SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 25, 1997
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of Registrant as specified in its charter)
Incorporated in New York 1-4315 13-1727729
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification
Incorporation) Number)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (zipcode)
Registrant's telephone number, including area code: (914) 352-6000
Items 1. - 4. Not Applicable.
Item 5. Other Events
NYPSC Settlement Agreement
Reference is made to Item 3 Legal Proceedings of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 under the caption "Regulatory
Matters: New York Competitive Opportunities Proceeding" for
a discussion of the settlement negotiations regarding the
Company's rate and restructuring filing in the New York
Public Service Commission's ("NYSPC") Competitive
Opportunities Proceeding.
On March 25, 1997, the Company and the Staff of the
NYPSC entered into a Settlement Agreement ("Agreement") in
Case 96-E-0900, the case initiated by the NYPSC to examine
the Company's filing in the NYPSC's Competitive
Opportunities Proceeding. Additional parties to the
Agreement are the New York State Department of Economic
Development, the Industrial Energy Users Association, the
National Association of Energy Services, Inc. and the Joint
Supporters.
The Agreement, which is subject to NYPSC approval,
covers a four-year period commencing with NYPSC approval.
Large industrial customers (defined as manufacturing and
mining customers listed in the SC-9 Class) will have the
opportunity to realize an average electric price of $.06/kwh
beginning with the effective date of new rates. The rates
of all other customers will be reduced in the first year by
1.09% and by another 1% effective one year later. The
cumulative customer benefits over the four-year period are
equal to approximately $37 million.
The Agreement allows the Company to retain all earnings
up to an 11.5% return on equity and provides that earnings
in excess of 11.5% will be shared, with 50% to be used to
write down generation assets, 25% to be credited to the
Company's customers, and 25% to be retained by the Company's
shareholders.
The Agreement provides that full retail access to a
competitive energy and capacity market will be available for
all customers on or about May 1, 1999. The Company's
existing PowerPick(TM) Program, for energy only, will be
expanded to all customers on May 1, 1998. For large
industrial customers, the PowerPick(TM) Program will be
expanded in the summer of 1997.
The Agreement provides that the Company will
restructure to create a separate affiliated unregulated
generation company, one or more unregulated energy services
companies, and a regulated transmission/distribution company.
Upon the commencement of retail access, the transmission/
distribution company will be the provider of last resort for
all customers choosing to purchase basic energy services from
it, for all those customers who do not choose an energy provider,
and for those customers who purchase from other providers but who
later return as customers purchasing power from the
transmission and distribution company.
The Agreement provides for recovery of above market
generation costs through a Competitive Transition Charge
("CTC"), which will be in place for four years from May 1,
1999 or the commencement of retail competition, if later.
Under the CTC, the first 10% variance (plus or minus)
between market revenues and the Company's fixed cost of
generation, using 1996 costs as the standard, will flow
directly to transmission/distribution customers. Any
variance beyond this threshold will be shared between the
Company's shareholders (10%) and customers (90%). At the
end of the four year CTC period, the market value of the
Company's generation facilities (i.e., its Lovett and
Bowline Point generating stations) will be determined. 80%
of any difference between market and book value will be the
responsibility of or for the benefit of customers; 20% of
the difference will be the responsibility of or for the
benefit of the Company's shareholders.
A non-bypassable System Benefits Charge ("SBC") will be
used to collect the costs of certain mandated public policy
programs. In the Agreement, expenditure levels for SBC
programs (e.g., research and development, energy efficiency,
environmental protection, low income programs) initially
will be covered in base rates and subsequently broken out in
accordance with the unbundled rates approved by the NYPSC.
Any increases in the spending levels for these programs
above those currently included in rates will be recovered
through the SBC.
As part of the Agreement, the Company agreed that,
following final NYPSC approval of the Agreement, the Company
will withdraw from the pending appeal of the November 25,
1996 Decision and Order of the New York State Supreme Court
denying the request of the Company, the six other New York
State investor-owned electric utilities and the Energy
Association of New York State to invalidate the May 20, 1996
Order of the NYPSC relating to the restructuring of the
electric industry of New York State in the Competitive
Opportunities Proceeding.
The Agreement will be the subject of NYPSC examination
to determine whether it is in the public interest. A NYPSC
decision regarding the Agreement is anticipated by mid-1997.
The Company is unable to predict whether the NYPSC will
approve the Agreement.
The Company believes that the Agreement will not
adversely affect its eligibility to continue to apply
Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation".
If, contrary to the Company's view, such eligibility were
adversely affected, it is expected that it would apply only
to the unregulated parts of the business and that, given the
mechanism for recovery in the Agreement, as described above,
it is not expected there would be a material write-down of
assets.
Item 6. Not Applicable.
Item 7. Financial Statements and Exhibits
Exhibit 10 - Settlement Agreement
dated March 25, 1997 among the
Registrant, the New York State Department
of Public Service, the New York State
Department of Economic Development, the
Industrial Energy Users Association,
the National Association of Energy
Services, Inc. and the Joint Supporters
in Case 96-E-00900 - In the Matter of
Orange and Rockland Utilities, Inc.'s
Plans for Electric Rate/Restructuring
Pursuant to Opinion No. 96-12.
Item 8. Not Applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/Robert J. McBennett
Robert J. McBennett
Treasurer
Dated: April 17, 1997
EXHIBIT INDEX
Page
Exhibit 10 6
Settlement Agreement dated March 25, 1997 among
the Registrant, the New York State Department of
Public Service, the New York State Department of
Economic Development, the Industrial Energy Users
Association, the National Association of Energy
Services, Inc. and the Joint Supporters in
Case 96-E-00900 - In the Matter of Orange and
Rockland Utilities, Inc.'s Plans for Electric
Rate/Restructuring Pursuant to Opinion No. 96-12.
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
________________________________________________________
Case 96-E-0900 - In the Matter of Orange and Rockland
Utilities, Inc.'s Plans for Electric Rate/Restructuring
Pursuant to Opinion No. 96-12
________________________________________________________
Settlement Agreement
G. D. Caliendo
Senior Vice President, General
Counsel and Corporate Secretary
John L. Carley
Senior Attorney
Andrew Gansberg
Nixon, Hargrave, Devans & Doyle LLP
Attorneys for:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Dated: March 25, 1997
Albany, New York
Table of Contents
Overview of O&R Settlement i
Introduction 1
Terms of Settlement 3
I. Rate Plan 3
A. Electric Price Reductions 3
Large Industrial Customers
All other Customers
Cumulative Price Reduction Summary
Sources of Price Reductions ($000)
B. Return on Equity Sharing 5
C. Performance Standards 7
D. Rate Design 7
II. Transition to Retail Access 8
A. Sequence of Events 8
B. Reciprocity 8
C. Expansion of PowerPick(TM) Program 9
D. Full Retail Access 9
E. Unbundled Tariffs 9
F. System Benefits Charge 10
G. Low Income Program 11
III. Strandable Costs 11
A. Regulatory Assets 11
B. NUG Contract Purchased Power Costs 11
C. Above Market Generation Costs 12
D. Other Strandable Costs 13
IV. Corporate Structure 13
A. Structural Separation 13
B. Section 107 Preauthorization 14
C. Delivery Company and Affiliated ESCOs 14
D. Load Pockets 15
E. System Upgrades 15
V. Other Provisions 15
A. Changes in Laws or Regulations 15
B. Confidentiality and Privileged Information 16
C. Changes in Rates 16
D. Rate Design Flexibility 16
E. Regulatory Reform and Customer Operations
Procedures 16
F. Customer Outreach and Education 18
G. Interdepartmental Transfers 19
H. Accounting Provisions 19
I. Property Tax Refunds 19
J. Flex Rates and Economic Development Rate 19
K. Securitization 20
L. Gross Receipts and Franchise Taxes 20
M. Merger 20
N. Arrangements with Third Parties 20
O. Comprehensive Nature of Settlement Agreement 20
P. Provisions Not Separable 21
Q. Provisions Not Precedent 21
R. Term and Time Line 21
S. Effect of Agreement 21
T. Dispute Resolution 22
Appendices
Appendix A - Time Line for Certain Actions
Appendix B - Standard Industrial Codes
Appendix C - Eligibility Guidelines for Large Industrial Customer
Classification
Appendix D - Sources of Price Reductions
Appendix E - Privileged Information
Appendix F - Customer Service and Reliability Performance
Mechanism
Appendix G - Low Income Customer Assistance Program
Appendix H - Standards of Competitive Conduct
Appendix I - Affiliate Relations
Appendix J - Accounting for Affiliate Transactions
Appendix K - Interdepartmental Transfers
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
________________________________________________________
Case 96-E-0900 - In the Matter of Orange and Rockland
Utilities, Inc.'s Plans for Electric Rate/Restructuring
Pursuant to Opinion No. 96-12
________________________________________________________
Settlement Agreement
Overview of O&R Settlement
This Settlement has been developed with three major goals in
mind:
Improve customer service and customer choice while
reducing price and introducing competition;
Promote jobs and economic development in the region by
reducing industrial rates substantially and
immediately;
Reduce rates for all other customers in 1997 and 1998,
and then freeze the reductions until the end of this
four-year agreement, in order to reduce the impact of
the cost of electricity on the budgets of smaller
customers.
The signatories to this Settlement view the accomplishment
of these goals as essential to the future welfare of the region.
Integral to this agreement is the principle that these economic
goals can be pursued successfully while maintaining quality
customer service and protection; maintaining essential
environmental programs; and seeking ways to reduce the effects of
energy prices on low-income customers.
Upon Commission approval, this Settlement will further
reduce rates for all O&R ratepayers. In the past two years,
residential ratepayers have already experienced rate decreases,
on average, of 4%. Commercial and industrial classes have
experienced decreases between 4% and 14%.
Rate Plan
The Settlement covers a four-year period.
Large Industrial Customers have the opportunity to realize an
average electric price of six cents per kWh beginning with the
effective date of new rates. The Peak Activated Rate will be
eliminated.
The rates of all other customers will be reduced in the first
year by 1.09% and by another 1.0% effective one year later.
The cumulative customer benefits over the four-year period are
equal to approximately $37 million.
For each of the four rate years that this Settlement is in
effect, earnings on regulated electric operations in excess of
11.5% in New York will be shared with 50% being used to write
down generation assets (or otherwise inure to the benefit of O&R
customers), 25% will be credited to O&R's customers; and 25% will
be retained by O&R's shareholders.
A flexible rate tariff will be designed and filed with the
Commission. It will provide for the possibility of rate
discounts for commercial and industrial customers who are
currently taking service and who are at serious risk of
relocating or closing their facilities.
Transition to Retail Access
Full retail access to a competitive energy and capacity market
will be available on May 1, 1999 for all customers.
The existing PowerPick(TM) program (choice of purchasing energy
from alternate suppliers) will be expanded to all customers on
May 1, 1998. For large industrial customers, the PowerPick(TM)
program will be expanded in Summer 1997.
O&R will file proposed unbundled rates for electric services in
August 1997.
Corporate Structure
The Company will restructure to create an independent unregulated
generation company ("GENCO"), one or more unregulated Energy
Services companies ("ESCOs"), and a regulated Transmission and
Distribution Company.
Upon commencement of retail access, the Transmission and
Distribution Company will provide basic energy services,
including energy, capacity, ancillary services, metering and
billing within the service territory.
The Transmission and Distribution Company will be the Provider of
Last Resort for all customers choosing to continue to purchase
"packaged" energy services from it, for those customers who do
not choose an energy provider, and for those customers who
purchase from other providers but who later return as customers
purchasing power from the Transmission and Distribution Company.
Metering and billing services will be opened up to other
competitors.
Stranded Cost Incentive Mechanism
Once retail access begins, O&R will be allowed a reasonable
opportunity to recover its investment in stranded generation
assets. A competitive transition charge mechanism will operate
for four years. The first 10% variance (plus or minus) between
market revenues and the Company's fixed cost of generation will
flow directly to Transmission and Distribution customers. Any
variance beyond this threshold will be shared between the Company
(10%) and the customers (90%).
After four years, the market value of the Company's generation
facilities will be determined. 80% of any gain or loss over book
value will be absorbed by the customers; 20% will be covered by
the Company's shareholders.
The Company will recover in full the remaining minimal
commitments to purchases from non-utility generators.
Performance Standards
The Performance Standards, which were agreed to in the Company's
most recent case, will be continued. There are five areas:
three focus on customer service standards and two on reliability
standards.
If the Company fails to meet the target levels for these
performance standards, there will be an adjustment to the return
on equity sharing threshold; the adjustment will be up to 25
basis points.
Low Income Program
A Low Income Customer Assistance Program will be conducted for a
two-year period for the residents of the City of Port Jervis.
The Program will address energy efficiency, payment patterns,
and/or arrears forgiveness. Energy efficiency measures,
including refrigerator replacement, will be the first priority
for expenditures.
The Company will support the development of a pilot program that
would aggregate low income customers as a single purchasing
group.
Customer Outreach and Education
The Company will continue to develop and implement programs and
materials that will aid its customers in understanding the
changes in the electric industry that are coming and the nature
of the services that customers can expect to receive from O&R in
the future. The overall goals are to enable customers,
particularly small customers, to make informed choices about
utility service while understanding their rights and
responsibilities as utility customers. These efforts will be
complemented by those of participating energy providers.
