilize its best
estimate of cash flows based on a held-and-used (regulated) model for purposes
of assessing whether an asset impairment existed as of December 31, 1999. Under
this assumption the nuclear generating plants are not impaired.
If, and when, Niagara Mohawk concludes that its best estimate of future cash
flows is from the sale of the power plants, the impairment test will be
performed taking into consideration the expected cash flows from operations
until sale, expected cash proceeds from the sale of the assets, less amounts
required to pre-fund the nuclear decommissioning trust funds. In that event,
Niagara Mohawk estimates its net loss (stranded costs) from the nuclear sale
would be in the range of $1,800 to $1,850 million.
Niagara Mohawk has petitioned the PSC for approval to defer the net loss that
would be recognized on the sale for future recovery, which approval is a
condition of the closing of the sale of the nuclear assets. Accordingly,
Niagara Mohawk plans to record a regulatory asset for the amount of the
estimated net loss, as calculated pursuant to the assumptions and circumstances
described in the preceding paragraph. However, the ability to record the
regulatory asset is ultimately conditioned on an assessment by Niagara Mohawk
that the amounts are probable of future recovery in rates and that the rates
ultimately approved by the PSC can be charged to and collected from customers
without unanticipated reduction in demand.
The amount of the estimated net loss on the sale of the nuclear assets is
subject to change as a result of closing price adjustments, transaction costs
and the final amount needed to pre-fund the decommissioning trust funds. The
estimated range of loss excludes any accounting requirements relating to the
nuclear PPAs. Niagara Mohawk has proposed to recover the regulatory asset, plus
a return on the unamortized balance over a period not to exceed 15 years
beginning in 2000, with a significant portion of the recovery likely to occur in
years subsequent to the MRA regulatory asset amortization. Niagara Mohawk's
current rate structure includes recovery and a return on the nuclear assets.
Niagara Mohawk proposes to recover a return on and a return of stranded nuclear
costs within the rate structures contained in its PowerChoice agreement. This
sale is also contingent upon approval by, among others, the PSC, NRC, IRS, and
the SEC.
Niagara Mohawk originally requested PSC approval by December 1999 and has filed
an application with the NRC to transfer the licenses to AmerGen. It is unlikely
that any sale will close prior to the planned Unit 2 refueling and maintenance
outage scheduled to begin in March 2000. A delay in the sale through the
planned outage would result in an increase in the purchase price of Unit 2 as
specified in the agreement to reflect the estimated costs of the refueling and
maintenance outage. The sale price of Unit 1 decreases if the sale occurs after
the Unit 2 refueling and maintenance outage. Until the sale is closed, Niagara
Mohawk generally bears the risks associated with unexpected costs of the
refueling outage at Unit 2 and any unscheduled outages at both units, including
investigations and unexpected maintenance and capital costs. The purchase
agreement terminates if the sale has not occurred before September 1, 2000. In
the event that the sale of the nuclear assets does not occur, Niagara Mohawk
will continue to recover the costs to run the nuclear generation plants in its
PowerChoice rates. In addition, Niagara Mohawk would continue to participate in
the PSC regulatory proceeding regarding the future of nuclear assets in New York
State. On October 27, 1999, the FERC approved the sale of the transmission
assets connected to the nuclear plants to AmerGen. On January 26, 2000, the PSC
Staff had informed the ALJ and all parties, including Niagara Mohawk, that they
believed the terms of the proposed nuclear sale were not in the public interest.
The PSC Staff is continuing its discussions with AmerGen, as well as exploring
other options, including giving other interested parties the opportunity to put
forth competing proposals. Niagara Mohawk cannot predict the outcome of this
proceeding, but is committed to pursue the sale of Unit 1 and Unit 2.
Notwithstanding this commitment, because of the regulatory hurdles that must be
overcome, Niagara Mohawk does not believe that such a sale is any more likely to
occur than other possible scenarios, including the possible continued operation
of the plants by Niagara Mohawk for the remainder of the their useful lives.
Upon closing of the sale of the nuclear assets, Niagara Mohawk will continue to
be liable for all spent nuclear fuel fees associated with electricity generated
and sold and Unit 1 and Unit 2, prior to the closing. See "Nuclear Fuel
Disposal Cost" for a discussion of the Nuclear Waste Policy Act of 1982 and
Niagara Mohawk's determination of liability. This liability will remain with
Niagara Mohawk until the DOE provides disposal facilities. Niagara Mohawk also
retains liability for changes enacted prior to closing, if any, in the disposal
fees already paid to the DOE for fuel burned from 1983 through closing of the
sale or in the pre-1983 liability. Niagara Mohawk has recovered these costs in
rates in the past and believes that any increases in these costs would
ultimately be included in the rate process.
NUCLEAR PLANT DECOMMISSIONING: If the sale does not occur, Niagara Mohawk
estimates its site specific costs for decommissioning Unit 1 and its ownership
interest in Unit 2 at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Unit 1 Unit 2
-------------- -------------
<S> <C> <C>
Site Study (year). . . . . . 1995 1995
End of Plant Life (year) . . 2009 2026
Radioactive Dismantlement
to Begin (year) . . . . . * 2028
Method of Decommissioning. . * Immediate
Dismantlement
Cost of Decommissioning
(in January 2000 dollars). . In millions of dollars
Radioactive Components . . . * $ 214
Non-radioactive Components . * 52
Fuel Dry Storage/Continuing
Care. . . . . . . . . . . * 46
--------------
$ 312
==============
</TABLE>
* Niagara Mohawk has not made a final decision on the timing of decommissioning
for Unit 1. Decommissioning could occur immediately after end of license
shutdown in 2009 or coincident with Unit 2 decommissioning which would
commence in 2026. The cost of decommissioning Unit 1 in January 2000
dollars is estimated to be $594 million for immediate dismantlement or $724
million for delayed dismantlement. Projected earnings from the
decommissioning fund are expected to approximate the cost impact of inflation
and continuing care under a delayed scenario. The final decision to
decommission Unit 1 immediately after shutdown or to delay will occur much
closer to the end of license shutdown date of 2009 so that Niagara Mohawk can
adequately evaluate the variables that could impact total costs. These
variables include but are not limited to the inflation projections, actual
earnings rate on the decommissioning fund, the uncertainty of the
availability of a low level waste disposal site and the DOE acceptance date
and rate of spent fuel disposal.
Niagara Mohawk estimates that by the time decommissioning is completed, the
above costs will ultimately amount to $1.0 billion (immediate dismantlement) or
$1.7 billion (delayed dismantlement) for Unit 1 and $0.9 billion for Niagara
Mohawk's share of Unit 2, using approximately 3.5% as an annual inflation
factor.
In addition to the costs mentioned above, Niagara Mohawk would expect to incur
post-shutdown costs for plant ramp down, insurance and property taxes. In 2000
dollars, these costs are expected to amount to $117 million (immediate
dismantlement) or $127 million (delayed dismantlement) for Unit 1 and $65
million for Niagara Mohawk's share of Unit 2. The amounts will escalate
to $193 million (immediate dismantlement) or $210 million (delayed
dismantlement) and $190 million for Unit 1 and Niagara Mohawk's share of
Unit 2, respectively, by the time decommissioning is expected to be completed.
NRC regulations require owners of nuclear power plants to place funds into an
external trust to provide for the cost of decommissioning radioactive portions
of nuclear facilities and establish minimum amounts that must be available in
such a trust at the time of decommissioning. The allowance for Unit 1 and
Niagara Mohawk's share of Unit 2 was approximately $28 million for the year
ended December 31, 1999. PowerChoice permits rate recovery for all radioactive
and non-radioactive cost components for both units, including post-shutdown
costs, based upon the amounts estimated in the 1995 site specific studies
described above, which are higher than the NRC minimum. The annual
decommissioning allowance (which includes funds to be placed into the external
trust plus internal reserves) for 2000 will increase to $43.3 million of which
$28 million is for radioactive components and $15.3 million is for non-
radioactive components. There is no assurance that the decommissioning
allowance recovered in rates will ultimately aggregate a sufficient amount to
decommission the units. Niagara Mohawk believes that if decommissioning costs
are higher than currently estimated, the costs would ultimately be included in
the rate process.
Decommissioning costs recovered in rates are reflected in "Accumulated
depreciation and amortization" on the balance sheet and amount to $353.1 million
and $315.5 million at December 31, 1999 and 1998, respectively for both units.
Additionally at December 31, 1999, the fair value of funds accumulated in
Niagara Mohawk's external trusts were $210.2 million for Unit 1 and $70.9
million for its share of Unit 2. The trusts are included in "Other Property and
Investments." Earnings on the external trust aggregated $45.3 million through
December 31, 1999, and because the earnings are available to fund
decommissioning, have also been included in "Accumulated depreciation and
amortization." For a further discussion on the earnings on the external trust,
see Note 9. Amounts recovered for non-radioactive dismantlement are accumulated
in an internal reserve fund, which has an accumulated balance of $65 million at
December 31, 1999.
NUCLEAR LIABILITY INSURANCE: The Atomic Energy Act of 1954, as amended,
requires the purchase of nuclear liability insurance from the Nuclear Insurance
Pools in amounts as determined by the NRC. At the present time, Niagara Mohawk
maintains the required $200 million of nuclear liability insurance.
With respect to a nuclear incident at a licensed reactor, the statutory limit
for the protection of the public under the Price-Anderson Amendments Act of
1988, which is in excess of the $200 million of nuclear liability insurance, is
currently $8.89 billion without the 5% surcharge discussed below. This limit
would be funded by assessments of up to $83.9 million for each of the 106
presently licensed nuclear reactors in the United States, payable at a rate not
to exceed $10 million per reactor, per year, per incident. Such assessments are
subject to periodic inflation indexing and to a 5% surcharge if funds prove
insufficient to pay claims. With the 5% surcharge included, the statutory limit
is $9.34 billion.
Niagara Mohawk's interest in Units 1 and 2 could expose it to a maximum
potential loss, for each accident, of $124.2 million (with 5% assessment)
through assessments of $14.1 million per year in the event of a serious nuclear
accident at its own or another licensed U.S. commercial nuclear reactor. The
amendments also provide, among other things, that insurance and indemnity will
cover precautionary evacuations, whether or not a nuclear incident actually
occurs.
This liability would transfer to the purchaser of the nuclear generation assets,
if the assets are used.
NUCLEAR PROPERTY INSURANCE: The Nine Mile Point Nuclear Site has $500 million
primary nuclear property insurance with the American Nuclear Insurers (ANI). In
addition, there is $2.25 billion in excess of the $500 million primary nuclear
insurance with Nuclear Electric Insurance Limited ("NEIL"). The total nuclear
property insurance is $2.75 billion. NEIL also provides insurance coverage
against the extra expense incurred in purchasing replacement power during
prolonged accidental outages. The insurance provides coverage for outages for
162 weeks, after a 12- week waiting period. NEIL insurance is subject to
retrospective premium adjustment under which Niagara Mohawk could be assessed up
to approximately $8.8 million per loss.
If the sale of the nuclear generation assets occurs, Niagara Mohawk will still
be liable for retrospective premium adjustments that are associated with NEIL
losses that occurred prior to the date of the sale for up to a period of six
years following the sale. As of December 31, 1999, Niagara Mohawk has not been
made aware of any material retrospective premium adjustments.
LOW LEVEL RADIOACTIVE WASTE: Niagara Mohawk currently uses the Barnwell, South
Carolina waste disposal facility for low level radioactive waste. However,
continued access to Barnwell is not assured, and Niagara Mohawk has implemented
a low level radioactive waste management program so that Unit 1 and Unit 2 are
prepared to properly handle interim on-site storage of low level radioactive
waste for at least a ten-year period.
Under the Federal Low Level Waste Policy Amendment Act of 1985, New York State
was required by January 1, 1993 to have arranged for the disposal of all low
level radioactive waste within the state or in the alternative, contracted for
the disposal at a facility outside the state. To date, New York State has made
no funding available to support siting for a disposal facility.
NUCLEAR FUEL DISPOSAL COST: In January 1983, the Nuclear Waste Policy Act of
1982 (the "Nuclear Waste Act") established a cost of $.001 per KWh of net
generation for current disposal of nuclear fuel and provides for a determination
of Niagara Mohawk's liability to the DOE for the disposal of nuclear fuel
irradiated prior to 1983. The Nuclear Waste Act also provides three payment
options for liquidating such liability and Niagara Mohawk has elected to delay
payment, with interest, until the year in which Niagara Mohawk initially plans
to ship irradiated fuel to an approved DOE disposal facility. Progress in
developing the DOE facility has been slow and it is anticipated that the DOE
facility will not be ready to accept deliveries until at least 2010. In July
1996, the United States Circuit Court of Appeals for the District of Columbia
ruled that the DOE had an obligation to accept spent fuel from the nuclear
industry by January 31, 1998 even though a permanent storage site would not be
ready by then. The DOE did not appeal this decision. On January 31, 1997,
Niagara Mohawk joined a number of other utilities, states, state agencies and
regulatory commissions in filing a suit in the U.S. Court of Appeals for the
District of Columbia against the DOE. The suit requested the court to suspend
the utilities payments into the Nuclear Waste Fund and to place future payments
into an escrow account until the DOE fulfills its obligation to accept spent
fuel. The DOE did not meet its January 31, 1998 deadline and indicated it was
not obligated to provide a financial remedy for delay. On November 14, 1997 the
United States Court of Appeals for the District of Columbia Circuit issued a
writ of mandamus precluding DOE from excusing its own delay on the grounds that
it has not yet prepared a permanent repository or interim storage facility. On
December 11, 1997, 27 utilities, including Niagara Mohawk, petitioned the DOE to
suspend their future payments to the Nuclear Waste Fund until the DOE begins
moving fuel from their plant sites. The petition further sought permission to
escrow payments to the waste fund beginning in February 1998. On January 12,
1998, the DOE denied the petition. In 1998, both the House and the U.S. Senate
passed legislation to reform the federal government's spent nuclear fuel
disposal policy. This legislation authorized DOE to construct an interim spent
fuel storage facility to accommodate acceptance of spent fuel beginning no later
than June 2003. Additionally, this legislation required the payment of one-time
fees by electric utilities for the disposal of fuel irradiated prior to 1983 to
be paid to the Nuclear Waste Fund no later than September 30, 2001. However,
this legislation was never sent to the President for approval. As of December
31, 1999, Niagara Mohawk has recorded a liability of $126.0 million in other
long-term debt for the disposal of nuclear fuel irradiated prior to 1983.
Niagara Mohawk has several alternatives under consideration to provide
additional spent fuel storage facilities, as necessary. Each alternative will
likely require NRC approval, may require other regulatory approvals and would
likely require incurring additional costs, which Niagara Mohawk has included in
its decommissioning estimates for both Unit 1 and its share of Unit 2. Niagara
Mohawk does not believe that the possible unavailability of the DOE disposal
facility until 2010 will inhibit operation of either Unit.
<PAGE>
NOTE 4. CAPITALIZATION
HOLDINGS CAPITAL STOCK
Holdings is authorized to issue 300,000,000 shares of common stock, $0.01 par
value. In addition, Holdings is authorized to issue 50,000,000 shares of
preferred stock, $0.01 par value. The table below summarizes changes in the
capital stock issued and outstanding and the related capital account for 1999:
<TABLE>
<CAPTION>
Capital Stock Accumulated
Common Stock Treasury Premium and Other
$0.01 Par Value Stock Expense Comprehensive
Shares Amount* (at cost) * (Net) * Income *
- -------------------------- -------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 (a). . . - $ - $ - $ - $ -
Exchange (a) . . . . . . . 187,364,863 1,874 2,548,022 (29,722)
Issued by subsidiary . . . (1,479)
Redemptions by subsidiary. 87
Treasury stock, at cost. . (10,000,000) (157,167)
Other comprehensive
income adjustments. . . 3,521
-------------- ------------- --------------- ----------- -----------
DECEMBER 31, 1999. . . . . 177,364,863 $ 1,874 $ (157,167) $2,546,630 $(26,201)
============== ============= =============== =========== =========
</TABLE>
* In thousands of dollars
(a) On March 18, 1999, the common stock of Niagara Mohawk was exchanged on a
share for share basis with Holdings (see Note 1).
The cumulative amount of foreign currency translation adjustment was $(21,048),
the unrealized gain on securities was $814 and the additional minimum pension
liability was $5,967 at December 31, 1999.
<PAGE>
NIAGARA MOHAWK CAPITAL STOCK
Niagara Mohawk is authorized to issue 250,000,000 shares of common stock, $1 par
value; 3,400,000 shares of preferred stock, $100 par value; 19,600,000 shares of
preferred stock, $25 par value; and 8,000,000 shares of preference stock, $25
par value. The table below summarizes changes in the capital stock issued and
outstanding and the related capital accounts for 1997, 1998, and 1999:
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------------------------------
Common Stock $100 Par Value $25 Par Value
$1 Par Value Non- Non-
Shares Amount* Shares Redeemable* Redeemable* Shares Redeemable* Redeemable*
----------------------- ------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 . . 144,365,214 $ 144,365 2,340,000 $ 210,000 $ 24,000 (a) 12,064,005 $230,000 $ 71,600 (a)
Issued. . . . . . . . 54,137 54 - - - - - -
Redemptions . . . . . (18,000) - (1,800) (282,801) - (7,070)
Other comprehensive
income adjustments
----------- --------- ---------- ---------- --------- ----------- -------- ---------
DECEMBER 31, 1997 . . 144,419,351 $ 144,419 2,322,000 $ 210,000 $ 22,200 (a) 11,781,204 $230,000 $ 64,530 (a)
Issued. . . . . . . . 42,945,512 42,946 - - - - - -
Redemptions . . . . . (18,000) - (1,800) (332,801) - (8,320)
Other comprehensive
income adjustments
----------- --------- ---------- ---------- --------- ----------- -------- ---------
DECEMBER 31, 1998 . . 187,364,863 $ 187,365 2,304,000 $ 210,000 $ 20,400 (a) 11,448,403 $230,000 $ 56,210 (a)
Issued. . . . . . . . - - - 3,000,000 (c) 150,000 -
Redemptions . . . . . (18,000) - (1,800) (6,232,801)(c) (150,000) (5,820)
Repurchased Holdings'
common stock . . .
Dividend of Opinac. .
Other comprehensive
income adjustments
----------- --------- ---------- ---------- --------- ----------- -------- --------
DECEMBER 31, 1999 . . 187,364,863 $ 187,365 2,286,000 $ 210,000 $ 18,600 (a) 8,215,602 $230,000 $ 50,390 (a)
=========== ========= ========== ========== ========= =========== ======== ========
Capital Stock Accumulated Repurchased
Premium and Other Holdings'
Expense Comprehensive Common
(Net)* Income* Stock*
---------------------------------------------
<C> <C> <C>
DECEMBER 31, 1996 . . $1,798,366 ($14,641) $0
Issued. . . . . . . 426
Redemptions 98
Other comprehensive
income adjustments (4,561)
---------- --------- ---------
DECEMBER 31, 1997 . . $1,798,890 ($19,202) $0
Issued. . . . . . . . 563,540
Redemptions 101
Other comprehensive
income adjustments (6,592)
---------- --------- ---------
DECEMBER 31, 1998 . . $2,362,531 ($25,794) $0
Issued. . . . . . . . (1,479)
Redemptions . . . . . 87
Repurchased Holdings'
common stock ($157,167)
Dividend of Opinac 25,186 (b)
Other comprehensive
income adjustments (4,545)
---------- --------- ----------
DECEMBER 31, 1999 . $2,361,139 ($5,153) ($157,167)
========== ========= ==========
</TABLE>
* In thousands of dollars
(a) Includes sinking fund requirements due within one year.
(b) On March 31, 1999, Niagara Mohawk distributed its ownership interest in
the stock of Opinac as a dividend to Holdings. As a result, the
accumulated other comprehensive income of Opinac of $25,186 million,
which is entirely made up of foreign currency translation adjustment,
is no longer included in Niagara Mohawk's "Accumulated Other Comprehensive
Income." (See Note 1)
(c) The fixed-adjustable rate preferred stock issued during 1999 has a $25
par value with a $50 liquidation preference.
The cumulative amount of unrealized gain on securities was $814 and the
additional minimum pension liability was $5,967 at December 31, 1999.
<PAGE>
Niagara Mohawk has been reviewing its capital structure in light of its
scheduled debt reduction program, its divestiture of its electric generation and
the changing industry. As a result, Niagara Mohawk filed two petitions with the
PSC on July 1, 1999. The PSC approved the petitions on September 22, 1999 as
follows:
- - REFINANCE NIAGARA MOHAWK PREFERRED STOCK - The PSC approved Niagara Mohawk's
petition to issue up to $350 million in preferred stock to refinance
existing preferred stock outstanding through December 31, 2000. During
November 1999, Niagara Mohawk completed the sale of $150 million of
fixed-adjustable rate preferred stock (Series D) at a fixed rate of 6.9%
for the first five years. The 3 million shares of fixed-adjustable rate
preferred stock has a $25 par value with a $50 liquidation preference.
Niagara Mohawk used the proceeds from the sale to redeem its 9.5% series of
$25 par value optionally-redeemable preferred stock on December 31, 1999.
- - PURCHASE OF HOLDINGS' COMMON STOCK - The PSC approved Niagara Mohawk's
petition to purchase up to $800 million of Holdings' common stock. Holdings'
Board of Directors has approved a program to repurchase 20 million shares
through December 31, 2001.
During the third quarter of 1999, Niagara Mohawk entered into two agreements,
which expire in less than one year, whereby two agents would purchase up to 9
million shares of Holdings' common stock on Niagara Mohawk's behalf. At any
time prior to the expiration of these agreements, Niagara Mohawk can
repurchase the common stock from the agents and is required to reimburse
these agents (in stock and/or cash) for the costs they incurred to buy the
stock plus a carrying charge. The two agents have incurred a total of
approximately $140.3 million to purchase the 9 million shares. During
December 1999, Niagara Mohawk purchased 4 million shares from one of the
agents for approximately $64.3 million, including fees paid to the agent.
The remaining 5 million shares repurchased by the other agent, but not yet
paid for by Niagara Mohawk (with the exception of $1.4 million in carrying
charges) remain in the number of shares outstanding in computing Holdings'
earnings per share.
During the fourth quarter of 1999, Niagara Mohawk repurchased an additional 6
million shares of Holdings' common stock on the open market for approximately
$91.5 million, including fees.
<PAGE>
NIAGARA MOHAWK NON-REDEEMABLE PREFERRED STOCK
(Optionally Redeemable)
Niagara Mohawk had certain issues of preferred stock, which provide for optional
redemption at December 31, as follows:
<TABLE>
<CAPTION>
Redemption price
per share
In thousands of dollars (Before adding
Series Shares 1999 1998 accumulated dividends)
- ----------------------------------------------------------------------------
PREFERRED $100 PAR VALUE:
<S> <C> <C> <C> <C>
3.40% 200,000 $ 20,000 $ 20,000 $103.50
3.60% 350,000 35,000 35,000 104.85
3.90% 240,000 24,000 24,000 106.00
4.10% 210,000 21,000 21,000 102.00
4.85% 250,000 25,000 25,000 102.00
5.25% 200,000 20,000 20,000 102.00
6.10% 250,000 25,000 25,000 101.00
7.72% 400,000 40,000 40,000 102.36
PREFERRED $25 PAR VALUE:
9.50% 6,000,000 - 150,000
Adjustable Rate -
Series A 1,200,000 30,000 30,000 25.00
Series C 2,000,000 50,000 50,000 25.00
Series D 3,000,000 150,000 - 50.00
--------- ---------
$440,000 $440,000
========= =========
</TABLE>
<PAGE>
NIAGARA MOHAWK MANDATORILY REDEEMABLE PREFERRED STOCK
At December 31, Niagara Mohawk had certain issues of preferred stock, as
detailed below, which provide for mandatory and optional redemption. These
series require mandatory sinking funds for annual redemption and provide
optional sinking funds through which Niagara Mohawk may redeem, at par, a like
amount of additional shares (limited to 120,000 shares of the 7.45% series).
The option to redeem additional amounts is not cumulative.
<TABLE>
<CAPTION>
Redemption price
per share
(Before adding
accumulated dividends)
Shares In thousands of dollars Eventual
Series 1999 1998 1999 1998 1999 Minimum
- ----------------------------------------------------------------------------------------------------------
PREFERRED $100 PAR VALUE:
<S> <C> <C> <C> <C> <C> <C>
7.45% 186,000 204,000 $18,600 $20,400 $ 101.21 $100.00
PREFERRED $25 PAR VALUE:
7.85% 365,602 548,403 9,140 13,710 25.00 25.00
Adjustable Rate -
Series B. . . . . . . . 1,650,000 1,700,000 41,250 42,500 25.00 25.00
------- -------
68,990 76,610
Less sinking fund requirements 7,620 7,620
------- --------
$61,370 $68,990
======= ========
</TABLE>
Niagara Mohawk's five-year mandatory sinking fund redemption requirements for
preferred stock are as follows:
Redemption
Requirement
(in thousands)
- --------------
2000 $7,620
2001 7,620
2002 3,050
2003 3,050
2004 3,050
<PAGE>
NIAGARA MOHAWK LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
In thousands of dollars
Series Due 1999 1998
- -------------------------- ------------------------------
FIRST MORTGAGE BONDS:
<S> <C> <C> <C>
9 1/2% 2000 $ 150,000 $ 150,000
6 7/8% 2001 210,000 210,000
9 1/4% 2001 100,000 100,000
5 7/8% 2002 230,000 230,000
6 7/8% 2003 85,000 85,000
7 3/8% 2003 220,000 220,000
8% 2004 232,425 300,000
6 5/8% 2005 110,000 110,000
9 3/4% 2005 137,981 150,000
7 3/4% 2006 275,000 275,000
*6 5/8% 2013 45,600 45,600
9 1/2% 2021 - 150,000
8 3/4% 2022 136,597 150,000
8 1/2% 2023 146,020 165,000
7 7/8% 2024 170,257 210,000
*5.15% 2025 75,000 75,000
*7.2% 2029 115,705 115,705
---------- ----------
Total First Mortgage Bonds 2,439,585 2,741,305
---------- ----------
SENIOR NOTES:
6 1/2% 1999 - 300,000
7% 2000 340,244 450,000
7 1/8% 2001 302,439 400,000
7 1/4% 2002 302,439 400,000
7 3/8% 2003 302,439 400,000
7 5/8% 2005 302,439 400,000
7 3/4% 2008 600,000 600,000
8 1/2% 2010 500,000 500,000
Unamortized discount
on 8 1/2% Senior Note. . (126,374) (156,216)
---------- ----------
Total Senior Notes . . . . 2,523,626 3,293,784
---------- ----------
PROMISSORY NOTES:
*Adjustable Rate Series due
2015 100,000 100,000
2023 69,800 69,800
2025 75,000 75,000
2026 50,000 50,000
2027 25,760 25,760
2027 93,200 93,200
TERM LOAN AGREEMENT 105,000 105,000
UNSECURED NOTES PAYABLE:
Medium Term Notes, Various
rates, due 2000-2004 - 20,000
OTHER 186,902 174,462
UNAMORTIZED PREMIUM (DISCOUNT) (12,545) (18,846)
---------- ----------
TOTAL LONG-TERM DEBT 5,656,328 6,729,465
Less long-term debt due
within one year 613,740 312,240
---------- -----------
$5,042,588 $6,417,225
=========== ===========
* Tax-exempt pollution control related issues
</TABLE>
Niagara Mohawk's long-term debt increased significantly upon the closing of the
MRA on June 30, 1998. The MRA was largely financed through the Senior Notes.
The Senior Notes are unsecured obligations of Niagara Mohawk and rank pari passu
in right of payment to its First Mortgage Bonds, the senior bank financing and
unsecured medium term notes.
Niagara Mohawk is obligated to use 85% of the net proceeds of the sales of the
generation assets to reduce its senior debt outstanding within 180 days after
the receipt of such proceeds. To date, Niagara Mohawk has received $860 million
on the sale of its two coal-fired generation plants, its hydro electric
generation plants, and its oil and gas-fired plant in Oswego. During 1999
Niagara Mohawk redeemed approximately $1.1 billion in debt using the proceeds
from the assets sales and from improved cash flow. See Notes 2 and 3 for a
discussion of the status of the remaining generation asset sales.
Several series of First Mortgage Bonds and Promissory Notes were issued to
secure a like amount of tax-exempt revenue bonds issued by NYSERDA.
Approximately $414 million of such securities bear interest at a daily
adjustable interest rate (with an option to convert to other rates, including a
fixed interest rate which would require Niagara Mohawk to issue First Mortgage
Bonds to secure the debt) which averaged 3.23% for 1999 and 3.39% for 1998 and
are supported by bank direct pay letters of credit. Pursuant to agreements
between NYSERDA and Niagara Mohawk, proceeds from such issues were used for the
purpose of financing the construction of certain pollution control facilities at
Niagara Mohawk's generation facilities or to refund outstanding tax-exempt bonds
and notes (see Note 5).
Other long-term debt in 1999 consists of obligations under capital leases of
approximately $22.1 million, a liability to the DOE for nuclear fuel disposal of
approximately $126.0 million and a liability for IPP contract terminations not
related to the MRA of approximately $38.8 million. The aggregate maturities of
long-term debt for the five years subsequent to December 31, 1999, excluding
capital leases, in millions, are approximately $610.5, $624.2, $544.0, $610.7
and $232.4, respectively. A reduction in debt that will occur from applying
proceeds from additional generation asset sales may impact the schedule of
maturities of long-term debt.
EARLY EXTINGUISHMENT OF DEBT
During 1999, Niagara Mohawk redeemed approximately $822 million in long-term
debt prior to its scheduled maturity. Holdings and Niagara Mohawk charged to
earnings, as an extraordinary item approximately $23.8 million, after tax, for
redemption premiums incurred, and unamortized debt expense and issuance costs.
This extraordinary item had a 13 cents per share, after tax effect on Holdings'
1999 earnings per share.
<PAGE>
NOTE 5. BANK CREDIT ARRANGEMENTS
Niagara Mohawk has an $804 million senior bank financing with a bank group
consisting of a $255 million term loan facility, a $125 million revolving credit
facility and $424 million for letters of credit. The letter of credit facility
provides credit support for the adjustable rate pollution control revenue bonds
issued through the NYSERDA, discussed in Note 4. As of December 31, 1999, the
amount outstanding under the senior bank financing was $529 million, consisting
of $105 million under the term loan facility and $424 million of letters of
credit, leaving Niagara Mohawk with $275 million of borrowing capability under
the financing. The senior bank facility term expires on June 1, 2000. As a
result, the amount outstanding on this facility at December 31, 1999, $105
million, is shown as a current liability on both Holdings and Niagara Mohawk's
balance sheets. Niagara Mohawk is currently negotiating a new financing
arrangement with a bank group, and believes as a minimum it will be able to
obtain $424 million for letters of credit prior to the expiration of the senior
bank facility on June 1, 2000. The interest rate applicable to the facility is
variable based on certain rate options available under the agreement and
currently approximates 6.625% (but capped at 15%).
Opinac had an agreement with a bank providing for letters of credit totaling up
to $25 million, which in January 2000 was replaced by a $50 million bank
facility secured by certain assets of Opinac. The facility provides for letters
of credit and a $10 million line of credit. The facility expires September 30,
2000 and as of January 31, 2000, supports approximately $20 million in letters
of credit. Opinac is working to extend the facility beyond September 30, 2000.
Holdings and Niagara Mohawk did not have any short-term debt outstanding at
December 31, 1999 and 1998.
<PAGE>
NOTE 6. FEDERAL AND FOREIGN INCOME TAXES
The federal income tax amounts included in Note 6 are for Holdings. The amounts
for Niagara Mohawk are no materially different.
Components of United States and foreign income before income taxes:
<TABLE>
<CAPTION>
In thousands of dollars
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
United States. . . . . . . . $ 25,276 $(206,372) $315,027
Foreign. . . . . . . . . . . 6,124 8,227 (1,621)
Consolidating eliminations . 13,307 10,592 (3,476)
Income before income taxes
and preferred dividend ----------- ---------- ---------
requirement of subsidiary $ 44,707 $(187,553) $309,930)
=========== ========== =========
</TABLE>
Following is a summary of the components of Federal and foreign income tax and
a reconciliation between the amount of Federal income tax expense reported in
the Consolidated Statements of Income and the computed amount at the statutory
tax rate:
<TABLE>
<CAPTION>
In thousands of dollars
1999 * 1998 1997
---------------------------------
<S> <C> <C> <C>
COMPONENTS OF FEDERAL AND FOREIGN INCOME TAXES:
Current Federal tax expense . . . . . . . . . . $ 24,637 $(155,320) $ 77,565
----------- ---------- --------
Deferred tax expense:
Federal. . . . . . . . . . . . . . . . . . . (6,931) 84,466 47,836
Foreign. . . . . . . . . . . . . . . . . . . 1,474 4,126 1,194
----------- ---------- --------
(5,457) 88,592 49,030
----------- ---------- --------
Total . . . . . . . . . . . . . . . . . . $ 19,180 $ (66,728) $126,595
=========== ========== ========
</TABLE>
* Does not include the tax benefit of $12.819 million associated with the
extraordinary item for the loss on the extinguishment of debt in 1999.
<PAGE>
RECONCILIATION BETWEEN FEDERAL AND FOREIGN INCOME TAXES AND THE TAX COMPUTED AT
PREVAILING U.S. STATUTORY RATE ON INCOME BEFORE INCOME TAXES:
<TABLE>
<CAPTION>
Computed tax $15,648 $(65,644) $108,475
- ---------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
INCREASE (REDUCTION) INCLUDING THOSE ATTRIBUTABLE TO
FLOW-THROUGH OF CERTAIN TAX ADJUSTMENTS:
Depreciation . . . . . . . . . . . . . . . . . . . . 21,380 20,808 34,926
Cost of removal. . . . . . . . . . . . . . . . . . . (6,809) (7,859) (8,168)
Allowance for funds used
during construction . . . . . . . . . . . . . . . (2,442) (4,207) (2,952)
Expiring foreign tax credits . . . . . . . . . . . . 692 10,053 -
Pension settlement amortization. . . . . . . . . . . (278) (3,317) (2,391)
Debt premium & mortgage
recording tax . . . . . . . . . . . . . . . . . . 14,402 (9,408) 23
Real estate taxes. . . . . . . . . . . . . . . . . . 3,540 1,968 2,408
Provided at other than statutory
rate. . . . . . . . . . . . . . . . . . . . . . . 1,185 - -
Subsidiaries . . . . . . . . . . . . . . . . . . . . (2,294) 3,853 (1,820)
Reserve for Hydra-Co sale expenses . . . . . . . . . (1,181) (15) (276)
Deferred investment tax credit
reversal *. . . . . . . . . . . . . . . . . . . . (23,539) (7,454) (7,454)
Other. . . . . . . . . . . . . . . . . . . . . . . . (1,124) (5,506) 3,824
--------- --------- ---------
3,532 (1,084) 18,120
--------- --------- ---------
Federal and foreign income
taxes **. . . . . . . . . . . . . . . . . . . . . $ 19,180 $(66,728) $126,595
========= ========= =========
Effective Tax Rate . . . . . . . . . . . . . . . . . 43.0% 35.6% 40.8%
========= ========= =========
</TABLE>
* Deferred investment tax credits of $16.2 million related to the fossil and
hydro generation assets that have been sold have been taken into income in
1999 in accordance with IRS rules.
** Does not include the tax benefit of $12.819 million associated with the
extraordinary item for the loss on the extinguishment of debt in 1999.
<PAGE>
At December 31, the deferred tax liabilities (assets) were comprised of the
following:
<TABLE>
<CAPTION>
In thousands of dollars
1999 1998
------------- ------------
<S> <C> <C>
Alternative minimum tax . . . . . $ (97,652) $ (82,621)
Unbilled revenue. . . . . . . . . (12,771) (81,685)
Non-utilized NOL carryforward . . (930,117) (1,161,898)
Other . . . . . . . . . . . . . . (336,478) (290,035)
------------- ------------
Total deferred tax assets. . . (1,377,018) (1,616,239)
------------- ------------
Depreciation related. . . . . . . 1,275,804 1,292,582
Investment tax credit related . . 65,554 76,418
MRA terminated IPP contracts. . . 1,172,380 1,415,977
Other . . . . . . . . . . . . . . 432,237 342,679
------------- ------------
Total deferred tax liabilities 2,945,975 3,127,656
------------- ------------
Accumulated deferred income
taxes. . . . . . . . . . . . . $ 1,568,957 $ 1,511,417
============= ============
</TABLE>
In December 1998, Niagara Mohawk received a ruling from the IRS to the effect
that the amount of cash and the value of common stock that was paid to the
terminated IPP Parties was deductible in 1998 and generated a substantial net
operating loss for federal income tax purposes, such that Niagara Mohawk did not
pay federal income taxes for 1998. Further, Niagara Mohawk has carried back
unused NOL carryforward to the years 1996 and 1997, and also for the years 1988
through 1990, which resulted in a tax refund of $135 million that were received
in January 1999. Holdings anticipates that it will be able to utilize the
remaining $3.3 billion NOL carryforward prior to its expiration date in 2019.
The amount of the NOL carryforward as of December 31, 1999 is $2.6 billion.
Holdings' ability to utilize the NOL carryforward generated, as a result of the
MRA could be limited under the rules of section 382 of the Internal Revenue Code
if certain changes in Holdings' common stock ownership were to occur in the
future.
<PAGE>
NOTE 7. PENSION AND OTHER RETIREMENT PLANS
Niagara Mohawk and its affiliates have a non-contributory defined benefit
pension plan covering substantially all employees, which was amended during 1998
to include a cash balance benefit in which the participant has an account to
which amounts are credited based on qualifying compensation and with interest
determined annually based on average annual 30-year Treasury bond yield. The
majority of the costs and benefits associated with this plan are attributable to
Niagara Mohawk employees. Supplemental non-qualified, non-contributory
executive retirement programs provide additional defined pension benefits for
certain officers. In addition, Niagara Mohawk and its affiliates provide
certain contributory health care and life insurance benefits for active and
retired employees and dependents.
The changes in benefit obligations, plan assets and plan funded status for these
pension and other retirement plans as of, and for the year ended December 31,
are summarized as follows:
<TABLE>
<CAPTION>
In thousands of dollars
Pension Benefits Other Retirement Benefits
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ---------------------------
CHANGE IN BENEFIT OBLIGATION:
<S> <C> <C> <C> <C>
Benefit obligation at January 1 . . . . . $ 1,302,197 $ 1,172,428 $ 547,620 $ 519,851
Service cost . . . . . . . . . . . . . 34,743 30,430 15,367 14,338
Interest cost. . . . . . . . . . . . . 85,821 79,748 35,555 35,338
Benefits paid to participants. . . . . (234,683) (75,650) (35,568) (32,917)
Plan amendments. . . . . . . . . . . . 19,300 33,694 - (6,579)
Curtailments . . . . . . . . . . . . . (4,818) - 7,287 -
Settlements. . . . . . . . . . . . . . (32,058) - - -
Actuarial (gain) loss. . . . . . . . . (58,669) 61,547 (51,203) 17,589
-------------- ------------ ---------- ----------
Benefit obligation at December 31 . . . . 1,111,833 1,302,197 519,058 547,620
-------------- ------------ ---------- ----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1. . 1,446,512 1,304,338 210,046 181,101
Contributions. . . . . . . . . . . . . 11,878 12,446 9,435 9,466
Net return on plan assets. . . . . . . 157,627 198,943 25,609 19,479
Benefits paid to participants. . . . . (234,152) (69,215) - -
Settlements. . . . . . . . . . . . . . (37,218) - - -
-------------- ------------ ---------- ----------
Fair value of plan assets at December 31. 1,344,647 1,446,512 245,090 210,046
-------------- ------------ ---------- ----------
Funded status . . . . . . . . . . . . . . 232,814 144,315 (273,968) (337,574)
Unrecognized initial obligation . . . . . 12,788 16,887 141,570 152,460
Unrecognized net gain from actual
return on plan assets. . . . . . . . . (366,232) (360,450) - -
Unrecognized net loss (gain) from past
experience different from that assumed (17,612) 41,914 (14,507) 55,335
Unrecognized prior service cost . . . . . 81,178 79,269 (15,508) (27,532)
Accumulated other comprehensive income. . (6,746) - - -
-------------- ------------ ---------- ----------
Benefits liability on Holdings'
consolidated balance sheet . . . . . . $ (63,810) $ (78,065) $(162,413) $(157,311)
============== ============ ========== ==========
</TABLE>
In 1999, Niagara Mohawk experienced a net curtailment/settlement gain of $35.3
million due to the employee transfers associated with the sale of the hydro and
fossil generating plants and normal terminations electing lump sum pension
benefits distributions under the cash balance option and receiving
postemployment medical and life insurance benefits. After a portion of the gain
was allocated to the co-tenants, $9.4 million of the net gain was included in
the deferred loss on the sale of the assets; the remaining $23.6 was deferred as
an Other Regulatory Liability as required by PSC regulations.
The non-qualified executive pension plan has no plan assets due to the nature of
the plan, and therefore, has an accumulated benefit obligation in excess of plan
assets of $12.4 million and $8.8 million at December 31, 1999 and 1998,
respectively.
The following table summarizes the components of the net annual benefit costs.
<TABLE>
<CAPTION>
In thousands of dollars
Pension Benefits Other Retirement Benefits
--------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost . . . . . . $ 34,743 $ 30,430 $ 27,106 $ 15,367 $ 14,338 $ 12,255
Interest cost. . . . . . 85,821 79,748 74,984 35,555 35,338 34,829
Expected return
on plan assets. . . . (97,151) (95,472) (84,859) (17,501) (16,752) (13,234)
Amortization of the
initial obligation. . 2,526 2,559 2,559 10,890 10,890 10,890
Amortization of
gains and losses. . . (1,574) (8,408) (9,226) 10,695 8,367 6,967
Amortization of prior
service costs . . . . 7,675 4,899 3,892 (10,271) (9,508) (8,745)
---------- ---------- --------- --------- --------- ---------
Net benefit cost before
curtailments and
settlements. . . . . . . 32,040 13,756 14,456 44,735 42,673 42,962
Curtailment loss . . . . 6,470 - - 5,370 - -
Settlement gain. . . . . (47,102) - - - - -
---------- ---------- --------- --------- --------- ---------
Net benefit cost (1) . . $ (8,592) $ 13,756 $ 14,456 $ 50,105 $ 42,673 $ 42,962
========== ========== ========= ========= ========= =========
</TABLE>
(1) A portion of the benefit costs relates to construction labor, and
accordingly, is allocated to construction projects.
<TABLE>
<CAPTION>
Pension Benefits Other Retirement Benefits
------------------------- --------------------------
1999 1998 1999 1998
------------------------- --------------------------
<S> <C> <C> <C> <C>
Weighted average assumptions
as of December 31:
Discount rate . . . . . . . . . 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets. 9.25 9.25 9.25 9.25
Rate of compensation increase
(plus merit increases). . . . 2.50 2.50 N/A N/A
Health care cost trend rate:
Under age 65. . . . . . . . . N/A N/A 6.00 7.00
Over age 65 . . . . . . . . . N/A N/A 5.50 6.00
</TABLE>
The assumed health cost trend rates decline to 5% in 2000 and remain at that
level thereafter. The assumed health cost trend rates can have a significant
effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects:
<PAGE>
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- ----------------------------------------- ------------ -----------
<S> <C> <C>
Effect on total of service and interest
cost components of net periodic
postretirement health care benefit cost $ 4,920 $ (4,130)
Effect on the health care component of
the accumulated postretirement
benefit obligation. . . . . . . . . . . 40,839 (35,091)
</TABLE>
Holdings recognizes the obligation to provide postemployment benefits if the
obligation is attributable to employees' past services, rights to those benefits
are vested, payment is probable and the amount of the benefits can be reasonably
estimated. At December 31, 1999 and 1998, Holdings' postemployment benefit
obligation is approximately $15.7 million and $15.3 million, respectively.
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
LONG-TERM CONTRACTS FOR THE PURCHASE OF ELECTRIC POWER: Niagara Mohawk has
several types of long-term contracts for the purchase of electric power.
Niagara Mohawk's commitments under these long-term contracts, as of January 1,
2000, excluding its commitments with NYPA, which are shown separately, are
summarized in the table below. Following the table are descriptions of the
different types of these long-term contracts. For a detailed discussion of the
financial swap agreements that Niagara Mohawk has entered into as part of the
MRA and the sale of its generation assets (the sale of the Huntley and Dunkirk
coal-fired generation plants and the announced sale of the Albany oil and
gas-fired generation plant) which are not included in the table below, see Note
9.
<TABLE>
<CAPTION>
(In thousands of dollars)
Estimated Estimated
Fixed Costs * Variable Costs * Estimated Estimated
-------------------------- --------------------- Purchased Purchased
Capacity, Capacity Energy
Year Capacity Energy and Taxes *** Total * (in MW) (in MWh)
- --------- -------------------------- --------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
2000. . . $ 128,995 $ 221,032 $ 350,027 1,945 5,776,572
2001. . . 102,157 198,441 300,598 1,936 5,119,974
2002. . . 40,288 182,337 222,625 1,303 3,478,141
2003. . . 30,226 182,216 212,443 1,300 3,465,277
2004. . . 15,218 175,067 190,285 430 3,249,885
2005-2015 94,852 1,829,292 1,924,144 422** 34,592,593
</TABLE>
* Nominal value
** MW value represents the average annual quantity of purchased capacity
*** Does not include puts (see below)
<PAGE>
PURPA Contracts
- ---------------
Under the requirements of PURPA, Niagara Mohawk is required to purchase power
generated by IPPs, as defined therein. Niagara Mohawk has 112 PPAs with 120
IPP facilities, amounting to approximately 1,000 MW of capacity at December 31,
1999. All of this capacity amount is considered firm and excludes PPAs that
provide energy only. The table above includes the estimated payments for fixed
costs (capacity) and variable costs (capacity, energy and related taxes) that
Niagara Mohawk estimates it will be obligated to make under these 112 IPP
contracts, excluding the financial obligation under the swap contracts. The
payments to the IPPs are subject to the tested capacity and availability of the
facilities, scheduling and price escalation. These payments have been
significantly reduced by the consummation of the MRA and additional IPP buyouts
made in 1999. See Note 2 "IPP Buyout Costs" for a further discussion of the
additional IPP buyouts made in 1999.
Fixed capacity costs (in the table above) relate to three contracts as follows:
1) a contract with an IPP that was a party to the MRA,
2) a contract for the sale of the Oswego generation assets as discussed further
below, and
3) the contract for the sale of the hydroelectric generation assets as
discussed further below.
With respect to the IPP contract, Niagara Mohawk is required to
make capacity payments, including payments when the facility is not operating
but available for service. The terms of this contract allows Niagara Mohawk to
schedule energy deliveries and then pay for the energy delivered. Contracts
relating to the remaining IPP facilities in service at December 31, 1999,
require Niagara Mohawk to pay only when energy is delivered, except when Niagara
Mohawk decides that it would be better to pay a particular project a reduced
payment to have the project reduce its high priced energy deliveries. Niagara
Mohawk paid approximately $435 million, $785 million and $1,106 million in 1999,
1998 and 1997 for 6,765,000 MWh, 9,700,000 MWh and 13,500,000 MWh, respectively,
of electric power under all IPP contracts.
Fossil/Hydro Contracts
- ----------------------
As part of the sale of Niagara Mohawk's fossil and hydro generation assets,
Niagara Mohawk entered into PPAs with the buyers of these assets for the
purchase of capacity and energy as discussed in more detail below. The table
above includes the estimated payments for variable costs and quantities
(capacity and energy) associated with the PPAs that Niagara Mohawk estimates it
will make under these contracts. Niagara Mohawk paid approximately $123.7
million in 1999 for 2,409 MW of capacity and 3,490,000 MWh of electric power
under these PPAs. The table above does not include the estimated payments for
the PPAs entered into with the buyers of the Albany Steam Station and the
nuclear generation assets, since Niagara Mohawk has not closed on these asset
sales.
The hydro PPA calls for the purchase of all energy and capacity through
September 2001 at prices that approximate forecasted future market prices.
Niagara Mohawk anticipates that the energy and capacity to be purchased under
the hydro PPA to be at quantities approximating historical generation levels,
subject to the effects of water flow availability. The Oswego PPA is primarily
a contract for capacity with a nominal amount of energy at prices above
forecasted future market prices.
Nuclear Contracts
- -----------------
As part of the agreement with AmerGen to sell its nuclear generation assets,
Niagara Mohawk would enter into PPAs to purchase energy and capacity at
negotiated prices. The negotiated prices are expected to be, on average, above
projected market prices during the term of the PPAs. Niagara Mohawk would pay
only for delivered output from the units. The terms of the PPAs would be for
five years from Unit 1 and three years from Unit 2. Upon the expiration of the
PPA for Unit 2, there would be a financial sharing agreement whereby Niagara
Mohawk would be entitled to future payments from the purchaser over a ten-year
period if electric energy market prices exceed certain amounts during the
ten-year sharing period. Niagara Mohawk has proposed to the PSC that any future
payments received under the financial sharing agreement will serve to reduce the
unamortized regulatory asset recorded as a result of the sale of the nuclear
assets. See Note 3. - Nuclear Operations, for a complete discussion of the
proposed sale of the nuclear generation assets.
PUT Contracts
- -------------
As a part of the MRA, Niagara Mohawk signed put agreements with approximately
one-third of the IPP Parties whereby the IPP Parties have an option to put the
physical delivery of energy to Niagara Mohawk at market prices. These put
agreements will be in effect until the NYISO meets certain volume and capacity
conditions for a consecutive six-month period. If the NYISO does not meet the
defined volume and capacity transactions that are outlined in the put
agreements, then the put agreements are in effect until June 2008. Since
Niagara Mohawk cannot predict if and when the NYISO will meet the volume and
capacity conditions, the cost and quantity of energy associated with the put
agreements have not been included in the table above. During 1999, Niagara
Mohawk paid $75.9 million to the IPP Parties for 2,782,678 MWh of electric
power received as part of these put agreements. If the put agreements remain
in effect, Niagara Mohawk expects to pay approximately $77.1 million to $91.3
million for 4,031,000 MWh to 4,093,000 MWh of electric power in each of the
years 2000 to 2004.
While the PPAs for the generation asset sales, which were entered into as an
integral part of the generation sales, are above market, they are designed to
help Niagara Mohawk meet the objectives of rate reduction and price cap
commitments as well as meet expected demand as the "provider of last resort" as
outlined in the PowerChoice agreement.
At January 1, 2000, Niagara Mohawk had long-term contracts to purchase electric
power from the following generation facilities owned by NYPA:
<TABLE>
<CAPTION>
Expiration Purchased Estimated
date of capacity annual
Facility contract in MW capacity cost
- ----------------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Niagara - hydroelectric
project. . . . . . . . . . 2007 951 $ 28,392,000
St. Lawrence - hydroelectric
project. . . . . . . . . . 2007 104 1,248,000
Blenheim-Gilboa - pumped
storage generating station 2002 270 7,452,000
----------- --------------
1,325 $ 37,092,000
=========== ==============
</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, plus other miscellaneous NYPA purchases, was approximately, in
millions, $112.4, $93.1 and $91.0 for the years 1999, 1998 and 1997,
respectively. Niagara Mohawk continues to have a contract with NYPA's
Fitzpatrick nuclear facility to purchase for resale up to 46 MW of power for
NYPA's economic development customers.
In addition to the contractual commitments described above, Niagara Mohawk
entered into a four-year contract, expiring in June 2003, that gives it the
option to buy additional power at market prices from the Huntley coal-fired
generation plant, now owned by NRG. If Niagara Mohawk needs any additional
energy to meet its load it can purchase the electricity from other IPPs, other
utilities, other energy merchants or through the NYISO at market prices.
GAS SUPPLY, STORAGE AND PIPELINE COMMITMENTS: In connection with its regulated
gas business, Niagara Mohawk has long-term commitments with a variety of
suppliers and pipelines to purchase gas commodity, provide gas storage
capability and transport gas commodity on interstate gas pipelines.
The table below sets forth Niagara Mohawk's estimated commitments at December
31, 1999, for the next five years, and thereafter.
<TABLE>
<CAPTION>
(In thousands of dollars)
Gas Storage/
Year Gas Supply Pipeline
- ---------- -------------------- ---------
<S> <C> <C>
2000 . . . $ 55,175 $ 73,039
2001 . . . 52,538 66,203
2002 . . . 39,445 33,067
2003 . . . 39,445 11,535
2004 . . . 39,445 11,535
Thereafter 72,305 45,237
</TABLE>
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. 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, 1999,
Niagara Mohawk's firm gas supply commitments extend through October 2006, while
the gas storage and transportation commitments extend through October 2012.
Gas Multi-Year Rate and Restructuring Proposal
- ----------------------------------------------
Niagara Mohawk filed a three-year gas rate and restructuring proposal on March
11, 1999 in anticipation of the expiration of its 1996 three-year gas rate
settlement agreement, which expired on November 1, 1999. Niagara Mohawk is
currently negotiating with the PS and other parties, but has not reached a
final agreement. However, on October 15, 1999 and January 12, 2000, the PSC
approved an interim arrangement that freezes delivery rates at current levels,
subject to refund if the permanent rates are lower and allows the pass through
to customers the benefits of lowered pipeline costs. In addition, the interim
arrangement minimizes Niagara Mohawk's exposure to stranded costs. The interim
agreement also included provisions for the implementation of both unbundled gas
rates and a return to a full gas cost collection mechanism (gas adjustment
clause "GAC") effective November 1, 1999. In addition, Niagara Mohawk is
allowed to recover all commodity costs along with fixed capacity costs for
capacity actually used to serve customers. It also provides that, pending
resolution of the issue in that case, costs for capacity upstream of CNG that
are not actually required for sales customer demands or offset by assignment and
secondary market release (stranded capacity costs) are not recoverable beginning
November 1, 1999. However, the potential for stranded costs are not considered
material to Niagara Mohawk's results of operations or financial condition. The
exposure may increase in the future as additional customers select alternative
suppliers. Niagara Mohawk is continuing to work with the PSC and other
interested parties to reach a final settlement, but it cannot predict the
timing or outcome of such a settlement.
Future of the Natural Gas Industry
- ----------------------------------
In November 1998, the PSC issued its Policy Statement concerning the Future of
the Natural Gas Industry in New York State and Order Terminating Capacity
Assignment ("PSC Policy Statement"). The PSC envisions a transitional time
frame of three to seven years for local gas distribution companies ("LDC") to
exit the business of purchasing natural gas (the "merchant" function). The PSC
established a process comprising three basic elements, to be pursued in parallel
in the exiting of the merchant function:
1. Addressing the issues involved in the exiting of the merchant function on
a utility-by-utility basis as part of the LDCs individual rate plans;
2. Collaboration among staff, LDCs, marketers, pipelines and other
stakeholders of generic issues such as operational and reliability issues,
protocols and information systems requiring a status report by April 1,
1999; and
3. Coordination of issues faced by electric utilities, including provider of
last resort issues and a plan to allow competition in other areas, such as
metering, billing and information services.
In December 1998, Niagara Mohawk notified the PSC that its specific operational
and reliability requirements continue to warrant certain mandatory capacity
assignment and inclusion of capacity costs in transportation rates after April
1, 1999. Niagara Mohawk will continue to assign CNG capacity until a final
determination is reached in the current rate and restructuring case. The PSC
noted in its PSC Policy Statement that it will provide LDCs with a reasonable
opportunity to recover these strandable costs if they can demonstrate compliance
with the PSC's directives to minimize such costs.
As a result of the collaborative process established in the PSC Policy
Statement, on August 19, 1999, the PSC issued an order requiring that marketers
serving firm customers have firm, primary delivery point capacity for the five
winter months of November through March, but allowed an alternative for
marketers, only for the 1999 - 2000 heating season, to have firm secondary
delivery point capacity and to pay the LDC a standby charge to provide backup
service. LDCs that implemented this Order would be presumed to have met the
PSC's directive to minimize their stranded costs.
Niagara Mohawk believes that it has taken numerous actions to reduce its
capacity obligations and its potential stranded costs, but is unable to predict
the outcome of this matter. Niagara Mohawk has addressed the issues from the
PSC Policy Statement in its three-year gas rate and restructuring proposal filed
on March 11, 1999 and as noted above, Niagara Mohawk is currently working with
the PSC and other interested parties to reach a final settlement.
SALE OF CUSTOMER RECEIVABLES: Niagara Mohawk has established a single-purpose,
financing subsidiary, NM Receivables LLC ("NMR"), whose business consists of the
purchase and resale of an undivided interest in a designated pool of Niagara
Mohawk customer receivables, including accrued unbilled revenues. For
receivables sold, Niagara Mohawk has retained collection and administrative
responsibilities as agent for the purchaser. As collections reduce previously
sold undivided interests, new receivables are customarily sold. NMR has its own
separate creditors which, upon liquidation of NMR, will be entitled to be
satisfied out of its assets prior to any value becoming available to Niagara
Mohawk. 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 NMR in fee simple for reasonably equivalent
value, and all receivables transferred to NMR are assets owned by NMR in fee
simple and are not available to pay Niagara Mohawk's creditors.
At December 31, 1999 and 1998, $215.1 million and $150 million, respectively, of
receivables had been sold by NMR 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, 1999, the amount of additional receivables assigned
to the purchaser, as a loss reserve, was approximately $83.2 million.
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 Niagara
Mohawk's large, diverse customer base within its service territory. Niagara
Mohawk generally does not require collateral, i.e., customer deposits.
In the fourth quarter of 1999, NMR was not in compliance with a certain
statistical ratio relating to the pool of receivables sold. The purchaser has
granted a waiver for this period. While NMR is working to return to compliance
with this ratio, it is possible a non-compliance condition could continue to
exist. NMR is unable to predict whether further waivers would be granted.
CUSTOMER SERVICE SYSTEM: Niagara Mohawk implemented a new customer service
system in mid-February 1999, which experienced transition issues in customer
satisfaction, incremental costs and PSC scrutiny. The PSC has begun an inquiry
into the development and implementation costs of CSS, as well as Niagara
Mohawk's exposure to operational issues during transition. Niagara Mohawk is
unable to predict the outcome or financial consequences, if any, of the PSC
inquiry.
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. Niagara Mohawk 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. Niagara Mohawk is also currently conducting a program to
investigate and remediate, as necessary to meet current environmental standards,
certain properties associated with former gas manufacturing and other properties
which Niagara Mohawk has learned may be contaminated with industrial waste, as
well as investigating identified industrial waste sites as to which it may be
determined that Niagara Mohawk has contributed. Niagara Mohawk 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.
Niagara Mohawk is currently aware of 163 sites with which it may be associated,
including 86 which are Niagara Mohawk-owned. With respect to non-owned sites,
Niagara Mohawk 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. Niagara Mohawk has denied any responsibility at
certain of these PRP sites and is contesting liability accordingly.
