UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1727729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip code)
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
class of common stock, as of the close of the latest practicable
date.
Common Stock - $5 Par Value 13,654,859 shares
(Class) (Outstanding at October 31, 1997)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income (Unaudited)
for the three months and nine months ended
September 30, 1997 and September 30, 1996 3
Consolidated Cash Flow Statements (Unaudited)
for the nine months ended September 30, 1997
and September 30, 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 6. Exhibits and Reports on Form 8-K 27
Signatures 28
<TABLE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
<CAPTION>
September 30, December 31,
1997 1996
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Electric $1,036,481 $1,023,796
Gas 229,207 219,712
Common 62,348 59,589
Utility Plant in Service 1,328,036 1,303,097
Less accumulated depreciation 466,100 440,333
Net Utility Plant in Service 861,936 862,764
Construction work in progress 58,323 36,879
Net Utility Plant 920,259 899,643
Non-utility Property:
Non-utility property 11,702 17,818
Less accumulated depreciation, depletion
and amortization 1,078 2,344
Net Non-utility Property 10,624 15,474
Current Assets:
Cash and cash equivalents 2,985 3,321
Temporary cash investments - 1,289
Customer accounts receivable, less allowance for
uncollectible accounts of $2,391 and $2,391 57,237 60,992
Accrued utility revenue 14,587 22,773
Other accounts receivable, less allowance for
uncollectible accounts of $303 and $258 9,004 7,648
Materials and supplies (at average cost) 38,452 35,595
Prepaid property taxes 32,547 20,051
Prepayments and other current assets 34,000 21,540
Total Current Assets 188,812 173,209
Deferred Debits:
Income tax recoverable in future rates 74,187 74,198
Deferred revenue taxes 12,697 14,271
Deferred pension and other postretirement benefits 9,580 9,922
IPP settlements 16,655 24,065
Unamortized debt expense (amortized over term
of securities) 10,617 10,046
Other deferred debits 27,588 37,072
Total Deferred Debits 151,324 169,574
Total $1,271,019 $1,257,900
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
<CAPTION>
September 30, December 31,
1997 1996
(Thousands of Dollars)
<S> <C> <C>
Capitalization:
Common stock (13,654,752 & 13,654,121 shares
outstanding) $ 68,274 $ 68,271
Premium on capital stock 133,627 133,616
Capital stock expense (6,111) (6,097)
Retained earnings 182,029 192,060
Total 377,819 387,850
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock
(11,746 and 12,180 shares outstanding) 383 397
Total Non-Redeemable Stock 43,227 43,241
Long-term debt 276,642 281,622
Total Capitalization 697,688 712,713
Non-current Liabilities:
Reserve for claims and damages 4,130 3,843
Postretirement benefits 15,014 15,213
Pension costs 42,078 37,421
Obligations under capital leases 1,681 -
Total Non-current Liabilities 62,903 56,477
Current Liabilities:
Notes payable and obligations due within one year 177,755 161,963
Accounts payable 82,360 67,449
Accrued Federal income and other taxes 1,120 1,024
Refundable fuel and gas costs 5,462 4,943
Refunds to customers 1,386 1,816
Other current liabilities 29,446 35,800
Total Current Liabilities 297,529 272,995
Deferred Taxes and Other:
Deferred Federal income taxes 190,140 185,156
Deferred investment tax credits 14,697 15,292
Accrued IPP settlement agreements - 2,000
Accrued Order 636 transition costs 1,340 11,620
Other deferred credits 5,810 7,983
Total Deferred Taxes and Other 211,987 222,051
Net Liabilities (Assets) of Discontinued
Operations (Note 6 ) 912 (6,336)
Total $1,271,019 $1,257,900
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $145,244 $144,506 $364,224 $373,297
Gas 14,364 15,589 117,415 125,681
Total Utility Revenues 159,608 160,095 481,639 498,978
Diversified Activities 120 433 602 1,108
Total Operating Revenues 159,728 160,528 482,241 500,086
Operating Expenses:
Operations:
Fuel used in electric production 25,149 21,615 53,332 41,816
Electricity purchased for resale 14,568 14,719 47,428 58,946
Gas purchased for resale 7,978 8,592 69,896 74,240
Other expenses of operation 37,790 35,038 106,697 110,813
Maintenance 8,724 8,400 26,711 26,842
Depreciation and amortization 8,871 9,164 27,087 23,054
Taxes other than income taxes 24,592 25,220 74,179 76,064
Federal income taxes 8,315 10,954 18,707 22,003
Total Operating Expenses 135,987 133,702 424,037 433,778
Income from Operations 23,741 26,826 58,204 66,308
Other Income and (Deductions):
Allowance for other funds used during
construction 30 4 64 13
Investigation costs 625 (200) (2,765) (1,000)
Other - net (88) 81 663 (2,228)
Taxes other than income taxes (68) (33) (200) (181)
Federal income taxes 65 42 1,455 504
Total Other Income and (Deductions) 564 (106) (783) (2,892)
Income Before Interest Charges 24,305 26,720 57,421 63,416
Interest Charges:
Interest on long-term debt 5,957 6,040 18,118 18,143
Other interest 1,586 1,215 4,901 4,068
Amortization of debt premium, expense-net 412 366 1,221 1,097
Allowance for borrowed funds used
during construction (347) (118) (740) (393)
Total Interest Charges 7,608 7,503 23,500 22,915
Income from Continuing Operations 16,697 19,217 33,921 40,501
(continued)
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Discontinued Operations (Note 6):
Loss from discontinued operations
net of related income taxes - (541) (6,738) (950)
Estimated net loss on disposal of
discontinued operations (4,129) - (8,694) -
Loss with respect to
discontinued operations (4,129) (541) (15,432) (950)
Net Income 12,568 18,676 18,489 39,551
Dividends on preferred and preference
stock, at required rates 700 755 2,099 2,268
Earnings applicable to common stock $11,868 $17,921 $16,390 $37,283
Avg. number of common shares
outstanding(000's) 13,654 13,654 13,654 13,654
Earnings Per Average Common Share
Outstanding:
Continuing Operations $1.17 $1.35 $2.33 $2.80
Discontinued Operations - (.04) (.49) (.07)
Estimated net loss on disposal (.30) - (.64) -
Total $ .87 $1.31 $1.20 $2.73
Dividends declared per common share
outstanding $ - $ - $1.94 $1.94
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(Thousands of Dollars)
<S> <C> <C>
Cash Flow from Operations:
Net income $18,489 $39,551
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 26,751 24,658
Deferred Federal income taxes 4,637 5,504
Deferred investment tax credit (595) (607)
Deferred and refundable fuel and gas costs 519 (372)
Allowance for funds used during construction (804) (406)
Other non-cash charges 2,833 3,172
Changes in certain current assets and liabilities:
Accounts receivable (net) and accrued utility rev. 10,585 8,384
Materials and supplies (2,857) (3,533)
Prepaid property taxes (12,496) (8,536)
Prepayments and other current assets (12,460) (1,713)
Operating accounts payable 14,911 22,754
Accrued Federal Income and other taxes 96 (375)
Accrued interest (2,834) (2,767)
Refunds to customers (430) (11,019)
Other current liabilities (3,491) (2,152)
Discontinued operations 7,248 1,668
Other-net 13,379 (10,785)
Net Cash Provided from Operations 63,481 63,426
Cash Flow from Investing Activities:
Additions to plant (47,822) (31,938)
Temporary cash investments 1,289 1,335
Allowance for funds used during construction 804 406
Net Cash Used in Investing Activities (45,729) (30,197)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt 20,089 26
Retirements of:
Preference and preferred stock (1,390) -
Long-term debt (25,252) (167)
Capital lease obligations (166) (275)
Net borrowings (repayments) under
short-term debt arrangements* 17,180 (1,234)
Dividends on preferred and common stock (28,549) (28,687)
Net Cash Used in Financing Activities (18,088) (30,337)
Net Change in Cash and Cash Equivalents (336) 2,892
Cash and Cash Equivalents at Beginning of Period 3,321 3,189
Cash and Cash Equivalents at End of Period $ 2,985 $ 6,081
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $25,825 $24,088
Federal income taxes $10,000 $14,281
*Debt with maturities of 90 days or less.
The accompanying notes are an integral part of these statements.
</TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of September 30, 1997, the
consolidated statements of income for the three month and
nine month periods ended September 30, 1997 and 1996, and
the consolidated cash flow statements for the nine month
periods then ended have been prepared by Orange and Rockland
Utilities, Inc. (the "Company") without an audit. In the
opinion of management, all adjustments (which include normal
recurring adjustments and the adjustments necessitated by
the discontinued operations) necessary to fairly present the
financial position and results of operations at September
30, 1997, and for all periods presented, have been made.
The amounts in the consolidated balance sheet as of December
31, 1996 have been derived from audited financial
statements.
2. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
It is suggested that these unaudited consolidated financial
statements, notes to consolidated financial statements and
the management's discussion and analysis of financial
condition and results of operations be read in conjunction
with the consolidated financial statements, the review of
the Company's results of operations and financial condition
and the notes to consolidated financial statements included
in the Company's December 31, 1996 Annual Report to
Shareholders. The results of operations for the periods
ended September 30, 1997 are not necessarily indicative of
the results of operations for the full year.
3. The consolidated financial statements include the accounts
of the Company, all subsidiaries and the Company's pro rata
share of an unincorporated joint venture. All intercompany
balances and transactions have been eliminated.
4. Contingencies at September 30, 1997 are substantially the
same as the contingencies described in the "Notes to
Consolidated Financial Statements" included in the Company's
December 31, 1996 Annual Report to Shareholders, which
material is incorporated by reference to the Company's
December 31, 1996 Form 10-K Annual Report, and in Item 3,
Legal Proceedings of the Company's Form 10-K Annual Report
for the fiscal year ended December 31, 1996, except changes
in the status of regulatory matters which are updated in
Part I, Item 2 under the caption "Regulatory Activities" and
the status of certain Legal Proceedings which are updated in
Part II, Item I, "Legal Proceedings".
5. In February 1997, the Financial Standards Board issued
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). This statement
simplifies the computation of earnings per share ("EPS").
Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-
average number of common shares outstanding for the period.
SFAS No. 128 will be effective for financial statements for
periods ending after December 15, 1997, and the Company
plans to adopt the statement for year-end 1997. If adopted
currently, SFAS No. 128 would have a negligible impact on
the Company's reported EPS.
6. NORSTAR Management, Inc. ("NMI"), a wholly-owned indirect
subsidiary of the Company sold certain of the assets of NORSTAR
Energy Limited Partnership ("NORSTAR"), a natural gas services
and marketing company of which NMI is the general partner. The
assets sold consist primarily of customer contracts and accounts
receivable. NMI is expected to wind up the remaining portion of
the NORSTAR business prior to December 31, 1997. In accordance
with Accounting Principles Board Opinion No. 30, the financial
results for this segment are reported as "Discontinued
Operations." The total losses related to discontinued operations
were $(4,128,911) or $(0.30) per share for the quarter ended
September 30, 1997 and $(540,814) or $(0.04) per share for the
quarter ended September 30, 1996. The impact of NORSTAR as
reported in "Discontinued Operations" is as follows:
Three Months Ended Sept. 30,
1997 1996
Gross Revenue $ - $55,723,001
Cost and Expense - 57,345,980
Loss Before Income Taxes - (1,622,979)
Provision for Taxes - (1,082,165)
Loss from Discontinued
Operations - (540,814)
Estimated Loss on Disposal
(net of tax benefits
of $1,934,301) (4,128,911) -
Total Loss Related to
Discontinued Operations $(4,128,911) $ (540,814)
Sept. 30, 1997 Dec. 31, 1996
Assets:
Current Assets $ 7,893,167 $ 49,515,807
Fixed Assets 295,479 1,532,565
Other Assets 643,736 2,416,712
Total Assets 8,832,382 53,465,084
Liabilities:
Current Liabilities 8,709,723 46,054,645
Other Liabilities 1,034,966 1,073,987
Net Liabilities (Assets)
of Discontinued Operations $ 912,307 $ (6,336,452)
7. The Company experienced a major storm on April 1, 1997. On
June 27, 1997, the Company filed a petition with the New
York Public Service Commission ("NYPSC") to defer and
recover the $2.8 million of incremental costs incurred in
its New York service area during this event. The Company
continues to defer these charges pending final resolution by
the NYPSC.
8. Certain amounts from prior years have been reclassified to
conform with the current year presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated earnings per average common share
outstanding from continuing operations for the third quarter of
1997 were $1.17 as compared to $1.35 for the third quarter of
1996. The Company's consolidated loss per average common share
outstanding from discontinued operations for the third quarter of
1997 was $(0.30) as compared to $(0.04) for the third quarter of
1996. Fluctuations within the components of earnings are
discussed in the "Results of Operations". The average number of
common shares outstanding was 13.7 million for the third quarters
of both 1997 and 1996.
The return from continuing operations on average common equity
for the twelve months ended September 30, 1997 was 10.32% as
compared to 11.49% for the twelve months ended September 30,
1996.
Capital Resources and Liquidity
At September 30, 1997, the Company and its utility subsidiaries
had unsecured bank lines of credit totaling $100.0 million.
During October 1997, unsecured bank lines of credit were
increased to $200 million. The Company may borrow under the
lines of credit through the issuance of promissory notes to
commercial banks or use such lines of credit to support fully
commercial paper borrowings, which are issued through dealers.
