UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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)
Common Stock, $5 Par Value - New York Stock Exchange, Inc.
(Securities registered pursuant to Section 12(b) of the Act)
Preference Stock, No Par Value
(Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
(Continued)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Continued from first page)
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At February 28, 1997, the approximate aggregate market value
of the voting stock held by non-affiliates of the registrant
was $488,966,492*.
At February 28, 1997, the registrant had 13,654,123 shares
of Common Stock ($5 par value) outstanding.
Documents incorporated by reference:
Annual Report to Shareholders for the year ended
December 31, 1996 incorporated in Part I, Part II and
Part IV to the extent described therein.
The Company's definitive Proxy Statement in connection
with the 1997 Annual Meeting of Common Shareholders
incorporated in Part III to the extent described
therein.
* For purposes of this calculation, it is assumed that only
directors and officers of the registrant are affiliates of
the registrant.
TABLE OF CONTENTS
PART I. Page
ITEM 1. Business
General Development of Business 1
Financial Information about Industry Segments 1
Narrative Description of Business: 2
Principal Business 2
Electric Operations 2
Gas Operations 8
Diversified Activities 10
Construction Program and Financing 13
Regulatory Matters 15
Utility Industry Risk Factors and Competition 19
Marketing 21
Environmental Matters 21
Research and Development 25
Franchises 25
Employee Relations 26
ITEM 2. Properties 26
ITEM 3. Legal Proceedings 29
ITEM 4. Submission of Matters to a Vote of Security Holders 38
Executive Officers of the Registrant 39
PART II.
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 41
ITEM 6. Selected Financial Data 41
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 42
ITEM 8. Financial Statements and Supplementary Data 42
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
PART III.
ITEM 10. Directors and Executive Officers of the Registrant 42
ITEM 11. Executive Compensation 42
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 42
ITEM 13. Certain Relationships and Related Transactions 42
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 43
Signatures 51
Report of Independent Public Accountants on Financial
Statement Schedules 53
Consent of Independent Public Accountants 53
PART I
ITEM 1. Business
General Development of Business:
Orange and Rockland Utilities, Inc. (the "Company") is a New York
corporation, with its principal office at One Blue Hill Plaza,
Pearl River, New York 10965 (telephone number 914-352-6000),
which was formed originally under the name Rockland Light and
Power Company on May 21, 1926 through the consolidation of a
company having the latter name (organized in 1899), Catskill
Power Corporation and Orange County Public Service Company, Inc.
Its present name was adopted on February 28, 1958, when The
Orange and Rockland Electric Company was consolidated with
Rockland Light and Power Company.
The Company has two wholly-owned utility subsidiaries, Rockland
Electric Company ("RECO"), a New Jersey corporation, and Pike
County Light & Power Company ("Pike"), a Pennsylvania
corporation. The Company has three wholly-owned non-utility
subsidiaries, Clove Development Corporation ("Clove"), a New York
corporation, O&R Development, Inc. ("ORD"), a Delaware
corporation and O&R Energy Development, Inc. ("ORED"), a Delaware
corporation. ORED sold all of its oil and gas interests
effective December 31, 1995 and has ceased operations. RECO has
a wholly-owned non-utility subsidiary, Saddle River Holdings
Corp. ("SRH"), a Delaware corporation. SRH has four wholly-owned
non-utility subsidiaries, NORSTAR Holdings, Inc. ("NHI")
(formerly O&R Energy, Inc.), Atlantic Morris Broadcasting, Inc.
("AMB"), Palisades Energy Services, Inc. ("Palisades") and
Compass Resources, Inc. ("Compass"), all Delaware corporations.
AMB sold all of its broadcasting properties during 1995 and has
ceased operations. NHI has two wholly-owned non-utility
subsidiaries, Millbrook Holdings, Inc. ("Millbrook") and NORSTAR
Management, Inc. ("NMI"), both Delaware corporations. NMI is the
sole general partner of a Delaware limited partnership, NORSTAR
Energy Limited Partnership ("NORSTAR Partnership"). NORSTAR
Partnership is the majority owner of NORSTAR Energy Pipeline
Company, L.L.C. ("NORSTAR LLC"), a Delaware limited liability
company. The businesses of the non-utility subsidiaries are
described under the subheading "Diversified Activities" in this
Item 1.
Financial Information about Industry Segments:
Consolidated financial information regarding the Company's
principal business segments, Electric Operations, Gas Operations
and Diversified Activities is contained in Note 13 of the Notes
to Consolidated Financial Statements - "Segments of Business" on
page 30 of the 1996 Annual Report to Shareholders, which material
is incorporated by reference in this Form 10-K Annual Report.
Narrative Description of Business:
Principal Business
The Company and its utility subsidiaries supply electricity and
gas to a territory covering approximately 1,350 square miles.
The eastern boundary of the Company's service territory extends
along the west bank of the Hudson River from a point in New
Jersey six miles north of the George Washington Bridge northerly
for approximately 37 miles to a point in New York a short
distance north of the United States Military Academy at West
Point. From the Hudson River, the Company's territory in New
York State extends westward to the Delaware River, embracing all
of Rockland County, most of Orange County and a part of Sullivan
County. In New Jersey, RECO supplies electricity to the northern
parts of Bergen and Passaic Counties and small areas in the
northeastern and northwestern parts of Sussex County. Pike
supplies electricity and gas to the northeastern corner of Pike
County, Pennsylvania.
As of December 31, 1996, the Company and its utility subsidiaries
furnished electric service to approximately 266,000 customers in
96 communities with an estimated population of 676,000 and gas
service to approximately 113,000 customers in 57 communities with
an estimated population of 478,000. There have been no
significant changes in either the population of the Company's
service territory or in the number of customers served in the
current year. At December 31, 1995, electric service was
provided to approximately 263,000 customers in 96 communities
with an estimated population of 671,000 and gas service was
provided to approximately 112,000 customers in 57 communities
with an estimated population of 474,000. At December 31, 1996
and 1995, 95% of the Company's residential gas customers used gas
as their major heating fuel. While the territory served is
predominantly residential, the Company and its utility
subsidiaries also serve a number of commercial and industrial
customers in diversified lines of business activities from which
significant electric and gas revenues are derived. No single
customer accounts for more than 10% of either gas or electric
sales. The business of the Company and its utility subsidiaries
is seasonal to the extent that sales of electricity are higher
during the summer, mainly due to air conditioning requirements,
and sales of gas are greater in the winter months, primarily as a
result of heating requirements.
Electric Operations
Generating Capacity and Purchased Power. As described more fully
in Item 2 of this Form 10-K Annual Report under the subheading
"Electric Generating Facilities", the capacity of the Company's
plants provides the Company with a net generating capacity of 981
megawatts ("Mw") in the summer and 993 Mw in the winter.
Additionally, the Company purchases capacity, as more fully
described below, to satisfy its reserve requirements, as well as
any demand in excess of its installed capacity. The electric
energy which RECO and Pike distribute to their customers is
supplied by the Company. The maximum historical one-hour demand
for the Company and its utility subsidiaries occurred on July 15,
1995 and was 1,068 Mw.
In addition to the energy produced at its generating facilities,
the Company, through various transmission interconnections,
purchases both capacity and energy when needed to meet load and
reserve requirements and also when such power is available at a
price lower than the cost of production. The Company maintains
transmission interconnections with Central Hudson Gas and
Electric Corporation ("Central Hudson"), Public Service Electric
and Gas Company ("PSE&G") and Consolidated Edison Company of New
York, Inc. ("Con Ed"). Through these interconnections, and as a
member of the New York Power Pool ("NYPP"), the Company can
exchange power directly with the above utilities and, through the
facilities of other members of the NYPP, the Company can exchange
power with all members of the NYPP and with utilities in pools in
neighboring states. In addition, members of the NYPP are able to
coordinate inter-utility transfers of bulk power in order to
achieve economy and efficiency, cooperate in long range planning
of generation and transmission facilities and coordinate inter-
utility operating and emergency procedures to assure reliable,
adequate and economic electric service throughout the state.
Through the NYPP control center, the Company is able to purchase
power in order to optimize its generation-interchange mix, using
the lowest cost energy available to the Company in the
interconnected system. By agreement with the NYPP, the Company
must maintain capacity reserves including firm capacity purchases
of not less than 18% of its peak load.
During 1996, the Company had agreements in place for both
capacity and energy purchases. Capacity purchases included an
agreement with PSE&G which provided 100 Mw of winter capacity and
125 Mw of summer capacity, an agreement with the New York Power
Authority ("NYPA") for 25 Mw of year-round capacity from the
Blenheim-Gilboa pumped storage facility (the "Gilboa Facility")
and an agreement with North American Energy Conservation, Inc.
("NAEC") which provided for 100 Mw of capacity in the winter
capability period and 150 Mw during the summer capability period.
With regard to energy, the Company purchased approximately 54% of
its energy requirements during 1996. These purchases, which were
made primarily through short-term purchase agreements and
interchange agreements, were primarily economy transactions made
in the interest of lowering costs to the Company's customers.
This is demonstrated by the fact that the Company's installed
generating capability for the 1996 summer capability period could
have provided over 99% of the Company's energy requirements at
the time of the Company's peak demand. The use of purchased
power under these circumstances reflects the Company's policy of
supplementing its electric generation with purchased power not
only when needed to meet load requirements but also when such
power is available at a cost lower than the cost of production.
Information regarding future power supply, particularly the
status of capacity purchase contracts with Independent Power
Producers and Qualifying Facilities, is contained under the
caption "Future Energy Supply and Demand" in this Item 1.
Reference is also made to the information contained under the
caption "Utility Industry Risk Factors and Competition" in this
Item 1.
Fuel Supply. The Company's 981 Mw summer generating capacity is
available from the following fuel sources:
Coal,
Oil Oil Gas
Plant & Gas & Gas Hydro Turbine Total
(Megawatts)
Lovett Plant
Unit 3 63.0 63.0
Units 4 & 5 399.6 399.6
Hydro Plants
Swinging Bridge
Mongaup, Rio and
Grahamsville 43.8 43.8
Gas Turbine Plants
Hillburn and
Shoemaker 74.0 74.0
Bowline Point Plant
Units 1 & 2 400.6 400.6
463.6 399.6 43.8 74.0 981.0
*For a description of the Company's generating plants, see
Electric Generating Facilities" in Item 2 of this Form 10-K
Annual Report.
The Company's principal generating plants use natural gas, coal,
or oil as their primary fuels. This tri-fuel strategy enables
the Company to control, to some extent, the risks associated with
one of the most volatile components of electric production costs
based on fuel price and fuel availability. In addition, the
Company's fuel strategy has enabled it to reduce its dependence
on oil through the use of coal as the primary fuel for the Lovett
Plant's two largest generating units and incorporates economy
power purchase from other systems when such purchases are less
expensive than generation. There are, however, certain factors
which affect fuel price and availability which are beyond the
control of the Company. These factors include the domestic and
international fuel supply situation, environmental regulations,
conservation measures and the availability of alternative fuels.
Electricity available for sale is a mix of Company generation by
various fuel types, supplemented by purchased power when such
power is available at a price lower than the price of generation
or is needed to meet load requirements. Details for the years
1992 through 1996 are as follows:
1992 1993 1994 1995 1996
Gas 21% 16% 23% 23% 8%
Coal 33 33 36 27 33
Oil 10 5 6 7 1
Hydro 3 4 3 3 4
Purchased Power 33 42 32 40 54
Total 100% 100% 100% 100% 100%
Gas - Natural gas is used as fuel for electric generation at the
Company's Lovett and Bowline Point Plants and at the Hillburn and
Shoemaker Gas Turbine Plants when it is available and economic.
Substantially all of the gas used in electric generation is
acquired through spot market purchases. During 1996, the Company
used significantly lower volumes of natural gas for boiler fuel
at both its Lovett Plant and the Bowline Point Plant than in
previous years due to the higher market price of gas in relation
to other fuels. The Company expects to continue to use natural
gas in the Lovett Plant and the Bowline Point Plant during 1997,
whenever such gas is more economical than alternative fuels. In
1996, the Company used 2.3 billion cubic feet ("Bcf") and 2.0 Bcf
of gas, respectively, at the Lovett Plant and the Bowline Point
Plant.
Coal - The low sulfur coal (1.0 lbs - SO2 per million British
Thermal Unit ("MMBTU")) used in Lovett Plant Units 4 and 5 is
supplied to the Company primarily through a long term contract
with Massey Coal Sales Company, Inc. The Company maintains the
ability to purchase alternative fuel in place of coal whenever it
is in its best interest to do so. The coal burned in the Lovett
Plant is low in ash (typically 8%) and high in BTU content (26
MMBTU's per ton). During 1996 coal was the predominant fuel
burned at the Lovett Plant, and the Company expects it to be the
predominant fuel burned during 1997. Information regarding the
Company's coal supply contract is contained in Note 12 of the
Notes to Consolidated Financial Statements under the caption
"Coal Supply Contracts" on page 27 of the 1996 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report.
Oil - The Company has the ability to burn oil at all of the
generating units at the Lovett Plant and the Bowline Point Plant.
The Company purchased no oil for its Lovett Plant in 1996 and
does not anticipate purchasing any significant quantity of fuel
oil for the Plant in 1997. Con Ed supplies #6 fuel oil (0.37%
maximum sulfur content by weight) to the Bowline Point Plant
under a contract between it and the Company. Pursuant to that
contract, Con Ed has also agreed to provide a backup oil supply
for the Company's Lovett Plant under certain conditions.
Hydro - Water for the operation of the Company's Mongaup River
Hydro Plants is controlled by the Company through the ownership
of the necessary land in fee or through easements. In the case
of the Company's Grahamsville Hydro Plant, water is obtained
under contract with the City of New York Board of Water Supply.
This contract, which expires in 2005, entitles the Company to 8.1
Bcf of free water each year. In 1996, the total amount of water
used was 15.5 Bcf. Of this total, 7.4 Bcf was billed at varying
rates based on an average cost of all fuels used in power
generation.
Purchased Power - The Company's practice regarding purchased
power is to supplement the Company's electric generation by
purchasing both capacity and energy when needed to meet load and
reserve requirements and also when such power is available at a
price lower than the cost of production. Details regarding
purchased power are contained under the captions "Generating
Capacity and Purchased Power" and "Future Energy Supply and
Demand" in this Item 1.
Additional information regarding fuel and purchased power costs,
including a description of the fuel adjustment clauses contained
in the Company's tariff schedules, is contained in the 1996
Annual Report to Shareholders in the "Review of the Company's
Results of Operations and Financial Condition" under the caption
"Electric Energy Costs" on page 11 and in Note 1 of the Notes to
Consolidated Financial Statements under the caption "Fuel Costs"
on page 21, which information is incorporated by reference in
this Form 10-K Annual Report.
Future Energy Supply and Demand. The Company continues to be
committed to meeting customer energy needs by providing reliable
energy service at the lowest prudent cost and in an
environmentally sound manner. The transition to a competitive
business environment may affect the traditional vertically
integrated utility structure and will necessitate changes in the
way the Company provides for the power needs of its customers.
As a result, this section should be read in conjunction with the
disclosures regarding competition in the electric utility
industry, which can be found in this Form 10-K Annual Report in
Item 1 under the caption "Utility Industry Risk Factors and
Competition" and in Item 3, Legal Proceedings, under the caption
"Regulatory Matters - Competition."
Through its Integrated Resource Plan the Company has responded to
the changes that have occurred in the utility industry and has
incorporated a significant number of conservation and demand
reduction alternatives as well as purchased power into its energy
strategy. The Company's Demand Side Management ("DSM") program
involves efforts to control electric peak demand and energy
usage, and addresses the need to improve plant utilization by
making customer demand more complementary, over time, to the
available capacity. DSM programs are available to all market
segments. Through December 31, 1996, DSM efforts have reduced
the annual need for increased energy of 240,000 Mwh through
programs administered by the Company and by RECO as well as
through contracts with outside energy service companies pursuant
to the competitive bidding program. The costs of DSM programs
are recoverable on a current basis in both the New York and New
Jersey service territories. Additional information regarding the
recovery of DSM costs, is contained under the captions "Electric
Sales and Revenues" and "Other Utility Operating Expenses and
Taxes" in the "Review of the Company's Results of Operations and
Financial Condition" on pages 11 and 12, respectively, of the
1996 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
The Company's Supply Side Management program involves the
acquisition of future increments of capacity and energy as needed
to meet anticipated load and reserve requirements and, in
particular, to reduce the cost of electricity to the Company's
customers. With regard to future purchases of capacity,
contracts are in place with the NYPA, NAEC and PSE&G. The NYPA
agreement for firm purchases from the Gilboa Facility, which
provides for 25 Mw of year-round capacity, will be in effect
through April 2015. The agreement with NAEC will provide
capacity ranging between 100 Mw and 150 Mw through October 1998,
with an option to extend the contract through October 2001. In
addition, a firm purchased power agreement with PSE&G will
provide between 100 Mw and 200 Mw of capacity during the contract
term which extends through October 2000. At the option of the
Company, additional capacity purchases are available throughout
the term of the PSE&G contract which, together with the firm
contract capacity, would bring the total capacity available under
the PSE&G contract to between 300 Mw and 400 Mw. Information
regarding future payments under capacity purchase contracts is
contained in Note 12 of the Notes to Consolidated Financial
Statements under the caption "Power Purchase Agreements" on page
27 of the 1996 Annual Report to Shareholders, which information
is incorporated by reference in this Form 10-K Annual Report.
Regarding future purchases of energy, the Company's contract with
NAEC provides for a minimum of 1.3 million megawatt hours of firm
economy purchases during the winter capability periods beginning
with the 1995/1996 period and ending with the 1997/1998 winter
period. In addition, the Company will continue to take an
aggressive posture in securing economic increments of purchased
power, particularly through interchange transactions, short-term
firm contracts and spot purchases.
During 1994 and 1995, the Company negotiated termination
agreements with three independent power producers scheduled to
provide capacity and energy to the Company in the late 1990's.
The costs associated with the termination of these contracts have
been approved for recovery by the New York State Public Service
Commission ("NYPSC") and the New Jersey Board of Public Utilities
("NJBPU"). Information regarding these costs is contained in the
"Review of the Company's Results of Operations and Financial
Condition" under the caption "Other Utility Operating Expenses
and Taxes" and in Note 1 of Notes to Consolidated Financial
Statements under the caption "IPP Settlement Agreements" on pages
12 and 22 of the 1996 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual
Report.
Gas Operations
The Company distributes purchased natural gas, supplemented at
times of peak load by gas produced in its propane air gas plants.
As of December 31, 1996, the gas distribution system included
1,732 miles of mains. The highest historical maximum daily gas
sendout of 206,038 thousand cubic feet ("Mcf") occurred on
January 19, 1994.
Supply, Transportation and Storage. The Company has firm, long-
term gas supply contracts with seven gas producers. Together
these contracts account for all of the Company's base load gas
requirements and include a contract with a Canadian producer
which accounts for approximately 28% of firm contracted supply
and expires in the year 2002. Contracts for the remaining 72% of
the Company's firm gas supply have been executed with six
domestic producers. Two of these contracts are scheduled to
expire in 1997, and it is anticipated that replacement gas
supplies will be negotiated. The remainder have expiration dates
ranging between 1998 and 2010. All of the gas supply contracts
contain options for renewal and certain of the agreements contain
"re-opener" provisions which allow the Company to modify price
and operating terms under certain conditions. This flexibility
will ensure the reliability of the Company's gas supply while
allowing the Company to enhance its supply portfolio as market
opportunities arise.
In addition to its long-term contracted supply sources, the
Company purchases spot gas from producers primarily for use in
electric generation. During 1996, the Company made spot
purchases of approximately 6.3 million Mcf of gas or 19% of the
total gas supply.
To supplement purchased gas, the Company manufactures gas at its
propane air gas plants located in Middletown, Orangeburg and
Suffern, New York which have a combined capacity of 30,600 Mcf
per day of natural gas equivalent. This capacity, together with
gas purchases under contracts between the Company and its
suppliers, is expected to provide adequate peak day supplies to
serve existing customers. Any additional increments of new
supply which may be required will be negotiated.
In addition to the gas supply contracts, the Company has provided
for the transportation of gas through firm, long-term
transportation agreements with four major pipeline companies:
Tennessee Gas Pipeline Company ("Tennessee"), Columbia Gas
Transmission Corporation ("Columbia"), Algonquin Gas Transmission
Company ("Algonquin") and Texas Eastern Transmission Corporation
("Texas Eastern"). The transportation agreement with one of
these pipelines will expire during November 2000. The other
three firm transportation contracts have expiration dates from
2004 through 2012. The Company also has entered into
interruptible transportation agreements with the same pipeline
companies. All transportation contracts contain options for
renewal.
With regard to gas storage, the Company also has long-term gas
storage contract arrangements with Tennessee, Columbia and Texas
Eastern. The earliest expiration date of any of these storage
contracts is 2000 and all storage contracts contain options for
renewal. In addition, the Company has reserved capacity in an
innovative gas storage project operated by Avoca Natural Gas
Storage. The storage facility, which will be available in late
1998, uses leached-out caverns in underground salt beds to create
a storage reservoir and is designed for fast withdrawal and
refill capacity which will enhance the Company's ability to meet
incremental peak day gas requirements.
As noted earlier, the Company's maximum daily sendout of gas
occurred during January 1994 and amounted to 206,038 Mcf. This
compares to the maximum daily gas delivery capability of 225,839
Mcf which is available from the following sources: direct
purchases - 118,471 Mcf; storage withdrawals - 76,768 Mcf; and
Company manufactured gas - 30,600 Mcf.
Additional information regarding gas supply and gas storage
contracts is contained in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Gas Supply and Storage
Contracts" on page 26 of the 1996 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K
Annual Report.
Transportation for Others. The Company provides gas
transportation services for end users in its service territory
who elect to obtain their own direct gas supplies. During 1996,
approximately 3.0 Bcf of gas were transported for such end users.
Pipeline Capacity and Off-System Sales. As a result of the
provisions of Federal Energy Regulatory Commission ("FERC")
Orders 636 and 63, and in conjunction with the NYPSC Order in
Case 92-G-0050, the Company has marketed excess pipeline
transmission capacity and has retained certain profit levels
attributable to both the marketed capacity and to off-system gas
sales. Information regarding these items is contained in the
"Review of the Company's Results of Operations and Financial
Condition" under the caption "Gas Sales and Revenues" on page 12
of the 1996 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition
Costs. As a result of a 1987 FERC order, as well as other legal
and regulatory actions since that time, the Company has deferred
certain gas supplier take-or-pay costs. A settlement with the
NYPSC in Case 88-G-062 granted the Company full recovery of its
take-or-pay liability over an amortization period which extends
to March 1999.
In addition, certain costs incurred by gas pipeline companies in
complying with FERC Order No. 636 have been approved, by the
FERC, for allocation to distribution companies, including the
Company. It is currently estimated that the Company's obligation
related to Order No. 636 transition costs will amount to $34.6
million, of which $25.1 million has been paid through December
31, 1996.
Information regarding take-or-pay charges and FERC Order No. 636
transition costs, including the recoverability of these costs
under the Company's rate structure, is contained under the
caption "Gas Energy Costs" in the "Review of the Company's
Results of Operations and Financial Condition", in Note 1 of the
Notes to the Consolidated Financial Statements under the caption
"Rate Regulation" and in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Gas Supply and Storage
Contracts" on pages 12, 21 and 26, respectively, of the 1996
Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report. Reference is also
made to Item 3, "Legal Proceedings", of this Form 10-K Annual
Report.
Information regarding the status of competition in the gas
distribution industry, particularly NYPSC Orders approving gas
utility restructuring plans, is contained in the "Review of the
Company's Results of Operations and Financial Condition" under
the caption "Rate Activities" on page 14 of the 1996 Annual
Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report. Reference is also
made to information contained under the caption "Utility Industry
Risk Factors and Competition" in this Item 1.
Diversified Activities
Both the Company and RECO have certain non-utility subsidiaries
which engage in the following diversified, non-regulated business
activities: gas marketing, energy services, investment in
business ventures and land development. The Company's
Consolidated Financial Statements, which are incorporated in this
Form 10-K Annual Report by reference to the Company's 1996 Annual
Report to Shareholders, include the results of operations of all
diversified activities. In addition, the diversified activities
are considered to be a reportable business segment, due to the
fact that the gross operating revenues of the non-regulated
business activities, which are primarily attributable to the gas
marketing activities, account for more than 10 percent of the
Company's total consolidated gross revenues. The nature of the
gas marketing business is such, however, that the net earnings
realized from this activity, and from all non-regulated
activities combined, are not material. In addition, neither the
assets of the non-regulated businesses nor the continued
operation of the non-regulated business lines are material to the
operations of the Company. For these reasons, the disclosure
related to the Company's diversified activities, as prescribed by
Regulation S-K, has, with few exceptions, been omitted from other
sections of this Form 10-K Annual Report.
Capital contributions to the non-utility subsidiaries by the
Company and RECO are borne by the shareholders. Any profits,
losses, or tax savings from investments in non-utility
subsidiaries accrue to the shareholders and are not included in
the cost of service for ratemaking purposes. A description of
the non-utility subsidiaries of the Company and RECO follows.
Saddle River Holdings Corp. SRH, a wholly-owned subsidiary of
RECO, was established for the purpose of investing in non-utility
business ventures and, through an indirect subsidiary, NMI, is
currently engaged in natural gas marketing. NMI is the general
partner of NORSTAR Partnership and the limited partner is Shell
NORSTAR Inc., a wholly-owned subsidiary of Shell Gas Trading
Company, a Delaware corporation. The NORSTAR Partnership
currently provides natural gas to industrial, commercial and
institutional end users, gas distribution companies, gas
marketing companies and electric generating facilities in 14
states and Canada. In addition, during 1996, the NORSTAR
Partnership sold its gas pipeline operations. As a result of the
continued under-performance of the NORSTAR Partnership, during
1996 the focus of the NORSTAR Partnership's business activities
began to be redirected from a large volume/low margin customer
base to a low volume/higher margin customer base. This
reorganization is aimed at increasing customers, sales and
margins and will be fully implemented during 1997. Additional
information regarding NORSTAR Partnership is contained in the
"Review of the Company's Results of Operations and Financial
Condition" under the captions "Financial Performance" and
"Diversified Activities" on pages 10 and 13 of the 1996 Annual
Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report.
A subsidiary of NHI, Millbrook, pursuant to a long-term leasehold
agreement, holds for sale or lease approximately twelve acres of
non-utility real estate in Morris County, New Jersey. In
December 1995 the Company adopted a plan to sell the Millbrook
real estate and wrote-down its investment. Broadcasting
activities were conducted through AMB, a subsidiary of SRH which
owned six radio stations. At December 31, 1995 the sales of all
broadcasting properties had been completed. Additional
information regarding the sale is contained in Note 1 of the
Notes to Consolidated Financial Statements under the caption
"Sale of Broadcast Properties" on page 22 of the 1996 Annual
Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report.
During 1996, two additional companies were formed as subsidiaries
of SRH. Compass Resources, Inc., a Delaware corporation was
formed to invest in energy technology ventures and in new energy
processes. Palisades Energy Services, Inc., also a Delaware
corporation, was formed to market energy products and services.
Both companies will begin operations in early 1997.
Clove Development Corporation. Clove, a wholly-owned subsidiary
of the Company, holds approximately 5,200 acres of real estate,
located primarily in the Mongaup Valley region of Sullivan
County, New York. Historically, Clove's revenues have been
derived primarily from the sale of timber and sand, property
rentals and periodic sales of land.
Certain portions of Clove's property lend themselves to
recreational development. Two small subdivisions have been
developed and substantially sold off. A third development,
Lakeside Forest at Swinging Bridge, is actively being marketed,
with nine lots having been sold through 1996.
O&R Development, Inc.. ORD, a wholly-owned subsidiary of the
Company, was established to promote industrial and corporate
development within the Company's service territory by providing
improved sites and buildings. ORD's activities are aimed at
attracting new business and industry to the Company's service
territory, which would spread fixed costs for electricity and gas
over a wider customer base.
ORD owns Interchange Commerce Center ("ICC Project"), a 300 acre
tract of land in Orange County, New York. The ICC Project has
governmental approvals for the development of 2.7 million square
feet of light industrial, office, warehouse and retail space.
Approximately 2,000 linear feet of street and utilities have been
installed, and two buildings, owned by ORD, totaling over 200,000
square feet have been completed and fully leased.
O&R Energy Development, Inc. ORED, a wholly-owned subsidiary of
the Company, was engaged in oil and gas production through
ownership interests in producing wells in Texas, Mississippi,
Ohio and Pennsylvania. During 1995, ORED's net investment in
producing properties was written down and all of ORED's oil and
gas interests were sold effective December 1, 1995. ORED ceased
operations during 1996.
Additional information regarding the non-utility subsidiaries of
the Company and of RECO is contained in the Annual Report to
Shareholders, which information is incorporated by reference in
this Form 10-K Annual Report, as follows: in the "Review of the
Company's Results of Operations and Financial Condition"
beginning on page 10 under the captions "Financial Performance"
and "Diversified Activities"; and in the Notes to Consolidated
Financial Statements beginning on page 21 in Note 1 under the
captions "Principles of Consolidation" and "Sale of Broadcast
Properties", in Note 9, "Fair Value of Financial Instruments"
under the caption "Gas Futures Contracts" and in Note 13,
"Segments of Business".
Construction Program and Financing
Construction Program. The construction expenditures, excluding
allowance for funds used during construction, of the Company and
its utility subsidiaries for 1997 are presently estimated at
approximately $57.7 million, which consist primarily of routine
projects for capital replacements or system betterments and do
not include any additions to generating capacity. The Company's
construction program is under continuous review and the estimated
construction expenditures are, therefore, subject to periodic
revision to reflect, among other things, changes in energy
demands, economic conditions, environmental regulations, changes
in the timing of construction activities, the level of internally
generated funds and other modifications to the construction
program.
Information regarding the Company's construction program is
contained under the caption "Liquidity and Capital Resources" in
the "Review of the Company's Results of Operations and Financial
Condition" and under the caption "Construction Program" in Note
12 of the Notes to Consolidated Financial Statements on pages 13
and 26, respectively, of the 1996 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K
Annual Report.
Financing. The Company has historically used short-term
borrowings in the form of commercial paper to finance
construction expenditures when such expenditures exceeded
internally generated funds and to finance short-term working
capital requirements. Short-term borrowings undertaken for
construction expenditures are periodically repaid with internally
generated funds and the proceeds of long-term debt and equity
offerings.
At December 31, 1996, the Company and its utility subsidiaries
had unsecured bank lines of credit totaling $100.0 million.
Commercial paper borrowings, which are supported by such credit
lines, amounted to $82.4 million at year end. Additional
information regarding the Company's short-term debt position is
contained in Note 8 of the Notes to Consolidated Financial
Statements - "Cash and Short-Term Debt" on page 24 of the 1996
Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.
On February 4, 1997, RECO issued $20 million of First Mortgage 7
1/8% Bonds, Series J, due February 1, 2007 ("Series J Bonds").
The proceeds from the issuance of the Series J Bonds, together
with other RECO funds, will be used to refund, in March 1997,
RECO's $20 million First Mortgage 9.59% Bonds, Series H. The
Company currently has no plans for the issuance of additional
debt or equity securities and it is expected that capital
requirements, with the exception of $78 million of long-term
debt which will mature during 1997 and is expected to be
refinanced, will be met primarily with funds from operations,
supplemented with short-term debt as required. In addition, the
Company will continue to examine the potential for reducing the
cost of debt through the evaluation of debt refinancings.
The non-utility subsidiaries of the Company and RECO also
maintain certain lines of credit and undertake long and short-
term borrowings or make investments from time to time. NORSTAR
Partnership maintains a $20 million line of credit with one
commercial bank under which there was $2.0 million in letters of
credit and $1.0 million in notes outstanding at December 31,
1996. Non-utility temporary cash investments amounted to $1.3
million at December 31, 1996.
For a description of the non-utility subsidiaries of the Company
and of RECO, see "Diversified Activities" in Item 1 of this Form
10-K Annual Report.
Additional information regarding liquidity is contained under the
caption "Liquidity and Capital Resources" in the "Review of the
Company's Results of Operations and Financial Condition" and in
Note 7 of the Notes to Consolidated Financial Statements - "Long-
Term Debt" on pages 13 and 23, respectively, of the 1996 Annual
Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.
Information regarding certain financial statistics of the Company
is contained under the caption "Financial Statistics" on page 32
of the 1996 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
Credit Ratings. The current ratings of the Company's principal
securities and its commercial paper are as follows:
Moody's Standard Duff and Phelps
Investor's & Poor's Credit
Service, Inc. Corp. Rating Company
First Mortgage Bonds A3 A- A
Pollution Control Bonds Baa1 A- A-
Unsecured Debt Baa1 A- A-
Preferred Stock baa1 BBB+ BBB+
Commercial Paper P-2 A-2 D-1-
The Company's credit ratings are subject to periodic revision or
withdrawal by the particular rating agency, and each rating
should be evaluated independently of any other rating. The
ratings assigned to the Company's securities by the rating
agencies are not a recommendation to buy, sell or hold the
Company's securities, but rather are assessments of the
respective credit-worthiness of the Company's various securities
by the rating agencies. The Company's bonds have an upper medium
grade credit rating, its preferred stock has a lower medium grade
credit rating and its commercial paper has an upper medium grade
credit rating.
Regulatory Matters
A description of the general character of rate regulation and its
effect on the financial statements of the Company and its utility
subsidiaries, including a disclosure of the Company's regulatory
assets, is contained in Note 1 of Notes to Consolidated Financial
Statements under the caption "Rate Regulation" on page 21 of the
1996 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
State Regulation. The Company and its utility subsidiaries are
subject to the jurisdiction of state commissions in their
respective states of incorporation. The state commissions have
the authority to regulate, among other things, rates, services,
the issuance of securities and accounting and depreciation
procedures. The Company is subject to the jurisdiction of the
NYPSC, which covers approximately 77% of consolidated utility
energy sales. RECO is subject to the jurisdiction of the NJBPU,
which covers approximately 21% of consolidated utility energy
sales. Pike is subject to the jurisdiction of the Pennsylvania
Public Utility Commission ("PAPUC"), which covers approximately
1% of consolidated utility energy sales. Sales for resale, which
are subject to regulation by the FERC, accounted for 1% of
consolidated utility energy sales.
Federal Regulation. The Company, pursuant to an order of the
Securities and Exchange Commission, has been exempted from all of
the provisions of the Public Utility Holding Company Act of 1935,
except Section 9(a)(2) thereof relating to the acquisition of
securities of other public utility companies.
The Company and its utility subsidiaries are subject to the
jurisdiction of the FERC as "public utilities". This regulation
primarily relates to sales and exchanges of electricity for
resale, certain transportation, sales and exchanges of natural
gas under the Natural Gas Act, Company sales to its utility
subsidiaries and certain other matters including accounting,
recordkeeping and reporting.
Other Regulation. The Company and its utility subsidiaries are
also subject to regulation by various other Federal, state,
county and local agencies under numerous regulations dealing
with, among other things, environmental matters, energy
conservation, long-range planning, fuel use, plant siting and gas
pricing.
Current Rate Activities. Information regarding the current rate
filings of the Company and its utility subsidiaries, including
the impact which the recent events affecting the Company had on
the rate proceedings of the Company and its utility subsidiaries,
is contained under the caption "Rate Activities" in the "Review
of the Company's Results of Operations and Financial Condition"
on page 14 of the 1996 Annual Report to Shareholders, which
information is incorporated by reference in this Form 10-K Annual
Report. Information regarding NYPSC proceedings dealing with
certain "take-or-pay" gas contract costs and FERC Orders 636 and
63 is contained in the 1996 Annual Report to Shareholders in the
"Review of the Company's Results of Operations and Financial
Condition" under the captions "Gas Sales and Revenues" and "Gas
Energy Costs" beginning on page 12 and in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Gas Supply
and Storage Contracts" on page 26, which information is
incorporated by reference in this Form 10-K Annual Report.
Competitive Proceedings. Regulatory agencies at the Federal
level as well as the three states in which the Company has retail
electric franchises are currently evaluating changes in
regulatory and rate-making practices designed to promote
increased competition consistent with safety, reliability and
affordability standards. Depending on future developments in
this area, the Company's market share and profit margins could
become subject to competitive pressures in addition to regulatory
constraints. A discussion of the current Federal and state
competitive initiatives is contained in Item 3, Legal Proceedings
of this Form 10-K Annual Report under the captions "Restructuring
Litigation" and "Regulatory Matters - Competition". Reference is
also made to the caption "Utility Industry Risk Factors and
Competition" in this Item 1.
Rate Cases. During the five year period ending December 31,
1996, the Company and its utility subsidiaries have sought rate
changes to cover the impact of changing costs. The amounts of
rate changes approved by the NYPSC, NJBPU and PAPUC are set forth
in the following table.
