UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1727729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip code)
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the close of the latest practicable date.
Common Stock - $5 Par Value 13,518,779 shares
(Class) (Outstanding at April 30, 1998)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income (Unaudited)
for the three months ended March 31, 1998
March 31, 1997 3
Consolidated Cash Flow Statements (Unaudited)
for the three months ended March 31, 1998
and March 31, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 21
<TABLE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
<CAPTION>
March 31, December 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Electric $1,048,587 $1,047,857
Gas 232,771 232,206
Common 64,570 64,570
Utility Plant in Service 1,345,928 1,344,633
Less accumulated depreciation 480,773 471,865
Net Utility Plant in Service 865,155 872,768
Construction work in progress 70,121 63,445
Net Utility Plant 935,276 936,213
Non-utility Property:
Non-utility property 11,653 11,651
Less accumulated depreciation, depletion
and amortization 1,148 1,109
Net Non-utility Property 10,505 10,542
Current Assets:
Cash and cash equivalents 4,253 3,513
Temporary cash investments 518 518
Customer accounts receivable, less allowance for
uncollectible accounts of $2,628 and $2,530 60,555 61,817
Accrued utility revenue 19,848 22,869
Other accounts receivable, less allowance for
uncollectible accounts of $306 and $258 9,690 20,450
Materials and supplies (at average cost) 25,213 35,269
Prepaid property taxes 22,301 21,575
Prepayments and other current assets 23,605 21,469
Total Current Assets 165,983 187,480
Deferred Debits:
Income tax recoverable in future rates 75,353 74,731
Deferred revenue taxes 10,466 10,923
Deferred pension and other postretirement benefits 8,051 9,334
IPP settlements 12,625 14,238
Unamortized debt expense (amortized over term
of securities) 10,979 11,153
Other deferred debits 31,176 29,705
Total Deferred Debits 148,650 150,084
Net Assets of Discontinued Operations 1,476 1,645
Total $1,261,890 $1,285,964
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
<CAPTION>
March 31, December 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
Capitalization:
Common stock (13,518,737 & 13,589,011 shares
outstanding) $ 67,594 $ 67,945
Premium on capital stock 132,300 132,985
Capital stock expense (6,056) (6,084)
Retained earnings 183,625 181,473
Total 377,463 376,319
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock
11,548 and 11,639 shares outstanding) 376 379
Total Non-Redeemable Stock 43,220 43,223
Long-term debt 356,637 356,637
Total Capitalization 777,320 776,179
Non-current Liabilities:
Reserve for claims and damages 4,187 4,591
Post-retirement benefits 13,207 15,334
Pension costs 44,841 43,618
Obligations under capital leases 1,603 1,646
Total Non-current Liabilities 63,838 65,189
Current Liabilities:
Notes payable and obligations due within one year 121,398 130,609
Accounts payable 38,830 57,630
Accrued Federal income and other taxes 10,591 2,929
Refundable fuel and gas costs 6,018 3,848
Refunds to customers 1,292 986
Other current liabilities 25,044 30,678
Total Current Liabilities 203,173 226,680
Deferred Taxes and Other:
Deferred Federal income taxes 191,927 192,514
Deferred investment tax credits 14,289 14,482
Accrued Order 636 transition costs 1,340 1,340
Other deferred credits 10,003 9,580
Total Deferred Taxes and Other 217,559 217,916
Total $1,261,890 $1,285,964
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months
Ended March 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues:
Electric $106,096 $107,101
Gas 58,826 77,906
Total Utility Revenues 164,922 185,007
Diversified Activities 159 312
Total Operating Revenues 165,081 185,319
Operating Expenses:
Operations:
Fuel used in electric production 16,274 12,414
Electricity purchased for resale 15,987 18,856
Gas purchased for resale 30,955 48,117
Other expenses of operation 34,225 32,586
Maintenance 7,292 8,959
Depreciation and amortization 8,561 9,377
Taxes other than income taxes 23,804 26,152
Federal income taxes 6,501 7,463
Total Operating Expenses 143,599 163,924
Income from Operations 21,482 21,395
Other Income and (Deductions):
Allowance for other funds used during
construction (3) 15
Investigation costs - (3,390)
Other - net 621 12
Taxes other than income taxes (70) (66)
Federal income taxes (51) 1,409
Total Other Income and (Deductions) 497 (2,020)
Income Before Interest Charges 21,979 19,375
Interest Charges:
Interest on long-term debt 5,945 6,150
Other interest 2,557 1,542
Amortization of debt premium, expense-net 283 397
Allowance for borrowed funds used
during construction (610) (228)
Total Interest Charges 8,175 7,861
Income from Continuing Operations 13,804 11,514
(continued)
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
<CAPTION>
Three Months
Ended March 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
Discontinued Operations:
Loss from discontinued operations
net of related income taxes $ - $ (4,598)
Net Income 13,804 6,916
Dividends on preferred and preference
stock, at required rates 700 700
Earnings applicable to common stock $13,104 $ 6,216
Average number of common shares
outstanding(000's) 13,520 13,654
Basic Earnings Per Average Common Share
Outstanding:
Continuing Operations $ .97 $ .79
Discontinued Operations - (.33)
Total $ .97 $ .46
Dividends declared per common share
outstanding $ .645 $ .645
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
Cash Flow from Operations:
Net income $13,804 $6,916
Adjustments to reconcile net income to net cash provided
by (used in)operating activities:
Depreciation and amortization 8,449 9,265
Deferred Federal income taxes (1,333) (2,252)
Deferred investment tax credit (193) (198)
Deferred and refundable fuel and gas costs 2,170 4,781
Allowance for funds used during construction (607) (244)
Other non-cash charges 705 752
Changes in certain current assets and liabilities:
Accounts receivable (net) and
accrued utility revenues 15,043 (4,859)
Materials and supplies 10,056 8,059
Prepaid property taxes (726) (977)
Prepayments and other current assets (2,136) (300)
Operating accounts payable (18,800) (23,741)
Accrued Federal income and other taxes 7,662 10,260
Accrued interest (2,362) (2,771)
Refunds to customers 306 506
Other current liabilities (3,271) (4,461)
Discontinued operations 169 1,804
Other-net 1,481 5,871
Net Cash Provided from Operations 30,417 8,411
Cash Flow from Investing Activities:
Additions to plant (8,357) (12,082)
Temporary cash investments -- 769
Allowance for funds used during construction 607 244
Net Cash Used in Investing Activities (7,750) (11,069)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt -- 20,056
Retirements of:
Common Stock (3,225) --
Preference and preferred stock -- (1,390)
Long-term debt (10) (20,114)
Capital lease obligations (39) --
Net borrowings (repayments) under
short-term debt arrangements* (9,215) 16,530
Dividends on preferred and common stock (9,438) (9,536)
Net Cash Used in Financing Activities (21,927) 5,546
Net Change in Cash and Cash Equivalents 740 2,888
Cash and Cash Equivalents at Beginning of Period 3,513 3,321
Cash and Cash Equivalents at End of Period $ 4,253 $ 6,209
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $10,226 $10,456
Federal income taxes $3,000 --
*Debt with maturities of 90 days or less.
The accompanying notes are an integral part of these statements.
</TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of March 31, 1998, the consolidated
statements of income for the three month periods ended March 31, 1998 and
1997, and the consolidated cash flow statements for the three month periods
then ended have been prepared by Orange and Rockland Utilities, Inc. (the
"Company") without an audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments and the adjustments
necessitated by the discontinued operations) necessary to fairly present
the financial position and results of operations at March 31, 1998, and for
all periods presented, have been made. The amounts in the consolidated
balance sheet as of December 31, 1997 have been derived from audited
financial statements.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these unaudited
consolidated financial statements, notes to consolidated financial
statements and management's discussion and analysis of financial condition
and results of operations be read in conjunction with the consolidated
financial statements, the review of the Company's results of operations and
financial condition and the notes to consolidated financial statements
included in the Company's December 31, 1997 Annual Report to Shareholders.
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the results of operations for the full year.
3. The consolidated financial statements include the accounts of the Company,
all subsidiaries and the Company's pro-rata share of an unincorporated
joint venture. All intercompany balances and transactions have been
eliminated.
4. Contingencies at March 31, 1998 are substantially the same as the
contingencies described in the "Notes to Consolidated Financial Statements"
included in the Company's December 31, 1997 Annual Report to Shareholders,
which material is incorporated by reference to the Company's December 31,
1997 Form 10-K Annual Report, and in Item 3, Legal Proceedings of the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1997, except changes in the status of regulatory matters which are updated
in Part I, Item 2 under the caption "Regulatory Activities" and the status
of certain Legal Proceedings which are updated in Part II, Item I, "Legal
Proceedings".
5. In August 1997, Norstar Management, Inc. ("NMI"), a wholly owned indirect
subsidiary of the Company, sold certain of the assets of NORSTAR Energy
Limited Partnership ("NORSTAR"), a natural gas services and marketing
company of which NMI is the general partner. During the first quarter of
1998, NMI continued to wind down the remaining portion of the NORSTAR
business. All activity has been completed with the exception of
finalizing the remaining accounts receivable and payable balances. The
resolution of these items is not expected to have a material effect on the
Company's 1998 consolidated financial position or results of operations.
6. Certain amounts from prior years have been reclassified to conform with the
current year presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated earnings per average common share outstanding for the
first quarter of 1998 were $0.97 as compared to $0.46 for the first quarter of
1997. Discontinued operations had no effect on the first quarter of 1998 and
accounted for a loss of $(0.33) per share for the first quarter of 1997.
Settlement costs related to litigation with the Company's former Chairman had no
effect on the first quarter of 1998 and accounted for a loss of $(0.16) per
share for the first quarter of 1997. Fluctuations within the components of
earnings are discussed in the "Results of Operations." The average number of
common shares outstanding was 13.5 million for the first quarter of 1998 and
13.7 for the first quarter of 1997.
The return on average common equity from continuing operations for the twelve
months ended March 31, 1998 was 11.81% as compared to 11.35% for the twelve
months ended March 31, 1997. The return on average common equity, including the
effect of discontinued operations, for the twelve months ended March 31, 1998
was 8.99% as compared to 9.33% for the twelve months ended March 31, 1997.
Capital Resources and Liquidity
At March 31, 1998, the Company and its utility subsidiaries had unsecured bank
lines of credit totaling $140.0 million. The Company borrows under the lines of
credit through the issuance of promissory notes to the banks. However, the
Company primarily 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. The average daily balance of short-term borrowings for the three months
ended March 31, 1998 amounted to $125.5 million at an effective interest rate of
5.9% as compared to $93.7 million at an effective interest rate of 5.8% for the
same period of 1997. The average daily balance of temporary cash investments
for the three months ended March 31, 1998 was $0.5 million with an effective
interest rate of 5.1% compared to $1.3 million at an effective interest rate of
5.2% for the same period of 1997. The non-utility subsidiaries of the Company
and of Rockland Electric Company ("RECO"), a wholly owned utility subsidiary of
the Company, had no bank lines of credit at March 31, 1998.
On December 18, 1997, the Company issued $80 million of 6 1/2% Debentures due
2027 (Series E)(the "Series E Debentures"). The proceeds of the Series E
Debentures were used to repay promissory notes issued for the purpose of
redeeming two series of the Company's long term debt aggregating $80 million
principal amount which matured during October 1997. The Series E Debentures
were not registered under the Securities Act of 1933 (the "1933 Act") and
were sold to qualified institutional buyers pursuant to Rule 144A of the 1933
Act. Pursuant to an agreement in connection with the sale of the Series E
Debentures, the Company, in January 1998, registered $80 million of 6 1/2%
Debentures due 2027 (Series F)(the "Series F Debentures") under the 1933 Act.
The Series F Debentures are substantially identical to the Series E Debentures
and were offered to holders of the Series E Debentures in exchange for the
Series E Debentures. On March 3, 1998, all of the Series E Debentures were
exchanged for the Series F Debentures.
During December 1997,the Company initiated a Common Stock Repurchase Program.
Pursuant to an Order of the New York Public Service Commission ("NYPSC"), the
Company has authority to repurchase up to 700,000 shares of its common stock not
later than December 31, 1999 in the open market or through privately negotiated
transactions. During February, 1998, the Company temporarily suspended the
Common Stock Repurchase Program. Through March 31, 1998, 136,300 shares of the
Company's common stock have been repurchased at an average price of $45.75 per
share.
The Company currently has no plans for the issuance of additional debt or equity
securities.
Regulatory Activities
New York Competitive Opportunities Proceeding
Electric:
Reference is made to Item 3, Legal Proceedings, under the caption "New York
Competitive Opportunities Proceeding" in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, for a description of the NYPSC
Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). On
February 13, 1998, in accordance with the Settlement in the Company's
Competitive Opportunities Proceeding(Case E-0900), the Company filed proposed
unbundled tariffs. The unbundled filing separates the Company's existing
tariffs into production, transmission, distribution and customer cost
categories. The Company expects this phase of the Competitive Opportunities
proceeding to continue throughout the remainder of 1998.
In addition, on April 16, 1998, the NYPSC issued an order (the "April 16, 1998
Order") authorizing the process for auctioning the Company's generating assets.
The NYPSC required that the Company and Consolidated Edison Company of New York,
Inc. ("Con Edison") modify their agreement for the joint auction of the Bowline
Plant. The Company and Con Edison had agreed that the gross proceeds from the
auction of the Bowline Plant, including those from the sale of an adjacent 97
acre parcel of land, would be allocated 70% to Con Edison and 30% to the
Company, until Con Edison receives a maximum premium of $9 million. The premium
would be calculated by multiplying the difference between 70% and 66 2/3% (i.e.,
3 1/3%) by the gross proceeds. Once the maximum premium is reached, any
additional gross proceeds would be allocated two-thirds to Con Edison and one-
third to the Company.
The NYPSC found this arrangement to be unreasonable. According to the NYPSC,
such a premium would be appropriate, however, if it is triggered when proceeds
from the sale of the plant exceed the Company's total costs (book value, taxes
and auction transaction costs). In addition, the Commission ruled that since
the Company is the sole owner of the adjacent 97 acre parcel of land, that
parcel should be treated as a Company asset. Con Edison should not share in the
proceeds from the sale of that parcel.
On May 1, 1998, the Company and Con Edison filed with the NYPSC a revised
agreement, dated April 30, 1998, which complies with the requirements of the
April 16, 1998 Order for the joint auction of the Bowline Plant. The Company
requested that the NYSPC review and approve expeditiously this revised
agreement, in order that the Company can commence its auction process.
The April 16, 1998 Order also required that the Company submit to the NYPSC a
written statement of unconditional acceptance of the modifications and
conditions to the Company's proposed process for auctioning its generating
assets, set forth in the April 16, 1998 Order. By letter dated April 30, 1998,
the Company unconditionally accepted those modifications and conditions.
The Company is unable to predict the outcome of this regulatory proceeding or
its effect on the Company's consolidated financial position or results of
operations. However, the Company anticipates that it will commence the auction
of the generating assets during 1998.
Gas:
Reference is made to Item 3, Legal Proceedings, of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, under the caption "Regulatory
Matters - Competition," for a discussion of the transition to a competitive
natural gas market. On April 1, 1998, the Company filed "Plans of Orange and
Rockland Utilities, Inc. to Mitigate Stranded Costs" in Case 93-G-0932, the New
York gas restructuring proceeding. The Company's plan indicates that the
Company has not incurred stranded costs to date as a result of its natural gas
restructuring program. As the transition to a competitive retail market
develops, the Company will determine what supply, transportation and storage
contracts it will maintain. Whether the Company incurs stranded costs in the
future will depend upon the continuing development of the gas transportation
market on the Company's distribution system and further NYPSC action in
restructuring the New York gas market. The NYPSC has not yet acted on the
Company's filing. The Company is unable to predict the outcome of regulatory
initiatives undertaken in this regard or the effect on the Company's
consolidated financial position or results of operations.
New Jersey Energy Master Plan
Reference is made to Items 3, Legal Proceedings under the caption "New Jersey -
Energy Master Plan" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, for information regarding the New Jersey Board of
Public Utilities ("NJBPU") Order "Adopting and Releasing Final Report in its
Energy Master Plan Phase II Proceeding to Investigate the Future Structure of
the Electric Power Industry (Docket No. EX 94120585Y)." The Order required RECO
and other New Jersey investor owned electric utilities each to file unbundled
rates, a stranded cost proposal and a restructuring plan. Hearings were
conducted in the stranded cost and unbundled rates phases before an
Administrative Law Judge. The NJBPU issued an order modifying the return date
for a decision from the Administrative Law Judge in the stranded cost and
unbundled rates phases from May 15, 1998 to June 30, 1998. Hearings in the
restructuring phase scheduled for May, 1998 will be heard directly by the NJBPU.
The NJBPU has indicated that it will rule on these filings by October 1998. It
is not possible to predict the outcome of the NJBPU proceeding or its effect, if
any, on the Company's consolidated financial position or results of operations.
QUARTERLY COMPARISON
Results of Operations
The Company's total consolidated earnings per average common share outstanding
for the first quarter of 1998 amounted to $0.97 per share as compared to $0.46
per share for the first quarter of 1997.
The lower earnings experienced during the first quarter of 1997 were primarily
the result of the loss of $(0.33) per share experienced by the Company's now
discontinued gas marketing subsidiary operations as well as a loss of $(0.16)
per share due to settlement costs related to litigation with a former Chairman
and Chief Executive Officer of the Company. During the first quarter of 1998,
utility operating gas revenues were adversely affected by the below-normal sales
resulting from the warm winter weather, the effect of which was somewhat
mitigated by the Company's gas weather normalization clause as described below.
Also partially offsetting the effect of lower gas sales was the Company's
continued success in containing utility operation and maintenance expenses.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and purchased gas cost
recoveries, decreased by $20.1 million during the first quarter of 1998 as
compared to the same quarter of 1997, as a result of lower fuel cost recoveries,
lower gas sales and the reduction in electric base rates effective December,
1997.
Electric operating revenues during the current quarter were $106.1 million as
compared to $107.1 million for the first quarter of 1997, a decrease of $1.0
million.
