UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1727729
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
(914) 352-6000
(Registrant's telephone number, including area code)
Common Stock, $5 Par Value -- New York Stock Exchange, Inc.
(Securities registered pursuant to Section 12(b) of the Act)
Preference Stock, No Par Value
(Securities registered pursuant to Section 12(g) of the Act)
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.
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
At February 29, 1996, the approximate aggregate market value
of the voting stock held by nonaffiliates of the registrant was
$494,223,873*
At February 29, 1996, the registrant had 13,653,741 shares of
Common Stock ($5 par value) outstanding.
(Continued)
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Continued from first page)
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Documents incorporated by reference:
Annual Report to Shareholders for the year ended December 31, 1995
incorporated in Part I, Part II and Part IV to the extent described
therein.
The Company's definitive Proxy Statement in connection with the 1996
Annual Meeting of Common Shareholders incorporated in Part III to
the extent described therein.
* For purposes of this calculation, it is assumed that only directors
and officers of the registrant are affiliates of the registrant.
10K-95.wp
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
General Development of Business 1
Financial Information about Industry Segments 1
Narrative Description of Business: 1
Principal Business 1
Investigation and Litigation 2
Electric Operations 3
Gas Operations 8
Diversified Activities 10
Construction Program and Financing 12
Regulatory Matters 14
Utility Industry Risk Factors 18
Competition 19
Marketing 19
Environmental Matters 20
Research and Development 23
Franchises 23
Employee Relations 24
Item 2. Properties 25
Item 3. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 33
Executive Officers of the Registrant 34
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 36
Item 6. Selected Financial Data 36
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 36
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 37
PART III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 38
Signatures 45
Report of Independent Public Accountants on Financial
Statement Schedules 47
Consent of Independent Public Accountants 47
-i-
<PAGE>
PART I
Item 1. Business
General Development of Business:
Orange and Rockland Utilities, Inc. (the "Company") is a New York
corporation, with its principal office at One Blue Hill Plaza, Pearl River,
New York 10965 (telephone number 914-352-6000), which was formed originally
under the name Rockland Light and Power Company on May 21, 1926 through the
consolidation of a company having the latter name (organized in 1899),
Catskill Power Corporation and Orange County Public Service Company, Inc. Its
present name was adopted on February 28, 1958, when The Orange and Rockland
Electric Company was consolidated with Rockland Light and Power Company.
The Company has two wholly owned utility subsidiaries, Rockland Electric
Company ("RECO"), a New Jersey corporation, and Pike County Light & Power
Company ("Pike"), a Pennsylvania corporation. The Company has three wholly
owned non-utility subsidiaries, Clove Development Corporation ("Clove"), a
New York corporation, O&R Development, Inc. ("ORD"), a Delaware corporation
and O&R Energy Development, Inc. ("ORED"), a Delaware corporation. ORED sold
all of its oil and gas interests effective December 31, 1995 and has ceased
operations. RECO has a wholly owned non-utility subsidiary, Saddle River
Holdings Corp. ("SRH"), a Delaware corporation. SRH has two wholly owned non-
utility subsidiaries, NORSTAR Holdings, Inc. ("NHI") (formerly O&R Energy,
Inc.) and Atlantic Morris Broadcasting, Inc. ("AMB"), both Delaware
corporations. AMB sold all of its broadcasting properties during 1995 and has
ceased operations. NHI has two wholly owned non-utility subsidiaries,
Millbrook Holdings, Inc. ("Millbrook") and NORSTAR Management, Inc. ("NMI"),
both Delaware corporations. NMI is the sole general partner of a Delaware
limited partnership, NORSTAR Energy Limited Partnership ("NORSTAR
Partnership"). NORSTAR Partnership is the majority owner of NORSTAR Energy
Pipeline Company, L.L.C. ("NORSTAR LLC"), a Delaware limited liability
company. The businesses of the non-utility subsidiaries are described under
the subheading "Diversified Activities" in this Item 1.
Financial Information about Industry Segments:
Consolidated financial information regarding the Company's principal
business segments, Electric Operations, Gas Operations and Diversified
Activities is contained in Note 13 of the Notes to Consolidated Financial
Statements - "Segments of Business" on page 32 of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.
Narrative Description of Business:
Principal Business
The Company and its utility subsidiaries supply electricity and gas to a
territory covering approximately 1,350 square miles. The eastern boundary of
the Company's service territory extends along the west bank of the Hudson
River from a point in New Jersey six miles north of the George Washington
Bridge northerly for approximately 37 miles to a point in New York a short
distance north of the United States Military Academy at West Point. From the
Hudson River, the Company's territory in New York State extends westward to
<PAGE>
the Delaware River, embracing all of Rockland County, most of Orange County
and a part of Sullivan County. In New Jersey, RECO supplies electricity to
the northern parts of Bergen and Passaic Counties and small areas in the
northeastern and northwestern parts of Sussex County. Pike supplies
electricity and gas to the northeastern corner of Pike County, Pennsylvania.
As of December 31, 1995, the Company and its utility subsidiaries
furnished electric service to approximately 263,000 customers in 96
communities with an estimated population of 671,000 and gas service to
approximately 112,000 customers in 57 communities with an estimated
population of 474,000. There have been no significant changes in either the
population of the Company's service territory or in the number of
customers served since December 31, 1994. At that time, electric service was
provided to approximately 260,000 customers in 96 communities with an
estimated population of 666,000 and gas service was provided to approximately
111,000 customers in 57 communities with an estimated population of 470,000.
At December 31, 1995 and 1994, 95% of the Company's residential gas customers
used gas as their major source of space heating fuel. While the territory
served is predominantly residential, the Company and its utility subsidiaries
also serve a number of commercial and industrial customers in diversified
lines of business activities from which significant electric and gas revenues
are derived. No single customer accounts for more than 10% of either gas or
electric sales. The business of the Company and its utility subsidiaries is
seasonal to the extent that sales of electricity are higher during the summer,
mainly due to air conditioning requirements, and sales of gas are greater in
the winter months, primarily as a result of space heating requirements.
Investigation and Litigation
On August 16, 1993, the Rockland County, New York District Attorney (the
"District Attorney") charged a then Vice President of the Company with grand
larceny, commercial bribery and making illegal political contributions and
commenced a related investigation of the Company. Two other former employees
who had reported to the Vice President were also charged with grand larceny.
The events which followed these actions included the formation of a special
committee of the Company's Board of Directors and the conduct of an
independent investigation under the supervision of that committee,
investigations conducted by both the District Attorney and various utility
regulatory agencies, various legal actions brought both by and against the
Company (most of which have been settled), the refund of misappropriated funds
to the Company's customers, and effects on the Company's rate filings.
The Company continues to pursue a lawsuit and arbitration proceeding
against a former officer to recover misappropriated funds and other costs
attributable to any wrongdoing and the related investigations. Related
lawsuits by the former officer are also pending.
<PAGE>
Details concerning these events, including their effect on the Company's
rate proceedings and results of operations, are contained in the "Review of
the Company's Results of Operations and Financial Condition" under the
captions "Financial Performance," "Rate Activities" and "Other Income and
Deductions and Interest Charges" and in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Investigation and Related Litigation"
beginning on pages 11 and 29, respectively, of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report. Reference is also made to Item 3, "Legal Proceedings", of this
Form 10-K Annual Report.
Electric Operations
Generating Capacity and Purchased Power. As described more fully in
Item 2 of this Form 10-K Annual Report under the subheading "Electric
Generating Facilities", the capacity of the Company's plants provides the
Company with a net generating capacity of 981 megawatts ("Mw") in the summer
and 993 Mw in the winter. Additionally, the Company purchases capacity, as
more fully described below, to satisfy its reserve requirements, as well as
any demand in excess of its installed capacity. The electric energy which
RECO and Pike distribute to their customers is supplied by the Company. The
maximum historical one-hour demand for the Company and its utility
subsidiaries occurred on July 15, 1995 and was 1,068 Mw.
In addition to the energy produced at its generating facilities, the
Company, through various transmission interconnections, purchases both
capacity and energy when needed to meet load and reserve requirements and also
when such power is available at a price lower than the cost of production.
The Company maintains transmission interconnections with Central Hudson Gas
and Electric Corporation ("Central Hudson"), Public Service Electric and Gas
Company ("PSE&G") and Consolidated Edison Company of New York, Inc. ("Con
Ed"). Through these interconnections, and as a member of the New York Power
Pool ("NYPP"), the Company can exchange power directly with the above
utilities and, through the facilities of other members of the NYPP, the
Company can exchange power with all members of the NYPP and with utilities in
pools in neighboring states. In addition, members of the NYPP are able to
coordinate inter-utility transfers of bulk power in order to achieve economy
and efficiency, cooperate in long range planning of generation and
transmission facilities, coordinate inter-utility operating and emergency
procedures to assure reliable, adequate and economic electric service
throughout the state and provide for the equitable sharing of the resulting
benefits and costs. Through the NYPP control center, the Company is able to
purchase power in order to optimize its generation-interchange mix, using the
lowest cost energy available to the Company in the interconnected system. By
agreement with the NYPP, the Company must maintain capacity reserves including
firm capacity purchases of not less than 18% of its peak load.
During 1995, the Company had agreements in place for both capacity and
energy purchases. Capacity purchases included an agreement with PSE&G which
provided between 75 Mw and 225 Mw of capacity, an agreement with Pennsylvania
Power & Light Company ("PP&L") which provided between 10 Mw and 50 Mw of
capacity, an agreement with the New York Power Authority ("NYPA") for 25 Mw of
<PAGE>
year-round capacity from the Blenheim-Gilboa pumped storage facility (the
"Gilboa Facility") and an agreement with North American Energy Conservation,
Inc. ("NAEC") which provided for 100 Mw of capacity.
During 1995 the Company met approximately 40% of its overall power
requirements by aggressively pursuing economic power purchases. These
purchases, which were primarily made pursuant to short-term purchase
agreements and interchange agreements, resulted in lower costs to the
Company's customers. During 1995, the Company could have generated all of its
customers requirements more than 99% of the time. At the time of the 1995
peak demand, the Company's installed capacity could have satisfied 94% of its
power requirements. The use of purchased power under these circumstances
reflects the Company's policy of supplementing its electric generation with
purchased power not only when needed to meet load requirements but also when
such power is available at a cost lower than the cost of production.
Information regarding future power supply, particularly the status of
capacity purchase contracts with Independent Power Producers and Qualifying
Facilities, is contained under the caption "Future Energy Supply and Demand"
in this Item 1.
Fuel Supply. The Company's 981 Mw summer generating capacity is
available from the following fuel sources:
Coal,
Oil Oil Gas
Plant* & Gas & Gas Hydro Turbine Total
(Megawatts)
Lovett Plant
Unit 3 63.0 63.0
Units 4 & 5 399.6 399.6
Hydro Plants
Swinging Bridge,
Mongaup, Rio and
Grahamsville 43.8 43.8
Gas Turbine Plants
Hillburn and
Shoemaker 74.0 74.0
Bowline Point Plant
Units 1 & 2 400.6 400.6
463.6 399.6 43.8 74.0 981.0
===== ===== ==== ==== =======
*For a description of the Company's generating plants, see "Electric
Generating Facilities" in Item 2 of this Form 10-K Annual Report.
The availability and cost of fuels and the Company's choice of fuel in
any particular circumstance are affected by a number of factors, the <PAGE>
majority of which are beyond the control of the Company. These factors
include the domestic and international fuel supply situation, environmental
regulations, conservation measures and the availability of alternative fuels.
The Company's principal generating plants use natural gas, coal or oil as
their primary fuels. The Company has reduced its dependence on oil through the
use of coal as the primary fuel for the Lovett Plant's two largest generating
units, the burning of increased volumes of natural gas in its boilers and the
purchase of power from other systems.
Electricity available for sale is a mix of Company generation by various
fuel types, supplemented by purchased power when such power is available at a
price lower than the price of generation or is needed to meet load
requirements. Details for the years 1991 through 1995 are as follows:
1991 1992 1993 1994 1995
Gas 22% 21% 16% 23% 23%
Coal 36 33 33 36 27
Oil 14 10 5 6 7
Hydro 3 3 4 3 3
Purchased Power 25 33 42 32 40
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Gas - Natural gas is used as an alternative fuel for electric generation
when it is available and economic. Substantially all of the gas used in
electric generation is acquired through spot market purchases. During 1995,
the Company was able to use significant volumes of natural gas for boiler fuel
at both its Lovett Plant and the Bowline Point Plant. It also expects to be
able to use natural gas in the Lovett Plant and the Bowline Point Plant during
1996, whenever such gas is more economical than alternative fuels. In 1995,
the Company used 4.3 billion cubic feet ("Bcf") and 8.3 Bcf of gas,
respectively, at the Lovett Plant and the Bowline Point Plant.
Coal - The low sulfur coal (1.0 lbs. SO2 per million British Thermal
Unit ("MMBTU")) used in Lovett Plant Units 4 and 5 is supplied to the Company
primarily through a long term contract with Massey Coal Sales, Inc. and a
short-term contract with James River Coal Sales Co. The Company has the
right, under the coal purchase contracts, to suspend the purchase of coal if
alternative fuel sources become less expensive. The coal is low in ash
(typically 7%) and high in BTU content (26 MMBTU's per ton). During 1995 coal
was the predominant fuel burned at the Lovett Plant, and the Company expects
it to be the predominant fuel burned during 1996. Information regarding the
Company's coal supply contracts is contained in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Coal Supply Contracts" on
page 30 of the 1995 Annual Report to Shareholders which material is
incorporated by reference in this Form 10-K Annual Report.
<PAGE>
Oil - The Company does not anticipate purchasing any significant
quantity of fuel oil for its Lovett Plant. Con Ed has undertaken the supply
of #6 fuel oil (0.37% maximum sulfur content by weight) to the Bowline Point
Plant, which is supplied under a contract between Con Ed and the Company.
Pursuant to that contract, Con Ed has also undertaken to provide a backup oil
supply for the Company's Lovett Plant under certain conditions. The Company
believes that it will be able to secure sufficient oil supplies to meet the
total requirements of #6 fuel oil for the calendar year 1996.
Hydro - Water for the operation of the Company's Mongaup River Hydro
Plants is controlled by the Company through the ownership of the necessary
land in fee or through easements. In the case of the Grahamsville Plant,
water is obtained under contract with the City of New York Board of Water
Supply. This contract, which expires in 2005, entitles the Company to 8.1 Bcf
of free water each year. In 1995, the total amount of water used was 16.8
Bcf. Of this total, 8.7 Bcf was billed at varying rates based on an average
cost of all fuels used in power generation.
Purchased Power - The Company's practice regarding purchased power is to
supplement the Company's electric generation by purchasing both capacity and
energy when needed to meet load and reserve requirements and also when such
power is available at a price lower than the cost of production. Details
regarding purchased power are contained under the captions "Generating
Capacity and Purchased Power" and "Future Energy Supply and Demand" in this
Item 1.
Additional information regarding fuel and purchased power costs,
including a description of the fuel adjustment clauses contained in the
Company's tariff schedules, is contained in the 1995 Annual Report to
Shareholders in the "Review of the Company's Results of Operations and
Financial Condition" under the caption "Electric Energy Costs" on page 13 and
in Note 1 of the Notes to Consolidated Financial Statements under the caption
"Fuel Costs" on page 23, which information is incorporated by reference in
this Form 10-K Annual Report.
Future Energy Supply and Demand. The Company continues to be committed
to meeting customer energy needs by providing reliable energy service at the
lowest prudent cost and in an environmentally sound manner. Through its
Integrated Resource Plan the Company has responded to the changes that have
occurred in the utility industry and has incorporated a significant number of
conservation and demand reduction alternatives as well as purchased power into
its energy strategy.
The Demand Side Management ("DSM") program involves efforts to control
electric peak demand and energy usage, and addresses the need to improve plant
utilization by making customer demand more complementary over time to the
available capacity. DSM programs are available to all market segments.
Through December 31, 1995, DSM efforts have reduced the annual need for
increased generating capacity and energy by 131.4 Mw and 234,845 Mwh,
respectively, both through programs administered by the Company and by RECO as
well as through contracts with outside energy service companies pursuant to
<PAGE>
the competitive bidding program. The costs of DSM programs are recoverable on
a current basis in both the New York and New Jersey service territories.
Additional information regarding the recovery of DSM costs, including the
Company's achievement of certain DSM related goals and their impact on the
1995 results of operations is contained under the captions "Electric Operating
Revenues and Sales" and "Other Utility Operating Expenses and Taxes" in the
"Review of the Company's Results of Operations and Financial Condition" on
pages 12 and 14, respectively, of the 1995 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K Annual Report.
The Company's Supply Side Management program involves the acquisition of
future increments of capacity and energy as needed to meet anticipated load
and reserve requirements and, in particular, to reduce the cost of electricity
to the Company's customers. With regard to future purchases of capacity,
contracts are in place with the NYPA, NAEC and PSE&G. The NYPA agreement for
firm purchases from the Gilboa Facility, which provides for 25 Mw of year-
round capacity, will be in effect through April 2015. The agreement with NAEC
will provide capacity ranging between 100 Mw and 150 Mw through October 1998,
with an option to extend the contract through October 2001. In addition, a
firm purchased power agreement with PSE&G will provide between 75 Mw and 300
Mw of capacity during the base contract term which extends through April 1998,
with an additional 100 Mw available throughout the base contract term at the
option of the Company. The contract also provides that at the option of the
Company 400 Mw of additional capacity will be available from May 1998 through
October 2000. In total, these firm capacity agreements will provide the
Company with between 200 Mw and 475 Mw of capacity through 1998 with an
additional 500-550 Mw of capacity available at the option of the Company
through the year 2001. Information regarding future payments under capacity
purchase contracts is contained in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Power Purchase Agreements" on page 30
of the 1995 Annual Report to Shareholders, which information is incorporated
by reference in this Form 10-K Annual Report.
Regarding future purchases of energy, the Company's contract with NAEC
provides for a minimum of 1.3 million megawatt hours of firm economy purchases
during the winter capability periods through the 1997/1998 winter period. In
addition, the Company will continue to take an aggressive posture in securing
economic increments of purchased power, particularly through interchange
transactions, short-term firm contracts and spot purchases.
During 1990 and 1991, the Company entered into three long-term contracts
with certain independent power producers ("IPP") for the provision of capacity
and energy to the Company. During 1994, the Company negotiated termination
agreements with two of the three IPP's and in June 1995 a termination
agreement was reached with the third IPP. Information regarding the
termination of the IPP contracts is contained in Note 1 of Notes to
Consolidated Financial Statements under the caption "IPP Settlement
Agreements" on page 24 of the 1995 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.<PAGE>
Gas Operations
The Company distributes purchased natural gas, supplemented at times of
peak load by gas produced in its propane air gas plants.
As of December 31, 1995, the gas distribution system included 1,723
miles of mains. The highest historical maximum daily gas sendout of 206,038
thousand cubic feet ("Mcf") occurred on January 19, 1994.
Supply, Transportation and Storage. The Company has firm, long-term gas
supply contracts with seven gas producers. Together these contracts account
for all of the Company's base load gas requirements and include a contract
with a Canadian producer which accounts for approximately 28% of firm
contracted supply and expires in the year 2002. Contracts for the remaining
72% of the Company's required gas supply have been executed with six domestic
producers. One of these contracts is scheduled to expire on October 31, 1996,
and it is anticipated that a replacement gas supply will be negotiated. The
remainder have expiration dates ranging between 1997 and 2010. All of the gas
supply contracts contain options for renewal and certain of the agreements
contain "re-opener" provisions which allow the Company to modify price and
operating terms under certain conditions. This flexibility will ensure the
reliability of the Company's gas supply while allowing the Company to enhance
its supply portfolio as market opportunities arise.
In addition to its long-term contracted supply sources, the Company
purchases spot gas from producers primarily for use in electric generation.
During 1995, the Company made spot purchases of approximately 22.8 million Mcf
of gas or 54% of the total gas supply.
To supplement purchased gas, the Company manufactures gas at its propane
air gas plants located in Middletown, Orangeburg and Suffern, New York which
have a combined capacity of 30,600 Mcf per day of natural gas equivalent.
This capacity, together with gas purchases under contracts between the Company
and its suppliers, is expected to provide adequate peak day supplies to serve
existing and projected new customers through the 1998-1999 winter period.
Additional increments of new supply beyond this point are being negotiated.
In addition to the gas supply contracts, the Company has provided for
the transportation of gas through firm, long-term transportation agreements
with four major pipeline companies: Tennessee Gas Pipeline Company
("Tennessee"), Columbia Gas Transmission Corporation ("Columbia"), Algonquin
Gas Transmission Company ("Algonquin") and Texas Eastern Transmission
Corporation ("Texas Eastern"). One of these contracts will expire during
November 2000. The other three firm transportation contracts have exceeded
their initial contract term and will remain in effect on a year-to-year basis
unless terminated by the Company. The Company also has entered into
interruptible transportation agreements with the same pipeline companies. All
transportation contracts contain options for renewal.
With regard to gas storage, the Company also has long-term gas storage
contract arrangements with Tennessee, Columbia and Texas Eastern. The earliest
expiration date of any of these storage contracts is 2000 and all storage
<PAGE>
contracts contain options for renewal. During 1993 the Company elected to
secure capacity in an innovative gas storage project operated by Avoca Natural
Gas Storage. The storage facility, which will be available in late 1997, uses
leached-out caverns in underground salt beds to create a storage reservoir and
is designed for fast withdrawal and refill capacity which will enhance the
Company's ability to meet incremental peak day gas requirements.
As noted earlier, the Company's maximum daily sendout of gas occurred
during January 1994 and amounted to 206,038 Mcf. This compares to the maximum
daily gas delivery capacity of the Company's system of 225,839 Mcf which is
available from the following sources: direct purchases - 119,567 Mcf; storage
withdrawals - 75,672 Mcf; and Company manufactured gas - 30,600 Mcf.
Additional information regarding gas supply and gas storage contracts is
contained in Note 12 of the Notes to Consolidated Financial Statements under
the caption "Gas Supply and Storage Contracts" on page 29 of the 1995 Annual
Report to Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report.
Transportation for Others. The Company provides gas transportation
services for end users in its service territory who elect to obtain their own
direct gas supplies. During 1995, approximately 4.6 Bcf's of gas were
transported for such end users.
Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs. As
a result of a 1987 FERC order, as well as other legal and regulatory actions
since that time regarding the pass-through of certain "take-or-pay" costs by
gas suppliers, the Company has deferred approximately $1.6 million of gas
surcharges at December 31, 1995.
In addition, certain costs incurred by gas pipeline companies in
complying with FERC Order No. 636 have been approved by the FERC for
allocation to distribution companies, including the Company. It is currently
estimated that the Company's obligation related to Order No. 636 transition
costs will amount to $25.1 million.
Information regarding take-or-pay charges and FERC Order No. 636
transition costs, including the recoverability of these costs under the
Company's rate structure, is contained under the caption "Gas Energy Costs" in
the "Review of the Company's Results of Operations and Financial Condition",
in Note 1 of the Notes to the Consolidated Financial Statements under the
caption "Rate Regulation" and in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Gas Supply and Storage Contracts" on
pages 14, 23 and 29, respectively, of the 1995 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K Annual Report.
Reference is also made to Item 3, "Legal Proceedings", of this Form 10-K
Annual Report.
<PAGE>
Diversified Activities
Both the Company and RECO have certain non-utility subsidiaries which
engage in the following diversified, non-regulated business activities: gas
marketing, real estate development and gas production. The Company's
Consolidated Financial Statements, which are incorporated in this Form 10-K
Annual Report by reference to the Company's 1995 Annual Report to
Shareholders, include the results of operations of all diversified activities.
In addition, the diversified activities are considered to be a reportable
business segment, due to the fact that the gross operating revenues of the
non-regulated business activities, which are primarily attributable to the gas
marketing activities, account for more than 10 percent of the Company's total
consolidated gross revenues. The nature of the gas marketing business is
such, however, that the net earnings realized from this activity, and from all
non-regulated activities combined, are not material. In addition, neither the
assets of the non-regulated businesses nor the continued operation of the non-
regulated business lines are material to the operations of the Company. For
these reasons, the disclosure related to the Company's diversified activities,
as prescribed by Regulation S-K, has, with few exceptions, been omitted from
other sections of this Form 10-K Annual Report.
Capital contributions to the non-utility subsidiaries by the Company and
RECO are borne by the shareholders. Any profits, losses, or tax savings from
investments in non-utility subsidiaries accrue to the shareholders and are not
included in the cost of service for ratemaking purposes. A description of the
non-utility subsidiaries of the Company and RECO follows.
Saddle River Holdings Corp. SRH, a wholly owned subsidiary of RECO, was
established for the purpose of investing in non-utility business ventures and,
through subsidiaries, is currently engaged in natural gas marketing. The gas
marketing activities were formerly carried out by O&R Energy, Inc. Effective
February 28, 1995, the gas marketing assets of O&R Energy (now NHI) were
assigned to NORSTAR Partnership. The general partner of NORSTAR
Partnership is NMI and the limited partner is Shell NORSTAR Inc., a wholly-
owned subsidiary of Shell Gas Trading Company, a Delaware corporation. The
NORSTAR Partnership currently provides natural gas to industrial, commercial
and institutional end users, gas distribution companies, gas marketing
companies and electric generating facilities in 32 states, the District of
Columbia and Canada. Additional information regarding NORSTAR Partnership is
contained in the "Review of the Company's Results of Operations and Financial
Condition" under the caption "Diversified Activities" on page 14 of the 1995
Annual Report to Shareholders, which information is incorporated by reference
in this Form 10-K Annual Report.
<PAGE>
A subsidiary of NHI, Millbrook, holds approximately twelve acres of non-
utility real estate in Morris County, New Jersey. In December 1995 the
Company adopted a plan to sell the Millbrook real estate and wrote-down its
investment to the estimated net realizable value. Broadcasting activities
were conducted through Atlantic Morris Broadcasting, Inc., a subsidiary of SRH
which owned radio stations WKTU (FM) in Ocean City, New Jersey, WABT (FM) in
Dundee, Illinois, WALL (AM) and WKOJ (FM) in Middletown, New York and WCSO
(FM) and WLPZ (AM) in Portland, Maine. In September 1994, the Company adopted
a formal plan to sell the broadcasting properties and at December 31, 1995 the
sales of all broadcasting properties had been completed. Additional
information regarding the sale is contained in the "Review of the Company's
Results of Operations and Financial Condition" under the caption "Diversified
Activities", and in Note 1 of the Notes to Consolidated Financial Statements
under the caption "Sale of Broadcast Properties" on pages 14 and 24,
respectively, of the 1995 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
Clove Development Corporation. Clove, a wholly-owned subsidiary of the
Company, holds approximately 5,200 acres of real estate, located primarily in
the Mongaup Valley region of Sullivan County, New York. Historically, Clove's
revenues have been derived primarily from the sale of timber and sand,
property rentals and periodic sales of land.
Certain portions of Clove's property lend themselves to recreational
development. Two small subdivisions have been developed and substantially
sold off. A third development, Lakeside Forest at Swinging Bridge, is
actively being marketed, with nine lots having been sold through 1995. In
addition, during December 1995 Clove sold a single parcel of land consisting
of approximately 300 acres.
O&R Development, Inc.. ORD, a wholly owned subsidiary of the Company,
was established to promote industrial and corporate development within the
Company's service territory by providing improved sites and buildings. ORD's
activities are aimed at attracting new business and industry to the Company's
service territory, which would spread fixed costs for electricity and gas over
a wider customer base.
ORD owns Interchange Commerce Center ("ICC Project"), a 300 acre tract
of land in Orange County, New York. The ICC Project has governmental
approvals for the development of 2.7 million square feet of light industrial,
office, warehouse and retail space. Approximately 2,000 linear feet of street
and utilities have been installed, and two buildings, owned by ORD, totaling
over 200,000 square feet have been completed and fully leased.
During 1994 ORD entered into a contract for the sale of 60 acres of land
to the K-Mart Corporation. This contract was terminated by K-Mart Corporation
in November 1995 and ORD is continuing to market the property.
<PAGE>
O&R Energy Development, Inc. ORED, a wholly-owned subsidiary of the
Company, was engaged in oil and gas production through ownership interests in
producing wells in Texas, Mississippi, Ohio and Pennsylvania. During 1995,
ORED's net investment in producing properties was written down and all of
ORED's oil and gas interests were sold effective December 1, 1995. ORED
ceased operations during 1996.
Additional information regarding the non-utility subsidiaries of the
Company and of RECO is contained in the Annual Report to Shareholders, which
information is incorporated by reference in this Form 10-K Annual Report, as
follows: in the "Review of the Company's Results of Operations and Financial
Condition" beginning on page 11 under the captions "Financial Performance" and
"Diversified Activities"; and in the Notes to Consolidated Financial
Statements beginning on page 23 in Note 1 under the captions "Principles of
Consolidation" and "Sale of Broadcast Properties", in Note 9, "Fair Value of
Financial Instruments" under the caption "Gas Futures Contracts" and in Note
13, "Segments of Business".
Construction Program and Financing
Construction Program. The construction expenditures, excluding
allowance for funds used during construction, of the Company and its utility
subsidiaries for 1996 are presently estimated at approximately $52.8 million,
which consist primarily of routine production, transmission and distribution
projects for capital replacements or system betterments and do not include any
additions to generating capacity. The Company's construction program is under
continuous review and the estimated construction expenditures are, therefore,
subject to periodic revision to reflect, among other things, changes in energy
demands, economic conditions, environmental regulations, changes in the timing
of construction activities, the level of internally generated funds and other
modifications to the construction program.
Information regarding the Company's construction program is contained
under the caption "Liquidity and Capital Resources" in the "Review of the
Company's Results of Operations and Financial Condition" and under the caption
"Construction Program" in Note 12 of the Notes to Consolidated Financial
Statements on pages 15 and 29, respectively, of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.
Financing. The Company has historically used short-term borrowings in
the form of commercial paper to finance construction expenditures when such
expenditures exceeded internally generated funds and to finance short-term
working capital requirements. Short-term borrowings undertaken for
construction expenditures are periodically repaid with internally generated
funds and the proceeds of long-term debt and equity offerings.
<PAGE>
At December 31, 1995, the Company and its utility subsidiaries had
unsecured bank lines of credit totaling $64.5 million. Commercial paper
borrowings, which are supported by such credit lines, amounted to $61.3
million at year end. Additional information regarding the Company's short-
term debt position is contained in Note 8 of the Notes to Consolidated
Financial Statements - "Cash and Short-Term Debt" on page 27 of the 1995
Annual Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report.
The external financing activities of the Company and its utility
subsidiaries during 1995 were limited to refinancing of certain pollution
control revenue bonds. Information regarding the refinancing and other
disclosures related to liquidity are contained under the caption "Liquidity
and Capital Resources" in the "Review of the Company's Results of Operations
and Financial Condition" and in Note 7 of the Notes to Consolidated Financial
Statements - "Long-Term Debt" on pages 15 and 26, respectively, of the 1995
Annual Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report.
The Company currently has no plans for the issuance of additional debt
or equity securities and it is expected that capital requirements will be met
primarily with funds from operations, supplemented with short-term debt as
required. However, the Company has certain series of debt which will mature
during 1997 and which may be refinanced at maturity. In addition, the Company
will continue to examine the potential for reducing the cost of debt through
the evaluation of debt refinancings.
The non-utility subsidiaries of the Company and RECO also maintain
certain lines of credit and undertake long and short-term borrowings or make
investments from time to time. NORSTAR Partnership maintains a $20 million
line of credit with one commercial bank under which there was $7.3 million
outstanding at December 31, 1995. Non-utility temporary cash investments
amounted to $1.3 million at December 31, 1995.
For a description of the non-utility subsidiaries of the Company and of
RECO, see "Diversified Activities" in Item 1 of this Form 10-K Annual Report.
Information regarding certain financial statistics of the Company is
contained under the caption "Financial Statistics" on page 36 of the 1995
Annual Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report.
<PAGE>
Credit Ratings. The current ratings of the Company's principal
securities and its commercial paper are as follows:
Duff and
Phelps
Moody's Standard Credit Fitch
Investors & Poor's Rating Investors
Service,Inc. Corporation Company Service,Inc.
First Mortgage Bonds A3 A- A+ A-
Pollution Control Bonds Baa1 A- A N/R
Unsecured Debt Baa1 A- A A-
Preferred Stock baa1 BBB+ A- A-
Commercial Paper P-2 A-2 D-1 F-2
The Company's credit ratings are subject to periodic revision or
withdrawal by the particular rating agency, and each rating should be
evaluated independently of any other rating. The ratings assigned to the
Company's securities by the rating agencies are not a recommendation to
buy, sell or hold the Company's securities, but rather are assessments of
the respective credit-worthiness of the Company's various securities by
the rating agencies. The Company's bonds have an upper medium grade
credit rating, its preferred stock has a lower medium grade credit rating
and its commercial paper has an upper medium grade credit rating.
Regulatory Matters
A description of the general character of rate regulation and its
effect on the financial statements of the Company and its utility
subsidiaries, including a disclosure of the Company's regulatory assets,
is contained in Note 1 of Notes to Consolidated Financial Statements under
the caption "Rate Regulation" on page 23 of the 1995 Annual Report to
Shareholders, which information is incorporated by reference in this Form
10-K Annual Report.
State Regulation. The Company and its utility subsidiaries are
subject to the jurisdiction of state commissions in their respective
states of incorporation. The state commissions have the authority to
regulate, among other things, rates, services, the issuance of securities
and accounting and depreciation procedures. The Company is subject to the
jurisdiction of the New York State Public Service Commission ("NYPSC"),
which covers approximately 77% of consolidated energy sales. RECO is
subject to the jurisdiction of the New Jersey Board of Public Utilities
("NJBPU"), which covers approximately 22% of consolidated energy sales.
Pike is subject to the jurisdiction of the Pennsylvania Public Utility
Commission ("PAPUC"), which covers approximately 1% of consolidated energy
sales. Sales for resale, which are subject to regulation by the Federal
Energy Regulatory Commission ("FERC"), accounted for less than 1% of
consolidated energy sales.
Federal Regulation. The Company, pursuant to an order of the
Securities and Exchange Commission, has been exempted from all of the
provisions of the Public Utility Holding Company Act of 1935, except
Section 9(a)(2) thereof relating to the acquisition of securities of other
public utility companies.
<PAGE>
The Company and its utility subsidiaries are subject to the
jurisdiction of the FERC as "public utilities". This regulation
primarily relates to sales and exchanges of electricity for resale,
certain transportation, sales and exchanges of natural gas under the
Natural Gas Act, Company sales to its utility subsidiaries and certain
other matters including accounting, recordkeeping and reporting.
Other Regulation. The Company and its utility subsidiaries are also
subject to regulation by various other Federal, state, county and local
agencies under numerous regulations dealing with, among other things,
environmental matters, energy conservation, long-range planning, fuel use,
plant siting and gas pricing.
Current Rate Activities. Information regarding the current rate
filings of the Company and its utility subsidiaries, including the impact
which the recent events affecting the Company had on the rate proceedings
of the Company and its utility subsidiaries, is contained under the
captions "Investigation and Litigation" and "Rate Activities" in the
"Review of the Company's Results of Operations and Financial Condition" on
pages 11 and 16, respectively, of the 1995 Annual Report to Shareholders,
which information is incorporated by reference in this Form 10-K Annual
Report, as well as in Item 3, "Legal Proceedings" of this Form 10-K Annual
Report. Information regarding NYPSC proceedings dealing with certain
"take-or-pay" gas contract costs is also contained under Item 3, "Legal
Proceedings" of this Form 10-K Annual Report, and in the 1995 Annual
Report to Shareholders in the "Review of the Company's Results of
Operations and Financial Condition" under the caption "Gas Energy Costs"
on page 14 and in Note 12 of the Notes to Consolidated Financial
Statements under the caption "Gas Supply and Storage Contracts" on
page 29, which information is incorporated by reference in this Form 10-K
Annual Report.
<PAGE>
Rate Relief. During the five year period ending December 31, 1995,
the Company and its utility subsidiaries have sought rate relief to cover
the impact of increased costs. The amounts of rate relief approved by the
NYPSC, NJBPU and PAPUC are set forth in the following table.
Historical Base Rate Relief
1991 - 1995
Annual Amount Overall Rate Return on
Class of ($000's) of Return Equity
Service Effective Date Requested Granted Granted (%) Granted (%)
Electric - N.Y. 01/01/91 22,483 10,450 9.87(a) 11.45(a)
Gas - N.Y. 12/29/91 3,570 554 9.42 10.3
Electric - N.J. 01/24/92 12,863 5,100 10.17 12.0
Electric - N.Y. 05/01/92 (b) 5,548 (b) (b)
Gas - N.Y. 12/15/92 7,962 3,776 10.04(c) 11.65(c)
Electric - N.J. 01/01/93 (d) 1,685 - -
Electric - N.Y. 05/01/93 (e) 691 - -
Electric - Pa. 06/11/93 498 270 (f) (f)
Gas - Pa. 06/25/93 36 12 (f) (f)
Electric - N.Y. 07/01/94 (g) -0- (h) (h)
Gas - N.Y. 11/04/94 (i) (i) (i) (i)
Electric - N.Y. 05/01/95 (j) -0- - -
Electric - N.Y. 08/01/95 (6,112) (6,112) (k) 11.3%(k)
(a) The Company was provided with an opportunity to earn a return on
common equity of 12.51%, and an overall rate of return of 10.32%,
through the achievement of incentives related to certain DSM and
customer service goals. For 1993, the value of the incentive related
to DSM goals increased the total opportunity to earn a return on
common equity to 12.61%. However, effective January 1994, the DSM
incentive was reduced and the customer service incentive was
eliminated.
(b) The first post rate year filing made in accordance with the NYPSC
Order in the Company's 1989 electric base rate case provided for the
recovery in base rates of inflation on non-fuel operation and
maintenance expenses, rate base additions and cost of capital. The
base rate increase amounted to $5,548,000. In addition, the Company
was permitted to recover a one-time surcharge of $1,869,000 which
represents a net undercollection resulting from the reconciliation of
revenue and expenses and earned incentives for the year 1991 as
provided for in the 1989 Order.
(c) Under a multi-year gas rate agreement (1993-1996), the Company was
provided with an opportunity to earn a return on common equity of
12.15% through the achievement of incentives related to its main
replacement program, gas efficiency programs and gas marketing
programs.
(d) Rate increase as ordered by the NJBPU to reflect the effect of revised
legislation regarding gross receipts and franchise taxes. Rate
recovery with interest is permitted over a ten-year period.
(e) The second post rate year filing made in accordance with the NYPSC
Order in the Company's 1989 electric base rate case provided for the
recovery of inflation on non-fuel operation and maintenance expenses,
rate base additions and cost of capital. The base rate increase
amounted to $691,000. In addition, the Company was permitted to
replace the $1,869,000 one-time surcharge with a one-time surcharge of
$10,617,000 which represents a net undercollection resulting from the
reconciliation of revenue and expenses and earned incentives for the
year 1992 as provided for in the 1989 Order.
(f) No redetermination of the rate of return on common equity was made
under a stipulated agreement. The implied return on common equity is
12.00%, and the implied overall rate of return is 9.98%.
(g) The third post rate year filing made in accordance with the NYPSC
Order in the Company's 1989 electric base rate case allowed the
Company to replace the $10,617,000 one-time surcharge with a one-time
surcharge of $7,721,000 which represents a net undercollection
resulting from the reconciliation of revenue and expenses and earned
incentives for the year 1993 as provided for in the 1989 Order.
(h) By means of its Order dated June 10, 1994, the NYPSC, among
other things, continued the Revenue Decoupling Mechanism
("RDM") and reduced the return on equity threshold for
measuring excess earnings from 12.0% to 10.6%. The Company
was required to defer earnings in excess of 10.6%.
(i) On November 4, 1994, the NYPSC issued an order terminating the multi-
year gas rate agreement. The order denied the Company the opportunity
for rate adjustments in the third and fourth years (1995 and 1996) of
the agreement. On February 7, 1995, the Accounting and Finance
Division of the NYPSC issued an interpretation of the November 4, 1994
termination order which stated that the gas incentive mechanism
related to the attainment of certain goals is no longer available.
The Company did not contest this interpretation.
(j) On February 17, 1995, the Company submitted a compliance filing
regarding the operation of the RDM. The filing included a proposal to
eliminate the $7,721,000 effective May 1, 1995 reflecting the
completion of the recovery of an RDM undercollection applicable to the
year 1993. In addition, the filing requested that a net
overcollection of $689,000 for the year 1994 be retained by the
Company as a future rate moderator, subject to NYPSC verification. On
April 19, 1995, the NYPSC approved the proposals, and the one-time
surcharge was eliminated effective May 1, 1995.
(k) On May 25, 1995, the Company filed a petition to reduce base electric
rates by $6.1 million (1.8%) effective April 1, 1996. In accordance
with a settlement agreement the Company agreed to reduce its base
rates by $6.1 million annually effective August 1, 1995. The
settlement replaces the 10.6% earnings limitation imposed by order
issued June 10, 1994 with equal sharing of electric earnings in excess
of 11.3%. The NYPSC is expected to issue an order addressing the
Company's May 1995 electric base rate petition in April 1996.
<PAGE>
Utility Industry Risk Factors
The electric and gas utility industry is exposed to many of the
general business and financial risks which affect all industries on a
local, national or international level. It is also exposed to business
and financial risks that are particular to the provision of utility
services and to operating a business in a regulated environment. In
particular, the industry is exposed to risks relating to, among other
things, increasing competition in the wholesale power markets and a move
to competition in the retail sector; uncertainties regarding the
transition mechanisms, both operating and financial, as the industry moves
to deregulation, including the potential for stranded, or non-recoverable
costs; increases in fuel costs and uncertainties as to fuel supplies;
numerous environmental restrictions, including potential liabilities for
environmental matters; regulatory constraints, including the timing and
adequacy of rate relief; increases in the cost of, and delays in,
construction in an industry which is fixed-asset intensive; the attraction
of capital in an industry which is capital intensive; the effects of
energy conservation and weather related sales fluctuations, both of which
have the potential of causing revenue erosion; and the requirement to
provide for growth in demand for energy services.
The Company and its utility subsidiaries are, to some extent,
experiencing all of these challenges. However, the impact on the Company
and its utility subsidiaries has been less than for the utility industry
in general, particularly due to the Company's relatively low construction
expenditures and low external financing requirements. In addition, rate
procedures which have been in effect for the Company's New York electric
and gas operations had the effect of mitigating certain risks. The RDM
procedures safeguarded revenue from the effect of sales volume changes due
to customer conservation and weather related fluctuations and provided
deferral and reconciliation procedures for certain categories of expenses,
while the DSM program provided incentives related to the achievement of
certain energy conservation goals.
In the context of the Company's pending rate petition before the
NYPSC, these mechanisms are not expected to be continued. However, the
Company is committed to managing the risks which are present in the
changing utility environment. Included in this strategy are the
maintenance of low construction and operating budgets and avoiding
external financing. The Company's tri-fuel strategy provides flexibility
regarding fuel availability and pricing and the continuance of fuel clause
adjustment mechanisms in the rate structures of the Company and its
utility subsidiaries assures fuel cost recovery on a current basis. With
regard to future power supply, the Company will continue to utilize
competitive bidding procedures to mitigate the risks associated with the
Company's purchase of both electric capacity and energy, particularly with
regard to prudency determinations, and cost recovery, and to insure
sufficient power supply to meet the growth in demand. Recent actions
taken by the Company to mitigate the risk of non-competitive future energy
prices include the write-off of two of the Company's older generating
units and the successful negotiation of termination agreements with three
independent power producers with whom the Company had power supply
contracts. In addition, as the industry moves to increased competition
and potential deregulation, the Company has taken an active role in the
competitive opportunities proceedings in the states in which it operates
and has worked extensively with industry groups and the NYPP in designing
the future framework for the utility industry. <PAGE>
Additional information concerning the DSM program and the RDM rate
procedure is contained under the captions "Electric Operating Revenues and
Sales", "Gas Operating Revenues and Sales" and "Rate Activities" in the
"Review of the Company's Results of Operations and Financial Condition"
on pages 12, 13 and 16, respectively, of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report. Reference is also made to the caption "Future
Energy Supply and Demand" in this Item 1. Information concerning
competition in the utility industry and the Company's strategy for
meeting the challenges of increased competition is also contained in
the "Review of the Company's Results of Operations and Financial Condition
under the caption "Competition" on page 18 of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report. Reference is also made to the section
"Competition" in this Item 1.