The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the Company's
aggregate lines of credit. Through September 30, 1997, such
lines of credit were used to support fully the Company's
commercial paper borrowing; however, during October the Company
issued $78.0 million of promissory notes to banks to finance
temporarily maturing issues of long-term debt, as described
below. The Company's authority to issue promissory notes and
commercial paper was increased by the Federal Energy Regulatory
Commission, effective October 1, 1997 through September 30, 1999,
to up to $200 million, at any one time outstanding, from $125
million at September 30, 1997. The average daily balance of
short-term borrowings for the nine months ended September 30,
1997 amounted to $99.0 million at an effective interest rate of
5.8% as compared to $58.5 million at an effective interest rate
of 5.7% for the same period of 1996. The average daily balance
of temporary cash investments for the nine months ended September
30, 1997 was $0.9 million with an effective interest rate of 5.2%
compared to $1.4 million at an effective interest rate of 5.1%
for the same period of 1996.
The NYPSC has authorized the Company to issue up to 750,000
shares of common stock under its Dividend Reinvestment and Stock
Purchase Plan ("DRP") and its Employee Stock Purchase and
Dividend Reinvestment Plan ("ESPP"). Under an option of the
Company, however, common stock used to satisfy the requirements
of the DRP and ESPP is being purchased on the open market.
On October 1, 1997 the Company's First Mortgage Bonds, Series I,
6 1/2% (the "Series I Bonds") in the principal amount of $23
million were repaid at maturity. The Series I Bonds were the
final series of bonds outstanding under the Orange and Rockland
Utilities, Inc. First Mortgage Indenture. The indenture under
which the Company's debentures are issued contains a covenant
restricting the issuance by the Company of secured indebtedness
while any securities are outstanding under the debenture
indenture. The covenant prohibits the Company from issuing
additional bonds under the First Mortgage Indenture. In
addition, on October 15, 1997 the Company's Debentures, Series B,
6 1/2% (the "Series B Debentures") in the principal amount of $55
million were repaid at maturity. Funds required for the
repayment of the Series I Bonds and the Series B Debentures,
which totaled $78 million, were provided by the issuance of
promissory notes, pending the anticipated issuance by the Company
of $80 million of debentures during the fourth quarter of 1997,
the proceeds of which will be primarily used to repay such
promissory notes.
On July 18, 1997, the Company filed a petition with the NYPSC for
approval to repurchase up to 700,000 shares of its common stock
and to issue up to $25 million of unsecured debt obligations. If
the petition is approved, the Company will repurchase stock from
time to time, not later than December 31, 1999 in the open market
or through privately negotiated transactions. The proceeds of
the debt issue will be used to provide funds for the common stock
repurchase. The Company currently has no other plans for the
issuance of additional debt or equity securities, with the
exception of the expected issuance of debentures discussed above.
It is expected that all other capital requirements will be met
with funds from operations, supplemented with short-term debt as
required.
Regulatory Activities
New York
On November 6, 1997, the Company, the New York State Department
of Public Service (the "Staff") and other parties entered into,
and filed with the NYPSC, an Electric Rate and Restructuring Plan
(the "Restructuring Plan") in Case 96-E-0900, the NYPSC
Competitive Opportunities Proceeding, which provides for the sale
of all of its generating assets (i.e., all units at the Lovett
and Bowline Generating Stations, hydro-electric facilities and
gas turbines) and for lower electric rates. The Restructuring
Plan supersedes the settlement agreement the Company entered into
on March 25, 1997 with the Staff and other parties in this case.
The NYPSC had found the March 25, 1997 settlement agreement
unacceptable and on September 10, 1997, directed the Company, the
Staff and other parties to resume negotiations to modify it. The
Company anticipates that the Restructuring Plan will be addressed
by the NYPSC on November 25, 1997.
Under the terms of the Restructuring Plan, which covers a four-
year period commencing with NYPSC approval, the Company has
agreed to commence immediately the process of auctioning all of
its generating assets. The Company will not be a bidder in the
auction. The Restructuring Plan provides that if the Company
selects a winning bidder prior to May 1, 1999, the New York share
of any net book gains associated with the sale are to be
allocated between shareholders and customers on a 25/75 basis,
respectively, and any net book losses are to be allocated between
shareholders and customers on a 5/95 basis, respectively. If the
Company selects a winning bidder on or after May 1, 1999, the New
York share of the net book gains or losses associated with sale
are to be allocated between shareholders and customers on a 20/80
basis, respectively. The Restructuring Plan further provides for
a $20 million cap on the New York share of net book gains
allocable to shareholders from the sale of generating assets. In
addition, the terms of the Restructuring Plan permit the Company
to defer and recover up to $7.5 million (New York electric share)
of prudent and verifiable non-officer employee costs, such as
retraining, outplacement, severance, early retirement and
employee retention programs associated with the divestiture.
Under the terms of the Restructuring Plan, the Company will be
authorized to petition the NYPSC for recovery of employee costs
in excess of $7.5 million.
In addition, the terms of the Restructuring Plan permit the
Company to retain all earnings up to an 11.4% return on equity
and further provide that earnings in excess of 11.4% are to be
shared, with 75% to be used to offset NYPSC approved deferrals or
otherwise inure to the Company's customers, and 25% to be
retained by the Company's shareholders. The Restructuring Plan
further provides that full retail access to a competitive energy
and capacity market will be available for all customers by
May 1, 1999. The Company's existing PowerPick(TM) Program,
whereby customers can purchase energy (but not capacity) from
suppliers other than the Company, would be expanded to all
customers on May 1, 1998.
The Restructuring Plan also provides for electric price
reductions of approximately $32.4 million over its four-year term
and for recovery of above market generation costs should the
transfer of title to the Company's generating assets not occur
before May 1, 1999, through a Competitive Transition Charge (the
"CTC"). Should a CTC be required, the Company would be
authorized to recover the difference between its non-variable
costs of generation, including 75% of fixed production labor
expenses and property taxes, and the revenues, net of fuel and
variable operating and maintenance ("O&M") expenses, derived from
the operation of the Company's generating assets in a deregulated
competitive market. If title to the generating assets has not
transferred as of May 1, 2000, the CTC would be modified so as to
allow a maximum recovery of only 65% of fixed production labor
expenses and property taxes. The modified CTC would remain
effective until the earlier of the date title to the generating
assets is transferred or October 31, 2000. In the event title to
the generating assets is not to be transferred by October 31,
2000, the Company would be authorized to petition the NYPSC for
permission to continue a CTC until the date title to the
generating assets is transferred. The CTC does not allow for the
recovery of inflationary increases in non-fuel O&M production
costs, property tax increases, wage rate increases, or increased
costs associated with capital additions or changes in the costs
of capital applicable to production costs.
The Restructuring Plan also provides that the Company and its
utility subsidiaries are to apply to the appropriate regulatory
authorities for the permission required to form a new holding
company, which would be a registered holding company under the
Public Utility Holding Company Act of 1935 (the "1935 Act"). The
Company currently is an exempt holding company under the 1935
Act. The new holding company structure would provide for
separate regulated electric distribution companies in the New
York, New Jersey and Pennsylvania service territories, as well as
an unregulated energy services company. The Company would
continue as the New York regulated electric distribution company.
The formation of the holding company is conditioned upon
shareholder and regulatory approval, including approval of the
Securities and Exchange Commission, the Federal Energy Regulatory
Commission, the NYPSC, the New Jersey Board of Public Utilities
and the Pennsylvania Public Utility Commission. The unregulated
energy services company would be able to market electricity and
unbundled energy services (e.g., metering) to wholesale and
retail customers on a competitive basis using the Company's name
without a royalty payment.
Reference is made to Exhibit 99.7 of this Form 10-Q Quarterly
Report which contains the full text of the Restructuring Plan.
It is not possible to predict whether the NYPSC will approve the
Restructuring Plan in its present form, or with modifications, or
to predict the outcome of the New York Competitive Opportunities
proceeding or its effect on the Company's consolidated financial
position or results of operations.
On June 5, 1997, the NYPSC issued an Order Requiring the Filing
of Proposals to Ameliorate Gas Price Volatility and Requesting
Comments in Case 97-G-0600, In the Matter of the Commission's
Request for Gas Distribution Companies to Reduce Gas Cost
Volatility and Provide for Alternative Gas Purchasing Mechanisms.
Under the Order, gas utilities in New York were required to
submit proposals for fixed price gas sales options to be
available for use by all customers during the 1997-1998 heating
season. In addition, the NYPSC directed the utilities to review
their gas procurement practices and to develop an acquisition
strategy to include a mix of purchase options comprised of, but
not limited to, indices, spot purchases and financial
transactions with a view toward fostering gas price stability.
On August 4, 1997, the Company filed a multi-part proposal in
response to the NYPSC's Order. The proposal provided, in part,
for the Company to use financial derivatives to hedge an
unspecified portion of its gas supply portfolio for the upcoming
winter with the costs associated with the hedging activity to be
recovered by the Company through its gas adjustment clause. The
proposal also included a new tariff which would allow the Company
to negotiate the commodity price of gas with its larger
customers. Pursuant to further direction of the NYPSC, the
Company revised its proposal in this proceeding on September 26,
1997. The revised proposal provides for a five-month, fixed-
price option to be available to firm sales customers for the 1997-
1998 heating season. The fixed-price option will lock in only
the commodity cost of gas. The option will be limited to ten
percent of customers in each eligible customer class. By order
issued October 7, 1997, the NYPSC provided that costs associated
with any variations between gas utilized by customers electing
the fixed price option and volumes locked in by the Company, to
the extent prudently incurred, will be recoverable. The October
7 Order requires the Company to file tariff sheets implementing
its fixed price option. The tariff sheets will become effective
in November 1997 but will be subject to NYPSC review.
On September 4, 1997, the NYPSC issued a Notice Inviting Comments
on Staff's Report in Case 97-G-1380, In the Matter of Issues
Associated with the Future of the Natural Gas Industry and the
Role of Local Gas Distribution Companies ("LDCs"). The Notice
invites comments by November 20, 1997, on the Staff's Position
Paper entitled "The Future of the Natural Gas Industry."
The primary conclusion of the Staff's Position Paper is that over
the next five years, LDCs in New York should transition out of
the business of selling gas. Staff believes that this action is
necessary in order to encourage competition and provide gas
customers with choice in the marketplace. The Position Paper
sets forth Staff's recommendations towards accomplishing the goal
of removing LDCs from the merchant function. In addition, the
Paper identifies, discusses and requests comments on the
following three impediments to LDCs terminating their gas
merchant role: (1) upstream pipeline capacity held by LDCs; (2)
the LDCs' supplier of last resort and obligation to serve
responsibilities; and (3) system reliability and operational
integrity issues.
The Company anticipates filing comments on the Position Paper by
November 20, 1997. It is not possible to predict the outcome of
this proceeding or its effect on the Company's consolidated
financial position or results of operations.
New Jersey
On April 30, 1997, the New Jersey Board of Public Utilities
("NJBPU") issued an order "Adopting and Releasing Final Report in
its Energy Master Plan Phase II Proceeding to Investigate the
Future Structure of the Electric Power Industry (Docket No. EX
94120585Y)." The Order required the Company's subsidiary,
Rockland Electric Company ("RECO"), and other New Jersey investor
owned electric utilities each to file unbundled rates, a stranded
cost proposal and a restructuring plan by July 15, 1997. As part
of its stranded cost proposal, the NJBPU has recommended that
each utility should provide a 5-10% rate reduction.
RECO's filing was made on July 15, 1997. The filing includes a
Restructuring Plan, a Stranded Costs Filing and an Unbundled
Rates Filing. The Restructuring Plan calls for RECO to remain a
regulated transmission and distribution company within a
registered holding company structure. Standards of Conduct and
Affiliate Rules have been proposed in order to promote effective
competition and ensure that regulated operations do not subsidize
unregulated operations. RECO has proposed to implement full
retail competition (energy and capacity) for all customers by May
1, 1999. Under this schedule, full retail access will be
achieved 13 months ahead of the NJBPU's proposed phase-in
schedule.
In its Stranded Costs Filing, RECO has identified two categories
of potential stranded costs: generation investment and power
purchase contracts with non-utility generators ("NUGS"). RECO
proposes to recover stranded generation investment through
regulated delivery rates by means of a two-part Market Transition
Charge ("MTC"). The MTC would be in effect for an initial four
year period during which RECO would recover 90-100% of its annual
stranded costs. At the end of the four year period, a market
valuation of the generation assets would be performed. Any
difference between market and net book value then would be
recovered over an appropriate period of time. Stranded NUG
contract payments are proposed to be recovered over the remaining
life of the contracts through the MTC. RECO has proposed to
reduce its annual net revenue (revenue net of fuel, purchased
power and gross receipts taxes) by $4.7 million or 5.6% effective
in October 1998.
RECO also made an Unbundled Rates Filing which separates the
components of existing tariffs into production, transmission,
distribution and customer cost categories. The Unbundled Rates
Filing would serve as the basis to segregate the costs of the
generation function from rates in order to facilitate customer
choice. In addition, the MTC mechanism would be added to the
existing rate structure to allow for recovery of stranded costs,
and a non-bypassable societal benefits charge would be created as
a billing mechanism for mandated public policy programs.
On October 1, 1997, the ALJ issued a modified prehearing order in
the Stranded Costs and Unbundled Rates Proceedings. Hearings
will be held from February 24 through March 2, 1998, and initial
and reply briefs will be due on March 13 and 27, 1998,
respectively. The ALJ will issue his decision by May 15, 1998.
The NJBPU has not yet established a hearing schedule for the
Restructuring Proceeding.