Actual total sales of electric energy to retail customers during the first
quarter of 1998 were 1,129,511 megawatt hours ("Mwh"), compared with 1,116,718
Mwh during the comparable period a year ago. Revenues associated with these
sales were $101.7 million during the current quarter compared to $104.7 million
during the first quarter of 1997. This decrease in revenue was the result of
base rate reductions and lower fuel cost recoveries partially offset by slightly
higher sales. Sales to other utilities for the first quarter of 1998 amounted to
120,977 Mwh with revenues of $3.4 million compared to 67,924 Mwh and $1.5
million of revenue in 1997. Revenue from these sales are primarily a recovery
of costs, and under the applicable tariff regulations, have a minimal impact on
earnings.
Gas operating revenues during the current quarter were $58.8 million compared to
$77.9 million for the first quarter of 1997, a decrease of $19.1 million. This
decrease is primarily the result of a decrease in the volume of gas sold and the
timing of fuel cost recoveries.
Record warm weather conditions during the first quarter of 1998 resulted in a
decrease in gas sales when compared to the first quarter of 1997. Sales to firm
customers during the first quarter of 1998 totaled 7,860 million cubic feet
("Mmcf"), compared with 8,996 Mmcf during the same period a year ago. Gas
revenues from firm customers were $54.7 million, compared with $72.6 million in
the first quarter of 1997. The level of revenues from gas sales in New York is
subject to a weather normalization clause that compares actual gas heating
season sales levels as measured by heating degree days to the number of
forecasted degree days used to establish gas base revenue requirements. To the
extent that actual degree days differ from forecasted degree days by more than
2.2%, a revenue adjustment is recorded and the difference is either refunded to
or collected from firm gas customers. Interruptible gas sales were 873 Mmcf for
the first quarter of 1998 compared to 878 Mmcf for the same period of 1997.
Revenues from interruptible customers were $2.9 million for the first quarter of
1998 compared to $3.9 million for the first quarter of 1997.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in electric production and purchased electricity costs
amounted to $32.3 million for the first quarter of 1998 compared to $31.3
million for the first quarter of 1997, an increase of $1.0 million. This
increase reflects the increase in demand for electricity, which was partially
offset by a decrease in fuel prices.
Purchased gas costs for utility operations were $31.0 million in the first
quarter of 1998 compared to $48.1 million in 1997, a decrease of $17.1 million.
This decrease in gas costs is attributable to the lower volume of gas purchased
for resale and a reduction in price.
Other Operating and Maintenance Expenses
The Company's total operating expenses excluding fuel, purchased power and gas
purchased for resale for the first quarter of 1998 decreased by $4.2 million
when compared with the same period in 1997. Utility operating expenses
decreased by $4.3 million. Diversified operations expenses increased by $0.1
million.
The decrease in utility operating expenses is the result of reductions in taxes
other than income taxes of $2.3 million, lower depreciation and amortization
expenses of $0.8 million and lower Federal income tax expense of $0.9 million.
The reduction in taxes other than income taxes is primarily due to the change
necessitated by the New Jersey Uniform Transitional Utilities Assessment Act
which, although it resulted in a change in the method of recording the tax, did
not effect the Company's tax liability or the Company's net income for the
period. Depreciation and amortization expense decreased due to the regulatory
adjustments approved in the New York Electric Restructuring Case. Federal
income tax expense decreased due to lower taxable income. Other operation and
maintenance expenses decreased by $0.3 million.
Diversified Activities
The Company's diversified activities consist of energy services and land
development businesses conducted through wholly owned non-utility subsidiaries.
Revenues from diversified activities were $159,000 for the first quarter of 1998
compared with $312,000 a year ago.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, increased by $2.2
million during the first quarter of 1998 when compared to the same quarter of
1997. This is primarily the result of lower investigation charges, partially
offset by higher interest on a higher average level of short term borrowings.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of a
petition filed by the Company, the six other New York State investor-owned
electric utilities, and the Energy Association of New York State ("Petitioners')
in the New York State Supreme Court pursuant to Article 78 of the New York Civil
Practice Law and Rules challenging the NYPSC's May 20, 1996 Order in the NYPSC
Competitive Opportunities Proceeding, (Case Nos. 94-E-0952 and 96-E-0900). By
Decision and Order on Motion dated April 7, 1998, the Appellate Division has
granted a motion to extend the time to perfect appeals to July 6, 1998.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of matters
related to the Cottman Avenue/Metal Bank Superfund Site in Philadelphia,
Pennsylvania. The United States Environmental Protection Agency ("EPA") has
notified the Company and other potentially responsible parties ("PRP") that the
deadline for responding to the letter received by the Company on February 10,
1998 has been extended to May 26, 1998. In addition, the Company has received a
package of information from the Metal Bank Group which, inter alia, changes the
Company's allocated share to 4.34% and which sets forth an amount ($536,519.00)
which the Metal Bank Group believes the Company should pay for the Company's pro
rata share of past expenses incurred by the Group in conducting a remedial
investigation and feasibility study at the Site. The Company will negotiate
with the Metal Bank Group concerning these matters. The Company is unable at
this time to estimate the Company's share, if any, of past or future costs at
this site.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of six
former Manufactured Gas Plant ("MGP") sites which were owned or operated by the
Company or its predecessors. The Company has prepared revised work plans for
the initial three MGP sites based on comments received from the New York State
Department of Environmental Conservation ("DEC"), and is awaiting DEC approval
of the revised work plans. As to the two additional sites for which the Company
had submitted draft work plans to the DEC, the DEC has approved these work plans
and the Company has commenced the site investigation work at those sites. The
Company will be preparing reports relative to this site investigation work.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of 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 United States Court of Appeals for the Third Circuit heard oral
argument on Crossroads' appeal on April 23, 1998, and has reserved decision.
The Company is unable to predict the outcome of this proceeding or its effect on
the Company's consolidated financial position or results of operations.
Reference is made to Item 5, Other Events, in the Company's Current Report on
Form 8-K dated March 9, 1998, for a description of a litigation entitled
Virgilio Ciullo, et al. v. Orange and Rockland Utilities, Inc., et al. In
response to the motion to dismiss filed by the O&R Defendants and the Company on
March 30, 1998, plaintiffs have filed a Verified Amended Complaint and a
Memorandum of Law in Support of Their Answer to Defendants' Motion to Dismiss
the Complaint. Plaintiffs take the position that the Verified Amended Complaint
moots the motion to dismiss. The Verified Amended Complaint essentially seeks
the same relief as the original Complaint (including a broader request for an
accounting and an increase in the $15 million claim (referred to in the Form 8-
K) to $23 million) and contains additional allegations which Plaintiffs claim
will cure any deficiencies in the original Complaint. In addition, the Verified
Amended Complaint adds Andersen Consulting LLP as a defendant. The O&R
Defendants and the Company plan to move to dismiss the Verified Amended
Complaint.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in
this Form 10-Q Quarterly Report, for a description of the NYPSC Competitive
Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). The Public Utility
Law Project of New York, Inc. ("PULP"), by complaint dated April 30, 1998, has
instituted an action against the NYPSC, the New York State Department of Public
Service ("NYDPS") and the Company. PULP contends that the NYPSC, in its Opinion
No. 97-20 approving the Company's Electric Rate and Restructuring Plan, exceeded
its statutory authority when it ordered the Company to file tariffs providing
for retail wheeling service to all customer classes. PULP claims that the
expenditure of state funds by the defendants NYPSC and NYDPS to implement the
provision of residential electric service by energy services companies violates
the Home Energy Fair Practices Act and is a wrongful application of state funds.
PULP also contends that Opinion No. 97-20 establishes rules for the provision of
retail energy services in violation of the State Administrative Procedure Act.
The Company plans to file a motion to dismiss. The Company is unable to predict
the outcome of this regulatory proceeding and the effect on the Company's
consolidated financial position or results of operations.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in
this Form 10-Q Quarterly Report, for a description of proceedings relating to
the transition to a competitive natural gas market. The Company is unable to
predict the outcome of regulatory initiatives undertaken in this regard or the
effect on the Company's consolidated financial position or results of
operations.
Forward-Looking Information
The Company has made forward-looking statements in this document with respect to
the financial condition, results of operations and business of the Company in
the future, which involve certain risks and uncertainties. Forward-looking
statements are included in Item 1 of Part I of this Form 10-Q in the Notes to
Consolidated Financial Statements as well as in this Item 1 under the caption
"Legal Proceedings" with respect to certain pending litigation matters. For all
of those statements, the Company claims the protections of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Item 4. Submission of Matters to a Vote of Security Holders:
(a) The Company's Annual Meeting of Shareholders was held on April 8, 1998.
(b) At the Annual Meeting of Shareholders on April 8, 1998, the following
directors were elected for a three-year term expiring at the Annual Meeting
of Shareholders in 2001: Robert E. Mulcahy III, James F. O'Grady, Jr. and
D. Louis Peoples. The terms of office of the following Directors continued
after the meeting: Ralph M. Baruch, J. Fletcher Creamer, Michael J.
DelGiudice, Jon F. Hanson, Kenneth D. McPherson, Frederic V. Salerno and
Linda C. Taliaferro.
(c) The following matters were submitted to a vote of security holders at the
Company's Annual Meeting of Shareholders held on April 8, 1998:
1. The Company's nominees for election as Directors were approved by the
following vote:
Shares Shares Broker
For Withheld Non-Votes
Robert E. Mulcahy III 11,190,147 356,097 N/A
James F. O'Grady, Jr. 11,187,286 358,958 N/A
D. Louis Peoples 11,201,972 344,272 N/A
2. A proposal to appoint the firm of Arthur Andersen LLP, independent
public accountants, to audit the books, records and accounts of the
Company and its subsidiaries for the year 1998 was approved by the
following vote:
Shares Shares Shares Broker
For Against Abstaining Non-Votes
11,275,480 113,580 157,184 N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.52 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and G. D. Caliendo, dated
May 10, 1998, providing for the termination of Mr.
Caliendo's employment with the Company at the effective time
of the Merger and the payment of certain amounts in
accordance with the severance agreement between the Company
and G. D. Caliendo dated January 21, 1996.
10.53 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and R. Lee Haney, dated
May 10, 1998, providing for the termination of Mr. Haney's
employment with the Company at the effective time of the
Merger and the payment of certain amounts in accordance with
the severance agreement between the Company and R. Lee Haney
dated January 22, 1996.
10.54 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and Robert McBennett,
dated May 10, 1998, providing for the termination of Mr.
McBennett's employment with the Company at the later of the
effective time of the Merger or July 1, 1999 and the payment
of certain amounts in accordance with the severance
agreement between the Company and Robert McBennett dated
October 27, 1997.
10.55 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and D. Louis Peoples,
dated May 10, 1998, providing for the termination of Mr.
People's employment with the Company at the effective time
of the Merger and the payment of certain amounts in
accordance with the severance agreement between the Company
and D. Louis Peoples dated January 22, 1996.
27 - Financial Data Schedule.
99.14 - The Company's Final Divestiture Plan as approved by the
NYPSC on April 8, 1998
(b) Reports on Form 8-K
On February 6, 1998, the Company filed a Current Report on Form 8-K
dated February 5, 1998 regarding the election of Michael J. Del
Giudice to the position of Chairman of the Company's Board of
Directors.
On April 1, 1998, the Company filed a Current Report on Form 8-K dated
March 9, 1998 regarding a lawsuit brought against the Company by three
alleged shareholders.
On April 9, 1998, the Company filed a Current Report on Form 8-K
dated April 8, 1998 regarding the approval by the NYPSC of the
Company's Final Divestiture Plan.
On May 12, 1998, the Company filed a Current Report on Form 8-K
dated May 10, 1998 regarding the definitive Agreement and Plan of
Merger, dated as of May 10, 1998, entered into on May 10, 1998 by and
among the Company, Consolidated Edison, Inc., a New York corporation
("CEI"), and C Acquisition Corp., a New York corporation and a wholly-
owned subsidiary of CEI.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
Date: May 14, 1998 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: May 14, 1998 By EDWARD M. McKENNA
Edward M. McKenna
Controller
May 10, 1998
G.D. Caliendo
General Counsel and Corporate Secretary
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Mr. Caliendo:
The purpose of this letter agreement is to set forth the understanding
between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated
Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection
with the transactions (the "Transactions") described in the Agreement and Plan
of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the
"Merger Agreement"), including with respect to the application of the agreement
entered into between the Company and you, dated January 21, 1996, as thereafter
amended (the "Agreement").
This letter agreement is being entered into for good and valuable
consideration, with knowledge that you are relying hereon in agreeing to
terminate your employment and with the intent to be legally bound hereby.
1. Change in Control. The parties hereto confirm and agree that the
approval by the shareholders of the Company of the Transactions will constitute
a "Change in Control" of the Company (as defined in Section 15(E)(III) of the
Agreement).
2. Termination of Employment. The parties hereto agree that,
provided your employment with the Company has not previously been terminated,
your employment with the Company will terminate at the Effective Time (as
defined in the Merger Agreement). The parties hereto further agree and confirm
that, for purposes of the Agreement, such termination shall be deemed to be a
termination of your employment by you for Good Reason following a "Change in
Control" of the Company. The Company, Buyer and Buyer Sub hereby agree that
this letter agreement (i) constitutes the "Notice of Termination" described in,
and (ii) otherwise satisfies the requirements of, Section 7.1 of the Agreement
with respect to such termination.
3. Payments; Benefits. The parties further confirm and agree that,
in accordance with the foregoing paragraphs 1 and 2, if the Transactions are
consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to
you at the Effective Time, in a lump sum cash payment, the amounts described in
Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation
(including salary and accrued but unused vacation) with respect to the period
ending on the Effective Time, (ii) pay to you, at the Effective Time, the
benefits to which you are entitled under the Officers' Supplemental Retirement
Plan of the Company (the "SERP"), calculated in accordance with the terms of the
SERP, Section 6.1(C) of the Agreement and the letter agreements between you and
the Company dated as of February 16, 1995, April 6, 1995, July 21, 1997, and
February 25, 1998, and if the Effective Time occurs prior to July 1, 1999, as if
you had continued to be employed by the Company and to accrue service under the
SERP until such date, (iii) provide to you, for the thirty-six month period
commencing on the date of the termination of your employment hereunder, the
benefits and privileges described in Section 6.1(D) of the Agreement (relating
to life, disability, accident and health insurance benefits), (iv) provide to
you the benefits described in Section 6.1(E) of the Agreement (relating to post-
retirement health care and life insurance) if you otherwise qualify for such
benefits (after taking into account the terms of Section 6.1(E)) and (v) honor
and perform all other obligations to you and agreements for your benefit
contained in the Agreement (including, but not limited to, Sections 6.2, 6.3 and
6.4 thereof).
4. Other Benefits. The parties further confirm and agree that the
Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase
the automobile provided to you by the Company pursuant to Company policy at a
price equal to its wholesale bluebook price, as of the date of the termination
of your employment hereunder and (ii) honor and perform all of their respective
other obligations to you and agreements for your benefit including, but not
limited to, all obligations under the Company Long-Term Performance Share Unit
Plan and the letter agreement between you and the Company dated as of July 23,
1997. You hereby acknowledge that, except as set forth herein, you are not
entitled to receive severance, termination or similar benefits under any other
plan, agreement or arrangement of the Company.
5. No Continuing Obligations. The parties hereto confirm and agree
that upon your termination of employment pursuant to this letter agreement, you
shall have no further obligations under the Agreement except as expressly
provided in Section 6.1(D) thereof.
6. Miscellaneous. This letter agreement may not be modified or
amended without the prior written consent of all the parties hereto, shall be
governed by the laws of the State of New York without regard to its conflicts of
laws rules, may be executed in two or more counterparts each of which shall
constitute an original and, together with the Agreement, shall constitute the
entire agreement of the parties with respect to the subject matter hereof.
If this letter sets forth our agreement on the subject matter hereof,
please sign and return to the Company and Buyer the enclosed copies of this
letter, which will then constitute our agreement on this subject.
Sincerely,
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ D. Louis Peoples
Name: Denton Louis Peoples
Title: Vice Chairman and Chief
Executive Officer
CONSOLIDATED EDISON, INC.
By: /s/ Joan S. Freilich
Name: Joan S. Freilich
Title: Executive Vice President and
Chief Financial Officer
C ACQUISITION CORP.
By: /s/ Kevin Burke
Name: Kevin Burke
Title: President
In accordance with the provisions set forth above, I hereby agree that (i) my
employment with the Company and any subsidiaries thereof will terminate and (ii)
I will relinquish all offices and directorships I hold with the Company or any
subsidiaries thereof, in each case, effective as of the Effective Time.
/s/ G.D. Caliendo
G.D. Caliendo
May 10, 1998
R. Lee Haney
Chief Financial Officer
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Mr. Haney:
The purpose of this letter agreement is to set forth the understanding
between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated
Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection
with the transactions (the "Transactions") described in the Agreement and Plan
of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the
"Merger Agreement"), including with respect to the application of the agreement
entered into between the Company and you, dated January 22, 1996, as thereafter
amended (the "Agreement").
This letter agreement is being entered into for good and valuable
consideration, with knowledge that you are relying hereon in agreeing to
terminate your employment and with the intent to be legally bound hereby.
1. Change in Control. The parties hereto confirm and agree that the
approval by the shareholders of the Company of the Transactions will constitute
a "Change in Control" of the Company (as defined in Section 15(E)(III) of the
Agreement).
2. Termination of Employment. The parties hereto agree that,
provided your employment with the Company has not previously been terminated,
your employment with the Company will terminate at the Effective Time (as
defined in the Merger Agreement). The parties hereto further agree and
confirm that, for purposes of the Agreement, such termination shall be deemed
to be a termination of your employment by you for Good Reason following a
"Change in Control" of the Company. The Company, Buyer and Buyer Sub hereby
agree that this letter agreement (i) constitutes the "Notice of Termination"
described in, and (ii) otherwise satisfies the requirements of, Section 7.1 of
the Agreement with respect to such termination.