The problems associated with nuclear energy have not affected the
Company as it has no operating nuclear plants nor any under construction,
and has no plans for future participation in nuclear projects. For
further information on the recovery by the Company of its investment
in the cancelled Sterling Nuclear Project, see Note 3 of the Notes to
Consolidated Financial Statements - "Sterling Nuclear Project" on page 25
of the 1995 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
Competition
There are competitive factors present in the electric and gas
industry which affect utility companies in varying degrees. Among these
are the use by interruptible or dual-fuel customers of lower priced
alternative fuels; the establishment of municipal distribution agencies;
the ability of gas producers to sell gas directly to end users, usually
through an independent gas marketer; the presence of cogenerating systems,
small power producers and independent power producers; and the increasing
interest in, and research on, the development of energy sources other than
those now in use. In addition, regulatory agencies in the three states in
which the Company has retail electric franchises are currently evaluating
possible changes in regulatory and ratemaking practices designed to
promote increased competition. Depending on future development in this
area, the Company's market share and profit margins could become subject
to competitive pressures in addition to regulatory constraints.
Additional information regarding competition in the utility industry
and the Company's strategy for meeting the challenges of increased
competition is contained in the "Review of the Company's Results of
Operation and Financial Condition" under the caption "Competition" on
page 18 of the 1995 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
Marketing
In response to the increasingly competitive market environment in the
utility industry, the Company has redirected its marketing activities.
One of the primary focuses of the new marketing strategy is to work more
<PAGE>
closely with commercial and industrial customers in order to identify the
business issues which impact these customer classes. This will provide
the base for the development of new products, services and strategies
which will be aimed at retaining and expanding this customer base.
DSM activities will remain a major focus of the new marketing
strategies in the continuing effort to achieve energy efficiency while
helping customers to reduce their energy costs. Emphasis will move from
the customer rebate aspect of the DSM programs to energy cost savings
which may be realized through these programs. In addition, research into
new and emerging technologies has been given new emphasis in the Company's
marketing strategy.
Environmental Matters
The Company is subject to regulation by Federal, state, county and,
to some extent, local authorities with respect to the environmental
effects of its operations, including regulations relating to air and water
quality, aesthetics, levels of noise, hazardous wastes, toxic substances,
protection of vegetation and wildlife and limitations on land use. In
connection with such regulation, various permits are required with respect
to the Company's facilities. Generally, the principal environmental areas
and requirements to which the Company is subject are as follows:
Water Quality. The Company is required to comply with Federal and
State water quality statutes and regulations, including the Federal Clean
Water Act ("Clean Water Act"). The Clean Water Act requires that Company
generating stations be in compliance with state issued State Pollutant
Discharge Elimination System Permits ("SPDES permits"), which prescribe
applicable conditions to protect water quality. Effective July 1, 1994,
the State of New York Department of Environmental Conservation (the
"NYSDEC") issued a new SPDES permit for the Company's Lovett Coal Ash
Management Facility. The Company also has a SPDES permit, effective
October 1, 1991 for its Lovett generating station. The Lovett SPDES
permit will expire on October 1, 1996. A renewal application will be
filed within the statutory deadline. Additional information concerning
the Lovett SPDES permit is contained in Item 3, "Legal Proceedings" of
this Form 10-K Annual Report.
The Bowline Point generating station currently operates under a SPDES
permit which expired on October 1, 1992. This permit remains in effect
since a permit renewal application was filed on April 3, 1992, which was
within the statutory deadline for renewal application. The Company is now
proceeding with the State Environmental Quality Review Act ("SEQRA")
process as part of the permit renewal procedure. The SEQRA process, and
the resulting delay in issuance of a new permit to the Company, has had no
practical impact on the operation of the Bowline Point generating station.
The Company entered into a settlement with the United States
Environmental Protection Agency ("EPA") and others that relieved the
Company for at least 10 years from a regulatory agency requirement that,
in effect, would have required that cooling towers be installed at the
Bowline Point generating station. In return, the Company agreed to
certain plant modifications, operating restrictions and other measures.
<PAGE>
This settlement expired in May 1991. On May 15, 1991, the Company and
others entered into an Interim Agreement with the NYSDEC to continue
specific operating conditions and other measures for a period from May 15,
1991 to September 30, 1992. Several intervenors to the original
settlement filed a civil action challenging the Interim Agreement's
legality. On March 23, 1992, the parties to the Interim Agreement and
intervenors signed a Consent Order terminating litigation and agreeing to
certain operating limitations and biological monitoring requirements. The
parties have agreed to extend the terms of the Consent Order until
February 1, 1997.
Air Quality. Under the Federal Clean Air Act, the EPA has
promulgated national primary and secondary air quality standards for
certain pollutants, including sulfur oxides, particulate matter and
nitrogen oxides. The NYSDEC has adopted, and the EPA has approved, the
New York State Implementation Plan ("SIP") for the attainment, maintenance
and enforcement of these standards. In order to comply with the SIP, the
Company burns #6 fuel oil at its Lovett and Bowline Point generating
stations with a 0.37% maximum sulfur content by weight.
Pursuant to the SIP, the Company is governed by the following
limitations when it is burning coal at Lovett Units 4 and 5: if one unit
is burning, the Company may emit sulfur dioxide at a rate not to exceed
1.5 lb/MMBTU, and if two units are burning, the Company may emit sulfur
dioxide at a rate not to exceed 1.0 lb/MMBTU per unit.
The NYSDEC has requested EPA approval of revisions to the SIP to meet
ozone attainment standards and to provide a mechanism for Title V
emissions fee billing as defined under the Clear Air Act. Beginning with
calendar year 1994, the owners of Title V sources in New York State, which
sources include the Company's Lovett Plant and Bowline Point Plant, are
required to pay an emission fee based upon actual air emissions reported
to NYSDEC at a rate of approximately $26 per ton of air emissions. In
1995, the Company paid approximately $473,000 in such emission fees,
approximately $98,000 of which was recovered from Con Ed pursuant to the
Bowline Point Plant operating agreement. In 1996, this emission fee will
be based on 1995 air emissions at a rate established by the NYSDEC not to
exceed $50 per ton.
The Clean Air Act Amendments of 1990, which became law on
November 15, 1990, could restrict the Company's ability to meet increased
electric energy demand after the year 2000 or could substantially increase
the cost to meet such demand. Regulations pertaining to nitrogen oxide
reduction and continuous emissions monitoring systems required capital
expenditures totalling approximately $28.7 million through 1995. The
Company will continue to assess the impact of the Clean Air Act Amendments
of 1990 on its power generating operations as additional regulations
implementing these Amendments are promulgated.
Toxic Substances and Hazardous Wastes. The Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986 ("Superfund"),
provides that both the owners and operators of facilities where releases
<PAGE>
of hazardous substances into the environment have occurred or are
imminent, and the generators and transporters of hazardous substances
disposed of at the facilities, are, regardless of fault, jointly and
severally liable for all response, removal and remedial action costs and
also for damages to natural resources.
As part of its operations, the Company generates materials which are
deemed to be hazardous substances under Superfund. These materials
include asbestos and dielectric fluids containing polychlorinated
biphenyls ("PCBs"), both of which are disposed of at licensed, off-site
locations not owned by the Company. Other hazardous substances may be
generated in the course of the Company's operations or may be present at
Company-owned locations.
The Company has, from time to time, received process or notice of
claims under Superfund or similar state statutes relating to sites at
which it is alleged that hazardous substances generated by the Company
(and, in most instances, by a large number of other potentially
responsible parties) were disposed of. Similar claims may be asserted
from time to time hereafter, involving additional sites. Typically, many
months, and sometimes years, are required to fully determine the probable
magnitude of the cleanup costs for a site, the extent, if any, of the
Company's responsibility, the number and responsibility of other parties
involved, the financial ability of the other parties to pay their
proportionate share of any costs, and the probable ultimate liability
exposure, if any, of the Company. This process is still under way at most
of the sites of which the Company has notice, and the costs at some of
these sites may be substantial. However, based on the information and
relevant circumstances known to the Company at this time, the Company's
share of these costs is not expected to have a material effect on the
financial condition of the Company.
Information concerning certain Superfund claims involving the Company
is included in Item 3, "Legal Proceedings" of this Form 10-K Annual
Report.
Environmental Expenditures. The Company's environmental expenditures
amounted to approximately $26.2 million in 1995.
Compliance with Federal, state and local laws and regulations which
have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment
is not anticipated to have a material effect on the financial condition of
the Company.
The Company's projected environmental expenditures are under
continuous review and are revised periodically to reflect changes in
environmental regulations, inflation, technology and other factors which
are beyond the control of the Company. Although the Company is unable to
predict the ultimate impact of environmental regulations on existing or
proposed facilities or on the operations of the Company, the Company
believes that its expenditures for compliance with environmental
regulations will be given appropriate rate treatment by the respective
regulatory commissions.
<PAGE>
Information concerning environmental issues and their potential
effect on the Company's operations is included in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Other Legal
Proceedings" beginning on page 31 of the 1995 Annual Report to
Shareholders, which information is incorporated by reference in this Form
10-K Annual Report, as well as in Item 3 "Legal Proceedings" of this Form
10-K Annual Report.
Research and Development
The Company supports research and development agencies involved in
utility research, provides funds for joint utility research projects and
conducts its own internal program. Research and development expenditures
amounted to approximately $2.9 million in 1995, $3.8 million in 1994 and
$5.0 million in 1993.
The Company provides support to national agencies such as the
Electric Power Research Institute and the Gas Research Institute. At the
state level, the Company supports the Empire State Electric Energy
Research Corporation, the New York State Energy Research and Development
Authority and the New York Gas Group Research, Development and
Demonstration Committee.
Generally, the Company's internal research and development program
concentrates on projects which uphold the corporate goal of providing safe
and reliable electric and gas service to customers at a minimum price and
in an environmentally acceptable manner. The program includes projects
which seek improvement of generation and distribution systems, mitigation
of environmental impacts of electric power generation, and enhancement of
the value of electric energy for customers. Current projects include an
evaluation of the performance characteristics of underground distribution
cable, an evaluation of the efficient use of electrotechnologies at a
municipal wastewater treatment plant, alternative methods to reduce fish
impingement at power plants, small business electrotechnologies studies,
and power quality monitoring and reporting.
Franchises
The Company and its utility subsidiaries, RECO and Pike, each have
municipal consents or franchises, together with their corporate or charter
powers, which give each of them the right to carry on their respective
operations in the territories served. The municipal consents or
franchises held by the Company and its utility subsidiaries are not
exclusive. In certain municipalities, the areas served by the Company,
RECO and Pike are limited either by the terms of the consents or
franchises or by order of the NYPSC, the NJBPU, or the PAPUC,
respectively. Under the present provisions of the State laws of New York,
New Jersey and Pennsylvania, no other private corporation can commence
public utility operations in any part of the territories now served by the
Company, RECO or Pike, respectively, without obtaining a certificate of
public convenience and necessity from the applicable State utility
commission.
<PAGE>
A certificate of public convenience and necessity would not be
required with respect to a municipality furnishing electric or gas service
within its borders under the present provisions of the State laws of
New York, New Jersey or Pennsylvania. Municipal corporations, upon
compliance with the State laws of New York, New Jersey or Pennsylvania, as
applicable, are authorized to acquire the public utility service of any
public utility company by purchase or by condemnation. The Company does
not reasonably expect any municipal corporation to acquire the public
utility service of the Company or its utility subsidiaries through either
purchase or condemnation.
The municipal consents or franchises of the Company and its utility
subsidiaries are not uniform and contain, in certain instances, provisions
relating to, among other things, the time of commencing operations, the
furnishing of service to the particular municipality, the approval by the
municipal authorities of the location and construction of distribution
facilities, indemnification of the municipality against liabilities and
damages in consequence of construction, and administrative matters. Such
provisions are not considered by the Company to be unduly burdensome.
Employee Relations
At December 31, 1995, the Company had 1,539 employees of whom 33 were
part-time employees. The Company considers its relationship with its
employees to be satisfactory. The current contract with Local 503 of the
International Brotherhood of Electrical Workers ("IBEW") representing 878
production, maintenance, commercial and service employees of the Company
became effective June 1, 1994 and expires June 1, 1997. This contract
does not include supervisory employees.
The Company's utility subsidiaries, RECO and Pike, have no employees
other than officers. All services are performed for the utility
subsidiaries by employees of the Company pursuant to Joint Operating
Agreements approved by the NJBPU and the PAPUC, through which the Company
is reimbursed for these services. Several employees of the Company
provide managerial and clerical services for the non-utility subsidiaries
of the Company and of RECO, the cost of which are either paid directly by
the subsidiaries or are reimbursed to the Company through periodic
billings. In addition, the non-utility subsidiaries, at December 31,
1995, had 90 full-time and 5 part-time employees, none of whom were
participants in the Company's various employee benefit plans or were
covered by the Company's contract with the IBEW.
<PAGE>
Item 2. Properties
The Company's property consists primarily of electric generation,
transmission and distribution facilities and gas distribution facilities.
This property is required for the continued operation of the Company's
major business segments. In addition, the Company maintains certain
miscellaneous utility and non-utility property. The Company's facilities
are in satisfactory condition, are suitable for the particular purpose for
which they were acquired, and are adequate for the Company's present
operations.
Electric Generating Facilities. The Company's generating plants, all
of which are located in New York State, are as follows:
Maximum
Summer Percent Net Mwh
Net Mw of Total Generated
Plant Name Units Energy Source Capacity Capacity in 1995
Swinging Bridge,
Mongaup & Rio 8 Hydroelectric 25.8 2.6% 49,722
Grahamsville 1 Hydroelectric 18.0 1.8 93,354
Hillburn 1 Jet Fuel/Gas 37.0 3.8 2,689
Shoemaker 1 Jet Fuel/Gas 37.0 3.8 19,220
Lovett 3 Coal/Oil/Gas 462.6 47.2 1,767,446
Bowline Point 2 Oil/Gas 400.6(1) 40.8 1,097,149
981.0 100.0% 3,029,580
(1) Company's share of maximum summer net megawatt capability.
Electric Transmission and Distribution Facilities. The Company owns, in
whole or in part, and operates overhead and underground transmission and
distribution facilities which include 551 circuit miles of transmission
lines, 73 substations, 83,079 in-service line transformers, 4,950 pole miles
of overhead distribution lines and 1,934 miles of underground distribution
lines. With the exception of the Grahamsville Substation, the electric
transmission and distribution facilities of the Company and its utility
subsidiaries are located within the Company's New York, New Jersey and
Pennsylvania service territory, which is described under the caption
"Principal Business" in Item 1 of this Form 10-K. The Bowline Substation and
the related transmission facilities are jointly owned by the Company and Con
Ed and are operated by the Company. The Ramapo Substation and certain
related transmission facilities consist of property which is either owned by
the Company, owned by Con Ed or jointly owned by the Company and Con Ed and
which is operated and maintained by the Company except for the 500/345 Kv
section of the Ramapo substation and a 500 Kv transmission line now operated
and maintained by Con Ed effective January 1995.
Gas Facilities. The Company owns and operates three propane air gas
plants at Middletown, Orangeburg and Suffern, New York and its gas
distribution system, which is located within its gas franchise territory in
New York and Pennsylvania, includes 1,723 miles of mains.
<PAGE>
Miscellaneous Properties. The Company owns office buildings and
operating facilities in Middletown, Spring Valley, Blooming Grove and West
Nyack, New York, and other structures at different locations within the
Company's service territory which are used as offices, service buildings,
store houses and garages. The Company leases its corporate headquarters in
Pearl River, New York, as well as office space at other locations. In
addition, the Company has lease agreements covering certain of its data
processing equipment, office equipment and vehicle fleet.
Character of Ownership. The Company's electric and gas plants and its
major electric substations are located on land owned by the Company in fee,
except for the Grahamsville Plant and the Bowline Point Plant. The greater
portion of the Grahamsville Plant is located on land leased from the City of
New York and the Bowline Point Plant is located on land in which the Company
has a one-third undivided interest, with the remainder being owned by Con Ed.
Water power and flowage rights for the operation of its Mongaup River Hydro
Plants are controlled by the Company either through ownership of the
necessary land in fee or through easements which are, in practically all
cases, perpetual. In the case of the Grahamsville Plant, however, water is
obtained under contract with the City of New York.
Electric transmission facilities of the Company and its utility
subsidiaries (including substations) are, with minor exceptions, located on
land owned in fee or occupied pursuant to perpetual easements. Electric
distribution lines and gas mains are located in, on or under public highways
or private lands pursuant to lease, easement, permit, municipal consent,
agreement or license, express or implied through use by the Company or its
utility subsidiaries without objection by the owners. In the case of
distribution lines, the Company owns approximately 60% of the poles upon
which its wires are installed and has a joint right of use in the remaining
poles on which its wires are installed, which poles are owned, in most cases,
by telephone companies.
The Company's electric and gas plants are owned by the Company except
for the gas turbines at Hillburn and Shoemaker which are leased and the
Bowline Point Plant which is jointly owned with Con Ed and operated by the
Company. Additional information regarding the investment in the Bowline
Point Plant by the Company and Con Ed is included in Note 1 of the Notes to
Consolidated Financial Statements under the caption "Jointly Owned Utility
Plant" on page 24 of the 1995 Annual Report to Shareholders, which material
is incorporated by reference in this Form 10-K Annual Report.
Substantially all of the utility plant and other physical property owned
by the Company and its utility subsidiaries is subject to the liens of the
respective indentures securing the first mortgage bonds of the Company and
its utility subsidiaries.
Investments in securities of the utility subsidiaries costing $11.8
million which have been eliminated from the Consolidated Balance Sheet are
pledged under the Company's First Mortgage Indenture, as amended and
supplemented.
<PAGE>
Item 3. Legal Proceedings
Environmental and Other Litigation:
On May 11, 1993, Hudson Riverkeeper Fund, Inc. v. Orange and Rockland
Utilities, Inc. was commenced in the United States District Court for the
Southern District of New York. In its complaint, Hudson Riverkeeper Fund,
Inc. ("Riverkeeper") alleged that the Company violated and continues to
violate its SPDES permit for its Lovett Generating Station ("Lovett") by
failing to maintain cooling water intake structures that reflect the best
technology available for minimizing adverse environmental impact. An amended
complaint was filed May 18, 1993. The complaint, as amended, requested that
the Court assess civil penalties aggregating $11 million and ordered the
Company to take steps to ensure that the cooling water intake structures at
Lovett reflect the best technology available for minimizing adverse
environmental impact. On June 30, 1993, the Company filed its answer to
Riverkeeper's allegations reflecting the Company's belief that Riverkeeper's
allegations have no legal merit. Subsequently, the NYSDEC intervened in this
litigation as a designated plaintiff. In April 1994, the parties agreed to
have engineers enter into discussions regarding modifications to the Lovett
plant's cooling water intake structures or alternative mitigative options.
From June to August 1995, the Company conducted a demonstration project
to assess the effectiveness of a barrier known as a "Gunderboom", at the
cooling water intake structure for Lovett Unit No. 3. The Company,
Riverkeeper and NYSDEC have agreed that the Gunderboom is worthy of further
study. The Company will install the Gunderboom at the cooling water intake
structure for Lovett Units Nos. 4 and/or 5 in the spring of 1996. The
parties have agreed to postpone all further discovery and motion practice in
this litigation until at least June 1996.
Additional information regarding the Company's SPDES Permits is
contained under the caption "Water Quality" of "Environmental Matters" in
Item 1 of this Form 10-K.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 for a
description of litigation entitled Warwick Administrative Group, et al. v.
Avon Products, Inc. et al. ("Warwick"). In U.S.A. v. International Paper
Co., et al. ("International Paper"), an action related to Warwick which
seeks to recover costs incurred by the United States Environmental Protection
Agency in connection with the planned remediation of the Warwick landfill
site, the Company was served with third party summonses and complaints by
Revere Smelting and Refining Corporation ("Revere") and Nepera Inc. The
Company's answers to the third party complaints from Nepera, Inc. and Revere,
denying all of the allegations contained therein and setting forth a number
of affirmative defenses, were filed on October 25 and November 6, 1995,
respectively. The Company is actively involved in settlement discussions
with the Warwick plaintiff group, which proposed settlement would also
include claims arising under the International Paper action. The Company has
determined that its liability, if any, in Warwick and International Paper
will not have a material effect on the financial condition of the Company.
<PAGE>
On September 25, 1991, the Company was named as one of several hundred
third party defendants in United States v. Kramer, et al. and State of New
Jersey Dep't of Environmental Protection v. Almo Anti-Pollution Services, et
al., which cases have been consolidated in the United States District Court
for the District of New Jersey, Camden Vicinage. The allegations in
this action concern the Helen Kramer Landfill site in Mantua, New Jersey,
which operated from 1963 to 1981. This action was brought under Superfund
laws. Additional information concerning Superfund laws is contained under
the subheading "Environmental Matters" in Item 1 of this Form 10-K Annual
Report. It is presently unclear if any hazardous waste generated by the
Company was transported to the Helen Kramer Landfill site. The total cost of
remediation and damages at the site, while not clearly established, is
reportedly estimated at $100 million or more. It appears reasonable to
expect the Company's relative contribution to the Helen Kramer site, if any,
to have been less than 1% of the total volume sent to the site. At this
time, the Company does not believe this action will have a material effect on
the financial condition of the Company.
Reference is made to Item 3, "Legal Proceedings", in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 for a
description of litigation entitled Carpenters Local No. 964 Pension Fund v.
DiGiacinto et al. ("DiGiacinto"), Guarino et al. v. Carpenters Local No. 964
Pension Fund ("Guarino"), and United States Gypsum Company v. Broadhaver
Realty Corp. ("U.S. Gypsum"). In August 1995, the parties to the DiGiacinto,
Guarino and U.S. Gypsum litigations entered into a settlement agreement
which, inter alia, provided for (i) the dismissal of the above-cited actions
and (ii) remediation of the site. The Company contributed $16,995 to the
settlement fund.
On March 29, 1989, the New Jersey Department of Environmental Protection
("NJDEP") issued a directive under the New Jersey Spill and Control Act to
various potentially responsible parties ("PRPs"), including the Company, with
respect to a site formerly owned and operated by Borne Chemical Company in
Elizabeth, Union County, New Jersey, ordering certain interim actions
directed at both site security and the off-site removal of certain hazardous
substances. Certain PRPs, including the Company, signed an administrative
consent order with the NJDEP requiring them to perform a removal action at
the site, which action was completed on June 22, 1992. In October 1995, the
PRPs entered an additional administrative consent order with the NJDEP which
obligated the PRPs, including the Company, to perform a remedial
investigation to determine what, if any, subsurface remediation at the Borne
site is required. The Company does not believe that this matter will have a
material effect on the financial condition of the Company.
On May 29, 1991 a group of ten electric utilities (the "Metal Bank
Group") entered into an Administrative Consent Order with the United States
Environmental Protection Agency ("EPA") to perform a remedial investigation
and feasibility study ("RIFS") at the Cottman Avenue/Metal Bank Superfund
site in Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman
Avenue site from an underground storage tank and the handling of transformers
and other electrical equipment at the site. On May 25, 1994, the Company
entered into a tolling agreement pursuant to which the Metal Bank Group
reserved its right to file suit against the Company while the Metal Bank <PAGE>
Group and the Company entered into discussions to determine the extent of the
Company's involvement with the Cottman Avenue site. These discussions
continue. The RIFS has been completed and submitted to the EPA for
determination of what remedial measures will be required at the Cottman
Avenue site. The Company is unable at this time to estimate its share, if
any, of past or future costs at this site.
On August 2, 1994 the Company entered into a Consent Order with the New
York State Department of Environmental Conservation ("NYSDEC") in which the
Company agreed to conduct a remedial investigation of certain property it
owns in West Nyack, New York. Polychlorinated biphenyls ("PCBs") have been
discovered at the West Nyack site. Petroleum contamination related to a
leaking underground storage tank has been found as well. The results of this
investigation will determine what, if any, remediation at the West Nyack site
will be required. The Company does not believe that this matter will have a
material effect on the financial condition of the Company.
The Company has identified six former Manufactured Gas Plant ("MGP")
sites which were owned and operated by the Company or its predecessors. The
Company may be named as a potentially responsible party for these sites under
relevant environmental laws, which may require the Company to clean up these
sites. To date, no claims have been asserted against the Company. The
Company and the NYSDEC have executed a Consent Order, dated as of January 8,
1996, which provides for preliminary site assessments of these six MGP sites.
The Company is unable at this time to estimate what, if any, costs it will
incur at these sites.
The Company has been named as a defendant or third-party defendant in a
number of proceedings involving alleged personal injuries, primarily to
construction workers, as a result of exposure to asbestos at facilities owned
and operated by the Company. Discovery with regard to these cases will
determine, among other things, if the plaintiffs in each of these cases
worked at Company facilities. The Company anticipates that similar asbestos-
related claims may be asserted against the Company from time to time in the
future. However, at this time the Company does not believe that the
asbestos-related lawsuits currently outstanding, nor those which may be
brought in the future, will, individually or in the aggregate, have a
material effect on the financial condition of the Company.
Superfund and certain similar state statutes authorize various
governmental authorities to issue orders compelling responsible parties to
take cleanup action at sites determined to present an imminent and
substantial danger to the public and to the environment because of an actual
or threatened release of hazardous substances. The Company is a party to a
number of administrative proceedings involving potential impact to the
environment. Such proceedings arise out of, without limitation, the
operation and maintenance of facilities for the generation, transmission and
distribution of electricity and natural gas. Information regarding the
Company's involvement in these various proceedings is included in Note 12 of
the Notes to Consolidated Financial Statements under the caption
"Environmental" on page 32 of the 1995 Annual Report to Shareholders, which
information is incorporated by reference in Item 1 of this Form 10-K Annual
Report, as well as under the subheading, "Environmental Matters" of this Form
10-K Annual Report. Such proceedings are not, in the aggregate, material to
the financial condition of the Company.
<PAGE>
Reference is made to Item 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 for a
description of litigation entitled Payran v. Orange and Rockland Utilities,
Inc. and James Donnery ("Payran"). The Company has determined that its
liability, if any, in Payran will not have a material effect on the financial
condition of the Company.
Investigation Related Litigation:
On February 7, 1994, the Company commenced, by the filing of a Summons
with Notice, Orange and Rockland Utilities, Inc. v. James F. Smith, in New
York State Supreme Court, County of Rockland, against James F. Smith, its
former Chief Executive Officer and Chairman of the Board of Directors, who
was terminated for cause by the Company's independent Directors in October
1993. The Summons put Mr. Smith on notice of claims for breach of his
fiduciary duties of loyalty and care, waste, conversion, fraud, and unjust
enrichment based on allegations that Mr. Smith misused Company assets and
personnel and misappropriated Company funds for his own benefit or for other
improper purposes, and failed to maintain proper management controls or to
properly supervise corporate affairs and subordinate employees. The Company
seeks an accounting by Mr. Smith of certain Company funds and property,
restitution of all amounts misappropriated, misused, or unaccounted for,
forfeiture of compensation paid or awarded by the Company to Mr. Smith during
the period in which breaches of fiduciary duties occurred, and compensatory
and punitive damages. The Company seeks recovery in an amount not less than
$5 million.
Under the terms of his employment agreement, Mr. Smith had the right to
contest his termination for cause in an arbitration proceeding. On May 5,
1994, Mr. Smith filed a motion demanding arbitration of his termination for
cause and the Company's claims asserted against him in Orange and Rockland
Utilities, Inc. v. James F. Smith. On June 17, 1994, the Court issued an
Order granting Mr. Smith's motion to compel arbitration. Pursuant to a
second Court Order dated August 10, 1994, the parties filed their demands for
arbitration with the American Arbitration Association. In the arbitration,
Mr. Smith is seeking payment of benefits in excess of $3 million. Hearings
began in June 1995 and are continuing.
Reference is made to Item 3, "Legal Proceedings", in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and to
Part II, Item 1, "Legal Proceedings", in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 for a description of a criminal
action brought against Mr. Smith by the Rockland County (New York) District
Attorney. As noted therein, a Rockland County Grand Jury indictment charged
Mr. Smith with 15 felony counts of grand larceny, seven counts of falsifying
business records and two misdemeanor counts of petit larceny. On August 15,
1995, Mr. Smith was acquitted of all of the charges in a non-jury trial.
On September 19, 1995, the Company was served with an Amended Summons
and First Amended Complaint ("Complaint") in James F. Smith v. Kenneth
Gribetz, et al., an action filed in the United States District Court for the
Southern District of New York by Mr. Smith. (An earlier complaint had been
filed which did not name the Company). Named as defendants in the Complaint
are former Rockland County District Attorney Kenneth Gribetz, the Office of
<PAGE>
the Rockland County District Attorney, the Company, "John and Jane Does"
(identified in the Complaint as certain directors of the Company and/or
members of the Special Committee of the Board of Directors and referred to in
the Complaint as the "Defendant Directors"), Edwin Stier and Stier, Anderson
& Malone. In the Complaint, Mr. Smith alleges the following three causes of
action: (i) the violation by Mr. Gribetz and the District Attorney's office
of Mr. Smith's federal constitutional rights to fair trial and due process of
law; (ii) malicious prosecution by the Company, Defendant Directors and Mr.
Stier in that these defendants allegedly caused the arrest and criminal
prosecution of Mr. Smith; and (iii) abuse of process by the Company,
Defendant Directors and Mr. Stier in that these defendants were allegedly
responsible for the arrest, indictment and prosecution of Mr. Smith. Mr.
Smith seeks damages in excess of $25 million, special damages and punitive
damages, attorney fees and other costs on each count.
On December 22, 1995, the Company, Edwin Stier, and Stier, Anderson &
Malone filed a Motion for Summary Judgment seeking to terminate this action.
The Motion for Summary Judgment is currently pending. If the Motion for
Summary Judgment is unsuccessful, the Company intends to defend the action
vigorously.
Regulatory Matters:
Information regarding the current rate filings of the Company, including
the impact which the recent events affecting the Company had on the rate
proceedings of the Company, is contained in the 1995 Annual Report to
Shareholders in the "Review of the Company's Results of Operations and
Financial Condition" under the caption "Rate Activities" on page 16 and in
Note 12 of the Notes to Consolidated Financial Statements under the caption
"Legal Proceedings" on page 30, and in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, under Item 3, "Legal
Proceedings" on page 33, which information is incorporated by reference in
this Form 10-K Annual Report.
Information regarding the NYPSC proceeding relating to the NYPSC
investigation of prior financial improprieties and the related rate case
proceeding (Case 95-E-0491) and $8.5 million settlement amount proposed to be
refunded to New York ratepayers is also contained under the caption "Rate
Activities" in the "Review of the Company's Results of Operations and
Financial Condition" on page 16 of the 1995 Annual Report to Shareholders,
which information is incorporated by reference in this Form 10-K Annual
Report. The Company is unable to predict the final results of this
proceeding and what modifications, if any, will be made to the amount
proposed to be refunded to New York ratepayers.
Information regarding the NJBPU audit of RECO and amounts previously
refunded or proposed to be refunded by the Company to New Jersey ratepayers
is contained in the 1995 Annual Report to Shareholders in the "Review of the
Company's Results of Operations and Financial Condition" under the caption
"Rate Activities" on page 17, and in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995 under Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 10. In addition, by order dated February 21, 1996 the NJBPU approved
RECO's proposed refund of $482,000 while noting that this refund in no way
limits any future NJBPU action which might result from the discovery of
additional misappropriated funds.
<PAGE>
Information regarding the Company's involvement in, and the effect on
the Company of, pipeline take-or-pay proceedings before the FERC is contained
under the caption "Gas Energy Costs" in the "Review of the Company's Results
of Operations and Financial Condition" and in Note 12 of the Notes to
Consolidated Financial Statements - "Gas Supply and Storage Contracts" on
pages 14 and 29, respectively, of the 1995 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K Annual Report.
Reference is also made to the information contained under the caption "Take-
or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs" of "Gas
Operations" in Item 1 of this Form 10-K Annual Report.
The Company's gas operations were not materially affected by take-or-pay
charges in 1995. However, as required by the NYPSC in Case No. 88-G-062, the
Company has deferred $1.6 million of these costs. By Order dated June 29,
1995, the NYPSC approved a settlement agreement which resolves all issues
concerning the Company's take-or-pay liability. The settlement agreement
allows the Company to recover the $1.6 million of take-or-pay charges and
accrued interest billed to it through February 28, 1995 over the next three
years.
On April 8, 1992, the FERC issued Order No. 636 requiring interstate
natural gas pipelines to unbundle their sales and transportation services and
to offer each of these services on a stand alone basis. It is currently
estimated that the Company's obligation related to Order No. 636 transition
costs will amount to $25.1 million. Information regarding the Company's
involvement in, and effect on the Company of, Order No. 636 and its related
proceedings is contained under the caption "Gas Energy Costs" in the "Review
of the Company's Results of Operations and Financial Condition" and in
Note 12 of the Notes to Consolidated Financial Statements under the caption
"Gas Supply and Storage Contracts" on pages 14 and 29, respectively, of the
1995 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report. Reference is also made to the
information contained under the caption "Take-or-Pay Surcharge Costs and
FERC Order 636 Transition Costs" of "Gas Operations" in Item 1 of this
Form 10-K Annual Report.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1995.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the officers of the Company are appointed on an annual basis
at the first Board of Directors' meeting following the annual meeting. The
following list includes two Company employees who, due to the policy making
functions they perform for the Company, are considered executive officers under
SEC criteria, but who are not officers of the Company and who are not appointed
on an annual basis.
Officers, Age, and Title Business Experience Past Five Years
D. Louis Peoples, 55 Vice Chairman of the Board and Chief
Vice Chairman of the Executive Officer since July 14, 1994.
Board of Directors and Executive Vice President, and a member
Chief Executive Officer of the Board of Directors, Madison
Gas and Electric Company, Madison,
Wisconsin from 1992 to 1993. Senior
Vice President, RCG/Hagler, Bailly
Inc., San Francisco, California from
1991 to 1992. Senior Vice President
and a member of the Board of
Directors, Nuclear Services Division,
Tenera, L.P., Berkeley, California
from 1990 to 1991.
Larry S. Brodsky, 47 President and Chief Operating Officer
President and Chief since January 1, 1996. Senior Vice
Operating Officer President from 1994 to 1995 and Vice
President from 1987 to 1994,
Illinois Power Company, Decatur,
Illinois.
R. Lee Haney, 56 Vice President and Chief Financial
Vice President and Officer since September 8, 1994.
Chief Financial Officer Senior Vice President from January
1993 until September 1994, and Vice
President and Chief Financial Officer
until January 1993, San Diego Gas &
Electric Company, San Diego,
California.
G. D. Caliendo, 55 Vice President, General Counsel and
Vice President, Secretary since March 2, 1995.
General Counsel Senior Vice President, General
and Secretary Counsel and Secretary of Pennsylvania
Power and Light Company, Allentown,
Pennsylvania from 1989 to 1994.
Robert J. Biederman, Jr., 43 Vice President since April 1990.
Vice President, Operations Director of Operations from 1986 until
April 1990.
<PAGE>
Nancy M. Jakobs, 54 Vice President, Human Resources since
Vice President, April 6, 1995. Partner, Jakobs and
Human Resources Associates International, New City,
New York from 1991 to 1995. Associate
Consultant, Gilbert Tweed Associates,
West Orange, New Jersey from 1989 to
1991.
Robert J. McBennett, 53 Treasurer since 1984, and Controller
Treasurer and Controller since 1995.
George V. Bubolo, Jr., 51 Division Vice President - Engineering
Division Vice President, and System Operations since March 1,
Engineering and System 1996. Director, Engineering and
Operations System Operations from November 1,
1994 until March 1, 1996. Director,
Electric Operations from 1983 until
November 1, 1994.
Vincent R. Tummarello, 45 Division Vice President - Electric
Division Vice President, Production since November 1, 1994.
Electric Production Director, Electric Production from
April 1, 1985 until November 1, 1994.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock, par value $5.00 per share ("Common Stock"), is
listed on the New York Stock Exchange under the ticker symbol ORU. The Common
Stock is listed in published stock tables as "OranRk".
At December 31 1995, there were 22,916 holders of record of the Company's
Common Stock. During 1995 dividend payments were made to holders of the
Company's Common Stock on February 1, May 1, August 1 and November 1.
Quarterly market price and dividend information on the Company's Common
Stock is as follows:
Quarter High Low Dividend
1995 1 $33 3/8 $31 1/4 $.64
2 34 3/8 30 7/8 .64
3 35 5/8 31 1/8 .645
4 37 3/8 34 3/8 .645
1994 1 41 1/4 32 1/8 .63
2 35 7/8 30 1/2 .63
3 31 7/8 29 1/2 .64
4 32 1/2 28 3/8 .64
Information regarding the restriction of retained earnings for dividend
payments is contained in Note 4 of the Notes to Consolidated Financial
Statements - "Retained Earnings" on page 25 of the 1995 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.
Item 6. Selected Financial Data
The information required by this Item is contained under the captions
"Financial Statistics - Common Stock Data", and "Financial Statistics -
Selected Financial Data" on page 36 of the 1995 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is contained under the caption
"Review of the Company's Results of Operations and Financial Condition" on
pages 11 through 18 of the 1995 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information
required by this Item are contained on pages 19 through 33 of the 1995
Annual Report to Shareholders, which material is incorporated by reference
in this Form 10-K Annual Report. Such information is listed in Item
l4(a)(1) "Financial Statements" of this Form 10-K Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 10, 1994, the Executive Committee of the Board of Directors of
the Company appointed the accounting firm of Arthur Andersen LLP to audit the
books, records and accounts of the Company and its subsidiaries for the 1994
fiscal year. The appointment of Arthur Andersen LLP was approved by the
shareholders at the Annual Meeting held on May 11, 1994.
The accounting firm of Grant Thornton LLP audited the Company's
consolidated financial statements for 1993 and prior years. Upon
recommendation of the Audit Committee, the Board of Directors decided to
solicit bids for the performance of auditing services for the Company for 1994.
Bids were received from six public accounting firms, including Grant Thornton
LLP. Based on a review of the competing bids, the Audit Committee believed
that the selection of Arthur Andersen LLP would be in the best interests of the
Company and recommended such selection to the Board of Directors.
The reports of Grant Thornton LLP on the Company's consolidated financial
statements for the fiscal years ended December 31, 1992 and 1993 did not
contain an adverse opinion or a disclaimer of opinion and the reports were not
qualified or modified as to uncertainty, audit scope or accounting principles,
except that the report for 1993 was modified by inclusion of an explanatory
paragraph regarding the uncertainty of the pending investigations of the
Company and related litigation described in the Company's Current Reports on
Form 8-K dated August 16, October 6, November 23 and December 16, 1993 and
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. Since
January 1, 1992, there have been no disagreements with Grant Thornton LLP on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of Grant Thornton LLP, would have caused Grant Thornton LLP to
make reference to the subject matter of such disagreements in connection with
its report.
PART III
The information required by Item 10 - Directors and Executive Officers
of the Registrant is contained on page 34 of this Form 10-K Annual Report
and in the Company's definitive Proxy Statement in connection with the 1996
Annual Meeting of Common Shareholders (the "Proxy Statement"), which material
is incorporated by reference in this Form 10-K Annual Report. The information
required by Item 11 - Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions is contained in Section 1, "Election of Directors,"
of the Proxy Statement which material is incorporated by reference in this
Form 10-K Annual Report. With the exception of this information, the Proxy
Statement is not deemed filed as part of this Form 10-K Annual Report.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and
its subsidiaries appearing on pages 19 through 33 of the 1995 Annual
Report to Shareholders are incorporated by reference in this Form 10-K
Annual Report. With the exception of these consolidated financial
statements and the information incorporated in Items 1, 3, 5, 6, 7 and 8,
herein, the 1995 Annual Report to Shareholders is not deemed filed as part
of this Form 10-K Annual Report.
Page*
Consolidated Statements of Income and Retained Earnings for the
years ended December 31, 1995, 1994 and 1993. 19
Consolidated Balance Sheets as of December 31, 1995 and 1994. 20
Consolidated Cash Flow Statements for the years ended
December 31, 1995, 1994 and 1993. 22
Notes to Consolidated Financial Statements. 23
Report of Independent Public Accountants. 33
*Page number reference is to the 1995 Annual Report
to Shareholders
(a)(2) Financial Statement Schedules Page**
Valuation and Qualifying Accounts and Reserves for the years
ended December 31, 1995, 1994 and 1993 (Schedule II). 49
**Page number reference is to this Form 10-K Annual Report
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
The information required by Rule 5-04, Schedule I - Condensed Financial
Information of Registrant has been omitted since Consolidated Financial State-
ments of the Registrant and its subsidiaries are contained in the Company's
1995 Annual Report to Shareholders and the test prescribed was not met.
<PAGE>
(a)(3) Exhibits
* 3.1 Restated Certificate of Incorporation, as amended through
April 14, 1988. (Exhibit 4.1 to Registration Statement
33-25359).
* 3.2 By-Laws, as amended through June 29, 1995. (Exhibit 3.2
to Form 10-Q for the period ended June 30, 1995, File
No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented and
Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as
of July 1, 1954. (Exhibit 2.16 to Registration Statement
No. 2-14159).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated
as of July 15, 1971. (Exhibit 4.31 to Registration Statement
No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K
for the fiscal year ended December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K
for the fiscal year ended December 31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for
the fiscal year ended December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York as Trustee
regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.26 First Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated March 7, 1990.
(Exhibit 4.26 to Form 10-K for the fiscal year ended December 31,
1990, File No. 1-4315).
<PAGE>
* 4.27 Second Supplemental Indenture between the Company and the Bank of
New York as Trustee regarding unsecured debt, dated October 15, 1992.
(Exhibit 4.27 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for
the fiscal year ended December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated as of March 1,
1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as
of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.31 Thirty-fourth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1994. (Exhibit 4.31 to Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant, dated as of
October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156).
*10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to
Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by Con Edison to
Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.18
to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-4315).
+*10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993.
(Exhibit 10.11 to Form 10-K for the fiscal year ended December 31,
1993, File 1-4315).
+*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
10.14 Management Long-Term Disability Plan as amended January 1, 1996.
<PAGE>
*10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities,
Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc.,
dated March 9, 1984, as amended through July 1, 1994. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31, 1994, File 1-4315).
*10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston
Coal Sales Company, dated March 14, 1984 as amended through December 1,
1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
*10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc.,
and Pittston Coal Sales Company, dated July 1, 1991 and executed
May 5, 1993. (Exhibit 10.18A to Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-4315).
+*10.19 Employment contract between Orange and Rockland Utilities, Inc. and
James F. Smith as amended December 1, 1990. (Exhibit 10.19 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
+*10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer
Continuation Program, as amended March 2, 1995. (Exhibit 10.20 to Form
10-K for the fiscal year ended December 31, 1994, File 1-4315).
+*10.22 Form of Severance Agreement for Company Officers effective
January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit
10.23 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
+*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to
J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-4315).
+*10.26 Letter agreement dated September 29, 1994 between Orange and Rockland
Utilities, Inc. and R. Lee Haney regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.26 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.27 Letter agreement dated September 29, 1994 between Orange and Rockland
Utilities, Inc. and D. Louis Peoples regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.28 Agreement between Orange and Rockland Utilities, Inc. and Victor J.
Blanchet, Jr. dated March 1, 1995. (Exhibit 10.28 to Form 10-K for
the year ended December 31, 1994, File No. 1-4315). (Portions of
Exhibit 10.28 have been omitted pursuant to an Order of the SEC dated
May 25, 1995 granting confidential treatment).
+*10.29 Deferred Compensation Plan for Non Employee Directors as amended
through October 6, 1994. (Exhibit 10.29 to Form 10-K for the year
ended December 31, 1994, File No. 1-4315).
+*10.30 Letter Agreement dated April 6, 1995 between Orange and Rockland
Utilities, Inc. and G. D. Caliendo regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.30 to Form 10-Q for the period ended
June 30, 1995, File No. 1-4315).
+*10.31 Letter Agreement dated September 21, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.31 to Form 10-Q for the period ended
September 30, 1995, File No. 1-4315).
+*10.35 Severance Agreement dated October 18, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs. (Exhibit 10.35 to Form 10-Q for
the period ended September 30, 1995, File No. 1-4315).
+ 10.36 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and D. L. Peoples regarding change in control arrangements.