Historical Base Rate Cases
1992 - 1996
Annual Amount Overall Rate Return on
Class of Effective ($000's) of Return Equity
Service Date Requested Granted Granted (%) Granted (%)
Electric - N.J. 01/24/92 12,863 5,100 10.17 12.0
Electric - N.Y. 05/01/92 (a) 5,548 - (a) - (a)
Gas - N.Y. 12/15/92 7,962 3,776 10.04(b) 11.65(b)
Electric - N.J. 01/01/93 (c) 1,685 - -
Electric - N.Y. 05/01/93 (d) 691 - -
Electric - P.A 06/11/93 498 270 - (e) - (e)
Gas - P.A. 06/25/93 36 12 - (e) - (e)
Electric - N.Y. 07/01/94 (f) -0- - (g) - (g)
Gas - N.Y. 11/04/94 (h) (h) - (h) - (h)
Electric - N.Y. 05/01/95 (i) -0- - -
Electric - N.Y. 08/01/95 (6,112) (6,112) - (j) 11.3%(j)
Electric - N.Y. 05/03/96 (k) (7,750) 8.79 10.4
(a)The first post rate year filing made in accordance with the
NYPSC Order in the Company's 1989 electric base rate case
provided for the recovery in base rates of inflation on non-
fuel operation and maintenance expenses, rate base additions
and cost of capital. The base rate increase amounted to
$5,548,000. In addition, the Company was permitted to
recover a one-time surcharge of $1,869,000 which represents a
net undercollection resulting from the reconciliation of
revenue and expenses and earned incentives for the year 1991
as provided for in the 1989 Order.
(b)Under a multi-year gas rate agreement (1993-1996), the
Company was provided with an opportunity to earn a return on
common equity of 12.15% through the achievement of incentives
related to its main replacement program, gas efficiency
programs and gas marketing programs.
(c)Rate increase as ordered by the NJBPU to reflect the effect
of revised legislation regarding gross receipts and franchise
taxes. Rate recovery with interest is permitted over a ten-
year period.
(d)The second post rate year filing made in accordance with the
NYPSC Order in the Company's 1989 electric base rate case
provided for the recovery of inflation on non-fuel operation
and maintenance expenses, rate base additions and cost of
capital. The base rate increase amounted to $691,000. In
addition, the Company was permitted to replace the $1,869,000
one-time surcharge with a one-time surcharge of $10,617,000
which represents a net undercollection resulting from the
reconciliation of revenue and expenses and earned incentives
for the year 1992 as provided for in the 1989 Order.
(e)No redetermination of the rate of return on common equity was
made under a stipulated agreement. The implied return on
common equity is 12.00%, and the implied overall rate of
return is 9.98%.
(f)The third post rate year filing made in accordance with the
NYPSC Order in the Company's 1989 electric base rate case
allowed the Company to replace the $10,617,000 one-time
surcharge with a one-time surcharge of $7,721,000 which
represents a net undercollection resulting from the
reconciliation of revenue and expenses and earned incentives
for the year 1993 as provided for in the 1989 Order.
(g)By means of its Order dated June 10, 1994, the NYPSC, among
other things, continued the Revenue Decoupling Mechanism
("RDM") and reduced the return on equity threshold for
measuring excess earnings from 12.0% to 10.6%. The Company
was required to defer earnings in excess of 10.6%.
(h)On November 4, 1994, the NYPSC issued an order terminating
the multi-year gas rate agreement. The order denied the
Company the opportunity for rate adjustments in the third and
fourth years (1995 and 1996) of the agreement. On February
7, 1995, the Accounting and Finance Division of the NYPSC
issued an interpretation of the November 4, 1994 termination
order which stated that the gas incentive mechanism related
to the attainment of certain goals is no longer available.
The Company did not contest this interpretation.
(i)On February 17, 1995, the Company submitted a compliance
filing regarding the operation of the RDM. The filing
included a proposal to eliminate the $7,721,000 effective May
1, 1995 reflecting the completion of the recovery of an RDM
undercollection applicable to the year 1993. In addition,
the filing requested that a net overcollection of $689,000
for the year 1994 be retained by the Company as a future rate
moderator, subject to NYPSC verification. On April 19, 1995,
the NYPSC approved the proposals, and the one-time surcharge
was eliminated effective May 1, 1995.
(j)On May 25, 1995, the Company filed a petition to reduce base
electric rates by $6.1 million (1.8%) effective April 1,
1996. In accordance with a settlement agreement the Company
agreed to reduce its base rates by $6.1 million annually
effective August 1, 1995. The settlement replaces the 10.6%
earnings limitation imposed by order issued June 10, 1994
with equal sharing between shareholders and customers of
electric earnings in excess of 11.3%.
(k)Pursuant to the settlement of the May 25, 1995 electric base
rate case, the Company, effective May 3, 1996, reduced base
electric rates by an additional $7,750,000. The return on
equity granted was 10.4%, with a 50%/50% sharing mechanism
applicable to any earnings above 10.9%.
Utility Industry Risk Factors and Competition
The electric and gas utility industry is exposed to many of the
general business and financial risks which affect all industries
on a local, national or international level. It is also exposed
to business and financial risks that are particular to the
provision of utility services and to operating a business in a
regulated environment. In particular, the industry is exposed to
risks relating to, among other things, increasing competition in
the wholesale power markets and a move to competition in the
retail sector; uncertainties regarding the transition mechanisms,
both operating and financial, as the industry moves to
deregulation, including the potential for stranded, or non-
recoverable costs; increases in fuel costs and uncertainties as
to fuel supplies; numerous environmental restrictions, including
potential liabilities for environmental matters; regulatory
constraints, including the timing and adequacy of rate relief;
increases in the cost of, and delays in, construction in an
industry which is fixed-asset intensive; the attraction of
capital in an industry which is capital intensive; the effects of
energy conservation and weather related sales fluctuations, both
of which have the potential of causing revenue erosion; and the
requirement to provide for growth in demand for energy services.
In addition, there are competitive factors present in the
electric and gas industry which affect utility companies in
varying degrees. Among these are the use by interruptible or
dual-fuel customers of lower priced alternative fuels; the
establishment of municipal distribution agencies; the ability of
gas producers to sell gas directly to end users, usually through
an independent gas marketer; the presence of cogenerating
systems, small power producers and independent power producers;
and the increasing interest in, and research on, the development
of energy sources other than those now in use. In addition,
regulatory agencies in the three states in which the Company has
retail electric franchises are currently evaluating changes in
regulatory and ratemaking practices designed to promote increased
competition. Depending on future development in this area, the
Company's market share and profit margins are expected to become
subject to competitive pressures in addition to regulatory
constraints.
As the industry moves to increased competition and potential
deregulation, the Company has taken an active role in the
competitive opportunities proceedings in the states in which it
operates and has worked extensively with industry groups and the
NYPP in designing the future framework for the utility industry.
Information regarding the competitive initiatives undertaken by
the FERC, the NYPSC, the NJBPU and the PAPUC as well as the
Company's strategy for meeting the challenges of increased
competition is contained in Item 3, Legal Proceedings, of this
Form 10-K Annual Report under the captions "Restructuring
Litigation" and "Regulatory Matters - Competition".
The Company is committed to managing the risks which are present
in the changing utility environment. Included in this strategy
are the maintenance of low construction and operating budgets and
avoiding external financing. The Company's tri-fuel strategy
provides flexibility regarding fuel availability and pricing and
the continuance of fuel clause adjustment mechanisms in the rate
structures of the Company and its utility subsidiaries assures
fuel cost recovery on a current basis. With regard to future
power supply, the Company will continue to utilize competitive
bidding procedures to mitigate the risks associated with the
Company's purchase of both electric capacity and energy,
particularly with regard to prudency determinations and cost
recovery, and to insure sufficient power supply to meet the
growth in demand. Recent actions taken by the Company to
mitigate the risk of non-competitive future energy prices include
the write-off of two of the Company's older generating units and
the successful negotiation of termination agreements with three
independent power producers with whom the Company had power
supply contracts.
In addition, rate procedures which are in effect for the
Company's New York gas operations have the effect of mitigating
certain risks related to the effect of weather on the Company's
gas sales. Information concerning the DSM program and the gas
weather normalization adjustment is contained under the caption
"Gas Sales and Revenues" in the "Review of the Company's Results
of Operations and Financial Condition" on page 12 of the 1996
Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report. Reference is also
made to the caption "Future Energy Supply and Demand" in this
Item 1. A description of the Company's PowerPickT program is
also contained in the "Review of the Company's Results of
Operations and Financial Condition" under the caption "Rate
Activities" on page 14 of the 1996 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K
Annual Report as well as in Item 3, Legal Proceedings, of this
Form 10-K Annual Report under the captions "Restructuring
Litigation" and "Regulatory Matters - Competition".
The problems associated with nuclear energy have not affected the
Company as it has no operating nuclear plants nor any under
construction, and has no plans for future participation in
nuclear projects. For further information on the recovery by the
Company of its investment in the canceled Sterling Nuclear
Project, see Note 3 of the Notes to Consolidated Financial
Statements - "Sterling Nuclear Project" on page 23 of the 1996
Annual Report to Shareholders, which information is incorporated
by reference in this Form 10-K Annual Report.
Marketing
One of the Company's primary strategies in its response to the
increasingly competitive environment in the utility industry is
its focus on marketing activities. The Company's marketing
strategies include organizational changes to better align
functional capabilities with customer needs, the identification
and offering to customers of new products and services, and, in
particular, during 1996 the implementation of the PowerPickT
retail pilot program. This program, which is designed to provide
participants from all classes of customers with a choice to
select an energy supplier other than the Company, is described in
the 1996 Annual Report to Shareholders in the "Review of the
Company's Results of Operations and Financial Condition" under
the captions "Electric Sales and Revenue" on page 11 and "Rate
Activities" on page 14, which information is incorporated by
reference in this Form 10-K Annual Report. Another primary focus
of the marketing strategy is to work more closely with commercial
and industrial customers in order to identify the business issues
which impact these customer classes. This focus will continue to
drive new products, services and strategies which will be aimed
at retaining and expanding this customer base.
DSM activities will remain a major focus of the new marketing
strategies in the continuing effort to achieve energy efficiency
while helping customers to reduce their energy costs. Emphasis
will continue to move from the customer rebate aspect of the DSM
programs to energy cost savings which may be realized through
these programs. In addition, introducing new and emerging
technologies has been given new emphasis in the Company's
marketing strategy.
Environmental Matters
The Company is subject to regulation by Federal, state, county
and, to some extent, local authorities with respect to the
environmental effects of its operations, including regulations
relating to air and water quality, aesthetics, levels of noise,
hazardous wastes, toxic substances, protection of vegetation and
wildlife and limitations on land use. In connection with such
regulation, various permits are required with respect to the
Company's facilities. Generally, the principal environmental
areas and requirements to which the Company is subject are as
follows:
Water Quality. The Company is required to comply with Federal
and State water quality statutes and regulations, including the
Federal Clean Water Act ("Clean Water Act"). The Clean Water Act
requires that Company generating stations be in compliance with
state issued State Pollutant Discharge Elimination System Permits
("SPDES permits"), which prescribe applicable conditions to
protect water quality. Effective July 1, 1994, the State of New
York Department of Environmental Conservation (the "NYSDEC")
issued a new SPDES permit for the Company's Lovett Coal Ash
Management Facility. The NYSDEC also has issued a SPDES permit,
effective October 1, 1991 for the Company's Lovett generating
station. The Lovett SPDES permit expired on October 1, 1996.
Since a renewal application was filed within the statutory
deadline, the expired permit remains in effect until a new permit
is issued by the NYSDEC.
The Bowline Point generating station currently operates under a
SPDES permit which expired on October 1, 1992. This permit
remains in effect since a permit renewal application was filed on
April 3, 1992, which was within the statutory deadline for
renewal application. The Company is now proceeding with the
State Environmental Quality Review Act ("SEQRA") process as part
of the permit renewal procedure. The SEQRA process, and the
resulting delay in issuance of a new permit to the Company, has
had no practical impact on the operation of the Bowline Point
generating station.
The Company entered into a settlement with the United States
Environmental Protection Agency ("EPA") and others that relieved
the Company for at least 10 years from a regulatory agency
requirement that, in effect, would have required that cooling
towers be installed at the Bowline Point generating station. In
return, the Company agreed to certain plant modifications,
operating restrictions and other measures. This settlement
expired in May 1991. On May 15, 1991, the Company and others
entered into an Interim Agreement with the NYSDEC to continue
specific operating conditions and other measures for a period
from May 15, 1991 to September 30, 1992. Several intervenors to
the original settlement filed a civil action challenging the
Interim Agreement's legality. On March 23, 1992, the parties to
the Interim Agreement and intervenors signed a Consent Order
terminating litigation and agreeing to certain operating
limitations and biological monitoring requirements.
Subsequently, the parties agreed to extend the terms of the
Consent Order until February 1, 1997. The parties are currently
negotiating another extension of the Consent Order. The parties
are continuing to abide by the terms of the Consent Order during
this negotiation process.
Air Quality. Under the Federal Clean Air Act ("Clean Air Act"),
the EPA has promulgated national primary and secondary air
quality standards for certain pollutants, including sulfur
oxides, particulate matter and nitrogen oxides. The NYSDEC has
adopted, and the EPA has approved, the New York State
Implementation Plan ("SIP") for the attainment, maintenance and
enforcement of these standards. In order to comply with the SIP,
the Company burns #6 fuel oil at its Lovett and Bowline Point
generating stations with a 0.37% maximum sulfur content by
weight.
Pursuant to the SIP, the Company is governed by the following
limitations when it is burning coal at Lovett Units 4 and 5: if
one unit is burning, the Company may emit sulfur dioxide at a
rate not to exceed 1.5 lb./MMBTU, and if two units are burning,
the Company may emit sulfur dioxide at a rate not to exceed 1.0
lb./MMBTU per unit.
The SIP provides a mechanism for air emissions fee billing
pursuant to Title V of the Clean Air Act. The owners of Title V
sources in New York State, which sources include the Company's
Lovett and Bowline Point Plants, and the Shoemaker and Hillburn
Gas Turbines are required to pay an emission fee based upon
actual air emissions reported to NYSDEC at a rate of
approximately $27 per ton of air emissions. In 1996, the Company
paid approximately $400,000 in such emission fees, approximately
$80,000 of which was recovered from Con Ed pursuant to the
Bowline Point Plant operating agreement. In 1997, this emission
fee will be based on 1996 air emissions at a rate established by
the NYSDEC not to exceed $50 per ton.
The Clean Air Act Amendments of 1990 could restrict the Company's
ability to meet increased electric energy demand after the year
2000 or could substantially increase the cost to meet such
demand. The Company has spent approximately $28.7 million to
comply with the Reasonably Available Control Technology ("RACT")
Phase I emissions limitations for nitrogen oxide established by
the NYSDEC to achieve ozone attainment. New York and eleven
other member states of the Ozone Transport Commission have
entered into a Memorandum of Understanding which calls for the
states to adopt more stringent nitrogen oxide emissions limits
for Phases II and III reductions. Phases II and III are to take
effect in 1999 and 2003, respectively. The Company will continue
to assess the impact of the Clean Air Act Amendments of 1990 on
its power generating operations as additional regulations
implementing these Amendments are promulgated.
Toxic Substances and Hazardous Wastes. The Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("Superfund"), provides that both the owners and operators
of facilities where releases of hazardous substances into the
environment have occurred or are imminent, and the generators and
transporters of hazardous substances disposed of at the
facilities, are, regardless of fault, jointly and severally
liable for all response, removal and remedial action costs and
also for damages to natural resources.
As part of its operations, the Company generates materials which
are deemed to be hazardous substances under Superfund. These
materials include asbestos and dielectric fluids containing
polychlorinated biphenyls ("PCBs"), both of which are disposed of
at licensed, off-site locations not owned by the Company. Other
hazardous substances may be generated in the course of the
Company's operations or may be present at Company-owned
locations.
The Company has, from time to time, received process or notice of
claims under Superfund or similar state statutes relating to
sites at which it is alleged that hazardous substances generated
by the Company (and, in most instances, by a large number of
other potentially responsible parties) were disposed of. Similar
claims may be asserted from time to time hereafter, involving
additional sites. Typically, many months, and sometimes years,
are required to fully determine the probable magnitude of the
cleanup costs for a site, the extent, if any, of the Company's
responsibility, the number and responsibility of other parties
involved, the financial ability of the other parties to pay their
proportionate share of any costs, and the probable ultimate
liability exposure, if any, of the Company. This process is
still under way at most of the sites of which the Company has
notice, and the costs at some of these sites may be substantial.
The Company does not believe that certain proceedings will have a
material effect on the Company, while as to others, the Company
is unable at this time to estimate what, if any, costs it will
incur.
Information concerning certain Superfund claims involving the
Company is included in Item 3, "Legal Proceedings" of this Form
10-K Annual Report.
Environmental Expenditures. The Company's environmental
expenditures amounted to approximately $13.5 million in 1996.
Compliance with Federal, state and local laws and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the
protection of the environment is not anticipated to have a
material effect on the financial condition of the Company.
The Company's projected environmental expenditures are under
continuous review and are revised periodically to reflect changes
in environmental regulations, inflation, technology and other
factors which are beyond the control of the Company. Although
the Company is unable to predict the ultimate impact of
environmental regulations on existing or proposed facilities or
on the operations of the Company, the Company believes that its
expenditures for compliance with environmental regulations will
be given appropriate rate treatment by the respective regulatory
commissions.
Information concerning environmental issues and their potential
effect on the Company's operations is included in Note 12 of the
Notes to Consolidated Financial Statements under the captions
"Other Legal Proceedings" and "Environmental" beginning on page
28 of the 1996 Annual Report to Shareholders, which information
is incorporated by reference in this Form 10-K Annual Report, as
well as in Item 3 "Legal Proceedings" of this Form 10-K Annual
Report.
Research and Development
The Company supports research and development agencies involved
in utility research, provides funds for joint utility research
projects and conducts its own internal program. Research and
development expenditures amounted to approximately $2.6 million
in 1996, $2.9 million in 1995 and $3.8 million in 1994.
The Company provides support to national agencies such as the
Electric Power Research Institute and the Gas Research Institute.
At the state level, the Company supports the Empire State
Electric Energy Research Corporation, the New York State Energy
Research and Development Authority and the New York Gas Group
Research, Development and Demonstration Committee.
Generally, the Company's internal research and development
program concentrates on projects which uphold the corporate goal
of providing customers with new technologies that will optimize
the use of energy, thereby increasing the value of energy to the
customer. The Company is committed to providing its customers
with safe, reliable electric energy at a competitive price and in
an environmentally acceptable manner. The program includes
projects which seek improvement of transmission and distribution
systems, mitigation of environmental impacts of electric power
generation, and enhancement of the value of electric energy for
customers. Current projects include an evaluation of the
performance characteristics of underground distribution cable, an
evaluation of the efficient use of electrotechnologies,
alternative methods to reduce fish impingement at power plants,
small business electrotechnologies studies, and power quality
monitoring and reporting.
Franchises
The Company and its utility subsidiaries, RECO and Pike, each
have municipal consents or franchises, together with their
corporate or charter powers, which give each of them the right to
carry on their respective operations in the territories served.
The municipal consents or franchises held by the Company and its
utility subsidiaries are not exclusive. In certain
municipalities, the areas served by the Company, RECO and Pike
are limited either by the terms of the consents or franchises or
by order of the NYPSC, the NJBPU, or the PAPUC, respectively.
Under the present provisions of the State laws of New York, New
Jersey and Pennsylvania, no other private corporation can
commence public utility operations in any part of the territories
now served by the Company, RECO or Pike, respectively, without
obtaining a certificate of public convenience and necessity from
the applicable State utility commission.
A certificate of public convenience and necessity would not be
required with respect to a municipality furnishing electric or
gas service within its borders under the present provisions of
the State laws of New York, New Jersey or Pennsylvania.
Municipal corporations, upon compliance with the State laws of
New York, New Jersey or Pennsylvania, as applicable, are
authorized to acquire the public utility service of any public
utility company by purchase or by condemnation. The Company does
not reasonably expect any municipal corporation to acquire the
public utility service of the Company or its utility subsidiaries
through either purchase or condemnation.
The municipal consents or franchises of the Company and its
utility subsidiaries are not uniform and contain, in certain
instances, provisions relating to, among other things, the time
of commencing operations, the furnishing of service to the
particular municipality, the approval by the municipal
authorities of the location and construction of distribution
facilities, indemnification of the municipality against
liabilities and damages in consequence of construction, and
administrative matters. Such provisions are not considered by
the Company to be unduly burdensome.
Employee Relations
At December 31, 1996, the Company had 1,501 employees of whom 15
were the full-time equivalent of part-time employees. The
Company considers its relationship with its employees to be
satisfactory. The current contract with Local 503 of the
International Brotherhood of Electrical Workers ("IBEW")
representing 848 production, maintenance, commercial and service
employees of the Company became effective June 1, 1994 and
expires June 1, 1997. This contract does not include supervisory
employees.
The Company's utility subsidiaries, RECO and Pike, have no
employees other than officers. All services are performed for
the utility subsidiaries by employees of the Company pursuant to
Joint Operating Agreements approved by the NJBPU and the PAPUC,
through which the Company is reimbursed for these services.
Several employees of the Company provide managerial and clerical
services for the non-utility subsidiaries of the Company and of
RECO, the cost of which are either paid directly by the
subsidiaries or are reimbursed to the Company through periodic
billings. In addition, the non-utility subsidiaries, at December
31, 1996, had 114 full-time and 10 part-time employees, none of
whom were participants in the Company's various employee benefit
plans or were covered by the Company's contract with the IBEW.
ITEM 2. Properties
The Company's property consists primarily of electric generation,
transmission and distribution facilities and gas distribution
facilities. This property is required for the continued
operation of the Company's major business segments. In addition,
the Company maintains certain miscellaneous utility and non-
utility property. The Company's facilities are in satisfactory
condition, are suitable for the particular purpose for which they
were acquired, and are adequate for the Company's present
operations.
Electric Generating Facilities. The Company's generating plants,
all of which are located in New York State, are as follows:
Maximum
Summer Percent Net Mwh
Net Mw of Total Generated
Plant Name Units Energy Source Capacity Capacity in 1996
Swinging Bridge,
Mongaup & Rio 8 Hydroelectric 25.8 2.6% 92,390
Grahamsville 1 Hydroelectric 18.0 1.8 98,923
Hillburn 1 Jet Fuel/Gas 37.0 3.8 1,540
Shoemaker 1 Jet Fuel/Gas 37.0 3.8 5,404
Lovett 3 Coal/Oil/Gas 462.6 47.2 1,919,400
Bowline Point 2 Oil/Gas 400.6(1) 40.8 260,301
981.0 100.0% 2,377,958
(1) Company's share of maximum summer net megawatt capability.
Electric Transmission and Distribution Facilities. The Company
owns, in whole or in part, and operates overhead and underground
transmission and distribution facilities which include 617
circuit miles of transmission lines, 78 substations, 84,509 in-
service line transformers, 4,967 pole miles of overhead
distribution lines and 2,271 miles of underground distribution
lines. With the exception of the Grahamsville Substation, the
electric transmission and distribution facilities of the Company
and its utility subsidiaries are located within the Company's New
York, New Jersey and Pennsylvania service territory, which is
described under the caption "Principal Business" in Item 1 of
this Form 10-K. The Bowline Substation and the related
transmission facilities are jointly owned by the Company and Con
Ed and are operated by the Company. The Ramapo Substation and
certain related transmission facilities consist of property which
is either owned by the Company, owned by Con Ed or jointly owned
by the Company and Con Ed and which is operated and maintained by
the Company except for the 500/345 Kv section of the Ramapo
substation and a 500 Kv transmission line which is operated and
maintained by Con Ed. In addition, certain minor portions of
substation equipment are jointly owned by the Company and major
customers of the Company.
Gas Facilities. The Company owns and operates three propane air
gas plants at Middletown, Orangeburg and Suffern, New York and
its gas distribution system, which is located within its gas
franchise territory in New York and Pennsylvania, includes 1,732
miles of mains.
Miscellaneous Properties. The Company owns office buildings and
operating facilities in Middletown, Spring Valley, Blooming Grove
and West Nyack, New York, and other structures at different
locations within the Company's service territory which are used
as offices, service buildings, store houses and garages. The
Company leases its corporate headquarters in Pearl River, New
York, as well as office space at other locations. In addition,
the Company has lease agreements covering certain of its data
processing equipment, office equipment and vehicle fleet.
Character of Ownership. The Company's electric and gas plants
and its major electric substations are located on land owned by
the Company in fee, except for the Grahamsville Plant and the
Bowline Point Plant. The greater portion of the Grahamsville
Plant is located on land leased from the City of New York and the
Bowline Point Plant is located on land in which the Company has a
one-third undivided interest, with the remainder being owned by
Con Ed. Water power and flowage rights for the operation of its
Mongaup River Hydro Plants are controlled by the Company either
through ownership of the necessary land in fee or through
easements which are, in practically all cases, perpetual. In the
case of the Grahamsville Plant, however, water is obtained under
contract with the City of New York.
Electric transmission facilities of the Company and its utility
subsidiaries (including substations) are, with minor exceptions,
located on land owned in fee or occupied pursuant to perpetual
easements. Electric distribution lines and gas mains are located
in, on or under public highways or private lands pursuant to
lease, easement, permit, municipal consent, agreement or license,
express or implied through use by the Company or its utility
subsidiaries without objection by the owners. In the case of
distribution lines, the Company owns approximately 60% of the
poles upon which its wires are installed and has a joint right of
use in the remaining poles on which its wires are installed,
which poles are owned, in most cases, by telephone companies.
The Company's electric and gas plants are owned by the Company
except for the gas turbines at Hillburn and Shoemaker which are
leased and the Bowline Point Plant which is jointly owned with
Con Ed and operated by the Company. Additional information
regarding the investment in the Bowline Point Plant by the
Company and Con Ed is included in Note 1 of the Notes to
Consolidated Financial Statements under the caption "Jointly
Owned Utility Plant" on page 22 of the 1996 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report.
Substantially all of the utility plant and other physical
property owned by the Company and its utility subsidiaries is
subject to the liens of the respective indentures securing the
first mortgage bonds of the Company and its utility subsidiaries.
Investments in securities of the utility subsidiaries costing
$11.8 million which have been eliminated from the Consolidated
Balance Sheet are pledged under the Company's First Mortgage
Indenture, as amended and supplemented.
ITEM 3. Legal Proceedings
Restructuring Litigation:
The Company, the six other New York State investor-owned electric
utilities, and the Energy Association of New York State filed a
petition in New York State Supreme Court on September 18, 1996
challenging the NYPSC's May 20, 1996 Order in the Competitive
Opportunities Proceeding (Case 94-E-0952) under Article 78 of the
New York Civil Practice Law and Rules. Details concerning the
Competitive Opportunities Proceeding are contained under the
subheading "Regulatory Matters" in Item 3 of this Form 10-K
Annual Report. In their Article 78 petition, the petitioners
alleged that the Order is vague, ambiguous and procedurally
defective, that the May 20, 1996 Order fails to assure the
utilities a reasonable opportunity to recover strandable costs,
and the NYPSC lacks the authority to order retail wheeling or
divestiture.
On November 26, 1996, the Supreme Court issued a ruling denying
the Article 78 petition. In its ruling, the Court determined that
because the Commission has not yet directed retail wheeling,
generation deregulation and asset divestiture, there is no
justiciable controversy regarding these issues. Despite this
finding, the Court proceeded to opine that the Commission is not
precluded by state or federal law from ordering retail wheeling
or generation divestiture. The Court also determined that the
utilities are not entitled, as a matter of law, to recover from
customers the full amount of the utilities' strandable costs. On
December 24, 1996, the Energy Association and the New York
utilities appealed to the Appellate Division of the Supreme Court
for the Third Judicial Department from the Supreme Court's
November 26, 1996 decision. The Company is unable to predict the
final result of this litigation.
Environmental and Other Litigation:
On September 25, 1991, the Company was named as one of several
hundred third-party defendants in United States v. Kramer, et al.
and State of New Jersey Department of Environmental Protection v.
Almo Anti-Pollution Services, et al. ("Kramer"), which cases have
been consolidated in the United States District Court for the
District of New Jersey, Camden Vicinage. The allegations in this
action concern the Helen Kramer Landfill site in Mantua, New
Jersey, which operated from 1963 to 1981. This action was
brought under Superfund laws. Additional information concerning
Superfund laws is contained under the subheading "Environmental
Matters" in Item 1 of this Form 10-K Annual Report. Although it
is presently unclear if any hazardous waste generated by the
Company was transported to the Helen Kramer Landfill site, a
final report by an independent waste consultant firm indicates
that no such waste was delivered to the site. On October 2,
1996, the Company entered into a de minimis settlement agreement
with certain third-party plaintiffs which upon court approval,
inter alia, provides for (i) dismissal of the claims asserted
against the Company and a bar to future claims against the
Company related to the site, (ii) indemnification of the Company
for any future claims or expenses related to the site, each with
certain standard limited exceptions, and (iii) payment of $15,000
into a fund which will be used to pay for clean-up costs related
to the site.
On March 29, 1989, the New Jersey Department of Environmental
Protection ("NJDEP") issued a directive under the New Jersey
Spill and Control Act to various potentially responsible parties
("PRPs"), including the Company, with respect to a site formerly
owned and operated by Borne Chemical Company in Elizabeth, Union
County, New Jersey, ordering certain interim actions directed at
both site security and the off-site removal of certain hazardous
substances. Certain PRPs, including the Company, signed an
administrative consent order with the NJDEP requiring them to
remove and dispose of the hazardous substances located above
ground at the Borne site, which removal and disposal was
completed on June 22, 1992. In October 1995, the PRPs entered an
additional administrative consent order with the NJDEP which
obligated the PRPs, including the Company, to perform a remedial
investigation to determine what, if any, subsurface remediation
at the Borne site is required. The remedial investigation is
proceeding. The Company does not believe that this matter will
have a material effect on the financial condition of the Company.
On May 29, 1991 a group of ten electric utilities (the "Metal
Bank Group") entered into an Administrative Consent Order with
the United States Environmental Protection Agency ("EPA") to
perform a remedial investigation and feasibility study ("RIFS")
at the Cottman Avenue/Metal Bank Superfund site in Philadelphia,
Pennsylvania. PCBs have been discharged at the Cottman Avenue
site from an underground storage tank and the handling of
transformers and other electrical equipment at the site. On May
25, 1994, the Company entered into a tolling agreement pursuant
to which the Metal Bank Group reserved its right to file suit
against the Company while the Metal Bank Group and the Company
entered into discussions to determine the extent of the Company's
involvement with the Cottman Avenue site. These discussions
continue. The RIFS was completed and submitted to the EPA for
determination of what remedial measures will be required at the
Cottman Avenue site. The Metal Bank Group has assigned the
Company with a 2.87% share although, to date, because the Company
is not a member of the Group, the Company has been unable to
confirm this allocation. In addition, the Company received in
November 1996 and has responded to a letter from the EPA
requesting information and documentation concerning the Company's
connection to the site. The EPA has issued a proposed
remediation plan which, if approved, will cost approximately $17
million. The Company is unable at this time to estimate its
share, if any, of past or future costs at this site.
On August 2, 1994 the Company entered into a Consent Order with
the New York State Department of Environmental Conservation
("DEC") in which the Company agreed to conduct a remedial
investigation of certain property it owns in West Nyack, New
York. Polychlorinated biphenyls ("PCBs") have been discovered at
the West Nyack site. Petroleum contamination related to a
leaking underground storage tank has been found as well. The
Company has completed this remedial investigation. In November
1996, the Company submitted to the DEC a Feasibility Study Report
which evaluates various remedial actions to eliminate the
contamination discovered at the West Nyack site. After the DEC
approves the Feasibility Study and solicits public comment, the
DEC will select a final remedial alternative for the West Nyack
site. The Company does not believe that this matter will have a
material effect on the financial condition of the Company.
The Company has identified six former Manufactured Gas Plant
("MGP") sites which were owned or operated by the Company or its
predecessors. The Company may be named as a potentially
responsible party for these sites under relevant environmental
laws, which may require the Company to clean up these sites. To
date, no claims have been asserted against the Company. The
Company and the DEC have executed a Consent Order, dated as of
January 8, 1996, which provides for preliminary site assessments
of these six MGP sites. In November 1996, the Company submitted
to the DEC, for its review and approval, a draft work plan for
the preliminary site assessment of three of the MGP sites. The
Company is unable at this time to estimate what, if any, costs it
will incur at these sites.
On January 17, 1997, the Company received a Third-Party Summons
and "Additional Third-Party Complaint" in a litigation pending in
the United States District Court for the Southern District of New
York entitled Town of Wallkill and State of New York v. Tesa
Tape, Inc., et al. The Additional Third-Party Complaint purports
to allege claims against the Company and other third-party
defendants for response costs under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), and for contribution and/or indemnity under CERCLA,
the New York Contribution Among Tort-Feasors Act and common law
principles of contribution and indemnity. The Additional Third-
Party Complaint alleges that the Company transported wastes
containing hazardous substances and/or generated, disposed of,
and/or arranged for disposal or transport of wastes containing
hazardous substances during the relevant time period (identified
as 1965 through in or about 1974 in a pleading attached to the
Additional Third-Party Complaint) at a landfill site located in
the Town of Wallkill, Orange County, New York. On January 21,
1997, the Company received an Amended Summons and Amended
Complaint of Plaintiff-Intervenor State of New York in the same
action ("State Complaint"). The State Complaint names the
Company as a direct defendant, and purports to allege claims
under CERCLA and the common law of the State of New York
governing public nuisance, restitution, subrogation and implied
indemnities. The State Complaint alleges upon information and
belief that the Company disposed of and/or arranged for the
disposal or transport for disposal of hazardous substances at the
Wallkill landfill site. On February 18, 1997, the Company filed
Answers to the State Complaint and to the Additional Third-Party
Complaint, denying liability, alleging affirmative defenses and
asserting counterclaims against the Town of Wallkill and the
Additional Third-Party Plaintiffs. A Revised Case Management
Order provides, inter alia, that all parties in the case are
deemed to have filed claims against each other (and denied same)
for cost recovery and contribution under federal and state law.
The Company has insufficient information at this time to predict
the outcome of this proceeding.
On November 19, 1996, the Company was served with a Summons and
Complaint ("Summons and Complaint") in a litigation entitled
Crossroads Cogeneration Corporation v. Orange and Rockland
Utilities, Inc., filed in the United States District Court for
the District of New Jersey. The litigation relates to a power
sales agreement between the Company and Crossroads Cogeneration
Corporation ("Crossroads"), which requires the Company to
purchase electric capacity and associated energy from a
cogeneration facility in Mahwah, New Jersey. The Complaint
alleges damage claims for breach of contract, breach of the
implied covenant of good faith and fair dealing and violations of
the Federal Antitrust laws and seeks a declaration of Crossroads'
rights under the Agreement. On February 7, 1997 the Company
filed a motion to dismiss the action. The Company will defend
the action vigorously. The Company cannot predict the outcome of
this proceeding.
The Company has been named as a defendant or third-party
defendant in a number of proceedings involving alleged personal
injuries, primarily to construction workers, as a result of
exposure to asbestos at facilities owned and operated by the
Company. Discovery with regard to these cases will determine,
among other things, if the plaintiffs in each of these cases
worked at Company facilities. The Company anticipates that
similar asbestos-related claims may be asserted against the
Company from time to time in the future. However, at this time
the Company does not believe that the asbestos-related lawsuits
currently outstanding, nor those which may be brought in the
future, will, individually or in the aggregate, have a material
effect on the financial condition of the Company.
Superfund and certain similar state statutes authorize various
governmental authorities to issue orders compelling responsible
parties to take cleanup action at sites determined to present an
imminent and substantial danger to the public and to the
environment because of an actual or threatened release of
hazardous substances. As discussed above, the Company is a party
to a number of administrative and litigation proceedings
involving potential impact to the environment. Such proceedings
arise out of, without limitation, the operation and maintenance
of facilities for the generation, transmission and distribution
of electricity and natural gas. Information regarding the
Company's involvement in these various proceedings is included in
Note 12 of the Notes to Consolidated Financial Statements under
the caption "Environmental" on page 32 of the 1996 Annual Report
to Shareholders, which information is incorporated by reference
in Item 1 of this Form 10-K Annual Report, as well as under the
subheading, "Environmental Matters" of this Form 10-K Annual
Report. As noted above, the Company does not believe that
certain proceedings will have a material effect on the Company,
while as to others, the Company is unable at this time to
estimate what, if any, costs it will incur.
Investigation Related Litigation:
On February 7, 1994, the Company commenced an action entitled
Orange and Rockland Utilities, Inc. v. James F. Smith ("Smith"),
in New York State Supreme Court against its former Chief
Executive Officer and Chairman of the Board of Directors, who was
terminated for cause by the Company's independent Directors in
October 1993. The action asserted claims against Mr. Smith for
breach of his fiduciary duties of loyalty and care, waste,
conversion, fraud, and unjust enrichment based on misuse of
Company assets and personnel and misappropriation of Company
funds for his own benefit or for other improper purposes, and
failure to maintain proper management controls or to properly
supervise corporate affairs and subordinate employees. Mr. Smith
filed a counterclaim for benefits in excess of $3 million and
filed a motion demanding arbitration under his employment
agreement with the Company. On June 17, 1994, the Court issued
an Order granting Mr. Smith's motion to compel arbitration.