3. Payments; Benefits. The parties further confirm and agree that,
in accordance with the foregoing paragraphs 1 and 2, if the Transactions are
consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to
you at the Effective Time, in a lump sum cash payment, the amounts described in
Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation
(including salary and accrued but unused vacation) with respect to the period
ending on the Effective Time, (ii) pay to you, at the Effective Time, the
benefits to which you are entitled under the Officers' Supplemental Retirement
Plan of the Company (the "SERP"), calculated in accordance with the terms of the
SERP, Section 6.1(C) of the Agreement and the letter agreements between you and
the Company dated as of September 2, 1994, September 29, 1994, July 21, 1997,
and February 25, 1998, and if the Effective Time occurs prior to July 1, 1999,
as if you had continued to be employed by the Company and to accrue service
under the SERP until such date, (iii) provide to you, for the thirty-six month
period commencing on the date of the termination of your employment hereunder,
the benefits and privileges described in Section 6.1(D) of the Agreement
(relating to life, disability, accident and health insurance benefits), (iv)
provide to you the benefits described in Section 6.1(E) of the Agreement
(relating to post-retirement health care and life insurance) if you otherwise
qualify for such benefits (after taking into account the terms of Section
6.1(E)) and (v) honor and perform all other obligations to you and agreements
for your benefit contained in the Agreement (including, but not limited to,
Sections 6.2, 6.3 and 6.4 thereof).
4. Other Benefits. The parties further confirm and agree that the
Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase
the automobile provided to you by the Company pursuant to Company policy at a
price equal to its wholesale bluebook price, as of the date of the termination
of your employment hereunder and (ii) honor and perform all of their respective
other obligations to you and agreements for your benefit including, but not
limited to, all obligations under the Company Long-Term Performance Share Unit
Plan and the letter agreement between you and the Company dated as of July 23,
1997. You hereby acknowledge that, except as set forth herein, you are not
entitled to receive severance, termination or similar benefits under any other
plan, agreement or arrangement of the Company.
5. No Continuing Obligations. The parties hereto confirm and agree
that upon your termination of employment pursuant to this letter agreement, you
shall have no further obligations under the Agreement except as expressly
provided in Section 6.1(D) thereof.
6. Miscellaneous. This letter agreement may not be modified or
amended without the prior written consent of all the parties hereto, shall be
governed by the laws of the State of New York without regard to its conflicts of
laws rules, may be executed in two or more counterparts each of which shall
constitute an original and, together with the Agreement, shall constitute the
entire agreement of the parties with respect to the subject matter hereof.
If this letter sets forth our agreement on the subject matter hereof,
please sign and return to the Company and Buyer the enclosed copies of this
letter, which will then constitute our agreement on this subject.
Sincerely,
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ D. Louis Peoples
Name: Denton Louis Peoples
Title: Vice Chairman and Chief
Executive Officer
CONSOLIDATED EDISON, INC.
By: /s/ Joan S. Freilich
Name: Joan S. Freilich
Title: Executive Vice President and
Chief Financial Officer
C ACQUISITION CORP.
By: /s/ Kevin Burke
Name: Kevin Burke
Title: President
In accordance with the provisions set forth above, I hereby agree that (i) my
employment with the Company and any subsidiaries thereof will terminate and (ii)
I will relinquish all offices and directorships I hold with the Company or any
subsidiaries thereof, in each case, effective as of the Effective Time.
/s/ R. Lee Haney
R. Lee Haney
May 10, 1998
Robert J. McBennett
Treasurer
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Mr. McBennett:
The purpose of this letter agreement is to set forth the understanding
between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated
Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection
with the transactions (the "Transactions") described in the Agreement and Plan
of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the
"Merger Agreement"), including with respect to the application of the agreement
entered into between the Company and you, dated October 27, 1997, as thereafter
amended (the "Agreement").
This letter agreement is being entered into for good and valuable
consideration, with knowledge that you are relying hereon in agreeing to
terminate your employment and with the intent to be legally bound hereby.
1. Change in Control. The parties hereto confirm and agree that the
approval by the shareholders of the Company of the Transactions will constitute
a "Change in Control" of the Company (as defined in Section 1 of the Agreement).
2. Termination of Employment. The Company and Buyer Sub hereby agree
that neither the Company nor the Buyer Sub will terminate your employment, other
than for Cause (as defined in the Agreement), until the later of July 1, 1999,
and the Effective Time (such date, the "Termination Date"). The parties hereto
agree that, provided your employment with the Company has not previously been
terminated, your employment with the Company will terminate on the Termination
Date. The parties hereto further agree and confirm that, for purposes of the
Agreement, such termination shall be deemed to be a termination of your
employment by you for Good Reason following a "Change in Control" of the
Company.
3. Payments; Benefits. The parties further confirm and agree that,
in accordance with the foregoing paragraphs 1 and 2, if the Transactions are
consummated, the Company shall, or Buyer shall cause Buyer Sub to, subject to
Section 3(d) of the Agreement, (i) pay to you on the Termination Date, in a lump
sum cash payment, the amounts described in Sections 3(a) of the Agreement,
together with any unpaid compensation (including salary, accrued but unused
vacation and any Annual Team Incentive Plan payment payable for the calendar
year in which the termination of your employment occurs) with respect to the
period ending on the Termination Date, (ii) pay to you, on the Termination Date,
the benefits to which you are entitled under the Officers' Supplemental
Retirement Plan of the Company (the "SERP"), calculated in accordance with the
terms of the SERP, (iii) provide to you, for the twenty-four month period
commencing on the date of the termination of your employment hereunder, the
benefits described in Section 3(b) of the Agreement (relating to life,
disability, accident and health insurance benefits) and (iv) honor and perform
all other obligations to you and agreements for your benefit contained in the
Agreement.
4. Other Benefits. The parties further confirm and agree that the
Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase
the automobile provided to you by the Company pursuant to Company policy at a
price equal to its wholesale bluebook price, as of the date of the termination
of your employment hereunder and (ii) honor and perform all of their respective
other obligations to you and agreements for your benefit including, but not
limited to, all obligations under the Company Long-Term Performance Share Unit
Plan. You hereby acknowledge that, except as set forth herein, you are not
entitled to receive severance, termination or similar benefits under any other
plan, agreement or arrangement of the Company.
5. No Continuing Obligations. The parties hereto confirm and agree
that upon your termination of employment pursuant to this letter agreement, you
shall have no further obligations under the Agreement except as expressly
provided in Section 3(c) thereof.
6. Miscellaneous. This letter agreement may not be modified or
amended without the prior written consent of all the parties hereto, shall be
governed by the laws of the State of New York without regard to its conflicts of
laws rules, may be executed in two or more counterparts each of which shall
constitute an original and, together with the Agreement, shall constitute the
entire agreement of the parties with respect to the subject matter hereof.
If this letter sets forth our agreement on the subject matter hereof,
please sign and return to the Company and Buyer the enclosed copies of this
letter, which will then constitute our agreement on this subject.
Sincerely,
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ D. Louis Peoples
Name: Denton Louis Peoples
Title: Vice Chairman and Chief
Executice Officer
CONSOLIDATED EDISON, INC.
By: /s/ Joan S. Freilich
Name: Joan S. Freilich
Title: Executive Vice President and
Chief Financial Officer
C ACQUISITION CORP.
By: /s/ Kevin Burke
Name: Kevin Burke
Title: President
In accordance with the provisions set forth above, I hereby agree that (i) my
employment with the Company and any subsidiaries thereof will terminate and (ii)
I will relinquish all offices and directorships I hold with the Company or any
subsidiaries thereof, in each case, effective on the Termination Date.
/s/ Robert J. McBennett
Robert J. McBennett
May 10, 1998
D. Louis Peoples
Chief Executive Officer
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Mr. Peoples:
The purpose of this letter agreement is to set forth the understanding
between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated
Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection
with the transactions (the "Transactions") described in the Agreement and Plan
of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the
"Merger Agreement"), including with respect to the application of the agreement
entered into between the Company and you, dated January 22, 1996, as thereafter
amended (the "Agreement").
This letter agreement is being entered into for good and valuable
consideration, with knowledge that you are relying hereon in agreeing to
terminate your employment and with the intent to be legally bound hereby.
1. Change in Control. The parties hereto confirm and agree that the
approval by the shareholders of the Company of the Transactions will constitute
a "Change in Control" of the Company (as defined in Section 15(E)(III) of the
Agreement).
2. Termination of Employment. The parties hereto agree that
provided your employment with the Company has not previously been terminated,
your employment with the Company will terminate at the Effective Time (as
defined in the Merger Agreement). The parties hereto further agree and confirm
that, for purposes of the Agreement, such termination shall be deemed to be a
termination of your employment by you for Good Reason following a "Change in
Control" of the Company. The Company, Buyer and Buyer Sub hereby agree that
this letter agreement (i) constitutes the "Notice of Termination" described in,
and (ii) otherwise satisfies the requirements of, Section 7.1 of the Agreement
with respect to such termination.
3. Payments; Benefits. The parties further confirm and agree that,
in accordance with the foregoing paragraphs 1 and 2, if the Transactions are
consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to
you at the Effective Time, in a lump sum cash payment, the amounts described in
Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation
(including salary and accrued but unused vacation) with respect to the period
ending on the Effective Time, (ii) pay to you, at the Effective Time, the
benefits to which you are entitled under the Officers' Supplemental Retirement
Plan of the Company (the "SERP"), calculated in accordance with the terms of the
SERP, Section 6.1(C) of the Agreement and the letter agreements between you and
the Company dated as of September 29, 1994, April 6, 1995, and July 18, 1997,
(iii) provide to you, for the thirty-six month period commencing on the date of
the termination of your employment hereunder, the benefits and privileges
described in Section 6.1(D) of the Agreement (relating to life, disability,
accident and health insurance benefits), (iv) provide to you the benefits
described in Section 6.1(E) of the Agreement (relating to post-retirement
healthcare and life insurance) if you otherwise qualify for such benefits
(after taking into account the terms of Section 6.1(E)) and (v) honor and
perform all other obligations to you and agreements for your benefit contained
in the Agreement (including, but not limited to, Sections 6.2, 6.3 and 6.4
thereof).
4. Other Benefits. The parties further confirm and agree that the
Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase
the automobile provided to you by the Company pursuant to Company policy at a
price equal to its wholesale bluebook price, as of the date of the termination
of your employment hereunder and (ii) honor and perform all of their respective
other obligations to you and agreements for your benefit including, but not
limited to, all obligations under the Company Long-Term Performance Share Unit
Plan and the letter agreement between you and the Company dated as of July 23,
1997. You hereby acknowledge that, except as set forth herein, you are not
entitled to receive severance, termination or similar benefits under any other
plan, agreement or arrangement of the Company.
5. No Continuing Obligations. The parties hereto confirm and agree
that upon your termination of employment pursuant to this letter agreement, you
shall have no further obligations under the Agreement except as expressly
provided in Section 6.1(D) thereof.
6. Miscellaneous. This letter agreement may not be modified or
amended without the prior written consent of all the parties hereto, shall be
governed by the laws of the State of New York without regard to its conflicts of
laws rules, may be executed in two or more counterparts each of which shall
constitute an original and, together with the Agreement, shall constitute the
entire agreement of the parties with respect to the subject matter hereof.
If this letter sets forth our agreement on the subject matter hereof,
please sign and return to the Company and Buyer the enclosed copies of this
letter, which will then constitute our agreement on this subject.
Sincerely,
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ G. D. Caliendo
Name: G. D. Caliendo
Title: General Counsel and
Corporate Secretary
CONSOLIDATED EDISON, INC.
By: /s/ Joan S. Freilich
Name: Joan S. Freilich
Title: Executive Vice President and
Chief Financial Officer
C ACQUISITION CORP.
By: /s/ Kevin Burke
Name: Kevin Burke
Title: President
In accordance with the provisions set forth above, I hereby agree that (i) my
employment with the Company and any subsidiaries thereof will terminate and (ii)
I will relinquish all offices and directorships I hold with the Company or any
subsidiaries thereof, in each case, effective as of the Effective Time.
/s/ D. Louis Peoples
D. Louis Peoples
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND
ROCKLAND UTILITIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 935,276
<OTHER-PROPERTY-AND-INVEST> 10,505
<TOTAL-CURRENT-ASSETS> 165,983
<TOTAL-DEFERRED-CHARGES> 148,650
<OTHER-ASSETS> 1,476
<TOTAL-ASSETS> 1,261,890
<COMMON> 67,594
<CAPITAL-SURPLUS-PAID-IN> 126,244
<RETAINED-EARNINGS> 183,625
<TOTAL-COMMON-STOCKHOLDERS-EQ> 377,463
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<LONG-TERM-DEBT-NET> 356,637
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 121,185
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<CAPITAL-LEASE-OBLIGATIONS> 1,603
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 361,569
<TOT-CAPITALIZATION-AND-LIAB> 1,261,890
<GROSS-OPERATING-REVENUE> 165,081
<INCOME-TAX-EXPENSE> 6,501
<OTHER-OPERATING-EXPENSES> 137,098
<TOTAL-OPERATING-EXPENSES> 143,599
<OPERATING-INCOME-LOSS> 21,482
<OTHER-INCOME-NET> 497
<INCOME-BEFORE-INTEREST-EXPEN> 21,979
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700
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</TABLE>
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
:
:
Case 96-E-0900 - In the Matter of Orange and Rockland :
Utilities, Inc.'s Plans for Electric Rate/Restructuring Pursuant :
to Opinion No. 96-12. :
:
Final Divestiture Plan
Dated: February 3, 1998
Pearl River, New York
Table of Contents
INTRODUCTION 1
1. Objectives 3
2. Time Is of the Essence 3
3. Divestiture Milestone Targets 3
4. External Advisors 4
5. Packaging of Generating Assets for Sale 5
A. Orange and Rockland Employees 5
B. Packaging of Bids 5
C. Description of Generating Assets 6
(a) Lovett Generating Station 6
(b) Bowline Point Generating Station 9
(c) Hillburn Gas Turbine 11
(d) Shoemaker Gas Turbine 12
(e) Mongaup Hydro-Electric Facility 13
(f) Rio Hydro-Electric Facility 14
(g) Swinging Bridge Hydro-Electric Facility 14
(h) Grahamsville Hydro-Electric Facility 15
6. Legal/Regulatory Limitations on Bidders 16
7. Auction Procedures 17
A. Phase I 18
B. Phase II 20
8. Amendments 23
9. Form of Consideration 23
10. Financing Contingencies 24
11. Minimum Bid 24
12. Entrance Fee and Security Deposit 24
13. Bidders' Costs 24
14. Other Auction Designs 25
15. Principal Agreements 25
A. Asset Sale Agreement 26
B. Interconnection Agreement(s) 26
C. Continuing Site Agreement(s) 26
16. Disputes 27
17. Maintenance of Generating Assets 28
18. Property Taxes 28
19. Con Edison and Bowline 29
20. Employee Transition Program 30
21. Resolution of Market Power Issues in Load Pocket Areas 31
22. Environmental Issues 34
23. SEQRA Compliance 36
24. Regulatory Approvals 36
A. New York Public Service Commission 37
B. Federal Energy Regulatory Commission 37
C. New Jersey Board of Public Utilities,
Pennsylvania Public Utility Commission 38
D. Federal Antitrust Review 38
CONCLUSION 39
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
:
:
:
Case 96-E-0900 - In the Matter of Orange and Rockland :
Utilities, Inc.'s Plans for Electric Rate/Restructuring Pursuant :
to Opinion No. 96-12. :
:
Final Divestiture Plan
Introduction
On November 6, 1997, Orange and Rockland Utilities, Inc. ("Orange and
Rockland" or the "Company") filed in this proceeding an Electric Rate and
Restructuring Plan ("Restructuring Plan") with the New York State Public Service
Commission ("Commission"). The Restructuring Plan also has been signed by Staff
of the New York State Department of Public Service, the New York State
Department of Economic Development, the Industrial Energy Users Association, the
National Association of Energy Service Companies, The Joint Supporters, the
Independent Power Producers of New York, Inc., Pace Energy Project and Enron
Capital & Trade Resources. The Restructuring Plan was approved by the
Commission at its open session on November 25, 1997. The Commission issued
Orders adopting the Restructuring Plan on November 26 and December 31, 1997.
The Restructuring Plan provides for the divestiture, by auction, of
all of the Company's generating assets (i.e., all units at the Lovett Generating
Station and the Company's one-third interest in all units at the Bowline Point
Generating Station(1), hydro-electric facilities and gas turbines, hereinafter
collectively referred to as the "Generating Assets"). The Restructuring Plan
(p. 18) provides that Orange and Rockland "will submit its divestiture plan to
Staff and the other parties in this proceeding within three months of the
Commission approving the [Restructuring] Plan." Pursuant to the terms of the
Restructuring Plan, this divestiture plan will identify how the Generating
Assets will be packaged for sale; what restrictions, if any, will be placed on
the capacity that any one bidder may purchase; the procedures to be followed in
the sale of the Generating Assets, including minimum bids; and key dates and
milestones to achieve the scheduled divestiture. The divestiture plan also will
address the resolution of market power issues in any load pocket areas.
(1) The Company and Consolidated Edison Company of New York, Inc. ("Con
Edison") are co-tenants in the Bowline Point Generating Station, with the
Company owning a 1/3 interest and Con Edison owning a 2/3 interest.
In its Order adopting the Restructuring Plan issued November 26, 1997,
the Commission offered the Company the opportunity to bid on the Generating
Assets, subject to certain conditions. As set forth in Orange and Rockland's
letter to the Commission dated December 4, 1997, a copy of which is attached as
Exhibit A to this filing, the Company has declined the Commission's offer.
Neither Orange and Rockland nor any of its affiliates will submit a bid in the
auction of the Generating Assets.