Investigations at each of the Niagara Mohawk-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, Niagara Mohawk 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, Niagara Mohawk's estimating process includes an initiative where
these factors are developed and reviewed using direct input and support obtained
from the DEC. Actual Niagara Mohawk expenditures are dependent upon the total
cost of investigation and remediation and the ultimate determination of Niagara
Mohawk'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. Niagara Mohawk 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, Niagara Mohawk has accrued a liability in the amount of
$240 million and $220 million, which is reflected in both Niagara Mohawk's and
Holdings' Consolidated Balance Sheets at December 31, 1999 and 1998,
respectively. The potential high end of the range is presently estimated at
approximately $480 million, including approximately $245 million in the unlikely
event Niagara Mohawk is required to assume 100% responsibility at non-owned
sites. Niagara Mohawk increased its environmental liability $20 million in 1999
as compared to 1998 primarily as a result of the availability of information on
certain sites resulting from progress made on feasibility studies. The
probabilistic method was used to determine the amount to be accrued for 24 of
Niagara Mohawk's largest sites. The amount accrued for Niagara Mohawk's
remaining sites is determined through feasibility studies or engineering
estimates, Niagara Mohawk's estimated share of a PRP allocation or where no
better estimate is available, the low end of a range of possible outcomes is
used. In addition, Niagara Mohawk has recorded a regulatory asset representing
the remediation obligations to be recovered from ratepayers. PowerChoice and
the gas settlements provide for the continued application of deferral accounting
for expense recognition resulting from this effort.
Niagara Mohawk recently informed the DEC in response to an October 1999 request
for information, of 24 additional former manufactured gas plant sites that it
may be associated with, including 2 sites that are currently owned by Niagara
Mohawk. Niagara Mohawk is unable to predict what further action the DEC may
take with respect to these sites.
In November 1999, Niagara Mohawk submitted a revised feasibility study to the
DEC, which included the land-based portions of Niagara Mohawk's Harbor Point
site and five surrounding non-owned sites. The study indicates a range of
viable remedial approaches and associated cost estimates and recommends a
selected remedial alternative. This range consists of a high end of $70
million, with an expected value calculation of $49 million, which is included in
the amounts accrued at December 31, 1999. The surface water-based portions of
Niagara Mohawk's Harbor Point site are subject to continuing feasibility study
evaluations and review by the DEC. Niagara Mohawk currently estimates the range
of costs for remediation of the surface water bodies to consist of a high end of
$18 million, with an expected value of $11 million. The ranges for the
land-based and the surface water bodies portions represent the total estimated
costs to remediate the properties and does not consider contributions from other
PRPs, the amount of which Niagara Mohawk is unable to estimate.
In May 1995, Niagara Mohawk 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 Niagara
Mohawk'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. Niagara
Mohawk 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, as amended by the
Court, establishes February 29, 2000 as the trial ready date. As a result,
Niagara Mohawk cannot predict the outcome of the pending litigation against the
defendants or the allocation of Niagara Mohawk's share of the costs to remediate
the Harbor Point and surrounding sites.
CONSTRUCTION PROGRAM: Niagara Mohawk is committed to an ongoing construction
program to assure transmission and delivery of its electric and gas services.
Niagara Mohawk presently estimates that the construction program for the years
2000 through 2002 will require approximately $678 million, excluding AFC and
nuclear fuel. For the years 2000 through 2002, the estimates, in millions, are
$219, $229, and $230, respectively, which includes amounts relating to Niagara
Mohawk's nuclear assets through June 2000, its Albany plant through March 2000,
and Niagara Mohawk's 25 percent ownership share in the Roseton plant through
December 2000. If the nuclear sale does not occur, Niagara Mohawk estimates it
will incur expenditures for construction and nuclear fuel of $69 million for
2000 and $32 million and $67 million for 2001 and 2002, respectively. Any delay
in the timing or outcome of these remaining generation asset sales will effect
Niagara Mohawk's capital expenditure requirements.
<PAGE>
NOTE 9. FAIR VALUE OF FINANCIAL AND DERIVATIVE FINANCIAL INSTRUMENTS
The discussion that follows covers Holdings and Niagara Mohawk and its
subsidiaries. When necessary, specific reference is made to the subsidiary
company. The figures for Holdings and Niagara Mohawk differ only in the Cash
and temporary cash investments. All other figures shown for Holdings are the
same for Niagara Mohawk.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND TEMPORARY CASH INVESTMENTS: The carrying amount approximates fair
value because of the short maturity of the financial instruments.
LONG-TERM DEBT AND MANDATORILY REDEEMABLE PREFERRED STOCK: The fair value of
fixed rate long-term debt and redeemable preferred stock is estimated using
quoted market prices where available or discounting remaining cash flows at
Niagara Mohawk's incremental borrowing rate. The carrying value of NYSERDA
bonds and other long-term debt are considered to approximate fair value.
DERIVATIVE FINANCIAL INSTRUMENTS: The fair value of futures and forward
contracts are determined using quoted market prices and broker quotes. (See
Note 8 for a discussion of the financial sharing agreement that Niagara Mohawk
has entered into in connection with the announced sale of the nuclear generation
assets.)
SWAP CONTRACTS: Niagara Mohawk has two different types of swap contracts; the
IPP indexed swap contracts and the swap contracts resulting from the sale of
Niagara Mohawk's Huntley and Dunkirk coal-fired generation plants. The terms of
the two types of contracts are as follows:
- - IPP INDEXED SWAP CONTRACTS - Niagara Mohawk, as part of the MRA, entered
into restated contracts with eight IPPs. The contracts have a term of ten
years and are structured as indexed swap contracts where Niagara Mohawk
receives or makes payments to the eight IPPs based upon the differential
between the contract price and a market reference price for electricity.
Niagara Mohawk has recorded the liability for these contractual obligation
and recorded a corresponding regulatory asset since payments under these
restated contracts are authorized and are currently being recovered under
PowerChoice. The amount of this liability and regulatory asset will
fluctuate as estimates of future market and contract prices change over the
term of the contracts, and will decrease over the life of the contract as
notional quantities are settled.
The contract prices are fixed for the first two years changing to an indexed
pricing formula primarily related to gas prices, thereafter. Contract
quantities are fixed for each year of the full ten-year term of the contracts
and average 4.1 million MWh. The indexed pricing structure ensures that the
price paid for energy and capacity will fluctuate relative to the underlying
market cost of gas and general indices of inflation.
- - HUNTLEY AND DUNKIRK GENERATING STATION SWAP CONTRACTS - As part of the
transaction to sell the Huntley and Dunkirk coal-fired generation plants,
Niagara Mohawk entered into PPAs to purchase energy and capacity from the
buyer, NRG Energy, Inc. ("NRG"). Niagara Mohawk was required to purchase a
portion of the energy generated by the two coal-fired plants; however, it had
call options to purchase additional energy if needed. The aggregate energy
and capacity costs in the PPAs were above forecasted future market prices.
The PPAs converted to financial swaps ("swaps") on December 1, 1999 and have
the same economic terms as the energy contracts, with no physical delivery o
energy.
The agreements expire in June of 2003. As of December 31, 1999, Niagara
Mohawk has recorded a $56.4 million swap contract liability for the present
value of the difference between the contract energy prices and projected
market prices and has recorded a corresponding swap contract regulatory
asset. The asset and liability will be amortized over the remaining term of
the swaps as nominal energy quantities are settled and may be adjusted as
periodic reassessments are made of future energy prices. These amounts are
included with the swap contract asset and liability.
The agreements to purchase capacity and energy began at the sale date of the
assets (June 1999). Base quantities were set by the contract with a call
option on additional amounts. The contracts converted to financial swaps at
December 1, 1999 triggered by the ISO implementation. Contract quantities
average 2.9 million MWh annually. These agreements expire in June 2003.
In connection with the pending sale of the Albany plant, Niagara Mohawk has
entered into a contract with the new owner that is intended to compensate PSEG
in the near term for the costs of running the plant. This contract will be
recorded as a financial agreement at the time of the closing on the sale. The
contract is a financial agreement with an exchange of payments that are based on
the market price of energy and expires on September 30, 2003. No actual energy
will be delivered to Niagara Mohawk, but a quantity of energy, referred to as
the call amount, is used to calculate the payment. The call amount is capped
each year and totals 1,300 GWh for the life of the contract. The contract is a
derivative instrument. Each month Niagara Mohawk will pay PSEG a fixed monthly
charge plus the call amount times a contract price. The contract price
approximates the cost of fuel for the plant and will fluctuate as fuel prices
change. PSEG will pay Niagara Mohawk the same call amount times the current
market price for energy. This market price will be determined by the NYISO.
Niagara Mohawk has the sole option, within certain limits stated in the
contract, to decide what the call amount will be. This combination of a swap
with one party having an option is called a swaption. If the market price is
expected to be higher than the contract price, Niagara Mohawk would likely
exercise the option, elect a call amount, and PSEG will make a swap payment to
Niagara Mohawk. If the market price is expected to be below the contract price,
Niagara Mohawk would not likely choose to name a call amount, in which case
Niagara Mohawk would only be required to make the fixed monthly payment. For
Niagara Mohawk, this contract will serve as a hedge against rising energy
prices. Niagara Mohawk expects to account for this contract as a hedge of
future purchase commitments upon the closing of the sale, expected to occur in
the first quarter of 2000. The costs associated with the Albany contract are
recoverable under Niagara Mohawk's PowerChoice rates.
At December 31, 1999, Niagara Mohawk projects that it will make the following
payments in connection with the IPP and Huntley and Dunkirk swap contracts for
the years 2000 to 2004, and thereafter:
<TABLE>
<CAPTION>
Projected
Payment
(in thousands
Year of dollars)
- ---------- ---------------
<S> <C>
2000 . . . $ 106,866
2001 . . . 120,253
2002 . . . 124,109
2003 . . . 114,166
2004 . . . 100,907
Thereafter 367,816
</TABLE>
The financial instruments held or issued by Holdings and Niagara Mohawk are for
purposes other than trading. The estimated fair values of their financial
instruments are as follows:
<TABLE>
<CAPTION>
(In thousands of dollars)
1999 1998
CARRYING FAIR Carrying Fair
At December 31, AMOUNT VALUE Amount Value
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NIAGARA MOHAWK
Cash and temporary cash
investments $ 72,479 $ 72,479 $ 172,998 $ 172,998
HOLDINGS
Cash and temporary cash
investments $ 116,164 $ 116,164 $ 172,998 $ 172,998
Mandatorily redeemable
preferred stock 68,990 66,564 76,610 86,444
Long-term debt:
First Mortgage bonds 2,439,585 2,380,992 2,741,305 2,905,141
Senior Notes 2,523,626 2,423,611 3,293,784 3,324,777
Medium-term notes - - 20,000 23,290
Promissory notes 413,760 413,760 413,760 413,760
Other 269,827 269,827 253,195 253,195
Swap contract
regulatory asset* 663,718 663,718 693,362 693,362
* Includes a portion reported in MRA Regulatory Asset
</TABLE>
Niagara Mohawk Energy's marketing activities generally consist of transactions
entered into to hedge the market fluctuations of contractual and anticipated
commitments. Gas futures and electric forward contracts are used for hedging
purposes. Changes in market value of futures and forward contracts relating to
hedged items are deferred until the physical transaction occurs, at which time,
income or loss is recognized.
At December 31, 1999, Niagara Mohawk Energy's open positions consisted of long
and short gas futures and long electric forward contracts with approximate fair
values as follows:
<TABLE>
<CAPTION>
1999 1998
FAIR VALUE UNITS Fair Value Units
POSITIONS (IN THOUSANDS) (IN THOUSANDS) (in thousands) (in thousands)
- ---------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Gas - Long $ 9,596 3,920 DTH $ 4,794 2,470 Dth
Gas - Short $ 4,725 2,020 DTH $ 1,170 650 Dth
Electric - Long $125,026 4,493 MWH $13,141 428 MWh
Electric - Short - - - -
</TABLE>
The fair value of both the open gas and electric positions for non-trading
purposes at December 31, 1999 and 1998, as well as the effect of these
activities on Holdings' results of operations for the same period endings were
not material.
The fair value of futures and forward contracts are determined using quoted
market prices.
Niagara Mohawk's investments in debt and equity securities consist of trust
funds for the purpose of funding the nuclear decommissioning of Unit 1 and its
share of Unit 2 (see Note 3 - Nuclear Plant Decommissioning), investments held
by Opinac and a trust fund for certain pension benefits. Holdings and Niagara
Mohawk have classified all investments in debt and equity securities as
available for sale and have recorded all such investments at their fair market
value at December 31, 1999.
The nuclear decommissioning trust funds comprise over 73% of the investments in
debt and equity securities. The agreement to sell the nuclear generation assets
includes the transfer of the decommissioning trust funds, at an agreed amount,
to the buyer. In anticipation of that sale, and to reduce the risk of a
detrimental market shift affecting the funds, Niagara Mohawk converted all
decommissioning assets to high grade, short-term commercial paper in October and
November of 1999. The instruments purchased have specified coupon rates and
maturity dates of generally 1 to 4 months. Remaining cash is invested in an
overnight, short-term investment fund. Due to the current makeup of the funds
the book and market values are approximately equal therefore the decommissioning
funds no longer experience any substantial unrealized gains or losses. These
Actions also increased the sales activity for 1999 affecting both the proceeds
reported and the realized gains and losses.
The proceeds from the sale of investments were $463.9 million, $202.1 million,
and $159.7 million in 1999, 1998, and 1997, respectively. Net realized and
unrealized gains and losses related to the nuclear decommissioning trust are
reflected in "Accumulated depreciation and amortization" on the Consolidated
Balance Sheets, which is consistent with the method used by Niagara Mohawk to
account for the decommissioning costs recovered in rates. The unrealized gains
and losses related to the investments held by the pension trust and Opinac for
the period ending December 31, 1999 are not material to Holdings' results of
operations.
The recorded fair values and cost basis of Holdings and Niagara Mohawk's
investments in debt and equity securities is as follows:
<TABLE>
<CAPTION>
(in thousands of dollars)
AT DECEMBER 31, 1999 1998
GROSS UNREALIZED FAIR Gross Unrealized Fair
Security Type COST GAIN (LOSS) VALUE Cost Gain (Loss) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Obligations $ - $ - $ - $ - $ 19,291 $ 2,621 $ (117) $ 21,795
Commercial Paper 346,181 1,812 - 347,993 82,930 1,269 - 84,199
Tax Exempt
Obligations 8,143 33 (311) 7,865 104,538 6,786 (164) 111,160
Corporate
Obligations 8,057 1,532 (1) 9,588 100,736 22,684 (2,856) 120,564
Other 18,542 - - 18,542 6,666 - - 6,666
-------- -------- ------- --------- -------- ------- -------- --------
$380,923 $ 3,377 $ (312) $383,988 $314,161 $33,360 $(3,137) $344,384
======== ======== ======== ========= ======== ======= ======== ========
</TABLE>
Using the specific identification method to determine cost, the gross realized
gains and gross realized losses were:
<TABLE>
<CAPTION>
(In thousands of dollars)
Year ended December 31, 1999 1998 1997
- ------------------------------------------------------
<S> <C> <C> <C>
Realized gains. . . . . $ 26,609 $5,350 $3,487
Realized losses . . . . 15,140 2,221 686
</TABLE>
The contractual maturities of Holdings and Niagara Mohawk's investments in debt
securities is as follows:
<TABLE>
<CAPTION>
At December 31, 1999 Fair Value Cost
- -------------------- ----------- --------
<S> <C> <C>
Less than 1 year . . $ 335,155 $333,343
1 year to 5 years. . 1,404 1,420
5 years to 10 years. 2,061 2,098
Due after 10 years . 4,399 4,625
</TABLE>
<PAGE>
NOTE 10. STOCK BASED COMPENSATION
Under Holdings' stock compensation plans, stock units and stock appreciation
rights ("SARs") may be granted to officers, key employees and directors. In
addition, Holdings' plans allow for the grant of stock options to officers. The
table below sets forth the activity under Holdings' stock compensation plans for
the years 1997 through 1999. On March 18, 1999, Niagara Mohawk's common stock
was exchanged for Holdings' common stock and the SARs, the stock units and the
options were likewise exchanged. (See Note 1.)
<TABLE>
<CAPTION>
SARS UNITS OPTIONS
---------- --------- --------
<S> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1996 790,600 460,728 298,583
Granted. . . . . . . . . . . . . 296,300 208,750 -
Exercised. . . . . . . . . . . . - (2,514) -
Forfeited. . . . . . . . . . . . - - -
---------- --------- --------
OUTSTANDING AT DECEMBER 31, 1997 1,086,900 666,964 298,583
Granted. . . . . . . . . . . . . 1,723,500 488,428 -
Exercised. . . . . . . . . . . . (42,700) (211,403) -
Forfeited. . . . . . . . . . . . (28,000) (10,550) (12,000)
---------- --------- --------
OUTSTANDING AT DECEMBER 31, 1998 2,739,700 933,439 286,583
Granted. . . . . . . . . . . . . 253,200 148,531 -
Exercised. . . . . . . . . . . . (5,500) (173,991) -
Forfeited. . . . . . . . . . . . (134,838) (42,985) (39,208)
---------- --------- --------
OUTSTANDING AT DECEMBER 31, 1999 2,852,562 864,994 247,375
========== ========= ========
</TABLE>
Stock units are payable in cash at the end of a defined vesting period,
determined at the date of the grant, based upon Holdings' stock price for a
defined period. SARs become exercisable, as determined at the grant date, and
are payable in cash based upon the increase in Holdings' stock price from a
specified level. As such, for these awards, compensation expense is recognized
over the vesting period of the award based upon changes in Holdings' stock price
for that period. Options granted over the period 1992 to 1995 are currently
exercisable with expirations ten years from the grant date. These options are
all considered to be antidilutive for EPS calculations. Included in Holdings
and Niagara Mohawk's results of operations for the years ending 1999, 1998 and
1997, is approximately $(1.9) million, $9.8 million and $3.2 million,
respectively, related to these plans.
As permitted by SFAS No. 123 - "Accounting for Stock-Based Compensation" ("SFAS
No. 123") Holdings' has elected to follow Accounting Principles Board Opinion
No. 25-"Accounting for Stock Issued to Employees" ("APB No. 25") and related
interpretations in accounting for its employee stock options. Since stock units
and SARs are payable in cash, the accounting under APB No. 25 and SFAS No. 123
is the same. Therefore, the pro forma disclosure of information regarding net
income, as required by SFAS No. 123, relates only to Holdings' outstanding stock
options, the effect of which is immaterial to the financial statements for the
years ended 1999, 1998 and 1997. There is no effect on earnings per share for
these years resulting from the pro-forma adjustments to net income.
<PAGE>
NOTE 11. SEGMENT INFORMATION
Holdings is organized between regulated and unregulated activities. Within the
regulated business, Niagara Mohawk, which has 98% of total assets and 94% of
total revenues, there are two principal business units: Energy Delivery and
Nuclear. As discussed in Note 2, Niagara Mohawk is in the process of selling
its remaining fossil and nuclear generation assets. Although there are two
identified business units, financial performance and resource allocation are
measured and managed at the regulated business level.
Holdings and Niagara Mohawk use a shareholder value based management system. The
measure of shareholder value creation is Economic Value Added ("EVA("). EVA(
is the financial measure used to evaluate projects, allocate resources and
report and provide performance incentives.
Holdings' unregulated activities do not meet the reporting thresholds of SFAS
No. 131, but comprise a substantial portion of "other" in the accompanying
table.
<TABLE>
<CAPTION>
Depreciation Federal &
Total & Foreign Economic Construction Identifiable
(In thousands of dollars) Revenues Amortization* Income Taxes** Value Added Expenditures Assets
- ------------------------- -------------- -------------- ---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999
REGULATED COMPANY . . . . $ 3,827,340 $ 731,429 $ 18,883 $ (732,041) $ 298,081 $ 12,445,608
OTHER . . . . . . . . . . 257,645 543 10 (27,374) - 224,827
ELIMINATIONS. . . . . . . (799) - 287 - - -
-------------- -------------- ---------------- ------------- ------------- -------------
TOTAL CONSOLIDATED. $ 4,084,186 $ 731,972 $ 19,180 $ (759,415) $ 298,081 $ 12,670,435
========================= ============== ============== ================ ============= ============= =============
1998
Regulated Company . . . . $ 3,826,373 $ 484,250 $ (63,131) $ (697,948) $ 392,200 $ 13,733,055
Other . . . . . . . . . . 169,086 502 (3,597) (31,471) - 128,132
Eliminations. . . . . . . (3,009) - - - - -
-------------- -------------- ---------------- ------------- -------------- -------------
Total Consolidated. $ 3,992,450 $ 484,752 $ (66,728) $ (729,419) $ 392,200 $ 13,861,187
========================= ============== ============== ================ ============= ============= =============
1997
Regulated Company . . . . $ 3,966,404 $ 339,641 $ 125,401 $ (650,188) $ 290,757 $ 9,431,763
Other . . . . . . . . . . 114,444 598 1,194 (32,009) - 152,378
Eliminations. . . . . . . (2,353) - - - - -
-------------- -------------- ---------------- ------------- ------------- -------------
Total Consolidated. $ 4,078,495 $ 340,239 $ 126,595 $ (682,197) $ 290,757 $ 9,584,141
========================= ============== ============== ================ ============= ============= =============
</TABLE>
* Includes amortization of the MRA regulatory asset in 1998 and 1999.
** Excludes the tax benefit of $12.189 million associated with the extraordinary
item for the loss on extinguishment of debt recorded in 1999.
EVA( is calculated as Net Operating Profit after Taxes less a charge for
the use of capital employed. The capital charge is determined by applying a
rate representing an estimate of investors' expected return given the risk of
the business and a targeted capital structure. The rate is not the same as the
embedded cost of capital, and in particular does not reflect the return on
equity that may be established in a rate proceeding. Certain adjustments to
accounting data are made to more closely reflect operating or economic results.
In each of the three years, an adjustment was made to include the recognition of
the liability for remaining future over-market contracts with IPPs and the
corresponding recognition of imputed interest on that liability. In addition,
there was a significant adjustment in 1998 to reflect the re-capitalization for
EVA( purposes of the PowerChoice charge and the incremental operating
expenses associated with the January 1998 ice storm.
EVA(is further segmented between EVA( from Operations and EVA(
related to the IPPs. This distinction is used to allow management to
focus on operating performance separate from the consequences of the IPP
contracts, the MRA regulatory asset and finance decisions related to managing
the capitalization of Holdings.
A reconciliation of total segment Economic Value Added to total consolidated net
income for the years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1999 1998 1997
- ------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Economic Value Added:
Operations. . . . . . . . . . . . $ (261,697) $ (248,624) $ (266,459)
IPP-Related . . . . . . . . . . . (497,718) (480,795) (415,738)
----------- ----------- -----------
Total Economic Value Added. . . . . . (759,415) (729,419) (682,197)
Charge for Use of Investor's Capital. 1,163,596 1,225,437 1,237,499
Adjustments for Significant Items . . (58,536) (351,388) (189,938)
Interest Charges (net of taxes) . . . (320,119) (265,455) (182,029)
Extraordinary item (net of taxes) . . (23,806) - -
Niagara Mohawk Preferred Dividends. . (36,808) (36,555) (37,397)
----------- ----------- -----------
Consolidated Net Income (loss) . . $ (35,088) $ (157,380) $ 145,938
=========== =========== ===========
</TABLE>
EVA( is a registered trademark of Stern Stewart & Co.
<PAGE>
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating revenues, operating income, net income (loss) and earnings (loss) per
common share by quarters from 1999, 1998 and 1997, respectively, are shown in
the following tables. Quarterly information for Holdings prior to 1999 is
Niagara Mohawk's, but has been reclassified to reflect Holdings' structure.
Holdings and Niagara Mohawk, in their opinion, have included all adjustments
necessary for a fair presentation of the results of operations for the quarters.
Due to the seasonal nature of the regulated utility business, the annual amounts
are not generated evenly by quarter during the year. Niagara Mohawk's quarterly
results of operations reflect the seasonal nature of its business, with peak
electric loads in summer and winter periods. Gas sales peak in the winter.
<TABLE>
<CAPTION>
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
In thousands of dollars Basic and
Diluted
Net Earnings
Operating Operating Income (Loss) per
Quarter Ended Revenues Income (Loss) (Loss) Common Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31,. 1999 $ 1,016,504 $ 94,830 $ (18,166) ($0.10)
1998 904,066 99,666 (26,457) (0.14)
1997 1,011,589 81,137 (1,355) (0.01)
September 30, 1999 $ 1,034,227 $ 98,321 $ (31,707) ($0.17)
1998 979,774 111,231 8,516 0.05
1997 942,636 108,049 22,330 0.15
June 30,. . . 1999 $ 914,321 $ 81,153 $ (36,047) ($0.19)
1998 944,684 (193,538) (150,579) (1.04)
1997 957,091 129,000 31,340 0.22
March 31, . . 1999 $ 1,119,134 $ 251,848 $ 50,832 $ 0.27
1998 1,163,897 131,569 11,140 0.08
1997 1,167,179 228,493 93,623 0.65
</TABLE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
--------------------------------
In thousands of dollars
-----------------------
Net
Operating Operating Income
Quarter Ended Revenues Income (Loss) (Loss)
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31,. 1999 $ 933,562 $ 95,797 $ (10,811)
1998 886,432 103,263 (17,433)
1997 960,304 86,024 7,881
September 30, 1999 $ 927,296 $ 99,006 $ (23,443)
1998 930,631 110,287 17,653
1997 896,570 110,174 31,683
June 30,. . . 1999 $ 870,461 $ 82,464 $ (27,663)
1998 910,906 (180,824) (141,408)
1997 945,698 130,704 40,749
March 31, . . 1999 $1,096,021 $ 254,284 $ 59,856
1998 1,098,404 134,297 20,363
1997 1,163,832 231,937 103,022
</TABLE>
During the second and third quarters of 1999, Holdings and Niagara Mohawk
recorded an extraordinary item for the early extinguishment of debt of $10.8
million or 6 cents per share and $13.0 million or 7 cents per share,
respectively. In the first quarter of 1998, Holdings and Niagara Mohawk
expensed $70.2 million associated with the January 1998 ice storm (of which
$62.9 million was considered incremental) or 28 cents per common share. In the
second quarter of 1998, Holdings and Niagara Mohawk recorded a non-cash
write-off of $263.2 million ($1.18 per common share) associated with the portion
of the MRA disallowed in rates by the PSC.
<PAGE>
ELECTRIC STATISTICS
<TABLE>
<CAPTION>
(MILLIONS OF KWH)
1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
REGULATED ELECTRIC SALES:
Residential. . . . . . . . . . . . . 10,227 9,643 9,905
Commercial . . . . . . . . . . . . . 11,838 11,560 11,552
Industrial . . . . . . . . . . . . . 6,985 6,843 7,191
Industrial-Special . . . . . . . . . 4,506 4,568 4,507
Other. . . . . . . . . . . . . . . . 200 241 235
Other electric systems . . . . . . . 1,666 3,577 3,746
------------- ----------- ----------
Total regulated electric sales. . 35,422 36,432 37,136
UNREGULATED ELECTRIC SALES: . . . . . . 6,355 4,571 3,257
------------- ----------- ----------
TOTAL ELECTRIC SALES. . . . . . . 41,777 41,003 40,393
============= =========== ==========
(THOUSANDS OF DOLLARS)
REGULATED ELECTRIC REVENUES:
Residential. . . . . . . . . . . . . $ 1,250,295 1,201,697 $1,227,245
Commercial . . . . . . . . . . . . . 1,192,390 1,220,067 1,233,417
Industrial . . . . . . . . . . . . . 485,009 480,942 531,164
Industrial-Special . . . . . . . . . 65,178 63,870 61,820
Other. . . . . . . . . . . . . . . . 50,294 55,119 54,545
Other electric systems . . . . . . . 47,851 94,756 83,794
Distribution of energy . . . . . . . 56,068 30,761 543
Transmission of energy . . . . . . . 100,455 94,545 100,716
Miscellaneous. . . . . . . . . . . . 217 19,387 16,197
------------ ----------- ----------
Total regulated electric revenue. 3,247,757 3,261,144 3,309,441
UNREGULATED ELECTRIC REVENUE: . . . . . 217,144 129,357 86,170
------------- ---------- ----------
TOTAL ELECTRIC REVENUE. . . . . . $ 3,464,901 $3,390,501 $3,395,611
============= =========== ==========
REGULATED ELECTRIC
CUSTOMERS (AVERAGE) . . . . . . . 1,550,225 1,550,770 1,553,958
</TABLE>
<PAGE>
GAS STATISTICS
<TABLE>
<CAPTION>
(THOUSANDS OF DTH)
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
REGULATED GAS SALES:
Residential . . . . . . . . . . . 51,624 47,250 55,203
Commercial. . . . . . . . . . . . 16,505 17,023 22,069
Industrial. . . . . . . . . . . . 453 752 1,381
----------- -------- --------
Total regulated sales. . . . . 68,582 65,025 78,653
Other gas systems . . . . . . . . 10 17 28
Spot market . . . . . . . . . . . 1,834 4,501 2,451
Transportation of customer -
owned gas. . . . . . . . . . . 137,240 127,850 152,813
----------- -------- --------
Total regulated gas delivered. 207,666 197,393 233,945
UNREGULATED GAS SALES: . . . . . . . 11,020 13,863 6,762
----------- -------- --------
TOTAL GAS SALES. . . . . . . . 218,686 211,256 240,707
=========== ======== ========
(THOUSANDS OF DOLLARS)
REGULATED GAS REVENUES:
Residential . . . . . . . . . . . $ 390,208 $378,150 $436,136
Commercial. . . . . . . . . . . . 107,669 110,499 148,213
Industrial. . . . . . . . . . . . 2,340 3,618 6,549
Other gas systems . . . . . . . . 57 69 130
Spot market . . . . . . . . . . . 4,277 8,749 6,346
Transportation of customer -
owned gas. . . . . . . . . . . 58,032 54,091 55,657
Miscellaneous . . . . . . . . . . 17,000 10,053 3,932
----------- -------- --------
Total regulated gas revenues . 579,583 565,229 656,963
UNREGULATED GAS REVENUES:. . . . . . 31,643 36,047 24,267
----------- -------- --------
TOTAL GAS REVENUES . . . . . . $ 611,226 $601,276 $681,230
=========== ======== ========
REGULATED GAS
CUSTOMERS (AVERAGE). . . . . . 541,956 530,633 528,566
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Holdings and Niagara Mohawk have nothing to report for this item.
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the information under the captions
"Proposal 1: Nomination and Election of Directors" and "Were there any late
filings under Section 16(a) Beneficial Ownership Reporting Compliance?" in
Holdings' Proxy Statement to be filed on March 31, 2000. The information
regarding executive officers appears at the end of Part I of this Form 10-K
Report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the information under the captions "Board of
Directors' Compensation and Succession Committee Report on Executive
Compensation," "What is the Company's philosophy on executive officer
compensation?" and "Director Compensation" in Holdings' Proxy Statement to be
filed on March 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the information under the captions "Stock
Ownership Information" in Holdings' Proxy Statement to be filed on March 31,
2000. Holdings knows of no arrangements, including pledges by any person of its
securities, the operation of which may at a subsequent date result in a change
in the control of Holdings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of the Form 10-K
(1) INDEX OF FINANCIAL STATEMENTS
- - Report of Management
- - Report of Independent Accountants
- - Niagara Mohawk Holdings, Inc. Consolidated Statements of Income and
Retained Earnings for each of the three years in the period ended
December 31, 1999
- - Niagara Mohawk Holdings, Inc. Consolidated Statements of Comprehensive
Income for each of the three years in the period ended December 31, 1999
- - Niagara Mohawk Holdings, Inc. Consolidated Balance Sheets at December 31,
1999 and 1998
- - Niagara Mohawk Holdings, Inc. Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 1999
- - Niagara Mohawk Power Corporation Consolidated Statements of Income and
Retained Earnings for each of the three years in the period ended December
31, 1999
- - Niagara Mohawk Power Corporation Consolidated Statements of Comprehensive
Income for each of the three years in the period ended December 31, 1999
- - Niagara Mohawk Power Corporation Consolidated Balance Sheets at December
31, 1999 and 1998
- - Niagara Mohawk Power Corporation Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 1999
- - Notes to Consolidated Financial Statements
(2) The following financial statement schedules of Holdings and Niagara
Mohawk for the years ended December 31, 1999, 1998 and 1997 are included:
- - Report of Independent Accountants on Financial Statement Schedules
- - Consolidated Financial Statement Schedule:
II--Valuation and Qualifying Accounts and Reserves - Holdings
II--Valuation and Qualifying Accounts and Reserves - Niagara Mohawk
The Financial Statement Schedules above should be read in conjunction with
the Consolidated Financial Statements in Part II, Item 8 (Financial
Statements and Supplementary Data).
Schedules other than those mentioned above are omitted because the
conditions requiring their filing do not exist or because the required
information is given in the financial statements, including the notes
thereto.
(3) List of Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K.
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
Form 8-K Reporting Date - October 29, 1999
Items reported:
(1) Item 5. Other Events.
Registrant filed press release regarding 1999-third quarter earnings.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - December 22, 1999
Items reported:
(1) Item 5. Other Events.
Niagara Mohawk filed a press release regarding Rochester Gas and
Electric Corporation's decision to exercise its right of first refusal
with respect to Niagara Mohawk's announced sale of its nuclear
generation assets to AmerGen Energy Company, LLC.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 4, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its annual and fourth
quarter earnings for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 10, 2000
Items reported:
(1) Item 5. Other Events.
Holdings and Niagara Mohawk filed Part II of its Form 10-K Annual
Report for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 11 - Holdings - Computation of Average Number of Shares of
Common Stock Outstanding
Exhibit 12a - Holdings - Statement Showing Computations of Ratios of
Earnings to Fixed Charges
Exhibit 12b - Niagara Mohawk - Statement Showing Computations of Ratios
of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
Exhibit 23 - Consent of Independent Accountants
NIAGARA MOHAWK POWER CORPORATION
--------------------------------
Form 8-K Reporting Date - October 29, 1999
Items reported:
(1) Item 5. Other Events.
Registrant filed press release regarding 1999-third quarter earnings.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - November 30, 1999
Items reported:
(1) Item 5. Other Events.
Registrant entered into an underwriting agreement related to the
issuance and sale of 3,000,000 shares of fixed adjustable rate
cumulative preferred stock, series D ($50 liquidation preference), $25
par value for a purchase price of $150,000,000.
(2) Item 7. Financial Statement and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - December 22, 1999
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release regarding Rochester Gas and Electric
Corporation's decision to exercise its right of first refusal with
respect to Niagara Mohawk's announced sale of its nuclear generation
assets to AmerGen Energy Company, LLC.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 4, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its annual and fourth
quarter earnings for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 10, 2000
Items reported:
(1) Item 5. Other Events.
Holdings and Niagara Mohawk filed Part II of its Form 10-K Annual
Report for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 11 - Holdings - Computation of Average Number of Shares of
Common Stock Outstanding
Exhibit 12a - Holdings - Statement Showing Computations of Ratios of
Earnings to Fixed Charges
Exhibit 12b - Niagara Mohawk - Statement Showing Computations of Ratios
of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
Exhibit 23 - Consent of Independent Accountants
(c) Exhibits.
See Exhibit Index.
(d) Financial Statement Schedule
See (a)(2) above.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
Our audits of the consolidated financial statements of Niagara Mohawk Holdings,
Inc. and Niagara Mohawk Power Corporation referred to in our report dated
January 27, 2000 appearing in this Form 10-K also included an audit of the
Financial Statement Schedules listed in Item 14(a)(2) of this Form 10- K. In
our opinion, these Financial Statement Schedules presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
January 27, 2000
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of dollars)
Column A Column B Column C Column D Column E
- ------------------------- ----------- ----------- ----------- ----------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions at End
Description of Period Expenses Accounts (a) of Period
- ------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts -Deducted from
Accounts Receivable in
the Consolidated
Balance Sheets
1999. . . . . . . . . . . $ 47,863 $ 65,953 $ 1,900(b) $ 54,296 $ 61,420
1998. . . . . . . . . . . 62,548 31,727 5,000(b) 51,412 47,863
1997. . . . . . . . . . . 52,096 46,549 3,000(b) 39,097 62,548
</TABLE>
(a) Uncollectible accounts written off net of recoveries.
(b) Niagara Mohawk has recorded a regulatory asset, which reflects the
amount of doubtful accounts it expects to recover in rates. In 1997, the
regulatory asset was increased by $3,000 to $20,200; in 1998, the
regulatory asset was increased by $5,000 to $25,200 and in 1999 the
regulatory asset was increased by $1,900 to $27,100.
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of dollars)
Column A Column B Column C Column D Column E
- ------------------------- ----------- ----------- ----------- ----------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period(c)
- ------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Miscellaneous
Valuation Reserves
1999. . . . . . . . . . . $ 33,063 $ 546 - $ 1,929 $ 31,680
1998. . . . . . . . . . . 45,261 769 - 12,967 33,063
1997. . . . . . . . . . . 47,103 2,207 - 4,049 45,261
</TABLE>
(c) The reserves relate primarily to certain materials and supplies inventory
and non-rate base properties.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of dollars)
Column A Column B Column C Column D Column E
- ------------------------- ----------- ----------- ----------- ----------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions at End
Description of Period Expenses Accounts (a) of Period
- ------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts -Deducted from
Accounts Receivable in
the Consolidated
Balance Sheets
1999. . . . . . . . . . . $ 47,863 $ 63,954 $ 1,900(b) $ 54,296 $59,421
1998. . . . . . . . . . . 62,548 31,727 5,000(b) 51,412 47,863
1997. . . . . . . . . . . 52,096 46,549 3,000(b) 39,097 62,548
</TABLE>
(a) Uncollectible accounts written off net of recoveries.
(b) Niagara Mohawk has recorded a regulatory asset, which reflects the
amount of doubtful accounts it expects to recover in rates. In 1997, the
regulatory asset was increased by $3,000 to $20,200; in 1998, the
regulatory asset was increased by $5,000 to $25,200 and in 1999 the
regulatory asset was increased by $1,900 to $27,100.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of dollars)
Column A Column B Column C Column D Column E
- ------------------------- ----------- ----------- ----------- ----------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period(c)
- ------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Miscellaneous
Valuation Reserves
1999. . . . . . . . . . . $ 33,063 $ 546 - $ 1,929 $ 31,680
1998. . . . . . . . . . . 45,261 769 - 12,967 33,063
1997. . . . . . . . . . . 47,103 2,207 - 4,049 45,261
</TABLE>
(c) The reserves relate primarily to certain material and supplies inventory
and non-rate base properties.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
-------------
In the following exhibit list, Holdings refers to Niagara Mohawk Holdings, Inc.,
Niagara Mohawk refers to Niagara Mohawk Power Corporation and CNYP refers to
Central New York Power Corporation, a predecessor company of Niagara Mohawk.
Each document referred to below is incorporated by reference to the files of the
Commission, unless the reference to the document in the list is preceded by an
asterisk. As permitted by Item 10(d) of Regulation S-K, certain exhibits are
incorporated herein by reference to periodic reports filed by Niagara Mohawk
more than five years ago which have not been disposed of by the Commission
pursuant to its Records Control Schedule. As set forth below, each of such
periodic reports is located in Commission file number 0-1. Previous filings
with the Commission are indicated as follows:
Reference Report Name
- --------- -----------
A Niagara Mohawk Registration Statement No. 2-8214
C Niagara Mohawk Registration Statement No. 2-8634
F CNYP Registration Statement No. 2-3414
G CNYP Registration Statement No. 2-5490
V Niagara Mohawk Registration Statement No. 2-10501
X Niagara Mohawk Registration Statement No. 2-12443
Z Niagara Mohawk Registration Statement No. 2-13285
CC Niagara Mohawk Registration Statement No. 2-16193
DD Niagara Mohawk Registration Statement No. 2-18995
GG Niagara Mohawk Registration Statement No. 2-25526
HH Niagara Mohawk Registration Statement No. 2-26918
II Niagara Mohawk Registration Statement No. 2-29575
JJ Niagara Mohawk Registration Statement No. 2-35112
KK Niagara Mohawk Registration Statement No. 2-38083
OO Niagara Mohawk Registration Statement No. 2-49570
QQ Niagara Mohawk Registration Statement No. 2-51934
SS Niagara Mohawk Registration Statement No. 2-52852
TT Niagara Mohawk Registration Statement No. 2-54017
VV Niagara Mohawk Registration Statement No. 2-59500
CCC Niagara Mohawk Registration Statement No. 2-70860
III Niagara Mohawk Registration Statement No. 2-90568
OOO Niagara Mohawk Registration Statement No. 33-32475
PPP Niagara Mohawk Registration Statement No. 33-38093
QQQ Niagara Mohawk Registration Statement No. 33-47241
RRR Niagara Mohawk Registration Statement No. 33-59594
SSS Niagara Mohawk Registration Statement No. 33-49541
TTT Niagara Mohawk Registration Statement No. 333-49769
c Niagara Mohawk Annual Report on Form 10-K for year ended
December 31, 1992, located in Commission file number 0-1
d Niagara Mohawk Annual Report on Form 10-K for year ended
December 31, 1993
e Niagara Mohawk Annual Report on Form 10-K for year ended
December 31, 1994
f Niagara Mohawk Annual Report on Form 10-K for year ended
December 31, 1995
h Niagara Mohawk Annual Report on Form 10-K for year ended
December 31, 1997
i Niagara Mohawk Annual Report on Form 10-K for the year ended
December 31, 1998
j Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
March 31, 1993, located in Commission file number 0-1
k Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
September 30, 1993, located in Commission file number 0-1
l Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
June 30, 1995
m Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
June 30, 1997
n Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
March 31, 1998
p Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended
September 30, 998
q Holdings and Niagara Mohawk Quarterly Report of Form 10-Q for the
quarter ended March 31, 1999
r Holdings and Niagara Mohawk Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999
s Niagara Mohawk Current Report on Form 8-K dated July 9, 1997
t Niagara Mohawk Current Report on Form 8-K dated October 10, 1997
u Holdings Current Report on Form 8-K, dated March 18, 1999
v Niagara Mohawk Current Report on Form 8-K dated November 30, 1999
In accordance with Paragraph 4(iii) of Item 601 (b) of Regulation S-K, Niagara
Mohawk agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of the agreements comprising the $804 million senior bank
financing that Niagara Mohawk completed with a bank group during March 1996 and
subsequently amended (effective June 30, 1998). The total amount of long-term
debt authorized under such agreement does not exceed ten percent of the total
consolidated assets of Niagara Mohawk and its subsidiaries.
<PAGE>
INCORPORATION BY REFERENCE
--------------------------
PREVIOUS
EXHIBIT PREVIOUS EXHIBIT
NO. FILING DESIGNATION DESCRIPTION OF INSTRUMENT
- ------- -------- ----------- -------------------------
2 TTT 2(a) Agreement and Plan of Exchange between Niagara
Mohawk and Holdings
3(a)(1) e 3(a)(1) Certificate of Consolidation of New York Power
and Light Corporation, Buffalo Niagara Electric
Corporation and Central New York Power Corporation,
filed in the office of the New York Secretary of
State, January 5, 1950
3(a)(2) e 3(a)(2) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk, filed in the
office of the New York Secretary of State,
January 5, 1950
3(a)(3) e 3(a)(3) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk pursuant to Section
36 of the Stock Corporation Law of New York, filed
August 22, 1952, in the office of the New York
Secretary of State
3(a)(4) e 3(a)(4) Certificate of Niagara Mohawk pursuant to Section
11 of the Stock Corporation Law of New York filed
May 5, 1954 in the office of the New York Secretary
of State
3(a)(5) e 3(a)(5) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk pursuant to Section
36 of the Stock Corporation Law of New York, filed
January 9, 1957 in the office of the New York
Secretary of State
3(a)(6) e 3(a)(6) Certificate of Niagara Mohawk pursuant to Section
11 of the Stock Corporation Law of New York, filed
May 22, 1957 in the office of the New York
Secretary of State
3(a)(7) e 3(a)(7) Certificate of Niagara Mohawk pursuant to Section
11 of the Stock Corporation Law of New York, filed
February 18, 1958 in the office of the New York
Secretary of State
3(a)(8) e 3(a)(8) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 5, 1965 in the office of the New York Secretary
of State
3(a)(9) e 3(a)(9) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 24, 1967 in the office of the New York
Secretary of State
3(a)(10) e 3(a)(10) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 19, 1968 in the office of the New York
Secretary of State
3(a)(11) e 3(a)(11) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
September 22, 1969 in the office of the New York
Secretary of State
3(a)(12) e 3(a)(12) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 12, 1971 in the office of the New York
Secretary of State
3(a)(13) e 3(a)(13) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section
805 of the Business Corporation Law of New York,
filed August 18, 1972 in the office of the New York
Secretary of State
3(a)(14) e 3(a)(14) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
June 26, 1973 in the office of the New York
Secretary of State
3(a)(15) e 3(a)(15) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 9, 1974 in the office of the New York
Secretary of State
3(a)(16) e 3(a)(16) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
March 12, 1975 in the office of the New York
Secretary of State
3(a)(17) e 3(a)(17) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 7, 1975 in the office of the New York Secretary
of State
3(a)(18) e 3(a)(18) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 27, 1975 in the office of the New York
Secretary of State
3(a)(19) e 3(a)(19) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 7, 1976 in the office of the New York Secretary
of State
3(a)(20) e 3(a)(20) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
September 28, 1976 in the office of the New York
Secretary of State
3(a)(21) e 3(a)(21) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
January 27, 1978 in the office of the New York
Secretary of State
3(a)(22) e 3(a)(22) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 8, 1978 in the office of the New York Secretary
of State
3(a)(23) e 3(a)(23) Certificate of Correction of the Certificate of
Amendment filed May 7, 1976 of the Certificate of
Incorporation under Section 105 of the Business
Corporation Law of New York, filed July 13, 1978
in the office of the New York Secretary of State
3(a)(24) e 3(a)(24) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
July 17, 1978 in the office of the New York
Secretary of State
3(a)(25) e 3(a)(25) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
March 3, 1980 in the office of the New York
Secretary of State
3(a)(26) e 3(a)(26) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
March 31, 1981 in the office of the New York
Secretary of State
3(a)(27) e 3(a)(27) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
March 31, 1981 in the office of the New York
Secretary of State
3(a)(28) e 3(a)(28) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
April 22, 1981 in the office of the New York
Secretary of State
3(a)(29) e 3(a)(29) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 8, 1981 in the office of the New York Secretary
of State
3(a)(30) e 3(a)(30) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
April 26, 1982 in the office of the New York
Secretary of State
3(a)(31) e 3(a)(31) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
January 24, 1983 in the office of the New York
Secretary of State
3(a)(32) e 3(a)(32) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 3, 1983 in the office of the New York
Secretary of State
3(a)(33) e 3(a)(33) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
December 27, 1983 in the office of the New York
Secretary of State
3(a)(34) e 3(a)(34) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
December 27, 1983 in the office of the New York
Secretary of State
3(a)(35) e 3(a)(35) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
June 4, 1984 in the office of the New York
Secretary of State
3(a)(36) e 3(a)(36) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 29, 1984 in the office of the New York
Secretary of State
3(a)(37) e 3(a)(37) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
April 17, 1985 in the office of the New York
Secretary of State
3(a)(38) e 3(a)(38) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 3, 1985 in the office of the New York Secretary
of State
3(a)(39) e 3(a)(39) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
December 24, 1986 in the office of the New York
Secretary of State
3(a)(40) e 3(a)(40) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
June 1, 1987 in the office of the New York
Secretary of State
3(a)(41) e 3(a)(41) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
July 20, 1987 in the office of the New York
Secretary of State
3(a)(42) e 3(a)(42) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 27, 1988 in the office of the New York
Secretary of State
3(a)(43) e 3(a)(43) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
September 27, 1990 in the office of the New York
Secretary of State
3(a)(44) e 3(a)(44) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
October 18, 1991 in the office of the New York
Secretary of State
3(a)(45) e 3(a)(45) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
May 5, 1994 in the office of the New York Secretary
of State
3(a)(46) e 3(a)(46) Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
August 5, 1994 in the office of the New York
Secretary of State
3(a)(47) o 3 Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
June 29, 1998 in the office of the New York
Secretary of State
3(a)(48) q 3 Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 80
of the Business Corporation Law of New York, filed
March 19, 1999 in the office of the New York
Secretary of State
3(a)(49) u 99-1 Restated Certificate of Incorporation of Holdings
under Section 807 of the Business Corporation Law
of New York, filed February 18, 1999 in the office
of the New York Secretary of State
3(a)(50) v 3.1 Certificate of Amendment of Certificate of
Incorporation of Niagara Mohawk under Section 805
of the Business Corporation Law of New York, filed
November 29, 1999 in the office of the New York
Secretary of State
3(b)(1) n 3(i) By-Laws of Niagara Mohawk, as amended
April 23, 1998
3(b)(2) u 99-2 By-Laws of Holdings
4(a) e 4(b) Agreement to furnish certain debt instruments
4(b)(1) F ** Mortgage Trust Indenture dates as of October 1
1937 between Niagara Mohawk (formerly CNYP) and
Marine Midland Bank, N.A. (formerly named The
Marine Midland Trust Company of New York), as
Trustee
4(b)(2) VV 2-3 Supplemental Indenture dated as of December 1,
1938, supplemental to Exhibit 4(1)
4(b)(3) VV 2-4 Supplemental Indenture dated as of April 15, 1939,
supplemental to Exhibit 4(1)
4(b)(4) VV 2-5 Supplemental Indenture dated as of July 1, 1940,
supplemental to Exhibit 4(1)
4(b)(5) G 7-6 Supplemental Indenture dated as of October 1, 1944,
supplemental to Exhibit 4(1)
4(b)(6) VV 2-8 Supplemental Indenture dated as of June 1, 1945,
supplemental to Exhibit 4(1)
4(b)(7) VV 2-9 Supplemental Indenture dated as of August 17, 1948,
supplemental to Exhibit 4(1)
4(b)(8) A 7-9 Supplemental Indenture dated as of December 31,
1949, supplemental to Exhibit 4(1)
4(b)(9) A 7-10 Supplemental Indenture dated as of January 1, 1950,
supplemental to Exhibit 4(1)
4(b)(10) C 7-11 Supplemental Indenture dated as of October 1, 1950,
supplemental to Exhibit 4(1)
4(b)(11) C 7-12 Supplemental Indenture dated as of October 19,
1950, supplemental to Exhibit 4(1)
4(b)(12) V 4-16 Supplemental Indenture dated as of February 20,
1953, supplemental to Exhibit 4(1)
4(b)(13) X 4-19 Supplemental Indenture dated as of April 25, 1956,
supplemental to Exhibit 4(1)
4(b)(14) CC 2-23 Supplemental Indenture dated as of March 15, 1960,
supplemental to Exhibit 4(1)
4(b)(15) GG 2-27 Supplemental Indenture dated as of October 1, 1966,
supplemental to Exhibit 4(1)
4(b)(16) HH 4-29 Supplemental Indenture dated as of July 15, 1967,
supplemental to Exhibit 4(1)
4(b)(17) HH 4-30 Supplemental Indenture dated as of August 1, 1967,
supplemental to Exhibit 4(1)
4(b)(18) II 2-30 Supplemental Indenture dated as of August 1, 1968,
supplemental to Exhibit 4(1)
4(b)(19) VV 2-39 Supplemental Indenture dated as of March 15, 1977,
supplemental to Exhibit 4(1)
4(b)(20) CCC 4(b)(40) Supplemental Indenture dated as of August 1,
1977, supplemental to Exhibit 4(1)
4(b)(21) CCC 4(b)(42) Supplemental Indenture dated as of March 1,
1978, supplemental to Exhibit 4(1)
4(b)(22) CCC 4(b)(46) Supplemental Indenture dated as of June 15,
1980, supplemental to Exhibit 4(1)
4(b)(23) III 4(b)(64) Supplemental Indenture dated as of November 1,
1985, supplemental to Exhibit 4(1)
4(b)(24) OOO 4(b)(73) Supplemental Indenture dated as of October 1,
1989, supplemental to Exhibit 4(1)
4(b)(25) PPP 4(b)(74) Supplemental Indenture dated as of June 1,
1990, supplemental to Exhibit 4(1)
4(b)(26) PPP 4(b)(75) Supplemental Indenture dated as of November
1, 1990, supplemental to Exhibit 4(1)
4(b)(27) QQQ 4(b)(76) Supplemental Indenture dated as of March 1,
1991, supplemental to Exhibit 4(1)
4(b)(28) QQQ 4(b)(77) Supplemental Indenture dated as of October 1,
1991, supplemental to Exhibit 4(1)
4(b)(29) QQQ 4(b)(78) Supplemental Indenture dated as of April 1,
1992, supplemental to Exhibit 4(1)
4(b)(30) RRR 4(b)(79) Supplemental Indenture dated as of June 1,
1992, supplemental to Exhibit 4(1)
4(b)(31) RRR 4(b)(80) Supplemental Indenture dated as of July 1,
1992, supplemental to Exhibit 4(1)
4(b)(32) RRR 4(b)(81) Supplemental Indenture dated as of August 1,
1992, supplemental to Exhibit 4(1)
4(b)(33) j 4(b)(82) Supplemental Indenture dated as of April 1,
1993, supplemental to Exhibit 4(1)
4(b)(34) k 4(b)(83) Supplemental Indenture dated as of July 1, 1993,
supplemental to Exhibit 4(1)
4(b)(35) k 4(b)(84) Supplemental Indenture dated as of September 1,
1993, supplemental to Exhibit 4(1)
*4(b)(36) Supplemental Indenture dated as of March 1, 1994,
supplemental to Exhibit 4(1)
4(b)(37) e 4(86) Supplemental Indenture dated as of July 1, 1994,
supplemental to Exhibit 4(1)
4(b)(38) l 4(87) Supplemental Indenture dated as of May 1, 1995,
supplemental to Exhibit 4(1)
4(b)(39) SSS 4(a)(39) Supplemental Indenture dated as of March 20,
1996, supplemental to Exhibit 4(1)
*4(b)(40) Supplemental Indenture dated as of November 1,
1998, supplemental to Exhibit 4(1)
4(b)(41) G 7-23 Agreement dated as of August 16, 1940, among CNYP,
The Chase National Bank of the City of New York,
as Successor Trustee, and The Marine Midland Trust
Company of New York, as Trustee
4(c) SSS 4(a)(41) Form of Indenture relating to the Senior Notes
dated June 30, 1998
10-1 Z 13-11 Agreement dated March 1, 1957 between the Power
Authority of the State of New York and Niagara
Mohawk as to sale, transmission, and disposition
of St. Lawrence power
10-2 DD 13-6 Agreement dated February 10, 1961 between the Power
Authority of the State of New York and Niagara
Mohawk as to sale, transmission, and disposition of
St. Lawrence power
10-3 DD 13-7 Agreement dated July 26, 1961 between the Power
Authority of the State of New York and Niagara
Mohawk supplemental to Exhibit 10-2
10-4 OO 5-8 Agreement dated March 23, 1973 between the Power
Authority of the State of New York and Niagara
Mohawk as to the sale, transmission, and
disposition of Blenheim-Gilboa power
10-5 JJ 5-10 Agreement dated October 31, 1968 among Niagara
Mohawk, Central Hudson Gas & Electric Corporation
and Consolidated Edison Company of New York, Inc.
as to Joint Electric Generating Plant (the Roseton
Station)
10-6 SS 5-14 Memorandum of Understanding dated May 30, 1975
among Niagara Mohawk and four other New York
electric utilities with respect to Nine Mile Point
Nuclear Station Unit No. 2
10-7 VV 5-14b Basic Agreement dated September 22, 1975 among
Niagara Mohawk and four other New York electric
utilities with respect to Nine Mile Point Nuclear
Station Unit No. 2
10-8 c 10-19 Nine Mile Point Nuclear Station Unit No. 2
Operating Agreement
10-9 s 10.28 Master Restructuring Agreement dated July 9, 1997
among Niagara Mohawk and the 16 independent power
producers signatory thereto
10-10 t 99-9 PowerChoice settlement filed with the PSC on
October 10, 1997
10-11 h 10-13 PSC Opinion and Order regarding approval of the
PowerChoice settlement agreement with PSC, issued
and effective March 20, 1998
10-12 h 10-14 Preferred Consent, December 1997
10-13 n 10(c) Amendments to the Master Restructuring Agreement
*10-14 Independent System Operator Agreement dated
December 2, 1999
*10-15 Agreement between New York Independent System
Operator and Transmission Owners dated
December 2, 1999
(A)10-16 i 10-41 Officers Incentive Compensation Plan-Plan Document
(A)10-17 m 10-1 Long Term Incentive Plan - Plan Document
*(A)10-18 Management Incentive Compensation Plan - Plan
Document, including amendment
(A)10-19 m 10-2 CEO Special Award Plan
(A)10-20 r 10-1 Deferred Compensation Plan as amended June 15, 1999
(A)10-21 d 10-18 1992 Stock Option Plan
(A)10-22 f 10-31 1995 Stock Incentive Plan
*(A)10-23 Amendments to exhibits (A)10-16, (A)10-17,
(A)10-19, (A)10-20 and (A)10-37 to change the
agreement for the Holdings structure.
*(A)10-24 Supplemental Executive Retirement Plan
(A)10-25 q 10-1 Amended employment contract among Holdings, Niagara
Mohawk and William E. Davis, Chairman of the Board
& Chief Executive Officer, dated March 17, 1999
(A)10-26 q 10-2 Amended employment contract between Holdings and
Albert J. Budney Jr., President,
dated March 17, 1999
(A)10-27 q 10-3 Amended employment contract among Holdings, Niagara
Mohawk and Darlene D. Kerr, Executive Vice
President and Chief Operating Officer, dated
March 17, 1999
(A)10-28 q 10-4 Amended employment contract among Holdings, Niagara
Mohawk and David J. Arrington, Senior Vice
President-Human Resources and Chief Administrative
Officer, dated March 17, 1999
(A)10-29 q 10-5 Amended employment contract among Holdings, Niagara
Mohawk and Thomas H. Baron, Senior Vice President
-Field Operations, dated March 17, 1999
(A)10-30 q 10-6 Amended employment contract among Holdings, Niagara
Mohawk and Edward J. Dienst, Senior Vice President
- Asset Management and Energy Delivery, dated
March 17, 1999
(A)10-31 q 10-7 Amended employment contract among Holdings, Niagara
Mohawk and William F. Edwards, Senior Vice
President and Chief Financial Officer, dated
March 17, 1999
(A)10-32 q 10-8 Amended employment contract between Holdings and
Gary J. Lavine, Senior Vice President and Chief
Legal Officer, dated March 17, 1999
(A)10-33 q 10-9 Amended employment contract among Holdings, Niagara
Mohawk and John H. Mueller, Senior Vice President
and Chief Nuclear Officer, dated March 17, 1999
(A)10-34 q 10-10 Amended employment contract among Holdings, Niagara
Mohawk and Theresa A. Flaim, Vice President
- Strategic Planning, dated March 17, 1999
(A)10-35 q 10-11 Amended employment contract among Holdings, Niagara
Mohawk and Kapua A. Rice, Corporate Secretary,
dated March 17, 1999
(A)10-36 q 10-12 Amended employment contract among Holdings, Niagara
Mohawk and Steven W. Tasker, Vice President
-Controller, dated March 17, 1999
(A)10-37 p 10 Amendment to the Deferred Stock Unit Plan for
Outside Directors
*(A)10-38 Excess Benefit Plan
*11 NIAGARA MOHAWK HOLDINGS, INC.
Statement setting forth the computation of average
number of shares of common stock outstanding
*12a NIAGARA MOHAWK HOLDINGS, INC.
Statements showing computations of certain
financial ratios
*12b NIAGARA MOHAWK POWER CORPORATION
Statements showing computations of certain
financial ratios
*21 Subsidiaries of the Registrants
*23 Consent of PricewaterhouseCoopers LLP,
independent accountants
*27a NIAGARA MOHAWK HOLDINGS, INC.
Financial Data Schedule
*27b NIAGARA MOHAWK POWER CORPORATION
Financial Data Schedule
** Filed October 15, 1937 after effective date of Registration Statement No.
2-3414.
