SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 25, 1997
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of Registrant as specified in its charter)
Incorporated in New York 1-4315 13-1727729
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification
Incorporation) Number)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (914)352-6000
Items 1. - 4. Not Applicable.
Item 5. Other Events
Reference is made to Item 3, Legal Proceedings, in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and to Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results
of Operations under the caption "Rate Activities," in the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, for a description of the New York
Public Service Commission ("NYPSC") Competitive Opportunities
Proceeding (Case Nos. 94-E-0952 and 96-E-0900) and to Part I,
Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations under the caption
"Regulatory Activities," in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, for a discussion of the Electric Rate and
Restructuring Plan (the "Restructuring Plan") entered into
by the Company, the NYPSC Staff and other parties and filed
with the NYPSC on November 6, 1997 in the NYPSC Competitive
Opportunities Proceeding. On November 25, 1997 the NYPSC
approved the Restructuring Plan. As set forth in its Order
Adopting Terms of Settlement issued and effective
November 26, 1997, the NYPSC, in approving the Restructuring
Plan, offered the Company the opportunity to participate as
a bidder in the auction of the Company's generating assets,
subject to the conditions that the auction be conducted by
an independent third party and that the Company renounce the
shareholders' share of any net book gain from the sale
provided for in the Restructuring Plan. The NYPSC also
stated that if the Company elected to participate in the
auction, the shareholders would not be required to absorb
their share of any net book loss provided for in the
Restructuring Plan. By letter dated December 10, 1997, the
Company notified the NYPSC that it has elected not to be a
bidder in the auction. Accordingly, the Company will be subject
to the terms of the Restructuring Plan as filed on November 6,
1997. On December 11, 1997, in accordance with the Restructuring
Plan, the Company submitted its Preliminary Divestiture Plan to
the NYPSC Staff and other parties.
The Company issued the press releases filed herewith as
Exhibit 99.8 and 99.9 on November 25 and December 11, 1997,
respectively.
Item 6. Not Applicable.
Item 7. Financial Statements and Exhibits
Exhibit 99.8 - Press Release
of the Company dated November 25, 1997.
Exhibit 99.9 - Press Release
of the Company dated December 11, 1997.
Exhibit 99.10 - NYPSC Order
Adopting Terms of Settlement, Issued and
Effective November 26, 1997, in Case 96-E-0900.
Item 8. Not Applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/Robert J. McBennett
Robert J. McBennett, Treasurer
Dated: December 11, 1997
EXHIBIT INDEX
Page
Exhibit 99.8
Press Release of the Company dated November 25, 1997.
Exhibit 99.9
Press Release of the Company dated December 11, 1997.
Exhibit 99.10
NYPSC Order Adopting Terms of Settlement, Issued and
Effective November 26, 1997, in Case 96-E-0900.
914-577-2430
Contact:
Michael Donovan
NYPSC OKs O&R RESTRUCTURING PLAN FEATURING LOWER RATES,
SALE OF ITS GENERATING PLANTS, AND THE FASTEST TIMETABLE FOR
OFFERING CUSTOMERS CHOICE IN NEW YORK STATE
PEARL RIVER, NY November 25, 1997 --- The New York State Public
Service Commission today approved the Orange and Rockland
Utilities, Inc. Electric Rate and Restructuring Plan --- a plan
that calls for lower electric rates, the sale at auction of the
Company's generating plants and the most ambitious timetable for
customer choice of any electric utility in New York State.
Under the Plan, O&R will remain a regulated transmission and
distribution company that will deliver electricity to its
customers, and also will be able to pursue opportunities as an
unregulated energy services provider.
But, once the generating plants are sold, O&R will no longer
produce electricity; it will purchase electricity for resale to
its electric customers as a regulated delivery company (as the so-
called "provider of last resort").