On December 11, 1997 Orange and Rockland distributed its Preliminary
Divestiture Plan to Staff and the other parties to this proceeding. On January
6, 1998 a meeting of all parties to this proceeding was held at which Orange and
Rockland made a presentation regarding and answered questions concerning its
Preliminary Divestiture Plan. Staff and other interested parties submitted
written comments on the Preliminary Divestiture Plan to the Company on January
12, 1998. This process has provided parties to this proceeding with ample
opportunity to express their interests regarding the Company's proposed
divestiture plan. The Company has considered the comments and suggestions of
Staff and the other parties in developing its divestiture plan. This document
sets forth Orange and Rockland's Final Divestiture Plan.
1. Objectives
Orange and Rockland's divestiture plan seeks to achieve the following
objectives:
1. Maximize the value received for the Generating Assets;
2. Complete the divestiture in an expeditious and efficient manner;
3. Recognize the concerns of employees, local communities and other
stakeholders affected by the divestiture;
4. Ensure a fair, open and unbiased auction process;
5. Ensure continued reliability of electric service; and
6. Enhance competition in electric generation.
2. Time Is of the Essence
The Company cannot overemphasize the need to complete the divestiture
expeditiously and requests the Commission's support by maintaining existing
comment periods and issuing its ruling on the Final Divestiture Plan
expeditiously. As noted below, milestone targets have been designed to allow
the Commission to rule on the Final Divestiture Plan at its April 8, 1998 open
session.
Orange and Rockland believes that an expeditious divestiture will
enhance the market value of the Generating Assets, minimize the uncertainty of
affected employees and local communities, provide the greatest prospect for a
robust competitive generation market and, if completed by May 1, 1999, avoid the
necessity of a Competitive Transition Charge.
3. Divestiture Milestone Targets
In conformance with the terms of the Restructuring Plan (pp. 19-20),
Orange and Rockland has developed the following milestone targets:
November 25, 1997 Commission approves Restructuring Plan
December 11, 1997 Company files Preliminary Divestiture Plan
January 12, 1998 Parties submit comments on Preliminary
Divestiture Plan
February 3, 1998 Company files Final Divestiture Plan
March 6, 1998 Parties submit comments on Final Divestiture
Plan
April 8, 1998 Commission approves Final Divestiture Plan
June - September 1998 Company selects winning bidder
6-9 months later Final closing (after receipt of necessary
regulatory approvals)
4. External Advisors
Orange and Rockland has retained the investment banking firm of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to assist in
divesting the Generating Assets. DLJ will serve as the primary interface with
bidders during the auction process. This will ensure that communication will be
implemented in a consistent and controlled manner and that relevant information
is made available to all bidders simultaneously. Orange and Rockland has
retained the law firm of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") to
act as lead outside legal counsel in this matter. DLJ and Skadden will be
involved in all aspects of the divestiture process including structuring the
sale process, soliciting bidders, evaluating proposals and negotiating with the
buyer(s). They will work closely with Orange and Rockland's personnel to
develop a process and transaction schedule that will achieve the objectives
identified above. Orange and Rockland will retain other external advisors as
necessary in order to complete the divestiture of the Generating Assets.
5. Packaging of Generating Assets for Sale
A. Orange and Rockland Employees
Orange and Rockland's generation function includes a highly-trained
and dedicated workforce--both union and management. These employees have a
demonstrated record of operating the Generating Assets at a low cost, with high
reliability and safety. Orange and Rockland believes that these employees will
enhance the value of the Generating Assets to qualified bidders. The Company
will attempt to focus bidders' attention on the capabilities and skills of these
employees.
By the terms of the collective bargaining agreement with IBEW Local
503, and the terms of the Restructuring Plan (p. 18), all qualified bidders will
receive a copy of the current labor agreement which is effective through
midnight May 31, 2000. In connection with its unionized workforce, it is Orange
and Rockland's position that the winning bidder will be obligated to accept the
terms and conditions of this collective bargaining agreement. This agreement
includes a "successors and assigns" provision. It is expected that employees
within the Local Union 503, IBEW bargaining unit who are assigned to the
Generating Assets as of the closing will remain with the Generating Assets and
become employees of the winning bidder.
B. Packaging of Bids
In an effort to address concerns voiced by parties to this proceeding
and to provide the market with an opportunity to indicate what kind of packaging
will produce the greatest overall value, during Phase I of the auction process,
participants will be allowed to submit separate indications of interest on any
or all of the following Generating Assets: (i) the Company's interest in
Bowline; (ii) the hydro-electric facilities; (iii) Lovett; and (iv) the gas
turbines.
Phase I participants also may submit indications of interest for all
the Generating Assets as a single package. Based upon its extensive expertise
and experience in conducting asset auctions, DLJ believes that in all likelihood
the highest value for the Generating Assets will be received through the sale of
these assets as a single package. Specifically, benefits to keeping the assets
together include (i) the likelihood of receiving a higher price for the bundled
assets; (ii) the simplicity of managing and executing the bidding process;
(iii) the avoidance of being left with less salable residual assets following
the disposition of selected assets; and (iv) the necessity of unwinding shared
assets or liabilities among properties to be offered separately.
DLJ and the Company will evaluate the indications of interest
submitted by Phase I participants in formulating its packaging of the assets for
Phase II.
C. Description of Generating Assets
Orange and Rockland plans to divest the Generating Assets as described
below. Exhibit B attached hereto sets forth the capacity of each of the
Generating Assets. Exhibit C attached hereto summarizes the facilities at each
of the Generating Assets which will be transferred to the winning bidder and
describes the interconnection point between each of the Generating Assets and
the Orange and Rockland transmission system.
(a) Lovett Generating Station
The Lovett Generating Station is located on the west bank of the
Hudson River approximately 40 miles north of New York City in Tomkins Cove, New
York. It is accessible from State Highway 9W and is served by ConRail. The
site is bounded on the west by steep hilly terrain, and on the other sides by
the Hudson River. The site is occupied by five existing units, together with
service facilities which include a switchyard, coal storage, coal handling and
an adjacent coal ash management facility. A fuel oil storage facility consists
of two 77,000 bbl tanks and one 58,000 bbl tank serving all five units. A
service building houses a warehouse, laboratory and office facilities.
Lovett consists of five fossil-fired units. Units 1 and 2, nominally
rated at 20 MW and each designed to burn coal, oil or natural gas, were retired
in 1995. Unit 3, nominally rated at 62.5 MW, is capable of utilizing oil or
natural gas. Unit 4, nominally rated at 167 MW and originally designed to fire
pulverized coal or natural gas, was modified to replace coal with oil firing in
1970. Unit 5, nominally rated at 187 MW, also was designed for coal and gas
firing and modified to burn oil instead of coal in 1970. In 1987, a Coal
Reconversion Project restored coal firing capability to Units 4 and 5,
incorporated additional environmental facilities, and upgraded the coal
handling facilities.
Lovett Unit No. 3 is a Combustion Engineering two pass configuration
tangential fired balanced draft unit with superheater, reheater, economizer,
tubular airheater, and two forced draft and induced draft fans. The unit was
designed initially for firing bituminous coal, oil and natural gas. Although
the pulverizers, fuel-air pipes, burner coal nozzles, and accessories are still
in place, coal is no longer fired in this unit. Lovett Unit 3 steam turbine
generator is a General Electric tandem compound flow reheat steam unit. The
turbine was designed to operate with main steam throttle conditions of 1800 psig
and 1050 degrees F and reheat conditions of 430 psig and 1000 degrees F with an
exhaust pressure of 1.0" Hg.
Lovett Unit No. 4 is a Foster Wheeler front wall fired, coal-oil-
natural gas fueled unit with superheater, reheater, economizer, regenerative
airheater and two cylindrical ball tube mill pulverizers. Originally built as
a pressurized furnace unit, it was converted to balanced draft with the
installation of a new electrostatic precipitator and induced draft fans as part
of the Coal Reconversion Project. There are three steam cooled radiant division
wall platens in the upper furnace. In 1994-95, the eight burners were replaced
with Foster-Wheeler low nitrogen oxide ("NOx") burners, along with burner
management system modifications. Overfire air ports for NOx control also were
added at that time.
The turbine is a General Electric 3600 rpm, 22 stage, tandem-compound
reheat unit with double-flow low pressure stages (26 inch last stage buckets),
six point extraction, condensing type, directly connected to a 2 pole, 3 phase,
60 cycle hydrogen-cooled generator. The turbine is rated for inlet steam
conditions of 1800 psig and 1000 degrees F at the throttle, with reheat at 1000
degrees F. The maximum expected throttle flow is 1,170,102 pounds of steam per
hour at 1.25 inches Hg (absolute) exhaust pressure, and zero makeup, with
throttle valves wide open.
Lovett Unit No. 5 is a Babcock & Wilcox front wall fired, 16 burners,
coal-oil-natural gas fueled unit, pressurized furnace, superheater, reheater,
economizer, two regenerative airheaters, two forced draft fans, and four EL-76
vertical coal pulverizers. Coal is the main fuel and a new electrostatic
precipitator was installed as part of the Coal Reconversion Project in 1987. In
1995, new low NOx burners were installed, including replacement of the burner
management system and combustion controls, as well as the addition of overfire
air ports.
The turbine is a General Electric 3600 rpm, 21 stage, tandem-compound
reheat unit with double-flow low pressure stages (23 inch last stage buckets),
six point extraction, condensing type, directly connected to a 2 pole, 3 phase,
60 cycle hydrogen-cooled generator with water-cooled stator winding. The
turbine is rated for inlet steam conditions of 1800 psig and 1000 degrees F at
the throttle, with reheat at 1000 degrees F. The maximum expected throttle flow
with design steam conditions is 1,309,632 pounds of steam per hour.
The Company will auction off all of the real property at Lovett
including the property on which the two substations are located. Orange and
Rockland will retain the right to operate and maintain certain transmission and
distribution facilities at the substations.
Taxing Authorities: Town of Stony Point, New York
North Rockland School District
(b) Bowline Point Generating Station
Bowline Point Generating Station is located on the west bank of the
Hudson River approximately 35 miles north of New York City in the Town of
Haverstraw, New York. Orange and Rockland and Con Edison are co-tenants in the
Bowline Point Generating Station, with Orange and Rockland owning a 1/3 interest
and Con Edison owning a 2/3 interest. Pursuant to the operating agreement
between the parties, Orange and Rockland is the operator of Bowline.
The plant consists of two completely enclosed oil and gas burning
steam electric generating units each designed to produce nominally 600 MW. The
plant is also equipped with an auxiliary boiler rated to deliver 100,000 pounds
per hour of steam at 250 psig. The auxiliary boiler may be fired either by
natural gas or propane.
Auxiliary facilities include a two-story administration and service
building, a warehouse with switchyard relay room, a service garage, and an
enclosed intake superstructure. A road network provides access to the plant
from three locations in the surrounding communities and also serves the outlying
tank farm, intake structure and marine terminal. The fuel-oil facilities
accommodate low-sulfur-residual oil. All fuel-oil lines are steam traced. Fuel
is delivered by barge to an offshore unloading pier connected to land by a
trestle. Oil is stored in six 145,000 bbl tanks. A concrete pumphouse built
into the dike surrounding the storage tanks houses the fuel-oil pumps and foam
fire-protection system. The switchyard has two 138 kV bays for incoming power
and two 345 kV bays for outgoing power. Circulating water is drawn through a
dredged channel from the Hudson River to Bowline Pond and into the reinforced-
concrete intake structure. For each unit, approximately 4400 ft of 126 inch
steel pipe delivers cooling water to the condensers and returns it to an
underwater multi-port discharge diffuser located in the Hudson River.
Bowline Point 1 boiler is a balanced draft, tangentially fired,
Combustion Engineering boiler. Rated at a steam flow of 4,200,000 lbs/hr, the
boiler is capable of firing both low sulfur oil and natural gas through 20
burners; arranged in five elevations per corner. The boiler is equipped with a
flue gas recirculating ("FGR") fan which can inject flue gas into the furnace
hopper for steam temperature control. In 1994, the unit was retrofitted with
improved combustion hardware and burner management controls to reduce NOx
emissions and enable it to achieve regulatory compliance while firing oil,
natural gas and oil/gas combinations. The emission control technology, which is
referred to as "REACH" (Reduced Emissions and Advanced Combustion Hardware),
employs integrated atomizer and flame stabilizer designs.
Bowline Point 2 boiler is a natural circulation, balanced draft,
opposed fired boiler rated at a steam flow of 4,200,000 lbs/hr. Manufactured by
Babcock & Wilcox, this boiler is equipped to fire either low sulfur oil or
natural gas through 32 single register burners, arranged in four elevations of
four burners each on both the front and rear furnace walls. Eight over-fire air
ports are installed in the windbox directly above the top row of burners on each
wall for NOx control. The boiler is equipped with a FGR fan which can inject
flue gas into the combustion air and/or into the furnace hopper, the former
being for NOx control and the latter for steam temperature control. In 1995,
the unit was retrofitted with improved combustion hardware and burner management
controls to reduce NOx emissions and enable it to achieve regulatory compliance
while firing oil, natural gas and oil/gas combinations. The REACH emission
control technology employs integrated atomizer and flame stabilizer designs.
Both units have identical General Electric Steam Turbines rated at 600
MW. Each turbine is a 3600 rpm, tandem-compound, single-reheat, condensing-type
turbine which has 18 stages with quadruple-flow low-pressure stages (thirty-inch
last-stage blading) and six-point extraction and is directly connected to a
three phase 60 Hz, hydrogen-cooled generator with water-cooled stator winding.
The turbines are rated for inlet steam conditions of 2400 psig and 1000 degrees
F (at the throttle) and 1000 degrees F reheat.
Orange and Rockland will auction off all of the real property at
Bowline including the property on which the two substations are located. Orange
and Rockland will retain the right to operate and maintain certain transmission
and distribution facilities at the substations.
Orange and Rockland will auction off its one-third interest in the 345
KV transmission line from Bowline to Ladentown. Also included in the auction
package will be the 16" gas main form Bowline to West Haverstraw.
In addition, the Company plans to auction off a parcel of property
containing approximately 90 acres adjacent to Bowline. Although Orange and
Rockland owns this property, pursuant to an agreement with Con Edison dated
October 10, 1969, Con Edison has a 90 day right of first refusal to purchase
this property upon the terms and conditions offered by a third party.
Taxing Authorities: Town of Haverstraw, Village of Haverstraw
and Village of West Haverstraw, New York
North Rockland School District and
East Ramapo School District
(c) Hillburn Gas Turbine
A gas turbine peaking unit is located at the Company's Hillburn
Substation in the Town of Ramapo, New York. This unit is capable of burning
either natural gas or liquid jet fuel. The unit is a Worthington Model ER-224,
40 MW dual fuel gas turbine electric generating unit.
This unit is leased from the Fleet Capital Corporation of Rhode
Island. The present lease, which covers both the Hillburn and Shoemaker gas
turbines, expires on July 31, 2006. The semi-annual payments are $145,000,
which covers the cost for both the Hillburn and Shoemaker Gas Turbines.
The Company will auction off all the real property at the Hillburn
Substation while retaining an easement for its transmission and distribution
facilities.
Taxing Authorities: Town of Ramapo, Village of Hillburn, New York
Ramapo Central School District
(d) Shoemaker Gas Turbine
This gas turbine peaking unit is located at the Company's Shoemaker
Substation in the Towns of Wawayanda and Wallkill and City of Middletown, New
York. The facility is equipped with a natural gas compressor unit to raise the
gas supply to the required pressure level. This unit is capable of burning
either natural gas or liquid jet fuel. The unit is a Worthington Model ER-224,
40 MW dual fuel gas turbine electric generating unit.
This unit is leased from the Fleet Capital Corporation of Rhode
Island. The present lease, which covers both the Hillburn and Shoemaker gas
turbines, expires on July 31, 2006. The semi-annual payments are $145,000,
which covers the cost for both the Hillburn and Shoemaker units.
Subject to the Lessor's approval, the Company can assign its leasehold
interest in the Shoemaker and Hillburn units to the winning bidder. Under the
terms of the lease, Orange and Rockland also has an option to purchase the
Shoemaker and Hillburn units. If the Company exercises this option, it will
then resell them as part of the auction process. Orange and Rockland is still
exploring which of these two approaches (i.e., purchase and resale, assignment)
is preferable. Orange and Rockland does not wish to retain these assets because
it wishes to exit the generating function entirely.
The Company will grant an easement to the purchaser for the real
property associated with the gas turbine.
Taxing Authorities: Town of Wawayanda, Town of Wallkill,
City of Middletown, New York
City of Middletown School District
(e) Mongaup Hydro-Electric Facility
This facility, which is licensed by the Federal Energy Regulatory
Commission ("FERC"), is located in the Towns of Forestburgh and Lumberland, New
York and consists of the Mongaup Reservoir with associated dam, a 2500 foot long
eight foot diameter wood stave penstock, a powerhouse with four turbine
generators with a total generating capacity of 4 MW and a substation with both
transmission and distribution functions. The Company will auction off the
substation while retaining the right to maintain its distribution facilities.
In addition, this facility includes the Black Brook Diversion which includes a
small dam on Black Brook and a four foot diameter 4,000 foot long wood stave
penstock. The Black Brook Diversion has been out of service since 1986.
The Company will auction off all of the real property which is
associated with the facility and governed by the FERC license.
Pursuant to the terms of the facility's FERC license, public access at
the facility consists of a parking facility on Plank Road and hiking/fishing
access trails on the Mongaup River and Black Brook.
The entire facility falls within the boundaries of New York State
Department of Environmental Conservation's ("NYSDEC") Bald Eagle Habitat Area.
Taxing Authorities: Town of Forestburgh and
Town of Lumberland, New York
Eldred Central School District, and
Monticello Central School District
(f) Rio Hydro-Electric Facility
This facility, which is licensed by the FERC, is located in the Towns
of Deerpark, Forestburgh and Lumberland, New York and consists of Rio Reservoir
with associated dam, 11 foot diameter 7,000 foot long steel penstock, a
powerhouse with two turbine generators with a total capacity of 10 MW and a
substation with transmission and distribution functions. The Company will
auction off the substation while retaining the right to maintain its
distribution facilities.
The Company will auction off all of the real property which is
associated with the facility and governed by the FERC license.