(A) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 601 of Regulation S-K.
<PAGE>
EXHIBIT 4(b)(36)
NIAGARA MOHAWK POWER CORPORATION
TO
MARINE MIDLAND BANK, AS TRUSTEE
SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 1, 1994
PROVIDING FOR CREATION OF $210,000,000 PRINCIPAL AMOUNT OF FIRST
MORTGAGE BONDS, 6 7/8% SERIES DUE MARCH 1, 2001
<PAGE>
SUPPLEMENTAL INDENTURE dated as of March 1, 1994, made by and between
NIAGARA MOHAWK POWER CORPORATION, a corporation duly organized and existing
under the laws of the State of New York, having its principal place of business
(residence) at No. 300 Erie Boulevard West, Syracuse, New York (hereinafter
sometimes referred to as the "Company"), party of the first part, and MARINE
MIDLAND BANK (successor to Marine Midland Bank, N.A., a national banking
association and, in turn, a successor to Marine Midland Bank, a New York
corporation, formerly named The Marine Midland Trust Company of New York, Marine
Midland Grace Trust Company of New York and Marine Midland Bank -- New York), a
trust company, duly organized and existing under the laws of the State of New
York, having its principal corporate trust office at 140 Broadway, New York, New
York (hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Mortgage Trust Indenture hereinafter mentioned, party of the second part.
WHEREAS, the Company (formerly Central New York Power Corporation) has
heretofore executed and delivered to the Trustee its Mortgage Trust Indenture
dated as of October 1, 1937 (hereinafter referred to as the "Original
Indenture") and indentures supplemental thereto dated as of December 1, 1938, as
of April 15, 1939, as of July 1, 1940, as of January 1, 1942, as of October 1,
1944, as of June 1, 1945, as of August 17, 1948, as of December 31, 1949, as of
January 1, 1950, as of October 1, 1950, as of October 19, 1950, as of December
1, 1951, as of February 1, 1953, as of February 20, 1953, as of October 1, 1953,
as of August 1, 1954, as of April 25, 1956, as of May 1, 1956, as of September
1, 1957, as of June 1, 1958, as of March 15, 1960, as of April 1, 1960, as of
November 1, 1961, as of December 1, 1964, as of October 1, 1966, as of July 15,
1967, as of August 1, 1967, as of August 1, 1968, as of December 1, 1969, as of
February 1, 1971, as of February 1, 1972, as of August 1, 1972, as of December
1, 1973, as of October 1, 1974, as of March 1, 1975, as of August 1, 1975, as of
March 15, 1977, as of August 1, 1977, as of December 1, 1977, as of March 1,
1978, as of December 1, 1978, as of September 1, 1979, as of October 1, 1979, as
of June 15, 1980, as of September 1, 1980, as of March 1, 1981, as of August 1,
1981, as of March 1, 1982, as of April 1, 1982, as of June 1, 1982, as of August
1, 1982, as of November 1, 1982, as of March 1, 1983, as of May 1, 1983, as of
June 1, 1983, as of March 1, 1984, as of May 1, 1984, as of July 1, 1984, as of
October 1, 1984, as of January 1, 1985, as of February 1, 1985, as of February
15, 1985, as of November 1, 1985, as of June 1, 1986, as of August 1, 1986, as
of October 1, 1986, as of November 1, 1986, as of July 1, 1987, as of May 1,
1988, as of February 1, 1989, as of April 1, 1989, as of October 1, 1989, as of
June 1, 1990, as of November 1, 1990, as of March 1, 1991, as of October 1,
1991, as of April 1, 1992, as of June 1, 1992, as of July 1, 1992, as of August
1, 1992, as of April 1, 1993, as of July 1, 1993 and as of September 1, 1993
(said Original Indenture, together with all instruments stated to be
supplemental thereto to which the Trustee has heretofore been or shall hereafter
be a party, including said enumerated Supplemental Indentures and this
Supplemental Indenture, being herein referred to as the "Indenture"); and
WHEREAS, the Indenture provides in Section 1 of Article Twelfth thereof
that without any action or consent by, or notice to, the holders of any of the
Bonds, the Company and the Trustee, from time to time and at any time, may enter
into such indentures supplemental to the Original Indenture as shall be by them
deemed necessary or desirable for the purpose of establishing the form, terms,
provisions and conditions of a particular series of Bonds, and of providing the
terms and conditions of redemption of Bonds of such series, or for a retirement
fund or other fund for such series, or for any other purpose not inconsistent
with the terms of the Indenture and which shall not impair the security of the
same; and
WHEREAS, the Company desires to enter into this indenture supplemental to
the Original Indenture with the Trustee for the purpose of establishing the
form, terms, provisions and conditions of a new series of Bonds under the
Indenture and for the purpose of providing the terms and conditions of
redemption of the Bonds of such new series, and for a maintenance fund, all as
determined by resolution or resolutions of the Board of Directors of the
Company; and
WHEREAS, the Company in the exercise of the authority and power reserved to
it under and by virtue of the provisions of the Indenture and pursuant to
appropriate resolutions of its Board of Directors has duly resolved and
determined to make, execute and deliver to the Trustee a supplemental
indenture in the form hereof and for the purposes herein provided; and
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument in accordance
with its terms have been performed and fulfilled and the execution and
delivery hereof have been in all respects duly authorized;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE
W I T N E S S E T H:
That for and in consideration of the premises and of the purchase or
acceptance of the Bonds by those who shall hold the same from time to time and
of the sum of One Dollar to the Company duly paid by the Trustee at or before
the execution and delivery of this Supplemental Indenture and for other good and
valuable consideration, the receipt whereof is hereby acknowledged, the Company
does hereby covenant and agree with the Trustee for the benefit of the holders
of the Bonds, or any of them, issued or to be issued under the Indenture, as
follows:
PART I.
CREATION OF A SERIES OF FIRST MORTGAGE BONDS,
6 7/8% SERIES DUE MARCH 1, 2001
SECTION 1. The Company hereby creates and establishes a new series of
Bonds to be issued under and secured by the Indenture to be designated "First
Mortgage Bonds, 6 7/8% Series due March 1, 2001" (hereinafter sometimes referred
to as the "Bonds of the Seventy-eighth Series").
The permitted principal amount of the Bonds of the Seventy-eighth Series
which may be executed by the Company and authenticated by the Trustee is limited
so that at no time shall there be authenticated, delivered or outstanding under
the Indenture Bonds of the Seventy-eighth Series for a principal amount
exceeding $210,000,000, except that Bonds of the Seventy-eighth Series may
always be issued as provided in Section 2 of Article Fourth of the Indenture.
Upon the execution of this Supplemental Indenture, the Company may execute
and deliver to the Trustee from time to time not in excess of $210,000,000
aggregate principal amount of Bonds of the Seventy-eighth Series, and thereupon
the Trustee, without awaiting the filing or recording of this Supplemental
Indenture but upon receipt of specified evidence of due compliance by the
Company with the applicable provisions of the Indenture, shall authenticate the
said $210,000,000 principal amount of Bonds of the Seventy-eighth Series and
deliver the same upon the written order of the Company signed in its name by its
President or one of its Vice Presidents or its Treasurer or an Assistant
Treasurer.
SECTION 2. The Bonds of the Seventy-eighth Series shall mature according
to their terms on March 1, 2001 and, in the case of the initial authentication
of the Bonds of the Seventy-eighth Series, shall be dated March 1, 1994 and
shall bear interest from such date at the rate per annum specified in the
designation of such series, payable semi-annually on March 1 and September 1 in
each year (computed on the basis of a 360-day year of twelve 30-day months).
Definitive Bonds of said series shall be registered Bonds without coupons and
shall be issued in denominations of $1,000 and multiples thereof.
Subsequent to the initial authentication of the Bonds of the Seventy-eighth
Series, each Bond of the Seventy-eighth Series shall be dated as of the date of
its authentication, and shall bear interest from the March 1 or September 1, as
the case may be, next preceding the date of such Bond to which interest has been
paid or provided for (unless the date of such Bond is a March 1 or a September 1
to which interest has been paid or provided for, in which case such Bond shall
bear interest from its date, or unless the date of such Bond is prior to the
payment of any interest on the Bonds of the Seventy-eighth Series, in which case
such Bond shall bear interest from March 1, 1994). However, so long as there
is no existing default in the payment of interest on the Bonds of the
Seventy-eighth Series, any such Bond authenticated by the Trustee after the
close of business on the record date (as hereinafter in this Section 2 defined)
for any interest payment date and prior to such interest payment date shall be
dated the date of its authentication, but shall bear interest from such interest
payment date; provided, however, that if and to the extent the Company shall
default in the payment of interest on such interest payment date, then such Bond
shall bear interest from the March 1 or September 1, as the case may be, next
preceding the date of such Bond to which interest has previously been paid or
made available for payment on the outstanding Bonds of the Seventy-eighth Series
or, if no interest has been paid on such Bonds, from March 1, 1994.
The interest payable on any interest payment date shall be paid to the
persons in whose names the Bonds of the Seventy-eighth Series were registered at
the close of business on the record date for such payment of interest
notwithstanding any cancellation of Bonds of the Seventy-eighth Series upon any
registration of transfer or exchange thereof between such record date and such
interest payment date; except that if the Company shall default in the payment
of any interest due on such interest payment date such defaulted interest shall
be paid to the persons in whose names Bonds of the Seventy-eighth Series are
registered either at the close of business on the date preceding the date of
payment of such defaulted interest or on a subsequent record date fixed for the
payment of such defaulted interest by notice given by mail by or on behalf of
the Company to holders of Bonds of the Seventy-eighth Series not less than ten
days preceding such subsequent record date. The term "record date" as used
herein shall mean, with respect to a regular semiannual interest payment date,
the close of business on the fifteenth day of the calendar month next preceding
such interest payment date or, if such fifteenth day shall be a day on which
banking institutions in The City of New York are authorized by law to close, the
next preceding day which shall not be a day on which such institutions are so
authorized to close or, in the case of defaulted interest, the close of business
on any subsequent record date established as provided above.
All of the Bonds of the Seventy-eighth Series shall be executed in the name
and on behalf of the Company by a facsimile of the signature (or manual
signature) of its President or a Vice President, and imprinted with its
corporate seal (or a facsimile thereof), attested by a facsimile of the
signature (or manual signature) of its Secretary or an Assistant Secretary.
Bonds of the Seventy-eighth Series shall be lettered "RU" and numbered
consecutively from RU-1 upwards, or shall bear such other letters as may be
provided therefor by the Board of Directors of the Company.
Both principal of and interest on the Bonds of the Seventy-eighth Series
shall be payable at the office of the Trustee, which in the case of Marine
Midland Bank shall be its corporate trust office in the Borough of Manhattan,
The City of New York, State of New York, or at such other office or agency in
the Borough of Manhattan, The City of New York, State of New York, as shall be
maintained by the Company for such purpose, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
public and private debts.
SECTION 3. The Company shall not have the right to redeem the outstanding
Bonds of the Seventy-eighth Series, either as a whole or in part, on any date
prior to maturity.
The Bonds of the Seventy-eighth Series are also not subject to redemption,
either as a whole or in part, by operation of any sinking fund, debt retirement
fund or maintenance fund referred to in Part II hereof.
SECTION 4. The registered owner (or assigns) of any Bond of the
Seventy-eighth Series may at any time surrender the same at the corporate trust
office of the Trustee, or at any other office or agency of the Trustee or the
Company maintained for such purpose, and with instruments of transfer
satisfactory to the Trustee, and subject to the terms, conditions and
limitations specified in the Indenture, shall be entitled to receive in exchange
therefor an equal principal amount of Bonds of said series of other authorized
denominations; and the Company will provide, and the Trustee shall authenticate
and deliver, the Bonds necessary to make such exchange. The provisions of
Section 12 of Article Second of the Original Indenture to the contrary
notwithstanding, no payment of a service charge shall be required for any
exchange or registration of transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.
SECTION 5. The definitive Bonds of the Seventy-eighth Series, and the
Trustee's Certificate to be inscribed on all Bonds of said series, are to be
substantially in the forms following, respectively:
<PAGE>
[FORM OF FACE OF DEFINITIVE BOND OF THE SEVENTY-EIGHTH SERIES]
No. RU $------
NIAGARA MOHAWK POWER CORPORATION
FIRST MORTGAGE BOND
6 7/8% SERIES DUE MARCH 1, 2001
NIAGARA MOHAWK POWER CORPORATION, a New York corporation (herein
called the "Company"), for value received, hereby promises to pay to,
or registered assigns, the principal sum of Dollars on March 1,
2001, and to pay interest from March 1, 1994 or from the March 1 or September 1,
as the case may be, next preceding the date of this Bond to which interest has
been paid or provided for on such principal sum at the rate per annum specified
in the title of this Bond semi-annually on March 1 and September 1, in each year
(computed on the basis of a 360-day year of twelve 30-day months), until payment
of such principal sum has been made or duly provided for, to the registered
owner hereof as of the close of business on the fifteenth day of the month next
preceding the month in which an interest payment is due, except as otherwise
provided on the reverse hereof or in the Indenture.
Both principal of and interest on this Bond are payable at the corporate
trust office of the Trustee hereinafter named, in the Borough of Manhattan, City
and State of New York, or at such other office or agency in said Borough as
shall be maintained by the Company for such purpose, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
public and private debts.
Reference is made to the further provisions of this Bond set forth on the
reverse hereof, which for all purposes have the same effect as though fully set
forth at this place.
This Bond shall not be valid or obligatory for any purpose until
authenticated by the execution by the Trustee of the certificate inscribed
hereon.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Bond to be executed in its
corporate name by a facsimile of the signature (or manual signature) of its
President or a Vice President and imprinted with its corporate seal (or a
facsimile thereof), attested by a facsimile of the signature (or manual
signature) of its Secretary or an Assistant Secretary.
Dated: NIAGARA MOHAWK POWER CORPORATION
By: /s/
-------------------------
President
Attest:
/s/
-------------------------
Secretary
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE]
This is one of the Bonds of the Series designated above described in the
within-mentioned Indenture.
MARINE MIDLAND BANK,
as Trustee
By: /s/
-------------------------
Authorized Officer
<PAGE>
[FORM OF REVERSE OF DEFINITIVE BOND
OF THE SEVENTY-EIGHTH SERIES]
This Bond is one of a duly authorized issue of Bonds of the Company, of an
unlimited (except as provided in the Indenture hereinafter mentioned) permitted
principal amount, all issued or to be issued in one or more series (the Bonds of
the series of which this Bond is a part being herein called the "Bonds of the
Seventy-eighth Series"), all of the Bonds of all series being issued or to be
issued under and, irrespective of the time of issue, all equally secured by a
Mortgage Trust Indenture (herein, with all instruments stated to be supplemental
thereto to which the Trustee hereinafter named is or shall be a party, called
the "Indenture"), dated as of October 1, 1937, to Marine Midland Bank (successor
to Marine Midland Bank, N.A., a national banking association and, in turn, a
successor to Marine Midland Bank, a New York corporation, formerly named The
Marine Midland Trust Company of New York, Marine Midland Grace Trust Company of
New York and Marine Midland Bank -- New York and hereinafter, with its
successors as defined in the Indenture, referred to as the "Trustee"), to which
Indenture, an executed counterpart of which is on file with the Trustee,
reference is hereby made for a description of the property mortgaged and pledged
to the Trustee, and for a statement of the nature and extent of the security,
the rights of the holders of the Bonds with respect to such security, and the
terms and conditions upon which said Bonds are or are to be issued and secured;
but neither the foregoing reference to the Indenture, nor any provision of this
Bond or of the Indenture, shall affect or impair the obligation of the Company,
which is absolute and unconditional, to pay, at the stated or accelerated
maturities herein provided, the principal of and interest on this Bond as herein
provided.
The Indenture and the rights and obligations of the Company and of the
holders of the Bonds thereunder may be changed or modified at any time upon the
consent and approval of the Company and of the holders of 66-2/3 per cent in
principal amount of the Bonds then outstanding affected by such change or
modification, given as provided in the Indenture, and in the manner and subject
to the limitations therein set forth; provided, that no such change or
modification shall (a) alter or impair the obligation of the Company to pay the
principal of, and premium, if any, and interest on any Bond at the time and
place and at the rate and in the currency provided therein, without the consent
of the holder of such Bond, (b) permit the creation by the Company of any
mortgage, or lien in the nature of a mortgage, ranking prior to or pari passu
with the lien of the Indenture, or alter adversely to the Bondholders the
character of the lien of the Indenture, except as in the Indenture otherwise
expressly provided, unless the creation of such mortgage or lien, or such
alteration of the lien of the Indenture, be consented to by the holders of all
outstanding Bonds, (c) affect the Trustee unless consented to by the Trustee or
(d) permit a reduction of the percentage required for any change or modification
of the Indenture, without the consent of the holders of all outstanding Bonds.
The principal of this Bond together with accrued interest thereon may be
declared, or may become, due and payable before maturity in certain events, on
the conditions, in the manner and with the effect set forth in the Indenture.
Subsequent to the initial authentication of the Bonds of the Seventy-eighth
Series, each Bond of the Seventy-eighth Series shall be dated as of the date of
its authentication, and shall bear interest from the March 1 or September 1, as
the case may be, next preceding the date of such Bond to which interest has been
paid or provided for (unless the date of such Bond is on a March 1 or a
September 1 to which interest has been paid or provided for, in which case such
Bond shall bear interest from its date, or unless the date of such Bond is prior
to the payment of any interest on the Bonds of the Seventy-eighth Series, in
which case such Bond shall bear interest from March 1, 1994). However, so long
as there is no existing default in the payment of interest on the Bonds of the
Seventy-eighth Series, any such Bond authenticated by the Trustee after the
close of business on the record date for any interest payment date and prior to
such interest payment date shall be dated the date of its authentication, but
shall bear interest from such interest payment date; provided, however, that if
and to the extent that the Company shall default in the payment of interest on
such interest payment date, then such Bond shall bear interest from the March 1
or September 1, as the case may be, next preceding the date of such Bond to
which interest has previously been paid or made available for payment on the
outstanding Bonds of the Seventy-eighth Series or, if no interest has been paid
on such Bonds, from March 1, 1994.
The Bonds of the Seventy-eighth Series are entitled to the benefit of a
maintenance fund referred to in Part II of the Supplemental Indenture creating
the Bonds of the Seventy-eighth Series. The Bonds of the Seventy-eighth Series
may not be redeemed at the option of the Company, either as a whole or in part,
and are not subject to redemption, either as a whole or in part, by operation of
any sinking fund, debt retirement fund or the maintenance fund referred to in
Part II of the Supplemental Indenture creating the Bonds of the Seventy-eighth
Series.
No recourse shall be had for the payment of any part of principal of, or
interest on, this Bond or for any claim based hereon or thereon, or otherwise in
any manner with respect hereto, or with respect to the Indenture, to or against
any incorporator or any past, present or future stockholder, officer or director
of the Company or of any successor corporation, either directly or through the
Company or any successor corporation, whether by virtue of any constitution,
statute or other provision of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being expressly waived and released by
the acceptance of this Bond and as part of the consideration for the issue
hereof, as provided in the Indenture.
Registration of transfer of this Bond may be made by the registered owner
(or assigns) in person or by duly authorized attorney, at the corporate trust
office of the Trustee, or at such other offices or agencies of the Trustee or
the Company as shall be maintained for such purpose, upon the surrender of this
Bond, and thereupon a new Bond or Bonds of authorized denominations of the same
series for a like aggregate principal amount will be issued to the registered
transferee, all in the manner and subject to the terms, conditions and
limitations specified in the Indenture. No service charge shall be made for any
exchange or registration of transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto. The Company and the Trustee may deem and treat the person
in whose name this Bond is registered as the absolute owner hereof for the
purpose of receiving payment of or on account of the principal and interest due
hereon (subject to the provisions of the first paragraph of this Bond), and for
all other purposes, and neither the Company, the Trustee nor any paying agent or
agency shall be affected by any notice to the contrary, whether this Bond or
interest shall be overdue or not.
PART II.
MAINTENANCE FUND PROVISIONS AND
RESTRICTIONS AS TO DIVIDENDS
SECTION 1. The Company covenants that so long as any of the Bonds of the
Seventy-eighth Series shall be outstanding, it will comply with the provisions
of Section 22 (providing for a maintenance fund for the benefit of Bonds issued
under the Indenture) and Section 23 (providing for certain restrictions on the
payment of dividends) of Article Fifth of the Indenture as added by the
Supplemental Indenture dated as of March 1, 1978.
PART III.
FUTURE AMENDMENTS OF INDENTURE
SECTION 1. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Fourth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, as follows:
(A) by deleting the provisions of subparagraph 1(b) of Paragraph F of
Section 6 of Article Fourth thereof, of subparagraph 1(b) of Paragraph E
of Section 7 of Article Fourth thereof and of subsection 1(b) of Section 8
of Article Fourth thereof;
(B) by restating Paragraph A of Section 7 of Article Fourth of the
Indenture so that, as so restated, it shall be and read as follows:
"A. The Bonds, Underlying Mortgage Obligations and Constituent Corporation
Bonds, if any, for which Bonds are then to be issued under this Section 7,
shall not previously have been made the basis for the issuance of Bonds or
for the withdrawal of money under any provision of this Indenture, or
retired out of moneys paid out by the Trustee under the provisions of
Section 9 of this Article Fourth or Section 2 of Article Seventh hereof,
or retired with moneys deposited under an Underlying Mortgage or
Constituent Corporation Mortgage and representing the proceeds of any
insurance on the Mortgaged Property or of any part of the Mortgaged
Property which shall have been released from the lien of this Indenture,
or used as the basis for a credit under Section 4 of Article Third of this
Indenture.";
and
(C) by restating subsection (a) of subparagraph 3 of Paragraph E of
Section 7 of Article Fourth of the Indenture so that, as so restated, it
shall be and read as follows:
"(a) That the Bonds, Underlying Mortgage Obligations and Constituent
Corporation Bonds, if any, for which Bonds are then to be issued under
this Section 7, had not been made the basis for the issuance of Bonds or
for the withdrawal of money under any provision of this Indenture, and had
not been retired out of moneys paid out by the Trustee under the
provisions of Section 9 of this Article Fourth or Section 2 of Article
Seventh hereof, or retired with moneys deposited under an Underlying
Mortgage or Constituent Corporation Mortgage and representing the proceeds
of any insurance on the Mortgaged Property or of any part of the Mortgaged
Property which shall have been released from the lien of this Indenture,
and had not been used as the basis for a credit under Section 4 of Article
Third of this Indenture."
SECTION 2. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Ninth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by adding the following Section 19 at the end of
said Article Ninth:
"SECTION 19. All parties to this Indenture agree, and each holder of
Bonds by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Indenture, or in any suit against the
Trustee for any action taken or omitted by it as Trustee, the filing by
any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section
shall not apply to any suit instituted by the Trustee, to any suit
instituted by any holder, or group of holders, of more than 10% in
aggregate principal amount of the Bonds outstanding, or to any suit
instituted by any holder of Bonds for the enforcement of the payment of
the principal of (or premium, if any) or interest on any Bond on or after
the maturity date expressed in such Bond."
SECTION 3. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Eleventh of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by amending the first paragraph of Section 2 thereof
so that, as so amended, it shall be and read as follows:
"SECTION 2. Anything herein contained to the contrary notwithstanding, any
moneys at any time deposited with the Trustee pursuant to the provisions
hereof for the payment of the principal, premium or interest of or upon any
Bond or interest coupon and remaining unclaimed for three (3) years after
the date upon which such payment shall have become due shall, upon the
request of the Company, be repaid to it by the Trustee; provided, that,
before being required to make any such repayment, the Trustee may, at the
expense of the Company, cause to be published, once a week for four (4)
successive calendar weeks, in a daily newspaper, printed in the English
language, published and of general circulation in the Borough of
Manhattan, The City of New York, State of New York, and in a daily
newspaper, printed in the English language, published and of general
circulation in each of the other cities (if any) in which such principal,
premium or interest, as the case may be, was payable in accordance with
the terms of the Bond or interest coupon with respect to which such moneys
were deposited, notice that the said moneys have not been claimed, and that
after a date named in such notice, the balance of such moneys then
unclaimed will be repaid to the Company."
SECTION 4. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Twelfth of the
Indenture, as it ma heretofore, hereby and hereafter be or have been
supplemented and amended, by amending Paragraph A of Section 2 of Article
Twelfth of the Indenture by the addition of the following:
"The Trustee may, and, upon written request of the Company or of the
holders of a majority in principal amount of the Bonds outstanding, shall,
fix a day, not less than ten (10) days prior to the date of first
publication of notice of such meeting, as a record date for the
determination of holders of Registered Bonds without coupons, and of
Coupon Bonds registered as to principal (otherwise than to bearer),
entitled to notice of and to vote at such meeting and any adjournment
thereof, and only such registered holders who shall have been such on
the date so fixed shall be entitled to notice of and to vote such Bonds
at such meeting, and the Registered Bonds without coupons, and the Coupon
Bonds registered as to principal (otherwise than to bearer), on such record
date may be voted at such meeting and any adjournment thereof only by the
persons who shall have been registered holders of such Bonds on such record
date or their proxies, notwithstanding any registration of transfer of any
such Bonds on the books of the Company after such date. If any Registered
Bonds without coupons shall be transferred or shall be exchanged for Coupon
Bonds after such record date, or if any Coupon Bonds registered as to
principal (otherwise than to bearer) on such record date shall thereafter
be registered to bearer, a suitable notation shall be made upon such Bonds
at the time of registration of transfer from such registered holder's name
or exchange, as the case may be, to record the fact that the registered
holder of such Bonds on said record date or his proxies shall be the only
persons entitled to vote such Bonds at the meeting. If any Coupon Bond not
registered as to principal upon such record date is thereafter so
registered (otherwise than to bearer) or is thereafter exchanged for a
Registered Bond, the first registered holder in whose name such Bond shall
be so registered shall be deemed to have been the registered holder of such
Bond on the record date for the purposes of this section, and upon such
registration or exchange a notice of such meeting shall be delivered to
such registered holder. In any case where a record date is fixed as
aforesaid, the list of Bondholders referred to in Paragraph B of this
Section 2 shall be based upon the holdings of Bonds on such record date,
but shall also include the holder of Coupon Bonds registered as to
principal (otherwise than to bearer) after such record date and prior to
such meeting and the holders of Registered Bonds received in exchange for
Coupon Bonds after such record date and prior to such meeting."
SECTION 5. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Twelfth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by adding the following Paragraph G to Section 2
thereof:
"G. Whenever the Company shall deliver to the Trustee an instrument or
instruments executed by holders of at least sixty-six and two-thirds per
centum (66-2/3%) in aggregate principal amount of the Bonds affected and
outstanding at the time of such delivery, consenting to the substance of a
proposed modification or amendment to the provisions hereof, thereupon the
Trustee shall execute a supplemental indenture in substantially the form
provided for by or in such instrument or instruments, and no holder of any
Bond shall have any right or interest to object to the execution of said
supplemental indenture or to object to any of the terms or provisions
therein contained, or the operation thereof, or in any manner to question
the propriety of the execution thereof, or to enjoin or restrain the
Trustee or the Company from executing the same or from taking any action
pursuant to the provisions thereof, provided that, in lieu of an instrument
or instruments executed by holders of Bonds, the consent of the holders of
any series of Bonds to any such proposed modification or amendment may be
set forth in and evidenced by the supplemental indenture establishing the
terms and provisions of such series; and provided further that no such
change or modification shall (a) alter or impair the obligation of the
Company to pay the principal and interest on any Bond outstanding at the
time and place and at the rate and in the currency prescribed therein,
without the consent of the holder of such Bond, (b) permit the creation by
the Company of any mortgage, or lien in the nature of a mortgage, ranking
prior to or pari passu with the lien of the Indenture, or alter adversely
to the Bondholders the character of the lien of the Indenture, except as
in the Indenture otherwise expressly provided, unless the creation of such
mortgage or lien, or such alteration of the lien of the Indenture, be
consented to by the holders of all outstanding Bonds, (c) affect the
Trustee unless consented to by the Trustee or (d) permit a reduction of the
percentage required for any change or modification of the Indenture,
without the consent of the holders of all outstanding Bonds.
It shall not be necessary for any consent of Bondholders under this Section
to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such consent approves the substances of the
matters to which such consent relates. Any consent executed and delivered
by any Bondholder shall be binding upon all future holders of Bonds held by
such Bondholder at the time of execution of such consent, including without
limitation any Bonds issued in substitution or exchange therefor, whether
upon transfer or otherwise."
SECTION 6. The Company reserves the right, without any consent or other action
by holders of the Bonds of the Seventy-eighth Series or of any subsequently
created series, to amend at any time Article Thirteenth of the Indenture, as
it may heretofore, hereby and hereafter be o have been supplemented and
amended, by amending the first paragraph of Section 1 thereof so that, as so
amended, it shall be and read as follows:
"SECTION 1. Any demand, consent, waiver, request, notice or other
instrument in writing required or provided by this Indenture to be signed
or executed by the holders of any Bonds may be in any number of concurrent
writings of similar tenor, and may be signed or executed by such holders
in person or by attorney appointed in writing.
The fact and date of the execution by any person of any such instrument, or
of the writing appointing any such attorney, and of the ownership by any
person of any Bonds, may be proved in any manner deemed sufficient by the
Trustee, and such proof shall be conclusive in favor of the Trustee and the
Company.
Without limiting the generality of the foregoing paragraph:
A. The signature on a proxy, consent or other such instrument or writing,
if believed by the Trustee to be genuine, shall be sufficient to establish
the fact of the execution thereof.
B. The fact of the ownership of any Coupon Bond which shall not at the
time be registered as to principal or shall be registered to bearer, and
the denomination and serial number of such Bond and the date of holding the
same, may be proved by a certificate executed by any trust company, bank,
banker or other depositary (wherever situated), showing that at the date
therein mentioned the person named in such certificate had on deposit with
such depositary the Bond described in such certificate. For all purposes
of this Indenture and of any proceedings pursuant hereto for the
enforcement hereof or otherwise, to the extent permitted by the provisions
of Section 4 of Article Tenth, such person shall be deemed to continue to
be the owner of such Bond until the Trustee shall have received notice in
writing to the contrary. The ownership of any Registered Bond or of any
Coupon Bond which shall at the time be registered as to principal
(otherwise than to bearer) shall be proved by the register of Bonds
maintained for such purpose."
SECTION 7. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of
subsequently created series, to amend at any time Article Fourth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by amending subparagraph (3) of Paragraph E of
Section 9 thereof so that, as so amended, it shall be and read as follows:
"(3) A statement, in form satisfactory to the Trustee, signed by the
President or a Vice President and the Treasurer or an Assistant Treasurer
of the Company, and verified on information and belief by one of such
officers not more than sixty (60) days prior to the receipt thereof by
the Trustee, certifying
(a) that the Bonds so delivered had previously been actually negotiated
by the Company for value;
(b) that the Company had bona fide purchased or contracted to purchase
the said Bonds, Underlying Mortgage Obligations and Constituent
Corporation Bonds at prices (inclusive of accrued interest) to be
set forth in the statement, and that such prices were not in excess
of 115% of the principal amount of said Bonds, Underlying Mortgage
Obligations and Constituent Corporation Bonds;
(c) that the Company is not, so far as known to the officers signing such
statement, in default with respect to the performance or observance
of any covenant or agreement contained in this Indenture; and
(d) that it is not then necessary to retire the Underlying Mortgage
Obligations to be purchased to eliminate any excess of the nature
described in Paragraph D of Section 7 hereof."
SECTION 8. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Seventy-eighth Series or of any
subsequently created series, to amend at any time Article Seventh of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by amending Paragraph E of Section 2 thereof so
that, as so amended, it shall be and read as follows:
"E. To the purchase of Bonds of any series issued and outstanding
hereunder or of Underlying Mortgage Obligations or of Constituent
Corporation Bonds at not in excess of 115% of the principal amount
thereof, in accordance with the provisions of Paragraph E of Section
9 of Article Fourth."
PART IV.
THE TRUSTEE
SECTION 1. The Trustee hereby accepts the trusts hereby declared and provided,
and agrees to perform the same upon the terms and conditions set forth in the
Original Indenture and in the indentures supplemental thereto including this
Supplemental Indenture and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in respect
of the validity or sufficiency of this Supplemental Indenture, or for or in
respect of the recitals contained herein, all of which recitals are made by the
Company solely. To the extent permitted by the provisions of Section 4 of
Article Tenth of the Indenture, the Trustee shall not be answerable or
accountable for anything whatsoever in connection with this Supplemental
Indenture except for its own willful misconduct or negligence.
PART V.
MISCELLANEOUS PROVISIONS
SECTION 1. This Supplemental Indenture shall, pursuant to the provisions
of Section 4 of Article Twelfth of the Indenture, hereafter form a part of the
Indenture; and all the terms and conditions contained in this Supplemental
Indenture as to any provision authorized to be contained herein shall be and be
deemed to be part of the terms and conditions of the Indenture for any and all
purposes. Except as expressly amended and supplemented by this Supplemental
Indenture, the Indenture is hereby ratified and confirmed in all respects.
SECTION 2. This Supplemental Indenture may be simultaneously executed in
any number of counterparts, and each of such counterparts shall for all purposes
be deemed to be an original and shall remain in full force and effect, and all
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be executed in their respective corporate names by their respective officers
thereunto duly authorized, and their respective corporate seals to be hereto
attached and to be duly attested, all as of the day and year first above
written.
NIAGARA MOHAWK POWER CORPORATION
[CORPORATE SEAL]
By: /s/Arthur W. Roos
-------------------------
Vice President-Treasurer
Attest:
/s/Harold J. Bogan
- ------------------------------
Secretary
MARINE MIDLAND BANK
[CORPORATE SEAL]
By: /s/Metin Caner
-------------------------
Assistant Vice President
Attest:
/s/Hughes
- ------------------------------
Hughes
Corporate Trust Officer
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ONONDAGA )
On this first day of March, 1994 before me personally came ARTHUR W. ROOS,
to me personally known, who, being by me duly sworn, did depose and say that he
resides at 4573 Stoneledge Lane, Manlius, New York 13104; that he is the Vice
President- Treasurer of NIAGARA MOHAWK POWER CORPORATION, the corporation
described in and which executed the above instrument; that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
/s/Ingrid E. Clark
- ------------------------------
Ingrid E. Clark
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this first day of March, 1994, before me personally came METIN CANER to
me personally known, who, being by me duly sworn, did depose and say that he
resides at 2350 Broadway, New York, New York 10024; that he is an Assistant Vice
President of MARINE MIDLAND BANK, the trust company described in and which
executed the above instrument; that he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
/s/Lisa J. Sandler
- ------------------------------
Lisa J. Sandler
Notary Public
3
EXHIBIT 4(b)(40)
NIAGARA MOHAWK POWER CORPORATION
to
BANKERS TRUST COMPANY, as Trustee
SUPPLEMENTAL INDENTURE
Dated as of November 19, 1998
Providing for the amendment and restatement of the Supplemental Indenture
providing for the creation of the Fifty-sixth Series of Bonds and the amendment
and restatement of the outstanding Fifty-sixth Series of Bonds, in a principal
amount of $75,000,000, to be redesignated First Mortgage Bonds, 5.15% Series due
November 1, 2025
<PAGE>
TABLE OF CONTENTS
This Table of Contents does not constitute part of the supplemental indenture
or have any bearing upon the interpretation of any of its terms and provisions.
PARTIES
RECITALS
CONSIDERATION
PART I - Amendment and Restatement of the Supplemental Indenture Creating
the Fifty-sixth Series of First Mortgage Bonds
PART II - Amendment and Restatement of the Fifty-sixth Series of First
Mortgage Bonds
Form of Definitive Bond of the Eighty-eighth Series
Form of Trustee's Certificate
PART III - Maintenance Fund Provisions and Restrictions as to Dividends
PART IV - Provisions Relating to Institutional Holders
PART V - Future Amendments of Indenture
PART VI - The Trustee
PART VII - Miscellaneous Provisions
TESTIMONIUM AND SIGNATURES
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of November 19, 1998, made by and between
NIAGARA MOHAWK POWER CORPORATION, a corporation duly organized and existing
under the laws of the State of New York, having its principal place of business
(residence) at No. 300 Erie Boulevard West, Syracuse, New York (hereinafter
sometimes referred to as the "Company"), party of the first part, and Bankers
Trust Company (successor to Marine Midland Bank, a corporation duly organized
and existing under the laws of the State of New York, formerly named The Marine
Midland Trust Company of New York, Marine Midland Grace Trust Company of New
York and Marine Midland Bank - New York), a national banking association duly
organized and existing under the laws of the United States of America, having
its principal corporate trust office at 140 Broadway, New York, New York
(hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Mortgage Trust Indenture hereinafter mentioned, party of the second part.
WHEREAS, the Company (formerly Central New York Power Corporation) has
heretofore executed and delivered to the Trustee its Mortgage Trust Indenture
dated as of October 1, 1937 (hereinafter referred to as the "Original
Indenture") and indentures supplemental thereto dated as of December 1, 1938, as
of April 15, 1939, as of July 1, 1940, as of January 1, 1942, as of October 1,
1944, as of June 1, 1945, as of August 17, 1948, as of December 31, 1949, as of
January 1, 1950, as of October 1, 1950, as of October 19, 1950, as of December
1, 1951, as of February 1, 1953, as of February 20, 1953, as of October 1, 1953,
as of August 1, 1954, as of April 25, 1956, as of May 1, 1956, as of September
1, 1957, as of June 1, 1958, as of March 15, 1960, as of October 1, 1960, as of
November 1, 1961, as of December 1, 1964, as of October 1, 1966, as of July 15,
1967, as of August 1, 1967, as of August 1, 1968, as of December 1, 1969, as of
February 1, 1971, as of February 1, 1972, as of August 1, 1972, as of December
1, 1973, as of October 1, 1974, as of March 1, 1975, as of August 1, 1975, as of
March 15, 1977, as of August 1, 1977, as of December 1, 1977, as of March 1,
1978, as of December 1, 1978, as of September 1, 1979, as of October 1, 1979, as
of June 15, 1980, as of September 1, 1980, as of March 1, 1981, as of August 1,
1981, as of March 1, 1982, as of October 1, 1982, as of June 1, 1982, as of
August 1, 1982, as of November 1, 1982, as of March 1, 1983, as of May 1, 1983,
as of June 1, 1983, as of March 1, 1984, as of May 1, 1984, as of July 1, 1984,
as of October 1, 1984, as of January 1, 1985, as of February 1, 1985, as of
February 15, 1985, as of November 1, 1985, as of June 1, 1986, as of August 1,
1986, as of October 1, 1986, as of November 1, 1986, as of July 1, 1987, as of
May 1, 1988, as of February 1, 1989, as of October 1, 1989, as of October 1,
1989, as of June 1, 1990, as of November 1, 1990, as of March 1, 1991, as of
October 1, 1991, as of April 1, 1992, as of June 1, 1992, as of July 1, 1992,
as of August 1, 1992, as of April 1, 1993, as of July 1, 1993, as of September
1, 1993, as of March 1, 1994, as of July 1, 1994, as of May 1, 1995, as of
March 20, 1996 and as of June 30, 1998 (said Original Indenture, together with
all instruments stated to be supplemental thereto to which the Trustee has
heretofore been or shall hereafter be a party, including said enumerated
Supplemental Indentures and this Supplemental Indenture, being herein referred
to as the "Indenture"); and
WHEREAS, the Indenture provides in Section 1 of Article Twelfth thereof
that without any action or consent by, or notice to, the holders of any of the
Bonds, the Company and the Trustee, from time to time and at any time, may enter
into such indentures supplemental to the Original Indenture as shall be by them
deemed necessary or desirable for the purpose of establishing the form, terms,
provisions and conditions of a particular series of Bonds, and of providing the
terms and conditions of redemption of Bonds of such series, or for a retirement
fund or other fund for such series, or for any other purpose not inconsistent
with the terms of the Indenture and which shall not impair the security of the
same; and
WHEREAS, the Indenture provides in Section 2 of Article Twelfth thereof
that in addition to the power and authority given under Section 1 of Article
Twelfth, any of the provisions of the Indenture may be amended, repealed or
modified in the manner provided in such Section 2, provided, that no such
amendment, repeal or modification shall alter or impair the obligation of the
Company, which is absolute and unconditional to pay the principal and interest
of any Bond outstanding under the Indenture at the time and place and at the
rate prescribed therein without the consent of the holder of such Bond; and
WHEREAS, the Indenture provides in paragraph E of Section 2 of Article
Twelfth thereof that provided the holders of at least 66 percent in aggregate
principal amount of the outstanding Bonds affected by the alteration shall have
consented to and approved the execution of any such supplemental indenture, no
holder of any Bond shall thereafter have any right or interest to object to any
of the terms or provisions therein contained, or in any manner to question the
propriety of the execution thereof, or to enjoin or restrain the Trustee or the
Company from executing the same or from taking any action pursuant to the
provisions thereof; and
WHEREAS, the New York State Energy Research and Development Authority
("NYSERDA") issued 8 7/8% Pollution Control Revenue Bonds (Niagara Mohawk Power
Corporation Project), 1985 Series I (the "Prior NYSERDA Bonds") pursuant to an
Indenture of Trust dated as of October 1, 1984, between NYSERDA and Bankers
Trust Company, as trustee (in such capacity, the "Prior NYSERDA Trustee") as
amended and supplemented by the First Supplemental Indenture, dated as of
November 1, 1985 (such Indenture of Trust, as so amended and supplemented, the
"Prior NYSERDA Indenture"), and advanced to the Company the proceeds of the
Prior NYSERDA Bonds for use by the Company in connection with a pollution
control project of the Company; and
WHEREAS, in connection with the issuance of the Prior NYSERDA Bonds,
pursuant to a Participation Agreement between NYSERDA and the Company dated as
of November 1, 1985, the Company issued $75,000,000 in principal amount of its
First Mortgage Bonds, 8 7/8% Series due November 1, 2025 (the "Prior First
Mortgage Bonds"), pursuant to a Supplemental Indenture dated as of November 1,
1985 (the "Prior Supplemental Indenture") between the Company and Marine Midland
Bank, N.A., as trustee, to evidence the obligation of the Company to repay
NYSERDA amounts advanced to the Company as aforesaid; and
WHEREAS, NYSERDA has agreed pursuant to a Participation Agreement between
NYSERDA and the Company dated the date hereof (the "Participation Agreement")
to issue new bonds of NYSERDA in an aggregate principal amount not to exceed
$75,000,000 and to be designated "Pollution Control Refunding Revenue Bonds
(Niagara Mohawk Power Corporation Project), 1998 Series A Bonds" (the "NYSERDA
Bonds"), which will be issued pursuant to an Indenture dated November 19, 1998
(the "NYSERDA Bond Indenture") between NYSERDA and The Bank of New York (such
trustee and any successor thereto being hereinafter referred to as the "NYSERDA
Bond Trustee"), to refund the Prior NYSERDA Bonds; and
WHEREAS, as set forth in the Participation Agreement, NYSERDA and the
Company have agreed that concurrently at such time as the NYSERDA Bonds are
issued and the Prior NYSERDA Bonds are deemed paid within the meaning of the
Prior NYSERDA Indenture, the Company will take actions necessary to ensure that
(i) certificates representing all Prior First Mortgage Bonds relating to such
Prior NYSERDA Bonds shall be delivered by the Prior NYSERDA Trustee to the
NYSERDA Bond Trustee, (ii) all Prior First Mortgage Bonds relating to such
Prior NYSERDA Bond shall be amended and restated pursuant to the terms of this
Supplemental Indenture, (iii) the Prior Supplemental Indenture shall be amended
and restated under and pursuant to the terms of this Supplemental Indenture,
(iv) the NYSERDA Bond Trustee shall deliver the Prior First Mortgage Bonds to
the Trustee and (v) the Trustee shall deliver new certificates representing the
First Mortgage Bonds of the Eighty-eighth Series to the NYSERDA Bond Trustee
pursuant to the terms of this Supplemental Indenture; and
WHEREAS, the Company desires to enter into this indenture supplemental to
the Original Indenture with the Trustee for the purpose of amending and
restating the form, terms, provisions and conditions of the Fifty-sixth series
of Bonds under the Indenture so as to establish and designate the form, terms,
provisions and conditions of the Eighty-eighth Series of Bonds, and for the
purpose of amending and restating the Supplemental Indenture creating the
Fifty-sixth Series of Bonds in accordance with this Supplemental Indenture, all
as determined by resolution or resolutions of the Board of Directors of the
Company and as agreed to by NYSERDA; and
WHEREAS, the Company in the exercise of the authority and power reserved to
it under and by virtue of the provisions of the Indenture and pursuant to
appropriate resolutions of its Board of Directors has duly resolved and
determined to make, execute and deliver to the Trustee a supplemental
indenture in the form hereof and for the purposes herein provided; and
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument in accordance
with its terms have been performed and fulfilled and the execution and
delivery hereof have been in all respects duly authorized;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE
W I T N E S S E T H:
-------------------
That for and in consideration of the premises and of the purchase or
acceptance of the Bonds by those who shall hold the same from time to time and
of the sum of One Dollar to the Company duly paid by the Trustee at or before
the execution and delivery of this Supplemental Indenture and for other good and
valuable consideration, the receipt whereof is hereby acknowledged, the Company
does hereby covenant and agree with the Trustee for the benefit of the holders
of the Bonds, or any of them, issued or to be issued under the Indenture, as
follows:
PART I
AMENDMENT AND RESTATEMENT
OF THE SUPPLEMENTAL INDENTURE CREATING
THE FIFTY-SIXTH SERIES OF FIRST MORTGAGE BONDS
SECTION 1. At such time as all Prior First Mortgage Bonds issued under the
Prior Supplemental Indenture not heretofore canceled by the Trustee or delivered
to the Trustee canceled or for cancellation have been delivered to the Trustee
by the registered holder thereof, the Prior Supplemental Indenture shall be
amended and restated as this Supplemental Indenture.
PART II
AMENDMENT AND RESTATEMENT OF THE FIFTY-SIXTH SERIES
OF FIRST MORTGAGE
SECTION 1. At such time as all Prior First Mortgage Bonds issued under the
Prior Supplemental Indenture not heretofore canceled by the Trustee or delivered
to the Trustee canceled or for cancellation have been delivered to the Trustee
by the registered holder thereof, such Prior First Mortgage Bonds shall be
amended and restated and redesignated as the "First Mortgage Bonds, 5.15% Series
due November 1, 2025" it (hereinafter sometimes referred to as the "Bonds of the
Eighty-eighth Series").
The permitted principal amount of the Bonds of the Eighty-eighth Series
which may be amended and restated by the Company and executed by the Company in
connection therewith and authenticated by the Trustee is limited so that at no
time shall there be authenticated, delivered or outstanding under the Indenture,
Bonds of the Eighty-eighth Series for a principal amount exceeding $75,000,000,
except that Bonds of the Eighty-eighth Series may always be issued as provided
in Section 2 of Article Fourth of the Indenture.
Upon the execution of this Supplemental Indenture, the Trustee, without
awaiting the filing or recording of this Supplemental Indenture but upon receipt
of evidence of due compliance by the Company with the applicable provisions of
the Indenture, shall authenticate, pursuant to Section 10 of Article Second of
the Indenture, the Bonds of the Eighty-eighth Series and deliver the same to the
NYSERDA Bond Trustee in exchange for certificates representing the same
principal amount of the Prior First Mortgage Bonds delivered to the Trustee by
the NYSERDA Bond Trustee, all such actions to occur simultaneously with delivery
of the NYSERDA Bonds.
SECTION 2. The Bonds of the Eighty-eighth Series shall mature according to
their terms on November 1, 2025 and, in the case of the initial authentication
of the Bonds of the Eighty-eighth Series, shall be dated November 19, 1998 and
shall bear interest from November 19, 1998 at the rate per annum specified in
the designation of such series, payable semi-annually on November 1 and May 1 in
each year (computed on the basis of a 360-day year of twelve 30-day months).
Definitive Bonds of said series shall be registered Bonds without coupons and
shall be issued in denominations of $1,000 and multiples thereof.
Subsequent to the initial authentication of the Bonds of the Eighty-eighth
Series, each Bond of the Eighty-eighth Series shall be dated as of the date of
its authentication and shall bear interest from November 19, 1998.
Notwithstanding any other provision contained herein, the obligation of the
Company to make payments of the principal of and premium, if any, and interest
on the Bonds of the Eighty-eighth Series shall be fully or partially satisfied
and discharged, and the amount of any such payment shall be reduced, to the
extent that the Trustee shall have received written notice, not less than 10
days prior to the date on which any such payment would otherwise be due, that
moneys are available under the NYSERDA Bond Indenture for the payment, in full
or in part, of principal and premium, if any, and interest then due on the
NYSERDA Bonds and the Trustee shall not have received written notice from the
Company that the obligation of the Company shall not be so satisfied and
discharged and the amount of any such payment so reduced.
The interest payable on any interest payment date shall be paid to the
persons in whose names the Bonds of the Eighty-eighth Series were registered at
the close of business on the record date for such payment of interest (except
any such Bond which has been called for redemption on a date fixed for such
redemption which is after such record date and prior to such interest payment
date) notwithstanding any cancellation of Bonds of the Eighty-eighth Series upon
any registration of transfer or exchange thereof between such record date and
such interest payment date; except that if the Company shall default in the
payment of any interest due on such interest payment date such defaulted
interest shall be paid to the persons in whose names Bonds of the Eighty-eighth
Series are registered either at the close of business on the date preceding the
date of payment of such defaulted interest or on a subsequent record date fixed
for the payment of such defaulted interest by notice given by mail by or on
behalf of the Company to holders of Bonds of the Eighty-eighth Series not less
than ten days preceding such subsequent record date. The term "record date" as
used herein shall mean, with respect to a regular semi-annual interest payment
date, the close of business on the fifteenth day of the calendar month next
preceding such interest payment date or, if such fifteenth day shall be a day on
which banking institutions in The City of New York are authorized by law to
close, the next preceding day which shall not be a day on which such
institutions are so authorized to close or, in the case of defaulted interest,
the close of business on any subsequent record date established as provided
above.
All of the Bonds of the Eighty-eighth Series shall be executed in the name
and on behalf of the Company by a facsimile of the signature (or manual
signature) of its President or a Vice President, and imprinted with its
corporate seal (or a facsimile thereof), attested by a facsimile of the
signature (or manual signature) of its Secretary or an Assistant Secretary.
Bonds of the Eighty-eighth Series shall be lettered "RU" and numbered
consecutively from RU-1 upwards, or shall bear such other letters as may be
provided therefor by the Board of Directors of the Company.
Both principal of and interest on the Bonds of the Eighty-eighth Series (as
well as any premium thereon applicable in case of any redemption thereof prior
to maturity) shall be payable at the office of the Company's paying agent, which
in the case of The Marine Midland Bank, shall be its corporate trust office in
the Borough of Manhattan, The City of New York, State of New York, or at such
other office or agency in the Borough of Manhattan, The City of New York, State
of New York, as shall be maintained by the Company for such purpose, in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for public and private debts.
SECTION 3. The Company, at its option, shall have the right to redeem the
outstanding Bonds of the Eighty-eighth Series, either as a whole or in part, on
any date on or after November 19, 2008 and prior to maturity, whether or not an
interest payment date, upon notice given as hereinafter in this Section 3
provided, at the applicable redemption prices provided in the form of the
definitive Bond of the Eighty-eighth Series as contained in Section 4 of this
Part II, together with interest accrued to the date fixed for redemption. The
Bonds of the Eighty-eighth Series may also be redeemed at the option of the
Company, at any time, either as a whole or in part, at the redemption price
equal to 100% of the principal amount thereof, together with interest accrued to
the date fixed for redemption, upon the occurrence of any of the events
specified in Section 2.02.6 of the NYSERDA Bond Indenture.
The Bonds of the Eighty-eighth Series are subject to mandatory redemption
in the event of any optional or mandatory redemption of the NYSERDA Bonds, on
the date fixed for such mandatory redemption of the NYSERDA Bonds, upon notice
given as hereinafter in this Section 3 provided, at the applicable redemption
price specified in the NYSERDA Bond Indenture for the NYSERDA Bonds being
redeemed, in such amount as, together with any moneys available therefor under
the NYSERDA Bond Indenture, shall be required, in accordance with the provisions
of the Participation Agreement, to pay the principal of and premium, if any, and
interest on the NYSERDA Bonds so redeemed.
The Bonds of the Eighty-eighth Series are also subject to mandatory
redemption, as a whole but not in part, upon receipt by the Trustee and the
Company of a written statement (the "Redemption Statement") from the NYSERDA
Bond Trustee that the principal of all NYSERDA Bonds then outstanding has been
declared to be immediately due and payable pursuant to Section 10.01 of the
NYSERDA Bond Indenture. The Company shall thereupon fix a redemption date, to
occur not more than 90 days following receipt of the Redemption Statement, and
shall promptly give written notice thereof (the "Redemption Notice") to the
Trustee and the NYSERDA Bond Trustee. No Redemption Notice shall be deemed to
have been given, and the Bonds of the Eighty-eighth Series shall not be
redeemed, if a written cancellation of the Redemption Statement by the NYSERDA
Bond Trustee is delivered to the Trustee and the Company prior to the receipt of
the Redemption Notice by the NYSERDA Bond Trustee. Any such redemption of the
Bonds of the Eighty-eighth Series shall be at the redemption price equal to 100%
of the principal amount thereof, together with interest accrued to the date
fixed for redemption.
No redemption of the Bonds of the Eighty-eighth Series, either as a whole
or in part, may be made except in connection with the payment of a like
principal amount of NYSERDA Bonds, either by redemption or at maturity (stated
or otherwise).
In case the Company shall at any time desire or be required so to redeem
part or all of the Bonds of the Eighty-eighth Series then outstanding, the
Company shall give to the Trustee notice in writing at least 45 days prior to
the redemption date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee) of the principal amount of Bonds of such series
which it desires or is required to redeem, specifying the date on which it
desires or is required to make redemption. There shall be furnished to the
Trustee a certificate or opinion executed by the President or a Vice-President
and the Treasurer or an Assistant Treasurer of the Company stating that the
conditions precedent specified in this Section 3 with respect to such redemption
have been complied with and the Trustee may conclusively rely thereon. As soon
as practicable thereafter, if the Bonds are to be redeemed in part, the Trustee
shall select in any manner deemed by it proper the serial numbers of the Bonds
to be redeemed in whole or in part and shall notify the Company in writing of
the serial numbers of the Bonds so selected. The Company shall thereupon cause
to be mailed to the respective registered owners of the Bonds of the
Eighty-eighth Series designated for redemption, not more than 45 days prior to
the date of redemption, at their addresses appearing upon the Bond registration
books, a notice of such intended redemption, stating the redemption date and the
redemption price and designating the serial numbers of the Bonds of the
Eighty-eighth Series to be redeemed in whole or in part and the portion of the
principal amount of any such Bonds to be redeemed in part and requiring that
such Bonds be surrendered on the redemption date at the corporate trust office
of the Trustee, or at such other office or agency as shall be maintained by the
Company for such purpose, for redemption at the said redemption price, giving
notice also that interest on such Bonds or such portions of Bonds will not
accrue after the designated redemption date. If less than the whole of the
principal of any Bond shall be called for redemption, said notice shall also
state that such Bond is to be redeemed in part, and that, upon the presentation
of such Bond for redemption, there will be issued, in lieu of the unredeemed
portion of the principal thereof, a new Bond or Bonds of the same series for an
aggregate principal amount equal to such unredeemed portion.
The Trustee may, to the extent permitted by the provisions of Section 4 of
Article Tenth of the Indenture, accept the certificate of the President or any
Vice President or the Treasurer of the Company as sufficient evidence that the
requirements as to mailing of notices of the call for redemption have been fully
complied with or the Trustee may, at its option and at the expense and on behalf
of the Company, give such notice and take any other action required of the
Company in connection with such redemption.
SECTION 4. On or prior to the redemption date specified in any such
notice, the Company shall deposit with the Trustee a sum of money, of the
character specified as the medium of payment in the Bonds of the Eighty-eighth
Series called for redemption, which together with any moneys available therefor
under the NYSERDA Bond Indenture is sufficient to redeem, at the redemption
price payable as hereinbefore provided, the Bonds of such series designated for
redemption and the called part of any Bond of such series called only in part,
and to pay the interest accrued thereon up to said redemption date, to be
applied by the Trustee to the payment of such Bonds (and the called part of any
such Bond) and such accrued interest thereon upon presentation and surrender of
such Bonds, together with duly executed instruments of transfer, at the
corporate trust office of the Trustee, or at such other office or agency as
shall be maintained by the Company for such purpose; and, after such deposit
shall have been made, such Bonds so called in whole and the called part of any
such Bond called only in part, whether or not presented for redemption, shall
cease to be entitled to any benefit, lien or security under the Indenture, no
interest will accrue thereon on or after the redemption date duly specified in
said notice, and claims for interest, if any, appertaining to such Bonds, and
the called part of any such Bond called only in part, maturing after that date
shall be void. All Bonds so redeemed shall forthwith be canceled and, upon its
written request, delivered to the Company or otherwise disposed of; and no Bonds
shall be issued hereunder in place of any such Bonds, except as otherwise
provided in Article Fourth of the Indenture and except that, if less than the
entire principal amount of any Bond shall be so redeemed, upon presentation of
such Bond so called in part, with proper instruments of transfer if required, at
or after the time fixed for the payment of said Bonds so called for redemption,
payment of the principal amount of the part thereof so called shall be made upon
surrender and cancellation of said Bond so presented, and one or more Bonds of
the Eighty-eighth Series, for a principal amount equal to the uncalled and
unpaid balance of the principal amount of such Bond, will be executed by the
Company and shall be authenticated and delivered by the Trustee to the owner of
such Bond, without expense to such owner.
SECTION 5. The registered owner (or assigns) of any Bond of the
Eighty-eighth Series may at any time surrender the same at the corporate trust
office of the Trustee, or at any other office or agency of the Trustee or the
Company maintained for such purpose, and with instruments of transfer
satisfactory to the Trustee, and, subject to the terms, conditions and
limitations specified in the Indenture, shall be entitled to receive in exchange
therefor an equal principal amount of Bonds of said series of other authorized
denominations; and the Company will provide, and the Trustee shall authenticate
and deliver, the Bonds necessary to make such exchange. The provisions of
Section 12 of Article Second of the Original Indenture to the contrary
notwithstanding, no payment of a service charge shall be required for any
exchange or registration of transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.
SECTION 6. The definitive Bonds of the Eighty-eighth Series, and the Trustee's
Certificate to be inscribed on all Bonds of said series, are to be
substantially in the forms following, respectively:
<PAGE>
[FORM OF DEFINITIVE BOND OF THE EIGHTY-EIGHTH SERIES]
$ No.RU-
----------
NIAGARA MOHAWK POWER CORPORATION
FIRST MORTGAGE BOND,
5.15% SERIES DUE NOVEMBER 1, 2025
NIAGARA MOHAWK POWER CORPORATION, a New York corporation (herein called the
"Company"), for value received, hereby promises to pay to
or registered assigns, the principal sum of Dollars ($_________) on November 1,
2025 and to pay interest from November 1, 1998 or the date determined on the
reverse hereof on such principal sum at the rate per annum specified in the
title of this bond semiannually on November 1 and May 1, in each year(computed
on the basis of a 360--day year of twelve 30-day months), until payment of such
principal sum has been made or duly provided for, to the registered owner hereof
as of the close of business on the fifteenth day of the month next preceding the
month in which an interest payment is due, except as otherwise provided on the
reverse hereof or in the Indenture hereinafter mentioned.