Public Interest Program
Public interest program will be continued through a competitively
neutral Systems Benefit Charge.
This summary is intended to be a general description of the terms
of the Settlement. The complete text of the Settlement will
control in the event of any conflict.
Introduction
On May 20, 1996, the New York State Public Service
Commission (the "Commission") issued its Opinion and Order
Regarding Competitive Opportunities for Electric Service, Opinion
No. 96-12 in Case 94-E-0952 (the "Competitive Opportunities
Proceeding").
In Opinion No. 96-12, the Commission articulated a vision
for the electric utility industry that includes the following
market characteristics:
1. Effective competition in the generation and energy
services sectors;
2. reduced prices resulting in improved economic
development for the State as a whole;
3. increased opportunities for consumers to choose
suppliers and service companies;
4. a system operator that treats all participants fairly
and ensures reliable service;
5. a provider of last resort for all consumers and the
continuation of a means to fund necessary public policy
programs;
6. ample and accurate information for consumers to use in
making informed decisions; and
7. the availability of information that permits adequate
oversight of the market to ensure its fair operation.
Opinion No. 96-12, at 24-25.
The Commission directed Orange and Rockland Utilities, Inc.
("Orange and Rockland" "O&R" or "the Company") and four other
electric utilities to file a rate/restructuring plan consistent
with the Commission's policy and vision for increased
competition. Id., at 74-75. The plans to be filed were to address
such matters as the structure of the utility both in the short
and long term, a schedule for transition to retail access for all
of the utility's customers and a rate plan to be effective for a
significant portion of the transition.
The Commission directed the utilities to collaborate with
the Staff and other interested parties in developing a number of
technical studies, undertaking public informational and
educational forums and determining what FERC filings were
necessary to implement the Independent System Operator ("ISO")
and Power Exchange ("PE").
On October 1, 1996, Orange and Rockland filed a
rate/restructuring plan in response to Opinion No. 96-12. The
Company's filing included a rate plan that would go beyond the
third year of the rate settlement approved in Case 95-E-0491, a
schedule for expanding its PowerPick(TM) Program and introducing
retail access to all customers, a plan to separate the generation
function from the regulated delivery function and a means of
addressing the strandable cost issue.
By its Order Establishing Procedures and Schedule dated
October 9, 1996, the Commission initiated Case 96-E-0900 to
examine Orange and Rockland's October 1, 1996 filing. The
Commission established a procedural schedule, including a 90-day
negotiation period during which the parties were strongly
encouraged to reach a negotiated settlement instead of pursuing a
litigated outcome. To facilitate these negotiations, the
Commission's Order of October 9, 1996, waived certain settlement
guidelines established in Case 90-M-0255, Settlement and
Stipulation Agreements, Opinion No. 92-2 (March 24, 1992).
Between October 29 and November 7, 1996, Orange and Rockland
and Staff hosted four technical meetings with the intervenors in
this case. The Company provided detailed presentations on its
October 1, 1996 filing, furnished supporting data and responded
to numerous questions of the parties.
Preliminary settlement negotiations were conducted between
the Company and Staff during January and February 1997. After
agreement in principle was attained, the negotiations included
the Consumer Protection Board, the Industrial Energy Users
Association and other parties. By notices issued December 19,
1996, January 9, 1997, February 13, 1997, February 26, 1997, and
March 6, 1997, the Secretary of the Commission extended the 90-
day negotiation period established in the Order of October 9,
1996 to March 25, 1997.
On February 28, 1997 the Company and Staff informed the
active parties that they had made significant progress in
resolving the issues in this proceeding and a summary of
settlement terms was circulated to the active parties. The
parties were invited to attend settlement negotiations on
March 4, 1997, in order to discuss the summary of settlement
terms and indicate their willingness to participate in the
preparation of a detailed settlement proposal for submission to
the Commission. Subsequent meetings of the active parties took
place on March 11, 18 and 24, 1997, to review drafts of a
detailed settlement proposal.
The term of this Settlement is four years from the first
full month after the date of the effectiveness of new rates
(unless new rates are effective on the first of the month). The
times for various actions to be accomplished by the various
parties are set forth on Appendix A.
Terms of Settlement
I. Rate Plan
Orange and Rockland shall implement a rate plan for the four
years beginning with the first full month after the effectiveness
of new rates which shall include the following provisions.
A. Electric Price Reductions
Large Industrial Customers
Large Industrial Customers(1) will be provided the opportunity
to realize an average electric price of six cents per kWh
beginning with the effectiveness of new rates. This electric
price reduction opportunity is to be achieved through a
combination of energy choice (i.e., PowerPick(TM) and rate
reductions (i.e., one-time credits and base rate reductions).
Cents/ Revenue
kWh Equivalent
($000)
Average Price 6.82 $31,661
Electric Price Reductions:
PowerPick(TM) Savings Opportunity(2)-.24 -$ 1,108
Scheduled Rate Reductions -.58 - 2,707
Total -.82 -$ 3,815
Average Price Opportunity 6.00 $27,846
____________________
(1) Large Industrial Customers are all customers in the
existing S.C.9 class whose facilities are classified by
the Standard Industrial Manual (1987 ed. or supplement
thereto) as Mining [Division B] or Manufacturing
[Division D] and where 60 percent or more of the
account's electric usage is used directly for
manufacturing and/or mining per the Standard Industrial
Codes ("SIC") codes set forth in Appendix B.
(2) The PowerPick(TM) savings opportunity is based on an
estimate and represents energy-only choice for all energy
requirements of the Large Industrial Customers. The
Company will permit all Large Industrial Customers to
participate in the PowerPick(TM) program (energy-only)
for all of their energy requirements at the time of the
effectiveness of new rates. Guidelines for eligibility
are set forth in Appendix C.
All Other Customers
Reduce electric rates, through one-time credits and base
rate reductions, by 1.09% at the time of the effectiveness of new
rates and an additional 1% effective one year later.
Revenue Levels @ Rate Reductions Cumulative
Classification May 3,1996 Rates Year 1(1.09%) Year 2(1%) Total
$000 $000 $000
Large Commercial 25,600 -$ 280 -$ 256 -$ 536
Small C&I 120,298 - 1,317 - 1,203 - 2,520
Residential 146,023 - 1,599 - 1,460 - 3,059
Total $291,921 -$ 3,196 -$ 2,919 -$ 6,115
Cumulative Price Reduction Summary ($000)
Year 1 Year 2 Year 3 Year 4
Lg. Industrial -$3,815 -$3,815 -$3,815 -$3,815
All Other - 3,196 - 6,115 - 6,115 - 6,115
Total -$7,011 -$9,930 -$9,930 -$9,930
Sources of Price Reductions ($000)(3)
Year 1 Year 2 Year 3 Year 4
PowerPick(4) -$1,108 -$1,108 -$1,108 -$1,108
Deferred Credits - 4,271 - 3,256 - 3,256 0
Expired Surcharge - 498 - 498 - 1,849 - 7,150
Cost Reductions - 1,342 - 2,076 - 1,672 - 1,672
Total -$7,219 -$6,938 -$7,885 -$9,930
____________________
(3) A detailed schedule of each source of price reductions
is set forth in Appendix D.
(4) Estimated savings for Large Industrial Customers are
based on the PowerPick(TM) program for all of their
energy requirements. In order to provide the opportunity
to achieve the 6 cents/kWh rate for the first rate year,
the Company will permit all Large Industrial Customers
to participate in the PowerPick(TM) program (energy-only)
at the time of the effectiveness of new rates. "Dump"
energy losses incurred as a result of the expansion of the
PowerPick(TM) program prior to the implementation of
wholesale competition due to system load falling below
minimum load requirements of the Company's generating
plants will not be recoverable through the FCA.
The sources of the above price reductions underlie the
agreed-upon changes in rate levels. The main objectives of this
component of the Settlement are 1) to achieve price reductions to
Large Industrial Customers so that they have a reasonable
opportunity starting in the first rate year to reduce their
average price to 6 cents per kWh; and 2) to reduce all other
customers' average rates by 1.09 percent in the first rate year,
and by another one percent effective one year later. For
Industrial customers these price reduction opportunities are
intended to remain in effect through the four-year term of this
Settlement; the 1.09% reduction for all other customers is
intended to remain in place for the first rate year and the 2.09
percent reduction for all other customers is intended to remain
in place through the end of the four-year term. Cumulative
customer benefits over the four-year period will equal
approximately $37 million.
After rates are unbundled in accordance with the provisions
of Section II.E herein, the cost of Power Supply will not be
included in rates for Delivery services. Delivery service
customers will be charged for authorized services at the
regulated rates approved by the Commission as a result of the
Company's unbundling filing. Delivery service customers will be
billed for power supply at market prices as charged by the
customer's energy supplier plus any amounts necessary to cover
stranded costs recoverable in accordance with Section III herein.
It is expressly understood that the tariff reductions provided
for in this Settlement will be reflected in the unbundled
Delivery rates and that the sources supporting these reductions
will likewise be reflected in unbundled Delivery rates.
The parties acknowledge that the form of any price reduction
provided for herein will vary among permanent base rate
reductions and temporary credits which will expire when the
related funding source is depleted. It is the intention of the
parties that the form of rate reductions provided to the
Company's customers not reduce the cumulative level of customer
benefits below the $37 million provided over the term of this
Settlement.
B. Return on Equity Sharing
For each of the four rate years, earnings in excess of 11.5%
on regulated New York electric operations will be shared as
follows:
50% to be used to write down generation assets, or otherwise
inure to the benefit of customers;
25% to be credited to Orange and Rockland's customers; and
25% to be retained by Orange and Rockland's shareholders.
To the extent that the Rate Settlement approved in Case 95-E-
0491 provides for an adjustment to the calculation of the annual
earnings for the earnings sharing mechanism incorporated in such
Rate Settlement to take into account the levelized rate
reduction, a similar adjustment will be permitted from the
effective date of this Settlement until April 30, 1999.
Additional adjustments to the calculation of the actual return on
equity set forth in the Rate Settlement will include:
Any earned incentive or penalty from the partial pass-
through Fuel Cost Adjustment (while still in effect), off-
system sales imputations, property tax refunds, or other
incentive or penalty mechanism made effective during the
three-year rate period pursuant to an Order of the
Commission.
Revenues associated with the equalization of the return on
equity provided by the Power Supply Agreements as approved
by the Federal Energy Regulatory Commission and the 10.4
percent return on equity provided for in the Commission's
Order Approving Settlement Agreements in Cases 95-E-0491, 89-
E-0175 and 93-M-0849 (May 3, 1996).
Upon the implementation of full retail access, the return on
equity will be calculated based on Delivery company operations
excluding the assets, revenues and operating costs associated
with the GENCO.
The Company and Staff acknowledge that this Settlement is
intended to finally resolve a number of accounting and rate
matters currently pending before the Commission, including
calculations of earnings for any prior period (in accordance with
the settlement approved by Commission Order Approving Settlement
Agreements in Cases 95-E-0491, 89-E-0175 and 93-M-0849 (May 3,
1996)), deferral accounting petitions and compliance filings or
studies submitted in accordance with the settlement approved by
the Commission in Case 95-E-0491. These resolved matters include:
1. Earnings calculations (95-E-0491, 89-E-175 and 93-M-0849);
2. Accounting procedures and journal entries (95-E-0491);
3. Low income program;
4. Labor panel recommendations;(5)
5. Property tax benefits associated with March 1996
Special Franchise Tax Settlement;
6. The filing of studies associated with bus bar
costs, transfer gas mark-up and cost allocation.
______________
(5) Subject to Staff field verification.
Expenditures of $2,985,000 incurred to terminate the
Company's contract for coal supply with Pittston (to the extent
that they can be matched to verifiable savings flowed through to
customers) and any regulatory assets approved by the Commission
during the term of this Settlement may be deferred and written
off against reductions in NUG contract purchased power costs
below those reflected in rates, or any source of price reductions
set forth in Appendix D when the total of such sources exceeds
the totals shown on page 6 under "Sources of Price Reductions"
for any of the four 12-month periods shown.
The Company will be given 60 days after the end of the
relevant time period to submit to the Director of Accounting and
Finance any earnings calculations required herein. These
calculations will be submitted in summary form to other
requesting parties at the same time that the detailed
calculations are provided to Staff. The Staff will be given 60
days to review any such calculations and if the Company receives
no written objections or comments from Staff or other parties ,
the Company's calculations will be deemed approved. Written
objections or comments, if not resolved within 30 days from the
date of receipt, shall be submitted to the Commission for a
determination. The Staff and the Company agree that any
commercially sensitive data underlying any calculations submitted
in accordance with this Settlement will be given protection
against disclosure as described in Appendix E.
C. Performance Standards
The Company agrees to continue to operate under the
performance standards incorporated in the Commission-
approved settlement in Case 95-E-0491. These performance
standards are set forth in detail in Appendix F and include
customer service standards and reliability standards.
The Company agrees to a maximum adjustment to the return on
equity sharing threshold of 25 basis points for failure to
meet the performance standards each year (five basis points
per performance standard).