+ 10.37 Agreement dated January 21, 1996 between Orange and Rockland Utilities,
Inc. and G. D. Caliendo regarding change in control arrangements.
+ 10.38 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and R. L. Haney regarding change in control arrangements.
+ 10.39 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and L. S. Brodsky regarding change in control arrangements.
+*10.40 Performance Share Unit Plan effective January 1, 1995, described on
pages 10-11 of the Company's definitive proxy statement filed with the
Securities and Exchange Commission on March 8, 1996 for its 1996 Annual
Meeting of shareholders, which description is hereby incorporated by
reference (File No. 1-4315).
+*10.41 Annual Team Incentive Plan effective January 1, 1995, described on
pages 9-10 of the Company's definitive proxy statement filed with the
Securities and Exchange Commission on March 8, 1996 for its 1996 Annual
Meeting of shareholders, which description is hereby incorporated by
reference (File No. 1-4315).
+ 10.42 Letter Agreement dated February 16, 1995 between Orange and Rockland
Utilities, Inc. and G. D. Caliendo regarding employment.
+ 10.43 Letter Agreement dated July 14, 1994 between Orange and Rockland
Utilities, Inc. and D. L. Peoples regarding employment.
+ 10.44 Letter Agreement dated November 14, 1995 between Orange and Rockland
Utilities, Inc. and L. S. Brodsky regarding employment.
+ 10.45 Letter Agreement dated March 21, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs regarding employment.
+ 10.46 Letter Agreement dated September 2, 1994 between Orange and Rockland
Utilities, Inc. and R. L. Haney regarding employment.
<PAGE>
13 The Company's 1995 Annual Report to Shareholders to the extent
identified in this Form 10-K Annual Report for the fiscal year
ended December 31, 1995.
*16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated
February 22, 1994, File No. 1-4315).
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
*99.1 Joint Cooperation Agreement between the Office of the Rockland County
District Attorney and Orange and Rockland Utilities, Inc., dated
November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
*99.2 Complaint against James F. Smith dated March 16, 1994. (Exhibit 99.2
to Form 10-K for the year ended December 31, 1993, File No. 1-4315).
*99.5 Agreement Between Orange and Rockland Utilities, Inc. and Kroll
Associates, Inc. dated as of November 1, 1994. (Exhibit 99.5 to
Form 10-Q for the period ended September 30, 1994, File No. 1-4315).
+ Denotes executive compensation plans and arrangements.
* Incorporated by reference to the indicated filings.
The securities issued relevant to each of the following agreements were
not registered with the Securities and Exchange Commission and the total amount
of securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:
- First Supplemental Indenture, dated August 15, 1990, to the Indenture
of Mortgage and Deed of Trust of Pike County Light & Power Company.
- Eighth Supplemental Indenture of Rockland Electric Company, dated as of
August 15, 1990.
- Indenture of Trust between NYSERDA and the Bank of New York, as
Trustee, relating to the Pollution Control Revenue Bonds (Orange and
Rockland Utilities, Inc. Project) dated as of August 15, 1994.
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of August 15, 1994.
- Indenture of Trust between NYSERDA and the Bank of New York, as
Trustee, relating to the Pollution Control Refunding Revenue Bonds
dated as of July 1, 1995.
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of July 1, 1995.
<PAGE>
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K current report
covering an event during the fourth quarter of 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
By D. LOUIS PEOPLES
(D. Louis Peoples
Vice Chairman of the
Board of Directors and
Chief Executive Officer)
Date: March 18, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature and Title Capacity in Which Signing
D. LOUIS PEOPLES* Chief Executive
(D. Louis Peoples, Officer, Director
Vice Chairman of the
Board of Directors and
Chief Executive Officer)
R. LEE HANEY* Chief Financial Officer
(R. Lee Haney, Vice President
and Chief Financial Officer)
ROBERT J. MCBENNETT* Controller
(Robert J. McBennett,
Treasurer and Controller)
H. KENT VANDERHOEF* Chairman of the
(H. Kent Vanderhoef) Board of Directors
RALPH M. BARUCH* Director
(Ralph M. Baruch)
J. FLETCHER CREAMER* Director
(J. Fletcher Creamer)
<PAGE>
Signature and Title Capacity in Which Signing
MICHAEL J. DEL GIUDICE* Director
(Michael J. Del Giudice)
JON F. HANSON* Director
(Jon F. Hanson)
KENNETH D. McPHERSON* Director
(Kenneth D. McPherson)
JAMES F. O'GRADY, JR.* Director
(James F. O'Grady, Jr.)
FREDERIC V. SALERNO* Director
(Frederic V. Salerno)
LINDA C. TALIAFERRO* Director
(Linda C. Taliaferro)
*By G. D. CALIENDO
(G. D. Caliendo,
Attorney-in-fact)
Date: March 18, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing
standards, the 1995 and 1994 consolidated financial statements included
in Orange and Rockland Utilities, Inc.'s Annual Report to Shareholders
incorporated by reference in this Form 10-K, and have issued our report
thereon dated February 1, 1996. Our audit was made for the purpose of
forming an opinion on those consolidated financial statements taken as a
whole. Supplemental Schedule II, Valuation and Qualifying Accounts and
Reserves for the years ended December 31, 1995 and 1994 (see index of
financial statements) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation
to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 1, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in
this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File Nos. 33-25358, 33-25359 and 33-22129) and
on Form S-3 (File No. 33-63872).
ARTHUR ANDERSEN LLP
New York, New York
March 18, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders of
Orange and Rockland Utilities, Inc.
In connection with our audit of the consolidated financial
statements of Orange and Rockland Utilities, Inc. and Subsidiaries for
the year ended December 31, 1993 referred to in our report dated
February 16, 1994, which report included an explanatory paragraph that
described the investigations and litigation discussed in Note 12 (Legal
Proceedings) of those statements, which is included in the 1993 Annual
Report to Shareholders and incorporated by reference in this Form 10-K,
we have also audited the schedule listed in the Index at Item 14(a)(2)
for the year ended December 31, 1993. In our opinion, this schedule
presents fairly, in all material respects, the information required to
be set forth therein.
GRANT THORNTON LLP
New York, New York
February 16, 1994
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 16, 1994, accompanying
the consolidated financial statements and schedule incorporated by
reference or included in the Annual Report of Orange and Rockland
Utilities, inc. and Subsidiaries on Form 10-K for the year ended
December 31, 1993. We hereby consent to the incorporation by reference
of said reports in the Registration Statements of Orange and Rockland
Utilities, Inc. and Subsidiaries on Forms S-8 (No. 33-25358,
No. 33-25359 and No. 33-22129) and on Forms S-3 (No. 33-63872).
GRANT THORNTON LLP
New York, New York
March 18, 1996
<TABLE>
SCHEDULE II
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1995, 1994 and 1993
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2) Balance
Balance at Charged to Charged at
beginning costs and to other end of
Description of period expenses accounts Deductions period
<S> <C> <C> <C> <C> <C>
December 31, 1995
Allowance for Uncollect-
ible accounts:
Customer accounts $2,200 $2,374 $565 $2,832 $2,307
Other accounts 209 825 35 900 169
Gas marketing accounts 327 60 - 254 133
$2,736 $3,259 $600(A) $3,986(B) $2,609
Reserve for Claims
and Damages $4,713 $ 720 $ 52 $1,637(C) $3,848
Gas Turbine Maintenance
Reserve $ (258) $ 622 $ - $ 566(C) $ (202)
December 31, 1994
Allowance for Uncollect-
ible accounts:
Customer accounts $2,026 $2,493 $391 $2,710 $ 2,200
Other accounts 102 544 8 445 209
Gas marketing accounts 471 287 2 433 327
$2,599 $3,324 $401(A) $3,588(B) $ 2,736
Reserve for Claims
and Damages $3,830 $2,474 $140 $1,731(C) $ 4,713
Gas Turbine Maintenance
Reserve $(1,375) $1,367 $ - $ 250(C) $ (258)
(Continued)
</TABLE>
<TABLE>
SCHEDULE II
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1995, 1994 and 1993
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2) Balance
Balance at Charged to Charged at
beginning costs and to other end of
Description of period expenses accounts Deductions period
<S> <C> <C> <C> <C> <C>
December 31, 1993
Allowance for Uncollect-
ible accounts:
Customer accounts $1,651 $2,428 $400 $2,453 $ 2,026
Other accounts 86 207 4 195 102
Gas marketing accounts 75 548 - 152 471
$1,812 $3,183 $404(A) $2,800(B) $ 2,599
Reserve for Claims
and Damages $3,521 $1,895 $146 $1,732(C) $ 3,830
Gas Turbine Maintenance
Reserve $(2,532) $1,367 $ - $ 210(C) $(1,375)
(A) Includes collection of accounts previously written off of $600 in 1995, $401
in 1994, and $404 in 1993.
(B) Accounts considered uncollectible and charged off of $3,986 in 1995, $3,588
in 1994 and $2,800 in 1993.
(C) Payments of damage claims of $1,637 in 1995, $1,731 in 1994 and $1,732 in 1993
and maintenance expenses of $566 in 1995, $250 in 1994 and $210 in 1993.
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
________________________
Fiscal Year Ended December 31, 1995 Commission File Number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of Registrant as Specified in its Charter)
EXHIBITS
<PAGE>
Orange and Rockland Utilities, Inc.
Index of Exhibits
1995 Form 10-K
* 3.1 Restated Certificate of Incorporation, as amended through
April 14, 1988. (Exhibit 4.1 to Registration Statement
33-25359).
* 3.2 By-Laws, as amended through June 29, 1995. (Exhibit 3.2
to Form 10-Q for the period ended June 30, 1995, File
No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented and
Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as
of July 1, 1954. (Exhibit 2.16 to Registration Statement
No. 2-14159).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated
as of July 15, 1971. (Exhibit 4.31 to Registration Statement
No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K
for the fiscal year ended December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K
for the fiscal year ended December 31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for
the fiscal year ended December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York as Trustee
regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.26 First Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated March 7, 1990.
(Exhibit 4.26 to Form 10-K for the fiscal year ended December 31,
1990, File No. 1-4315).
<PAGE>
* 4.27 Second Supplemental Indenture between the Company and the Bank of
New York as Trustee regarding unsecured debt, dated October 15, 1992.
(Exhibit 4.27 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for
the fiscal year ended December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated as of March 1,
1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as
of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.31 Thirty-fourth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1994. (Exhibit 4.31 to Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant, dated as of
October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156).
*10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to
Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by Con Edison to
Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.18
to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-4315).
+*10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993.
(Exhibit 10.11 to Form 10-K for the fiscal year ended December 31,
1993, File 1-4315).
+*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
10.14 Management Long-Term Disability Plan as amended January 1, 1996.
<PAGE>
*10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities,
Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc.,
dated March 9, 1984, as amended through July 1, 1994. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31, 1994, File 1-4315).
*10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston
Coal Sales Company, dated March 14, 1984 as amended through December 1,
1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
*10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc.,
and Pittston Coal Sales Company, dated July 1, 1991 and executed
May 5, 1993. (Exhibit 10.18A to Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-4315).
+*10.19 Employment contract between Orange and Rockland Utilities, Inc. and
James F. Smith as amended December 1, 1990. (Exhibit 10.19 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
+*10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer
Continuation Program, as amended March 2, 1995. (Exhibit 10.20 to Form
10-K for the fiscal year ended December 31, 1994, File 1-4315).
+*10.22 Form of Severance Agreement for Company Officers effective
January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit
10.23 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
+*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to
J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-4315).
+*10.26 Letter agreement dated September 29, 1994 between Orange and Rockland
Utilities, Inc. and R. Lee Haney regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.26 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.27 Letter agreement dated September 29, 1994 between Orange and Rockland
Utilities, Inc. and D. Louis Peoples regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.28 Agreement between Orange and Rockland Utilities, Inc. and Victor J.
Blanchet, Jr. dated March 1, 1995. (Exhibit 10.28 to Form 10-K for
the year ended December 31, 1994, File No. 1-4315). (Portions of
Exhibit 10.28 have been omitted pursuant to an Order of the SEC dated
May 25, 1995 granting confidential treatment).
+*10.29 Deferred Compensation Plan for Non Employee Directors as amended
through October 6, 1994. (Exhibit 10.29 to Form 10-K for the year
ended December 31, 1994, File No. 1-4315).
<PAGE>
+*10.30 Letter Agreement dated April 6, 1995 between Orange and Rockland
Utilities, Inc. and G. D. Caliendo regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.30 to Form 10-Q for the period ended
June 30, 1995, File No. 1-4315).
+*10.31 Letter Agreement dated September 21, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs regarding participation in the
Officers' Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.31 to Form 10-Q for the period ended
September 30, 1995, File No. 1-4315).
+*10.35 Severance Agreement dated October 18, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs. (Exhibit 10.35 to Form 10-Q for
the period ended September 30, 1995, File No. 1-4315).
+ 10.36 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and D. L. Peoples regarding change in control arrangements.
+ 10.37 Agreement dated January 21, 1996 between Orange and Rockland Utilities,
Inc. and G. D. Caliendo regarding change in control arrangements.
+ 10.38 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and R. L. Haney regarding change in control arrangements.
+ 10.39 Agreement dated January 22, 1996 between Orange and Rockland Utilities,
Inc. and L. S. Brodsky regarding change in control arrangements.
+*10.40 Performance Share Unit Plan effective January 1, 1995, described on
pages 10-11 of the Company's definitive proxy statement filed with the
Securities and Exchange Commission on March 8, 1996 for its 1996 Annual
Meeting of shareholders, which description is hereby incorporated by
reference (File No. 1-4315).
+*10.41 Annual Team Incentive Plan effective January 1, 1995, described on
pages 9-10 of the Company's definitive proxy statement filed with the
Securities and Exchange Commission on March 8, 1996 for its 1996 Annual
Meeting of shareholders, which description is hereby incorporated by
reference (File No.1-4315).
+ 10.42 Letter Agreement dated February 16, 1995 between Orange and Rockland
Utilities, Inc. and G. D. Caliendo regarding employment.
+ 10.43 Letter Agreement dated July 14, 1994 between Orange and Rockland
Utilities, Inc. and D. L. Peoples regarding employment.
+ 10.44 Letter Agreement dated November 14, 1995 between Orange and Rockland
Utilities, Inc. and L. S. Brodsky regarding employment.
+ 10.45 Letter Agreement dated March 21, 1995 between Orange and Rockland
Utilities, Inc. and Nancy M. Jakobs regarding employment.
+ 10.46 Letter Agreement dated September 2, 1994 between Orange and Rockland
Utilities, Inc. and R. L. Haney regarding employment.
<PAGE>
13 The Company's 1995 Annual Report to Shareholders to the extent
identified in this Form 10-K Annual Report for the fiscal year
ended December 31, 1995.
*16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated
February 22, 1994, File No. 1-4315).
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
*99.1 Joint Cooperation Agreement between the Office of the Rockland County
District Attorney and Orange and Rockland Utilities, Inc., dated
November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
*99.2 Complaint against James F. Smith dated March 16, 1994. (Exhibit 99.2
to Form 10-K for the year ended December 31, 1993, File No. 1-4315).
*99.5 Agreement Between Orange and Rockland Utilities, Inc. and Kroll
Associates, Inc. dated as of November 1, 1994. (Exhibit 99.5 to
Form 10-Q for the period ended September 30, 1994, File No. 1-4315).
+ Denotes executive compensation plans and arrangements.
* Incorporated by reference to the indicated filings.
The securities issued relevant to each of the following agreements were
not registered with the Securities and Exchange Commission and the total amount
of securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:
- First Supplemental Indenture, dated August 15, 1990, to the Indenture
of Mortgage and Deed of Trust of Pike County Light & Power Company.
- Eighth Supplemental Indenture of Rockland Electric Company, dated as of
August 15, 1990.
- Indenture of Trust between NYSERDA and the Bank of New York, as
Trustee, relating to the Pollution Control Revenue Bonds (Orange and
Rockland Utilities, Inc. Project) dated as of August 15, 1994.
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of August 15, 1994.
- Indenture of Trust between NYSERDA and the Bank of New York, as
Trustee, relating to the Pollution Control Refunding Revenue Bonds
dated as of July 1, 1995.
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of July 1, 1995.
ORANGE AND ROCKLAND UTILITIES, INC.
MANAGEMENT LONG-TERM DISABILITY POLICY
Effective Date of Change: 1/1/96
SECTION 1 - POLICY SPECIFICATIONS
1. Description of Eligible Classes
Full-time management (non-union) employees following completion of one
year of service.
2. Amounts of Insurance
a) 60% (benefit percentage) of basic monthly earnings not to exceed the
maximum monthly benefit, less other income benefits, as described in
Section IV.
b) The maximum monthly benefit is $3,000 for benefits that commenced
prior to January 1, 1996. Effective January 1, 1996, the maximum
monthly benefit is $5,000.
3. Maximum Benefit Period
Disabled before age 62: To earlier of 65th birthday or according to
schedule:
Years of Service Duration of Benefits
at Disablement (in Years)
Less than 1 N/A
1 - 2 1
2 - 5 2
5 - 10 5
10 or more to age 65
Disabled at or after age 62:
Age at Duration of Benefits
Disablement (in Years)
62 3-1/2
63 3
64 2-1/2
65 2
66 1-3/4
67 1-1/2
68 1-1/4
69 1
4. Definition of Basic Monthly Earnings
"Basic monthly earnings" means the insured's monthly rate of earnings
from the employer in effect immediately prior to the date total
disability begins. It does not include bonuses, overtime pay and other
special compensation.
<PAGE>
5. Minimum Requirement for Active Employment: 30 hours per week.
6. Elimination Period
Later of 180 days or after expiration of employee's sick time.
7. Waiting Period
a) Active employees with one year or more of employment as of January 1,
1984: None.
b) All other employees: Completion of one year of employment.
8. This policy shall cover all management employees of Orange and Rockland
Utilities, Inc. and its subsidiaries, Rockland Electric Company, Pike
County Power and Light, Clove Development, Inc. and Orange and Rockland
Energy Development.
9. Continuation of Employee Insurance During Absences
Type of Absence Time Limit
Temporary Layoff To the end of the policy
or Leave of Absence month following the policy
month in which the layoff
or leave of absence begins.
SECTION II - DEFINITIONS
For the purposes of this policy:
"Active employment" means the employee must be working:
1. for the employer on a permanent full-time basis and paid regular
earnings:
2. at least the minimum number of hours shown in the policy
specifications; and either
3. at the employer's usual place of business; or
4. at a location to which the employer's business requires the employee
to travel.
"Basic monthly earnings" - As defined in the policy specifications.
-2-<PAGE>
"Certificate" means a written statement prepared by the Company including all
riders and supplements, if any, setting forth a summary of:
1. the insurance benefits to which an employee is entitled;
2. to whom the benefits are payable; and
3. limitations or requirements that may apply.
"Complications of pregnancy" means pregnancy complicated by concurrent disease
or abnormal conditions significantly affecting usual medical management.
"Disability benefits," when used with the term Retirement Plan, means money
which would be payable under Section 5 of the Employees' Retirement Plan of
Orange and Rockland Utilities, Inc. or under the Officers' Supplemental
Retirement Plan of Orange and Rockland Utilities, Inc.
"Company" shall mean Orange and Rockland Utilities, Inc. and its subsidiaries
as shown in Section 1.8.
"Eligibility date" means the date an employee becomes eligible for insurance
under this policy. Classes eligible are shown in the policy specifications.
"Elimination period" means a period of consecutive days of total disability
for which no benefit is payable. The elimination period is shown in the
policy specifications and begins on the first day of total disability.
NOTE: IF TOTAL DISABILITY STOPS DURING THE ELIMINATION PERIOD FOR ANY
14 (OR LESS) DAYS THAN THE TOTAL DISABILITY WILL BE TREATED AS
CONTINUOUS. BUT DAYS THAT THE INSURED IS NOT TOTALLY DISABLED
WILL NOT COUNT TOWARD THE ELIMINATION PERIOD.
"Employee" means a person in active employment with the employer.
"Evidence of insurability" means a statement or proof of an employee's medical
history upon which acceptance for insurance will be determined by the Company.
"Grace period" is the 31 days following a premium due date during which
premium payment may be made.
"Injury" means bodily injury resulting directly from an accident and
independently of all other causes. The injury must occur and total disability
must begin while the employee is insured under this policy.
"Insured" means an employee insured under this policy.
Male pronoun whenever used includes the female.
"Monthly benefits" means the amount payable by the Company to the disabled
insured.
-3-<PAGE>
"Physician" means a person who is:
1. operating within the scope of his license; and either
2. licensed to practice medicine and prescribe and administer drugs or
to perform surgery; or
3. legally qualified as a medical practitioner and required to be
recognized, under this policy for insurance purposes, according to
the insurance statutes or the insurance regulations of the governing
jurisdiction.
It will not include an employee or his spouse, daughter, son, father,
mother, sister or brother.
"Policy specifications" is the document showing the eligible classes, the
amounts of insurance and other relevant information pertaining to the plan of
insurance applied for by the policyholder. This document, designated
Section 1, is attached to and is part of this policy.
"Retirement benefits," when used with the term Retirement Plan, means money
which is payable as a normal, early or disability retirement under the terms
of the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. or
the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities,
Inc. as defined in those plans.
"Retirement Plan" shall mean both the Employees' Retirement Plan of Orange and
Rockland Utilities, Inc. or the Officers' Supplemental Retirement Plan of
Orange and Rockland Utilities, Inc. as amended from time to time.
"Sickness" means illness or disease. It will include pregnancy unless
excluded in the General Exclusions section of this policy. The total
disability must begin while the employee is insured under this policy.
"Total disability" and "totally disabled" mean that because of injury or
sickness:
1. the insured cannot perform each of the material duties of his
regular occupation; and
2. after benefits have been paid for 24 months, the insured cannot
perform each of the material duties of any gainful occupation for
which he is reasonably fitted by training, education or experience.
"Waiting period," as shown in the policy specifications, means the continuous
length of time an employee must serve in an eligible class to reach his
eligibility date.
-4-<PAGE>
SECTION III - EFFECTIVE DATES OF INSURANCE
1. Insurance will be effective at 12:01 a.m. on the employee's eligibility
date, but only if the employee's written application for insurance is:
a) made with the Company through his supervisor; and
b) on a form satisfactory to the Company.
SECTION IV - BENEFITS
TOTAL DISABILITY
When the Company receives proof that an insured is totally disabled due to
sickness or injury and requires the regular attendance of a physician, the
Company will pay the insured a monthly benefit after the end of the
elimination period. The benefit will be paid for the period of total
disability if the insured give to the Company proof of continued:
1. total disability; and
2. regular attendance of a physician
The proof must be given upon request and at the insured's expense.
The monthly benefit will not:
1. exceed the insured's amount of insurance; nor
2. be paid for longer than the maximum benefit period.
The amount of insurance and the maximum benefit period are shown in the policy
specifications.
MONTHLY BENEFIT
To figure the amount of monthly benefit:
1. Multiply the insured's basic monthly earnings by the benefit percentage
shown in the policy specifications.
2. Take the lesser of the amount:
a) determined in step (1) above; or
b) of the maximum monthly benefit shown in the policy specifications;
and
c) deduct other income benefits, shown below, from this amount.
-5-<PAGE>
OTHER INCOME BENEFITS
Other income benefits means those benefits shown below.
1. The amount for which the insured is eligible under:
a) Workers' or Workmens' Compensation Law;
b) Occupational disease law; or
c) any other act of law of like intent.
2. The amount of any disability income benefits for which the insured is
eligible under any compulsory benefit act or law.
3. The amount of any disability income benefits for which the insured is
eligible under:
a) any other group insurance plan of the employer;
b) any governmental retirement systems as a result of his job with the
employer.
4. Benefits Cease at Voluntary Retirement
The amount of benefits the insured receives under the Retirement Plan as
follows:
a) any disability benefits;
b) any retirement benefits received because the retirement plan compels
their receipt, not because the insured voluntarily elects them. (The
monthly benefit ceases when the insured voluntarily elects retirement
benefits.)
5. Primary/Family
The amount of disability or retirement benefits under the United States
Social Security Act, or any similar plan or act, as follows:
a) disability or unreduced retirement benefits for which:
i. the insured is eligible; and
ii. his spouse, child or children are eligible because of his
disability; or
iii. his spouse, child or children are eligible because of his
eligibility for unreduced retirement benefits; or
b) reduced retirement benefits received by:
i. the insured; and
ii. his spouse, child or children because of his receipt of the
reduced retirement benefits.
-6-<PAGE>
These other income benefits, except retirement benefits, must be payable
as a result of the same total disability for which this policy pays a
benefit.
Benefits under item 5.a above will be estimated if such benefits:
1. have not been awarded; and
2. have not been denied; or
3. have been denied and the denial is being appealed.
The monthly benefit will be reduced by the estimated amount. But these
benefits will not be estimated provided that the insured:
1. applies for benefits under item 5.a; and
2. requests and signs the Company's Agreement Concerning Benefits.
This agreement states that the insured promises to repay the Company any
overpayment caused by an award received under 5.a.
If benefits have been estimated, the monthly benefit will be adjusted
when the Company receives proof:
1. of the amount awarded; or
2. that benefits have been denied and the denial is not being appealed.
In the case of 2, above, a lump sum refund of the estimated amounts will
be made.
"Law," "plan," or "act" means the initial enactment and all amendments.
6. Benefits payable under the Executive Group Long-Term Disability Plan:
The amount an insured is eligible to receive from the Executive Group
Long-Term Disability Plan. This paragraph may result in no benefits
being paid pursuant to this policy.
COST OF LIVING FREEZE
After the first deduction for each of the other income benefits, the monthly
benefit will not be further reduced due to any cost of living increases
payable under these other income benefits.
LUMP SUM PAYMENTS
Other income benefits which are paid in a lump sum will be prorated on a
monthly basis over the time period for which the sum is given. If no time
period is stated, the sum will be prorated on a monthly basis over the
insured's expected lifetime as determined by the Company.
-7-<PAGE>
TERMINATION OF THE MONTHLY BENEFIT
The monthly benefit will cease on the earliest of:
1. the date the insured ceases to be totally disabled;
2. the date the insured dies;
3. the end of the maximum benefit period;
4. the date the insured receives retirement benefits under the Retirement
Plan due to his voluntary election to receive such benefits, unless:
a) the periodic payment is less than 2.6% of the insured's gross monthly
benefit; or
b) the lump sum payment is less than three times the insured's gross
monthly benefit.
"Gross monthly benefit" means the insured's benefit amount before any
reduction for other income benefits.
RECURRENT DISABILITY
"Recurrent disability" means a disability which is related to or due to the
same cause(s) of a prior disability for which a monthly benefit was payable.
A recurrent disability will be treated as part of the prior total disability
if, after receiving total disability benefits under this policy, an insured:
1. returns to his regular occupation on a full-time basis for less than six
months; and
2. performs all the material duties of his occupation.
Benefit payments will be subject to the terms of this policy for the prior
total disability.
If an insured returns to his regular occupation on a full-time basis for six
months or more, a recurrent disability will be treated as a new period of
total disability. The insured must complete another elimination period.
If an insured becomes eligible for coverage under any other group long-term
disability policy, this recurrent disability section will cease to apply to
that insured.
REHABILITATIVE EMPLOYMENT/ALTERNATE WORK PROGRAM
"Rehabilitative employment" means work in any gainful occupation, other than
an insured's regular occupation, for which he is reasonably fitted by
training, education, or experience.
Compensation received while performing duties on a Company sponsored Alternate
Work Program will go towards reducing an employee's benefit under this policy.
-8-<PAGE>
GENERAL EXCLUSIONS
This policy does not cover any total disability due to:
1. war, declared or undeclared, or any act of war;
2. intentionally self-inflicted injuries;
3. active participation in a riot.
PRE-EXISTING CONDITION EXCLUSION
This policy will not cover any total disability;
1. caused by, contributed to by, or resulting from a pre-existing condition;
and
2. which begins in the first 12 months after the insured's effective date.
A "pre-existing condition" means a sickness or injury for which the insured
had received medical treatment, consultation, care or services including
diagnostic measures, or had taken prescribed drugs or medicines in the three
months prior to the insured's effective date.
MENTAL ILLNESS LIMITATION
Benefits for total disability due to mental illness will not exceed 24 months
of monthly benefit payments unless the insured meets one of these situations:
1. The insured is in a hospital or institution at the end of the 24 month
period. The monthly benefit will be paid during the confinement.
If the insured is still totally disabled when he is discharged, the
monthly benefit will be paid for a recovery period of up to 90 days.
If the insured becomes reconfined during the recovery period for at least
14 days in a row, benefits will be paid for the confinement and another
recovery period up to 90 more days.
2. The insured continues to be totally disabled and becomes confined:
a) after the 24 month period; and
b) for at least 14 days in a row.
TIME OF PAYMENT OF CLAIMS
When the Company receives proof of claim, benefits payable under this policy
will be paid monthly during any period for which the Company is liable.
-9-<PAGE>
PAYMENT OF CLAIMS
All benefits are payable to the employee. But if a benefit is payable to an
employee's estate, an employee who is a minor, or an employee who is not
competent, the Company has the right to pay up to $1,000 to any of the
employee's relatives whom the Company considers entitled. If the Company pays
benefits in good faith to a relative, the Company will not have to pay such
benefits again.
WORKERS' OR WORKMENS'S COMPENSATION
This policy is not in lieu of, and does not affect, any requirement for
coverage by workers' or workmen's compensation insurance.
1/96
3111.drg
-10-
AGREEMENT
THIS AGREEMENT, dated JAN 22, 1996, is made
by and between Orange and Rockland Utilities, Inc., a New
York corporation (the "Company"), and D. Louis Peoples
(the "Executive").
WHEREAS, the Company considers it essential to
the best interests of its shareholders to foster the
continuous employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the
case with many publicly held corporations, the possibili-
ty of a Change in Control exists and that such possibili-
ty, and the uncertainty and questions which it may raise
among management, may result in the departure or distrac-
tion of management personnel to the detriment of the
Company and its shareholders; and
WHEREAS, the Board has determined that appro-
priate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the
Company's management, including the Executive, to their
assigned duties without distraction in the face of poten-
tially disturbing circumstances arising from the possi-
bility of a Change in Control; and
WHEREAS, the Company has previously entered
into an Agreement with the Executive dated October 18,
1995 (the "Prior Agreement") and has previously entered
into a letter agreement with the Executive dated April 6,
1995 (the "Letter Agreement").
NOW, THEREFORE, in consideration of the premis-
es and the mutual covenants herein contained, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capital-
ized terms used in this Agreement are provided in the
last Section hereof.
2. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
Company and in consideration of the Executive's covenants
set forth in Section 3 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits
described herein in the event the Executive's employment
with the Company is (or, under the terms of the second
sentence of Section 6.1 hereof, is deemed to have been)
terminated following a Change in Control and during the
term of this Agreement. Except as provided in the first
sentence of Section 6.2(A) hereof and Section 9.1 hereof,
no amount or benefit shall be payable under this Agree-
ment unless there shall have been (or, under the terms of
the second sentence of Section 6.1 hereof, there shall be
deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control
and during the Term of this Agreement. This Agreement
shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the Execu-
tive shall not have any right to be retained in the
employ of the Company.
3. The Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company until the earliest of
(i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive
of the Executive's employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment
for any reason.
4. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
for a period of thirty-six (36) months beyond the month
in which a Change in Control occurs (or, if later, thir-
ty-six (36) months beyond the consummation of the trans-
action the approval of which by the Company's sharehold-
ers constitutes a Change in Control under Section
15(E)(III) or (IV) hereof).
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the Execu-
tive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during
such period, until the Executive's employment is termi-
nated by the Company for Disability.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits to which the Executive is
entitled in respect of all periods preceding the Date of
Termination under the terms of the Company's compensation
and benefit plans, programs or arrangements.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's normal post-termination compensation
and benefits to the Executive as such payments become
due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with,
the Company's retirement, insurance and other compensa-
tion or benefit plans, programs and arrangements.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the termina-
tion of the Executive's employment following a Change in
Control and during the term of this Agreement, in addi-
tion to any payments and benefits to which the Executive
is entitled under Section 5 hereof, unless such termina-
tion is (i) by the Company for Cause, (ii) by reason of
death or Disability, or (iii) by the Executive without
Good Reason. For purposes of this Agreement, the
Executive's employment shall be deemed to have been
terminated by the Company without Cause or by the Execu-
tive with Good Reason following a Change in Control if
(i) the Executive's employment is terminated without
Cause prior to a Change in Control and such termination
was at the request or direction of a Person who has en-
tered into an agreement with the Company the consummation
of which would constitute a Change in Control, (ii) the
Executive terminates his employment with Good Reason
prior to a Change in Control and the circumstance or
event which constitutes Good Reason occurs at the request
or direction of such Person, or (iii) the Executive's
employment is terminated without Cause prior to a Change
in Control and such termination is otherwise in connec-
tion with or in anticipation of a Change in Control which
actually occurs. For purposes of any determination
regarding the applicability of the immediately preceding
sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to
the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum sever-
ance payment, in cash, equal to three times the sum
of (i) the higher of the Executive's annual base
salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice
of Termination is based or the Executive's annual
base salary in effect immediately prior to the
Change in Control, and (ii) the higher of the aver-
age of the annual bonuses earned or received by the
Executive from the Company or its subsidiaries in
respect of the three (3) consecutive fiscal years
immediately preceding that in which the Date of
Termination occurs or the average of the annual
bonuses so earned or received in respect of the
three (3) consecutive fiscal years immediately pre-
ceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of
any annual or long-term incentive plan to the con-
trary, the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year
or other measuring period preceding the Date of
Termination under any such plan but which, as of the
Date of Termination, is contingent only upon the
continued employment of the Executive to a subse-
quent date or otherwise has not been paid, and (ii)
a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compen-
sation awards to the Executive for all then uncom-
pleted periods under any such plan, calculated as to
each such award by multiplying the award that the
Executive would have earned on the last day of the
performance award period, assuming the achievement,
at the target level of the individual and corporate
performance goals established with respect to such
award, by the fraction obtained by dividing the
number of full months and any fractional portion of
a month during such performance award period through
the Date of Termination by the total number of
months contained in such performance award period.
(C) From and after the occur-
rence of a Change in Control, notwithstanding
any provision of the Officers' Supplemental
Retirement Plan of Orange and Rockland Utili-
ties, Inc. as Amended and Restated (the "SERP")
to the contrary, (i) the Benefit Formula Per-
centage applicable to the Executive under the
SERP shall be deemed to be 70% and (ii) the
Executive shall be treated as having completed
20 years of Service for purposes of Section
2(8) of the SERP. Notwithstanding any provi-
sion of the SERP to the contrary, upon the
termination of the Executive's employment by
the Executive for Good Reason or by the Compa-
ny, in either case at any time following the
occurrence of a Change in Control and during
the term of this Agreement, the Executive shall
be deemed to have satisfied all of the require-
ments for a Normal Retirement Allowance pursu-
ant to Section 6(D) of the SERP and the Execu-
tive shall, accordingly, be entitled to com-
mence receipt of such Normal Retirement Allow-
ance, without reduction on account of his age,
immediately following such termination of em-
ployment.
(D) For the thirty-six (36)
month period immediately following the Date of
Termination, the Company shall arrange to pro-
vide the Executive with life, disability, acci-
dent and health insurance benefits substantial-
ly similar to those which the Executive is
receiving immediately prior to the Notice of
Termination (without giving effect to any
amendment to such benefits made subsequent to a
Change in Control which amendment adversely
affects in any manner the Executive's entitle-
ment to or the amount of such benefits); pro-
vided, however, that, unless the Executive con-
sents to a different method (after taking into
account the effect of such method on the calcu-
lation of "parachute payments" pursuant to
Section 6.2 hereof), such health insurance
benefits shall be provided through a third-
party insurer. Benefits otherwise receivable
by the Executive pursuant to this Section
6.1(D) shall be reduced to the extent compa-
rable benefits are actually received by or made
available to the Executive without cost during
the thirty-six (36) month period following the
Executive's termination of employment (and any
such benefits actually received by or made
available to the Executive shall be reported to
the Company by the Executive). If the benefits
provided to the Executive under this Section
6.1(D) shall result in a decrease, pursuant to
Section 6.2 hereof, in the Severance Payments
and these Section 6.1(D) benefits are thereaf-
ter reduced pursuant to the immediately preced-
ing sentence because of the receipt or avail-
ability of comparable benefits, the Company
shall, at the time of such reduction, pay to
the Executive the lesser of (a) the amount of
the decrease made in the Severance Payments
pursuant to Section 6.2 hereof, or (b) the
maximum amount which can be paid to the Execu-
tive without being, or causing any other pay-
ment to be, nondeductible by reason of section
280G of the Code.
(E) If the Executive would have become
entitled to benefits under the Company's post-re-
tirement health care or life insurance plans had the
Executive's employment terminated at any time during
the period of thirty-six (36) months after the Date
of Termination, the Company shall provide such post-
retirement health care or life insurance benefits to
the Executive commencing on the later of (i) the
date that such coverage would have first become
available and (ii) the date that benefits described
in subsection (D) of this Section 6.2 terminate.
6.2 (A) Whether or not the Executive becomes
entitled to the Severance Payments, if any payment or
benefit received or to be received by the Executive in
connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being herein-
after called "Total Payments") will be subject (in whole
or part) to the Excise Tax, then, subject to the provi-
sions of subsection (B) of this Section 6.2, the Company
shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the
Total Payments and any federal, state and local income
and employment tax and Excise Tax upon the Gross-Up Pay-
ment, shall be equal to the Total Payments. For purposes
of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income and
employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxa-
tion in the state and locality of the Executive's resi-
dence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(B) In the event that, after giving effect to
any redeterminations described in subsection (D) of this
Section 6.2, a reduction in the Severance Payments to the
largest amount that would result in no portion of the
Total Payments being subject to the Excise Tax (after
taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such
other plan, arrangement or agreement) would produce a net
amount (after deduction of the net amount of federal,
state and local income tax on such reduced Total Pay-
ments) that would be greater than the net amount of
unreduced Total Payments (after deduction of the net
amount of federal, state and local income tax and the
amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments),
then subsection (A) of this Section 6.2 shall not apply
and the cash Severance Payments shall first be reduced
(if necessary, to zero), and all other noncash Severance
Benefits shall thereafter be reduced (if necessary, to
zero); provided, however, that the Executive may elect to
have the noncash Severance Payments reduced (or elimi-
nated) prior to any reduction of the cash Severance
Payments.
(C) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (i) all of the Total Pay-
ments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, unless in the
opinion of tax counsel (the "Tax Counsel") reasonably ac-
ceptable to the Executive and selected by the accounting
firm (the "Auditor") which was, immediately prior to the
Change in Control, the Company's independent auditor,
such other payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess
parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code,
in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section 6.2(C) and such supporting
materials as are reasonably necessary for the Executive
to evaluate the Company's calculations. If the Executive
disputes the Company's calculations (in whole or in
part), the reasonable opinion of Tax Counsel with respect
to the matter in dispute shall prevail.
(D) In the event that (i) amounts are paid to
the Executive pursuant to subsection (A) of this Section
6.2, (ii) the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the
time of termination of the Executive's employment, and
(iii) after giving effect to such redetermination, the
Severance Payments are to be reduced pursuant to subsec-
tion (B) of this Section 6.2, the Executive shall repay
to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the por-
tion of the Gross-Up Payment attributable to such reduc-
tion (plus that portion of the Gross-Up Payment attribut-
able to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment re-
sults in a reduction in the Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that (x) the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the
Executive's employment (including by reason of any pay-
ment the existence or amount of which cannot be deter-
mined at the time of the Gross-Up Payment) and (y) after
giving effect to such redetermination, the Severance Pay-
ments should not have been reduced pursuant to subsection
(B) of this Section 6.2, the Company shall make an addi-
tional Gross-Up Payment in respect of such excess and in
respect of any portion of the Excise Tax with respect to
which the Company had not previously made a Gross-Up Pay-
ment (plus any interest, penalties or additions payable
by the Executive with respect to such excess and such
portion) at the time that the amount of such excess is
finally determined.
(E) Exhibit A hereto is intended to illustrate
the operation of this Section 6.2.
6.3 The payments provided for in subsections
(A) and (B) of Section 6.1 hereof and Section 6.2 hereof
shall be made not later than the fifth day following the
Date of Termination; provided, however, that if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined in good faith by the Executive or, in the case
of payments under Section 6.2 hereof, in accordance with
Section 6.2 hereof, of the minimum amount of such pay-
ments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after
the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute
a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments
are made under this Section, the Company shall provide
the Executive with a written statement setting forth the
manner in which such payments were calculated and the
basis for such calculations including, without limita-
tion, any opinions or other advice the Company has re-
ceived from outside counsel, auditors or consultants (and
any such opinions or advice which are in writing shall be
attached to the statement). In the event the Company
should fail to pay when due the amounts described in
subsections (A) or (B) of Section 6.1 hereof or Section
6.2 hereof, the Executive shall also be entitled to
receive from the Company an amount representing interest
on any unpaid or untimely paid amounts from the due date,
as determined under this Section 6.3 (without regard to
any extension of the Date of Termination pursuant to
Section 7.3 hereof), to the date of payment at a rate
equal to the prime rate of Citibank as in effect from
time to time after such due date.
6.4 The Company also shall pay to the Execu-
tive all legal fees and expenses incurred by the Execu-
tive in disputing in good faith any issue relating to the
termination of the Executive's employment following a
Change in Control (including a termination of employment
following a Potential Change in Control if the Executive
alleges in good faith that such termination will be
deemed to have occurred following a Change in Control
pursuant to the second sentence of Section 6.1 hereof) or
in seeking in good faith to obtain or enforce any benefit
or right provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to
the application of section 4999 of the Code to any pay-
ment or benefit provided hereunder. Such payments shall
be made as such fees and expenses are incurred by the
Executive, but in no event later than five (5) business
days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any pur-
ported termination of the Executive's employment (other
than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other
party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and cir-
cumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indi-
cated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to
the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termina-
tion," with respect to any purported termination of the
Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (i) if the
Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to
the full-time performance of the Executive's duties
during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other rea-
son, the date specified in the Notice of Termination
(which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respec-
tively, from the date such Notice of Termination is
given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends (taking
into account any extensions thereof that shall have
occurred pursuant to Section 2 hereof) or (ii) the date
on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent juris-
diction (which is not appealable or with respect to which
the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute
given by the Executive only if such notice is given in
good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a pur-
ported termination occurs following a Change in Control
and during the term of this Agreement and the Date of
Termination is extended in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited
to, salary) and continue the Executive as a participant
in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termina-
tion, as determined in accordance with Section 7.3 here-
of. Amounts paid under this Section 7.4 are in addition
to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. The Company agrees that, if
the Executive's employment with the Company terminates
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
Company pursuant to Section 6 hereof or Section 7.4
hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(D)
hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Compa-
ny, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effec-
tiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment
for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, succes-
sors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be
payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agree-
ment, notices and all other communications provided for
in the Agreement shall be in writing and shall be deemed
to have been duly given when delivered or mailed by
United States registered mail, return receipt requested,
postage prepaid, addressed, if to the Executive, to the
address shown for the Executive in the personnel records
of the Company and, if to the Company, to the address set
forth below, or to such other address as either party may
have furnished to the other in writing in accordance
herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Attention: Vice President and
General Counsel
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dis-
similar provisions or conditions at the same or at any
prior or subsequent time. This Agreement supersedes the
Prior Agreement, the Letter Agreement and any other
agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof
(i.e., benefits payable to the Executive by reason of the
occurrence of a Change in Control) which have been made
by either party. The validity, interpretation, construc-
tion and performance of this Agreement shall be governed
by the laws of the State of New York. All references to
sections of the Exchange Act or the Code shall be deemed
also to refer to any successor provisions to such sec-
tions. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal,
state or local law and any additional withholding to
which the Executive has agreed. The obligations of the
Company and the Executive under Sections 6 and 7 hereof
shall survive the expiration of the term of this Agree-
ment.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the
Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board
that the Executive's claim has been denied. Any further
dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by
arbitration in New York, New York in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. Notwithstanding
any provision of this Agreement to the contrary, the
Executive shall be entitled to seek specific performance
of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or contro-
versy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agree-
ment, the following terms shall have the meanings indi-
cated below:
(A) "Base Amount" shall have the meaning set
forth in section 280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning
set forth in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Cause" for termination by the Company of
the Executive's employment shall mean (i) the willful and
continued failure by the Executive to substantially
perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise.