Both principal of and interest on this Bond (as well as any premium hereon
in case of the redemption hereof prior to maturity) are payable at the corporate
trust office of the Trustee hereinafter named, in the Borough of Manhattan, City
and State of New York, or at such other office or agency in said Borough as
shall be maintained by the Company for such purpose, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
public and private debts.
This Bond is one of a duly authorized issue of Bonds of the Company, of an
unlimited (except as provided in the Indenture hereinafter mentioned) permitted
principal amount, all issued or to be issued in one or more series (the Bonds of
the series of which this Bond is a part being herein called the "Bonds of the
Eighty-eighth Series"), all of the Bonds of all series being issued or to be
issued under and, irrespective of the time of issue, all equally secured by a
Mortgage Trust Indenture (herein, with all instruments stated to be supplemental
thereto to which the Trustee hereinafter named is or shall be a party, called
the "Indenture"), dated as of October 1, 1937, to Bankers Trust Company
(successor to Marine Midland Bank, a corporation duly organized and existing
under the laws of the State of New York, formerly named The Marine Midland Trust
Company of New York, Marine Midland Grace Trust Company of New York and Marine
Midland Bank - New York), a national banking association duly organized and
existing under the laws of the United States of America, having its principal
corporate trust office at 140 Broadway, New York, New York (hereinafter
sometimes referred to as the "Trustee"), to which Indenture, an executed
counterpart of which is on file with the Trustee, reference is hereby made for a
description of the property mortgaged and pledged to the Trustee, and for a
statement of the nature and extent of the security, the rights of the holders of
the Bonds with respect to such security, and the terms and conditions upon which
said Bonds are or are to be issued and secured; but neither the foregoing
reference to the Indenture, nor any provision of this Bond or of the Indenture,
shall affect or impair the obligation of the Company, which is absolute and
unconditional, to pay, at the stated or accelerated maturities herein provided,
the principal of, and premium, if any and interest on this Bond as herein
provided.
Notwithstanding any other provision contained herein, the obligation of the
Company to make payments of the principal of, and premium, if any, and interest
on the Bonds of the Eighty-eighth Series shall be fully or partially satisfied
and discharged, and the amount of any such payments shall be reduced, to the
extent that the Trustee shall have received written notice, not less than 10
days prior thereto, that moneys are available under the Indenture of Trust (the
"NYSERDA Bond Indenture") dated as of November 19, 1998 between the New York
State Energy Research and Development Authority ("NYSERDA") and The Bank of New
York, as trustee (such trustee and any successor thereto being hereinafter
referred to as the "NYSERDA Bond Trustee"), for the payment, in full or in part,
of principal and premium, if any, and interest then due on the New York State
Energy Research and Development Authority 5.15% Pollution Control Refunding
Revenue Bonds (Niagara Mohawk Power Corporation Project), 1998 Series A (the
"NYSERDA Bonds") and the Trustee shall not have received written notice from the
Company that the obligation of the Company shall not be so satisfied and
discharged in the amount of any such payment so reduced.
The Indenture and the rights and obligations of the Company and of the
holders of the Bonds thereunder may be changed or modified at any time upon the
consent and approval of the Company and of the holders of 66-2/3 per cent in
principal amount of the Bonds then outstanding affected by such change or
modification, given as provided in the Indenture, and in the manner and subject
to the limitations therein set forth; provided, that no such change or
modification shall (a) alter or impair the obligation of the Company to pay the
principal of, and premium, if any and interest on any Bond at the time and place
and at the rate and in the currency provided therein, without the consent of the
holder of such Bond, (b) permit the creation by the Company of any mortgage, or
lien in the nature of a mortgage, ranking prior to or pari passu with the lien
of the Indenture, or alter adversely to the Bondholders the character of the
lien of the Indenture, except as in the Indenture otherwise expressly provided,
unless the creation of such mortgage or lien, or such alteration of the lien of
the Indenture, shall be consented to by the holders of all outstanding Bonds,
(c) affect the Trustee unless consented to by the Trustee or (d) permit a
reduction of the percentage required for any change or modification of the
Indenture, without the consent of the holders of all outstanding Bonds.
The principal of this Bond together with accrued interest thereon may be
declared, or may become, due and payable before maturity in certain events, on
the conditions, in the manner and with the effect set forth in the Indenture.
Subsequent to the initial authentication of the Bonds of the Eighty-eighth
Series, each Bond of the Eighty-eighth Series shall be dated as of the date of
its authentication, and shall bear interest from the date hereof.
The Bonds of the Eighty-eighth Series may be redeemed at the option of the
Company, at any time, on and after November 1, 2008, either as a whole or in
part, at the following redemption prices (expressed in percentages of principal
amount):
In the 12 Months' Redemption
Period Ending Price
- --------------- -----------
November 1, 2008 to November 1, 2009 102%
November 1, 2009 to November 1, 2010 101%
November 1, 2010 and thereafter 100%
together, in each case, with interest accrued to the date fixed for redemption,
upon notice mailed to the respective registered owners of the Bonds of the
Eighty-eighth Series designated for redemption at least 45 days and not more
than 90 days prior to the date of redemption, at their addresses appearing upon
the Bond registration books, all subject to the conditions more fully set forth
in the Indenture. The Bonds of the Eighty-eighth Series may also be redeemed at
the option of the Company, at any time, either as a whole or in part, at the
redemption price equal to 100% of the principal amount thereof, together with
interest accrued to the date fixed for redemption, upon the occurrence of any of
the events specified in Section 2.02.6 of the NYSERDA Bond Indenture.
The Bonds of the Eighty-eighth Series are subject to mandatory redemption
in the event of any optional or mandatory redemption of the NYSERDA Bonds, in
each case upon notice given as provided above, at the applicable redemption
price specified in the NYSERDA Bond Indenture for the NYSERDA Bonds being
redeemed, in such amount as, together with any moneys available therefor under
the NYSERDA Bond Indenture, shall be required, in accordance with the provisions
of the Participation Agreement dated as of November 19, 1998 between the Company
and NYSERDA, to pay the principal of and premium, if any, and interest on the
NYSERDA Bonds so redeemed.
The Bonds of the Eighty-eighth Series are subject to mandatory redemption,
as a whole but not in part, at a redemption price equal to 100% of the principal
amount thereof, together with interest accrued to the date fixed for redemption,
upon a declaration by the NYSERDA Bond Trustee that the principal of all NYSERDA
Bonds then outstanding is immediately due and payable pursuant to Section 10.01
of the NYSERDA Bond Indenture and upon written notice thereof to the NYSERDA
Bond Trustee at least 30 days prior to the date fixed for redemption, provided
that no written cancellation of such declaration shall have been received by the
Trustee and the Company prior to notice of such redemption having been given to
the NYSERDA Bond Trustee.
The Bonds of the Eighty-eighth Series may not be redeemed, either as a
whole or in part, except in connection with the payment of a like principal
amount of NYSERDA Bonds, either by redemption or at maturity (stated or
otherwise).
No recourse shall be had for the payment of any part of principal of, or
interest on, this Bond (as well as any premium hereon in case of the redemption
hereof prior to maturity), or for any claim based hereon or thereon, or
otherwise in any manner with respect hereto, or with respect to the Indenture,
to or against any incorporator or any past, present or future stockholder,
officer or director of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or other provision of law, or by the enforcement of
any assessment or penalty, or otherwise, all such liability being expressly
waived and released by the acceptance of this Bond and as part of the
consideration for the issue hereof, as provided in the Indenture.
If this Bond or any part thereof is called for redemption and payment duly
provided, this Bond or such part thereof shall cease to bear interest from and
after the date fixed for such redemption.
Registration of transfer of this Bond may be made by the registered owner
(or assigns) in person or by duly authorized attorney, at the corporate trust
office of the Trustee, or at such other offices or agencies of the Trustee or
the Company as shall be maintained for such purpose, upon the surrender of this
Bond, and thereupon a new Bond or Bonds of authorized denominations of the same
series for a like aggregate principal amount will be issued to the registered
transferee, all in the manner and subject to the terms, conditions and
limitations specified in the Indenture. No service charge shall be made for any
exchange or registration of transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto. The Company and the Trustee may deem and treat the person
in whose name this Bond is registered as the absolute owner hereof for the
purpose of receiving payment of or on account of the principal and interest due
hereon (subject to the provisions of the first paragraph of this Bond), and for
all other purposes, and neither the Company, the Trustee nor any paying agent or
agency shall be affected by any notice to the contrary, whether this Bond or
such interest shall be overdue or not.
This Bond shall not be valid or obligatory for any purpose until
authenticated by the execution by the Trustee of the certificate inscribed
hereon.
IN WITNESS WHEREOF, the Company has caused this Bond to be executed in its
corporate name by a facsimile of the signature (or manual signature) of its
President or a Vice President and imprinted with its corporate seal (or a
facsimile thereof), attested by a facsimile of the signature (or manual
signature) of its Secretary or an Assistant Secretary.
Dated: NIAGARA MOHAWK POWER CORPORATION
By:/s/
--------------------------------
Name:
Title:
Attest:
Name:
Title
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE]
This is one of the Bonds of the Series designated above described in the
within-mentioned Indenture.
BANKERS TRUST COMPANY
as Trustee
By: /s/
-----------------------
Authorized Officer
<PAGE>
PART III
MAINTENANCE FUND PROVISION AND RESTRICTIONS
AS TO DIVIDENDS
SECTION 1. The Company covenants that so long as any of the Bonds of the
Eighty-eighth Series shall be outstanding, it will comply with the provisions of
Section 22 (providing for a maintenance fund for the benefit of Bonds issued
under the Indenture) and Section 23 (providing for certain restrictions on the
payment of dividends) of Article Fifth of the Indenture as added by the
Supplemental Indenture dated as of March 1, 1978.
PART IV
PROVISIONS RELATING TO INSTITUTIONAL
SECTION 1. Any term of the Indenture or of the Bonds of the Eighty-eighth
Series to the contrary notwithstanding, so long as the NYSERDA Bond Trustee
(herein called the "Original Holder") or any of its nominees shall be a holder
of any of the Bonds of the Eighty-eighth Series, or if any other institutional
holder or its nominee or nominees shall at any time be the holder or holders of
at least 5% in aggregate principal amount of the Bonds of the Eighty-eighth
Series then outstanding (any such other institutional holder being herein called
an "Institutional Holder"), payment to such holder of the principal of and
the premium, if any, on any such Bond being redeemed in part and payment of the
interest on such Bond shall be made in such manner and at such place as shall be
specified by the Original Holder or such Institutional Holder in a written
notice filed with the Company, and without any requirement of surrendering such
Bond to the Trustee or noting payments thereon. As a condition to making any
such payment, there shall be filed with the Trustee an agreement by the Original
Holder or other Institutional Holder (designating its nominee or nominees, if
any) that in the event that it shall sell or transfer any such Bond it will (a)
make a notation thereon of all principal, if any, paid on such Bond and will
also note the date to which interest has been paid on such Bond, and (b)
promptly notify the Company and the Trustee of the name and address of the
transferee of any such Bond so sold or transferred by such holder. Upon request
of the Trustee there shall be furnished to the Trustee a certificate or opinion
made by the President or a Vice-President and the Treasurer or an Assistant
Treasurer of the Company whether the holder of any of the Bonds of the
Eighty-eighth Series, other than the Original Holder or its nominee or nominees,
is an Institutional Holder and the Trustee may conclusively rely thereon. The
Trustee shall not be liable or responsible to the Original Holder or any
Institutional Holder or to the Company or to any other person for any act or
omission to act on the part of the Company or the Original Holder or such
Institutional Holder in connection with the foregoing. The Company will
indemnify and save the Trustee harmless against any liabilities resulting from
any such act or omission.
SECTION 2. Any term of the Indenture or of the Bonds of the Eighty-eighth
Series to the contrary notwithstanding, so long as the Original Holder or any
Institutional Holder, or a nominee of the Original Holder or such Institutional
Holder, shall be a holder of any of the Bonds of the Eighty-eighth Series in
case of any partial redemption of the Bonds of the Eighty-eighth Series the
Trustee shall prorate the principal amount of such Bonds to be redeemed among
all holders of Bonds of such series in proportion to the principal amount of
such Bonds registered in the name of each such holder and shall then designate
for redemption with respect to each such holder particular Bonds of such series
or portions thereof equal to the principal amount of Bonds to be redeemed so
prorated to such registered owner; provided, however, that in any such prorating
pursuant to this paragraph the Trustee shall, according to such method as it
shall deem proper in its discretion, make such adjustments by increasing or
decreasing by not more than $1,000 the amount which would be allocable on the
basis of exact proportion to any one or more holders of such Bonds, as may be
required to provide that the principal amount so prorated shall be in each
instance an integral multiple of $1,000.
PART V
FUTURE AMENDMENTS OF INDENTURE
SECTION 1. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Fourth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, as follows:
(A) by deleting the provisions of subparagraph l(b) of Paragraph F of
Section 6 of Article Fourth thereof, of subparagraph l(b) of Paragraph
E of Section 7 of Article Fourth thereof and of subsection l(b) of
Section 8 of Article Fourth thereof;
(B) by restating Paragraph A of Section 7 of Article Fourth of the
Indenture so that, as so restated, it shall be and read as follows:
"A. The Bonds, Underlying Mortgage Obligations and Constituent
Corporation Bonds, if any, for which Bonds are then to be issued
under this Section 7, shall not previously have been made the
basis for the issuance of Bonds or for the withdrawal of money
under any provision of this Indenture, or retired out of money
paid out by the Trustee under the provisions of Section 9 of this
Article Fourth or Section 2 of Article Seventh hereof, or retired
with moneys deposited under an Underlying Mortgage or Constituent
Corporation Mortgage and representing the proceeds of any
insurance on the Mortgaged Property or of any part of the
Mortgaged Property which shall have been released from the lien of
this Indenture, or used as the basis for a credit under Section 4
of Article Third of this Indenture.";
and
(C) by restating subsection (a) of subparagraph 3 of Paragraph E of
Section 7 of Article Fourth of the Indenture so that, as so restated,
it shall be and read as follows:
"(a) That the Bonds, Underlying Mortgage Obligations and Constituent
Corporation Bonds, if any, for which Bonds are then to be issued
under this Section 7, had not been made the basis for the issuance
of Bonds or for the withdrawal of money under any provision of
this Indenture, and had not been retired out of moneys paid out by
the Trustee under the provisions of Section 9 of this Article
Fourth or Section 2 of Article Seventh hereof, or retired with
moneys deposited under an Underlying Mortgage or Constituent
Corporation Mortgage and representing the proceeds of any
insurance on the Mortgaged Property or of any part of the
Mortgaged Property which shall have been released from the lien
of this Indenture, and had not been used as the basis for a credit
under Section 4 of Article Third of this Indenture."
SECTION 2. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Ninth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by adding the following Section 19 at the end of
said Article Ninth:
"SECTION 19. All parties to this Indenture agree, and each holder
of Bonds by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses
made by such party litigant; but the provisions of this Section
shall not apply to any suit instituted by the Trustee, to any suit
instituted by any holder, or group of holders, of more than 10% in
aggregate principal amount of the Bonds outstanding, or to any
suit instituted by any holder of Bonds for the enforcement of the
payment of the principal of (or premium, if any) or interest on
any Bond on or after the maturity date expressed in such Bond."
SECTION 3. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Eleventh of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented an amended, by amending the first paragraph of Section 2 thereof
so that, as so amended, it shall be and read as follows:
"SECTION 2. Anything herein contained to the contrary
notwithstanding, any moneys at any time deposited with the Trustee
pursuant to the provisions hereof for the payment of the
principal, premium or interest of or upon any Bond or interest
coupon and remaining unclaimed for three (3) years after the date
upon which such payment shall have become due shall, upon the
request of the Company, be repaid to it by the Trustee; provided,
that, before being required to make any such repayment, the
Trustee may, at the expense of the Company, cause to be published,
once a week for four (4) successive calendar weeks, in a daily
newspaper, printed in the English language, published and of
general circulation in the Borough of Manhattan, The City of New
York, State of New York, and in a daily newspaper, printed in the
English language, published and of general circulation in each of
the other cities (if any) in which such principal, premium or
interest, as the case may be, was payable in accordance with the
terms of the Bond or interest coupon with respect to which such
moneys were deposited, notice that the said moneys have not been
claimed, and that after a date named in such notice, the balance
of such moneys then unclaimed will be repaid to the Company."
SECTION 4. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Twelfth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by amending Paragraph A of Section 2 of Article
Twelfth of the Indenture by the addition of the following:
"The Trustee may, and upon written request of the Company or of
the holders of a majority in principal amount of the Bonds
outstanding, shall, fix a day, not less than ten (10) days prior
to the date of first publication of notice of such meeting, as a
record date for the determination of holders of Registered Bonds
without coupons, and of Coupon Bonds registered as to principal
(otherwise than to bearer), entitled to notice of and to vote at
such meeting and any adjournment thereof, and only such registered
holders who shall have been such on the date so fixed shall be
entitled to notice of and to vote such Bonds at such meeting, and
the Registered Bonds without coupons, and the Coupon Bonds
registered as to principal (otherwise than to bearer), on such
record date may be voted at such meeting and any adjournment
thereof only by the persons who shall have been registered holders
of such Bonds on such record date or their proxies,
notwithstanding any registration of transfer of any such Bonds on
the books of the Company after such date. If any Registered Bonds
without coupons shall be transferred or shall be exchanged for
Coupon Bonds after such record date, or if any Coupon Bonds
registered as to principal (otherwise than to bearer) on such
record date shall thereafter be registered to bearer, a suitable
notation shall be made upon such Bonds at the time of registration
of transfer from such registered holder's name or exchange, as the
case may be, to record the fact that the registered holder of such
Bonds on said record date or his proxies shall be the only persons
entitled to vote such Bonds at the meeting. If any Coupon Bond
not registered as to principal upon such record date is thereafter
so registered (otherwise than to bearer) or is thereafter
exchanged for a Registered Bond, the first registered holder in
whose name such Bond shall be so registered shall be deemed to
have been the registered holder of such Bond on the record date
for the purposes of this section, and upon such registration or
exchange a notice of such meeting shall be delivered to such
registered holder. In any case where a record date is fixed as
aforesaid, the list of Bondholders referred to in Paragraph B of
this Section 2 shall be based upon the holdings of Bonds on such
record date, but shall also include the holders of Coupon Bonds
registered as to principal (otherwise than to bearer) after such
record date and prior to such meeting and the holders of
Registered Bonds received in exchange for Coupon Bonds after such
record date and prior to such meeting."
SECTION 5. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Twelfth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by adding the following Paragraph G to Section 2
thereof:
"G. Whenever the Company shall deliver to the Trustee an
instrument or instruments executed by holders of at least
sixty-six and two-thirds per centum (66_%) in aggregate principal
amount of the Bonds affected and outstanding at the time of such
delivery, consenting to the substance of a proposed modification
or amendment to the provisions hereof, thereupon the Trustee
shall execute a supplemental indenture in substantially the form
provided for by or in such instrument or instruments, and no
holder of any Bond shall have any right or interest to object to
the execution of said supplemental indenture or to object to any
of the terms or provisions therein contained, or the operation
thereof, or in any manner to question the propriety of the
execution thereof, or to enjoin or restrain the Trustee or the
Company from executing the same or from taking any action pursuant
to the provisions thereof, provided that, in lieu of an instrument
or instruments executed by holders of Bonds, the consent of the
holders of any series of Bonds to any such proposed modification
or amendment may be set forth in and evidenced by the supplemental
indenture establishing the terms and provisions of such series;
and provided further that no such change or modification shall
(a) alter or impair the obligation of the Company to pay the
principal and interest on any Bond outstanding at the time and
place and at the rate and in the currency prescribed therein,
without the consent of the holder of such Bond, (b) permit the
creation by the Company of any mortgage, or lien in the nature of
a mortgage, ranking prior to or pari passu with the lien of the
Indenture, or alter adversely to the Bondholders the character of
the lien of the Indenture, except as in the Indenture otherwise
expressly provided, unless the creation of such mortgage or lien,
or such alteration of the lien of the Indenture, be consented to
by the holders of all outstanding Bonds, (c) affect the Trustee
unless consented to by the Trustee or (d) permit a reduction of
the percentage required for any change or modification of the
Indenture, without the consent of the holders of all outstanding
Bonds.
It shall not be necessary for any consent of Bondholders under
this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent
approves the substance of the matters to which such consent
relates. Any consent executed and delivered by any Bondholder
shall be binding upon all future holders of Bonds held by such
Bondholder at the time of execution of such consent, including
without limitation any Bonds issued in substitution or exchange
therefor, whether upon transfer or otherwise."
SECTION 6. The Company reserves the right, without any consent or other
action by holders of the Bonds of the Eighty-eighth Series or of any
subsequently created series, to amend at any time Article Thirteenth of the
Indenture, as it may heretofore, hereby and hereafter be or have been
supplemented and amended, by amending the first paragraph of Section 1 thereof
so that, as so amended, it shall be and read as follows:
"SECTION 1. Any demand, consent, waiver, request, notice or other
instrument in writing required or provided by this Indenture to be
signed or executed by the holders of any Bonds may be in any
number of concurrent writings of similar tenor, and may be signed
or executed by such holders in person or by attorney appointed in
writing.
The fact and date of the execution by any person of any such
instrument, or of the writing appointing any such attorney, and
of the ownership by any person of any Bonds, may be proved in any
manner deemed sufficient by the Trustee, and such proof shall be
conclusive in favor of the Trustee and the Company.
Without limiting the generality of the foregoing paragraph:
A. The signature on a proxy, consent or other such instrument or
writing, if believed by the Trustee to be genuine, shall be
sufficient to establish the fact of the execution thereof.
B. The fact of the ownership of any Coupon Bond which shall not
at the time be registered as to principal or shall be
registered to bearer, and the denomination and serial number
of such Bond and the date of holding the same, may be proved
by a certificate executed by any trust company, bank, banker
or other depositary (wherever situated), showing that at the
date therein mentioned the person named in such certificate
had on deposit with such depositary the Bond described in such
certificate. For all purposes of this Indenture and of any
proceedings pursuant hereto for the enforcement hereof or
otherwise, to the extent permitted by the provisions of
Section 4 of Article Tenth, such person shall be deemed to
continue to be the owner of such Bond until the Trustee shall
have received notice in writing to the contrary. The
ownership of any Registered Bond or of any Coupon Bond which
shall at the time be registered as to principal (otherwise
than to bearer) shall be proved by the register of Bonds
maintained for such purpose."
SECTION 7. The Company reserves the right, without any consent of other action
by holders of the Bonds of the Eighty-eighth Series or of any subsequently
created series, to amend at any time Article Fourth of the Indenture, as it may
heretofore, hereby and hereafter be or have been supplemented and amended, by
amending subparagraph (3) of Paragraph E of Section 9 thereof so that, as so
amended, it shall be and read as follows:
"(3) A statement, in form satisfactory to the Trustee, signed by
the President or a Vice President and the Treasurer or an
Assistant Treasurer of the Company, and verified on information
and belief by one of such officers not more than sixty (60) days
prior to the receipt thereof by the Trustee, certifying (a) that
the Bonds so delivered had previously been actually negotiated by
the Company for value; (b) that the Company had bona fide
purchased or contracted to purchase said Bonds, Underlying
Mortgage Obligations and Constituent Corporation Bonds at prices
(inclusive of accrued interest) to be set forth in the statement,
and that such prices were not in excess of 115% of the principal
amount of said Bonds, Underlying Mortgage Obligations and
Constituent Corporation Bonds; (c) that the Company is not, so far
as known to the officers signing such statement, in default with
respect to the performance or observance of any covenant or
agreement contained in this Indenture; and (d) that it is not
then necessary to retire the Underlying Mortgage Obligations to be
purchased to eliminate any excess of the nature in Paragraph D of
Section 7 hereof."
SECTION 8. The Company reserves the right, without any consent or other action
by holders of the Bonds of the Eighty-eighth Series or of any subsequently
created series, to amend at any time Article Seventh of the Indenture, as it may
heretofore, hereby and hereafter be or have been supplemented and amended, by
amending Paragraph E of Section 2 thereof so that, as so amended, it shall be
and read as follows:
"E. To the purchase of Bonds of any series issued and outstanding
hereunder or of Underlying Mortgage Obligations or of Constituent
Corporation Bonds at not in excess of 115% of the principal amount
thereof, in accordance with the provisions of Paragraph E of
Section 9 of Article Fourth."]
PART VI
THE TRUSTEE
SECTION 1. The Trustee hereby accepts the trusts hereby declared and provided
and agrees to perform the same upon the terms and conditions set forth in the
Original Indenture and in the indentures supplemental thereto, including this
Supplemental Indenture and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture, or for or
in respect of the recitals contained herein, all of which recitals are made by
the Company solely. To the extent permitted by the provisions of Section 4 of
Article Tenth of the Indenture, the Trustee shall not be answerable or
accountable for anything whatsoever in connection with this Supplemental
Indenture except for its own willful misconduct or negligence.
PART VII
MISCELLANEOUS PROVISIONS
SECTION 1. This Supplemental Indenture shall, pursuant to the provisions
of Section 4 of Article Twelfth of the Indenture, hereafter form a part of the
Indenture; and all the terms and conditions contained in this Supplemental
Indenture as to any provision authorized to be contained herein shall be and be
deemed to be part of the terms and conditions of the Indenture for any and all
purposes. Except as expressly amended and supplemented by this Supplemental
Indenture, the Indenture is hereby ratified and confirmed in all respects.
SECTION 2. This Supplemental Indenture may be simultaneously executed in
any number of counterparts, and each of such counterparts shall for all purposes
be deemed to be an original and shall remain in full force and effect, and all
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be executed in their respective corporate names by their respective
officers thereunto duly authorized, and their respective corporate seals to be
hereto attached and to be duly attested, all as of the day and year first above
written.
NIAGARA MOHAWK POWER CORPORATION
By: /s/Arthur W. Roos
----------------------------
Arthur W. Roos
Title: Vice President-Treasurer
Attest:
Name: /s/Kapua Rice
----------------------------
Kapua Rice
Title: Secretary
STATE OF NEW YORK )
) ss:
COUNTY OF ONONDAGA )
On this 17th day of November, before me personally came Arthur W. Roos, to
me personally known, who, being by me duly sworn, did depose and say that [s]he
resides at Manlius, New York; that [s]he is the Vice President-Treasurer of
NIAGARA MOHAWK POWER CORPORATION, the corporation described in and which
executed the above instrument; that [s]he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that [s]he
signed her/his name thereto by like order.
/s/Eileen Griffith
- ------------------------------------
Eileen Griffith
Notary Public
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be executed in their respective corporate names by their respective officers
thereunto duly authorized, and their respective corporate seals to be hereto
attached and to be duly attested, all as of the day and year first above
written.
BANKERS TRUST COMPANY
By: /s/Vincent Chorney
----------------------------
Vincent Chorney
Title: Assistant Vice President
Attest:
Name: /s/William T. Jenkins
----------------------------
William T. Jenkins
Title: Assistant Treasurer
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On this 17th day of November, before me personally came Vincent Chorney, to
me personally known, who, being by me duly sworn, did depose and say that [s]he
resides at 215 West 75th Street, New York, New York; that [s]he is an
Assistant Vice President of Bankers Trust, the corporation described in and
which executed the above instrument; that [s]he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that [s]he signed her/his name thereto by like order.
/s/Carl Green
- ------------------------------------
Carl Green
Notary Public
15
EXHIBIT 10-14
INDEPENDENT SYSTEM OPERATOR
AGREEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE 1: DEFINITIONS
ARTICLE 2: SCOPE AND PARTIES
ARTICLE 3: EFFECTIVE DATE AND TERMINATION
ARTICLE 4: ORGANIZATIONAL STRUCTURE
ARTICLE 5: ISO BOARD OF DIRECTORS AND VOTING
ARTICLE 6: DUTIES OF THE ISO
ARTICLE 7: MANAGEMENT COMMITTEE
ARTICLE 8: OPERATING COMMITTEE
ARTICLE 9: BUSINESS ISSUES COMMITTEE
ARTICLE 10: DISPUTE RESOLUTION
ARTICLE 11: RELATIONSHIP OF THE ISO AND MARKET PARTICIPANTS
ARTICLE 12: RELATIONSHIP BETWEEN THE ISO AND THE NYSRC
ARTICLE 13: OASIS AND OTHER NOTIFICATION REQUIREMENTS
ARTICLE 14: SALE OF TRANSMISSION CONGESTION CONTRACTS
ARTICLE 15: TAX-EXEMPT FINANCING
ARTICLE 16: PENALTIES FOR NON-PERFORMANCE
ARTICLE 17: FINANCIAL SETTLEMENTS
ARTICLE 17A: TRANSMISSION OWNERS RESERVED RIGHTS
ARTICLE 18: TRANSMISSION SYSTEM EXPANSION
ARTICLE 19: AMENDMENT OF THIS AGREEMENT AND ISO TARIFFS
ARTICLE 20: ADDITIONAL CONDITIONS
ARTICLE 21: REGULATORY JURISDICTION
ARTICLE 22: ASSIGNMENT
ARTICLE 23: INDEMNIFICATION
ARTICLE 24: CLAIMS BY EMPLOYEES AND INSURANCE
ARTICLE 25: LIMITATION OF LIABILITY
ARTICLE 26: OTHER PROVISIONS
<PAGE>
ISO AGREEMENT
AGREEMENT made as of the 2nd day of December, 1999, by and among CENTRAL HUDSON
GAS & ELECTRIC CORPORATION ("Central Hudson"), CONSOLIDATED EDISON COMPANY OF
NEW YORK, INC. ("Con Edison"), NEW YORK STATE ELECTRIC & GAS CORPORATION
("NYSEG"), NIAGARA MOHAWK POWER CORPORATION ("NMPC"), ORANGE AND ROCKLAND
UTILITIES, INC. ("O&R") and ROCHESTER GAS AND ELECTRIC CORPORATION ("RG&E"),
all corporations organized under the laws of the state of New York, and POWER
AUTHORITY OF THE STATE OF NEW YORK ("NYPA") and LIPA (LIPA is a subsidiary of
the Long Island Power Authority, a corporate municipal instrumentality of the
state of New York), corporate municipal instrumentalities of the state of New
York (collectively the "Incorporating Parties") and all subsequent signatories
to this Agreement;
W I T N E S S E T H:
WHEREAS, the Incorporating Parties, other than NYPA, established the New
York Power Pool ("NYPP") by agreement made as of the 21st day of July, 1966,
and NYPA subsequently joined the NYPP on October 11, 1967; and
WHEREAS, the Incorporating Parties are the current Member Systems of the
NYPP under an agreement made as of the 16th day of July, 1991 ("NYPP
Agreement"); and
WHEREAS, on December 30, 1996, the Incorporating Parties filed a proposed
amendment to the NYPP Agreement with the Commission to comply with Order
Nos. 888 et seq.; and
WHEREAS, the Incorporating Parties have invested in and operate the
interconnected NYS Power System and intend that their customers and
shareholders, as the case may be, reasonably benefit from its use; and
WHEREAS, the Incorporating Parties believe and expect that through their
initiatives, as well as those of federal and state regulatory bodies,
competition in the Wholesale Market will be enhanced in New York State; and
WHEREAS, the Incorporating Parties desire to maintain the reliable operation
of their electric systems and to provide a more efficient means whereby all
interested parties can participate in the competitive Wholesale Market in New
York; and
WHEREAS, the Incorporating Parties have established and staffed facilities
necessary to monitor the NYS Power System facility located near Albany, New
York ("Control Center"), for the principal purposes of:
(1) coordinating the operations of the Incorporating Parties insofar as they
may affect the reliability of the NYS Power System;
(2) dispatching Energy requirements on an economic basis; and
(3) monitoring the internal and external operations of the NYS Power System
to ensure the unimpaired overall security of bulk power supply at all
times; and
WHEREAS, the Incorporating Parties desire to create a New York Independent
System Operator ("ISO") and the Incorporating Parties agree that the principal
mission of the ISO shall be:
(1) to maintain the safety and short-term reliability of the NYS Power
System in conformance with Reliability Rules promulgated by the New York
State Reliability Council ("NYSRC") so as to maintain the integrity and
reliability of the interconnected NYS Power System;
(2) to maintain the internal and external operations of the NYS Power System
which may have an impact on the security of the interconnected NYS Power
System in accordance with the terms of the ISO Agreement; and
(3) to comply with the Commission's ISO principles as stated in Order Nos.
888 et seq.; and
WHEREAS, the Incorporating Parties agree that the ISO shall:
(1) provide open access to the NYS Transmission System;
(2) provide non-discriminatory treatment for all Market Participants; and
(3) provide for meaningful involvement by Parties in the oversight of the
NYS Transmission System in accordance with the provisions of this ISO
Agreement.
WHEREAS, the Incorporating Parties have contemporaneously created a NYSRC,
with the principal mission of establishing and maintaining Reliability Rules,
protocols, and standards for use by the ISO; and
WHEREAS, the Incorporating Parties agree that a competitive Wholesale
Market can be operated in a reliable and efficient fashion most effectively
by the ISO, the Power Exchanges, and other Market Participants; and
WHEREAS, nothing in the ISO Agreement is intended to inhibit or prevent the
further development of a competitive retail electric market; and
WHEREAS, the Incorporating Parties agree that the ISO should establish and
operate an Open Access Same-Time Information System ("OASIS");
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the Incorporating Parties and all
subsequent Parties do hereby agree with each other, for themselves and for
their successors and assigns, to create and operate the ISO in accordance
herewith.
ARTICLE 1: DEFINITIONS 1 DEFINITIONS
Terms used in this Agreement will have the meaning set forth in this
Article.
1.1 AFFILIATE.
With respect to a person or entity, any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust or unincorporated
organization, directly or indirectly controlling, controlled by, or under
common control with, such person or entity. The term "Control" shall have the
meaning set forth in this Article.
1.2 ANCILLARY SERVICES.
Services necessary to support the transmission of Energy from Generators to
Loads, while maintaining reliable operation of the NYS Power System in
accordance with Good Utility Practice and Reliability Rules. Ancillary Services
include Scheduling, System Control and Dispatch Service; Reactive Supply and
Voltage Support Services (or "Voltage Support Service"); Regulation and
Frequency Response Service (or "Regulation Service"); Energy Imbalance Service;
Operating Reserve Service; and Black Start Capability.
1.3 ANNUAL TRANSMISSION REVENUE REQUIREMENT.
The total annual cost for each Transmission Owner (other than LIPA) to
provide transmission service subject to review and acceptance by the
Commission.
1.4 AUTOMATIC GENERATION CONTROL ("AGC").
The automatic regulation of the power output of electric Generators within
a prescribed range in response to a change in system frequency, or tie-line
loading, to maintain system frequency or scheduled interchange with other
areas within predetermined limits.
1.5 BID.
Offer to purchase and/or sell Energy, Transmission Congestion Contracts and/or
Ancillary Services at a specified price that is duly submitted to the ISO
pursuant to ISO Procedures.
1.6 BID PRICE.
The price at which the Supplier offering the Bid is prepared to provide the
product or service, or the buyer offering the Bid is willing to pay to receive
such product or service.
1.7 BILATERAL TRANSACTION.
A Transaction between two or more parties for the purchase and/or sale of
Capacity, Energy, and/or Ancillary Services other than those in the ISO
Administered Markets.
1.8 CAPABILITY PERIOD.
Six (6) month periods which are established as follows: (1) from May 1
through October 31 of each year ("Summer Capability Period"); and (2) from
November 1 of each year through April 30 of the following year ("Winter
Capability Period"); or such other periods as may be determined by the
Operating Committee of the ISO. A Summer Capability Period followed by a
Winter Capability Period shall be referred to as a "Capability Year." Each
Capability Period shall consist of On-Peak and Off-Peak periods.
1.9 CAPACITY.
The capability to generate or transmit electrical power, measured in
megawatts ("MW").
1.10 CODE OF CONDUCT.
The rules, procedures and restrictions concerning the conduct of ISO
Directors and employees contained in Attachment F to the ISO Open Access
Transmission Tariff.
1.11 COMMERCIAL CONSUMER.
An End-Use Consumer that takes service under a Transmission Owner's
commercial rate classification or is eligible to do so but takes service under
a special contract.
1.12 COMMISSION ("FERC").
The Federal Energy Regulatory Commission, or any successor agency.
1.13 COMMITTEE.
The Management Committee, the Business Issues Committee or the Operating
Committee of the ISO, as the context may require.
1.14 COMPLETED APPLICATION.
An Application that satisfies all of the information and other requirements
of an ISO Tariff.
1.15 CONFIDENTIAL INFORMATION.
Information and/or data that has been designated by an entity taking
service under an ISO Tariff to be proprietary and confidential, provided that
such designation is consistent with ISO Procedures and the applicable ISO
Tariff, including the ISO Code of Conduct.
1.16 CONGESTION.
A characteristic of the transmission system produced by a constraint on the
optimum economic operation of the power system, such that the marginal price of
Energy to serve the next increment of Load, exclusive of losses, at different
locations on the transmission system is unequal.
1.17 CONGESTION RENT.
The opportunity costs of transmission Constraints on the NYS Transmission
System. Congestion Rents are collected by the ISO from Loads through its
facilitation of the LBMP Market Transactions and the collection of Transmission
Usage Charges from Bilateral Transactions, and paid to Primary Holders.
1.18 CONTROL.
The possession, directly or indirectly, of the power to direct the management
or policies of a person or an entity. A voting interest of ten percent or
more shall create a rebuttable presumption of control. There is a rebuttable
presumption that an entity controls another entity if, either directly or
indirectly: (i) an entity has ten percent or more of the ownership interest
of another entity; or (ii) an entity has the ability to exercise ten percent or
more of the voting interests of another entity.
1.19 CONTROL AREA.
An electric power system or combination of electric power systems to which
a common automatic generation control scheme is applied in order to:
(1) match, at all times, the power output of the Generators within the
electric power system(s), and capacity and energy purchased from entities
outside the electric power system(s), with the Load within the electric
power system(s);
(2) maintain scheduled interchange with other Control Areas, within the
limits of Good Utility Practice;
(3) maintain the frequency of the electric power system(s) within reasonable
limits in accordance with Good Utility Practice; and
(4) provide sufficient generating capacity to maintain operating reserves in
accordance with Good Utility Practice.
1.20 CONTROL AREA SERVICES.
Services provided by the ISO under the ISO Services Tariff related to the
ISO's responsibilities as the Control Area operator for the NYCA.
1.21 COOPERATIVELY OWNED ELECTRIC SYSTEM.
A cooperatively owned electric system that owns or controls distribution
facilities and provides electric service in accordance with the Rural Electric
Corporation Law, and is located within the New York Control Area.
1.22 CURTAILMENT OR CURTAIL.
A reduction in Firm or Non-Firm Transmission Service in response to a
transmission capacity shortage as a result of system reliability conditions.
1.23 CUSTOMER.
An entity taking services under the ISO Services Tariff.
1.24 DAY-AHEAD.
Nominally, the twenty-four (24) hour period directly preceding the Dispatch
Day, except when this period may be extended by the ISO to accommodate weekends
and holidays.
1.25 DAY-AHEAD MARKET.
The ISO Administered Market in which Capacity, Energy and/or Ancillary
Services are scheduled and sold Day-Ahead consisting of the Day-Ahead
scheduling process, price calculations and Settlements.
1.26 DIRECT SALE.
The sale of TCCs directly to a buyer by the Primary Owner through a
non-discriminatory auditable sale conducted on the ISO's OASIS, in compliance
with the requirements and restrictions set forth in Commission Order Nos. 888
et seq. and 889 et seq.
1.27 DISPATCH DAY.
The twenty-four (24) hour period commencing at the beginning of each day
(0000 hour).
1.28 DISPUTE RESOLUTION ADMINISTRATOR ("DRA").
An individual hired by the ISO to administer the Dispute Resolution Process
established in the ISO Tariffs and ISO Agreement.
1.29 DISPUTE RESOLUTION PROCESS ("DRP").
The procedures: (1) described in the ISO Tariffs and ISO Agreement that
are used to resolve disputes between Market Participants and the ISO involving
services provided under the ISO Tariffs (excluding applications for rate
changes or other changes to the ISO Tariffs or rules relating to such
services); and (2) described in the ISO/NYSRC Agreement that are used to
resolve disputes between the ISO and NYSRC involving the implementation
and/or application of the Reliability Rules.
1.30 EMERGENCY.
Any abnormal system condition that requires immediate automatic or manual
action to prevent or limit loss of transmission facilities or Generators that
could adversely affect the reliability of an electric system.
1.31 END-USE CONSUMER.
A Party that is (i) a Large Consumer, (ii) a Small Consumer, (iii) a
not-for-profit organization that represents Small Consumers, (iv) a governmental
agency that advocates on behalf of Small Consumers, or (v) a governmental agency
that acts as a retail Load aggregator primarily for Small Consumers; provided,
however that an End-Use Consumer may not be an Affiliate of a Transmission
Owner, Generator, Other Supplier, Public Power Party or Environmental Party
regardless of where located.
1.32 ENERGY ("MWH").
A quantity of electricity that is bid, produced, purchased, consumed, sold,
or transmitted over a period of time, and measured or calculated in megawatt
hours.
1.33 ENERGY SERVICE COMPANY ("ESCO").
A Load Serving Entity (other than an entity supplying its own Load), a
retail load aggregator or a provider of comprehensive energy services, serving
customers in New York State.
1.34 ENVIRONMENTAL PARTY.
An environmental organization that is certified by the ISO Board as a
non-Market Participant and is a Party to the ISO Agreement.
1.35 EXISTING TRANSMISSION AGREEMENT ("ETA").
An agreement between two or more Transmission Owners, or between a
Transmission Owner and another entity, that was executed and was in effect on
the date that the ISO commenced operations, including amendments and
superseding issues thereof (including service agreements) under individual
Transmission Owners open access tariffs (provided that the Points of Injection
("POI") and Points of Withdrawal ("POW") and contract amounts do not change).
Existing Transmission Agreements are either Transmission Wheeling Agreements or
Transmission Facility Agreements, and are listed in the ISO OATT.
1.36 EXTERNAL TRANSACTIONS.
Purchases, sales or exchanges of Energy, Capacity or Ancillary Services for
which either the Point of Injection ("POI" ) or Point of Withdrawal ("POW") or
both are located outside the NYCA (i.e. Exports, Imports or Wheels Through).
1.37 FEDERAL POWER ACT ("FPA").
The Federal Power Act, as may be amended from time-to-time (See, 16. U.S.C.
796 et seq.).
1.38 GENERATOR.
A facility that:
a. is located in the NYCA, or
b. is supplying capacity to the NYCA, or
c. for the purposes of ISO governance, has filed an application for siting
approval pursuant to Article X of the New York State Public Service Law,
or other applicable law, which is deemed complete by the Article X Board
or other such agency. An entity that qualifies under subsection (c) will
retain its status until the entity's application is denied or withdrawn.
1.39 GENERATOR OWNER.
A Party that owns, or leases with rights equivalent to ownership, a Generator.
Purchasing all or a portion of the output of a Generator shall not be sufficient
to qualify a Party for participation in the Generation Owner sector for purposes
of ISO governance.
1.40 GOOD UTILITY PRACTICE.
Any of the practices, methods or acts engaged in or approved by a
significant portion of the electric utility industry during the relevant time
period, or any of the practices, methods or acts which, in the exercise of
reasonable judgment in light of the facts known at the time the decision was
made, could have been expected to accomplish the desired result at a reasonable
cost consistent with good business practices, reliability, safety and
expedition. Good Utility Practice is not intended to be limited to the optimum
practice, method or act to the exclusion of all others, but rather to delineate
acceptable practices, methods, or acts generally accepted in the region.
1.41 GOVERNMENT BONDS.
Tax-exempt bonds issued by the New York Power Authority pursuant to Section
103 and related provisions of the Internal Revenue Code, 26 U.S.C. 103.
1.42 INDEPENDENT SYSTEM OPERATOR ("ISO").
The New York Independent System Operator, Inc., a not-for-profit
corporation established pursuant to the ISO Agreement.
1.43 INDEPENDENT SYSTEM OPERATOR AGREEMENT ("ISO AGREEMENT" OR "AGREEMENT").
The agreement that establishes the New York ISO.
1.44 INDEPENDENT SYSTEM OPERATOR/NEW YORK STATE RELIABILITY COUNCIL
AGREEMENT ("ISO/NYSRC AGREEMENT").
The agreement between the ISO and the NYSRC governing the relationship
between the two organizations.
1.45 INDEPENDENT SYSTEM OPERATOR/TRANSMISSION OWNER AGREEMENT ("ISO/TO
AGREEMENT").
The agreement that establishes the terms and conditions under which the
Transmission Owners transferred to the ISO Operational Control over designated
transmission facilities.
1.46 INDUSTRIAL CONSUMER.
An End-Use Consumer that takes service under a Transmission Owner's
industrial rate classification or is eligible to do so but takes service
pursuant to a special contract.
1.47 INSTALLED CAPACITY.
A Generator or Load facility that complies with the requirements in the
Reliability Rules and is capable of supplying and/or reducing the demand for
Energy in the NYCA for the purpose of ensuring that sufficient Energy and
Capacity are available to meet the Reliability Rules. The Installed Capacity
requirement, established by the NYSRC, includes a margin of reserve in
accordance with the Reliability Rules.
1.48 INTERCONNECTION OR INTERCONNECTION POINTS ("IP").
The point(s) at which the NYCA connects with a distribution system or
adjacent Control Area. The IP may be a single tie line or several tie lines
that are operated in parallel.
1.49 INTERFACE.
A defined set of transmission facilities that separate Load Zones and that
separate the NYCA from adjacent Control Areas.
1.50 INVESTOR-OWNED TRANSMISSION OWNERS.
A Transmission Owner that is owned by private investors. At the present
time these include: Central Hudson Gas & Electric Corporation, Consolidated
Edison Company of New York, Inc., New York State Electric & Gas Corporation,
Niagara Mohawk Power Corporation, Orange and Rockland Utilities, Inc., and
Rochester Gas and Electric Corporation.
1.51 ISO ADMINISTERED MARKETS.
The Day-Ahead Market and the Real-Time Market (collectively the LBMP
Markets) and any other market administered by the ISO.
1.52 ISO OATT.
The ISO Open Access Transmission Tariff.
1.53 ISO PROCEDURES.
The procedures adopted by the ISO in order to fulfill its responsibilities
under the ISO OATT, the ISO Services Tariff and the ISO Related Agreement,
and consistent with the Reliability Rules.
1.54 ISO RELATED AGREEMENTS.
Collectively, the ISO Agreement, the ISO/TO Agreement, the NYSRC Agreement
and the ISO/NYSRC Agreement.
1.55 ISO SERVICES TARIFF.
The ISO Market Administration and Control Area Services Tariff.
1.56 ISO TARIFFS.
The ISO OATT and the ISO Services Tariff, collectively.
1.57 LARGE CONSUMER.
An Industrial Consumer or a Commercial Consumer whose peak load in any month
within the previous twelve months was two megawatts or more.
1.58 LBMP MARKETS.
A term that collectively refers to both the Real-Time Market and the
Day-Ahead Market.
1.59 LBMP TRANSITION PERIOD PAYMENTS ("LTPP").
Fixed monthly payments, as detailed in Attachment K of the ISO OATT, made
between or among the Investor-Owned Transmission Owners to mitigate
transmission cost-shifting as the competitive market is introduced for
Energy and transmission pricing.
1.60 LIPA TAX-EXEMPT BONDS.
Obligations of the Long Island Power Authority, the interest on which is
not included in gross income under the Internal Revenue Code.
1.61 LOAD.
A term that refers to either a consumer of Energy or the amount of demand
(MW) or Energy (MWh) consumed by certain customers.
1.62 LOAD SERVING ENTITY ("LSE").
Any entity, including a Municipal Electric System and a Cooperatively Owned
Electric System, authorized or required by law, regulatory authorization or
requirement, agreement, or contractual obligation to supply Energy, Capacity
and/or Ancillary Services to retail customers located within the NYCA, including
an entity that takes service from the ISO to supply its own Load within the
NYCA; provided, however, that such entity has obtained all governmental
authorizations necessary to serve Load in the NYCA.
1.63 LOAD SHEDDING.
The systematic reduction of system demand by temporarily decreasing Load in
response to a transmission system or area Capacity shortage, system
instability, or voltage control considerations under the ISO OATT.
1.64 LOCAL FURNISHING BONDS.
Tax-exempt bonds issued by a Transmission Owner under an agreement between
the Transmission Owner and the New York State Energy Research and Development
Authority ("NYSERDA"), or its successor, or by a Transmission Owner itself,
and pursuant to Section 142(f) of the Internal Revenue Code, 26 U.S.C. 142(f).
1.65 LOCALITY.
A single LBMP Load Zone or set of adjacent LBMP Load Zones within one
Transmission District within which a minimum level of Installed Capacity
must be maintained.
1.66 LOCAL RELIABILITY RULE.
A Reliability Rule established by a Transmission Owner, and adopted by the
NYSRC to meet specific reliability concerns in limited areas of the NYCA,
including without limitation, special conditions and requirements applicable
to nuclear plants and special requirements applicable to the New York City
metropolitan area.
1.67 LOCATIONAL BASED MARGINAL PRICING ("LBMP").
A pricing methodology under which the price of Energy at each location in
the NYS Transmission System is equivalent to the cost to supply the next
increment of Load at that location (i.e., the short-run marginal cost). The
short-run marginal cost takes generation Bid Prices and the physical aspects
of the NYS Transmission System into account. The short-run marginal cost also
considers the impact of Out-of-Merit Generation (as measured by its Bid Price)
resulting from the Congestion and Marginal Losses occurring on the NYS
Transmission System which are associated with supplying an increment of Load.
The term LBMP also means the price of Energy bought or sold in the LBMP Markets
at a specific location.
1.68 LOCATIONAL INSTALLED CAPACITY REQUIREMENT.
A determination by the ISO of that portion of the state-wide Installed
Capacity requirement that must be electrically located within a Locality in
order to ensure that sufficient Energy and Capacity are available in that
Locality and that appropriate reliability criteria are met.
1.69 MARGINAL LOSSES.
The NYS Transmission System Real Power Losses associated with each
additional MWh of consumption by Load, or each additional MWh transmitted
under a Bilateral Transaction as measured at the Points of Withdrawal.
1.70 MARKET PARTICIPANT.
An entity, excluding the ISO, that is a Transmission Customer under the
ISO OATT, Customer under the ISO Services Tariff, Power Exchange, Transmission
Owner, Primary Holder, LSE, or Supplier, and their designated agents. Market
Participants also include entities buying or selling TCCs.
1.71 MARKET POWER MONITORING PROGRAM.
The program approved by the Commission and implemented by the ISO that is
intended to review and analyze data with respect to the possible exercise of
market power in an ISO Administered Market.
1.72 MARKET SERVICES.
Services provided by the ISO under the ISO Services Tariff related to the
ISO Administered Markets for Energy, Capacity and Ancillary Services.
1.73 MEMBER SYSTEMS.
The eight Transmission Owners that comprise the membership of the New York
Power Pool.
1.74 MODIFIED WHEELING AGREEMENT ("MWA").
A Transmission Agreement in existence, as amended, between Transmission
Owners, that is associated with existing Generators or power supply contracts,
that will be modified effective upon LBMP implementation. The terms and
conditions of the MWA will remain the same as the original agreement, except
as noted in the ISO OATT.
1.75 MUNICIPAL ELECTRIC SYSTEM.
A municipally owned electric system that owns or controls distribution
facilities and provides electric service in accordance with the New York
State General Municipal Law or Village Law, and is located within the New
York Control Area. For the purposes of ISO governance, the Green Island
Power Authority shall be considered a Municipal Electric System.
1.76 NERC.
The North American Electric Reliability Council.
1.77 NEW YORK CONTROL AREA ("NYCA").
The Control Area that is under the control of the ISO which includes
transmission facilities listed in the ISO/TO Agreement Appendices A-1 and
A-2, as amended from time-to-time, and Generation located outside the NYS
Power System that is subject to protocols (e.g., telemetry signal biasing)
which allow the ISO and other Control Area operator(s) to treat some or all
of that Generation as though it were part of the NYS Power System.
1.78 NEW YORK POWER POOL ("NYPP")
An organization established by agreement (the "New York Power Pool
Agreement") made as of July 21, 1996, and amended as of July 16, 1991, by
and among Central Hudson Gas & Electric Corporation, Consolidated Edison
Company of New York, Inc., Long Island Lighting Company, New York State
Electric & Gas Corporation, Niagara Mohawk Power Corporation, Orange and
Rockland Utilities, Inc., Rochester Gas and Electric Corporation, and the
Power Authority of the State of New York. LIPA became a Member of the NYPP
on May 28, 1998 as a result of the acquisition of the Long Island Lighting
Company by the Long Island Power Authority.
1.79 NEW YORK STATE RELIABILITY COUNCIL ("NYSRC").
An organization established by agreement among the Member Systems to
promote and maintain the reliability of the NYS Power System ("NYSRC
Agreement").
1.80 NON-MARKET PARTICIPANT.
An organization that represents Small Consumers, an environmental organization,
a governmental agency that advocates on behalf of Small Consumers, or a
governmental agency that acts as a retail Load aggregator primarily for Small
Consumers; provided that such organization is certified by the ISO Board
pursuant to the provisions of Section 2.02 of the Agreement as eligible to
participate in the governance of the ISO.
1.81 NORMAL STATE.
The condition that the NYS Power System is in when the Transmission Facilities
Under ISO Operational Control are operated within the parameters listed for
Normal State in the Reliability Rules. These parameters include, but are not
limited to, thermal, voltage, stability, frequency, operating reserve and Pool
Control Error limitations.
1.82 NPCC.
The Northeast Power Coordinating Council.
1.83 NRC.
The Nuclear Regulatory Commission, or any successor thereto.
1.84 NYPA
The Power Authority of the State of New York.
1.85 NYPA TRANSMISSION ADJUSTMENT CHARGES ("NTAC").
A surcharge on all Energy Transactions designed to recover the Annual
Transmission Revenue Requirement of NYPA which cannot be recovered through its
TSC, TCCs, or other transmission revenues, including, but not limited to, its
ETA revenues. This charge will be assessed to all Load state-wide, as well as
Transmission Customers in Wheels Through and Exports.
1.86 NYS POWER SYSTEM.
All facilities of the NYS Transmission System, and all those Generators
located within the NYCA or outside the NYCA, some of which may be from
time-to-time subject to operational control by the ISO.
1.87 NYS TRANSMISSION SYSTEM.
The entire New York State electric transmission system, which includes:
(1) the Transmission Facilities Under ISO Operational Control; (2) the
Transmission Facilities Requiring ISO Notification; and (3) all remaining
transmission facilities within the NYCA.
1.88 OFF-PEAK.
The hours between 11 p.m. and 7:00 a.m., prevailing Eastern Time, Monday
through Friday, and all day Saturday and Sunday, and NERC-defined holidays,
or as otherwise decided by the ISO.
1.89 ON-PEAK.
The hours between 7 a.m. and 11 p.m. inclusive, prevailing Eastern Time,
Monday through Friday, except for NERC-defined holidays, or as otherwise
decided by the ISO.
1.90 OPEN ACCESS SAME-TIME INFORMATION SYSTEM ("OASIS").
The information system and standards of conduct contained in Part 37 of the
Commission's regulations and all additional requirements implemented by
subsequent Commission orders dealing with OASIS.
1.91 OPERATING CAPACITY.
Capacity that is readily converted to Energy and is measured in MW.
1.92 OPERATING RESERVES.
Generating Capacity that is available to supply Energy, or Interruptible
Load Resources that are available to Curtail Energy usage, in the event of
contingency conditions which meet the requirements of the ISO. Operating
Reserves include spinning reserves, ten-minute non-synchronized reserves,
and thirty-minute reserves.
1.93 OPERATIONAL CONTROL
Directing the operation of the Transmission Facilities Under ISO Operational
Control to maintain these facilities in a reliable state, as defined by the
Reliability Rules. The ISO shall approve operational decisions concerning
these facilities, made by each Transmission Owner before the Transmission
Owner implements those decisions. In accordance with ISO Procedures, the ISO
shall direct each Transmission Owner to take certain actions to restore the
system to the Normal State. Operational Control includes security monitoring,
adjustment of generation and transmission resources, coordination and approval
of changes in transmission status for maintenance, determination of changes in
transmission status for reliability, coordination with other Control Areas,
voltage reductions and Load Shedding, except that each Transmission Owner
continues to physically operate and maintain its facilities.
1.94 ORDER NOS. 888 ET SEQ.
The Final Rule entitled Promoting Wholesale Competition Through Open Access
Non-discriminatory Transmission Services by Public Utilities; Recovery of
Stranded Costs by Public Utilities and Transmitting Utilities, issued by the
Commission on April 24, 1996, in Docket Nos. RM95-8-000 and RM94-7-001, as
modified on rehearing, or upon appeal. (See FERC Stats. & Regs. [Regs.
Preambles January 1991- June 1996] 31,036 (1996) ("Order No. 888"), on reh'g,
III FERC Stats. & Regs. 31,048 (1997) ("Order No. 888-A"), on reh'g, 81 FERC
61,248 (1997) ("Order No. 888-B"), order on reh'g, 82 FERC 61,046 (1998)
("Order No. 888-C") ("Order No. 888-C").
1.95 ORDER NOS. 889 ET SEQ.
The Final Rule entitled Open Access Same-Time Information System (formerly
Real-Time Information Networks) and Standards of Conduct, issued by the
Commission on April 24, 1996, in Docket No. RM95-9-000, as modified on
rehearing, or upon appeal. (See FERC Stats. & Regs. [Regs. Preambles
1991-1996] 31,035 (1996) ("Order No. 889"), on reh'g, III FERC Stats
& Regs. 31,049 (1997) ("Order No. 889-A"), on eh'g, 81 FERC 61,253 (1997)
("Order No. 889-B")).
1.96 OTHER SUPPLIER.
A Party that is a seller, buyer, broker, aggregator, Power Exchange, ESCO
or transmitter of capacity or energy in, from or through the New York Control
Area, provided, however, that for the purposes of ISO governance a Municipal
Electric System, a Cooperatively Owned Electric System and a governmental
agency that acts as a retail Load aggregator shall not qualify as an Other
Supplier.
1.97 OUT-OF-MERIT GENERATION.
Generators producing at a different level of output than they would produce
in a dispatch to meet Load which was not security constrained. Out-of-Merit
Generation occurs to maintain system reliability or to provide Ancillary
Services.
1.98 PARTY.
A signatory to one of the ISO Related Agreements, with respect to that
agreement.
1.99 POINT(S) OF INJECTION ("POI" OR "POINT OF RECEIPT").
The point(s) on the NYS Transmission System where Energy, Capacity and
Ancillary Services will be made available to the ISO by the delivering party
under the ISO OATT or the ISO Services Tariff. The Point(s) of Injection
shall be specified in the Service Agreement.
1.100 POINT(S) OF WITHDRAWAL ("POW" OR "POINT OF DELIVERY").
The point(s) on the NYS Transmission System where Energy, Capacity and
Ancillary Services will be made available to the receiving party under the ISO
OATT or the ISO Services Tariff. The Point(s) of Withdrawal shall be specified
in the Service Agreement.
1.101 POOL CONTROL ERROR ("PCE").
The difference between the actual and scheduled interchange with other
Control Areas, adjusted for frequency bias.