Pursuant to the terms of the facility's FERC license, public access at
the facility consists of three fishing accesses, one on the reservoir near the
dam and two on the Mongaup River between the dam and the powerhouse. There is a
whitewater access area adjacent to the powerhouse.
The entire facility falls within the boundaries of NYSDEC's Bald Eagle
Habitat Area.
Taxing Authorities: Town of Deerpark, Town of Forestburgh and
Town of Lumberland, New York
Eldred Central School District, Monticello Central
School District and Port Jervis Central School District
(g) Swinging Bridge Hydro-Electric Facility
This facility, which is located in the Towns of Forestburgh,
Lumberland and Thompson, New York consists of three major reservoirs with
associated dams: Toronto, Cliff Lake, and Swinging Bridge; and two powerhouses
with a total generating capacity of 12 MW. Each powerhouse has an associated
substation with a step-up transformer and breakers. The substation next to Unit
No. 1 has a small distribution bank. The Company will auction off the
substations while retaining the right to maintain its distribution facilities.
There is an interconnecting tunnel running between Cliff Lake and Swinging
Bridge Reservoir. In addition, water is diverted from Lebanon Lake, a small
non-project lake, via a tunnel and open trench to Cliff Lake.
The Company will auction off all of the real property which is
associated with the facility and governed by the FERC license.
Pursuant to the terms of the facility's FERC license, public
recreation areas are located at the Project, as well as two primitive boat
launches at Toronto Reservoir; a car top boat launch and picnic area at the
north end of Swinging Bridge Reservoir, and a large developed boat launch area.
A large portion of the facility falls within the boundaries of the
NYSDEC Bald Eagle Habitat Area, including all of Cliff Lake, approximately half
of Swinging Bridge Reservoir, the powerhouses and the access roads to the
facilities.
Taxing Authorities: Town of Thompson, Town of Forestburgh and
Town of Lumberland, New York
Monticello Central School District and
Eldred Central School District
(h) Grahamsville Hydro-Electric Facility
This facility is located on Route 55A just outside of the Village of
Grahamsville, New York. The facility consists of a large powerhouse, 18 MW
turbine generator, transmission substation and surge tank. Water for power
generation comes from New York City's Pepacton Reservoir through the 25 mile
long East Delaware Tunnel. Water from the turbine is released into the Rondout
Reservoir.
This facility is the result of an agreement between New York City and
Rockland Light and Power Co.("RLP") to settle a water rights dispute on the
Neversink River Basin. The agreement allowed RLP to construct and operate a
hydroelectric plant at the end of the East Delaware Tunnel for a period of 50
years. Assignment of this Agreement is subject to the approval of New York
City. Orange and Rockland is the corporate successor of RLP. Approximately one
half of the water (8.1 billion cubic feet/year) is free, the remaining is paid
for at two varying rates based on avoided fuel costs and New York Power Pool
Lambda rates. In addition, as part of the agreement the Company provides free
electricity to the City of Port Jervis sewage treatment plant, which is owned
and operated by New York City and to New York City by-pass facilities adjacent
to the Grahamsville facility. The entire Grahamsville facility becomes the
property of New York City at the end of the agreement period, which is January
1, 2006.
The Company has transmission agreements with Central Hudson to
provide a tie between the facility and the Sugar Loaf Substation.
Taxing Authority: Town of Neversink, New York
Tri-Valley Central School District
This Project is exempt from FERC licensing.
6. Legal/Regulatory Limitations on Bidders
While Orange and Rockland does not anticipate any legal or regulatory
constraints on bidders, as described below, the Company reserves its right to
consider these issues in the selection of the participants for Phase II of the
auction and the determination of the winning bidder. Orange and Rockland would
be especially concerned if a bidder's acquisition of the Generating Assets may
trigger market power concerns. Such concerns will result in heightened scrutiny
of the transaction by regulators, particularly the FERC, which will delay or
perhaps fatally impede the transfer of title to the Generating Assets.
Accordingly, Phase I participants will be required to provide
information regarding their other generation holdings. Orange and Rockland will
review this information and the other contents of Phase I submittals in order to
identify potential market power concerns that might restrict the ability of
certain bidders to obtain needed regulatory approvals to purchase the Generating
Assets. Orange and Rockland will not require a detailed market power analysis
until Phase II due to the costs associated with such analysis. Requiring such a
costly analysis in Phase I may tend to discourage certain qualified bidders. In
performing their market power analyses, Phase II participants will be required
to perform a competitive analysis screen based on Appendix A to the FERC merger
guidelines(2). These guidelines are an objective screening tool which should be
familiar to most bidders and are similar to the criteria utilized by the United
States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. This is particularly relevant since Hart-Scott-Rodino
filings will be required in order to complete the divestiture of the Generating
Assets.
(2) Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act, Order No. 592,61 Fed. Reg. 68,595 (1996), III FERC Stats. & Regs.
Paragraph 31,044(1996).
In light of the above noted procedures to address potential market
power concerns, Orange and Rockland sees no need to impose on potential bidders
any predetermined "limit on ownership within the region." Such criteria may be
controversial, since it is not readily apparent how to define "the region" or
what ownership limitation should be employed. More important, imposing such a
limitation will tend to discourage participation in the auction. Similarly, so
long as the issue of market power is addressed satisfactorily, Orange and
Rockland will not prevent any bidder from purchasing all of the Generating
Assets.
7. Auction Procedures
As previously noted, the objectives in this auction process include
maximizing the value received for the Generating Assets and entering into a
definitive Asset Sale Agreement as expeditiously as possible. Orange and
Rockland will conduct a fair and open auction process that provides adequate
information for bid formulation to all qualified bidders on a timely and
consistent basis. The auction process is designed to control the flow of
information by relying on Orange and Rockland's financial advisor, DLJ, as
the primary interface with bidders. Bidders will be instructed to request
information directly from DLJ. DLJ will promptly respond to reasonable
information requests, with such additional information simultaneously furnished
to all of the participants. Orange and Rockland's personnel will interact with
bidders in controlled situations, such as plant tours and scheduled management
presentations. The time frame for Orange and Rockland's auction has been
designed to provide sufficient time for bidders to conduct due diligence, and
formulate bids based on their valuation of the Generating Assets. However,
the aggressive schedule will require bidders to dedicate sufficient resources
to respond and prepare the materials required in the bidding stages of the
auction.
The offering process will encompass two phases:
A. Phase I
Each qualified participant will receive an Offering Memorandum from
DLJ, upon DLJ's receipt of an executed confidentiality and non-disclosure
agreement. The Offering Memorandum will contain detailed financial and business
information, investment considerations and other relevant materials. DLJ will
distribute the Offering Memorandum to a list of qualified bidders which it will
compile. The Offering Memorandum also will be made available to other
interested qualified bidders who may not have been contained on DLJ's list, but
who are subsequently identified. Orange and Rockland expects to distribute the
Offering Memorandum shortly after the Commission approves the Company's Final
Divestiture Plan. Requisite bidder qualifications for entry into Phase I
include (but are not limited to) the following items: (i) experience in the
utility industry; (ii) the strategic objective of owning generation assets in
the Northeast; (iii) credit worthiness and financial wherewithal to consummate
the purchase; (iv) the ability to properly operate the Generating Assets,
consistent with good utility practice; (v) the likelihood that a bidder could
gain regulatory approval to purchase the Generating Assets; and (vi) other
standard financial criteria to participate in an auction with these
characteristics. Phase I will be limited to a review of the information
contained in the Offering Memorandum with clarification, as appropriate,
supplied only by and through DLJ and Skadden. The Offering Memorandum also will
provide that bidders will not be allowed to contact the management or employees
of Orange and Rockland directly, but must communicate exclusively through
designated advisors.
Interested parties who have received the Offering Memorandum will be
asked to submit written indications of interest to Orange and Rockland in care
of DLJ.
Such interested parties will be required to submit the following
information in their indications of interest:
(i) a preliminary, non-binding estimate of the proposed purchase
price for the Generating Assets(3);
(ii) a description of the expected sources of financing for the
potential acquisition and, to the extent that such financing
is not fully committed, an indication of the timing and the
steps required to secure such financing;
(iii)a list of additional information required to complete the
business investigations in order to finalize a final binding
acquisition proposal;
(iv) a list of approvals (shareholder, corporate, regulatory and
otherwise) required to consummate the transaction and the
estimated timing to obtain such approvals;
(v) a statement regarding any constraints or requirements regarding
the closing date of a transaction;
(vi) any other substantive conditions required as part of a
transaction;
(vii)the identity of advisors (financial, legal, etc.) if any; and
(viii)both a telephone and a fax number where the party can be
contacted in case clarification of the proposal is required.
(3) As described in section 5 above, parties may submit indications of
interests on discrete Generating Assets.
B. Phase II
Shortly after completion of Phase I, DLJ will notify all parties who
have submitted preliminary proposals regarding the Generating Assets as to
whether or not they will be invited to participate in Phase II. The Company
plans to narrow the number of parties which will be invited to participate in
Phase II based upon an analysis of the terms and conditions of the preliminary
indications of interest received.
The goal during this phase is to select a manageable group of the most
competitive proposals, and to allow for the possibility that certain Phase II
participants may decide not to submit final binding acquisition proposals.
Based on prior asset sales, the number of Phase II bidders may range from four
to eight participants. However, the Company reserves the right to select as
many Phase II participants as it deems appropriate and will have no obligation
to inform participants in Phase I of the reasons why they were not selected to
participate in Phase II.
Advancement to the final round will include bidders who have submitted
bids whose consideration is deemed by DLJ and the Company to be among the
highest of those received. In addition, bids must satisfy a number of other
characteristics such as (i) the perceived sincerity of the bids; (ii) the
ability to successfully finance and close a transaction in a timely manner;
(iii) the assumption of environmental and other liabilities associated with the
Generating Assets; (iv) the ability to properly operate the Generating Assets,
consistent with good utility practice; (v) the commitment to retain associated
personnel; and (vi) the certainty of receiving all of the requisite approvals
from the various regulatory entities. These same criteria will be applied in
selecting the "winning bidder" from among the Phase II participants. As a
result, the "winning bidder" will be chosen from this subset of final bidders
based on both financial and non-financial criteria. The Company will be
utilizing its discretion in evaluating these non-financial criteria.
In the event that a number of acceptable bidders offer substantially
identical consideration for the Generating Assets, DLJ and the Company may
employ a process by which bidders have the opportunity to improve their offers
in order to enhance their chances of becoming the winning bidder. If there is
no clear cut winning bidder, but rather several acceptable bidders offering
substantially identical consideration, the Company reserves the right to conduct
additional bidding rounds on a real time basis over a short time frame. Each
additional round would require bidders to top the highest price bid in the prior
round by a specific increment. At the point where no bidder is willing to bid
any higher, the auction would end, and Orange and Rockland would negotiate any
remaining non-price terms with the buyer.
The qualified prospective purchasers selected by the Company to
participate in Phase II will be provided with access to additional financial,
operating and legal information in order to formulate binding offers to acquire
the Generating Assets. Due diligence procedures will include meetings with
senior management of the Company, tours of key facilities and access to
additional information regarding the Company, to the extent reasonably requested
by qualified prospective purchasers. Orange and Rockland will set up a data
room in Pearl River, New York to assist Phase II participants to conduct their
due diligence. Bidders will be instructed to conduct all due diligence so as
not to interfere with the ongoing conduct of the Company's business. DLJ will
be available throughout the course of Phase II to respond to potential
purchasers' supplementary information requests and arrange for follow-up
discussions with management as appropriate.
During Phase II, each potential purchaser will be supplied with a form
of Asset Sale Agreement specifying the terms pursuant to which the Company would
expect to sell the Generating Assets. DLJ and Skadden will be available to
consult with potential purchasers regarding the draft Asset Sale Agreement.
Potential purchasers will be encouraged to avail themselves of the opportunity
to discuss proposed changes to the draft Asset Sale Agreement with DLJ and
Skadden in advance of submitting final binding acquisition proposals.
Phase II participants will be asked to submit final binding
acquisition proposals. As noted in Section 6 above, participants also will be
requested to submit a competitive analysis screen based on Appendix A to the
FERC Merger Guidelines, if they have not submitted it earlier.
Any final binding acquisition proposal which contains provisions
(including the consideration offered) that would vary depending upon other
contingent events will not be considered. Each bidder will be required to
indicate in its final binding acquisition proposal that such proposal has been
approved by its Board of Directors (and by each investor whose Board of
Directors' approval is required in connection with consummating the final
binding acquisition proposal).
The Company, with the advice and assistance of DLJ and Skadden, will
evaluate the final, binding proposals submitted as promptly as is reasonably
practicable, with the objective of entering into a definitive Asset Sale
Agreement with the potential purchaser or purchasers who submit(s) the proposal
that best satisfies the Company's objectives for the sale of the Generating
Assets.
The Company will have no obligation to accept any final binding
acquisition proposal whether or not such final binding acquisition proposal
represents the highest proposed purchase price for the Generating Assets. An
offer will only be deemed to be accepted upon the Company's execution and
delivery of a definitive Asset Sale Agreement. Until such time, the Company
will not have any obligation to any potential purchaser with respect to the sale
of the Generating Assets, and following such time the Company's only obligations
will be to the other party to the definitive Asset Sale Agreement, and only as
set forth in the definitive Asset Sale Agreement.
Orange and Rockland will inform the Commission promptly if a situation
arises which causes the Company to cancel the auction process or reject all bids
submitted. In such a case, Orange and Rockland reserves the right to review the
situation in order to determine the appropriate course of action. Any such
course of action will be subject to Commission review and approval.
8. Amendments
The Company will reserve its right to amend the Offering Memorandum or
any other written material furnished or information orally transmitted to a
potential purchaser. The Company's interpretation of the provisions of the
Offering Memorandum or any other written material furnished or information
orally transmitted to a potential purchaser shall be binding on all bidders.
9. Form of Consideration
Bidders will be instructed that all consideration must be in the form
of United States Dollars.
10. Financing Contingencies
No financing contingencies will be allowed.
11. Minimum Bid
Orange and Rockland will not specify a minimum bid. According to the
Company's financial advisor, DLJ, a minimum bid would have a tendency to focus
potential bidders on the lower end of an acceptable range of values for the
Generating Assets, thereby reducing the likelihood of obtaining maximum value.
12. Entrance Fee and Security Deposit
The Company will not require either an entrance fee or a security
deposit from any bidder. According to DLJ, requiring an entry fee or security
deposit may have the effect of discouraging potential bidders. Any small
financial benefit of the entry fee will be more than offset by dampened
interest in the auction. Since prospective bidders must demonstrate their
financial wherewithal in order to be included in Phase I of the auction
process, the security deposit is unnecessary.
13. Bidders' Costs
Each bidder will be responsible for all of its own costs, including
those of its advisors and agents, relating to its participation in the auction
process including the conduct of due diligence relating to the Generating
Assets. In the event of auction cancellation, the Company shall have no
obligation to reimburse participants for any costs they may have incurred in
responding to the solicitation.
14. Other Auction Designs
The Company and DLJ considered other auction designs such as a closed
auction process with a select number of buyers, and a single stage auction
process. In addition to alternative sale methods, the Company and DLJ
considered a number of variations to an open auction process prior to deciding
upon the current approach. Such alternatives included the following variants:
(i) the establishment of required qualifications for entry into the process as a
means by which to define the universe of potential auction participants;
(ii) whether to insist upon entry fees; (iii) the inclusion of minimum bids; and
(iv) the manner in which the Generating Assets might be bundled together.
Each of these alternatives were considered to be less effective than
the proposed auction process. DLJ has a wealth of experience which relates
directly to the proposed divestiture including sale assignments which were
conducted in a manner similar to the one proposed for the divestiture of the
Generating Assets. DLJ and the Company will certainly draw from this breadth of
experience throughout the process to ensure that the Company is receiving the
best market price for the Generating Assets. Additionally, DLJ and the Company
have made it a priority to preserve flexibility of the Company to alter the
process along the way where such changes may be favorable and appropriate.
15. Principal Agreements
Orange and Rockland expects to enter into a number of agreements with
the buyer(s), including (i) an Asset Sale Agreement, (ii) one or more
Interconnection Agreements, and (iii) one or more Continuing Site Agreements.
These agreements are explained in more detail below. Orange and Rockland also
expects to enter into one or more Load Pocket Call Option Agreement(s). Load
Pocket Call Option Agreement(s) are discussed in Section 21 below.
A. Asset Sale Agreement
The Asset Sale Agreement ("ASA") will govern the terms of the sale
transaction as a whole. The ASA will specify the purchase price and any
adjustments to such price (e.g., actual fuel inventory levels). The ASA will
contain customary representations, warranties, covenants and conditions of both
Orange and Rockland and the buyer(s). The ASA also will address the assignments
of all related agreements (e.g., fuel contracts).
Orange and Rockland expects to operate and maintain the Generating
Assets throughout the auction process and will continue normal operations from
the time of signing definitive agreements until the final turnover of the
Generating Assets to the buyer ("Contract Period"). Any material changes to the
Generating Assets during the Contract Period will require approval of the buyer.
The winning bidder will be expected to execute the ASA as soon as
practicable after the determination of the "winning" bid. The agreement will
not permit the bidder to withdraw unilaterally its offer to purchase the
Generating Assets. In the event of a bidder default such as a bankruptcy, the
circumstances at the time certainly will impact on how the Company will proceed.
Most likely, under these circumstances, the other Phase II participants will be
permitted to update their due diligence and submit another "final" bid for the
Generating Assets.
B. Interconnection Agreement(s)
The Interconnection Agreement(s) will set forth the operating,
metering and equipment protection requirements for the parallel operation of the
Generating Assets with the Company's transmission and distribution facilities.
C. Continuing Site Agreement(s)
The Generating Assets and the transmission and distribution ("T&D")
facilities were designed and constructed as integrated facilities with
interdependent control and protection functions, many of which are not easily
and cost effectively separated. Since it is Orange and Rockland's general
intention to transfer ownership of the generation facilities including related
real property, while maintaining ownership of the T&D facilities and related
real property, it will be necessary for the Company and the buyer of the
Generating Assets to provide access to each other's facilities through easements
and formal operating agreements.