For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in
the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to
the Board by clear and convincing evidence that Cause ex-
ists.
(E) A "Change in Control" shall be deemed to
have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities beneficially owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(II) the following individuals cease
for any reason to constitute a majority of the
number of directors then serving: individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in con-
nection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of di-
rectors of the Company (as such terms are used
in Rule 14a-11 of Regulation 14A under the
Exchange Act)) whose appointment or election by
the Board or nomination for election by the
Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors
then still in office who either were directors
on the date hereof or whose appointment, elec-
tion or nomination for election was previously
so approved; or
(III) the shareholders of the Compa-
ny approve a merger or consolidation of the
Company with any other corporation or approve
the issuance of voting securities of the Compa-
ny in connection with a merger or consolidation
of the Company (or any direct or indirect sub-
sidiary of the Company) pursuant to applicable
stock exchange requirements, other than (i) a
merger or consolidation which would result in
the voting securities of the Company outstand-
ing immediately prior to such merger or consol-
idation continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof), in combination with the
ownership of any trustee or other fiduciary
holding securities under an employee benefit
plan of the Company, at least 65% of the com-
bined voting power of the voting securities of
the Company or such surviving entity or any
parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recap-
italization of the Company (or similar transac-
tion) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(IV) the stockholders of the Company
approve a plan of complete liquidation or dis-
solution of the Company or an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the Company
of all or substantially all of the Company's
assets to an entity, at least 65% of the com-
bined voting power of the voting securities of
which are owned by Persons in substantially the
same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control"
shall be deemed to have occurred if there is consummated
any transaction or series of integrated transactions
immediately following which the record holders of the
common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets
of the Company immediately following such transaction or
series of transactions.
(F) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(G) "Company" shall mean Orange and Rockland
Utilities, Inc. and, except in determining under Section
15(E) hereof whether or not any Change in Control of the
Company has occurred, shall include its subsidiaries and
any successor to its business and/or assets which assumes
and agrees to perform this Agreement by operation of law,
or otherwise.
(H) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(I) "Disability" shall be deemed the reason
for the termination by the Company of the Executive's
employment, if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the
Executive's duties with the Company for a period of six
(6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of the Executive's duties.
(J) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(K) "Excise Tax" shall mean any excise tax
imposed under section 4999 of the Code.
(L) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(M) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) after any Change in Control, or after any Poten-
tial Change in Control under the circumstances described
in the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) and (VII) below to a
"Change in Control" as references to a "Potential Change
in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in
the case of any act or failure to act described in para-
graph (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of
any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or a substantial adverse alteration in
the nature or status of the Executive's respon-
sibilities from those in effect immediately
prior to the Change in Control other than any
such alteration primarily attributable to the
fact that the Company may no longer be a public
company;
(II) a reduction by the Company in
the Executive's annual base salary as in effect
on the date hereof or as the same may be in-
creased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
and all senior executives of any Person in
control of the Company;
(III) the relocation of the
Company's principal executive offices to a
location within New York City or to a location
more than 50 miles from the location of such
offices immediately prior to the Change in Con-
trol or the Company's requiring the Executive
to be based anywhere other than the Company's
principal executive offices except for required
travel on the Company's business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's cur-
rent compensation except pursuant to an
across-the-board compensation deferral similar-
ly affecting all senior executives of the Com-
pany and all senior executives of any Person in
control of the Company, or to pay to the Exec-
utive any portion of an installment of deferred
compensation under any deferred compensation
program of the Company, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is materi-
al to the Executive's total compensation, in-
cluding but not limited to the Company's stock
option, restricted stock, stock appreciation
right, incentive compensation, bonus and other
plans or any substitute plans adopted prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect
to such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
or disability plans in which the Executive was
participating immediately prior to the Change
in Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or de-
prive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to maintain a vacation policy with
respect to the Executive that is at least as
favorable as the vacation policy (whether for-
mal or informal) in place with respect to the
Executive immediately prior to the Change in
Control; or
(VII) any purported termination of
the Executive's employment which is not effect-
ed pursuant to a Notice of Termination satisfy-
ing the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
For purposes of any determination regarding the
existence of Good Reason, any claim by the Executive that
Good Reason exists shall be presumed to be correct unless
the Company establishes to the Board by clear and con-
vincing evidence that Good Reason does not exist.
(N) "Gross-Up Payment" shall have the meaning
set forth in Section 6.2 hereof.
(O) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(P) "Pension Plan" shall mean any tax-quali-
fied, supplemental or excess benefit pension plan main-
tained by the Company and any other agreement entered
into between the Executive and the Company which is
designed to provide the Executive with supplemental
retirement benefits.
(Q) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof, except that such
term shall not include (i) the Company or any of its
affiliates (as defined in Rule 12b-2 promulgated under
the Exchange Act), (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in sub-
stantially the same proportions as their ownership of
stock of the Company.
(R) "Potential Change in Control" shall be
deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in Con-
trol;
(II) the Company or any Person pub-
licly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the Benefi-
cial Owner, directly or indirectly, of securi-
ties of the Company representing 10% or more of
either the then outstanding shares of common
stock of the Company or the combined voting
power of the Company's then outstanding securi-
ties; or
(IV) the Board adopts a resolution
to the effect that, for purposes of this Agree-
ment, a Potential Change in Control has oc-
curred.
(S) "Retirement" shall be deemed the reason
for the termination of the Executive's employment if such
employment is terminated in accordance with the Company's
retirement policy generally applicable to its salaried
employees, as in effect immediately prior to the Change
in Control, or in accordance with any retirement arrange-
ment established with the Executive's consent with re-
spect to the Executive.
(T) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(U) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
ORANGE AND ROCKLAND UTILITIES, INC.
By:
Name: James F. O'Grady, Jr.
Title: Chairman of the
Compensation Committee
D. Louis Peoples
EXHIBIT A
Illustration 1
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $299,999 or less
Result:
Full Unadjusted Severance Benefit is paid without adjustment.
Explanation:
No excise tax is due because the Unadjusted Severance Benefit
does not exceed the Safe Harbor Amount. Accordingly, the full
Unadjusted Severance Benefit is paid without reduction and with-
out a gross up payment.
____________________
Each of the following illustrations assumes that the highest
marginal rate of federal, state and local income and employ-
ment tax in the state and locality of the Executive's resi-
dence (net of the maximum reduction in federal income taxes
which could be obtained from deduction of the state and
local taxes) is 40%.
<PAGE>
Illustration 2
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $390,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $290,000
Income tax on Unadjusted Severance Benefit
(40% of $390,000) $156,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $290,000) $ 58,000
Net amount of Unadjusted Severance Benefit $176,000
Net amount of Reduced Severance Benefit $180,000
Result:
The Unadjusted Severance Benefit is reduced and only an amount
equal to the Safe Harbor Amount is paid.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $176,000, i.e., the full amount of the Unadjusted Severance
Benefit ($390,000) reduced by applicable income taxes ($156,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($58,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is so reduced--only an amount
equal to the Safe Harbor Amount is paid and there is no gross up
payment.
<PAGE>
Illustration 3
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $410,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $310,000
Income tax on Unadjusted Severance Benefit
(40% of $410,000) $164,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $310,000) $ 62,000
Net amount of Unadjusted Severance Benefit
(if no gross up) $184,000
Net amount of Reduced Severance Benefit $180,000
Gross up payment $155,000
Net amount of Unadjusted Severance Benefit -
with gross up (60% of $410,000) $246,000
Result:
The Unadjusted Severance Benefit is paid in full together with a
gross up payment that puts the individual in the same after-tax
position he would have been in had there been no excise applica-
ble to the Unadjusted Severance Benefit.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $184,000, i.e., the full amount of the Unadjusted Severance
Benefit ($410,000) reduced by applicable income taxes ($164,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($62,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is not in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is paid in full together with
the gross up payment. The gross up payment would be $155,000.
This payment would itself be subject to taxes of $93,000 (40%
income tax and 20% excise tax), leaving $62,000 to pay the excise
tax on the Unadjusted Severance Benefit.
AGREEMENT
THIS AGREEMENT, dated 1/21, 1996, is made
by and between Orange and Rockland Utilities, Inc., a New
York corporation (the "Company"), and G. D. Caliendo (the
"Executive").
WHEREAS, the Company considers it essential to
the best interests of its shareholders to foster the
continuous employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the
case with many publicly held corporations, the possibili-
ty of a Change in Control exists and that such possibili-
ty, and the uncertainty and questions which it may raise
among management, may result in the departure or distrac-
tion of management personnel to the detriment of the
Company and its shareholders; and
WHEREAS, the Board has determined that appro-
priate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the
Company's management, including the Executive, to their
assigned duties without distraction in the face of poten-
tially disturbing circumstances arising from the possi-
bility of a Change in Control; and
WHEREAS, the Company has previously entered
into an Agreement with the Executive dated October 18,
1995 (the "Prior Agreement").
NOW, THEREFORE, in consideration of the premis-
es and the mutual covenants herein contained, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capital-
ized terms used in this Agreement are provided in the
last Section hereof.
2. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
Company and in consideration of the Executive's covenants
set forth in Section 3 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits
described herein in the event the Executive's employment
with the Company is (or, under the terms of the second
sentence of Section 6.1 hereof, is deemed to have been)
terminated following a Change in Control and during the
term of this Agreement. Except as provided in the first
sentence of Section 6.2(A) hereof and Section 9.1 hereof,
no amount or benefit shall be payable under this Agree-
ment unless there shall have been (or, under the terms of
the second sentence of Section 6.1 hereof, there shall be
deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control
and during the Term of this Agreement. This Agreement
shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the Execu-
tive shall not have any right to be retained in the
employ of the Company.
3. The Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company until the earliest of
(i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive
of the Executive's employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment
for any reason.
4. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
for a period of thirty-six (36) months beyond the month
in which a Change in Control occurs (or, if later, thir-
ty-six (36) months beyond the consummation of the trans-
action the approval of which by the Company's sharehold-
ers constitutes a Change in Control under Section
15(E)(III) or (IV) hereof).
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the Execu-
tive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during
such period, until the Executive's employment is termi-
nated by the Company for Disability.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits to which the Executive is
entitled in respect of all periods preceding the Date of
Termination under the terms of the Company's compensation
and benefit plans, programs or arrangements.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's normal post-termination compensation
and benefits to the Executive as such payments become
due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with,
the Company's retirement, insurance and other compensa-
tion or benefit plans, programs and arrangements.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the termina-
tion of the Executive's employment following a Change in
Control and during the term of this Agreement, in addi-
tion to any payments and benefits to which the Executive
is entitled under Section 5 hereof, unless such termina-
tion is (i) by the Company for Cause, (ii) by reason of
death or Disability, or (iii) by the Executive without
Good Reason. For purposes of this Agreement, the
Executive's employment shall be deemed to have been
terminated by the Company without Cause or by the Execu-
tive with Good Reason following a Change in Control if
(i) the Executive's employment is terminated without
Cause prior to a Change in Control and such termination
was at the request or direction of a Person who has en-
tered into an agreement with the Company the consummation
of which would constitute a Change in Control, (ii) the
Executive terminates his employment with Good Reason
prior to a Change in Control and the circumstance or
event which constitutes Good Reason occurs at the request
or direction of such Person, or (iii) the Executive's
employment is terminated without Cause prior to a Change
in Control and such termination is otherwise in connec-
tion with or in anticipation of a Change in Control which
actually occurs. For purposes of any determination
regarding the applicability of the immediately preceding
sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to
the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum sever-
ance payment, in cash, equal to three times the sum
of (i) the higher of the Executive's annual base
salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice
of Termination is based or the Executive's annual
base salary in effect immediately prior to the
Change in Control, and (ii) the higher of the aver-
age of the annual bonuses earned or received by the
Executive from the Company or its subsidiaries in
respect of the three (3) consecutive fiscal years
immediately preceding that in which the Date of
Termination occurs or the average of the annual
bonuses so earned or received in respect of the
three (3) consecutive fiscal years immediately pre-
ceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of
any annual or long-term incentive plan to the con-
trary, the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year
or other measuring period preceding the Date of
Termination under any such plan but which, as of the
Date of Termination, is contingent only upon the
continued employment of the Executive to a subse-
quent date or otherwise has not been paid, and (ii)
a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compen-
sation awards to the Executive for all then uncom-
pleted periods under any such plan, calculated as to
each such award by multiplying the award that the
Executive would have earned on the last day of the
performance award period, assuming the achievement,
at the target level of the individual and corporate
performance goals established with respect to such
award, by the fraction obtained by dividing the
number of full months and any fractional portion of
a month during such performance award period through
the Date of Termination by the total number of
months contained in such performance award period.
(C) Notwithstanding any provision of
the Officers' Supplemental Retirement Plan of Orange
and Rockland Utilities, Inc. as Amended and Restated
(the "SERP") to the contrary, for purposes of deter-
mining the Executive's Benefit Formula Percentage
under the SERP and for purposes of Section 2(8) of
the SERP, the Executive shall be treated as having
completed a number of years of Service equal to the
greater of (i) 10 or (ii) the sum of (I) the number
of years of the Executive's service determined under
the SERP, (II) the lesser of 5 or the sum of the
number of the Executive's years of Service determi-
ned under the SERP and the number, if any, deter-
mined under clause (III) below and (III) if the
Executive's employment terminates following a Change
in Control and during the term of this Agreement
(unless such termination is by the Company for
Cause, by reason of death or Disability or by the
Executive without Good Reason), the number 3.
Exhibit A hereto is intended to illustrate the
operation of this Section 6.1(C).
(D) For the thirty-six (36) month
period immediately following the Date of Termina-
tion, the Company shall arrange to provide the
Executive with life, disability, accident and health
insurance benefits substantially similar to those
which the Executive is receiving immediately prior
to the Notice of Termination (without giving effect
to any amendment to such benefits made subsequent to
a Change in Control which amendment adversely af-
fects in any manner the Executive's entitlement to
or the amount of such benefits); provided, however,
that, unless the Executive consents to a different
method (after taking into account the effect of such
method on the calculation of "parachute payments"
pursuant to Section 6.2 hereof), such health insur-
ance benefits shall be provided through a third-
party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(D) shall be
reduced to the extent comparable benefits are actu-
ally received by or made available to the Executive
without cost during the thirty-six (36) month period
following the Executive's termination of employment
(and any such benefits actually received by or made
available to the Executive shall be reported to the
Company by the Executive). If the benefits provided
to the Executive under this Section 6.1(D) shall
result in a decrease, pursuant to Section 6.2 here-
of, in the Severance Payments and these Section
6.1(D) benefits are thereafter reduced pursuant to
the immediately preceding sentence because of the
receipt or availability of comparable benefits, the
Company shall, at the time of such reduction, pay to
the Executive the lesser of (a) the amount of the
decrease made in the Severance Payments pursuant to
Section 6.2 hereof, or (b) the maximum amount which
can be paid to the Executive without being, or
causing any other payment to be, nondeductible by
reason of section 280G of the Code.
(E) If the Executive would have become
entitled to benefits under the Company's post-re-
tirement health care or life insurance plans had the
Executive's employment terminated at any time during
the period of thirty-six (36) months after the Date
of Termination, the Company shall provide such post-
retirement health care or life insurance benefits to
the Executive commencing on the later of (i) the
date that such coverage would have first become
available and (ii) the date that benefits described
in subsection (D) of this Section 6.2 terminate.
6.2 (A) Whether or not the Executive becomes
entitled to the Severance Payments, if any payment or
benefit received or to be received by the Executive in
connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being herein-
after called "Total Payments") will be subject (in whole
or part) to the Excise Tax, then, subject to the provi-
sions of subsection (B) of this Section 6.2, the Company
shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the
Total Payments and any federal, state and local income
and employment tax and Excise Tax upon the Gross-Up Pay-
ment, shall be equal to the Total Payments. For purposes
of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income and
employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxa-
tion in the state and locality of the Executive's resi-
dence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(B) In the event that, after giving effect to
any redeterminations described in subsection (D) of this
Section 6.2, a reduction in the Severance Payments to the
largest amount that would result in no portion of the
Total Payments being subject to the Excise Tax (after
taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such
other plan, arrangement or agreement) would produce a net
amount (after deduction of the net amount of federal,
state and local income tax on such reduced Total Pay-
ments) that would be greater than the net amount of
unreduced Total Payments (after deduction of the net
amount of federal, state and local income tax and the
amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments),
then subsection (A) of this Section 6.2 shall not apply
and the cash Severance Payments shall first be reduced
(if necessary, to zero), and all other noncash Severance
Benefits shall thereafter be reduced (if necessary, to
zero); provided, however, that the Executive may elect to
have the noncash Severance Payments reduced (or elimi-
nated) prior to any reduction of the cash Severance
Payments.
(C) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (i) all of the Total Pay-
ments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, unless in the
opinion of tax counsel reasonably acceptable to the
Executive and selected (the "Tax Counsel") by the ac-
counting firm (the "Auditor") which was, immediately
prior to the Change in Control, the Company's independent
auditor, such other payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code,
in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section 6.2(C) and such supporting
materials as are reasonably necessary for the Executive
to evaluate the Company's calculations. If the Executive
disputes the Company's calculations (in whole or in
part), the reasonable opinion of Tax Counsel with respect
to the matter in dispute shall prevail.
(D) In the event that (i) amounts are paid to
the Executive pursuant to subsection (A) of this Section
6.2, (ii) the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the
time of termination of the Executive's employment, and
(iii) after giving effect to such redetermination, the
Severance Payments are to be reduced pursuant to subsec-
tion (B) of this Section 6.2, the Executive shall repay
to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the por-
tion of the Gross-Up Payment attributable to such reduc-
tion (plus that portion of the Gross-Up Payment attribut-
able to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment re-
sults in a reduction in the Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that (x) the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the
Executive's employment (including by reason of any pay-
ment the existence or amount of which cannot be deter-
mined at the time of the Gross-Up Payment) and (y) after
giving effect to such redetermination, the Severance Pay-
ments should not have been reduced pursuant to subsection
(B) of this Section 6.2, the Company shall make an addi-
tional Gross-Up Payment in respect of such excess and in
respect of any portion of the Excise Tax with respect to
which the Company had not previously made a Gross-Up Pay-
ment (plus any interest, penalties or additions payable
by the Executive with respect to such excess and such
portion) at the time that the amount of such excess is
finally determined.
(E) Exhibit B hereto is intended to illustrate
the operation of this Section 6.2.
6.3 The payments provided for in subsections
(A) and (B) of Section 6.1 hereof and Section 6.2 hereof
shall be made not later than the fifth day following the
Date of Termination; provided, however, that if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined in good faith by the Executive or, in the case
of payments under Section 6.2 hereof, in accordance with
Section 6.2 hereof, of the minimum amount of such pay-
ments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after
the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute
a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments
are made under this Section, the Company shall provide
the Executive with a written statement setting forth the
manner in which such payments were calculated and the
basis for such calculations including, without limita-
tion, any opinions or other advice the Company has re-
ceived from outside counsel, auditors or consultants (and
any such opinions or advice which are in writing shall be
attached to the statement). In the event the Company
should fail to pay when due the amounts described in
subsections (A) or (B) of Section 6.1 hereof or Section
6.2 hereof, the Executive shall also be entitled to
receive from the Company an amount representing interest
on any unpaid or untimely paid amounts from the due date,
as determined under this Section 6.3 (without regard to
any extension of the Date of Termination pursuant to
Section 7.3 hereof), to the date of payment at a rate
equal to the prime rate of Citibank as in effect from
time to time after such due date.
6.4 The Company also shall pay to the Execu-
tive all legal fees and expenses incurred by the Execu-
tive in disputing in good faith any issue relating to the
termination of the Executive's employment following a
Change in Control (including a termination of employment
following a Potential Change in Control if the Executive
alleges in good faith that such termination will be
deemed to have occurred following a Change in Control
pursuant to the second sentence of Section 6.1 hereof) or
in seeking in good faith to obtain or enforce any benefit
or right provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to
the application of section 4999 of the Code to any pay-
ment or benefit provided hereunder. Such payments shall
be made as such fees and expenses are incurred by the
Executive, but in no event later than five (5) business
days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any pur-
ported termination of the Executive's employment (other
than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other
party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and cir-
cumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indi-
cated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to
the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termina-
tion," with respect to any purported termination of the
Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (i) if the
Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to
the full-time performance of the Executive's duties
during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other rea-
son, the date specified in the Notice of Termination
(which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respec-
tively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends (taking
into account any extensions thereof that shall have
occurred pursuant to Section 2 hereof) or (ii) the date
on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent juris-
diction (which is not appealable or with respect to which
the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute
given by the Executive only if such notice is given in
good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a pur-
ported termination occurs following a Change in Control
and during the term of this Agreement and the Date of
Termination is extended in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited
to, salary) and continue the Executive as a participant
in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termina-
tion, as determined in accordance with Section 7.3 here-
of. Amounts paid under this Section 7.4 are in addition
to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. The Company agrees that, if
the Executive's employment with the Company terminates
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
Company pursuant to Section 6 hereof or Section 7.4
hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(D)
hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Compa-
ny, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effec-
tiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment
for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, succes-
sors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be
payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agree-
ment, notices and all other communications provided for
in the Agreement shall be in writing and shall be deemed
to have been duly given when delivered or mailed by
United States registered mail, return receipt requested,
postage prepaid, addressed, if to the Executive, to the
address shown for the Executive in the personnel records
of the Company and, if to the Company, to the address set
forth below, or to such other address as either party may
have furnished to the other in writing in accordance
herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Attention: Vice President and
General Counsel
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dis-
similar provisions or conditions at the same or at any
prior or subsequent time. This Agreement supersedes the
Prior Agreement and any other agreements or representa-
tions, oral or otherwise, express or implied, with re-
spect to the subject matter hereof (i.e., benefits pay-
able to the Executive by reason of the occurrence of a
Change in Control) which have been made by either party.
The validity, interpretation, construction and perfor-
mance of this Agreement shall be governed by the laws of
the State of New York. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applica-
ble withholding required under federal, state or local
law and any additional withholding to which the Executive
has agreed. The obligations of the Company and the
Executive under Sections 6 and 7 hereof shall survive the
expiration of the term of this Agreement.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the
Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board
that the Executive's claim has been denied. Any further
dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by
arbitration in New York, New York in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. Notwithstanding
any provision of this Agreement to the contrary, the
Executive shall be entitled to seek specific performance
of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or contro-
versy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agree-
ment, the following terms shall have the meanings indi-
cated below:
(A) "Base Amount" shall have the meaning set
forth in section 280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning
set forth in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Cause" for termination by the Company of
the Executive's employment shall mean (i) the willful and
continued failure by the Executive to substantially
perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise.
For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in
the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to
the Board by clear and convincing evidence that Cause ex-
ists.
(E) A "Change in Control" shall be deemed to
have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities beneficially owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(II) the following individuals cease
for any reason to constitute a majority of the
number of directors then serving: individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in con-
nection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of di-
rectors of the Company (as such terms are used
in Rule 14a-11 of Regulation 14A under the
Exchange Act)) whose appointment or election by
the Board or nomination for election by the
Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors
then still in office who either were directors
on the date hereof or whose appointment, elec-
tion or nomination for election was previously
so approved; or
(III) the shareholders of the Compa-
ny approve a merger or consolidation of the
Company with any other corporation or approve
the issuance of voting securities of the Compa-
ny in connection with a merger or consolidation
of the Company (or any direct or indirect sub-
sidiary of the Company) pursuant to applicable
stock exchange requirements, other than (i) a
merger or consolidation which would result in
the voting securities of the Company outstand-
ing immediately prior to such merger or consol-
idation continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof), in combination with the
ownership of any trustee or other fiduciary
holding securities under an employee benefit
plan of the Company, at least 65% of the com-
bined voting power of the voting securities of
the Company or such surviving entity or any
parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recap-
italization of the Company (or similar transac-
tion) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(IV) the stockholders of the Company
approve a plan of complete liquidation or dis-
solution of the Company or an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the Company
of all or substantially all of the Company's
assets to an entity, at least 65% of the com-
bined voting power of the voting securities of
which are owned by Persons in substantially the
same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control"
shall be deemed to have occurred if there is consummated
any transaction or series of integrated transactions
immediately following which the record holders of the
common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets
of the Company immediately following such transaction or
series of transactions.
(F) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(G) "Company" shall mean Orange and Rockland
Utilities, Inc. and, except in determining under Section
15(E) hereof whether or not any Change in Control of the
Company has occurred, shall include its subsidiaries and
any successor to its business and/or assets which assumes
and agrees to perform this Agreement by operation of law,
or otherwise.
(H) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(I) "Disability" shall be deemed the reason
for the termination by the Company of the Executive's
employment, if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the
Executive's duties with the Company for a period of six
(6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of the Executive's duties.
(J) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(K) "Excise Tax" shall mean any excise tax
imposed under section 4999 of the Code.
(L) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(M) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) after any Change in Control, or after any Poten-
tial Change in Control under the circumstances described
in the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) and (VII) below to a
"Change in Control" as references to a "Potential Change
in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in
the case of any act or failure to act described in para-
graph (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of
any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or a substantial adverse alteration in
the nature or status of the Executive's respon-
sibilities from those in effect immediately
prior to the Change in Control other than any
such alteration primarily attributable to the
fact that the Company may no longer be a public
company;
(II) a reduction by the Company in
the Executive's annual base salary as in effect
on the date hereof or as the same may be in-
creased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
and all senior executives of any Person in
control of the Company;
(III) the relocation of the
Company's principal executive offices to a
location within New York City or to a location
more than 50 miles from the location of such
offices immediately prior to the Change in Con-
trol or the Company's requiring the Executive
to be based anywhere other than the Company's
principal executive offices except for required
travel on the Company's business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's cur-
rent compensation except pursuant to an
across-the-board compensation deferral similar-
ly affecting all senior executives of the Com-
pany and all senior executives of any Person in
control of the Company, or to pay to the Exec-
utive any portion of an installment of deferred
compensation under any deferred compensation
program of the Company, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is materi-
al to the Executive's total compensation, in-
cluding but not limited to the Company's stock
option, restricted stock, stock appreciation
right, incentive compensation, bonus and other
plans or any substitute plans adopted prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect
to such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
or disability plans in which the Executive was
participating immediately prior to the Change
in Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or de-
prive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to maintain a vacation policy with
respect to the Executive that is at least as
favorable as the vacation policy (whether for-
mal or informal) in place with respect to the
Executive immediately prior to the Change in
Control; or
(VII) any purported termination of
the Executive's employment which is not effect-
ed pursuant to a Notice of Termination satisfy-
ing the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
For purposes of any determination regarding the
existence of Good Reason, any claim by the Executive that
Good Reason exists shall be presumed to be correct unless
the Company establishes to the Board by clear and con-
vincing evidence that Good Reason does not exist.
(N) "Gross-Up Payment" shall have the meaning
set forth in Section 6.2 hereof.
(O) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(P) "Pension Plan" shall mean any tax-quali-
fied, supplemental or excess benefit pension plan main-
tained by the Company and any other agreement entered
into between the Executive and the Company which is
designed to provide the Executive with supplemental
retirement benefits.
(Q) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof, except that such
term shall not include (i) the Company or any of its
affiliates (as defined in Rule 12b-2 promulgated under
the Exchange Act), (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in sub-
stantially the same proportions as their ownership of
stock of the Company.
(R) "Potential Change in Control" shall be
deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in Con-
trol;
(II) the Company or any Person pub-
licly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the Benefi-
cial Owner, directly or indirectly, of securi-
ties of the Company representing 10% or more of
either the then outstanding shares of common
stock of the Company or the combined voting
power of the Company's then outstanding securi-
ties; or
(IV) the Board adopts a resolution
to the effect that, for purposes of this Agree-
ment, a Potential Change in Control has oc-
curred.
(S) "Retirement" shall be deemed the reason
for the termination of the Executive's employment if such
employment is terminated in accordance with the Company's
retirement policy generally applicable to its salaried
employees, as in effect immediately prior to the Change
in Control, or in accordance with any retirement arrange-
ment established with the Executive's consent with re-
spect to the Executive.
(T) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(U) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
ORANGE AND ROCKLAND UTILITIES, INC.
By:
Name: James F. O'Grady, Jr.
Title: Chairman of the
Compensation Committee
G. D. Caliendo
EXHIBIT A
ILLUSTRATION 1
Facts:
Executive has been employed for either (i) 3 years in the
case of the illustation shown in column (A) below or (ii)
8 years in the case of the illustration shown in column
(B) below (i.e., he has 3 or 8 years of Service, respec-
tively, under the SERP) and his termination of employment
is either (i) by the Company for Cause, (ii) by him other
than for Good Reason or (iii) by reason of death or
Disability.
Result:
The Executive's years of Service for purposes of deter-
mining the Executive's Benefit Formula Percentage under
the SERP and for purposes of Section 2(8) of the SERP
(relating to the extent to which incentive compensation
is included in the calculation of benefits under the
SERP) is equal to the greater of (i) or (ii)(c) below,
i.e., 10 in the case of the illustration shown in column
(A) below and 13 in the case of the illustration shown in
column (B) below.
Calculation:
(A) (B)
(i) the number 10 l0 10
(ii) (a) number of years of Service
under the SERP 3 8
(b) lesser of (1) 5 or (2) 3 5
Executive's number of years
of Service under the SERP
(c) sum of (a) and (b) 6 13
<PAGE>
ILLUSTRATION 2
Facts:
Executive has been employed for either (i) 1 year in the
case of the illustation shown in column (A) below or (ii)
3 years in the case of the illustration shown in column
(B) below (i.e., he has 1 or 3 years of Service, respec-
tively, under the SERP) and his termination of employment
is either (i) by the Company without Cause or (ii) by him
for Good Reason.
Result:
The Executive's years of Service for purposes of deter-
mining the Executive's Benefit Formula Percentage under
the SERP and for purposes of Section 2(8) of the SERP
(relating to the extent to which incentive compensation
is included in the calculation of benefits under the
SERP) is equal to the greater of (i) or (ii)(d) below,
i.e., 10 in the case of the illustration shown in column
(A) below and 11 in the case of the illustration shown in
column (B) below.
Calculation:
(A) (B)
(i) the number 10 l0 10
(ii) (a) number of years of Service
under the SERP 1 3
(b) lesser of (1) 5 or (2) sum of 4 5
Executive's number of years
of Service under the SERP and
the number 3
(c) the number 3 3 3
(d) sum of (a), (b) and (c) 8 11
<PAGE>
EXHIBIT B
Illustration 1
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $299,999 or less
Result:
Full Unadjusted Severance Benefit is paid without adjustment.
Explanation:
No excise tax is due because the Unadjusted Severance Benefit
does not exceed the Safe Harbor Amount. Accordingly, the full
Unadjusted Severance Benefit is paid without reduction and with-
out a gross up payment.
____________________
Each of the following illustrations assumes that the highest
marginal rate of federal, state and local income and employ-
ment tax in the state and locality of the Executive's resi-
dence (net of the maximum reduction in federal income taxes
which could be obtained from deduction of the state and
local taxes) is 40%.
<PAGE>
Illustration 2
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $390,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $290,000
Income tax on Unadjusted Severance Benefit
(40% of $390,000) $156,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $290,000) $ 58,000
Net amount of Unadjusted Severance Benefit $176,000
Net amount of Reduced Severance Benefit $180,000
Result:
The Unadjusted Severance Benefit is reduced and only an amount
equal to the Safe Harbor Amount is paid.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $176,000, i.e., the full amount of the Unadjusted Severance
Benefit ($390,000) reduced by applicable income taxes ($156,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($58,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is so reduced--only an amount
equal to the Safe Harbor Amount is paid and there is no gross up
payment.
<PAGE>
Illustration 3
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $410,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $310,000
Income tax on Unadjusted Severance Benefit
(40% of $410,000) $164,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $310,000) $ 62,000
Net amount of Unadjusted Severance Benefit
(if no gross up) $184,000
Net amount of Reduced Severance Benefit $180,000
Gross up payment $155,000
Net amount of Unadjusted Severance Benefit -
with gross up (60% of $410,000) $246,000
Result:
The Unadjusted Severance Benefit is paid in full together with a
gross up payment that puts the individual in the same after-tax
position he would have been in had there been no excise applica-
ble to the Unadjusted Severance Benefit.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $184,000, i.e., the full amount of the Unadjusted Severance
Benefit ($410,000) reduced by applicable income taxes ($164,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($62,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is not in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is paid in full together with
the gross up payment. The gross up payment would be $155,000.
This payment would itself be subject to taxes of $93,000 (40%
income tax and 20% excise tax), leaving $62,000 to pay the excise
tax on the Unadjusted Severance Benefit.
AGREEMENT
THIS AGREEMENT, dated Jan 22, 1996, is made
by and between Orange and Rockland Utilities, Inc., a New
York corporation (the "Company"), and R. Lee Haney (the
"Executive").
WHEREAS, the Company considers it essential to
the best interests of its shareholders to foster the
continuous employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the
case with many publicly held corporations, the possibili-
ty of a Change in Control exists and that such possibili-
ty, and the uncertainty and questions which it may raise
among management, may result in the departure or distrac-
tion of management personnel to the detriment of the
Company and its shareholders; and
WHEREAS, the Board has determined that appro-
priate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the
Company's management, including the Executive, to their
assigned duties without distraction in the face of poten-
tially disturbing circumstances arising from the possi-
bility of a Change in Control; and
WHEREAS, the Company has previously entered
into an Agreement with the Executive dated October 18,
1995 (the "Prior Agreement").
NOW, THEREFORE, in consideration of the premis-
es and the mutual covenants herein contained, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capital-
ized terms used in this Agreement are provided in the
last Section hereof.
2. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
Company and in consideration of the Executive's covenants
set forth in Section 3 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits
described herein in the event the Executive's employment
with the Company is (or, under the terms of the second
sentence of Section 6.1 hereof, is deemed to have been)
terminated following a Change in Control and during the
term of this Agreement. Except as provided in the first
sentence of Section 6.2(A) hereof and Section 9.1 hereof,
no amount or benefit shall be payable under this Agree-
ment unless there shall have been (or, under the terms of
the second sentence of Section 6.1 hereof, there shall be
deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control
and during the Term of this Agreement. This Agreement
shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the Execu-
tive shall not have any right to be retained in the
employ of the Company.
3. The Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company until the earliest of
(i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive
of the Executive's employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment
for any reason.
4. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
for a period of thirty-six (36) months beyond the month
in which a Change in Control occurs (or, if later, thir-
ty-six (36) months beyond the consummation of the trans-
action the approval of which by the Company's sharehold-
ers constitutes a Change in Control under Section
15(E)(III) or (IV) hereof).
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the Execu-
tive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during
such period, until the Executive's employment is termi-
nated by the Company for Disability.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits to which the Executive is
entitled in respect of all periods preceding the Date of
Termination under the terms of the Company's compensation
and benefit plans, programs or arrangements.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's normal post-termination compensation
and benefits to the Executive as such payments become
due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with,
the Company's retirement, insurance and other compensa-
tion or benefit plans, programs and arrangements.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the termina-
tion of the Executive's employment following a Change in
Control and during the term of this Agreement, in addi-
tion to any payments and benefits to which the Executive
is entitled under Section 5 hereof, unless such termina-
tion is (i) by the Company for Cause, (ii) by reason of
death or Disability, or (iii) by the Executive without
Good Reason. For purposes of this Agreement, the
Executive's employment shall be deemed to have been
terminated by the Company without Cause or by the Execu-
tive with Good Reason following a Change in Control if
(i) the Executive's employment is terminated without
Cause prior to a Change in Control and such termination
was at the request or direction of a Person who has en-
tered into an agreement with the Company the consummation
of which would constitute a Change in Control, (ii) the
Executive terminates his employment with Good Reason
prior to a Change in Control and the circumstance or
event which constitutes Good Reason occurs at the request
or direction of such Person, or (iii) the Executive's
employment is terminated without Cause prior to a Change
in Control and such termination is otherwise in connec-
tion with or in anticipation of a Change in Control which
actually occurs. For purposes of any determination
regarding the applicability of the immediately preceding
sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to
the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum sever-
ance payment, in cash, equal to three times the sum
of (i) the higher of the Executive's annual base
salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice
of Termination is based or the Executive's annual
base salary in effect immediately prior to the
Change in Control, and (ii) the higher of the aver-
age of the annual bonuses earned or received by the
Executive from the Company or its subsidiaries in
respect of the three (3) consecutive fiscal years
immediately preceding that in which the Date of
Termination occurs or the average of the annual
bonuses so earned or received in respect of the
three (3) consecutive fiscal years immediately pre-
ceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of
any annual or long-term incentive plan to the con-
trary, the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year
or other measuring period preceding the Date of
Termination under any such plan but which, as of the
Date of Termination, is contingent only upon the
continued employment of the Executive to a subse-
quent date or otherwise has not been paid, and (ii)
a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compen-
sation awards to the Executive for all then uncom-
pleted periods under any such plan, calculated as to
each such award by multiplying the award that the
Executive would have earned on the last day of the
performance award period, assuming the achievement,
at the target level of the individual and corporate
performance goals established with respect to such
award, by the fraction obtained by dividing the
number of full months and any fractional portion of
a month during such performance award period through
the Date of Termination by the total number of
months contained in such performance award period.
(C) Notwithstanding any provision of
the Officers' Supplemental Retirement Plan of Orange
and Rockland Utilities, Inc. as Amended and Restated
(the "SERP") to the contrary, for purposes of deter-
mining the Executive's Benefit Formula Percentage
under the SERP and for purposes of Section 2(8) of
the SERP, the Executive shall be treated as having
completed a number of years of Service equal to the
greater of (i) 10 or (ii) the sum of (I) the number
of years of the Executive's service determined under
the SERP, (II) the lesser of 5 or the sum of the
number of the Executive's years of Service determi-
ned under the SERP and the number, if any, deter-
mined under clause (III) below and (III) if the
Executive's employment terminates following a Change
in Control and during the term of this Agreement
(unless such termination is by the Company for
Cause, by reason of death or Disability or by the
Executive without Good Reason), the number 3.
Exhibit A hereto is intended to illustrate the
operation of this Section 6.1(C).
(D) For the thirty-six (36) month
period immediately following the Date of Termina-
tion, the Company shall arrange to provide the
Executive with life, disability, accident and health
insurance benefits substantially similar to those
which the Executive is receiving immediately prior
to the Notice of Termination (without giving effect
to any amendment to such benefits made subsequent to
a Change in Control which amendment adversely af-
fects in any manner the Executive's entitlement to
or the amount of such benefits); provided, however,
that, unless the Executive consents to a different
method (after taking into account the effect of such
method on the calculation of "parachute payments"
pursuant to Section 6.2 hereof), such health insur-
ance benefits shall be provided through a third-
party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(D) shall be
reduced to the extent comparable benefits are actu-
ally received by or made available to the Executive
without cost during the thirty-six (36) month period
following the Executive's termination of employment
(and any such benefits actually received by or made
available to the Executive shall be reported to the
Company by the Executive). If the benefits provided
to the Executive under this Section 6.1(D) shall
result in a decrease, pursuant to Section 6.2 here-
of, in the Severance Payments and these Section
6.1(D) benefits are thereafter reduced pursuant to
the immediately preceding sentence because of the
receipt or availability of comparable benefits, the
Company shall, at the time of such reduction, pay to
the Executive the lesser of (a) the amount of the
decrease made in the Severance Payments pursuant to
Section 6.2 hereof, or (b) the maximum amount which
can be paid to the Executive without being, or
causing any other payment to be, nondeductible by
reason of section 280G of the Code.
(E) If the Executive would have become
entitled to benefits under the Company's post-re-
tirement health care or life insurance plans had the
Executive's employment terminated at any time during
the period of thirty-six (36) months after the Date
of Termination, the Company shall provide such post-
retirement health care or life insurance benefits to
the Executive commencing on the later of (i) the
date that such coverage would have first become
available and (ii) the date that benefits described
in subsection (D) of this Section 6.2 terminate.
6.2 (A) Whether or not the Executive becomes
entitled to the Severance Payments, if any payment or
benefit received or to be received by the Executive in
connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being herein-
after called "Total Payments") will be subject (in whole
or part) to the Excise Tax, then, subject to the provi-
sions of subsection (B) of this Section 6.2, the Company
shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the
Total Payments and any federal, state and local income
and employment tax and Excise Tax upon the Gross-Up Pay-
ment, shall be equal to the Total Payments. For purposes
of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income and
employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxa-
tion in the state and locality of the Executive's resi-
dence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(B) In the event that, after giving effect to
any redeterminations described in subsection (D) of this
Section 6.2, a reduction in the Severance Payments to the
largest amount that would result in no portion of the
Total Payments being subject to the Excise Tax (after
taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such
other plan, arrangement or agreement) would produce a net
amount (after deduction of the net amount of federal,
state and local income tax on such reduced Total Pay-
ments) that would be greater than the net amount of
unreduced Total Payments (after deduction of the net
amount of federal, state and local income tax and the
amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments),
then subsection (A) of this Section 6.2 shall not apply
and the cash Severance Payments shall first be reduced
(if necessary, to zero), and all other noncash Severance
Benefits shall thereafter be reduced (if necessary, to
zero); provided, however, that the Executive may elect to
have the noncash Severance Payments reduced (or elimi-
nated) prior to any reduction of the cash Severance
Payments.
(C) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (i) all of the Total Pay-
ments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, unless in the
opinion of tax counsel (the "Tax Counsel") reasonably ac-
ceptable to the Executive and selected by the accounting
firm (the "Auditor") which was, immediately prior to the
Change in Control, the Company's independent auditor,
such other payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess
parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code,
in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section 6.2(C) and such supporting
materials as are reasonably necessary for the Executive
to evaluate the Company's calculations. If the Executive
disputes the Company's calculations (in whole or in
part), the reasonable opinion of Tax Counsel with respect
to the matter in dispute shall prevail.
(D) In the event that (i) amounts are paid to
the Executive pursuant to subsection (A) of this Section
6.2, (ii) the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the
time of termination of the Executive's employment, and
(iii) after giving effect to such redetermination, the
Severance Payments are to be reduced pursuant to subsec-
tion (B) of this Section 6.2, the Executive shall repay
to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the por-
tion of the Gross-Up Payment attributable to such reduc-
tion (plus that portion of the Gross-Up Payment attribut-
able to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment re-
sults in a reduction in the Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that (x) the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the
Executive's employment (including by reason of any pay-
ment the existence or amount of which cannot be deter-
mined at the time of the Gross-Up Payment) and (y) after
giving effect to such redetermination, the Severance Pay-
ments should not have been reduced pursuant to subsection
(B) of this Section 6.2, the Company shall make an addi-
tional Gross-Up Payment in respect of such excess and in
respect of any portion of the Excise Tax with respect to
which the Company had not previously made a Gross-Up Pay-
ment (plus any interest, penalties or additions payable
by the Executive with respect to such excess and such
portion) at the time that the amount of such excess is
finally determined.
(E) Exhibit B hereto is intended to illustrate
the operation of this Section 6.2
6.3 The payments provided for in subsections
(A) and (B) of Section 6.1 hereof and Section 6.2 hereof
shall be made not later than the fifth day following the
Date of Termination; provided, however, that if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined in good faith by the Executive or, in the case
of payments under Section 6.2 hereof, in accordance with
Section 6.2 hereof, of the minimum amount of such pay-
ments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after
the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute
a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments
are made under this Section, the Company shall provide
the Executive with a written statement setting forth the
manner in which such payments were calculated and the
basis for such calculations including, without limita-
tion, any opinions or other advice the Company has re-
ceived from outside counsel, auditors or consultants (and
any such opinions or advice which are in writing shall be
attached to the statement). In the event the Company
should fail to pay when due the amounts described in
subsections (A) or (B) of Section 6.1 hereof or Section
6.2 hereof, the Executive shall also be entitled to
receive from the Company an amount representing interest
on any unpaid or untimely paid amounts from the due date,
as determined under this Section 6.3 (without regard to
any extension of the Date of Termination pursuant to
Section 7.3 hereof), to the date of payment at a rate
equal to the prime rate of Citibank as in effect from
time to time after such due date.