The NJBPU has indicated that it will rule on these filings by
October 1998. RECO's filing may be accepted or significantly
modified by the NJBPU before becoming effective. The NYPSC's
action with respect to the Restructuring Plan filed in the NYPSC
Competitive Opportunities Proceeding, as described in this
section under the caption "New York," could change RECO's
filings. It is not possible to predict the outcome of the NJBPU
proceeding or its effect on the Company's consolidated financial
position or results of operations.
Pennsylvania
On September 30, 1997, in accordance with the requirements of the
Pennsylvania Electricity Generation Customer Choice and
Competition Act, the Company's subsidiary, Pike County Light &
Power Company ("Pike"), submitted its restructuring filing to the
Pennsylvania Public Utility Commission ("PPUC"). In this filing,
Pike proposed that full retail competition be implemented for all
customers by May 1, 1999. With the implementation of retail
competition, Pike proposes to continue to serve as the "provider
of last resort" for those consumers who do not choose an
alternate provider, or whose alternate provider defaults. Pike
proposed to remain a regulated transmission and distribution
company within a registered holding company structure.
Pike also submitted proposed unbundled rates which separate the
components of existing tariffs into production, transmission,
distribution and customer cost categories.
It is expected that the PPUC will rule on Pike's restructuring
filing by June 1998. Pike's filing may be accepted or
significantly modified by the PPUC before becoming effective.
The NYPSC's action with respect to the Restructuring Plan filed
in the NYPSC Competitive Opportunities Proceeding, as described
in this section under the caption "New York," could change Pike's
filings. It is not possible to predict the outcome of the PPUC
proceeding; however, it is not expected that this proceeding will
have a material effect on the Company's consolidated financial
position or results of operations.
QUARTERLY COMPARISON
Results of Operations
The Company's total consolidated earnings per average common
share outstanding for the third quarter of 1997 amounted to $0.87
per share as compared to $1.31 per share for the third quarter of
1996.
The majority of this quarter's decline resulted from the
provision of additional losses for NORSTAR to dispose of its
discontinued operations. In addition, earnings from continuing
operations decreased as a result of a shift in the electric sales
mix, resulting in lower margin, slightly offset by higher
electric sales of 1.3 percent as well as increases in certain
operating expense when compared with the same period a year ago.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, decreased by $0.5 million. The
timing of fuel cost recoveries had a negative effect on revenues
in the third quarter of 1997 as compared to the same quarter of
1996.
Electric operating revenues during the current quarter were
$145.2 million as compared to $144.5 million for the third
quarter of 1996, an increase of $0.7 million. This increase was
the result of higher fuel cost recoveries, slightly higher sales
and higher sales to other utilities.
Actual total sales of electric energy to retail customers during
the third quarter of 1997 were 1,298,466 megawatt hours ("Mwh"),
compared with 1,281,021 Mwh during the comparable period a year
ago. Revenues associated with these sales were $141.2 million
during the current quarter compared to $141.9 million during the
third quarter of 1996. This decrease in revenue is attributable
to changes in the sales mix offset by higher fuel cost recoveries
and slightly higher sales. Sales to other utilities for the
third quarter of 1997 amounted to 124,585 Mwh with revenues of
$2.8 million compared to 84,258 Mwh and revenues of $1.6 million
in 1996. Revenue from these sales are primarily a recovery of
costs, and under the applicable tariff regulations, have a
minimal impact on earnings.
Gas operating revenues during the quarter were $14.4 million
compared to $15.6 million for the third quarter of 1996, a
decrease of $1.2 million. This decrease is primarily the result
of the timing of fuel cost recoveries.
Gas sales to firm customers during the third quarter of 1997
totaled 1,566 million cubic feet ("Mmcf"), compared with 1,563
Mmcf during the same period a year ago. Gas revenues from firm
customers were $10.8 million, compared with $11.7 million in the
third quarter of 1996. Interruptible gas sales were 802 Mmcf for
the third quarter of 1997 compared to 773 Mmcf for the same
period of 1996. Revenues from interruptible customers were $2.7
million for the third quarters of both 1997 and 1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs increased by $3.4 million during the
third quarter of 1997 when compared to the same quarter of 1996.
This increase reflects higher volumes of fuel and purchased power
to satisfy increased demand (including sales for resale), offset
slightly by a decrease in the cost of fuel.
Purchased gas costs amounted to $8.0 million in the third quarter
of 1997 compared to $8.6 million in 1996, a decrease of $0.6
million. This decrease in gas costs is primarily attributable to
lower commodity prices for gas, partially offset by an increase
in the volume of gas purchased.
Other Operating and Maintenance Expenses
The Company's total operating expenses excluding fuel, purchased
power and gas purchased for resale for the third quarter
decreased by $0.5 million compared with the same period in 1996.
Utility operating expenses decreased $0.6 million, offset by an
increase in diversified operations expenses of $0.1 million.
The decrease in utility operating expenses is primarily the
result of reductions in payroll taxes, property taxes and sales
taxes of $0.3 million, reductions in revenue taxes of $0.3
million, lower depreciation and amortization of $0.3 million and
lower Federal income tax expense of $2.6 million. These
decreases were offset by increases in other operation and
maintenance expenses of $2.9 million.
Diversified Activities
The Company's diversified activities, excluding the discontinued
gas marketing operations, consist of energy related services and
business ventures and land development businesses conducted
through wholly-owned non-utility subsidiaries.
Revenues from continuing diversified activities decreased by
$313,000 for the third quarter of 1997 as compared to the same
quarter of 1996.
The estimated net loss provision to dispose of the discontinued
operations of NORSTAR is $(4.1) million or $(0.30) per average
common share outstanding during the third quarter of 1997
compared to an operating loss of $(0.5) million or $(0.04) per
share during the third quarter of 1996.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $0.6 million during the third quarter of 1997 when
compared to the same quarter of 1996. This is primarily the
result of lower investigation charges.
YEAR TO DATE COMPARISON
Results of Operations
Earnings per average common share outstanding from continuing
operations for the first nine months of 1997 amounted to $2.33
per share as compared to $2.80 per share for the first nine
months of 1996. The loss per average common share outstanding
from discontinued operations for the first nine months of 1997
amounted to $(1.13) per share as compared to $(0.07) per share
for the first nine months of 1996. The Company's combined total
consolidated earnings per average common share outstanding for
the first nine months of 1997 were $1.20 as compared to $2.73 for
the first nine months of 1996.
The majority of the decline in earnings for the first nine months
of 1997 resulted from the operating losses incurred by NORSTAR's
gas marketing activities and the estimated loss to dispose of
NORSTAR's discontinued operations.
The nine-month decrease in earnings from continuing operations is
primarily the result of lower revenue on a slightly higher level
of electric sales, lower gas sales and revenue, and the
recognition of the balance of costs associated with the
arbitration settlement with the Company's former Chief Executive
Officer in February 1997.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, decreased by $17.3 million in the
first nine months of 1997 as compared to the same period of 1996.
Electric operating revenues during the current nine-month period
were $364.2 million as compared to $373.3 million for the first
nine months of 1996, a decrease of $9.1 million. This decrease
is primarily the result of base rate reductions and the timing of
fuel cost recoveries.
Actual total sales of electric energy to retail customers during
the first nine months of 1997 were 3,522,642 Mwh, compared with
3,513,678 Mwh during the comparable period a year ago. Electric
revenues associated with these sales were $356.8 million compared
to $361.9 million during the first nine months of 1996 a decrease
of $5.1 million. This decrease is attributable to reductions in
base rates, changes in the sales mix and the timing of fuel cost
recoveries. Sales to other utilities for the first nine months
of 1997 amounted to 222,098 Mwh with revenues of $5.0 million
compared to 155,922 Mwh and $2.6 million in 1996. Revenue from
these sales is primarily a recovery of costs, which under the
applicable tariff regulations, has a minimal impact on earnings.
Gas operating revenues during the first nine months were $117.4
million compared to $125.7 million for the first nine months of
1996, a decrease of $8.3 million. Revenues were decreased by
lower gas cost recoveries and lower sales volumes from a mild
winter.
Gas sales to firm customers during the first nine months of 1997
totaled 13,643 Mmcf, compared with 14,675 Mmcf during the same
period a year ago. Gas revenues from firm customers were $104.5
million, compared with $109.8 million in the first nine months of
1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs remained level during the first nine
months of 1997 when compared to the same period of 1996. A
decrease in the commodity cost of fuel and purchased power was
offset by increased demand.
Purchased gas costs for utility operations were $69.9 million in
the first nine months of 1997 compared to $74.2 million in 1996,
a decrease of $4.3 million. This decrease in gas costs is
attributable to the lower volume of gas purchased for resale and
lower commodity prices.
Other Operating and Maintenance Expenses
The Company's total operating expenses, excluding fuel, purchased
power and gas purchased for resale for the first nine months
decreased by $5.4 million compared with the same period in 1996.
The decrease in expenses associated with utility operating
expenses amounted to $6.4 million. Diversified operation and
maintenance expenses increased $1.0 million.
The decrease in utility operating expenses is primarily the
result of the reduction in the amortization of recoverable IPP
costs of $6.5 million and a decrease in payroll taxes, property
taxes and sales taxes of $0.8 million, reductions in revenue
taxes of $1.2 million and Federal income tax of $3.0 million,
offset by an increase in other operating and maintenance expenses
of $1.0 million and an increase in depreciation of $4.1 million.
The increase in depreciation is primarily the result of a
regulatory adjustment made during 1996 which resulted in a
reduction, in that year, in depreciation expense.
Diversified Activities
Revenues from diversified activities decreased by $506,000 for
the first nine months of 1997 as compared to the same period of
1996. Revenues for 1996 have been restated to exclude the
discontinued operations and estimated loss on disposal of
NORSTAR.
The net loss resulting from the discontinued operations of
NORSTAR amounted to $(15.4) million or $(1.13) per average common
share outstanding during the first nine months of 1997 compared
to a loss of $(1.0) million or $(0.07) per share during the same
period in 1996.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $1.5 million during the first nine months of 1997
when compared to the same period of 1996. The increase reflects
the impact of the reversals of previously deferred balances
implemented as part of the May 3, 1996 NYPSC Order issued by the
NYPSC in cases 95-E-0491 and 93-G-0779 which, among other things,
provided for the elimination of substantially all of the expense
reconciliation items under the previously mandated Revenue
Decoupling Mechanism. Partially offsetting the increase is
higher investigation costs associated with an arbitration
settlement, signed in February 1997, with a former Chief
Executive Officer and higher interest expense on short term debt.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and to Part II, Item I, Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of litigation entitled Town of Wallkill
and State of New York v. Tesa Tape, Inc., et al. On September 18,
1997, the parties reached a global settlement of the above case.
As part of that global settlement, the Company's settlement
amount was increased from $125,000 to $135,000. The Court has
formally approved the Consent Decree incorporating the Company's
settlement(which, except for the increased settlement amount,
contains the provisions described in Item I, Legal Proceedings,
in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part II, Item 1, Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of a remedial investigation of a property
owned by the Company in West Nyack, New York. On or about August
28, 1997, the New York State Department of Environmental
Conservation ("NYSDEC") issued a Proposed Remedial Action Plan
("PRAP") which, inter alia, approved a Feasibility Study Report
submitted by the Company in November 1996 and proposed a remedy
for clean-up of the soil contamination at the site. A public
meeting was held on September 9, 1997 to discuss the PRAP, and
the deadline for submission of written comments to the NYSDEC was
September 29, 1997 (no comments were submitted to the NYSDEC).
The NYSDEC has issued a Record of Decision ("ROD"), dated October
20, 1997, which provides for the removal and off-site disposal of
soils contaminated with polychlorinated biphenyls and other
petroleum-related contaminants, as well as the post-remedial
monitoring of groundwater. The Company and the NYSDEC are
negotiating a Consent Order to implement the clean-up provided
for by the ROD. The Company does not believe that this matter
will have a material effect on the financial condition of the
Company.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
for a description of a petition filed by the Company, the six
other New York State investor-owned electric utilities, and the
Energy Association of New York State ("Petitioners") in the New
York State Supreme Court pursuant to Article 78 of the New York
Civil Practice Law and Rules challenging the NYPSC's May 20, 1996
Order in the Competitive Opportunities Proceeding, NYPSC Case 94-
E-0952. On or about October 31, 1997, the Supreme Court of the
State of New York, Appellate Division, Third Department, granted
the Petitioners' motion for an extension of time to perfect the
appeal for a period of six months through and including
March 24, 1998.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and to Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of the NYPSC Competitive Opportunities
Proceeding (Case Nos. 94-E-0952 and 96-E-0900). Reference is
also made to the earlier discussion in this Form 10-Q Quarterly
Report under the caption "Regulatory Activities" in Part I, Item
2, Management's Discussion and Analysis of Financial Condition
and Results of Operations, concerning the Rate and Restructuring
Plan entered into by the Company, the Staff and other parties and
filed with the NYPSC on November 6, 1997 in the NYPSC Competitive
Opportunities Proceeding. The Company is unable to predict the
outcome of this regulatory proceeding or the effect on the
Company's consolidated financial position or results of
operations.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
and in this Form 10-Q Quarterly Report, for a description of the
New Jersey Board of Public Utilities ("NJBPU") Energy Master
Plan proceedings and RECO's filing on July 15, 1997 of a
Restructuring Plan, a Stranded Costs Proposal and Proposed
Unbundled Rates. Reference is also made to the earlier discussion
in this Form 10-Q Quarterly Report under the caption "Regulatory
Activities" in Part I, Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations,
concerning the Rate and Restructuring Plan entered into by the
Company, the Staff and other parties and filed with the NYPSC on
November 6, 1997 in the NYPSC Competitive Opportunities
Proceeding. Depending upon the NYPSC's action with respect to
the Restructuring Plan, RECO may be required to amend its July
15, 1997 Restructuring Plan, Stranded Cost proposal and Unbundled
Rates filings. It is not possible to predict the outcome of the
NJBPU proceeding or its effect on the Company's consolidated
financial position or results of operations.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in this Form 10-Q
Quarterly Report, for a description of the Pennsylvania
Electricity Generation Customer Choice and Competition Act and
the September 30, 1997 Submission by Pike County Light & Power
Company ("Pike") to the Pennsylvania Public Utility Commission
("PPUC") of its restructuring filing. Reference is also made to
the earlier discussion in this Form 10-Q Quarterly Report under
the caption "Regulatory Activities" in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, concerning the Rate and Restructuring Plan
entered into by the Company, the Staff and other parties and
filed with the NYPSC on November 6, 1997 in the NYPSC Competitive
Opportunities Proceeding. Depending upon the NYPSC's action with
respect to the Restructuring Plan, Pike may be required to amend
its restructuring filing. It is not possible to predict the
outcome of the PPUC proceeding, however, it is not expected that
this proceeding will have a material effect on the Company's
consolidated financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
+10.49 Agreement and General Release dated
August 27, 1997 between Orange and Rockland
Utilities, Inc. and Larry S. Brodsky.