Under a second Order dated August 10, 1994, the parties filed
demands for arbitration of the claims asserted by the Company and
by Mr. Smith with the American Arbitration Association. The
arbitration panel released a written decision on January 29,
1997. The arbitrators found that the Company had "successfully
proved that over the years [Mr. Smith] dishonestly and
deceptively reported certain expense account items, listing on
expense account documentation names of prominent persons who were
not present, or inventing fictitious business purpose rationales
for social encounters, or pretending to attend business
conventions as a ruse for obtaining company-paid vacations for
his family." The arbitrators charged Mr. Smith with costs and
expenses totaling $2,786,643 for "maintaining the expense account
fictions . . ." and "for some of the costs of unraveling [Mr.
Smith's] deceptions." That money was awarded to the Company.
However, the arbitrators also ruled that Mr. Smith's conduct did
not constitute "material economic damage" to the Company. As a
result, the panel awarded Mr. Smith $8,309,855, which included
his legal and arbitration fees. The offsetting costs between his
award and what was awarded to the Company resulted in a net award
to Mr. Smith of $5,523,212. That award was a subject of the
February 28, 1997 settlement reached between the parties, which
is described below.
On March 22, 1994, an indictment was returned by a Rockland
County grand jury charging Mr. Smith with eight felony counts of
grand larceny and two misdemeanor counts of petit larceny. In
June 1994, a superseding indictment charged Mr. Smith with 15
felony counts of grand larceny, seven counts of falsifying
business records, and two misdemeanor counts of petit larceny.
On August 15, 1995, Mr. Smith was acquitted of the charges in a
non-jury trial.
On September 19, 1995, the Company was served with an Amended
Summons and First Amended Complaint ("Complaint") in James F.
Smith v. Kenneth Gribetz, et al. ("Gribetz"), an action filed in
the United States District Court for the Southern District of New
York by Mr. Smith. (An earlier complaint had been filed which
did not name the Company). Named as defendants in the Complaint
were former Rockland County District Attorney Kenneth Gribetz,
the Office of the Rockland County District Attorney, the Company,
"John and Jane Does" (identified in the Complaint as certain
directors of the Company and/or members of the Special Committee
of the Board of Directors and referred to in the Complaint as the
"Defendant Directors"), Edwin Stier and Stier, Anderson & Malone.
In the Complaint, Mr. Smith alleged the following three causes of
action: (i) the violation by Mr. Gribetz and the District
Attorney's office of Mr. Smith's federal constitutional rights to
fair trial and due process of law; (ii) malicious prosecution by
the Company, Defendant Directors and Mr. Stier in that these
defendants allegedly caused the arrest and criminal prosecution
of Mr. Smith; and (iii) abuse of process by the Company,
Defendant Directors and Mr. Stier in that these defendants were
allegedly responsible for the arrest, indictment and prosecution
of Mr. Smith. Mr. Smith sought damages in excess of $25 million,
special damages and punitive damages, attorney fees and other
costs on each count. On December 22, 1995, the Company, Edwin
Stier, and Stier, Anderson & Malone filed a Motion for Summary
Judgment ("Motion") seeking to terminate this action.
On February 28, 1997, the Company and Mr. Smith reached a
settlement of all disputes between the parties. Pursuant to the
settlement, the Company paid to Mr. Smith $4,990,000 and the
parties agreed to dismiss with prejudice all claims and
counterclaims in Smith and in the Arbitration. In addition, Mr.
Smith agreed to dismiss Gribetz with prejudice as against the
Company, the "John and Jane Doe" defendants, Edwin Stier and
Stier, Anderson & Malone (but not as to Mr. Gribetz or the Office
of the Rockland County District Attorney). With respect to the
settlement payment to Mr. Smith, any amounts not previously
provided for will be recorded in the first quarter of 1997. The
Company does not expect the additional provisions to have a
significant impact on the overall results of operations in 1997.
Regulatory Matters:
Competition:
Regulatory agencies at the federal level as well as the three
states in which the Company has retail electric franchises are
currently evaluating changes in regulatory and rate-making
practices designed to promote increased competition consistent
with safety, reliability and affordability standards. Depending
on future developments in this area, the Company's market share
and profit margins could become subject to competitive pressures
in addition to regulatory constraints. A discussion of the
current federal and state competitive initiatives follows.
Federal Initiative: On April 24, 1996, the FERC issued its final
order ("FERC Order 888") requiring electric utilities to file
non-discriminatory open access transmission tariffs that would be
available to wholesale sellers and buyers of electric energy. The
order also provided for the recovery of related legitimate and
verifiable strandable costs subject to FERC's jurisdiction. The
Company filed the required open access transmission tariff on
July 9, 1996 offering transmission service and certain ancillary
services to wholesale customers on a basis comparable to that
which it provides itself. By order issued December 18, 1996, the
FERC accepted the Company's open access transmission tariff. The
Company participates in the wholesale electric market primarily
as a buyer of energy and, as a result, Order 888 is not expected
to materially impact the Company's financial condition or results
of operations.
On January 31, 1997, O&R, in conjunction with the other members
of the New York Power Pool ("NYPP"), filed tariffs with the FERC
seeking permission to restructure the NYPP into an independent
system operator.
New York Competitive Opportunities Proceeding: On May 20,
1996, the NYPSC issued an order setting forth its vision and
goals for the future of the electric industry in New York. The
order endorsed a fundamental restructuring of the industry based
on competition in the generation and energy services sectors of
the industry. Introduction of retail access for all electric
customers is envisioned to begin in early 1998. In addition, the
order calls for lowering rates to consumers, increasing customer
choice, continued reliability of service, continuation of
programs that are in the public interest and continuing customer
protections and the obligation to serve. While the Company
supports the NYPSC's goal of establishing a competitive
electricity market in New York State, the Company believes that
the May 20, 1996 Order was deficient in certain areas. On
September 18, 1996, the Company, the six other New York
investor-owned electric utilities and the Energy Association of
New York State filed a suit in New York State Supreme Court
challenging the May 20, 1996 Order. This litigation is discussed
further in the Legal Proceedings section of Note 12 of Notes to
Consolidated Financial Statements on page 28 of the 1996 Annual
Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report, and under the
subheading "Restructuring Litigation" in Item 3 of this Form 10-K
Annual Report.
On October 1, 1996, the Company, in response to the May 20, 1996
Order, filed a rate and restructuring plan (the "Plan") with the
NYPSC. The Company's filing presented a comprehensive plan for
the functional separation of generation, a schedule for retail
access, base rate freeze and stranded cost recovery.
On October 9, 1996, the NYPSC issued an order establishing
procedures and a schedule for considering the rate restructuring
plans filed on October 1, 1996 in the Competitive Opportunities
Proceeding. The NYPSC has established a separate proceeding for
each of the five utilities (including the Company) which filed
these plans. By various notices, the last of which was issued on
March 6, 1997, the NYPSC has extended the negotiation period
established in the October 9, 1996 Order. The latest extension
is to March 25, 1997.
The Company, the NYPSC Staff and other interested parties have
been engaged in settlement negotiations on contested issues.
These contested issues include, but are not limited to, the level
and sources of electric price reductions, how these electric
price reductions will be distributed among customer groups, the
schedule for the transition to retail access, the appropriate
corporate structure for the Company and what level of strandable
costs should the Company have an opportunity to recover over what
time period. If a settlement agreement is negotiated in a
proceeding, it will be submitted to the Commission for approval.
If a settlement agreement is not reached in the proceeding, the
parties will submit testimony on contested issues and will have
an additional 60-day period to submit any necessary briefs or
other submissions to an administrative law judge. At the end of
the 60-day period, the record in a proceeding will be closed and
the matter will be submitted to the Commission for decision.
Given the uncertainties regarding the Competitive Opportunities
Proceeding, the Company is unable to predict the outcome of this
regulatory proceeding and the ultimate effect on the Company's
financial position or results of operations.
New Jersey - Energy Master Plan: On January 16, 1997, the NJBPU
issued Proposed Findings and Recommendations for restructuring
the electric power industry in New Jersey and introducing
competition into the generation sector of the utility business
(the "Preliminary Report"). The preliminary findings and
recommendations contained in the Preliminary Report have been
issued for public comment. The final report is scheduled to be
issued in March 1997. The Preliminary Report calls for each of
the state's utilities to file proposals for NJBPU review and
approval by July 15, 1997 to implement retail competition,
functionally separate generation from the utility's other
operations, unbundle its current rate structure to accommodate
customer choice, and propose a stranded cost recovery plan. The
Preliminary Report proposes that retail choice be phased-in
encompassing a cross-section of all customer classes over a two
and one-half year period beginning in October 1998 and concluding
April 2001. In addition, the Preliminary Report calls for
regulatory assets and non-utility generator purchased power
contracts to continue to be fully recoverable in rates. With
respect to above market generation costs, the NJBPU has endorsed
the creation of a Market Transition Charge ("MTC") as a
non-bypassable component of the delivery price of electricity
which would be assessed for a period of four to eight years in
order to provide utilities with the opportunity for recovery of
stranded costs associated with generation capacity commitments
made prior to the advent of competition. The amount of the MTC
authorized and the length of time assessed is to be determined by
the NJBPU on a case by case basis following a review of the July
15, 1997 filings made by each utility and will be contingent upon
a number of conditions, including achievement of near-term rate
reduction goals and cost mitigation measures instituted. The
filings may be accepted or significantly modified by the NJBPU
before becoming effective. It is not possible to predict the
outcome of the NJBPU proceeding regarding the filings or its
impact on the Company's consolidated financial position or
results of operations at this time.
Pennsylvania - Competition Legislation: On December 3, 1996, the
"Electricity Generation Customer Choice and Competition Act"
("Act") was signed into law by the Governor of the State of
Pennsylvania. The Act provides for a transition of the
Pennsylvania electric industry from a vertically integrated
structure to a functionally separated model that permits direct
access by customers to a competitive electric generation market
while retaining the existing regulation and customer protections
for the transmission and distribution systems. The transition
plan of the Act calls for a three-year phase-in of retail access
beginning January 1, 1998 and concluding January 1, 2001. The Act
also provides for the opportunity for recovery of prudent and
verifiable costs resulting from the restructuring through the
implementation of a Competitive Transition Charge ("CTC") for a
period of up to nine years and the imposition of rate caps
designed to prevent a customer's total electric costs from
increasing during the transition period above current levels. In
addition, the Act permits the refinancing of certain approved
transition costs through the issuance of bonds secured by revenue
streams guaranteed by the Pennsylvania Public Utility Commission
("PPUC"). The savings associated with this financing mechanism
will be used to reduce strandable costs. The Act requires all
Pennsylvania utilities to file restructuring plans with the PPUC
no later than September 30, 1997. The PPUC is required to issue
an order accepting, rejecting or modifying the plan within nine
months of the filing. Pike County Light & Power Company ("Pike"),
a wholly owned utility subsidiary of the Company, is reviewing
the Act and will submit its restructuring plan to the PPUC no
later than September 30, 1997. The Company's plan could be
accepted or significantly modified before it becomes effective.
It is not possible to predict the outcome of the PPUC proceeding
required by the Act or its impact on the Company's consolidated
financial position or results of operations at this time.
Other Regulatory Matters:
Information regarding the NYPSC proceeding relating to the NYPSC
investigation of prior financial improprieties and the related
rate case proceeding (Case 95-E-0491) and the NYPSC approval of a
settlement whereby $8.5 million would be refunded to New York
ratepayers is contained under the caption "Legal Proceedings" on
page 27 of the 1996 Annual Report to Shareholders, which
information is incorporated by reference in this Form 10-K Annual
Report. Information regarding the NJBPU audit of RECO and
amounts previously refunded or proposed to be refunded by RECO to
New Jersey ratepayers is contained in the 1996 Annual Report to
Shareholders in the "Review of the Company's Results of
Operations and Financial Condition" under the caption "Rate
Activities" on page 15, and in Note 12 to the Notes to
Consolidated Financial Statements under the caption "Legal
Proceedings" on page 28.
Information regarding the Company's involvement in, and the
effect on the Company of, pipeline take-or-pay proceedings before
the FERC is contained under the caption "Gas Energy Costs" in the
"Review of the Company's Results of Operations and Financial
Condition" and in Note 12 of the Notes to Consolidated Financial
Statements - "Gas Supply and Storage Contracts" on pages 12 and
26 through 27, respectively, of the 1996 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report. Reference is also made to the
information contained under the caption "Take-or-Pay Surcharge
Costs and FERC Order No. 636 Transition Costs" of "Gas
Operations" in Item 1 of this Form 10-K Annual Report.
The Company's gas operations were not materially affected by take-
or-pay charges in 1996. However, as required by the NYPSC in
Case No. 88-G-062, the Company has deferred a portion of these
costs. As of December 31, 1996, $2.1 million of deferred take-or-
pay charges and accrued interest remain on the books of the
Company. The Company and the NYPSC have reached an agreement
allowing the Company to recover these costs by March, 1999.
On April 8, 1992, the FERC issued Order No. 636 requiring
interstate natural gas pipelines to unbundle their sales and
transportation services and to offer each of these services on a
stand alone basis. As of March 31, 1997, it is estimated that
the Company's obligation related to Order No. 636 transition
costs will amount to $34.6 million. Information regarding the
Company's involvement in, and effect on the Company of, Order No.
636 and its related proceedings is contained under the caption
"Gas Energy Costs" in the "Review of the Company's Results of
Operations and Financial Condition" and in Note 12 of the Notes
to Consolidated Financial Statements under the caption "Gas
Supply and Storage Contracts" on pages 12 and 26 through 27,
respectively, of the 1996 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual
Report. Reference is also made to the information contained
under the caption "Take-or-Pay Surcharge Costs and FERC Order 636
Transition Costs" of "Gas Operations" in Item 1 of this Form 10-K
Annual Report.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended December 31,
1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the officers of the Company are appointed on an annual
basis at the first Board of Directors' meeting following the
annual meeting. The following list includes two Company
employees who, due to the policy making functions they perform
for the Company, are considered executive officers under SEC
criteria, but who are not officers of the Company and who are not
appointed on an annual basis.
Officers, Age, and Title Business Experience Past Five Years
D. Louis Peoples, 56 Vice Chairman of the Board and Chief
Vice Chairman of the Executive Officer since July 1994.
Board of Directors and Executive Vice President, and a member
Chief Executive Officer of the Board of Directors, Madison
Gas and Electric Company, Madison,
Wisconsin from 1992 to 1993. Senior
Vice President, RCG/Hagler, Bailly
Inc., San Francisco, California from
1991 to 1992.
Larry S. Brodsky, 48 President and Chief Operating Officer
President and Chief since January 1996. Senior Vice
Operating Officer President from 1994 to 1995 and Vice
President from 1987 to 1994,
Illinois Power Company, Decatur,
Illinois.
R. Lee Haney, 57 Senior Vice President and Chief
Senior Vice President and Financial Officer since April 1996.
Chief Financial Officer Vice President and Chief Financial
Officer from September 1994 to April
1996. Senior Vice President -
Marketing and Customer Service from
January 1993 until September 1994,
and Senior Vice President and Chief
Financial Officer from 1990 until
January 1993, San Diego Gas &
Electric Company, San Diego,
California.
G. D. Caliendo, 56 Senior Vice President, General Counsel
Senior Vice President, and Secretary since April 1996. Vice
General Counsel President, General Counsel and
and Secretary Secretary from March 1995 to April
1996. Senior Vice President,
General Counsel and Secretary of
Pennsylvania Power and Light
Company, Allentown, Pennsylvania
from 1989 to 1994.
Robert J. Biederman, Jr., 44 Vice President since April 1990.
Vice President, Operations
Officers, Age, and Title Business Experience Past Five Years
Nancy M. Jakobs, 56 Vice President, Human Resources since
Vice President, April 1995. Partner, Jakobs and
Human Resources Associates International, New City,
New York from 1991 to 1995.
Robert J. McBennett, 54 Treasurer since 1984. Treasurer and
Treasurer Controller from May 1995 to May 1996.
Edward M. McKenna, 47 Controller since May 1996. Director,
Controller Internal Audit from January 1995 to
May 1996. Director, Internal Audit,
American Brands from 1994 to January
1995. Senior Manager, Finance/
Operational Audits, American Brands
from 1991 to 1994.
George V. Bubolo, Jr., 52 Division Vice President - Engineering
Division Vice President, and System Operations since March 1996.
Engineering and System Director, Engineering and System
Operations Operations from November 1994 until
March 1996. Director, Electric
Operations from 1983 until November
1994.
Vincent R. Tummarello, 46 Division Vice President - Electric
Division Vice President, Production since November 1994.
Electric Production Director, Electric Production from
April 1985 until November 1994.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, par value $5.00 per share ("Common
Stock"), is listed on the New York Stock Exchange under the
ticker symbol ORU. The Common Stock is listed in published stock
tables as "OranRk".
At December 31, 1996, there were 21,322 holders of record of the
Company's Common Stock. During 1996 dividend payments were made
to holders of the Company's Common Stock on February 1, May 1,
August 1 and November 1.
Quarterly market price and dividend information on the Company's
Common Stock is as follows:
Quarter High Low Dividend
1996 1 $37 1/8 $34 7/8 $.645
2 36 3/4 33 3/8 .645
3 37 34 3/4 .645
4 36 1/4 34 1/4 .645
1995 1 33 3/8 31 1/4 .64
2 34 3/8 30 7/8 .64
3 35 5/8 31 1/8 .645
4 37 3/8 34 3/8 .645
Information regarding the restriction of retained earnings for
dividend payments is contained in Note 4 of the Notes to
Consolidated Financial Statements - "Retained Earnings" on page
23 of the 1996 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
ITEM 6. Selected Financial Data
The information required by this Item is contained under the
captions "Financial Statistics - Common Stock Data", and
"Financial Statistics - Selected Financial Data" on page 32 of
the 1996 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this Item is contained under the
caption "Review of the Company's Results of Operations and
Financial Condition" on pages 10 through 16 of the 1996 Annual
Report to shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information
required by this Item are contained on pages 17 through 30 of the
1996 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report. Such
information is listed in Item l4(a)(1) "Financial Statements" of
this Form 10-K Annual Report.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
The information required by Item 10 - Directors and Executive
Officers of the Registrant is contained on page 39 of this Form
10-K Annual Report and in the Company's definitive Proxy
Statement in connection with the 1997 Annual Meeting of Common
Shareholders (the "Proxy Statement"), which material is
incorporated by reference in this Form 10-K Annual Report. The
information required by Item 11 - Executive Compensation, Item 12
- - Security Ownership of Certain Beneficial Owners and Management
and Item 13 - Certain Relationships and Related Transactions is
contained in Section 1, "Election of Directors," of the Proxy
Statement which material is incorporated by reference in this
Form 10-K Annual Report. With the exception of this information,
the Proxy Statement is not deemed filed as part of this Form 10-K
Annual Report.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company
and its subsidiaries appearing on pages 17 through 30 of the 1996
Annual Report to Shareholders are incorporated by reference in
this Form 10-K Annual Report. With the exception of these
consolidated financial statements and the information
incorporated in Items 1, 2, 3, 5, 6, 7 and 8, herein, the 1996
Annual Report to shareholders is not deemed filed as part of this
Form 10-K Annual Report.
Page*
Consolidated Statements of Income and Retained Earnings for
the years ended December 31, 1996, 1995 and 1994. 17
Consolidated Balance Sheets as of December 31, 1996 and 1995. 18
Consolidated Cash Flow Statements for the years ended
December 31, 1996, 1995 and 1994. 20
Notes to Consolidated Financial Statements. 21
Report of Independent Public Accountants. 30
*Page number reference is to the 1996 Annual Report
to Shareholders
(a)(2) Financial Statement Schedules Page**
Valuation and Qualifying Accounts and Reserves for the years
ended December 31, 1996, 1995 and 1994 (Schedule II). 54
**Page number reference is to this Form 10-K Annual Report
All other schedules are omitted because they are not applicable.
(a)(3) Exhibits
* 3.2 By-Laws, as amended through June 29, 1995. (Exhibit
3.2 to Form 10-Q for the period ended June 30, 1995,
File No. 1-4315).
* 3.4 Restated Certificate of Incorporation dated May 7,
1996. (Exhibit 3.4 to Form 10-Q for the period ended
March 31, 1996, File No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented
and Modified by Twenty-six Supplemental Indentures.
(Exhibit 4.1 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1980.
(Exhibit 4.2 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company,
dated as of July 1, 1954. (Exhibit 2.16 to
Registration Statement No. 2-14159).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power
Company, dated as of July 15, 1971. (Exhibit 4.31 to
Registration Statement No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1982.
(Exhibit 4.12 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1984.
(Exhibit 4.17 to Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage
of the Company, dated as of April 1, 1986. (Exhibit
4.20 to Form 10-K for the fiscal year ended December
31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1988.
(Exhibit 4.21 to Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1990.
(Exhibit 4.22 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York
as Trustee regarding unsecured debt, dated March 1,
1990. (Exhibit 4.25 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
* 4.26 First Supplemental Indenture between the Company and
The Bank of New York as Trustee regarding unsecured
debt, dated March 7, 1990. (Exhibit 4.26 to Form 10-K
for the fiscal year ended December 31, 1990, File No. 1-
4315).
* 4.27 Second Supplemental Indenture between the Company and
the Bank of New York as Trustee regarding unsecured
debt, dated October 15, 1992. (Exhibit 4.27 to Form 10-
K for the fiscal year ended December 31, 1992, File No.
1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1992.
(Exhibit 4.28 to Form 10-K for the fiscal year ended
December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and
The Bank of New York as Trustee regarding unsecured
debt, dated as of March 1, 1993. (Exhibit 4.29 to Form
10-K for the fiscal year ended December 31, 1992, File
No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric
Company, dated as of March 1, 1993. (Exhibit 4.30 to
Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.31 Thirty-fourth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1994.
(Exhibit 4.31 to Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant,
dated as of October 10, 1969. (Exhibit 5(b) to
Registration Statement No. 2-42156).
10.1A Amendment to the General Agreement: Bowline Point
Generating Plant, dated May 31, 1996.
*10.2 Financing Agreements, dated as of February 1, 1971.
(Exhibit 5(a) to Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985.
(Exhibit 10.7 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by
Con Edison to Bowline Point Generating Station dated
August 31, 1983. (Exhibit 10.8 to Form 10-K for fiscal
year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
+*10.11 Officers' Supplemental Retirement Plan, as amended
April 1, 1993. (Exhibit 10.11 to Form 10-K for the
fiscal year ended December 31, 1993, File 1-4315).
+*10.12 Incentive Compensation Plan, amended January 3, 1991.
(Exhibit 10.12 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991.
(Exhibit 10.13 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.14 Management Long-Term Disability Plan as amended January
1, 1996. (Exhibit 10.14 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
*10.17 Coal Purchase and Sale Agreement among Orange and
Rockland Utilities, Inc., Rawl Sales and Processing
Company, and Massey Coal Sales, Inc., dated March 9,
1984, as amended through July 1, 1991. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31,
1991, File No. 1-4315).
*10.17A Seventh Amendment to the Coal Purchase and Sales
Agreement among Orange and Rockland Utilities, Inc.,
Rawl Sales and Processing Company, and Massey Coal
Sales, Inc., dated July 1, 1994. (Exhibit 10.17 to
From 10-K for the fiscal year ended December 31, 1994,
File No. 1-4315).
10.17B Eighth Amendment to the Coal Purchase and Sales
Agreement among Orange and Rockland Utilities, Inc.,
Rawl Sales and Processing Company, and Massey Coal
Sales, Inc., dated July 1, 1996.
+*10.20 Orange and Rockland Utilities, Inc. Post Director
Service Retainer Continuation Program, as amended March
2, 1995. (Exhibit 10.20 to Form 10-K for the fiscal
year ended December 31, 1994, File 1-4315).
+*10.22 Form of Severance Agreement applicable to R. J.
McBennett and R. J. Biederman effective January 3,
1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.26 Letter agreement dated September 29, 1994 between
Orange and Rockland Utilities, Inc. and R. Lee Haney
regarding participation in the Officers' Supplemental
Retirement Plan of Orange and Rockland Utilities, Inc.
(Exhibit 10.26 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.27 Letter agreement dated September 29, 1994 between
Orange and Rockland Utilities, Inc. and D. Louis
Peoples regarding participation in the Officers'
Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the
period ended September 30, 1994, File No. 1-4315).
+*10.29 Deferred Compensation Plan for Non Employee Directors
as amended and restated effective August 15, 1996.
(Exhibit 10.29 to Form 10-Q for the period ended
September 30, 1996, File No. 1-4315).
+*10.30 Letter Agreement dated April 6, 1995 between Orange and
Rockland Utilities, Inc. and G. D. Caliendo regarding
participation in the Officers' Supplemental Retirement
Plan of Orange and Rockland Utilities, Inc. (Exhibit
10.30 to Form 10-Q for the period ended June 30, 1995,
File No. 1-4315).
+*10.31 Letter Agreement dated September 21, 1995 between
Orange and Rockland Utilities, Inc. and Nancy M. Jakobs
regarding participation in the Officers' Supplemental
Retirement Plan of Orange and Rockland Utilities, Inc.
(Exhibit 10.31 to Form 10-Q for the period ended
September 30, 1995, File No. 1-4315).
+*10.35 Severance Agreement dated October 18, 1995 between
Orange and Rockland Utilities, Inc. and Nancy M.
Jakobs. (Exhibit 10.35 to Form 10-Q for the period
ended September 30, 1995, File No. 1-4315).
+*10.36 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and D. L. Peoples regarding
change in control arrangements. (Exhibit 10.36 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.37 Agreement dated January 21, 1996 between Orange and
Rockland Utilities, Inc. and G. D. Caliendo regarding
change in control arrangements. (Exhibit 10.37 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.38 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and R. L. Haney regarding
change in control arrangements. (Exhibit 10.38 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.39 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and L. S. Brodsky regarding
change in control arrangements. (Exhibit 10.39 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.40 Performance Share Unit Plan effective January 1, 1995,
described on pages 10-11 of the Company's definitive
proxy statement filed with the Securities and Exchange
Commission on March 7, 1997 for its 1997 Annual Meeting
of shareholders, which description is hereby
incorporated by reference (File No. 1-4315).
+*10.41 Annual Team Incentive Plan effective January 1, 1995,
described on pages 9-10 of the Company's definitive
proxy statement filed with the Securities and Exchange
Commission on March 7, 1997 for its 1997 Annual Meeting
of shareholders, which description is hereby
incorporated by reference (File No. 1-4315).
+*10.42 Letter Agreement dated February 16, 1995 between Orange
and Rockland Utilities, Inc. and G. D. Caliendo
regarding employment. (Exhibit 10.42 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.43 Letter Agreement dated July 14, 1994 between Orange and
Rockland Utilities, Inc. and D. L. Peoples regarding
employment. (Exhibit 10.43 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
+*10.44 Letter Agreement dated November 14, 1995 between Orange
and Rockland Utilities, Inc. and L. S. Brodsky
regarding employment. (Exhibit 10.44 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.45 Letter Agreement dated March 21, 1995 between Orange
and Rockland Utilities, Inc. and Nancy M. Jakobs
regarding employment. (Exhibit 10.45 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.46 Letter Agreement dated September 2, 1994 between Orange
and Rockland Utilities, Inc. and R. L. Haney regarding
employment. (Exhibit 10.46 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
13 The Company's 1996 Annual Report to Shareholders to the
extent identified in this Form 10-K Annual Report for
the fiscal year ended December 31, 1996.
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
*99.1 Joint Cooperation Agreement between the Office of the
Rockland County District Attorney and Orange and
Rockland Utilities, Inc., dated November 3, 1993
(Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
*99.5 Agreement Between Orange and Rockland Utilities, Inc.
and Kroll Associates, Inc. dated as of November 1,
1994. (Exhibit 99.5 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+ Denotes executive compensation plans and
arrangements.
* Incorporated by reference to the indicated
filings.
The securities issued relevant to each of the following
agreements were not registered with the Securities and Exchange
Commission and the total amount of securities authorized under
each agreement does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following
agreements are not filed as exhibits. The Company agrees,
however, to furnish to the Commission a copy of each agreement
upon request:
- First Supplemental Indenture, dated August 15,
1990, to the Indenture of Mortgage and Deed of Trust of
Pike County Light & Power Company.
- Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the Pollution Control
Revenue Bonds (Orange and Rockland Utilities, Inc.
Project) dated as of August 15, 1994.
- Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of August 15,
1994.
- Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the Pollution Control
Refunding Revenue Bonds dated as of July 1, 1995.
- Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of July 1, 1995.
- Tenth Supplemental Indenture of Rockland Electric
Company, dated as of February 1, 1997.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K current report
covering an event during the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES,INC.
(Registrant)
By D. LOUIS PEOPLES
(D. Louis Peoples
Vice Chairman of the
Board of Directors and
Chief Executive Officer)
Date: March 19, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature and Title Capacity in Which Signing
D. LOUIS PEOPLES* Chief Executive
(D. Louis Peoples, Officer, Director
Vice Chairman of the
Board of Directors and
Chief Executive Officer)
R. LEE HANEY* Chief Financial Officer
(R. Lee Haney, Sr. Vice President
and Chief Financial Officer)
EDWARD M. McKENNA* Principal Accounting Officer
(Edward M. McKenna, Controller)
H. KENT VANDERHOEF* Chairman of the
(H. Kent Vanderhoef) Board of Directors
RALPH M. BARUCH* Director
(Ralph M. Baruch)
J. FLETCHER CREAMER* Director
(J. Fletcher Creamer)
Signature and Title Capacity in Which Signing
MICHAEL J. DEL GIUDICE* Director
(Michael J. Del Giudice)
JON F. HANSON* Director
(Jon F. Hanson)
KENNETH D. McPHERSON* Director
(Kenneth D. McPherson)
ROBERT E. MULCAHY* Director
(Robert E. Mulcahy)
JAMES F. O'GRADY, JR.* Director
(James F. O'Grady, Jr.)
FREDERIC V. SALERNO* Director
(Frederic V. Salerno)
LINDA C. TALIAFERRO* Director
(Linda C. Taliaferro)
*By G. D. CALIENDO
(G. D. Caliendo,
Attorney-in-fact)
Date: March 19, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Orange and Rockland Utilities, Inc.'s Annual Report to
Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 6, 1997. Our audit
was made for the purpose of forming an opinion on those
consolidated financial statements taken as a whole. Supplemental
Schedule II, Valuation and Qualifying Accounts and Reserves for
the years ended December 31, 1996 and 1995 (see index of
financial statements) is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 6, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by
reference in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-25358, 33-25359
and 33-22129) and on Form S-3 (File No. 33-63872).
ARTHUR ANDERSEN LLP
New York, New York
March 19, 1997
SCHEDULE II
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)
Additions
(1) (2) Balance
Balance at Charged to Charged at
beginning costs and to other end of
Description of period expenses accounts Deductions period
December 31, 1996
Allowance for Uncollect-
ible accounts:
Customer Accounts $2,307 $2,508 $616 $3,040 $2,391
Other Accounts 169 268 197 376 258
Gas Marketing Accts. 133 953 2 482 606
$2,609 $3,729 $815 (A) $3,898 (B)$3,255
Reserve for Claims
and Damages $3,848 $1,773 $472 $2,250 (C)$3,843
Gas Turbine Maint.
Reserve $ (202) $ 453 $ - $ 339 (C)$ (88)
December 31, 1995
Allowance for Uncollect-
ible accounts:
Customer Accounts $2,200 $2,374 $565 $2,832 $2,307
Other Accounts 209 825 35 900 169
Gas Marketing Accts. 327 60 - 254 133
$2,736 $3,259 $600 (A) $3,986 (B)$2,609
Reserve for Claims
and Damages $4,713 $ 720 $ 52 $1,637 (C)$3,848
Gas Turbine Maint.
Reserve $ (258) $ 622 $ - $ 566 (C)$ (202)
SCHEDULE II
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)
Additions
(1) (2) Balance
Balance at Charged to Charged at
beginning costs and to other end of
Description of period expenses accounts Deductions period
December 31, 1994
Allowance for Uncollect-
ible accounts:
Customer Accounts $2,026 $2,493 $391 $2,710 $2,200
Other Accounts 102 544 8 445 209
Gas Marketing Accts. 471 287 2 433 327
$2,599 $3,324 $401 (A) $3,588 (B) $2,736
Reserve for Claims
and Damages $3,830 $2,474 $140 $1,731 (C) $4,713
Gas Turbine Maint.
Reserve $(1,375) $1,367 $ - $ 250 (C) $ (258)
(A)Includes collection of accounts previously written off of $815 in
1996, $600 in 1995, and $401 in 1994.
(B)Accounts considered uncollectible and charged off of $3,898 in
1996, $3,986 in 1995 and $3,588 in 1994.
(C)Payments of damage claims of $2,250 in 1996, $1,637 in 1995 and
$1,731 in 1994 and maintenance expenses of $339 in 1996, $566 in
1995 and $250 in 1994.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For Year Ended December 31, 1996 Commission File Number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
EXHIBITS
Orange and Rockland Utilities, Inc.
Index of Exhibits
1996 Form 10-K
* 3.2 By-Laws, as amended through June 29, 1995. (Exhibit
3.2 to Form 10-Q for the period ended June 30, 1995,
File No. 1-4315).
* 3.4 Restated Certificate of Incorporation dated May 7,
1996. (Exhibit 3.4 to Form 10-Q for the period ended
March 31, 1996, File No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented
and Modified by Twenty-six Supplemental Indentures.
(Exhibit 4.1 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1980.
(Exhibit 4.2 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company,
dated as of July 1, 1954. (Exhibit 2.16 to
Registration Statement No. 2-14159).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power
Company, dated as of July 15, 1971. (Exhibit 4.31 to
Registration Statement No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1982.
(Exhibit 4.12 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1984.
(Exhibit 4.17 to Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage
of the Company, dated as of April 1, 1986. (Exhibit
4.20 to Form 10-K for the fiscal year ended December
31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1988.
(Exhibit 4.21 to Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1990.
(Exhibit 4.22 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York
as Trustee regarding unsecured debt, dated March 1,
1990. (Exhibit 4.25 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
* 4.26 First Supplemental Indenture between the Company and
The Bank of New York as Trustee regarding unsecured
debt, dated March 7, 1990. (Exhibit 4.26 to Form 10-K
for the fiscal year ended December 31, 1990, File No. 1-
4315).
* 4.27 Second Supplemental Indenture between the Company and
the Bank of New York as Trustee regarding unsecured
debt, dated October 15, 1992. (Exhibit 4.27 to Form 10-
K for the fiscal year ended December 31, 1992, File No.
1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1992.
(Exhibit 4.28 to Form 10-K for the fiscal year ended
December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and
The Bank of New York as Trustee regarding unsecured
debt, dated as of March 1, 1993. (Exhibit 4.29 to Form
10-K for the fiscal year ended December 31, 1992, File
No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric
Company, dated as of March 1, 1993. (Exhibit 4.30 to
Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.31 Thirty-fourth Supplemental Indenture to the First
Mortgage of the Company, dated as of April 1, 1994.
(Exhibit 4.31 to Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant,
dated as of October 10, 1969. (Exhibit 5(b) to
Registration Statement No. 2-42156).
10.1A Amendment to the General Agreement: Bowline Point
Generating Plant, dated May 31, 1996.
*10.2 Financing Agreements, dated as of February 1, 1971.
(Exhibit 5(a) to Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985.
(Exhibit 10.7 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by
Con Edison to Bowline Point Generating Station dated
August 31, 1983. (Exhibit 10.8 to Form 10-K for fiscal
year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
+*10.11 Officers' Supplemental Retirement Plan, as amended
April 1, 1993. (Exhibit 10.11 to Form 10-K for the
fiscal year ended December 31, 1993, File 1-4315).
+*10.12 Incentive Compensation Plan, amended January 3, 1991.
(Exhibit 10.12 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991.
(Exhibit 10.13 to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4315).
*10.14 Management Long-Term Disability Plan as amended January
1, 1996. (Exhibit 10.14 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
*10.17 Coal Purchase and Sale Agreement among Orange and
Rockland Utilities, Inc., Rawl Sales and Processing
Company, and Massey Coal Sales, Inc., dated March 9,
1984, as amended through July 1, 1991. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31,
1991, File No. 1-4315).
*10.17A Seventh Amendment to the Coal Purchase and Sales
Agreement among Orange and Rockland Utilities, Inc.,
Rawl Sales and Processing Company, and Massey Coal
Sales, Inc., dated July 1, 1994. (Exhibit 10.17 to
From 10-K for the fiscal year ended December 31, 1994,
File No. 1-4315).
10.17B Eighth Amendment to the Coal Purchase and Sales
Agreement among Orange and Rockland Utilities, Inc.,
Rawl Sales and Processing Company, and Massey Coal
Sales, Inc., dated July 1, 1996.
+*10.20 Orange and Rockland Utilities, Inc. Post Director
Service Retainer Continuation Program, as amended March
2, 1995. (Exhibit 10.20 to Form 10-K for the fiscal
year ended December 31, 1994, File 1-4315).
+*10.22 Form of Severance Agreement applicable to R. J.