The approved Plan was endorsed by the Staff of the NYPSC, the
Independent Power Producers of New York, Inc., Enron Capital &
Trade Resources, the National Association of Energy Service
Companies, the Industrial Users Association, the Pace Energy
Project, the New York State Department of Economic Development
and the Joint Supporters.
O&R Vice Chairman and Chief Executive Officer D. Louis Peoples
said, "With this Plan's approval, we can offer our customers
lower rates immediately and greater savings opportunities in the
near term through our PowerPick(TM) program."
This Plan creates the potential for up to $44 million in
cumulative benefits to O&R customers over a four-year period.
This includes $32 million in rate reductions, $8 million in
savings resulting from the reduction in New York State Gross
Receipts Tax and $4 million in additional PowerPick savings
opportunities for large industrial customers. In addition, by May
1998, all customers will have the opportunity to participate in
PowerPick, which could produce additional savings of up to $20
million.
Under the Plan, O&R's one-third ownership of the Bowline Point
Generating Station in West Haverstraw, NY (jointly owned with
Consolidated Edison) and the Lovett Generating Station in Stony
Point, NY, are to be sold at auction.
The same is true for the utility's gas turbine facilities and
hydroelectric generating stations located primarily in the
Sullivan County communities of Lumberland and Forestburgh.
An auction implementation plan is due to the PSC within 90 days.
O&R is committed to getting this process under way as soon as
possible. The Company expects to complete divestiture of the
power plants during 1999. In approving the Plan, the PSC gave
the Company the option to participate in the auction subject to
certain conditions. The Company is examining that option now. The
Plan also includes provisions to fund employee transition costs
that could arise from the sale.
"I know how much anxiety the uncertainty caused by the sale of
generating assets creates for our plant and other employees in
the Company serving in plant support functions, for their
families and for the communities in which the plants are
located," said Peoples. "Our commitment is to move through this
period as quickly as possible."
Under the Plan, O&R's largest industrial energy customers could
realize price reductions -- which would include rate reductions
and potential savings through participation in O&R's PowerPick
customer choice program - of as high as 12 percent as soon as
this month, bringing their prices closer to the national average.
That comes in addition to an average 12.7 percent in reductions
since 1995.
All other industrial, commercial and residential customers would
realize a 2.1 percent direct rate reduction over the first two
years of the plan (1.1 percent the first year; 1.0 percent the
second) beginning this month.
They, too, have the opportunity to save an additional two percent
or more by taking advantage of O&R's PowerPick energy supply
customer choice option which, under the Plan, would be extended
to the entire customer base by May 1, 1998. A further one percent
reduction for all customers would come during the four-year plan
from New York's reduction of the state Gross Receipts Tax.
The rate reductions would be the latest in a series of rate cuts
that have already totaled 6.4 percent overall since 1995 by O&R -
- -- the only New York State utility to voluntarily reduce its base
electric rates during the past decade.
The cumulative effect of this series of most recent past
reductions since 1995 coupled with the prospective rate
reductions and savings opportunities called for by the new Plan
could result in price decreases of approximately 10 percent for
residential and small commercial customers and nearly 25 percent
for large industrial customers.
The Plan also calls for customer choice of energy providers by no
later than May 1998, and full retail access (energy and capacity)
for all customers by May 1, 1999, the most ambitious timetable of
any New York State utility.
Further, the Plan calls for sharing of earnings from regulated
New York electric operations above 11.4 percent return on equity
as follows: 75 percent of those earnings for the benefit of O&R
customers, and the remaining 25 percent for O&R shareholders.
For more information about O&R and the Rate and Restructuring
Plan, visit us on the Internet at www.oru.com.
Contact:
Michael Donovan
(914) 577-2430
ORANGE AND ROCKLAND ANNOUNCES PLAN
FOR SALE OF GENERATING ASSETS
Final Auction Plan/Process to be Launched in Early 1998;
O&R to Move Forward as Regulated Delivery Company
Pearl River, NY, December 11, 1997 - Following yesterday's
meeting of Orange and Rockland's Board of Directors, the
Company is today submitting to the Public Service Commission
Staff and other interested parties the Company's Preliminary
Divestiture Plan for the sale of its generating assets in
accordance with O&R's Electric Rate and Restructuring Plan
approved by the New York State Public Service Commission
(PSC) on November 25, 1997.