6.4 The Company also shall pay to the Execu-
tive all legal fees and expenses incurred by the Execu-
tive in disputing in good faith any issue relating to the
termination of the Executive's employment following a
Change in Control (including a termination of employment
following a Potential Change in Control if the Executive
alleges in good faith that such termination will be
deemed to have occurred following a Change in Control
pursuant to the second sentence of Section 6.1 hereof) or
in seeking in good faith to obtain or enforce any benefit
or right provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to
the application of section 4999 of the Code to any pay-
ment or benefit provided hereunder. Such payments shall
be made as such fees and expenses are incurred by the
Executive, but in no event later than five (5) business
days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any pur-
ported termination of the Executive's employment (other
than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other
party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and cir-
cumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indi-
cated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to
the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termina-
tion," with respect to any purported termination of the
Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (i) if the
Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to
the full-time performance of the Executive's duties
during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other rea-
son, the date specified in the Notice of Termination
(which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respec-
tively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends (taking
into account any extensions thereof that shall have
occurred pursuant to Section 2 hereof) or (ii) the date
on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent juris-
diction (which is not appealable or with respect to which
the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute
given by the Executive only if such notice is given in
good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a pur-
ported termination occurs following a Change in Control
and during the term of this Agreement and the Date of
Termination is extended in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited
to, salary) and continue the Executive as a participant
in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termina-
tion, as determined in accordance with Section 7.3 here-
of. Amounts paid under this Section 7.4 are in addition
to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. The Company agrees that, if
the Executive's employment with the Company terminates
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
Company pursuant to Section 6 hereof or Section 7.4
hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(D)
hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Compa-
ny, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effec-
tiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment
for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, succes-
sors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be
payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agree-
ment, notices and all other communications provided for
in the Agreement shall be in writing and shall be deemed
to have been duly given when delivered or mailed by
United States registered mail, return receipt requested,
postage prepaid, addressed, if to the Executive, to the
address shown for the Executive in the personnel records
of the Company and, if to the Company, to the address set
forth below, or to such other address as either party may
have furnished to the other in writing in accordance
herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Attention: Vice President and
General Counsel
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dis-
similar provisions or conditions at the same or at any
prior or subsequent time. This Agreement supersedes the
Prior Agreement and any other agreements or representa-
tions, oral or otherwise, express or implied, with re-
spect to the subject matter hereof (i.e., benefits pay-
able to the Executive by reason of the occurrence of a
Change in Control) which have been made by either party.
The validity, interpretation, construction and perfor-
mance of this Agreement shall be governed by the laws of
the State of New York. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applica-
ble withholding required under federal, state or local
law and any additional withholding to which the Executive
has agreed. The obligations of the Company and the
Executive under Sections 6 and 7 hereof shall survive the
expiration of the term of this Agreement.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the
Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board
that the Executive's claim has been denied. Any further
dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by
arbitration in New York, New York in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. Notwithstanding
any provision of this Agreement to the contrary, the
Executive shall be entitled to seek specific performance
of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or contro-
versy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agree-
ment, the following terms shall have the meanings indi-
cated below:
(A) "Base Amount" shall have the meaning set
forth in section 280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning
set forth in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Cause" for termination by the Company of
the Executive's employment shall mean (i) the willful and
continued failure by the Executive to substantially
perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise.
For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in
the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to
the Board by clear and convincing evidence that Cause ex-
ists.
(E) A "Change in Control" shall be deemed to
have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities beneficially owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(II) the following individuals cease
for any reason to constitute a majority of the
number of directors then serving: individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in con-
nection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of di-
rectors of the Company (as such terms are used
in Rule 14a-11 of Regulation 14A under the
Exchange Act)) whose appointment or election by
the Board or nomination for election by the
Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors
then still in office who either were directors
on the date hereof or whose appointment, elec-
tion or nomination for election was previously
so approved; or
(III) the shareholders of the Compa-
ny approve a merger or consolidation of the
Company with any other corporation or approve
the issuance of voting securities of the Compa-
ny in connection with a merger or consolidation
of the Company (or any direct or indirect sub-
sidiary of the Company) pursuant to applicable
stock exchange requirements, other than (i) a
merger or consolidation which would result in
the voting securities of the Company outstand-
ing immediately prior to such merger or consol-
idation continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof), in combination with the
ownership of any trustee or other fiduciary
holding securities under an employee benefit
plan of the Company, at least 65% of the com-
bined voting power of the voting securities of
the Company or such surviving entity or any
parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recap-
italization of the Company (or similar transac-
tion) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(IV) the stockholders of the Company
approve a plan of complete liquidation or dis-
solution of the Company or an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the Company
of all or substantially all of the Company's
assets to an entity, at least 65% of the com-
bined voting power of the voting securities of
which are owned by Persons in substantially the
same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control"
shall be deemed to have occurred if there is consummated
any transaction or series of integrated transactions
immediately following which the record holders of the
common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets
of the Company immediately following such transaction or
series of transactions.
(F) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(G) "Company" shall mean Orange and Rockland
Utilities, Inc. and, except in determining under Section
15(E) hereof whether or not any Change in Control of the
Company has occurred, shall include its subsidiaries and
any successor to its business and/or assets which assumes
and agrees to perform this Agreement by operation of law,
or otherwise.
(H) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(I) "Disability" shall be deemed the reason
for the termination by the Company of the Executive's
employment, if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the
Executive's duties with the Company for a period of six
(6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of the Executive's duties.
(J) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(K) "Excise Tax" shall mean any excise tax
imposed under section 4999 of the Code.
(L) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(M) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) after any Change in Control, or after any Poten-
tial Change in Control under the circumstances described
in the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) and (VII) below to a
"Change in Control" as references to a "Potential Change
in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in
the case of any act or failure to act described in para-
graph (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of
any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or a substantial adverse alteration in
the nature or status of the Executive's respon-
sibilities from those in effect immediately
prior to the Change in Control other than any
such alteration primarily attributable to the
fact that the Company may no longer be a public
company;
(II) a reduction by the Company in
the Executive's annual base salary as in effect
on the date hereof or as the same may be in-
creased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
and all senior executives of any Person in
control of the Company;
(III) the relocation of the
Company's principal executive offices to a
location within New York City or to a location
more than 50 miles from the location of such
offices immediately prior to the Change in Con-
trol or the Company's requiring the Executive
to be based anywhere other than the Company's
principal executive offices except for required
travel on the Company's business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's cur-
rent compensation except pursuant to an
across-the-board compensation deferral similar-
ly affecting all senior executives of the Com-
pany and all senior executives of any Person in
control of the Company, or to pay to the Exec-
utive any portion of an installment of deferred
compensation under any deferred compensation
program of the Company, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is materi-
al to the Executive's total compensation, in-
cluding but not limited to the Company's stock
option, restricted stock, stock appreciation
right, incentive compensation, bonus and other
plans or any substitute plans adopted prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect
to such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
or disability plans in which the Executive was
participating immediately prior to the Change
in Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or de-
prive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to maintain a vacation policy with
respect to the Executive that is at least as
favorable as the vacation policy (whether for-
mal or informal) in place with respect to the
Executive immediately prior to the Change in
Control; or
(VII) any purported termination of
the Executive's employment which is not effect-
ed pursuant to a Notice of Termination satisfy-
ing the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
For purposes of any determination regarding the
existence of Good Reason, any claim by the Executive that
Good Reason exists shall be presumed to be correct unless
the Company establishes to the Board by clear and con-
vincing evidence that Good Reason does not exist.
(N) "Gross-Up Payment" shall have the meaning
set forth in Section 6.2 hereof.
(O) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(P) "Pension Plan" shall mean any tax-quali-
fied, supplemental or excess benefit pension plan main-
tained by the Company and any other agreement entered
into between the Executive and the Company which is
designed to provide the Executive with supplemental
retirement benefits.
(Q) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof, except that such
term shall not include (i) the Company or any of its
affiliates (as defined in Rule 12b-2 promulgated under
the Exchange Act), (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in sub-
stantially the same proportions as their ownership of
stock of the Company.
(R) "Potential Change in Control" shall be
deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in Con-
trol;
(II) the Company or any Person pub-
licly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the Benefi-
cial Owner, directly or indirectly, of securi-
ties of the Company representing 10% or more of
either the then outstanding shares of common
stock of the Company or the combined voting
power of the Company's then outstanding securi-
ties; or
(IV) the Board adopts a resolution
to the effect that, for purposes of this Agree-
ment, a Potential Change in Control has oc-
curred.
(S) "Retirement" shall be deemed the reason
for the termination of the Executive's employment if such
employment is terminated in accordance with the Company's
retirement policy generally applicable to its salaried
employees, as in effect immediately prior to the Change
in Control, or in accordance with any retirement arrange-
ment established with the Executive's consent with re-
spect to the Executive.
(T) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(U) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
ORANGE AND ROCKLAND UTILITIES, INC.
By:
Name: James F. O'Grady, Jr.
Title: Chairman of the
Compensation Committee
R. Lee Haney
EXHIBIT A
ILLUSTRATION 1
Facts:
Executive has been employed for either (i) 3 years in the
case of the illustation shown in column (A) below or (ii)
8 years in the case of the illustration shown in column
(B) below (i.e., he has 3 or 8 years of Service, respec-
tively, under the SERP) and his termination of employment
is either (i) by the Company for Cause, (ii) by him other
than for Good Reason or (iii) by reason of death or
Disability.
Result:
The Executive's years of Service for purposes of deter-
mining the Executive's Benefit Formula Percentage under
the SERP and for purposes of Section 2(8) of the SERP
(relating to the extent to which incentive compensation
is included in the calculation of benefits under the
SERP) is equal to the greater of (i) or (ii)(c) below,
i.e., 10 in the case of the illustration shown in column
(A) below and 13 in the case of the illustration shown in
column (B) below.
Calculation:
(A) (B)
(i) the number 10 l0 10
(ii) (a) number of years of Service
under the SERP 3 8
(b) lesser of (1) 5 or (2) 3 5
Executive's number of years
of Service under the SERP
(c) sum of (a) and (b) 6 13
<PAGE>
ILLUSTRATION 2
Facts:
Executive has been employed for either (i) 1 year in the
case of the illustation shown in column (A) below or (ii)
3 years in the case of the illustration shown in column
(B) below (i.e., he has 1 or 3 years of Service, respec-
tively, under the SERP) and his termination of employment
is either (i) by the Company without Cause or (ii) by him
for Good Reason.
Result:
The Executive's years of Service for purposes of deter-
mining the Executive's Benefit Formula Percentage under
the SERP and for purposes of Section 2(8) of the SERP
(relating to the extent to which incentive compensation
is included in the calculation of benefits under the
SERP) is equal to the greater of (i) or (ii)(d) below,
i.e., 10 in the case of the illustration shown in column
(A) below and 11 in the case of the illustration shown in
column (B) below.
Calculation:
(A) (B)
(i) the number 10 l0 10
(ii) (a) number of years of Service
under the SERP 1 3
(b) lesser of (1) 5 or (2) sum of 4 5
Executive's number of years
of Service under the SERP and
the number 3
(c) the number 3 3 3
(d) sum of (a), (b) and (c) 8 11
<PAGE>
EXHIBIT B
Illustration 1
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $299,999 or less
Result:
Full Unadjusted Severance Benefit is paid without adjustment.
Explanation:
No excise tax is due because the Unadjusted Severance Benefit
does not exceed the Safe Harbor Amount. Accordingly, the full
Unadjusted Severance Benefit is paid without reduction and with-
out a gross up payment.
____________________
Each of the following illustrations assumes that the highest
marginal rate of federal, state and local income and employ-
ment tax in the state and locality of the Executive's resi-
dence (net of the maximum reduction in federal income taxes
which could be obtained from deduction of the state and
local taxes) is 40%.
<PAGE>
Illustration 2
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $390,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $290,000
Income tax on Unadjusted Severance Benefit
(40% of $390,000) $156,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $290,000) $ 58,000
Net amount of Unadjusted Severance Benefit $176,000
Net amount of Reduced Severance Benefit $180,000
Result:
The Unadjusted Severance Benefit is reduced and only an amount
equal to the Safe Harbor Amount is paid.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $176,000, i.e., the full amount of the Unadjusted Severance
Benefit ($390,000) reduced by applicable income taxes ($156,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($58,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is so reduced--only an amount
equal to the Safe Harbor Amount is paid and there is no gross up
payment.
<PAGE>
Illustration 3
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $410,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $310,000
Income tax on Unadjusted Severance Benefit
(40% of $410,000) $164,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $310,000) $ 62,000
Net amount of Unadjusted Severance Benefit
(if no gross up) $184,000
Net amount of Reduced Severance Benefit $180,000
Gross up payment $155,000
Net amount of Unadjusted Severance Benefit -
with gross up (60% of $410,000) $246,000
Result:
The Unadjusted Severance Benefit is paid in full together with a
gross up payment that puts the individual in the same after-tax
position he would have been in had there been no excise applica-
ble to the Unadjusted Severance Benefit.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $184,000, i.e., the full amount of the Unadjusted Severance
Benefit ($410,000) reduced by applicable income taxes ($164,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($62,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is not in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is paid in full together with
the gross up payment. The gross up payment would be $155,000.
This payment would itself be subject to taxes of $93,000 (40%
income tax and 20% excise tax), leaving $62,000 to pay the excise
tax on the Unadjusted Severance Benefit.
AGREEMENT
THIS AGREEMENT, dated 1/22, 1996, is made
by and between Orange and Rockland Utilities, Inc., a New
York corporation (the "Company"), and Larry S. Brodsky
(the "Executive").
WHEREAS, the Company considers it essential to
the best interests of its shareholders to foster the
continuous employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the
case with many publicly held corporations, the possibili-
ty of a Change in Control exists and that such possibili-
ty, and the uncertainty and questions which it may raise
among management, may result in the departure or distrac-
tion of management personnel to the detriment of the
Company and its shareholders; and
WHEREAS, the Board has determined that appro-
priate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the
Company's management, including the Executive, to their
assigned duties without distraction in the face of poten-
tially disturbing circumstances arising from the possi-
bility of a Change in Control; and
WHEREAS, the Company has previously entered
into an Agreement with the Executive dated October 18,
1995 (the "Prior Agreement").
NOW, THEREFORE, in consideration of the premis-
es and the mutual covenants herein contained, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capital-
ized terms used in this Agreement are provided in the
last Section hereof.
2. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
Company and in consideration of the Executive's covenants
set forth in Section 3 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits
described herein in the event the Executive's employment
with the Company is (or, under the terms of the second
sentence of Section 6.1 hereof, is deemed to have been)
terminated following a Change in Control and during the
term of this Agreement. Except as provided in the first
sentence of Section 6.2(A) hereof and Section 9.1 hereof,
no amount or benefit shall be payable under this Agree-
ment unless there shall have been (or, under the terms of
the second sentence of Section 6.1 hereof, there shall be
deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control
and during the Term of this Agreement. This Agreement
shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the Execu-
tive shall not have any right to be retained in the
employ of the Company.
3. The Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company until the earliest of
(i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive
of the Executive's employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment
for any reason.
4. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
for a period of thirty-six (36) months beyond the month
in which a Change in Control occurs (or, if later, thir-
ty-six (36) months beyond the consummation of the trans-
action the approval of which by the Company's sharehold-
ers constitutes a Change in Control under Section
15(E)(III) or (IV) hereof).
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the Execu-
tive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during
such period, until the Executive's employment is termi-
nated by the Company for Disability.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits to which the Executive is
entitled in respect of all periods preceding the Date of
Termination under the terms of the Company's compensation
and benefit plans, programs or arrangements.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's normal post-termination compensation
and benefits to the Executive as such payments become
due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with,
the Company's retirement, insurance and other compensa-
tion or benefit plans, programs and arrangements.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the termina-
tion of the Executive's employment following a Change in
Control and during the term of this Agreement, in addi-
tion to any payments and benefits to which the Executive
is entitled under Section 5 hereof, unless such termina-
tion is (i) by the Company for Cause, (ii) by reason of
death or Disability, or (iii) by the Executive without
Good Reason. For purposes of this Agreement, the
Executive's employment shall be deemed to have been
terminated by the Company without Cause or by the Execu-
tive with Good Reason following a Change in Control if
(i) the Executive's employment is terminated without
Cause prior to a Change in Control and such termination
was at the request or direction of a Person who has en-
tered into an agreement with the Company the consummation
of which would constitute a Change in Control, (ii) the
Executive terminates his employment with Good Reason
prior to a Change in Control and the circumstance or
event which constitutes Good Reason occurs at the request
or direction of such Person, or (iii) the Executive's
employment is terminated without Cause prior to a Change
in Control and such termination is otherwise in connec-
tion with or in anticipation of a Change in Control which
actually occurs. For purposes of any determination
regarding the applicability of the immediately preceding
sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to
the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum sever-
ance payment, in cash, equal to three times the sum
of (i) the higher of the Executive's annual base
salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice
of Termination is based or the Executive's annual
base salary in effect immediately prior to the
Change in Control, and (ii) the higher of the aver-
age of the annual bonuses earned or received by the
Executive from the Company or its subsidiaries in
respect of the three (3) consecutive fiscal years
immediately preceding that in which the Date of
Termination occurs or the average of the annual
bonuses so earned or received in respect of the
three (3) consecutive fiscal years immediately pre-
ceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of
any annual or long-term incentive plan to the con-
trary, the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year
or other measuring period preceding the Date of
Termination under any such plan but which, as of the
Date of Termination, is contingent only upon the
continued employment of the Executive to a subse-
quent date or otherwise has not been paid, and (ii)
a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compen-
sation awards to the Executive for all then uncom-
pleted periods under any such plan, calculated as to
each such award by multiplying the award that the
Executive would have earned on the last day of the
performance award period, assuming the achievement,
at the target level of the individual and corporate
performance goals established with respect to such
award, by the fraction obtained by dividing the
number of full months and any fractional portion of
a month during such performance award period through
the Date of Termination by the total number of
months contained in such performance award period.
(C) Notwithstanding any provision of
the Officers' Supplemental Retirement Plan of Orange
and Rockland Utilities, Inc. as Amended and Restated
(the "SERP") to the contrary, (i) for purposes of
determining the Executive's Benefit Formula Percent-
age under the SERP the Executive shall be treated as
having completed a number of years of Service equal
to the sum of (I) the product of the number of years
of the Executive's Service determined under the SERP
and the number 2, and (II) if the Executive's em-
ployment terminates following a Change in Control
and during the term of this Agreement (unless such
termination is by the Company for Cause, by reason
of death or Disability or by the Executive without
Good Reason), the number 3 and (ii) for purposes of
Section 2(8) of the SERP, the Executive shall be
treated as having completed a number of years of
Service equal to the sum of (I) the number 10, (II)
the number of years of the Executive's Service
determined under the SERP and (III) if the
Executive's employment terminates following a Change
in Control and during the term of this Agreement
(unless such termination is by the Company for
Cause, by reason of death or Disability or by the
Executive without Good Reason), the number 3.
Exhibit A hereto is intended to illustrate the
operation of this Section 6.1(C).
(D) For the thirty-six (36) month
period immediately following the Date of Termina-
tion, the Company shall arrange to provide the
Executive with life, disability, accident and health
insurance benefits substantially similar to those
which the Executive is receiving immediately prior
to the Notice of Termination (without giving effect
to any amendment to such benefits made subsequent to
a Change in Control which amendment adversely af-
fects in any manner the Executive's entitlement to
or the amount of such benefits); provided, however,
that, unless the Executive consents to a different
method (after taking into account the effect of such
method on the calculation of "parachute payments"
pursuant to Section 6.2 hereof), such health insur-
ance benefits shall be provided through a third-
party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(D) shall be
reduced to the extent comparable benefits are actu-
ally received by or made available to the Executive
without cost during the thirty-six (36) month period
following the Executive's termination of employment
(and any such benefits actually received by or made
available to the Executive shall be reported to the
Company by the Executive). If the benefits provided
to the Executive under this Section 6.1(D) shall
result in a decrease, pursuant to Section 6.2 here-
of, in the Severance Payments and these Section
6.1(D) benefits are thereafter reduced pursuant to
the immediately preceding sentence because of the
receipt or availability of comparable benefits, the
Company shall, at the time of such reduction, pay to
the Executive the lesser of (a) the amount of the
decrease made in the Severance Payments pursuant to
Section 6.2 hereof, or (b) the maximum amount which
can be paid to the Executive without being, or
causing any other payment to be, nondeductible by
reason of section 280G of the Code.
(E) If the Executive would have become
entitled to benefits under the Company's post-re-
tirement health care or life insurance plans had the
Executive's employment terminated at any time during
the period of thirty-six (36) months after the Date
of Termination, the Company shall provide such post-
retirement health care or life insurance benefits to
the Executive commencing on the later of (i) the
date that such coverage would have first become
available and (ii) the date that benefits described
in subsection (D) of this Section 6.2 terminate.
6.2 (A) Whether or not the Executive becomes
entitled to the Severance Payments, if any payment or
benefit received or to be received by the Executive in
connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being herein-
after called "Total Payments") will be subject (in whole
or part) to the Excise Tax, then, subject to the provi-
sions of subsection (B) of this Section 6.2, the Company
shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the
Total Payments and any federal, state and local income
and employment tax and Excise Tax upon the Gross-Up Pay-
ment, shall be equal to the Total Payments. For purposes
of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income and
employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxa-
tion in the state and locality of the Executive's resi-
dence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(B) In the event that, after giving effect to
any redeterminations described in subsection (D) of this
Section 6.2, a reduction in the Severance Payments to the
largest amount that would result in no portion of the
Total Payments being subject to the Excise Tax (after
taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such
other plan, arrangement or agreement) would produce a net
amount (after deduction of the net amount of federal,
state and local income tax on such reduced Total Pay-
ments) that would be greater than the net amount of
unreduced Total Payments (after deduction of the net
amount of federal, state and local income tax and the
amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments),
then subsection (A) of this Section 6.2 shall not apply
and the cash Severance Payments shall first be reduced
(if necessary, to zero), and all other noncash Severance
Benefits shall thereafter be reduced (if necessary, to
zero); provided, however, that the Executive may elect to
have the noncash Severance Payments reduced (or elimi-
nated) prior to any reduction of the cash Severance Payments.
(C) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (i) all of the Total Pay-
ments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, unless in the
opinion of tax counsel (the "Tax Counsel") reasonably ac-
ceptable to the Executive and selected by the accounting
firm (the "Auditor") which was, immediately prior to the
Change in Control, the Company's independent auditor,
such other payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess
parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code,
in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section 6.2(C) and such supporting
materials as are reasonably necessary for the Executive
to evaluate the Company's calculations. If the Executive
disputes the Company's calculations (in whole or in
part), the reasonable opinion of Tax Counsel with respect
to the matter in dispute shall prevail.
(D) In the event that (i) amounts are paid to
the Executive pursuant to subsection (A) of this Section
6.2, (ii) the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the
time of termination of the Executive's employment, and
(iii) after giving effect to such redetermination, the
Severance Payments are to be reduced pursuant to subsec-
tion (B) of this Section 6.2, the Executive shall repay
to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the por-
tion of the Gross-Up Payment attributable to such reduc-
tion (plus that portion of the Gross-Up Payment attribut-
able to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid
by the Executive to the extent that such repayment re-
sults in a reduction in the Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that (x) the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the
Executive's employment (including by reason of any pay-
ment the existence or amount of which cannot be deter-
mined at the time of the Gross-Up Payment) and (y) after
giving effect to such redetermination, the Severance Pay-
ments should not have been reduced pursuant to subsection
(B) of this Section 6.2, the Company shall make an addi-
tional Gross-Up Payment in respect of such excess and in
respect of any portion of the Excise Tax with respect to
which the Company had not previously made a Gross-Up Pay-
ment (plus any interest, penalties or additions payable
by the Executive with respect to such excess and such
portion) at the time that the amount of such excess is
finally determined.
(E) Exhibit B hereto is intended to illustrate
the operation if this Section 6.2
6.3 The payments provided for in subsections
(A) and (B) of Section 6.1 hereof and Section 6.2 hereof
shall be made not later than the fifth day following the
Date of Termination; provided, however, that if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined in good faith by the Executive or, in the case
of payments under Section 6.2 hereof, in accordance with
Section 6.2 hereof, of the minimum amount of such pay-
ments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after
the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute
a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments
are made under this Section, the Company shall provide
the Executive with a written statement setting forth the
manner in which such payments were calculated and the
basis for such calculations including, without limita-
tion, any opinions or other advice the Company has re-
ceived from outside counsel, auditors or consultants (and
any such opinions or advice which are in writing shall be
attached to the statement). In the event the Company
should fail to pay when due the amounts described in
subsections (A) or (B) of Section 6.1 hereof or Section
6.2 hereof, the Executive shall also be entitled to
receive from the Company an amount representing interest
on any unpaid or untimely paid amounts from the due date,
as determined under this Section 6.3 (without regard to
any extension of the Date of Termination pursuant to
Section 7.3 hereof), to the date of payment at a rate
equal to the prime rate of Citibank as in effect from
time to time after such due date.
6.4 The Company also shall pay to the Execu-
tive all legal fees and expenses incurred by the Execu-
tive in disputing in good faith any issue relating to the
termination of the Executive's employment following a
Change in Control (including a termination of employment
following a Potential Change in Control if the Executive
alleges in good faith that such termination will be
deemed to have occurred following a Change in Control
pursuant to the second sentence of Section 6.1 hereof) or
in seeking in good faith to obtain or enforce any benefit
or right provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to
the application of section 4999 of the Code to any pay-
ment or benefit provided hereunder. Such payments shall
be made as such fees and expenses are incurred by the
Executive, but in no event later than five (5) business
days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any pur-
ported termination of the Executive's employment (other
than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other
party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and cir-
cumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indi-
cated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to
the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termina-
tion," with respect to any purported termination of the
Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (i) if the
Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to
the full-time performance of the Executive's duties
during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other rea-
son, the date specified in the Notice of Termination
(which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respec-
tively, from the date such Notice of Termination is
given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends (taking
into account any extensions thereof that shall have
occurred pursuant to Section 2 hereof) or (ii) the date
on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent juris-
diction (which is not appealable or with respect to which
the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute
given by the Executive only if such notice is given in
good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a pur-
ported termination occurs following a Change in Control
and during the term of this Agreement and the Date of
Termination is extended in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited
to, salary) and continue the Executive as a participant
in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termina-
tion, as determined in accordance with Section 7.3 here-
of. Amounts paid under this Section 7.4 are in addition
to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. The Company agrees that, if
the Executive's employment with the Company terminates
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
Company pursuant to Section 6 hereof or Section 7.4
hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(D)
hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Compa-
ny, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effec-
tiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment
for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, succes-
sors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be
payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agree-
ment, notices and all other communications provided for
in the Agreement shall be in writing and shall be deemed
to have been duly given when delivered or mailed by
United States registered mail, return receipt requested,
postage prepaid, addressed, if to the Executive, to the
address shown for the Executive in the personnel records
of the Company and, if to the Company, to the address set
forth below, or to such other address as either party may
have furnished to the other in writing in accordance
herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Attention: Vice President and
General Counsel
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dis-
similar provisions or conditions at the same or at any
prior or subsequent time. This Agreement supersedes the
Prior Agreement and any other agreements or representa-
tions, oral or otherwise, express or implied, with re-
spect to the subject matter hereof (i.e., benefits pay-
able to the Executive by reason of the occurrence of a
Change in Control) which have been made by either party.
The validity, interpretation, construction and perfor-
mance of this Agreement shall be governed by the laws of
the State of New York. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applica-
ble withholding required under federal, state or local
law and any additional withholding to which the Executive
has agreed. The obligations of the Company and the
Executive under Sections 6 and 7 hereof shall survive the
expiration of the term of this Agreement.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the
Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board
that the Executive's claim has been denied. Any further
dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by
arbitration in New York, New York in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. Notwithstanding
any provision of this Agreement to the contrary, the
Executive shall be entitled to seek specific performance
of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or contro-
versy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agree-
ment, the following terms shall have the meanings indi-
cated below:
(A) "Base Amount" shall have the meaning set
forth in section 280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning
set forth in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Cause" for termination by the Company of
the Executive's employment shall mean (i) the willful and
continued failure by the Executive to substantially
perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise.
For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in
the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to
the Board by clear and convincing evidence that Cause ex-
ists.
(E) A "Change in Control" shall be deemed to
have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities beneficially owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(II) the following individuals cease
for any reason to constitute a majority of the
number of directors then serving: individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in con-
nection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of di-
rectors of the Company (as such terms are used
in Rule 14a-11 of Regulation 14A under the
Exchange Act)) whose appointment or election by
the Board or nomination for election by the
Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors
then still in office who either were directors
on the date hereof or whose appointment, elec-
tion or nomination for election was previously
so approved; or
(III) the shareholders of the Compa-
ny approve a merger or consolidation of the
Company with any other corporation or approve
the issuance of voting securities of the Compa-
ny in connection with a merger or consolidation
of the Company (or any direct or indirect sub-
sidiary of the Company) pursuant to applicable
stock exchange requirements, other than (i) a
merger or consolidation which would result in
the voting securities of the Company outstand-
ing immediately prior to such merger or consol-
idation continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof), in combination with the
ownership of any trustee or other fiduciary
holding securities under an employee benefit
plan of the Company, at least 65% of the com-
bined voting power of the voting securities of
the Company or such surviving entity or any
parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recap-
italization of the Company (or similar transac-
tion) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from the Com-
pany or its affiliates other than in connection
with the acquisition by the Company or its
affiliates of a business) representing 20% or
more of either the then outstanding shares of
common stock of the Company or the combined
voting power of the Company's then outstanding
securities; or
(IV) the stockholders of the Company
approve a plan of complete liquidation or dis-
solution of the Company or an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the Company
of all or substantially all of the Company's
assets to an entity, at least 65% of the com-
bined voting power of the voting securities of
which are owned by Persons in substantially the
same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control"
shall be deemed to have occurred if there is consummated
any transaction or series of integrated transactions
immediately following which the record holders of the
common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets
of the Company immediately following such transaction or
series of transactions.
(F) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(G) "Company" shall mean Orange and Rockland
Utilities, Inc. and, except in determining under Section
15(E) hereof whether or not any Change in Control of the
Company has occurred, shall include its subsidiaries and
any successor to its business and/or assets which assumes
and agrees to perform this Agreement by operation of law,
or otherwise.
(H) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(I) "Disability" shall be deemed the reason
for the termination by the Company of the Executive's
employment, if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the
Executive's duties with the Company for a period of six
(6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of the Executive's duties.
(J) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(K) "Excise Tax" shall mean any excise tax
imposed under section 4999 of the Code.
(L) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(M) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) after any Change in Control, or after any Poten-
tial Change in Control under the circumstances described
in the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) and (VII) below to a
"Change in Control" as references to a "Potential Change
in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in
the case of any act or failure to act described in para-
graph (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of
any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or a substantial adverse alteration in
the nature or status of the Executive's respon-
sibilities from those in effect immediately
prior to the Change in Control other than any
such alteration primarily attributable to the
fact that the Company may no longer be a public
company;
(II) a reduction by the Company in
the Executive's annual base salary as in effect
on the date hereof or as the same may be in-
creased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
and all senior executives of any Person in
control of the Company;
(III) the relocation of the
Company's principal executive offices to a
location within New York City or to a location
more than 50 miles from the location of such
offices immediately prior to the Change in Con-
trol or the Company's requiring the Executive
to be based anywhere other than the Company's
principal executive offices except for required
travel on the Company's business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's cur-
rent compensation except pursuant to an
across-the-board compensation deferral similar-
ly affecting all senior executives of the Com-
pany and all senior executives of any Person in
control of the Company, or to pay to the Exec-
utive any portion of an installment of deferred
compensation under any deferred compensation
program of the Company, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is materi-
al to the Executive's total compensation, in-
cluding but not limited to the Company's stock
option, restricted stock, stock appreciation
right, incentive compensation, bonus and other
plans or any substitute plans adopted prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect
to such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
or disability plans in which the Executive was
participating immediately prior to the Change
in Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or de-
prive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to maintain a vacation policy with
respect to the Executive that is at least as
favorable as the vacation policy (whether for-
mal or informal) in place with respect to the
Executive immediately prior to the Change in
Control; or
(VII) any purported termination of
the Executive's employment which is not effect-
ed pursuant to a Notice of Termination satisfy-
ing the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
For purposes of any determination regarding the
existence of Good Reason, any claim by the Executive that
Good Reason exists shall be presumed to be correct unless
the Company establishes to the Board by clear and con-
vincing evidence that Good Reason does not exist.
(N) "Gross-Up Payment" shall have the meaning
set forth in Section 6.2 hereof.
(O) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(P) "Pension Plan" shall mean any tax-quali-
fied, supplemental or excess benefit pension plan main-
tained by the Company and any other agreement entered
into between the Executive and the Company which is
designed to provide the Executive with supplemental
retirement benefits.
(Q) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof, except that such
term shall not include (i) the Company or any of its
affiliates (as defined in Rule 12b-2 promulgated under
the Exchange Act), (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in sub-
stantially the same proportions as their ownership of
stock of the Company.
(R) "Potential Change in Control" shall be
deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in Con-
trol;
(II) the Company or any Person pub-
licly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the Benefi-
cial Owner, directly or indirectly, of securi-
ties of the Company representing 10% or more of
either the then outstanding shares of common
stock of the Company or the combined voting
power of the Company's then outstanding securi-
ties; or
(IV) the Board adopts a resolution
to the effect that, for purposes of this Agree-
ment, a Potential Change in Control has oc-
curred.
(S) "Retirement" shall be deemed the reason
for the termination of the Executive's employment if such
employment is terminated in accordance with the Company's
retirement policy generally applicable to its salaried
employees, as in effect immediately prior to the Change
in Control, or in accordance with any retirement arrange-
ment established with the Executive's consent with re-
spect to the Executive.
(T) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(U) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
ORANGE AND ROCKLAND UTILITIES, INC.
By:
Name: James F. O'Grady, Jr.
Title: Chairman of the
Compensation Committee
Larry S. Brodsky
EXHIBIT A
ILLUSTRATION 1
Facts:
Executive has been employed for either (i) 3 years or
(ii) 8 years (i.e., he has 3 or 8 years of Service,
respectively, under the SERP) and his termination of
employment is either (i) by the Company for Cause, (ii)
by him other than for Good Reason or (iii) by reason of
death or Disability.
Result and Explanation:
The Executive's years of Service for purposes of deter-
mining the Executive's Benefit Formula Percentage under
the SERP is equal to 6 and 8, respectively, i.e., 2 times
the number of the Executive's actual years of Service
under the SERP.
The Executive's years of Service for purposes of Section
2(8) of the SERP (relating to the extent to which incen-
tive compensation is included in the calculation of
benefits under the SERP) is 13 and 18, respectively,
i.e., the sum of (i) 10 and (ii) 3 and 8, respectively.
ILLUSTRATION 2
Facts:
Same facts as Illustration 1 except Executive's termina-
tion of employment is either (i) by the Company without
Cause or (ii) by him for Good Reason.
Result and Explanation:
The results are the same as in Illustration 1 above
except that each such result is increased by adding to it
the number 3.
<PAGE>
EXHIBIT B
Illustration 1
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $299,999 or less
Result:
Full Unadjusted Severance Benefit is paid without adjustment.
Explanation:
No excise tax is due because the Unadjusted Severance Benefit
does not exceed the Safe Harbor Amount. Accordingly, the full
Unadjusted Severance Benefit is paid without reduction and with-
out a gross up payment.
____________________
Each of the following illustrations assumes that the highest
marginal rate of federal, state and local income and employ-
ment tax in the state and locality of the Executive's resi-
dence (net of the maximum reduction in federal income taxes
which could be obtained from deduction of the state and
local taxes) is 40%.
<PAGE>
Illustration 2
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $390,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $290,000
Income tax on Unadjusted Severance Benefit
(40% of $390,000) $156,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $290,000) $ 58,000
Net amount of Unadjusted Severance Benefit $176,000
Net amount of Reduced Severance Benefit $180,000
Result:
The Unadjusted Severance Benefit is reduced and only an amount
equal to the Safe Harbor Amount is paid.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $176,000, i.e., the full amount of the Unadjusted Severance
Benefit ($390,000) reduced by applicable income taxes ($156,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($58,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is so reduced--only an amount
equal to the Safe Harbor Amount is paid and there is no gross up
payment.
<PAGE>
Illustration 3
Facts:
Five Year Average Compensation (Base Amount) $100,000
Safe Harbor Amount (3x Base Amount minus $1) $299,999
Unadjusted Severance Benefit $410,000
Amount of Unadjusted Severance Benefit subject
to excise tax (Unadjusted Severance Benefit
minus Base Amount) $310,000
Income tax on Unadjusted Severance Benefit
(40% of $410,000) $164,000
Income tax if benefit reduced (40% of $299,999) $119,999
Excise tax on Unadjusted Severance Benefit
(20% of $310,000) $ 62,000
Net amount of Unadjusted Severance Benefit
(if no gross up) $184,000
Net amount of Reduced Severance Benefit $180,000
Gross up payment $155,000
Net amount of Unadjusted Severance Benefit -
with gross up (60% of $410,000) $246,000
Result:
The Unadjusted Severance Benefit is paid in full together with a
gross up payment that puts the individual in the same after-tax
position he would have been in had there been no excise applica-
ble to the Unadjusted Severance Benefit.
Explanation:
The Unadjusted Severance Benefit exceeds the Safe Harbor Amount.
Therefore, either the Unadjusted Severance Benefit is reduced to
the Safe Harbor Amount or a gross up payment is paid in addition
to the Unadjusted Severance Benefit. If the Unadjusted Severance
Benefit was paid, the net amount retained after all taxes would
be $184,000, i.e., the full amount of the Unadjusted Severance
Benefit ($410,000) reduced by applicable income taxes ($164,000
at the assumed 40% tax rate) and further reduced by the excise
tax ($62,000, calculated as 20% of the excess of the Unadjusted
Severance Benefit over the Base Amount). If only the portion of
the Unadjusted Severance Benefit not in excess of the Safe Harbor
Amount was paid, the net amount retained after all taxes would be
$180,000, i.e., the Safe Harbor Amount ($299,999) reduced by
applicable income taxes ($119,999 at the assumed 40% tax rate).
There would be no excise tax since the amount paid did not exceed
the Safe Harbor Amount. Since the net amount retained is not in-
creased by reducing the amount paid to the Safe Harbor Amount,
the Unadjusted Severance Benefit is paid in full together with
the gross up payment. The gross up payment would be $155,000.
This payment would itself be subject to taxes of $93,000 (40%
income tax and 20% excise tax), leaving $62,000 to pay the excise
tax on the Unadjusted Severance Benefit.
February 16, 1995
Mr. G.D. Caliendo
1079 Newgate Drive
Allentown, PA 18103
Dear Jerry:
I am pleased to present Orange and Rockland's offer of employment to you for
the position of Vice President - General Counsel & Corporate Secretary
effective February 21, 1995 or as soon as you are available. The general
details are as follows:
Position: Vice President - General Counsel & Corporate Secretary reporting to
the Vice Chairman and Chief Executive Officer
Base Salary: $185,000 per year
Incentive Compensation: Participation in the Orange and Rockland Utilities,
Inc. annual and long term Incentive Compensation Programs. For 1995,
participation will be prorated for the period you are employed at Orange
Rockland.
Vacation: Four weeks per year upon employment; five weeks after seven years.
Insurance: Eligibility for all insurance programs such as medical, dental,
vision and prescription drugs, and any other benefits afforded to management
employees per plan provisions. Eligibility will begin on the first of the
month after hire.
Sick Leave: Per Company policy, with immediate participation of five days for
1995 and 10 days for 1996 recognizing industry standards and taking into
account your seniority and experience as of date of hire.
Severance: Participation in the Company's Severance Policy with the exception
that upon termination by the Company for its convenience other than for cause,
the benefit level will be set at the maximum of 52 weeks.
Management Savings Plan: Eligible for participation after one calendar year of
employment, per plan provisions.
<PAGE>
Mr. G.D. Caliendo
February 16, 1995
Page 2
Supplemental Executive Retirement Plan: Eligible for immediate vesting in the
plan and a benefit formula based on the granting of two years of service for
each of the first five years of actual service. For example, after five years
of service, the benefit formula will be calculated as if you had achieved ten
years. Regular plan provisions will take effect in the sixth year at which
time a portion of incentive compensation will be included in the calculation
of the retirement benefit. (See attached letter agreement)
Employees' Retirement Plan of Orange and Rockland Utilities, Inc.: Eligible
for participation per plan provisions.
Long Term Disability (LTD) Plan: Participation in the Executive Group LTD
plan which has a three month waiting period, benefit formula of 66 2/3% of
your base salary and short term incentive target, and a maximum benefit amount
of $15,000 per month.
Relocation Allowance: The reasonable costs of relocating you and your family
to the Orange and Rockland service territory from Allentown, PA. This will
include the following:
(a) Reasonable costs for you and your family for relocation trips.
(b) Reasonable necessary storage and temporary housing for you and your
family.
(c) Reasonable selling costs for sale of Allentown home including real
estate broker fees and other fees, swing loan interest expense for
six months, if necessary, and points and fees for loan on home
purchase in the area, as necessary.
(d) Reasonable costs for the possible shipment of up to two vehicles, if
necessary.
(e) Temporary use of rental vehicle until the arrival of personal
vehicle(s).
(f) Payment of reasonable receipted miscellaneous relocation expenses,
as necessary.
Company Vehicle: Provided with vehicle for company business and personal use
in accordance with Company policy.
Tax Gross-Up: Gross up for taxes on all Relocation Allowances set forth above.
Indemnification: Per Company policy.
D&O Insurance: Per Company policy.<PAGE>
Mr. G.D. Caliendo
February 16, 1995
Page 3
Your election as an Officer of the Company will occur at the March 2, 1995
Board of Directors meeting.
Jerry, on behalf of the entire Board and management team - Welcome! I'm
especially glad that you are joining O&R and I look forward to working with
you in the near future.
Sincerely,
D. Louis Peoples
Agreed:_G.D. Caliendo__
Date:__2/17/95_________
July 14, 1994
Mr. D. Louis Peoples
403 Farwell Drive
Madison, WI 53704
Dear Mr. Peoples:
The following is a compensation package for the position of Vice
Chairman and Chief Executive Officer ("CEO") of Orange and Rockland
Utilities, Inc. ("O&R").
POSITION: Vice Chairman of the Board and CEO.
SALARY: For 1994, a base salary at the annual rate or $325,000, plus
an opportunity for a bonus at the rate of up to $100,000 per year.
RELOCATION ALLOWANCE: The reasonable costs of relocating Mr. Peoples
and his family to the O&R Service Territory from Madison, Wisconsin.
This will include the following:
(a) reasonable cost of packing and moving personal possessions,
subject to an offset of $20,000;
(b) reasonable costs for Mr. and Mrs. Peoples associated with
reasonable number of relocation trips for each person;
(c) reasonable necessary storage and temporary housing for
Mr. Peoples and his family, estimated to be about three
months, to be extended as necessary upon mutual agreement;
(d) reasonable selling costs for sale of Wisconsin home
(excluding real estate broker fees and any loss associated
with the sale of the Wisconsin home), swing loan interest
expenses for six months, if necessary, and points and fees
for loan on home purchase in the area, as necessary;
(e) reasonable costs for possible shipment of two vehicles, if
necessary;
(f) company car to be provided upon employment;
<PAGE>
Mr. D. Louis Peoples
July 14, 1994
Page 2
(g) reasonable receipted attorney's fees for negotiation of
employment arrangement not to exceed $4,000, subject to
increase if necessary in judgment of compensation committee;
and
(h) a payment of reasonable receipted miscellaneous relocation
expenses, as necessary.
TAX GROSS-UP: Gross-up for taxes on all Relocation Allowances set
forth above.
SICK LEAVE: Per Company policy, with immediate participation of five
(5) days for 1994 and 10 days for 1995 recognizing industry standards
taking into account seniority and experience as of the date of hire.
VACATION: Per Company policy.
CHANGE IN CONTROL SEVERANCE AGREEMENT: Per Company policy.
OTHER SEVERANCE: In the event of termination without Cause or an
Involuntary Termination, payment of two years base salary (base salary
equal to salary rate at time of such termination) plus any annual and
long-term incentives accrued to the date of such termination. "Cause"
shall mean (i) willful misconduct or gross neglect of duties which, in
either case, has resulted in, or is reasonably probable to result in,
a substantial detriment to the Company, (ii) any act involving fraud,
dishonesty or moral turpitude which renders CEO unfit to serve as
chief executive officer, or (iii) repeated failures to comply with the
written directives of the board of Directors or the Company Policy
guides (or comparable corporate policies); provided that a refusal to
comply with any written directive of the board that would result in an
illegal act or course of conduct shall not constitute Cause.