McBennett and R. J. Biederman effective January 3,
1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.26 Letter agreement dated September 29, 1994 between
Orange and Rockland Utilities, Inc. and R. Lee Haney
regarding participation in the Officers' Supplemental
Retirement Plan of Orange and Rockland Utilities, Inc.
(Exhibit 10.26 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+*10.27 Letter agreement dated September 29, 1994 between
Orange and Rockland Utilities, Inc. and D. Louis
Peoples regarding participation in the Officers'
Supplemental Retirement Plan of Orange and Rockland
Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the
period ended September 30, 1994, File No. 1-4315).
+*10.29 Deferred Compensation Plan for Non Employee Directors
as amended and restated effective August 15, 1996.
(Exhibit 10.29 to Form 10-Q for the period ended
September 30, 1996, File No. 1-4315).
+*10.30 Letter Agreement dated April 6, 1995 between Orange and
Rockland Utilities, Inc. and G. D. Caliendo regarding
participation in the Officers' Supplemental Retirement
Plan of Orange and Rockland Utilities, Inc. (Exhibit
10.30 to Form 10-Q for the period ended June 30, 1995,
File No. 1-4315).
+*10.31 Letter Agreement dated September 21, 1995 between
Orange and Rockland Utilities, Inc. and Nancy M. Jakobs
regarding participation in the Officers' Supplemental
Retirement Plan of Orange and Rockland Utilities, Inc.
(Exhibit 10.31 to Form 10-Q for the period ended
September 30, 1995, File No. 1-4315).
+*10.35 Severance Agreement dated October 18, 1995 between
Orange and Rockland Utilities, Inc. and Nancy M.
Jakobs. (Exhibit 10.35 to Form 10-Q for the period
ended September 30, 1995, File No. 1-4315).
+*10.36 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and D. L. Peoples regarding
change in control arrangements. (Exhibit 10.36 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.37 Agreement dated January 21, 1996 between Orange and
Rockland Utilities, Inc. and G. D. Caliendo regarding
change in control arrangements. (Exhibit 10.37 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.38 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and R. L. Haney regarding
change in control arrangements. (Exhibit 10.38 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.39 Agreement dated January 22, 1996 between Orange and
Rockland Utilities, Inc. and L. S. Brodsky regarding
change in control arrangements. (Exhibit 10.39 to Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-4315).
+*10.40 Performance Share Unit Plan effective January 1, 1995,
described on pages 10-11 of the Company's definitive
proxy statement filed with the Securities and Exchange
Commission on March 7, 1997 for its 1997 Annual Meeting
of shareholders, which description is hereby
incorporated by reference (File No. 1-4315).
+*10.41 Annual Team Incentive Plan effective January 1, 1995,
described on pages 9-10 of the Company's definitive
proxy statement filed with the Securities and Exchange
Commission on March 7, 1997 for its 1997 Annual Meeting
of shareholders, which description is hereby
incorporated by reference (File No. 1-4315).
+*10.42 Letter Agreement dated February 16, 1995 between Orange
and Rockland Utilities, Inc. and G. D. Caliendo
regarding employment. (Exhibit 10.42 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.43 Letter Agreement dated July 14, 1994 between Orange and
Rockland Utilities, Inc. and D. L. Peoples regarding
employment. (Exhibit 10.43 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
+*10.44 Letter Agreement dated November 14, 1995 between Orange
and Rockland Utilities, Inc. and L. S. Brodsky
regarding employment. (Exhibit 10.44 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.45 Letter Agreement dated March 21, 1995 between Orange
and Rockland Utilities, Inc. and Nancy M. Jakobs
regarding employment. (Exhibit 10.45 to Form 10-K for
the fiscal year ended December 31, 1995, File No. 1-
4315).
+*10.46 Letter Agreement dated September 2, 1994 between Orange
and Rockland Utilities, Inc. and R. L. Haney regarding
employment. (Exhibit 10.46 to Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-4315).
13 The Company's 1996 Annual Report to Shareholders to the
extent identified in this Form 10-K Annual Report for
the fiscal year ended December 31, 1996.
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
*99.1 Joint Cooperation Agreement between the Office of the
Rockland County District Attorney and Orange and
Rockland Utilities, Inc., dated November 3, 1993
(Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
*99.5 Agreement Between Orange and Rockland Utilities, Inc.
and Kroll Associates, Inc. dated as of November 1,
1994. (Exhibit 99.5 to Form 10-Q for the period ended
September 30, 1994, File No. 1-4315).
+ Denotes executive compensation plans and
arrangements.
* Incorporated by reference to the indicated
filings.
The securities issued relevant to each of the following
agreements were not registered with the Securities and Exchange
Commission and the total amount of securities authorized under
each agreement does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following
agreements are not filed as exhibits. The Company agrees,
however, to furnish to the Commission a copy of each agreement
upon request:
- First Supplemental Indenture, dated August 15,
1990, to the Indenture of Mortgage and Deed of Trust of
Pike County Light & Power Company.
- Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the Pollution Control
Revenue Bonds (Orange and Rockland Utilities, Inc.
Project) dated as of August 15, 1994.
- Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of August 15,
1994.
- Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the Pollution Control
Refunding Revenue Bonds dated as of July 1, 1995.
- Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of July 1, 1995.
- Tenth Supplemental Indenture of Rockland Electric
Company, dated as of February 1, 1997.
THIS AGREEMENT, dated as of May 31, 1996 ("Agreement")
between ORANGE AND ROCKLAND UTILITIES, INC., a New York
corporation, with offices at One Blue Hill Plaza, Pearl
River, New York 10965 ("Orange and Rockland") and
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York
corporation with offices at 4 Irving Place, New York, New
York 10003 ("Con Edison").
W I T N E S S E T H:
WHEREAS, Orange and Rockland and Con Edison entered
into an agreement dated October 10, 1969 ("General
Agreement") for the joint development of the Bowline Point
Generating Station located in Haverstraw, New York
("Bowline"); and
WHEREAS, attached as Appendix B to the General
Agreement is an operating agreement between Orange and
Rockland and Con Edison ("Operating Agreement") which sets
forth the basis and terms upon which Bowline shall be
operated and maintained for the account of the parties; and
WHEREAS, Orange and Rockland and Con Edison wish to
amend the terms of the General Agreement and the Operating
Agreement;
NOW, THEREFORE, in consideration of the mutual
convenants herein contained and for other good and valuable
consideration, the parties agree as follows:
1. The term of this Agreement shall commence at 12:01
a.m. on June 1, 1996 and shall continue until 11:59 p.m. on
May 31, 2001. Applicable provisions of this Agreement shall
continue in effect after termination to the extent necessary
to provide for final billings and adjustments.
2. For each period from June 1 - September 30 during
the term of this Agreement, Bowline Unit #2 will be placed
on 24-hour standby reserve outage. For each period from
October 1 - May during the term of this Agreement,
Bowline Unit #2 will be placed on a seven day
cold standby reserve outage. During an emergency,
Orange and Rockland will make every effort to return Bowline
Unit #2 to service as expeditiously as practical.
3. Bowline Unit #2 will be equipped with lay-up
equipment to protect the unit during each October 1 - May 31
period. This equipment will be disconnected prior to each
June 1 - September 30 period to facilitate the return to
service of the unit upon short notice (i.e., 24 hours). The
estimated cost of this lay-up equipment is $750,000.
4. During the periods that Bowline Unit #2 is on
either seven day cold standby or 24 hour standby reserve
outage, Orange and Rockland shall schedule its percentage
share of the operating capacity and generation from Bowline
Unit #1 on a weekly basis. No later than noon on Thursday
of each week, the Orange and Rockland Chief System Operator
will inform the Con Edison Chief System Operator of Orange
and Rockland's required percentage share of Bowline Unit #1
for the following week. This share shall become effective
at 0001 hours on Sunday of the new week and will continue
until 2359 hours on Saturday of such week. The percentage
shares and timing of the commitment decision may be changed
by mutual agreement of the parties' Chief System Operators.
During the periods that Bowline Unit #2 is on a 24
hour standby reserve outage, Orange and Rockland shall be
entitled to up to two-thirds (nominally 400 MW) of the
operating capacity and generation from Bowline when required
to meet its own system load requirements.
During the periods that Bowline Unit #2 is on a
seven day cold standby reserve outage, Orange and Rockland
shall be entitled to up to two-thirds (nominally 400 MW) of
the operating capacity from Bowline Unit #1. Orange and
Rockland shall be entitled to up to two-thirds (nominally
400 MW) of generation from Bowline Unit #1 when required to
meet its own system load, except Con Edison shall have the
right to two-thirds of the operating capacity and generation
from Bowline Unit #1, for a period up to two (2) equivalent
days per month (but in no event for more than a total of
six separate occasions per month), when Con Edison is
required for its own system load to forestall use of
significantly more expensive energy such as that supplied by
gas turbines.
If Bowline Unit #2 must be operated, all costs and
output of Bowline will be allocated between Con Edison and
Orange and Rockland in accordance with the terms of the
General Agreement.
5. During those periods that Bowline Unit #1 is on a
scheduled unit maintenance outage, Con Edition will make
available to Orange and Rockland, to the extent that it is
not required to meet its own system load, 200 MW of daily
operating capacity and up to 200 MW of energy at a cost
comparable to Bowline oil fired generation. Maintenance
should be scheduled during the October - December or March
- - May periods.
6. If during the term of this Agreement, Bowline Unit
#1 experiences a prolonged forced outage for any reason,
Orange and Rockland can place Bowline Unit #2 in operation.
In such event, all costs and output of Bowline Unit #2 will
be allocated between Con Edison and Orange and Rockland in
accordance with the terms of the General Agreement.
7. If the parties are unsuccessful in implementing
changes to the New York Power Pool's Methods and Procedures
regarding capacity testing during the winter capability
period, and Bowline Unit #2 is not available for winter
installed capability, Con Edison will provide Orange and
Rockland with 200 MW of installed capacity at no cost.
Should Con Edison require the capacity from the Bowline Unit
#2 during the winter capability period, Con Edison will pay
the full cost of DMNC testing Bowline Unit #2 during the
winter capability period. These costs shall include the
cost of disconnecting and reconnecting the lay-up equipment.
8. Either party may terminate this Agreement upon six
months written notice.
9. All of the terms of the General Agreement and the
Operating Agreement, except as specifically amended or
modified herein, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
ORANGE AND ROCKLAND UTILITIES,
INC.
By_______________________________________
Title______________________________________
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
By_______________________________________
Title______________________________________
agree.jlc
EIGHTH AMENDMENT
TO
COAL PURCHASE AND SALES AGREEMENT
This EIGHTH AMENDMENT is made and entered into as of July 1,
1996, between ORANGE AND ROCKLAND UTILITIES, INC., a New York
corporation ("Buyer") and MASSEY COAL SALES COMPANY, INC., a
Virginia corporation ("Seller").
RECITALS
1. Buyer and Seller, together with Rawl Sales & Processing
Company, Inc. ("Rawl"), an affiliate of Seller, entered into a Coal
Purchase and Sales Agreement on March 9, 1984 (the "Agreement"),
and have amended the Agreement on seven previous occasions, July
30, 1986, July 1986, September 1986, January 1987, January 1990,
July 1, 1991 and July 1, 1994.
2. Buyer and Seller are mutually interested in continuing
their relationship under the Agreement and agree to amend the
Agreement to effect the amendments herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, and for other good and valuable consideration,
the parties hereto agree as follows:
1. Article I of the Agreement is deleted in its entirety and in
substitution thereof a new Article I is added to read as follows:
ARTICLE I
Amount of Coal - Term of Agreement
1.1 Seller agrees to sell, and Buyer agrees to purchase,
coal of the quality and in quantities hereinafter stated and
upon the terms and conditions herein set forth. Seller will
deliver such coal to Buyer (f.o.b. cars at Seller's Mines
(hereinafter defined)) for a period of twenty (20) years from
July 31, 1987, subject to earlier termination as hereinafter
provided.
1.2 The quantity of coal to be sold by Seller to Buyer and
purchased by Buyer from Seller hereunder shall be the lesser
of (i) ninety percent (90%) of the total tonnage of coal
delivered to the Lovett Plant and to off-site storage during
each Contract Year or (ii) 630,000 Tons (hereinafter defined)
of coal.
Buyer shall have the option to purchase up to an additional
100,000 tons of coal per Contract Year from Seller. Buyer
must exercise its option on or before June 1st for up to
50,000 tons and on or before December 1st for up to 50,000
tons. The optional tonnage shall be shipped at the then-
current contract price.
1.3 As used in this Agreement, the following terms shall have
the meaning indicated:
(1) "Contract Year" shall mean each 12-month period beginning
on July 1, 1996, and ending on June 30, 1997, and for every
12-month period thereafter during the term of this Agreement.
(2) "F.O.B. cars" means coal free on board railroad cars at
Seller's Mines.
(3) "Price per ton FOB cars" means the price of coal as
loaded in railroad cars at Seller's Mines.
(4) "Seller's Mines" means the Sidney Mines, the Rawl Mines,
the Long Fork Mines and/or any alternate source(s) qualified
pursuant to Article VI, herein.
(5) "Shipment" means a trainload of coal, shipped from
Seller's Mines in any single day.
(6) "Ton" shall mean a net weight of 2,000 pounds avoir-
dupois.
(7) "Quality A Coal" shall mean that coal which at a minimum
meets the quality specifications as stated in Article V,
herein, under the heading Quality A Coal.
(8) "Quality B Coal" shall mean that coal which at a minimum
meets the quality specifications as stated in Article V,
herein, under the heading Quality B Coal.
(9) "Quality A Initial Price" shall mean $32.00 per ton
F.O.B. cars at Seller's Mines for Quality A Coal, as set
forth in Section 3.1 herein.
(10) "Quality A Price" shall mean Quality A Initial Price as
subsequently adjusted in accordance with Article III herein
for Quality A Coal.
(11) "Quality B Initial Price" shall mean $29.25 per ton
F.O.B. cars at Seller's Mines for Quality B Coal, as set
forth in Section 3.1 herein.
(12) "Quality B Price" shall mean Quality B Initial Price as
subsequently adjusted in accordance with Article III herein
for Quality B Coal.
(14) "Long Fork Mines" shall mean the Long Fork Preparation
Plant in Belfry, Kentucky.
(15) "Rawl Mines" shall mean the feeder mines for the Rawl
Preparation Plant in LaVoy, West Virginia as further
identified in Exhibit D hereto.
(16) "Sidney Mines" shall mean the feeder mines for the
Sidney Preparation Plant in Sidney, Kentucky as further
identified in Exhibit A hereto, and which constitute the
dedicated coal reserves underlying this Agreement.
(17) "As Received" is an analytical term referring to an
analysis of coal, including moisture content, in its natural
conditions after washing, as opposed to a "dry basis", and
has no reference to the receiving point of the coal.
1.3 Buyer and Seller agree that effective July 1, 1996 coal
supplied under this Agreement shall, at a minimum, meet the
quality specifications for Quality B Coal as specified in
Article V herein and shall be priced at the Quality B Initial
Price or Quality B Price, as applicable, according to Article
III herein. Buyer and Seller agree that Quality B Coal
supplied hereunder shall originate from Seller's Mines.
Price, as determined under Article III herein, shall be
calculated according to the quality of coal requested by
Buyer and, except as provided in Article IX herein, without
regard to whether the coal actually delivered by Seller to
Buyer exceeds the quality requested by Buyer.
1.4 Buyer and Seller agree that upon ninety (90) days
advanced written notice by Buyer to Seller, coal supplied
under this Agreement shall, at a minimum, meet the quality
specifications for Quality A Coal as specified in Article V
herein and shall be priced at the Quality A Initial Price or
Quality A Price, as applicable, according to Article III
herein. Buyer and Seller agree that Quality A Coal supplied
in accordance with Buyer's option to elect Quality A Coal at
the Quality A Initial Price or Quality A Price, as
applicable, may originate from Rawl Mines and/or from
alternate source(s) qualified in accordance with Article VI
herein. In the event Buyer has exercised its option to
purchase Quality A Coal, Buyer shall have the right to switch
back to Quality B Coal at the Quality B Price upon one
hundred and twenty (120) days advanced written notice.
2. Article III of the Agreement is deleted in its entirety and
in substitution thereof a new Article III is added to read as
follows:
ARTICLE III
Price and Price Adjustments
3.1 Unless and until it is adjusted solely in accordance with
the provisions hereinafter set forth in this Article III,
effective as of July 1, 1996, the price per ton F.O.B. cars
at Seller's Mines for all coal sold hereunder shall be $32.00
for Quality A Coal and shall hereinafter be referred to as
"Quality A Initial Price" and $29.25 for Quality B Coal and
shall hereinafter be referred to as "Quality B Initial
Price", except as provided in Section 3.3(d) herein. After
any such adjustments have been made in accordance with this
Article III, the price per ton F.O.B. cars at Seller's Mines
shall be the Quality A Initial Price or Quality B Initial
Price, as adjusted, hereinafter referred to as Quality A
Price and Quality B Price, as the case may be. The Quality A
Initial Price and Quality B Initial Price, includes all costs
associated with compliance with all Federal, State, and local
laws and regulations as of the effective date of this
Amendment as they are now interpreted and enforced in
Producing District 8, as defined in the Federal Bituminous
Coal Act of 1937, as amended. Notwithstanding the foregoing,
Buyer shall only pay the Quality A Price in the event Buyer
exercises its option to elect Quality A Coal at the Quality
A Price in accordance with Article I herein.
3.2 Seller shall give Buyer notice of any proposed adjustment
hereunder of the Quality A Initial Price, or the then
applicable Quality A Price, and Quality B Initial Price, or
the then applicable Quality B Price, within thirty (30) days
after the beginning of each calendar quarter as set forth in
Article 3.3 (a) herein, together with all documentation
required to permit Buyer to substantiate the adjustment.
3.3 Beginning October 1, 1996, the Quality A Initial Price,
or the then applicable Quality A Price, and Quality B Initial
Price, or the then applicable Quality B Price, shall be
subject to adjustment, on a quarterly basis, to reflect the
total percentage change, increase or decrease, in the
following indices, published by the U.S. Department of Labor,
Bureau of Labor Statistics and the Bureau of Economic
Analysis.
(a) The total percentage change in the indices described
below shall be multiplied by the Quality A Price and
Quality B Price for the immediately preceding quarter,
less the fixed cost portion of the price, to determine
the change in the price for the current quarter. The
fixed cost portion of the Quality A Price is $3.20 per
Ton and the fixed cost portion of the Quality B Price is
$2.92 per Ton. These fixed cost amounts shall remain
fixed during the term of this Agreement unless the
parties mutually agree otherwise.
Component Description Component Weight
* (a) Drills & Other Mining Machinery 6%
(Index Code 1192-03)
*** (b) Implicit Price Deflator - 22%
Gross Domestic Product
**** (c) Average Hourly Earnings of 33%
Bituminous Coal and Lignite
Workers (Index Code SIC 122)
* (d) Industrial Commodities of 27%
Producer Price Index
* (e) Mining Machinery Parts, 6%
Excluding Drills
(Index Code 1192-5301)
** (f) Industrial Power, Middle Atlantic 6%
500 KW (Index Code 1481-132)
* These indices shall be taken from Table 6 - Producer Price
Indexes and percent change for commodity groupings and individual
items in the Producer Price Index publication.
** This indice shall be taken from Table 5 - Producer Price Indexes
for the net output of selected industries and their products in the
Producer Price Index publication.
*** This indice shall be taken from the Economic Indicators
publication.
**** This indice shall be taken from Table B-15 Average hours and
earnings of production or nonsupervisory worker's on private
nonfarm payrolls by detailed industry in the Employment and
Earnings publication.
(1) Said quarterly price adjustments shall be made on January
1, April 1, July 1 and October 1 of each year. For those
indices defined in Component Descriptions (a), (d), (e) and
(f) described above, the dates of the indices used to make
the quarterly adjustment shall be as follows:
Adjustment Date of Publication
Date Index Date of Index
January October October
(of preceding year) (of preceding year)
April January January
July April April
October July July
The base index for the October 1, 1996 adjustment
hereunder shall be that for April, l996.
(2) The dates of the indices used to make said quarterly
price adjustments involving the Average Hourly Earnings of
Bituminous Coal and Lignite Workers (Index Code SIC 122) (as
identified in Component Description (c) above) shall be as
follows:
Adjustment Date of Publication
Date Index Date of Index
January September November
(of preceding year) (of preceding year)
April December February
(of preceding year)
July March May
October June August
The base index for the October 1, 1996 adjustment
hereunder shall be that for March, l996 published in May
1996.
(3) The dates of the indices used to make said quarterly
price adjustments involving the Implicit Price Deflator of
the United States Gross Domestic Product (as identified in
Component Description (b) above) shall be as follows:
Adjustment Date of Publication
Date Index Date of Index
January Second Quarter October
(of preceding year) (of preceding year)
April Third Quarter January
(of preceding year)
July Fourth Quarter April
(of preceding year)
October First Quarter July
The base index for the October 1, 1996 adjustment
hereunder shall be that for the fourth quarter l995 as
published in the April 1996 Economic Indicator.
(4) As an illustration of the methodology for Quality B Coal,
assume the following for October 1, 1996:
Component Percent Weight of Component Change
Change Component As Weighted
(a) 0.95% 6% 0.06%
(b) 0.31% 22% 0.07%
(c) 1.41% 33% 0.47%
(d) 1.05% 27% 0.28%
(e) 0.15% 6% 0.01%
(f) 0.47% 6% 0.03%
0.88%
The components, as weighted, increased by 0.88%. Based on
this increase, the Quality B Initial Price of $29.25 per Ton
will be increased by $0.23 to $29.48 or [{($29.25 - $2.92) x
0.88%} + $29.25].
It is understood by the parties that the quarterly percentage
change in indices mentioned above shall be calculated using
the current applicable calendar quarter and the immediately
previous calendar quarter. There shall not exist a stationary
base from which to measure any change in cost under this
Section 3.3. See Exhibit B for an illustration of these
provisions.
(5) Cost of Complying with New Federal, State or Local
Regulations
(A) In the event of the imposition on or after July
1, 1996 by Federal, State, or local legislation or
regulations, of any new requirements or change in the
interpretation and enforcement of existing requirements
that affect the cost of production of coal at Seller's
Mines, either party hereunder may propose a change in the
price of coal to be sold hereunder. Any such change shall
be applied on a prospective basis only. The party
proposing a change shall compute the change in cost per
ton of coal produced resulting therefrom. The party
proposing a change shall submit detailed documentation in
support of its request for any such change. Seller and
Buyer agree to negotiate an adjustment in the Quality A
Price and Quality B Price, as applicable, to reasonably
reflect such change in cost. Notwithstanding the
foregoing, Seller and Buyer may agree to a tentative
change in the Quality A Price and Quality B Price, as
applicable, subject to retroactive adjustment, to be
utilized until the parties agree on a reasonable final
adjustment.
(B) In the event the Quality A Price or Quality B
Price is adjusted pursuant to this Section 3.3(a)(5) by
more than a cumulative adjustment of five percent (5%) in
any one (1) Contract Year, Buyer may terminate this
Agreement; provided, however, that Buyer shall not have
the right to terminate this Agreement if Seller agrees to
limit such price adjustment under this Section 3.3(a)(5)
to the above-stated percentage increase. Seller shall
have the right to accept the maximum change in price
under the above-stated percentage limit and continue the
Agreement.
(b) Should any of the indices specified in Section 3.3(a) be
discontinued, the parties hereto mutually determine that any
of the indices have become inappropriate, or the basis of the
calculations of such indices be modified, appropriate indices
shall be substituted or adjustments made by mutual agreement
of the parties hereto.
(c) Seller agrees that the production and delivery of coal
under this Agreement shall, at all times, be conducted
efficiently and economically and in such manner that the
costs thereof will be kept to a minimum consistent with good
operating practices within the limits set by governmental
regulations and proper mining and engineering techniques.
(d)(1) The Quality A Price and Quality B Price, shall be
subject to review by Buyer and Seller as of July 1, 1998, and
every two (2) years thereafter (each such review date being
hereinafter referred to as a "Review Date"). Sixty (60) days
prior to each Review Date, Buyer and Seller shall begin
negotiations in good faith to reach agreement on a new
Quality A Price and Quality B Price effective as of the
Review Date for the next succeeding two (2) year period, as
adjusted according to the provisions of Section 3.3(a) of
this Agreement. If Buyer and Seller are unable to reach
agreement by the applicable Review Date, this Agreement shall
automatically terminate one hundred twenty (120) days after
the applicable Review Date unless Buyer and Seller agree
otherwise in writing. During such one hundred twenty (120)
day period, Seller shall deliver and Buyer shall accept the
quantity of coal provided for in this Agreement at the
Quality A Price or Quality B Price, as applicable prevailing
on the last day immediately preceding the Review Date in
question, subject to adjustment as provided for in Subsection
3.3(a) of this Agreement.
(2) Notwithstanding Section 3.3(d)(1), if Buyer is
willing to accept a ten percent (10%) increase in the Quality
A Price and Quality B Price, or Seller is willing to accept
a ten percent (10%) decrease in the Quality A Price and
Quality B Price, the Quality A Price and the Quality B Price
effective as of the applicable Review Date shall be increased
by ten percent (10%) if acceptable to Buyer or decreased by
ten percent (10%) if acceptable to Seller. The reduced or
increased Quality A Price and Quality B Price shall be
effective as of the Review Date for the next succeeding two
(2) year period, as adjusted according to the provisions of
Section 3.3(a) of this Agreement. If Buyer is limited to a
ten percent (10%) price decrease by Seller on any Review
Date, or if Seller is limited to a ten percent (10%) price
increase by Buyer on any Review Date, then the party so
limited shall not be limited in like manner on any subsequent
Review Date for the remaining term of this Agreement.
3. ARTICLE V of the Agreement is deleted in its entirety and in
substitution thereof a new Article V is added to read as follows:
ARTICLE V
Quality of Coal
5.1 The coal to be purchased and sold hereunder shall conform
to the following:
(a) Preparation and Top-Size
Said coal shall be washed coal, free of extraneous
materials, produced by surface or deep mining methods and
meeting the specifications set forth in Section 5.1(b) of
this Article V and having a maximum top-size of two
inches.
(b) Quality Specifications
(1) The "As Received" quality of the coal delivered
hereunder, determined by sampling and analysis made in
conformity with the provisions of Article VIII, shall be
as follows:
Representative Coal Specifications (As Received Basis)
Quality A Quality B
Coal Coal
Moisture 7.0% 7.0%
Fixed Carbon 52.0% 52.0%
Volatile Matter 33.0% 33.0%
Ash 8.0% 8.5%
Hardgrove Grind 46 43
Ash Softening Temp. ("AST")
(Initial Deformation 2700o F 2700o F
in Reducing Atmosphere)
Ash Fluid Temp. 2700o F 2700o F
Sulfur (SO2) 1.0 lbs. 1.0 lbs.
SO2/MMBtu max SO2/MMBtu max.
Btu/lb. 13,000 12,950
(2) The level of sulfur dioxide in the coal (lbs. SO2/MM
Btu) shall be calculated based on a 2.5% credit that
Buyer anticipates for sulfur dioxide capture in ash in
accordance with industry standards. The formula to be
used for calculating SO2 in the coal is:
Lbs. SO2/MMBtu = 19.5 x % Sulfur x 1000
----------------------
Btu/lb
5.2 (a) It is agreed that Buyer shall have the right to
reject any and all shipments which, based on the procedures
defined in Article VIII, fail to meet any of the individual
shipment rejection limits shown below:
Individual Shipment Rejection Limits (As Received)
Quality A Quality B
Coal Coal
Volatile Matter 30.0% min. 30.0% min.
AST (Initial Deformation
in Reducing Atmosphere 2500o min. 2500o min.
Sulfur (SO2) 1.0 lbs. 1.0 lbs.
SO2/MMBtu max. SO2/MMBtu max.
Moisture 8.0% max. 8.0% max.
Btu/lb 12,800 min. 12,750 min.
Hardgrove Grind See Below ___
==========================================================
Quality A
Coal
Moisture Above 7% 7% and below
(maximum 8%)
or and
Heat Content Below 13,000 Btu/lb. 13,000 Btu/lb.
(minimum 12,800 Btu/lb) and Above
then then
HGI 46 or Above 45 Minimum*
* This limit is subject to the exception that one shipment
during any 90-day period can have an HGI of 44 minimum. The
moisture associated with this shipment must be 7% or lower and the
Btu content 13,000 Btu/lb. or higher. If a shipment having a 44
HGI is delivered, another shipment of 44 HGI may not be delivered
for another 90 days.
Any failure to meet the Individual Shipment Rejection Limits
as determined by sampling and analysis made in conformity with
Article VIII shall be deemed material and shall trigger Buyer's
rejection rights.
Seller shall pay all freight, diversion, demurrage, testing
and other expenses in connection with any such rejected shipment,
or shipment found by Seller to be non-conforming unless such
shipment is accepted by Buyer. Furthermore, Seller certifies that
it will not make any shipment shown by sampling to exceed the
maximum allowable SO2 levels.
(b) In addition to the limits for individual shipments shown
above, the delivered coal must meet the following specifications
over each thirty (30) and ninety (90) day period:
30-Day Suspension Limits (As Received):
Quality A Quality B
Coal Coal
Ash 10.0% max. 10.0% max.
Volatile 30.0% min. 30.0% min.
AST 2500o min. 2500o min.
90-Day Suspension Limits (As Received):
Quality A Quality B
Coal Coal
Moisture 7.0% max. 8.0% max.
Btu/lb. 12,800 min. 12,800 min.
HGI In accordance with 43 min.
following formula:
Btu/lb. x HGI greater than or equal to 600
-------------
1000
If the coal delivered hereunder, as determined by sampling
and analysis made in conformity with Article VIII, does not meet
the Thirty (30) Day Suspension Limits on specifications on an
average for a thirty (30) day period, or does not meet the Ninety
(90) Day Suspension Limits on specifications on average for a
ninety (90) day period, Buyer shall thereupon have the right to
suspend delivery under this Agreement until Seller furnishes
reasonable assurance to Buyer in writing that the deviation from
the specifications can and will be corrected. If Seller fails to
promptly furnish reasonable assurance that such correction can and
will be made within sixty (60) days after Buyer's suspension of
deliveries (or within such longer period as shall be reasonably
requested by Seller and agreed to by Buyer), or if corrections are
not made within such sixty (60) day period (or such longer period
agreed to by Buyer), Buyer shall have the right at any time
thereafter to terminate this Agreement by giving written notice of
such termination to Seller. Upon such termination Buyer shall stand
discharged of any and all further obligations or liability under
the terms of this Agreement or as a result of such termination,
with the exception of paying for coal previously shipped and
accepted by Buyer. Termination hereunder shall not constitute a
waiver of any other rights or remedies that Buyer may have under
this Agreement. Any deviation from the 30-Day Suspension Limits
and/or the 90-Day Suspension Limits as determined by sampling and
analysis made in conformance with Article VIII shall be deemed a
material deviation from the quality specifications of the Agreement
for which Buyer shall have the rights and remedies set forth in
this section. If Buyer, after having suspended shipments for a
period of one hundred eighty (180) days, has not elected to
terminate this Agreement, then Seller shall have the option of
terminating this Agreement by giving written notice of such
termination within sixty (60) days after the expiration of such
180-day period. Nothing in this Section 5.2(b) shall be construed
to relieve Seller of its obligation to conduct its mining and coal
cleaning operations in a competent manner, consistent with good
coal industry practices, so as to produce a product which will meet
the specifications set forth in Section 5.1 above.
The Thirty (30) Day and Ninety (90) Day Suspension Limits
shall be calculated by the Buyer on a weighted average basis. In
addition, the ninety (90) day weighted averages shall be computed
on a rolling tri-monthly basis. For example, the ninety (90) day
weighted average for the month of May shall consist of the
deliveries during the months of March, April, and May. In a
similar fashion, the ninety (90) day weighted average for the month
of June shall consist of the deliveries actually completed at
Buyer's plant during the months of April, May and June. Exhibit C
sets forth illustrations of how the weighted average suspension
limits shall be calculated hereunder.
5.3 Seller shall apply material of quality, in a quantity,
and by customary method reasonably acceptable to Buyer,
without delaying loading, to inhibit the freezing of coal in
railroad cars during periods of cold weather, or for other
purposes deemed necessary by Buyer. Buyer shall provide
Seller reasonable advance notice of the dates for
commencement and termination of such application(s) during
each Contract Year. Seller shall only invoice Buyer for
Seller's actual cost of freeze-inhibiting material. Such
costs shall be accounted for separately by Seller.
4. Article VI of the Agreement is deleted in its entirety and in
substitution thereof a new Article VI is added to read as follows:
ARTICLE VI
Alternate Source
Seller shall, at its sole option, have the right, but not the
obligation, to supply all or a portion of the coal required
under Article I hereof from other mines, provided that
shipments from such mines shall (a) meet the quality
specifications of this Agreement in accordance with Buyer's
election of coal quality between Quality A Coal and Quality
B Coal under Article I; (b) meet all the other requirements
of this Agreement; (c) not result in higher cents/MMBtu delivered
cost to Buyer of coal to be delivered to Buyer under this
Agreement; (d) pass a burn test at the Lovett Plant to
Buyer's reasonable satisfaction; and (e) not adversely affect
Buyer's ability to meet tonnage requirements under its then-
effective coal transportation agreements so as to increase
the delivered price per ton of coal under such agreements or
otherwise result in Buyer incurring penalties or other
additional charges under such agreements.
5. Article VIII of the Agreement is deleted in its entirety and
in substitution a new Article VIII is added to read as follows.
ARTICLE VIII
Sampling and Analysis of Coal
The Seller shall be responsible for collecting and analyzing
the source sample and, except as otherwise provided in this
Agreement, the results thereof shall be accepted and used for
the "As Received" quality and characteristics of the coal
delivered under this Agreement. The source sample is the
sample taken by an automatic sampler at the FOB loading point
at Seller's Mines, before the shipment is shipped, in
accordance with the American Society for Testing and
Materials ("ASTM") approved method or such other method
mutually agreed to by Buyer and Seller. Car top sampling
shall not be allowed, except on the occasions when the
automatic sampling equipment becomes inoperative, as
hereinafter provided for. All analyses shall be performed in
accordance with methods approved by ASTM unless otherwise
mutually agreed to by Buyer and Seller. All sampling and
analyses shall be performed at the point of delivery at
Seller's Mines at Seller's expense, except as hereinafter
provided. Buyer shall have the right to have a representative
at any and all times to observe the sampling and analysis,
and to take check samples for further analysis. Buyer may
also analyze samples taken by Seller.
If Buyer questions Seller's automatic sampling equipment or
procedures for sampling and/or analyzing coal as not
resulting in accurate sampling and/or analytical
determinations of coal quality at point of sampling, Buyer
shall have the right to require that such equipment and
procedures be evaluated by a competent third party mutually
chosen and paid for equally by Seller and Buyer. If
deficiencies are found by such third party, Seller shall be
required immediately to have appropriate corrections made at
Seller's cost.
In the event that the automatic sampler becomes inoperative,
and less than eighty (80) percent of the required tonnage for
a shipment is sampled utilizing the automatic sampler, Buyer
shall have the option to require Seller's laboratory to car
top sample the remainder of the shipment or Buyer may utilize
their own outside lab representative to car top sample the
remainder of the shipment. In the event Buyer exercises this
option, Seller shall bear the cost of sampling and analysis
and the sample shall be handled as if taken by Seller and
shall be accepted as the quality and characteristics of the
coal "As Received" hereunder. In the event Buyer elects not
to sample such shipment, then the weighted average coal
quality of shipments delivered during the same calendar month
(or the immediately preceding month if no shipments have been
made during the current month) as such shipment will apply
for calculation of coal quality price adjustments for such
shipment.
Seller shall, within two business days of loading Buyer's
Shipment, furnish Buyer with a facsimile report showing the
coal quality and quantity of said Shipment, railroad car
numbers and the name of the mine or mines supplying the coal.
Buyer and Seller mutually agree that it is essential to this
Agreement that representative samples and accurate analysis
of the coal be obtained. To insure this, Seller shall take at
least three increments from every car during normal loading
of cars; and from those increments there shall be made one
composite sample.
The sample taken by Seller shall be divided into three (3)
parts and put into airtight containers, properly labeled and
sealed. One part shall be used for analysis by Seller, one
part shall be immediately sent to Buyer or its designated
representative and one part ("Referee Sample") shall be
retained by Seller. All samples retained by Seller shall be
kept, under proper storage conditions, for a period of at
least sixty (60) days. The Referee Sample shall be weighed
during preparation before storage, and if later analyzed, it
shall be weighed again with any weight loss indicated in the
analysis as moisture content. Buyer shall be given timely
copies of all analyses made by Seller. Unless Seller or Buyer
requests a Referee Sample analysis, Seller's analysis shall
be used to determine the quality of the coal delivered
hereunder. If for any reason Seller fails to sample and
provide an analysis for any shipment, then Buyer's
independent sample and analysis for said Shipment shall be
deemed to have been accepted by Seller.
In the event that either Buyer or Seller questions the
correctness of Seller's analysis, than Buyer or Seller shall
have the right to have the Referee Sample analyzed by an
independent testing laboratory selected by Buyer from an
agreed-to list of such laboratories, not including a
laboratory used by either party on the original sample. Said
laboratory shall use methods approved by ASTM or such other
procedures as may be accepted in writing by Buyer and Seller.