The sale of these assets, offered as a single package of
eight facilities, will be conducted at auction. The
Divestiture Plan reflects the PSC's overall framework for
introducing fully competitive generation and energy service
markets to New York State.
"Divestiture of these plants represents an important
step in creating a competitive marketplace," said D. Louis
Peoples, Vice Chairman and Chief Executive Officer of O&R.
"The auction process will also maximize the value of these
plants, as buyers see this opportunity to position
themselves for entry into New York's wholesale and retail
electricity market."
In approving O&R's Electric Rate and Restructuring Plan on
November 25, the PSC offered the Company the option to
participate in the auction process. O&R has informed the
PSC that it is declining that offer, affirming its belief
that in doing so, the interests of shareholders, customers
and employees are best served. Citing the difficulties
associated with bidding on the Company's own generating
assets, Mr. Peoples said that "there are serious
impediments to a bid by the Company, which could entail
raising sufficient capital to acquire the plants, as well as
difficult management and legal issues involved with
establishing an auction that is wholly fair to other
potential bidders and shareholders." Mr. Peoples continued,
"Those issues, combined with our wish to move expeditiously
to enhance the plants' value - and thereby enhance
shareholder value - led us to the conclusion to sell the
plants, as other utilities are doing."
The Preliminary Divestiture Plan sets mid-January 1998 as
the target for filing a final Divestiture Plan, with final
approval by the PSC scheduled for March 1998. The Plan
filed today proposes an accelerated schedule, under which
bids would be solicited beginning in March 1998, with a
winning bidder to be selected by the end of the third
quarter of 1998. Under the proposed schedule, the sale of
the generating facilities is anticipated to be completed by
mid-1999.
O&R's principal objectives in the auction process are to
maximize the value received for the generating assets;
complete the divestiture expeditiously; ensure a fair,
unbiased auction process; recognize the concerns of
employees, local communities and other stakeholders affected
by divestiture; ensure continued service reliability; and
enhance competition in electric generation. The generating
assets will be offered as a package, and include: the Lovett
Generating Station in Stony Point, NY; the Company's one-
third interest in the Bowline Point Generating Station in
West Haverstraw, NY; the Hillburn Gas Turbine, in Hillburn,
NY; the Shoemaker Gas Turbine, in Middletown, NY; and the
Mongaup, Rio, Swinging Bridge and Grahamsville Hydroelectric
Projects, all located in Sullivan County, NY. The total net
book value of the assets is approximately $260 million.
Under the terms of the agreement with the PSC, if a bidder
is selected prior to May 1999, O&R shareholders will be
permitted to retain up to 25 percent of the New York share
of any net book gain that may be realized from the sale,
with the remaining 75 percent passed on to O&R customers.
The agreement also provides that under this schedule, O&R
shareholders would be required to bear five percent of the
New York share of any net book loss from the sale of the
plants. If a successful bidder is not chosen until after
May 1999, the Company's shareholders can retain 20 percent
of the New York share of the net book gain, and must absorb
20 percent of the New York share of any loss.
"Our Electric Rate and Restructuring Plan is based on
the principle that O&R must be in a competitive position in
order to offer our customers the lowest rates and fastest
timetable for customer choice in New York. This has been our
objective since beginning the process over eighteen months
ago," said Mr. Peoples. "We are committed to moving through
this auction pro-cess as quickly as possible, particularly
considering the uncertainty and anxiety this process causes
our employees," Mr. Peoples continued.
O&R's Plan includes provisions for funding employee
transition costs that could arise as a result of any sale.