1.102 POWER EXCHANGE ("PE").
A commercial entity meeting the requirements for service under the ISO OATT
or the ISO Services Tariff that facilitates the purchase and/or sale of Energy,
Capacity and/or Ancillary Services in a New York Wholesale Market. A PE may
transact with the ISO on its own behalf or as an agent for others.
1.103 POWER FLOW.
A simulation which determines the Energy flows on the NYS Transmission
System and adjacent transmission systems.
1.104 PRIMARY HOLDER.
A Primary Holder of each TCC is the Primary Owner of that TCC or the party
that purchased that TCC at the close of the centralized TCC auction. With
respect to each TCC, a Primary Holder must be: (1) a Transmission Customer that
has purchased the TCC in the centralized TCC auction, and that has not resold it
in that same auction; (2) a Transmission Customer that has purchased the TCC in
a Direct Sale and has not resold it through an auction or through a Direct Sale
with another Transmission Customer; (3) the Primary Owner who has retained the
TCC and did not sell it through the auction; or (4) the Primary Owners of the
TCC that allocated the TCC to certain Transmission Customers or sold it in the
Secondary Market or sold through a Direct Sale to an entity other than a
Transmission Customer. The ISO shall settle Congestion Rents with the Primary
Holder of each TCC.
1.105 PRIMARY OWNER.
The Primary Owner of each TCC is the Transmission Owner or other party that
has acquired the TCC through conversion of rights under an existing Transmission
Agreement or the Transmission Owner that acquired the TCC through the ISO's
allocation of residual TCCs, in accordance with the provisions of the ISO OATT.
1.106 PSC.
The Public Service Commission of the State of New York or any successor
agency thereto.
1.107 PUBLIC POWER PARTY.
A State Public Power Authority, a Municipal Electric System or
Cooperatively-Owned Electric System.
1.108 REAL-TIME MARKET.
The ISO Administered Market resulting from the operation of the Security
Constrained Dispatch ("SCD").
1.109 RELIABILITY RULES.
Those rules, standards, procedures and protocols developed and promulgated
by the NYSRC, including Local Reliability Rules, in accordance with NERC, NPCC,
FERC, PSC and NRC standards, rules and regulations and other criteria, and
pursuant to the NYSRC Agreement.
1.110 RESIDENTIAL CONSUMER.
An End-Use Consumer that takes service under a Transmission Owner's residential
rate classification.
1.111 SAFE OPERATIONS.
Actions that avoid placing personnel and equipment in peril with regard to
the safety of life and equipment damage.
1.112 SECURITY CONSTRAINED DISPATCH ("SCD").
The allocation of Load to Generators by the ISO through the operation of a
computer algorithm which continuously calculates individual Generator loading
at minimum Bid cost, balancing Load and scheduled interchange with Generation
while meeting all Reliability Rules and Generator performance Constraints
consistent with the terms of the ISO Services Tariff.
1.113 SERVICE AGREEMENT.
The agreement, in the form of Attachment A to the ISO OATT or the ISO
Services Tariff, and any amendments or supplements thereto entered into by a
Transmission Customer and the ISO for Transmission Service under the ISO OATT
or between the ISO and a Customer for services under the ISO Services Tariff
or any unexecuted Service Agreement, amendments or supplements thereto, that
the ISO unilaterally files with the Commission.
1.114 SETTLEMENT.
The process of determining the charges to be paid to, or by, a Transmission
Customer or a Customer to satisfy its obligations.
1.115 SMALL CONSUMER
A Residential Consumer, or an Industrial or Commercial Consumer whose peak
Load did not equal or exceed two megawatts in any month within the previous
twelve months. Industrial and Commercial Consumers with common ownership of
fifty percent or more may aggregate their usage in order to qualify to
participate in ISO governance as Large Consumers.
1.116 STATE PUBLIC POWER AUTHORITY.
A public authority or corporate municipal instrumentality, including a
subsidiary thereof, created by the state of New York under the Public
Authorities Law that owns or operates generation or transmission and that is
authorized to produce, transmit or distribute electricity for the benefit of
the citizens of the entire state or for the citizens in two or more counties
of the state.
1.117 STRANDABLE COSTS.
Prudent and verifiable expenditures and commitments made pursuant to a
Transmission Owner's legal obligations that are currently recovered in the
Transmission Owner's retail or wholesale rate that could become unrecoverable
as a result of a restructuring of the electric utility industry and/or
electricity market, or as a result of retail-turned-wholesale customers, or
customers switching generation or transmission service suppliers.
1.118 STRANDED INVESTMENT RECOVERY CHARGE.
A charge established by a Transmission Owner to recover Strandable Costs.
1.119 SUPPLEMENTAL RESOURCE EVALUATION ("SRE").
A determination of the least cost selection of additional generators, which are
to be committed, to meet changed conditions that may cause the original system
dispatch to be inadequate to meet load and/or reliability requirements.
1.120 SUPPLIER.
A Party that is supplying the Capacity, Energy and/or associated Ancillary
Services to be made available under the ISO OATT or the ISO Services Tariff,
including Generators and Demand Side Resources that satisfy all applicable ISO
requirements.
1.121 TCC MARKET CLEARING PRICE.
The market clearing price for TCCs awarded in the centralized TCC auction
is the price at which all TCCs between specific POIs and POWs in a specific
stage of the auction are sold for the duration of the centralized TCC auction
period.
1.122 THIRD PARTY TRANSMISSION WHEELING AGREEMENTS ("THIRD PARTY TWAS").
A Transmission Wheeling Agreement, as amended, between Transmission Owner or
between a Transmission Owner and an entity that is not a Transmission Owner
associated with the purchase (or sale) of Energy, Capacity, and/or Ancillary
Services for the benefit of an entity that is not a Transmission Owner. These
agreements are listed in Attachment L, Table 1.
1.123 TRANSFER CAPABILITY.
The measure of the ability of interconnected electrical system to reliably
move or transfer power from one area to another over all transmission
facilities (or paths) between those areas under specified system conditions.
1.124 TRANSMISSION CONGESTION CONTRACT ("TCC").
The right to collect or obligation to pay Congestion Rents associated with
a single MW of transmission between a specified POI and POW. TCCs are financial
instruments that enable Energy buyers and sellers to hedge fluctuations in the
price of transmission.
1.125 TRANSMISSION CUSTOMER.
Any entity (or its designated agent) that receives Transmission Service pursuant
to a Service Agreement and the terms of the ISO OATT.
1.126 TRANSMISSION DISTRICT.
The geographic area served by the Investor-Owned Transmission Owner and
LIPA, as well as the customers directly interconnected with the transmission
facilities of the Power Authority of the State of New York.
1.127 TRANSMISSION FACILITIES UNDER ISO OPERATION CONTROL.
The transmission facilities of the Transmission Owners listed in Appendix
A-1 of the ISO/TO Agreement, ("Listing of Transmission Facilities Under ISO
Operational Control"), that are subject to the Operational Control of the ISO.
This listing may be amended from time-to-time as specified in the ISO/TO
Agreement.
1.128 TRANSMISSION FACILITIES REQUIRING ISO NOTIFICATION.
The transmission facilities of the Transmission Owners listed in Appendix
A-2 of the ISO/TO Agreement, "Listing of Transmission Facilities Requiring ISO
Notification, "whose status of operation must be provided to the ISO by the
Transmission Owners (for the purposes stated in the ISO Tariffs, and in
accordance with, the ISO Tariffs and ISO/TO Agreement) prior to the Transmission
Owners making operational changes to the state of these facilities. This
listing may be amended from time-to-time as specified in the ISO/TO Agreement.
1.129 TRANSMISSION FACILITY AGREEMENT.
The agreements listed in Attachment L, Table 2 of the ISO Tariff governing
the use of specific or designated transmission facilities pursuant to which the
provider or owner of said transmission facilities charges all, or a portion, of
the costs to install, own, operate, or maintain said transmission facilities,
to the customer under the agreement. These agreements may or may not have
provisions to provide Transmission Service utilizing said transmission
facilities.
1.130 TRANSMISSION OWNER.
An entity that owns, controls and operates facilities in New York State
used for the transmission of Energy in interstate commerce. A Transmission
Owner must own, individually or jointly, at least 100 circuit miles of 115 kV
or above in New York State and has become a signatory to the ISO/TO Agreement.
1.131 TRANSMISSION SERVICE.
Point-To-Point Network Integration or Retail Access Transmission Service
provided under the ISO OATT.
1.132 TRANSMISSION SERVICE CHARGE ("TSC").
A charge under the ISO OATT designed to ensure recovery of the embedded
cost of a Transmission Owner's transmission system.
1.133 TRANSMISSION SYSTEM.
The facilities operated by the ISO that are used to provide Transmission
Services under the ISO OATT.
1.134 TRANSMISSION USAGE CHARGE ("TUC").
Payments made by the Transmission Customer to cover the cost of Marginal
Losses and, during periods of time when the transmission system is constrained,
the marginal cost of Congestion. The TUC is equal to the product of: (1) the
LBMP at the POW minus the LBMP at the POI (in $/MWh); and (2) the scheduled or
delivered Energy (in MWh).
1.135 TRANSMISSION WHEELING AGREEMENT ("TWA").
The agreements listed in Table 1 of Attachment L to the ISO OATT governing the
use of specific or designated transmission facilities that are owned, controlled
or operated by an entity for the transmission of electric Energy in interstate
commerce
1.136 WHOLESALE MARKET.
The sum of purchases and sales of Energy and Capacity for resale along with
Ancillary Services needed to maintain reliability and power quality at the
transmission level coordinated together through the ISO and Power Exchanges.
A Party who purchases Energy, Capacity or Ancillary Services in the Wholesale
Market to serve its own Load is considered to be a participant in the Wholesale
Market.
ARTICLE 2: SCOPE AND PARTIES
2.01 SCOPE.
The Incorporating Parties agree to create a New York State non-share,
not-for-profit corporation known as the New York Independent System Operator,
Inc. ("ISO").
The ISO shall maintain the reliable, safe, and efficient operation of the
NYS Power System (including adjustment of generation, and coordination of
maintenance and outage schedules of certain Generators and transmission
facilities), and the administration of the ISO Open Access Transmission Tariff
(the "ISO OATT") and the ISO Market Administration and Control Area Services
Tariff (the "ISO Services Tariff"), in accordance with the Reliability Rules
and the terms of the ISO Related Agreements.
The ISO will have Operational Control over those facilities listed in Appendix
A-1 of the ISO/TO Agreement, in accordance with the terms of the ISO/TO
Agreement. The Facilities Requiring ISO Notification are listed in Appendix
A-2 of the ISO/TO Agreement.
2.02 PARTIES TO THE ISO AGREEMENT.
All Incorporating Parties and any entity that meets the requirements for
participation in any sector or subsector described in Sections 7.04 and 7.06
may become a Party to the ISO Agreement by signing the Agreement. A Party to
this Agreement may participate in the governance of the ISO. There will be a
$5,000 annual fee for each Party, except that: Small Consumers shall be
subject to a reasonable fee established by the ISO Board; and not-for-profit
organizations that are Environmental Parties and not-for-profit organizations
that represent Small Consumers shall pay a $100 annual fee. The annual fees
for Parties may be revised by the ISO Board with the concurrence of the
Management Committee. Non-Market Participants also may become Parties to this
Agreement and participate in the governance of the ISO. The ISO Board shall
permit the following types of organizations or groups to participate in the
governance of the ISO as Non-Market Participants
a) Organizations that represent Small Consumers, including governmental
agencies, with experience in electric utility regulatory or electricity-related
matters in New York State, that in whole or in part advocate on behalf of Small
Consumers in New York State, and governmental agencies that act as retail Load
aggregators primarily for Small Consumers; provided that no such organization
or agency may be an Affiliate of a Transmission Owner, a Generator, Other
Supplier, Public Power Party or Environmental Party, regardless of where
located.
b) Environmental Organizations that are non-profit corporations,
partnerships, associations or other non-profit entities having the primary
purpose of protecting the environment, with experience in electric utility
regulatory or electricity-related matters in New York State; provided that no
such entity may be an Affiliate of a Transmission Owner, Generator Owner, Other
Supplier or Public Power Party, regardless of where located. An organization
meeting the foregoing requirements shall not be excluded from the definition of
an Environmental Organization if it also has a purpose of promoting energy
conservation or the generation of electricity from renewable resources.
The ISO Board shall certify that a Non-Market Participant organization or
agency is eligible to be a Party to the ISO Agreement and participate in the
ISO's governance.
ARTICLE 3: EFFECTIVE DATE AND TERMINATION
3.01 TERM.
This Agreement shall become effective upon the execution of this Agreement
by the Incorporating Parties and on the latest of:
(i) the date(s) the Commission approves, without condition or material
modification:
(a) this ISO Agreement;
(b) the NYSRC Agreement;
(c) the ISO/NYSRC Agreement;
(d) the ISO/TO Agreement;
(e) the ISO OATT; and
(f) the ISO Services Tariff;
(ii) the date on which both the Commission and the PSC grant all necessary
approvals to the Transmission Owners to transfer operational control of
any facilities to the ISO or otherwise dispose of any of their property
including, without limitation, any approvals required under Section 70
of the New York Public Service Law and Section 203 of the Federal Power
Act;
(iii) September 1, 1999; or
(iv) such later date specified by the Commission.
The implementation of the ISO is premised upon the Investor-Owned Transmission
Owners and LIPA being provided a reasonable opportunity to recover prudent and
verifiable expenditures and commitments made pursuant to their legal
obligations.
3.02 TERMINATION AND WITHDRAWAL.
After the fifth anniversary of the effective date of this Agreement, this
Agreement may be terminated by a unanimous vote of the Incorporating Parties
or their successors or assigns. If the Incorporating Parties vote to terminate
this Agreement, they will file with the Commission and the PSC an explanation
of their action and a proposal for an alternate plan for the safe, reliable and
efficient operation of the NYS Transmission System.
Except as otherwise provided in this Section 3.02, any Party may withdraw from
this Agreement upon ninety (90) days prior written notice to the ISO Board. In
the case of an Investor-Owned Transmission Owner, no further approval by the
Commission is needed for such withdrawal from the ISO Agreement, if such
Investor-Owned Transmission Owner has on file with the Commission its own open
access transmission tariff. Any modification to this Article shall provide any
Party with the right to withdraw from the Agreement pursuant to the unmodified
provisions of this Article, within ninety (90) days of the effective date of
such modification. If the tax-exempt status of LIPA's Tax Exempt Bonds are
jeopardized by LIPA's participation in the ISO, LIPA may withdraw from this
Agreement upon thirty (30) days prior written notice to the ISO Board; however,
LIPA shall provide earlier notice whenever and as soon as it is reasonably
practicable to do so. Any such notice shall contain an explanation in
reasonably sufficient detail of the grounds for withdrawal. To the extent
reasonably requested by LIPA, the ISO shall treat this explanation as
confidential consistent with the ISO's confidentiality procedures.
3.03 SURVIVAL.
Any provision of this Agreement that expressly or by implication comes into
or remains in force following the termination or expiration of this Agreement
shall survive such termination or expiration. The surviving provisions shall
include, but shall not be limited to:
(i) those provisions necessary to permit the orderly conclusion of
transactions entered into prior to the decision to terminate this ISO
Agreement;
(ii) those provisions necessary to conduct final billing, collection,
and accounting with respect to all matters arising hereunder; and
(iii) the indemnification provisions as applicable to periods prior to such
termination or expiration by a Party.
ARTICLE 4: ORGANIZATIONAL STRUCTURE
The ISO will be governed by a ten (10) person unaffiliated Board of Directors,
as per Article 5 herein. The day-to-day operation of the ISO will be managed
by a President, who will serve as an ex-officio member of the ISO Board, in
accordance with Article 5 herein. There shall be a Management Committee as per
Article 7 herein, which shall report to the ISO Board, and shall be comprised
of all Parties to the Agreement. There shall be at least two additional
standing committees, the Operating Committee, as provided for in Article 8,
and the Business Issues Committee, as provided for in Article 9, both of which
shall report to the Management Committee. A Dispute Resolution Process will be
established and administered by the ISO Board in accordance with Article 10.
5.01 COMPOSITION OF THE ISO BOARD AND VOTING.
The ISO Board shall be comprised of ten (10 ) members (or " Directors" ), none
of whom shall be affiliated with any Market Participant. Attendance or
participation by proxy by six (6) Directors shall constitute a quorum. Each
Director shall have one vote. An affirmative vote by six (6) Directors shall be
required to pass a measure. Voting may be done in person or by proxy. A
Director must be a natural person.
A Director shall be deemed "affiliated" with a Market Participant or its
Affiliate if:
a. Such person or his or her spouse or minor children owns, controls, or
holds with power to vote, securities of a Market Participant or any of its
Affiliates; provided, however,
(i) that each newly elected Director shall dispose of such securities
in accordance with the terms of the ISO's Code of Conduct,
(ii) if such person or his or her spouse or minor children owns, controls
or holds with power to vote such securities as a result of an entity
becoming a Market Participant, such person shall dispose of such
securities in accordance with the terms of the ISO's Code of Conduct,
and
(iii) if such person or his or her spouse or minor children owns, controls or
holds with power to vote such securities as a result of a gift,
inheritance, distribution of marital property or other involuntary
acquisition, such person shall dispose of such securities in accordance
with the terms of the ISO's Code of Conduct;
b. Such person or his or her spouse or minor children purchases securities
of any Market Participant or any Affiliate of any Market Participant while
such person is a Director;
c. Such person is an officer, director, partner or employee of a Market
Participant or any of its Affiliates;
d. Such person
(i) is a former executive officer of a Market Participant which Market
Participant, together with its Affiliates, has three percent or more of
the voting shares on the Management Committee or of any Affiliate of
such Market Participant and
(ii) is receiving continuing benefits under an existing employee benefit
plan, arrangement or policy of such Market Participant or any of its
Affiliates, except to the extent permitted under the ISO Code of Conduct;
or
e. Such person has a material ongoing business or professional relationship
with a Market Participant or any of its Affiliates; provided, however, that
such person shall not be deemed to have a material ongoing business
relationship with a Market Participant or any of its Affiliates solely as a
result of being served, as a customer, with electricity or gas by such
Market Participant or its Affiliates.
The term "securities" used above is defined in the ISO's Code of Conduct.
5.02 SELECTION OF THE NINE INITIAL DIRECTORS
The nine (9) initial members of the ISO Board shall be chosen by a Selection
Committee. The Selection Committee will be comprised of eighteen (18) members
chosen as follows:
a. Eight (8) members will be selected by the eight (8) current Member Systems
of the NYPP.
b. Eight (8) members shall be selected from among interested Parties (the
"Non-Utility Parties"). The selection of these eight members will be
facilitated by a PSC Administrative Law Judge, with all Non-Utility Parties
having an opportunity to participate. The eight members selected by the
Non-Utility Parties shall consist of representatives of the following
groups: generators (2 members), consumer representatives (2 members),
marketers (1 member), municipals systems (1 member), energy services
companies (1 member), and public interest groups (1 member).
c. Two (2) members will be staff members of the New York State Department of
Public Service selected by the PSC.
The Selection Committee shall choose the nine (9) initial Directors from a
list of approximately one-hundred (100) candidates provided by a professional
executive search firm retained by the Selection Committee. The nine (9) initial
Directors shall possess a cross-section of skills and experience (such as, for
purposes of illustration but not by way of mandate or limitation, FERC electric
regulatory affairs, electric utility management, corporate finance, bulk power
systems, human resources administration, power pool operations, public policy,
consumer advocacy, environmental affairs, business management, law, and
information systems) to ensure that the ISO has sufficient relevant knowledge
and expertise to perform its obligations under this ISO Agreement. At least
three (3) of the Directors shall have prior relevant experience in the electric
industry. In addition, to ensure sensitivity to regional concerns, strong
preference shall be given to electing members from New York to the extent that
qualified candidates are available and such representation can be accomplished
consistent with the ISO's conflict of interest policy and Code of Conduct and
so long as it does not violate the requirements that Directors be unaffiliated.
The Selection Committee will develop a process by which it will reduce the
pool of qualified candidates to a smaller number, of approximately thirty-five
(35) individuals, along with a separate process for the selection of the nine
initial Directors from the smaller pool of thirty-five candidates. Approval by
sixty-seven (67) percent of the members of the Selection Committee shall be
required for appointment of a member of the ISO Board.
5.03 THE SELECTION PROCESS FOR THE PRESIDENT.
The nine (9) initial Directors shall select a President of the ISO that
shall also serve, ex-officio, as the tenth member of the Board. The nine (9)
initial Directors shall hire a search firm to develop a pool of no fewer than
ten (10) qualified candidates for the position of President. After interviewing
all the candidates, the nine (9) initial Directors may request that the search
firm provide them with additional candidates, if necessary. The method of
narrowing the candidate pool and selecting the President shall be left to the
nine (9) initial Directors. Prior to the selection of the President, the ISO
Board shall submit the names of the candidates under consideration to the
Selection Committee for its evaluation. The President shall have extensive
experience and knowledge in the field of electric power systems. In considering
candidates for President, the ISO Board also shall give substantial weight to
significant managerial experience and knowledge and experience in electricity
markets.
5.04 FUTURE ISO BOARD VACANCIES.
The ISO Board shall be self-perpetuating. Vacancies on the ISO Board shall
be filled by the Directors then in office and new Directors shall be required
to meet the same basic qualifications as the nine (9) initial Directors. The
ISO Board shall always be comprised of at least three (3) Directors with prior
relevant experience in the electric industry. The Management Committee shall
assist the ISO Board in the filling of ISO Board vacancies. The Management
Committee shall conduct a search for new Directors and provide the ISO Board
with a list of at least three (3) qualified candidates for each vacancy. The
ISO Board may seek candidates from other sources, including an executive search
firm. The ISO Board shall provide the Management Committee with an opportunity
to review the qualifications of candidates not forwarded to the ISO Board by
the Management Committee and to comment on their qualifications prior to the
selection of a new Director.
5.05 REGULATORY APPROVAL.
The process of selecting the individual ISO Directors shall be subject to
Commission approval.
5.06 THE CHAIRPERSON OF THE BOARD.
The Directors shall elect a Chairperson of the Board. The President shall
not be eligible to serve as the Chairperson of the Board. The Chairperson
shall serve a term of one (1) year and will be eligible for re-election.
5.07 BOARD REVIEW OF MATTERS.
The Board shall review and determine appeals from actions of the Management
Committee. The Board may suspend an action by any ISO Committee pending appeal,
if the Board determines that such action is warranted. The ISO Board also may
review any matter, complaint, or Committee action on its own motion. The ISO
Board shall establish procedures for reviewing such matters, Committee actions,
or complaints, and for the suspension of Committee actions pending appeal. The
ISO Board may delegate to one or more of its members the authority to suspend a
Committee action pending appeal, subject to ratification by the ISO Board. This
should include, but not be limited to, the ISO Board establishing procedures to
assure prompt action on matters that are brought to it for action on an
emergency or urgent basis.
The ISO Board shall designate an ISO representative to each ISO Committee that
shall serve as a non-voting Member of such Committee. Two years after the ISO
commences operations, the ISO Board shall review the operations of the ISO
committees, in consultation with the committees, and report its findings.
5.08 SCOPE OF RESPONSIBILITIES OF THE ISO BOARD
The ISO Board will have ultimate responsibility for the operation of the
ISO and the effective implementation of its basic responsibilities, including,
but not limited to: the safe, reliable, and efficient operation of the NYS
Power System; the provision of Transmission Service to all Transmission
Customers on a non-discriminatory basis in accordance with the ISO OATT;
the provision of Market Services and Control Area Services under the ISO
Services Tariff, including the administration of the Day-Ahead unit commitment
and real-time dispatch, the administration of centrally coordinated markets
for Energy, Capacity and Ancillary Services and the administration of Installed
Capacity requirements for LSEs. The ISO Board may appoint from time to time
such employees and other agents as it deems necessary, each of which shall hold
office at the pleasure of the ISO Board, receive such reasonable compensation
and have such authority and perform such duties as the ISO Board may determine.
The ISO Board will establish appropriate personnel, employment and salary
policies for the day-to-day administration of the ISO. The ISO Board may
establish committees and sub-committees as it sees fit, in addition to the
committees described in Articles 7, 8, and 9 of this Agreement.
The ISO Board also shall be responsible for the financial affairs of the
corporation, including the ISO's capital and operating budgets. The ISO Board
shall appoint an independent auditor. Audits may be performed at the request
of the ISO Board, or at the request of a Party. If a Party requests an audit,
the cost of such audit shall be borne by the requesting Party.
The ISO Board shall have a fiduciary duty to faithfully execute the powers and
responsibilities of the ISO and shall not represent or favor the interests of
any entity.
Upon request, the ISO Board shall make provisions for representatives of the
Commission and the PSC to attend meetings of the ISO Board. The Commission
and PSC representatives may participate, but not vote, in a meeting of the ISO
Board.
5.09 THE PRESIDENT OF THE ISO.
The President of the ISO, shall be responsible for the day to day operations
of the ISO. The President shall be responsible for hiring and supervising the
staff of the ISO. The President shall serve at the pleasure of the ISO Board
and shall enter into a contract with the ISO Board detailing the terms of
his/her employment, including salary terms and benefits. The President shall
serve as an ex-officio director and shall not be a member of the Corporation.
5.10 REMOVAL OF A DIRECTOR FOR CAUSE.
The ISO Board shall have the power to remove a Director from office for
cause by an affirmative vote of seven (7) Directors, taken at a special meeting
of the ISO Board. A Director or the Management Committee may propose the
removal of a Director for cause. If the ISO Board fails to remove a Director
after a petition by the Management Committee, the Management Committee may
appeal to the Commission. Grounds for removal for cause include, but are not
limited to: failure to attend meetings, affiliation with a Market Participant,
felony conviction, misappropriation of funds, sexual harassment, mental
incapacity, and misconduct.
5.11 TERM AND ISO BOARD COMPENSATION.
Except for the President, who serves as an ex-officio member of the ISO
Board, Directors shall serve staggered four (4) year terms and may be
reelected. The terms of the initial Directors shall be staggered, as
determined by the Selection Committee. Except for the President, whose
compensation shall be set forth in a separate contract, Directors shall be
compensated by an annual retainer and meeting fees, and shall be reimbursed
for their expenses. The retainer and meeting fees will initially be
established by the Selection Committee. Any change in Directors' compensation
will be subject to the ISO Board approval, after the Management Committee has
had an opportunity to review and comment on any proposed change.
5.12 MEETINGS.
The ISO Board shall meet at least quarterly, and at such other times as the
Chairperson may direct. Attendance at an ISO Board meeting by six (6)
Directors shall constitute a quorum.
ARTICLE 6: DUTIES OF THE ISO
6.01 GENERAL.
The ISO shall carry out and perform its duties consistent with the
provisions of the ISO/TO Agreement, the ISO/NYSRC Agreement and the Reliability
Rules, which include Local Reliability Rules, and Good Utility Practice.
The ISO shall perform its functions on non-discriminatory terms and
conditions and shall provide services under the ISO OATT and the ISO Services
Tariff to all Market Participants impartially.
The ISO shall exercise due diligence and care in coordinating the operation of
the NYS Power System and in carrying out its other duties under this ISO
Agreement.
The ISO shall have a fiduciary responsibility to the Incorporating Parties to
protect the transmission assets over which the ISO assumes control and/or
direction and to protect the Incorporating Parties from any liability or
potential liability that may arise from their ownership of such transmission
assets.
The ISO shall act as the NERC defined Control Area operator for the NYS Power
System.
The ISO shall interact with other Control Area operators as required to effect
External Transactions pursuant to the ISO OATT and the ISO Services Tariff.
The ISO will have responsibility for administering a Market Power Monitoring
Program that is approved by the Commission, including hiring an outside market
advisor and ensuring that the ISO compliance staff and the outside advisor have
access to all necessary information.
The ISO shall provide, to the extent permitted by law, that all policies and
operations of ISO shall be developed and applied in a comparable manner so that
the ISO makes available to all Market Participants the same non-Confidential
Information at the same time, and all Market Participants are provided the same
opportunity to participate in the purchase and sale of Capacity, Energy, and
Ancillary Services in the Wholesale Market in the NYCA on a comparable and
non-discriminatory basis.
The ISO will prepare and file with the appropriate regulatory commission or
commissions such agreements, operating procedures, and other procedures
necessary to provide Transmission Service under the ISO OATT and to provide
Market Services and Control Area Services under the ISO Services Tariff, and to
maintain the reliable and efficient operation of the NYS Power System. These
operating procedures and other procedures shall be consistent with the
Reliability Rules and the terms of the ISO Agreement, the ISO/NYSRC Agreement
and the ISO/TO Agreement. As a condition to receiving Transmission Service
from the ISO, the ISO shall require a Transmission Customer to sign a Service
Agreement with the ISO whereby the Transmission Customer agrees to comply with
the ISO policies and procedures and all other requirements of the ISO OATT. As
a condition to receiving Market Services and Control Area Services from the ISO,
the ISO shall require a Market Participant to sign a Service Agreement with the
ISO whereby the Market Participant agrees to comply with the ISO policies and
procedures and all other requirements for services under the ISO Services
Tariff.
The ISO shall develop, maintain and promulgate operating and billing procedures
as necessary to carry out its responsibilities under the ISO OATT, the ISO
Services Tariff and the ISO Related Agreements. These procedures shall be
consistent with the ISO's responsibilities under the ISO Related Agreements
and the Reliability Rules adopted by the NYSRC. Except for those procedures
modified or superseded by the ISO Tariffs or ISO Related Agreements, the
operating procedures of the New York Power Pool will remain in effect under
the ISO, unless and until modified or eliminated by the ISO, consistent with
the provisions of the ISO Related Documents.
The ISO shall diligently evaluate and enforce the creditworthiness standards
of the ISO OATT and the ISO Services Tariff.
The ISO shall provide local control center system operator training.
The ISO shall facilitate and/or perform financial settlements and billing
functions of Market Participants in accordance with the provisions of the ISO
OATT and the ISO Services Tariff.
The ISO shall conduct performance audits of Market Participants on a random
basis and, if necessary, impose specific penalties, in accordance with Article
16, for failure to perform.
To the extent practicable and subject to reasonable confidentiality
requirements, the ISO shall make information concerning its operations
available to Market Participants and to state and federal regulatory
agencies.
The ISO shall establish procedures for the appointment of Members, other
than those appointed by the Transmission Owners, to the Executive Committee of
the NYSRC, as provided for in the NYSRC Agreement.
6.02 OPERATION.
The ISO shall maintain the safety and the short-term reliability of the NYS
Power System, including the implementation of emergency procedures consistent
with the Reliability Rules. The ISO shall exercise Operational Control over
Transmission Facilities Under ISO Operational Control.
The ISO OATT and the ISO Services Tariff will require those entities having a
Service Agreement with the ISO to comply with the Reliability Rules and ISO
Procedures regarding the reliability of the NYS Power System and to furnish
data to the ISO as required.
The ISO will require and obtain by contract or tariff sufficient control over
Generators, transmission facilities, and other NYS Power System facilities
necessary for the reliable and efficient operation of the NYS Power System.
6.03 TRANSMISSION SERVICE, TARIFFS AND THE WHOLESALE MARKET.
Subject to Articles 15 and 19 of this Agreement and the ISO/TO Agreement,
the ISO shall provide Transmission Service and Ancillary Services over the NYS
Transmission System in accordance with the ISO OATT, and shall provide Market
Services and Control Area Services in accordance with the ISO Services Tariff.
Subject to the terms of the ISO Agreement, and the ISO/TO Agreement, the
ISO/NYSRC Agreement and the Reliability Rules, the ISO will administer the ISO
OATT and the ISO Services Tariff and from time-to-time file with the Commission,
as required, amendments to the ISO Tariffs in accordance with the provisions
set forth in Article 19 of this Agreement.
Consistent with the Reliability Rules, the ISO will operate a Day-Ahead
Security Constrained Unit Commitment ("SCUC"), using Bid data furnished by
Customers and other sources. The ISO shall implement a Security Constrained
Dispatch ("SCD"), on the Dispatch Day to maintain reliability.
6.04 MAINTENANCE.
The ISO shall coordinate planned outages and schedules for those Generators
that are under contract to provide Installed Capacity to the NYS Power System.
The ISO shall have the authority to approve or deny all requests for
transmission outages on Transmission Facilities Under ISO Operational Control as
defined in the ISO/TO Agreement and in accordance with the ISO OATT. The ISO
shall be notified of the maintenance scheduled on Transmission Facilities
Requiring ISO Notification, and shall advise the Transmission Owner of potential
adverse reliability impacts in accordance with the ISO OATT.
6.05 CAPACITY REQUIREMENTS.
The ISO shall establish the Locational Installed Capacity Requirements for
New York State, consistent with the Reliability Rules, Local Reliability Rules,
and the provisions of the ISO/NYSRC Agreement. In establishing Locational
Installed Capacity Requirements, the ISO shall consider the availability of the
NYS Transmission System to the extent necessary to maintain reliability.
The ISO, through procedures adopted by the Operating Committee and
consistent with the Reliability Rules, shall require that all LSEs entering into
Service Agreements under the ISO Services Tariff maintain appropriate levels of
Installed Capacity and Operating Capacity. In the case of Installed Capacity,
the ISO shall determine the amount of Installed Capacity by location that is
needed on an annual basis to meet all Reliability Rules, which includes Local
Reliability Rules. In the event that a Party fails to meet its Installed or
Operating Capacity requirement, the ISO shall impose the penalties set forth in
the ISO Services Tariff.
6.06 CODE OF CONDUCT.
The ISO shall prepare and apply a Code of Conduct. The Code of Conduct,
among other provisions, shall provide that any ISO employees and Directors are
foreclosed from providing any information of commercial value supplied by a
Party or Market Participant, to any other Party or any Market Participant or
potential participant in commercial transactions involving the NYS Power
System, except to the extent that such information flow is part of the ISO's
routine responsibilities. Such information may, however, be provided to
another employee or Director of the ISO if the information is needed for the
normal execution of the other employee's or Director's duties. Confidential
Information includes, without limitation, all information received from a Party
or any Market Participant or potential participant with respect to price or
other terms upon which such person or entity is willing to sell Capacity and/or
Energy or other services. If such information is required to be divulged in
compliance with an order of a court or regulatory authority having jurisdiction,
or a subpoena, the ISO will seek to obtain an appropriate protective order from
the court or regulatory authority. The ISO shall notify the Parties providing
the Confidential Information when such an order or a subpoena is received from
a court or regulatory authority and shall not be held liable by a Party for any
losses, consequential or otherwise, resulting from the ISO divulging such
Confidential Information pursuant to a subpoena or an order of a court or
regulatory authority. The Code of Conduct will preclude any individual serving
as a Director or as a member of an ISO committee from also serving as a
representative of a member of the Executive Committee of the NYSRC.
6.07 PLANNING AND TRANSMISSION SYSTEM EXPANSION.
Consistent with the provisions of Article 18 of this Agreement, the ISO
shall develop, maintain and promulgate a NYS Transmission System expansion and
reliability assessment process to be performed in compliance with the
Reliability Rules. This process shall include an annual compilation of a NYS
Transmission Plan.
The ISO shall collect and publish information regarding the amount and cost of
historical transmission congestion to facilitate the decision-making process of
Market Participants.
ARTICLE 7: MANAGEMENT COMMITTEE
7.01 MEMBERSHIP.
There shall be a Management Committee comprised of each Party to the ISO
Agreement.
7.02 SCOPE OF RESPONSIBILITIES.
The Management Committee shall have the following responsibilities:
a. Supervision and review of the work of the other ISO committees;
b. Review and determination of appeals from actions of the other committees,
and the ability to suspend an action by another committee pending appeal if
the Management Committee determines that such suspension is warranted;
c. Development of procedures for the consideration and determination of
requests for the stay of an action by another committee;
d. Development of positions on ISO operations, policies, rules and
procedures and provision of recommendations to the other committees and the
Board;
e. Preparation of the ISO capital and operating budgets for review and
approval by the ISO Board; and
f. Subject to Article 19, proposing changes to the ISO OATT, the ISO
Services Tariff and this Agreement, reviewing and making recommendations
with respect to tariff changes proposed by the ISO Board;
g. Adoption of by-laws for the Management Committee and the review and
approval of the by-laws of the other ISO committees and amendments thereto;
h. Development of procedures and policies for all ISO Committees for the
handling of confidential information; and
i. Such other responsibilities and powers conferred on it by the ISO Board.
Decisions by the Management Committee may be appealed to the ISO Board by
any Party.
7.03 REPRESENTATION ON THE MANAGEMENT COMMITTEE
A Party may designate any person to represent the Party on the Management
Committee. Such representative will serve until replaced by the Party by
written notice or until the Party ceases to be a Party. To the extent
practicable, provisions shall be made for Parties to attend and participate in
meetings of the Management Committee through teleconference or other methods.
In addition, with reasonable safeguards, provisions shall be made to permit
Parties not physically present at a meeting to submit paper or electronic
ballots and to vote by proxy.
The ISO Board may assign a member of its staff to the Management Committee.
The ISO staff member may participate in committee proceedings on a non-voting
basis. The Management Committee also shall make provisions for attendance at
Committee meetings by representatives of the Commission and the PSC. Such
representatives may participate fully in committee proceedings on a non-voting
basis. Any Party on the Management Committee and the ISO representative may
appeal a Committee action to the ISO Board. An executive session of the
Management Committee may be called at the discretion of the chairperson, or
upon a vote of the members of the Committee representing fifty-eight (58)
percent of the total votes cast.
7.04 SECTORS.
Voting on the Management Committee shall be by sector. The Management
Committee shall be comprised of five sectors: Generator Owners; Other Suppliers;
Transmission Owners; End-Use Consumers; and Public Power/Environmental Parties.
A Party must, within thirty (30) days of the commencement of ISO operations or
within thirty (30) days of becoming a Party and thereafter not later than the
thirtieth day of November of each year, advise the President of the ISO, in
writing, of the sector in which the Party is qualified to participate. If a
Party is qualified to participate in more than one sector, it shall advise the
ISO President, in writing, of the sector in which it chooses to vote; provided,
however, that an Investor-Owned Transmission Owner must participate in the
Transmission Owners sector, and a State Public Power Authority qualified to
participate in the Public Power/Environmental Party sector must participate in
that sector.
7.05 AFFILIATED PARTIES
A Party, together with any Affiliate or Affiliates, may vote in only one
sector and may cast only one (1) vote. If a Party and its Affiliate or
Affiliates qualify to participate in more than one sector, the affiliated
Parties must advise the ISO President in which sector their vote will be cast.
A Party may split its vote within its chosen sector at its discretion. A Party
and its Affiliates may participate in different sectors, provided they vote in
only one sector.
7.06 VOTING
The total votes on the Management Committee shall be allocated as follows:
the Generator Owners sector shall be allocated twenty-one and one half ( 21.5)
percent of the total votes; the Other Suppliers sector shall be allocated twenty
one and one half (21.5) percent of the total votes; the Transmission Owners
sector shall be allocated twenty (20) percent of the total votes; the End-Use
Consumer sector shall be allocated twenty (20) percent of the total votes; and
the Public Power/Environmental Parties sector shall be allocated seventeen (17)
percent of the total votes. The voting by Parties within each sector shall be
as described below.
(a) Generator Owners Sector: Each Party participating in the Generator
Owners sector shall be entitled to cast one (1) vote. The 21.5 percent of
the votes on the Management Committee allocated to the Generator Owners
sector shall be split into an affirmative component based on the votes for
the pending motion, and a negative component based on votes against the
pending motion, in direct proportion to the votes cast for and against the
motion, rounded to two decimal places.
(b) Other Suppliers Sector: Each Party participating in the Other Suppliers
sector shall be entitled to cast one (1) vote. The 21.5 percent of the
votes on the Management Committee allocated to the Other Suppliers
sector shall be split into an affirmative component based on the votes for
the pending motion, and a negative component based on votes against the
pending motion, in direct proportion to the votes cast for and against the
motion, rounded to two decimal places.
(c) Transmission Owners Sector: Each Party participating in the Transmission
Owners sector shall be entitled to cast one (1) vote. The 20 percent of
the votes on the Management Committee allocated to the Transmission
Owners sector shall be split into an affirmation component based on the
votes for the pending motion, and a negative component based on votes
against the pending motion, in direct proportion to the votes cast for
and against the motion, rounded to two decimal places.
(d) End-Use Consumer Sector: The twenty (20) percent of the votes on the
Management Committee allocated to the End-Use Consumer sector shall be
divided among the following three (3) subsectors: (1) the Large Consumers
subsector; (2) the Small Consumers subsector, which shall include Small
Consumers and not-for-profit organizations representing Small Consumers;
and (3) the governmental agency subsector, which shall include governmental
agencies that advocate primarily on behalf of Small Consumers and
governmental agencies that act as retail Load aggregators primarily for
Small Consumers. An ESCO, Municipal Electric System, Cooperatively Owned
Electric System, Generator Owner, State Public Power Authority or
Environmental Party may not participate in the End-Use Consumer sector.
The allocation of voting shares among the subsectors shall be as follows:
(i) Ten (10) percent of the total votes on the Management Committee shall
be allocated to the Large Consumer subsector; and shall be allocated
among Large Consumers using the following formula: seventy-five (75)
percent of the subsector's voting share shall be allocated based on a
Party's annual Energy usage for the preceding full calendar year; and
twenty-five (25) percent of the subsector's voting share shall be
allocated on a per capita basis. The votes of Parties in the Large
Consumers subsector shall be split into an affirmative component based
on the votes for the pending motion, and a negative component based on
votes against the pending motion, in direct proportion to the votes
cast for and against the motion, rounded to two decimal places.
(ii) Five (5) percent of the total votes on the Management Committee shall
be allocated to the Small Consumer subsector which shall include Small
Consumers and not-for-profit organizations representing Small
Consumers. Not-for-profit organizations that participate in this
subsector must be certified by the ISO Board under Section 2.02.
Each Party that is a Small Consumer or a not-for-profit organization
representing Small Consumers shall be entitled to cast one (1) vote.
The five (5) percent of the votes on the Management Committee
allocated to Small Consumers and not-for-profit organizations
representing Small Consumers shall be split into an affirmative
component based on the votes for the pending motion, and a negative
component based on votes against the pending motion, in direct
proportion to the votes cast for and against the motion, rounded to
two decimal places.
(iii) Five (5) percent of the total votes on the Management Committee shall
be allocated to the governmental agency subsector, which shall include
governmental agencies that advocate primarily on behalf of Small
Consumers and governmental agencies that act as retail Load
aggregators primarily for Small Consumers. Governmental agencies
that participate in this subsector must be certified by the ISO Board
under Section 2.02. Within the governmental agency subsector, three
(3) percent of the total votes on the Management Committee shall be
exercised by the State-Wide Consumer Advocate selected by the ISO
Board from among the governmental agencies that qualify as
organizations that advocate primarily on behalf of Small Consumers.
The ISO Board will select as the State-Wide Consumer Advocate the
agency that it believes will best represent the interests of all
classes of Small Consumers (including farms) throughout the state,
giving due consideration to the demonstrated ability of the candidate
agencies to provide sufficient resources to identify and to represent
the interests of such consumers before federal, state and local
governmental agencies, and to coordinate with other groups having
similar interests. The remaining two (2) percent of the total votes
on the Management Committee allocated to the governmental agency
subsector shall be exercised by governmental agencies that advocate
on behalf of Small Consumers, other than the agency selected as the
State-Wide Consumer Advocate, and governmental agencies that act as
retail Load aggregators primarily for Small Consumers.
(e) Public Power/Environmental Parties Sector: The seventeen (17) percent
of the votes on the Management Committee allocated to the Public Power/
Environmental Parties sector shall be divided among the following three
(3) subsectors: (1) the State Public Power Authorities subsector; (2) the
Municipal Electric Systems and Cooperatively Owned Electric Systems
subsector; and (3) the Environmental Parties subsector. The allocation
of voting shares among the subsectors shall be as follows:
(i) Eight (8) percent of the total votes on the Management Committee
shall be allocated to the State Public Power Authorities subsector.
Each Party in the State Public Power Authorities subsector shall be
entitled to cast one (1) vote. The eight (8) percent of the votes on
the Management Committee allocated to the State Public Power
Authorities subsector shall be split into an affirmative component
based on the votes for the pending motion, and a negative component
based on votes against the pending motion, in direct proportion to the
votes cast for and against the motion, rounded to two decimal places.
(ii) Seven (7) percent of the total votes on the Management Committee shall
be allocated to the Municipal Electric Systems and Cooperatively Owned
Electric Systems subsector. Each Party in the Municipal Electric
Systems and Cooperatively Owned Electric Systems subsector shall be
entitled to cast one (1) vote. The seven percent of the votes on the
Management Committee allocated to Municipal Electric Systems and
Cooperatively Owned Electric Systems subsector shall be split into
an affirmative component based on the votes for the pending motion,
and a negative component based on votes against the pending motion,
in direct proportion to the votes cast for and against the motion,
rounded to two decimal places.
(iii) Two (2) percent of the total votes on the Management Committee shall
be allocated to the Environmental Parties subsector. Parties in this
subsector must be environmental organizations that have been certified
by the ISO Board under Section 2.02. Each Party in the Environmental
Parties subsector shall be entitled to cast one (1) vote. The two
percent of the votes on the Management Committee allocated to the
Environmental Parties subsector shall be split into an affirmative
component based on the votes for the pending motion, and a negative
component based on votes against the pending motion, in direct
proportion to the votes cast for and against the motion, rounded
to two decimal places.
7.07 ACTIVATION OF SECTORS AND SUBSECTORS
In order for certain sectors and subsectors to exercise their right to vote
on measures before the Management Committee they must be activated. The
requirements with respect to the activation of a sector or subsector apply
to each sector and subsector, except the following: the Transmission Owners
sector, the State Public Power Authorities subsector of the Public Power/
Environmental Parties sector, and the governmental agency subsector of the
End-Use Consumer sector. The Transmission Owners sector, the State Public
Power Authorities subsector and the governmental agency subsector shall always
be active.
Each sector and subsector that is subject to the activation criteria shall have
a minimum of five (5) parties, excluding affiliates, to be activated and to vote
on matters before the Management Committee.
The voting share allocated to a sector that has not been activated shall be
assigned in equal proportions to all active sectors and subsectors until the
inactive sector is activated. Upon activation of an inactive sector, the
activated sector shall be allocated a voting share pursuant to Section 7.06 of
this Agreement. The voting share allocated to a subsector that has not been
activated shall be allocated within the sector in which the subsector resides in
accordance with the determination of the then members of the sector in which the
subsector resides; provided, however, that the governmental agency subsector
shall never exercise more than five (5) percent of the total votes on the
Management Committee and the Environmental Parties subsector shall never
exercise more than two (2) percent of the total votes on the Management
Committee. Upon activation of an inactive subsector the activated subsector
shall be allocated the vote percentage pursuant to Section 7.06 of this
Agreement.
7.08 QUORUM
The attendance, as provided for in Section 7.03, by a quorum of at least
three (3) sectors shall constitute a quorum for action by the Management
Committee. A quorum of a sector shall be five (5) members of a sector or fifty
(50) percent of the Parties in a sector, whichever is less. Parties in a sector
that has achieved a quorum, shall be entitled to cast the entire vote allocated
to their sector. In a sector that is divided into subsectors, if there is a
quorum for the sector the Parties in each subsector shall exercise the full
voting share allocated to their subsector. If none of the Parties in a
subsector vote, the voting share of the subsector in which no Parties vote shall
be reallocated to the other subsectors of that sector on a proportional basis
according to the relative voting weight of the subsectors; provided, however,
that the governmental agency subsector shall never exercise more than five (5)
percent of the total votes on the Management Committee and the Environmental
Parties subsector shall never exercise more than two (2) percent of the total
votes on the Management Committee.
Parties in a sector that have not achieved a quorum shall be entitled to cast
individual Party votes in accordance with the provisions of Section 7.09. No
action may be taken by a sector unless a quorum of that sector is present, and
no action may be taken by the Management Committee unless a quorum of the
Management Committee is present. If a quorum of the Management Committee is
not present, the Parties in attendance shall have the power to adjourn the
meeting from time to time until a quorum is present.
7.09 VOTING IN THE ABSENCE OF A QUORUM OR WHEN A SECTOR OR SUBSECTOR IS
INACTIVE
A Party may vote on a matter before the Management Committee in the absence
of a quorum of the sector to which the Party belongs. A Party also may vote on
a matter if the sector or subsector to which the Party belongs has not been
activated as provided in Section 7.07. In the absence of a quorum in a Party's
sector, the Party's vote shall be counted and shall have a weight equal to the
fraction 1/N times the voting share allocated to the Party's sector or subsector
where N is the number of Parties in the sector or subsector. In the event a
Party's sector or subsector is inactive, the Party's vote shall be counted and
shall have a weight equal to the fraction 1/Nm times the voting share allocated
to the Party's sector or subsector voting percentage where Nm is the number of
Parties to the ISO Agreement.
7.10 COMMITTEE ACTION
(a) All matters to be acted on by the Management Committee shall be brought
up for a vote or approval in the form of a motion, which must be seconded.
Only one motion may be pending at one time.
(b) The sum of affirmative votes necessary to pass the pending motion shall be
fifty-eight (58) percent of the total votes cast by the Parties pursuant to
the rules set forth in Section 7.06, including all votes cast by individual
Parties in sectors or subsectors that have not become active or that have
failed to achieve a quorum, as provided for in Section 7.09;
(c) Parties not in attendance at a meeting, as provided for in Section 7.03,
or abstaining shall not have their unexercised votes counted as affirmative
or negative votes.
7.11 COMMITTEE PROCEDURES
The following procedures shall apply to the Management Committee:
a. The Committee shall have a chairperson, vice-chairperson and secretary,
each elected by the committee for a one-year term. The chairperson and the
vice-chairperson shall be from different sectors. Upon expiration of the
one year term of the chairperson, the vice-chairperson shall become
chairperson of the Committee for the next succeeding one year term;
b. Regular meetings of the Committee shall be held monthly, unless the
Committee determines that it should meet more frequently or less frequently.
Special meetings may be called at the discretion of the chairperson, and
shall be called by the chairperson at the request of the ISO Board or at
the request of Parties representing a quorum of three (3) of the sectors
listed in Section 7.04;
c. Written notice of each meeting of the Committee shall be provided not
less than seven (7) business days prior to the date of the meeting to each
Party by facsimile transmission or electronic mail directed to the number or
address designated by such Party. Each such notice shall include a full and
complete agenda for the scheduled meeting;
d. The agenda for each scheduled meeting of the committee shall include a
specific list of items to be considered at the meeting, together with all
relevant supporting documentation prepared or furnished by the officers of
the Committee or the other proponents of a particular agenda item. No final
committee action may be taken on a matter that was not specifically listed
on the agenda;
e. Any member of the Committee may request that additional or supplemental
information or documentation be disseminated by ISO personnel and/or through
ISO communications media, including, but not limited to, the ISO site on the
world wide web. The ISO shall cooperate with the Committee regarding
dissemination of information prior to any meeting; and
f. Any action taken by the Committee at any meeting shall not become
effective until thirty (30) days after the Committee has acted. Prompt
notice of Committee actions shall be provided to each Party to this
Agreement by facsimile transmission or electronic mail directed to the
number or address designated by such Party.
7.12 COMMITTEE BY-LAWS
The Management Committee shall adopt by-laws, which shall contain items (a)
through (f) of Section 7.11 hereof. The by-laws of the Committee shall not be
amended, modified, revised, revoked or repealed except by action of the
Management Committee.
7.13 APPEALS TO MANAGEMENT COMMITTEE; STAY REVIEW SUBCOMMITTEE
(a) The Management Committee shall review and determine appeals taken
from actions of the Operating Committee, the Business Issues Committee
and any other committee or subcommittee subject to supervision by the
Management Committee. Any party may appeal an action of such a committee
or subcommittee to the Management Committee by filing a written notice of
appeal with the chairman of the Management Committee within ten (10)
business days following the provision of notice to the Parties of the
action appealed from. The written notice shall set forth in concise detail
the name of the Party or Parties appealing the action, a description of the
action appealed from and the grounds for the appeal. The Management
Committee shall review and determine any such appeal at the next regular
or special meeting of the Management Committee, to the extent practicable
or as soon thereafter as possible. The Party appealing shall be available
to appear at such meeting and shall be prepared to support its appeal.
The foregoing appeals procedures shall be subject to review and revision
by the Management Committee.
(b) There shall be a subcommittee of the Management Committee empowered
to review and determine requests for the stay of an action taken by the
Operating Committee, the Business Issues Committee or any other committee
or subcommittee subject to supervision by the Management Committee (the
"Stay Review Subcommittee"). The Stay Review Subcommittee shall consist
of five (5) members, each designated by a different voting sector of the
Management Committee and each of whom shall serve a one year term, subject
to reelection. The members of the Stay Review Subcommittee shall elect a
chairperson. The chair shall rotate among all five sectors on an annual
basis. The Stay Review Subcommittee shall review and determine each
request for a stay as soon as possible, but in no event later than ten
(10) business days following the filing of such request. Each request for
a stay shall be filed in writing with the chairperson of the Stay Review
Subcommittee, the chairperson of the committee from which the appeal is
taken, the ISO Board and ISO staff. Any three (3) or more members of the
Stay Review Subcommittee may grant a stay which would remain in effect
until the appeal is determined, unless vacated by the Management Committee
or ISO Board. The Stay Review Subcommittee shall grant a stay if it
finds that (i) the requesting party would be irreparably harmed by the
action appealed from, and (ii) the grant of such request would not
irreparably harm any other Party. The Stay Review Subcommittee shall
issue a written decision stating its determination and the grounds
therefore, which decision shall be sent to all Parties.
(c) In taking an appeal to the Management Committee, the appealing Party
shall:
(i) File the appeal in writing with the Management Committee within ten
(10) business days of the provision of notice to the Party of the
action appealed from pursuant to Section 7.11(f);
(ii) Set forth in concise terms the action appealed from and the grounds
for appeal; and
(iii) Be available (whether personally or through a designated
representative) at the meeting of the Management Committee at which
the appeal is to be heard and be prepared to present the appeal and
respond to comments or questions by the Management Committee.
ARTICLE 8: OPERATING COMMITTEE
8.01 SCOPE OF RESPONSIBILITIES.
The responsibilities of the Operating Committee shall be the following:
a. Establishment of procedures related to the coordination of the operations
of the NYS Power System;
b. Establishment of procedures related to the safe and reliable operation of
the NYS Power System;
c. Ensuring that all ISO rules, procedures and practices are consistent with
the Reliability Rules, and serving as liaison to the NYSRC;
d. Oversight and coordination of operating and performance studies;
e. Review and approval of operating limits;
f. Establishment of procedures for coordinating the maintenance schedules
for the NYS Power System in order to maintain system reliability;
g. Determination of the minimum system Operating Reserves required to be
available within the NYS Power System and establishing methods of allocating
a portion thereof to responsible entities as minimum Operating Capacity. In
determining Operating Reserve requirements, the committee shall take into
consideration the locational capacity needs of New York State;
h. Establishment of procedures for determining Operating Reserve requirements
and, if experience or the results of studies indicate the desirability of
change, recommending changes thereto to the Management Committee;
i. Development of Locational Installed Capacity Requirements, consistent
with the Reliability Rules, Local Reliability Rules, the ISO/TO Agreement
and the ISO Agreement; and
j. Establishment of by-laws, subject to approval by th Management
Committee; and
k. Any additional responsibilities assigned by the Management Committee.
Procedures adopted by the Operating Committee will be implemented by the staff
of the ISO unless suspended or overruled by the Management Committee or the
Board. In carrying out its responsibilities, the Operating Committee shall
seek input and recommendations from ISO staff.
The responsibilities of the Operating Committee, and any subcommittee thereof,
are subject to revision by the Management Committee. The Operating Committee
shall adopt by-laws, subject to approval by the Management Committee. The
committee by-laws shall include provisions for notice to all Parties of
committee meetings, including an agenda, at least seven(7) days prior to a
meeting and a requirement that no final committee action be taken on a matter
that is not listed on the committee agenda.
8.02 PLANNING.
The Operating Committee shall implement the transmission system expansion
process described in Article 18. The Operating Committee shall review and
approve ISO staff assessments of proposed projects that impact transmission
capability to confirm that those projects meet all applicable reliability
criteria.
The Operating Committee shall review and approve the NYS Transmission Plan
prepared by the ISO staff and reliability assessments performed using such NYS
Transmission Plan, to ensure conformance with the Reliability Rules.
The Operating Committee shall review and approve illustrative NYS Transmission
System expansion options developed by ISO staff in response to PSC requests.
The Operating Committee, at the request of a Committee member, may review the
adequacy of cost recovery mechanisms for transmission expansion.
8.03 REPRESENTATION, SECTORS, AFFILIATED PARTIES, VOTING, QUORUM, COMMITTEE
ACTION, PROCEDURES, BY-LAWS AND APPEALS.
The rules with respect to representation, sectors, Affiliated Parties,
voting, quorum, committee action, procedures, by-laws and appeals for the
Operating Committee shall be the same as those applicable to the Management
Committee under Sections 7.03, 7.04, 7.05, 7.06, 7.07, 7.08, 7.09, 7.10, 7.11,
7.12 and 7.13.
ARTICLE 9: BUSINESS ISSUES COMMITTEE
9.01 SCOPE OF RESPONSIBILITIES.
The responsibilities of the Business Issues Committee shall be the following:
a. Establishment of procedures related to the efficient and non-discriminatory
operation of electricity markets centrally coordinated by the ISO,
including procedures related to bidding, Settlements and the calculation of
market prices;
b. Development of procedures related to the implementation of the commercial
aspects associated with the procedures developed by the Operating Committee;
c. Development of procedures related to the commercial aspects of the ISO's
operations;
d. Formation of uniform standards and procedures for the bidding, scheduling,
and financial Settlement of bulk power transactions consistent with the
Reliability Rules and with the provisions of the ISO Tariffs, the ISO/NYSRC
Agreement, the ISO/TO Agreement, and this ISO Agreement;
e. Establishment, subject to the review and approval or modification of the
Management Committee, of policies and procedures related to the maintenance
of sufficient working capital to fund the operations of the ISO, and the
establishment of credit arrangements and accounts with financial and
commercial institutions, including banks;
f. Establishment of by-laws, subject to approval by the Management Committee;
and
g. Any additional responsibilities assigned by the Management Committee.
Procedures adopted by the Business Issues Committee will be implemented by
the staff of the ISO unless suspended or overruled by the Management
Committee or ISO Board. In carrying out its responsibilities, the Business
Issues Committee shall seek input and recommendations from ISO staff.
The responsibilities of the Business Issues Committee are subject to
revision by the Management Committee. The Business Issues Committee shall
adopt by-laws, subject to approval by the Management Committee. The
committee by-laws shall include provisions for notice to all Parties of
committee meetings, including an agenda, at least seven(7) days prior to a
meeting and a requirement that no final committee action be taken on a
matter that is not listed on the committee agenda.
9.02 REPRESENTATION, SECTORS, AFFILIATED PARTIES, VOTING, QUORUM, COMMITTEE
ACTION, PROCEDURES BY-LAWS AND APPEALS.
The rules with respect to sectors, Affiliated Parties, voting, quorum,
committee action, procedures, by-laws and appeals for the Business Issues
Committee shall be the same as those applicable to the Management Committee
under Sections 7.03, 7.04, 7.05, 7.06, 7.07, 7.08. 7.09, 7.10, 7.11, 7.12 and
7.13.
ARTICLE 10: DISPUTE RESOLUTION
10.01 OVERVIEW.
The ISO Board shall establish a Dispute Resolution Process ("DRP") and shall
retain a Dispute Resolution Administrator ("DRA") to manage the DRP.