"Involuntary Termination" shall have the same meaning as in the Orange
and Rockland Severance Pay Plan in effect as of the date of this
letter. Any payments under this paragraph shall be offset by any
payments under the Severance Pay Plan.
INCENTIVE COMPENSATION: Full participation in the Orange and Rockland
Utilities, Inc. Incentive Compensation Plan in existence in 1994 and
beyond.
INSURANCE: Eligibility for health, hospital, surgical, major medical
insurance, dental insurance, life insurance, long-term disability
insurance, etc., will be on the first of the month after hire.
INDEMNIFICATION: Per Company policy.
D&O INSURANCE: Per Company policy.
STOCK OPTIONS: To be considered by the Compensation Committee and the
Board.
<PAGE>
Mr. D. Louis Peoples
July 14, 1994
Page 3
RETIREMENT PLAN: Per Company policy.
SUPPLEMENTAL RETIREMENT PLAN: Per Company plan, with vesting phased
in over a five-year period in recognition of recruiting an "outside"
chief executive as follows: 10% vesting upon employment, an
additional 10% vesting after first year of service as an officer, an
additional 20% vesting after the second year of service as an officer,
an additional 20% after the third year of service as an officer, an
additional 20% after the fourth year of service as an officer and the
final 20% after the fifth year of service as an officer. Benefits to
accrue to Mr. Peoples for life and to his contingent annuitant for
life, per Company Plan.
401(k) STOCK PURCHASE AND TRUST AND THRIFT PLANS: Per Company policy.
Please indicate your agreement with these compensation arrangements by
signing below.
__________________________ _________________________
D. Louis Peoples H. Kent Vanderhoef
Acting Chairman of the
Board of Directors
__________________________ _________________________
Michael J. Del Giudice Frank A. McDermott, Jr.
Chairman, Search Committee Chairman, Compensation
Committee
peoples.doc/dmg<PAGE>
November 14, 1995
Mr. Larry S. Brodsky
116 N. Buchanan
Monticello, Illinois 61856
Dear Larry:
I am pleased to present Orange and Rockland's offer of employment to you for
the position of President and Chief Operating Officer, effective January 2,
1996, or as soon thereafter as you are available. I have outlined below the
major elements of compensation associated with this position, as well as those
related to your relocation to this area.
POSITION: President & Chief Operating Officer. You will report to
D. Louis Peoples, Vice Chairman and Chief Executive Officer
BASE SALARY: Your salary will be $285,000 per year.
INCENTIVE COMPENSATION: Upon commencing your employment, you will participate
in two incentive compensation programs. The first, the Annual Team Incentive
Plan (ATIP), is an annual program for all management employees. Your target
annual bonus opportunity in this program is 40% of your base pay. The second
program, the Long Term Incentive Plan (LTIP), is a three year, performance-
based shares program. Your LTIP share award will be 2,000 shares. A
description of these programs is attached.
EMPLOYEES' RETIREMENT PLAN OF ORANGE AND ROCKLAND UTILITIES, INC.: You will
participate in this plan according to plan provisions.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: Upon your participation in the plan,
you shall be treated as having satisfied the five years of Service As An
Officer requirement for purposes of eligibility for vested retirement
allowance, but not for the purpose of the calculation of the amount of such
allowance. Upon employment you will have 10% immediate vesting in the plan
and 10% at the end of the first calendar year of employment. In subsequent
years vesting will continue at an accelerated rate to provide 70% vesting in
the plan at age 58. Incentive compensation will be included in the
calculation of your retirement benefit, commencing in the first year in
increments of 10% per year. A more detailed schedule of participation is
attached.
Mr. Larry S. Brodsky
November 14, 1995
Page 2
CHANGE OF CONTROL: Upon employment you will be covered by the terms of the
Orange and Rockland Utilities, Inc. Severance Agreement, a copy of which is
attached.
SEVERANCE: You will be covered by the company's severance policy, which
provides for compensation in the event that your employment is terminated by
the company for reasons other than for cause. Your benefit under this policy
is 24 months.
COMPANY CAR: You will be provided with a company car upon employment.
INSURANCE: You will be eligible for all insurance programs such as medical,
dental, vision, prescription drugs, life insurance, long term disability and
all other benefits afforded to management employees according to plan
provisions. Your coverage for these insurances will commence with your
employment. Descriptions of these programs are attached.
D&O INSURANCE: You will be covered under this plan upon employment.
INDEMNIFICATION: You will be covered under this plan upon employment.
VACATION: You are eligible for four weeks of vacation commencing with your
employment, and you may take that vacation at any time during the calendar
year. Your vacation allowance will increase to five weeks after seven years
of employment.
SICK LEAVE: You will have immediate coverage for up to ten days of sick leave
per year.
MANAGEMENT SAVINGS PLAN: You will be eligible to participate in the
management savings plan after 6 months of employment. The plan features an
employer match of 50 cents for the first 3% of employee contributions.
RELOCATION ALLOWANCE: The costs of relocating you and your family to the
Orange and Rockland service territory from Monticello, Illinois will be
reimbursed by the company. These will include the following:
(a) Relocation trips for you and your family to select and
purchase property.
(b) The packing, moving and storage of household goods.
(c) Shipment of up to two vehicles.
Mr. Larry S. Brodsky
November 14, 1995
Page 3
(d) Costs to sell your home in Illinois and to purchase a home in this
area. This will include all related fees, including points, fees
and costs associated with financing arrangements to acquire new
housing.
(e) Monthly costs of the Monticello house (principal, including
interest, utilities and maintenance) and other similar costs
as required, in the event that this property is not
sold by the time you acquire your new home.
(f) Relocation management services.
(g) Attorneys fees related to conditions of employment, to a
maximum of $5,000.
(h) Rental vehicle(s) for use by you or your spouse, as necessary.
(i) Miscellaneous relocation expenses.
(j) Settling-in allowance equivalent to two weeks salary.
(k) Gross up for taxes on relocation costs attributable to
you as income.
Larry, on behalf of the Board of Directors and the management team --
Welcome! I'm especially glad that you are joining O&R and I look forward to
working with you in the near future.
Sincerely,
Lou Peoples
(Signature)
Agreed: L. S. Brodsky
Date: 11/18/95
March 21, 1995
Ms. Nancy M. Jakobs
79 Burda Avenue
New City, New York 10956
Dear Nancy:
I am pleased to present Orange and Rockland's offer of employment to
you for the position of Vice President - Human Resources effective
April 3, 1995. The general details are as follows:
Position: Vice President - Human Resources reporting to the Vice
Chairman and Chief Executive Officer.
Base Salary: $130,000 per year.
Incentive Compensation: Participation in the Orange and Rockland
Utilities, Inc. annual and long term Incentive Compensation Programs.
For 1995, participation will be prorated for the period you are
employed at Orange Rockland.
Vacation: Four weeks per year upon employment; five weeks after seven
years.
Insurance: Eligibility for all insurance programs such as medical,
dental, vision and prescription drugs, and any other benefits afforded
to management employees per plan provisions. Eligibility will begin
on the first of the month after hire.
Sick Leave: Per Company policy, with immediate participation of 10
days for 1995 recognizing industry standards and taking into account
your seniority and experience as of date of hire.
Severance: Participation in the Company's Severance Policy with the
exception that upon termination by the Company for its convenience
other than for cause, the benefit level will be set at the maximum of
52 weeks.
Management Savings Plan: Eligible for participation after one
calendar year of employment, per plan provisions.<PAGE>
Ms. Nancy M. Jakobs
March 21, 1995
Page - 2 -
Supplemental Executive Retirement Plan: Per Company policy.
Employees' Retirement Plan of Orange and Rockland Utilities, Inc.:
Eligible for participation per plan provisions.
Long Term Disability (LTD) Plan: Participation in the Executive Group
LTD plan which has a three month waiting period, benefit formula of 66
2/3% of your base salary and short term incentive target, and a
maximum benefit amount of $15,000 per month.
Indemnification: Per Company policy.
D&O Insurance: Per Company policy.
Your election as an Officer of the Company will occur at the April 6,
1995 Board of Directors meeting.
Nancy, on behalf of the entire Board and management team - Welcome!
I'm especially glad that you are joining O&R and I look forward to
working with you in the near future.
Sincerely,
D. Louis Peoples
Agreed:___Nancy_M._Jakobs____
Date:__March_22,_1995________
dlp/dmg
jakobs.doc
Mr. R. Lee Haney
5026 Kensington
San Diego, CA 92116
September 2, 1994
Dear Mr. Haney:
I am pleased to present Orange and Rockland's offer of employment to you for
the position of Vice President - Chief Financial Officer effective October 1,
1994 or as soon as you are available. The general details are as follows:
Position: Vice President - Chief Financial Officer reporting to the CEO
Base Salary: $195,000 per year
Incentive Compensation: Participation in the Orange and Rockland Utilities,
Inc. Incentive Compensation Program in 1994 and beyond at a level of 20% for
the annual program and 20% per year for the long term program. For 1994,
participation will be prorated for the period you are employed at Orange
Rockland.
Vacation: Four weeks per year upon employment; five weeks after seven years.
Insurance: Eligibility for all insurance programs such as medical, dental,
vision and prescription drugs, and any other benefits afforded to management
employees per plan provisions. Eligibility will begin on the first of the
month after hire.
Sick Leave: Per Company policy, with immediate participation of five days for
1994 and 10 days for 1995 recognizing industry standards and taking into
account your seniority and experience as of date of hire.
Severance: Participation in the Company's Severance Policy with the exception
that upon termination by the Company for its convenience other than for cause,
the benefit level will be set at the maximum of 52 weeks.
Management Savings Plan: Eligible for participation after one calendar year of
employment, per plan provisions.
Supplemental Executive Retirement Plan: Eligible for immediate vesting in the
plan and a benefit formula based on the granting of two years of service for
each of the first five years of actual service. For example, after five years
of service, the benefit formula will be calculated as if you had achieved ten
years. Regular plan provisions will take effect in the sixth year at which
time a portion of incentive compensation will be included in the calculation
of the retirement benefit.
Employees' Retirement Plan of Orange and Rockland Utilities, Inc.: Eligible
for participation per plan provisions.
Mr. R. Lee Haney
September 2, 1994
Page 2
Relocation Allowance: The reasonable costs of relocating you and your family
to the Orange and Rockland service territory from San Diego, California. This
will include the following:
(a) Reasonable costs for you and your family for relocation trips.
(b) Reasonable moving and necessary storage of household goods and
temporary housing for you and your family.
(c) Reasonable selling costs for sale of San Diego home including real
estate broker fees and other fees, swing loan interest expense for
six months, if necessary, and points and fees for loan on home
purchase in the area, as necessary.
(d) Reasonable costs for the possible shipment of up to two vehicles, if
necessary.
(e) Temporary use of rental and pool vehicle(s) until the arrival of
personal vehicle(s).
(f) Payment of reasonable receipted miscellaneous relocation expenses,
as necessary.
Tax Gross-Up: Gross up for taxes on all Relocation Allowances set forth above.
Indemnification: Per Company policy.
D&O Insurance: Per Company policy.
Lee, on behalf of the entire Board and management team - Welcome! I'm
especially glad that you are joining O&R and I look forward to working with
you in the near future.
Sincerely,
D.L. Peoples
Vice Chairman and
Chief Executive Officer
Agreed:_R. Lee Haney___
Date:__9-4-94__________
<PAGE>
REVIEW OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL PERFORMANCE
Consolidated earnings per share were $2.60 for 1995, compared to $2.50 in
1994 and $3.06 in 1993. While earnings in 1995 increased modestly over 1994, the
impact of the costs associated with the investigation and litigation involving
former officers and others, the provision for refunds to be passed back to
customers, and regulatory actions related to these events as well as a decline
in non-utility subsidiary operating results have all impacted the last three
years results. Despite the adverse effects of these items on earnings for the
1993-1995 time period, the core utility business produced strong operating
results, as electric sales to customers continued to increase, gas sales
remained stable and operating expenses decreased as part of the Company's cost
containment program during the period. The decline in non-utility earnings is
primarily a result of the continuing competitive pressure in the gas marketing
business, which substantially limited the subsidiary's gross profit margin, and
the continuing losses by the Company's discontinued broadcasting business, and
the reduction from revalued properties.
Consolidated earnings available for common stock were $35.4 million in
1995, $34.0 million in 1994 and $41.5 million in 1993. Earnings per average
common share are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Utility operations $3.20 $3.14 $3.37
Events Affecting the Company:
Investigation and litigation costs (.35) (.42) (.29)
Refunds of misappropriated funds (.14) (.20) --
Diversified activities (.11) (.02) (.02)
- ---------------------------------------------------------------------------
Consolidated earnings per share $2.60 $2.50 $3.06
- ---------------------------------------------------------------------------
</TABLE>
The earned return on common equity was 9.4% in 1995, compared to 9.0% in
1994, and 11.2% in 1993. Book value per share at year-end 1995 was $27.82,
compared to $27.79 in 1994 and 1993.
The Company continued to provide a fair and equitable return on
shareholders' investments by increasing the dividend paid on common stock to
$2.57 per share from the $2.54 paid in 1994 and the $2.49 paid in 1993. The
Company has maintained a strong capital structure of 46% long-term debt, 6%
preferred stock and 48% common equity.
INVESTIGATION AND LITIGATION
The Company continues to pursue a lawsuit and arbitration proceedings
against a former officer to recover misappropriated funds and other costs
attributable to any wrongdoing and related investigation.
For more information on these legal proceedings, refer to Note 12 of Notes
to Consolidated Financial Statements.
MANAGEMENT TEAM
Recognizing the significant changes taking place in the utility industry,
the Company has engaged in a major corporate restructuring. In addition to the
appointment of D. Louis Peoples as Vice Chairman and Chief Executive Officer
(CEO) and R. Lee Haney as Vice President and Chief Financial Officer (CFO) in
1994, the Company made the following appointments in 1995. On February 2, 1995,
Richard N. White was appointed Ethics Officer. On February 21, 1995, the Company
appointed G.D. Caliendo as Vice President, General Counsel and Corporate
Secretary. On March 22, 1995, Nancy M. Jakobs was named Vice President of Human
Resources. The Company announced on December 7, 1995, the appointment of Larry
S. Brodsky, a former Senior Vice President at Illinois Power Company, as
President and Chief Operating Officer. Mr. Brodsky replaces Victor J. Blanchet,
Jr., who resigned on March 1, 1995. Mr. Brodsky assumed these duties on January
2, 1996.
The Board of Directors appointed two new members during 1995. On February
2, and October 5, 1995, the Company appointed Frederic V. Salerno and Jon F.
Hanson, respectively, as new Board members.
The Company believes that with this management team now in place, it is
better suited to deal with the changing industry and capitalize on new
competitive opportunities.
RESULTS OF OPERATIONS
The discussion which follows identifies the principal causes of the
significant changes in the amounts of revenues and expenses affecting income
available for common stock by comparing 1995 to 1994 and 1994 to 1993. This
discussion should be read in conjunction with the Notes to Consolidated
Financial Statements and other financial and statistical information contained
elsewhere in this report. The following is a summary of the changes in earnings
available for common stock:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Utility Operations:
Operating revenues $ (36.0) $(8.0)
Energy costs (26.6) (4.9)
- ---------------------------------------------------------------------------
Net revenues from utility operations (9.4) (3.1)
Other utility operating expenses and taxes (10.2) 3.6
- ---------------------------------------------------------------------------
Operating income from utility operations 0.8 (6.7)
Diversified revenues 49.2 57.8
Diversified operating expenses and taxes 53.5 58.1
- ---------------------------------------------------------------------------
Income from operations (3.5) (7.0)
Other income and deductions 4.2 (0.8)
Interest charges (0.7) (0.2)
- ---------------------------------------------------------------------------
Net income 1.4 (7.6)
Preferred dividends (0.1) (0.1)
- ---------------------------------------------------------------------------
Earnings available for common stock $ 1.5 $(7.5)
- ---------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ELECTRIC OPERATING REVENUES AND SALES
Electric operating revenues, net of fuel and purchased power costs,
decreased by 2.5% or $8.5 million in 1995 after decreasing by 1.4% or $4.7
million in 1994.
The components of these changes are attributable to the following factors:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Retail sales:
Price changes $ (19.3) $(5.3)
Sales volume changes 4.8 8.7
- ---------------------------------------------------------------------------
Subtotal (14.5) 3.4
Sales for resale (4.5) 0.2
Other operating revenues -- (11.5)
- ---------------------------------------------------------------------------
Total electric revenues (19.0) (7.9)
Electric energy costs (10.5) (3.2)
- ---------------------------------------------------------------------------
Net electric revenues $ (8.5) $(4.7)
- ---------------------------------------------------------------------------
</TABLE>
Actual total sales of electric energy to retail customers during 1995 were
4,526 Mmwh, compared with 4,464 Mmwh during 1994 and 4,358 Mmwh in 1993. Before
reflecting the effects of the Revenue Decoupling Mechanism (RDM) in the
Company's New York jurisdiction, electric revenues associated with these sales
were $472.5 million, $487.0 million and $483.6 million in 1995, 1994 and 1993,
respectively.
Electric sales to customers for the last five years are shown in the
following chart.
[Graphics Chart, see Appendix A of Exhibit 13]
The changes in electric sales by class of customer from the prior year are
as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C>
Residential 1.5% 3.0%
Commercial .3% 1.5%
Industrial 3.6% 4.6%
Public street lighting 1.0% .5%
Sales to public authorities 9.5% (4.3%)
- ---------------------------------------------------------------------------
</TABLE>
An increase in the number of customers, coupled with unusually warm weather
during the summer months compared to the previous year, was the primary reason
electric retail sales increased 1.4% in 1995. The increase in the number of
customers resulted in an increase in sales of 2.4% in 1994 compared to 1993.
The Company continues to meet the needs of its customers by pursuing least-
cost strategies. Demand-Side Management (DSM) programs, which are designed to
reduce peak load, encourage efficient energy usage and reduce the need for
costly investments in new generating capacity, continue to be a part of the
Company's resource plan. These efforts resulted in the Company achieving an
energy-efficiency savings of approximately 234,845 Mwh in 1995, 193,864 Mwh in
1994 and 166,697 Mwh in 1993. Based on the energy efficiency savings in New
York, the Company earned and filed to recover DSM incentives provided by the New
York State Public Service Commission (NYPSC). The Company was able to earn an
incentive of approximately $1.4 million in 1995, $0.6 million in 1994 and $3.1
million in 1993. In addition to DSM, the Company continues to actively seek
cost-effective energy supply options, such as purchased power agreements with
other utilities.
Under the RDM, actual electric sales revenue based on usage in the
Company's New York franchise territory is reconciled to the level allowed in
rates, thereby minimizing the impact of sales volume changes on earnings. The
Company's earnings from New York electric operations under the RDM agreement are
dependent on controlling operating and maintenance costs within levels provided
for in rates, as well as achieving its DSM goals. Under the agreement, New York
electric revenue targets, net of fuel and taxes amounted to $216.0, $224.8, and
$223.2 million, compared to actual sales revenues based upon usage of $230.3,
$237.1, and $230.1 million, in 1995, 1994, and 1993, respectively, requiring
the Company to record revenue reductions of $14.3 million in 1995, $12.3
million in 1994 and $6.9 million in 1993.
Although the RDM agreement was scheduled to expire on December 31, 1993,
the NYPSC's June 10, 1994 decision extended the provisions of the agreement with
certain modifications as more fully described under "Rate Activities". The RDM
agreement will continue to affect future electric earnings from the Company's
New York operations until new rates are implemented as a result of the pending
base rate case. Electric earnings from the Company's New Jersey and Pennsylvania
operations will continue to be affected by changes in sales volumes resulting
from the strength of the economy, weather conditions and the conservation
efforts of customers.
Sales for resale decreased from $6.6 million in 1994 to $2.1 million in
1995 after increasing by $0.2 million in 1994. Revenues from these sales are
primarily a recovery of costs, under the applicable tariff regulations, and have
a minimal impact on the Company's earnings.
12
<PAGE>
ELECTRIC ENERGY COSTS
The cost of fuel used in electric generation and purchased power decreased
7.8% or $10.5 million in 1995, after decreasing 2.3% or $3.2 million in 1994.
The components of these changes in electric energy costs are as follows:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Prices paid for fuel and purchased power $ (2.4) $(8.3)
Changes in Kwh generated or purchased (2.1) 3.1
Deferred fuel charges (6.0) 2.0
- ---------------------------------------------------------------------------
Total $(10.5) $(3.2)
- ---------------------------------------------------------------------------
</TABLE>
The decrease in electric energy costs in 1995 reflects the lower costs of
fuel used in generation, offset somewhat by an increase in purchased power
costs. Reduced prices paid for coal and natural gas used for generation,
partially offset by increases in kilowatt hour demand, was the primary reason
for the 1994 decrease.
The price paid for fuel and purchased power per kilowatt hour over the last
five years is shown in the following chart.
[Graphics Chart, see Appendix A of Exhibit 13]
The Company's tariff schedules include adjustment clauses under which fuel
and certain purchased power costs are recovered. In New York, an incentive-based
mechanism associated with the electric fuel adjustment clause requires the
Company to share 20% of the variation between actual costs and forecast fuel
targets, up to a maximum of $1,762,000. In 1995, 1994, and 1993, pre-tax
earnings were enhanced by $755,000, $1,241,000 and $755,000, respectively, as a
result of this mechanism. The Company maintains an aggressive program of
managing its sources of fuel and energy purchases to provide its customers with
the lowest cost of energy available at any given time. Energy is purchased
whenever available at a price lower than the cost of production at the Company's
generating plants. The Company continues to use the least costly fuel available
for generating electricity.
GAS OPERATING REVENUES AND SALES
Gas operating revenues, net of gas purchased for resale, decreased by 1.2%,
or $0.9 million in 1995 as compared to an increase of 2.4%, or $1.6 million in
1994.
These changes are attributable to the following factors:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Sales to firm customers:
Price changes $(19.6) $ --
Sales volume changes (1.9) (0.4)
- ---------------------------------------------------------------------------
Subtotal (21.5) (0.4)
Sales to interruptible customers 2.7 1.4
Sales for resale (0.1) 0.1
Other operating revenues 1.9 (1.2)
- ---------------------------------------------------------------------------
Total gas revenues (17.0) (0.1)
Gas energy costs (16.1) (1.7)
- ---------------------------------------------------------------------------
Net gas revenues $ (0.9) $ 1.6
- ---------------------------------------------------------------------------
</TABLE>
Firm gas sales amounted to 19,825 million cubic feet (Mmcf) during 1995, a
decrease of 2.9% from the 1994 level of 20,421 Mmcf. Firm gas sales for 1993
were 20,556 Mmcf. Gas revenues from firm customers were $128.0 million, $149.4
million and $149.8 million in 1995, 1994 and 1993, respectively.
Gas sales to firm customers for the last five years are shown in the
following chart.
[Graphics Chart, see Appendix A of Exhibit 13]
The changes in firm gas sales by class of customer from the
prior year are as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C>
Residential (2.7%) (1.0%)
Commercial and industrial (3.6%) 0.5%
- ---------------------------------------------------------------------------
</TABLE>
Sales in 1995 and 1994 were adversely affected by weather conditions. The
increase in the number of customers in 1995 and 1994 somewhat offset the
decrease in sales.
Under the terms of the current gas rate agreement in New York, the level of
firm sales is subject to a weather normalization adjustment. The Company adjusts
firm gas sales revenues to the extent actual degree days vary more than plus or
minus 2.2% from the degree days utilized to project sales during a heating
season. Therefore, weather conditions have a minimal impact on gas revenues.
Revenues from interruptible gas customers (customers with alternative fuel
sources) increased by 68.3% and 53.4% in
13
<PAGE>
1995 and 1994, respectively. These sales are dependent upon the availability and
price competitiveness of alternative fuel sources. As a result of applicable
tariff regulations, these sales do not have a substantial impact on earnings.
GAS ENERGY COSTS
Utility gas energy costs decreased by 18.2%, or $16.1 million in 1995,
after decreasing 1.9% or $1.7 million in 1994.
The changes in utility gas energy costs for the years 1995 and 1994 are a
result of the following:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Prices paid to gas suppliers* $(9.5) $(2.7)
Firm and interruptible Mcf sendout 3.1 3.2
Deferred fuel charges (9.7) (2.2)
- ---------------------------------------------------------------------------
Total $(16.1) $(1.7)
- ---------------------------------------------------------------------------
</TABLE>
*Net of refunds received from gas suppliers.
The Company continues its policy of the aggressive use of spot market
purchases in order to provide price flexibility, while assuring an adequate
supply of gas through a variety of long-term contracts with pipeline suppliers.
The price paid for purchased gas per thousand cubic feet (Mcf) over the
last five years is shown in the following chart.
[Graphics Chart, See Appendix A of Exhibit 13]
Gas costs from 1990-1993 were adversely affected by the actions of the
Federal Energy Regulatory Commission (FERC), which had authorized pipeline
suppliers to pass through take-or-pay costs. As required by the NYPSC in Case
88-G-062, the Company has deferred a portion of these costs. As of December 31,
1995, $1.6 million of deferred take-or-pay charges and accrued interest remain
on the books of the Company. The Company and the NYPSC have reached an agreement
allowing the Company to recover these costs.
As a result of the FERC's objective to restructure the gas transportation
industry to promote competition among gas suppliers and to ensure supply at the
lowest reasonable costs, the FERC, pursuant to FERC Order No. 636, has
authorized pipelines to recover certain transition costs from their customers.
The Company currently estimates that its obligations for Order No. 636
transition costs will total approximately $25.1 million. Approximately $19.0
million of these transition costs have been billed to the Company.
On December 20, 1994 the NYPSC issued an order establishing the regulatory
and rate-making policies applicable to New York gas distribution utilities
resulting from FERC Order No. 636. The order provides mechanisms for the full
recovery of transition costs. The Company is presently in the process of
recovering these costs from its customers and believes it will be allowed to
fully recover such costs by the end of 2000.
OTHER UTILITY OPERATING EXPENSES AND TAXES
A comparison of other operating expenses and taxes for utility operations
is presented in the following table:
<TABLE>
<CAPTION>
Increase (Decrease) From Prior Year 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C>
Other operating expenses $(9.3) $(0.2)
Maintenance (2.8) 1.1
Depreciation & amortization 2.1 1.7
Taxes (0.2) 1.0
- ---------------------------------------------------------------------------
Total $(10.2) $3.6
- ---------------------------------------------------------------------------
</TABLE>
The costs of DSM programs, which decreased by $8.1 million in 1995 and $7.4
million in 1994, were the primary causes of the changes in other operating
expenses in 1995 and 1994. These costs are recovered in revenues on a current
basis. Additionally, the Company's cost containment program lowered 1995 costs
through operating efficiencies and lower labor costs realized by attrition. The
decrease in the cost of DSM programs in 1994 was offset by increases in the cost
of labor, material and services.
Maintenance costs decreased 6.4% in 1995, as compared to an increase of
2.6% in 1994. The changes in 1995 and 1994 were primarily the result of
maintenance of the Company's distribution plant.
Depreciation and amortization expenses increased $2.1 million in 1995 after
increasing $1.7 million in 1994. The increases in 1995 and 1994 were the result
of normal plant additions.
Taxes other than income taxes decreased $1.9 million in 1995 as compared to
an increase of $2.6 million in 1994. The decrease in 1995 was the result of
lower taxes associated with revenues, while the increase in 1994 was primarily
the result of increases in taxes associated with revenues and property taxes.
Federal income tax expense increased $1.7 million in 1995, after decreasing $1.6
million in 1994. The changes in both years are the result of changes in pre-tax
book income. For a detailed analysis of income tax components, see Note 2 of
Notes to Consolidated Financial Statements.
DIVERSIFIED ACTIVITIES
The Company's diversified activities, at year end, consisted of gas
marketing, gas production and land development businesses conducted by its
wholly owned non-utility subsidiaries.
In September 1994, the Company sharpened its focus on its core energy
services business by adopting a plan to sell the six radio broadcast properties
operated by one of its non-utility subsidiaries. All sales have been finalized
and did not have a material effect on the Company's consolidated financial
statements. The Company is in the process of dissolving its gas production
business. It is anticipated the Company will cease these operations by the end
of 1996 and this will not have a material effect on the Company's Results of
Operations.
The Company's wholly owned gas marketing subsidiary, NORSTAR Holdings,
formerly O&R Energy, Inc., signed an
14
<PAGE>
agreement with a wholly owned subsidiary of Shell Gas Trading Company (Shell) to
create a new full service natural gas services and marketing company -- NORSTAR
Energy Limited Partnership. Under the terms of the agreement, Shell contributed
substantial firm gas supplies and other assets in exchange for approximately a
27 percent limited partnership interest. NORSTAR Holdings transferred its
natural gas marketing business to the new venture in exchange for approximately
a 73 percent general partnership interest. The alliance of NORSTAR Holdings' gas
marketing and operations expertise with the commitment of firm gas supplies from
Shell will assure NORSTAR a strong capital structure and increase the range of
services available to support an aggressive expansion into new markets.
Revenues from diversified activities increased by $49.2 million and $57.8
million in 1995 and 1994, respectively, primarily as a result of increased sales
from gas marketing activities.
Operating expenses, incurred by the non-utility subsidiaries, increased by
$53.5 million and $58.1 million in 1995 and 1994, respectively. These increases
are directly related to gas marketing purchases which were $53.6 million and
$55.5 million higher in 1995 and 1994, respectively. Other expenses of
operation, maintenance, depreciation and taxes decreased $0.1 million in 1995,
after increasing by $2.6 million in 1994. Earnings from diversified activities
decreased by $1.3 million and $0.9 million in 1995 and 1994, respectively. The
declines were primarily due to continued weakness in the natural gas price
resale market, resulting in insufficient margins realized by the gas marketing
subsidiary and losses by the Company's broadcasting business. Earnings in 1995
were further reduced by the recognition of the market value of properties held
by an affiliate of our gas marketing subsidiary. However, diversified earnings
were enhanced by a $2.9 million gain realized as a result of the formation of
the NORSTAR Partnership.
OTHER INCOME AND DEDUCTIONS AND INTEREST CHARGES
Other income and deductions increased by $4.2 million in 1995, after
decreasing by $0.8 million in 1994. The increase in 1995 is primarily the result
of the gain of $2.9 million from the formation of NORSTAR plus lower
investigation and litigation costs. The decrease in 1994 resulted from higher
investigation and litigation expenses, which reduced Other Income by $1.7
million, net of taxes. This decrease in income was somewhat offset by a $0.7
million reduction in political expenditures and charitable contributions and a
$0.4 million improvement in the operating results from the Company's radio
broadcasting subsidiary.
Interest charges decreased $0.7 million, or 2.2% in 1995, after decreasing
$0.2 million, or 0.7%, in 1994. The 1995 and 1994 decreases are the result of
refinancing certain of the Company's long-term debt issues, taking advantage of
the lower interest rates available, and the retirement of long-term debt issues
in 1995, offset by an increase in the cost of short-term debt in 1995, after a
decrease in such costs in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction program is designed to maintain reliable
electric and gas service, meet future customer service requirements and improve
the Company's competitive position. The cash expenditures related to the
construction program and other capital requirements for the years
1993-1995 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Construction expenditures $56.8 $62.5 $57.2
Retirement of long-term debt &
preferred stock -- net 20.8 4.1 1.5
- ---------------------------------------------------------------------------
Total $77.6 $66.6 $58.7
- ---------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Company estimated the cost of its construction
program in 1996 to be $52.8 million and retirement of long-term debt and
preferred stock to be $1.8 million. It is expected that the Company's capital
requirements for 1996 will be met primarily with funds from operations,
supplemented by the issuance of short-term borrowings.
On July 27, 1995, the New York State Energy Research and Development
Authority (NYSERDA) issued, on behalf of the Company, $44 million of variable
rate Pollution Control Refunding Revenue Bonds due August 1, 2015 (1995 Bonds).
The interest rate is adjusted weekly, unless converted to a fixed rate. The
average interest rate in 1995 was 3.63%. The proceeds from the issuance of the
1995 Bonds, together with other Company funds, were used to refund, on August
20, 1995, the $44 million NYSERDA 9% Pollution Control Revenue Bonds, 1985
Series issued on behalf of the Company.
The Company's Dividend Reinvestment Plan (DRP) and its Employee Stock
Purchase and Dividend Reinvestment Plan (ESPP) provide that, at the option of
the Company, the common stock requirements of the plans may be satisfied by
either original stock issues or open market purchases. Since November 1, 1994,
the requirements of both plans have been satisfied by open market purchases. The
Company, however, has authority to issue up to 750,000 shares of its common
stock under the DRP and ESPP through December 31, 1997, of which approximately
693,000 shares were unissued at December 31, 1995.
The Company and its utility subsidiaries have unsecured bank lines of
credit totaling $64.5 million. The Company may borrow under the lines of credit
through the issuance of promissory notes to the banks. The Company, however,
utilizes such lines of credit to fully support commercial paper borrowings. The
aggregate amount of borrowings through the issuance of promissory notes and
commercial paper cannot exceed the aggregate lines of credit. In addition, non-
utility lines of credit amounted to $20.0 million at December 31, 1995, and the
non-utility subsidiaries may undertake short-term borrowings or make short-term
investments.
15
<PAGE>
RATE ACTIVITIES
NEW YORK -- GAS
On January 16, 1992, the Company filed an application for an increase in
gas rates with the NYPSC. The Settlement Agreement in that case, which was
approved by the NYPSC on September 30, 1992, provided, among other things, for
multi-year rate adjustments through 1996 and for certain gas incentives. The
second adjustment to gas rates under the Settlement Agreement, which amounted to
an increase of $3.8 million or 2.5%, was to become effective on January 1, 1994.
As a result of the ongoing investigation of alleged financial improprieties
(Investigation) as discussed below, however, the increase was first extended to
June 30, 1994 and then further extended to December 30, 1994. On November 4,
1994, the NYPSC issued an Order terminating the Settlement Agreement effective
December 31, 1994. The Order denied the Company the opportunity for rate
adjustments in the third and fourth years (1995 and 1996) of the four-year
Settlement Agreement. However, the Order authorized the Company to defer the
second stage rate adjustments and all previously authorized reconciliations
pertaining to periods prior to December 31, 1994, pending review and audit by
the NYPSC staff and the conclusion of the Investigation. In addition, on
February 7, 1995, the Accounting and Finance Division of the NYPSC issued an
interpretation of the November 4, 1994 termination order which stated that the
gas incentive mechanism related to the attainment of certain goals was no longer
available. The Company did not contest this interpretation.
On October 2, 1995, the Company, the NYPSC Staff, the Industrial Energy
Users Association (IEUA), and the New York State Consumer Protection Board
(NYCPB), reached a settlement which would resolve all outstanding issues
relating to the Investigation. The settlement provides for, among other things,
the cancellation of the second stage gas base rate increase discussed above. All
deferred balances resulting from expense reconciliations and deferral of the
second stage rate adjustment are to be offset with an equal amount of deferred
credits resulting from certain changes to depreciation approved as part of the
original multi-year rate plan. In addition, the settlement provides for the
recognition in gas rates of the change in accounting required by Statement of
Financial Accounting Standards No. 106, "Employee Postretirement Benefits Other
Than Pension". The annual cost increase due to gas operations will be offset by
an equal amount of deferred depreciation credits. On January 25, 1996 the
Administrative Law Judge issued a Recommended Decision which recommended that
the NYPSC approve the settlement. A final NYPSC decision is expected by April
1996.
NEW YORK -- ELECTRIC
On June 10, 1994, the NYPSC issued an Order (the June Order) which
terminated the Company's January 1993 electric rate increase application. The
June Order provided, among other things, for a reduction in the threshold for
measuring excess earnings from 12.0% to 10.6%, effective retroactively to
January 1, 1994. All earnings in excess of 10.6% were to be deferred for future
disposition pending the conclusion of the Investigation. On September 19, 1994,
the Company filed an appeal with the Supreme Court of New York challenging the
legality of the June Order. The appeal argued that by changing the excess
earnings threshold from 12.0% to 10.6% for the first six months of 1994, the
NYPSC engaged in retroactive rate-making. The appeal also argued that there was
no evidence in the record to support a determination that the cost of equity was
10.6%. This appeal was withdrawn pursuant to a Stipulation approved by the NYPSC
on August 1, 1995, as described below.
On February 17, 1995, the Company submitted a compliance filing regarding
the operation of the Revenue Decoupling Mechanism (RDM). The filing included a
proposal to reduce the RDM Adjustment Factor from $7.7 million to $0, effective
May 1, 1995, reflecting the completion of the recovery of an RDM undercollection
applicable to the year 1993. This resulted in a 2.3% annual reduction in
revenues. In addition, the filing requested that a net RDM overcollection of
$0.7 million for the year 1994 be retained by the Company as a future rate
moderator, subject to NYPSC verification. On April 19, 1995, the NYPSC approved
the proposals, and the reduction of $7.7 million in the RDM Adjustment Factor
became effective May 1, 1995.
On May 25, 1995, the Company filed a request with the NYPSC for a decrease
in electric revenues of $6.1 million to be effective April 1, 1996 (Case 95-E-
0491). This would produce an overall reduction of 1.8 percent in retail rates.
The filing reflected a reduction in operating expenses due to the complete
recovery of the Company's share of the Sterling Nuclear Project and other cost
reductions. The Company proposed a multi-year rate plan covering the three-year
period ending on March 31, 1999 with no base rate increases in the second and
third year of the plan. The Company has proposed an overall return on common
equity above 11.2%.
On August 1, 1995, the NYPSC approved a Stipulation which provided for the
early implementation of the Company's proposed annual rate reduction of $6.1
million. As a result, reduced rates effective August 1, 1995 will produce a
revenue reduction of $3.8 million for the period August 1, 1995 - March 31,
1996. The Stipulation also increased the excess earnings threshold from 10.6% to
11.3%, with equal sharing of earnings above 11.3%, between shareholders and
ratepayers, for the period January 1, 1995 through March 31, 1996.
16
<PAGE>
The revenue reduction has been offset by the deferred revenue associated
with the 1994 electric earned return on equity in excess of 10.6% and the
customers' share of earnings under the new sharing mechanism effective January
1, 1995. The Stipulation also provided that the Company withdraw its September
19, 1994 appeal to the Supreme Court of New York challenging the June Order. On
January 16, 1996 the Supreme Court of New York approved a stipulation
withdrawing this appeal.
On January 25, 1996, the Administrative Law Judge (ALJ) issued a
Recommended Decision (RD) related to outstanding Investigation issues and the
Company's currently pending New York electric rate proceeding (Case 95-E-0491).
Regarding the rate proceeding, the ALJ recommended a multi-year plan be approved
with an additional first year rate reduction of $4.3 million (1.3%) and no
changes to rates in the second and third years. The ALJ recommends a 10.6%
Return on Equity (ROE) with a 50 basis point deadband where no sharing is
required and equal sharing between the customer and shareholders of earnings
above 11.1%. In addition, performance mechanisms are recommended which could
negatively impact earned returns. The recommendation of a multi-year plan would
eliminate all revenue and expense reconciliation provisions of the Revenue
Decoupling Mechanism (RDM). A NYPSC action regarding permanent rates is expected
for rates effective April 1, 1996.
On November 10, 1994, the Company filed, with the NYPSC, a quantification
of the rate-making effects of its ongoing investigation into prior financial
improprieties. The Company requested that the NYPSC approve a refund of
approximately $3.4 million to its New York electric and gas customers. This
amount would be in addition to the $369,000 already refunded by the Company.
This amount was charged to operations in the fourth quarter of 1994. The NYPSC
then instituted a proceeding (Case 93-M-0849) to provide the opportunity for
other parties, including the NYPSC Staff which was conducting an independent
investigation, to be heard on this matter. On July 6, 1995, the NYPSC issued an
order stating that the issues of the amount, timing and allocation of New York
ratepayer refunds as a result of the investigation in Case 93-M-0849 should be
considered in the context of the Company's current electric base rate case and
ordered the consolidation of the two cases.
On October 2, 1995, the Company, the NYPSC Staff, the IEUA and the NYCPB
reached a settlement in order to resolve all outstanding issues relating to the
NYPSC Investigation. The settlement provided for a total of $8.5 million in
refunds for the Company's New York customers. The amount attributable to
electric operations is $6.5 million and the amount attributable to gas
operations is $2.0 million. As a result of this settlement, the Company charged
approximately $2.8 million to operations during the third quarter of 1995. The
settlement is being contested by certain parties. In his RD issued January 25,
1996 in Cases 93-M-0849 and 95-E-0491, the ALJ recommended that the NYPSC
approve the settlement. The ALJ noted that the settlement meets all of the
NYPSC's settlement guidelines and balances the interest of the Company's
customers and shareholders. A final NYPSC decision is expected by April 1996.
NEW JERSEY
Under an agreement with the New Jersey Board of Public Utilities (NJBPU) to
return to customers any funds found to be misappropriated or otherwise
questionable as a result of its investigation of certain former Company
officers and former employees, Rockland Electric Company (RECO), a wholly owned
utility subsidiary of the Company, refunded to New Jersey ratepayers $93,000
through reductions in the applicable fuel adjustment charges in February and
March 1994. In December 1994, RECO submitted a proposal to the NJBPU to refund
an additional $704,000. By Order dated January 27, 1995, the NJBPU approved this
proposal and the refund was made in February 1995. In January 1996 the Company
proposed to refund an additional $482,000 to its New Jersey customers. These
amounts were charged to operations in the third quarter of 1995. The NJBPU has
not acted on this proposal. The Company is unable to predict what modifications,
if any, will be made to the amount proposed to be refunded in New Jersey.
On November 3, 1993, the NJBPU commenced its periodic management audit of
RECO. The NJBPU audit included, in addition to a standard review of operating
procedures, policies and practices, a review of the posture of RECO management
regarding business ethics and a determination regarding the effect of such
events on RECO ratepayers. The audit findings are contained in a report titled
"Final Report on An Ethics Review of Rockland Electric Company" (Docket No. EA.
90030248) dated December 1, 1994. The NJBPU subsequently initiated an
examination of senior management appointments and changes to the composition of
the Company's Board of Directors and the development of an ethics program. The
results of this examination are contained in a report titled "Final Report of an
Ethics Oversight Review of Rockland Electric Company".
The final Management Audit, Ethics Review, and Oversight Ethics Review
reports were approved by the NJBPU on July 7, 1995. The Oversight Ethics Review
report acknowledges that the NJBPU has approved refunds to the Company's New
Jersey customers and generally comments favorably about the changes instituted
by the Company. The NJBPU investigation into these matters is continuing and the
Company is unable to predict what modifications, if any, will be made to the
amount refunded.
17
<PAGE>
COMPETITION
Regulatory agencies in the three states in which the Company has retail
electric franchises are currently evaluating possible changes in regulatory and
rate-making practices designed to promote increased competition consistent with
safety, reliability and affordability standards. Depending on future
developments in this area, the Company's market share and profit margins could
become subject to competitive pressures in addition to regulatory constraints.
The Company recognizes that the regulated utility environment is changing
and is committed to remaining competitive in its core energy services business
and to capitalizing on new market opportunities. The Company's strategy for
meeting the challenges of increased competition focuses on improving service
while reducing costs. The Company has adopted an aggressive cost-reduction
program and is currently evaluating the pricing of services provided to
customers. In addition, the Company's marketing function has been restructured
to identify growth opportunities and strengthen customer relations by improving
the value of energy services offered. Another component of the strategy is to
actively participate, with regulators and others, in developing a transition to
a more competitive environment which provides for an equitable sharing of
environmental, social, regulatory and taxation obligations among all parties, as
well as a reasonable opportunity for utilities to recover past investments and
expenditures made pursuant to their obligation to provide service to the public.
In October, the Company and the seven other investor-owned utility members
of the Energy Association of New York State proposed a plan (Plan) for
restructuring the electric industry to permit wholesale competition within the
State. The Plan was drafted in response to NYPSC's Competitive Opportunities
Proceeding (Case 94-E-0952) initiated to identify regulatory and rate-making
practices that will assist in a transition to a more competitive electric energy
market. Under the Plan, all electricity producers, including the investor-owned
utilities and independent power producers, would compete in selling electricity
through a statewide pool market mechanism. Regulated utilities could purchase
energy from the pool and/or enter into separate agreements with power generators
or other parties to purchase electricity directly. In order to protect the
integrity of the electric system, an independent system operator would be
designated to coordinate operation of the bulk power transmission system and the
pool market mechanism. While such a wholesale structure would provide the
benefit of competition to all consumers, the development of retail access under
which all customers could select their own energy supplier will logically build
upon the experience gained in resolving many of the uncertainties and risks
under a competitive New York wholesale structure. The Plan also includes
proposals for regulatory and tax reform. The Company believes the Plan, with
some modifications, can successfully achieve an effective competitive
electricity market and lower electricity prices.