"We firmly believe that the people working at these
facilities represent one of the most important assets that
any potential purchaser will acquire in the auction," Mr.
Peoples stated. "However, we have also created a plan to
assist the affected employees in this transition process,
and that plan will be announced to employees shortly. In
the coming months, we will continue to communicate
frequently with the employees and communities affected by
the ultimate sale of these facilities," he said.
Under the Electric Rate and Restructuring Plan approved
by the PSC, O&R will remain a regulated transmission and
distribution company that will deliver electricity to its
customers and maintain reliable service. The Company will
remain the "provider of last resort" for those of its
customers who do not purchase electricity from other
sources. The approved Plan also calls for lower electric
rates for all customers - with potential additional savings
as high as 12 percent for the Company's largest industrial
customers, and approximately five percent for all others.
Customers will be able to select their energy provider no
later than May 1998, and will have full retail choice
(energy and capacity) by May 1999. The Company's Electric
Rate and Restructuring Plan also permits O&R to establish
unregulated energy service companies.
O&R serves an area of 1,350 square miles and an
estimated population of 671,000 in southeastern New York
State, northern New Jersey and northeastern Pennsylvania.
It currently generates, distributes and sells electricity,
and distributes and sells natural gas.
For more information about the Company and its activities,
visit our web site at ORU.COM
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
At a Session of the Public Service
Commission held in the City of
Albany on November 25, 1997
COMMISSIONERS PRESENT:
John F. O'Mara, Chairman
Maureen O. Helmer
Thomas J. Dunleavy
CASE 96-E-0900 - In the Matter of Orange and Rockland Utilities,
Inc.'s Plans for Electric Rate/Restructuring
Pursuant to Opinion No. 96-12.
ORDER ADOPTING TERMS OF SETTLEMENT
(Issued and Effective November 26, 1997)
BY THE COMMISSION:
INTRODUCTION
On March 25, 1997, Orange and Rockland Utilities, Inc.
(O&R) filed a Settlement Agreement, pursuant to the direction of
the Commission in Opinion No. 96-12.[1] Hearings to address the
terms of the Settlement Agreement were conducted on May 19, 20,
and 22, 1997 before Administrative Law Judge Stewart C.
Boschwitz. On July 2, 1997, Judge Boschwitz issued a recommended
decision which advocated that the Settlement Agreement be
returned to the parties for modification.
___________________
[1] Cases 94-E-0952 et al., In the Matter of Competitive
Opportunities Regarding Electric Service, Order Establishing
Procedures and Schedule (issued October 9, 1996), p. 3.
At our Session of September 10, 1997, we addressed the
recommended decision and the exceptions of the parties. We
concluded that the Settlement Agreement was unacceptable
primarily because (1) an auction of O&R's generating assets was
not required; (2) the term of the Competitive Transition Charge
(CTC) was too long; (3) the risks and rewards associated with
deregulation were allocated unfairly between O&R's shareholders
and ratepayers during the term of the Settlement Agreement; and
(4) a sharing mechanism had not been developed which provided
incentives for O&R to auction promptly its generating assets.
In response to our concerns, the parties to the
Settlement Agreement[2] conducted a further series of
negotiations between mid-September and early November 1997.
Those negotiations resulted in the production, on November 6,
1997, of a revised Settlement Agreement (revised Agreement).[3]
The revised Agreement is endorsed by the original signatories and
three parties initially in opposition, namely, the Independent
Power Producers of New York, Inc., ENRON Capital and Trade
Resources, and Pace University School of Law - Center for
Environmental Legal Studies.[4] The revised Agreement is attached
as an Appendix.
____________________
[2] O&R, staff, Department of Economic Development, Industrial
Energy Users Association, National Association of Energy
Services, Inc., and Joint Supporters.
[3] Denominated by the parties as the "Electric Rate and
Restructuring Plan."
[4] After the revised Agreement was filed, a public statement
hearing was held in New City. The principal concerns of
those attending were the provisions of the revised Agreement
requiring O&R to divest its generation assets at auction and
prohibiting it from participating in the auction.