In administering the DRP, the DRA shall be responsible for the following:
a. maintaining lists of qualified arbitrators and mediators, and updating
these lists annually;
b. scheduling, administering, and facilitating the DRP;
c. responding to written disputes in a timely manner consistent with the
time limits specified in the ISO OATT and the ISO Services Tariff;
d. determining whether written disputes are subject to non-binding mediation
or arbitration;
e. maintaining records of all dispute resolutions and making these records
available for inspection subject to the rules of confidentiality described
in the ISO Tariffs and this Agreement; and
f. providing supervision of the dispute resolution processes and developing
appropriate procedures which will further the fair and equitable resolution
of disputes.
The DRA shall establish and, from time to time, update a list of qualified
arbitrators and mediators. Qualified arbitrators and mediators shall be
knowledgeable in matters regarding the planning and operation of interconnected
electric systems and in relevant regulatory policies and requirements. The list
of arbitrators and mediators may be subdivided by the DRA into categories of
disputes in which an arbitrator or mediator has expertise. The list of
arbitrators and mediators can also include names supplied by the American
Arbitration Association. The DRA may, from time to time, arrange for
appropriate training for potential arbitrators and mediators.
10.02 SUBMISSION OF A DISPUTE.
Any dispute between or among a Market Participant(s), a Customer, and/or the
ISO involving transmission or other services under the ISO Tariffs shall be
presented directly to a senior representative of each of the parties to the
dispute for resolution on an informal basis as promptly as practicable.
In the event the designated representatives are unable to resolve the dispute
by mutual agreement, such dispute may be submitted to the DRA. The party
submitting the matter to the DRA shall include a written statement describing
the nature of the dispute and the issues to be resolved. Any subsequent
mediation or arbitration process shall be limited to the issues presented
for resolution.
Within ten (10) days, the DRA shall decide whether the dispute should be
referred to: (1) non-binding mediation; or (2) arbitration, and shall make
such a referral.
10.03 REFERRAL OF A DISPUTE TO MEDIATION OR ARBITRATION.
The DRA may submit disputes to non-binding mediation where the subject
matter of the dispute involves the proposed change or modification of an ISO
procedure, rate, Service Agreement, or ISO Tariff provision. The DRA may
submit disputes to arbitration which involve the interpretation or application
of an ISO Procedure, rate, Service Agreement, or ISO Tariff provision. Both
the mediator and the arbitrator shall have the authority to dismiss a dispute
if:
1. The dispute did not arise under the ISO Agreement or the ISO OATT or the
ISO Services Tariff; or
2. The claim is de minimis.
10.04 NON-BINDING MEDIATION.
If the DRA refers the dispute to non-binding mediation, the following procedure
will apply:
1. The DRA shall have ten (10) days from the date of such referral to
distribute a list of ten (10) qualified mediators to the disputing parties.
2. Absent the express written consent of all disputing parties, no person shall
be eligible for selection as mediator that is a past or present officer,
employee or consultant to any of the disputing parties, or of any entity
related to or affiliated with any of the disputing parties or has an
interest in the matter to be mediated. Any individual designated as
mediator shall make known to the disputing parties any such disqualifying
relationship or interest and a new mediator shall be designated.
3. If the disputing parties cannot agree upon a mediator, the disputing
parties shall take turns striking names from a list supplied by the DRA
with a disputing party chosen by lot striking the first name. The last
remaining name shall be designated as the mediator. If that individual I
unable or unwilling to serve, the individual last stricken from the list
shall be designated and the process repeated until an individual is selected
that is able and willing to serve.
4. The disputing parties shall attempt in good faith to resolve their
dispute in accordance with the schedule established by the mediator. In no
event may the schedule extend beyond thirty (30) days from the date of
appointment of the mediator.
5. The mediator may require the disputing parties to:
a. submit written statements of issues and positions;
b. meet for discussions;
c. provide expert testimony and exhibits; and
d. comply with the mediation procedures designated by the DRA and/or the
mediator.
6. If the disputing parties have not resolved the dispute within thirty (30)
days of the date the mediator was appointed, the mediator shall promptly
provide the disputing parties and the DRA with a written, confidential,
non-binding recommendation to resolve the dispute. The recommendation
shall include an assessment by the mediator of the merits of the principal
positions being advanced by each of the parties to the dispute.
7. The parties to the dispute shall then meet in a good faith attempt to
resolve the dispute in light of the mediator's recommendation. This
recommendation shall be limited to resolving the specific issues presented
for mediation.
8. If the disputing parties are still unable to resolve the dispute:
a. any dispute not involving the proposed change or modification of a ISO
Procedure, rate, Service Agreement, or an ISO Tariff provision may be
referred to the arbitration process described below; or
b. any disputing party may resort to regulatory or judicial proceedings as
provided under the ISO OATT or the ISO Services Tariff; and
c. the recommendation of the mediator and any statement made by any party
during the mediation process shall not be admissible for any purpose in
any subsequent proceeding.
9. Each party to the dispute will bear a pro rata share of the costs
associated with the time, expenses, and other charges of the mediator.
Each party shall bear its own costs, including attorney and expert fees.
10.05 ARBITRATION.
If the DRA or the mediator refers the dispute to binding arbitration, then the
following procedure will apply:
1. The DRA shall have ten (10) days from the date of such decision to
distribute a list of qualified arbitrators to the disputing parties.
2. Absent the express written consent of all disputing parties, no person
shall be eligible for selection as an arbitrator that is a past or present
officer, employee of or consultant to any of the disputing parties, or of
an entity related to or affiliated with any of the disputing parties, or has
an interest in the matter to be arbitrated. Any individual designated as an
arbitrator shall make known to the disputing parties any such disqualifying
relationship or interest and a new arbitrator shall be designated.
3. If the disputing parties cannot agree upon an arbitrator, they shall take
turns striking names from a list of ten qualified individuals supplied by
the DRA with a party chosen by lot striking the first name. The last
remaining name shall be designated as the arbitrator. If that individual
is unable or unwilling to serve, the individual last stricken from the list
shall be designated and the process repeated until an individual is
selected that is able and willing to serve.
4. The arbitrator shall have no power to modify or change any agreement, tariff
or rule, or otherwise create any additional rights or obligations for any
party. The scope of the arbitrator's decision shall be limited to the
issues presented for arbitration.
5. The arbitrator shall determine discovery procedures, intervention
rights, how evidence shall be taken, what written submittals may be made,
and other procedural matters, taking into account the complexity of the
issues involved, the extent to which factual matters are disputed, and the
extent to which the credibility of witnesses is relevant to a resolution.
Each disputing party shall produce all evidence determined by the
arbitrator to be relevant to the issues presented. To the extent such
evidence involves proprietary or Confidential Information, the arbitrator
may issue an appropriate protective order which shall be complied with by
all disputing parties. The arbitrator may elect to resolve the arbitration
matter solely on the basis of written evidence and arguments.
6. The arbitrator shall consider all issues underlying the dispute, and
shall take evidence submitted by the disputing parties in accordance with
procedures established by the arbitrator and may request additional
information including the opinion of recognized technical bodies or experts.
Disputing parties shall be afforded a reasonable opportunity to rebut any
such additional information.
7. Absent an agreement to the contrary by all disputing parties, no person or
entity that is not a party to the dispute shall be permitted to intervene.
8. Within ninety (90) days of the appointment of the arbitrator, and after
providing the Parties with an opportunity to be heard, the arbitrator shall
render a written decision, including findings of fact and the legal basis
for the decision. The arbitrator will follow the Commercial Arbitration
Rules of the American Arbitration Association.
9. Under the following circumstances, the decision of the arbitrator shall be
final and binding on the parties:
a. all parties agree that the decision will be binding; or
b. the dispute involves a claim that a party owes another party a sum of
money less than $500,000.
10. If the arbitrator concludes that no proposed award is consistent with this
ISO Agreement, the FPA and the Commission's then-applicable standards and
policies, or would address all issues in dispute, the arbitrator shall
develop a compromise solution consistent with the terms of this Agreement.
A written decision explaining the basis for the award shall be provided by
the arbitrator to the parties and the DRA. No award shall be deemed to be
precedential in any other arbitration related to a different dispute.
11. All costs associated with the time, expenses and other charges of the
arbitrators shall be borne by the unsuccessful party. Each party shall bear
its own costs, including attorney and expert fees.
12. All arbitration decisions shall be filed with the Commission. Any
arbitration decision that affects matters subject to the jurisdiction of the
PSC under the New York State Public Service Law may be filed with the PSC.
13. The judgment of the arbitrator may be entered on the award by any court
in New York having jurisdiction. Within one (1) year of the arbitral
decision, a party may request that the Commission or any other federal,
state, regulatory or judicial authority (in the state of New York) having
jurisdiction over such matter vacate, modify, or take such other action as
may be appropriate with respect to any arbitration decision that is:
a. based upon an error of law;
b. contrary to the statutes, rules, or regulations administered by such
authority;
c. violative of the Federal Arbitration Act or Administrative Dispute
Resolution Act;
d. based on conduct by an arbitrator that is violative of the Federal
Arbitration Act or Administrative Dispute Resolution Act; or
e. involves a dispute in excess of $500,000.
14. Nothing in this Article shall restrict the rights of any party to file a
complaint or a rate, tariff, or other contract change with the Commission
under the relevant provisions of the Federal Power Act.
15. No arbitrator shall render an Award which requires the transmission of
electricity under circumstances where the Commission is precluded from
ordering Transmission Services pursuant to FPA Section 212(h).
ARTICLE 11: RELATIONSHIP OF THE ISO AND MARKET PARTICIPANTS
11.01 SERVICE AGREEMENTS.
Consistent with the terms of the ISO OATT and the ISO Services Tariff, the
ISO will enter into non-discriminatory Service Agreements with all Customers,
Market Participants and Transmission Customers seeking to obtain Eligible
Service or other ISO services on the NYS Power System.
11.02 SCHEDULING TRANSACTIONS AND INVOICING.
Except for Transmission Service on the Northport-Norwalk intertie, the parties
seeking service under the ISO Tariffs will submit schedules to the ISO and
schedule transactions with and through the ISO. LIPA will be the only party
authorized to submit schedules to the ISO for Transmission Service on the
Northport-Norwalk intertie. The ISO will render invoices and Settlement
information to the various parties consistent with the provisions of the ISO
OATT and the ISO Services Tariff. All parties seeking Transmission Service
into and out of the Long Island Transmission District shall obtain pre-approval
from LIPA before scheduling transactions with and through the ISO. LIPA shall
electronically certify to the ISO pre-approved customers and transactions. If
a party or transaction is not so pre-approved and certified by LIPA and the
party submits a schedule for such a transaction to the ISO, the ISO shall
reject the schedule and advise such party that it must obtain LIPA approval.
ARTICLE 12: RELATIONSHIP BETWEEN THE ISO AND THE NYSRC
12.01 COMPLIANCE WITH RELIABILITY RULES.
The Incorporating Parties have separately created an NYSRC, which shall
establish, and monitor the compliance with its Reliability Rules.
12.02 IMPLEMENTATION OF RELIABILITY RULES.
The ISO shall implement the Reliability Rules and shall cooperate with the
Transmission Owners with respect to those Reliability Rules implemented by
the Transmission Owners. The ISO shall maintain the safety and short-term
reliability of the NYS Power System in accordance with the Reliability Rules
and in accordance with the ISO/NYSRC Agreement and the ISO/TO Agreement.
12.03 AUDIT.
The ISO shall allow the NYSRC to review and audit the ISO's compliance with
the Reliability Rules. Upon a request from the NYSRC, the ISO will provide
sufficient information and data to the NYSRC to demonstrate that the ISO is
in compliance with the Reliability Rules.
12.04 DISPUTES.
Disputes between the ISO and the NYSRC with respect to the implementation
or terms of a Reliability Rule or a Local Reliability Rule shall be resolved in
accordance with the ISO/NYSRC Agreement.
ARTICLE 13: OASIS AND OTHER NOTIFICATION REQUIREMENTS
The ISO shall establish and operate an OASIS which shall be available to
all Market Participants at a reasonable cost. The ISO shall satisfy regulatory
requirements to make information available to all Market Participants on a
same-time, non-discriminatory basis subject to any regulatory waiver.
Additionally, network models, or the results of certain studies, may be
required from time to time to be available for download by Market Participants.
Market Participants will be required to communicate all information to the ISO
that is necessary for the ISO to dispatch their resource or Load using the
OASIS. As part of the OASIS, the ISO shall establish and operate an exchange
mechanism using an electronic technology to process the bids.
ARTICLE 14: SALE OF TRANSMISSION CONGESTION CONTRACTS
14.01 PRIMARY SALES.
Transmission Congestion Contracts ("TCCs") shall be sold in the primary market
by either a centralized auction process or directly by the individual
Transmission Owners in a non-discriminatory manner.
14.02 SECONDARY SALES.
TCCs may be offered, resold, and assigned on a secondary market, either in
their entirety or subdivided.
14.03 AUCTION BIDS.
The TCC auction bids will be made in accordance with the ISO OATT.
14.04 MARKET CLEARING PRICES.
Each winning bidder in the auction shall pay the Market Clearing Price for the
TCCs. The total revenues received from the sale of TCCs, the Market Clearing
Prices, and the entities awarded TCCs shall be posted on OASIS.
14.05 REVENUES REMITTED.
Any and all revenue received from the sale of a TCC shall be remitted to the
Primary Owner of the TCC or the owner of the applicable transmission assets.
ARTICLE 15: TAX-EXEMPT FINANCING
15.01 TAX-EXEMPT FINANCING PURSUANT TO SECTION 142(F) OF IRC.
Except for Section 15.05, this Article is applicable only to Transmission
Owners that have financed facilities for the local furnishing of electricity
as described in Section 142(f) of the Internal Revenue Code ("Local Furnishing
Bond"). Notwithstanding any other provision of the ISO Agreement or an ISO
Tariff, neither the ISO nor a Transmission Owner shall be required to provide
Transmission Service or any other service to any Customer pursuant to an ISO
Tariff if the provision of such Transmission Service or other service would
result in the loss of tax-exempt status of any Local Furnishing Bonds used to
finance the Transmission Owner's facilities.
Notwithstanding any other provision of this Agreement, no Transmission Owner
shall be required to accept or consent to any request, recommendation, or
decision, including, without limitation, a recommendation or a decision of an
Arbitrator, or to build any facilities or to take any action, including, without
limitation, the providing of Transmission Service or any other service, or to
enter into any agreement if, in the sole judgment of such Transmission Owner,
such request, recommendation, decision, facilities, action, Transmission Service
or agreement might reasonably be expected to result in litigation related to the
tax-exempt status of the Local Furnishing Bonds or any other tax-exempt debt
obligation, or might reasonably be construed to adversely affect or bring into
question the tax-exempt status of interest on bonds or other obligations issued
by or for the benefit of such Transmission Owner, or adversely affect or bring
into question the ability of such Transmission Owner to deduct interest
payments or to access the benefits of tax-exempt financing in the future.
15.02 ALTERNATIVE PROCEDURES FOR REQUESTING TRANSMISSION SERVICE.
a. If a Transmission Owner determines that the provision of Transmission
Service to be provided under the ISO OATT would jeopardize the tax-exempt
status of any Local Furnishing Bonds, the Transmission Owner shall advise
the ISO within thirty (30) days of receipt of a Completed Application by
an Customer requesting such service, or the date on which the ISO OATT
becomes effective.
b. If a Customer thereafter renews its request for the same Transmission
Service referred to in (a) by tendering an application under Section 211
of the FPA, the Transmission Owner, within ten (10) days of receiving a
copy of the Section 211 request, will waive its right to receive a request
for service under Section 213(a) of the FPA. The Commission, upon receipt
of the Transmission Owner's waiver of its right to a request for service
under Section 213(a) of the FPA, shall issue an Order under Section 211 of
the FPA. Upon issuance of the Order under Section 211 of the FPA, the ISO
and the Transmission Owner shall be required to provide the requested
Transmission Service in accordance with the terms and conditions of the ISO
Tariff.
15.03 SECTION 211 ORDER.
The provision of Transmission Service under the ISO OATT shall also
constitute the provision of Transmission Service pursuant to an Order by the
Commission under Section 211 of the FPA with respect to the transmission of
electricity on Con Edison's and LIPA's transmission systems.
15.04 TAX-EXEMPT FINANCING PURSUANT TO SECTION 103 AND RELATED PROVISIONS
OF INTERNAL REVENUE CODE.
This provision is applicable only to NYPA which has financed transmission
facilities with the proceeds of bonds issued pursuant to Section 103 and
related provisions of the Internal Revenue Code ("Government Bonds").
Notwithstanding any other provision of the ISO OATT Tariff, neither the ISO
nor NYPA shall be required to provide Transmission Service to any Market
Participant pursuant to the ISO OATT if the provision of such Transmission
Service would result in the loss of the tax-exempt status of any Government
Bonds or impair NYPA's ability to issue future tax-exempt obligations.
15.05 RESPONSIBILITY OF COSTS ASSOCIATED WITH LOSS OF TAX-EXEMPT
STATUS.
If, by virtue of an order issued by the Commission pursuant to Section 211
of the FPA, the ISO or a Transmission Owner is required to provide Transmission
Service that would adversely affect the tax-exempt status of a Transmission
Owner's Local Furnishing Bonds or any other tax-exempt debt obligations, then
the Market Participant receiving such Transmission Service will compensate the
Transmission Owner for all costs, if any, associated with the loss of
tax-exempt status plus the normal costs of Transmission Service.
15.06 TRANSMISSION SERVICE EFFECTS ON TAX-EXEMPT FINANCING BY LIPA
This provision is applicable only to LIPA which has financed transmission
facilities with the proceeds of LIPA's tax-exempt bonds issued pursuant to the
Internal Revenue Code. Notwithstanding any other provisions of the ISO OATT
or the ISO Services Tariff, neither the ISO nor the Transmission Owner shall
be required to provide transmission service to any Customer pursuant to an ISO
Tariff if the provisions of such Transmission Service would result in loss of
tax-exempt status of any tax-exempt bonds or impair LIPA's ability to issue
future tax exempt obligations. If, by virtue of an order issued by the
Commission pursuant to Section 211 of the FPA, the ISO or a Transmission Owner
is required to provide Transmission Service that would adversely affect the
tax-exempt status of LIPA's tax-exempt bonds or any other tax-exempt debt
obligations, then the Customer receiving such Transmission Service will
compensate LIPA for all costs, if any, associated with the loss of tax-exempt
status of LIPA's tax-exempt bonds on such other tax exempt obligations plus
the normal costs of Transmission Service.
ARTICLE 16: PENALTIES FOR NON-PERFORMANCE
16.01 ISO RIGHTS AND OBLIGATIONS.
In the event that a Transmission Owner, Generator, marketer, or LSE should
perform, or fail to perform, or fail to follow the ISO's instructions or orders
in such a way as to violate a Reliability Rule, or otherwise to endanger the
reliability of the NYS Power System, the ISO Board shall have the right and
obligation to take appropriate action and assess appropriate penalties against
the offending entity, as set forth below.
16.02 ISO ACTIONS AND PENALTIES.
The actions and/or penalties that may be assessed by the ISO shall be set
forth in the ISO Tariffs and/or relevant contracts.
16.03 COMMISSION FILINGS.
The ISO shall make a filing with the Commission as to the penalties that it
may assess against any Market Participant or Party. The ISO may petition the
Commission and/or any court of competent jurisdiction to enforce these
sanctions.
16.04 DISPUTE RESOLUTION PROCESS.
Any Market Participant or Party upon which a penalty is imposed under this
Article may treat it as a dispute and utilize the Dispute Resolution Process set
forth in Article 10 of this Agreement.
Agreement.
ARTICLE 17: FINANCIAL SETTLEMENTS
17.01 SETTLEMENT PROCEDURES.
The ISO shall implement such Settlement and billing procedures as necessary to
implement the provisions of the ISO Tariffs.
17.02 SETTLEMENT RECORDS AND BILLS.
Settlement records will be maintained, prepared, and disseminated by ISO
personnel. Within five (5) business days after the first day of each month, the
ISO shall provide Settlement and billing information to customers who take
service under an ISO Tariff consistent with the Settlement and billing
provisions of the applicable Tariff. Bills for charges made under the ISO
Tariffs shall be paid directly to the Party designated by the ISO, or into an
account maintained by the ISO for such purposes by the first banking day common
to all Parties after the nineteenth day of the month. Payments for bills
related to Bilateral Transactions will be settled by the Parties to the
transactions.
17.03 FINANCIAL OBLIGATIONS AFTER WITHDRAWAL AND TERMINATION.
Any financial obligation incurred by a Party under this Article prior to
withdrawal by the Party from this Agreement or prior to the termination of this
Agreement pursuant to Article 3 herein shall remain due and owing subsequent
to such withdrawal or termination. The ISO Board and the Party or Parties to
which the obligation is owed retain all legal rights and authority to recover
such amounts.
17.04 FACILITATION OF SETTLEMENTS.
The ISO shall facilitate or perform (as required by the ISO OATT or the ISO
Services Tariff) the Settlement of financial transactions between and among the
various Customers and other Market Participants receiving or providing services
pursuant to the ISO Tariffs, and the ISO. Settlements shall include, without
limitation, the provision of necessary information to facilitate collection and
disbursement of moneys associated with ISO Tariff charges and payments, payments
to the Transmission Owners, payments related to the sale of TCCs, and charges
associated with ISO operational costs. The ISO also shall facilitate the
financial Settlement of any Congestion Rents.
17.05 TRANSMISSION OWNER RIGHTS.
Nothing in this Agreement shall affect the right of individual Transmission
Owners to directly bill and collect the revenues associated with their
individual TSCs.
ARTICLE 17A: TRANSMISSION OWNERS RESERVED
Notwithstanding any other provision of this Agreement, or any other agreement
or amendment made in connection with the restructuring of the NYPP and
establishment of the New York ISO, each Transmission Owner shall retain all of
the rights set forth in this Article 17A; provided, however, that such rights
shall be exercised in a manner consistent with the Transmission Owners' rights
and obligations under the New York State Public Service Law, the Federal Power
Act and the Commission's rules and regulations thereunder. This Article is not
intended to reduce or limit any other rights of a Transmission Owner as a
signatory to this Agreement or any of the ISO Related Agreements or under an
ISO Tariff.
17A. 1
Each Transmission Owner shall have the right at any time unilaterally to file
pursuant to Section 205 of the Federal Power Act to change the ISO OATT or the
ISO Agreement to the extent necessary: (a) to recover all reasonably incurred
costs, plus a reasonable return on investment related to services under the ISO
OATT and (b) to accommodate implementation of and changes to a Transmission
Owner's retail access program.
17A.2
Nothing in this Agreement shall restrict any rights, to the extent such rights
exist: (a) of Transmission Owners that are parties to a merger, acquisition or
other restructuring transaction to make a filing under Section 205 of the
Federal Power Act with, respect to the reallocation or redistribution of
revenues among such Transmission Owners; or (b) of any Transmission Owner to
terminate its participation in the New York ISO pursuant to Section 3.02 of
this Agreement or Article 6 of the ISO/TO Agreement, notwithstanding any effect
its withdrawal from the New York ISO may have on the distribution of
transmission revenues among other Transmission Owners.
17A.3
Each Transmission Owner retains all rights that it otherwise has incident
to its ownership of its assets, including, without limitation, its transmission
facilities including, without limitation, the right to build, acquire, sell,
merge, dispose of, retire, use as security, or otherwise transfer or convey all
or any part of its assets, including, without limitation, the right,
individually or collectively, to amend or terminate the Transmission Owner's
relationship with the ISO in connection with the creation of an alternative
arrangement for the ownership and/or operation of its transmission facilities on
an unbundled basis (e.g., a transmission company), subject to necessary
regulatory approvals and to any approvals required under applicable provisions
of this Agreement.
17A.4
The obligation of any Transmission Owner to expand or modify its transmission
facilities in accordance with the ISO OATT shall be subject to the Transmission
Owner's right to recover, pursuant to appropriate financial arrangements
contained in Commission-accepted tariffs or agreements, all reasonably incurred
costs, plus a reasonable return on investment, associated with constructing and
owning or financing such expansions or modifications to its facilities.
17A.5
Each Transmission Owner shall have the right to adopt and implement procedures
it deems necessary to protect its electric facilities from physical damage or to
prevent injury or damage to persons or property.
17A.6
Each Transmission Owner retains the right to take whatever actions it deems
necessary to fulfill its obligations under local, state or federal law.
17A.7
Notwithstanding anything to the contrary in this Agreement, no amendment to any
provision of this Article may be adopted without the agreement of the
Transmission Owners.
17A.8
Except as expressly provided herein, nothing in this Agreement shall affect
the rights of any Party under the Federal Power Act.
ARTICLE 18: TRANSMISSION SYSTEM EXPANSION
18.01 TRANSMISSION SYSTEM EXPANSION
The ISO will exercise the responsibilities with respect to transmission system
expansion set forth in the ISO OATT. The ISO Operating Committee will have the
primary role in the implementation of the ISO's transmission system expansion
responsibilities. The ISO will not have the authority to order a Transmission
Owner to construct new facilities or to modify existing facilities.
18.02 CONFIRMATION THAT PROPOSED PROJECTS MEET RELIABILITY STANDARDS.
a. Transmission projects proposed by Transmission Owners and projects
proposed by other Market Participants, including generation, that impact
Interface Transfer Capability, shall be submitted to the ISO Operating
Committee to confirm that all applicable reliability criteria would be met.
b. The ISO Operating Committee analysis will include identification of
changes in Interface Transfer Capability resulting from the project and
measures that might mitigate reduction in Transfer Capability.
c. The ISO staff will prepare reports covering the above analyses, with
Transmission Owner support and participation, for Operating Committee
review and approval.
d. Transmission Owners and municipal electric systems will evaluate the
impact of transmission expansion proposals on local reliability.
18.03 COMPILATION OF A NEW YORK STATE TRANSMISSION PLAN.
a. The ISO will compile a consolidated New York State Transmission Plan
(the "Plan") as described in the ISO OATT, which will be comprised of all
transmission projects proposed by Transmission Owners, as well as projects
proposed by other Market Participants, that are found to meet all applicable
criteria and include appropriate Transfer Capability mitigation measures,
and that have pending applications for construction permits or approvals.
b. The Plan shall be compiled in coordination with the transmission systems
of neighboring ISOs, Control Areas, and Canadian systems.
c. The Plan shall conform with applicable NYSRC standards, in accordance
with ISO Procedures detailed in ISO manuals.
d. The Plan will be compiled by the ISO staff, with Transmission Owner
support and participation, for Operating Committee review and approval.
18.04 ASSESSMENT OF THE OVERALL RELIABILITY OF THE NEW YORK STATE
TRANSMISSION SYSTEM.
a. The ISO will conduct planning and reliability assessments of the NYS
Transmission Plan in accordance with the Reliability Rules.
b. The overall security and adequacy of the NYS Transmission System will be
assessed to ensure conformance with NERC, NPCC, and NYSRC planning criteria.
c. The ISO Operating Committee will participate in inter-regional studies
and assessments to ensure the interconnected systems are planned and
developed on a coordinated basis to preserve reliability.
d. The ISO staff, with Transmission Owner support and participation, will
prepare reliability assessments for Operating Committee review and approval.
18.05 PREPARATION OF ACTUAL CONGESTION INFORMATION.
a. The ISO, upon formation, will compile actual Power Flows and Congestion
Cost information for all New York transmission Interfaces, including those
with neighboring systems. This information will include histograms of
hourly MW flows and congestion costs and total monthly Congestion Costs by
Interface.
b. The ISO staff will publish reports covering this information, subject to
audits.
ARTICLE 19: AMENDMENT OF THIS AGREEMENT AND THE ISO TARIFFS
19.01 MODIFICATIONS.
Without waiving or limiting any rights of the Incorporating Parties under
this Agreement, the ISO/TO Agreement or the ISO/NYSRC Agreement, the Parties
agree that this Agreement, the ISO OATT, and the ISO Services Tariff may be
modified only as follows:
any proposed amendment to the ISO OATT, the ISO Services Tariff or the ISO
Agreement must be submitted to both the ISO Management Committee and the ISO
Board; if both the ISO Board and the ISO Management Committee agree to the
proposed amendment, the ISO shall file the proposed amendment with the
Commission pursuant to Section 205 of the FPA; provided however, that the
foregoing provisions do not apply to any proposed amendment to the governance
provisions of this Agreement set forth in Sections 7.03, 7.04, 7.05, 7.06,
7.07, 7.08, 7.09, 7.10, 7.11, 7.12 and 7.13. A proposed amendment of any of
the provisions of the preceding Sections by the ISO or any Party must be filed
pursuant to Section 206 of the FPA. If the ISO Board and the Management
Committee do not agree on the proposed amendment, the proposed amendment may
not be filed with the Commission pursuant to Section 205 of the FPA.
Notwithstanding the foregoing, the ISO Board may submit to the Commission a
proposed amendment to the ISO OATT, the ISO Services Tariff or the ISO
Agreement under Section 205 of the FPA, without the concurrence of the
Management Committee, under the following circumstances: the ISO Board
certifies that (1) the proposed amendment is necessary to address exigent
circumstances related to the reliability of the NYS Power System or to address
exigent circumstances related to an ISO Administered Market; and (2) the
urgency of the situation justifies a deviation from the normal ISO governance
procedures. Any proposed amendment submitted unilaterally by the ISO shall
contain an expiration date of no later than one hundred and twenty (120) days
after it is filed with FERC and shall expire no later than one hundred twenty
(120) days after it was filed with FERC, unless the Management Committee files
with FERC a written concurrence with the proposed amendment within the one
hundred and twenty (120) day period or FERC approves the proposed amendment
under the just and reasonable standard under Section 206 of the FPA. The ISO
Board shall have the authority to call a special meeting of the Management
Committee to request its concurrence in a proposed amendment.
19.02 FPA SECTION 206 FILINGS.
Subject to Section 19.01, nothing in this Agreement shall be construed in any
way as affecting the rights of any party to make a filing with the Commission
pursuant to Section 206 of the Federal Power Act.
19.03 PROPOSED AMENDMENTS.
All proposed amendments to the ISO Agreement must be filed with the Commission.
ARTICLE 20: ADDITIONAL CONDITIONS
20.01 RECOVERY UNDER STATE-APPROVED TARIFFS.
Nothing in this ISO Agreement shall preclude any party from recovering
under its PSC-approved or other lawfully established electric service tariffs
the costs associated with the sale or delivery of electric Capacity or Energy
to customers served under such tariffs.
20.02 RECOVERY OF START-UP AND DEVELOPMENT COSTS.
As provided for in the ISO/TO Agreement, as soon as practicable, the ISO shall
reimburse the Transmission Owners for all costs associated with the start-up
and establishment of the ISO. Such costs shall include, but are not limited
to, the costs associated with: the transfer of the current NYPP Energy Control
Center buildings and facilities to the ISO start-up and development costs,
including but not limited to software development and licensing costs, project
development costs, and regulatory costs.
20.03 ASSUMPTION OF EXISTING OBLIGATIONS.
As provided for in the ISO/TO Agreement, the ISO shall assume all existing
contractual and other obligations of the NYPP. If the ISO decides to take
action to terminate any such contract or obligation, it will bear any costs
related thereto. The ISO shall utilize the current facilities and equipment
of the NYPP and retain NYPP employees to the greatest extent practicable.
ARTICLE 21: REGULATORY JURISDICTION
Subject to Section 19.01, nothing in this Agreement shall restrict the
rights of the Parties to file a complaint with or submit any action to the
Commission or any other appropriate regulatory authority under relevant
provisions of the Federal Power Act or other relevant statutory provisions,
nor shall anything in this Agreement affect the jurisdiction of the Commission
or any other regulatory authority over matters arising under this Agreement.
ARTICLE 22: ASSIGNMENT
22.01 LIMITATIONS ON ASSIGNMENT.
Except as specifically provided in Section 22.02 hereof, this Agreement
may not be assigned or otherwise transferred by any of the Parties without the
express prior written consent of the ISO Board which consent shall not be
unreasonably withheld or delayed. Any person to which an assignment or transfer
is made shall be required to demonstrate, to the reasonable satisfaction of the
ISO Board, that it is capable of fulfilling the requirements of this Agreement,
and such assignee shall pay all costs and expenses, including reasonable
attorney fees, in connection with such assignment. Unless otherwise expressly
provided in a written instrument approved by the ISO Board in connection with
the consummation of such assignment or transfer, any such assignment or other
transfer by a Party of any of its rights and obligations under this Agreement
shall not release, or in any way modify, the assigning or transferring party's
liability for the performance of its obligations hereunder.
22.02 ASSIGNMENT.
Notwithstanding the provisions of Section 22.01 of this Agreement, the Parties
hereby consent to the assignment of this Agreement by any Incorporating Party:
a. to any entity or entities pursuant to a plan of restructuring approved by
the PSC in conjunction or compliance with, or in furtherance of, the PSC
restructuring as outlined in PSC Case No. 94-E-0952, and Opinion 96-12
issued in such proceeding or any related order; or
b. to any entity or entities in connection with a merger, consolidation,
reorganization, or other change in organizational structure of the assigning
Incorporating Party provided that the surviving entity(ies) agree, in
writing, to be bound by the terms of this Agreement.
ARTICLE 23: INDEMNIFICATION
23.01 INDEMNIFICATION.
The ISO shall indemnify, save harmless and defend a Transmission Owner
including its directors, officers, employees, trustees, and agents, or each of
them, from and against all claims, demands, losses, liabilities, judgments,
damages (including, without limitation, any consequential, incidental, direct,
special, indirect, exemplary or punitive damages and economic costs) and related
costs and expenses (including, without limitation, reasonable attorney and
expert fees, and disbursements incurred by a Transmission Owner in any actions
or proceedings between a Transmission Owner and another Transmission Owner, a
third party, Market Participant, the ISO, or any other party) arising out of or
related to the Transmission Owner's or the ISO's acts or omissions related in
any way to the Transmission Owner's ownership or operation of its transmission
facilities when such acts or omissions are either (1) pursuant to or consistent
with ISO Procedures or direction; or (2) in any way related to the Transmission
Owner's or the ISO's performance under the ISO OATT, except to the extent that a
Transmission Owner is found liable for negligence or intentional misconduct, and
under the ISO Services Tariff, the ISO/TO Agreement, the NYSRC Agreement, the
ISO/NYSRC Agreement, or this Agreement, except to the extent a Transmission
Owner is found liable for gross negligence or intentional misconduct.
23.02 SURVIVAL.
The provisions of this Article 23 shall survive the termination of this ISO
Agreement
ARTICLE 24: CLAIMS BY EMPLOYEES AND INSURANCE
The ISO shall be solely responsible for and shall bear all of the costs of
claims by its own employees, contractors, or agents arising under and covered
by, any workers' compensation law. The ISO shall furnish, at its sole expense,
such insurance coverage and such evidence thereof, or evidence of
self-insurance, as is reasonably necessary to meet its obligations under this
Agreement.
Additionally, the ISO will procure insurance or other alternative risk financing
arrangements sufficient to cover the risks associated with the ISO carrying out
its obligations, including the obligation to indemnify the Transmission Owners.
The ISO shall provide the Transmission Owners with the details of such insurance
and shall have them named as additional insureds to the extent of their
insurable interests.
ARTICLE 25: LIMITATION OF LIABILITY
25.01 LIMITATION OF LIABILITY OF ISO.
For the purpose of this Section, the term Market Participant shall not include a
Transmission Owner with respect to acts or omissions related in any way to the
Transmission Owner's ownership or operation of its transmission facilities when
such acts or omissions are either (1) pursuant to or consistent with ISO
Procedures or direction; or (2) in any way related to the Transmission Owner's
or the ISO's performance under the ISO OATT, the ISO Services Tariff, the ISO/TO
Agreement, the ISO/NYSRC Agreement or this Agreement. Subject to the provisions
of Article 23, the ISO shall not be liable (whether based on contract,
indemnification, warranty, tort, strict liability or otherwise) to any Market
Participant or any third party for any damages whatsoever, including without
limitation, direct, incidental, consequential, punitive, special, exemplary or
indirect damages resulting from any act or omission in any way associated with
this Agreement, except in the event that the ISO is found liable for gross
negligence or intentional misconduct, in which case the ISO will not be liable
for any incidental, consequential, punitive, special, exemplary, or indirect
damages; provided, however, that the liability of the ISO related services
provided under the ISO OATT shall be governed by the provisions of the ISO OATT.
25.02 LIMITATIONS OF LIABILITY OF TRANSMISSION OWNERS.
A Transmission Owner shall not be liable (whether based on contract,
indemnification, warranty, tort, strict liability or otherwise) to the ISO, any
Market Participant, any third party, or any other Party, for any damages
whatsoever, including without limitation, direct, incidental, consequential,
punitive, special, exemplary or indirect damages resulting from any act or
omission in any way associated with this Agreement, except to the extent that
the Transmission Owner is found liable for gross negligence or intentional
misconduct, in which case the Transmission Owner shall not be liable for any
incidental, consequential, punitive, special, exemplary, or indirect damages;
provided, however, that the liability of a Transmission Owner related to
services provided under the ISO OATT shall be governed by the provisions of the
ISO OATT.
ARTICLE 26: OTHER PROVISIONS
26.01 GOVERNING LAW; JURISDICTION.
The interpretation and performance of this Agreement shall be in accordance
with and shall be controlled by the laws of the State of New York as though this
Agreement was made and performed entirely in New York. With respect to any
claim or controversy arising from this Agreement or performance hereunder
within the subject matter jurisdiction of the Federal or State Courts of the
state of New York, the Parties consent to the exclusive jurisdiction and venue
of said courts.
26.02 HEADINGS.
The section headings herein are for convenience and reference only, and in no
way define or limit the scope of this ISO Agreement or in any way affect its
provisions. Whenever the terms hereto, hereunder, herein or hereof are used in
this ISO Agreement, they shall be construed as referring to this entire ISO
Agreement, rather than to any individual section, subsection, or sentence.
26.03 MUTUAL AGREEMENT.
Nothing in this ISO Agreement is intended to limit the Parties' ability to
mutually agree upon taking a course of action different than that provided for
herein, provided that doing so will not adversely affect any other Parties'
rights under this Agreement.
26.04 NO THIRD PARTY RIGHTS.
Nothing in this Agreement, express or implied, is intended to confer on any
person, other than the Parties hereto, any rights or remedies under or by reason
of this Agreement.
26.05 NOT PARTNERS.
Nothing contained in this Agreement shall be construed to make the Parties
partners or joint venturers or to render any Party liable for the debts or
obligations of any other Party.
26.06 WAIVER.
Any waiver, at any time, of the rights of any Party as to any default on
the part of any other Party or Parties to this Agreement, or as to any other
matter arising hereunder, shall not be deemed a waiver as to any default or
other matter subsequently occurring.
26.07 CONTRACT SUPREMACY.
In the case of a conflict between the terms of this Agreement and the terms
of the ISO/TO Agreement, the terms of the ISO/TO Agreement shall prevail. In
the case of a conflict between the terms of this Agreement and the terms of
ISO/NYSRC Agreement, the terms of the ISO/NYSRC Agreement shall prevail.
26.08 FORCE MAJEURE.
A Party shall not be considered to be in default or breach under this
Agreement, and shall be excused from performance or liability for damages to any
other party, if and to the extent it shall be delayed in or prevented from
performing or carrying out any of the provisions of this Agreement, except the
obligation to pay any amount when due, arising out of or from any act, omission,
or circumstance occasioned by or in consequence of any act of God, labor
disturbance, failure of contractors or suppliers of materials, act of the public
enemy, war, invasion, insurrection, riot, fire, storm, flood, ice, explosion,
breakage or accident to machinery or equipment or by any other cause or causes
beyond such Party's reasonable control, including any curtailment, order,
regulation or restriction imposed by governmental, military or lawfully
established civilian authorities, or by the making of repairs necessitated by an
emergency circumstance not limited to those listed above upon the property or
equipment of the ISO or any party to the ISO Agreement. Nothing contained in
this Article shall relieve any entity of the obligations to make payments when
due hereunder or pursuant to a Service Agreement. Any party claiming a force
majeure event shall use reasonable diligence to remove the condition that
prevents performance, except the settlement of any labor disturbance shall be in
the sole judgment of the affected party.
26.09 COUNTERPARTS.
This Agreement may be executed in counterparts.
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be
executed in its corporate name by its proper officers as of the date first
written above.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
By: /s/Carl E. Meyer
----------------------------
Carl E. Meyer
Title: President and Chief Operating Officer
Date: ------------------------
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
By: /s/Stephen B. Bram
----------------------------
Stephen B. Bram
Title: Senior Vice President, Central Operations
Date: ------------------------
LIPA
By: /s/Richard M. Kessel
----------------------------
Richard M. Kessel
Title: Chairman
Date: ------------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
By: /s/Denis E. Wickman
----------------------------
Denis E. Wickham
Title: Senior Vice President, Energy Operating Services
Date: ------------------------
NIAGARA MOHAWK POWER CORPORATION
By: /s/Clement E. Nadeau
----------------------------
Clement E. Nadeau
Title: Vice President, Electric Delivery
Date: ------------------------
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/Kevin Burke
----------------------------
Kevin Burke
Title: President and Chief Executive Officer
Date: ------------------------
ROCHESTER GAS AND ELECTRIC CORPORATION
By: /s/Clifton B. Olson
----------------------------
Clifton B. Olson
Title: Vice President, Energy Supply
Date: ------------------------
NEW YORK POWER AUTHORITY
By: /s/Clarence D. Rappleyea
----------------------------
Clarence D. Rappleyea
Title: Chairman and Chief Executive Officer
Date: ------------------------
18
EXHIBIT 10-15
AGREEMENT BETWEEN NEW YORK
INDEPENDENT SYSTEM OPERATOR AND
TRANSMISSION OWNERS
<PAGE>
TABLE OF CONTENTS
ARTICLE 1.0: DEFINITIONS
ARTICLE 2.0: RESPONSIBILITIES OF THE TRANSMISSION OWNERS
ARTICLE 3.0: RESPONSIBILITIES OF THE ISO
ARTICLE 4.0: ASSIGNMENT
ARTICLE 5.0: LIMITATION OF LIABILITY AND INDEMNIFICATION
ARTICLE 6.0: OTHER PROVISIONS
APPENDIX A-1
APPENDIX A-2
<PAGE>
AGREEMENT BETWEEN
NEW YORK INDEPENDENT SYSTEM OPERATOR
AND
TRANSMISSION OWNERS
This Agreement is made as of the 2nd day of December, 1999, by and among
Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New
York, Inc., New York State Electric & Gas Corporation, Niagara Mohawk Power
Corporation, Orange and Rockland Utilities, Inc., Rochester Gas and Electric
Corporation (referred to collectively as the "Investor-Owned Transmission
Owners"), the Power Authority of the State of New York ("NYPA"), a corporate
municipal instrumentality of the state of New York, and LIPA (a subsidiary of
the Long Island Power Authority, a corporate municipal instrumentality of the
state of New York)(herein referred to collectively as the "Transmission
Owners") and the New York Independent System Operator ("ISO"), a not-for-profit
corporation. The Transmission Owners and the ISO are herein referred to
collectively as the Parties.
WITNESSETH:
WHEREAS, the Investor-Owned Transmission Owners established the New York
Power Pool ("NYPP") by agreement made as of the 21st day of July, 1966, and
NYPA subsequently joined NYPP on October 11, 1967, and LIPA joined the NYPP
on May 28, 1998; and
WHEREAS, the Transmission Owners have created, invested in and operated the
interconnected transmission facilities in New York State and each Investor-Owned
Transmission Owner has fiduciary responsibilities to assure, among other things,
the receipt of adequate revenues to maintain the facilities, a reasonable rate
of return on its transmission facilities, and to provide for recovery of the
capital invested in its transmission facilities; and
WHEREAS, the ISO's principal mission is to maintain the integrity and
reliability of the interconnected transmission facilities of the Transmission
Owners, which will require the ISO to exercise Operational Control of the
transmission facilities of the Transmission Owners, referred to as "Transmission
Facilities Under ISO Control," and will further require the ISO, among other
things, to function as the successor to NYPP with respect to certain NYS Power
System operational activities heretofore conducted by NYPP; and
WHEREAS, the Investor-Owned Transmission Owners have legal obligations to
provide safe and reliable service to the public, including assuring suitable
use of their individual transmission facilities to attain and maintain
compliance with this obligation; and
WHEREAS, the Transmission Owners will continue to own, physically operate,
modify, and maintain the Transmission Facilities Under ISO Operational Control,
and the Investor-Owned Transmission Owners will continue to have fiduciary
obligations to their investors to protect their transmission facilities and to
protect their investors from liability that may result from the operation of
those facilities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements set forth herein, the Parties do hereby agree with each other, for
themselves and their successors and assigns, as follows:
<PAGE>
ARTICLE 1.0: DEFINITIONS
1.01 The definitions contained in Article 1 of the Independent System
Operator Agreement ("ISO Agreement") as it existed on the date this Agreement
is signed by the Parties are hereby incorporated by reference in their entirety
into this Agreement. Modifications to such definitions under the ISO Agreement
shall apply to this Agreement, only if the Parties to this Agreement agree in
writing pursuant to Section 6.14 below.
ARTICLE 2.0: RESPONSIBILITIES OF THE TRANSMISSION OWNERS
2.01 TRANSMISSION FACILITIES. The Transmission Owners have specified
transmission facilities over which the ISO will have day-to-day Operational
Control. These facilities shall be collectively known as the "Transmission
Facilities Under ISO Operational Control," and are listed in Appendix A-1.
The Transmission Owners also will be responsible for providing notification
to the ISO with respect to actions related to other specified transmission
facilities. These facilities shall be collectively known as "Transmission
Facilities Requiring ISO Notification," and are listed in Appendix A-2.
Transmission facilities may be added to, or deleted from, the lists of
facilities provided in Appendices A-1 and A-2 by mutual written agreement
of the ISO and the Transmission Owner owning and controlling such facilities.
A current version of such list will be posted on the ISO's OASIS.
2.02 TRANSMISSION SYSTEM OPERATION. Each Transmission Owner shall operate
and maintain its facilities that are designated as Transmission Facilities
Under ISO Operational Control and Transmission Facilities Requiring ISO
Notification in accordance with the terms of this Agreement and in accordance
with all Reliability Rules and all other applicable operating instructions,
and ISO Procedures. The Operating Committee of the ISO will promulgate
procedures to provide for the assumption of authority by the Transmission
Owners' control centers to respond to an Emergency. These procedures shall
provide for the coordination of such response with the ISO. The procedures
will provide that, in situations where immediate action is required, the
Transmission Owners' control centers will have the authority to take actions,
including without limitation, the following:
1. exercising control over facilities listed in Appendix A-1 of this
Agreement and generating units;
2. starting quick start generation and the adjustment of generation;
3. re-energizing transmission facilities following breaker trips;
4. implementing emergency Load Shedding and voltage reduction measures and
subsequent restoration;
5. voltage/VAR control during an Emergency;
6. changing ratings of transmission facilities; and
7. taking other measures consistent with Good Utility Practice that are
required to respond to the Emergency.
Until the Operating Committee promulgates such procedures, the Transmission
Owners will exercise the above responsibilities during an Emergency.
2.03 LOCAL AREA TRANSMISSION SYSTEM FACILITIES. Transmission system
facilities not designated as Transmission Facilities Under ISO Operational
Control or as Transmission Facilities Requiring ISO Notification shall be
collectively known as "Local Area Transmission System Facilities." Each
Transmission Owner shall have sole responsibility for the operation of its
Local Area Transmission System Facilities, provided, however, that such
operation by each Transmission Owner shall not compromise the reliable and
secure operation of the NYS Transmission System. Each Transmission Owner
shall promptly comply to the extent practicable with a request from the ISO
to take action with respect to coordination of the operation of its Local Area
Transmission System Facilities.
2.04 SAFE OPERATIONS. Notwithstanding any other provision of this
Agreement, a Transmission Owner may take such action with respect to the
operation of its facilities as it deems necessary to maintain Safe Operations.
To ensure Safe Operations, all Transmission Owner local operating rules shall
govern the connection and disconnection of generation with transmission
facilities. Safe Operations include the application and enforcement of rules,
procedures and protocols that are intended to ensure the safety of personnel
operating or performing work or tests on transmission facilities.
2.05 LOCAL CONTROL CENTER, METERING AND TELEMETRY. Each Transmission Owner
shall operate, or arrange for a suitable third party to operate, on a
twenty-four (24) hour basis, a suitable control center, and shall install and
maintain all other equipment and facilities reasonably required for the ISO to
exercise Operational Control over Transmission Facilities Under ISO Operational
Control. Operation of the NYS Power System will be a cooperative effort
coordinated by the ISO control center in conjunction with each Transmission
Owner's control center and will require the exchange of all reasonably
necessary information. The Transmissions Owners' control centers must provide
the ISO with Supervisory Control and Data Acquisition ("SCADA") information on
facilities listed in Appendices A-1 and A-2 as well as on certain generation
resources in their Transmission Districts.
Each Transmission Owner shall have the responsibility for providing metering
data in its Transmission District to the ISO, unless other parties are
authorized by the appropriate regulatory authority to provide metering data.
Each Transmission Owner shall be responsible for collecting and making
available to the ISO billing quality metering data and any other information
for the Transmission District required by the ISO for billing purposes. The
Parties agree that the metering and data acquisition systems currently in place
will be acceptable for initial ISO operation. The Transmission Owner shall
cooperate with the ISO in implementing reasonable metering enhancements and new
metering installations that the ISO may deem necessary, provided that mechanisms
satisfactory to each Transmission Owner are in place for their recovery of all
associated costs. Each Transmission Owner shall continue to receive telemetry
from existing Generators in its Transmission District and provide for the
receipt of such information from new Generators. Automatic Generation Control
("AGC") will be implemented via each Transmission Owner's control center. Each
Transmission Owner shall operate its control center to comply with current AGC
procedures, as well as any revised or new AGC procedures reasonably adopted by
the ISO. In addition, each Transmission Owner shall provide backup control
services to the ISO in the event the ISO's computer systems malfunction. In
such situations, Bid curves will be made available to the Transmission Owners'
control centers to facilitate the continued economic operation of the system.
Each Transmission Owner will maintain a strict Code of Conduct to prevent such
information from reaching any unauthorized person or entity.
2.06 SECURITY CONSTRAINED UNIT COMMITMENT ADJUSTMENTS. A Transmission
Owner may request commitment of additional Generators (including specific
output level(s)) if it determines that an additional Generator is needed to
ensure local area reliability. The ISO will use Supplemental Resource
Evaluation ("SRE") to fulfill a Transmission Owner's request for additional
units.
2.07 DESIGN, MAINTENANCE AND RATING CAPABILITIES. Each Transmission Owner
shall comply with the provisions of this Agreement and all Reliability Rules,
ISO Procedures, and Good Utility Practice with respect to the design,
maintenance and rating the capabilities of NYS Transmission System facilities.
2.08 MAINTENANCE SCHEDULING. The Transmission Owners shall schedule
maintenance of their facilities designated as Transmission Facilities Under ISO
Operational Control and schedule any outages (other than forced transmission
outages) of said transmission system facilities in accordance with outage
schedules approved by the ISO. The Transmission Owners shall comply with
maintenance schedules coordinated by the ISO, pursuant to this Agreement, for
Transmission Facilities Under ISO Operational Control. Each Transmission Owner
shall be responsible for providing notification of maintenance schedules to the
ISO for Facilities Requiring ISO Notification.
2.09 INVESTIGATIONS AND RESTORATION. Each Transmission Owner shall
promptly conduct investigations of equipment malfunctions and failures and
forced transmission outages in a manner consistent with applicable FERC, PSC,
NRC, NERC, NPCC and NYSRC rules, principles, guidelines, standards and
requirements, ISO Procedures and Good Utility Practice. Each Transmission
Owner shall supply the results of such investigations to the NYSRC, the ISO and
the other Transmission Owners. Each Transmission Owner shall determine the
level of resources to be applied to restore facilities to service following a
failure, malfunction, or forced transmission outage. Following a total or
partial system interruption, restoration shall be coordinated between the ISO
and the Transmission Owners' control centers. The Transmission Owners' control
centers shall have the authority, in coordination with the ISO, to restore the
system and to re-establish service if doing so would minimize the period of
service interruption.
2.10 INFORMATION AND SUPPORT. The Transmission Owners shall obtain from
the ISO and the ISO shall provide to the Transmission Owners the necessary
information and support services to comply with their obligations under this
Article.
ARTICLE 3.0: RESPONSIBILITIES OF THE ISO
3.01 OPERATION AND COORDINATION. The ISO shall direct the operation of, and
coordinate the maintenance scheduling of, certain facilities of the NYS Power
System, including coordination with control centers maintained by the
Transmission Owners in accordance with the Reliability Rules, as follows:
a. Assuming responsibility for Control Area operations of the NYS Power
System previously performed by NYPP;
b. Performing balancing of Generation and Load while ensuring the safe,
reliable and efficient operation of the NYS Power System;
c. Exercising Operational Control over certain facilities of the NYS
Power System under normal operating conditions and system Emergencies
to maintain system reliability; and
d. Coordinating the NYS Power System equipment outages and maintenance
and maintaining the safety and short term reliability of the NYS
Power System.
3.02 TARIFF ADMINISTRATION AND PERFORMANCE OF RESPONSIBILITIES UNDER ISO
RELATED AGREEMENTS. Subject to the provisions of Section 6.09, the ISO shall:
(a) administer the ISO OATT, the ISO Services Tariff and the ISO
Agreement in accordance with their provisions as they may be amended
from time to time, and
(b) shall comply with the provisions of this Agreement, the NYSRC
Agreement and the ISO/NYSRC Agreement.
3.03 AMENDMENT OF ISO AGREEMENT AND ISO TARIFFS. Notwithstanding any
other provision in this Agreement except for the provisions of Section 3.10,
the ISO OATT, the ISO Services Tariff and the ISO Agreement may be modified
only as follows: any proposed amendment to the ISO OATT, the ISO Services
Tariff or the ISO Agreement must be submitted to both the ISO Management
Committee and the ISO Board; if both the ISO Board and the ISO Management
Committee agree to the proposed amendment, the ISO shall file the proposed
amendment with the Commission pursuant to Section 205 of the FPA; if the ISO
Board and the ISO Management Committee do not agree on the proposed amendment,
the proposed amendment may not be filed with the Commission pursuant to Section
205 of the FPA. Notwithstanding the foregoing, the ISO Board may submit to the
Commission a proposed amendment to the ISO OATT, the ISO Services Tariff or the
ISO Agreement under Section 205 of the FPA, without the concurrence of the
Management Committee, under the following circumstances: the ISO Board
certifies that
(1) the proposed amendment is necessary to address exigent circumstances
related to the reliability of the NYS Power System or to address
exigent circumstances related to an ISO Administered Market; and
(2) the urgency of the situation justifies a deviation from the normal
ISO governance procedures. Any proposed amendment submitted
unilaterally by the ISO shall contain an expiration date of no later
than one hundred and twenty (120) days after it is filed with FERC
and shall expire no later than one hundred twenty (120) days after it
was filed with FERC, unless the Management Committee files with FERC
a written concurrence with the proposed amendment within the one
hundred and twenty (120) day period or FERC approves the proposed
amendment under the just and reasonable standard under Section 206
of the Federal Power Act. The ISO Board shall have the authority to
call a special meeting of the Management Committee to request its
concurrence in a proposed amendment.
Nothing in this Section 3.03 shall be construed in any way as affecting the
right of the ISO or any person to make a filing with the Commission pursuant to
Section 206 of the Federal Power Act.
3.04 GRANTING OF AUTHORITY. The ISO responsibilities set forth in Article
3 of this Agreement, are granted by each Transmission Owner to the ISO only so
long as each of the conditions set forth below is met and continues to be met
throughout the term of this Agreement:
a. The ISO fully implements all Reliability Rules including, without
limitation, using all reasonable efforts to require all Market
Participants to maintain applicable levels of Installed Capacity and
Operating Capacity, consistent with the ISO OATT, the ISO Services
Tariff and all Reliability Rules;
b. The ISO has a FERC-accepted transmission tariff(s) which provide(s)
for full recovery of the following, to the extent allowed, accepted or
approved by FERC: the Annual Transmission Revenue Requirement of each
of the Investor Owned Transmission Owners, NTAC, the annual
transmission revenue requirement of LIPA, and any Stranded Investment
Recovery Charge;
c. The ISO does not materially and adversely affect the right of any
Transmission Owner concerning transitional arrangements set forth in
the ISO Tariffs, pertaining or relating to Existing Transmission
Agreements which are in effect at the commencement of ISO operations;
d. Con Edison, LIPA and NYPA have adequate assurance in the opinion of
each such entity, that participation in the ISO will not jeopardize
the tax-exempt status of their respective tax-exempt bonds, the
ability of such Investor-Owned Transmission Owner to deduct interest
payments, or the ability of the Transmission Owners to secure future
tax-exempt financing;
e. The ISO does not act in violation of lawful PSC or FERC Orders;
f. The ISO does not file a request under Section 205 of FPA to revise
the provisions in the ISO Services Tariff related to indemnification
and limitation of liability;
g. The ISO does not have a financial interest in any commercial
transaction involving the use of the NYS Power System or any other
electrical system;
h. The ISO does not seek modification of any provision of the ISO OATT
or the ISO Services Tariff so as to require, directly or indirectly,
wheeling to end users except as authorized by the PSC or a retail
access tariff approved by the Long Island Power Authority's Board of
Trustees, or a sham wholesale transaction (as defined in FPA Section
212[h]);
i. The ISO distributes revenues from the collection of transmission
charges to the Transmission Owner in a timely manner; and
j. The ISO enforces and complies with the creditworthiness and
collection standards of the ISO Procedures, the ISO OATT and the
ISO Services Tariff.
3.05 COLLECTION AND BILLING. The ISO shall facilitate and/or perform the
billing and collection of revenues related to services provided by the ISO
pursuant to the terms of the ISO OATT and the ISO Services Tariff.
3.06 NYPA ANNUAL TRANSMISSION REVENUE REQUIREMENT. This Agreement is
premised on NYPA recovering its full annual transmission revenue requirement.
This is to be achieved through a mechanism known as the NTAC. NYPA will submit
its annual revenue requirement for FERC approval. NYPA will be entitled to
receive from the ISO the difference between its FERC-approved revenue
requirement and the sum of revenues it collects from contracts and from TSCs
associated with its current transmission system. The ISO will credit any TCC
revenues associated with NYPA's facilities and allocate the remainder on a kWh
basis to all transmission Load the ISO serves. NYPA's recovery pursuant to
NTAC is limited as described in Attachment H to the ISO OATT. This Agreement
is further premised on each Investor-Owned Transmission Owner being authorized
to fully recover the NTAC charged to its transmission and retail customers and
that any necessary regulatory approvals for such full recovery will be granted
by the PSC and FERC.
3.07 PROPOSED MATERIAL MODIFICATIONS TO THE NYS POWER SYSTEM. The ISO shall
establish procedures to evaluate the impact of any proposed material
modifications to the NYS Power System. If the ISO or a Transmission Owner
determines that a proposed modification will have a negative impact on system
reliability or on total Interface transfer capability over an Interface or
Interfaces, the ISO or the Transmission Owner may refer the issue for resolution
pursuant to procedures comparable to those set forth in Article 5 of the
ISO/NYSRC Agreement. However, the approval of the NYSRC or the ISO shall not
be required to submit the issue to the PSC for resolution.