99.7 Settlement Agreement dated November 6, 1997
among the Registrant, the New York State
Department of Public Service, the New York
State Department of Economic Development, the
National Association of Energy Service
Companies, the Joint Supporters, the
Industrial Energy Users Association,
Independent Power Producers of New York, Inc.
and Pace Energy Project in 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.
+ Denotes executive compensatory plans and
arrangements.
(b) Reports on Form 8-K
None.
SIGNATURES
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 thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
Date: November 12, 1997 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: November 12, 1997 By EDWARD M. McKENNA
Edward M. McKenna
Controller
AGREEMENT AND GENERAL RELEASE
On this 27th day of August, 1997, Larry S. Brodsky
("Employee"), who resides at 5 Lowell Drive, New City, NY 10956,
and Orange and Rockland Utilities, Inc. ("Employer") hereby
knowingly and voluntarily agree to enter into this Agreement with
General Release ("Agreement") in order to resolve any and all
claims between them pertaining to outstanding issues and to set
forth all obligations between the parties. Employee and Employer
acknowledge and agree that this Agreement constitutes the sole
obligation of each to the other and that no other promises,
commitments or representations have been made with or by either
of the parties to the other arising out of the termination of
Employee's employment relationship with Employer.
First: Employee has resigned his employment as President
and Chief Operating Officer effective August 8, 1997.
Contemporaneous with his execution of this Agreement and General
Release, Employee shall execute and provide to Employer a letter
of resignation in a form attached hereto as Exhibit A.
Second: Employer agrees to pay to Employee as severance
his base salary at the Employee's current salary, less applicable
withholdings and deductions, until the earlier of (i) the date
Employee is subsequently engaged in full-time employment; or (ii)
the expiration of the two (2) year period commencing on August 8,
1997 (hereinafter the "severance period"). Such payments shall
be made on a semi-monthly basis consistent with Employer's
current payroll practices.
Third: (a) Employer shall pay to Employee any payment(s)
to which he may be entitled under the Annual Team Incentive Plan
and under the Long-Term Performance Share Unit Plan in accordance
with the terms of such plans and at such times as such payments
are generally made by Employer.
(b) Employer shall pay to Employee his accrued but
unused vacation for 1997 up until the date of his resignation.
Fourth: Employer shall provide Employee with coverage
under all group health insurance benefit plans and life insurance
plans in accordance with the terms of such plans to the same
extent as if he remained employed by Employer until the earlier
of (i) such time as Employee is entitled to receive health
insurance benefits and life insurance benefits from a subsequent
employer; or (ii) the end of the severance period. If health
insurance benefits terminate upon the expiration of the severance
period, Employee may thereafter convert his health insurance
benefits at his expense in accordance with applicable law. All
other benefits provided by Employer to Employee shall cease as of
August 8, 1997.
Fifth: Employer shall convey to Employee title to
Employee's company car, a 1996 Chevrolet Blazer Sport Utility 4D,
VIN # 1GNDT13W2T2149315. Any tax ramifications of such
transaction shall be the sole responsibility of the Employee.
Sixth: Employer shall provide, at no cost to Employee,
outplacement services to Employee through an outplacement service
of Employee's choosing, not to exceed a total cost of $50,000
(Fifty Thousand Dollars).
Seventh: (a) As a material inducement to Employer to enter
into this Agreement, and in exchange for the above stated
consideration, Employee hereby irrevocably and unconditionally
releases, acquits, and forever discharges Employer, and any and
all of its subsidiaries, parents and affiliates, and any of its
or their officers, directors, employees and agents, and all
persons acting by, through, under or in concert with any of them
(hereinafter the "O&R Entities and/or Persons" or "Releasees"),
from any and all liabilities arising directly or indirectly out
of his employment and/or the termination thereof, including any
charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action,
suits, rights, demands, costs, losses, debts and expenses
(including attorney's fees and costs actually incurred), of any
nature whatsoever, known or unknown, that Employee now has, owns,
holds, or claims to have, own, or hold, or that Employee at any
time heretofore had, owned, held, or claimed to have, own, or
hold against each of the Releasees by reason of any act,
omission, transaction, practice, conduct, occurrence or other
matter up to and including the date of this Agreement.
(b) Without limiting the generality of the foregoing,
this instrument releases Releasees from any and all claims,
whether asserted and non-asserted, known or unknown, that
Employee now has, ever had or may have against Releasees,
including, but not limited to, claims in tort, for breach of
contract or employment agreements, or under any federal, state or
local statute, regulation, rule, ordinance or order including,
but not limited to, discrimination based on race, sex, age,
religion, national origin, sexual orientation, disability,
veteran status, marital status and/or retaliation. This waiver
and release includes any and all claims Employee may have under
the Age Discrimination in Employment Act of 1967, Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the
Americans With Disabilities Act, the New York Human Rights Law
and the Employee Retirement Income Security Act.
(c) Employee covenants that he shall not at any time
hereafter commence, maintain, prosecute, participate in, or
permit to be filed by any other person on his behalf, any action,
claim, suit, complaint or proceeding of any kind against any of
the Releasees with respect to any claims, liabilities,
obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses,
debts and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever, known or unknown, including,
but not limited to, any claims asserted and non-asserted which he
may have in tort, for breach of contract or employment agreements
or under any federal, state or local statute, regulation, rule,
ordinance or order, that he now has, owns, holds, or claims to
have, own, or hold, or which he at any time heretofore had,
owned, held, or claimed to have, own, or hold against any of the
Releasees.
Eighth: (a) Employee agrees not to directly or indirectly
take, support, encourage or participate in any action or
attempted action which in any way would damage the reputation or
business relationships of Releasees. Employee further agrees
that he will not disparage the Releasees in any way and will only
speak about the Releasees in positive terms. Employer agrees
that, upon any inquiry regarding Employee, his employment, or his
resignation, Employer will respond by (i) confirming dates of
employment and position held; and (ii) stating that Employee
resigned his employment with Employer to pursue other interests.
(b) Employee agrees that he will cooperate with the
Employer as necessary in any legal disputes and/or proceedings
relating to issues and/or incidents that took place during his
term of employment.
(c) The Employee shall not publish or disclose any
confidential information of the Releasees. The Employee further
promises not to use any such confidential information for his own
personal use or advantage. The Employee hereby warrants that
prior to his execution of this Agreement he has not published or
disclosed any confidential information of the Releasees. All
information regarding the Releasees' business, whether written or
not, is presumed to be confidential, except to the extent the
same shall have been lawfully and without breach of confidential
obligation made available to the general public without
restriction.
(d) Employee agrees that contemporaneous with the
effective date of this Agreement he shall return to the Employer
any and all property of the Releasees, including, but not limited
to, any proprietary or confidential information and/or
documentation relating to the business of any of the Releasees in
his possession or under his direction and/or control, including,
but not limited to, any and all of the Employer's documents,
books, notes, memoranda, records, statements, plans, policies,
programs, and or tapes (computer, cassette or video), and any
information related to the Employer's business that may be stored
on computer (hard or floppy) disks. Employee's right to receive
severance pursuant to the Second paragraph of this Agreement
shall not be effective until Employee fully and completely
performs all obligations undertaken by him pursuant to this
paragraph of the Agreement.
(e) The Employee acknowledges that the restrictions
contained in this paragraph are reasonable and necessary to
protect the business and interests of the Employer and that any
violation of these restrictions will cause substantial or
irreparable injury to the Employer. Therefore, the Employee
agrees that, in addition to any other remedies to which it may be
entitled under applicable law, and notwithstanding the
arbitration provisions of the Thirteenth paragraph of this
Agreement, the Employer is entitled to preliminary and permanent
injunctive relief in a judicial proceeding commenced to secure
specific performance or to prevent any breach of this paragraph.
(f) The restrictions set forth in this paragraph shall
be construed as independent covenants, and the existence of any
claim or cause of action against the Employer, whether predicated
upon this Agreement or otherwise, shall not constitute any
defense to the Employer's enforcement of the restrictions
contained in this paragraph.
Ninth: Employee hereby agrees and acknowledges that the
payments and other consideration provided for in this Agreement
(i) exceed any payment, benefit, or other thing of value to which
Employee might otherwise be entitled under any policy, plan or
procedure of Employer; and (ii) are in full discharge of any and
all of Employer's liabilities or obligations to Employee,
including but not limited to any and all obligations arising
under any written or oral agreements, understandings or
arrangements between Employee and Employer.
Tenth: Employee and Employer acknowledge that the
existence and terms of this Agreement and all discussions leading
up to it are confidential. Employee agrees that he will not
divulge either the existence or the terms of this Agreement to
any third party, except his immediate family and attorney.
Eleventh: Employee acknowledges that he has been advised in
writing to consult with an attorney before signing this
Agreement; that he has been represented by counsel or has had a
reasonable opportunity to consult with counsel in connection with
the execution of this Agreement; and that he has had the
opportunity to consider the terms of this Agreement, including,
but not limited to, the Seventh paragraph of this Agreement, for
a period of twenty-one (21) days prior to its execution.
Employee further acknowledges that he has read this Agreement in
its entirety; that he fully understands all of its terms and
their significance; that he has signed it voluntarily and of his
own free will; and that he intends to abide by its provisions
without exception.
Twelfth: This Agreement constitutes the entire agreement
between the parties. Any amendments to or changes in the
obligations created by this Agreement shall not be effective
unless reduced to writing and signed by the parties. All prior
written or oral agreements between Employer and Employee are
hereby terminated and expressly disavowed. This Agreement shall
be construed under New York law.
Thirteenth: Except as provided in the Eighth paragraph of
this Agreement, any and all disputes that may arise from or in
connection with this Agreement shall be submitted to final and
binding arbitration through the processes of the American
Arbitration Association in New York, NY.
Fourteenth: This Agreement and the payment of any
consideration hereunder shall not be construed as an admission of
any kind whatsoever on the part of Employer, and/or any of its
subsidiaries, parents or affiliates, their officers, agents,
representatives or employees.
Fifteenth: This Agreement shall not become effective until
the eighth day following Employee's execution of this Agreement
and Employee may at any time prior to the effective date revoke
this Agreement by giving notice in writing of such revocation to
Nancy Jakobs, Vice President of Human Resources, Orange and
Rockland Utilities, Inc., One Blue Hill Plaza, Pearl River, New
York 10965. In the event Employee revokes this Agreement prior
to the eighth day after his execution thereof, this Agreement,
and the promises contained therein, shall automatically be deemed
null and void.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A WAIVER AND
RELEASE. To signify their agreement to the terms of this
Agreement, the parties have executed this Agreement on the date
set forth opposite their signatures which appear below.
August 27, 1997 LARRY S. BRODSKY
Date Larry S. Brodsky
August 29, 1997 NANCY M. JAKOBS
Date Orange and Rockland Utilities, Inc.
VICE PRESIDENT, HUMAN RESOURCES
EXHIBIT A
August 8, 1997
Mr. D. Louis Peoples
Vice Chairman and
Chief Executive Officer
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Mr. Peoples:
Effective today I hereby resign my employment as
President and Chief Operating Officer with Orange and Rockland
Utilities, Inc. and all of its applicable subsidiaries.
Very truly yours,
LARRY S. BRODSKY
Larry S. Brodsky
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.