The Continuing Site Agreements will govern the relationship between
Orange and Rockland and the buyer after the closing. The purpose of these
agreements will be to set forth the continuing obligations, responsibilities and
liabilities of Orange and Rockland and the buyer(s) as they relate to operation,
construction and maintenance of equipment; access to each other's property;
provision of services; environmental protection and safety. These agreements
(i) will provide for permanent easements on the buyer's property, (ii) will set
forth the rights of the parties to enter common facilities, (iii) will set forth
services that the parties must provide to each other as a result of the
integrated nature of the assets, and (iv) will set forth the liability of the
parties for property damage and personal injury.
16. Disputes
The auction will be conducted in strict accordance with the procedures
set forth in the Commission approved auction plan. These procedures will be
outlined in the Offering Memorandum provided by DLJ to auction participants.
DLJ and the Company reserve the right to include or exclude any and all parties
from participation in the auction process as well as the right to terminate the
auction without recourse at any time prior to the execution of a definitive
agreement following the determination of the "winning" bid. Prior to this
event, neither DLJ nor the Company is under any obligation to any participant in
the auction process. Decisions rendered by DLJ and the Company are binding upon
those participants with respect to the auction process. Finally, neither DLJ
nor the Company is obligated to set forth any explanations to any participants
for the rationale underlying non-winning bids. Based upon the experience of its
advisors in other auctions, Orange and Rockland believes that control over the
auction process is critical in obtaining the highest price for its customers and
shareholders. By controlling the auction process, the Company should be able to
obtain higher bids and negotiate a higher purchase price for the Generating
Assets. Similar auction rules and procedures were adopted by New England
Electric System ("NEES") in the divestiture of its generation assets and by
sellers in auctions of assets in other industries. Orange and Rockland believes
that such rules and procedures contributed toward the maximization of the return
on that sale.
17. Maintenance of Generating Assets
Orange and Rockland will take all appropriate actions prior to the
closing of the sale to maintain the Generating Assets in accordance with general
industry standards, environmental regulations and employee safety
considerations. Such maintenance is essential in order to safeguard the
Generating Assets' market value. Since Orange and Rockland cannot predict how a
winning bidder will utilize the Generating Assets, it would not be appropriate
for the Company to engage in renovations or capital expenditures relating to the
Generating Assets other than those required to maintain the operability of the
Generating Assets.
18. Property Taxes
Orange and Rockland is involved in tax certiorari proceedings with the
Town of Haverstraw and the North Rockland School District. Orange and Rockland
is continuing to negotiate with both of these parties in an attempt to settle
these cases. While the Company plans to seek short-term agreements with local
communities with respect to property tax issues, it intends to defer the
negotiation of any tax agreements relating to periods after the execution of the
Asset Sale Agreement in order to allow the winning bidder to participate in such
negotiations. This approach will provide the winning bidder with the
flexibility to enter into its own negotiations with the municipalities.
The Company will set forth in the Offering Memorandum, for each of the
Generating Assets, the assessed values, equalization rates and actual taxes paid
to the various municipalities for each of the last five years.
19. Con Edison and Bowline
As acknowledged in the Restructuring Plan (p. 18), Orange and Rockland
and Con Edison are tenants in common in the Bowline Point Generating Station and
associated transmission facilities. The agreement between Orange and Rockland
and Con Edison regarding Bowline provides that if Orange and Rockland wishes to
convey its interest in Bowline to a third party, Con Edison shall have a six-
month right of first refusal to purchase Orange and Rockland's interest upon the
terms and conditions offered by the third party(4). Orange and Rockland has an
identical right regarding Con Edison's interest in Bowline. The Company
believes that it would be preferable for Con Edison and Orange and Rockland to
jointly auction off their interests in Bowline. Representatives from Con Edison
and Orange and Rockland have met to discuss the future of Bowline and further
meetings between the parties are expected. To date, Con Edison has been non-
committal regarding its future plans for Bowline. The Company believes that
this matter could be expeditiously resolved if the Commission clarifies its
position regarding whether (i) it will allow Con Edison to acquire Orange and
Rockland's interest in Bowline, and (ii) it will require Con Edison to divest
its interest in Bowline. Absent such Commission clarification, bidders may be
reluctant to expend the time and resources necessary to submit a bid, thereby
possibly denying customers and shareholders receipt of maximum value for the
Generating Assets. In the event that Con Edison does not waive its right of
first refusal, Orange and Rockland reserves the right to modify the divestiture
plan (e.g., schedule, procedures).
(4) As discussed in Section 5 above, Con Edison has a 90 day right of first
refusal to purchase the approximately 90 acre parcel owned by Orange and
Rockland which is located adjacent to Bowline.
20. Employee Transition Program
The Company recognizes the value of its employees and the need to
maintain that value through the transition. Orange and Rockland has held
meetings with employees to discuss the divestiture of the Generating Assets.
Orange and Rockland has developed and communicated a management (i.e., non-
union) employee transition program. The employee transition program developed
for management employees is comprised of four elements:
(i) severance under the Company's Severance Pay Plan; (ii) career management
services; (iii) a pension protection program; and (iv) a retention bonus
program.
The Company's Severance Pay Plan provides salary continuation to
management employees who suffer a loss of employment as a result of the
divestiture of the Company's Generating Assets, through a formula based on
employee pay grade and years of service. The Company's career management
services program will assist employees by providing seminars on managing change
in their work environment. A pension protection program will be in place to
help ensure that employees who would likely have met eligibility thresholds
under the Company's retirement plan but for the divestiture of the Generating
Assets will not be penalized. The Company will retain the pension obligation,
relating to their period of employment at Orange and Rockland, for those Company
employees who become employees of the winning bidder. The Company will retain
and maintain both the pension assets and liabilities associated with such
employees. The retention bonus program provides a monetary incentive to remain
with the Company through the transition period to employees with skill sets that
would be difficult to replace.
Under the National Labor Relations Act, upon request of Local Union
503, IBEW, the Company has an obligation to bargain over the effects of the
transition of the Generating Assets on its unionized workforce. To date, such
negotiations have not commenced. Orange and Rockland will endeavor to resolve
any open issues with its unionized workforce prior to the transfer of title to
the Generating Assets.
21. Resolution of Market Power Issues in Load Pocket Areas
A load pocket is a geographic area of load that, because of
transmission limitations, must have generating resources internal to the area
available to operate so as to ensure reliable service to the area's load.
Orange and Rockland has identified two load pocket areas in its
service area, an eastern area load pocket of approximately 128,000 customers as
well as a western area load pocket of 53,000 customers. Based upon the
Company's analysis, a single contingency outage in either of these load areas
could result in the loss of service to that respective load area unless
generation capacity is provided. A single contingency outage describes a
condition where one electric transmission facility is out of service. Such
facilities could include transmission lines, substation transformers or
generating units.
For the eastern area load pocket, the Company must operate the Lovett
Generating Station when the eastern load area exceeds 320 MW during the summer
capability period and 370 MW during the winter capability period. This was the
case for approximately 1900 hours during 1997. Energy supplied to the load
pocket area during this condition in 1997 amounted to approximately 176,000 MWH
out of a total area load, within that load pocket area, of about 2,595,000 MWH.
As to the western area load pocket, the Company would be required to operate its
Mongaup, Rio and Swinging Bridge hydro-electric facilities and its Shoemaker gas
turbine whenever the western load area exceeds 145 MW or during thunderstorms.
The Shoemaker gas turbine was run for approximately 600 hours on average during
the last several years. Energy supplied to the western area load pocket during
these conditions in 1997 amounted to approximately 53,000 MWH hours out of a
total area load, within that load pocket area, of about 1,100,000 MWH.
The Restructuring Plan (pp. 27-28) provides that:
a process will be established in which Staff, the Company,
and other interested parties will address different measures,
analyses of which are to be submitted in January 1998, for
mitigating load pocket conditions in Orange and Rockland's
service territory... The January 1998 filing will include a
proposal to provide for such interim relief as may be
necessary pending a final Commission determination. The
parties anticipate that the divestiture plan will address the
load pocket issue on an interim basis pending a final
Commission determination on the load pocket issue.
As part of its January 1998 load pocket filing, Orange and Rockland
will propose that the Orange and Rockland regulated delivery company execute an
agreement with the winning bidder to address these load pocket conditions. The
details of the Load Pocket Call Option Agreement, including its pricing terms,
will be set forth in this January 1998 filing. An alternate mitigation strategy
of reinforcing the Company's existing transmission system is presently
impractical due to cost considerations. Moreover, given the lead time
associated with permitting and constructing such transmission reinforcements,
they could not be operational by May 1, 1999.
Orange and Rockland will specify in the Offering Memorandum the
required capacity the purchaser must provide by month and facility for load
pocket support. Each bidder who wishes to bid on Lovett, the Shoemaker gas
turbine and the hydro-electric facilities, will be required to submit a bid,
separate and distinct from its asset purchase bid, specifying the annual cost by
facility to have the required capacity available. Orange and Rockland will
execute with the purchaser a call option agreement for a maximum of five years,
renewable annually at the Company's sole discretion. In addition, the agreement
also would require the purchaser to provide energy during load pocket hours, to
the extent such energy was not already being produced. Energy actually provided
to mitigate load pocket conditions would be priced as follows:
Lovett Start up costs - $/Unit start up
Fuel costs - actual
Variable O&M - set at $1/mwh
Shoemaker Start up costs - $/Unit start up (most GT overhaul
maintenance costs for standby units are cycle
related). Fuel costs - actual
Rio, Mongaup
Swinging Bridge Replacement energy cost based on X% of the on peak
weekly average zonal price, recognizing that it
is in the interest of the new owner to only operate
the hydros at peak price periods, and that normally
there is only available water to operate the Units
at 25% load factor.
As noted in Section 24 below, any call option agreement will be
subject to FERC review and approval. The costs associated with these call
option agreements are directly related to system reliability and thus will be
collected from all customers of the regulated Orange and Rockland distribution
company through a non-bypassable wires charge. These call option agreements
would remain effective only for so long as they remain less costly to the
delivery company than other mitigation measures (e.g., transmission
reinforcement). The Company also will coordinate plant and transmission system
maintenance and emergency operations with the new owner(s) and operator(s) of
Lovett, the Shoemaker gas turbine and the Rio, Mongaup and Swinging Bridge
hydro-electric facilities.
22. Environmental Issues
The Company is identifying and gathering existing records and
information regarding the environmental liability issues associated with the
Generating Assets. As part of the auction process, prospective bidders will be
provided access to these records and information. This information will be
sufficient to allow bidders to meaningfully assess any potential environmental
liabilities. A similar approach was adopted by NEES in the auction of its
generating assets. Orange and Rockland will provide bidders with a list of all
environmental permits, certificates and licenses associated with the Generating
Assets. Orange and Rockland will cooperate with the winning bidder to have such
permits, certificates and licenses transferred to the winning bidder. The
Company also will provide available information related to those authorizations
and any environmental permit requirements currently in effect or anticipated.
Depending upon the individual licenses or permits, typical requirements may
include:
Fish enhancement technology improvements;
Limitations on temperature, minimum flows, and run-of river operations;
Increased instrumentation and monitoring requirements;
Aesthetic and/or recreational issues; and
Emissions and discharge limitations.
Sulfur dioxide and nitrogen oxides emission allowances will be
allocated to the Generating Assets in accordance with the regulatory methodology
employed at the time of sale. Any banked allowances accumulated prior to the
transfer of title shall be retained by Orange and Rockland.
During 1995 and 1996, an extensive environmental compliance audit of
Orange and Rockland's principal facilities, including its Generating Assets, was
undertaken by an outside environmental consultant. The audit included a
comprehensive review of documents relating to the environmental status of the
Generating Assets, site inspections and interviews with operating personnel. At
the conclusion of the audit process, a report detailing the status of
environmental compliance at each of the Generating Assets was prepared. To the
extent relevant for a particular facility, the report focused on the following
general subject areas: air, water, hazardous waste, solid waste, PCBs, oil
storage/chemical storage/spill response, Superfund and wetlands. For those
facilities for which issues requiring corrective action were identified by the
audit, Orange and Rockland took actions to resolve such outstanding issues.
Subsequent to the completion of the above-described audit, Orange and
Rockland's Environmental Services Department initiated a periodic compliance
assessment program in April 1997 to ensure that the Company's facilities remain
in compliance. Lovett and Bowline are reviewed monthly; gas turbines and
hydroelectric facilities bi-annually.
Orange and Rockland is presently reviewing strategies to comply with
Phase II of the Clean Air Act. It does not appear that capital additions will
be required for compliance. As to the State Pollution Discharge Elimination
System ("SPDES") permit for Bowline, Orange and Rockland is engaged in a process
with Con Edison, the New York Power Authority ("NYPA") and Central Hudson Gas
and Electric Corporation ("Central Hudson") to secure new SPDES permits from the
NYSDEC for Bowline as well as the Roseton and Indian Point Generating
Stations(5). Orange and Rockland will continue its efforts to secure a revised
SPDES permit for Bowline. Given the delays inherent in completing the ongoing
draft environmental impact statement, however, it appears unlikely that a new
SPDES permit for Bowline will be issued prior to the completion of the auction
process. The Company is continuing its efforts to obtain a revised SPDES permit
for Lovett, and is engaged in ongoing discussions with NYSDEC regarding this
permit. To the extent that new SPDES permits are not issued by the NYSDEC prior
to transfer of title to the Generating Assets, the winning bidder would
participate in the ongoing negotiations as the Company's successor.
(5) Central Hudson and Con Edison are the joint owners of the Roseton
Generating Station. Con Edison is the owner of the Indian Point 2 Generating
Station. NYPA is the owner of the Indian Point 3 Generating Station.
It is Orange and Rockland's plan to have the winning bidder assume
responsibility for any environmental liability associated with the Generating
Assets and for the sites on which they are located. Orange and Rockland will
remain responsible for any materials or wastes associated with the Generating
Assets which may have been shipped off site prior to the transfer of title.
Orange and Rockland believes that the information to be made available to
prospective bidders will be sufficient to allow meaningful assessments of any
potential environmental liabilities. NEES adopted similar procedures with
respect to requiring bidders to assume all environmental liabilities (except
off-site environmental liabilities) after giving such bidders access to the
information necessary to assess such assumed liabilities. Such procedures did
not negatively impact the bids received by NEES.
23. SEQRA Compliance
The transfer of title to the Generating Assets should not result in a
significant impact on the environment for purposes of the New York State
Environmental Quality and Review Act ("SEQRA")(6). The Generating Assets will
still be required to comply with all applicable environmental regulations. To
the extent that the winning bidder wishes to modify the operation of a
Generating Asset, it will be responsible for obtaining all relevant
environmental permits. It is by no means clear to the Company that divestiture
of the Generating Assets requires SEQRA review. In order to avoid delays and to
expedite the SEQRA review process, to the extent it may be required, Orange and
Rockland is submitting an Environmental Assessment Form as Exhibit D to this
Final Divestiture Plan.
(6) N.Y. Envtl. Conserv. Section 8-0101 et seq.
24. Regulatory Approvals
Orange and Rockland's transfer of title to the Generating Assets will
be subject to the review and approval of various state and federal regulatory
agencies, including the following:
A. New York Public Service Commission
The Company will apply to the Commission under Section 70 of the
Public Service Law(7) for authorization to dispose of the Generating Assets.
The Commission has the responsibility to review the sale to determine whether it
is in the public interest. To the extent that the buyer wishes to use the
Generating Assets to sell at retail, the buyer first must obtain a Certificate
of Public Convenience ("CPC") from the Commission under Section 68 of the Public
Service Law(8). Orange and Rockland expects the Section 70 application to be
made shortly after relevant contracts are executed with the winning bidder. The
buyer would be expected to file its CPC application in the same
time frame.
(7) N.Y. Pub. Serv. Section 70.
(8) N.Y. Pub. Serv. Section 68.
B. Federal Energy Regulatory Commission
The Company will submit a filing under Section 203 of the Federal
Power Act(9) ("FPA") with the FERC for authorization to sell the Generating
Assets. While generating assets per se are not subject to FERC jurisdiction,
sale of the Generating Assets will be subject to the FERC's jurisdiction under
Section 203 because of certain substation and transmission facilities which will
be included as part of the sale. Furthermore, to the extent that any asset sale
includes a purchase power agreement between Orange and Rockland and the buyer
(e.g., call-option contract), any such agreement for wholesale sales of
electricity would have to be filed with the FERC under Section 205 of the
FPA(10) by the seller of that power. The transfer of the licenses for hydro-
electric generating facilities also requires written approval of the FERC,
pursuant to Section 8 of the FPA(11).
(9) 16 U.S.C. Section 824b.
(10) 16 U.S.C. Section 824d.
(11) 16 U.S.C. Section 801.
If the buyer expects to use any Generating Asset to make wholesale
sales of electricity, it will need to file the appropriate tariffs with the FERC
under Section 205. If the buyer seeks authorization from the FERC to make such
sales at market based rates, it would have to make the requisite showing at the
FERC that it did not possess market power. The buyer also will have to
negotiate a transmission service agreement with Orange and Rockland (or
the New York State ISO) under their filed Order 888 tariff(12).
(12) Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by Public
Utilities and Transmitting Utilities, Order No. 888, 61 FR 21,540 (May 10,
1996), FERC Stats. & Regs. Paragraph 31,036(1996), order on reh'g, Order No.
888-A, 62 FR 12,274 (March 14, 1997), FERC Stats. & Regs. Paragraph 31,048
(1997).
The Company would expect to submit its Section 203 and Section 8
filings with the FERC in parallel with its Section 70 petition(s) to the
Commission. The buyer would be expected to submit its Section 205
application in the same time frame.
C. New Jersey Board of Public Utilities, Pennsylvania Public Utility
Commission
The Company's wholly owned subsidiaries Rockland Electric Company and
Pike County Light & Power Company are regulated by the New Jersey Board of
Public Utilities ("NJBPU") and the Pennsylvania Public Utility Commission
("PPUC"), respectively. The Company anticipates that both the NJBPU and the
PPUC will review the sale of the Generating Assets. Orange and Rockland
anticipates that any required filings with these agencies will be made shortly
after relevant contracts are executed with the winning bidder.