3.08 OASIS. The ISO shall maintain the OASIS for the New York Control
Area.
3.09 TRANSMISSION OWNER REIMBURSEMENT AND ASSUMPTION OF EXISTING
OBLIGATIONS. As soon as practicable, or no later than a date to be mutually
agreed upon by the Parties, the ISO shall reimburse the Transmission Owners
for all costs associated with the start-up and establishment of the ISO, to
the extent that the ISO is authorized by FERC to recover such costs. Such
costs shall include, but are not limited to, the costs associated with: the
transfer of the current NYPP Control Center buildings and facilities to the
ISO; and start-up and development costs, including but not limited to software
development and licensing costs, project development costs, and regulatory
costs.
The ISO shall assume all existing contractual and other obligations of the
NYPP. If the ISO decides to take action to terminate any such contract or
obligation, or its assumption of existing obligations, it will bear any costs
related thereto. The ISO shall utilize the current facilities and equipment
of the NYPP and retain NYPP employees to the greatest extent practicable.
3.10 TRANSMISSION OWNERS RESERVED RIGHTS. Notwithstanding any other
provision of this Agreement, or any other agreement or amendment made in
connection with the restructuring of the NYPP and establishment of the New York
ISO, each Transmission Owner shall retain all of the rights set forth in this
Section; provided, however, that such rights shall be exercised in a manner
consistent with the Transmission Owners' rights and obligations under the
Federal Power Act and the Commission's rules and regulations thereunder. This
Section is not intended to reduce or limit any other rights of a Transmission
Owner as a signatory to this Agreement or any of the ISO Related Agreements or
under an ISO Tariff.
a. Each Transmission Owner shall have the right at any time unilaterally
to file pursuant to Section 205 of the Federal Power Act to change the
ISO OATT, a Service Agreement under the ISO OATT, or the ISO Agreement
to the extent necessary: (i) to recover all of its reasonably
incurred costs, plus a reasonable return on investment related to
services under the ISO OATT and (ii) to accommodate implementation
of, and changes to, a Transmission Owner's retail access program.
b. Nothing in this Agreement shall restrict any rights, to the extent
such rights exist: (i) of each Transmission Owner that is a party to
a merger, acquisition or other restructuring transaction to make
filings under Section 205 of the Federal Power Act with respect to
the reallocation or redistribution of revenues among such Transmission
Owners or the assignment of its rights or obligations, to the extent
the FPA requires such filings; or (ii) of any Transmission Owner to
terminate its participation in the New York ISO pursuant to Section
3.02 of the ISO Agreement or Article 6 of this Agreement,
notwithstanding any effect its withdrawal from the New York ISO may
have on the distribution of transmission revenues among other
Transmission Owners.
c. Each Transmission Owner retains all rights that it otherwise has
incident to its ownership of its assets, including, without
limitation, its transmission facilities including, without limitation,
the right to build, acquire, sell, merge, dispose of, retire, use as
security, or otherwise transfer or convey all or any part of its
assets, including, without limitation, the right, individually or
collectively, to amend or terminate the Transmission Owner's
relationship with the ISO in connection with the creation of an
alternative arrangement for the ownership and/or operation of its
transmission facilities on an unbundled basis (e.g., a transmission
company), subject to necessary regulatory approvals and to any
approvals required under applicable provisions of this Agreement.
d. The obligation of any Transmission Owner to expand or modify its
transmission facilities in accordance with the ISO OATT shall be
subject to the Transmission Owner's right to recover, pursuant to
appropriate financial arrangements contained in Commission-accepted
tariffs or agreements, all reasonably incurred costs, plus a
reasonable return on investment, associated with constructing and
owning or financing such expansions or modifications to its
facilities.
e. The responsibilities granted to the ISO under this Agreement shall
not expand or diminish the responsibilities of a Transmission Owner
to modify or expand its transmission system, nor confer upon the ISO
the authority to direct a Transmission Owner to modify or expand its
transmission system.
f. Each Transmission Owner shall have the right to adopt and implement
procedures it deems necessary to protect its electric facilities from
physical damage or to prevent injury or damage to persons or property.
g. Each Transmission Owner retains the right to take whatever actions it
deems necessary to fulfill its obligations under local, state or
federal law.
h. Nothing in this Agreement shall be construed as limiting in any way
the rights of a Transmission Owner to make any filing with the PSC.
i. Notwithstanding anything to the contrary in this Agreement, no
amendment to any provision of this Section may be adopted without the
agreement of the Transmission Owners.
3.11 RETENTION OF NON-TRANSFERRED OBLIGATIONS. Any and all other rights
and responsibilities of a Transmission Owner related to the ownership or
operation of its transmission assets or to its rights to withdraw its assets
from ISO control, that have not been specifically transferred to the ISO under
this Agreement or otherwise addressed under this Agreement, will remain with
the Transmission Owners.
3.12 LIPA SCHEDULING PROCEDURES. LIPA shall develop and file with the ISO
procedures that will be implemented by LIPA on a nondiscriminatory basis. The
procedures shall cover:
(a) LIPA's scheduling of transactions on the Northport-Norwalk intertie;
(b) submitting such schedules to the ISO by the ISO's deadline for
submitting schedules;
(c) developing a preapproved list of transactions that the ISO may
schedule and list of Transmission Customers that may withdraw Energy
from and inject Energy into the Long Island Transmission District;
and
(d) any additional procedures required for LIPA to coordinate
transaction scheduling with the ISO.
LIPA will be the only party authorized to submit schedules to the ISO for
Transmission Service on the Northport-Norwalk intertie. All parties seeking
Transmission Service into and out of the Long Island Transmission District
shall obtain pre-approval from LIPA before scheduling transactions with and
through the ISO. LIPA shall electronically certify to the ISO pre-approved
customers and transactions. If a party or transaction is not so pre-approved
and certified by LIPA and such party submits a schedule for such a transaction
to the ISO, the ISO shall reject the schedule and advise such party that it
must obtain LIPA approval.
ARTICLE 4.0: ASSIGNMENT
4.01 LIMITATIONS OF ASSIGNMENT BY THE ISO. This Agreement cannot be
assigned by the ISO.
4.02 TRANSMISSION OWNER ASSIGNMENTS. This Agreement may be assigned by any
Transmission Owner including, without limitation, to:
a. any entity(ies) formed pursuant to a plan of restructuring approved
by the PSC in conjunction or compliance with or in furtherance of
PSC Case No. 94-E-0952 Opinion 96-12 and/or other related orders; or
b. any entity(ies) in connection with a merger, consolidation,
reorganization or other change in the organizational structure of the
assigning Transmission Owner, provided that the surviving entity(ies)
agree, in writing, to be bound by the terms of this Agreement.
ARTICLE 5.0: LIMITATION OF LIABILITY AND INDEMNIFICATION
5.01 LIMITATIONS OF LIABILITY. Except as otherwise provided under the ISO
OATT, the Transmission Owners shall not be liable (whether based on contract,
indemnification, warranty, tort, strict liability or otherwise) to the ISO or
any Market Participant or any third party or other party for any damages
whatsoever, including without limitation, special, indirect, incidental,
consequential, punitive, exemplary or direct damages resulting from any act or
omission in any way associated with this Agreement, except to the extent the
Transmission Owner is found liable for gross negligence or intentional
misconduct, in which case the Transmission Owner shall not be liable for any
special, indirect, incidental, consequential, punitive or exemplary damages.
Nothing in this Section will excuse a Transmission Owner from an obligation to
pay for services provided to the Transmission Owner by the ISO or to pay any
deficiency payments, penalties or sanctions imposed by the ISO under the ISO
OATT or the ISO Services Tariff.
5.02 ADDITIONAL LIMITATIONS OF LIABILITY. Except as otherwise provided
under the ISO OATT, a Transmission Owner shall not be liable for any indirect,
consequential, exemplary, special, incidental or punitive damages including,
without limitation, lost revenues or profits, the cost of replacement power or
the cost of capital, even if such damages are foreseeable or the damaged party
has been advised of the possibility of such damages and regardless of whether
any such damages are deemed to result from the failure or inadequacy of any
exclusive or other remedy.
5.03 INDEMNIFICATION. The ISO shall indemnify, save harmless and defend the
Transmission Owners, including their directors, officers, employees, trustees,
and agents, or each of them, from and against all claims, demands, losses,
liabilities, judgments, damages (including, without limitation, any
consequential, incidental, direct, special, indirect, exemplary or punitive
damages and economic costs), and related costs and expenses (including, without
limitation, reasonable attorney and expert fees, and disbursements incurred by
the Transmission Owners in any actions or proceedings between one or more
Transmission Owners and one or more Transmission Owners and a third party,
Market Participant, the ISO, or any other party) arising out of or related to
the Transmission Owner's or the ISO's acts or omissions related in any way to
the Transmission Owner's ownership or operation of its transmission facilities
when such acts or omissions are either (1) pursuant to or consistent with ISO
Procedures or direction; or (2) in any way related to the Transmission Owner's
or the ISO's performance under the ISO OATT, except to the extent that the
Transmission Owner(s) is found liable for negligence or intentional misconduct,
and under the ISO Services Tariff, the ISO Agreement, the ISO/NYSRC Agreement,
NYSRC Agreement, or this Agreement, except to the extent the Transmission
Owner(s) is found liable for gross negligence or intentional misconduct.
5.04 FORCE MAJEURE. A Party shall not be considered to be in default or
breach under this Agreement, and shall be excused from performance or liability
for damages to any other party, if and to the extent it shall be delayed in or
prevented from performing or carrying out any of the provisions of this
Agreement, except the obligation to pay any amount when due, arising out of or
from any act, omission, or circumstance occasioned by or in consequence of any
act of God, labor disturbance, failure of contractors or suppliers of materials,
act of the public enemy, war, invasion, insurrection, riot, fire, storm, flood,
ice, explosion, breakage or accident to machinery or equipment or by any other
cause or causes beyond such Party's reasonable control, including any
curtailment, order, regulation, or restriction imposed by governmental,
military or lawfully established civilian authorities, or by the making of
repairs necessitated by an emergency circumstance not limited to those listed
above upon the property or equipment of the ISO or any party to the ISO
Agreement. Nothing contained in this Article shall relieve any entity of the
obligations to make payments when due hereunder or pursuant to a Service
Agreement. Any party claiming a force majeure event shall use reasonable
diligence to remove the condition that prevents performance, except the
settlement of any labor disturbance shall be in the sole judgment of the
affected party.
5.05 CLAIMS BY EMPLOYEES AND INSURANCE. A Party shall be solely responsible
for and shall bear all of the costs of claims by its own employees,
contractors, or agents arising under and covered by, any workers' compensation
law. A Party shall furnish, at its sole expense, such insurance coverage and
such evidence thereof, or evidence of self-insurance, as is reasonably
necessary to meet its obligations under this Agreement. Additionally, the ISO
will procure insurance or other alternative risk financing arrangements
sufficient to cover the risks associated with the ISO carrying out its
obligations, including the obligation to indemnify the Transmission Owners.
The ISO shall provide the Transmission Owners with the details of such
insurance and shall have them named as additional insureds to the extent of
their insurable interests.
5.06 SURVIVAL. The provisions of this Article, "Limitations of Liability
and Indemnification" shall survive the termination or expiration of this
Agreement or the ISO Tariffs.
ARTICLE 6.0: OTHER PROVISIONS
6.01 TERM AND TERMINATION. This Agreement shall become effective upon the
execution of this Agreement by the Transmission Owners and the ISO and on the
latest of:
(i) the date(s) FERC accepts for filing, without condition or
material modification:
(a) this Agreement;
(b) the ISO Tariffs;
(c) the ISO Agreement;
(d) the NYSRC Agreement; and
(e) the ISO/NYSRC Agreement ("ISO Tariffs" and "ISO Related Agreements");
(ii) the date on which FERC, the PSC and any other regulatory agency having
jurisdiction grant all necessary approvals, including, without limitation,
any approvals required under Section 70 of the Public Service Law and
Section 203 of the FPA;
(iii) September 1, 1999; or
(iv) on such later date specified by FERC.
Without waiving or limiting any of its other rights under this Article, if a
Transmission Owner determines that any of the conditions set forth in Section
3.04 hereof is not being met or ceases to be in full force and effect that
Transmission Owner may withdraw from this Agreement, the ISO Agreement and the
ISO Tariffs and withdraw its assets from the ISO's control and administration
on ninety (90) days prior written notice to all Parties to this Agreement and
FERC. Such notice shall identify the condition or conditions set forth in
Section 3.04 that have not been met or no longer are in full force and effect;
provided, however, that prior to the filing of such notice, the ISO shall be
advised of the specific condition or conditions that are no longer in full
force and effect, and the ISO shall have the opportunity to restore the
effectiveness of the condition or conditions identified within a thirty (30)
day period. If the effectiveness of the condition or conditions is not restored
within thirty (30) days, the Transmission Owner may file a notice of withdrawal
with the ISO and FERC; provided, however, that if the ISO demonstrates that it
has made a good faith effort but has been unable to restore the effectiveness
of the condition or conditions within the thirty (30) day period, the ISO shall
be provided an additional thirty (30) day period to restore the effectiveness
of the condition or conditions and the Transmission Owner may not file the
notice of withdrawal until the expiration of the second thirty (30) day period.
Withdrawal of a Transmission Owner under this Section shall be effective ninety
(90) days after the filing of the notice of withdrawal unless FERC finds that
such withdrawal of an Investor-Owned Transmission Owner is contrary to the
public interest, as that standard has been judicially construed under the
Mobile-Sierra doctrine. However, the Transmission Owner who submitted the
notice of withdrawal may withdraw the notice or extend the withdrawal date.
Nothing in this section shall be construed as a voluntary undertaking by any
Transmission Owner to remain a Party to this Agreement after the expiration of
its notice of withdrawal.
In addition to the foregoing provision, after the fifth anniversary of the
effective date of this Agreement, this Agreement may be terminated by a
unanimous vote of the Transmission Owners or their successors or assignees.
If the Transmission Owners vote to terminate this Agreement, they will file
with FERC and the PSC an explanation of their action and a proposal for an
alternative plan for the safe, reliable and efficient operation of the NYS
Transmission System.
6.02 WITHDRAWAL. Any Transmission Owner may withdraw from this Agreement,
the ISO Agreement and the ISO Tariffs and withdraw its assets from the ISO
control and administration upon ninety (90) days written notice to the ISO
Board and FERC. In the case of an Investor-Owned Transmission Owner, no
further approval by FERC shall be required for such withdrawal from this
Agreement, if such Investor-Owned Transmission Owner has on file with FERC
its own open access transmission tariff and such withdrawal shall be effective
unless FERC finds that such withdrawal is contrary to the public interest, as
that standard has been judicially construed under the Mobile-Sierra doctrine.
Any modification to this Article shall provide any Party with the right to
withdraw from the Agreement pursuant to the unmodified provisions of this
Article, within ninety (90) days of the effective date of such modification.
Notwithstanding any other provision of Article 6, in the event that the
tax-exempt financing of a Party is jeopardized by its participation in the
ISO, the Party may withdraw from this Agreement, the ISO Agreement and the
ISO Tariffs and withdraw any assets from ISO control and administration upon
thirty (30) days prior written notice to the ISO Board.
6.03 OBLIGATIONS AFTER TERMINATION OR WITHDRAWAL.
a. Following termination or withdrawal from the Agreement, a Party shall
remain liable for all obligations arising hereunder prior to the
effective date of termination or withdrawal, including all obligations
accrued prior to the effective date, imposed on the Party by this
Agreement or the ISO Tariffs or other ISO Related Agreements.
b. Termination or the withdrawal from this Agreement shall not relieve a
Party of any continuing obligation it may have under the ISO Tariffs
and ISO Related Agreements, unless the Party also withdraws from the
ISO Tariffs or ISO Related Agreements.
6.04 WINDING UP. Any provision of this Agreement that expressly or by
implication comes into or remains in force following the termination or
withdrawal from this Agreement shall survive such termination or withdrawal.
The surviving provisions shall include, but shall not be limited to (i) those
provisions necessary to permit the orderly conclusion, or continuation pursuant
to another agreement, of transactions entered into prior to the termination of
or withdrawal from this Agreement, (ii) those provisions necessary to conduct
final billing, collection, and accounting with respect to all matters arising
hereunder, and (iii) the indemnification and limitation of liability provisions
as applicable to periods prior to such termination or withdrawal. The ISO and
the terminating or withdrawing Party or Parties shall have an obligation to
make a good faith effort to agree upon a mutually satisfactory termination or
withdrawal plan. Such plan shall have among its objectives an orderly
termination or withdrawal. The plan shall address, to the extent necessary,
the allocation of any costs directly related to the termination or withdrawal
by the Party or Parties terminating or withdrawing from the Agreement.
6.05 CONFIDENTIALITY.
A. PARTY ACCESS. No Transmission Owner shall have a right hereunder to
receive or review any documents, data or other information of another
Transmission Owner or the ISO supplied pursuant to this Agreement,
including documents, data or other information provided to the ISO, to
the extent such documents, data or information have been designated as
confidential pursuant to the procedures specified in the ISO Tariffs or
to the extent that they have been designated as confidential by such other
Party; provided, however, that a Party may receive and review any composite
documents, data and other information that may be developed based on such
confidential documents, data or information if the composite does not
disclose any individual Party's confidential data or information.
B. REQUIRED DISCLOSURE. Notwithstanding anything in this Section to the
contrary, if a Party is required by applicable law, or in the course of
administrative or judicial proceedings, or subpoena, to disclose
information that is otherwise required to be maintained in confidence
pursuant to this Section, that Party may make disclosure of such
information; provided, however, that as soon as the Party learns of the
disclosure requirement and prior to making such disclosure, that Party
shall notify the affected Party or Parties of the requirement and the terms
thereof and the affected Party or Parties may, at their sole discretion and
cost, assert any challenge to or defense against the disclosure requirement
and the Party shall cooperate with such affected Parties to the maximum
extent practicable to minimize the disclosure of the information consistent
with applicable law. Each Party shall cooperate with the affected Parties
to obtain proprietary or confidential treatment of such information by
the person to whom such information is disclosed prior to any such
disclosure.
6.06 GOVERNING LAW; JURISDICTION. The interpretation and performance of
this Agreement shall be in accordance with and shall be controlled by the laws
of the state of New York as though this Agreement is made and performed
entirely in New York. With respect to any claim or controversy arising from
this Agreement or performance hereunder within the subject matter jurisdiction
of the federal or state courts of the state of New York, the Parties consent to
the exclusive jurisdiction and venue of said courts.
6.07 HEADINGS. The section headings herein are for convenience and reference
only and in no way define or limit the scope of this Agreement or in any way
affect its provisions. Whenever the terms hereto, hereunder, herein or hereof
are used in this Agreement, they shall be construed as referring to this entire
Agreement, rather than to any individual section, subsection or sentence.
6.08 MUTUAL AGREEMENT. Nothing in this Agreement is intended to limit the
Parties' ability to mutually agree upon taking a course of action different
than that provided for herein; provided that doing so will not adversely affect
any other Parties' rights under this Agreement.
6.09 CONTRACT SUPREMACY. In the case of a conflict between the express terms
of this Agreement and the terms of the ISO Agreement, the express terms of this
Agreement shall prevail. In the case of a conflict between the express terms
of this Agreement and the terms of the ISO-NYSRC Agreement, the express terms
of this Agreement shall prevail. In the case of a conflict between the express
terms of this Agreement and the express terms of an ISO Tariff the terms of this
Agreement shall prevail.
6.10 ADDITIONAL REMEDIES. The Parties agree that remedies at law will be
inadequate to protect the interests of the Transmission Owners and that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed by the ISO in accordance with their specific terms
or were otherwise breached. Accordingly, it is agreed that the Transmission
Owners, or any Transmission Owner, individually or in conjunction with one or
more other Transmission Owners, shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement or an ISO Tariff by the ISO
and specific performance to enforce specifically the terms and provisions
thereof in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which the Transmission Owners
are entitled at law or in equity.
6.11 NO THIRD PARTY RIGHTS. Nothing in this Agreement, express or implied,
is intended to confer on any person, other than the Parties hereto, any rights
or remedies under or by reason of this Agreement.
6.12 NOT PARTNERS. Nothing contained in this Agreement shall be construed
to make the Parties partners or joint venturers or to render any Party liable
for the debts or obligations of any other Party.
6.13 WAIVER. Any waiver at any time of the rights of any Party as to any
default or failure to require strict adherence to any of the terms herein, on
the part of any other Party or Parties to this Agreement or as to any other
matters arising hereunder shall not be deemed a waiver as to any default or
other matter subsequently occurring.
6.14 MODIFICATION. This Agreement is subject to change under Section 205
of the FPA, as that section may be amended or superseded, upon the mutual
written agreement of the Parties. Absent mutual agreement of the Parties, it
is the intent of this Section 6.14 that, to the maximum extent permitted by
law, the terms and conditions set forth in Sections 2.01, 3.03, 3.04, 3.09,
3.10, 3.11, 4.01, 4.02, 5.01, 5.02, 5.03, 5.04, 5.05, 5.06, 6.01, 6.02, 6.09
and 6.14 of this Agreement shall not be subject to change, regardless of
whether such change is sought (a) by the Commission acting sua sponte on behalf
of a Party or third party, (b) by a Party, (c) by a third party, or (d) in any
other manner; subject only to an express finding by FERC that such change is
required under the public interest standard under the Mobile-Sierra doctrine.
Any other provision of this Agreement may be changed pursuant to a filing with
FERC under Section 206 of the FPA and a finding by FERC that such change is
just and reasonable.
6.15 GOOD FAITH RESOLUTION. If cost shifting occurs as a result of FERC's
decision in Central Hudson Gas & Electric Corporation, Docket Nos.
ER97-1523-011, OA97-470-010, and ER97-4234-008, the ISO and the Transmission
Owners will work together in good faith to achieve a fair and equitable
resolution.
6.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by all of the Parties, and
this Agreement shall be binding upon all the Parties with the same force and
effect as if all the Parties had signed the same document, and each such
signed counterpart shall constitute an original of this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be executed in its corporate name by its proper officers as of the date first
written above.
New York Independent System Operator
By: /s/Richard J. Grossi
-----------------------------
Richard J. Grossi
Title: Chairman
Central Hudson Gas & Electric Corporation
By: /s/Carl E. Meyer
-----------------------------
Carl E. Meyer
Title: President and Chief Operating Officer
Consolidated Edison Company of New York, Inc.
By: /s/Stephen B. Bram
-----------------------------
Stephen B. Bram
Title: Senior Vice President, Central Operations
LIPA
By: /s/Richard M. Kessel
-----------------------------
Richard M. Kessel
Title: Chairman
New York State Electric & Gas Corporation
By: /s/Denis E. Wickham
-----------------------------
Denis E. Wickham
Title: Senior Vice President, Energy Operating Services
Niagara Mohawk Power Corporation
By: /s/Clement E. Nadeau
-----------------------------
Clement E. Nadeau
Title: Vice President, Electric Delivery
Orange and Rockland Utilities, Inc.
By: /s/Kevin Burke
-----------------------------
Kevin Burke
Title: President and Chief Executive Officer
Rochester Gas and Electric Corporation
By: /s/Clifton B. Olson
-----------------------------
Clifton B. Olson
Title: Vice President, Energy Supply
New York Power Authority
By: /s/Clarence D. Rappleyea
-----------------------------
Clarence D. Rappleyea
Title: Chairman and Chief Executive Officer
<PAGE>
APPENDIX A-1
LISTING OF TRANSMISSION FACILITIES
UNDER ISO OPERATIONAL CONTROL
<PAGE>
Appendix A-1: Listing of Transmission Facilities under ISO Operational Control
CIRCUIT ID FROM KV TO KV
- ----------- ---- -- -- --
7040 Chateauguay 765 Massena 765
BK 1 Marcy 765 Marcy 345
BK 2 Marcy 765 Marcy 345
MSU1 Massena 765 Marcy 765
BK 1 Massena 765 Massena A 230
BK 2 Massena 765 Massena B 230
5018 Branchburg 500 Ramapo 500
BK 1500 Ramapo 500 Ramapo S. 345
393 Alps 345 Berkshire 345
PA301 Beck A 345 Niagara 345
PA302 Beck B 345 Niagara 345
67-1 Bowline 1 345 W. Haverstraw 345
W93 Buchanan N. 345 Eastview 345
W97 Buchanan S. 345 Millwood 345
W98 Buchanan S. 345 Millwood 345
13 Clay 345 Dewitt 345
1-16 Clay 345 Edic 345
2-15 Clay 345 Edic 345
BK 2 Coopers Crns 345 Coopers Crns 115
BK 3 Coopers Crns 345 Coopers Crns 115
CRT-34 Coopers Crns 345 Rock Tavern 345
CRT-42 Coopers Crns 345 Rock Tavern 345
22 Dewitt 345 Lafayette 345
F38 E. Fishkil CE 345 Wood St 345
F39 E. Fishkil CE 345 Wood St 345
W64 Eastview 1N 345 Sprainbrook 345
W78 Eastview 1S 345 Sprainbrook 345
W79 Eastview 2N 345 Sprainbrook 345
W65 Eastview 2S 345 Sprainbrook 345
EF 24-40 Edic 345 Fraser 345
14 Edic 345 New Scotland 345
FE-1 Fitzpatrick 345 Edic 345
FS-10 Fitzpatrick 345 Scriba 345
33 Fraser 345 Coopers Crns 345
BK 2 Fraser 345 Fraser 115
GF5-35 Fraser 345 Gilboa 345
GL3 Gilboa 345 Leeds 345
GNS-1 Gilboa 345 New Scotland 345
37 Homer City 345 Stolle Rd 345
30 Homer City 345 Watercure 345
303 Hurley Ave 345 Roseton 345
26 Independence 345 Clay 345
25 Independence 345 Scriba 345
SR1-39 Kintigh 345 Rochester 345
68 Ladentown 345 Bowline 2 345
Y88 Ladentown 345 Buchanan S 345
67-2 Ladentown 345 W. Haverstraw 345
4-36 Lafayette 345 Oakdale 345
301 Leeds 345 Hurley Ave 345
91 Leeds 345 Pleasant Valley 345
92 Leeds 345 Pleasant Valley 345
398 Long Mt 345 Pleasant Valley 345
UCC2-41 Marcy 345 Coopers Crns 345
UE1-7 Marcy 345 Edic 345
18 Marcy 345 New Scotland 345
W99 Millwood 345 Eastview 1N 345
W85 Millwood 345 Eastview 1S 345
W82 Millwood 345 Eastview 2S 345
2 New Scotland 345 Alps 345
93 New Scotland 345 Leeds 345
94 New Scotland 345 Leeds 345
NS1-38 Niagara 345 Kintigh 345
BK 3 Niagara 345 Niagara 230
BK 4 Niagara 345 Niagara 230
BK 5 Niagara 345 Niagara 230
NR2 Niagara 345 Rochester 345
8 Nine Mile Pt 1 345 Clay 345
9 Nine Mile Pt 1 345 Scriba 345
32 Oakdale 345 Fraser 345
BK 2 Oakdale 345 Oakdale 115
BK 3 Oakdale 345 Oakdale 115
17 Oswego 345 Lafayette 345
11 Oswego 345 Volney 345
12 Oswego 345 Volney 345
1 Pannell Rd 345 Clay 345
2 Pannell Rd 345 Clay 345
F36 Pleasant Vly 345 E Fishkil CE 345
F37 Pleasant Vly 345 E Fishkil CE 345
F30 Pleasant Vly 345 Wood St 345
F31 Pleasant Vly 345 Wood St 345
W90 Pleasantvl E 345 Dunwoodie 345
W89 Pleasantvl W 345 Dunwoodie 345
Q35L Poletti 345 E. 13th St C 345
Q35M Poletti 345 E. 13th St D 345
Y94 Ramapo 345 Buchanan N. 345
W72 Ramapo 345 Ladentown 345
PAR3500 Ramapo S. 345 Ramapo 345
PAR4500 Ramapo S. 345 Ramapo 345
RP1 Rochester 345 Pannell Rd 345
RP2 Rochester 345 Pannell Rd 345
77 Rock Tavern 345 Ramapo 345
305 Roseton 345 E Fishkl CE 345
311 Roseton 345 Rock Tavern 345
69 S. Mahwah A 345 Ramapo 345
70 S. Mahwah B 345 Ramapo 345
20 Scriba 345 Volney 345
21 Scriba 345 Volney 345
W75 Sprainbrook 345 Dunwoodie 345
BK 3 Stolle Rd 345 Stolle Rd 115
BK 4 Stolle Rd 345 Stolle Rd 115
6 Volney 345 Clay 345
19 Volney 345 Marcy 345
J3410 Waldwick 345 S. Mahwa A 345
K3411 Waldwick 345 S. Mahwah B 345
31 Watercure 345 Oakdale 345
BK 1 Watercure 345 Watercure 230
W80 Wood St 345 Millwood 345
W81 Wood St 345 Millwood 345
Y87 Wood St 345 Pleasantvl E. 345
Y86 Wood St 345 Pleasantvl W. 345
BK 1 Wood St 345 Wood St 115
BK 2 Wood St 345 Wood St 115
11 Adirondack 230 Porter 230
12 Adirondack 230 Porter 230
PA27 Beck 230 Niagara 230
BP76 Beck 230 Packard 230
68 Dunkirk 230 S. Ripley 230
70 E. Towanda 230 Hillside 230
73 Gardenville 230 Dunkirk 230
74 Gardenvile 230 Dunkirk 230
T8-12 Gardenville 230 Gardenville 230
BK 6 Gardenville 230 Gardenville 115
BK 7 Gardenville 230 Gardenville 115
66 Gardenville 230 Stolle Rd 230
BK 3 Hillside 230 Hillside 115
BK 4 Hillside 230 Hillside 115
69 Hillside 230 Watercure 230
79 Huntley 230 Gardenville 230
80 Huntley 230 Gardenville 230
68 Meyer 230 Hillside 230
BK 4 Meyer 230 Meyer 115
MA1 Moses 230 Adirondack 230
MA2 Moses 230 Adirondack 230
MMS1 Moses 230 Massena A 230
MMS2 Moses 230 Massena B 230
BK 1 Moses 230 Moses 115
BK 2 Moses 230 Moses 115
BK 3 Moses 230 Moses 115
BK 4 Moses 230 Moses 115
MW1 Moses 230 Willis 230
MW2 Moses 230 Willis 230
N Bus Tie Niagara 230 Niagara 230
S Bus Tie Niagara 230 Niagara 230
BK T1 Niagara 230 Niagara 115
BK T2 Niagara 230 Niagara 115
61 Niagara 230 Packard 230
62 Niagara 230 Packard 230
64 Niagara 230 Robinson Rd 230
BK 1 Oakdale 230 Oakdale 115
77 Packard 230 Huntley 230
78 Packard 230 Huntley 230
BK 4 Plattsburgh A 230 Plattsburgh 115
BK 1 Plattsburgh B 230 Plattsburgh 115
30 Porter 230 Rotterdam 230
31 Porter 230 Rotterdam 230
BK 1 Robinson Rd 230 Robinson Rd 115
65 Robinson Rd 230 Stolle Rd 230
E205W Rotterdam 230 Bear Swamp 230
69 S. Ripley 230 Erie E. 230
PSL 33P St. Law OH A 230 St. Law OH B 230
PSL 34P St. Law OH C 230 St. Law OH D 230
67 Stolle Rd 230 Meyer 230
71 Watercure 230 Oakdale 230
WP2 Willis 230 Plattsburgh A 230
WP1 Willis 230 Plattsburgh B 230
BK 1 Willis 230 Willis 115
BK 2 Willis 230 Willis 115
998 Coddingtn Rd 115 Etna 115
907 Harrison Rad 115 Robinson Rd 115
964 Hickling 115 Ridge Rd 115
963 Hillside 115 Ridge Rd 115
943 Jennison 115 Kattelville 115
966 Meyer 115 Bennett 115
968 Meyer 115 Greenidge 115
974 Milliken 115 Etna 115
975 Milliken 115 Etna 115
982 Montour Fls 115 Coddington Rd 115
701 North End 115 Plattsburgh 115
939 Oakdale 115 Goudey 115
943 Oakdale 115 Kattelville 115
PAR3 Plattsburgh 115 Plattsburgh 115
PV20 Plattsburgh 115 S. Hero VT 115
934 S. Perry 115 Meyer 115
906-7X Sta 162 115 S. Perry 115
976 State St 115 Wright Ave 115
BK 1 W. Woodbourne 115 W. Woodbourne 69
973 Wright Ave 115 Milliken 115
REA #1 Marcy 765
REA #1 Massena 765
REA #2 Massena 765
CAP A Coopers Crns 345
CAP B Coopers Crns 345
CAP #1 E Fishkil CE 345
CAP #2 E Fishkil CE 345
CAP #1 Fraser 345
CAP #2 Fraser 345
SVC Fraser 345
CAP #1 Gilboa 345
CAP #1 Marcy 345
CAP #2 Marcy 345
CAP #1 Rochester 345
CAP #1 Rock Tavern 345
CAP #2 Rock Tavern 345
<PAGE>
APPENDIX A-2
LISTING OF TRANSMISSION FACILITIES
REQUIRING ISO NOTIFICATION
<PAGE>
Appendix A-2: Listing of Transmission Facilities Requiring ISO Notification
CIRCUIT ID FROM KV TO KV
- ----------- ---- -- -- --
BK TA5 Buchanan N. 345 Buchanan TA5 138
BK 1 Clay 345 Clay 115
BK 2 Clay 345 Clay 115
BK 2 Dewitt 345 Dewitt 115
BK N1 Dunwoodie 345 Dunwoodie N1 138
BK S1 Dunwoodie 345 Dunwoodie S1 138
71 Dunwoodie 345 Rainey 345
72 Dunwoodie 345 Rainey 345
Y50 Dunwoodie 345 Shore Rd 345
BK 14 E. 13th St A 345 E. 13th St 138
BK 15 E. 13th St A 345 E. 13th St 138
45 E. 13th St A 345 Farragut 345
BK 12 E. 13th St B 345 E. 13th St 138
BK 13 E. 13th St B 345 E. 13th St 138
46 E. 13th St B 345 Farragut 345
BK 16 E. 13th St C 345 E. 13th St 138
B47 E. 13th St C 345 Farragut 345
BK 10 E. 13th St D 345 E. 13th St 138
BK 11 E. 13th St D 345 E. 13th St 138
48 E. 13th St D 345 Farragut 345
BK 1 E. Fishkil CE 345 E. Fishkil CH 115
BK 1 E.G.C. BNK1 345 E. Garden Cty 138
BK 2 E.G.C. BNK2 345 E. Garden Cty 138
PAR1 E. Garden Cty 345 E.G.C. BNK1 345
PAR2 E. Garden Cty 345 E.G.C. BNK2 345
BK 1N Eastview 1N 345 Eastview 138
BK 1S Eastview 1S 345 Eastview 138
BK 2N Eastview 2N 345 Eastview 138
BK 2S Eastview 2S 345 Eastview 138
BK 2 Edic 345 Edic 230
BK 3 Edic 345 Edic 115
BK 4 Edic 345 Edic 115
BK 1 Elbridge 345 Elbridge 115
41 Farragut 345 Gowanus N41 345
42 Farragut 345 Gowanus S42 345
BK 11 Farragut 2 345 Farragut 345
TA 1 Freshkills 345 Freshkills R 138
TB 1 Freshkills 345 Freshkills R 138
22 Goethals N.1 345 Freshkills 345
BK 1N Goethals N.1 345 Goethals N.2 345
BK 1 Goethals N.2 345 Goethals 230
21 Goethals S. 345 Freshkills 345
G23L&M Goethals S. 345 Linden CE 345
R41 S.REACT Gowanus 345
R42 S.REACT Gowanus 345
25 Gowanus N. 345 Goethals N.1 345
BK T2 Gowanus N. 345 Gowanus B 138
26 Gowanus S. 345 Goethals S. 345
BK T14 Gowanus S. 345 Gowanus D 138
B3402 Hudson A 345 Farragut 1 345
C3403 Hudson B 345 Farragut 2 345
BK 1 Hurley Ave 345 Hurley Ave 115
TA 1 Millwood 345 Millwood 138
TA 2 Millwood 345 Millwood 138
R81/R82 New Scotland 345 New Scotland 345
BK 1 New Scotland 345 New Scotland 115
BK 2 New Scotland 345 New Scotland 115
BK 7 Oswego 345 Oswego 115
BK 1 Pannell Rd 345 Pannell Rd 115
BK 2 Pannell Rd 345 Pannell Rd 115
BK S1 Pleasant Vly 345 Pleasant Vly 115
BK 2 Pleasantvl E. 345 Pleasantvl 13
BK 1 Pleasantvl W. 345 Pleasantvl 13
61 Rainey 345 Farragut 345
62 Rainey 345 Farragut 345
63 Rainey 345 Farragut 345
BK 8W Rainey 345 Rainey 1 138
BK 8E Rainey 345 Rainey 2 138
BK 1300 Ramapo 345 Ramapo 138
BK 2300 Ramapo 345 Ramapo 138
1 Reynolds Rd 345 Alps 345
BK 2 Reynolds Rd 345 Reynolds Rd 115
BK 1 Rochester 345 Sta 80 115
BK 2 Rochester 345 Sta 80 115
BK 3 Rochester 345 Sta 80 115
BK TR1 Rock Tavern 345 Rock Tavern 115
BK 258 S. Mahwah A 345 S. Mahwah 138
BK 1 Shore Rd 345 Shore Rd 138
BK 2 Shore Rd 345 Shore Rd 138
BK S6 Sprainbrook 345 Dunwoodie N2 138
BK N7 Sprainbrook 345 Dunwoodie S3 138
Y49 Sprainbrook 345 E. Garden Cty 345
X28 Sprainbrook 345 Tremont 345
M51 Sprainbrook 345 W. 49th St 345
M52 Sprainbrook 345 W. 49th St 345
M54 W. 49th St 345 E. 13th St A 345
M55 W. 49th St 345 E. 13th St B 345
BK 194 W. Haverstraw 345 W. Haverstraw 138
BK 31 Dunkirk 230 Dunkirk 115
BK 41 Dunkirk 230 Dunkirk 115
BK 2 Gardenville 230 Gardenville 115
BK 3 Gardenville 230 Gardenville 115
BK 4 Gardenville 230 Gardenville 115
BK 130 Huntley 230 Huntley 23
BK 140 Huntley 230 Huntley 23
A2253 Linden 230 Goethals 230
BK 2 Packard 230 Packard 115
BK 3 Packard 230 Packard 115
BK 4 Packard 230 Packard 115
BK 1 Porter 230 Porter 115
BK 2 Porter 230 Porter 115
BK 6 Rotterdam 230 Rotterdam 115
BK 7 Rotterdam 230 Rotterdam 115
BK 8 Rotterdam 230 Rotterdam 115
34124L Astoria E. 138 Astoria 4 138
34125L Astoria E. 138 Astoria 5 138
34181 Astoria E. 138 Corona 138
34182 Astoria E. 138 Corona 138
34183 Astoria E. 138 Corona 138
34184 Astoria E. 138 Corona 138
34185 Astoria E. 138 Corona 138
34186 Astoria E. 138 Corona 138
24121 Astoria W. 138 Astoria 3 138
24122 Astoria W. 138 Astoria 3 138
24124M Astoria W 138 Astoria 4 138
24125M Astoria W 138 Astoria 5 138
28241 Astoria W 138 Queens Brdg 138
28242 Astoria W 138 Queens Brdg 138
28243 Astoria W 138 Queens Brdg 138
28244 Astoria W 138 Queens Brdg 138
PAR Barrett 1 138 Barrett 2 138
459 Barrett 1 138 Freeport 138
864 Brookhaven 138 Riverhead 138
95891 Buchanan GT 138 Buchanan TA5 138
96951 Buchanan GT 138 Millwood 138
96952 Buchanan GT 138 Millwood 138
18001 Corona PAR1 138 Jamaica 138
18002 Corona PAR2 138 Jamaica 138
BK N1 Dunwoodie N1 138 Dunwoodie N3 138
BK N2 Dunwoodie N1 138 Dunwoodie N4 138
99997 Tie Dunwoodie N1 138 Dunwoodie S1 138
99941 Dunwoodie N2 138 Dunwoodie N1 138
99031 Dunwoodie N3 138 Sherman Crk 138
99032 Dunwoodie N4 138 Sherman Crk 138
BK S1 Dunwoodie S1 138 Dunwoodie S2 138
BK S2 Dunwoodie S1 138 Dunwoodie S2 138
99153 Dunwoodie S2 138 E. 179th St 138
99942 Dunwoodie S3 138 Dunwoodie S1 138
15054 E. 179th St 138 Hellgate 1 138
15053 E. 179th St 138 Hellgate 4 138
15055 E. 179th St 138 Hellgate 6 138
38X01 E. 179th St 138 Parkchestr1 138
38X02 E. 179th St 138 Parkchestr2 138
38X04 E. 179th St 138 Parkchestr3 138
38X03 E. 179th St 138 Parkchestr4 138
361 E. Garden Cty 138 Carle Place 138
462 E. Garden Cty 138 Newbridge Rd 138
463 E. Garden Cty 138 Newbridge Rd 138
465 E. Garden Cty 138 Newbridge Rd 138
362 E. Garden Cty 138 Roslyn 138
32078 Farragut Hud 138 Hudson Ave D 138
29211-1 Foxhills 1 138 Willowbrook 138
29212-1 Foxhills 2 138 Willowbrook 138
461 Freeport 138 Newbridge Rd 138
PSR 1 Freshkils AK 138 Freshkills R 138
PSR 2 Freshkils AK 138 Freshkills R 138
366-1 Glenwood GT 138 Glenwood N 138
364 Glenwood GT 138 Roslyn 138
363 Glenwood S 138 Carle Place 138
42231 Gowanus S 138 Greenwood 138
42232 Gowanus C 138 Greenwood 138
674 Greenlawn 138 Elwood E 138
29231 Greenwood 138 Foxhills 1 138
29232 Greenwood 138 Foxhills 2 138
889 Hauppaug 138 Central Islip 138
34052 Hellgate 1 138 Astoria E 138
24054 Hellgate 2 138 Astoria W 138
24053 Hellgate 3 138 Astoria W 138
34051 Hellgate 4 138 Astoria E 138
24051 Hellgate 5 138 Astoria W 138
24052 Hellgate 6 138 Astoria W 138
887 Holbrook 138 Brookhaven 138
888 Holbrook 138 Holtsville 138
874 Holtsville 138 Brookhaven 138
818 Holtsville 138 Union Ave 138
32711 Hudson Ave A 138 Hudson Ave D 138
32077 Hudson Ave B 138 Hudson Ave D 138
701 Hudson Ave D 138 Jamaica 138
702 Hudson Ave D 138 Jamaica 138
903 Jamaica 138 LK Success W 138
901 L&M Jamaica 138 Valley Str 1 138
PAR LK Success E 138 LK Success W 138
563 Newbridge Rd 138 Pilgrim 1 138
561 Newbridge Rd 138 Ruland 138
562 Newbridge Rd 138 Ruland 138
672 Northport E 138 Pilgrim 1 138
677 Northport E 138 Pilgrim 1 138
679 Northport E 138 Pilgrim 2 138
PAR 1 Northport NE 138 Northport E 138
681 Northport W 138 Elwood E 138
678 Northport W 138 Elwood W 138
PS2 Northport W 138 Northport E 138
1385 Norwalk Harb 138 Northport NE 138
673 Oakwood 138 Elwood W 138
675 Oakwood 138 Syosset 138
871 Pilgrim 1 138 Hauppaug 138
881 Pilgrim 2 138 Holtsville 138
PAR Pilgrim 2 138 Pilgrim 1 138
883 Pilgrim 2 138 Ronkonkoma 138
862 Port Jeff 138 Holbrook 138
886 Port Jeff 138 Holbrook 138
31281 Queens Brdg 138 Vernon 138
31282 Queens Brdg 138 Vernon 138
36312 Rainey 1 138 Vernon 138
36311 Rainey 138 Vernon 138
26/BK 7108 Ramapo 138 Sugarloaf 69
875 Ronkonkoma 138 Holbrook 138
882 Ruland 138 Holbrook 138
661 Ruland 138 Pilgrim 1 138
662 Ruland 138 Pilgrim 2 138
15031 Sherman Crk 138 E. 179th St 138
15032 Sherman Crk 138 E. 179th St 138
366-2 Shore Rd 138 Glenwood N 138
365 Shore Rd 138 Glenwood S 138
367 Shore Rd 138 Lk Success E 138
368 Shore Rd 138 Lk Success E 138
861 Shoreham 138 Brookhaven 138
885 Shoreham 138 Holbrook 138
863 Shoreham 138 Wildwood 138
676 Syosset 138 Greenlawn 138
558 Syosset 138 Locust Grove 138
559 Syosset 138 Locust Grove 138
38X01 Tremont 11E 138 Parkchestr 1 138
38X02 Tremont 11E 138 Parkchestr 2 138
BK 11 Tremont 11E 138 Tremont 11W 138
38X04 Tremont 12E 138 Parkchestr 3 138
38X03 Tremont 12E 138 Parkchestr 4 138
BK 12 Tremont 12E 138 Tremont 12W 138
291 Valley Str 1 138 Barrett 1 138
PAR Valley Str 1 138 Valley Str 2 138
292 Valley Str 2 138 Barrett 2 138
262 Valley Str 2 138 E. Garden Cty 138
31231 Vernon 138 Greenwood 138
31232 Vernon 138 Greenwood 138
884 Wading Riv 138 Holbrook 138
891 Wading Riv 138 Shoreham 138
890 Wildwood 138 Riverhead 138
29211-2 Willowbrook 138 Freshkils AK 138
29212-2 Willowbrook 138 Freshkils AK 138
1 Albany 115 Greenbush 115
2 Albany 115 Greenbush 115
12 Alcoa 115 Dennison 115
13 Alcoa 115 N. Ogdensburg 115
R8105 Alcoa N. 115 Alcoa 115
20 Altamont 115 New Scotland 115
157 (932) Andover 115 Palmiter Rd 115
700 Ashley Rd 115 Plattsburgh 115
5 (972) Auburn (State St) 115 Elbridge 115
117 Batavia 115 SE Batavia 115
953 Bath 115 Bennett 115
965 Bath 115 Montour Fls 115
BL104 Beck 115 Lockport 115
932 Bennett 115 Palmiter 115
18 Bethlehem 115 Albany 115
6 Black River 115 Lighthouse Hill 115
1 Black River 115 Taylorville 115
2 Black River 115 Taylorville 115
8 Blue Circle Cement 115 Pleasant Valley 115
1 Boonville 115 Porter 115
2 Boonville 115 Porter 115
969 Border City 115 Greenidge 115
1 Brainardsville 115 Kents Fls 115
3 Browns Falls 115 Taylorville 115
4 Browns Falls 115 Taylorville 115
15 Carr St 115 Dewitt 115
6 Cedar 115 Whitehall 115
1/11 Cedars 115 Dennison 115
2/22 Cedars 115 Dennison 115
DW-1 Chadwick 115 Danskammer 115
DW-2 Chadwick 115 E. Walden 115
DW-3 Chadwick 115 W. Balmville 115
13 Churchtown 115 Pleasant Valley 115
3 Clay 115 Dewitt 115
5 Clay 115 Dewitt 115
14 Clay 115 GE 115
10 Clay 115 Teall Ave 115
11 Clay 115 Teall Ave 115
17 Clay 115 Woodard 115
15 Clinton 115 Ing-Mecotap 115
981-1 Coddingtn Rd 115 E. Ithaca 115
3 Coffeen 115 Black River 115
5 Coffeen 115 Lighthouse Hill 115
929 Colliers 115 Richfield Springs 115
7 Colton 115 Battle Hill 115
1 Colton 115 Browns Falls 115
2 Colton 115 Browns Falls 115
3 Colton 115 Malone 115
950 Coopers Crns 115 Ferndale 115
957 Coopers Crns 115 W. Woodbourne 115
1 (947) Cortland 115 Etna 115
991/995 Croton Fls 115 Amawalk 115
994/990 Croton Fls 115 Sylvan Lk 115
991/992 Croton Fls 115 Wood St 115
13 Curtis St 115 Teall Ave 115
AC Danskammer 115 N. Chelsea 115
DC Danskammer 115 N. Chelsea 115
DR Danskammer 115 Reynolds Hl 115
DB Danskammer 115 W. Balmville 115
903 Davis Rd 115 Gardenville 115
927 Davis Rd 115 Stolle Rd 115
951-1 Delhi 115 Delhi Tap 115
949 Delhi 115 Jennison 115
919 Delhi 115 Oakdale 115
951-2 Delhi Tap 115 Colliers 115
4 Dennison 115 Colton 115
5 Dennison 115 Colton 115
19 Dewitt 115 Tilden 115
160 Dunkirk 115 Falconer 115
161 Dunkirk 115 Falconer 115
162 Dunkirk 115 Falconer 115
J E. Walden 115 Rock Tavern 115
981-2 E. Ithaca 115 Etna 115
LR-2 E. Kingston 115 Rhinebeck 115
946 E. Norwich 115 Jennison 115
956 E. Sayre 115 N. Waverly 115
PX-1 E. Walden 115 Modena 115
D E. Walden 115 Rock Tavern 115
18 Elbridge 115 Geres Lock 115
19 Elbridge 115 Geres Lock 115
3 Elbridge 115 Geres Lock 115
4 Elbridge 115 Woodward 115
926 Erie St 115 Stolle Rd 115
945-2 Etna 115 Willet 115
153 Falconer 115 Homer Hill 115
154 Falconer 115 Homer Hill 115
171 Falconer 115 Warren 115
959 Ferndale 115 W. Woodbourne 115
2 Feura Bush 115 N. Catskill 115
HF Fishkill Pln 115 E. Fishkil Ch 115
A/990 Fishkill Pln 115 Sylvan Lk 115
3 Fitzpatrick 115 Lighthouse Hill 115
951-T Fraser 115 Delhi Tap 115
4 Fulton 115 Clay 115
141 Gardenville 115 Dunkirk 115
142 Gardenville 115 Dunkirk 115
54 (921) Gardenville 115 Erie St 115
151 Gardenville 115 Homer Hill 115
152 Gardenville 115 Homer Hill 115
925 Gardenville 115 Stolle Rd 115
8 GE 115 Geres Lock 115
15 (979) Geneva(Border City) 115 Elbridge 115
16 Geres Lock 115 Tilden 115
908 Ginna 115 Pannell Rd 115
912 Ginna 115 Pannell Rd 115
911-1 Ginna 115 Sta 204A 115
913 Ginna 115 Station 42 115
15 Greenbush 115 Hudson 115
13 Greenbush 115 Schodack 115
967 Greenidge 115 Montour Fls 115
970 Greenidge 115 Montour Fls 115
908 Harrison Rad 115 Hinman 115
960/958 Hickling 115 Hillside 115
962-1 Hillside 115 N. Waverly 115
157 Homer Hill 115 Andover 115
6 Hoosick 115 Bennington 115
12 Hudson 115 Pleasant Valley 115
38 Huntley 115 Gardenville 115
39 Huntley 115 Gardenville 115
36 Huntley 115 Lockport 115
37 Huntley 115 Lockport 115
HP Hurley Ave 115 Lincoln Park 115
OR-1 Hurley Ave 115 Ohioville 115
2 Indeck 115 Lighthouse Hill 115
15 Inghams 115 Meco 115
7 (942) Inghams 115 Richfield Springs 115
9 Inghams 115 Stoner 115
PAR 2 Inghams CD 115 Inghams ED 115
R81 Inghams CD 115 Inghams ED 115
954 Jennison 115 Hancock 115
1-KS Kents Fls 115 Saranac 115
MC Knapps Crn 115 Manchester 4 115
952 Laurel Lk 115 Goudey 115
7 Lighthouse Hill 115 Clay 115
LR-1 Lincoln Park 115 E. Kingston 115
107 Lockport 115 Batavia 115
108 Lockport 115 Batavia 115
112 Lockport 115 Batavia 115
100 Lockport 115 Hinman 115
111 Lockport 115 Mortimer 115
113 Lockport 115 Mortimer 115
114 Lockport 115 Mortimer 115
6 Mcintyre 115 Battle Hill 115
10 Meco 115 Rotterdam 115
10 Milan 115 Pleasant Valley 115
MR Milan 115 Rhinebeck 115
PX-2 Modena 115 Ohioville 115
963-2 Montour Fls 115 Ridge Rd 115
978-2 Montour Fls 115 Ridge Rd 115
1 Mortimer 115 Elbridge 115
2 Mortimer 115 Elbridge 115
110 Mortimer 115 Golah 115
24 Mortimer 115 Pannell Rd 115
25 Mortimer 115 Pannell Rd 115
904 Mortimer 115 Rochester (Sta 80) 115
901 Mortimer 115 Sta 33 115
7X8272 Mortimer 115 Sta 82 115
Mal4 Moses 115 Alcoa N. 115
Mal6 Moses 115 Alcoa N. 115
Mal5 Moses 115 Alcoa S. 115
103 Mountain 115 Lockport 115
120 Mountain 115 Niagara 115
5 N. Troy 115 Hoosick 115
T7 N. Catskill 115 Milan 115
NF N. Chelsea 115 Fishkill Pln 115
9 N. Ogdensburg 115 Mcintyre 115
16 N. Troy 115 Reynolds Rd 115
14 N. Troy 115 Wynantskill 115
8 New Scotland 115 Albany 115
4 New Scotland 115 Bethlehem 115
3 New Scotland 115 Feura Bush 115
9 New Scotland 115 Feura Bush 115
7 New Scotland 115 Long Lane 115
180 Niagara 115 Gardenville 115
101 Niagara 115 Lockport 115
102 Niagara 115 Lockport 115
191 Niagara 115 Packard 115
192 Niagara 115 Packard 115
193 Niagara 115 Packard 115
194 Niagara 115 Packard 115
195 Niagara 115 Packard 115
4 Nine Mile Pt 1 115 Fitzpatrick 115
702 Northend 115 Ashley Rd 115
OR-2 Ohioville 115 Reynolds Hl 115
3 Oneida 115 Cortland 115
7 Oneida 115 Porter 115
6 Oneida 115 Yahnundasis 115
3 Oswego 115 S. Oswego 115
5 Oswego 115 S. Oswego 115
8 Oswego 115 S. Oswego 115
181 (922) Packard 115 Erie St. 115
182 Packard 115 Gardenville 115
130 Packard 115 Huntley 115
129 Packard 115 Walck Rd 115
4 (977) Pannell Rd 115 Geneva( Border City) 115
PS1 Plattsburgh 115 Saranac 115
C/A Pleasant Vly 115 Fishkill Pln 115
X-1 Pleasant Vly 115 Inwood 115
M Pleasant Vly 115 Manchester A 115
4 Porter 115 Valley 115
5 Porter 115 Watkins Rd 115
930 Quaker Rd 115 Macedon 115
914 Quaker Rd 115 Pannell Rd 115
13 (980) Quaker Rd 115 Sleight Rd 115
6 Queensbury 115 Cedar 115
X-2 Reynolds Hl 115 Inwood 115
9 Reynolds Rd 115 Greenbush 115
978-1 Ridge Rd 115 Hillside 115
SL Rock Tavern 115 Sugarloaf 115
17 Rotterdam 115 Altamont 115
13 Rotterdam 115 New Scotland 115
19 Rotterdam 115 New Scotland 115
1 Rotterdam 115 Spier 115
2 Rotterdam 115 Spier 115
7 S. Oswego 115 Fulton 115
10 S. Oswego 115 Curtis St 115
9 S. Oswego 115 Geres Lock 115
6 S. Oswego 115 Indeck 115
1 S. Oswego 115 Nine Mile Pt 1 115
961 S. Owego 115 Goudey 115
962-2 S. Owego 115 N. Waverly 115
933 S. Perry 115 Meyer 115
REA Bypass Sandbar 115 Sandbar OMS 115
Series REA Sandbar 115 Sandbar OMS 115
14 Schodack 115 Churchtown 115
119 SE Batavia 115 Golah 115
EF Shenandoah 115 E. Fishkill CH 115
3(971) Sleight Rd 115 Auburn (State St) 115
906 Sta 162 115 Sta 82 115
911-2 Sta 204A 115 Sta 42 115
922 Sta 67 115 Sta 80 115
903 Sta 67 115 Sta 82 115
23 Sta 82 115 Quaker Rd 115
902 Sta 82 115 Sta 33 34
905 Sta 82 115 Sta 80 115
12 Stoner 115 Rotterdam 115
BK 6108 Sugarloaf 115 Sugarloaf 69
5 Taylorville 115 Boonville 115
6 Taylorville 115 Boonville 115
4 Teall Ave 115 Dewitt 115
2 Teall Ave 115 Oneida 115
5 Teall Ave 115 Oneida 115
18 Tilden 115 Cortland 115
3 Valley 115 Inghams 115
133 Walck Rd 115 Huntley 115
2 Watkins Rd 115 Inghams 115
7 Whitehall 115 Blissville 115
13 Whitehall 115 Mohican 115
945-1 Willet 115 E. Norwich 115
1 Willis 115 Brainardsville 115
1 (910) Willis 115 Malone 115
996 Wood St 115 Amawalk 115
13 Wynantskill 115 Reynolds Rd 115
3 Yahnundasis 115 Porter 115
WH1-1 Honk Fls 69 Neversink B 69
WH2 Honk Fls 69 W. Woodbourne 69
WH1-2 Neversink A 69 Neversink B 69
WH1-3 Neversink B 69 W. Woodbourne 69
690 Smithfield 69 Falls Village 69
R1 Dunwoodie 345
SR #1 REAC E. Garden Cty 345
SR #2 REAC E. Garden Cty 345
R25 Goethals 345
R26 Goethals 345
REA #1 Goethals S. 345
R18 Gowanus 345
R6 Gowanus 345
CAP #1 Leeds 345
CAP #2 Leeds 345
SVC Leeds 345
CAP #1 New Scotland 345
CAP #2 New Scotland 345
CAP #3 New Scotland 345
RSR61 Poletti 345
RSR62 Poletti 345
R1 Shore Rd 345
2N1React Sprainbrook 345
2N2 React Sprainbrook 345
4S1 React Sprainbrook 345
4S2 React Sprainbrook 345
5S1 React Sprainbrook 345
5S2 React Sprainbrook 345
R49 S. React Sprainbrook 345
S6A React Sprainbrook 345
EXHIBIT (A) 10-18
NIAGARA MOHAWK POWER CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
REVISED: APRIL 1998
DECEMBER 1990
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
Preamble
- --------
The Company has adopted this Management Incentive Compensation Plan to
promote the accomplishment of the Company's objective to be the most responsive
and efficient energy services company in the northeast and the energy supplier
of choice in a more competitive environment. In support of that objective, the
purposes of this Plan are: to encourage the achievement of the Company's
financial and operative objectives; to assist the Company in attracting and
retaining highly qualified executives; and to enhance the mutual interests of
customers, shareholders and employees.
Section 1 - Definitions
- -----------------------
1.1 Committee means the Compensation and Succession Committee of the
Board of Directors of the Company.
1.2 Company means Niagara Mohawk Power Corporation.
1.3 Compensation means the base salary earned by a Participant during any
performance period, excluding overtime, premium, bonus or other special
payments.
1.4 Incentive Award means a Participant's award for a performance period
under this Plan, expressed as a percentage of the Participant's
compensation.
1.5 Participant means and includes regular management employees of the
Company whose salary is determined according to the provisions of the
Company's Salary Administration Program.
1.6 Performance period means a period of a calendar year during which
Incentive Awards may be earned by Participants in the Plan.