The terms of the revised Agreement offer a sound
regulatory framework for O&R, its competitors, and its customers
in the transition to fully competitive generation and energy
service markets. However, there is one aspect of the revised
Agreement for which we are willing to offer an alternative.
Specifically, the terms of the revised Agreement (III. C) provide
that O&R will not be permitted to bid in any auction process but
allows O&R to retain up to 25% of any gain that may be realized
from the auction. Because (1) O&R does not possess horizontal
market power, and (2) the public interest may be enhanced by
giving O&R an option to bid in the auction of its plants, we
offer O&R the opportunity to do so. If it so elects, we would
require that the auction be conducted entirely by an independent
third party to be approved by us. Also, O&R's participation in
an auction would be contingent upon its renouncing timely any
share of any net gain from the auction of generation assets.
This latter provision recognizes that a sharing mechanism applied
on the auction of generation assets would give O&R an advantage
in an auction and could reduce participation by other potential
bidders. Lastly, O&R, if it elects to participate in the
auction, would not be required to absorb any share of a net loss.
STATE ENVIRONMENTAL QUALITY
REVIEW ACT EVALUATION
In conformance with the State Environmental Quality
Review Act (SEQRA), we issued on May 20, 1996, a Final Generic
Environmental Impact Statement (FGEIS), which evaluated the
action adopted in Case 94-E-0952, supra. We also required
individual utilities to file an environmental assessment of their
restructuring proposals. O&R filed an Environmental Assessment
Form (EAF) concerning the March 25 Settlement Agreement on
April 4, 1997.
Subsequent to the filing of the EAF, Public Interest
Intervenors (PII) filed a petition asking that a Supplemental
Environmental Impact Statement be filed. In its arguments
supporting the petition, PII raised several substantive issues
for SEQRA consideration. In a June 19, 1997 ruling, Chief
Administrative Law Judge Lynch narrowed the issues needing
further consideration in the environmental assessment.
The information provided by O&R in its EAF, the
parties' comments and responses, the revised Agreement, and other
information were evaluated in order to determine whether the
potential impacts resulting from adopting its terms would be
within the bounds and thresholds of the FGEIS adopted in 1996.
The analysis considered several areas of potential impacts
including the effects of rate reductions and reduced demand side
management on electricity sales and air quality, and the
potential environmental effects of actions to ameliorate market
power in O&R's two small load pockets.
Arguably, all of the potential impacts need not be
considered given that some result from Type II exempt rate
actions. Nonetheless, considering all factors, the potential
environmental impacts of the revised Agreement are found to be
within the bounds and thresholds evaluated in the FGEIS.
Therefore, no further SEQRA action is necessary. However, as a
matter of discretion, monitoring of O&R's restructuring will be
implemented.
DISCUSSION
Taking into account our overall responsibility to set
just and reasonable rates, the company's statutory burden of
proof, and our settlement guidelines, and having considered the
evidence, comments, arguments, and EAF information, it is clear
that the terms of the revised Agreement are reasonable and in the
public interest, and provide significant improvements over the
March 25 Settlement Agreement.
The revised Agreement will produce significant customer
benefits. Large industrial customers will have an opportunity to
realize an average electricity price of 6 cents/kWh and rates for
all other customers will be reduced in the first rate year by
1.09% and another 1% effective one year later. These rate
reductions are in addition to average rate reductions of 4% over
the past two years. Furthermore, the revised Agreement provides
that those customers who realize the 2.1% rate decrease (or
approximately 3% including the savings from gross receipts tax
reform), will have first claim on any gain associated with the
auction of the generation assets, until the rate reduction for
these customers reaches 5%.
The terms of the revised Agreement also provide that,
consistent with Opinion No. 96-12, O&R will auction its
generating assets, and realize a reduced gain if selection of a
winning bidder occurs after May 1, 1999. Furthermore, the CTC
has been altered and its most troublesome features eliminated.