D. Federal Antitrust Review
Any of the transactions contemplated will likely require filings with
the Federal Trade Commission and the Antitrust Division of the Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
These filings give these antitrust agencies the opportunity to consider whether
the transaction is likely to have an adverse impact on competition and to seek
to halt the transaction before it is consummated if they believe it is likely
to have such an impact. The Company would expect the Hart-Scott-Rodino filings
to be made shortly after the necessary filings are made with the Commission and
the FERC.
CONCLUSION
Orange and Rockland hereby requests that the Commission expeditiously
approve this Final Divestiture Plan. Moreover, the Company requests that the
Commission, in its order approving the Final Divestiture Plan, provide that if
Orange and Rockland follows the procedures set forth in the Commission approved
Final Divestiture Plan, it will be presumed to be entitled to an expeditious
approval under Section 70 of the Public Service Law.
Respectfully submitted,
s/ John L. Carley
G. D. Caliendo
Senior Vice President, General Counsel
and Corporate Secretary
John L. Carley
Senior Counsel
Andrew Gansberg
Nixon, Hargrave, Devans & Doyle LLP
Attorneys for:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Dated:February 3, 1998
Pearl River, New York
EXHIBITS
Exhibit A - Orange and Rockland's Letter dated December 4, 1997 to Secretary
Crary Declining Opportunity to Bid on Generating Assets
Exhibit B - Generating Assets Capacity Table
Exhibit C - Facilities to be Transferred and Interconnection Points
Exhibit D - Environmental Assessment Form
EXHIBIT A
December 10, 1997
VIA FEDERAL EXPRESS
Hon. John C. Crary
Secretary
New York State Public Service Commission
Three Empire State Plaza
Albany, New York 12223
Re: Orange and Rockland Utilities, Inc.
Case 96-E-0900
Dear Secretary Crary:
By "Order Adopting Terms of Settlement" dated November 26, 1997 (the
"Order"), the New York State Public Service Commission (the "Commission")
approved in its entirety the Electric Rate and Restructuring Plan
("Restructuring Plan") filed by Orange and Rockland Utilities, Inc. ("Orange and
Rockland" or the "Company") on November 6, 1997, and signed by the Company,
Staff and several other active parties in the proceeding.
The Restructuring Plan requires the auction of Orange and Rockland's
generating assets. Under the terms of the Restructuring Plan, if a bidder is
selected prior to May 1,1999, the Company's 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 allocated to the Company's
customers. The Restructuring Plan also provides that under this schedule, the
Company's shareholders would be required to bear five percent of the New York
share of any net book loss from the sale of the generating assets. If a
successful bidder is not chosen until after May 1, 1999, the Company's
shareholders will be permitted to retain 20 percent of the New York share of any
net book gain, and must absorb 20 percent of the New York share of any net book
loss.
The Restructuring Plan as filed with the Commission did not allow Orange
and Rockland to bid in the auction. In the Order, however, the Commission
offered the Company the opportunity to bid on its generating assets in the
auction subject to the following conditions:
(i) Orange and Rockland's shareholders would forgo their share
of any net book gain from the auction;
(ii) shareholders would not be required to absorb any share of
any net book loss (and therefore all losses are passed on to
customers); and
(iii) the auction would be conducted entirely by an independent
third party approved by the Commission.
After careful evaluation of the Commission's offer, the Company has
determined that it will not participate as a bidder in the auction of its
generating assets. In evaluating the Commission's offer, the Company concluded
that if it were to participate as a bidder in the auction of its generating
assets, it would not only forgo its share of any net book gain from the auction,
but it would also suffer from certain significant disadvantages as compared to
other bidders, making it unlikely that the Company would be selected as the
winning bidder.
For the Company to divest its generating assets as required by the
Restructuring Plan, in all likelihood, any bid by it would have to be submitted
by an unregulated affiliate. Such affiliate would be relatively small compared
to many potential bidders, making it unlikely that it would be able to secure
financing on competitive terms. In addition, bidders with ownership of other
generating assets would benefit from economies of scale not available to the
Company's affiliate. This would allow these bidders to submit bids more
attractive than that submitted by the Company's affiliate.
It is also important to note that Orange and Rockland's participation would
necessarily complicate and thereby delay the auction process. Early divestiture
of the Company's generating assets is expected to maximize their market value,
and, accordingly, moving as rapidly as possible to complete the process is in
the best interest of customers, shareholders and the Company's employees. In
recent generation asset auctions conducted for New England Electric System,
Edison International and Pacific Gas and Electric, each block of assets was sold
at a substantial premium to book value. As more and more generation - both in
New York and surrounding states - becomes available for auction, its fair to
assume that the utilities which are able to move quickly will be able to secure
a higher price.
Another unfortunate outcome of delay in the auction would be the increased
likelihood of the implementation of a Competitive Transition Charge, a result
that all parties were hoping to avoid. Moreover, since a condition to the
Company's participation in the bidding is appointment of an independent third
party to conduct the auction, the Company would be unable to negotiate
conditions for the sale of the assets with other proposed bidders. The Company
believes that its participation in the sale process will best enable it to
protect the interests of its employees and other affected stakeholders.
For these reasons, the Company respectfully declines to participate in the
auction process.
Respectfully submitted,
s/G.D. Caliendo
G. D. Caliendo
EXHIBIT B
EXHIBIT B
GENERATING ASSETS
CAPACITY TABLE
Commission Date Nominal DMNC-Summer
Capacity 1997**
Lovett Unit 1 3/49 20.0 Retired
Lovett Unit 2 9/51 20.0 Retired
Lovett Unit 3 3/55 62.5 68.3
Lovett Unit 4 5/66 167.0 176.8
Lovett Unit 5 4/69 187.0 195.3
Bowline Unit 1* 9/72 200.0 203.3
Bowline Unit 2 5/74 200.0 201.8
Hillburn 4/71 40.0 37.9
Shoemaker 5/71 40.0 37.9
Mongaup 1 7/23 1.0 0.9
Mongaup 2 7/23 1.0 1.0
Mongaup 3 7/23 1.0 0.9
Mongaup 4 11/26 1.0 1.0
Swinging Bridge 1 2/30 5.0 4.7
Swinging Bridge 2 8/39 7.0 7.8
Rio 1 12/27 5.0 5.1
Rio 2 12/27 5.0 5.0
Grahamsville 12/55 18.0 16.8
___________________
* This sets forth the Company's 1/3 interest in Bowline.
** Dependable Maximum Net Capability determined in accordance with
New York Power Pool Methods and Procedures No. 2.
EXHIBIT C
BOWLINE POINT - GENERAL
16" Gas Main from West Haverstraw (Regulator to remain Orange & Rockland Gas
Company)
BOWLINE #1 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #155
Bank #155G
PCB T155-67
Disconnects T155-3, T67-3, 155-A, 67-55-3Y, 155-55-3X
Line 67 - Underground Cable
Line 67 - Overhead Line
Disconnect 67-54-4 (Ladentown)
Bank #555
BOWLINE #2 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #255
Bank #255G
PCB T255-68
Disconnects T255-3, T68-3, 255-A, 68-55-3Y, 255-55-3X
Line 68 - Underground Cable
Line 68 - Overhead Line
Disconnect 68-54-4 (Ladentown)
Bank #655
BOWLINE START-UP YARD MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
OCB 56-55-2Y, 56-55-2X, 561-55-2X, 561-55-2Y
Disconnects 56-55-1Y, 56-55-3Y, 56-55-3X, 56-55-1X, 56-X, 561-55-1X, 561-55-3X,
561-55-3Y, 561-55-1Y, 561-Y
Line 56 - Underground Cable to Minisceongo Switch
Line 561 - Underground Cable to Minisceongo Switch
NOTE: These devices will become the property of the purchaser
but Orange & Rockland will maintain sole control
and operational responsibility of the Bowline Start-up
Yard.
MINISCEONGO SWITCH MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Disconnects 56-57-4, 561-57-4, T-56-561
Line 56 - Underground to Bowline Start-up Yard
Line 561 - Underground to Bowline Start-Up Yard
Note: These devices will become the property
of the purchaser but Orange & Rockland will
maintain sole control and operational
responsibility of the Minisceongo Switch
Station.
BOWLINE POINT UNIT #1 TRANSMISSION INTERCONNECTION
THE INTERCONNECTION OF UNIT #1 INTO THE O&R TRANSMISSION SYSTEM WILL BE AT THE
LADENTOWN 345KV TRANSMISSION BUS. O&R WILL OWN THE STATION BREAKERS AND THE
PURCHASER WILL OWN THE 345KV BUS TAPS TO THE LINE 67 SWITCH 67-54-4. THE
PURCHASER WILL OWN THE LINE 67 PROTECTION SYSTEM AND WILL BE RESPONSIBLE FOR ITS
MAINTENANCE. THE 1-56-2 & 3-56-2 BREAKERS WILL BE OWNED AND OPERATED BY O&R.
THE LADENTOWN BUS ARRANGEMENT IS THAT OF A RING BUS WITH FOUR TRANSMISSION
LINES. TWO LINES CONNECT TO BOWLINE POINT AND TWO LINES CONNECT TO THE 345KV
SYSTEM.
THE 345KV TRANSMISSION LINES Y88 & W72 CONNECT THE LADENTOWN BUS INTO THE BULK
POWER SYSTEM BETWEEN BUCHANNON AND RAMAPO.
BOWLINE POINT UNIT #2 TRANSMISSION INTERCONNECTION
THE INTERCONNECTION OF UNIT #2 INTO THE O&R TRANSMISSION SYSTEM WILL BE AT THE
LADENTOWN 345KV TRANSMISSION BUS. O&R WILL OWN THE STATION BREAKERS AND THE
PURCHASER WILL OWN THE 345KV BUS TAPS TO THE LINE 68 SWITCH 68-54-4. THE
PURCHASER WILL OWN THE LINE 68 PROTECTION SYSTEM AND WILL BE RESPONSIBLE FOR ITS
MAINTENANCE. THE 4-56-2 & 6-56-2 BREAKERS WILL BE OWNED AND OPERATED BY O&R.
THE LADENTOWN BUS ARRANGEMENT IS THAT OF A RING BUS WITH FOUR TRANSMISSION
LINES. TWO LINES CONNECT TO BOWLINE POINT AND TWO LINES CONNECT TO THE 345KV
SYSTEM.
THE 345KV TRANSMISSION LINES Y88 & W72 CONNECT THE LADENTOWN BUS INTO THE BULK
POWER SYSTEM BETWEEN BUCHANNON AND RAMAPO.
BOWLINE POINT START-UP TRANSMISSION INTERCONNECTION
THE INTERCONNECTION OF THE BOWLINE POINT START-UP YARD INTO THE O&R TRANSMISSION
SYSTEM WILL BE THE MINISCEONGO SWITCHING STATION TAPS TO THE OVERHEAD
TRANSMISSION LINES 56 AND 561.
LOVETT #1 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank 133
Bank 133G
OCB 133-2X, 133-2Y
Disconnect 133-1Y, 133-3Y, 133-1X, 133-3X
LOVETT #2 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank 233
Bank 233G
OCB 233-2X, 233-2Y
Disconnect 233-1Y, 233-3Y, 233-1X, 233-3X
LOVETT #3 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank 333
Bank 333G
OCB 333-2X, 333-2Y
Disconnect 333-1Y, 333-Y, 333-1X, 333-3X
Bank 733
OCB 733-2X, 733-2Y
Disconnect 733-1Y, 733-3Y, 733-1X, 733-3X, 733-A
Bank 533
Disconnect 533-A
LOVETT #4 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #447
Bank #447G
OCB #447-2
Disconnects 447-1, 447-3
Spare 200mva Generator Step-up Transformer
LOVETT #5 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #547
Bank #547G
OCB 547-2
Disconnects 547-1, 547-3
LOVETT UNIT #1 TRANSMISSION INTERCONNECTION
Lovett Unit #1 will be interconnected with the O&R transmission system at the
bus taps to the 69KV Bus in O&R Substation #33. The purchaser will be
responsible for the protection systems associated with the generator. O&R shall
be responsible for the 69KV bus differential system.
Presently the taps from the bus have been removed as the unit is retired.
The Lovett 69KV bus is connected to the O&R transmission system through the 85MW
Bank 147 and Line 55 which is rated 91MW.
LOVETT UNIT #2 TRANSMISSION INTERCONNECTION
Lovett Unit #2 will be interconnected with the O&R transmission system at the
bus taps to the 69KV Bus in O&R Substation #33. The purchaser will be
responsible for the protection systems associated with the generator. O&R shall
be responsible for the 69KV bus differential system.
Presently the taps from the bus have been removed as the unit is retired.
The Lovett 69KV bus is connected to the O&R transmission system through the 85MW
Bank 147 and Line 55 which is rated 91MW.
LOVETT UNIT #3 TRANSMISSION INTERCONNECTION
LOVETT UNIT #3 WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE
BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #33. THE PURCHASER WILL BE
RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL
BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM.
THE LOVETT PLANT START-UP TRANSFORMER #733 SHALL BE THE RESPONSIBILITY OF THE
PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS
TO THE 69KV BUS IN O&R SUBSTATION #33.
THE LOVETT PLANT START-UP TRANSFORMER #533 SHALL BE THE RESPONSIBILITY OF THE
PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE TAPS
BETWEEN THE 633-A AND 533-A SWITCHES IN O&R SUBSTATION #33. THE 533-A SWITCH
WILL BE THE RESPONSIBILITY OF THE PURCHASER.
THE LOVETT 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH THE 85MW
BANK 147 AND LINE 55 WHICH IS RATED 91MW.
LOVETT UNIT #4 TRANSMISSION INTERCONNECTION
LOVETT UNIT #4 WILL BE INTERCONNECTED WITH THE O&R SYSTEM AT THE BUS TAPS TO THE
138KV BUS IN O&R SUBSTATION #47. THE PURCHASER WILL BE RESPONSIBLE FOR THE
PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR
THE 138KV BUS DIFFERENTIAL SYSTEM.
THE LOVETT PLANT START-UP TRANSFORMER #647 SHALL BE THE RESPONSIBILITY OF THE
PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS
TO THE 138KV BUS IN O&R SUBSTATION #47.
THE LOVETT 138KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES, 53, 54, 56. EACH LINE IS RATED 224MW.
LOVETT UNIT #5 TRANSMISSION INTERCONNECTION
LOVETT UNIT #5 WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE
BUS TAPS TO THE 138KV BUS IN O&R SUBSTATION #47. THE PURCHASER WILL BE
RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL
BE RESPONSIBLE FOR THE 138KV BUS DIFFERENTIAL SYSTEM.
THE LOVETT 138KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES, 53, 54, 56. EACH LINE IS RATED 224MW.
THE LOVETT #5 GENERATOR LEADS ARE UNDERGROUND CABLES THAT SHARE THE OIL PUMPING
PLANT WITH LINE 53 &54.
HILLBURN GT MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #617
OCB 617-2Y, GT-17-2X
Disconnects 617-1Y, 617-3Y, T617-3, T-GT-3, GT-17-3X, GT-17-1X
HILLBURN GT TRANSMISSION INTERCONNECTION
THE HILLBURN GT WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE
BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #17. THE PURCHASER WILL BE
RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL
BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM.
THE HILLBURN 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES 31, 51, 52, 59, & 89. THE COMBINED RATING OF THESE LINES IS
473MW.
SHOEMAKER GT MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #511
OCB 511-2
Disconnects 511-1
SHOEMAKER GT TRANSMISSION INTERCONNECTION
THE SHOEMAKER GT WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE
BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #11. THE PURCHASER WILL BE
RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL
BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM.
THE SHOEMAKER 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES LINES 24, 25, & 27. THE COMBINED RATING OF THESE LINES IS
246MW.
RIO HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator #1, #2
Bank #13
OCB 13-2
Disconnects 13-1, 13-3
Bank #83
Disconnects 83-A
RIO HYDRO TRANSMISSION INTERCONNECTION
THE RIO HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS
TAPS TO THE 69KV BUS IN O&R SUBSTATION #3. THE PURCHASER WILL BE RESPONSIBLE FOR
THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR.
THE RIO 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TWO
TRANSMISSION LINES LINES 15 & 18. THE COMBINED RATING OF THESE LINES IS 53MW.
MONGAUP HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator #1, #2, #3, #4
Bank #52
OCB 52-2
Disconnects 52-1, 52-3
MONGAUP HYDRO TRANSMISSION INTERCONNECTION
THE MONGAUP HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE
BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #2. THE PURCHASER WILL BE RESPONSIBLE
FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR.
THE MONGAUP 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES 12, 13, & 15. THE COMBINED RATING OF THESE LINES IS 105MW
SWINGING BRIDGE HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator #1, #2
Bank #11, #31
OCB 11-2
Disconnects 11-3, 31-A
Bank #21
OCB 21-2
Disconnect 9-1-6
Line Tap to Line #9
SWINGING BRIDGE HYDRO TRANSMISSION INTERCONNECTION
THE SWINGING BRIDGE #1 HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION
SYSTEM AT THE BUS TAPS TO THE 69KV BUS FROM SWITCH 11-3 IN O&R SUBSTATION #3.
THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE
GENERATOR.
THE SWINGING BRIDGE #1A HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION
SYSTEM AT THE LINE 9 TAPS TO THE 69KV LINE 9 TO MONGAUP JUST OUTSIDE O&R
SUBSTATION #3. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS
ASSOCIATED WITH THE GENERATOR.
THE SWINGING BRIDGE 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH
TRANSMISSION LINES 12, 13, & 15. THE COMBINED RATING OF THESE LINES IS 22MW.