Competition in the Company's gas business has existed for several years
with interruptible customers and customers with alternative fuel usage capacity
having the option to obtain their own gas supply and transport it through the
Company's distribution system. In addition, FERC Order No. 636, which
deregulated much of the interstate pipeline industry, has enabled the Company to
contract directly with gas producers for supplies of natural gas. The Company is
successfully meeting the challenge of competition in the gas business by taking
advantage of the opportunities provided in this rapidly changing business
environment to obtain greater access to reasonably priced natural gas supplies
and storage. The Company has developed customized supply and flexible pricing
arrangements to provide value added service to its gas customers and is actively
seeking new marketing opportunities.
OTHER DEVELOPMENTS
See Note 1 of Notes to Consolidated Financial Statements, for discussion on
SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of".
EFFECTS OF INFLATION
The Company's utility revenues are based on rate regulation, which provides
for recovery of operating costs and a return on rate base. Inflation affects the
Company's construction costs, operating expenses and interest charges and can
impact the Company's financial performance if rate relief is not granted on a
timely basis. Financial statements, which are prepared in accordance with
generally accepted accounting principles, report operating results in terms of
historic costs and do not generally recognize the impact of inflation.
18
<PAGE>
CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES:
Electric (Note 1) $ 457,833 $ 472,393 $ 480,553
Gas (Note 1) 140,224 157,168 157,257
Electric sales to other utilities 2,150 6,636 6,414
- --------------------------------------------------------------------------------
Total Utility Revenues 600,207 636,197 644,224
Diversified activities (Note 1) 429,906 380,705 322,925
- --------------------------------------------------------------------------------
Total Operating Revenues 1,030,113 1,016,902 967,149
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations:
Fuel used in electric production
(Note 1) 69,042 84,860 74,480
Electricity purchased for resale
(Note 1) 54,700 49,391 62,969
Gas purchased for resale (Note 1) 72,213 88,305 89,984
Non-utility gas marketing purchases 419,485 365,917 310,467
Other expenses of operation 142,601 152,200 149,604
Maintenance 41,190 44,011 42,861
Depreciation and amortization (Note 1) 38,937 35,862 34,056
Taxes other than income taxes 93,887 95,964 93,610
Federal income taxes (Notes 1 and 2) 25,779 24,540 26,225
- --------------------------------------------------------------------------------
Total Operating Expenses 957,834 941,050 884,256
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 72,279 75,852 82,893
- --------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS:
Allowance for other funds used
during construction 28 69 40
Investigation and litigation costs
(Note 12) (7,218) (8,795) (6,139)
Other - net 4,945 (599) (1,743)
Taxes other than income taxes (581) (123) (94)
Federal income taxes (Notes 1 and 2) 1,829 4,250 3,525
- --------------------------------------------------------------------------------
Total Other Income and Deductions (997) (5,198) (4,411)
- --------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 71,282 70,654 78,482
- --------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on long-term debt 26,620 29,553 30,383
Other Interest 5,495 3,088 2,404
Amortization of debt premium and
expense - net 1,394 1,244 1,116
Allowance for borrowed funds used
during construction (800) (448) (236)
- --------------------------------------------------------------------------------
Total Interest Charges 32,709 33,437 33,667
- --------------------------------------------------------------------------------
NET INCOME 38,573 37,217 44,815
Dividends on preferred and preference
stock, at required rates 3,135 3,251 3,364
- --------------------------------------------------------------------------------
Earnings applicable to common stock 35,438 33,966 41,451
Cash dividends on common stock:
$2.57, $2.54 and $2.49 35,089 34,486 33,694
- --------------------------------------------------------------------------------
Balance to retained earnings 349 (520) 7,757
Retained earnings, beginning of year 183,659 184,179 176,422
- --------------------------------------------------------------------------------
Retained earnings, end of year $ 184,008 $ 183,659 $ 184,179
- --------------------------------------------------------------------------------
Average number of common shares
outstanding (000's) 13,653 13,594 13,532
- --------------------------------------------------------------------------------
EARNINGS PER AVERAGE
COMMON SHARE OUTSTANDING $ 2.60 $ 2.50 $ 3.06
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS: (Thousands of Dollars)
UTILITY PLANT:
Electric $ 993,926 $ 951,019
Gas 211,135 198,755
Common 56,796 55,445
- --------------------------------------------------------------------------------
Utility Plant in Service 1,261,857 1,205,219
Less accumulated depreciation 419,844 398,584
- --------------------------------------------------------------------------------
Net Utility Plant in Service 842,013 806,635
Construction work in progress 31,655 49,654
- --------------------------------------------------------------------------------
Net Utility Plant (Notes 1, 7, 11 and 12) 873,668 856,289
- --------------------------------------------------------------------------------
NON-UTILITY PROPERTY:
Non-utility property 34,376 34,585
Less accumulated depreciation,
depletion and amortization 12,945 13,977
- --------------------------------------------------------------------------------
Net Non-utility Property (Notes 1 and 7) 21,431 20,608
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents (Notes 8 and 9) 5,164 16,081
Temporary cash investments (Note 9) 1,335 1,839
Customer accounts receivable, less
allowance for uncollectible accounts of
$2,307 and $2,200 61,653 44,105
Accrued utility revenue (Note 1) 22,198 27,273
Other accounts receivable, less allowance
for uncollectible accounts
of $169 and $209 9,752 17,384
Gas marketing accounts receivable, less
allowance for uncollectible accounts of
$133 and $327 51,198 58,470
Materials and supplies (at average cost):
Fuel for electric generation 8,290 9,309
Gas in storage 8,627 11,544
Construction and other supplies 15,751 16,983
Prepaid property taxes 20,687 19,327
Prepayments and other current assets 26,463 28,877
- --------------------------------------------------------------------------------
Total Current Assets 231,118 251,192
- --------------------------------------------------------------------------------
DEFERRED DEBITS:
Income tax recoverable in future
rates(Notes 1 and 2) 72,631 73,261
Extraordinary property loss -- Sterling
Nuclear Project(Notes 1 and 3) 4,250 10,139
Deferred Order No. 636 transition costs
(Notes 1 and 12) 6,064 13,527
Deferred revenue taxes(Note 1) 15,596 16,888
Deferred pension and other postretirement
benefits(Notes 1 and 10) 10,422 10,505
IPP settlement agreements(Notes 1 and 12) 40,034 17,821
Unamortized debt expense(amortized over
term of securities) 11,417 10,493
Deferred Federal income taxes 30,631 34,645
Other deferred debits 22,507 32,271
- --------------------------------------------------------------------------------
Total Deferred Debits 213,552 219,550
- --------------------------------------------------------------------------------
TOTAL $1,339,769 $1,347,639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES: (Thousands of Dollars)
CAPITALIZATION:
Common stock (Note 5) $ 68,268 $ 68,265
Premium on capital stock (Note 5) 133,607 133,595
Capital stock expense (6,107) (6,116)
Retained earnings (Note 4) 184,008 183,659
- --------------------------------------------------------------------------------
Total Common Stock Equity 379,776 379,403
- --------------------------------------------------------------------------------
Non-redeemable preferred stock 42,844 42,844
Non-redeemable cumulative preference stock 409 424
- --------------------------------------------------------------------------------
Total Non-Redeemable Stock (Note 5) 43,253 43,268
- --------------------------------------------------------------------------------
Redeemable preferred stock (Note 6) 1,390 2,774
- --------------------------------------------------------------------------------
Long-term debt (Notes 7 and 9) 359,736 359,622
- --------------------------------------------------------------------------------
Total Capitalization 784,155 785,067
- --------------------------------------------------------------------------------
NON-CURRENT LIABILITIES:
Reserve for claims and damages (Note 1) 3,848 4,713
Postretirement benefits (Note 10) 13,756 15,625
Pension costs (Note 10) 38,740 39,854
Obligation under capital leases (Note 11) -- 275
- --------------------------------------------------------------------------------
Total Non-current Liabilities 56,344 60,467
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Long-term debt and lease obligation
due within one year (Note 7) 466 19,910
Preferred stock to be redeemed within one
year (Note 6) 1,384 1,384
Notes payable (Notes 8 and 9) 7,300 --
Commercial paper (Notes 8 and 9) 61,250 29,400
Accounts payable 62,082 63,855
Gas marketing accounts payable 44,630 71,913
Dividends payable 693 725
Customer deposits 5,455 5,669
Accrued Federal income and other taxes 2,050 5,949
Accrued interest 7,252 8,608
Refundable gas costs (Note 1) 10,111 7,554
Refundable fuel costs (Note 1) 1,203 10,366
Refunds to customers 13,903 10,265
Other current liabilities 22,942 16,127
- --------------------------------------------------------------------------------
Total Current Liabilities 240,721 251,725
- --------------------------------------------------------------------------------
DEFERRED TAXES AND OTHER:
Deferred Federal income taxes
(Notes 1 and 2) 214,027 207,952
Deferred investment tax credits
(Notes 1 and 2) 16,217 17,109
Accrued Order No. 636 transition costs
(Note 12) 5,980 13,480
Accrued IPP settlement agreements
(Notes 1 and 12) 17,500 8,000
Other deferred credits 4,825 3,839
- --------------------------------------------------------------------------------
Total Deferred Taxes and Other 258,549 250,380
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 12) -- --
- --------------------------------------------------------------------------------
TOTAL $1,339,769 $1,347,639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS: (Thousands of Dollars)
Net Income $38,573 $37,217 $44,815
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 37,131 35,938 34,571
Deferred Federal income taxes (Note 2) 9,924 (188) (39)
Deferred investment tax credit (Note 2) (892) (895) (963)
Deferred and refundable fuel and gas costs (6,606) 4,548 7,802
Allowance for funds used during construction (828) (517) (276)
Other non-cash changes 8,682 6,042 (8,055)
Changes in certain current assets and
liabilities:
Accounts and gas marketing receivables, net
and accrued utility revenue 2,431 (3,101) (17,286)
Materials and supplies 4,941 1,226 (737)
Prepaid property taxes (1,360) (913) (1,066)
Prepayments and other current assets 2,414 (6,665) (3,983)
Operating and gas marketing accounts payable (29,056) 24,162 19,407
Accrued Federal income and other taxes (3,899) (3,637) 4,911
Accrued interest (1,356) (1,269) 779
Refunds to customers 3,638 9,472 753
Other current liabilities 6,601 (332) 2,336
Other -- net (7,123) 16,402 4,814
- --------------------------------------------------------------------------------
Net Cash Provided by Operations 63,215 117,490 87,783
- --------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to plant (55,030) (60,542) (54,308)
Temporary cash investments 504 (392) (569)
Allowance for funds used during construction 828 517 276
- --------------------------------------------------------------------------------
Net Cash Used in Investing Activities (53,698) (60,417) (54,601)
- --------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of common stock (Note 5) -- 3,868 --
Issuance of long-term debt (Note 7) 44,048 55,000 75,000
Retirement of:
Preference and preferred stock (Note 6) (1,384) (1,384) (1,384)
Long-term debt (63,471) (57,688) (75,091)
Capital lease obligations -- net (Note 11) (518) (479) (443)
Net borrowings (repayments) under short-term
debt arrangements (Note 8) 39,150 (16,800) 4,700
Dividends on preferred and common stock (38,259) (37,765) (37,086)
- --------------------------------------------------------------------------------
Net Cash Used in Financing Activities (20,434) (55,248) (34,304)
- --------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,917) 1,825 (1,122)
Cash and Cash Equivalents at Beginning of Year 16,081 14,256 15,378
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,164 $16,081 $14,256
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $31,782 $33,134 $32,012
Federal income taxes $15,575 $21,558 $27,020
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
GENERAL
Orange and Rockland Utilities, Inc. (the Company) and its wholly owned
utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light &
Power Company (Pike), are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and various state regulatory authorities with
respect to their rates and accounting. Accounting policies conform to generally
accepted accounting principles, as applied in the case of regulated public
utilities, and are in accordance with the accounting requirements and rate-
making practices of the regulatory authority having jurisdiction. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A description of the
significant accounting policies follows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
all subsidiaries and the Company's pro rata share of an unincorporated joint
venture. All intercompany balances and transactions have been eliminated.
The Company's non-utility subsidiaries are wholly owned land development,
gas marketing and gas production companies.
RATE REGULATION
The Company and its subsidiaries are subject to rate regulation by the New
York Public Service Commission (NYPSC), the New Jersey Board of Public Utilities
(NJBPU), the Pennsylvania Public Utility Commission (PPUC) and the Federal
Energy Regulatory Commission (FERC). The consolidated financial statements of
the Company are based on generally accepted accounting principles, including the
provisions of statement of Financial Accounting Standards No. 71 (SFAS No. 71),
"Accounting for the Effects of Certain Types of Regulation," which gives
recognition to the rate-making and accounting practices of the regulatory
agencies. The principal effect of the rate-making process on the Company's
consolidated financial statements is that of the timing of the recognition of
incurred costs. If rate regulation provides reasonable assurance that an
incurred cost will be recovered in a future period by inclusion of that cost in
rates, SFAS No. 71 requires the capitalization of the cost. Regulatory assets
represent probable future revenue associated with certain incurred costs, as
these costs are recovered through the rate-making process. The following
regulatory assets were reflected in the Consolidated Balance Sheets as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Deferred Income Taxes (Note 2) $ 72,631 $ 73,261
Extraordinary Property Loss
(Note 3) 4,250 10,139
FERC Order No.636 Costs
(Note 12) 6,064 13,527
Deferred Revenue Taxes (Note 1) 15,596 16,888
Deferred Pension and Other
Postretirement Benefits (Note 10) 10,422 10,505
Gas Take-or-Pay Costs (Note 12) 1,640 2,837
Revenue Decoupling Mechanism
(Note 1) (2,485) 1,295
Deferred Plant Maintenance
Costs (Note 1) 4,944 4,699
Demand-Side Management Costs
(Note 1) (445) (96)
Deferred Fuel and Gas Costs
(Note 1) (11,314) (17,920)
IPP Settlement Agreements
(Note 1) 40,034 17,821
Other 5,778 5,107
- -------------------------------------------------------------
Total $147,115 $138,063
- -------------------------------------------------------------
</TABLE>
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". This Statement imposes criteria for the continued recognition of
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. The Company will adopt this standard on January 1,
1996. Based on the current regulatory structure in which the Company operates,
the adoption will not have any effect on the financial position or results of
operations of the Company. This conclusion may change in the future as
competitive factors influence wholesale and retail pricing in this industry.
UTILITY REVENUES
Utility revenues are recorded on the basis of cycle billings rendered to
certain customers monthly and others bimonthly. Unbilled revenues are accrued at
the end of each month for estimated energy usage since the last meter reading.
Under the Company's Revenue Decoupling Mechanism (RDM) agreement, New York's
electric revenues are recognized in the accompanying consolidated financial
statements based on established targets. The RDM also provides for the
reconciliation of Demand-Side Management expenditures and the adjustment of
certain operating costs. Any variation between actual results and the
established targets are deferred and recovered from or returned to customers
over a subsequent 12-month period.
The level of revenues from gas sales in New York is subject to a weather
normalization clause that requires recovery from or refund to firm customers of
shortfalls or excesses of firm net revenues during a heating season due to
variation from normal weather, which is the basis for projecting base tariff
requirements.
FUEL COSTS
The tariff schedules for electric and gas services in New York include
adjustment clauses under which fuel, purchased gas and certain purchased power
costs, above or below levels allowed in approved rate schedules, are billed or
credited to customers up to approximately 60 days after the costs are incurred.
In accordance with regulatory commission policy, such costs, along with the
related income tax effects, are deferred until billed to customers.
A reconciliation of recoverable gas costs with billed gas revenues is done
annually, as of August 31, and the excess or deficiency is refunded to or
recovered from customers during a subsequent twelve-month period. The NYPSC
provides for a modified electric fuel adjustment clause requiring an 80%/20%
sharing between customers and shareholders of variations between actual and
forecasted fuel costs annually. The 20% portion of fluctuations from forecasted
costs is limited to a maximum of $1,762,000 annually. The fuel costs targets are
approved by the NYPSC for each calendar year following the Company's filing of
forecasted fuel costs. Tariffs for electric and gas service in Pennsylvania and
electric service in New Jersey contain adjustment clauses which utilize
estimated prospective energy costs on an annual basis. The recovery of such
estimated costs is made through equal monthly charges over the year of
projection. Any over or under recoveries are deferred and refunded or charged to
customers during the subsequent twelve-month period.
UTILITY PLANT
Utility plant is stated at original cost. The cost of additions to, and
replacements of, utility plant include contracted work, direct labor and
material, allocable overheads, allowance for funds used during construction and
indirect charges for engineering and supervision. Replacement of minor items of
property and the cost of repairs are charged to maintenance expense. At the time
depreciable plant is retired or otherwise disposed of, the original cost,
together with removal cost less salvage, is charged to the accumulated provision
for depreciation.
23
<PAGE>
DEPRECIATION
For financial reporting purposes, depreciation is computed on the straight-
line method based on the estimated useful lives of the various classes of
property. Provisions for depreciation are equivalent to the following composite
rates based on the average depreciable plant balances at the beginning and end
of the year:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Plant Classification:
Electric 3.07% 3.05% 3.04%
Gas 2.95% 2.80% 2.68%
Common 6.64% 6.37% 6.07%
- ---------------------------------------------------------------------------
</TABLE>
JOINTLY OWNED UTILITY PLANT
The Company has a one-third interest in the 1,200 megawatt Bowline Point
generating facility, which it owns jointly with The Consolidated Edison Company
of New York, Inc. The Company is the operator of the joint venture. Each
participant is entitled to its proportionate share of the energy produced. The
operation and maintenance expenses of the facility are shared proportionately,
based on the energy received from the plant by the partners.
Under this agreement, each co-owner has an undivided interest in the
facility and is responsible for its own financing. The Company's interest in
this jointly owned plant consists primarily of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Electric Utility Plant in Service $101,747 $98,171
Construction Work in Progress 1,038 2,984
- ---------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return, and income taxes are allocated to each company based on the taxable
income or loss of each. Investment tax credits, which were available prior to
the Tax Reform Act of 1986, have been fully normalized and are being amortized
over the remaining useful life of the related property for financial reporting
purposes.
The consolidated financial statements of the Company are stated under the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS No. 109)
"Accounting for Income Taxes", which require the asset and liability method of
accounting for income taxes. SFAS No. 109 retains the requirement to record
deferred income taxes for temporary differences that are reported in different
years for financial reporting and tax purposes. The statement also requires that
deferred tax liabilities or assets be adjusted for the future effects of any
changes in tax laws or rates and that regulated enterprises recognize an
offsetting regulatory asset representing the probable future rate recoveries for
additional deferred tax liabilities. The probable future rate recoveries
(revenues) to be recorded take into consideration the additional future taxes
which will be generated by that revenue.
DEFERRED REVENUE TAXES
Deferred revenue taxes represent the unamortized balance of an accelerated
payment of New Jersey Gross Receipts and Franchise Tax required by legislation
enacted effective June 1, 1991. In accordance with an order by the NJBPU, the
expenditure has been deferred and is being recovered in rates, with a carrying
charge of 7.5% on the unamortized balance, over a ten-year period. In addition,
certain New York State revenue taxes included in rate base are deferred and
amortized over a 12-month period following payment in accordance with the
requirements of the NYPSC.
IPP SETTLEMENT AGREEMENTS
During 1994, the Company negotiated termination agreements with two of the
three Independent Power Producers (IPP) scheduled to provide electric generating
capacity and energy services to the Company in the late 1990's. On June 14,
1995, the Company entered into an agreement with Wallkill Generating Company,
L.P. (Wallkill Generating), which terminated its contract to construct and
operate a gas-fired combined cycle generating facility and sell 95 Mw of
capacity and associated energy to the Company.
At December 31, 1995, $40.0 million of termination costs associated with
these three settlement agreements have been deferred in accordance with
regulatory accounting procedures pending a determination of the recoverability
of the costs in rates. In January 1995, the New Jersey Board of Public Utilities
(NJBPU) Commissioners authorized the recovery of $0.9 million over a 12-month
period ending December 31, 1995 for the portion of one of the settlement
agreements applicable to New Jersey electric operations. An agreement for
recovery of approximately $10.3 million over a three-year period applicable to
New Jersey electric operations has been reached. Approval by the NJBPU is
expected in February 1996. The recovery of the portion of termination costs
applicable to New York operations, which amounted to approximately $29.4 million
at December 31, 1995, is being addressed in the Company's current electric base
rate proceeding before the NYPSC. The Administrative Law Judge, as part of his
January 25, 1996 Recommended Decision, recommended that the NYPSC allow full
recovery of termination costs applicable to New York operations over a three-
year period. Recovery of these termination costs is still subject to NYPSC
approval. A final NYPSC decision is expected by April 1996. Management believes
that the termination costs were prudently incurred and therefore are probable of
being fully recoverable in rates.
DEFERRED PLANT MAINTENANCE COSTS
The Company utilizes a silicone injection procedure as part of its
maintenance program for residential underground electric cable in order to
prevent premature failures and ensure the realization of the expected useful
life of the facilities. In 1992 the FERC issued an accounting order that
required the cost of this procedure to be treated as maintenance expense rather
than as a plant addition. The Company requested deferred accounting for these
expenditures from the NYPSC and NJBPU in order to properly match the cost of the
procedure with the periods benefited. In 1994 the NYPSC approved the deferred
accounting request and authorized a ten-year amortization. On January 12, 1996,
the NJBPU authorized these costs to be capitalized until the next base rate
case.
RESERVE FOR CLAIMS AND DAMAGES
Costs arising from workers' compensation claims, property damage, general
liability and unusual production plant repair costs are partially self-funded.
Provisions for the reserves are based on experience, risk of loss and the rate-
making practices of regulatory authorities.
SALE OF BROADCAST PROPERTIES
On September 8, 1994, the Company adopted a formal plan to sell the six
radio broadcasting properties operated by a wholly owned indirect subsidiary,
Atlantic Morris Broadcasting, Inc. (AMB), and AMB subsequently entered into
contracts for the sale of the stations. At December 31, 1995, all sales have
been completed. There is a Petition for Reconsideration outstanding on one of
the sales. However, this petition has been rejected on two previous occasions
and the Company believes this current petition will be rejected and have no
impact on sale transactions. The sale of the properties did not have material
effect on the Company's financial statements.
Operating results of $(1,188,000), $(484,000) and $(804,000) for the years
ended December 31, 1995, 1994, and 1993, respectively, for the radio broadcast
properties are included in Other Income and Deductions in the accompanying
Consolidated Statements of Income and Retained Earnings.
24
<PAGE>
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform with the
current year presentation.
NOTE 2. FEDERAL INCOME TAXES.
The Internal Revenue Service (IRS) is currently examining the Company's tax
returns for 1990, 1991 and 1992. Notification of all findings for these years
has not yet been received.
The components of Federal income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
(Thousands of Dollars)
Charged to operations:
Current $18,078 $24,415 $26,332
Deferred-net 7,828 262 86
Amortization of investment tax credit (127) (137) (193)
- ---------------------------------------------------------------------------
25,779 24,540 26,225
- ---------------------------------------------------------------------------
Charged to other income:
Current (3,160) (3,042) (2,630)
Deferred-net 2,096 (450) (125)
Amortization of investment tax credit (765) (758) (770)
- ---------------------------------------------------------------------------
(1,829) (4,250) (3,525)
- ---------------------------------------------------------------------------
Total $23,950 $20,290 $22,700
- ---------------------------------------------------------------------------
</TABLE>
The tax effect of temporary differences which gave rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- ---------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Liabilities:
Accelerated depreciation $180,954 $177,362
Other 33,073 30,590
- ---------------------------------------------------------------------------
Total liabilities 214,027 207,952
- ---------------------------------------------------------------------------
Assets:
Employee benefits (14,902) (15,269)
Deferred fuel costs (1,601) (4,784)
Other (14,128) (14,592)
- ---------------------------------------------------------------------------
Total assets (30,631) (34,645)
- ---------------------------------------------------------------------------
Net Liability $183,396 $173,307
- ---------------------------------------------------------------------------
</TABLE>
Reconciliation of the difference between Federal income tax expenses and
the amount computed by applying the prevailing statutory income tax rate to
income before income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(% of Pre-tax Income)
<S> <C> <C> <C>
Statutory tax rate 35% 35% 35%
Reduction in computed taxes resulting from:
Amortization of investment tax credits (1) (2) (1)
Cost of removal (2) (1) (2)
Additional depreciation deducted for
book purposes 5 5 4
Other (2) (2) (3)
- ---------------------------------------------------------------------------
Effective Tax Rate 35% 35% 33%
- ---------------------------------------------------------------------------
</TABLE>
NOTE 3. STERLING NUCLEAR PROJECT.
Costs associated with the Sterling Nuclear Project, which was abandoned in
1980, and in which the Company was a 33% participant, are recorded in Deferred
Debits--Extraordinary Property Loss.
The Company has been authorized by the NYPSC to recover all costs
associated with the Sterling Nuclear Project. An annual amortization has been
approved which includes a return on investment equal to the Company's current
overall rate of return. Amortization of project costs applicable to New York
operations will be completed by March 1996. The NJBPU had approved a twenty-year
amortization, which commenced June 23, 1982, of costs (excluding a return on the
unamortized balance) attributable to the Company's subsidiary, RECO.
At December 31, 1995 and 1994, the unamortized Sterling Project costs which
have been approved for amortization and recovery, before reduction for deferred
taxes, amounted to $4.6 million and $10.8 million, respectively. Approximately
$3.9 million and $4.7 million of such recoverable costs at December 31, 1995 and
December 31, 1994, respectively, are attributable to RECO and are not subject to
an earned return on the unamortized balance.
NOTE 4. RETAINED EARNINGS.
Various restrictions on the availability of retained earnings of RECO for
cash dividends are contained in, or result from, covenants in indentures
supplemental to that company's Mortgage Trust Indenture. Approximately
$7,501,600 at December 31, 1995 and 1994 was so restricted.
NOTE 5. CAPITAL STOCK OTHER THAN REDEEMABLE PREFERRED STOCK.
The table below summarizes the changes in Capital Stock, issued and
outstanding, for the years 1993, 1994 and 1995.
<TABLE>
<CAPTION>
(B) (C)
Non-Redeemable Non-Redeemable
(A) Cumulative Cumulative
Common Preferred Preference Capital
Stock Stock Stock Stock
($5 par value) ($100 par value) (no par value) Premium
Shares Amount* Shares Amount* Shares Amount* Amount*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
12/31/92: 13,531,191 $67,656 428,443 $42,844 14,189 $462 $130,298
Conversions 864 4 (599) (19) 15
- --------------------------------------------------------------------------------
Balance
12/31/93: 13,532,055 67,660 428,443 42,844 13,590 443 130,313
Sales 120,041 601 3,267
Conversions 817 4 (565) (19) 15
- --------------------------------------------------------------------------------
Balance
12/31/94: 13,652,913 68,265 428,443 42,844 13,025 424 133,595
Conversions 700 3 (486) (15) 12
- --------------------------------------------------------------------------------
Balance
12/31/95: 13,653,613 $68,268 428,443 $42,844 12,539 $409 $133,607
- --------------------------------------------------------------------------------
Shares
Authorized 15,000,000 820,000 1,500,000
- --------------------------------------------------------------------------------
*(in thousands)
</TABLE>
(A) At December 31, 1995, 18,432 shares of common stock were reserved for
conversion of preference stock.
(B) Non-Redeemable Preferred Stock (cumulative):
<TABLE>
<CAPTION>
Par Value Callable
-------------------
Shares December 31, Redemption
Series Outstanding 1993, 1994 and 1995 Price Per Share
- ----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
A,4.65% 50,000 $ 5,000 $104.25
B,4.75% 40,000 4,000 $102.00
D,4.00% 3,443 344 $100.00
F,4.68% 75,000 7,500 $102.00
G,7.10% 110,000 11,000 $101.00
H,8.08% 150,000 15,000 $102.43
- ----------------------------------------------------------------------
428,443 $42,844
- ----------------------------------------------------------------------
</TABLE>
This stock is not subject to mandatory redemption, but rather is subject to
redemption, at any time, solely at the option of the Company on 30 days' minimum
notice upon payment of the redemption price, plus accrued and unpaid dividends
to the date fixed for redemption. Furthermore, the preferred stock is superior
to cumulative preference stock and common stock with respect to dividends and
liquidation rights.
(C) The Non-Redeemable $1.52 Convertible Cumulative Preference Stock,
Series A, is redeemable at the option of the Company on 30 days' minimum notice
upon payment of the redemption price, plus accrued and unpaid dividends. The
redemption price per share is $32.50, plus accrued and unpaid dividends to the
date fixed for redemption. This stock ranks junior to cumulative preferred stock
and superior to common stock as to dividends and liquidation rights.
Furthermore, this stock is convertible, at the option of the shareholder, into
common stock at the ratio of 1.47 shares of common stock for each share of
preference stock, subject to adjustment.
25
<PAGE>
NOTE 6. REDEEMABLE PREFERRED STOCK.
The table below summarizes the changes in Redeemable Cumulative Preferred
Stock, issued and outstanding, for the years 1993, 1994 and 1995.
<TABLE>
<CAPTION>
($100 par value)
- -----------------------------------------------------------------------
Shares Amount*
- -----------------------------------------------------------------------
<S> <C> <C>
Balance 12/31/92: 69,264 $6,926
Redemptions (13,842) (1,384)
- -----------------------------------------------------------------------
Balance 12/31/93: 55,422 5,542
Redemptions (13,842) (1,384)
- -----------------------------------------------------------------------
Balance 12/31/94: 41,580 4,158
Redemptions (13,842) (1,384)
- -----------------------------------------------------------------------
Balance 12/31/95: 27,738 $2,774
- -----------------------------------------------------------------------
Shares Authorized 180,000
- -----------------------------------------------------
*(in thousands)
</TABLE>
The Redeemable Cumulative Preferred Stock, Series I, 8 1/8%, is redeemable
in whole or in part at the option of the Company on 30 days' minimum notice at
the redemption price, plus accrued and unpaid dividends to the date fixed for
redemption. The redemption price per share is $101 through January 1, 1997, and
$100 thereafter.
The preferred stock is superior to the cumulative preference stock and
common stock with respect to dividends and liquidation rights. A sinking fund
provision requires that the Company, on each December 31, call for the
redemption and retirement of 13,842 shares at $100 per share, provided, however,
that the Company will call for redemption and retire on December 31, 1997, the
remaining shares outstanding at the redemption price of $100 per share plus
accrued and unpaid dividends to the date fixed for redemption. The redemption
requirement for each year following 1995 is as follows: $1,384,200 in 1996 and
$1,389,600 at maturity in 1997.
NOTE 7. LONG-TERM DEBT.
Under the terms of the Company's First Mortgage Indenture and the
indentures supplemental thereto, and relative to all series of First Mortgage
Bonds, the Company on May 1 of each year is required to make annual sinking fund
payments equal to 1% of the maximum amount of bonds outstanding during the
preceding calendar year. The Company has satisfied such requirements through the
year 1995 by allocating an amount of additional property and expects to continue
such practice in succeeding years. Pike is required, pursuant to its First
Mortgage Indenture, to make annual sinking fund payments in the amount of $9,500
on July 15 of each year, with respect to its Series "A" Bonds. The sinking fund
requirements of Pike for 1995 were satisfied by the allocation of an amount of
additional property and Pike expects to continue such practice in succeeding
years.
On July 27, 1995, the New York State Energy Research and Development
Authority (NYSERDA) issued, on behalf of the Company, $44 million of variable
rate Pollution Control Refunding Revenue Bonds due August 1, 2015 (the 1995
Bonds). The proceeds from the issuance of the 1995 Bonds, together with other
Company funds, were used to refund, on August 20, 1995, the $44 million NYSERDA
9% Pollution Control Revenue Bonds, 1985 Series issued on behalf of the Company.
Two issues of First Mortgage Bonds matured on August 15, 1995; the
Company's $17 million Series H, 4 7/8% and RECO's $2 million Series C, 4 5/8%.
Details of long-term debt at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Orange and Rockland Utilities,Inc.:
First Mortgage Bonds:
Series H, 4 7/8% due Aug. 15, 1995 $ -- $ 17,000
Series I, 6 1/2% due Oct. 1, 1997 23,000 23,000
Promissory Notes (unsecured):
6.9% - 12.9% due through July 15, 1999 48 25
9% due Aug. 1, 2015 -- 44,000
6.09% due Oct. 1, 2014 (a) 55,000 55,000
Variable due Aug. 1, 2015 (b) 44,000 --
Debentures:
Series A, 9 3/8% due Mar. 15, 2000 80,000 80,000
Series B, 6 1/2% due Oct. 15, 1997 55,000 55,000
Series C, 6.14% due Mar. 1, 2000 20,000 20,000
Series D, 6.56% due Mar. 1, 2003 35,000 35,000
Rockland Electric Company:
First Mortgage Bonds:
Series C, 4 5/8% due Aug. 15, 1995 -- 2,000
Series H, 9.59% due July 1, 2020 20,000 20,000
Series I, 6% due July 1, 2000 20,000 20,000
Pike County Light & Power Company:
First Mortgage Bonds:
Series A, 9% due July 15, 2001 884 884
Series B, 9.95% due Aug. 15, 2020 1,800 1,800
Diversified Operations:
Mortgage (secured)
8 1/2% due through June 18, 1999 5,405 5,575
Secured Notes 8 1/2% due thru Aug. 31, 1998 -- 277
- -----------------------------------------------------------------------
360,137 379,561
Less: Amount due within one year 192 19,392
359,945 360,169
Unamortized discount on long-term debt (209) (547)
Total Long-Term Debt $359,736 $359,622
- -----------------------------------------------------------------------
</TABLE>
(a) The Company's $55 million Promissory Note was issued in connection with
NYSERDA's variable rate Pollution Control Refunding Revenue Bonds (Orange and
Rockland Utilities, Inc. Projects), 1994 Series A (1994 Bonds). Pursuant to an
interest rate swap agreement, the Company pays interest at a fixed rate of 6.09%
to a swap counterparty and receives a variable rate of interest in return which
is identical to the variable rate on the 1994 Bonds. The result is to
effectively establish a fixed rate of interest on the 1994 Bonds of 6.09%.
(b) The Company's $44 million Promissory Note was issued in connection with
the 1995 Bonds. The average interest rate on the 1995 Bonds was 3.63% for 1995.
The interest rate is adjusted weekly, unless converted to a fixed rate.
The aggregate amount of debt maturities, which will be satisfied by cash
payments and sinking fund requirements (allocation of additional property) for
each of the five years following 1995 is as follows: 1996--$430,000; 1997--
$78,208,000; 1998--$133,000; 1999--$4,950,000; 2000--$120,010,000.
Substantially all of the utility plant and other physical property is
subject to the liens of the respective indentures securing the First Mortgage
Bonds of the Company and its utility subsidiaries.
Investments in the Company's wholly owned utility subsidiaries, costing
$11,828,700, which have been eliminated from the consolidated balance sheet, are
pledged under the Second Supplemental Indenture to the Company's First Mortgage
Indenture.
26
<PAGE>
NOTE 8. CASH AND SHORT-TERM DEBT.
The Company considers all cash and highly liquid debt instruments purchased
with a maturity date of three months or less to be cash and cash equivalents for
the purposes of the Consolidated Financial Statements.
At December 31, 1995, the Company and its utility subsidiaries had
unsecured bank lines of credit with nine commercial banks aggregating $64.5
million. In most cases the annual fees equal to one-eighth of 1% are paid to the
banks for such lines of credit. The Company may borrow under the lines of credit
through the issuance of promissory notes to the banks at their prevailing
interest rate for prime commercial borrowers. The Company, however, utilizes
such lines of credit to fully support commercial paper borrowings, which are
issued through dealers at the prevailing interest rate for prime commercial
paper. The aggregate amount of borrowings through the issuance of promissory
notes and commercial paper cannot exceed the aggregate lines of credit. In
addition, NORSTAR Energy Limited Partnership (NORSTAR), a subsidiary of RECO,
maintains a $20 million line of credit with one commercial bank under which
there were $6.0 million of letters of credit outstanding at December 31, 1995.
Additionally, NORSTAR had $7.3 million of notes outstanding under this line of
credit. Annual fees on this credit line are equal to one-quarter of one percent
on the unused balance in addition to an initial fee of $100,000. Borrowings
under this line are made at rates based on various financial indices, as
determined by the borrower at the time of borrowing plus a premium.
All borrowings for 1995, 1994 and 1993 had maturity dates of three months
or less.
Information regarding short-term borrowings during the past three years is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
Weighted average interest rate at year-end 6.5% 6.4% 3.6%
Amount outstanding at year-end $68.6 $29.4 $46.2
Average amount outstanding for the year $43.4 $31.3 $35.3
Daily weighted average interest rate
during the year 6.5% 4.5% 3.3%
Maximum amount outstanding
at any month-end $69.6 $42.9 $46.2
- -----------------------------------------------------------------------
</TABLE>
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS.
FINANCIAL ASSETS AND LIABILITIES
For the Company, financial assets and liabilities consist principally of
cash and cash equivalents, short-term debt, commercial paper, long-term debt and
redeemable preferred stock. The methods and assumptions used to estimate the
fair value of each class of financial assets and liabilities for which it is
practicable to estimate that value are as follows:
Cash equivalents and temporary cash investments--The carrying amount
reasonably approximates fair value because of the short maturity of those
instruments.
Long-term debt--The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues.
Notes payable and commercial paper--The carrying amount reasonably
approximates fair value because of the short maturity of those instruments.
Redeemable preferred stock--The fair value of the Company's redeemable
preferred stock is estimated based on the quoted market prices for the same or
similar issues.
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Amount Amount Amount
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Cash and cash equivalents $5,164 $5,164 $16,081 $16,081
Temporary cash investments 1,335 1,335 1,839 1,839
Long-term debt 360,137 349,694 379,561 371,730
Notes payable
and commercial paper 68,550 68,550 29,400 29,400
Redeemable preferred stock 2,774 2,820 4,158 4,136
- -----------------------------------------------------------------------
</TABLE>
OFF BALANCE SHEET AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes certain off balance sheet, derivative financial
instruments. Information regarding such instruments is as follows:
Swap Agreement--In connection with the issuance of the 1994 Bonds, the
Company entered into a single interest rate swap agreement during 1992. The
purpose of the swap agreement, which became effective on October 1, 1994, was to
take advantage of the favorable interest rates which existed during 1992. Under
the terms of the interest rate swap agreement, the Company pays interest at a
fixed rate of 6.09% to a swap counterparty and receives a variable rate of
interest in return which is identical to the variable rate payment on the 1994
Bonds made pursuant to an indenture of trust dated August 15, 1994. The result
is to effectively fix the interest rate on the 1994 Bonds at 6.09%. There were
no gains or losses due to the execution of the Swap Agreement. The terms and
conditions of the Swap Agreement are specific to the financing described. As a
result, no market price is available. Under certain circumstances, although none
are anticipated, the agreement may be terminated. The fair value of the
agreement is the amount which one counterparty may be required to pay the other
upon early termination. If the agreement had been terminated on December 31,
1995, the Company would have been required to make a payment of approximately
$7,300,000 to the Swap counterparty.
Gas Futures Contracts--The Company's Gas Marketing subsidiary utilizes
certain off balance sheet derivative financial instruments, principally natural
gas futures contracts, commodity price swap agreements and purchase options to
reduce exposure to changes in the price of natural gas. These transactions are
accounted for as hedges in accordance with Statement of Financial Accounting
Standards No. 80 "Accounting for Futures Contracts". Gains and losses on futures
contracts and purchased options, and payments or receipts under swap agreements,
are recognized when the underlying gas is sold, purchased or transported, and
are reflected as cash flows from operations in the accompanying Statement of
Cash Flows at that time. Futures contracts outstanding at December 31, 1995 and
December 31, 1994, amounted to 449 contracts purchased and 257 net contracts
purchased (4,145 contracts purchased and 3,888 contracts sold), respectively.
The related margin deposits with brokers at December 31, 1995 and December 31,
1994, amounted to $2,202,542 and $672,000, respectively. The underlying futures
contracts as of December 31, 1995 and December 31, 1994, are of varying
durations, none of which extend beyond September 1997 and November 1995,
respectively. The fair value of the open futures contracts at December 31, 1995
and the amount the Company would receive if these were settled on that day is
approximately $995,000. The fair value of the open futures contracts at December
31, 1994 and the amount the Company would have been required to pay to settle
those contracts was approximately $30,000. Deferred gains at December 31, 1995,
relating to futures contracts were $2,035,000. Deferred losses at December 31,
1994, relating to futures contracts were $534,000 and relating to purchased
option contracts were $41,270.
27
<PAGE>
Swap transactions were entered into in order to eliminate the commodity
price risk relating to long-term fixed price sales commitments and variable
price purchase commitments. The swap agreements require payments to (or receipt
from) the broker based on the differential between a fixed and variable price
for natural gas. Under a long-term swap agreement the Company hedges 4.7 BCF of
natural gas to be purchased and delivered over the five years ended October
1999. The related margin deposits at December 31, 1995 and December 31, 1994
amounted to $1,500,000 and $1,521,000, respectively. Margin deposits in 1995
consist of letters of credit and in 1994 they consist of cash and letters of
credit. In March 1995, the Company and the broker revised the formula for
calculating margin requirements. If the revised formula was used at December 31,
1994, the margin deposits would have been $500,000. The Company would be
required to pay $1,232,000 and $1,021,000 to settle these contracts at December
31, 1995 and December 31, 1994, respectively. Short-term swap transactions were
entered into to hedge 2.3 BCF of natural gas to be purchased and delivered
during the months of January and February 1996. At December 31, 1995, there were
no margin deposits for the short-term swap transactions. The Company would
receive $190,000 to liquidate the short-term swap positions at December 31,
1995.
The Company is exposed to credit risk in the event of nonperformance by
counter parties to swap contracts, as well as nonperformance by the counter
parties of the transaction which they hedge. The Company believes that the
credit risk related to the futures and swap contracts is no greater than that
associated with the primary contracts which they hedge, as these contracts are
with major investment grade financial institutions, and that the elimination of
the commodity price risk lowers the Company's overall business risk.
NOTE 10. PENSION AND POSTRETIREMENT BENEFITS.
PENSION BENEFITS
The Company maintains a non-contributory defined benefit retirement plan,
covering substantially all employees. The plan calls for benefits, based
primarily on years of service and average career compensation, to be paid to
eligible employees at retirement. For financial reporting purposes, pension
costs are accounted for in accordance with the requirements of Statement of
Financial Accounting Standards No. 87 (SFAS No. 87), "Employers' Accounting for
Pensions".
SFAS No. 87 results in a difference in the method of determining pension
costs for financial reporting and funding purposes. Plan valuation for funding
and income tax purposes is prepared on the unit credit cost method, which makes
no assumptions as to future compensation levels. In contrast, the projected unit
credit cost method required for accounting purposes by SFAS No. 87 reflects
assumptions as to future compensation levels. The Company's policy is to fund
the pension costs determined by the unit credit cost method subject to the IRS
funding limitation rules. For rate-making purposes, pension expense determined
under SFAS No. 87 is reconciled with the amount provided in rates for pensions.
Any difference is deferred for subsequent recovery or refund.
Net periodic pension expense calculated pursuant to the requirements of
SFAS No. 87 for the years 1995, 1994 and 1993 includes the following components:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost-benefits earned during
year $ 5,151 $ 6,250 $ 5,690
Interest cost on projected benefit
obligation 14,996 14,132 12,915
Actual return on plan assets (37,863) 2,634 (19,383)
Net deferral and capitalized 20,129 (18,426) 5,014
- -----------------------------------------------------------------------
Net Pension Expense $ 2,413 $ 4,590 $ 4,236
- -----------------------------------------------------------------------
</TABLE>
The following table sets forth, pursuant to the requirements of SFAS No.