D. Rate Design
The mandatory Time-of-Use Residential Rate will continue for
customers presently taking such service. No new residential
customers will be added as mandatory Time-of-Use Customers
after Commission approval of this Settlement. The continuing
participation of residential customers as mandatory Time-of-
Use customers will be reviewed by the Commission during its
consideration of the Company's unbundled rate proposal. The
Company shall be permitted to defer any revenue shortfalls
that may result from changing the mandatory nature of this
rate.
The Company will eliminate the Peak Activated Rate ("PAR")
for the Large Industrial Customers.
The Company will eliminate the PAR for the other SC-9
customers by applying the rate decrease proposed for this
customer class in this Settlement. Should that decrease not
cover the full elimination of the PAR, the Company shall
make such related rate design changes as are required to
ensure revenue neutrality.
The Company will not implement the PAR provisions of the
existing SC-9 tariffs in 1997. Should the rate reductions
and associated new rate design provisions of this Settlement
not be approved by the Commission and not made effective
until after the beginning of the PAR period, June 1, 1997,
the Company will defer the resulting revenue requirement
shortfall for the period June 1, 1997, to the effective date
of new rates. The deferred revenue will be the difference
between the rates actually billed to all SC-9 customers and
the rates that will be designed to eliminate the PAR in a
revenue neutral manner. The regulatory asset associated with
the deferred PAR revenue requirement will be written off by
application of Orange and Rockland's share of PowerPick(TM)
savings in accordance with the Retail Access Pilot Program
approved by the Commission in Case 95-E-0491.
No later than April 4, 1997, Orange and Rockland will
provide to Staff and other interested parties an acceptable
tariff design that will implement the terms of this
Settlement for all current SC-9 customers. The Industrial
Energy Users Association ("IEUA") endorsement of this
Settlement is conditioned on Orange and Rockland meeting
this provision.
II. Transition to Retail Access
A. Sequence of Events
The parties anticipate the following sequence of events:
The ISO becomes fully operational upon FERC approval.
Expansion of PowerPick(TM) Program (energy only) to all
Large Industrial Customers at the time of the
effectiveness of new rates and to all other customers
on May 1, 1998.(6)
Full retail access (energy and capacity) to all
customers on May 1, 1999.
_________________
(6) Customers in the PowerPick(TM) Program as of December 31,
1997, will remain eligible to participate through
April 30, 1998.
Unbundled tariffs, as described in detail below, should
become effective at least several months prior to the
effectiveness of full retail access in order to allow customers a
reasonable time to understand and react properly to the pricing
signals that will be in effect when full retail access is
implemented.
B. Reciprocity
Staff and O&R agree that implementation of full retail
access in O&R's service territory before O&R is able to gain
comparable access to other New York electric utilities' service
territories could result in a substantial financial disadvantage
for O&R. Accordingly, once full retail access has been
implemented by O&R, the Company will not be required
unconditionally to accommodate a transaction between an O&R
customer and a New York utility or affiliated company that does
not offer full retail access. Instead, the Company, upon being
requested to accommodate such a transaction, will be authorized
to petition the Commission for an Order requiring the seller-
utility or affiliated companies, including generating, energy
services or marketing companies, to provide O&R comparable access
to customers located in the seller-utility's own service
territory. Upon the filing of the petition, the transaction will
be immediately stayed pending the Commission's decision on the
petition. This provision is not applicable to the New York Power
Authority ("NYPA").
C. Expansion of PowerPick(TM) Program(7)
The existing PowerPick(TM) program (energy only) will be
expanded to all customers on May 1, 1998. O&R affiliates (other
than the Delivery Company) will not be precluded from
participating in the expanded PowerPick(TM) program. If it should
appear that the energy-only ISO would not be in place by February
1998, and, in the Company's view, the failure to implement the
energy-only ISO would present technical or financial obstacles to
the expansion of the PowerPick(TM) program, the Company may
petition the Commission and show cause why relief from this
commitment, in whole or in part, is required. Staff will join the
Company in requesting the Commission to address the petition
expeditiously.
_______________
(7) The PowerPick(TM) Program is intended to refer to the
"Retail Access Pilot Program" as described in Appendix D
to the Settlement approved by the Commission by Order
Concerning Settlement Agreements issued May 3, 1996, in
Cases 95-E-0491, 93-M-0849 and 93-G-0779.
D. Full Retail Access
Effective May 1, 1999, full retail access (capacity and
energy) will be available to all customers. In the event the ISO
is not fully operational on an energy and capacity basis by
December 1998, and, in the Company's view, the failure to
implement the ISO would present technical obstacles to the
implementation of full retail access, the Company may petition
the Commission and show cause why relief from this commitment, in
whole or in part, is required. Staff will join the Company in
requesting that the Commission address the petition
expeditiously.
E. Unbundled Tariffs
O&R agrees to file with the Commission in August 1997
proposed unbundled draft electric tariffs based on an updated
embedded cost of service study, or other appropriate studies,
using calendar 1996 data, subject to necessary confidentiality
protections. It is anticipated that these unbundled tariffs will
separate the cost of:
- Power Supply (energy and capacity)
- Power Delivery
- Governmental Tax Surcharges
- Systems Benefits (mandated public policy programs)
- Competitive Transition Charge
Should the cost of service study show that one of the above
cost components should be subdivided into more than one component
or that other cost components should be separately identified,
O&R will be permitted to propose them in its unbundling submittal
in August 1997.
The Power Supply component will be used to bill customers
for energy and capacity costs, regardless of the provider, unless
other approved billing procedures are chosen by the customer.
Until the wholesale energy market becomes effective and/or full
retail access is implemented, energy costs will continue to be
charged through the existing FAC and the fixed costs of O&R's
generation and purchased power will continue to be recovered
through the base rates approved as part of this Settlement. When
wholesale competition is implemented, the FAC will reflect energy
purchases at market prices made by the regulated delivery
function on behalf of its customers. The embedded capacity cost
of O&R's generation function will continue to be charged at
tariff rates until the implementation of full retail access. Any
margin (wholesale revenues from sales of energy in excess of fuel
costs) realized by the O&R generation function will be used as a
mitigation measure to offset NUG purchased power costs during the
interval between the implementation of wholesale competition and
full retail access. In the event NUG purchased power costs
incurred during that interval are fully offset, additional
margins will be shared between the customers and the Company on
an 80/20 basis. The parties acknowledge that the current FAC will
need to be re-examined and may require modification in accordance
with changes occurring in electricity markets and rates.
The Power Delivery charge(s) will recover the costs
associated with transmission and distribution, customer services
(e.g., metering and billing) and O&R's Hydro-Electric facilities
and Gas Turbines. All regulatory assets will also be recovered in
the Power Delivery charge(s).
The Governmental Tax Surcharge component will identify
separately all gross receipts and franchise taxes and
governmental surcharges to the extent consistent with the Tax
Law.
It is contemplated that O&R's generation plant will continue
to operate. After full retail access, the Competitive Transition
Charge ("CTC") component will be used to collect, over a period
of four years (as further described in Section III.C herein), the
stranded costs representing the difference between O&R's embedded
fixed costs of generation and the revenues net of fuel costs and
variable O&M expenses derived from the operation of O&R's
generation plant in a deregulated competitive market. Fixed
generation costs include: non-variable O&M costs,(8) depreciation
expense, property taxes, an allocable share of administrative
costs, return and interest cost. The CTC component will be
recalculated annually and filed with Staff 90 days before the
effective date. Such calculation shall be subject to review by
Staff and approval by the Commission before implementation. In
addition, the Company will provide to other requesting parties a
summary of any changes in the CTC at the same time as the
detailed CTC calculation is provided to Staff. Any written
objections to or comments on the CTC recalculation, if not
resolved within 30 days from the date of receipt, shall be
submitted to the Commission for a determination on an expedited
basis.
_____________
(8) Non-variable O&M costs exclude fuel and variable O&M
expenses estimated at one mill per kWh of generation.
F. System Benefits Charge
Opinion No. 96-12 provides that "[c]osts required to be
spent on necessary environmental and other public policy programs
that would not otherwise be recovered in a competitive market
will generally be recovered by a non-bypassable system benefits
charge." The System Benefits Charge ("SBC") will be used to
collect the costs of mandated public policy programs. This non-
bypassable charge will be imposed on all Delivery company
customers. The expenditures reflected in the SBC are for research
and development ("R&D"), energy efficiency, environmental
protection, and low income programs that are required or approved
by the Commission to be funded by the SBC. One way of disbursing
such expenditures would be by means of a standard performance
contract with stipulated pricing approved by the Commission. In
this Settlement, expenditure levels for SBC programs will
initially be covered in base rates and subsequently broken out in
accordance with the unbundled rates approved by the Commission,
but they will be non-bypassable in any event. The price levels
established in this Settlement include specific annual rate
allowances for the costs of mandated public policy programs.
Increases in these annual rate allowances are not provided for in
the targeted price levels for the Large Industrial Customers, nor
in the rate reductions proposed for all other customers. The
parties agree that any increases in these spending levels
resulting from changes required by law (including by order of the
Commission) will be fully recoverable.
G. Low Income Program
The Company agrees to implement the Low Income Customer
Assistance Program developed pursuant to the Commission-approved
Settlement in May 1996. The specific provisions of this Program
are set forth in detail in Appendix G hereto. The cost of this
Program will not be included in the SBC.
In addition, the Company will support the development of a
pilot program that would aggregate low income customers as a
single purchasing group. Such a pilot program could help advance
the state of knowledge and experience with such programs if it
included 1) several towns within the service territory (and one
or more towns in the Eastern Division which can experience load
pocket conditions) and 2) a representative mix of multi- and
single-family homes.
III. Strandable Costs
A. Regulatory Assets
Generation-related regulatory assets established in
accordance with Commission orders, policies or practices will be
fully recoverable in regulated Delivery company rates. At the
time rates are unbundled, an appropriate allowance for these
regulatory assets will be identified in the rates for the
Delivery company.
B. NUG Contract Purchased Power Costs
Until rates are unbundled, these costs will continue to be
recovered through the FAC. When rates are unbundled, the recovery
of these costs will be identified in the regulated rates for the
Delivery company. The costs of these contracts escalate during
their initial years and decline in later years. Therefore, these
costs are to be recovered by means of a fixed annual rate until
full recovery. An estimate of recoverable NUG purchased power
costs will be made at the time of unbundling and converted to a
fixed charge to be included in Delivery rates. Recoverable NUG
purchased power costs will consist of actual NUG contract
payments less an estimate of the revenues received from the
resale of the NUG purchased power. A full reconciliation of
recoverable NUG purchased power costs shall be permitted.
C. Above Market Generation Costs
During the transition to full competition, Orange and
Rockland will be afforded an opportunity, but not a guarantee, to
recover above-market generation costs by means of an incentive-
based CTC over a four-year period commencing with the full
implementation of retail competition. The CTC will be established
by identifying the fixed production costs using an embedded cost
of service study for 1996 as a guide. The unbundling process will
establish the precise amount of fixed production costs to be used
in the CTC, including the appropriate amount of administrative
and general expenses allocable to the generation function.
The parties acknowledge that, over its four-year term, the
CTC does not allow for the recovery of inflationary increases in
non-fuel O&M production costs, property tax increases, wage rate
increases, and increased costs associated with capital additions
or changes in the cost of capital applicable to production costs.
The parties further acknowledge that the four-year term of the
CTC is a reasonable period necessary to allow for the development
of effective competition in the Company's service territory.
Should there be a difference between O&R's embedded fixed
costs of generation and the revenues net of fuel costs and
variable O&M expenses derived from the operation of O&R's
generation plant in a deregulated competitive market, any such
difference falling within a band of +/-10% around the embedded
fixed costs of generation reflected in rates (as determined in
the unbundling process) shall be directly assignable to O&R's
Delivery service customers. Any additional difference falling
outside that +/-10% band shall be allocated between O&R and its
customers on a 90% customer/10% Company basis. The Company will
consider alternative, economically comparable means of allowing
an individual customer to pay for its allocable share of above-
market embedded fixed costs of generation that customers would
otherwise pay through the CTC.
Following implementation of the ISO, Orange and Rockland
agrees that the average of its bids for its fossil fuel resources
shall not fall below the incremental cost of fuel plus variable
O & M costs.(9)
_______________
(9) Variable O&M costs are estimated at one mill per kwh of
generation.
Upon expiration of the CTC, O&R's generation assets will be
subject to a one-time final market valuation procedure to be
determined by Staff and Company.(10) Should Staff and the Company
be unable to agree on a procedure for market valuation by a date
two years before the expiration of the CTC, the dispute will be
referred to the Commission for resolution. The difference between
market and book value will reflect the net cost of the valuation
and the present value of related regulatory assets. That
difference will be shared between customers and shareholders,
respectively, on an 80/20 basis, with the 80% share to be
recovered from or refunded to customers over an appropriate
period of time and through an appropriate mechanism as determined
by the Commission.
_______________
(10) The Staff favors an auction to accomplish this valuation.
The Company does not agree that the auction would
necessarily be the most effective way to perform such
valuation.