GRAHAMSVILLE HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD
Generator
Bank #14
OCB HG-1291
Disconnects HG-1294, HG-1293, HG-1290, 14-4
GRAHAMSVILLE HYDRO TRANSMISSION INTERCONNECTION
THE GRAHAMSVILLE HYDRO WILL BE INTERCONNECTED WITH THE CENTRAL HUDSON
TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV CENTRAL HUDSON HG LINES IN O&R
SUBSTATION #4. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS
ASSOCIATED WITH THE GENERATOR AND THE SUBSTATION.
THE EXISTING ORANGE AND ROCKLAND WHEELING AGREEMENT WITH CENTRAL HUDSON WILL BE
ASSIGNED TO THE PURCHASER.
EXHIBIT D
14.16-4 (2/87)-Text 12
PROJECT I.D. NUMBER
617.21 SEQR
Appendix C
State Environmental Quality Review
SHORT ENVIRONMENTAL ASSESSMENT FORM
For UNLISTED ACTIONS Only
PART I-PROJECT INFORMATION (To be completed by Applicant or Project sponsor)
1. APPLICANT/SPONSOR 2. PROJECT NAME
Orange and Rockland Utilities, Inc. Electric Rate/Restructuring -
Case 96-E-0900
3. PROJECT LOCATION:
Municipality Orange and Rockland's electric County service territory
4. PRECISE LOCATION (street address and road Intersections, prominent landmarks,
etc., or provide map)
See response to No. 3 above
5. IS PROPOSED ACTION:
( )New ( )Expansion ( )Modification/alteration
NOT APPLICABLE
6. DESCRIBE PROJECT BRIEFLY:
See the attached Environmental Assessment Form Narrative
7. AMOUNT OF LAND AFFECTED:
Initially( )acres Ultimately( )acres NOT APPLICABLE
8. WILL PROPOSED ACTION COMPLY WITH EXISTING ZONING OR OTHER EXISTING LAND USE
RESTRICTIONS?
( )Yes ( )No If No, describe briefly
NOT APPLICABLE
9. WHAT IS PRESENT LAND USE IN VICINITY OF PROJECT?
( ) Residential ( )Industrial ( )Commercial ( )Agriculture
( )Park/Forest/Open space ( ) Other
Describe:
NOT APPLICABLE
10. DOES ACTION INVOLVE A PERMIT APPROVAL, OR FUNDING, NOW OR ULTIMATELY FROM
ANY OTHER GOVERNMENTAL AGENCY (FEDERAL, STATE OR LOCAL)?
(X)Yes ( )No If yes, list agency(s) and permit/approvals
NYS PUBLIC SERVICE COMMISSION
11. DOES ANY ASPECT OF THE ACTION HAVE A CURRENTLY VALID PERMIT OR APPROVAL?
(X)Yes ( )No If yes, list agency name and permit/approval
All of Orange and Rockland's Generating Assets that are to be divested have
valid, approved certificates to operate.
12. AS A RESULT OF PROPOSED ACTION WILL EXISTING PERMITIAPPROVAL REQUIRE
MODIFICATION?
( )Yes ( )No
I CERTIFY THAT THE INFORMATION PROVIDED ABOVE IS TRUE TO THE BEST OF
MY KNOWLEDGE
Applicant/sponsor name: Orange and Rockland Utilities, Inc.
Date: 2/3/98
Signature: s/John L.Carley
If the action Is In the Coastal Area, and you are a state agency, complete the
Coastal Assessment Form before proceeding with this assessment
OVER
PART II-ENVIRONMENTAL ASSESSMENT (To be completed by Agency)
A. DOES ACTION EXCEED ANY TYPE-1 THRESHOLD IN 6 NYCRR, PART 617.12? If Yes,
coordinate the review process and use the FULL EAF.
( )Yes (X)No
B. WILL ACTION RECEIVE COORDINATED REVIEW AS PROVIDED FOR UNLISTED ACTIONS IN
6 NYCRR, PART 617.6?
If No, a negative declaration may be superseded by another involved agency.
( )Yes ( )No NOT APPLICABLE
C. COULD ACTION RESULT IN ANY ADVERSE EFFECTS ASSOCIATED WITH THE FOLLOWING:
(Answers may be handwritten, If legible)
Cl. Existing air quality, surface of groundwater quality or quantity, noise
levels. Existing traffic patterns, solid waste production or disposal,
potential for erosion, drainage or flooding problems? Explain briefly:
C2. Aesthetic, agricultural, archaeological, historic, or other natural or
cultural resources; or community or neighborhood character? Explain
briefly:
C3. Vegetation or fauna. fish, shellfish or wildlife species, significant
habitats, or threatened or endangered species? Explain briefly:
C4. A community's existing plans or goals as officially adopted, or a
change in use or intensity of use of land or other natural resources?
Explain briefly:
C5. Growth. subsequent development, or related activities likely to be
induced by the proposed action? Explain briefly:
C6. Long term, short term, cumulative, or other effects not identified in
Cl-C5? Explain briefly:
C7. Other impacts (including changes in use of either quantity or type of
energy)? Explain briefly:
D. IS THERE, OR IS THERE LIKELY TO BE, CONTROVERSY RELATED TO POTENTIAL
ADVERSE ENVIRONMENTAL IMPACTS?
( )Yes (X)No If Yes, explain briefly
PART III-DETERMINATION OF SIGNIFICANCE (To be completed by Agency)
INSTRUCTIONS: For each adverse effect identified above, determine whether it
is substantial, large, important or otherwise significant. Each effect should
be assessed in connection with its (a) setting (i.e. urban or rural); (b)
probability of occurring; (c) duration; (d) irreversibility;
(e) geographic scope; and (f) magnitude. If necessary, add attachments or
reference supporting materials. Ensure that explanations contain sufficient
detail to show that all relevant adverse impacts have been identified and
adequately addressed.
( ) Check this box if you have identified one or more potentially large or
significant adverse impacts which MAY occur. Then proceed directly
to the FULL EAF and/or prepare a positive declaration.
( ) Check this box if you have determined, based on the information and
analysis above and any supporting documentation, that the proposed action
WILL NOT result in any significant adverse environmental impacts AND
provide on attachments as necessary, the reasons supporting this
determination:
Name of Lead Agency
Print or Type Name of Responsible Title of
Officer in Lead Agency Responsible
Officer
Signature of Responsible Signature of Preparer
Officer in Lead Agency (if different from
responsible officer)
Date
2
Environmental Assessment Form Narrative
Divestiture of Generating Assets
Prepared for
New York Public Service Commission
Case 96-E-0900
Introduction
On November 6, 1997, Orange and Rockland Utilities, Inc. ("Orange and
Rockland" or the "Company") filed an Electric Rate and Restructuring Plan
("Restructuring Plan") with the New York State Public Service Commission
("Commission") in Case 96-E-0900(1). The Restructuring Plan also has been
signed by Staff of the New York State Department of Public Service, the New York
State Department of Economic Development, the Industrial Energy Users
Association, the National Association of Energy Service Companies, The Joint
Supporters, the Independent Power Producers of New York, Inc., Pace Energy
Project and Enron Capital & Trade Resources. The Restructuring Plan was
approved by the Commission at its open session on November 25, 1997. The
Commission issued Orders adopting the Restructuring Plan on November 26 and
December 31, 1997, respectively.
(1) 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.
The Restructuring Plan provides for the divestiture, by auction, of all of
the Company's generating assets (i.e., all units at the Lovett Generating
Station and the Company's one-third interest in all units at the Bowline Point
Generating Station(2), hydro-electric facilities and gas turbines, hereinafter
collectively referred to as the "Generating Assets"). The Restructuring Plan
(p. 18) provides that Orange and Rockland "will submit its divestiture plan to
Staff and the other parties in this proceeding within three months of the
Commission approving the [Restructuring] Plan." Pursuant to the terms of the
Restructuring Plan, this divestiture plan will identify how the Generating
Assets will be packaged for sale; what restrictions, if any, will be placed on
the capacity that any one bidder may purchase; the procedures to be followed in
the sale of the Generating Assets, including minimum bids; and key dates and
milestones to achieve the scheduled divestiture. The divestiture plan also will
address the resolution of market power issues in any load pocket areas. On
December 11, 1997 the Company distributed its preliminary divestiture plan to
Staff and the other parties in Case 96-E-0900.
(2) The Company and Consolidated Edison Company of New York, Inc. ("Con
Edison") are co-tenants in the Bowline Point Generating Station, with the
Company owning a 1/3 interest and Con Edison owning a 2/3 interest.
In its Order adopting the Restructuring Plan issued November 26, 1997, the
Commission offered the Company the opportunity to bid on the Generating Assets,
subject to certain conditions. As set forth in Orange and Rockland's letter to
the Commission dated December 10, 1997, the Company has declined the
Commission's offer. Neither Orange and Rockland nor any of its affiliates will
submit a bid in the auction of the Generating Assets.
Staff and other parties submitted their comments on the preliminary
divestiture plan by January 12, 1998. The Restructuring Plan (p.19) requires
the Company to submit a final divestiture plan to the Commission within six
months of the Commission approving the Restructuring Plan. As part of such
final divestiture plan, Orange and Rockland is submitting this Environmental
Assessment Form to the Commission.
As set forth below, divestiture of the Generating Assets should not result
in significant new environmental impacts which would require further
environmental review.
I. BACKGROUND
On May 3, 1996, the Commission issued a Final Generic Environmental Impact
Statement ("FGEIS") in the Competitive Opportunities Proceeding, Case 94-E-0952.
As lead agency for environmental review, the Commission identified the proposed
action in the Competitive Opportunities Proceeding as the "adoption of a policy
supporting increased competition in electric markets, including a preferred
method to achieve electric competition; and regulatory and ratemaking practices
that will assist in the transition to a more competitive and efficient electric
industry, while maintaining safety, environmental, affordability, and service
quality goals."
The FGEIS identified generic environmental consequences of the Commission's
proposed action together with social, economic and other essential
considerations. The FGEIS also identified mitigation strategies for any adverse
environmental effects that could result from implementing a competition policy.
In reviewing this FGEIS and in considering the proposed action, the
Commission, in Opinion No. 96-12 (p. 80)(3), found that the requirements of the
State Environmental Quality Review Act ("SEQRA") have been met. The Commission
also determined that the proposed action "avoids or minimizes adverse
environmental impacts to the maximum extent practicable..."
(3) Cases 94-E-0952, et al., Competitive Opportunities Proceedings, Opinion No.
96-12 (issued May 20, 1996).
The Commission also recognized that individual utility proposals might
bring to light new concerns. As a result, in Opinion No. 96-12, as further
clarified in Opinion No. 96-17(4), the Commission required each utility to file
an environmental assessment of its restructuring plan. On April 4, 1997 Orange
and Rockland submitted its Environmental Assessment Form ("EAF") and SEQRA
recommendation in connection with the Agreement and Settlement dated March 25,
1997 in Case No. 96-E-0229.
(4) Cases 94-E-0952, et al., Competitive Opportunities Proceeding, Opinion No.
96-17 (issued October 24, 1996).
In Opinion No. 97-20 in Case 96-E-0900, issued December 31, 1997, the
Commission considered Orange and Rockland's EAF, the comments and responses
submitted by Staff and other parties, and other additional information. In
particular, the Commission considered an EAF prepared by Staff. In the
narrative attached to Staff's EAF (p.17), Staff notes that the Restructuring
Agreement provides that Orange and Rockland will auction off all its Generating
Assets. The Staff, in fact, notes that this auction process might lead to
retirement of certain of these Generating Assets. Both Staff's EAF and the
Commission, in Opinion No. 97-20, also considered the possible increase in air
pollution that could accompany the increased demand for electric energy
resulting from the Restructuring Plan.
After considering all of these issues, the Commission in Opinion No. 97-20
(p.30) concluded as follows:
Based on these analyses, the potential environmental impacts of the
Settlement are found to be within the range of thresholds and
conditions set forth in the FGEIS. Therefore, no further SEQRA action
is necessary.
DISCUSSION
PHYSICAL AND OPERATIONAL CHANGES DUE TO DIVESTITURE
1. Plant Retirements
Orange and Rockland has committed to divest all its Generating Assets
through an auction process. Orange and Rockland has no plans to retire any of
the Generating Assets as part of this auction process. While it seems unlikely
that a bidder would purchase the Generating Assets in order to retire them, this
prospect has been considered. As noted in Staff's EAF narrative (p. 17), "it is
possible that the divestiture of these plants could result in one or more of
them being retired earlier than they would have been in the absence of
competition". Staff went on to note, that the FGEIS concluded that accelerated
retirement of less efficient plants is an unavoidable potential consequence of a
more competitive electric industry and that this would cause some local adverse
impacts (e.g., increases in unemployment and decreased tax base) which may be
balanced by positive impacts elsewhere.
This divestiture process makes no explicit provision for the construction
of new generating facilities. It is possible, of course, that a winning bidder
may wish to modify or retrofit certain of the Generating Assets. However, any
such plan must undergo rigorous environmental review by the State's regulatory
agencies, as well in all likelihood by similar federal agencies. Any such
construction or modification would have to comply with the provisions of Article
VIII of the Public Service Law or SEQRA. Moreover, all new generation must
comply with all environmental regulations, including the State's strict air
quality requirements.
2. Plant Dispatch
With the introduction of full retail competition, plant dispatch will be
provided by the Independent System Operator ("ISO") rather than by the New York
Power Pool. It seems likely that by the time title to the Generating Assets is
transferred to a winning bidder, the ISO will be operational. As noted in the
EAF submitted by Orange and Rockland on April 4, 1997, it is unclear exactly how
the Generating Assets will be dispatched, although Orange and Rockland
anticipates that Lovett will be a base load plant. Actual generation dispatch
conducted in a competitive market is difficult to predict. Incremental changes
in environmental effects as a result of competition will be site specific and
will depend on the operator's efficiency and the pricing for generation. Other
sources of generation, regardless of location, would be required to comply with
site specific environmental requirements, including permissible emissions
requirements.
Environment Impacts of Divestiture, Their Magnitude,
and Potential Mitigation Measures
Divestiture of the Generating Assets is not expected to have significant
impacts over and above those identified in the FGEIS and in Opinion No. 97-20.
The expected environmental impacts of divestiture of the Generating Assets are
summarized below.
1. Air Quality
Under the existing air permits for Lovett and Bowline, air emissions
(e.g., NOx, SO2, particulates) are strictly regulated. Orange and Rockland will
transfer these permits to the winning bidder, subject to the New York State
Department of Environmental Conservation's ("NYSDEC") review and approval. The
winning bidder will be required to comply with the provisions of these permits.
Any modification to the existing air permits proposed by the winning bidder is
subject to NYSDEC review and approval prior to implementation. Divestiture will
not change these regulatory requirements. As noted above, Orange and Rockland
has no plans to construct additional generating facilities as part of the
divestiture process.
As noted by the Commission in Opinion 96-12 (p. 79), likely environmental
effects are hard to predict. Any new generation to be constructed by the
winning bidder at the Generating Assets sites will be required to comply with
the State's stringent air quality regulations. The ambient air quality impacts
from Generating Assets will depend on generation dispatch, location, fuel,
economics, and retirement and construction programs. Divestiture should not
alter these factors markedly.
2. Water Resources
Discharges from Lovett and Bowline are presently strictly regulated by
State Pollutant Discharge Elimination System ("SPDES") permits issued by the
NYSDEC. Divestiture of these plants does nothing to amend or modify these
permits. As with air emissions, any modifications to the discharges from the
Generating Assets are subject to the NYSDEC's review and approval. To the
extent that new generation is constructed at the Generating Assets sites by the
winning bidder, water quality effects will be reviewed by the NYSDEC during the
facility approval process.
3. Land Use
Orange and Rockland has no plans to construct any new generating
facilities or any major transmission lines as part of the divestiture. To the
extent that new generating facilities are constructed at the Generating Assets
sites, land use impacts would be expected and would be reviewed. Similarly, to
the extent that new transmission facilities are constructed, land use impacts
would be reviewed (See, Article VII of the Public Service Law).
4. Socioeconomic
Orange and Rockland has no plans to retire any of the Generating
Assets as part of the divestiture process. Therefore, Orange and Rockland
expects that employment levels and property tax payments associated with these
plants will continue, although perhaps at somewhat lower levels. The
Restructuring Plan provides for significantly reduced electric prices to large
industrial customers. It is anticipated that these price reductions will assist
in the retention of jobs and the enhancement of economic development in Orange
and Rockland's service territory. The exact number of jobs that will be
retained and the specific amount of future economic development are extremely
difficult to predict. To the extent that economic development is enhanced, both
employment and the resulting tax base should increase. Moreover, all customer
classes will benefit from lower prices that should result from the
implementation of competition. Divestiture of the Generating Assets should
expedite and enhance the development of such competition. In addition, as
identified by the Commission in Opinion 96-12 (p. 79), a principal social
consideration in the shift to competition in the electric industry "is the
benefit of increased customer choice from among generators, marketers, and
energy services companies."
Conclusion
The Commission has considered the environmental effects of alternate
competition scenarios in the FGEIS. The Commission, in considering the FGEIS in
Opinion 96-12, concluded that there could be generic air quality environmental
effects (oxides of sulfur and nitrogen) resulting from the implementation of
competition. Nevertheless, weighing and balancing these likely environmental
effects of the shift to competition in the electric industry in New York with
social, economic and other essential considerations, the Commission concluded
that implementing the proposed action toward greater competition is desirable.
In Opinion No. 97-20, the Commission reviewed the potential environmental
impacts specific to the Restructuring Plan, including those related to the
divestiture of the Generating Assets. In its review, the Commission relied on a
detailed EAF prepared by Staff. After a thorough review, the Commission
concluded that since the potential environmental impacts of the Restructuring
Plan were within the range of thresholds and conditions set forth in the FGEIS,
no further SEQRA action is necessary.
As noted above, the actions to implement the Restructuring Plan by
divesting the Generating Assets will be carried out in conformance with the
conditions and thresholds established in the FGEIS and Commission Opinion Nos.
96-12 and 97-20. Orange and Rockland anticipates that the divestiture of the
Generating Assets will have environmental impacts that are modest or not
distinguishable from those of alternative actions, including the no action
alternative identified by the FGEIS as the evolving regulatory model.
Therefore, no further environmental impact analysis is required.