The parameters for determining the acceptability of an
analysis and use of the Referee Sample shall be in accordance
with ASTM reproducibility standards, except for BTU and HGI
specifications. The results of duplicate determinations
carried out by different laboratories on representative
samples taken from the same bulk sample after the last stage
of reduction will be considered suspect if any of the
analytical determinations differ by more than the
reproducibility standards set by ASTM, except for BTU
specifications where if the "As Received" BTU differs between
analyses by more than 100 Btu's, the Referee Sample shall be
sent out. If the analysis obtained by the independent
laboratory selected by Buyer meets the ASTM reproducibility
standards and/or the "As Received" BTU between different
analyses is within 100 Btu's, then Seller's original analysis
shall be binding on the parties with regard to both coal
quality and rejection and suspension limits. However, in the
event that the analysis obtained by the independent
laboratory does not meet the ASTM reproducibility standards
and/or the "As Received" Btu between analyses differs by more
than 100 Btu's, then the analysis obtained by said
independent laboratory shall be binding on the parties with
regard to coal quality and rejection and suspension limits.
If the correctness of the grind (HGI) is questioned, the
Referee Sample shall be divided three (3) ways and tested by
three (3) independent laboratories to be selected from a
previously established list of mutually acceptable
laboratories. The average of the results shall govern.
No variations in the minimum specifications for grind (HGI)
are permitted due to error tolerances under the ASTM
standards or as assumed by testing laboratories. However, if
the standards used by ASTM for evaluating grind (HGI) are
changed, the parties agree that the minimum specifications
herein set forth shall be adjusted to maintain a comparable
minimum specification using the new ASTM standards.
The cost of the analysis made by the independent testing
laboratory shall be borne by the Seller unless: (a) Seller's
analysis is confirmed to meet ASTM reproducibility standards
or (b) the "As Received" Btu between different analyses is
within 100 Btu's; or (c) the grind average of the three
independent testing laboratories confirms the Seller's
analysis, in which cases Buyer shall bear the cost of the
analyses made on the Referee Sample by the independent
laboratory.
6. Article IX of the Agreement is deleted in its entirety and in
substitution a new Article IX is added to read as follows:
ARTICLE IX
Compensation for Variations in Heating and Ash Values
9.1 Compensation for variations in heating value for coal
purchased and sold hereunder shall be determined in
accordance with the following:
(a) The F.O.B. Seller's Mines price provided for in
Article III ("Price and Price Adjustment") is based on
coal with a heating value as shown in the quality
specifications of Section 5.1 (b), namely 13,000 "As
Received" Btu per pound for Quality A Coal and 12,950 "As
Received" Btu per pound for Quality B Coal. In accordance
with the sampling and analysis procedures set forth in
Article VIII ("Sampling and Analysis of Coal"), the
average "As Received" Btu per pound of coal shipped
hereunder during each calendar quarter during the term of
this Agreement shall be calculated. Compensation to
either Buyer or Seller, as the case may be, for variation
in the weighted average heating value of the coal
delivered during each calendar quarter shall be
determined as follows:
(1) If the weighted average "As Received" Btu for any
calendar quarter is greater than 13,050 Btu per pound for
Quality A Coal or for Quality B Coal, the additional
compensation to Seller shall be computed in accordance
with the following formula:
C = P x T x B - 1
S -----------------------------
(13,000 for Quality A Coal or
12,950 for Quality B Coal)
(2) If the weighted average "As Received" Btu for any
calendar quarter is less than 12,950 Btu per pound for
Quality A Coal or less than 12,850 Btu per pound for
Quality B Coal, the compensation to Buyer shall be
computed in accordance with the following formula:
C = P x T x 1 - B
B -------------------------------
(13,000 for Quality A Coal or
12,950 for Quality B Coal)
(b) In the above formula:
C = Total compensation to Seller.
S
C = Total compensation to Buyer.
B
P = Quality A Price or Quality B Price, as
applicable, for the applicable calendar
quarter.
B = The weighted average "As Received" Btu for the
applicable calendar quarter.
T = The total tonnage shipped during the
applicable calendar quarter.
9.2 Within thirty (30) days after the end of each calendar
quarter, Seller shall calculate the three-month average "As
Received" Btu (subject to Buyer's verification) and the
compensation to Seller or Buyer, as the case may be, in
accordance with Section 9.1 and shall forward the calculation
to Buyer. Seller shall issue an invoice for payment by Buyer
if the compensation is to Seller or shall issue a credit
memorandum (or cash payments with respect to the final
quarter of this Agreement) to Buyer if the compensation is to
Buyer.
9.3 The initial price is based upon Seller supplying coal
with an ash content ("Ash Value") of eight percent (8%) by
weight of the "As Received" analysis for each shipment of
Quality A Coal and an ash content ("Ash Value") of eight and
one-half percent (8.5%) by weight of the "As Received"
analysis for each shipment of Quality B Coal. The Ash Value
of the coal sold hereunder may vary, and the Quality A Price
and Quality B Price shall be adjusted in proportion to such
variance as follows:
For coal having an Ash Value greater than eight percent
(8%) for Quality A Coal or greater than nine and one-half
percent (9.5%) for Quality B Coal, the price shall be
reduced at a rate of $0.30 per ton per one percent (1%)
in excess of eight percent (8%) for Quality A Coal and
nine and one-half percent (9.5%) for Quality B Coal.
For coal having an Ash Value less than eight percent (8%)
for Quality A Coal or less than seven and one-half
percent (7.5%) for Quality B Coal, the price shall be
increased at a rate of $0.30 per ton per one percent (1%)
below eight percent (8%) for Quality A Coal and seven and
one-half percent (7.5%) for Quality B Coal.
9.4 Within thirty (30) days after the end of each calendar
quarter, Seller shall calculate the three-month average Ash
Value (subject to Buyer's verification) and the compensation
to Seller or Buyer, as the case may be, in accordance with
Section 9.3 and shall forward the calculation to Buyer.
Seller shall issue an invoice for payment by Buyer if the
compensation is to Seller or shall issue a credit memorandum
(or cash payments with respect to the final quarter of this
Agreement) to Buyer if the compensation is to Buyer.
7. Article X of the Agreement is deleted in its entirety and in
substitution thereof a new Article X is added to read as follows:
ARTICLE X
Terms of Payment
10.1 On or before the twenty-fifth (25th) day of each month
during the term of this Agreement, Seller shall render a
statement to Buyer for the total volume of coal shipped under
this Agreement between the first (1st) day and the fifteenth
(15th) day of the current month. Buyer shall pay to Seller,
on or before the fifth (5th) day of the following month the
amount due on Seller's statement. All such payments shall be
made by wire transfer directed to a bank account designated
by Seller.
On or before the eleventh (11th) day of each month during the
term of this Agreement, Seller shall render a statement to
Buyer for the total volume of coal shipped under this
Agreement between the sixteenth (16th) day and the last day
of the preceding month. Buyer shall pay to Seller, on or
before the twenty-first (21st) day of each month the amount
due on Seller's statement. All such payments shall be made by
wire transfer directed to a bank account designated by
Seller.
10.2 If Buyer fails to pay when due the amount of any
statement rendered by Seller, interest thereon shall accrue
from the due date until the date of payment, at the then
current prime rate of interest charged by Citibank, N.A. to
its commercial and industrial borrowers. This paragraph 10.2
shall not bar either Party from asserting any other remedy it
may have at law or in equity.
10.3 If presentation of a statement by Seller is delayed
after the eleventh (11th) and/or the twenty-fifth (25th) day
of a month, then the time for payment shall be extended by
the same number of days that the statement by Seller is
delayed at no interest correspondingly, unless Buyer is
responsible for such delay.
8. Article XI of the Agreement is amended by deleting subsection
11.4 thereof in its entirety and substituting therefor new
subsection 11.4 to read as follows:
11.4 The partial or complete limitation of performance
referred to in this Article XI shall not invalidate the
remainder of the Agreement or reduce the tonnages to be
purchased and sold in subsequent periods, and upon removal of
the cause of such suspension, shipments shall be resumed at
the specified rates.
9. Article XIV of the Agreement is deleted in its entirety and
in substitution thereof a new Article XIV is added to read as
follows:
ARTICLE XIV
Reserves
14.1 The coal reserves owned by or otherwise available to
Seller, and from which the coal to be shipped hereunder is to
be produced, are located in the vicinity of Pike County,
Kentucky on the Norfolk Southern Railway and are part of the
mining properties constituting the Sidney Mines. The total
quantity of suitable and economically recoverable coal of the
quality required to meet Seller's minimum obligation to Buyer
under this Agreement is 6.9 million tons. Seller shall
dedicate a minimum of 6.9 million tons of its and/or its
affiliates' or subsidiaries' suitable, economically
recoverable coal reserves at Sidney Mines for production over
the term of, and for the purpose of meeting Seller's
obligations under this Agreement. Seller, its affiliates' or
subsidiaries' shall not enter into other agreements for the
production and sale of coal from the above reserves which
production and sale would reduce or impair the reserves
required to meet Seller's obligations under this Agreement.
14.2 The above reserves may be reduced each calendar year by
the maximum amount of coal that Seller could have been
required to deliver to Buyer during said calendar year.
14.3 Buyer shall have the right from time to time, with
reasonable frequency and upon reasonable notice, to audit at
Buyer's expense (1) said reserves owned by or otherwise
available to Seller and (2) the commitments of Seller, its
affiliates and/or subsidiaries for the purpose of determining
if Seller has sufficient reserves available to it which are
not otherwise committed to comply with the reserve
requirements of this Agreement. Buyer may at its discretion
have any such audit conducted by an independent firm or firms
reasonably acceptable to Seller.
14.4 If, during the term of this Agreement, Seller, its
affiliate(s), subsidiaries and/or parent, enter into any
other agreements for the production and/or sale of coal from
the Sidney Mines' reserves and/or for the sale or lease of
the reserves themselves or interest(s) therein which
production, sale, and/or lease would reduce or impair the
reserves required to meet Seller's obligation under this
Agreement, in addition to any and all remedies Buyer shall
have in law or equity, Buyer shall have the right, but not
the obligation to terminate this Agreement. Notwithstanding
the foregoing, in the event Seller (i) demonstrates in
advance to the reasonable satisfaction of Buyer by acceptable
engineering data that any one or more of Seller's Mines,
other than the Sidney Mines, have sufficient coal reserves to
produce and deliver that amount of Quality A Coal or Quality
B Coal, as applicable, dedicated under Section 14.1, as
reduced in accordance with Section 14.2, and (ii) Seller
executes an amendment substituting such one or more of
Seller's Mines for Sidney's Mines as the dedicated reserve
under Article 14; the sale of Sidney's Mines or the interest,
if any, of Seller, its affiliates, subsidiaries or parent
therein shall not constitute a breach of this Agreement and
Seller shall have no right to terminate this Agreement.
Provided, however, nothing herein shall be construed to
prohibit Seller, its affiliate(s), subsidiaries and/or parent
from a sale of the Sidney Mines' reserves or Seller's, its
affiliate(s)', subsidiaries' and/or parent's interests
therein, which is accompanied by an assignment of this
Agreement in conformance with the terms and conditions of
Article XX to the purchaser of such reserves or interests
therein.
14.5 If, during the term of this Agreement, Seller enters
into an agreement with a domestic electric utility to sell
washed coal from Seller's Mines at a base price more than 10%
below the then current Quality A Price or Quality B Price as
applicable, and such agreement (a) specifies (1) the same or
higher heating value (Btu/lb.), (2) the same or lower ash
content, (3) the same or lower sulfur dioxide (SO2) content,
and (4) the same or lower moisture content than specified
under Section 5.1 (b), and (b) is on terms and conditions
comparable to the terms hereof, including a term of ten (10)
years or more and a quantity of 630,000 tons per year or
more, then Seller shall give written notice of such agreement
to Buyer within sixty (60) days of the execution thereof.
Buyer shall have the right to require Seller to decrease the
Quality A Price or Quality B Price hereunder, as applicable,
within sixty (60) days of Seller's notice, to match the base
price of the other agreement.
10. A new Article XXVI is added to the Agreement as follows:
ARTICLE XXVI
1.5 lbs. SO2/MMBtu Coal Purchase Option
26.1 Buyer and Seller agree that upon forty-five (45) days
advanced written notice, Buyer shall have the right to elect
to receive 1.5 lbs. SO2/MMBTU coal from Seller's Mines for a
period not to exceed sixty (60) days without Seller's prior
consent, provided, however, Buyer shall have the right to
elect to receive 1.5 lbs. SO2/MMBTU coal a minimum of two (2)
times per year.
26.2 Buyer and Seller agree that upon Buyer's advanced
written notice to Seller that it intends to exercise its
option to purchase 1.5 lbs. SO2/MMBTU coal, Buyer and Seller
will negotiate a mutually acceptable price to be paid for the
1.5 lbs. SO2/MMBtu coal. Any coal purchased pursuant to this
Article XXVI shall apply to Buyer's contract volume
requirement under Article I of the Agreement. Seller shall
not be required to deliver such coal in any amounts greater
than the proportionate monthly Tonnages as required for
Quality A Coal or Quality B Coal under this Agreement.
11. A new Article XXVII is added to the Agreement as follows:
ARTICLE XXVII
DEC Permit Revision
27.1 Buyer and Seller agree that during the term of this
Agreement the Buyer's New York State Department of
Environmental Conservation Operating Permit for the Lovett
Plant may be changed to allow the Buyer to burn coal with a
higher sulfur content. If Buyer obtains a revised operating
permit from the New York State Department of Environmental
Conservation ("Revised Operating Permit"), then upon forty-
five (45) days advanced written notice from Buyer to Seller,
Seller agrees to supply Buyer with the higher sulfur coal
consistent with Buyer's Revised Operating Permit for the
remainder of the term of the Agreement, subject to earlier
termination as provided in this Agreement.
27.2 Buyer and Seller agree that upon Buyer's advanced
written notice to Seller that it has obtained a Revised
Operating Permit, Buyer and Seller shall negotiate a new
mutually acceptable Initial Price under Article III to be
paid for the higher sulfur coal under this Agreement,
provided; however, all other provisions of Article III herein
shall continue to apply to the new Initial Price for the
higher sulfur coal. Buyer and Seller agree to revise Article
III of this Agreement to reflect the new Initial Price and to
revise other terms and conditions of the Agreement as
necessary to reflect the higher sulfur quality specifications
of the coal and the source(s) to be used to supply such coal
hereunder.
12. The Supplemental Agreement between Buyer and Seller, dated
July 1, 1994, is cancelled effective July 1, 1996.
13. Except as amended hereby, and as previously amended, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their duly authorized officers as of
the date first written above.
ORANGE AND ROCKLAND UTILITIES, INC.
(BUYER)
By ___________________________________ Date ___________
George V. Bubolo, Jr.
Division Vice-President -
Engineering & System Operations
MASSEY COAL SALES COMPANY, INC.
(SELLER)
By ___________________________________ Date ___________
Thomas A. McQuade
Senior Vice President
<PAGE>
EXHIBIT A
Sidney Mines
Pike County, Kentucky Properties
[MAP ATTACHED HERETO]
<PAGE>
<TABLE>
Page 1 of 2
Exhibit B
Quarterly Price Adjustment
Orange and Rockland/Massey Coal Sales
October 1, 1996
Quality A Coal
<CAPTION>
Previous Quarter Current Quarter
July 1996 October 1996
Index
Date Index Date Index
<S> <C> <C> <C> <C>
Drills & Other Mining Machinery 4/96 136.30 7/96 137.60
1192-03
Implicit Price Deflator 4th Qtr. 1995 127.90 1st Qtr. 1996 128.30
Gross Domestic Product
Average Hourly Earnings of Bituminous 3/96 18.40 6/96 18.66
Coal & Lignite Workers SIC 122
Industrial Commodities 4/96 124.00 7/96 125.30
of Producer Price Index
Mining Machinery Parts, Excluding 4/96 131.90 7/96 132.10
Drills, 1192-5301
Industrial Power, 500 KW 4/96 105.30 7/96 105.80
4981-132
</TABLE>
<TABLE>
<CAPTION>
Index/Cost Change Percent Weight of Component Change
Component Change Component as Weighted
<S> <C> <C> <C> <C>
PPI 1192-03 1.3000 0.0095 6% 0.0006
IPD-GDP 0.4000 0.0031 22% 0.0007
SIC 122 0.2600 0.0141 33% 0.0047
PPI-IC 1.3000 0.0105 27% 0.0028
PPI 1192-5301 0.2000 0.0015 6% 0.0001
4981-132 0.5000 0.0047 6% 0.0003
Total 0.0088
% Increase (Decrease) 0.0088
Previous Price ($32.00) less $28.80
Fixed Cost ($3.20)
Quarterly Adjustment $0.25
New Price Effective 10/1/96 $32.25
(inclusive of fixed cost)
Note: Indices shown are not actuals, used for illustration purposes only.
</TABLE>
<TABLE>
Page 2 of 2
Exhibit B
Quarterly Price Adjustment
Orange and Rockland/Massey Coal Sales
October 1, 1996
Quality B Coal
<CAPTION>
Previous Quarter Current Quarter
July 1996 October 1996
Index
Date Index Date Index
<S> <C> <C> <C> <C>
Drills & Other Mining Machinery 4/96 136.30 7/96 137.60
1192-03
Implicit Price Deflator 4th Qtr. 1995 127.90 1st Qtr. 1996 128.30
Gross Domestic Product
Average Hourly Earnings of Bituminous 3/96 18.40 6/96 18.66
Coal & Lignite Workers SIC 122
Industrial Commodities 4/96 124.00 7/96 125.30
of Producer Price Index
Mining Machinery Parts, Excluding 4/96 131.90 7/96 132.10
Drills, 1192-5301
Industrial Power, 500 KW 4/96 105.30 7/96 105.80
4981-132
</TABLE>
<TABLE>
<CAPTION>
Index/Cost Change Percent Weight of Component Change
Component Change Component as Weighted
<S> <C> <C> <C> <C>
PPI 1192-03 1.3000 0.0095 6% 0.0006
IPD-GDP 0.4000 0.0031 22% 0.0007
SIC 122 0.2600 0.0141 33% 0.0047
PPI-IC 1.3000 0.0105 27% 0.0028
PPI 1192-5301 0.2000 0.0015 6% 0.0001
4981-132 0.5000 0.0047 6% 0.0003
Total 0.0088
% Increase (Decrease) 0.0088
Previous Price ($29.25) less $26.33
Fixed Cost ($2.92)
Quarterly Adjustment $0.23
New Price Effective 10/1/96 $29.48
(inclusive of fixed cost)
Note: Indices shown are not actuals, used for illustration purposes only.
</TABLE>
<TABLE>
EXHIBIT C
a) Illustration of 30 Day Weighted Average Calculation
30 Day Weighted Averages
July 1996
<CAPTION>
Coal Train Arrival Ash Soft Ash Soft
Vendor Number Mine Date Tonnage Ash Ash % Volatile Volatiles % Temperature Temperature %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Massey UOR-2 Rawl 7/02/96 9325.45 6.52 60,801.93 33.63 313,614.88 2800 26,111,260.00
UOR-4 Rawl 7/08/96 9252.95 6.81 63,012.59 32.96 304,977.23 2800 25,908,260.00
UOR-6 Rawl 7/12/96 9119.05 6.43 58,635.49 33.42 304,758.65 2800 25,533,340.00
UOR-8 Rawl 7/25/96 8983.15 6.21 55,785.36 31.96 287,101.47 2800 25,152,820.00
Total 36,680.60 238,235.38 1,210,452.24 102,705,680.00
Total Weighted Average
Tonnage 36,680.60
Ash 238,235.38 6.49
Volatiles 1,210,452.24 33.00
Ash Soft Temp. 102,705,680.00 2,800.00
Note: Figures shown are not actuals; used for illustration purposes only.
</TABLE>
<TABLE>
b)Illustration Of 90 Day Weighted Average Calculation
90 Day Weighted Averages
July 1996- September 1996
<CAPTION>
Coal Train Arrival
Vendor Number Mine Date Tonnage Grind Grind % BTU BTU % Moisture Moisture %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Massey UOR-2 Rawl 7/02/96 9325.45 46 428,970.70 13,002 121,249,500.90 6.85 63,879.33
UOR-4 Rawl 7/08/96 9252.95 46 425,635.70 13,205 122,185,204.75 6.39 59,126.35
UOR-6 Rawl 7/12/96 9119.05 47 428,595.35 13,265 120,964,198.25 6.70 61,097.64
UOR-8 Rawl 7/25/96 8983.15 45 404,241.75 13,150 118,128,422.50 6.44 57,851.49
UOR-10 Rawl 8/06/96 9120.25 46 419,531.50 13,158 120,004,249.50 6.38 58,187.20
UOR-12 Rawl 8/11/96 9337.65 48 448,207.20 13,126 122,565,993.90 6.30 58,827.20
UOR-14 Rawl 8/16/96 9102.65 48 436,927.20 13,201 120,164,082.65 6.40 58,256.96
UOR-16 Rawl 8/22/96 8903.90 46 409,579.40 13,148 117,068,477.20 6.49 57,786.31
UOR-18 Rawl 9/02/96 9103.65 47 427,871.55 13,267 120,778,124.55 6.51 59,264.76
UOR-20 Rawl 9/12/96 9037.65 47 424,769.55 13,209 119,378,318.85 6.89 62,269.41
UOR-22 Rawl 9/20/96 9138.15 46 420,354.90 13,231 120,906,862.65 6.52 59,580.74
UOR-24 Rawl 9/30/96 9015.75 48 432,756.00 13,109 118,187,466.75 6.56 59,143.32
Total 109,440.25 5,107,440.80 1,441,580,902.45 715,270.69
Total Weighted Average
Tonnage 109,440.25
Grindability 5,107,440.80 46.67
BTU 1,441,580,902.45 13,172.31
Moisture 715,270.69 6.54
Grind Matrix 614.74
Note: Figures shown are not actuals; used for illustration purposes only.
</TABLE>
EXHIBIT D
Rawl Mines
Mingo County, West Virginia Properties
[MAP ATTACHED HERETO]
REVIEW OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL PERFORMANCE
Consolidated earnings per share were $3.17 for 1996, compared to $2.60 in
1995 and $2.50 in 1994. The increase in earnings was largely the result of
higher electric and natural gas sales, reduced customer refunds and decreased
investigation and litigation costs. The Company's continued success in
controlling operating and maintenance expenses, and in lowering interest
charges, also had a positive effect on earnings. While the Company's gas
marketing subsidiary continued to underperform and experienced a net loss for
the year, a new strategic initiative begun in the third quarter of 1996 is
aimed at securing lower-volume, higher-margin customers, and will be fully
implemented during 1997. The 1995 increase in earnings over 1994 is the
result of the impact of the reduced costs associated with the investigation
and litigation involving former officers and others, the provision for
refunds to be passed back to customers and regulatory actions, partially
offset by a decline in non-utility subsidiary operating results. Consolidated
earnings available for common stock were $43.3 million in 1996, $35.4 million
in 1995 and $34.0 million in 1994. Earnings per average common share are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Utility operations....................................................................... $ 3.39 $ 3.20 $ 3.14
Events affecting the Company:
Investigation & litigation costs......................................................... (.09) (.35) (.42)
Refunds of misappropriated funds......................................................... -- (.14) (.20)
Diversified activities................................................................... (.13) (.11) (.02)
--------- -------- --------
Consolidated earnings per share.......................................................... $ 3.17 $ 2.60 $ 2.50
--------- -------- --------
</TABLE>
The earned return on common equity was 11.3% in 1996, compared to 9.4% in
1995, and 9.0% in 1994. Book value per share at year-end 1996 was $28.41,
compared to $27.82 in 1995 and $27.79 in 1994.
The Company continued to provide a fair and equitable return on
shareholders' investments. The dividends paid on common stock were $2.58,
$2.57 and $2.54 per share in 1996, 1995 and 1994, respectively. The Company
has maintained a strong capital structure: 46% long-term debt (includes debt
due within one year), 5% preferred stock and 49% common equity.
ARBITRATION PROCEEDINGS
The Company was party to an arbitration proceeding relating to events
surrounding the termination of James F. Smith, its former Chief Executive
Officer and Chairman of the Board of Directors. On January 29, 1997, the
Company received the decision of the arbitration tribunal awarding Mr. Smith
the net sum of $5.5 million against the Company. Any amounts not previously
provided for will be recorded in the first quarter of 1997. The Company does
not expect the additional provision to have a significant impact on the
overall results of operations in 1997. For more information on this matter,
refer to Note 12 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The discussion that follows identifies the principal causes of the
significant changes in the amounts of revenues and expenses affecting
earnings applicable to common stock by comparing 1996 to 1995 and 1995 to
1994. This discussion should be read in conjunction with the Notes to
Consolidated Financial Statements and other financial and statistical
information contained elsewhere in this report.
10
The following is a summary of the changes in earnings applicable to
common stock:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- --------------------------------------------------------------------------- --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Utility operations:
Operating revenues......................................................... $ 53.3 $ (36.0)
Energy and gas costs....................................................... 35.0 (27.2)
--------- ---------
Net revenues from utility operations....................................... 18.3 (8.8)
Other utility operating expenses and taxes................................. 12.5 (9.6)
--------- ---------
Operating income from utility operations................................... 5.8 0.8
Diversified revenues....................................................... (158.1) 49.2
Diversified operating expenses and taxes................................... (158.4) 53.5
--------- ---------
Income from operations..................................................... 6.1 (3.5)
Other income and deductions................................................ -- 4.2
Interest charges........................................................... (1.6) (0.7)
--------- ---------
Net income................................................................. 7.7 1.4
Preferred dividends........................................................ (0.1) (0.1)
--------- ---------
Earnings applicable to common stock........................................ $ 7.8 $ 1.5
--------- ---------
</TABLE>
ELECTRIC OPERATING RESULTS
Electric operating revenues, net of fuel and purchased power costs,
increased by 3.6% or $12.1 million in 1996 after decreasing by 2.5% or $8.5
million in 1995.
These changes are attributable to the following factors:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- --------------------------------------------------------------------------- --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Retail sales:
Price changes.............................................................. $ (13.5) $ (19.3)
Sales volume changes....................................................... 6.0 4.8
--------- ---------
Subtotal................................................................... (7.5) (14.5)
Sales for resale........................................................... 1.0 (4.5)
Other operating revenues................................................... 23.6 --
--------- ---------
Total electric revenues.................................................... 17.1 (19.0)
Electric energy costs...................................................... 5.0 (10.5)
--------- ---------
Net electric revenues...................................................... $ 12.1 $ (8.5)
--------- ---------
</TABLE>
ELECTRIC SALES AND REVENUES
Total sales of electric energy to retail customers during 1996 were
4,605,300 Mwh (megawatt hours), compared with 4,525,600 Mwh during 1995 and
4,464,000 Mwh in 1994. Revenues associated with these sales were $465.0
million, $472.5 million and $487.0 million in 1996, 1995 and 1994,
respectively. Electric sales to customers for the last five years are shown
in the accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13]
The changes in electric sales by class of customer from the prior year
are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -----
<S> <C> <C>
Residential......................................................... 2.7% 1.5%
Commercial.......................................................... (0.5)% 0.3%
Industrial.......................................................... 10.0% 3.6%
Public street lighting.............................................. 5.0% 1.0%
Sales to public authorities......................................... (31.9)% 9.5%
--------- -------
</TABLE>
Despite cooler summer conditions when compared to 1995, the increase in
customer usage coupled with the increase in the number of customers,
increased electric retail sales in 1996 by 1.7%. Electric retail sales
increased 1.4% in 1995 when compared to 1994, resulting primarily from an
increase in the number of customers coupled with unusually warm weather
during the summer months.
Through the PowerPick-TM- Program and other initiatives, the
Company continues to meet the needs of its customers by pursuing least-cost
strategies, designed to provide participants from all classes of customers
with the opportunity to select an energy supplier other than the Company. It
is also designed to minimize any potential adverse impacts on
non-participants and to maintain the Company's system reliability. Program
participants will continue to buy capacity and to take delivery from the
Company, thereby protecting the interests of the Company's shareholders and
non-participating customers.
Other programs have been put into place which are designed to reduce peak
load, encourage efficient energy usage and reduce the need for costly
investments in new generating capacity. These efforts resulted in the Company
achieving an energy-efficiency savings of approximately 240,000 Mwh in 1996,
235,000 Mwh in 1995 and 194,000 Mwh in 1994. Although Demand Side Management
(DSM) incentives were discontinued in 1996, energy-efficiency incentives of
$1.4 million and $0.6 million were earned by the Company in 1995 and 1994,
respectively. In addition to DSM, the Company continues to actively seek cost
effective energy supply options, such as purchased power agreements with
others.
On May 3, 1996, the Company and the New York Public Service Commission
(NYPSC) eliminated the Revenue Decoupling Mechanism (RDM), which reconciled
actual sales revenues in New York to levels allowed in rates (see Rate
Activities section). As a result of this agreement, the Company's electric
earnings in 1996 were partially affected by changes in sales volume and
weather conditions. The Company's future electric earnings will be affected
by changes in sales volumes resulting from the strength of the economy,
weather conditions and conservation efforts of customers.
Other operating revenues increased due to regulatory adjustments required
by the May 3, 1996 agreement which were offset in operating expenses.
Sales for resale increased by $1.0 million to $3.1 million in 1996 when
compared to 1995, after decreasing from $6.6 million in 1994 to $2.1 million
in 1995. Revenues from these sales are primarily a recovery of costs, under
the applicable tariff regulations, and have a minimal impact on the Company's
earnings.
ELECTRIC ENERGY COSTS
The cost of fuel used in electric generation and purchased power
increased 4.0% or $5.0 million in 1996, after decreasing 7.8% or $10.5
million in 1995. The components of these changes in electric energy costs are
as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- ------------------------------------------------------------------------------ --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Prices paid for fuel and purchased power...................................... $ 1.1 $ (2.4)
Changes in Kwh generated or purchased......................................... 2.3 (2.1)
Deferred fuel charges......................................................... 1.6 (6.0)
--- ---------
Total......................................................................... $ 5.0 $ (10.5)
------- ---------
</TABLE>
The increase in electric energy costs in 1996 when compared to 1995 is
the result of an increase in the cost of fuel as well as increased sales.
Electric energy costs in 1995 reflect the lower costs of fuel used in
generation, somewhat offset by an increase in purchased power costs when
compared to 1994.
The price paid for fuel and purchased power per kilowatt hour over the
last five years is shown in the accompanying chart. [Graphics Chart, See
Appendix A of Exhibit 13]
The Company's tariff schedules include adjustment clauses under which
fuel and certain purchased power costs are recovered. In New York, an
incentive-based mechanism associated with the electric fuel adjustment clause
requires the Company to share 20% of the variation between actual costs and
forecast fuel targets, up to a maximum of $1,762,000. In 1996, 1995 and 1994,
pre-tax earnings were enhanced by $580,000, $755,000 and $1,241,000,
respectively, as a result of this mechanism. The Company maintains an
aggressive program of managing its sources of fuel and
11
energy purchases to provide its customers with the lowest-cost energy
available at any given time. Energy is purchased whenever available at a
price lower than the cost of production at the Company's generating plants.
The Company continues to use the least costly fuel available for generating
electricity.
GAS OPERATING RESULTS
Gas operating revenues, net of gas purchased for resale, increased by
9.0%, or $6.2 million in 1996 when compared to 1995, after decreasing by
0.3%, or $0.2 million in 1995.
These changes are attributable to the following factors:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- ---------------------------------------------------------------------------- --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Sales to firm customers:
Price changes............................................................. $ 22.6 $ (19.6)
Sales volume changes...................................................... 3.4 (1.9)
--------- ---------
Subtotal................................................................ 26.0 (21.5)
Sales to interruptible customers............................................ 8.4 2.7
Sales for resale............................................................ -- (0.1)
Other operating revenues.................................................... 1.8 2.0
--------- ---------
Total gas revenues...................................................... 36.2 (16.9)
Gas energy costs............................................................ 30.0 (16.7)
--------- ---------
Net gas revenues........................................................ $ 6.2 $ (0.2)
--------- ---------
</TABLE>
GAS SALES AND REVENUES
Firm gas sales amounted to 20,918 million cubic feet (Mmcf) in 1996, an
increase of 5.5% over the 19,825 Mmcf recorded in 1995. Such sales in 1995
decreased by 2.9% from the 1994 level of 20,421 Mmcf. Gas revenues from firm
customers were $153.9 million, $128.0 million and $149.4 million in 1996,
1995 and 1994, respectively.
Gas sales to firm customers for the last five years are shown in the
accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13]
The changes in firm gas sales by class of customer from the prior year
are as follows:
<TABLE>
<CAPTION>
1996 1995
----- ---------
<S> <C> <C>
Residential..................................................................... 6.3% (2.7%)
Commercial and industrial....................................................... 3.3% (3.6%)
------ ------
</TABLE>
Cooler weather in the first quarter of 1996 when compared to 1995 was the
primary reason for the increase in sales. An increase in the number of
customers in 1996 when compared to 1995 also enhanced sales. In addition,
1995, which also had an increase in the number of customers, was adversely
affected by weather conditions.
Under the terms of the current gas rate agreement in New York, the level
of firm sales is subject to a weather normalization adjustment. The Company
adjusts firm gas sales revenues to the extent actual degree days vary more
than plus or minus 2.2% from the degree days utilized to project sales during
a heating season. Therefore, weather conditions may have a minimal impact on
gas operating results.
The Federal Energy Regulatory Commission's (FERC) Order 636 required
pipeline supply companies to separate or unbundle their charges for providing
natural gas to the Company. The unbundling of charges provided the Company
with the opportunity to put tariffs in place on October 1, 1996, which
allowed the Company to market available pipeline transmission capacity. As
approved, the tariffs granted the Company permission to retain 15% of all
revenues derived from the sale of pipeline capacity during 1996.
Additionally, as part of the Company's rate agreement in Case 92-G-0050, the
Company is allowed to retain 25% of net revenues derived from Order 63
off-system transactions. Revenues retained from Order 636 and Order 63
transactions in 1996 amounted to $0.5 million.
Revenues from interruptible gas customers (customers with alternative
fuel sources) increased by 124.5% in 1996 after increasing by 68.3% in 1995
when compared to the previous year. These sales are dependent upon the
availability and price competitiveness of alternative fuel sources. As a
result of applicable tariff regulations, these interruptible sales do not
have a substantial impact on earnings.
GAS ENERGY COSTS
Utility gas energy costs increased by 42.0% or $30.0 million in 1996 when
compared to 1995, after decreasing by 19.0%, or $16.7 million in 1995.
The changes in utility gas energy costs for the years 1996 and 1995 are a
result of the following:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- ---------------------------------------------------------------------------- --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Prices paid to gas suppliers*............................................... $ 15.7 $ (10.1)
Firm and interruptible Mcf sendout.......................................... 9.1 3.1
Deferred fuel charges....................................................... 5.2 (9.7)
--------- ---------
Total.................................................................... $ 30.0 $ (16.7)
--------- ---------
</TABLE>
* Net of refunds received from gas suppliers.
The Company continues its policy of the aggressive use of market
purchases in order to provide price flexibility, while assuring an adequate
supply of gas through a variety of long-term gas contracts.
The price paid for purchased gas per thousand cubic feet (Mcf) over the
last five years is shown in the accompanying chart. [Graphics Chart, See
Appendix A of Exhibit 13]
Gas costs from 1990-1993 were adversely affected by the actions of the
FERC, which had authorized pipeline suppliers to pass through take-or-pay
costs. As required by the NYPSC in Case 88-G-062, the Company has deferred a
portion of these costs. As of December 31, 1996, $2.1 million of deferred
take-or-pay charges and accrued interest remain on the books of the Company.
The Company and the NYPSC have reached an agreement allowing the Company to
recover these costs by March 1999.
As a result of the FERC's objective to restructure the gas transportation
industry to promote competition among gas suppliers and to ensure supply at
the lowest reasonable costs, the FERC, pursuant to FERC Order 636, has
authorized pipelines to recover certain transition costs from their
customers. The Company currently estimates that its obligations for Order 636
transition costs will total approximately $36.7 million. Approximately $25.1
million of these transition costs have been billed to the Company.
On December 20, 1994 the NYPSC issued an order establishing the
regulatory and rate-making policies applicable to New York gas distribution
utilities resulting from FERC Order 636. The NYPSC order provides mechanisms
for the full recovery of transition costs. The Company is presently in the
process of recovering these costs from its customers and believes it will be
allowed to fully recover such costs by the end of the year 2000.