Specifically, the provision for a null band has been removed, and
the term of the CTC has been truncated. In fact, if O&R's
generating assets are auctioned and transferred before May 1,
1999, the CTC will not operate. If the CTC does operate, its
maximum term will be 18 months rather than four years. In
addition, ratepayers will no longer be responsible for 90% of the
costs which comprise the CTC. Instead, 25% of the fixed
production labor expense and property taxes will be exposed to
the market place if a CTC becomes operative; and, if the CTC is
operative for longer than 12 months, 35% of those costs would be
exposed to market recovery. The overall effect of these changes
is to introduce market-based rates sooner and better balance the
risks between shareholders and ratepayers. Finally, the revised
Agreement fairly assesses environmental concerns during the
transition to a fully deregulated electric industry.
The revised Agreement also continues the accelerated
schedule for full retail access by May 1, 1999, which we consider
of great consequence. Upon our approval of the revised
Agreement, all large industrial customers will be able to benefit
from the PowerPick(TM) program permitting the purchase of energy from
alternate suppliers. Also, O&R will file proposed unbundled
rates for electric service within one month of that time.
Finally, all customers will realize an expanded choice of energy
suppliers by May 1, 1998.
The revised Agreement, besides continuing customer
service and reliability performance standards, also establishes a
pilot low-income customer assistance program, opens metering
services to competitors by December 1, 1999, and provides for a
customer outreach and education program to enable customers,
particularly small commercial and residential customers, to make
informed choices about electric utility service.
Accordingly, the terms of the revised Agreement are
adopted in their entirety.[5] Inasmuch as those terms are
interrelated, if any term is modified, vacated, or otherwise
materially affected on judicial review, we may re-examine our
entire decision.
Subsequent to the issuance of this abbreviated order,
we shall issue a more comprehensive opinion and order describing
the bases for our decision, and containing the final EAF. The
statute of limitations for filing petitions for rehearing or
clarification of our decision will be deemed to run from the date
of issuance of that opinion.
The Commission orders:
1. The terms of the revised Agreement filed in this
proceeding dated November 6, 1997, are adopted in their entirety
and are incorporated as part of this order.
2. The potential environmental impacts of these terms
are within the bounds and thresholds evaluated in the 1996 FGEIS,
and, therefore, no further SEQRA action is necessary.
____________________
[5] Our understanding of provision V-A., and a basis upon which
the revised Agreement's terms are adopted, is that O&R shall
submit satisfactory evidence of a Force Majeure for the
Commission's review and the Commission will make a final
decision about whether a Force Majeure exists.
3. Orange and Rockland Utilities, Inc. (O&R) is
directed to file on not less than one day's notice, to become
effective December 1, 1997, such tariff amendments as are
necessary to effectuate the rate reductions and other rate-
related matters contemplated by the revised Agreement, as
adopted, as well as the requirements of Opinion No. 97-5. O&R
shall serve copies of its filings upon all parties to this
proceeding. Any comments on the filing to effectuate the rate
reductions must be received at the Commission's offices within
ten days of service of the proposed amendments. The amendments
shall not become effective on a permanent basis until approved by
the Commission.
4. To the extent exceptions to the recommended
decision issued in this proceeding on July 2, 1997 are not moot,
or are otherwise granted, they are denied.
5. O&R, in cooperation with staff, shall monitor the
environmental impacts of electric restructuring resulting from
this order.
6. If O&R elects to participate in the auction of its
generating assets, it must submit a written statement to that
effect, accepting the requirements and contingencies described
above, signed and acknowledged by a duly authorized officer of
O&R. Such a written statement must be submitted not later than
December 20, 1997 or the date on which the company files its
divestiture plan, whichever is sooner.
7. This proceeding is continued.
By the Commission,
(SIGNED) JOHN C. CRARY
Secretary