If the Company sells any of its generating facilities prior
to the final market valuation, Orange and Rockland's shareholders
and customers will share any after tax gain or loss (net of the
cost of the sale) on an 80/20 basis. Should the Company sell more
than one generating station or unit, the gains and losses, if
any, will be offset against each other. Sale of a generating
facility will resolve recovery of any related regulatory assets.
D. Other Strandable Costs
Orange and Rockland's Delivery service rates will be set so
that the Company is provided a reasonable opportunity to recover
from all customers other prudent and verifiable stranded costs
associated with depreciable assets used in connection with the
metering and billing functions.
IV. Corporate Structure
A. Structural Separation
Orange and Rockland agrees to structural separation and will
apply to the appropriate regulatory authorities for permission to
form a holding company that will accomplish such separation. Such
structural separation is intended to further the public interest
by avoiding barriers to full and fair competition. Orange and
Rockland's interest in its generating facilities (excluding Hydro
Electric facilities and Gas Turbines) will be transferred to a
separate corporate subsidiary. Implementation of this holding
company structure is conditioned upon shareholder and regulatory
(i.e., Federal Energy Regulatory Commission ("FERC"), Securities
and Exchange Commission ("SEC"), the Commission, the New Jersey
Board of Public Utilities ("NJBPU") and the Pennsylvania Public
Utility Commission ("PAPUC")) approvals. Orange and Rockland
agrees to move expeditiously to secure such approvals and will
use its best efforts to implement this structural separation
prior to the introduction of full retail competition. The parties
acknowledge, however, that shareholder approval can be obtained
no earlier than the Company's April 1998 annual meeting. Staff
will join the Company in requesting that the Commission act
expeditiously on the petition required to implement this
structural separation.
If a registered holding company is formed, it will become
the successor to Orange and Rockland as signatory hereto.
Standards of conduct and rules governing affiliate relations are
set forth in Appendices H and I, respectively.
B. Section 107 Preauthorization
Orange and Rockland will be allowed to invest up to $25
million of retained earnings derived from revenues received from
the rendition of public service within New York State without the
need to make separate application under Section 107 of the Public
Service Law for each investment. Orange and Rockland will limit
its investments to energy services and marketing,
telecommunication services, environmental services and related
developmental projects. Staff will be given access to the books
and records of each unregulated subsidiary which receives such
investments in order to review any and all transactions between
Orange and Rockland and such unregulated subsidiaries. This
investment authority would be subject to immediate and automatic
suspension by the Commission should the Standard and Poor's bond
rating of Orange and Rockland (or the successor entity subject to
a bond rating) fall to BBB- or below. In addition, Orange and
Rockland would commit to entering into written contracts for all
exchanges of goods and services between the Company and any
unregulated subsidiary established pursuant to this pre-
authorization which receives such investments and to file all
such contracts with the Commission at least 30 days prior to
their effective dates.
C. Delivery Company and Affiliated ESCOs
At the time the Transmission and Distribution ("T&D")
segment of O&R's electric system in New York is separated from
Orange and Rockland's GENCO, the Delivery company will be
authorized to continue to provide basic energy services,
including energy, capacity, ancillary services, metering and
billing within the service territory. Other companies including
the Delivery company may enter into the market for providing
metering and billing services to Orange and Rockland's Delivery
company customers. In accordance with Paragraphs A and B herein,
subject to certain conditions, O&R will be authorized to create
an affiliated unregulated Energy Services Company ("ESCO"). O&R's
affiliated ESCO will be authorized to provide energy services and
products at market prices. O&R's affiliated ESCO shall operate in
accordance with standards of conduct designed to prevent it from
gaining an unfair competitive advantage as a result of its
affiliation with the Delivery company or from providing an unfair
competitive advantage to O&R's affiliated GENCO. O&R's affiliated
ESCO will be subject to the same regulatory requirements
applicable to any other comparably situated ESCO. The Standards
of Conduct that will govern the relationship between the Delivery
company and its affiliated ESCO are set forth in Appendix H.
Upon separation of the Delivery company and the GENCO, there
will be no bilateral agreements between Delivery company and
GENCO (except if necessary to address load pockets or other
reliability issues, including ancillary transmission services).
As part of its responsibility to continue to minimize energy
costs, the Delivery company may petition the Commission for a
waiver of the above restriction on bilateral agreements. Any such
bilateral agreement shall be in writing and filed with the
Commission for a review of its consistency with the transition to
competition.
Up to one year after the expiration of the four-year term of
this Settlement, affiliated ESCOs will be subject to examination
by the Commission to determine whether the manner in which they
conduct business impedes competition in the energy-related
service or product markets within O&R's service territory in
which they operate. After providing notice and opportunity to be
heard to the ESCO, Delivery company and Holding company, if such
an impediment is found, the Commission may order suitable
remedies.
The Delivery company shall be the Provider of Last Resort
("POLR") for all customers choosing to continue to purchase
"packaged" energy services from the Delivery Company or failing
to choose an energy provider and those customers deciding to
purchase from providers other than the Delivery Company, but who
later return as customers purchasing power from the Delivery
Company.
To the extent that a disproportionate amount of higher risk,
lower usage customers will continue to be supplied with power by
the Delivery company, rates shall reflect an appropriate
allowance for the billing and collection costs associated with
such customers.
D. Load Pockets
Orange and Rockland has identified two separate load pocket
areas in its service territory. A process will be established in
which Staff, the Company, and other interested parties will
address different measures,(11) analyses of which are to be
submitted in January 1998, for mitigating load pocket conditions
in O&R's service territory. Incremental costs associated with a
load pocket mitigation measure will be fully recovered in rates.
The January 1998 filing will include a proposal to provide for
such interim relief as may be necessary pending a final
Commission determination.
_________________
(11) Such as existing and new local distributed
generation or energy efficiency/management measures.
E. System Upgrades
When deciding whether to implement major transmission or
distribution upgrades (in excess of $2 million), the Delivery
company will consider a full range of alternative measures,
including demand side technologies and practices, fuel cells,
photovoltaic systems or other alternatives that may defer the
need for implementing the upgrade.
V. Other Provisions
A. Changes in Laws or Regulations
If any law, rule, regulation, order or other requirement (or
any repeal or amendment of an existing rule, regulation, order or
other requirement) of a state, local or federal government
body,(12) results in a change of five percent or more in the
Company's net income from regulated electric operations, O&R will
defer on its books of account the total effect of all such annual
cost changes in excess of 5% of net income, with any such
deferrals to be reflected in rates in a manner found reasonable
and appropriate by the Commission.
_______________
(12) Excluding Gross Receipts and Franchise Taxes.
B. Confidentiality and Privileged Information
Pursuant to the provisions of this Settlement, the Company
is required to and may be requested to provide information to the
Commission and other parties. In responding to these requirements
and/or requests, the Company reserves the right to assert the
legal privileges and/or the right to designate as confidential
certain information as described in Appendix E.
C. Changes in Rates
The Commission reserves the authority to act on the level of
Orange and Rockland's base electric rates in the event of
unforeseen circumstances that, in the Commission's opinion, have
such a substantial impact upon the return on equity contemplated
in this Settlement as to render the Company's return unreasonable
and unnecessary for the provision of safe and adequate service.
If a circumstance occurs that, in the judgment of the Commission,
so threatens the Company's economic viability or ability to
maintain safe and adequate service, the Company shall be
permitted to file for a change in base electric rates at any
time. In the event of cost inflation (as measured by a generally
accepted economic index, such as the GDP Price Deflator) in
excess of four percent per year, the Company may petition the
Commission for appropriate relief.
D. Rate Design Flexibility
During the term of this Settlement, the Company will have
the right to seek to change regulated rates in a revenue-neutral
manner or to propose de minimis rate changes. All rate changes
will be filed with the Commission and subject to its approval.
Where the Company proposes more than one rate change to take
effect at approximately the same time, it will, to the extent
practicable, combine such proposals in a single filing with the
Commission.
Any changes in rate design will fairly reflect underlying
costs of service in order to avoid or minimize the likelihood of
customers using electricity uneconomically or wastefully.
E. Regulatory Reform and Customer Operations Procedures
In consideration of the Company's implementation of retail
competition as described in this Settlement and in light of the
increased uncertainty of accurately forecasting avoided costs as
competition is introduced, the parties agree that, upon the
Commission's approval of this Settlement, Orange and Rockland's
obligation to purchase from qualifying facilities under the
Public Utility Regulatory Policies Act of 1978 shall be limited
to "as available" purchases or contracts for a period of no
longer than two years setting forth the price schedules based on
projections of Orange and Rockland's system avoided costs.
To facilitate the Company's operations under the rate plan,
the parties agree that the provisions of Part 11, Part 13,
Part 140, and Part 273 of 16 N.Y.C.R.R. and the requirements for
a plain language bill format adopted in Case 28080, Order
Requiring Gas and Electric Utilities To File Revised Billing
Formats (Oct. 31, 1985), should be waived to the extent that any
such provisions are inconsistent with the Company's ability to:
institute non-discriminatory procedures which require an
applicant to provide reasonable proof of the applicant's
identity as a condition of service;
modify its bill content and format in response to industry
restructuring; provided, however, the Company's bills will
contain the following:
- an explanation of how bills may be paid
- total charges due
- due date
- dates of present and previous meter readings
- whether the consumption levels were based on estimated
or actual readings
- the amount of any penalty charges
- any credits from past bills
- any amounts owed and unpaid from previous bills
- the customer service classification
- any budget plan information, if applicable
- unit price of energy consumed or other appropriate
itemization of charges (including sales taxes and other
informative tax itemization)
- complete name and address of customer
- unique account number or customer number assigned to
the customer
- meter readings
- period of time associated with each product or service
- name of entity rendering bill
- local or toll-free telephone number customers may call
with inquiries
include non-tariffed items in a bill; provided, however,
that customers' current payments are credited first to
tariffed items and that service cannot be terminated for
failure to pay non-tariffed items.
Upon appropriate customer authorization, the Delivery
Company shall disclose to qualifying ESCOs and other service
providers agreeing to such protective conditions as the
Commission finds appropriate, residential and non-residential
customers' current payment status information to other service
providers to the extent such information is limited to: whether
or not a deposit could be requested from the customers by the
Delivery Company due to delinquency, as defined in 16 NYCRR
Section 11.12(d)(2) or in 16 NYCRR Section 13.1(b)(13), or for
any reason provided in 16 NYCRR Section 13.7(a)(1); whether or
not a customer could be denied service by the Delivery Company
due to unpaid bills on an existing or prior account; or, whether
a customer's service could be terminated by the Delivery Company,
provided that:
such information is to be used by other service providers
only for the purposes of determining whether unregulated
energy services will be provided to the customer, whether a
deposit will be collected from such customer, or for other
purposes approved by the Commission;
ownership of the data remains with the Delivery Company; and
such information request is made by a service provider in
response to a bona fide request from the customer to the
service provider for electric service or with other customer
consent.
The Company supports the concept of informed customer
choice. To facilitate informed customer choice the Company will
support the implementation of a program of environmental
disclosure which will provide to those customers who wish to know
the fuel sources of the electricity they purchase and the
approximate types and levels of pollutants associated with such
generation; provided, however, that no such program will be
implemented unless and until a practical, meaningful, and cost
effective approach to providing such information is developed.
F. Customer Outreach and Education
Orange and Rockland will continue to develop and implement
programs and materials that will aid its customers in
understanding the changes in the electricity market that are
coming and the nature of the services that customers can expect
to receive from the Company in the future. The Company's overall
goals in conducting these programs are to enable customers,
particularly small customers, to make informed choices about
utility service while understanding their rights and
responsibilities as a utility customer. For retail access and
energy services choices in the competitive energy market, the
Company's efforts would be complemented by those of the
participating providers of competitive services, who can be
expected to provide prospective retail access customers with
information about the energy choices becoming available to
consumers.
The Company will provide to Staff by June 30 of each year of
this Settlement, a summary of its customer education efforts.
This submission will include, but not be limited to, an
assessment of the progress made by these efforts and the various
methods used to communicate the information, how the information
was distributed, and the most frequently asked questions by
customers. The first report is due June 30, 1998.
G. Interdepartmental Transfers
For purposes of this Settlement, electric prices will be
reduced by $375,000 annually to reflect an imputation of cost
savings resulting from the separation of the gas and electric
purchasing functions and the anticipated ensuing cost reduction
in gas purchased for electric generation. Cost savings in excess
of $375,000 will be preserved for the benefit of customers in the
form of future price reductions or mitigation of stranded costs.
The $375,000 annual imputation will initially be in the form of a
credit to the FAC and, in the event of changes in the FAC, in an
appropriate form of equivalent dollar impact.
As part of the Company's proposal to functionally separate
the gas and electric departments (to allow the electric
department to purchase in an open market), the Company proposed a
$.05 per Mcf rate for all gas volumes transported to the electric
department for electric generation. Consistent with the
principles set forth in Appendix K, the Company will submit to
the Commission no later than June 1, 1997, proposed changes in
the FAC and Gas Adjustment Clause that will accomplish the
pricing contemplated herein. Staff will support such pricing and
join with the Company in seeking expeditious consideration of the
Company's proposal. This proposed charge to the electric
department will be a minimum of $1,275,000 based on the carrying
costs on average embedded cost of distribution associated with
plant dedicated to serve generation. The actual annual dollar
amount paid to the gas department will be dependent on the volume
of gas transported (at $0.05 per MCF) each year for O&R's
electric generation, but in no event will the total annual charge
be less than $1.275 million. The Company's proposal will provide
for a review of the minimum at two-year intervals unless the
Company or Staff requests review within a shorter interval.