OTHER UTILITY OPERATING EXPENSES AND TAXES
A comparison of other operating expenses and taxes for utility operations
is presented in the following table:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995
- ------------------------------------------------------------------------------ --------- ---------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Other operating expenses...................................................... $ 17.1 $ (8.7)
Maintenance................................................................... (4.6) (2.8)
Depreciation and amortization................................................. (5.2) 2.1
Taxes......................................................................... 5.2 (0.2)
--------- ---------
Total....................................................................... $ 12.5 $ (9.6)
--------- ---------
</TABLE>
12
The primary reason for the increase in utility operating expenses is the
amortization of previously deferred Independent Power Producer costs of $16.2
million offset by a decrease in the costs of DSM programs, which decreased by
$4.0 million in 1996. These costs are recovered in revenues on a current
basis. The remaining increase in 1996 is the result of increased transmission
and distribution activities during the current year. The primary reason for
the decrease in operating expenses in 1995 was the decrease in DSM programs
of $8.1 million from 1994. Additionally, the Company's cost containment
program reduced 1996 and 1995 costs through operating efficiencies and lower
labor costs realized by attrition.
Maintenance costs decreased 11.1% in 1996 after decreasing by 6.4% in
1995. The decrease in 1996, when compared to 1995, is primarily a result of
improvements to the Company's distribution and transmission systems during
the year. The 1995 decrease was primarily the result of reduced distribution
plant maintenance.
Depreciation and amortization expenses decreased by $5.2 million in 1996
when compared to 1995, primarily as a result of the most recent rate decision
in New York, after increasing by $2.1 million in 1995. The increases in 1995
were the result of normal plant additions.
Taxes other than income taxes increased by $5.0 million in 1996 when
compared to the $93.7 million recorded in 1995. This increase reflects the
amounts previously deferred under the Company's RDM agreement. Exclusive of
the RDM adjustment, the 1996 increase was less than two percent. The increase
in 1995 was the result of taxes associated with revenues. Federal income tax
expense increased $0.2 million in 1996, after increasing $1.7 million in
1995. The changes in both years are the result of changes in pre-tax book
income. For a detailed analysis of income tax components, see Note 2 of Notes
to Consolidated Financial Statements.
DIVERSIFIED ACTIVITIES
The Company's diversified activities at year end consisted of gas
marketing and land development businesses conducted by its wholly owned
non-utility subsidiaries.
Revenues from diversified activities decreased by $158.1 million in 1996,
after increasing by $49.2 million in 1995. The 1996 revenue decline reflects
the gas marketing subsidiary's strategy to focus on securing lower-volume,
higher-margin customers.
Operating expenses incurred by the non-utility subsidiaries decreased by
$158.4 million in 1996 after increasing by $53.5 million in 1995. These
changes are directly related to gas marketing purchases which decreased by
$155.4 million in 1996, after increasing by $53.6 million in 1995. Other
expenses of operation, maintenance, depreciation and taxes decreased $3.0
million in 1996, after decreasing by $0.1 million in 1995.
Earnings from diversified activities decreased by $0.2 million and $1.3
million in 1996 and 1995, respectively. The declines were primarily due to
the gas marketing subsidiary which continues to underperform, resulting in
lower margins and a net loss for the second consecutive year. A new strategic
initiative (NORSTAR 2000), which began in the third quarter of 1996, aimed at
increasing customers, sales and margin, will be fully implemented during
1997. Earnings in 1995 were further reduced by the recognition of the market
value of properties held by an affiliate of the gas marketing subsidiary.
However, 1995 diversified earnings were enhanced by a $2.9 million gain
realized as a result of the formation of the NORSTAR Energy Limited
Partnership.
OTHER INCOME AND DEDUCTIONS
Other income and deductions remained virtually unchanged in 1996 when
compared to 1995. The increase from 1995 to 1994 was $4.2 million. The change
was the result of lower investigation and litigation costs entirely offset by
the gain realized in 1995 from the formation of the NORSTAR partnership.
INTEREST CHARGES
Interest charges decreased $1.6 million in 1996 when compared to 1995,
after decreasing $0.7 million in 1995. The 1996 and 1995 decreases are the
result of refinancing certain of the Company's long-term debt issues, taking
advantage of the lower interest rates available and the retirement of
long-term debt issues in 1995, offset by an increase in the cost of
short-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction program is designed to maintain reliable
electric and gas service, meet future customer service requirements and
improve the Company's competitive position. The cash expenditures related to
the construction program and other capital requirements for the years
1994-1996 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Construction expenditures................................................................ $ 60.9 $ 56.8 $ 62.5
Retirement of long-term debt & preferred stock........................................... 1.6 20.8 4.1
--------- --------- ---------
Total.................................................................................. $ 62.5 $ 77.6 $ 66.6
--------- --------- ---------
</TABLE>
At December 31, 1996, the Company estimated the cost of its construction
program in 1997 to be $57.7 million and retirement of long-term debt and
preferred stock to be $79.6 million. It is expected that the Company's
capital requirements for 1997, with the exception of $78.0 million in
long-term debt maturities which the Company expects to refinance, will be met
primarily with funds from operations, supplemented by the issuance of
short-term borrowings.
On February 4, 1997, Rockland Electric Company (RECO), a wholly owned
utility subsidiary of the Company, issued $20 million of First Mortgage 7 1/8%
Bonds, Series J due February 1, 2007 (Series J Bonds). The proceeds from the
issuance of the Series J Bonds, together with other RECO funds will be used to
refund, in March 1997, RECO's $20 million First Mortgage 9.59% Bonds, Series
H. Neither the Company nor its utility subsidiaries have any plans at the
present time for external additional financing other than securities issued
for refunding purposes.
The Company's Dividend Reinvestment Plan (DRP) and its Employee Stock
Purchase and Dividend Reinvestment Plan (ESPP) provide that, at the option of
the Company, the common stock requirements of the plans may be satisfied by
either original issues of common stock or open market purchases. Since
November 1, 1994, the requirements of both plans have been satisfied by open
market purchases. The Company, however, has authority to issue up to 750,000
shares of its common stock under the DRP and ESPP through December 31, 1997,
of which approximately 693,000 shares were unissued at December 31, 1996.
The Company and its utility subsidiaries have unsecured bank lines of
credit totaling $100 million. The Company may borrow under the lines of
credit through the issuance of promissory notes to the banks. The Company,
however, utilizes such lines of credit to fully support commercial paper
borrowings. The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the aggregate lines of
credit. In addition, non-utility lines of credit amounted to $20.0 million at
December 31, 1996, and the non-utility subsidiaries may undertake short-term
borrowings or make short-term investments.
13
RATE ACTIVITIES
NEW YORK--GAS
On January 16, 1992, the Company filed an application for an increase in
gas rates with the NYPSC. The Settlement Agreement in that case, which was
approved by the NYPSC on September 30, 1992, provided, among other things,
for multi-year rate adjustments through 1996 and for certain gas incentives.
The second adjustment to gas rates under the Settlement Agreement, which
amounted to an increase of $3.8 million or 2.5%, was to become effective on
January 1, 1994. As a result of the NYPSC's investigation of alleged
financial improprieties of certain former officers and former employees of
the Company (the NYPSC Investigation), the implementation of the increase was
first extended to June 30, 1994 and then further extended to December 30,
1994. On November 4, 1994, the NYPSC issued an Order terminating the
Settlement Agreement effective December 31, 1994. The Order authorized the
Company to defer the second-stage rate adjustments and all previously
authorized reconciliations pertaining to periods prior to December 31, 1994,
pending review and audit by the NYPSC Staff and the conclusion of the NYPSC's
Investigation. In addition, on February 7, 1995, the Accounting and Finance
Division of the NYPSC issued an interpretation of the November 4, 1994
termination order which stated that the gas incentive mechanism related to
the attainment of certain goals was no longer available. The Company did not
contest this interpretation.
On October 2, 1995, the Company, the NYPSC Staff, the New York State
Consumer Protection Board (CPB) and the Industrial Energy Users Association
(IEUA) reached a settlement which resolved all outstanding issues relating to
the NYPSC Investigation. The settlement provided for, among other things, the
cancellation of the second-stage gas base rate increase scheduled for
December 31, 1994. All deferred balances resulting from expense
reconciliations and deferral of the second-stage rate adjustment were offset
with an equal amount of deferred credits approved as part of the rate
decision dated May 3, 1996, discussed below. In addition, the settlement
provides for the recognition in gas rates of the change in accounting
required by Statement of Financial Accounting Standards No. 106 (SFAS No.
106), "Employer Accounting for Postretirement Benefits Other Than Pensions."
The annual cost increase due to gas operations as a result of SFAS No. 106
will be offset by an equal amount of previously deferred credits. On May 3,
1996, the NYPSC issued an order approving the settlement.
By orders issued March 28, 1996 and September 13, 1996, the NYPSC
approved utility restructuring plans designed to open up the local natural
gas market to competition and allow residential and small commercial users
the same ability to purchase gas supplies from a variety of sources, other
than the franchised local distribution utility, that large industrial
customers have enjoyed for several years. Small customers' usage volumes will
be aggregated for purposes of obtaining access to alternative sources of
natural gas. The Company revised tariffs for the transportation and delivery
of third-party gas supplies for customers consistent with the NYPSC orders
effective October 1, 1996. The NYPSC orders provide for a phase-in of the new
service to ease potential implementation problems and the recovery of
stranded costs which are incurred over the next three years. In recognition
of the accelerating movement by customers to purchase natural gas supplies
from alternate sources, the Company has restructured its gas supply and
transportation contracts to reflect reduced requirements for
Company-furnished gas and has been actively marketing available pipeline
transportation capacity.
NEW YORK--ELECTRIC
On April 19, 1995, the NYPSC approved the Company's compliance filing
regarding the operation of the RDM. The filing included a proposal to
eliminate the RDM Adjustment Factor of $7.7 million effective May 1, 1995,
reflecting the completion of the recovery of an RDM under-collection
applicable to the year 1993. This equated to a 2.3% annual reduction in
revenues. In addition, the filing requested that a net RDM over-collection of
$0.7 million for the year 1994 be retained by the Company as a future rate
moderator, subject to NYPSC verification.
On May 25, 1995, the Company filed with the NYPSC for a decrease in
electric revenues of $6.1 million to be effective April 1, 1996 (Case
95-E-0491). This equated to an overall reduction of 1.8% in annual retail
revenues. The filing reflected a reduction in operating expenses due to the
complete recovery of the Company's share of the Sterling Nuclear Project and
other cost reductions. The Company proposed a multi-year rate plan covering
the three-year period ending on March 31, 1999 with no base rate increases in
the second and third years of the plan. The Company proposed an overall
return on capital of 9.17% with a sharing mechanism governing any return on
common equity above 11.2%.
On August 1, 1995, the NYPSC approved a stipulation among the parties
which provided for the early implementation of the Company's proposed annual
rate reduction of $6.1 million. As a result, reduced rates became effective
August 1, 1995 producing a revenue reduction of approximately $3.8 million
for the period August 1, 1995 to March 31, 1996. The revenue reduction was
offset by the recognition of deferred revenue for 1994 and 1995 related to
sharing mechanisms previously approved by the Commission .
On May 3, 1996, the NYPSC approved, subject to modifications required by
the NYPSC decision in the Competitive Opportunities Proceeding (discussed
below), a Settlement Agreement (1996 Agreement) among the Company, NYPSC
Staff and other parties which resolved all remaining revenue requirement
issues in the proceeding for a three-year period commencing May 1, 1996 and
concluding April 30, 1999. Under the 1996 Agreement, the Company reduced its
annual electric retail revenues in New York by an additional $7.75 million,
or 2.3%, effective May 1, 1996. The agreement also provides for the recovery
over a four-year period of the buyout costs associated with three non-utility
generator contracts entered into by the Company and applicable to New York
electric operations. In addition, the settlement provides for several
performance mechanisms related to service reliability and customer service,
and the elimination of all revenue and most expense reconciliation provisions
of the RDM. The 1996 Agreement provides the Company with the opportunity to
retain all New York electric earnings up to a 10.9% return on equity annually
for each of the next three years. Earnings in excess of 10.9% will be shared
equally between customers and shareholders.
The 1996 Agreement implements several competitive initiatives sought by
the Company. These include price reductions, the offering of service
guarantees and the introduction of customer choice of energy providers. Since
April 1995, the Company has reduced its overall electric rates by 6.4%, and
through changes in rate design and revenue allocations, provided reductions
to our largest commercial and industrial customers of up to 16%. The Company
recognizes the critical need to retain and encourage the growth of existing
businesses as well as attract new industry and jobs to the area served by
Orange and Rockland Utilities, Inc. (O&R) and has successfully adjusted its
prices and cost structure to achieve this vital objective. O&R now offers the
second lowest electric rates for large industrial customers in New York. In
addition, the settlement permits the Company to initiate its plan to achieve
h higher consumer satisfaction through a new program that offers cash or
credit rebates to customers if O&R does not meet specified service
guarantees, such as keeping service appointments.
14
The NYPSC, in approving the 1996 Agreement, also authorized the Company
to launch an innovative retail access pilot program --PowerPick-TM-
- --which, for the first time, allows customers participating in the
experimental program to choose their electric energy supplier.
PowerPick-TM- is the first pilot program of its kind in New York, New
Jersey and Pennsylvania and represents a significant step in the transition
to a competitive electric industry. PowerPick-TM- is designed to provide
participants from all classes of customers with the choice of selecting an
energy supplier other than O&R. The amount of energy available to
participating customers from alternate suppliers is limited to 40 megawatts
of off-peak usage, and O&R continues to provide capacity and to deliver the
energy to program customers, thereby protecting the interests of shareholders
and non-participating customers. The program was first opened to the
Company's largest industrial customers in July 1996. Eighteen industrial
customers have participated in the program to purchase a total of 30
megawatts of energy from six marketers and others, and achieved a savings of
approximately 3-5% on their total electric costs. On January 1, 1997, an
additional 10 megawatts of energy was made available to the Company's
commercial and residential customers. Over 400 commercial and residential
customers have agreed to participate in the second phase of the pilot
program, with total electric price savings anticipated to range between 1 and
2%. The PowerPick-TM- program will provide both regulators and the
Company with valuable information about customer needs and power
deliverability as the industry is restructured to a more competitive market.
NEW JERSEY
Under an agreement with the New Jersey Board of Public Utilities (NJBPU)
to return to customers any funds found to be misappropriated or otherwise
questionable as a result of the Company's investigation of alleged financial
improprieties of certain former Company officers and former employees, RECO,
a wholly owned utility subsidiary of the Company, refunded $93,000 through
reductions in the applicable fuel adjustment charges in February and March
1994. In December 1994, RECO submitted a proposal to refund an additional
$704,000. By Order dated January 27, 1995, the NJBPU approved this proposal
and the refund was made in February 1995.
On February 21, 1996, the NJBPU approved RECO's 1996 Levelized Energy
Adjustment Clause (LEAC) filing whereby RECO passed back an additional
$482,000 of refunds related to the investigation of the alleged financial
improprieties referred to above, making the total amount refunded to RECO
customers $1,279,000. In addition, as part of this LEAC filing, RECO was
granted full recovery over a three-year period of its share of buyout costs
associated with three non-utility generator contracts entered into by the
Company.
The NJBPU on January 8, 1997 approved a stipulation among New Jersey
utilities, NJBPU Staff and the NJ Division of Ratepayer Advocate which
provides a recovery plan for costs associated with the change in accounting
required by SFAS No. 106. The approved plan provides several alternative
recovery mechanisms for the recognition of SFAS No. 106 costs in a utility's
cost of service. Each utility must choose the recovery procedure it believes
most appropriate for its circumstances and file with the NJBPU for approval
of implementation. RECO is reviewing the recovery mechanisms provided by the
plan and will file for approval with the NJBPU in the first quarter of 1997.
On January 23, 1997 a residential customer of RECO filed a petition with
the NJBPU requesting a lowering of RECO's rates by $21.2 million or 16% based
on the twelve months ended December 31, 1995 as adjusted. A central issue
raised by the petition is whether RECO's continued purchase of all of its
power supply requirement from the Company continues to be appropriate when
lower cost energy is available from other sources. RECO believes that this
petition is without merit and intends to contest it vigorously.
COMPETITION
Regulatory agencies at the federal level as well as the three states in
which the Company has retail electric franchises are currently evaluating
changes in regulatory and rate-making practices designed to promote increased
competition consistent with safety, reliability and affordability standards.
Depending on future developments in this area, the Company's market share and
profit margins could become subject to competitive pressures in addition to
regulatory constraints. A discussion of the current federal and state
competitive initiatives follows.
FEDERAL INITIATIVE
On April 24, 1996, the FERC issued its final order (FERC Order 888)
requiring electric utilities to file non-discriminatory open access
transmission tariffs that would be available to wholesale sellers and buyers
of electric energy. The order also provided for the recovery of related
legitimate and verifiable strandable costs subject to FERC's jurisdiction.
The Company filed the required open access transmission tariff on July 9,
1996 offering transmission service and certain ancillary services to
wholesale customers on a basis comparable to that which it provides itself.
The Company is operating under the filed tariff, subject to refund, pending
final FERC approval of the Company's filing. The Company participates in the
wholesale electric market primarily as a buyer of energy and, as a result,
Ord er 888 is not expected to materially impact the Company's financial
condition or results of operations.
On January 31, 1997, O&R, in conjunction with the other members of the
New York Power Pool (NYPP), filed tariffs with the FERC seeking permission to
restructure the NYPPinto an independent system operator.
NEW YORK COMPETITIVE OPPORTUNITIES PROCEEDING
On May 20, 1996, the NYPSC issued an order setting forth its vision and
goals for the future of the electric industry in New York. The order endorsed
a fundamental restructuring of the industry based on competition in the
generation and energy services sectors of the industry. Introduction of
retail access for all electric customers is envisioned to begin in early
1998. In addition, the order calls for lowering rates to consumers,
increasing customer choice, continued reliability of service, continuation of
programs that are in the public interest and continuing customer protections
and the obligation to serve. While the Company supports the NYPSC's goal of
establishing a competitive electricity market in New York State, the Company
believes that the May 20, 1996 Order was deficient in certain areas. On
September 18, 1996, the Company, the six other New York investor-owned
electric utilities and the Energy Association of New York State filed a suit
in New York State Supreme Court challenging the May 20, 1996 Order. This
litigation is discussed further in the Legal Proceedings section of Note 12
of Notes to Consolidated Financial Statements.
On October 1, 1996, the Company, in response to the May 20, 1996 Order,
filed a rate and restructuring plan (the Plan) with the NYPSC. The Company's
filing presented a comprehensive plan for the functional separation of
generation, a schedule for retail access with reciprocity, base rate freeze
and stranded cost recovery.
The Company intends to functionally separate its generation from the
remainder of its operations. This functional separation is scheduled to be
completed in 1998. The Company has no present plans to divest its generation.
The Company's Plan sets forth a two-phase approach for implementing
retail access. For the first phase, the Company proposes to expand its
PowerPick-TM- program to all customers. This first phase would commence
12 months after a wholesale electric market is fully operational in New York
state. A second phase, in which the Company's customers would be allowed a
choice of capacity as well as energy providers, would become effective 24
months after the beginning of the first phase.
15
The Company's filing indicated that reciprocity would be required in
order to implement retail access. By reciprocity, the Company means that if
other generators are allowed access to the Company's retail customers, the
Company should be permitted equal access to the customers of those utilities
within New York state and regionally.
The Company's current three-year electric rate settlement is effective
until April 30, 1999. For those low-income, demand side management, research
and development, and other public policy programs which the NYPSC continues
to mandate, the Company proposes that the costs of these programs be
recovered through a non-bypassable systems benefit charge.
The Company proposes that it have a reasonable opportunity to recover its
strandable costs from customers. Strandable costs are investments and
expenditures made by utilities pursuant to their obligation under the
existing regulatory framework to provide electric service to the public,
whose continued recovery through electric rates may be jeopardized by the
transition from traditional regulation and exclusive retail franchises to a
different form of regulation and a more competitive marketplace. Three broad
categories of potentially strandable costs are utility generation investment,
purchase power contracts and regulatory assets. In its filing, the Company
does not attempt to quantify the amount of its strandable costs since these
costs are dependent on future market conditions. The Company's proposal is to
recover strandable costs through the implementation of a non-bypassable
competition transition charge (CTC). Under the Plan, the CTC would be
recoverable during a transition period of eight years starting when the
second phase of retail competition becomes effective.
On October 9, 1996, the NYPSC issued an order establishing procedures and
a schedule for considering the rate restructuring plans filed on October 1,
1996 in the Competitive Opportunities Proceeding. The NYPSC has established a
separate proceeding for each of the five utilities (including the Company)
which filed these plans. The utility, the NYPSC Staff and other interested
parties have until February 14, 1997 to complete discovery, engage in
settlement negotiations and submit testimony on any contested issues. Any
responsive testimony must be submitted by February 24, 1997. If a settlement
agreement is negotiated in a proceeding, it will be submitted to the
Commission for approval. If a settlement agreement is not reached in a
proceeding by February 14, 1997, the parties will have an additional 60-day
period to submit any necessary briefs or other submissions to an
administrative law judge. At the end of the 60-day period, the record in a
proceeding will be closed and the matter will be submitted to the Commission
for decision.
Given the uncertainties regarding the Competitive Opportunities
Proceeding, the Company is unable to predict the outcome of this regulatory
proceeding and the ultimate effect on the Company's financial position or
results of operations.
NEW JERSEY--ENERGY MASTER PLAN
On January 16, 1997, the NJBPU issued Proposed Findings and
Recommendations for restructuring the electric power industry in New Jersey
and introducing competition into the generation sector of the utility
business (the Preliminary Report). The preliminary findings and
recommendations contained in the Preliminary Report have been issued for
public comment. The final report is scheduled to be issued in March 1997. The
Preliminary Report calls for each of the state's utilities to file proposals
for NJBPU review and approval by July 15, 1997 to implement retail
competition, functionally separate generation from the utility's other
operations, unbundle its current rate structure to accommodate customer
choice, and propose a stranded cost recovery plan. The Preliminary Report
proposes that retail choice be phased-in encompassing a cross-section of all
customer classes over a two and one-half year period beginning in October
1998 and concluding April 2001. In addition, the Preliminary Report calls for
regulatory assets and non-utility generator purchased power contracts to
continue to be fully recoverable in rates. With respect to above market
generation costs, the NJBPU has endorsed the creation of a Market Transition
Charge (MTC) as a non-bypassable component of the delivery price of
electricity which would be assessed for a period of four to eight years in
order to provide utilities with the opportunity for recovery of stranded
costs associated with generation capacity commitments made prior to the
advent of competition. The amount of the MTC authorized and the length of
time assessed is to be determined by the NJBPU on a case by case basis
following a review of the July 15, 1997 filings made by each utility and will
be contingent upon a number of conditions, including achievement of near-term
rate reduction goals and cost mitigation measures instituted. The filings may
be accepted or significantly modified by the NJBPU before becoming effective.
It is not possible to predict the outcome of the NJBPU proceeding regarding
the filings or its impact on the Company's consolidated financial position or
results of operations at this time.
PENNSYLVANIA--COMPETITION LEGISLATION
On December 3, 1996, the "Electricity Generation Customer Choice and
Competition Act" (Act) was signed into law by the Governor of the State of
Pennsylvania. The Act provides for a transition of the Pennsylvania electric
industry from a vertically integrated structure to a functionally separated
model that permits direct access by customers to a competitive electric
generation market while retaining the existing regulation and customer
protections for the transmission and distribution systems. The transition
plan of the Act calls for a three-year phase-in of retail access beginning
January 1, 1998 and concluding January 1, 2001. The Act also provides for the
opportunity for recovery of prudent and verifiable costs resulting from the
restructuring through the implementation of a Competitive Transition Charge
(CTC) for a period of up to nine years and the imposition of rate caps
designed to prevent a customer's total electric costs from increasing during
the transition period above current levels. In addition, the Act permits the
refinancing of certain approved transition costs through the issuance of
bonds secured by revenue streams guaranteed by the Pennsylvania Public
Utility Commission (PPUC). The savings associated with this financing
mechanism will be used to reduce strandable costs. The Act requires all
Pennsylvania utilities to file restructuring plans with the PPUC no later
than September 30, 1997. The PPUC is required to issue an order accepting,
rejecting or modifying the plan within nine months of the filing. Pike County
Light & Power Company (Pike), a wholly owned utility subsidiary of the
Company, is reviewing the Act and will submit its restructuring plan to the
PPUC no later than September 30, 1997. The Company's plan could be accepted
or significantly modified before it becomes effective. It is not possible to
predict the outcome of the PPUC proceeding required by the Act or its impact
on the Company's consolidated financial position or results of operations at
this time.
OTHER DEVELOPMENTS
See Note 1 of Notes to Consolidated Financial Statements for discussion
on SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of."
EFFECTS OF INFLATION
The Company's utility revenues are based on rate regulation, which
provides for recovery of operating costs and a return on rate base. Inflation
affects the Company's construction costs, operating expenses and interest
charges and can impact the Company's financial performance if rate relief is
not granted on a timely basis. Financial statements, which are prepared in
accordance with generally accepted accounting principles, report operating
results in terms of historic costs and do not generally recognize the impact
of inflation.
16
<TABLE>
Consolidated Statements of Income and Retained Earnings
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues:
Electric (Note 1).......................................................... $ 473,936 $ 457,833 $ 472,393
Gas (Note 1)............................................................... 176,442 140,224 157,168
Electric sales to other utilities.......................................... 3,106 2,150 6,636
---------- ---------- ----------
Total Utility Revenues.................................................... 653,484 600,207 636,197
Diversified activities (Note 1)............................................ 271,566 429,625 380,470
---------- ---------- ----------
Total Operating Revenues.................................................... 925,050 1,029,832 1,016,667
---------- ---------- ----------
Operating Expenses:
Operations:
Fuel used in electric production (Note 1)................................. 54,917 69,042 84,860
Electricity purchased for resale (Note 1)................................. 73,776 54,700 49,391
Gas purchased for resale(Note 1).......................................... 101,614 71,566 88,304
Non-utility gas marketing purchases....................................... 264,100 419,485 365,902
Other expenses of operation............................................... 158,880 143,009 151,918
Maintenance................................................................ 36,652 41,190 44,011
Depreciation and amortization (Note 1)..................................... 33,613 38,547 35,683
Taxes other than income taxes.............................................. 98,037 93,887 95,962
Federal income taxes (Notes 1 and 2)....................................... 24,820 25,902 24,629
---------- ---------- ----------
Total Operating Expenses.................................................. 846,409 957,328 940,660
---------- ---------- ----------
Income from Operations...................................................... 78,641 72,504 76,007
---------- ---------- ----------
Other Income and Deductions:
Allowance for other funds used during construction......................... 20 28 69
Investigation and litigation costs (Note 12)............................... (1,800) (7,218) (8,795)
Other--net................................................................. 297 4,721 (754)
Taxes other than income taxes.............................................. (281) (581) (123)
Federal income taxes (Notes 1 and 2)....................................... 520 1,828 4,250
---------- ---------- ----------
Total Other Income and Deductions......................................... (1,244) (1,222) (5,353)
---------- ---------- ----------
Income Before Interest Charges.............................................. 77,397 71,282 70,654
---------- ---------- ----------
Interest Charges:
Interest on long-term debt................................................. 24,221 26,620 29,553
Other interest............................................................. 5,977 5,495 3,088
Amortization of debt premium and expense--net.............................. 1,462 1,394 1,244
Allowance for borrowed funds used during construction...................... (566) (800) (448)
---------- ---------- ----------
Total Interest Charges.................................................... 31,094 32,709 33,437
---------- ---------- ----------
Net Income.................................................................. 46,303 38,573 37,217
Dividends on preferred and preference stock, at required rates.............. 3,024 3,135 3,251
---------- ---------- ----------
Earnings applicable to common stock......................................... 43,279 35,438 33,966
Cash dividends on common stock: $2.58, $2.57 and $2.54, respectively........ 35,227 35,089 34,486
---------- ---------- ----------
Balance to retained earnings................................................ 8,052 349 (520)
Retained earnings, beginning of year........................................ 184,008 183,659 184,179
---------- ---------- ----------
Retained earnings, end of year.............................................. $ 192,060 $ 184,008 $ 183,659
---------- ---------- ----------
Average number of common shares outstanding (000's)......................... 13,654 13,653 13,594
---------- ---------- ----------
Earnings per average common share outstanding............................... $ 3.17 $ 2.60 $ 2.50
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
</TABLE>
17
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Assets:
Utility Plant:
Electric......................................................... $ 1,023,796 $ 993,926
Gas.............................................................. 219,712 211,135
Common........................................................... 59,589 56,796
------------ ------------
Utility Plant in Service........................................ 1,303,097 1,261,857
Less accumulated depreciation.................................... 440,333 419,844
------------ ------------
Net Utility Plant in Service.................................... 862,764 842,013
Construction work in progress.................................... 36,879 31,655
------------ ------------
Net Utility Plant (Notes 1, 7 and 12)........................... 899,643 873,668
------------ ------------
Non-utility Property:
Non-utility property............................................. 20,784 34,376
Less accumulated depreciation, depletion and amortization........ 3,778 12,945
------------ ------------
Net Non-utility Property (Notes 1 and 7)........................ 17,006 21,431
------------ ------------
Current Assets:
Cash and cash equivalents (Notes 8 and 9)........................ 3,485 5,164
Temporary cash investments (Note 9).............................. 1,289 1,335
Customer accounts receivable, less allowance for uncollectible
accounts of $2,391 and $2,307, respectively..................... 60,992 61,653
Accrued utility revenue (Note 1)................................. 22,773 22,198
Other accounts receivable, less allowance for uncollectible
accounts of $258 and $169, respectively......................... 10,473 9,752
Gas marketing accounts receivable, less allowance for
uncollectible accounts of $606 and $133, respectively........... 45,589 51,198
Materials and supplies (at average cost):
Fuel for electric generation.................................... 7,201 8,290
Gas in storage.................................................. 12,819 8,627
Construction and other supplies................................. 15,575 15,751
Prepaid property taxes........................................... 20,051 20,687
Prepayments and other current assets............................. 22,478 26,463
------------ ------------
Total Current Assets............................................ 222,725 231,118
------------ ------------
Deferred Debits:
Income tax recoverable in future rates (Notes 1 and 2)........... 74,198 72,631
Extraordinary property loss--Sterling Nuclear Project (Notes 1 and
3).............................................................. 2,849 4,250
Deferred Order 636 transition costs (Notes 1 and 12)............. 11,732 6,064
Deferred revenue taxes (Note 1).................................. 14,271 15,596
Deferred pension and other postretirement benefits (Notes 1 and
10)............................................................. 9,922 10,422
IPP settlement agreements (Note 1)............................... 24,065 40,034
Unamortized debt expense (amortized over term of securities)..... 10,046 11,417
Other deferred debits............................................ 27,173 20,239
------------ ------------
Total Deferred Debits........................................... 174,256 180,653
------------ ------------
Total Assets.................................................... $ 1,313,630 $ 1,306,870
------------ ------------
The accompanying notes are an integral part of these statements.
</TABLE>
18
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization and Liabilities:
Capitalization:
Common stock (Note 5)............................................ $ 68,271 $ 68,268
Premium on capital stock (Note 5)................................ 133,616 133,607
Capital stock expense............................................ (6,097) (6,107)
Retained earnings (Note 4)....................................... 192,060 184,008
------------ ------------
Total Common Stock Equity....................................... 387,850 379,776
------------ ------------
Non-redeemable preferred stock................................... 42,844 42,844
Non-redeemable cumulative preference stock....................... 397 409
------------ ------------
Total Non-Redeemable Stock (Note 5)............................. 43,241 43,253
------------ ------------
Redeemable preferred stock (Note 6).............................. -- 1,390
------------ ------------
Long-term debt (Notes 7 and 9)................................... 281,622 359,736
------------ ------------
Total Capitalization............................................ 712,713 784,155
------------ ------------
Non-current Liabilities:
Reserve for claims and damages (Note 1).......................... 3,843 3,848
Postretirement benefits (Note 10)................................ 15,213 13,756
Pension costs (Note 10).......................................... 37,421 38,740
------------ ------------
Total Non-current Liabilities................................... 56,477 56,344
------------ ------------
Current Liabilities:
Long-term debt due within one year (Note 7)...................... 78,203 466
Preferred stock to be redeemed within one year (Note 6).......... 1,390 1,384
Notes payable (Notes 8 and 9).................................... 1,005 7,300
Commercial paper (Notes 8 and 9)................................. 82,370 61,250
Accounts payable................................................. 67,036 62,082
Gas marketing accounts payable................................... 42,295 44,630
Dividends payable................................................ 665 693
Customer deposits................................................ 4,865 5,455
Accrued Federal income and other taxes........................... 1,268 2,050
Accrued interest................................................. 7,039 7,252
Refundable gas costs (Note 1).................................... 6,839 10,111
Refunds to customers............................................. 1,816 13,903
Other current liabilities........................................ 26,400 22,942
------------ ------------
Total Current Liabilities....................................... 321,191 239,518
------------ ------------
Deferred Taxes and Other:
Deferred Federal income taxes (Notes 1 and 2).................... 186,354 183,396
Deferred investment tax credits (Notes 1 and 2).................. 15,292 16,217
Accrued Order 636 transition costs (Note 12)..................... 11,620 5,980
Accrued IPP settlement agreements (Note 1)....................... 2,000 17,500
Other deferred credits........................................... 7,983 3,760
------------ ------------
Total Deferred Taxes and Other.................................. 223,249 226,853
------------ ------------
Commitments and Contingencies (Note 12):.......................... -- --
------------ ------------
Total Capitalization and Liabilities............................ $ 1,313,630 $ 1,306,870
------------ ------------
19
</TABLE>
<TABLE>
Consolidated Cash Flow Statements
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flow from Operations:
Net income...................................................................... $ 46,303 $ 38,573 $ 37,217
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 34,150 37,131 35,938
Deferred Federal income taxes.................................................. 5,545 9,924 (188)
Amortization of investment tax credit.......................................... (924) (892) (895)
Deferred and refundable fuel and gas costs..................................... (6,371) (6,606) 4,548
Allowance for funds used during construction................................... (586) (828) (517)
Other non-cash changes......................................................... 3,759 8,682 6,042
Changes in certain current assets and liabilities:
Accounts and gas marketing receivables, net and accrued utility revenue...... 4,974 2,431 (3,101)
Materials and supplies....................................................... (2,927) 4,941 1,226
Prepaid property taxes....................................................... 636 (1,360) (913)
Prepayments and other current assets......................................... 3,985 2,414 (6,665)
Operating and gas marketing accounts payable................................. 2,619 (29,056) 24,162
Accrued Federal income and other taxes....................................... (782) (3,899) (3,637)
Accrued interest............................................................. (213) (1,356) (1,269)
Refunds to customers......................................................... (12,087) 3,638 9,472
Other current liabilities.................................................... 2,868 6,601 (332)
Other--net..................................................................... 1,380 (7,123) 16,402
--------- --------- ---------
Net Cash Provided by Operations............................................... 82,329 63,215 117,490
--------- --------- ---------
Cash Flow from Investing Activities:
Additions to plant.............................................................. (59,357) (55,030) (60,542)
Temporary cash investments...................................................... 46 504 (392)
Allowance for funds used during construction.................................... 586 828 517
--------- --------- ---------
Net Cash Used in Investing Activities......................................... (58,725) (53,698) (60,417)
--------- --------- ---------
Cash Flow from Financing Activities:
Proceeds from:
Issuance of common stock........................................................ -- -- 3,868
Issuance of long-term debt...................................................... 26 44,048 55,000
Retirement of:
Preference and preferred stock................................................. (1,384) (1,384) (1,384)
Long-term debt................................................................. (195) (63,471) (57,688)
Capital lease obligations--net................................................. (275) (518) (479)
Net borrowings (repayments) under short-term debt arrangements.................. 14,825 39,150 (16,800)
Dividends on preferred and common stock......................................... (38,280) (38,259) (37,765)
--------- --------- ---------
Net Cash Used in Financing Activities......................................... (25,283) (20,434) (55,248)
--------- --------- ---------
Net Change in Cash and Cash Equivalents.......................................... (1,679) (10,917) 1,825
Cash and Cash Equivalents at Beginning of Year................................... 5,164 16,081 14,256
--------- --------- ---------
Cash and Cash Equivalents at End of Year......................................... $ 3,485 $ 5,164 $ 16,081
--------- --------- ---------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized........................................... $ 29,438 $ 31,782 $ 33,134
Federal income taxes........................................................... $ 17,982 $ 15,575 $ 21,558
--------- --------- ---------
The accompanying notes are an integral part of these statements.
20
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Orange and Rockland Utilities, Inc. (the Company) and its wholly owned
utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light
& Power Company (Pike), are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and various state regulatory authorities with
respect to their rates and accounting. Accounting policies conform to
generally accepted accounting principles, as applied in the case of regulated
public utilities, and are in accordance with the accounting requirements and
rate-making practices of the regulatory authority having jurisdiction. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A description of the
significant accounting policies follows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, all subsidiaries and the Company's PRO RATA share of an
unincorporated joint venture. All intercompany balances and transactions have
been eliminated.
The Company's non-utility subsidiaries are wholly owned gas marketing and
land development companies.