Electric Rate and
Restructuring Plan
Dated: November 6, 1997
Albany, New York
Table of Contents
Overview of O&R Plan i
Introduction 1
Terms of Plan 4
I. Rate Plan 4
A. Electric Price Reductions 4
* Large Industrial Customers
* All Other Customers
* Cumulative Price Reduction Summary
* Sources of Price Reductions ($000)
B. Return on Equity Sharing 8
C. Performance Standards 10
D. Rate Design 10
E. Accounting Provisions 11
II. Transition to Retail Access 12
A. Sequence of Events 12
B. Reciprocity 13
C. Expansion of PowerPick(TM)Program 13
D. Full Retail Access 14
E. Unbundled Tariffs 14
F. System Benefits Charge 16
G. Low Income Program 17
III. Strandable Costs 18
A. Regulatory Assets 18
B. NUG Contract Purchased Power Costs 18
C. Divestiture 19
D. Allocation of Net Book Gains and Losses
from the Disposition of Generating Assets 25
E. Other Strandable Costs 26
F. Proceeds of Divestiture 26
IV. Corporate Structure 26
A. Holding Company 26
B. Section 107 Preauthorization 27
C. Delivery Company and Affiliated ESCOs 27
D. Metering Services 29
E. Billing Services 30
F. Load Pockets 30
G. System Upgrades 30
V. Other Provisions 31
A. Force Majeure 32
B. Changes in Laws or Regulations 32
C. Confidentiality and Privileged Information 32
D. Changes in Rates 32
E. Rate Design Flexibility 32
F. Regulatory Reform and Customer
Operations Procedures 33
G. Customer Outreach and Education 35
H. Interdepartmental Transfers 35
I. Other Accounting Provisions 36
J. Flex Rates and Economic Development Rate 36
K. Securitization 37
L. Gross Receipts and Franchise Taxes 37
M. Merger 37
N. Arrangements with Third Parties 37
O. Comprehensive Nature of Plan 38
P. Provisions Not Separable 38
Q. Provisions Not Precedent 38
R. Plan Modification 38
S. Term and Time Line 38
T. Effect of Plan 39
U. Dispute Resolution 40
V. Additional Public Statement Hearings 40
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.
Electric Rate and
Restructuring Plan
Overview of O&R Plan
This Electric Rate and Restructuring Plan (the "Plan") has
been developed with three major goals in mind:
Improve customer service and customer choice while
ameliorating current price levels and introducing
competition;
Promote jobs and economic development in the
region by significantly reducing industrial rates
immediately;
Continue steps taken in prior years to reduce
rates for all other customers by further reducing their
rates in 1997 and 1998 (with first claim going to non-
Large Industrial Customers for benefits produced by the
customers' share of net gains on the disposition of
generating assets[1]), in order to reduce the impact of
the cost of electricity on the budgets of all customers
other than Large Industrial customers.
The signatories to this Plan view the accomplishment of
these goals as essential to the future welfare of the region.
Integral to this Plan is the principle that these economic goals
can be pursued successfully while maintaining reliability,
quality customer service and protection; maintaining essential
environmental programs; and seeking ways to reduce the effects of
energy prices on low-income customers.
____________________
[1] Hereinafter referred to as "Generating Assets" which include
all units at Lovett and Bowline Generating stations, the
Company's hydro-electric facilities and gas turbines.
Upon Commission approval, this Plan 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 Plan 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 made optional.
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. Gross Receipts Tax Reform
will result in additional savings.[2] Additional
benefits to all other customers, up to the equivalent
of an overall 5% rate reduction, are possible should
sufficient net gains on the sale of Generating Assets
be realized.
The cumulative rate reductions over the four-year
period are approximately $32.4 million. Additional
opportunities for savings for all customers will become
available with the expansion of the PowerPick(TM) program
and the Gross Receipts Tax Reform.[3]
___________________
[2] Additional savings of about 1% for all customers including
Large Industrial Customers are expected from the recent
passage of Gross Receipts Tax Reform.
[3] The $32.4 million does not include: 1) an opportunity for
Large Industrial Customers to realize additional savings of
about 3 1/2% in annual bill reductions from the expansion of
the PowerPick(TM) program, 2) an opportunity for all customers
other than Large Industrial Customers to realize benefits
over the term of the Plan of about 2% in annual bill
reductions beginning with the expansion of PowerPick(TM) in May
1998, and 3) the Gross Receipts Tax Reform. 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.
For each of the four rate years that this Plan is in effect,
earnings on regulated electric operations in excess of 11.4%
in New York will be shared with 75% being used to offset
Commission-approved deferrals or otherwise inure to the benefit
of O&R Customers; and 25% being 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 at the time of Commission approval of the
Plan.
O&R will file proposed unbundled rates for
electric service one month after Commission approval of
the Plan.
Divestiture and Corporate Structure
Upon Commission approval of the Plan, the Company
will immediately commence a process to auction all of
its electric Generating Assets. The Company will seek
to restructure itself as a Registered Holding company
to create structurally separate subsidiaries such as
one or more unregulated Energy Services companies
("ESCOs"), and a regulated Transmission and
Distribution company or Delivery company.
Upon commencement of retail access, the Delivery
company will provide basic energy services, including
energy, capacity, ancillary services, metering and
billing within the service territory.
Unless and until relieved of the obligation, the
Delivery 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
Delivery company. The parties have agreed to study
transferring this obligation to the competitive market
and will present recommendations to the Commission by
May 1, 1999.
After issuance of the Staff report on metering
issues ordered by the Commission in Opinion No. 97-13
(August 1, 1997), and before March 31, 1999, O&R will
submit a plan regarding the provision of competitive
metering services by December 31, 1999.
Other companies will be able to enter into the
market for providing billing services to Orange and
Rockland's Delivery company customers consistent with
the manner and in accordance with the schedule
prescribed by the Commission.
Allocation of Net Book Gains and Losses from
the Disposition of Generating Assets
The New York share of combined net book
gains/losses from the divestiture of the Generating
Assets shall be allocated on the following basis:[4]
- If the Company selects a winning bidder
prior to May 1, 1999, any gains shall be allocated
between shareholders and customers on a 25/75
basis and any losses shall be allocated between
shareholders and customers on a 5/95 basis.
- If the Company selects a winning bidder
on or after May 1, 1999, any gains or losses shall
be allocated between shareholders and customers on
a 20/80 basis.
- There shall be a cap of $20 million on
the New York share of net book gains allocated to
shareholders as a result of the divestiture of the
Generating Assets.
The Company will recover in full its Commission-
approved regulatory assets and the remaining
commitments to purchases from non-utility generators.
___________________
[4] 100% of the net book gains/losses shall be allocated among
New York, New Jersey and Pennsylvania in accordance with the
then-effective FERC-approved Power Supply Agreements. The
sharing percentages (customers/shareholders) shall be
applied to New York's share of the net book gains/losses.
The parties intend that the allocation of the net book
gains/losses among the three states be determined by FERC
based upon appropriate consideration of the positions of the
regulatory authorities in each state.
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 a downward
adjustment of up to 25 basis points to the 11.4% return
on equity sharing threshold.
Low Income Program
A Low Income Customer Assistance Program will be
conducted for a four-year period for approximately 400
customers in 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 allocate up to $200,000 of DSM
overcollections to support the development of a pilot
program that would aggregate low income customers.
Customer Outreach and Education
In conjunction with the parties, 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.
Up to $1 million of the present value of the
fourth year equivalent of SBC funding levels will be
spent on educating the Company's Residential and
Commercial customers about electric competition. The
Staff will develop a proposal to implement this
education program and circulate it to the active
parties by December 31, 1997.
Public Interest Program
Public interest programs will be continued through
a competitively neutral Systems Benefit Charge.
This summary is intended to be a general description of the terms
of the Plan. The complete text of the Plan 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 (at 24-25), 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.
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 Federal Energy Regulatory
Commission ("FERC") filings were necessary to implement the
Independent System Operator ("ISO"), Power Exchange ("PE") and
Reliability Council.
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.
A Settlement Agreement was signed on March 25, 1997.
Evidence relating to the terms of the proposed Settlement was
submitted by the Company, the Staff and several other parties and
hearings were held in Albany on May 19, 20 and 22, 1997, before
Administrative Law Judge Stewart C. Boschwitz. Judge Boschwitz
Recommended Decision was issued on July 2, 1997, and after
briefing by the parties was considered by the Commission at its
session on September 10, 1997. At that session, the Commission
expressed concerns about the terms of the Settlement Agreement
and directed the parties to resume negotiations to address those
concerns. The parties met on September 15, 16 and 22 and
October 15 and 30, 1997, participated in several conference calls
and renegotiated a number of Settlement terms consistent with the
concerns expressed by the Commission. This Plan was signed on
November 6, 1997, by the Company, the Staff, the New York State
Department of Economic Development, the Industrial Energy Users
Association, the National Association of Energy Service
Companies, The Joint Supporters, the Independent Power Producers
of New York, Inc., and Pace Energy Project. This Plan has been
reviewed and approved by Orange and Rockland's Board of Directors
as submitted at the Board meeting on November 6, 1997.
The term of this Plan is four years from the date of the
effectiveness of new rates. The times for various actions to be
accomplished by the various parties are set forth on Appendix A.
Terms of Plan
I. Rate Plan
Orange and Rockland shall implement a rate plan for the four
years beginning with the effectiveness of new rates, which shall
include the following provisions.
A. Electric Price Reductions
In the event that the Commission approves the terms of this
Plan on November 25, 1997, new rates shall become effective
on November 26, 1997.
Large Industrial Customers
Large Industrial Customers[5] 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 $31,661
Electric Price Reductions:
PowerPick(TM) Savings Opportunity[6] -.24 -$ 1,108
Scheduled Rate Reductions -.58 - 2,707
Total -.82 -$ 3,815
Average Price Opportunity 6.00 $27,846
___________________
[5] 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% 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.
[6] 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 Total
Lg. Industrial -$2,707 -$2,707 -$2,707 -$2,707
All Other -3,196 -6,115 - 6,115 -6,115
Sub.Total -$5,903 -$8,822 -$8,822 -$8,822 -$ 32,369
Lg. Industrial
PowerPick(TM) -$1,108 -$1,108 -$1,108 -$1,108 -$ 4,432
Total -$7,011 -$9,930 -$9,930 -$9,930 -$ 36,801
Sources of Price Reductions ($000)[7]
Year 1 Year 2 Year 3 Year 4 Total
PowerPick(TM)[8] -$1,108 -$1,108 -$1,108 -$1,108
Deferred Credits - 4,271 - 3,256 - 3,256 0
Expired Surcharg - 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 -$31,972
____________________
[7] A detailed schedule of each source of price reductions is
set forth in Appendix D.
[8] Estimated savings for Large Industrial Customers are based
on their participation in the PowerPick(TM) program for all of
their energy requirements. For all other customers they are
based on such customers being provided the opportunity to
choose alternative providers under the PowerPick(TM) program
effective May 1, 1998. 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.[9] The main objectives of
this component of the Plan 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% in the first rate year, and by
another 1% effective one year later. For Large Industrial
Customers these price reduction opportunities are intended to
remain in effect through the four-year term of this Plan; the
1.09% reduction for all other customers is intended to remain in
place for the first rate year and the 2.09% reduction for all
other customers is intended to remain in place through the end of
the four-year term. It is the intention of the parties that
cumulative rate reductions over the four-year period will equal
approximately $32.4[10] million. 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.
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
customers' 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 Plan will be reflected in the unbundled Delivery
rates and that the sources supporting these reductions will
likewise be reflected in unbundled Delivery rates.
____________________
[9] The parties acknowledge that the difference between the
cumulative price reductions and the sources of price
reductions is $4,829,000 and that this Plan does not
identify the sources of such price reductions.
[10] This amount does not reflect the potential net book
gain/loss associated with the divestiture of the Generating
Assets. The $32.4 million does not include: 1) an
opportunity for Large Industrial Customers to realize
additional savings of about 32% in annual bill reductions
from the expansion of the PowerPick(TM) program, 2) an
opportunity for all customers other than Large Industrial
Customers to realize benefits over the term of the Plan of
about 2% in annual bill reductions beginning with the
expansion of PowerPick(TM) in May 1998, and 3) the Gross
Receipts Tax Reform.
All parties acknowledge that there is no guarantee that the
Company will realize a net book gain from the sale of the
Generating Assets. In the event that the Company does realize a
net book gain from the sale of the Generating Assets, the Company
will file a plan with the Commission that will return the
customers' share of such net gain over an appropriate period of
time consistent with the principle of maintaining rate stability.
These benefits will first be provided to customers other than
Large Industrial Customers so that "All Other" customers could
receive the annual equivalent of an additional 2.91% rate
reduction that, when combined with the rate reduction of 2.09%,
yields the annual equivalent of a 5% rate reduction. The parties
acknowledge that such net gain, if any, may not be sufficient to
provide an amount of customer benefits necessary to produce the
full 2.91% equivalent rate reduction. Should the net gain be
sufficient to provide customer benefits greater than the 2.91%
equivalent rate reduction, the Company will propose for
Commission approval the manner in which such additional benefits
will be allocated among customer classes.
In the event the Company realizes a net book loss from the
sale of the Generating Assets, the customers' share shall be
recovered through a non-bypassable wires charge component of
regulated delivery company rates over an appropriate period of
time. The Company shall submit a proposal to recover the
customers' share. Staff and other parties shall submit comments
on the Company's proposal within 60 days after receiving such
proposal. The Commission shall consider the Company's proposal
expeditiously. The parties agree that the customers' share of any
net book losses shall be recovered in rates as soon as
practicable consistent with rate stability considerations.
Total Rate Reductions Since 1995 ($000)
The rate plan provides for the further rate reductions for
all O&R customers. Since May 1995, customers have already
been provided significant rate reductions. Total electric
rate reductions from May 1995 through 1998 and the annual
benefit of the Gross Receipts Tax Reform once fully phased
in by January 1, 2000, are as follows:
GRT
1995-96 1997 1998 Total Reform
Large Industrial $ (4,702) $(2,707) $ -$(7,409)$
All Other Customers$(17,241) $(3,196) $(2,919)$(23,356)
Total $(21,943) $(5,903) $(2,919)$(30,765)$(3,315)
-6.4% -1.8% -0.9% -9.0% -1.0%
B. Return on Equity Sharing
For each of the four rate years, earnings in excess of 11.4%
on regulated New York electric operations will be shared as
follows:
75% to be used to offset Commission-approved deferrals or
otherwise inure to the benefit of customers;
25% to be credited to 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 Plan 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% 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 generation.