H. Accounting Provisions
Consistent with Commission policy and precedent and subject
to Staff review for reasonableness, reconciliation and/or
deferral accounting of the following costs will continue in
effect through the term of this Settlement for regulated
operations, including 1) R&D, 2) Pensions, 3) Other Post
Employment Benefits ("OPEBs"), 4) Demand-Side Management ("DSM"),
5) Cable gasification, 6) the Gas Turbine Maintenance Reserve,
and 7) West Nyack and Manufactured Gas Plant site investigation
and remediation costs.
I. Property Tax Refunds
Consistent with the terms of the approved settlement in
Case 95-E-0491, the Company will retain ten percent of any
Property Tax Refunds. This provision will remain in effect
through the term of this Settlement.
J. Flex Rates and Economic Development Rate
The Flex Rate and Economic Development provisions contained
in the approved Settlement in Case 95-E-0491 will remain in
effect through the term of this Settlement. Any existing NYPA EDP
business customers served pursuant to the current statutory
program, including Economic Development Power and high load
factor customers served under Rider G, would be exempted from
strandable cost recovery to the extent that portion of the
customer's usage is provided by NYPA resources and so long as
that customer continues to take service under Rider G or any
successor tariff rider.
The Company will design and file a flexible rate tariff for
commercial and industrial customers who are currently taking
service and who are at serious risk of relocating or closing
their facility absent a discount rate. Additionally, a customer
must be receiving a comprehensive package of economic incentives
from a State or local authority to qualify for the discount,
which, coupled with the rate discount, will enable the business
to remain in New York. The mechanism for sharing net lost
revenues caused by the discounts resulting from such a rate will
be consistent with the Flexible Rate Tariff Provisions approved
by the Commission in Case 95-E-0941. The Company will file the
tariff within 60 days after the approval of this Settlement.
K. Securitization
In the event of enactment of statewide securitization
legislation providing cost savings to Orange and Rockland, the
Company agrees to submit appropriate filings to provide the
benefits prescribed by such statute or order of the Commission.
L. Gross Receipts and Franchise Taxes
Any changes in Gross Receipts and Franchise Taxes will be
flowed through to Orange and Rockland's customers.
M. Merger
Should the regulated utility, within the next five years,
merge, purchase or be purchased by any regulated utility or other
company in this or any other state, such an event will be
considered to be unforeseen for the purpose of this Settlement.
Such merger or purchase will not, in any manner, restrict the
Commission's authority to consider appropriate actions regarding
any savings that may result, or from taking any other action that
the Commission deems reasonable.
N. Arrangements with Third Parties
Prior to the implementation of full retail competition, the
Company may enter into arrangements with third parties. The
Company acknowledges that the Commission may exercise such
authority as is provided by the Public Service Law to approve or
disapprove such an agreement or consider actions regarding any
savings that may result from any such arrangements and to take
any other action that the Commission deems reasonable, including
the modification of this Settlement.
O. Comprehensive Nature of Settlement Agreement
The foregoing reflects the parties' efforts to resolve
complex revenue requirement and rate level issues in this
proceeding. The issues involved difficult questions arising from
stranded cost recovery as well as issues arising from the
corporate restructuring under review in this proceeding. In
developing the rate plan, the parties intended to develop a
comprehensive plan that accounts for both typical revenue-
requirement issues such as expected productivity improvements as
well as for claims regarding stranded cost recoverability. The
rate plan is intended as a permanent and comprehensive resolution
of the Company's revenue requirement for the four-year term of
the Settlement. The plan resolves these issues on a basis that is
intended to allow the Company to remain under the Statement of
Financial Accounting Standards No. 71 requiring regulated
companies to follow cost-based ratemaking.
P. Provisions Not Separable
The parties have negotiated this Settlement with each
provision being in consideration for, support of, and dependent
upon all others. This Settlement is, therefore, presented for the
Commission's approval as an integrated whole. If the Commission
does not approve this Settlement in its entirety, without
modification, any signatory hereto may withdraw its acceptance of
this Settlement by serving written notice on the other parties,
and shall be free to pursue its position in this proceeding
without prejudice.
Q. Provisions Not Precedent
The terms and provisions of this Settlement apply solely to
and are binding only in the context of the purposes and results
of this Settlement. None of the terms and provisions of this
Settlement and none of the positions taken herein by any party
may be referred to, cited or relied upon by any other party in
any fashion as precedent in any other proceeding before this
Commission or any other regulatory agency or before any court of
law except in furtherance of the purposes of this Settlement.
R. Term and Time Line
The term of this Settlement runs for four years from the
first full month after the effective date of the new rates
implemented upon Commission approval of this Settlement. The
dates scheduled for expansion of the PowerPick(TM) Program and
the implementation of full retail access shall remain May 1, 1998
and May 1, 1999, respectively. The times for various actions to
be accomplished by the various parties are set forth on
Appendix A.
S. Effect of Agreement
The Company will petition the Appellate Division of the
Supreme Court for permission to withdraw its December 24,
1996 appeal in Energy Association of N.Y.S. v. Public
Service Commission, Albany County Index No. 5830-96, with
prejudice, following final Commission approval of this
agreement (i.e., when any appeals from such approval are
exhausted or the time to appeal has expired). Until this
petition is granted, the Company will discontinue its appeal
to the extent it is able to do so without forfeiting the
right to appeal.
The Company has made the following additional concessions:
Providing for substantial price reductions to large
industrial customers and all other customers.
Allocating equity earnings in excess of the sharing
threshold between shareholders and customers and to
writing down generation assets.
Expanding PowerPick(TM) (energy only) to all Large
Industrial Customers at the time of the effectiveness
of new rates and to all other customers in 1998.
Implementing structural separation of the generation
and delivery functions.
Providing full retail access (energy and capacity) to
all customers in 1999.
It is the express intention of the signatories hereto that
Orange and Rockland be provided with:
A reasonable rate of return while maintaining the
overall level of rates for the term of the Settlement.
A reasonable opportunity to recover prudently incurred
strandable costs through the CTC.
The parties agree that the provisions of this Settlement
will result in rates that are just and reasonable to both
customers and shareholders through the four-year term of
this Settlement.
Future generic determinations by the Commission will be
addressed in good faith by the parties to this Settlement
and will provide guidance for potential tailoring or
application of those determinations or this agreement, as
appropriate, to preserve this agreement and associated
considerations and obligations of Orange and Rockland and
the Commission.
T. Dispute Resolution
In the event of any disagreement over the interpretation of
this Settlement or the implementation of any of the provisions of
this Settlement, which cannot be resolved informally among the
parties hereto, such disagreement shall be resolved in the
following manner: the parties shall promptly attempt to convene a
conference and in good faith shall attempt to resolve such
disagreement. If any such disagreement cannot be resolved by the
parties within 60 days, any party may petition the Commission for
relief on a disputed matter.
Orange and Rockland Utilities, Inc.
______________________________________
G. D. Caliendo, Esq.
Senior Vice President, General Counsel and
Corporate Secretary
New York State Department of Public Service
__________________________________
Robert R. Garlin, Esq.
Assistant Counsel
New York State Department of
Economic Development
__________________________________
Jeffrey Schnur
Director of Energy Policy
Industrial Energy Users Association
________________________________
Thomas A. Condon, Esg.
Birbrower, Montalbano, Condon & Frank, P.C.
National Association of Energy Services, Inc.
_________________________________
Ruben S. Brown
The E Cubed Company on behalf of
Joint Supporters
_________________________________
Ruben S. Brown
Appendix A
Time Line for Certain Actions
March 25, 1997 Settlement Agreement
filed
_________________________ Commission approves
Settlement
_________________________ O&R withdraws from
Article 78 appeal
(4 months after
Commission approval)
Effectiveness of new rates O&R provides Large
Industrial Customers with
opportunity to realize an
electric price of 6 cents/kWh
and reduces electric
rates for all other
customers by 1.09%.
PowerPick(TM) is expanded
to include all Large
Industrial Customers
(energy only).
August 1997 O&R files proposed draft
unbundled electric
tariffs
One year after effectiveness of O&R reduces rates for all
new rates other customers by an additional 1%
May 1, 1998 O&R expands PowerPick(TM)
(energy only) to all
customers
_________________________ O&R implements structural
separation
_________________________ Unbundled electric
tariffs become effective
May 1, 1999 O&R introduces full
retail choice (energy and
capacity) to all
customers
May 1, 1999 CTC commences
April, 2001 Market valuation
procedure filed
Four years after effectiveness Settlement terminates
of new rates
May 2003 CTC terminates
May 2003 Begin collection/refund
of difference between
market and book value
Appendix B
Page 1
Standard Industrial Codes
Division B
Mining
The Division as a Whole
This division includes all establishments primarily engaged
in mining. The term mining is used in the broad sense to include
the extraction of minerals occurring naturally; solids, such as
coal and ores; liquids, such as crude petroleum; and gases such
as natural gas. The term mining is also used in the broad sense
to include quarrying, well operations, milling (e.g., crushing,
screening, washing, flotation), and other preparation customarily
done at the mine site, or as a part of mining activity.
Exploration and development of mineral properties are
included. Services performed on a contract or fee basis in the
development or operation of mineral properties are classified
separately, but within this division. Establishments which have
complete responsibility for operating mines, quarries, or oil and
gas wells for others on a contract or fee basis are classified
according to the product mined rather than as mineral services.
Mining operations are classified, by industry, on the basis
of the principal mineral produced, or, if there is no production,
on the basis of the principal mineral for which exploration or
development work is in process. The mining of culm banks, ore
dumps, and tailing piles is classified as mining according to the
principal mineral product derived.
The purification and distribution of water is classified in
Transportation and Public Utilities, Industry 4941, and the
bottling and distribution of natural spring and mineral waters is
classified in Wholesale Trade, Industry 5149.
Crushing, grinding, or otherwise preparing clay, ceramic,
and refractory minerals; barite; and miscellaneous nonmetallic
minerals, except fuels, not in conjunction with mining or
quarrying operations, are classified in Manufacturing,
Industry 3295. Dressing of stone or slab is classified in
Manufacturing, Industry 3281, whether or not mining is done at
the same establishment.
Appendix B
Page 2
Division D
Manufacturing
The Division as a Whole
The manufacturing division includes establishments engaged
in the mechanical or chemical transformation of materials or
substances into new products. These establishments are usually
described as plants, factories, or mills and characteristically
use power driven machines and materials handling equipment.
Establishments engaged in assembling component parts of
manufactured products are also considered manufacturing if the
new product is neither a structure nor other fixed improvement.
Also included is the blending of materials, such as lubricating
oils, plastics, resins or liquors.
The materials processed by manufacturing establishments
include products of agriculture, forestry, fishing, mining, and
quarrying as well as products of other manufacturing
establishments. The new product of a manufacturing establishment
may be finished in the sense that it is ready for utilization or
consumption, or it may be semifinished to become a raw material
for an establishment engaged in further manufacturing. For
example, the product of the copper smelter is the raw material
used in electrolytic refineries; refined copper is the raw
materials used by copper wire mills; and copper wire is the raw
material used by certain electrical equipment manufacturers.
The materials used by manufacturing establishments may be
purchased directly from producers, obtained through customary
trade channels, or secured without recourse to the market by
transferring the product from one establishment to another which
is under the same ownership. Manufacturing production is usually
carried on for the wholesale market, for interplant transfer, or
to order for industrial users, rather than for direct sale to the
domestic consumer.
There are numerous borderline cases between manufacturing
and other divisions of the classification system. Specific
instances will be found in the descriptions of the individual
industries. The following activities, although not always
considered as manufacturing, are so classified:
Milk bottling and pasteurizing;
Fresh fish packaging (oyster
shucking, fish filleting);
Apparel jobbing (assigning of
materials to contract factories
or shops for fabrication or other
contracting operations) as well as
contracting on materials
owned by others;
Publishing;
Ready-mixed concrete production;
Leather converting;
Logging;
Wood preserving;
Various service industries to the
manufacturing trade, such as typesetting, engraving, plate
printing, and preparing electrotyping and stereotype plates, but
not blue-printing or photocopying services;
Electroplating, plating, metal heat
treating, and polishing for the trade;
Lapidary work for the trade;
Fabricating of signs and advertising
displays.
Appendix B
Page 3
There are also some manufacturing-type activities performed
by establishment which are primarily engaged in activities
covered by other divisions, and are, thus not classified as
manufacturing. A few of the more important examples are:
Agriculture, Forestry, and Fishing
Processing on farms is not considered manufacturing if the
raw materials are grown on the farm and if the manufacturing
activities are on a small scale without the extensive use of paid
labor. Other exclusions are threshing and cotton ginning.
Mining
The dressing and beneficiating of ores; the breaking,
washing, and grading of coal; the crushing and breaking of stone;
and the crushing, grinding, or otherwise preparing of sand,
gravel, and nonmetallic chemical and fertilizer minerals other
than barite are classified in Mining.