RATE REGULATION
The Company, RECO and Pike are subject to rate regulation by the New York
Public Service Commission (NYPSC), the New Jersey Board of Public Utiliti es
(NJBPU), the Pennsylvania Public Utility Commission (PPUC) and the FERC. The
consolidated financial statements of the Company are based on generally
accepted accounting principles, including the provisions of Statement of
Finan cial Accounting Standards No. 71 (SFAS No. 71), "Accounting for the
Effects of Certain Types of Regulation," which gives recognition to the
rate-making and accounting practices of the regulatory agencies. The
principal effect of the rate-making process on the Company's consolidated
financial statements is that of the timing of the recognition of incurred
costs. If rate regulation provides reasonable assurance that an incurred cost
will be recovered in a future period by inclusion of that cost in rates, SFAS
No. 71 requires the capitalization of the cost. Regulatory assets represent
probable future revenue associated with certain incurred costs, as these
costs are recovered through the rate-making process. The following regulatory
assets were reflected in the Consolidated Balance Sheets as of December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Income Taxes (Note 2)........................................ $ 74,198 $ 72,631
Extraordinary Property Loss (Note 3).................................. 2,849 4,250
FERC Order 636 Costs (Note 12)........................................ 11,732 6,064
Deferred Revenue Taxes (Note 1)....................................... 14,271 15,596
Deferred Pension and Other Postretirement Benefits (Note 10).......... 9,922 10,422
Gas Take-or-Pay Costs (Note 12)....................................... 2,117 1,640
Revenue Decoupling Mechanism (Note 1)................................. -- (2,485)
Deferred Plant Maintenance Costs (Note 1)............................. 4,244 4,944
Demand-Side Management Costs (Note 1)................................. 1,181 (445)
Deferred Fuel and Gas Costs (Note 1).................................. (4,943) (11,314)
IPP Settlement Agreements (Note 1).................................... 24,065 40,034
Other................................................................. 5,985 5,778
---------- ----------
Total............................................................... $ 145,621 $ 147,115
---------- ----------
</TABLE>
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of." This Statement imposes criteria for the continued
recognition of regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. The Com pany adopted this
standard on January 1, 1996. Based on the current regulatory structure in
which the Company operates, the adoption did not have any effect on the
financial position or results of operations of the Company. This conclusion
may change in the future as competitive factors influence wholesale and
retail pricing in this industry.
UTILITY REVENUES
Utility revenues are recorded on the basis of cycle billings rendered to
certain customers monthly and others bimonthly. Unbilled revenues are accrued
at the end of each month for estimated energy usage since the last meter
reading. Effective May 1, 1996, as part of an agreement with the NYPSC, the
Company eliminated its Revenue Decoupling Mechanism (RDM) for New York's
electric revenues. Therefore, the electric revenues effective May 3, 1996 are
based on actual sales. Previously, New York electric revenues were recognized
in the accompanying consolidated financial statements based on amounts
included in rates.
The level of revenues from gas sales in New York is subject to a weather
normalization clause that required recovery from or refund to firm customers
for shortfalls or excesses of firm net revenues during a heating season due
to variation from normal weather (which is the basis for projecting base
tariff requirements).
FUEL COSTS
The tariff schedules for electric and gas services in New York include
adjustment clauses under which fuel, purchased gas and certain purchased
power costs, above or below levels allowed in approved rate schedules, are
billed or credited to customers up to approximately 60 days after the costs
are incurred. In accordance with regulatory commission policy, such costs,
along with the related income tax effects, are deferred until billed or
credited to customers.
A reconciliation of recoverable gas costs with billed gas revenues is
done annually as of August 31, and the excess or deficiency is refunded to or
recovered from customers during a subsequent 12-month period. The NYPSC
provides for a modified electric fuel adjustment clause requiring an 80% /
20% sharing between customers and shareholders of variations between actual
and forecasted fuel costs annually. The 20% portion of fluctuations from
forecasted costs is limited to a maximum of $1,762,000 annually. The fuel
costs targets are approved by the NYPSC for each calendar year following the
Company's filing of forecasted fuel costs. Tariffs for electric and gas
service in Pennsylvania and electric service in New Jersey contain adjustment
clauses which utilize estimated prospective energy costs on an annual basis.
The recovery of such estimated costs is made through equal monthly charges
over the year of projection. Any over- or under-recoveries are deferred and
refunded or charged to customers during the subsequent 12-month period.
UTILITY PLANT
Utility plant is stated at original cost. The cost of additions to, and
replacements of, utility plant include contracted work, direct labor and
material, allocable overheads, allowance for funds used during construction
and indirect charges for engineering and supervision. Replacement of minor
items of property and the cost of repairs are charged to maintenance expense.
At the time depreciable plant is retired or otherwise disposed of, the
original cost, together with removal cost less salvage, is charged to the
accumulated provision for depreciation.
DEPRECIATION
For financial reporting purposes, depreciation is computed on the
straight-line method based on the estimated useful lives of the various
classes of property. Provisions for depreciation are equivalent to the
21
following composite rates based on the average depreciable plant balances at
the beginning and end of the year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Plant Classification:
Electric................................................................................... 2.88% 3.07% 3.05%
Gas........................................................................................ 2.91% 2.95% 2.80%
Common..................................................................................... 5.93% 6.64% 6.37%
---- ---- ----
</TABLE>
The composite gas depreciation rate in 1996 excludes the effects of
adjustments provided for in the gas rate agreement with the NYPSC.
JOINTLY OWNED UTILITY PLANT
The Company has a one-third interest in the 1,200 megawatt Bowline Point
generating facility, which it owns jointly with The Consolidated Edison
Company of New York, Inc. The Company is the operator of the joint venture.
Energy is allocated to the participants based on an agreement dated May 31,
1996. This agreement entitles each company to a certain amount of energy at
different periods during the year. The operation and maintenance expenses of
the facility are allocated to the Company on a one-third basis, except for
major maintenance which is allocated based on the energy received from the
plant by the partners. Under this agreement, each co-owner has an undivided
interest in the facility and is responsible for its own financing. The
Company's interest in this jointly owned plant consists primarily of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Electric Utility Plant in Service..................................... $ 102,309 $ 101,747
Construction Work in Progress......................................... $ 1,317 $ 1,038
---------- ----------
</TABLE>
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return, and income taxes are allocated based on the taxable income or loss of
each company. Investment tax credits, which were available prior to the Tax
Reform Act of 1986, have been fully normalized and are being amortized over
the remaining useful life of the related property for financial reporting
purposes. The consolidated financial statements of the Company are prepared
pursuant to the provisions of Statement of Financial Accounting Standards No.
109 (SFAS No. 109) "Accounting for Income Taxes," which requires the asset
and liability method of accounting for income taxes. SFAS No. 109 retains the
requirement to record deferred income taxes for temporary differences that
are reported in different years for financial reporting and tax purposes. The
statement also requires that deferred tax liabilities or assets be adjusted
for the future effects of any changes in tax laws or rates and that regulated
enterprises recognize an offsetting regulatory asset or liability, as
appropriate.
DEFERRED REVENUE TAXES
Deferred revenue taxes represent the unamortized balance of an
accelerated payment of New Jersey Gross Receipts and Franchise Tax required
by legislation enacted effective June 1, 1991. In accordance with an order by
the NJBPU, the expenditure has been deferred and is being recovered in rates,
with a carrying charge of 7.5% on the unamortized balance, over a 10-year
period. In addition, certain New York State revenue taxes included in rate
base are deferred and amortized over a 12-month period following payment in
accordance with the requirements of the NYPSC.
IPP SETTLEMENT AGREEMENTS
During 1994 and 1995, the Company negotiated termination agreements with
Independent Power Producers (IPP) scheduled to provide electric generating
capacity and energy services to the Company in the late 1990's.
At December 31, 1996, $24.1 million of termination costs associated with
these settlement agreements are being recovered in rates.
DEFERRED PLANT MAINTENANCE COSTS
The Company utilizes a silicone injection procedure as part of its
maintenance program for residential underground electric cable in order to
prevent premature failures and ensure the realization of the expected useful
life of the facilities. In 1992, the FERC issued an accounting order that
required the cost of this procedure to be treated as maintenance expense
rather than as a plant addition. The Company requested deferred accounting
for these expenditures from the NYPSC and NJBPU in order to properly match
the cost of the procedure with the periods benefited. In 1994, the NYPSC
approved the deferred accounting request and authorized a 10-year
amortization. On January 12, 1996, the NJBPU authorized RECO to capitalize
these costs until the next base rate case.
RESERVE FOR CLAIMS AND DAMAGES
Costs arising from workers' compensation claims, property damage, general
liability and unusual production plant repair costs are partially
self-funded. Provisions for the reserves are based on experience, risk of
loss and the rate-making practices of regulatory authorities.
SALE OF BROADCAST PROPERTIES
The Company sold the six radio broadcasting properties operated by a
wholly owned indirect subsidiary, Atlantic Morris Broadcasting, Inc. (AMB),
during 1995.
Operating losses of $1,188,000 and $484,000 for the years ended December
31, 1995, and 1994, respectively, for the radio broadcast properties are
included in Other Income and Deductions in the accompanying Consolidated
Statements of Income and Retained Earnings.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform with
the current year presentation.
NOTE 2. FEDERAL INCOME TAXES
The Internal Revenue Service (IRS) has completed its examination of the
Company's tax returns for 1990, 1991 and 1992. The Company and IRS have
agreed to an assessment for a tax deficiency of approximately $1.7 million
plus interest, which primarily relates to the misuse and misappropriation of
Company funds during this period. After offsetting the assessment with
established reserves and other related items, this action had a minimal
effect on the operating results of the Company.
The IRS has recently commenced its examination of the Company's tax
returns for 1993 and 1994.
The components of federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Charged to operations:
Current......................................................................... $ 19,588 $ 18,048 $ 24,439
Deferred-net.................................................................... 5,360 7,976 322
Amortization of investment tax credit........................................... (128) (122) (132)
--------- --------- ---------
Total charged to operations.................................................... 24,820 25,902 24,629
--------- --------- ---------
Charged to other income:
Current......................................................................... 92 (3,160) (3,042)
Deferred-net.................................................................... 184 2,097 (450)
Amortization of investment tax credit........................................... (796) (765) (758)
--------- --------- ---------
Total charged to other income.................................................. (520) (1,828) (4,250)
--------- --------- ---------
Total............................................................................ $ 24,300 $ 24,074 $ 20,379
--------- --------- ---------
</TABLE>
The tax effect of temporary differences which gave rise to deferred tax
assets and liabilities is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Liabilities:
Accelerated depreciation............................................. $ 188,039 $ 180,954
Other................................................................ 30,887 33,073
---------- ----------
Total liabilities................................................... 218,926 214,027
---------- ----------
Assets:
Employee benefits.................................................... (17,136) (14,902)
Deferred fuel costs.................................................. (404) (1,601)
Other................................................................ (15,032) (14,128)
---------- ----------
Total assets........................................................ (32,572) (30,631)
---------- ----------
Net Liability......................................................... $ 186,354 $ 183,396
---------- ----------
</TABLE>
22
Reconciliation of the difference between federal income tax expenses and
the amount computed by applying the prevailing statutory income tax rate to
income before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------- ----- ----- -----
(% OF PRE-TAX INCOME)
<S> <C> <C> <C>
Statutory tax rate........................................................................... 35% 35% 35%
Reduction in computed taxes resulting from:
Amortization of investment tax credits...................................................... (1) (1) (2)
Cost of removal............................................................................. (1) (2) (1)
Additional depreciation deducted for book purposes.......................................... 4 5 5
Other....................................................................................... (3) -- (2)
----- ----- ----
Effective Tax Rate........................................................................... 34% 37% 35%
----- ----- ----
</TABLE>
NOTE 3. STERLING NUCLEAR PROJECT
Costs associated with the Sterling Nuclear Project, which was abandoned
in 1980, and in which the Company was a 33% participant, are recorded in
Deferred Debits--Extraordinary Property Loss.
The Company has recovered all of its share of costs associated with the
Sterling Nuclear Project. The NJBPU had approved a 20-year amortization,
which commenced June 23, 1982, of costs (excluding a return on the
unamortized balance) attributable to the Company's subsidiary, RECO.
At December 31, 1996 and 1995, the unamortized Sterling Project costs
which have been approved for amortization and recovery, before reduction for
deferred taxes, amounted to $3.0 million and $4.6 million, respectively. All
of the $3.0 million in 1996 and $3.9 million of the 1995 costs are
attributable to RECO and are not subject to an earned return on the
unamortized balance.
NOTE 4. RETAINED EARNINGS
Various restrictions on the availability of retained earnings of RECO for
cash dividends are contained in, or result from, covenants in indentures
supplemental to that company's Mortgage Trust Indenture. Approximately
$7,501,600 at December 31, 1996 and 1995 was so restricted.
NOTE 5. CAPITAL STOCK OTHER THAN REDEEMABLE PREFERRED STOCK
The table below summarizes the changes in Capital Stock, issued and
outstanding, for the years 1994, 1995 and 1996.
<TABLE>
<CAPTION>
(B) (C)
NON-REDEEMABLE NON-REDEEMABLE
(A) CUMULATIVE CUMULATIVE
COMMON PREFERRED PREFERENCE CAPITAL
STOCK STOCK STOCK STOCK
($5 PAR VALUE) ($100 PAR VALUE) (NO PAR VALUE) PREMIUM
----------------------- -------------------- ----------------------- -------
SHARES AMOUNT* SHARES AMOUNT* SHARES AMOUNT* AMOUNT*
------------ --------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance 12/31/93:........................ 13,532,055 $ 67,660 428,443 $ 42,844 13,590 $ 443 $ 130,313
Sales................................... 120,041 601 3,267
Conversions............................. 817 4 (565) (19) 15
------------ --------- --------- --------- ---------- ----- ----------
Balance 12/31/94:........................ 13,652,913 68,265 428,443 42,844 13,025 424 133,595
Conversions............................. 700 3 (486) (15) 12
------------ --------- --------- --------- ---------- ----- ----------
Balance 12/31/95:........................ 13,653,613 68,268 428,443 42,844 12,539 409 133,607
Conversions............................. 508 3 (359) (12) 9
------------ --------- --------- --------- ---------- ----- ----------
Balance 12/31/96:........................ 13,654,121 $ 68,271 428,443 $ 42,844 12,180 $ 397 $ 133,616
------------ --------- --------- --------- ---------- ----- ----------
Shares Authorized........................ 50,000,000 820,000 1,500,000
------------ --------- --------- --------- ---------- ----- ----------
*(in thousands)
(A) At December 31, 1996, 17,905 shares of common stock were reserved for
conversion of preference stock.
(B) Non-Redeemable Preferred Stock (cumulative):
</TABLE>
<TABLE>
<CAPTION>
Par Value
--------- CALLABLE
DECEMBER 31, REDEMPTION
SHARES 1994, 1995 AND PRICE PER
SERIES OUTSTANDING 1996 SHARE
- --------------------------------------------------------------- ----------- ------------------ --------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
A,4.65%........................................................ 50,000 $ 5,000 $ 104.25
B,4.75%........................................................ 40,000 4,000 $ 102.00
D,4.00%........................................................ 3,443 344 $ 100.00
F,4.68%........................................................ 75,000 7,500 $ 102.00
G,7.10%........................................................ 110,000 11,000 $ 101.00
H,8.08%........................................................ 150,000 15,000 $ 102.43
----------- ------- -------
428,443 $ 42,844
----------- ------- -------
</TABLE>
This stock is not subject to mandatory redemption, but rather is subject
to redemption, at any time, solely at the option of the Company on 30 days
minimum notice upon payment of the redemption price, plus accrued and unpaid
dividends to the date fixed for redemption. Furthermore, the preferred stock
is superior to cumulative preference stock and common stock with respect to
dividends and liquidation rights.
(C) The Non-Redeemable $1.52 Convertible Cumulative Preference Stock,
Series A, is redeemable at the option of the Company on 30 days minimum
notice upon payment of the redemption price, plus accrued and unpaid
dividends. The redemption price per share is $32.50 plus accrued and unpaid
dividends to the date fixed for redemption. This stock ranks junior to
cumulative preferred stock and superior to common stock as to dividends and
liquidation rights. Furthermore, this stock is convertible, at the option of
the shareholder, into common stock at the ratio of 1.47 shares of common
stock for each share of preference stock, subject to adjustment.
NOTE 6. REDEEMABLE PREFERRED STOCK
The table below summarizes the changes in Redeemable Cumulative Preferred
Stock, issued and outstanding, for the years 1994, 1995 and 1996.
<TABLE>
<CAPTION>
($100 PAR VALUE)
----------------------
SHARES AMOUNT*
--------- -----------
<S> <C> <C>
Balance 12/31/93:........................................................ 55,422 $ 5,542
Redemptions............................................................. (13,842) (1,384)
--------- -----------
Balance 12/31/94:........................................................ 41,580 4,158
Redemptions............................................................. (13,842) (1,384)
--------- -----------
Balance 12/31/95:........................................................ 27,738 2,774
Redemptions............................................................. (13,842) (1,384)
--------- -----------
Balance 12/31/96:........................................................ 13,896 $ 1,390
--------- -----------
Shares Authorized........................................................ 180,000
---------
</TABLE>
On January 6, 1997, the Company redeemed the remaining 13,896 shares of
Redeemable Cumulative Preferred Stock, Series I, 8 1/8% then outstanding, at
$100 per share.
NOTE 7. LONG-TERM DEBT
Under the terms of the Company's First Mortgage Indenture and the
indentures supplemental thereto, and relative to all series of First Mortgage
Bonds, the Company on May 1 of each year is required to make annual sinking
fund payments equal to 1% of the maximum amount of bonds outstanding during
the preceding calendar year. The Company has satisfied such requirements
through 1996 by allocating an amount of additional property. The Company has
one remaining series of First Mortgage Bonds outstanding, the Series I,
6 1/2%, due October 1, 1997, in the principal amount of $23.0 million. 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. Pike is required, pursuant to its First Mortgage Indenture, to
make annual sinking fund payments in the amount of $9,500 on July 15 of each
year, with respect to its Series "A" Bonds. The sinking fund requirements of
Pike for 1996 were satisfied by the allocation of an amount of additional
property
23
and Pike expects to continue such practice in succeeding years. Details of
long-term debt at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------- ---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Orange and Rockland Utilities, Inc.:
First Mortgage Bonds:
Series I, 6 1/2% due Oct. 1, 1997........................................................ $ 23,000 $ 23,000
Promissory Notes (unsecured)
6.9%--6.96% due through July 15, 2000.................................................... 56 48
6.09% due Oct. 1, 2014 (a)............................................................... 55,000 55,000
Variable due Aug. 1, 2015 (b)............................................................ 44,000 44,000
Debentures:
Series A, 9 3/8% due Mar. 15, 2000....................................................... 80,000 80,000
Series B, 6 1/2% due Oct. 15, 1997....................................................... 55,000 55,000
Series C, 6.14% due Mar. 1, 2000......................................................... 20,000 20,000
Series D, 6.56% due Mar. 1, 2003......................................................... 35,000 35,000
Rockland Electric Company:
First Mortgage Bonds:
Series H, 9.59% due July 1, 2020 (c)..................................................... 20,000 20,000
Series I, 6% due July 1, 2000............................................................ 20,000 20,000
Pike County Light & Power Company:
First Mortgage Bonds:
Series A, 9% due July 15, 2001........................................................... 884 884
Series B, 9.95% due Aug. 15, 2020........................................................ 1,800 1,800
Diversified Operations:
Mortgage (secured)
8 1/2% due through June 18, 1999......................................................... 5,228 5,405
---------- ---------
359,968 360,137
Less: Amount due within one year......................................................... 78,203 192
---------- ---------
281,765 359,945
Unamortized discount on long-term debt................................................... (143) (209)
---------- ---------
Total Long-Term Debt..................................................................... $ 281,622 $ 359,736
---------- ---------
</TABLE>
(a) The Company's $55 million Promissory Note was issued in connection
with the New York State Energy Research and Development Authority (NYSERDA)
variable rate Pollution Control Refunding Revenue Bonds (Orange and Rockland
Utilities, Inc. Projects), 1994 Series A (1994 Bonds). Pursuant to an
interest rate swap agreement, the Company pays interest at a fixed rate of
6.09% to a swap counter party and receives a variable rate of interest in
return which is identical to the variable rate on the 1994 Bonds. The result
is to effectively establish a fixed rate of interest on the 1994 Bonds of
6.09%.
(b) The Company's $44 million Promissory Note was issued in connection
with the NYSERDA's $44 million variable rate Pollution Control Refunding
Bonds due August 1, 2015 (the 1995 Bonds). The average interest rate on the
1995 Bonds was 3.18% in 1996 and 3.63% in 1995. The interest rate is adjusted
weekly, unless converted to a fixed rate.
(c) On February 4, 1997, RECO issued $20 million of First Mortgage 7 1/8%
Bonds, Series J due February 1, 2007 (Series J Bonds). The proceeds from the
issuance of the Series J Bonds, together with other RECO funds will be used to
refund, in March 1997, RECO's $20 million First Mortgage 9.59% Bonds, Series
H.
The aggregate amount of debt maturities, which will be satisfied by cash
payments and sinking fund requirements (allocation of additional property)
for each of the five years following 1996 is as follows: 1997 --$78,212,000;
1998--$139,000; 1999--$4,956,000; 2000--$120,014,000; 2001 --$884,000.
Substantially all of the utility plant and other physical property is
subject to the liens of the respective indentures securing the First Mortgage
Bonds of the Company and its utility subsidiaries.
Investments in the Company's wholly owned utility subsidiaries, costing
$11,828,700, which have been eliminated from the consolidated balance sheet,
are pledged under the Second Supplemental Indenture to the Company's First
Mortgage Indenture.
NOTE 8. CASH AND SHORT-TERM DEBT
The Company considers all cash and highly liquid debt instruments
purchased with a maturity date of three months or less to be cash and cash
equivalents for the purposes of the Consolidated Financial Statements.
At December 31, 1996, the Company and its utility subsidiaries had
unsecured bank lines of credit totaling $100 million. The Company may borrow
under the lines of credit through the issuance of promissory notes to the
banks at their prevailing interest rate for prime commercial borrowers. The
Company, however, utilizes such lines of credit to fully support commercial
paper borrowings, which are issued through dealers at the prevailing interest
rate for prime commercial paper. The aggregate amount of borrowings through
the issuance of promissory notes and commercial paper cannot exceed the
aggregate lines of credit. In addition, NORSTAR Energy Limited Partnership
(NORSTAR), a diversified operation of RECO, maintains a $20 million line of
credit with one commercial bank under which there were $2.0 million of
letters of credit outstanding at December 31, 1996. Additionally, NORSTAR had
$1.0 million of notes outstanding under this line of credit. Borrowings under
this line are made at rates based on various financial indices, as determined
by the borrower at the time of borrowing plus a premium. All borrowings for
1996, 1995 and 1994 had maturity dates of three months or less. Information
regarding short-term borrowings during the past three years is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Weighted average interest rate at year-end............................................... 6.5% 6.1% 6.4%
Amount outstanding at year-end........................................................... $ 84.0 $ 68.6 $ 29.4
Average amount outstanding for the year.................................................. $ 66.6 $ 37.1 $ 31.3
Daily weighted average interest rate during the year..................................... 5.7% 6.1% 4.5%
Maximum amount outstanding at any month-end.............................................. $ 97.5 $ 69.6 $ 42.9
--------- --------- ---------
</TABLE>
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
FINANCIAL ASSETS AND LIABILITIES
For the Company, financial assets and liabilities consist principally of
cash and cash equivalents, short-term debt, commercial paper, long-term debt
and redeemable preferred stock. The methods and assumptions used to estimate
the fair value of each class of financial assets and liabilities for which it
is practicable to estimate that value are as follows:
Cash equivalents and temporary cash investments--The carrying amount
reasonably approximates fair value because of the short maturity of those
instruments.
Long-term debt--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues.
Notes payable and commercial paper--The carrying amount reasonably
approximates fair value because of the short maturity of those instruments.
Redeemable preferred stock--The carrying amount of the Company's
redeemable preferred stock approximates fair value because of the redemption
and retirement of that instrument on January 6, 1997.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT AMOUNT AMOUNT AMOUNT
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............................................. $ 3,485 $ 3,485 $ 5,164 $ 5,164
Temporary cash investments............................................ 1,289 1,289 1,335 1,335
Long-term debt........................................................ 359,968 366,509 360,137 349,694
Notes payable and commercial paper.................................... 83,375 83,375 68,550 68,550
Redeemable preferred stock............................................ 1,390 1,390 2,774 2,820
-------- -------- -------- --------
</TABLE>
OFF BALANCE SHEET AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its gas marketing subsidiary utilize certain off balance
sheet derivative financial instruments. Information regarding such
instruments is as follows:
Swap Agreement--In connection with the issuance of the 1994 Bonds, the
Company entered into a single interest rate Swap
24
Agreement during 1992. The purpose of the Swap Agreement, which became
effective on October 1, 1994, was to take advantage of the favorable interest
rates which existed during 1992. Under the terms of the interest rate Swap
Agreement, the Company pays interest at a fixed rate of 6.09% to a swap
counterparty and receives a variable rate of interest in return. The variable
rate is identical to the variable rate payment on the 1994 Bonds made
pursuant to an indenture of trust dated August 15, 1994. The result is to
effectively fix the interest rate on the 1994 Bonds at 6.09%. There were no
gains or losses due to the execution of the Swap Agreement. The terms and
conditions of the Swap Agreement are specific to the financing described. As
a result, no market price is available. Under certain circumstances, although
none are anticipated, the agreement may be terminated. The fair value of the
agreement is the amount which one counterparty may be required to pay the
other upon early termination. If the agreement had been terminated on
December 31, 1996, the Company would have been required to make a payment of
approximately $7.6 million to the Swap counterparty.
Gas Futures Contracts--Natural Gas Futures Contracts are bought and sold
on the New York Mercantile Exchange (NYMEX) by NORSTAR to hedge the physical
sale and purchase of natural gas. The contracts are generally purchased or
sold at the same time that the physical transaction is executed. The hedges
are liquidated during the last three days of the NYMEX contract settlement
each month which is the same period of time when the physical transaction is
completed.
When physical supply is sold at a fixed price, the margin on the ultimate
commodity transaction is locked in by buying NYMEX futures contract(s). If
physical supply is purchased at a fixed price, the margin is locked in by
selling NYMEX futures contract(s).
These NYMEX contracts are managed by executing trades in a timely manner
when the physical transaction occurs and executing the number of contracts in
lots which are close in volume to the physical volume. Also, the futures are
bought and sold at price levels that maximize the value of the physical side
of the transaction.
Futures contracts outstanding at December 31, 1996 and December 31, 1995,
amounted to 351 contracts purchased and 449 contracts purchased,
respectively. The related margin deposits with brokers at December 31, 1996
and December 31, 1995, amounted to $1,433,221 and $2,202,542, respectively.
The underlying futures contracts as of December 31, 1996 are of varying
durations, none of which extend beyond March 1998. The fair value of the open
futures contracts at December 31, 1996 and the amount NORSTAR would receive
if these were settled on that day was approximately $940,220. Deferred
hedging gains at December 31, 1996 relating to futures contracts were
$3,070,460. Deferred gains at December 31, 1995 relating to futures contracts
were $2,035,000. The January 1997 contracts were settled on December 24,
1996. These gains of $2,130,240 were deferred at December 31, 1996 and will
be recognized in January 1997 when NORSTAR physically delivers the gas in
January 1997 (i.e., the business NORSTAR hedged).
The Company is exposed to credit risk in the event of nonperfor-mance by
the counterparties of the transaction which they hedge. The Company believes
that the credit risk related to the futures contracts is no greater than that
associated with the primary contracts which they hedge, as these contracts
are with major investment grade financial institutions, and that the
elimination of the commodity price risk lowers overall business risk.
NOTE 10. PENSION AND POSTRETIREMENT BENEFITS
PENSION BENEFITS
The Company maintains a non-contributory defined benefit retirement plan,
covering substantially all employees. The plan calls for benefits, based
primarily on years of service and average career compensation, to be paid to
eligible employees at retirement. For financial reporting purposes, pension
costs are accounted for in accordance with the requirements of Statement of
Financial Accounting Standards No. 87 (SFAS No. 87), "Employers' Accounting
for Pensions." SFAS No. 87 results in a difference in the method of
determining pension costs for financial reporting and funding purposes. Plan
valuation for funding and income tax purposes is prepared on the unit credit
cost method, which makes no assumptions as to future compensation levels. In
contrast, the projected unit credit cost method required for accounting
purposes by SFAS No. 87 reflects assumptions as to future compensation
levels. The Company's policy is to fund the pension costs determined by the
unit credit cost method subject to the IRS funding limitation rules. For
rate-making purposes, pension expense determined under SFAS No. 87 is
reconciled with the amount provided in rates for pensions. Any difference is
deferred for subsequent recovery or refund.
The following table sets forth, pursuant to the requirements of SFAS No.
87, the plan's funded status and amounts recognized in the Consolidated
Balance Sheets at December 31, 1996 and 1995. Plan assets are stated at fair
market value and are composed primarily of common stocks and investment grade
debt securities.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................................. $ (191,499) $ (178,903)
Nonvested.......................................................... (15,947) (15,719)
----------- -----------
Accumulated benefit obligation...................................... $ (207,446) $ (194,622)
----------- -----------
Projected benefit obligation........................................ $ (216,821) $ (203,956)
Plan assets at fair market value.................................... 225,997 205,342
----------- -----------
Excess of plan assets over projected benefit obligation............. 9,176 1,386
Unamortized net transition asset at adoption of SFAS No. 87 being
amortized over 15 years........................................... (5,568) (6,681)
Unrecognized prior service costs.................................... 29,485 32,455
Unrecognized net gain............................................... (58,497) (55,649)
----------- -----------
Accrued Pension Cost................................................ $ (25,404) $ (28,489)
----------- -----------
</TABLE>
Net periodic pension expense calculated pursuant to the requirements of
SFAS No. 87 for the years 1996, 1995 and 1994 includes the following
components:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost-benefits earned during year.......................................... $ 5,456 $ 5,151 $ 6,250
Interest cost on projected benefit obligation..................................... 15,135 14,996 14,132
Actual return on plan assets...................................................... (25,293) (37,863) 2,634
Net deferral and capitalized...................................................... 7,579 20,129 (18,426)
--------- --------- ---------
Net Pension Expense............................................................... $ 2,877 $ 2,413 $ 4,590
--------- --------- ---------
</TABLE>
The expected long-term rate of return on plan assets, the weighted
average discount rate and the annual rate of increase in future compensation
assumed in determining the projected benefit obligation for 1996 and 1995
were 8.0%, 7.5% and 2.5%, respectively.
In addition to the pension plan described above, the Company has an
unfunded non-contributory supplemental retirement plan covering certain
management employees. The cost to the Company of the supplemental plan in
1996, 1995 and 1994 was $1.6 million, $0.7 million and $0.8 million,
respectively.
POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company and its
subsidiaries provide certain health care and life insurance benefits for
retired employees. Employees retiring from the Company on or after having
attained age 55 who have rendered at least 10 years of service are entitled
to postretirement health care coverage.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits
Other Than Pensions," which established the accounting and financial
reporting standards for postretirement benefits other than pensions, the
Company is required to accrue the estimated future cost of postretirement
health and non-pension
25
benefits during the years that employees render the necessary service, rather
than recognizing the cost of such benefits after employees have retired and
when the benefits are actually paid. Deferred accounting for any difference
between the expense charge required under SFAS No. 106 and the current rate
allowance has been authorized by the NYPSC for the Company's New York
electric and gas operations. Similar procedures have been adopted by the
NJBPU and PPUC for the operations in those states. The NYPSC and PPUC allow
the Company to recover SFAS No. 106 costs applicable to electric operations
and gas operations currently in rates. New Jersey electric operations will be
addressed in future rate filings.
In order to provide funding for active employees' postretirement
benefits, the Company has established Voluntary Employees' Beneficiary
Association (VEBA) trusts for collectively bargained employees and management
employees. Contributions to the VEBA trusts are tax deductible, subject to
limitations contained in the Internal Revenue Code. The Company's policy is
to fund postretirement health and life insurance costs to the extent
recoveries are realized for these costs through rates. During 1996, the
Company contributed $5.4 million to the VEBA trust. Rate recoveries and
billings to others totaled $5.1 million in 1996 and $3.9 million in 1995. As
permitted by SFAS No. 106, the Company has elected to amortize the
accumulated postretirement benefit obligation at the date of adoption of the
accounting standard, January 1, 1993, over a 20 year period. This transition
obligation totaled $57.2 million. The following table sets forth the plan's
funded status, reconciled with amounts recognized in the Company's financial
statements at December 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active employees...................................... $ (13,765) $ (18,989)
Other active employees............................................... (34,902) (31,644)
Retirees............................................................. (34,332) (26,976)
---------- ----------
Total benefit obligation............................................ (82,999) (77,609)
Plan assets at fair value............................................. 14,822 8,926
---------- ----------
Accumulated postretirement obligation in excess of plan assets........ (68,177) (68,683)
Unrecognized transition obligation.................................... 44,409 47,185
Prior service cost.................................................... 2,174 --
Unrecognized experience net loss...................................... 6,881 8,639
---------- ----------
Accrued Postretirement Benefit Cost................................... $ (14,713) $ (12,859)
---------- ----------
</TABLE>
The components of net periodic postretirement benefit cost for the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost......................................................................... $ 2,050 $ 1,586 $ 1,817
Interest cost........................................................................ 5,925 5,622 5,198
Return on plan assets................................................................ (546) (319) --
Amortization of transition obligation................................................ 2,776 2,790 2,861
Prior service cost................................................................... 202 -- --
Net losses........................................................................... 855 529 553
Deferred and capitalized............................................................. (2,400) (3,424) (4,480)
--------- --------- ---------
Net Expense.......................................................................... $ 8,862 $ 6,784 $ 5,949
--------- --------- ---------
</TABLE>
The calculation of the actuarial present value of benefit obligations at
December 31, 1996 assumes a discount rate of 7.5% and health care cost trend
rates of 7.5% for medical costs and 10.0% for prescription drugs in 1997,
decreasing through 2002 to a rate of 5.0%. If the health care trend rate
assumptions were increased by one percent, the accumulated postretirement
benefit obligation would be increased by approximately $9.1 million. The
effect of this change on the sum of the service cost and interest cost would
be an increase of $1.1 million. The assumed discount rate for 1995 was 7.5%
and health care cost trend rates were 8.0% for medical costs and 11% for
prescription drugs in 1995, decreasing through 2002 to a rate of 5.0%.
NOTE 11. LEASES
The Company's aggregate commitments under the Company's non-cancellable
operating leases for the years following 1996 are as follows: 1997
- --$4,600,000; 1998--$3,900,000; 1999--$3,600,000; 2000-- $3,200,000; 2001
- --$3,500,000 and all years thereafter--$26,600,000.
Rental expense for 1996, 1995 and 1994 was $6.2 million, $6.0 million and
$5.3 million, respectively.
NOTE 12. COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105 "Financial Instruments with Concentrations of
Credit Risk," consist principally of temporary cash investments, accounts
receivable and gas marketing accounts receivable. The Company places its
temporary cash investments with high quality financial institutions.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Company's large, diverse customer base within its service
territory. With respect to gas marketing operations, the customer base
consists of a large diverse group of users of natural gas across the United
States, with the Company's credit risk being dependent on overall economic
conditions. Therefore, as of December 31, 1996, the Company had no
significant concentrations of credit risk.
CONSTRUCTION PROGRAM
Under the construction program of the Company and its subsidiaries, it is
estimated that expenditures (excluding allowance for funds used during
construction) of approximately $57.7 million will be incurred during 1997.
Construction expenditures, including cost of removal and salvage, amounted to
$60.9 million for 1996.
GAS SUPPLY AND STORAGE CONTRACTS
The Company has long-term contracts for firm supply, transportation and
storage of gas. The Company's obligations under these contracts for the five
years following 1996 are as follows: 1997-- $73,000,000; 1998--$73,400,000;
1999--$73,200,000; 2000--$71,800,000 and 2001--$54,900,000.
On July 1, 1995, pursuant to a settlement agreement between the Company
and the NYPSC, all issues concerning the Company's take- or-pay liability
have been resolved. The Company has been granted permission to collect from
its customers the remaining deferred amounts plus accrued interest. As of
December 31, 1996, the Company has deferred $2.1 million of these costs
remaining on the books of the Company.
On April 8, 1992, the FERC issued Order 636. The rule required
significant changes to the structure of the natural gas industry, and more
specifically, to the manner in which pipelines provide service. Order 636
changed the manner in which the Company obtains its gas supplies by
unbundling the transportation, storage and supply services offered by
interstate gas pipelines into separate components. Since 1993, the Company
has assumed responsibility for acquiring its own gas supply and assumed
direct responsibility for its gas acquisition and transportation.
While the FERC's objective is to restructure the industry to promote
competition among gas suppliers to ensure supply at the lowest reasonable
cost, there are significant initial costs associated with the implementation
of the restructuring rule. Specifically, Order 636 authorizes pipelines to
recover from their customers certain transition costs resulting from
implementation of the rulemaking. The Company's four principal pipeline
suppliers made filings with the FERC since the implementation of Order 636
for approval of a portion of their restructuring transition costs and
allocation procedures to flow the approved costs through to their customers.