The Company and Staff acknowledge that this Plan 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;[11]
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; and
7. DSM performance mechanism.
Pending the completion of Staff's analysis, the Company will be
authorized to defer a maximum of $2,985,000 of expenditures it
incurred to terminate the Company's contract for coal supply with
Pittston Coal Sales Corporation (Case 96-M-1145) provided those
expenditures can be matched to verifiable savings flowed through
to customers. This deferral and any regulatory assets approved by
the Commission during the term of this Plan 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 of the Department of Public Service 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. Other
parties may request the detailed calculations subject to
appropriate confidentiality protections. 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. Staff and the Company agree that any commercially
sensitive data underlying any calculations submitted in
accordance with this Plan will be given protection against
disclosure as described in Appendix E.
____________________
[11] Subject to Staff field verification.
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 downward 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
Consistent with the Commission's order in Case 97-E-
1795, the Company will submit a plan to phase out
mandatory Time-of-Use Residential Rates for customers
presently taking such service. No new residential
customers will be added as mandatory Time-of-Use
Customers. The Company will, however, continue to offer
Time-of-Use rates to Residential customers on an
optional basis. The Company shall be permitted to defer
any revenue shortfalls that may result from changing
the mandatory nature of this rate.
The Company will offer the Peak Activated Rate ("PAR")
for the SC-9 and Large Industrial Customers on an
optional basis.
The Company will eliminate the mandatory nature of the
PAR by applying the rate decrease proposed for this
customer class in this Plan. 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.
In response to requests from Staff and other signatory
parties, the Company did not implement the PAR
provisions of the existing SC-9 tariffs in 1997.
Because the rate reductions and associated new rate
design provisions of this Plan were not made effective
until after the end of the PAR period, September 30,
1997, the Company deferred the resulting revenue
requirement shortfall for the period June 1, 1997,
through September 30, 1997. The parties agree that this
treatment is appropriate.
E. Accounting Provisions
Orange and Rockland will defer all prudent and verifiable
incremental costs associated with divesting its Generating
Assets, such as developing an auction plan, obtaining approval of
the plan, conducting the auction, transferring title to the
Generating Assets, and any related environmental, transaction,
financial and litigation costs. In addition, the parties
recognize that all reasonable employee-related transition costs,
including retraining, outplacement, severance, early retirement
and employee retention programs should be recovered from
customers. The Company will defer up to $7.5 million (New York
electric share) of prudent and verifiable non-officer employee
costs, such as retraining, outplacement, severance, early
retirement and employee retention programs associated with the
divestiture plan. Orange and Rockland shall be able to petition
the Commission for recovery of employee costs in excess of $7.5
million.[12]
Orange and Rockland will defer the $2,649,900 revenue
shortfall associated with eliminating the mandatory PAR. The
regulatory asset associated with the deferred PAR revenue
requirement will be written off by the 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 and other customer credits that become available during
the term of the Plan. Any remaining regulatory asset not
otherwise offset will be addressed in Orange and Rockland's next
base rate case or other suitable proceeding.
Orange and Rockland will be permitted to establish a major
storm damage reserve[13] of up to $3.0 million by transferring to
a storm damage account overcollections from other cost elements
which are subject to reconciliation. The Company will be
permitted to charge storm damage costs incurred after the date of
the Commission's approval of the Plan in excess of any costs
included in rates (i.e., $200,000) to the storm damage reserve
and will notify Staff accordingly. Storm costs charged to the
reserve shall be subject to Staff verification and review.
____________________
[12] The costs of such programs for employees transferred to
unregulated affiliates shall not be paid for by customers.
[13] A "A major storm" is defined as a period of adverse weather
during which service interruptions affect at least 10% of
the Company's customers within an operating area and/or
results in customers being without electric service for
durations of at least 24 hours.
Orange and Rockland will defer its New York share of
incremental costs associated with establishing an ISO, PE and
Reliability Council and, if not otherwise offset, these incremental
costs will be addressed in the Company's next base rate case or
other suitable proceeding.
Orange and Rockland will be permitted to defer environmental
costs caused by the operation of the Generating Assets up to the
date of transfer of title[14]. This provision is designed to
protect the Company by providing for the recovery of reasonable
and prudent expenditures incurred in connection with the
investigation and/or remediation of environmental conditions
associated with the ownership and operation of the Generating
Assets.
Consistent with the terms of the approved settlement in Case
95-E-0491, the Company will retain 10% of any property tax
refunds. The customers' 90% share of any property tax refunds
shall be deferred and used to offset other regulatory assets or
otherwise be returned to customers. This provision will remain
in effect through the term of this Plan.
Consistent with the objectives set forth elsewhere in this
Plan, the Company will have the discretion to offset deferred
regulatory assets against deferred regulatory liabilities
established in accordance with this Plan or pursuant to prior
Commission approval. The Company will submit to Staff and other
interested parties for its review an annual report showing the
offsets recorded within 60 days after the end of each rate year
covered by this Plan.
II. Transition to Retail Access
A. Sequence of Events
The parties anticipate the following sequence of events:
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.[15]
____________________
[14] These costs shall not include the cost of any NOx allowances
purchased under applicable environmental laws and
regulations.
[15] Customers in the PowerPick(TM) Program as of December 31, 1997,
will remain eligible to participate through April 30, 1998.
The ISO becomes fully operational.
Full retail access (energy and capacity) to all
customers on May 1, 1999.
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. Prior to the implementation of full retail access in
O&R's service territory, the Commission is expected to determine
the appropriate standards for reciprocity with respect to other
New York utilities or their affiliates operating in O&R's service
territory. Until the time of such Commission determination, the
Company will not be required unconditionally to accommodate a
full retail transaction between an O&R customer and a New York
utility or affiliated company that does not offer comparable
access to O&R. This provision is not applicable to the New York
Power Authority ("NYPA").
C. Expansion of PowerPick(TM) Program
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 April
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.
In order to enhance the participation of smaller customers
(non-Large Industrial) in the retail access programs provided in
this Plan, a competitive enhancement fund of $250,000 will be
created for the first 12 months after the May 1, 1998 expansion
of the PowerPick(TM) program. Funding shall be the equal
responsibility of both customers and shareholders (50/50
sharing). The $250,000 fund is designed to produce a temporary
stimulus to encourage the participation of small customers in the
retail access program. Staff will initiate a process to determine
the necessary details by December 31, 1997.
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 within one month of
Commission approval of this Plan 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. The proposed
tariffs will disaggregate the Commission-approved bundled rate
for each rate class into its functionalized components in a
revenue neutral manner among classes. It is the parties intention
that the unbundled tariffs will be designed to produce the same
total revenue requirement underlying the rate levels reflected in
Section I.A. of this Plan. It is anticipated that the Company's
filing will separate the cost of:
- Power Supply (energy and capacity)
- Power Delivery
- Metering
- Billing
- Governmental Tax Surcharges
- Systems Benefits (mandated public policy programs)
- Competitive Transition Charge
- Non-Bypassable Wires 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. The transitional rate design proposed by IPPNY,
including rate and bill impact concerns, particularly for low-use
or low-income customers, will be addressed by the parties in the
proceeding following the Company's filing. The parties agree that
the entire record already developed on the transitional rate
design proposed by IPPNY will be incorporated into the record
developed in the phase of this proceeding involving unbundled
rates.
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 Plan. 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 plant not yet transferred in accordance with
the auction procedure provided for herein 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, and customer
services (e.g., metering and billing). 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.
The CTC, as described in Section III.C. herein, will also be
separately identified as necessary and appropriate in the
Company's unbundling filing.
The customers' share of any net gain or loss from the sale
of Generating Assets as determined in accordance with Sections
I.A. and III.D. of this Plan shall be recovered or refunded
through a non-bypassable wires charge included in the regulated
rates of the Delivery company. In addition, any stranded costs
approved by the Commission resulting from the introduction of
competitive metering and/or billing services in accordance with
Sections IV.D. and E. of this Plan shall also be recovered
through the non-bypassable wires charge.
It is contemplated that O&R's Generation Assets will
continue to operate until title is transferred in accordance with
the divestiture process set forth herein. The CTC, which will
commence on May 1, 1999, if title has not been transferred by
that time, will allow O&R to recover in customers' rates a
portion of above-market generation costs as more fully described
in Section III.C. herein. The CTC component of rates will be
filed with Staff 90 days before its proposed effective date. Such
filing shall be subject to review by Staff and approval by the
Commission before implementation. In addition, the Company will
provide to other requesting parties. Orange and Rockland can
remove information it designates as confidential from copies of
the filing provided to parties other than Staff and seek trade
secret status for such designated confidential information in
accordance with the Commission's rules of procedure. 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.
With respect to transmission required to provide wheeling
service to retail customers under the Plan, the Company will use
its Open Access Transmission Tariff ("OATT") currently on file
with the FERC, until such time as there is a pool-wide tariff
available from the Independent System Operator. The Company will
file, for the Commission's review and approval, a revised OATT
which will contain those changes to the OATT that are necessary
to implement retail wheeling. In the filing the Company will
propose and justify requested changes to non-rate terms and
conditions, and also indicate how rates should be designed for
retail customers using the OATT. Following Commission approval,
the Company will file the amended OATT and Commission order
approving the tariff with the FERC with a request that the FERC
defer to the state-approved tariff.
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 Plan, expenditure levels of one mill per kWh on average for
the first three years of this Plan 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 Plan 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.
The parties agree that the Commission may appoint a third-
party administrator to administer the SBC funded programs. All
SBC funds will be allocated by the statewide administrator,
although the establishment of such a statewide administrator
shall not preempt program funding for commitments made prior to
the date of this Plan. The statewide administrator may continue
implementation of certain Company programs.
Over or under collections of SBC funds will be accumulated
for future SBC program use. Commission-approved low income energy
efficiency assistance program services for persons not included
in the Port Jervis low income assistance program will be provided
as a portion of the energy efficiency SBC budget. Appropriate
funding levels for the SBC in Year 4 will be revisited by the
Commission via a formal proceeding or other public process at the
discretion of the Commission.
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.
The Program will commence as soon as practicable after the
effectiveness of new rates and terminate four years after the
effectiveness of new rates. The Program will be conducted solely
for the residents of the City of Port Jervis, New York and
residents of the zip code area 12771. The goal of the Program is
to serve approximately 400 customers in total, and approximately
100 customers in each rate year. 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. Funding for this program
including $35,000 of administrative costs per year shall come
from unexpended DSM funds accumulated prior to the commencement
of the SBC funding mechanism. Should unexpended DSM funds not be
sufficient to cover this Program the remaining costs shall be
deferred. Any additional unexpended DSM funds shall be deferred
for future disposition in accordance with the Accounting Plan
submitted in accordance with Section E above.
The Company will allocate up to $200,000 of DSM
overcollections accumulated prior to the commencement of the SBC
funding mechanism for the purpose of developing a pilot program
that would aggregate low income customers. 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. Staff will develop a
proposal to implement the program and will circulate it to the
active parties by March 31, 1998. The parties agree to meet
thereafter to begin the development of this pilot. As directed by
the Commission in its Order Concerning Retail Access Proposals,
issued February 25, 1997, in Case 94-E-0385, the parties shall
consider the petition of the New York State Division of Housing
and Community Renewal, et al., in Case 97-E-0073.
III. Strandable Costs
A. Regulatory Assets
Generation-related regulatory assets[16] 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
____________________
[16] Excluding FAS 109 effects related to divestiture.
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. Divestiture
Upon the Commission's approval of the Plan, the Company will
immediately commence a process to auction all of its electric
generating assets (i.e., Lovett, Bowline, hydro-electric
facilities and gas turbines) (collectively referred to as the
"Generating Assets"). Neither the Company nor any of its
affiliates will bid in such auction.[17]
The divestiture of the Generating Assets to third parties
will be carried out through a process that will result in a fair
and reasonable treatment of all parties, including the Company,
its employees, investors and customers. The Company will submit
its divestiture plan to Staff and the other parties in this
proceeding within three months of the Commission approving the
Plan. Staff and the other parties shall submit their comments to
the Company within 30 days of their receipt of the divestiture
plan. This divestiture plan will identify how the Generating
Assets will be packaged for sale; what restrictions, if any, will
be placed on the capacity that any one bidder may purchase; the
procedures to be followed in the sale of the Generating Assets,
including minimum bids; and key dates and milestones to achieve
the scheduled divestiture. The divestiture plan will also
address the resolution of market power issues in any load pocket
areas. At the time the Company submits its divestiture plan, it
will submit supporting documentation subject to appropriate
protection being provided for confidential information in
accordance with Appendix E. The Company further agrees to provide
a copy of the collective bargaining agreement to any party that
indicates an interest in bidding in any auction of the Generating
Assets.
____________________
[17] The Company and Con Edison are tenants in common in the
Bowline Generating Station. The Company will attempt to
coordinate the divestiture of its interest in Bowline with
Con Edison. The agreement between the Company and Con Edison
for the operation and maintenance of Bowline provides that
if either tenant wishes to convey its ownership interest in
Bowline to a third party, the other tenant shall have a six-
month right of first refusal to purchase such interest in
Bowline under the terms and conditions offered by the third
party. For purposes of this Plan, the Company shall be
deemed to have selected the winning bidder for its interest
in Bowline on the date the Company selects the winning
bidder's offer for the its interest in Bowline, regardless
of whether Con Edison exercises its right of first refusal.