Construction
Fabricating operations performed at the site of construction
by contractors are not considered manufacturing, but the
prefabrication of sheet metal, concrete, and terrazzo products
and similar construction materials is included in the
Manufacturing Division.
Wholesale and Retail Trade
Establishments engaged in the following types of operations
are included in Wholesale or Retail Trade; cutting and selling
purchased carcasses; preparing feed at grain elevators and farm
supply stores; stemming leaf tobacco at wholesale establishments;
and production of wiping rags. The breaking of bulk and
redistribution in smaller lots, including packaging, repackaging,
or bottling products, such as liquors or chemicals, is also
classified as Wholesale or Retail Trade. Also included in Retail
Trade are establishments primarily engaged in selling, to the
general public, products produced on the same premises from which
they are sold, such as bakeries, candy stores, ice cream parlors,
and custom tailors.
Services
Tire retreading and rebuilding, sign painting and lettering
shops, computer software production, and the production of motion
picture films (including video tapes) are classified in Services.
Most repair activities are classified as Services. However, some
repair activity such as shipbuilding and boatbuilding and repair,
the rebuilding of machinery and equipment on a factory basis, and
machine shop repair are classified as Manufacturing.
Appendix C
Eligibility Guidelines for
Large Industrial Customer Classification
The following guidelines shall serve as eligibility
requirements to take service under the Large Industrial Customer
classification:
(i) General primary, substation and transmission
service customers who maintain a minimum demand of
1,000 kW during any two of the previous twelve months.
(ii) The facility is classified by the Standard
Industrial Classification Manual (1987 edition or
supplements thereto) as Mining (Division B) or
Manufacturing Division).
(iii) Energy use for mining or manufacturing
purposes must be at least 60% of their total energy
usage as determined by the Company.
(iv) At time of application for Large Industrial
Classification a Minimum Eligibility Requirement for
that facility representing 60% of customer's total
energy usage at time of application will be
established.
(v) If a customer's actual kWh energy usage for
minings or manufacturing purposes falls below the
Minimum Eligibility Requirement established in (iv)
above by more than 25% the customer will be removed
from this rate and transferred to as appropriate
service classification.
(vi) A customer who fails to maintain criteria set
forth in (i), (ii) and (iii) above may at the
customer's option transfer to another appropriate
service classification.
Appendix D
Sources of Price Reductions
Description Year 1 Year 2 Year 3 Year 4
Expiring Surcharges:
RDM Rate Allowance $468,000 $468,000 $468,000 $468,000
Allowance for Rate Case Costs 253,000 253,000
Amort. of OPEBs 1,016,000 1,016,000
NUG Amortization 4,978,000(A)
Subtotal 468,000 468,000 1,737,000 6,715,000
One-Time Refunds(3 year Amortization):
Ramapo Tax Settlement 1,855,600 902,200 902,200
R&D Overcollection 541,000 541,000 541,000
RDM Overcollection 82,000 82,000 82,000
Investigation Refund Shortfall 40,000 40,000 40,000
Unallocated Depreciation
Reserve-Net (71%) 1,491,873 1,491,873 1,491,873
Subtotal 4,010,473 3,057,073 3,057,073 0
Other Cost Reductions
Special Franchise Property
Tax Savings 185,000 185,000 185,000 185,000
DSM Program Reductions 645,000 1,335,000 1,335,000 1,335,000
R&D Reductions 300,000 300,000 300,000 300,000
Gas Transfer Pricing(71%) 380,069 380,069 0 0
Incremental Holding
Company Costs(B) -250,000 -250,000 -250,000 -250,000
Subtotal 1,260,069 1,950,069 1,570,000 1,570,000
Total Cost Reductions
(Excl. GRT) $5,738,542 $5,475,142 $6,364,073 $8,285,000
Cost Reductions(Incl. GRT) $6,110,400 $5,829,931 $6,776,465 $8,821,868
PowerPick(TM) Savings
Opportunity (Incl. GRT) $1,108,492 $1,108,492 $1,108,492 $1,108,492
Total Sources of Price
Reduction (Incl. GRT) $7,218,892 $6,938,423 $7,884,957 $9,930,360
(A) Total NUG Amortization of $5,292,000 less amount applied to
other regulatory assets in the amount of $314,000.
(B) Costs up to maximum of $1.0 million incurred in
establishment of Holding Company will be deferred and
amortized over term of settlement.
Appendix E
Page 1
Privileged Information
Nothing is this Settlement requires or will be construed to
require the Delivery Company, the Holding Company or an
unregulated subsidiary to provide Staff or any other party access
to, or to make disclosure of any information as to which the
entity in possession of such information would be entitled to
assert a legal privilege, such as the attorney-client privilege,
if, either (i) the privilege could be asserted pursuant to CPLR
4503, CPLR 3101 (or any other applicable statute or constitution)
in a judicial proceeding, action, trial or hearing, or (ii)
providing access to or making disclosure of such information
would impair in any manner the right of the entity in possession
of such information to assert such privilege against third
parties.
If Staff or any other party seeks access to or disclosure of
any information that either the Delivery Company, the Holding
Company or an unregulated subsidiary believe is privileged and
not subject to access or disclosure under the terms of this
Settlement, counsel for the entity asserting such privilege will
detail, to the extent practical without destroying the privilege,
the reasons why the privilege is being claimed in sufficient
detail to permit a determination of whether or not to dispute the
claim of privilege. If Staff or any other party decides to
dispute such claim, it may request that an assigned
administrative law judge conduct an in camera review of such
information to determine whether it is in fact exempt from access
or disclosure under the terms of this section, which disclosure
shall not be deemed waiver of the privilege. Such determination
will be subject to review by the Commission and, if necessary,
judicial review.
Confidentiality of Records
The Holding Company and the Delivery Company shall designate
as confidential any non-public information to or of which Staff
or any other party requests access or disclosure, and which the
Holding Company, the Delivery Company or an unregulated
subsidiary believe is entitled to be treated as a trade secret.
The Holding Company, Delivery Company or unregulated subsidiary
shall provide the requesting party with a redacted version of the
information deemed to be confidential together with a non-
confidential description of the information and a full
explanation of why the information should be provided "trade
secret" status. Any party will have the right to contest the
trade secret nature of such designated confidential information
in accordance with the Commission's Rules of Procedure.
Appendix E
Page 2
Anyone who is afforded access to, or to whom disclosure is
made of, designated confidential portions of books and records,
financial information, contracts, minutes, memoranda, business
plans, and the like, will agree to maintain such information as
confidential, other than information that previously has been
made public. For the purposes of this Settlement, "information
that previously has been made public" will mean information that
either (i) has been disclosed by either the Holding Company, the
Delivery Company or any unregulated subsidiary in financial or
other literature to the financial community or to the public at
large, (ii) appears in documents contained in the public files of
a local, state or federal agency, body or court and which has not
been accorded trade secret protection, or (iii) information that
otherwise is in the public domain.
In the event that Staff or any other party receives any
information designated as confidential pursuant to the procedures
described in this Settlement and desires to use such information
in a litigated proceeding before the Commission, Staff or the
party will first notify counsel for the Delivery Company and the
Holding Company and the unregulated subsidiary, if applicable, of
the nature of such information as well as its intention to use
such information in such proceeding and afford the Delivery
Company, the unregulated subsidiary and/or the Holding company
the opportunity to apply to the administrative law judge
presiding over such proceeding within ten (10) business days for
a ruling designed to maintain the confidentiality of such
information under Part 6-1 of the Commission's Rules of Procedure
(16 NYCRR). Staff and any other party may object to any such
application on the grounds that such information is not entitled
to be treated as a trade secret under Part 6-1.
In the event that a member of Staff receives any information
designated as confidential pursuant to the procedures described
in this Settlement and desires to use or refer to such
information in a memorandum or other document which may become an
"agency record" as the term is defined in the New York Freedom of
Information Law, Staff first shall notify the Company Liaisons
(as defined in Appendix H, p. 4, paragraph (iv)) of the nature of
such information as well as its intended use, and afford the
Delivery Company, the unregulated subsidiary, if applicable,
and/or the Holding Company the opportunity to apply to the
Commission under Part 6-1 of the Commission's Rules of Procedure
within ten (10) business days for a protective order designed to
maintain the confidentiality of such information. Staff and any
other party may object to any such application on the grounds
that such information is not entitled to be treated as a trade
secret under Part 6-1.
Should O&R or any of its affiliates come into possession of
any information protected by the provisions of Part 6-1 of the
Commission's regulations, such information shall be afforded the
same protection by the Company as is afforded the Company's
confidential information under the provisions of this Appendix.
Contract and pricing terms between Delivery Company customers and
providers other than O&R or its affiliates shall constitute
confidential information and will be used by the Company solely
as needed to comply with its required customer and supplier
billing function under PowerPick(TM). O&R shall provide such
confidential information to its own personnel on a need-to-know
basis only and will not disclose such information to any
affiliate without the written consent of the party with
proprietary rights in the information. Any confidential
information provided to O&R shall be clearly marked on every page
to the effect that the information is confidential and protected
by the Commission's rules on confidentiality and non-disclosure.
Appendix F
Page 1
Customer Service and Reliability Performance Mechanism
Customer Service
The Company shall continue the customer service performance
mechanism consisting of: 1) an annual Residential Customer
Assessment Score ("RCAS"), 2) an annual Commercial and Industrial
Customer Assessment Score ("CICAS"), and 3) an annual PSC
complaint rate target.
The customer satisfaction surveys that will be used as the
basis to establish the targets discussed below are intended to
evaluate Company performance as rated by customers in the
categories of overall favorableness, value and loyalty. The
customer satisfaction survey shall be conducted for each year of
this Settlement. At the commencement of retail access, the
Company and Staff will assess the appropriateness of the survey
upon which the CAS is based and determine whether a modified
survey is necessary.
The RCAS target shall be 2.73 for each rate year of the
Settlement. The actual RCAS will be subject to adjustment to
account for any applicable margin of error. If the actual RCAS as
adjusted falls below the 2.73 target or the customer satisfaction
survey is not performed in any rate year, the Sharing Threshold
(as defined in this Settlement) will be reduced by five basis
points in that rate year.
The CICAS target shall be 2.65 for each rate year of the
Settlement. The actual CICAS will be subject to adjustment to
account for any applicable margin of error. If the actual CICAS,
as adjusted, falls below the 2.65 target or the customer
satisfaction survey is not performed in any rate year, the
Sharing Threshold will be reduced by five basis points in that
rate year.
The annual PSC Complaint Rate target shall be 10.6
complaints per 100,000 customers for each rate year. The actual
complaint rate shall be calculated using a 12-month average. If
the actual complaint rate exceeds 10.6 in any rate year, the
Sharing Threshold will be reduced by five basis points in that
rate year.
The Company will, upon request from Staff, provide such
information as is available to verify survey results. Any
confidential information or trade secrets given to Staff shall be
held and used in accordance with Appendix E.
Average Duration of Interruptions
The weighted Company-wide average duration of interruption
level target it 1.54 Hrs./Int. ("Interruption Duration Target"),
which is a composite of the following minimum acceptable values
established by the Commission's Order of May 30, 1995, in Case 95-
E-0165:
Appendix F
Page 2
Minimum
Operating Area Interruption Standard (Hrs./Int.)
Eastern Duration 1.46
Central Duration 1.70
Western Duration 1.53
If, for any of the rate years covered by this Settlement, Orange
and Rockland fails to achieve the Interruption Duration Target,
the Sharing Threshold (as defined in this Settlement) applicable
to that rate year shall be reduced by five basis points.
Average Frequency of Interruptions
The weighted Company-wide average frequency of interruption
level target is 1.70 Int./Cust. ("Interruption Frequency Target")
which is a composite of the following minimum acceptable values
established by the Commission in its order dated May 30, 1995, in
Case 95-E-0165:
Minimum
Operating Area Interruption Standard (Int./Cust)
Eastern Frequency 1.46
Central Frequency 1.70
Western Frequency 2.25
If, for any of the rate years covered by this Settlement, Orange
and Rockland fails to achieve the Interruption Frequency Target,
the Sharing Threshold applicable to that rate year shall be
reduced by five basis points.
Appendix G
Page 1
Low Income Customer Assistance Program
Introduction
On April 2, 1996, Orange and Rockland Utilities, Inc.
("Orange and Rockland" or the "Company"), New York State
Department of Public Service Staff ("Staff"), the New York State
Consumer Protection Board ("CPB") and the Industrial Energy Users
Association ("IEUA") entered into a settlement agreement on
electric rates ("Rate Case Settlement Agreement") in this
proceeding. As part of the Rate Case Settlement Agreement, the
parties agreed to meet and discuss the feasibility of developing
a new low income program. The Rate Case Settlement Agreement was
approved by the Commission in Opinion No. 96-21 issued August 12,
1996.
Since the issuance of Opinion No. 96-21, representatives of
the Company, Staff, Pace Energy Project ("Pace") and Public
Utility Law Project of New York, Inc. ("PULP") have met on
various occasions to discuss the development of a new low income
program. The parties have agreed that the Company shall implement
a low income program ("Program") in accordance with the terms and
conditions set forth below.
1. Term
The Program will commence upon the effectiveness of new
rates and terminate two years thereafter.