87, the plan's funded status and amounts recognized in the Consolidated Balance
Sheets at December 31, 1995 and 1994. Plan assets are stated at fair market
value and are composed primarily of common stocks and investment
grade debt securities.
<TABLE>
<CAPTION>
December 31, 1995 1994
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested $(178,903) $(154,980)
Nonvested (15,719) (13,644)
- -----------------------------------------------------------------------
Accumulated benefit obligation $(194,622) $(168,624)
- -----------------------------------------------------------------------
Projected benefit obligation $(203,956) $(181,625)
Plan assets at fair market value 205,342 172,835
- -----------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation 1,386 (8,790)
Unamortized net transition asset at adoption
of SFAS No. 87 being amortized over 15 years (6,681) (7,795)
Unrecognized prior service costs 32,455 35,425
Unrecognized net gain (55,649) (49,137)
- -----------------------------------------------------------------------
Accrued Pension Cost $ (28,489) $ (30,297)
- -----------------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets, the weighted average
discount rate and the annual rate of increase in future compensation assumed in
determining the projected benefit obligation were 8.0%, 7.5% and 2.5%; and 8.0%,
8.5% and 3.5%, respectively, for 1995 and 1994.
POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company and its subsidiaries
provide certain health care and life insurance benefits for retired employees.
Employees retiring from the Company on or after having attained age 55 who have
rendered at least 10 years of service are entitled to postretirement health care
coverage.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other
Than Pensions", which established the accounting and financial reporting
standards for postretirement benefits other than pensions, the Company is
required to accrue the estimated future cost of postretirement health and non-
pension benefits during the years that employees render the necessary service,
rather than recognizing the cost of such benefits after employees have retired
and when the benefits are actually paid. Deferred accounting for any difference
between the expense charge required under SFAS No. 106 and the current rate
allowance has been authorized by the NYPSC for the Company's New York electric
and gas operations. A similar procedure has been adopted by the NJBPU for the
operations in that state.
The NYPSC allows the Company to recover SFAS No. 106 costs applicable to
New York electric operations. Rate recovery of SFAS No. 106 costs applicable to
the Company's New York gas operations has been agreed to as part of the
Investigation Stipulation Settlement, pending NYPSC approval. New Jersey
electric operations will be addressed in future rate filings.
In order to provide funding for active employees' post- retirement
benefits, the Company has established Voluntary Employees' Beneficiary
Association (VEBA) trusts for collectively bargained employees and management
employees. Contributions to the VEBA trusts are tax deductible, subject to
limitations contained in the Internal Revenue Code. The Company's policy is to
fund postretirement health and life insurance costs to the extent recoveries
are realized for these costs through rates. During 1995, the Company contributed
$8.6 million to the Trust Funds. Rate recoveries and billings to others totaled
$3.9 million in 1995 and $4.0 million 1994.
As permitted by SFAS No. 106, the Company has elected to amortize the
accumulated postretirement benefit obligation at
28
<PAGE>
the date of adoption of the accounting standard, January 1, 1993, over a 20 year
period. This transition obligation totaled $57.2 million. The following table
sets forth the plan's funded status, reconciled with amounts recognized in the
Company's financial statements at December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Fully eligible active employees $(18,989) $(19,574)
Other active employees (31,644) (25,248)
Retirees (26,976) (20,677)
- -----------------------------------------------------------------------
Total benefit obligation (77,609) (65,499)
Plan assets at fair value 8,926 -0-
- -----------------------------------------------------------------------
Accumulated postretirement obligation
in excess of plan assets (68,683) (65,499)
Unrecognized experience net (gain) loss 8,639 (736)
Unrecognized transition obligation 47,185 51,522
- -----------------------------------------------------------------------
Accrued Postretirement Benefit Cost $(12,859) $(14,713)
- -----------------------------------------------------------------------
</TABLE>
The components of net periodic postretirement benefit cost for the years
ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost $1,586 $1,817 $1,535
Interest cost 5,622 5,198 4,598
Return on plan assets (319) -0- -0-
Amortization of transition obligation 2,790 2,861 2,861
Net losses/(gains) 529 553 -0-
Deferred and capitalized (3,424) (4,480) (6,719)
- -----------------------------------------------------------------------
Net Expense $6,784 $5,949 $2,275
- -----------------------------------------------------------------------
</TABLE>
The calculation of the actuarial present value of benefit obligations at
December 31, 1995 assumes a discount rate of 7.5% and health care cost trend
rates of 8.0% for medical costs and 11.0% for prescription drugs in 1996,
decreasing through 2002 to a rate of 5.0%. If the health care trend rate
assumptions were increased by 1 percent, the accumulated postretirement benefit
obligation would be increased by approximately $8.3 million. The effect of this
change on the sum of the service cost and interest cost would be an increase of
$1.1 million. 1994 assumed a discount rate of 8.5% and health care cost trend
rates of 8.5% for medical costs and 12% for prescription drugs in 1995,
decreasing through 2002 to a rate of 5.0%.
OTHER
The Company and two of its wholly owned non-utility subsidiaries
established a Subsidiary Equity Incentive Plan, which expired in 1995, in which
plan participants were entitled to certain rights measured as Performance Units.
Each Performance Unit gave the plan participant the opportunity to receive an
incentive award of up to 3-5% of the net increase, subject to certain
restrictions, in the value of the Company's investment in the participating
subsidiaries over its initial investment.
Incentive awards granted during 1995, 1994 and 1993 were $1.3 million, $0.6
million and $0, respectively. The Company's obligation for these incentive
awards is fully provided for.
NOTE 11. LEASES.
The future minimum rental commitments under the Company's noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
Noncancellable
Operating
Leases
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C>
1996 $ 4,710
1997 3,896
1998 3,600
1999 3,286
2000 3,127
All years thereafter 26,834
- -----------------------------------------------------------------------
Total $45,453
- -----------------------------------------------------------------------
</TABLE>
Rental expense for 1995, 1994 and 1993 was $6.0 million, $5.3 million and
$6.0 million, respectively.
NOTE 12. COMMITMENTS AND CONTINGENCIES.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105 "Financial Instruments with Concentrations of Credit Risk",
consist principally of temporary cash investments, accounts receivable and gas
marketing accounts receivables. The Company places its temporary cash
investments with high quality financial institutions. Concentrations of credit
risk with respect to accounts receivable are limited due to the Company's large,
diverse customer base within its service territory. With respect to gas
marketing operations, the customer base consists of a large diverse group of
users of natural gas across the United States, with the Company's credit risk
being dependent on overall economic conditions. Therefore, as of December 31,
1995, the Company had no significant concentrations of credit risk.
CONSTRUCTION PROGRAM
Under the construction program of the Company and its subsidiaries, it is
estimated that expenditures (excluding AFUDC) of approximately $52.8 million
will be incurred during 1996. Construction expenditures, including cost of
removal and salvage, amounted to $56.8 million for 1995.
GAS SUPPLY AND STORAGE CONTRACTS
The Company has long-term contracts for firm supply, transportation and
storage of gas. The Company's obligations under these contracts for the five
years following 1995 are as follows: 1996--$68,600,000; 1997--$69,400,000;
1998--$69,400,000; 1999--$72,300,000 and 2000--$69,300,000.
On July 1, 1995, pursuant to a settlement agreement between the Company and
the NYPSC, all issues concerning the Company's take-or-pay liability have been
resolved. The Company has been granted permission to pass back the remaining
deferred amounts plus accrued interest. As of December 31, 1995, the Company has
deferred $1.6 million of these costs remaining on the books of the Company.
On April 8, 1992, the FERC issued Order No. 636. The rule required
significant changes to the structure of the natural gas industry, and more
specifically, to the manner in which pipelines provide service. Order No. 636
changed the manner in which the Company obtains its gas supplies by unbundling
the transportation, storage and supply services offered by interstate gas
pipelines into separate components. During 1993, the Company successfully
completed the process of acquiring its own gas supply and assumed direct
responsibility for its gas acquisition and transportation. While the FERC's
objective is to restructure the industry to promote competition among gas
suppliers to ensure supply at the lowest reasonable cost, there are significant
initial costs associated with the implementation of the restructuring rule.
Specifically, Order No. 636 authorizes pipelines to recover from their customers
certain transition costs resulting from implementation of the rulemaking. The
Company's four principal pipeline suppliers made filings with the FERC since the
implementation of Order No. 636 for approval of a portion of their restructuring
transition costs and allocation procedures to flow the approved costs through to
their customers. Through December 31, 1995, the Company has paid $19.0 million
of transition costs. The Company currently estimates that its remaining
obligation for Order No. 636 transition costs will be approximately $6.1
million. This estimate was determined from information provided in Order No. 636
FERC compliance filings by the Company's pipeline suppliers and from subsequent
transition
29
<PAGE>
cost filings. This estimate is subject to adjustment by the FERC in its
deliberations on these filings and any future filings by the suppliers. The
Company has provided for the unpaid liability as of December 31, 1995 with an
offsetting charge to Deferred Transition Costs. On October 28, 1993, the NYPSC
instituted a generic proceeding to review the issues associated with Order No.
636 restructuring. On December 20, 1994, the NYPSC issued an order establishing
the regulatory and rate-making policies applicable to New York gas distribution
utilities resulting from FERC Order No. 636. The order provides mechanisms for
the full recovery of transition costs. The Company is presently in the process
of recovering these costs from its customers and believes it will be allowed to
fully recover such costs by the end of 2000.
COAL SUPPLY CONTRACTS
The Company has one long-term contract and one short-term contract for the
supply of coal and two long-term contracts for the transportation of coal. The
Company has the right under the long-term coal purchase contract to suspend the
purchase of coal if an alternative fuel source becomes less expensive.
The Company's aggregate contract obligations for the supply and transportation
of coal, for each of the five years following 1995 is as follows: 1996--
$33,900,000; 1997--$31,400,000; 1998--$34,600,000; 1999--$36,000,000; 2000--
$28,300,000.
POWER PURCHASE AGREEMENTS
The Company has three long-term contracts with other utilities for the purchase
of electric generating capacity and energy. The contracts expire in 1998, 2000
and 2015. Total payments under purchase power contracts were $3.9 million, $5.0
million and $4.6 million during 1995, 1994 and 1993, respectively. At December
31, 1995, the estimated future payments for capacity that the Company is
obligated to buy under these contracts for the five years following 1995 are as
follows:
<TABLE>
<CAPTION>
Capacity
Year (Mw) Amount
- -----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
1996 275 $4,100
1997 285 4,300
1998 305 4,700
1999 325 5,100
2000 335 5,500
- -----------------------------------------------------------------------
</TABLE>
The purchase capacities shown in the above table are based on contracts
currently in effect and are exclusive of applicable energy charges.
LEGAL PROCEEDINGS
INVESTIGATION AND RELATED LITIGATION
On February 7, 1994, the Company commenced an action entitled ORANGE AND
ROCKLAND UTILITIES, INC. V. JAMES F. SMITH (SMITH), in New York State Supreme
Court against its former Chief Executive Officer and Chairman of the Board of
Directors, who was terminated for cause by the Company's independent Directors
in October 1993. The action asserts claims against Mr. Smith for breach of his
fiduciary duties of loyalty and care, waste, conversion, fraud and unjust
enrichment based on misuse of Company assets and personnel and misappropriation
of Company funds for his own benefit or for other improper purposes, and failure
to maintain proper management controls or to properly supervise corporate
affairs and subordinate employees. Mr. Smith counterclaimed for benefits of in
excess of $3 million and filed a motion demanding arbitration under his
employment agreement with the Company. On June 17, 1994, the court issued an
Order granting Mr. Smith's motion to compel arbitration. Under a second Order
dated August 10, 1994, the parties filed demands for arbitration of the claims
asserted by the Company and by Mr. Smith with the American Arbitration
Association. Hearings began in June 1995 and are continuing.
On March 22, 1994 an indictment was returned by a Rockland County grand
jury charging Mr. Smith with eight felony counts of grand larceny and two
misdemeanor counts of petit larceny. In June 1994, a superseding indictment
charged Mr. Smith with 15 felony counts of grand larceny, seven counts of
falsifying business records and two misdemeanor counts of petit larceny. On
August 15, 1995, Mr. Smith was acquitted of the charges in a non-jury trial.
On September 19, 1995, the Company was served with an Amended Summons and
First Amended Complaint (Complaint) in an action filed in the United States
District Court for the Southern District of New York by Mr. Smith. (An earlier
complaint had been filed which did not name the Company.) Named as defendants in
the Complaint are former Rockland County District Attorney Kenneth Gribetz, the
Office of the Rockland County District Attorney, the Company, "John and Jane
Does" (identified in the Complaint as certain directors of the Company and/or
members of the Special Committee of the Board and referred to in the Complaint
as the "Defendant Directors"), Edwin Stier and Stier, Anderson & Malone.
The Complaint alleges three causes of action: (1) the violation by Mr.
Gribetz and the District Attorney's office of Mr. Smith's federal constitutional
rights to fair trial and due process of law; (2) malicious prosecution by the
Company, Defendant Directors and Mr. Stier in that these defendants allegedly
caused the arrest and criminal prosecution of Mr. Smith; (3) abuse of process by
the Company, Defendant Directors and Mr. Stier in that these defendants were
allegedly responsible for the arrest, indictment and prosecution of Mr. Smith.
Mr. Smith seeks damages in excess of $25 million, special damages and punitive
damages, attorney fees and other costs on each count.
On December 22, 1995, the Company, Edwin Stier, and Stier, Anderson &
Malone filed a Motion for Summary Judgment and related papers (Motion) seeking
to terminate this action. The Motion is currently pending; if the Motion is
unsuccessful, the Company intends to defend the action vigorously.
On November 10, 1994, the Company filed with the NYPSC a quantification of
the rate-making effects of its ongoing investigation into prior financial
improprieties. The Company requested the NYPSC to approve an additional refund
of approximately $3.4 million to its New York electric and gas customers. This
amount would be in addition to the $369,000 already refunded by the Company.
Although the NYPSC has not acted on this request, this amount was charged to
operations in the fourth quarter of 1994. The NYPSC instituted a proceeding
(Case 93-M-0849) to provide the opportunity for other parties, including the
NYPSC Staff, which was conducting an independent investigation of the Company,
to be heard on this matter.
On June 28, 1995, the NYPSC issued the report of the NYPSC Staff on its
investigation of the Company. While the report did not quantify the total cost
of improper charges borne by the Company's New York ratepayers, the report did
state that the NYPSC Staff believes that, in addition to the $3.8 million
already refunded or proposed to be refunded, the Company should reimburse New
York ratepayers for the "excess costs" incurred since 1983 in several specified
areas, including the areas of compensation for senior management of the Company,
the Company's internal auditing function, the compensation of a former employee
of the Company for the period of time when he was embezzling the Company's funds
and the cost of certain employees' time while they were performing personal work
for the Company's officers or were engaged in political or lobbying activities.
On July 6, 1995, the NYPSC issued an order stating that the issues of the
amount, timing and allocation of New York rate-payer refunds as a result of the
investigation in Case 93-M-0849
30
<PAGE>
should be considered in the context of the Company's current electric base rate
case (Case 95-E-0491) and ordered the consolidation of the two cases
(Consolidated Case).
On October 2, 1995, in the Consolidated Case, the Company filed a
settlement agreement with the NYPSC Staff relating to the amount, timing and
allocation of investigation refunds. Under the terms of the settlement
agreement, the Company would (1) return approximately $6.5 million to its
electric customers, (2) forgo a gas rate increase authorized by a previous rate
case, thereby saving gas customers an additional $1.7 million, and (3) reduce
its gas adjustment clause by $0.3 million. As a result of this settlement, the
Company charged approximately $2.8 million to operations during the third
quarter of 1995.The settlement agreement is being contested by certain parties.
On January 25, 1996 the Administrative Law Judge issued a Recommended Decision
(RD) in the Consolidated Case. The ALJ recommends that the NYPSC approve the
settlement agreement. The ALJ noted that the settlement agreement meets all of
the NYPSC's settlement guidelines and balances the interests of the Company's
customers and shareholders. The settlement agreement and the RD are both subject
to the NYPSC review and approval. The Company anticipates that the NYPSC will
issue its order in the Consolidated Case addressing the settlement agreement by
April 1996. The Company is unable to predict the final result of this proceeding
and what modifications, if any, will be made to the settlement agreement.
Under an agreement with the NJBPU to return to customers any funds found to
be misappropriated or otherwise questionable as a result of its investigation of
certain former Company officers and former employees, in December 1994, a filing
was made with the NJBPU proposing to refund approximately $704,000 to RECO's
customers. These amounts were charged to operations in the fourth quarter of
1994. By order dated January 27, 1995, the NJBPU approved the Company's
proposal. In January 1996, the Company proposed to refund an additional $482,000
to its New Jersey customers. These amounts were charged to operations in the
third quarter of 1995. The NJBPU has not acted on this proposal. The Company is
unable to predict what modifications, if any, will be made to the amount
proposed to be refunded in New Jersey.
OTHER LEGAL PROCEEDINGS
On May 11, 1993, an action was commenced against the Company by Hudson
Riverkeeper Fund, Inc. (Riverkeeper) in the United States District Court for the
Southern District of New York. In its complaint, Riverkeeper alleged that the
Company violated and continues to violate its SPDES Permit for its Lovett
Generating Station (Lovett Plant) by failing to maintain cooling water intake
structures that reflect the best technology available for minimizing adverse
environmental impact. An amended complaint was filed May 18, 1993. The
complaint, as amended, requested that the Court assess civil penalties
aggregating $11 million and order the Company to take steps to ensure that the
cooling water intake structures at Lovett reflect the best technology available
for minimizing adverse environmental impact. On June 30, 1993, the Company filed
its answer to Riverkeeper's allegations, reflecting the Company's belief that
Riverkeeper's allegations have no legal merit. Subsequently, the New York State
Department of Environmental Conservation (DEC) intervened in this litigation as
a designated plaintiff. In April 1994, the parties agreed to have engineers
enter into discussions regarding modifications to the Lovett Plant's cooling
water intake structures. From June to August 1995, the Company conducted a
demonstration project to assess the effectiveness of a barrier known as a
"Gunderboom", at the cooling water intake structure for Lovett Plant Unit No.
3. The Company, Riverkeeper and DEC have agreed that the "Gunderboom" is worthy
of further study. The Company will install the Gunderboom at the cooling water
intake structure for Lovett Plant Units Nos. 4 and/or 5 in the spring of 1996.
The parties have agreed to postpone all further discovery and motion practice in
this litigation until at least June 1996.
On September 25, 1991, the Company was named as one of several hundred
third party defendants in the UNITED STATES V. KRAMER, ET AL. and STATE OF NEW
JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. ALMO ANTI-POLLUTION SERVICES,
ET AL., which cases have been consolidated in the United States District Court
for the District of New Jersey, Camden Vicinage. The allegations in this action
concern the Helen Kramer Landfill site in Mantua, New Jersey, which operated
from 1963 to 1981. Suit in this case was brought under Superfund laws. It is
presently unclear if any hazardous waste generated by the Company was
transported to the Helen Kramer Landfill site. At this time the Company does not
believe this action will have a material effect on the financial condition of
the Company.
On March 29, 1989 the New Jersey Department of Environmental Protection
(NJDEP) issued a directive under the New Jersey Spill and Control Act to various
potentially responsible parties (PRPs) including the Company, with respect to a
site formerly owned and operated by Borne Chemical Company in Elizabeth, Union
County, New Jersey, ordering certain interim actions directed at both site
security and the off-site removal of certain hazardous substances. Certain PRPs,
including the Company, signed an administrative consent order with NJDEP
requiring them to remove and dispose of the hazardous substances located above
ground at the Borne site, which removal and disposal was completed on June 22,
1992. In October 1995, the PRPs entered into an additional administrative
consent order with the NJDEP which obligated the PRPs, including the Company,
to perform a remedial investigation to determine what, if any, subsurface
remediation at the Borne site is required. The Company does not believe that
this matter will have a material effect on the financial condition of the
Company.
On August 2, 1994, the Company entered into a Consent Order with the DEC in
which the Company agreed to conduct a remedial investigation of certain property
it owns in West Nyack, New York. Polychlorinated biphenyls (PCBs) have been
discovered at the West Nyack site. Petroleum contamination related to a leaking
underground storage tank has been found as well. The results of the
investigation to be conducted by the Company will determine what remediation
will be required at the West Nyack site. The Company does not believe that this
matter will have a material effect on the financial condition of the Company.
The Company has identified six former Manufactured Gas Plant (MGP) sites
which were owned and operated by the Company or its predecessors. The Company
may be named as a potentially responsible party for these sites under relevant
environmental laws, which may require the Company to clean up these sites. To
date, no claims have been asserted against the Company. The Company is unable at
this time to estimate what, if any, costs it will incur at these sites.
The Company and the DEC have executed a Consent Order which provides for
preliminary site assessments of these six MGPsites, dated as of January 8, 1996.
31
<PAGE>
On May 29, 1991, a group of ten electric utilities (Metal Bank Group)
entered into an Administrative Consent Order with the United States
Environmental Protection Agency (EPA) to perform a remedial investigation and
feasibility study (RIFS) at the Cottman Avenue/Metal Bank Superfund site in
Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman Avenue site
from an underground storage tank and the handling of transformers and other
electrical equipment. On May 25, 1994 the Company entered into a tolling
agreement by which the Metal Bank Group reserved its right to file suit against
the Company, while the Metal Bank Group and the Company entered into discussions
to determine the Company's involvement with the Cottman Avenue site. These
discussions continue. The RIFS has been completed and submitted to the EPA for
determination of what remedial measures will be required at the Cottman Avenue
site. The Company is unable at this time to estimate the Company's share, if
any, of past or future costs at this site.
ENVIRONMENTAL
The Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and certain similar state statutes authorize various
governmental authorities to issue orders compelling responsible parties to take
cleanup action at sites determined to present an imminent and substantial danger
to the public and to the environment because of an actual or threatened release
of hazardous substances. The Company is a party to a number of administrative
proceedings involving potential impact on the environment. Such proceedings
arise out of, without limitation, the operation and maintenance of facilities
for the generation, transmission and distribution of electricity and natural
gas. Such proceedings are not, in the aggregate, material to the business or
financial condition of the Company.
Pursuant to the Clean Air Act Amendments of 1990, which became law on
November 15, 1990, a permanent nationwide reduction of 10 million tons in sulfur
dioxide emissions from 1980 levels, as well as a permanent nationwide reduction
of 2 million tons of nitrogen oxide emissions from 1980 levels, must be achieved
by January 1, 2000. In addition, continuous emission monitoring systems were
required at all affected facilities effective January 1, 1995. Pursuant to New
York State attainment of ozone standards, NOx reductions were achieved effective
May 31, 1995.
The Company has two base load generating stations that burn fossil fuels
that will be impacted by this legislation. These generating facilities already
burn low sulfur fuels, so additional capital costs are not anticipated for
compliance with the sulfur dioxide emission requirements. The Company installed
low nitrogen oxide burners at Lovett Plant and made operational modifications at
Bowline Plant to meet NOx reduction levels for ozone attainment. Additional
emission monitoring systems were installed at both facilities. Beginning with
calendar year 1994, Title V sources (Bowline Point and Lovett) are required to
pay an emission fee. Each facility's fees are based upon actual air emissions
reported to DEC for the preceding calendar year. For 1995, ORU paid an emission
rate of approximately $26 per ton. The emission fee will be reevaluated by New
York State annually. The Company will continue to assess the impact of the Clean
Air Act Amendments of 1990 on its power generating operations as additional
regulations implementing these Amendments are promulgated.
NOTE 13. SEGMENTS OF BUSINESS.
The Company defines its principal business segments as utility (electric
and gas) and diversified activities. The diversified segment includes gas
production, gas marketing and land development.
Total utility revenue as reported in the Consolidated Statements of Income
and Retained Earnings include both sales to unaffiliated customers and
intersegment sales which are billed at tariff rates. Income from operations is
total revenue less operating expenses. General corporate expenses were allocated
in the manner used in the rate-making process.
Identifiable assets by segment are those assets that are used in the
production, distribution and sales operations in each segment. Allocations were
made in a manner consistent with the rate-making process. Corporate assets are
principally property, cash, sundry receivables and unamortized debt expense.
<TABLE>
<CAPTION>
SEGMENTS OF BUSINESS
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Information:
Operating revenues:
Sales to unaffiliated customers:
Electric $ 459,876 $ 478,909 $ 486,842
Gas 140,177 157,045 157,185
Intersegment sales:
Electric 107 120 125
Gas 47 123 72
- --------------------------------------------------------------------------------
Total Utility
Operating Revenues 600,207 636,197 644,224
Diversified activities 429,906 380,705 322,925
- --------------------------------------------------------------------------------
Total Operating Revenues $ 1,030,113 $ 1,016,902 $ 967,149
- --------------------------------------------------------------------------------
Operating income before
income taxes:
Electric $ 85,156 $ 80,355 $ 89,243
Gas 17,467 19,724 19,147
Diversified activities (4,565) 313 729
- --------------------------------------------------------------------------------
Total Operating Income
Before Income Taxes 98,058 100,392 109,119
- --------------------------------------------------------------------------------
Income Taxes:
Electric 22,406 19,894 21,380
Gas 3,859 4,644 4,679
Diversified activities (486) 2 167
- --------------------------------------------------------------------------------
Total Income Taxes 25,779 24,540 26,226
- --------------------------------------------------------------------------------
Total Income From
Operations $ 72,279 $ 75,852 $ 82,893
- --------------------------------------------------------------------------------
Other Information:
Identifiable assets:
Electric $ 1,003,598 $ 988,149 $ 970,117
Gas 224,590 221,374 225,006
Diversified activities 81,653 96,043 84,571
- --------------------------------------------------------------------------------
Total Identifiable Assets 1,309,841 1,305,566 1,279,694
Corporate assets 29,928 42,073 32,142
- --------------------------------------------------------------------------------
Total Assets $ 1,339,769 $ 1,347,639 $ 1,311,836
- --------------------------------------------------------------------------------
Depreciation expense:
Electric $ 30,594 $ 29,161 $ 28,049
Gas 6,646 5,940 5,349
Diversified activities 1,697 761 658
- --------------------------------------------------------------------------------
Total $ 38,937 $ 35,862 $ 34,056
- --------------------------------------------------------------------------------
Additions to plant:
Electric $ 43,225 $ 44,832 $ 39,441
Gas 10,894 15,242 13,955
Diversified activities 911 468 912
- --------------------------------------------------------------------------------
Total $ 55,030 $ 60,542 $ 54,308
- --------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
NOTE 14. SUMMARY OF QUARTERLY RESULTS OF
OPERATIONS (UNAUDITED).
<TABLE>
<CAPTION>
Earnings Earnings
Applicable Per
Income To Average
Operating From Net Common Common
Revenues Operations Income Stock Share
- --------------------------------------------------------------------------------
QUARTER ENDED (Thousands of Dollars)
1995
<S> <C> <C> <C> <C> <C>
March 31 $311,847 $20,515 $15,321 $14,537 $1.06
June 30 245,359 12,356 3,722 2,937 .22
September 30 231,906 23,754 14,792 14,008 1.03
December 31 241,001 15,654 4,738 3,956 .29
- --------------------------------------------------------------------------------
1994
March 31 $292,675 $24,165 $14,068 $13,255 $ .98
June 30 229,735 13,380 3,380 2,567 .19
September 30 239,214 25,615 16,382 15,570 1.14
December 31 255,278 12,692 3,387 2,574 .19
- --------------------------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
ORANGE AND ROCKLAND UTILITIES, INC.:
We have audited the accompanying consolidated balance sheets of Orange and
Rockland Utilities, Inc. and Subsidiaries (a New York Corporation) as of
December 31, 1995 and 1994, and the related consolidated statements of income
and retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Orange and
Rockland Utilities, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of its operations and its cash flows for the two years
then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 1, 1996
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
GRANT THORNTON LLP
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of Orange and Rockland Utilities, Inc. and
Subsidiaries for the year December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Orange and Rockland Utilities, Inc. and Subsidiaries for the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
As more fully discussed in Note 12 (Legal Proceedings) to the consolidated
1993 financial statements, the Company and various state regulatory authorities
are currently investigating misappropriations of Company funds by certain former
employees and the impact on ratepayers. As a result of these improprieties,
several class action and derivative complaints were filed against the Company
and others. Although the Company has refunded certain amounts to ratepayers as
of December 31, 1993, the ultimate outcome of the investigations and litigation
cannot presently be determined. Accordingly, no provision for any additional
liability that may result from these matters has been made in the accompanying
1993 financial statements.
/s/ Grant Thornton LLP
New York, New York
February 16, 1994
33
<PAGE>
OPERATING STATISTICS -- ELECTRIC
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOURCE OF ELECTRICITY (Mwh):
Generation -- net
Steam 2,864,595 3,282,416 2,720,897 3,083,852 3,506,037
Hydro 143,076 168,149 164,378 143,871 172,752
Gas Turbine 21,909 10,448 7,557 3,938 15,217
- --------------------------------------------------------------------------------------------------------
Total Net Generation 3,029,580 3,461,013 2,892,832 3,231,661 3,694,006
Purchases 1,941,637 1,574,015 2,054,253 1,532,105 1,150,460
Company Use and Unaccounted For (326,901) (305,747) (354,806) (298,806) (316,748)
- --------------------------------------------------------------------------------------------------------
Net Electricity Sold 4,644,316 4,729,281 4,592,279 4,464,960 4,527,718
- --------------------------------------------------------------------------------------------------------
SOURCE OF ELECTRICITY SOLD:
Oil 6.7% 6.5% 5.2% 9.9% 14.0%
Natural Gas 23.4% 22.7% 16.2% 21.2% 21.8%
Coal 27.3% 35.5% 33.2% 33.1% 36.1%
Hydro 2.8% 3.3% 3.3% 3.0% 3.5%
Purchased Power 39.8% 32.0% 42.1% 32.8% 24.6%
- --------------------------------------------------------------------------------------------------------
SALES (Mwh):
Residential 1,685,110 1,660,755 1,611,602 1,532,915 1,597,571
Commercial 2,056,185 2,049,265 2,018,240 1,986,048 1,955,851
Industrial 680,678 657,142 627,944 594,912 576,046
Public Street Lighting 28,107 27,836 27,705 27,538 26,780
Public Authorities 75,506 68,972 72,037 70,257 73,455
- --------------------------------------------------------------------------------------------------------
Total Sales to Customers 4,525,586 4,463,970 4,357,528 4,211,670 4,229,703
Other Utilities for Resale 118,730 265,311 234,751 253,290 298,015
- --------------------------------------------------------------------------------------------------------
Total Sales of Electricity 4,644,316 4,729,281 4,592,279 4,464,960 4,527,718
- --------------------------------------------------------------------------------------------------------
REVENUES (000's):
Residential $208,862 $214,439 $211,082 $193,124 $196,031
Commercial 204,240 212,214 212,240 202,523 196,409
Industrial 50,205 51,316 50,983 47,128 44,724
Public Street Lighting 4,930 4,939 4,967 4,880 4,732
Public Authorities 4,257 4,051 4,344 4,212 4,419
- --------------------------------------------------------------------------------------------------------
Total Revenues from Sales to Customers 472,494 486,959 483,616 451,867 446,315
Other Utilities for Resale 2,150 6,636 6,414 6,965 9,575
- --------------------------------------------------------------------------------------------------------
Total Revenues from Sales of Electricity 474,644 493,595 490,030 458,832 455,890
Other Electric Operating Revenues (14,661) (14,566) (3,063) 4,901 1,265
- --------------------------------------------------------------------------------------------------------
Total Electric Operating Revenues $459,983 $479,029 $486,967 $463,733 $457,155
- --------------------------------------------------------------------------------------------------------
ELECTRIC CUSTOMERS -- Year End 263,156 259,708 256,897 254,192 251,724
RESIDENTIAL CUSTOMER STATISTICS:
Average Annual Kwh Use 7,376 7,357 7,214 6,928 7,286
Average Annual Revenue per Kwh 12.39CENTS 12.91CENTS 13.10CENTS 12.60CENTS 12.27CENTS
Average Annual Bill Including Fuel $914.27 $949.89 $944.82 $872.77 $894.11
Average Annual Fuel Cost Recovery $176.71 $188.74 $194.90 $192.76 $207.01
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
OPERATING STATISTICS -- GAS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOURCE OF GAS (Mmcf):
Purchased 49,063 46,712 43,060 46,620 47,928
Manufactured 24 38 21 22 15
Used in Electric Production (26,373) (24,847) (21,234) (24,141) (26,444)
Company Use and Unaccounted For (558) (432) (630) (549) (1,176)
- --------------------------------------------------------------------------------------------------------
Net Gas Sold 22,156 21,471 21,217 21,952 20,323
- --------------------------------------------------------------------------------------------------------
SALES (Mmcf):
Residential 14,759 15,164 15,323 15,212 13,564
Commercial and Industrial 5,066 5,257 5,233 5,295 4,766
- --------------------------------------------------------------------------------------------------------
Total Firm Sales 19,825 20,421 20,556 20,507 18,330
Interruptible 2,327 1,023 653 889 1,325
Other Utilities for Resale 4 27 8 556 668
- --------------------------------------------------------------------------------------------------------
Total Sales of Gas 22,156 21,471 21,217 21,952 20,323
- --------------------------------------------------------------------------------------------------------
REVENUES (000's):
Residential $ 96,737 $ 112,759 $ 113,116 $ 97,646 $ 82,198
Commercial and Industrial 31,226 36,676 36,707 32,541 27,811
- --------------------------------------------------------------------------------------------------------
Total Revenues from Firm Sales 127,963 149,435 149,823 130,187 110,009
Interruptible 6,725 3,996 2,605 3,414 5,536
Other Utilities for Resale 59 203 105 1,950 1,999
- --------------------------------------------------------------------------------------------------------
Total Revenues from Sales of Gas 134,747 153,634 152,533 135,551 117,544
Other Gas Revenues 5,477 3,534 4,724 5,128 5,143
- --------------------------------------------------------------------------------------------------------
Total Gas Operating Revenues $ 140,224 $ 157,168 $ 157,257 $ 140,679 $ 122,687
- --------------------------------------------------------------------------------------------------------
HEATING DEGREE DAYS 5,494 5,522 5,791 5,771 5,106
GAS CUSTOMERS -- YEAR END 112,188 110,631 109,464 108,168 106,854
RESIDENTIAL CUSTOMER STATISTICS:
Average Annual Mcf Use 145.2 151.0 145.2 145.4 131.0
Average Annual Revenue per Mcf $ 6.55 $ 7.44 $ 7.41 $ 6.44 $ 6.08
Average Annual Bill Including Fuel $ 951.90 $1,122.89 $1,075.86 $ 936.63 $ 797.09
Average Annual Fuel Cost Recovery $ 450.41 $ 622.72 $ 595.94 $ 500.42 $ 446.11
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK DATA:
Earnings Per Average Common Share $ 2.60 $ 2.50 $ 3.06 $ 3.15 $ 3.12
Dividends Declared Per Share $ 2.57 $ 2.54 $ 2.49 $ 2.43 $ 2.37
Book Value Per Share (Year End) $ 27.82 $ 27.79 $ 27.79 $ 27.22 $ 26.33
Market Price Range Per Share:
High $ 37 3/8 $ 41 1/4 $ 47 1/2 $ 41 7/8 $ 39
Low $ 30 7/8 $ 28 3/8 $ 38 5/8 $ 32 3/8 $ 30 7/8
Year End $ 35 3/4 $ 32 1/2 $ 40 5/8 $ 41 5/8 $ 38 5/8
Price Earnings Ratio 13.75 13.00 13.28 13.21 12.38
Dividend Payout Ratio 98.85% 101.60% 81.37% 77.14% 75.96%
Common Shareholders at Year End 22,916 23,299 24,328 25,696 25,989
Average Number of Common Shares
Outstanding (000's) 13,653 13,594 13,532 13,438 13,238
Total Common Shares Outstanding at
Year End (000's) 13,654 13,653 13,532 13,531 13,327
Return on Average Common Equity 9.35% 9.01% 11.16% 11.88% 12.13%
- --------------------------------------------------------------------------------------------------------
CAPITALIZATION DATA (000's):
Common Stock Equity $ 379,776 $ 379,403 $ 376,044 $ 368,321 $ 350,947
Non-Redeemable Preferred Stock 43,253 43,268 43,287 43,306 43,334
Redeemable Preferred Stock 1,390 2,774 4,158 5,542 6,926
Long-Term Debt 359,736 359,622 380,266 380,202 376,839
- --------------------------------------------------------------------------------------------------------
Total Capitalization $ 784,155 $ 785,067 $ 803,755 $ 797,371 $ 778,046
- --------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS:
Common Equity 48.43% 48.33% 46.79% 46.19% 45.11%
Non-Redeemable Preferred Stock 5.51% 5.51% 5.38% 5.43% 5.57%
Redeemable Preferred Stock .18% .35% .52% .70% .89%
Long-Term Debt 45.88% 45.81% 47.31% 47.68% 48.43%
- --------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (000'S):
Operating Revenues $1,030,113 $1,016,902 $ 967,149 $ 840,072 $ 727,783
Operating Expenses $ 957,834 $ 941,050 $ 884,256 $ 760,320 $ 650,707
Operating Income $ 72,279 $ 75,852 $ 82,893 $ 79,752 $ 77,076
Net Income $ 38,573 $ 37,217 $ 44,815 $ 45,812 $ 44,868
Earnings Applicable to Common Stock $ 35,435 $ 33,966 $ 41,451 $ 42,334 $ 41,277
Net Utility Plant $ 873,668 $ 856,289 $ 831,980 $ 814,686 $ 792,413
Total Assets $1,339,769 $1,347,639 $1,311,836 $1,142,651 $1,099,494
Long-Term Debt Including
Redeemable Preferred Stock $ 361,126 $ 362,396 $ 384,424 $ 385,744 $ 383,765
Ratio of Long-Term Debt to Net Plant 41.2% 44.4% 46.0% 47.0% 48.0%
Ratio of Accumulated Depreciation to
Utility Plant in Service 33.3% 33.1% 31.7% 30.7% 30.0%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
Orange and Rockland Utilities, Inc. and Subsidiaries
CREDIT RATINGS
<TABLE>
<CAPTION>
Duff & Phelps Fitch Moody's Standard &
Credit Rating Investors Investors Poor's
Company Service, Inc. Service Corp.
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper D-1 F-2 P-2 A-2
First mortgage bonds A+ A- A3 A-
Pollution control bonds A N/R Baa1 A-
Unsecured debt A A- Baa1 A-
Preferred debt A- A- baa1 BBB+
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
36
ORANGE AND ROCKLAND UTILITIES, INC.
APPENDIX A TO EXHIBIT 13
FORM 10-K DECEMBER 31, 1995
The Review of the Company's Results of Operations and Financial
Condition, which is included in the Company's Annual Report to Shareholders
and is incorporated by reference in this Annual Report on Form 10-K, contains
certain graphic presentations of financial data which are presented in tabular
format as follows:
1. - Graph entitled "Electric Sales to Customers"
Year Mwh (Millions)
1991 4.23
1992 4.21
1993 4.36
1994 4.46
1995 4.53
2. - Graph entitled "Cost per Kwh"
Year Cents
1991 2.74
1992 2.70
1993 2.67
1994 2.51
1995 2.46
3. - Graph entitled "Firm Gas Sales"
Year Bcf
1991 18.3
1992 20.5
1993 20.6
1994 20.4
1995 19.8
4. - Graph entitled "Cost per Mcf"
Year Dollars
1991 2.90
1992 3.52
1993 3.63
1994 3.52
1995 3.46
appenda.wp
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Subsidiaries
Exhibit 21
State of
Parent and Subsidiary* Incorporation
Orange and Rockland Utilities, Inc. New York
Rockland Electric Company New Jersey
Saddle River Holdings Corp. Delaware
Atlantic Morris Broadcasting, Inc.-- Delaware
NORSTAR Holdings, Inc. Delaware
NORSTAR Management, Inc. Delaware
Millbrook Holdings, Inc. Delaware
Pike County Light & Power Company Pennsylvania
Clove Development Corporation New York
O&R Energy Development, Inc. Delaware
O&R Development, Inc. Delaware
*Each level of indentation represents subsidiary status of the company
under which it is immediately indented.
0718.wp
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Ralph M. Baruch
Ralph M. Baruch
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Frederic V. Salerno
Frederic V. Salerno
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ J. Fletcher Creamer
J. Fletcher Creamer
Office Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Michael J. Del Giudice
Michael J. Del Giudice
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Jon F. Hanson
Jon F. Hanson
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Kenneth D. McPherson
Kenneth D. McPherson
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ James F. O'Grady, Jr.
James F. O'Grady, Jr.
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, her true and lawful attorney, for her and
in her name, place and stead, and in her office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as she might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set her hand and
seal this 7th day of March 1996.
Signature s/ Linda C. Taliaferro
Linda C. Taliaferro
Office Director<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO, full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO, may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ H. Kent Vanderhoef
H. Kent Vanderhoef
Office Chairman of the Board
of Directors<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, the
controller of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1995 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO, his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said G. D.
CALIENDO, full power and authority to do and perform each and
every act as fully, to all intents and purposes, as he might or
could do if personally present, hereby ratifying and confirming
in all respects all that G. D. CALIENDO, may or shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ Robert J. McBennett
Robert J. McBennett
Office Treasurer and Controller<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, the
chief financial officer of Orange and Rockland Utilities, Inc.,
which Company proposes to file with the Securities and Exchange
Commission an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 1995 pursuant to the provisions of the
Securities Exchange Act of 1934, as amended, has made,
constituted and appointed and by these presents does hereby make,
constitute and appoint G. D. CALIENDO, his true and lawful
attorney, for him and in his name, place and stead, and in his
office and capacity as aforesaid, to sign and file said Form 10-K
and any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said G. D. CALIENDO, full power and authority
to do and perform each and every act as fully, to all intents and
purposes, as he might or could do if personally present, hereby
ratifying and confirming in all respects all that G. D. CALIENDO,
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ R. Lee Haney
R. Lee Haney
Office Vice President and Chief
Financial Officer<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, the
chief executive officer and a director of Orange and Rockland
Utilities, Inc., which Company proposes to file with the
Securities and Exchange Commission an Annual Report on Form 10-K
for the Company's fiscal year ended December 31, 1995 pursuant to
the provisions of the Securities Exchange Act of 1934, as
amended, has made, constituted and appointed and by these
presents does hereby make, constitute and appoint G. D. CALIENDO,
his true and lawful attorney, for him and in his name, place and
stead, and in his office and capacity as aforesaid, to sign and
file said Form 10-K and any and all other documents to be signed
and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said G. D. CALIENDO,
full power and authority to do and perform each and every act as
fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all
respects all that G. D. CALIENDO, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 7th day of March 1996.
Signature s/ D. Louis Peoples
D. Louis Peoples
Office Director, Vice Chairman of
the Board and Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND
ROCKLAND UTILITIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 873,668
<OTHER-PROPERTY-AND-INVEST> 21,431
<TOTAL-CURRENT-ASSETS> 231,118
<TOTAL-DEFERRED-CHARGES> 213,552
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,339,769
<COMMON> 68,268
<CAPITAL-SURPLUS-PAID-IN> 127,500
<RETAINED-EARNINGS> 184,008
<TOTAL-COMMON-STOCKHOLDERS-EQ> 379,776
1,390
43,253
<LONG-TERM-DEBT-NET> 359,736
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 61,250
<LONG-TERM-DEBT-CURRENT-PORT> 192
1,384
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 274
<OTHER-ITEMS-CAPITAL-AND-LIAB> 492,514
<TOT-CAPITALIZATION-AND-LIAB> 1,339,769
<GROSS-OPERATING-REVENUE> 1,030,113
<INCOME-TAX-EXPENSE> 25,779
<OTHER-OPERATING-EXPENSES> 932,055
<TOTAL-OPERATING-EXPENSES> 957,834
<OPERATING-INCOME-LOSS> 72,279
<OTHER-INCOME-NET> (997)
<INCOME-BEFORE-INTEREST-EXPEN> 71,282
<TOTAL-INTEREST-EXPENSE> 32,709
<NET-INCOME> 38,573
3,135
<EARNINGS-AVAILABLE-FOR-COMM> 35,438
<COMMON-STOCK-DIVIDENDS> 35,089
<TOTAL-INTEREST-ON-BONDS> 26,620
<CASH-FLOW-OPERATIONS> 63,215
<EPS-PRIMARY> 2.60
<EPS-DILUTED> 0
</TABLE>