1.7 Plan means this Management Incentive Compensation Plan.
1.8 Program means the identified performance criteria goals and associated
incentive award opportunities, together with the other terms and
conditions, approved for a particular performance period.
1.9 The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
Section 2 - Eligibility
- -----------------------
2.1 Any person who is a Participant for the entire length of a performance
period shall be eligible for consideration for an Incentive Award with
respect to that performance period. The Committee may provide a prorated
Incentive Award for a person who becomes a Participant during the
performance period and meets such other requirements as the Committee deems
appropriate. However, any Participant whose performance is evaluated as
unacceptable during a performance period shall be ineligible for any
Incentive Award with respect to that performance period.
2.2 Any Participant who resigns or is terminated for cause during a performance
period will not be eligible for any Incentive Award with respect to that
performance period.
2.3 A Participant who retires or dies, or whose position is eliminated, during
a performance period may, in the discretion of the Committee, be considered
for a prorated Incentive Award with respect to that performance period.
Section 3 - Performance Criteria and Award Opportunities
- --------------------------------------------------------
3.1 Before the beginning of a performance period, the Committee shall approve
the terms of the Program for that particular performance period. The
Program shall include identified performance criteria and related award
opportunities.
3.2 The Program may include designations of contingent events whose
occurrence during the performance period is a required prerequisite to
or would preclude the approval and payment of any Incentive Awards.
3.3 The Program may define maximum award opportunities for identified groups
of Participants by officer levels or other appropriate groupings.
3.4 The Program may include various combinations of goals applicable to all
Participants, goals applicable to Participants in separate business units,
and goals applicable to Participants in specific departments, as may be
appropriate. Each goal shall be matched with a corresponding award
opportunity for successful accomplishment.
Section 4 - Determination of Participant Incentive Awards
- ---------------------------------------------------------
4.1 Following the completion of a performance period, the Committee shall
undertake or direct an evaluation of performance as compared to the
appropriate performance criteria established for the performance period,
and compute Participants tentative Incentive Awards.
4.2 The Committee may adjust or prorate the Incentive Award of any Participant
to the extent it deems appropriate to reflect change in responsibilities
during a performance period.
4.3 The Committee shall review all tentative Incentive Awards and may, in its
discretion, reduce or eliminate any Participant's tentative Incentive Award
as it deems warranted by extraordinary circumstances.
4.4 The Committee may, for reasons it deems appropriate, in its discretion,
determine to delay, disapprove or eliminate all tentative Incentive Awards
for any performance period.
4.5 No Incentive Award may be paid without the prior approval of the Committee.
Section 5 - Incentive Award Payments
- ------------------------------------
5.1 Incentive Awards will be paid by check as soon as practicable following
the end of the performance period to which they relate.
5.2 The Company shall deduct from any payment any sums required to be withheld
by applicable federal, state or local tax laws.
5.3 Incentive Award Payments will not be considered as earnings for purposes
of the Niagara Mohawk Pension Plan, the Employee Savings Fund Plan, or any
other employee benefit or insurance programs.
Section 6 - Plan Administration
- -------------------------------
6.1 The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have full and final authority to interpret
the Plan, to establish and revise rules, procedures, and regulations
relating to the Plan, and to make any determinations that it believes
necessary or advisable for the administration of the Plan. All such
decisions and determinations of the committee shall be final and binding
on all parties, including Participants and Company shareholders.
6.2 The Committee may delegate such responsibilities as it deems appropriate
to the Company's Chairman of the Board and Chief Executive Officer, except
the final approval of award amounts.
Section 7 - Termination and Amendment
- -------------------------------------
7.1 The Board of Directors of the company may, in its sole discretion,
terminate, suspend or amend the Plan at any time or from time to time, in
whole or in part.
Section 8 - Not a Contract of Employment
- ----------------------------------------
8.1 The adoption of the Plan is merely a declaration of present intention by
the Company and does not constitute a contract for the future or continued
employment of any Participant by the Company. The Company reserves the
right to modify a Participant's compensation at any time and from time to
time, as it considers appropriate, and to terminate his employment for
reason at any time notwithstanding this Plan.
Section 9 - No Assignment
- -------------------------
9.1 To the maximum extent permitted by law, no benefit under this Plan shall
be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment or encumbrances of any kind.
Section 10 - Notices
- --------------------
10.1 Any notice to a Participant may be given either by personal delivery or
by depositing it in the United States mail, postage prepaid, addressed to
his last-known address. Any notice to the Company or the Committee shall
be given either by delivering it or depositing it in the United States
mail, postage prepaid, to the Secretary, Niagara Mohawk Power Corporation,
300 Erie Boulevard West, Syracuse, NY 13202.
Section 11 - No Waiver
- ----------------------
11.1 Failure by the Company or the Committee to insist upon strict compliance
with any of the terms or conditions of this Plan shall not be deemed a
waiver of any such term or condition, nor shall any waiver or
relinquishment of any right or power at any one or more times be deemed a
waiver or relinquishment of any such right or power at any other time or
times.
Section 12 - Partial Invalidity
- -------------------------------
12.1 The invalidity or unenforceability of any provision of this Plan shall
not affect the validity or enforceability of any other provision.
Section 13 - Governing Laws
- ---------------------------
13.1 The Plan is established under, and shall be governed and construed
according to, the laws of the State of New York, to the extent such laws
are not preempted by federal law.
13.2 Venue of any suit involving the Plan or Plan benefits shall lie in
Onondaga County, New York, if a state court action, and in the United
States District Court, Northern District of New York, if a federal court
action.
Section 14 - Effective Date
- ---------------------------
14.1 This Plan shall be effective for performance periods commencing after
December 31, 1994.
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK POWER CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
This sets forth Amendment 1 to the Niagara Mohawk Power Corporation
Management Incentive Compensation Plan, effective as of December 1999 and
revised through April 1998 ("Plan"). This Amendment shall be effective as of
January 1, 1999.
1. The definition of "Committee" in Section 1.1 of the Plan shall
be restated as follows:
"Committee means, effective March 17, 1999, the Compensation and Succession
Committee of the Board of Directors of Niagara Mohawk Holdings, Inc., which has
been given authority to administer this Plan. In no event shall a member of the
Committee be entitled to vote or otherwise act with respect to Plan benefits for
such member. Prior to March 17, 1999, all references to "Committee" mean the
Compensation and Succession Committee of the Board of Directors of Niagara
Mohawk Power Corporation.
2. The definition of "Company" in Section 1.2 of the Plan shall be
restated as follows:
"Company" means Niagara Mohawk Holdings, Inc. (effective March 17, 1999),
Niagara Mohawk Power Corporation and any other separate employer that
participates in this Plan with the consent of Niagara Mohawk Holdings, Inc.
(each of these employers, as well as any other separate employer that
participates in this Plan with the consent of Niagara Mohawk Holdings, Inc.,
shall hereinafter be referred to as a "Participating Employer").
Notwithstanding the foregoing, the term "Company" means Niagara Mohawk Holdings,
Inc. for purposes of the administration of the Plan and for purposes of Section
7.1. The term "Company" is being used solely for convenience to make the Plan
easier to read, and does not alter the fact that a Participant is employed by
the separate Participating Employer from which the Participant regularly
receives his paycheck. With respect to any Participant, the term "Company"
means such separate Participating Employer.
3. Any reference in the Plan to the "Niagara Mohawk Power
Corporation Management Incentive Compensation Plan" shall be changed to the
Niagara Mohawk Management Incentive Plan," and the definition of "Plan" in
Section 1.7 of the Plan shall be restated as follows:
"Plan" means the Niagara Mohawk Incentive Compensation Plan.
4. Effective March 17, 1999, the second sentence of Section 10.1
of the Plan shall be restated as follows:
Any notice to the Company of the Committee shall be given either by delivering
it or depositing it in the United States mail, postage prepaid, to the
Committee, c/o Niagara Mohawk Holdings, Inc., 300 Erie Boulevard West, Syracuse,
New York 13202.
Executed this 17th day of December 1999.
Niagara Mohawk Holdings, Inc.
/s/David J. Arrington
-----------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
Exhibit (A) 10-23
AMENDMENT 1
TO THE
NIAGARA MOHAWK
OFFICERS ANNUAL INCENTIVE COMPENSATION PLAN
(original document filed as (A)10-16)
This sets forth Amendment 1 to the Niagara Mohawk Officers Annual
Incentive Compensation Plan, as amended and restated effective as of December
10, 1998 ("Plan"). This Amendment shall be effective as of January 1, 1999.
1. The first paragraph of Section 1.1 of the Plan shall be
restated as follows:
Establishment of the Plan. Niagara Mohawk Power Corporation,
a New York corporation, established an incentive compensation
plan for officers, known as the "Niagara Mohawk Power Corporation
Officers Annual Incentive Compensation Plan," to permit grants of
Contingent Stock Units and Dividend Equivalents, as defined
herein.
2. The definition of "Board" or "Board of Directors" in Section 2.3
of the Plan shall be restated as follows:
"Board" or "Board of Directors" means, effective March 17, 1999,
the Board of Directors of Niagara Mohawk Holdings, Inc. Prior to
March 17, 1999, references to "Board" mean the Board of Directors
of Niagara Mohawk Power Corporation.
3. The first line of Section 2.5(2) of the Plan shall be amended by
deleting the phrase "as of the date hereof," and by inserting the phrase "as of
April 1, 1999," in its place.
4. The phrase "the sale or other disposition of all or substantially
all of the assets of the Company," in clause (ii) of Section 2.5(4) of the Plan
shall be deleted and the following shall be inserted in its place:
the sale or other disposition of all or substantially all of the
assets of the Company or, on or after April 1, 1999, of Niagara
Mohawk Power Corporation,
5. The definition of "Company" in Section 2.8 of the Plan shall be
restated as follows:
"Company" means Niagara Mohawk Holdings, Inc. (effective as of
March 17, 1999), Niagara Mohawk Power Corporation, and any other
separate employer that participates in this Plan with the consent
of the Board (each of these separate employers, as well as any
other separate employer that participates in this Plan with the
consent of the Board, shall hereinafter be referred to as a
"Participating Employer"). Notwithstanding the foregoing, the
term "Company" means Niagara Mohawk Holdings, Inc. for purposes of
the administration of the Plan and for purposes of Section 2.5.
The term "Company" is being used solely for convenience to make
the Plan easier to read, and does not alter the fact that a
Participant is employed by the separate Participating Employer
from which the Participant regularly receives his paycheck. With
respect to any Participant, the term "Company" means such separate
Participating Employer.
6. The definition of "Shares" in Section 2.23 of the Plan shall be
restated as follows:
"Shares" means, through March 17, 1999, the shares of common stock
of Niagara Mohawk Power Corporation, par value $1.00. After March
17, 1999, all references to "Shares" mean the shares of common
stock of Niagara Mohawk Holdings, Inc., par value $1.00.
7. Effective March 17, 1999, the second sentence of Section 17.5 of
the Plan shall be restated as follows:
Any notice to the Company or the Committee shall be given either
by delivering it or depositing it in the United States mail,
postage prepaid, to the Committee, c/o Niagara Mohawk Holdings,
Inc., 300 Erie Boulevard West, Syracuse, NY 13202.
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
------------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK POWER CORPORATION
LONG TERM INCENTIVE PLAN
(original document filed as (A)10-17)
This sets forth Amendment 1 to the Niagara Mohawk Power Corporation
Long Term Incentive Plan, as amended and restated effective as of June 10, 1997
("Plan"). This Amendment shall be effective as of January 1, 1999.
1. The name of the Plan shall be changed from the "Niagara Mohawk
Power Corporation Long Term Incentive Plan" to the "Niagara Mohawk Long Term
Incentive Plan."
2. Section 1.1 of the Plan shall be restated to provide as
follows:
Establishment of the Plan. Niagara Mohawk Power Corporation,
a New York corporation, established an incentive compensation
plan, known as the "Niagara Mohawk Power Corporation Long Term
Incentive Plan," to permit grants of SAR's, Stock Units and
Dividend Equivalents. The plan became effective as of September
25, 1996 ("Effective Date") and was amended and restated as of
June 10, 1997.
Effective as of January 1, 1999, the name of the plan was changed
to the "Niagara Mohawk Long Term Inventive Plan" ("Plan"). The
Plan shall remain in effect as provided in Section 1.3.
3. The definition of "Board" or "Board of Directors" in Section 2.4
of the Plan shall be restated as follows:
"Board" or "Board of Directors" means, effective March 17, 1999,
the Board of Directors of Niagara Mohawk Holdings, Inc. Prior to
March 17, 1999, references to "Board" mean the Board of Directors
of Niagara Mohawk Power Corporation.
4. The first line of Section 2.6(2) of the Plan shall be amended by
deleting the phrase "as of the date hereof," and by inserting the phrase "as of
April 1, 1999," in its place.
5. The phrase "the sale or other disposition of all or substantially
all of the assets of the Company," in clause (ii) of Section 2.6(4) of the Plan
shall be deleted and the following shall be inserted in its place:
the sale or other disposition of all or substantially all of the
assets of the Company or, on or after April 1, 1999, of Niagara
Mohawk Power Corporation,
6. The definition of "Company" in Section 2.9 of the Plan shall be
restated as follows:
"Company" means Niagara Mohawk Holdings, Inc. (effective as of
March 17, 1999), Niagara Mohawk Power Corporation, and any other
separate employer that participates in this Plan with the consent
of the Board (each of these separate employers, as well as any
other separate employer that participates in this Plan with the
consent of the Board, shall hereinafter be referred to as a
"Participating Employer"). Notwithstanding the foregoing, the
term "Company" means Niagara Mohawk Holdings, Inc. for purposes
of the administration of the Plan and for purposes of Section 2.6.
The term "Company" is being used solely for convenience to make
the Plan easier to read, and does not alter the fact that an
Employee is employed by the separate Participating Employer from
which the Employee regularly receives his paycheck. With respect
to any Employee, the term "Company" means such separate
Participating Employer.
7. The definition of "Shares" in Section 2.21 of the Plan shall be
restated as follows:
"Shares" means, through March 17, 1999, the shares of common stock
of Niagara Mohawk Power Corporation, par value $1.00. After March
17, 1999, all references to "Shares" mean the shares of common
stock of Niagara Mohawk Holdings, Inc., par value $1.00
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-----------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK POWER CORPORATION
CEO SPECIAL AWARD PLAN
(original document filed as (A)10-19)
This sets forth Amendment 1 to the Niagara Mohawk Power Corporation
CEO Special Award Plan, as amended and restated effective as of June 10, 1997
("Plan"). This Amendment shall be effective as of January 1, 1999.
1. The name of the Plan shall be changed from the "Niagara Mohawk
Power Corporation CEO Special Award Plan" to the "Niagara Mohawk CEO Special
Award Plan."
2. Section 1.1 of the Plan shall be restated as follows:
Establishment of the Plan. Niagara Mohawk Power Corporation, a
New York corporation, established a special award plan, known as
the "Niagara Mohawk Power Corporation CEO Special Award Plan."
The plan was amended and restated effective as of June 10, 1997
("Effective Date"). Effective as of January 1, 1999, the name of
the plan was changed to the "Niagara Mohawk CEO Special Award
Plan" ("Plan").
3. The definition of "Board" or "Board of Directors" in Section 2.4
of the Plan shall be restated as follows:
"Board" or "Board of Directors" means, effective March 17, 1999,
the Board of Directors of Niagara Mohawk Holdings, Inc. Prior to
March 17, 1999, references to "Board" mean the Board of Directors
of Niagara Mohawk Power Corporation.
4. The first line of Section 2.6(2) of the Plan shall be amended by
deleting the phrase "as of the Effective Date," and by inserting the phrase "as
of April 1, 1999," in its place.
5. The phrase "the sale or other disposition of all or substantially
all of the assets of the Company," in clause (ii) of Section 2.6(4) of the Plan
shall be deleted and the following shall be inserted in its place:
the sale or other disposition of all or substantially all of the
assets of the Company or, on or after April 1, 1999, of Niagara
Mohawk Power Corporation,
6. The definition of "Company" in Section 2.8 of the Plan shall be
restated as follows:
"Company" means Niagara Mohawk Holdings, Inc. (effective as of
March 17, 1999), Niagara Mohawk Power Corporation, and any other
separate employer that participates in this Plan with the consent
of the Board (each of these separate employers, as well as any
other separate employer that participates in this Plan with the
consent of the Board, shall hereinafter be referred to as a
"Participating Employer"). Notwithstanding the foregoing, the
term "Company" means Niagara Mohawk Holdings, Inc. for purposes
of the administration of the Plan and for purposes of Section 2.6.
The term "Company" is being used solely for convenience to make
the Plan easier to read, and does not alter the fact that an
Employee is employed by the separate Participating Employer from
which the Employee regularly receives his paycheck. With respect
to any Employee, the term "Company" means such separate
Participating Employer.
7. The definition of "Shares" in Section 2.17 of the Plan shall be
restated as follows:
"Shares" means, through March 17, 1999, the shares of common stock
of Niagara Mohawk Power Corporation, par value $1.00. After
March 17, 1999, all references to "Shares" mean the shares of
common stock of Niagara Mohawk Holdings, Inc., par value $1.00.
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-----------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK
DEFERRED COMPENSATION PLAN
(original document filed as (A)10-20)
This sets forth Amendment 1 to the Niagara Mohawk Deferred
Compensation Plan, as established effective January 1, 1994 and revised through
June 15, 1999 ("Plan"). This Amendment shall be effective as of January 1,
1999.
1. The definition of "Board" in Section 2 of the Plan shall b
restated as follows:
"BOARD" means, effective March 17, 1999, the Board of Directors of
Niagara Mohawk Holdings, Inc. Prior to March 17, 1999, references
to "Board" mean the Board of Directors of Niagara Mohawk Power
Corporation.
2. The definition of "Company" in Section 2 of the Plan shall be
restated as follows:
"COMPANY" means Niagara Mohawk Holdings, Inc. (effective as of
March 17, 1999), Niagara Mohawk Power Corporation, and any other
separate employer that participate in this Plan with the consent
of the Board (each of these employers, as well as any other
separate employer that participates in this Plan with the consent
of the Board, shall hereinafter be referred to as a "Participating
Employer"). Notwithstanding the foregoing, the term "Company"
means Niagara Mohawk Holdings, Inc. for purposes of the
administration of the Plan and for purposes of Appendix A of the
Plan. The term "Company" is being used solely for convenience to
make the Plan easier to read, and does not alter the fact that an
Employee is employed by the separate Participating Employer from
which the Employee regularly receives his paycheck. With respect
to any Employee, the term "Company" means such separate
Participating Employer.
3. The definition of "Incentive Award" in Section 2 of the Plan shall
be amended by deleting the word "Company's" and by inserting in its place the
term "Niagara Mohawk."
4. The first line of Paragraph (2) of Appendix A of the Plan shall be
amended by deleting the phrase "as of the date hereof," and by inserting the
phrase "as of April 1, 1999," in its place.
5. The phrase "the sale or other disposition of all or substantially
all of the assets of the Company," in clause (ii) of Paragraph (4) of Appendix A
of the Plan shall be deleted and the following shall be inserted in its place:
the sale or other disposition of all or substantially all of the assets of the
Company or, on or after April 1, 1999, of Niagara Mohawk Power Corporation,
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-----------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK POWER CORPORATION
OUTSIDE DIRECTOR DEFERRED STOCK UNIT PLAN
(original document filed as (A)10-37)
This sets forth Amendment 1 to the Niagara Mohawk Power Corporation
Outside Director Deferred Stock Unit Plan, as amended and restated effective as
of August 25, 1998 ("Plan"). This Amendment shall be effective as of March 17,
1999.
1. The name of the Plan shall be changed from the "Niagara Mohawk
Power Corporation Outside Director Deferred Stock Unit Plan" to the "Niagara
Mohawk Outside Director Deferred Stock Unit Plan."
2. Section 1.1 of the Plan shall be restated to provide as
follows:
1.1 Establishment of the Plan. Niagara Mohawk Power Corporation
established a plan known as the "Niagara Mohawk Power
Corporation Outside Director Deferred Stock Unit Plan."
Effective as of March 17, 1999, the name of the plan was
changed to the "Niagara Mohawk Outside Director Deferred
Stock Unit Plan" ("Plan"). The Plan provides for the granting
of deferred stock units and dividend equivalent deferred stock
units, as described in Article 4.
The Plan originally was effective as of January 1, 1996
("Effective Date"), and was amended and restated as of August
25, 1998. The Plan as amended herein is effective as of
March 17, 1999, and shall remain in effect until terminated as
set forth hereunder.
3. Section 1.2 of the Plan shall be restated to provide as
follows:
1.2 Plan Purpose. The Plan is intended to link the long-term
compensation of non-employee directors of Niagara Mohawk Holdings,
Inc. ("Company") to the longer-term performance of the Company's
stock through the payment of a portion of their compensation in
deferred stock units, and permitting non-employee directors to
elect to defer payment of additional compensation in deferred
stock units, which become payable following the termination of
the director's service on the Board of Directors of the Company
("Board"). Prior to March 17, 1999, all references in the Plan to
"Company" mean Niagara Mohawk Power Corporation.
4. The first line of paragraph (2) of Article 6 of the Plan shall
be amended by deleting the phrase "as of the Effective Date," and by inserting
the phrase "as of April 1, 1999," in its place.
5. The phrase "the sale or other disposition of all or
substantially all of the assets of the Company," in clause (ii) of paragraph (4)
of Article 6 of the Plan shall be deleted and the following shall be inserted in
its place: the sale or other disposition of all or substantially all of the
assets of the Company or, on or after April 1, 1999, of Niagara Mohawk Power
Corporation.
Executed this 20th day of March, 2000.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-----------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
5
EXHIBIT (A)10-24
NIAGARA MOHAWK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDED AND RESTATED AS OF JANUARY 1, 1999
<PAGE>
NIAGARA MOHAWK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
PREAMBLE
--------
The principal objective of this Supplemental Executive Retirement Plan
(previously titled the Niagara Mohawk Power Corporation Supplemental Executive
Retirement Plan) is to insure the payment of a competitive level of retirement
income in order to attract, retain and motivate selected executives.
Eligibility for participation in the Plan shall be limited to those levels of
executives designated by the Board of Directors. This Plan was adopted
effective April 1, 1983 and will be effective as to each Participant on the date
he or she is designated as such hereunder.
The Plan has been amended a number of times since April 1, 1983. This document
constitutes an amendment and restatement of the Plan effective as of January 1,
1999. This amended and restated Plan governs the rights of Participants who are
credited with an "Hour of Service" under the Basic Plan after December 31, 1998.
The rights of Participants who are not credited with an "Hour of Service" under
the Basic Plan after December 31, 1998 shall be governed by the terms of the
Plan in effect on December 31, 1998.
SECTION I
---------
DEFINITIONS
-----------
1.1 "Active Participant" means a Participant who has at least five (5) years
of Service with the Company and any Other Employer and has not yet
terminated employment with the Company or Other Employer.
1.2 "Basic Plan" means the Niagara Mohawk Pension Plan for eligible employees
of the Company.
1.3 "Basic Plan Benefit" means the amount of benefit payable from the Basic
Plan.
1.4 "Committee" means the Compensation and Succession Committee of the Board
of Directors of the Company, which has been given authority by the Board
of Directors to administer this Plan. In no event shall a member of the
Committee be entitled to vote or otherwise act with respect to Plan
benefits for such member.
1.5 "Company" means Niagara Mohawk Power Corporation and any successor thereto;
provided, however, that, effective as of April 1, 1999, "Company" shall
mean Niagara Mohawk Holdings, Inc.
1.6 "Early Commencement Factor" means the factor to be applied in the case of
Early Retirement as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS EARLY NUMBER OF YEARS EARLY
PRIOR TO NORMAL COMMENCEMENT PRIOR TO NORMAL COMMENCEMENT
RETIREMENT FACTOR RETIREMENT FACTOR
- --------------- ------------- --------------- -------------
<S> <C> <C> <C>
1 . . . . . . . 100.0% 6 95.0%
2 . . . . . . . 100.0% 7 90.0%
3 . . . . . . . 100.0% 8 85.0%
4 . . . . . . . 100.0% 9 80.0%
5 . . . . . . . 100.0% 10 75.0%
</TABLE>
Additionally, the "Early Commencement Factor" for any Participant who
reached age 55 prior to terminating employment with the Company or Other
Employer and the sum of whose age and years of Service equals or exceeds
86 shall be 100%.
1.7 "Early Retirement" means Retirement from the ages of 55 through 64.
1.8 "Earnings" means the annualized average of the Participant's basic
salary and incentive compensation awards from the Company or Other
Employer, including any elective before-tax contributions made by the
Participant to a Company or Other Employer plan qualified under Section
401(k) of the Internal Revenue Code, to a Company or Other Employer plan
described in Internal Revenue Code Section 125 and to the Niagara Mohawk
Deferred Compensation Plan, over the final 36 months of the Participant's
employment with the Company and any Other Employer.
1.9 "Normal Retirement Date" means the first day of the month following the
month in which the Participant reaches age 65.
1.10 "Other Employer" means any subsidiary or affiliate of the Company.
1.11 "Other Retirement Income" means retirement income a Participant or the
Participant's surviving Spouse may be entitled to as a result of the
Participant's employment from the following possible sources:
a. The Company's Basic Plan Benefit
b. 50% of the Participant's Social Security Benefit as defined in Plan
Section 1.16
c. Employer-provided retirement benefits from previous employment (other
than with the Company)
d. Benefits from a program or coverage required or provided by law.
Where the Plan benefit is based upon Early Retirement, Other Retirement
Income will be recomputed as the retired Participant becomes eligible for
any one or more of b, c or d above. In all cases, Other Retirement Income
shall be determined by the Committee, which may make such assumptions,
including interest rate, age at benefit commencement and form of payment
assumptions, as the Committee, in its sole discretion, shall consider
appropriate. Amounts of Other Retirement Income may be taken into account
by the Committee in a form of payment that is different than the form such
Other Retirement Income actually is paid to or on behalf of the
Participant.
1.12 "Participant" means (i) an employee of the Company with the title of
Vice President or above, including those persons designated as Controller
or Treasurer, and (ii) an employee of any Other Employer with the title
of Vice President or above, who is designated by the Committee for
inclusion in the Plan.
1.13 "Plan" means the Niagara Mohawk Supplemental Executive Retirement Plan.
1,14 "Retirement" means the termination of a Participant's employment with the
Company and any Other Employer on or after the date the Participant has
(i) attained age 55, (ii) satisfied the service requirement of Plan
Section 2.1, and (iii) earned a vested benefit under the Basic Plan.
1.15 "Service" means "Service" as defined in the Basic Plan.
1.16 "Social Security Benefit" means the Participant's estimated monthly
primary insurance amount under the Social Security Act as in effect at the
time of separation from Service (projected, if necessary, to age 62 on the
basis of no further earnings after separation from Service). All such
estimates and projections shall be made by the Committee. Earnings for
calendar years prior to the Participant's separation from Service shall be
estimated by applying a salary scale, projected backwards, based upon the
actual change in national average wages as determined by the Social
Security Administration.
Notwithstanding the foregoing, if the Participant shall furnish the
Committee within 12 months from the date of separation from Service (or,
if later, within 12 months from the date the Participant is notified by the
Committee that the Participant is entitled to Plan benefits) with
documentation from the Social Security Administration of the Participant's
Social Security earnings records, the Participant's Social Security Benefit
shall be determined on the basis of his actual Social Security earnings
record for years previously estimated before separation, but only if such
actual Social Security earnings record produces a lower estimated Social
Security Benefit.
Once the Social Security Benefit has been determined, it will be frozen and
not redetermined, subject to the 12 month rule noted above.
1.17 "Spouse" means the person to whom a Participant is legally married as of
his Retirement or death as an Active Participant.
1.18 The masculine gender, where appearing in the Plan, will be deemed to
include the feminine gender, and the singular may include the plural,
unless the context clearly indicates the contrary.
SECTION II
----------
ELIGIBILITY FOR BENEFITS
------------------------
2.1 Each Participant who has completed twenty (20) years of Service with the
Company and any Other Employer, and who has attained at least age 55 at the
time he terminates employment with the Company or any Other Employer, is
eligible to receive a benefit under this Plan upon his Retirement.
Exceptions to the twenty (20) years of Service requirement may be granted
by the Committee.
SECTION III
-----------
AMOUNT AND FORM OF RETIREMENT BENEFIT
-------------------------------------
3.1 The benefit payable at Normal Retirement Date under this Plan will equal
60% of the Participant's Earnings, less any Other Retirement Income as
defined in Plan Section 1.11. In the case of a Participant's Early
Retirement, the benefit payable upon such Early Retirement shall equal the
product of (i) 60% of the Participant's Earnings, times (ii) the applicable
Early Commencement Factor, with the resulting product reduced by the
Participant's Other Retirement Income. As provided in Section 1.11, for
purposes of the Committee's determination of a Participant's Other
Retirement Income, the Committee may make such assumptions, including
interest rate, age at benefit commencement and form of payment assumptions,
as the Committee, in its sole discretion, shall consider appropriate.
3.2 If the Basic Plan Benefit is greater than the Plan benefit for a
Participant or the Participant's surviving Spouse, an additional benefit
will be paid under this Plan to the extent (if any) the Basic Plan Benefit
payable to the Participant or the Participant's surviving Spouse is reduced
by Section 415 of the Internal Revenue Code. In such a case, the Plan
benefit will be recalculated so that the Participant or the Participant's
surviving Spouse shall receive no more in total benefit (from the Basic
Plan plus the Plan) than what the Basic Plan Benefit would have been had
Section 415 of the Internal Revenue Code not applied to the Basic Plan.
SECTION IV
----------
PAYMENT OF RETIREMENT BENEFITS
------------------------------
4.1 Unless paid in an actuarially equivalent lump sum pursuant to Section VI,
benefits payable in accordance with Section III will be paid in monthly
installments commencing as of the end of the month during which payment of
the Participant's Basic Plan Benefit is made or commences. Such benefits
will continue to be paid as of the last day of each succeeding month. The
final payment will be made as of the last day of the month in which the
retired Participant dies. However, any benefits payable to a surviving
Spouse under Section V shall continue to the surviving Spouse for the
period commencing as of the last day of the month following the month in
which the retired Participant or Active Participant dies and ending as of
the last day of the month in which such surviving Spouse dies.
4.2 If a Participant has been receiving benefit payments under provisions of
the separate Long-Term Disability Income Insurance Plan (LTD) of the
Company or any Other Employer, and provided he has reached his Normal
Retirement Date, he will be eligible for benefits as provided under Plan
Sections II and III. These benefits will be based upon the Participant's
Earnings calculated as of the date of the total disability that resulted
in the payment of LTD benefits, rather than Earnings as defined in Section
1.8.
4.3 Except as provided in Section 5.2, no benefits are payable under this Plan
if a Participant terminates employment with the Company or Other Employer
for any reason prior to his Retirement unless otherwise approved by the
Committee. In the event of such approval, benefits shall be paid in
accordance with Section 4.1.
4.4 In the event (i) the Company undergoes a Change in Control (as defined
below), (ii) the Plan is terminated prior to a Change in Control, (iii) the
Company becomes insolvent (i.e., the Company is unable to pay its debts as
they become due), (iv) the Company files for protection under any federal
or state bankruptcy law, or (v) the Company becomes involuntarily subject
to any federal or state bankruptcy proceedings, each Participant (whether
active or retired) or surviving Spouse will have a vested and
nonforfeitable interest in benefits under the Plan determined by
application of the following formula as of the date of such event:
A Participant's or surviving Spouse's vested and nonforfeitable interest
in such benefits under this Section shall be determined by multiplying the
full value of such person's undistributed benefits by a fraction (not
greater than 1/1), the numerator of which is the number of years of the
Participant's Service, and the denominator of which is the total number of
years of Service the Participant is required to complete with the Company
in order to become eligible to receive a distribution of benefits under
this Section.
For purposes of this Section, the term 'Change in Control' shall mean:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subparagraph (3) of this Section 4.4 are satisfied; or
(2) Individuals who, as of April 1, 1999, constitute the Company's Board
of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (i) more than 75% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company or,
on or after April 1, 1999, of Niagara Mohawk Power Corporation, other than
to a corporation, with respect to which following such sale or other
disposition, (A) more than 75% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding
the Company and any employee benefit plan (or related trust) of the Company
or such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors and (C) at least a majority of the members of the
board of directors of such corporation were members of the Incumbent Board
at the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of the
Company.
4.5 Coincident with, or as soon as practicable after, the occurrence of any
of the events described in clauses (ii) through (v) in the first sentence
of Section 4.4 above, the actuarial present value of each Participant's or
surviving Spouse's benefits (as determined by the actuary engaged by the
Company with respect to the Plan), to the extent vested under Section 4.4
above, shall be paid to such Participant or surviving Spouse in a single
sum distribution, but only to the extent such single sum distribution is
permitted by law.
Notwithstanding any other provisions of this Plan, the completion of the
full distribution required by this Section 4.5 shall terminate all rights
of all persons (whether or not then collecting benefits) to any benefits
under the Plan. No further benefits shall accrue to any person under this
Plan and the Plan shall terminate without any further action by the
Company.
SECTION V
---------
PAYMENT OF SPOUSE'S SURVIVOR BENEFITS
-------------------------------------
5.1 Unless the Participant's Plan benefit is paid to the Participant in an
actuarially equivalent lump sum pursuant to Section VI, commencing as of
the last day of the month following the month in which the retired
Participant dies, the Participant's surviving Spouse will receive the
greater of (i) 50% of the monthly benefit payable to the Participant, or
(ii) the monthly benefit, if any, calculated under Plan Section 3.2
5.2 Commencing at the end of the month following the month in which an
Active Participant dies, the surviving Spouse will receive the monthly
benefit as calculated in Plan Section 5.1 as if the Active Participant
had retired on the first of the month following the month of the Active
Participant's death.
5.3 Notwithstanding the foregoing of this Section V, with respect to a
Participant who has a valid lump sum election pursuant to Section 6.3 of
the Plan in effect on the date of the Participant's death, but who dies
prior to receipt of such lump sum payment, the Participant's surviving
Spouse shall receive the surviving Spouse's monthly benefit described in
Section 5.1 (if any) in an actuarially equivalent lump sum. Actuarially
equivalent lump sums shall be determined by the Committee in accordance
with Section 6.5 of the Plan.
5.4 Notwithstanding the foregoing of this Section V, if a Participant's
benefit under this Plan is paid in a lump sum, no further benefits shall
be paid to or on behalf of the Participant or the Participant's surviving
Spouse pursuant to this Plan.
SECTION VI
----------
OPTIONAL LUMP SUM PAYMENT
-------------------------
6.1 Notwithstanding any other provision of the Plan to the contrary, the
following provisions shall apply with respect to the payment of benefits
under this Plan.
6.2 With respect to a Participant whose benefit payments have not commenced
and whose annual benefit under this Plan equals or exceeds either (x) fifty
percent (50%) of the sum of his annual benefit under this Plan and his
annual benefit under the Basic Plan, or (y) $50,000:
a. the Committee may determine solely in its discretion that such
Participant's (or surviving Spouse's) benefits under this Plan shall
be paid in the form of an actuarially equivalent lump sum; or
b. such Participant may elect payment of his benefit under this Plan in
the form of an actuarially equivalent lump sum, provided, however, that
the Participant has irrevocably elected in writing to receive such lump
sum no later than a date which is both (i) in the calendar year prior
to the Participant's Retirement, and (ii) at least six months prior to
the date of the Participant's Retirement.
6.3 With respect to a Participant (i) whose benefit payments under this Plan
are being paid in monthly installments pursuant to Section 4.1 of the Plan,
and (ii) whose annual benefit under this Plan equals or exceeds either (x)
fifty percent (50%) of the sum of his annual benefit under this Plan and
his annual benefit under the Basic Plan, or (y) $50,000, such Participant
may elect, subject to the written approval of the Committee, to receive a
lump sum payment of the remaining payments due him under the Plan in an
amount equal to 95% of the actuarially equivalent lump sum of such
payments.
6.4 The Committee, in its sole discretion, shall determine the amount of
actuarially equivalent lump sums. For purposes of such determinations, the
Committee may make such assumptions, including interest rate assumptions,
as the Committee, in its sole discretion, shall consider appropriate.
SECTION VII
-----------
MISCELLANEOUS
-------------
7.1 Plan benefits are paid for the Participant's past services with the Company
and any Other Employer (that is, not for consulting or other services that
may be rendered after retirement) and are not subject to forfeiture upon
the Participant's Retirement. To minimize the possibility of future
termination of the Plan for financial reasons, the Company may utilize
certain financing vehicles, including the purchase of policies of
insurance on the lives of Participants under which the Company or a trustee
is named beneficiary; any such insurance policies or other financing
vehicles will be subject to the claims of the general creditors of the
Company. The Board of Directors of the Company may, in its sole
discretion, terminate, suspend or amend the Plan at any time, in whole or
in part; provided, however, that no such termination, suspension or
amendment shall adversely affect a Participant's rights or benefits accrued
under this Plan (with both his Plan benefit and Basic Plan Benefit
determined, for purposes of this Section, on the basis of the Participant's
Earnings averaged for the 36-month period ending on the date of such Plan
termination, suspension or amendment).
7.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company or any Other Employer, nor will
it interfere with the right of the Company or any Other Employer to
discharge or otherwise deal with Participants without regard to the
existence of this Plan.
7.3 This Plan is unfunded and not tax-qualified, and the Company will make
Plan benefit payments solely on a current disbursement basis.
7.4 To the maximum extent permitted by law, no benefit under this Plan shall
be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment or encumbrances of any kind.
Notwithstanding the foregoing, benefits earned and payments made pursuant
to the Plan shall be subject to withholding for income, FICA and other
employee payroll taxes, withholding taxes, or other taxes that the Company
or Other Employer may be required by law to withhold.
7.5 The Committee may adopt rules and regulations to assist in the
administration of the Plan. The Committee also shall have discretionary
authority to construe, interpret and apply all of the terms of this Plan
(including, but not limited to, construing any uncertain or disputed term
or provision, determining questions of fact and/or law, and reviewing any
prior benefit claim determination under the Plan), and to determine the
amount (if any) of each Participant's and surviving Spouse's benefit under
this Plan. The Board of Directors has also delegated to the Committee the
discretionary authority to modify provisions of the Plan in individual
cases. Any exercise of the Committee's authority under this Plan shall be
final and binding.
7.6 Each Participant will be entitled to a copy of this Plan.
7.7 The Plan is established under, and shall be governed and construed
according to, the laws of the State of New York, to the extent such laws
are not preempted by federal law.
The Company has caused this Plan document, which reflects the Plan as
amended and restated effective as of January 1, 1999, to be executed by a
duly authorized officer on this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
------------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This sets forth Amendment 1 to the Niagara Mohawk Supplemental Executive
Retirement Plan, as amended and restated effective as of January 1, 1999
("Plan"). This Amendment shall be effective as of January 1, 1999.
1. The definition of "Company" in Section 1.5 of the Plan shall be restated
as follows:
"Company" means, effective as of March 17, 1999, Niagara Mohawk Holdings,
Inc. and any successor thereof. Prior to March 17, 1999, all references
to "Company" mean Niagara Mohawk Power Corporation.
2. The definition of "Other Employer" in Section 1.10 of the Plan shall be
restated as follows:
"Other Employer" means any subsidiary of affiliate of the Company that
participates in this Plan with the consent of the Company.
3. The definition of "Participant" in Section 1.12 of the Plan shall be
amended by adding the following sentence at the end of Section 1.12:
Notwithstanding any other term in the Plan to the contrary, the terms
"Company" and "Other Employer" are being used in the Plan solely for
convenience to make the Plan easier to read and do not alter the fact
that a Participant is employed by the separate employer from which the
Participant regularly receives his or her paycheck. With respect to any
Participant, the term "Company" or "Other Employer" means such separate
employer.
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-------------------------------
David J. Arrington
Senior Vice President and
Chief Administrative Officer
EXHIBIT (A)10-38
NIAGARA MOHAWK POWER CORPORATION
EXECESS BENEFIT PLAN
JANUARY 1, 1991
Revised: April 1, 1992
<PAGE>
NIAGARA MOHAWK POWER CORPORATION
EXECESS BENEFIT PLAN
PREAMBLE
The principal objective of this Excess Benefit Plan is to ensure the payment of
a competitive level of retirement income in order to attract, retain and
motivate selected employees. Eligibility for participation in the Plan shall
be limited to those employees of the Company who are specifically designated
by the Committee to participate herein. This Plan was adopted effective
January 1, 1991, and will be effective as to each Participant in the first
year in which he does not receive a full allocation of Company contributions
under the Savings Plan as a result of the application of Code Section 415,
and each year thereafter. The Plan was amended effective April 1, 1992.
SECTION I
---------
Definitions
-----------
1.1 "Account" means the separate bookkeeping account established by the Company
to record the Savings Plan Benefit of each participant.
1.2 "Code" means the Internal Revenue Code of 1986, as amended.
1.3 "Committee" means the Compensation and Succession Committee of the Board of
Directors of the Company which has been given authority to administer this
Plan. In no event shall a member of the Committee be entitled to vote or
otherwise act with respect to Plan benefits for such member.
1.4 "Company" means Niagara Mohawk Power Corporation and any subsidiary which
participates in the Savings Plan.
1.5 "Company Contributions" has the definition given such term under the
Savings Plan.
1.6 "Normal Retirement Date" means the first day of the month following the
month in which the Participant reaches age 65.
1.7 "Participant" means each employee of the Company who has been designated
by the Committee as eligible to participate in the Plan.
1.8 "Plan" means the Niagara Mohawk Power Corporation Excess Benefit Plan, as
may be amended from time to time.
1.9 "Savings Plan" means the Employee Savings Fund Plan for Non-Represented
Employees of Niagara Mohawk Power Corporation, as may be amended from
time to time.
1.10 "Savings Plan Benefit" means the sum of the annual amounts of Company
Contributions which the Participant did not have allocated to his account
under the Savings Plan as a result of the application of Code Section 415,
together with earnings (or losses) on such amounts determined as if such
amounts had been invested in the common stock of the Company from the date
on which the Participant would have received an allocation of Company
Contributions under the Savings Plan but for the application of Code
Section 415.
1.11 The masculine gender, where appearing in the Plan, will be deemed to
include the feminine gender and the singular may include the plural,
unless the context clearly indicates the contrary.
SECTION II
----------
AMOUNT, FORM AND PAYMENT OF BENEFITS
------------------------------------
2.1 The benefit payable under the Plan will equal the value of the
Participant's Account on the date that such benefit is payable measured
from the date outlined in Section 1.10 until retirement, termination of
employment, Total Disability or death (see Section 2.2).
2.2 The value of a Participant's Account shall be paid to the Participant
(or his beneficiary) in a single sum as soon as is practicable after such
Participant's retirement, termination of employment, Total Disability or
death. For purposes of this Plan, "Total Disability" has the meaning
given such term in the Savings Plan.
2.3 Each Participant may name a beneficiary in writing on a form provided by
the Committee and delivered to the Committee. Such designation may include
more than one person and one or more secondary or contingent beneficiaries.
The Participant may elect to change or revoke his designated or deemed or
contingent beneficiary at any time. The affirmative designation of any
beneficiary and any elected change or revocation thereof by the Participant
shall be made on forms provided by the Committee and shall not in any event
be effective unless and until filed with the Committee. If no designated
or deemed or contingent beneficiary survives the Participant, or if a
Participant fails to designate a beneficiary, the amount payable upon his
death shall be paid to his estate.
2.4 Notwithstanding the foregoing provisions of this Section II, and in
addition to any benefit to which a Participant is entitled pursuant to
Sections 2.1 and 2.2, a Participant in this Plan (i) who is also a
participant in the Niagara Mohawk Power Corporation Long-Term Disability
Plan ("LTD Plan"), (ii) who is entitled to receive a benefit under the
LTD Plan by reason of "Total Disability" (as such term is defined therein),
and (iii) whose monthly LTD Plan benefit, determined as a percentage of
monthly "Earnings" (as such term is defined in the LTD Plan), is in excess
of the maximum monthly amount permitted under the LTD Plan, shall be
entitled to receive under this Plan a monthly disability benefit equal to
the amount by which his monthly LTD Plan benefit exceeds the maximum
monthly amount permitted under the LTD Plan ("LTD Plan Excess"); provided
that no such disability benefit shall be paid to a Participant under this
Plan unless the monthly amount of LTD Plan Excess is at least [$500]. A
Participant's monthly disability benefit under this Plan shall continue
to be paid only as long as the Participant continues to be eligible for
a monthly disability benefit under the LTD Plan.
SECTION III
-----------
MISCELLANEOUS
-------------
3.1 Plan benefits are paid for the Participant's past services with the Company
(that is, not for consulting or other services that may be rendered after
retirement). To minimize the possibility of Plan termination for financial
reasons, the Company may utilize certain financing vehicles, including the
purchase of policies of insurance on the lives of Participants under which
the Company or a trustee is named as the beneficiary. Any such insurance
policies or other financing vehicles will be subject to the claims of the
general creditors of the Company. The Board of Directors of the Company
may, in its sole discretion, terminate, suspend or amend the Plan at any
time or from time to time, in whole or in part; provided, however, that no
such termination, suspension or amendment shall adversely affect a
Participant's rights or benefits accrued under this Plan.
3.2 Nothing contained herein will confer upon any Participant the right to be
retained in the service of the Company, nor will it interfere with the
right of the Company to discharge or otherwise deal with a Participant
without regard to the existence of this Plan.
3.3 The provisions of the Plan shall be binding upon and inure to the benefit
of the Participant and his personal representative and the Company, and
any successor organization which shall succeed to substantially all of
its assets and business.
3.4 This Plan is unfunded and the Company will make Plan benefit payments
solely on a current disbursement basis.
3.5 To the maximum extent permitted by law, no benefit under this Plan shall
be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment or encumbrance of any kind.
3.6 The Committee may adopt rules and regulations to assist it in the
administration of the Plan.
3.7 The provisions of the Plan will be construed according to the laws of
the state of New York.
3.8 Each participant will be entitled to receive a copy of this Plan.
<PAGE>
AMENDMENT 1
TO THE
NIAGARA MOHAWK POWER CORPORATION
EXCESS BENEFIT PLAN
This sets forth Amendment 1 to the Niagara Mohawk Power Corporation Excess
Benefit Plan, effective as of January 1, 1991 and amended through April 1, 1992
("Plan"). This Amendment shall be effective as of January 1, 1999.
1. The definition of "Committee" in Section 1.3 of the Plan shall be restated
as follows:
"Committee" means, effective March 17, 1999, the Compensation and Succession
Committee of the Board of Directors of Niagara Mohawk Holdings, Inc. which
has been given authority to administer this Plan. In no event shall a
member of the Committee be entitled to vote or otherwise act with respect
to Plan benefits for such member. Prior to March 17, 1999, all references
to "Committee" mean the Compensation and Succession Committee of the Board
of Directors of Niagara Mohawk Power Corporation.
2. The definition of "Company" in Section 1.4 of the Plan shall be restated
as follows:
"Company" means Niagara Mohawk Holdings, Inc. (effective March 17, 1999),
Niagara Mohawk Power Corporation, any subsidiary of Niagara Mohawk Holdings,
Inc. that participates in the Savings Plan, and any other separate employer
that participates in this Plan with the consent of Niagara Mohawk Holdings,
Inc. (each of these employers, as well as any other separate employer that
participates in this Plan with the consent of Niagara Mohawk Holdings, Inc.
shall hereinafter be referred to as a "Participating Employer").
Notwithstanding the foregoing, the term "Company" means Niagara Mohawk
Holdings, Inc for purposes of the administration of the Plan. The term
"Company" is being used solely for convenience to make the Plan easier to
read, and does not alter the fact that a Participant is employed by the
separate Participating Employer from which the Participant regularly
receives his paycheck. With respect to any Participant, the term "Company"
means such separate Participating Employer.
3. Any reference in the Plan to the "Niagara Mohawk Power Corporation Excess
Benefit Plan" shall be changed to the Niagara Mohawk Excess Benefit Plan,"
and the definition of "Plan" in Section 1.8 of the Plan shall be restated
as follows:
"Plan" means the Niagara Mohawk Excess Benefit Plan, as may be amended
from time to time.
4. Wherever, in this Plan, "Niagara Mohawk Power Corporation" appears in the
title of any employee benefit plan that was in existence on January 1, 1999
and with respect to which a post-1998 event is being referred to, such title
shall be modified by deleting the reference to "Niagara Mohawk Power
Corporation" and is inserting in its place a reference to "Niagara Mohawk."
5. Effective March 17, 1999, the fourth sentence of Section 3.1 of the Plan
shall be restated as follows:
The Board of Directors of Niagara Mohawk Holdings, Inc. may, in its sole
discretion, terminate, suspend or amend the Plan at any time or from time
to time, in whole or in part; provided, however, that no such termination,
suspension or amendment shall adversely affect a Participant's rights or
benefits accrued under this Plan.
Executed this 17th day of December 1999.
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/David J. Arrington
-----------------------------
Senior Vice President and
Chief Administrative Officer
EXHIBIT 11
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
<TABLE>
<CAPTION>
Average Number
of Shares Out-
standing as shown
on Consolidated
(1) (2) Statements of Income
Shares of Number (3) (3 divided by
Common of Days Share Days number of days
Year Ended December 31, Stock Outstanding (2 x 1) in year)
- ----------------------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
1999
- ----
JANUARY 1 - MARCH 18 187,364,863 77 14,427,094,451
MARCH 18 - DECEMBER 31 (Note 1) 187,364,863 288 53,961,080,544
SHARES REPURCHASED BY
NIAGARA MOHAWK 10,000,000 (a) 246,683,200
----------- --------------
177,364,863 68,141,491,795 186,689,019
=========== ============== ===========
1998
- ----
January 1 - December 31 144,419,351 365 52,713,063,115
Shares issued in accordance
with the MRA Agreement
June 30 42,945,512 185 7,944,919,720
----------- --------------
187,364,863 60,657,982,835 166,186,254
=========== ============== ===========
1997
- ----
January 1 - December 31 144,365,214 365 52,693,303,110
Shares issued at various
times during the period -
Acquisition - Syracuse
Suburban Gas Company, Inc. 54,137 (b) 14,260,096
----------- --------------
144,419,351 52,707,563,206 144,404,283
=========== ============== ===========
</TABLE>
(a) Number of days outstanding not shown as shares represent an
accumulation of purchases of Holdings' common stock by Niagara Mohawk
during the last quarter of 1999. Shares days for the shares repurchased
are based on the total number of days each share was repurchased during
the year.
(b) Number of days outstanding not shown as shares represent an accumulation
of weekly, monthly and quarterly issues throughout the year. Share days
for shares issued are based on the total number of days each share was
outstanding during the year.
Note 1: On March 18, 1999, the common stock of Niagara Mohawk was exchanged
on a share-for-share basis with Holdings. The number of shares of
common stock outstanding for 1998 and 1997 is Niagara Mohawk's.
Note 2: Earnings per share calculated on both a basic and diluted basis are
the same due to the effects of rounding.
<PAGE>
EXHIBIT 12a
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
STATEMENT SHOWING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999
------------
<S> <C>
A. Net Income (Loss) per
Statements of Income . . $ (35,088)
B. Taxes Based on Income or
Profits. . . . . . . . . 6,361
------------
C. Earnings, Before Income
Taxes. . . . . . . . . . (28,727)
D. Fixed Charges (a) 554,973
------------
E. Earnings Before Income
Taxes and Fixed Charges. $ 526,246
============
F. Ratio of Earnings to
Fixed Charges (E/D). . . 0.95 (b)
============
</TABLE>
(a) Includes a portion of rentals deemed representative of the interest
factor of $25,673.
(b) Fixed charges exceed earnings before income taxes and fixed charges
by $28.7 million.
<PAGE>
EXHIBIT 12b
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
STATEMENT SHOWING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997 1996 1995
--------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
A. Net Income (Loss) per
Statements of Income . . $ (2,062) $(120,825) $183,335 $110,390 $248,036
B. Taxes Based on Income or
Profits. . . . . . . . . 6,064 (66,728) 126,595 66,221 159,393
--------- ---------- --------- --------- --------
C. Earnings, Before Income
Taxes. . . . . . . . . . 4,002 (187,553) 309,930 176,611 407,429
D. Fixed Charges (a) 518,165 433,313 304,451 308,323 314,973
--------- --------- --------- --------- --------
E. Earnings Before Income
Taxes and Fixed Charges. 522,167 245,760 614,381 484,934 722,402
========= ========= ========= ========= ========
PREFERRED DIVIDEND FACTOR:
F. Preferred Dividend
Requirements . . . . . . $ 36,808 $ 36,555 $ 37,397 $ 38,281 $ 39,596
========= ========== ========= ======== ========
G. Ratio of Pre-Tax Income
to Net Income (C/A). . . N/A N/A 1.69 1.60 1.64
H. Preferred Dividend Factor
(FxG) . . . . . . . . . $ 36,808 $ 36,555 $ 63,201 $ 61,250 $ 64,937
I. Fixed Charges . . . . . 518,165 433,313 304,451 308,323 314,973
--------- ---------- --------- --------- --------
J. Fixed Charges and Preferred
Dividends Combined . . . $554,973 $ 469,868 $367,652 $369,573 $379,910
========= ========== ========= ========= ========
K. Ratio of Earnings to
Fixed Charges (E/D). . . 1.01 0.57(b) 2.02 1.57 2.29
========= ========== ========= ========= ========
L. Ratio of Earnings to Fixed
Charges and Preferred
Dividends Combined (E/J) 0.94(c) 0.52(c) 1.67 1.31 1.90
========= ========== ========= ========= ========
</TABLE>
(a) Includes a portion of rentals deemed representative of the interest
factor: $25,673, $25,907 for 1998, $26,149 for 1997, $26,600 for 1996,
and $27,312 for 1995.
(b) Fixed charges exceed earnings before income taxes and fixed charges
by $187.6 million.
(c) Fixed charges and preferred dividends combined, exceed earnings before
income taxes and fixed charges by $32.8 million in 1999 and $224.1
million in 1998.
N/A - Not applicable due to net loss displayed in line A.
<PAGE>
EXHIBIT 21
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
SUBSIDIARIES OF THE REGISTRANTS
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
Name of Company State of Organization
- --------------- ---------------------
Niagara Mohawk Power Corporation New York
Opinac North America, Inc. (Note 1) Delaware
NIAGARA MOHAWK POWER CORPORATION
--------------------------------
Name of Company State of Organization
- --------------- ---------------------
NM Uranium, Inc. Texas
NM Properties, Inc. (Note 2) New York
NM Receivables Corp. II New York
NM Receivables LLC New York
Beebee Island Corporation (Note 3) New York
Moreau Manufacturing Corporation (Note 3) New York
Note 1: At December 31, 1999, Opinac North America, Inc.(formerly a
subsidiary of Niagara Mohawk Power Corporation) owns Opinac Energy
Corporation and Niagara Mohawk Energy, Inc. and an investment in a
development stage telecommunications company. Opinac Energy
Corporation has portfolio investments and has a 50 percent interest
in CNP, which is incorporated in the province of Ontario, Canada.
Niagara Mohawk Energy, Inc., an unregulated company, is incorporated
in the state of Delaware. Niagara Mohawk Energy, Inc., among other
investments, owns Niagara Mohawk Energy Marketing, Inc. (incorporated
in the state of Delaware), Niagara Mohawk Energy India Private Limited,
New Delhi, 90% of Dolphin Investments International, Inc. (a
corporation organized and existing under the laws of Nevis, West
Indies).
Note 2: At December 31, 1999, NM Properties, Inc. owns Salmon Shores, Inc.;
Moreau Park, Inc.; Riverview, Inc.; Hudson Pointe, Inc.; Upper Hudson
Development, Inc.; Land Management & Development, Inc.; Oprop Co.,
Inc.; Landwest, Inc.; and City and Country Realty, Inc.
Note 3: During 1999, Niagara Mohawk sold its interests in Beebee Island
Corporation and Moreau Manufacturing Corporation. Both entities are
in the process of being dissolved.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Niagara Mohawk
Holdings, Inc. Registration Statement on Form S-8 (No. 333-13781) and in the
Registration Statement on Form S-3 (No. 333-55923) and incorporated by
reference in Niagara Mohawk Power Corporation Registration Statements on Form
S-8 (Nos. 33-36189 and 33-42771) and in the Registration Statements on Form S-3
(Nos. 33-50703, 33-51073, 33-54827 and 33-55546) and in the Registration
Statement on Form S-4 (No. 333-49769) of our report dated January 27, 2000
relating to the financial statements and which appears in this form 10-K.
We also consent to the incorporation by reference of our report dated
January 27, 2000 relating to the financial statement schedules, which appears
in this form 10-K.
Yours very truly,
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
March 24, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NIAGARA MOHAWK HOLDINGS, INC.
(Registrant)
Date: March 24, 2000
By: /s/Steven W. Tasker
-----------------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
NIAGARA MOHAWK POWER CORPORATION
(Registrant)
Date: March 24, 2000
By: /s/Steven W. Tasker
-----------------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Salvatore H. Alfiero Director (1) March 23, 2000
- --------------------------
Salvatore H. Alfiero
/s/William F. Allyn Director (1) March 23, 2000
- --------------------------
William F. Allyn
Director,
/s/Albert J. Budney Jr. President (1) March 23, 2000
- --------------------------
Albert J. Budney Jr.
/s/Lawrence Burkhardt III Director (1) March 23, 2000
- --------------------------
Lawrence Burkhardt III
Director (1)
- --------------------------
Douglas M. Costle
/s/John H. Dalton Director (1) March 23, 2000
- --------------------------
John H. Dalton
Director,
Chairman of the
Board of Directors
and Chief Executive
/s/William E. Davis Officer (2) March 23, 2000
- --------------------------
William E. Davis
/s/William J. Donlon Director (1) March 23, 2000
- --------------------------
William J. Donlon
/s/Anthony H. Gioia Director (1) March 23, 2000
- --------------------------
Anthony H. Gioia
/s/Bonnie G. Hill Director (1) March 23, 2000
- --------------------------
Bonnie G. Hill
/s/Clark A. Johnson Director (1) March 23, 2000
- --------------------------
Clark A. Johnson
/s/Henry A. Panasci Jr. Director (1) March 23, 2000
- --------------------------
Henry A. Panasci Jr.
/s/Patti McGill Peterson Director (1) March 23, 2000
- --------------------------
Patti McGill Peterson
/s/Donald B. Riefler Director (1) March 23, 2000
- --------------------------
Donald B. Riefler
/s/Stephen B. Schwartz Director (1) March 23, 2000
- --------------------------
Stephen B. Schwartz
Director,
Executive Vice President
/s/Darlene D. Kerr and Chief Operating Officer (3) March 23, 2000
- --------------------------
Darlene D. Kerr
Senior Vice President
and Chief Financial
/s/William F. Edwards Officer (2) March 23, 2000
- --------------------------
William F. Edwards
Director,
Senior Vice President and
/s/John H. Mueller Chief Nuclear Officer (3) March 23, 2000
- --------------------------
John H. Mueller
Vice President-Controller
and Principal Accounting
/s/Steven W. Tasker Officer (2) March 23, 2000
- --------------------------
Steven W. Tasker
(1) Signature on behalf of Niagara Mohawk Holdings, Inc.
(2) Signature on behalf of Niagara Mohawk Holdings, Inc. and Niagara Mohawk
Power Corporation
(3) Signature on behalf of Niagara Mohawk Power Corporation
45
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, AND
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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<CIK> 0000071932
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<MULTIPLIER> 1000
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36808
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