2. Eligible Customers
The Program will be conducted solely for the residents of
the City of Port Jervis, New York and/or residents of the zip
code area 12771. The goal of the Program is to serve no fewer
than 140 customers in total, 70 customers in the first rate year
and 70 customers in the second rate year. To be eligible, a
customer must have been the current customer of record and been
receiving service for at least one year at the present location.
3. Program Expenditures
Program expenditures will be kept at $170,000 for the two-
year period and will include all expenses for energy efficiency,
arrears forgiveness, evaluation and administration.
Expenditures per customer will be capped at $1,000. This
expenditure includes the cost of an energy audit, disaggregated
billing analysis, energy efficiency measures, and arrears
forgiveness. If the Company finds that it is spending
consistently less than $1,000 per customer, it will attempt to
recruit more customers (in excess of the original 140 customers)
into the Program in order to fully expend the available funds.
Appendix G
Page 2
4. Financial Eligibility Criteria
Customers must be at or below 150% of the Federal Poverty
Level to qualify for entry into the Program. HEAP eligibility
guidelines will be used. Participating customers must apply for
HEAP benefits, and, where applicable, customers also must apply
to the Neighbor Fund for a grant.
The Company's target for recruiting customers who are on a
direct payment program with the Department of Social Services
will be 10% of the total customers served.
5. Budget Program
Participating customers will be required to participate in
the Company's budget program.
6. Landlord Contribution
If a customer lives in a leased premise, a landlord
contribution of 25% will be required for energy conservation
measures. If the landlord does not contribute, the customer will
not be eligible to participate in the Program.
7. Energy Audit
An energy audit will be conducted for each participant to
identify the potential for the installation of an energy
efficient refrigerator and/or weatherization measures.
Weatherization measures will be considered for electric or gas
heating customers only. The final determination of which
measures, if any, to install will be based on the cost of the
measures and the benefits to the customer.
8. Contract
A participating customer must execute a contract with the
Company which sets forth the terms of the agreement including:
the budget payments to be made, the amount of arrears forgiveness
agreed on (if any), the energy measures to be installed, and the
conditions upon which continued participation will be allowed.
The contract will also provide that the customer will be removed
from credit action while participating in the Program.
9. Program Measures
The Program will address energy efficiency, payment
patterns, and/or arrears forgiveness, depending upon a customer's
circumstances. Energy efficiency measures (including refrigerator
replacement) will be the first priority for Program expenditures.
Appendix G
Page 3
10. Arrears Forgiveness
Arrears forgiveness, capped at $250 per participant, is a
customer option in the Program. Customers who choose this option
will be required to make on-time monthly budget payments. If a
customer fails to make three monthly payments by the due date for
those payments, the customer will be removed automatically from
the Program, will forfeit any further arrears forgiveness, will
be returned to normal credit action.
All accounts complying with the payment criteria, as well as
all other Program requirements, will then have 25% of the arrears
agreed on between the customer and the Company removed from the
customers account at the end of each successful three-month
segment.
If a participating customer chooses not to take advantage of
the arrears forgiveness component, the customer will be required
to participate and remain on a mutually agreeable payment plan to
address the customers arrears condition.
At the conclusion of a customer's participation in the
Program, any arrears still existing will be subject to a mutually
agreeable payment plan, and all normal collection activity will
be reinstated.
11. Program Evaluation
At the conclusion of the Program's first year, the Company
will prepare and provide to Staff a brief status report on the
Program. The Company will evaluate the Program and prepare a
detailed report within 75 days of the Program's conclusion.
12. Legislative, Regulatory or Related Actions
If any law, rule, regulation, order or other requirement (or
any repeal or amendment of an existing rule, regulation, order or
other requirement) of the state, local or federal government
results in a material change in the terms of this Settlement, the
parties agree to reconvene promptly and consider any appropriate
changes to this Settlement.
Appendix H
Page 1
Standards of Competitive Conduct
General Principles
The following standards of competitive conduct shall govern
the Delivery Company's relationship with any energy supply and
energy service affiliates:
(i) There are no restrictions on affiliates using the
same name, trade names, trademarks, service names,
service mark or a derivative of a name, of the Holding
Company or the Delivery Company or in identifying
itself as being affiliated with the Holding Company or
the Delivery Company. The Delivery Company will not
provide sales leads involving customers in its service
territory to any affiliate, including the ESCO, and
will refrain from giving any appearance that the
Delivery Company speaks on behalf of an affiliate or
that an affiliate speaks on behalf of the Delivery
Company. If a customer requests information about
securing any service or product offered within the
service territory by an affiliate, the Delivery Company
will provide a list of companies of which it is aware
operating in the service territory who provide the
service or product, which may include an affiliate, but
the Delivery Company will not promote its affiliate.
(ii) The Delivery Company will not provide services to
its marketing affiliates or customers of its marketing
affiliates on preferential terms, nor represent that
such terms are available, exclusively to customers who
purchase goods or services from, or sell goods or
services to, an affiliate of the Delivery Company. The
Delivery Company will not purchase goods or services on
preferential terms offered only to suppliers who
purchase goods or services from, or sell goods or
services to an affiliate of the Delivery Company. The
Delivery Company will not represent to any customer,
supplier, or third party that an advantage may accrue
to such customer, supplier, or third party in the use
of the Delivery Company's services as a result of that
customer, supplier or third party dealing with any
affiliate. This standard does not prohibit two or more
of the unregulated affiliates from lawfully packaging
their services. The Delivery Company must process all
similar requests for distribution services in the same
manner and within the same period of time.
(iii) All similarly situated customers, including
energy services companies and customers of energy
service companies, whether affiliated or unaffiliated,
will pay the same rates for the Delivery Company's
utility services and the Delivery Company shall apply
any tariff provision in the same manner if there is
discretion in the application of the provision. The
Delivery Company must strictly enforce a tariff
provision for which there is no discretion in the
application of the provision.
Appendix H
Page 2
(iv) Transactions subject to FERC's jurisdiction over
the provision of sales or services in interstate
commerce will be governed by FERC's orders or standards
as applicable.
(v) Release of proprietary customer information
relating to customers within the Delivery Company's
service territory shall be subject to prior
authorization by the customer and subject to the
customer's direction regarding the person(s) to whom
the information may be released.
(vi) The Delivery Company will not disclose to its
affiliate any customer or market information relative
to its service territory, including, but not limited to
utility customer lists, that it possesses or receives
from a marketer, customer, potential customer, or agent
of such customer or potential customer other than
information available from sources other than the
Delivery Company, unless it discloses such information
to its affiliate's competitors on an equal basis and
subject to the consent of the marketer, customer, or
potential customer.
(vii) The Delivery Company shall establish a
complaint process consistent with the following. If any
competitor or customer of the Delivery Company believes
that the Delivery Company has violated the standards of
competitive conduct established in this section of the
agreement, such competitor or customer may file a
complaint in writing with the Delivery Company. The
Delivery Company will respond to the complaint in
writing within twenty (20) business days after receipt
of the complaint, including a detailed factual report
of the complaint and a description of any course of
action proposed to be taken. After the filing of such
response, the Delivery Company and the Complaining
party will meet, if necessary, in an attempt to resolve
the matter informally. If the Delivery Company and the
complaining party are not able to resolve the matter
informally within 15 business days, the matter will be
referred promptly to the Commission for disposition.
Appendix H
Page 3
(viii) The Commission may impose on the Delivery
Company remedial action for violations of the standards
of competitive conduct. If the Commission believes that
the Delivery Company has violated the standards of
competitive conduct during the course of this
Settlement, it shall provide the Delivery Company
notice of and a reasonable opportunity to remedy such
conduct or explain why such conduct is not a violation.
If the Delivery Company fails to remedy violating
conduct within a reasonable period after receiving such
notice, the Commission may take remedial action with
respect to the Holding Company to prevent the Delivery
Company from further violating the standard(s) at
issues. Such remedial action may include directing the
Holding Company to divest the unregulated subsidiary,
or some portion of the assets of the unregulated
subsidiary, that is the subject of the Delivery
Company's violation(s), but exclude directing the
Holding Company to divest the Delivery Company or
imposing a service territory restriction on the
unregulated subsidiary. If the Holding Company is
directed to divest an unregulated subsidiary, it may
not thereafter, without prior Commission approval, use
a new or existing subsidiary of the Holding Company to
conduct within the Delivery Company's service territory
the same business activities as the divested subsidiary
(e.g., energy services).
(ix) The Standards of Conduct set forth in this
Settlement will apply in lieu of any existing generic
standards of conduct (e.g., the interim gas standards
established in Case 93-G-0932) and may be proposed as
substitutes for any future generic standards of conduct
established by the Commission through the term of this
Settlement. The Standards of Conduct set forth in this
Settlement will continue to apply after the expiration
of the term of this Settlement, given the Company's
need for stability in rules governing its structure.
Before the Commission makes any changes to these
standards, it will consider the Company's specific
circumstances, including its performance under the
existing standards.
(x) Evidence of adherence to these Standards of
Competitive Conduct may be introduced to rebut the
presumption that imposition of a royalty is
appropriate.
Appendix H
Page 4
Access to Books and Records and Reports
(i) Staff will have access, on reasonable notice and
subject to appropriate resolution of confidentiality
and privileges, to the books and records of the Holding
Company and the Holding Company majority-owned
subsidiaries.
Staff will have access, on reasonable notice and
subject to the provisions of Appendix E regarding
confidentiality and privileges, to the books and
records of all other Holding Company subsidiaries to
the extent necessary to audit and monitor any
transactions which have occurred between the Delivery
Company and such subsidiaries, to the extent the
Holding Company has access to such books and records.
(ii) The Delivery Company will supplement the
information that the Commission's regulations require
it to report annually with the following information:
Transfers of assets to and from an affiliate, cost
allocations relative to affiliate transactions,
identification of Delivery Company employees
transferred to an affiliate, and a listing of affiliate
employees participating in common benefit plans.
(iii) The Holding Company will provide a list on a
quarterly basis to the Commission of all filings made
with the Securities and Exchange Commission by the
Holding Company and any subsidiary of the Holding
Company including the Delivery Company.
(iv) A senior officer of the Holding Company and the
Delivery Company will each designate a company
employee, as well as an alternate to act in the absence
of such designee, to act as liaison among the Holding
Company, the Delivery Company and Staff ("Company
Liaisons"). The Company Liaisons will be responsible
for ensuring adherence to the established procedures
and production of information for Staff, and will be
authorized to provide Staff access to any requested
information to be provided in accordance with this
Settlement.
(v) Access to books and records shall be subject to
claims of privilege and confidentiality as set forth in
Appendix E hereto.
Appendix I
Page 1
Affiliate Relations
1. General
a) The Delivery Company and the Holding Company's
other subsidiaries will be operated as separate
entities, with separate books of account and other
business records, within 180 days of structural
separation. Unregulated affiliates will establish and
maintain separate and distinct offices and work space
from the Delivery Company in a separate building or
leasehold.
b) Cost allocation guidelines are attached as
Appendix J. These guidelines are fully reviewable and
non-binding proposals that may be amended and/or
supplemented as necessary. The Company will file with
the Director of the Office of Accounting and Finance of
the Department of Public Service all amendments and
supplements to the guidelines, thirty days prior to
making such change(s).
c) Neither the Delivery Company nor marketing
affiliate personnel shall communicate with any
customer, supplier or third party that any advantage
may accrue to such customer supplier or third party in
the use of the Delivery Company's service as a result
of their dealing with the marketing affiliate.
d) If the Delivery Company offers its affiliate or a
customer of its affiliate a discount or special
arrangement for distribution service, billing, metering
on any other service offered, it must contemporaneously
offer the same arrangement to all similarly situated
non-affiliate merchants and must file with the
Commission procedures that will enable the Commission
to determine how the Delivery Company is complying with
those standards.
2. Transfer of Assets
a) Transfers of assets from an affiliate to the
Delivery Company will not require prior Commission
approval. Transfers of assets from the Delivery Company
to an affiliate will not require prior Commission
approval, except for assets of the Delivery Company
whose transfer requires Commission approval under
Public Service Law, Section 70.
Appendix I
Page 2
b) For all assets other than generating stations,
transfers of assets from the Delivery Company to an
affiliate shall be at the higher of net book value or
fair market value net of deferred Federal income taxes,
except that the Delivery Company may, as part of its
reorganization, transfer to the Holding Company or
affiliate, at no charge, title to office furniture,
equipment and other assets having an aggregate net book
value not to exceed $250,000. Transfers of assets from
an affiliate to the Delivery Company shall be on a
basis not to exceed fair market value.
c) Fair market value shall be determined in
accordance with the cost allocation guidelines. For
example, the Delivery Company may transfer to an
affiliate any computer software system that the
Delivery Company is authorized to transfer, without
data, at a price at which the Delivery Company would
sell such software to an unaffiliated third party.