The parties recognize that the Company and Local No. 503 of
the International Brotherhood of Electrical Workers are subject
to a collective bargaining agreement effective through midnight
May 31, 2000, which includes the following provisions:
This Agreement is made by and between Orange and
Rockland Utilities, Inc., (hereinafter called the
"Company") and Local Union No. 503 of the International
Brotherhood of Electrical Workers (hereinafter called
the "Union").
This Agreement is made for the purpose of
establishing stabilized conditions of employment,
including rates of pay, and working conditions,
facilitating the peaceful adjustment of differences
that may arise between the parties hereto from time to
time, and of promoting harmony and efficiency, to the
end that the Company and the Union may be better able
to fulfill their obligation to furnish uninterrupted
and adequate electric and gas service to the public.
Identity of contracting parties: The parties to this
Contract agree that it shall have force and effect as
between them as herein named and described, and that this
Contract, for any part of its term, shall be binding on the
parties, their lawful successors and assigns. An absolute
precondition to the sale, lease, transfer or takeover by
sale, transfer, lease, assignment, corporate reorganization,
receivership, bankruptcy proceeding of the entire operation
or any part thereof is that any purchaser, transferee,
lessee, assignee, etc., shall agree and become party to and
bound by all the terms, conditions and obligations of this
agreement.
If the above-named Local Union is merged into or
consolidated with any other Local Unions of the
Brotherhood, this Contract shall continue in force as
between the Company and the successor Local Unions
resulting from such merger or consolidation, when such
merger or consolidation is sanctioned in accordance
with the constitution of the International Brotherhood
of Electrical Workers, AFL-CIO.
Agreement made by and between the Orange and
Rockland Utilities, Inc., a corporation organized and
existing under and pursuant to the Transportation
Corporations Law of the State of New York, its
successors or assigns, hereinafter referred to as the
"Company" and Local 503 of the International
Brotherhood of Electrical Workers hereinafter referred
to as the "Union" the "Company" shall provide notice of
the existence of the terms of this Collective
Bargaining Agreement to any purchaser, transferee,
assignee or lessee. Such notice shall be in writing
with a copy to the Union.
Nothing in this Plan in intended to add to, subtract from or
otherwise modify any rights, duties or obligations set forth in
said collective bargaining agreement.
Within six months of the Commission approving the Plan, the
Company will submit a revised expanded divestiture plan. Staff
and interested parties will be given an opportunity to file
comments on the revised divestiture plan within thirty days of
its submission. The Commission will review and act expeditiously
on this plan and any comments submitted. Once the divestiture
plan is approved, Orange and Rockland will use its best efforts
to expeditiously complete the auction process and select the
winning bidder(s) of the Generating Assets.
Following implementation of the ISO, Orange and Rockland
agrees that its bids for energy from its fossil fuel resources
shall not fall below the incremental cost of fuel plus variable O
& M costs.[18]
It is the objective of the parties that the Company should
implement full divestiture, by an auction, of Orange and
Rockland's Generating Assets. If title to the Generating Assets
is transferred prior to the implementation of retail access on
May 1, 1999, no CTC will be required (other than to recover any
net book losses associated with divestiture of the Generating
Assets). In the event there is a delay in the transfer of title
beyond May 1, 1999, Orange and Rockland will recover above-market
generation costs by means of an incentive based CTC commencing
May 1, 1999. The CTC will be established by identifying the non-
variable electric production costs using an embedded cost of
service study using 1996 as a guide. The unbundling process will
establish the precise amount of non-variable production costs to
be used in the calculation of the CTC.
Should a CTC be required, Orange and Rockland will be
authorized to recover the difference between Orange and
Rockland's non-variable cost of generation as identified in the
unbundling proceeding and the revenues, net of fuel and variable
O&M expenses, derived from the operation of Orange and Rockland's
generation plants in a deregulated competitive market with the
exception of 25% of fixed production labor expenses and property
taxes on generation properties that cannot be recovered from
____________________
[18] Variable O&M costs are estimated at one mill per kWh of
generation.
customers, but should instead be recovered through the
competitive market. The CTC will remain in effect until the
earlier of the date title to the Generating Assets is transferred
or April 30, 2000.
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
and/or a non-bypassable wires charge.
If title to the Generating Assets has not transferred as of
May 1, 2000, the CTC will be modified to increase to 35% the
level of fixed production labor expense and property taxes that
cannot be recovered from customers, but should instead be
recovered through the competitive market. The modified CTC will
remain effective until the earlier of the date title to the
Generating Assets is transferred or October 31, 2000. In the
event title to the generation assets will not transfer by October
31, 2000, the Company may petition the Commission for permission
to continue a CTC until the date title to the Generating Assets
is transferred.
The parties acknowledge that 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.
An illustration of the CTC mechanism is shown on the
following page.
Illustration of CTC Mechanism
Market Revenues Realized
Below Above Above
@ Risk @ Risk @ Risk
Competitive Market Revenues Amount Amount Amount
Annual Competitive GENCO Revenues $ 25 $100 $500
Less: Variable O&M & Fuel (12) (50) (250)
Revenue Available for Fixed Costs $13 $50 $250
Regulatory Revenue Requirement
for Fixed Generation Costs:
"Going Forward Costs":
Fixed Production Labor $50 $50 $50
Property Taxes 50 50 50
Other Production Costs 10 10 10
Total "Going Forward Costs" 110 110 110
Capital Costs:
Depreciation 25 25 25
Interest 25 25 25
Return & FIT 30 30 30
Total Capital Costs 80 80 80
Total Regulated Revenue Requirement $190 $190 $190
CTC Mechanism
Competitive GENCO Revenues - Net $ 13 $ 50 $250
Less: 25% of Fixed Production
Labor and Property Taxes (25) (25) (25)
Available for CTC Eligible Costs 0 25 225
Less: Eligible "Going Forward
Costs" (85) (85) (85)
Less: Capital Costs (80) (80) (80)
CTC Charge to Customers(A) $165 $140 ($60)
O&R Cost Recovery
Competitive GENCO Revenues - NET $ 13 $ 50 $250
CTC Charge to Customers 165 140 (60)
Total Recovered $178 $190 $190
Revenue Impact on Company $(12) $ 0 $ 0
(A) CTC established to recover generation costs except 25% of
Fixed Production Labor and Property Taxes, as defined above,
which must be recovered through competitive market. If
market revenues exceed total generation costs, the excess
will be credited to customers.
Illustration
Gain (Loss) on Sale of Generation Assets
($000s)
Gain Loss
On Sale On Sale
(New York Share)
Sale Price (Winning Bid) $185,000 $140,000
Cost of Sale:
Net Book Value of Assets Sold(A) 150,000 150,000
Divestiture Plan Costs
(Legal, Financial, etc.)(B) 7,500 7,500
Employee Costs(B) 7,500 7,500
NYS Revenue Taxes 995 -
Total Cost of Sale 165,995 165,000
Gain (Loss) Before Taxes 19,006 (25,000)
Reversal of FAS 109 Regulatory Asset 3,500 3,500
Federal Income Tax Expenses:
Current FIT expense 24,152 8,750
Reversal of FAS 109 Deferred FIT (3,500) (3,500)
Reversal of Funded Deferred FIT (14,000) (14,000)
Total Federal Tax Expense 6,652 (8,750)
Net Gain (Loss) Eligible for Sharing $ 8,854 $ (19,750)
CTC Mechanism
Refund 75% of Net Gain(C) $ (6,640)
Recover 95% of Net Loss(C) $ 18,763
(A) Includes generation plant in service, net of accumulated
provision for depreciation and related CWIP, fuel
inventories, spare parts inventory, prepaid property taxes
and insurance, etc.
(B) In accordance with the terms of the Plan, Section III, Para.
D.
(C) Net gain or loss to be refunded or surcharged to customers
with interest calculated on unamortized balance at the
Commission-approved after-tax overall rate of return over
appropriate period of time as determined by the Commission.
D. Allocation of Net Book Gains and Losses
from the Disposition of Generating Assets
The parties agree that the combined net book gains/losses
from the divestiture of the Generating Assets shall be determined
as follows:
Net Book Gain or Loss = Bid - Cost of Sale - Tax Effects[19]
Where:
Bid = The Winning Bid
Cost of Sale = Net Book Value of the Generating Assets
+ Costs of Developing and Implementing
the Divestiture Plan(including all incremental
financial,[20] environmental, transaction
and litigation costs)
+ Employee Costs[21]
Tax Effects = Revenue Taxes
+ State, Federal and Local Taxes
These costs shall be prudent and verifiable. The net book
gains/losses shall be allocated as follows:
(a) If the Company selects a winning bidder prior to May 1,
1999, the New York share of any net book gains shall be
allocated between shareholders and customers on a 25/75
basis and any net book losses shall be allocated
between shareholders and customers on a 5/95 basis.
(b) If Orange and Rockland selects a winning bidder on or
after May 1, 1999, the New York share of any net book
gains or losses shall be allocated between shareholders
and customers on a 20/80 basis.
There shall be a $20 million cap on the New York share of
net book gains to shareholders from the divestiture of the
Generating Assets.
____________________
[19] All tax effects related to the divesture of the Generating
Assets consistent with avoiding any violation of the IRS
rules and regulations governing tax normalization and
Investment Tax Credits.
[20] Including any prepayment penalties incurred as a result of
the redemption of the Company's financial obligations.
[21] As defined under "Accounting Provisions."
E. 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.
F. Proceeds of Divestiture
The parties agree that the provisions of Public Service Law
Section 70 and 107 shall not apply to any proceeds from the
divestiture of the Generating Assets.
For ten years from the date of the Commission order
approving the Plan, Orange and Rockland agrees that neither it
nor any of its affiliates shall purchase or otherwise acquire an
ownership interest in the Generating Assets or in generating
assets owned by Con Edison, New York State Electric and Gas
Corporation or Central Hudson Gas & Electric Corporation or any
other utility in a service territory contiguous to the Orange and
Rockland system. At the determination of the Commission, when
considering an application for a merger or acquisition, this
provision may or may not apply to any third party which merges
with or acquires Orange and Rockland or a Company affiliate after
the approval date of the Commission order approving the Plan. In
the event that Orange and Rockland or any affiliated company
acquires another company, the newly created company is prohibited
from purchasing or acquiring an ownership interest in the
Generating Assets until after the expiration of ten years from
the date of the Commission order approving the Plan.
It is the intention of the parties that any winning bidder
shall be free to own and/or operate the Generating Assets as an
exempt wholesale generator pursuant to Section 32 of the Public
Utility Holding Company Act of 1935 without first securing any
additional approval from the Commission.
IV. Corporate Structure
A. Holding Company
Orange and Rockland agrees to apply to the appropriate
regulatory authorities for permission to form a registered
holding company. The formation of a registered holding company is
intended to further the public interest by avoiding barriers to
full and fair competition. 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 form a registered holding company 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.
At the time that a registered holding company is formed, it
will become the successor to Orange and Rockland as signatory
hereto. Standards of Competitive 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 $15
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. The Company agrees that any purchase of
electric supply (i.e., the commodity) from an unregulated
affiliate shall be pursuant to competitive bidding.
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 generation operations, 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. 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 Competitive Conduct designed to prevent it from
gaining an unfair competitive advantage as a result of its
affiliation with the Delivery company. O&R's affiliated ESCO will
be subject to the same regulatory requirements applicable to any
other comparably situated ESCO. The Standards of Competitive
Conduct that will govern the relationship between the Delivery
company and its affiliated ESCO are set forth in Appendix H.
Affiliated ESCOs may be subjected to an annual examination
by the Staff, if necessary, 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. The Company agrees that the Commission has
authority to initiate an investigation and set a schedule to
consider allegations of the Company's failure to meet the
Standards of Competitive Conduct. The purpose of these conditions
is to ensure the Commission can act promptly to eliminate
unwarranted barriers to competition or require correction of anti-
competitive behavior, consistent with its obligations and
responsibilities under the Public Service Law. Remedial action
for violations of the Standards of Competitive Conduct is covered
in Appendix H, subp. (viii).
Upon separation of the Delivery company from generation
pending divestiture, there will be no bilateral agreements
between Delivery company and the generation department (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.
The Parties acknowledge that the Commission has determined
that Provider of Last Resort ("POLR") responsibility should
continue to exist to meet the needs of end-use customers
including those who require service but have not chosen an ESCO
or who require temporary service, and end-use customers who are
unable to obtain service from an ESCO. The Commission has also
concluded that, for the time being, this responsibility should be
performed by the regulated utility company, although the
Commission did not rule out alternatives to the regulated utility
performing this function and specifically invited such
alternative proposals. The parties agree that the transfer of the
regulated utility's responsibility to serve as POLR to ESCOs
through a competitive bid process is a desirable goal to explore.
Accordingly, the parties agree that by May 1, 1999, they will
submit their recommendations on this issue to the Commission for
its consideration. Staff will initiate the process of this
examination by May 1, 1998.
Unless and until relieved of its obligation, the Delivery
company shall be the 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. Metering Services
Following issuance of the Staff report required by
Commission Opinion No. 97-13 (August 1, 1997), on or before
March 31, 1999, O&R will submit a plan designed to make metering
competitive by December 31, 1999. In the event that there remain
significant implementation obstacles (such as open architecture,
customer protections or necessary changes to Parts 92 and 93 of
the Commission's regulations) which cannot be timely resolved,
the Company may petition the Commission to delay the
implementation schedule. Should the Commission order that
metering services become competitive earlier than the schedule
contemplated herein, the Company shall meet the schedule
prescribed by the Commission and offer such services in the
manner and to the extent prescribed by the Commission. Any
resulting stranded costs[22] approved by the Commission shall be
fully recoverable (via a non-bypassable wires charge with
recovery to commence during the term of this Plan) over an
appropriate period of time as determined by the Commission. After
the time that metering services become competitive, the Company
may continue to provide such services to remaining customers at
such rates as are determined by the Commission to be appropriate.