Through December 31,
26
1996, the Company has paid $25.1 million of transition costs. The Company
currently estimates that its remaining obligation for FERC Order 636
transition costs will be approximately $11.6 million. This estimate was
determined from information provided in Order 636 FERC compliance filings by
the Company's pipeline suppliers and from subsequent transition cost filings.
This estimate is subject to adjustment by the FERC in its deliberations on
these filings and any future filings by the suppliers. The Company has
provided for the unpaid liability as of December 31, 1996 with an offsetting
charge to Deferred Transition Costs. In December 1994, the NYPSC issued an
order establishing the regulatory and rate-making policies applicable to New
York gas distribution utilities resulting from FERC Order 636. The order
provides the mechanisms for the full recovery of transition costs. The
Company is presently in the process of recovering these costs from its
customers and believes it will be allowed to fully recover such costs by the
end of 2000.
COAL SUPPLY CONTRACTS
The Company has one long-term contract for the supply of coal and two
long-term contracts for the transportation of coal. The Company has the right
under the long-term coal purchase contract to suspend the purchase of coal if
an alternative fuel source becomes less expensive.
The Company's aggregate contract obligations for the supply and
transportation of coal, for each of the five years following 1996 are as
follows: 1997--$30,800,000; 1998--$33,100,000; 1999--$33,900,000; 2000
- --$28,600,000; 2001--$21,500,000.
POWER PURCHASE AGREEMENTS
The Company has three long-term contracts for the purchase of electric
generating capacity and energy. The contracts expire in 1998, 2000 and 2015.
The Company's aggregate contract obligations for the purchase of electric
capacity and energy for each of the five years following 1996 are as follows:
1997--$14,400,000; 1998--$11,500,000; 1999--$5,100,000; 2000--$5,400,000;
2001--$700,000.
LEGAL PROCEEDINGS
INVESTIGATION AND RELATED LITIGATION
On February 7, 1994, the Company commenced an action entitled ORANGE AND
ROCKLAND UTILITIES, INC. V. JAMES F. SMITH (SMITH), in New York State Supreme
Court against its former Chief Executive Officer and Chairman of the Board of
Directors, who was terminated for cause by the Company's independent
Directors in October 1993. The action asserts claims against Mr. Smith for
breach of his fiduciary duties of loyalty and care, waste, conversion, fraud
and unjust enrichment based on misuse of Company assets and personnel and
misappropriation of Company funds for his own benefit or for other improper
purposes, and failure to maintain proper management controls or to properly
supervise corporate affairs and subordinate employees. Mr. Smith filed a
counterclaim for benefits in excess of $3 million and filed a motion
demanding arbitration under his employment agreement with the Company. On
June 17, 1994, the court issued an Order granting Mr. Smith's motion to
compel arbitration. Under a second Order dated August 10, 1994, the parties
filed demands for arbitration of the claims asserted by the Company and by
Mr. Smith with the American Arbitration Association. Hearings began in June
1995 and concluded in October 1996. Post arbitration briefs were submitted in
November 1996 and the arbitrators heard closing arguments in December 1996.
The arbitration panel released a written decision on January 29, 1997. The
arbitrators found that the Company had "successfully proved that over the
years [Mr. Smith] dishonestly and deceptively reported certain expense
account items, listing on expense account documentation names of prominent
persons who were not present, or inventing fictitious business purpose
rationales for social encounters, or pretending to attend business
conventions as a ruse for obtaining company-paid vacations for his family."
The arbitrators charged Mr. Smith with costs and expenses totaling $2,786,643
for "maintaining the expense account fictions..." and "for some of the costs of
unraveling [Mr. Smith's] deceptions." That money was awarded to the Company.
However, the arbitrators also ruled that Mr. Smith's conduct did not result in
"material economic damage" to the Company. As a result, the panel awarded Mr.
Smith $8,309,855, which includes his legal and arbitration fees. The
offsetting costs between his award and what was awarded to the Company
resulted in a net award to Mr. Smith of $5,523,212. The Company is currently
considering its legal options. Any amounts not previously provided for will be
recorded in the first quarter of 1997. The Company does not expect the
additional provisions to have a significant impact on the overall results of
operations in 1997.
On March 22, 1994, an indictment was returned by a Rockland County grand
jury charging Mr. Smith with eight felony counts of grand larceny and two
misdemeanor counts of petit larceny. In June 1994, a superseding indictment
charged Mr. Smith with 15 felony counts of grand larceny, seven counts of
falsifying business records and two misdemeanor counts of petit larceny. On
August 15, 1995, Mr. Smith was acquitted of the charges in a non-jury trial.
On September 19, 1995, the Company was served with an Amended Summons and
First Amended Complaint (Complaint) in an action filed in the United States
District Court for the Southern District of New York by Mr. Smith. (An
earlier complaint had been filed which did not name the Company.) Named as
defendants in the Complaint are former Rockland County District Attorney
Kenneth Gribetz, the Office of the Rockland County District Attorney, the
Company, "John and Jane Does" (identified in the Complaint as certain
directors of the Company and/or members of the Special Committee of the Board
and referred to in the Complaint as the "Defendant Directors"), Edwin Stier
and Stier, Anderson & Malone. The Complaint alleges three causes of action:
(1) the violation by Mr. Gribetz and the District Attorney's office of Mr.
Smith's federal constitutional rights to fair trial and due process of law;
(2) malicious prosecution by the Company, Defendant Directors and Mr. Stier
in that these defendants allegedly caused the arrest and criminal prosecution
of Mr. Smith; and (3) abuse of process by the Company, Defendant Directors
and Mr. Stier in that these defendants were allegedly responsible for the
arrest, indictment and prosecution of Mr. Smith. Mr. Smith seeks damages in
excess of $25 million, special damages and punitive damages, attorney fees
and other costs on each count.
On December 22, 1995, the Company, Edwin Stier, and Stier, Anderson &
Malone filed a Motion for Summary Judgment and related papers (Motion)
seeking to terminate this action. The Motion is currently pending; if the
Motion is unsuccessful, the Company intends to defend the action vigorously.
The Company cannot predict the outcome of this proceeding.
On November 10, 1994, the Company filed with the NYPSC a quantification
of the rate-making effects of its ongoing investigation into prior financial
improprieties. The Company requested that the NYPSC approve an additional
refund of approximately $3.4 million to its New York electric and gas
customers. This amount was in addition to the $369,000 previously refunded by
the Company. This amount was charged to operations in the fourth quarter of
1994. The NYPSC instituted a proceeding (Case 93-M-0849) to provide the
opportunity for other parties, including the NYPSC Staff, which was
conducting an independent investigation of the Company, to be heard on this
matter.
On July 6, 1995, the NYPSC issued an order stating that the issues of the
amount, timing and allocation of New York ratepayer refunds as a result of
the investigation in Case 93-M-0849 should be considered in the context of
the Company's then current electric base rate case (Case 95-E-0491) and
ordered the consolidation of the two cases (Consolidated Case).
27
On October 2, 1995, in the Consolidated Case, the Company filed a
settlement agreement with the NYPSC Staff relating to the amount, timing and
allocation of investigation refunds. Under the terms of the settlem ent
agreement, the Company agreed to (1) return approximately $6.5 million to its
electric customers; (2) forego a gas rate increase authorized by a previous
rate case, thereby saving gas customers an additional $1.7 million; and (3)
reduce its gas adjustment clause by $0.3 million. These amounts were charged
to operations in the second quarter of 1996. On May 3, 1996, the NYPSC issued
an order approving the settlement. Under an agreement with the NJBPU to
return to customers any funds found to be misappropriated or otherwise
questionable as a result of its investigation of certain Company officers and
former employees, in December 1994, RECO submitted a proposal to the NJBPU to
refund an additional $704,000 to RECO's customers. This amount was in
addition to the $93,000 refunded to the Company's New Jersey customers
through its Levelized Energy Adjustment Clause (LEAC) in February and March
1994. These amounts were charged to operations in the fourth quarter of 1994.
By order dated January 27, 1995, the NJBPU approved the Company's proposal.
In January 1996, the Company proposed to refund an additional $482,000 to its
New Jersey customers through LEAC. On February 21, 1996, the NJBPU approved
this refund making the total amount refunded to RECO's customers $1,279,000.
In the opinion of the Company, no significant additional refunds will be
required in connection with these proceedings.
OTHER LEGAL PROCEEDINGS
The Company, the six other New York State investor-owned electric
utilities, and the Energy Association of New York State filed a petition in
New York State Supreme Court on September 18, 1996 challenging the NYPSC's
May 20, 1996 Order in the Competitive Opportunities Proceeding (Case
94-E-0952) under Article 78 of the New York Civil Practice Law and Rules. In
their Article 78 petition, the petitioners alleged that the Order is vague,
ambiguous and procedurally defective, that the May 20, 1996 Order fails to
assure the utilities a reasonable opportunity to recover strandable costs,
and the NYPSC lacks the authority to order retail wheeling or divestiture.
On November 26, 1996, the Supreme Court issued a ruling denying the
Article 78 petition. In its ruling, the Court determined that because the
Commission has not yet directed retail wheeling, generation deregulation and
asset divestiture, there is no justiciable controversy regarding these
issues. Despite this finding, the Court proceeded to opine that the
Commission is not precluded by state or federal law from ordering retail
wheeling or generation divestiture. The Court also determined that the
utiliti es are not entitled, as a matter of law, to recover from customers
the full amount of the utilities' strandable costs. On December 24, 1996, the
Energy Association and the New York utilities appealed to the Appellate
Division of the Supreme Court for the Third Judicial Department from the
Supreme Court's November 26, 1996 decision. The Company is unable to predict
the final result of this litigation.
On September 25, 1991, the Company was named as one of several hundred
third party defendants in the UNITED STATES V. KRAMER, ET AL. and STATE OF
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. ALMO ANTI-POLLUTION
SERVICES, ET AL., which cases have been consolidated in the United States
District Court for the District of New Jersey, Camden Vicinage. The
allegations in this action concern the Helen Kramer Landfill site in Mantua,
New Jersey, which operated from 1963 to 1981. Suit in this case was brought
under Superfund laws. Although it is presently unclear whether any hazardous
waste generated by the Company was transported to the Helen Kramer Landfill
site, a final report by an independent waste consultant firm indicates that
no such waste was delivered to the site. On October 2, 1996, the Company
entered into a DE MINIMIS settlement agreement with certain third-party
plaintiffs which, INTER ALIA, provides for (i) dismissal of the claims
asserted against the Company and a bar to future claims against the Company
related to the site, (ii) indemnification of the Company for any future
claims or expenses related to the site, each with certain standard limited
exceptions, and (iii) payment of $15,000 into a fund which will be used to
pay for clean-up costs related to the site.
On March 29, 1989, the New Jersey Department of Environmental Protection
(NJDEP) issued a directive under the New Jersey Spill and Control Act to
various potentially responsible parties (PRPs), including the Company, with
respect to a site formerly owned and operated by Borne Chemical Company in
Elizabeth, Union County, New Jersey, ordering certain interim actions
directed at both site security and the off-site removal of certain hazardous
substances. Certain PRPs, including the Company, signed an administrative
consent order with the NJDEP requiring them to remove and dispose of the
hazardous substances located above ground at the Borne site, which removal
and disposal was completed on June 22, 1992. In October 1995, the PRPs
entered into an additional administrative consent order with the NJDEP which
obligated the PRPs, including the Company, to perform a remedial
investigation to determine what, if any, subsurface remediation at the Borne
site is required. The remedial investigation is proceeding. The Company does
not believe that this matter will have a material effect on the financial
condition of the Company.
On August 2, 1994, the Company entered into a Consent Order with the New
York State Department of Environmental Conservation (DEC) in which the
Company agreed to conduct a remedial investigation of certain property it
owns in West Nyack, New York. Polychlorinated biphenyls (PCBs) have been
discovered at the West Nyack site. Petroleum contamination related to a
leaking underground storage tank has been found as well. The Company has
completed this remedial investigation. In November 1996, the Company
submitted to the DEC a Feasibility Study Report which evaluates various
remedial actions to eliminate the contamination discovered at the West Nyack
site. After the DEC approves the Feasibility Study and solicits public
comment, the DEC shall select a final remedial alternative for the West Nyack
site. The Company does not believe that this matter will have a material
effect on the financial condition of the Company.
The Company has identified six former Manufactured Gas Plant (MGP) sites
which were owned and operated by the Company or its predecessors. The Company
may be named as a potentially responsible party for these sites under
relevant environmental laws, which may require the Company to clean up these
sites. To date, no claims have been asserted against the Company. The Company
is unable at this time to estimate what, if any, costs it will incur at these
sites. The Company and the DEC have executed a Consent Order dated as of
January 8, 1996, which provides for preliminary site assessments of these six
MGP sites. In November 1996, the Company submitted to the DEC, for its review
and approval, a draft work plan for the preliminary site assessment of three
of the MGP sites.
On May 29, 1991, a group of ten electric utilities (Metal Bank Group)
entered into an Administrative Consent Order with the United States
Environmental Protection Agency (EPA) to perform a remedial investigation and
feasibility study (RIFS) at the Cottman Avenue/Metal Bank Superfund site in
Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman Avenue
site from an underground storage tank and the handling of transformers and
other electrical equipment. On May 25, 1994, the Company entered into a
tolling agreement by which the Metal Bank Group reserved its right to file
suit against the Company, while the Metal Bank Group and the Company entered
into discussions to determine the Company's involvement with the Cottman
Avenue site. These discussions continue. The RIFS was completed and submitted
to the EPA for determination of what remedial measures will be required at
the Cottman Avenue site. The Metal Bank Group has assigned the Company with a
2.87% share although, to date,
28
because the Company is not a member of the Group, the Company has been unable
to confirm this allocation. In addition, the Company received in November
1996 a letter from the EPA requesting information and documentation
concerning the Company's connection to the site. The EPA has issued a
recommended proposed remediation plan which, if approved, will cost
approximately $17 million. The Company is unable at this time to estimate the
Company's share, if any, of past or future costs at this site.
On November 19, 1996, the Company was served with a Summons and Complaint
(Summons and Complaint) in a litigation entitled CROSSROADS COGENERATION
CORPORATION V. ORANGE AND ROCKLAND UTILITIES, INC., filed in the United
States District Court for the District of New Jersey. The litigation relates
to a power sales agreement between the Company and Crossroads Cogeneration
Corporation (Crossroads), which requires the Company to purchase electric
capacity and associated energy from a cogeneration facility in Mahwah, New
Jersey. The Complaint alleges damage claims for breach of contract, breach of
the implied covenant of good faith and fair dealing and violations of the
Federal Antitrust laws and seeks a declaration of Crossroads' rights under
the Agreement. In February 1997, the Company expects to file a motion to
dismiss the action. The Company will defend the action vigor ously. The
Company cannot predict the outcome of this proceeding.
On January 17, 1997, the Company received a Third-Party Summons and
"Additional Third-Party Complaint" in a litigation pending in the United
States District Court for the Southern District of New York entitled TOWN OF
WALLKILL AND STATE OF NEW YORK V. TESA TAPE, INC., ET AL. The Additional
Third-Party Complaint purports to allege claims against the Company and other
third-party defendants for response costs under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), and
for contribution and/or indemnity under CERCLA, the New York Contribution
Among Tort-Feasors Act and common law principles of contribution and
indemnity. The Additional Third-Party Complaint alleges that the Company
transported wastes containing hazardous substances and/or generated, disposed
of, and/or arranged for disposal or transport of wastes containing hazardous
substances during the relevant time period (identified as 1965 through on or
about 1974 in a pleading attached to the Additional Third-Party Complaint) at
a landfill site located in the Town of Wallkill, Orange County, New York. On
January 21, 1997, the Company received an Amended Summons and Amended
Complaint of Plaintiff-Intervenor State of New York in the same action (State
Complaint). The State Complaint names the Company as a direct defendant, and
purports to allege claims under CERCLA and the common law of the State of New
York governing public nuisance, restitution, subrogation and implied
indemnities. The State Complaint alleges upon information and belief that the
Company disposed of and/or arranged for the disposal or transport for
disposal of hazardous substances at the Wallkill landfill site. The Company
has insufficient information at this time to predict the outcome of this
proceeding.
On February 4, 1997, the Company's subsidiary, Rockland Electric Company
(RECO), was served with a Summons and Complaint in a litigation entitled
PHILIP GRIFFIN AND MARJORY GRIFFIN V. ROCKLAND ELECTRIC COMPANY filed in the
Superior Court of New Jersey, Bergen County, Law Division. The Complaint
alleges claims on behalf of owners of real property located in Old Tappan,
New Jersey related to RECO's operation of a substation in Old Tappan. The
Complaint alleges that a September 10, 1996 resolution (Resolution) of the
Board of Adjustment of the Borough of Old Tappan, New Jersey (Board of
Adjustment) orders RECO to abate a nuisance of excessive noise at the
substation, and that RECO has refused and failed to comply with the
Resolution. The Complaint includes nine counts, eight of which claim
compensatory damages of $2 million and exemplary damage of $4 million for
each count (the ninth count does not quantify the damages claimed). By
Petition dated October 11, 1996, RECO petitioned the State of New Jersey
Board of Public Utilities (NJBPU) for relief from the September 10, 1996
resolution, including a judgment finding the ordinance to be void. On or
about December 9, 1996, the Board of Adjustment filed an Answer to the
Petition asserting defenses. The Company intends to pursue the proceedings
before the NJBPU and to defend the court action vigorously. The Company
cannot predict the outcome of either proceeding.
On July 19, 1996 NORSTAR Energy Limited Partnership (NORSTAR), an indirect
subsidiary of the Company, filed a Complaint in the United States District
Court for the Northern District of Georgia, Atlanta Division against
Petroleum Source and Systems Group, Inc. (PSI), seeking to recover
approximately $700,000 for natural gas delivered to PSI. On or about August
26, 1996, PSI filed an Answer denying its liability and asserting
counterclaims against NORSTAR. The counterclaims seek damages for breach of
contract including an unspecified amount for loss of profits and
approximately $8.0 million for liquidated damages and costs. The case is
currently in the discovery phase, and NORSTAR is vigorously pursuing its
claims and defending against PSI's counterclaims. The Company cannot predict
the outcome of this proceeding.
ENVIRONMENTAL
The CERCLA and certain similar state statutes authorize various governme
ntal authorities to issue orders compelling responsible parties to take
cleanup action at sites determined to present an imminent and substantial
danger to the public and to the environment because of an actual or
threatened release of hazardous substances. As discussed above, the Company
is a party to a number of administrative and litigation proceedings involving
potential impact on the environment. Such proceedings arise out of, without
limitation, the operation and maintenance of facilities for the generation,
transmission and distribution of electricity and natural gas. As noted above,
the Company does not believe that certain proceedings will have a material
effect on the Company, while as to others, the Company is unable at this time
to estimate what, if any, costs it will incur. Pursuant to the Clean Air Act
Amendments of 1990, which became law on November 15, 1990, a permanent
nationwide reduction of 10 million tons in sulfur dioxide emissions from 1980
levels, as well as a permanent nationwide reduction of 2 million tons of
nitrogen oxide emissions from 1980 levels, must be achieved by January 1,
2000. In addition, continuous emission monitoring systems were required at
all affected facilities effective January 1, 1995. Pursuant to New York State
attainment of ozone standards, Nitrogen Oxide (NOx) reductions were achieved
effective May 31, 1995.
The Company has two base load generating stations that burn fossil fuels
that will be impacted by this legislation. These generating facilities
already burn low sulfur fuels, so additional capital costs are not
anticipated for compliance with the sulfur dioxide emission requirements. The
Company installed low nitrogen oxide burners at Lovett Plant and made
operational modifications at Bowline Plant to meet NOx reduction levels for
ozone attainment. Additional emission monitoring systems were installed at
both facilities. Beginning with calendar year 1994, Title V sources (Bowline
Point and Lovett) are required to pay an emission fee. Each facility's fee is
based upon actual air emissions reported to the DEC for the preceding
calendar year. For 1996, the Company paid an emission rate of approximately
$27 per ton based upon 1995 emissions. The emission fee will be reevaluated
by New York State annually. The Company will continue to assess the impact of
the Clean Air Act Amendments of 1990 on its power generating operations as
additional regulations implementing these Amendments are promulgated.
29
NOTE 13. SEGMENTS OF BUSINESS
The Company defines its principal business segments as utility (electric
and gas) and diversified activities. The diversified segment includes gas
marketing and land development. Total utility revenue as reported in the
Consolidated Statements of Income and Retained Earnings include both sales to
unaffiliated customers and intersegment sales which are billed at tariff
rates. Income from operations is total revenue less operating expenses.
General corporate expenses were allocated in the manner used in the
rate-making process.
Identifiable assets by segment are those assets that are used in the
production, distribution and sales operations in each segment. Allocations
were made in a manner consistent with the rate-making process. Corporate
assets are principally property, cash, sundry receivables and unamortized
debt expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------ ------------ ------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Information:
Operating revenues:
Sales to unaffiliated customers:
Electric.............................................................. $ 477,032 $ 459,876 $ 478,909
Gas................................................................... 176,400 140,177 157,045
Intersegment sales:
Electric.............................................................. 10 107 120
Gas................................................................... 42 47 123
------------ ------------ ------------
Total Utility Operating Revenues..................................... 653,484 600,207 636,197
Diversified activities................................................ 271,566 429,625 380,470
------------ ------------ ------------
Total Operating Revenues............................................. $ 925,050 $ 1,029,832 $ 1,016,667
------------ ------------ ------------
Operating income before income taxes:
Electric............................................................... $ 86,161 $ 85,156 $ 80,355
Gas.................................................................... 22,447 17,467 19,724
Diversified activities................................................. (5,147) (4,217) 557
------------ ------------ ------------
Total Operating Income Before Income Taxes........................... 103,461 98,406 100,636
------------ ------------ ------------
Income Taxes:
Electric............................................................... 21,585 22,406 19,894
Gas.................................................................... 4,879 3,859 4,644
Diversified activities................................................. (1,644) (363) 91
------------ ------------ ------------
Total Income Taxes................................................... 24,820 25,902 24,629
------------ ------------ ------------
Total Income From Operations......................................... $ 78,641 $ 72,504 $ 76,007
------------ ------------ ------------
Other Information:
Identifiable assets:
Electric.............................................................. $ 978,952 $ 979,512 $ 960,143
Gas................................................................... 240,471 217,357 214,933
Diversified activities................................................ 71,553 80,073 95,846
------------ ------------ ------------
Total Identifiable Assets............................................ 1,290,976 1,276,942 1,270,922
Corporate assets....................................................... 22,654 29,928 42,082
------------ ------------ ------------
Total Assets......................................................... $ 1,313,630 $ 1,306,870 $ 1,313,004
------------ ------------ ------------
Depreciation expense:
Electric............................................................... $ 29,430 $ 30,594 $ 29,161
Gas.................................................................... 2,578 6,646 5,940
Diversified activities................................................. 1,605 1,307 582
------------ ------------ ------------
Total Depreciation Expense........................................... $ 33,613 $ 38,547 $ 35,683
------------ ------------ ------------
Additions to plants:
Electric............................................................... $ 41,932 $ 43,225 $ 44,832
Gas.................................................................... 16,766 10,894 15,242
Diversified activities................................................. 659 911 468
------------ ------------ ------------
Total Additions...................................................... $ 59,357 $ 55,030 $ 60,542
------------ ------------ ------------
</TABLE>
<TABLE>
NOTE 14. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<CAPTION>
EARNINGS EARNINGS
APPLICABLE PER
INCOME TO AVERAGE
OPERATING FROM NET COMMON COMMON
REVENUES OPERATIONS INCOME STOCK SHARE
---------- ----------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Quarter Ended
1996
March 31............................................... $ 285,672 $ 21,526 $ 14,555 $ 13,799 $ 1.01
June 30................................................ 212,364 16,609 6,320 5,563 .41
September 30........................................... 215,606 25,687 18,676 17,921 1.31
December 31............................................ 211,408 14,819 6,752 5,996 .44
---------- ----------- --------- ----------- -----
1995
March 31............................................... $ 311,807 $ 20,549 $ 15,321 $ 14,537 $ 1.06
June 30................................................ 245,298 12,384 3,722 2,937 .22
September 30........................................... 231,867 23,957 14,792 14,008 1.03
December 31............................................ 240,860 15,614 4,738 3,953 .29
---------- ----------- --------- ----------- -----
</TABLE>
Quarterly results reflect the seasonal effect of electric and gas sales.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
To the Board of Directors and Shareholders of Orange and Rockland
Utilities, Inc.:
We have audited the accompanying consolidated balance sheet of Orange and
Rockland Utilities, Inc. and Subsidiaries (a New York Corporation) as of
December 31, 1996 and 1995, and the related consolidated statements of income
and retained earnings and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Orange and Rockland Utilities, Inc. and Subsidiaries as of December 31, 1996
and 1995, and the consolidated results of its operations and its cash flows
for the three years ended December 31, 1996, in conformity with generally
accepted accounting principles.
[SIG]
New York, New York
February 6, 1997
30
<TABLE>
OPERATING STATISTICS
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Electric:
Sales (Mwh):
Residential..................................... 1,731,105 1,685,110 1,660,755 1,611,602 1,532,915
Commercial...................................... 2,044,759 2,056,185 2,049,265 2,018,240 1,986,048
Industrial...................................... 748,484 680,678 657,142 627,944 594,912
Public Street Lighting.......................... 29,522 28,107 27,836 27,705 27,538
Public Authorities.............................. 51,392 75,506 68,972 72,037 70,257
---------- ---------- ---------- ---------- ----------
Total Sales to Customers....................... 4,605,262 4,525,586 4,463,970 4,357,528 4,211,670
Other Utilities for Resale...................... 190,394 118,730 265,311 234,751 253,290
---------- ---------- ---------- ---------- ----------
Total Sales of Electricity..................... 4,795,656 4,644,316 4,729,281 4,592,279 4,464,960
---------- ---------- ---------- ---------- ----------
Revenues (000's):
Residential..................................... $ 209,706 $ 208,862 $ 214,439 $ 211,082 $ 193,124
Commercial...................................... 200,281 204,240 212,214 212,240 202,523
Industrial...................................... 46,663 50,205 51,316 50,983 47,128
Public Street Lighting.......................... 4,903 4,930 4,939 4,967 4,880
Public Authorities.............................. 3,453 4,257 4,051 4,344 4,212
---------- ---------- ---------- ---------- ----------
Total Revenues from Sales to Customers......... 465,006 472,494 486,959 483,616 451,867
Other Utilities for Resale...................... 3,106 2,150 6,636 6,414 6,965
---------- ---------- ---------- ---------- ----------
Total Revenues from Sales of Electricity....... 468,112 474,644 493,595 490,030 458,832
Other Electric Operating Revenues............... 8,930 (14,661) (14,566) (3,063) 4,901
---------- ---------- ---------- ---------- ----------
Total Electric Operating Revenues.............. $ 477,042 $ 459,983 $ 479,029 $ 486,967 $ 463,733
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Gas:
Sales (Mmcf):
Residential.............................. 15,685 14,759 15,164 15,323 15,212
Commercial and Industrial................ 5,233 5,066 5,257 5,233 5,295
--------- --------- --------- --------- ---------
Total Firm Sales........................ 20,918 19,825 20,421 20,556 20,507
Interruptible............................ 3,996 2,327 1,023 653 889
Other Utilities for Resale............... 4 4 27 8 556
--------- --------- --------- --------- ---------
Total Sales of Gas...................... 24,918 22,156 21,471 21,217 21,952
--------- --------- --------- --------- ---------
Revenues (000's):
Residential.............................. $ 116,981 $ 96,737 $ 112,759 $ 113,116 $ 97,646
Commercial and Industrial................ 36,954 31,226 36,676 36,707 32,541
--------- --------- --------- --------- ---------
Total Revenues from Firm Sales.......... 153,935 127,963 149,435 149,823 130,187
Interruptible............................ 15,101 6,725 3,996 2,605 3,414
Other Utilities for Resale............... 94 59 203 105 1,950
--------- --------- --------- --------- ---------
Total Revenues from Sales of Gas........ 169,130 134,747 153,634 152,533 135,551
Other Gas Revenues....................... 7,312 5,477 3,534 4,724 5,128
--------- --------- --------- --------- ---------
Total Gas Operating Revenues............ $ 176,442 $ 140,224 $ 157,168 $ 157,257 $ 140,679
--------- --------- --------- --------- ---------
</TABLE>
31
<TABLE>
FINANCIAL STATISTICS
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common Stock Data:
Earnings Per Average Common Share................................ $3.17 $2.60 $2.50 $3.06 $3.15
Dividends Declared Per Share..................................... $2.58 $2.57 $2.54 $2.49 $2.43
Book Value Per Share (Year End).................................. $28.41 $27.82 $27.79 $27.79 $27.22
Market Price Range Per Share:
High............................................................ $37 1/8 $37 3/8 $41 1/4 $47 1/2 $41 7/8
Low............................................................. $33 3/8 $30 7/8 $28 3/8 $38 5/8 $32 3/8
Year End........................................................ $35 7/8 $35 3/4 $32 1/2 $40 5/8 $41 5/8
Price Earnings Ratio............................................. 11.32 13.75 13.00 13.28 13.21
Dividend Payout Ratio............................................ 81.39% 98.85% 101.60% 81.37% 77.14%
Common Shareholders at Year End.................................. 21,322 22,916 23,299 24,328 25,696
Average Number of Common Shares Outstanding (000's).............. 13,654 13,653 13,594 13,532 13,438
Total Common Shares Outstanding at Year End (000's).............. 13,654 13,654 13,653 13,532 13,531
Return on Average Common Equity.................................. 11.33% 9.35% 9.01% 11.16% 11.88%
--------- --------- --------- --------- ---------
Capitalization Data (000's):
Common Stock Equity.............................................. $387,850 $379,776 $379,403 $376,044 $368,321
Non-Redeemable Preferred Stock................................... 43,241 43,253 43,268 43,287 43,306
Redeemable Preferred Stock....................................... 0 1,390 2,774 4,158 5,542
Long-Term Debt (includes current portion)........................ 359,968 360,137 379,561 382,248 382,339
--------- --------- --------- --------- ---------
Total Capitalization............................................ $791,059 $784,556 $805,006 $805,737 $799,508
--------- --------- --------- --------- ---------
Capitalization Ratios:
Common Equity.................................................... 49.03% 48.41% 47.14% 46.67% 46.07%
Non-Redeemable Preferred Stock................................... 5.47% 5.51% 5.37% 5.37% 5.42%
Redeemable Preferred Stock....................................... 0.00% 0.18% 0.34% 0.52% 0.69%
Long-Term Debt (includes current portion)........................ 45.50% 45.90% 47.15% 47.44% 47.82%
--------- --------- --------- --------- ---------
Selected Financial Data (000's ):
Operating Revenues............................................... $925,050 $1,029,832 $1,016,667 $966,864 $839,695
Operating Expenses............................................... $846,409 $957,328 $940,660 $883,943 $759,691
Operating Income................................................. $78,641 $72,504 $76,007 $82,921 $80,004
Net Income....................................................... $46,303 $38,573 $37,217 $44,815 $45,812
Earnings Applicable to Common Stock.............................. $43,279 $35,438 $33,966 $41,451 $42,334
Net Utility Plant................................................ $899,643 $873,668 $856,289 $831,980 $814,686
Total Assets..................................................... $1,313,630 $1,306,870 $1,313,004 $1,280,973 $1,127,501
Long-Term Debt Including
Redeemable Preferred Stock....................................... $359,968 $361,527 $382,335 $386,406 $387,881
Ratio of Long-Term Debt to Net Plant............................. 40.0% 41.2% 44.4% 46.0% 47.0%
Ratio of Accumulated Depreciation to Utility Plant in Service.... 33.8% 33.3% 33.1% 31.7% 30.7%
32
</TABLE>
ORANGE AND ROCKLAND UTILITIES, INC.
APPENDIX A TO EXHIBIT 13
FORM 10-K DECEMBER 31, 1996
The Review of the Company's Results of Operations and Financial
Condition, which is included in the Company's Annual Report to
Shareholders and is incorporated by reference in this Annual
Report on Form 10-K, contains certain graphic presentations of
financial data which are presented in tabular format as follows:
1. Graph entitled "Electric Sales to Customers"
Year Mwh (Millions)
1992 4.21
1993 4.36
1994 4.46
1995 4.53
1996 4.61
2. Graph entitled "Cost per Kwh"
Year Cents
1992 2.70
1993 2.67
1994 2.51
1995 2.46
1996 2.48
3. Graph entitled "Firm Gas Sales"
Year Mmcf (Thousands)
1992 20.5
1993 20.6
1994 20.4
1995 19.8
1996 20.9
4. Graph entitled "Cost per Mcf"
Year Dollars
1992 3.52
1993 3.63
1994 3.52
1995 3.43
1996 4.05
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Subsidiaries
Exhibit 21
State of
Parent and Subsidiary* Incorporation
Orange and Rockland Utilities, Inc. New York
Rockland Electric Company New Jersey
Saddle River Holdings Corp. Delaware
NORSTAR Holdings, Inc. Delaware
NORSTAR Management, Inc. Delaware
Millbrook Holdings, Inc. Delaware
Atlantic Morris Broadcasting, Inc. Delaware
Compass Resources, Inc. Delaware
Palisades Energy Services, Inc. Delaware
Pike County Light & Power Pennsylvania
Clove Development Corporation New York
O&R Energy Development, Inc. Delaware
O&R Development, Inc. Delaware
* Each level of indentation represents subsidiary status of the
company under which it is immediately indented.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an
officer and a Director of Orange and Rockland Utilities, Inc.,
which Company proposes to file with the Securities and Exchange
Commission an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 1996 pursuant to the provisions of the
Securities Exchange Act of 1934, as amended, has made,
constituted and appointed and by these presents does hereby make,
constitute and appoint G. D. CALIENDO his true and lawful
attorney, for him and in his name, place and stead, and in his
office and capacity as aforesaid, to sign and file said Form 10-K
and any and all other documents to be signed and filed with the
Securities and Exchange Commission in connection therewith,
hereby granting to said G. D. CALIENDO full power and authority
to do and perform each and every act as fully, to all intents and
purposes, as he might or could do if personally present, hereby
ratifying and confirming in all respects all that G. D. CALIENDO
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
_/s/ D. Louis Peoples______
D. Louis Peoples
Vice Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an
officer of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
_/s/ R. Lee Haney___________
R. Lee Haney
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an
officer of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
_/s/ Edward M. McKenna______
Edward M. McKenna
Controller
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__s/ Ralph M. Baruch________
Ralph M. Baruch
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
___/s/ J. Fletcher Creamer__
J. Fletcher Creamer
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
_/s/ Michael J. Del Giudice__
Michael J. Del Giudice
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
_/s/ Jon F. Hanson_________
Jon F. Hanson
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__/s/ Kenneth D. McPherson__
Kenneth D. McPherson
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__/s/ Robert E. Mulcahy III_
Robert E. Mulcahy III
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__/s/ James F. O'Grady, Jr.__
James F. O'Grady, Jr.
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__/s/ Frederic V. Salerno___
Frederic V. Salerno
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO her true and lawful attorney, for her and
in her name, place and stead, and in her office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as she might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set her hand and
seal this 6th day of March 1997.
__/s/ Linda C. Taliaferro____
Linda C. Taliaferro
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
Director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an
Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1996 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and
appointed and by these presents does hereby make, constitute and
appoint G. D. CALIENDO his true and lawful attorney, for him and
in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file said Form 10-K and any and all other
documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said
G. D. CALIENDO full power and authority to do and perform each
and every act as fully, to all intents and purposes, as he might
or could do if personally present, hereby ratifying and
confirming in all respects all that G. D. CALIENDO may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal this 6th day of March 1997.
__/s/ H. Kent Vanderhoef____
H. Kent Vanderhoef
Chairman of the Board of
Directors
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND
ROCKLAND UTILITIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 899,643
<OTHER-PROPERTY-AND-INVEST> 17,006
<TOTAL-CURRENT-ASSETS> 222,725
<TOTAL-DEFERRED-CHARGES> 174,256
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,313,630
<COMMON> 68,271
<CAPITAL-SURPLUS-PAID-IN> 127,519
<RETAINED-EARNINGS> 192,060
<TOTAL-COMMON-STOCKHOLDERS-EQ> 387,850
0
43,241
<LONG-TERM-DEBT-NET> 281,622
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 82,370
<LONG-TERM-DEBT-CURRENT-PORT> 78,203
1,390
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 438,954
<TOT-CAPITALIZATION-AND-LIAB> 1,313,630
<GROSS-OPERATING-REVENUE> 925,050
<INCOME-TAX-EXPENSE> 24,820
<OTHER-OPERATING-EXPENSES> 821,589
<TOTAL-OPERATING-EXPENSES> 846,409
<OPERATING-INCOME-LOSS> 78,641
<OTHER-INCOME-NET> (1,244)
<INCOME-BEFORE-INTEREST-EXPEN> 77,397
<TOTAL-INTEREST-EXPENSE> 31,094
<NET-INCOME> 46,303
3,024
<EARNINGS-AVAILABLE-FOR-COMM> 43,279
<COMMON-STOCK-DIVIDENDS> 35,227
<TOTAL-INTEREST-ON-BONDS> 24,221
<CASH-FLOW-OPERATIONS> 82,329
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 0
</TABLE>