3. Personnel
a) The Delivery Company and the unregulated
affiliates will have separate operating employees.
b) Officers of the Delivery Company may not be
officers of the GENCO or the ESCO.
c) Employees may be transferred from the Delivery
Company to an unregulated affiliate upon mutual
agreement. Transferred employees may not be reemployed
by the Delivery Company for a minimum of one year after
the transfer date. Employees returning to the Delivery
Company may not be transferred again to an unregulated
affiliate until one year after the date of return. The
Delivery Company will file annual reports to the
Commission, beginning 45 days after the end of the
first calendar quarter following structural separation
showing transfers between the Delivery Company and
unregulated affiliates by employee name, former
company, former position, new company, new position,
and salary or annualized base compensation.
d) For each employee transferred from the Delivery
Company to an unregulated affiliate, the unregulated
affiliate shall compensate the Delivery Company by
paying an amount equal to 25 percent of the employee's
prior year's annual salary on a one-time basis, except
that there shall be no compensation (i) for employees
transferred to an unregulated affiliate not later than
six months from the date of structural separation or
the unregulated affiliate to which the employee is
transferred is formed, whichever is later; (ii) for the
transfer of employees covered by a collective
bargaining agreement; or (iii) where the employee's
transfer is attributable to the transfer or reduction
of a Delivery Company function or major asset.
Appendix I
Page 3
e) The foregoing provisions do not restrict any
affiliate from loaning employees to Delivery Company to
respond to an emergency that threatens the safety or
reliability of service to consumers.
f) The compensation of Delivery Company employees may
not be tied to the performance of any of the
unregulated subsidiaries, provided, however, that stock
of the Holding Company may be used as an element of
compensation and the compensation of common officers of
the Holding Company and Delivery Company may be based
upon the operations of the Holding Company and Delivery
Company.
g) The employees of Holding Company, Delivery Company
and the unregulated subsidiaries may participate in
common pension and benefit plans, provided that funding
requirements for employees remaining with the regulated
entity are readily determined. If the plans are
maintained or amended in such a manner that employees
of the unregulated entities are treated inconsistently
with the employees of the regulated entity, then the
plans of the regulated entity will be segregated and
made independent.
4. Provision of Services and Goods
a) Corporate services (such as corporate governance,
administrative, legal, purchasing and accounting) may
be provided by the Holding Company to or on behalf of
the Delivery Company and unregulated affiliates at a
price equal to fully-loaded cost. This guideline will
not operate as a prescription of the ratemaking
treatment of requested allowances for the costs of such
services.
b) The Delivery Company may provide services to an
unregulated affiliate, except that the Delivery Company
may not use any of its marketing or sales employees to
provide services to any affiliated GENCO or ESCO
relating to business within the Delivery Company's
service territory. The unregulated affiliate shall
compensate the Delivery Company for the services of
employees at the higher of the employees' fully-loaded
cost or the price that the Delivery Company would
charge a third party for such employees' services. This
guideline will not operate as a limitation on the
projections of revenues from such services adopted for
ratemaking purposes.
c) Subject to the provisions of this Appendix, the
Company's unregulated affiliates may provide services
to the Delivery Company. Any management, construction,
engineering or similar contract between the Delivery
Company and an affiliate and any contract for the
purchase by the Delivery Company from an affiliate of
electric energy or gas will be filed with the Public
Service Commission pursuant to Public Service Law
Section 110, and will be subject to any applicable FERC
requirements. All other goods and services will be
provided to the Delivery Company at a price that shall
not be greater than fair market value. This guideline
will not operate as a prescription of the ratemaking
treatment of requested allowances for the costs of such
services.
d) The Delivery Company, the Holding Company, and the
unregulated affiliates may be covered by common
property/casualty and other business insurance
policies. The costs of such policies shall be allocated
among the Delivery Company, the Holding Company and the
unregulated affiliates in an equitable manner.
Appendix J
Page 1
ACCOUNTING FOR AFFILIATE TRANSACTIONS
1.0 PURPOSE - To provide accounting guidelines for the transfer
of assets and employees and the provision of goods and
services among the Holding Company and its affiliates.
2.0 APPLICATION -
Corporate Accounting
Accounting Policies & Procedures ("APP")
Accounts Payable ("AP")
General Accounting and Financial Reporting ("GA")
Plant Accounting ("PA")
Treasury
Tax Accounting
Human Resources
Payroll
All other Applicable Organizations
3.0 PROCEDURES -
3.1 Background
On October 1, 1996 in the Competitive Opportunities
proceeding, Orange and Rockland Utilities, Inc.
("O&R") submitted to the New York State Public Service
Commission ("PSC") a petition which set forth a plan
for corporate restructuring. As part of the
Settlement Agreement dated _______ regarding
Competitive Opportunities for Electric Service, Case
96-E-0900, "O&R's" regulated and unregulated business
would be conducted through separate corporate entities
which would be direct or indirect subsidiaries of a
holding company. The holding company ("HoldCo") and
its subsidiaries, including the regulated company
("RegCo") are considered affiliates for purposes of
this procedure. The procedures outlined herein are
designed to properly allocate costs among the HoldCo,
the RegCo and unregulated affiliates.
3.3 Provision of Goods and Services
a) The cost allocations set forth in this
procedure have been developed utilizing guidelines
established by the (1) Securities and Exchange
Commission's Staff Accounting Bulletin No. 55,
"Allocation of Expenses and Related Disclosure in
Financial Statements of Subsidiaries, Divisions or
Lesser Business Components of Another Entity"; and
(2) Cost Accounting Standards Board's Standard
403,
Appendix J
Page 2
"Allocation of Home Office Expenses to Segments, "
Standard 410, "Allocation of Business Unit General
and Administrative Expenses to Final Cost
Objectives," and Standard 418, "Allocation of
Direct and Indirect Costs."
b) Expenses incurred by the RegCo and the HoldCo
in support of an affiliate will be allocated
directly to that affiliate to the maximum extent
practicable. Expenses that are not directly
allocable will be accumulated into homogenous cost
categories and allocated on a cost causative
basis. If cost drivers cannot be determined, then
allocations will be based upon reasonable and
related proportional relationships (i.e.,
capitalization, number of employees, revenues,
etc.).
c) The unregulated affiliates may provide
services to the HoldCo and the RegCo. Any
management, construction, engineering or similar
contract between the RegCo and an affiliate and
any contract for the purchase by the RegCo from an
affiliate of electric energy or gas will be
governed by PSL 110, subject to any applicable
FERC requirements. All other goods and services
will be provided to the RegCo at a price that will
not be greater than fair market value, determined
through reference within a specified market. In
the absence of a specified market, fair market
value may be determined, for example, by using
independent qualified appraisers.
Note: Based on net book value less deferred taxes
compared to fair market value reduced by federal
tax benefits previously taken. Assets valued at
fair market value will be discounted for tax
benefits previously utilized.
3.4 Costs Incurred by the RegCo on Behalf of Affiliates
a) Direct Cost Allocations
Salaries and labor related expenses incurred by
the RegCo in support of affiliate activities will
be directly assigned and billed to affiliates each
month based on the extent practical. These
charges are to be made on direct time and material
basis plus appropriate overhead. Salary and labor
related expenses will be charged to the affiliate
based on the hours reported on the weekly or semi-
monthly time report. RegCo corporate services
(such as legal and accounting) will be billed on a
fully-loaded cost basis.
Appendix J
Page 3
b) Proportional and Other Allocations
1. Allocable Charges - Category I
Category I costs include all RegCo employees who
provide services (both corporate and project
specific) to affiliates. Costs incurred that are
impractical to charge direct will be distributed
based on the relationship of the expenses to the
cost incurred to provide the service. Some of
these costs will be based on a percentage of the
base costs incurred or an average cost per
activity to insure a fully loaded cost billing.
See Exhibit A for a breakdown of Allocable Costs.
2. Common Services - Category II
Category II identifies general corporate functions
or administrative support services performing
common activities applicable to all affiliates.
Included in Common Services would be, but not
limited to, Internal Auditing, Human Resources,
Corporate Communications and Accounting.
Corporate governance costs related to Board of
Directors, financial communication, investor
relations, and ethics would also be included in
this category.
c) Cost Causative Allocations
1. Administrative support services (Common
Services) incurred by the RegCo on behalf of
the affiliates and which cannot be allocated
directly will be billed to the affiliates
each month based on appropriate cost
causative allocations. These administrative
support services may include, but are not
limited to transactions processed by the
following RegCo organizations: Accounting,
Office of Treasurer, Board of Directors, Tax
Accounting, Corporate Communication, Ethics,
Financial Forecasting & Budgets.
2. The costs associated with these
administrative support services will be
allocated to the affiliates, as appropriate,
based on the activities and business
functions and allocated based on one of the
following measures:
ratio of affiliates assets to total
consolidated assets
activity unique to a department distributed
to applicable business segments.
Appendix J
Page 4
percentage of either payroll dollars or
staffing levels of the affiliate in relation
to all payroll dollars or employees
percentage of affiliates operating revenue to
the total operating revenue of all affiliates
percentage of average net book value of the
affiliates assets plus inventories to the
total average net book value of assets of all
affiliates
the number of affiliate transactions
processed in relation to the total number of
transactions processed.
2. Affiliate employees may have the
opportunity to participate in the benefit
programs of the RegCo. These programs may
include medical and hospitalization coverage
as well as pension and other post retirement
benefits. The RegCo will be reimbursed by
the affiliates for costs associated with
these benefits based on the fringe benefit
applied to the salary of the affiliates
employees.
3. The RegCo, the HoldCo, and the
unregulated affiliates may be covered by
common property/casualty and other business
insurance policies. The costs of such
policies will be allocated among the RegCo,
the HoldCo and the unregulated affiliates in
accordance with the use, occupancy and/or
liability risk being insured.
3.5 Costs Incurred by the HoldCo on Behalf of Affiliates
a) Costs incurred by the HoldCo that are
specifically attributable to the affiliates will
be charged to the affiliates by direct cost
allocations (as described in Section 3.4a) or cost
causative allocations (as described in Section
3.4b and 3.4c).
b) Costs incurred by the HoldCo that are of a
general corporate nature, such as organization
costs and development stage activities, will be
charged to the affiliates by proportional cost
allocations (as described in Section 3.4c).
4.0 EXHIBIT
Exhibit A-Allocation of Expenses Between the RegCo and
Affiliates
Appendix J
Page 5
EXHIBIT A
ORANGE AND ROCKLAND UTILITES, INC.
ALLOCATION OF EXPENSES BETWEEN THE HOLDCO AND/OR REGCO AND
AFFILIATES
Description of Expense Basis for Allocation
1) Compensation
A) Salaries Number of hours devoted to
affiliate operation or percentage of time.
B) Other Compensation Includes deferred compensation and
imputed income. Allocated on same
basis as salaries.
C) Support Services Allocated on basis of utilization of
individuals for whom support work is
performed. (e.g. information technology,
security, safety.)
D) Fringe Benefits Corporate fringe benefit rate to be
applied to all straight-time labor
2) Employee Expenses
A) Office Space Charged at the market rate per
square foot, including utilities and
building service maintenance (as
provided by the Real Estate
Department); multiplied by the space
utilized (as provided by
Facilities Management).
B) Office Supplies & Expenses Overhead percentage to be applied
(excluding expenses directly to total salary and other
assignable to the affiliate compensation (based on RegCo ratio
or included in the office of Office Supplies and
space charge) Expenses-PSC Account
921, less Building Service costs and
Administrative and General
Salaries).
Appendix J
Page 6
3) Corporate Governance Expenses Weighting of affiliate assets,
employees, and revenue contribution
to consolidated assets, employees
and revenues. (also applies to
corporate fiscal expenses and outside
services performed for consolidated
group.
4) Other Expenses Directly These costs will be charged to an
Assignable to Affiliates affiliate account and paid directly by
the affiliate.
Appendix K
Page 1
Interdepartmental Transfers
The Company's submission to the Commission to modify its
Fuel Adjustment Clause and Gas Adjustment Charge will be
consistent with the following principles:
1. The existing agreement in which the Company's gas
department provided a bundled gas service (i.e.,
acquired gas and transported from production area to
generation site) for generation is changed.
2. The new agreement functionally separates the
electric and gas departments' business relationship.
Electric department will now purchase gas separate from
the gas department.
3. The gas department will not be obligated to
provide gas services (including natural gas,
transportation, capacity or balancing services upstream
of the citygate) to electric department, except: under
separately negotiated contracts at market based prices.
4. The new Transportation price will incorporate a
charge of $0.05 per Mcf for all volumes transported to
the electric department by the gas department, but in
no event will the total annual charge be less than
$1.275 million (Bowline By-Pass).
5. All gas transactions between gas and electric
business units will be arms length, with separate
purchasing personnel.
6. Negotiated agreements between gas and electric
departments will be at posted bulletin board prices
(market prices), consistent with FERC standards and
regulations. Copies of agreements will be filed with
the Commission by the gas business unit. This will
include:
transportation and capacity services from
production areas to citygate (i.e., all upstream
capacity);
price of gas (commodity) sold; and
balancing services.
7. Absent a separate balancing agreement approved by
the Commission, the electric department must balance
its gas deliveries to the citygate and from the
citygate to the generator site within the limits
established for transportation customers, as described
in the gas transportation tariff, or face penalty
charges detailed in the gas tariff.
8. Expenditures associated with the upgrade of the
existing pipeline to Bowline, in order to allow the
pipeline to operate it at a higher pressure, and not
for instance due to general safety considerations, will
be allocated to the Company's electric department.