____________________
[22] Including the costs of implementing this program (e.g.,
meter removal costs incurred by the Company, if any).
E. Billing Services
Other companies will be able to enter into the market for
providing billing services to Orange and Rockland's Delivery
company customers consistent with the manner and in accordance
with the schedule prescribed by the Commission. Any resulting
stranded costs shall be fully recoverable (via a non-bypassable
wires charge with recovery to commence during the term of this
Plan) over an appropriate period of time as determined by the
Commission.
F. 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,[23] 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. The parties anticipate that the
divestiture plan will address the load pocket issue on an interim
basis pending a final Commission determination on the load pocket
issue.
G. System Upgrades
The Company will continue its annual forecasts of T&D
capital budget requirements. For each major T&D upgrade (projects
of $2 million or more), the Company shall identify the location,
reason, scope and projected capital costs, and shall monitor
circuit peaks for any affected substation and the load on any
affected transmission lines. When deciding whether to implement
major T&D upgrades, the Company shall consider a full range of
alternative measures, their cost-effectiveness and their
environmental impacts, including demand-side technologies and
practices, fuel cells, photovoltaic systems or other alternatives
that may both defer the need for implementing the upgrades and
____________________
[23] Examples of such measures are existing and new local
distributed generation or energy efficiency/management
measures.
minimize the environmental impacts of electricity usage. The
Company will also continue to seek to minimize costs and
environmental impacts for T&D projects that are not major
projects.
In the Company's first major electric rate filing following
Commission approval of the Plan, unless otherwise directed by the
Commission, Staff will address the merits of performance-based
ratemaking, including the relationship among sales and
distribution revenues and energy efficiency and concerning the
appropriate measure of cost-effectiveness for alternatives to T&D
projects, and make ratemaking proposals as warranted.
V. Other Provisions
A. Force Majeure
If the Company because of an event of Force Majeure is
rendered wholly or partly unable to perform its obligation under
the Plan to select a winning bidder for its Generating Assets by
May 1, 1999, or to transfer title to the Generating Assets by
October 31, 2000, Orange and Rockland shall be excused from the
performance affected by the Force Majeure and to the extent so
affected, the time of performance shall be extended for a period
equal to the time lost by reason of such Force Majeure. Orange
and Rockland shall not be liable for the damage caused by such
non-performance. The Company shall provide the Commission prompt
notice of the occurrence of the Force Majeure, including an
estimate of its expected duration and probable impact on the
performance of the Company's obligations hereunder, and shall
submit satisfactory evidence for Commission review of the
existence of the Force Majeure.
For purposes of the Plan, the term "Force Majeure" shall
include, but not be limited to acts of God, fires, floods,
earthquakes, landslides, storms, lightning, strikes, labor
disputes, riots, nuclear emergencies, insurrections, acts of war
(whether declared or otherwise), changes in laws, regulation or
ordinances and unforeseeable acts or failures to act by
governmental, regulatory or judicial bodies, failure of any party
to submit a bid for the Generating Assets or any other
unforeseeable causes beyond the reasonable control of and without
the fault and negligence of Orange and Rockland. Orange and
Rockland shall use its best efforts to remedy expeditiously its
inability to perform. Orange and Rockland shall not be required
to settle any strike, walkout, lockout or other labor dispute on
terms which in its sole judgment, are contrary to its interest.
When Orange and Rockland is able to resume performance of its
obligations under the Plan, it shall provide written notice to
that effect to Staff and the Commission.
B. 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,[24] results in a change of 5% 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.
C. Confidentiality and Privileged Information
Pursuant to the provisions of this Plan, 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.
D. 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 Plan 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 4% per year,
the Company may petition the Commission for appropriate relief.
E. Rate Design Flexibility
During the term of this Plan, 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.
____________________
[24] Excluding Gross Receipts and Franchise Taxes.
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.
F. Regulatory Reform and Customer Operations
Procedures
In consideration of the Company's implementation of retail
competition as described in this Plan 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 Plan, 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 requested from such
customer, or for other purposes approved by the
Commission; 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
and agrees that consumers are entitled to meaningful
environmental information concerning the power provided to them.
To effectuate such disclosure, the Company agrees to work with
interested parties to develop and implement on a statewide basis
a feasible, meaningful and cost-effective approach to providing
customers with fuel-mix and emissions characteristics of the
generating resources relied upon by the load serving entity.
G. Customer Outreach and Education
In conjunction with the parties, 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. Such programs will include information on environmental
programs as described above. 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 Plan, 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.
As partial retail access is being offered to all customers
by May 1998 and full retail access by May 1999, it is essential
that the Company's customers are educated so that they can make
informed energy choices. To achieve this goal, an information
campaign would be undertaken by early next year. The Company
agrees to the use of up to the equivalent of $1 million of the
present value[25] of fourth year SBC funds for the purpose of
educating Residential and Commercial customers about electric
competition. Staff will develop a proposal to implement the
program to educate customers about electric competition and will
circulate it to the active parties by December 31, 1997.
H. Interdepartmental Transfers
For purposes of this Plan, 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
____________________
[25] Discounted at the authorized overall rate of return of
8.79%.
$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 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 January 1, 1998, 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. 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.
I. Other 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 Plan 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.
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 Plan. 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. Such tariffs will be
available regardless of the supplier of electricity and such
discounts will be fashioned in a competitively neutral manner.
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 Plan.
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 to Large Commercial, Small Commercial and Industrial and
Residential customers, unless otherwise prescribed by such
statute or order of the Commission. The Commission will also
consider the use of these savings for energy efficiency programs
and clean energy technologies.
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 Plan. 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 Plan.
O. Comprehensive Nature of Plan
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 Plan. 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 Plan with each provision
being in consideration for, support of, and dependent upon all
others. This Plan is, therefore, presented for the Commission's
approval as an integrated whole. If the Commission does not
approve this Plan in its entirety, without modification, any
signatory hereto may withdraw its acceptance of this Plan 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 Plan apply solely to and
are binding only in the context of the purposes and results of
this Plan. None of the terms and provisions of this Plan 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 Plan.
R. Plan Modification
Upon mutual agreement, the signatories may modify this Plan
in writing to take into consideration material information that
may become available after the execution of this Plan and submit
such written modification to the Commission for its approval.
S. Term and Time Line
The term of this Plan runs for four years from the
effective date of the new rates implemented upon Commission
approval of this Plan. 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.
T. Effect of Plan
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.
- Divestiture of the Generating Assets pursuant to
an auction process.
- Allocating equity earnings in excess of the
sharing threshold between shareholders and customers
and to writing down Commission-approved deferred costs.
- 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.
- Providing full retail access (energy and capacity)
to all customers in 1999.
- Agreeing to address alternative ways of providing
metering and billing services.
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 Plan.
- A reasonable opportunity to recover prudently
incurred strandable costs as a result of divesting the
Generating Assets, or otherwise during the
effectiveness of the CTC.
The parties agree that the provisions of this Plan will
result in rates that are just and reasonable to both
customers and shareholders through the four-year term of
this Plan.
Future generic determinations by the Commission will be
addressed in good faith by the parties to this Plan 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.
U. Dispute Resolution
In the event of any disagreement over the interpretation of
this Plan or the implementation of any of the provisions of this
Plan, 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 30 days, any party may petition the Commission for
relief on a disputed matter.
V. Additional Public Statement Hearings
The parties agree that additional public statement hearings
should be held in the Company's service territory prior to the
Commission acting on this Plan in order to receive and consider
public input on important matters included within this Plan. The
parties strongly encourage the Secretary to schedule such
hearings.
Orange and Rockland Utilities, Inc.
G.D. CALIENDO, ESQ.
G.D. Caliendo, Esq.
Senior Vice President, General Counsel and
Corporate Secretary
New York State Department of Public Service
SAUL A. RIGBERG, ESQ.
Saul A. Rigberg, Esq.
Assistant Counsel
New York State Department of
Economic Development
JEFFREY SCHNUR
Jeffrey Schnur
Director of Energy Policy
National Association of Energy Service Companies
RUBEN S. BROWN
Ruben S. Brown
The Joint Supporters
By: The E Cubed Company
RUBEN S. BROWN
Ruben S. Brown
Industrial Energy Users Association
THOMAS A. CONDON, ESQ.
Thomas A. Condon, Esq.
Birbrower, Montalbano, Condon & Frank, P.C.
L.M. DIVALENTINO
L.M. DiValentino
Strategic Power Management, Inc.
Exceptions to the following provisions of the Plan:
__________________________________________
__________________________________________
Independent Power Producers of New York, Inc.
CAROL E. MURPHY
Carol E. Murphy
Executive Director
Pace Energy Project
DAVID R. WOOLEY
David R. Wooley
Counsel for the Energy Project
Center for Environmental Legal Studies
Pace University School of Law
Appendix A
Time Line for Certain Actions
November 6, 1997 Plan Filed
_____________________ Commission approves Plan
_____________________ 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)
December 1997 O&R files proposed draft
unbundled electric
tariffs
February 1998 O&R submits initial
divestiture plan
May 1, 1998 O&R expands PowerPick(TM)
(energy only) to all
customers
May 1998 O&R submits detailed
divesture plan
One year after effectiveness O&R reduces rates for all
of new rates other customers by an
additional 1%
_____________________ O&R forms Holding company
_____________________ Unbundled electric
tariffs become effective
March 31 1999 O&R submits metering
proposal
April 30, 1999 O&R selects winning
bidders of auction
May 1, 1999 O&R introduces full
retail choice (energy and
capacity) to all
customers
May 1, 1999 Recommendations on POLR
obligation submitted
May 1, 1999 CTC commences, if
necessary
December 31, 1999 Metering proposal becomes
effective assuming
significant technical
obstacles are resolved
October 31, 2000, or earlier CTC terminates
Four years after effectiveness Plan terminates
of new rates
Appendix B
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.
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:
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.
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 Total
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
GRT Gross-up 371,858 354,789 412,392 536,868
Cost Reductions
(Incl. GRT) $6,110,400$5,829,931 $6,776,465 $8,821,868
PowerPick(TM) Savings Opportunity
(Incl. GRT) $1,108,000$1,108,000 $1,108,000 $1,108,000
Total Sources of Price
Reduction (Incl. GRT)$7,218,400$6,937,931 $7,884,465 $9,929,868 $31,970,664
(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
Privileged Information
Nothing in this Plan 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 Plan,
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.
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 Plan, "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 Plan 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 Plan 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
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 Plan. 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
Plan. 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 Plan) will be reduced by five basis points in
that rate year.
The CICAS target shall be 2.65 for each rate year of the
Plan. 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:
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 Plan, Orange and
Rockland fails to achieve the Interruption Duration Target, the
Sharing Threshold (as defined in this Plan) 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 Plan, 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
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 in Case 95-E-0941 ("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 as soon as practicable after the
effectiveness of new rates and terminate four 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
approximately 400 customers in total, or approximately 100
customers for each of the four years included in this Plan. 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 include all expenses for energy
efficiency, arrears forgiveness, evaluation and administration.
Funding for this Program, including $35,000 of administrative
costs per year, shall come from unexpended DSM funds.
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 400 customers)
into the Program in order to fully expend the available funds.
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.
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 Plan, the
parties agree to reconvene promptly and consider any appropriate
changes to this Plan.
Appendix H
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 in promotional
advertising or otherwise 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.
(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.
(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 engaged in material violations
of the standards of competitive conduct during the
course of this Plan, 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
such 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 issue. 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 material 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). The Delivery company and the
Holding company may exercise any and all legal and/or
equitable relief from such remedial actions, including,
but not limited to injunctive relief. Neither Orange
and Rockland nor any affiliate or subsidiary will
challenge the Commission's legal authority to implement
the provisions of this subparagraph.
(ix) The Standards of Competitive Conduct set forth in
this Plan 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
Competitive Conduct established by the Commission
through the term of this Plan. Unless otherwise ordered
by the Commission, the Standards of Competitive
Conduct set forth in this Plan will continue to apply
after the expiration of the term of this Plan, 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) The rate levels provided for in this Plan cover
all royalties that otherwise would be credited to the
Delivery company's customers, at any time, including
after the expiration of this Plan.
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
Plan.
(v) Access to books and records shall be subject to
claims of privilege and confidentiality as set forth in
Appendix E hereto.
Appendix I
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 formation of the
Holding company. Unregulated affiliates will establish
and maintain separate and distinct offices and work
space from the Delivery company in a separate building
or leasehold.
b) Draft 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). At the discretion of the
Commission, these guidelines will be considered in
either the unbundling phase of this proceeding or as
part of the Company's application to form a Holding
company as appropriate.
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.
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 (on a system basis).
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 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% 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.
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 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. (As noted in Section IV.B. herein,
certain electric supply contracts will be subject to
competitive bidding.) 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
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, "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 section 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.
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.
- 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
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 Overhead percentage
& Expenses to be applied to total salary
(excluding expenses and other compensation
directly assignable (based on RegCo ratio of
to the affiliate Office Supplies and
or included in the Expenses-PSC Account 921,
office space less Building Service costs
charge) and Administrative and General
Salaries).
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
Assignable to Affiliates charged to an affiliate
account and paid directly
by the affiliate.
Appendix K
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.
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ROCKLAND UTILITIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
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FINANCIAL STATEMENTS.
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