<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report -- April 9, 1997
ROCHESTER GAS AND ELECTRIC CORPORATION
(Exact name of registrant as specified in charter)
New York
(State or other jurisdiction of incorporation)
1-672
(Commission File Number)
16-0612110
(IRS Employer Identification No.)
89 EAST AVENUE, ROCHESTER, NEW YORK 14649
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 546-2700
<PAGE>
ITEM 5. OTHER EVENTS
Competitive Opportunities Case Settlement. By Opinion No. 96-12 issued May
-----------------------------------------
20, 1996 in the "Competitive Opportunities Proceeding," the New York State
Public Service Commission ("PSC") endorsed a fundamental restructuring of the
electric utility industry in the State. Among other elements, the PSC's goals
included lower rates for consumers and increased customer choice in obtaining
electricity and other energy services.
On April 8, 1997, Rochester Gas and Electric Corporation ("RG&E"), the PSC
Staff ("Staff") and other parties entered into a Settlement Agreement dated
April 8, 1997 (the "Settlement") with regard to the Competitive Opportunities
Proceeding. A copy of the Settlement is filed as an exhibit to this report.
Summary. The Settlement, which is subject to PSC approval, provides for a
-------
transition to competition during the five-year term of the Settlement (July 1,
1997 through June 30, 2002). The Settlement would establish RG&E's electric
rates for each annual period commencing July 1 ("Rate Year") during the term. A
Retail Access Program will be phased in, allowing customers to purchase
electricity, and later electricity and capacity commitments, from sources other
than RG&E. During the term, RG&E's fossil-fueled electric generating plants
will be required to compete in the market. RG&E will be provided a reasonable
opportunity to recover prudently incurred costs, including those pertaining to
generation and purchased power.
The Settlement also requires RG&E to functionally separate its component
operations: distribution, generation, and retailing. RG&E would be required to
separate, structurally, any unregulated retail operations from the remainder of
the regulated utility functions. In addition, RG&E would have the option to
establish a holding company structure and to utilize certain funds derived from
rendering utility service for unregulated operations. The Settlement requires
neither divestiture of generating or other assets, nor writing off of "stranded
costs" (the above-market costs, presumed to result from competition).
The Settlement will be the subject of PSC examination to determine whether
it is in the public interest. A PSC decision regarding the Settlement is
expected by mid-1997.
RG&E believes that the Settlement Agreement will not adversely affect its
eligibility to continue to apply Statement of Financial Accounting Standards No.
71, "Accounting for the
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<PAGE>
Effects of Certain Types of Regulation" ("SFAS71"). If, contrary to the
Company's view, such eligibility were adversely affected, a material write-down
of assets, the amount of which is not presently determinable, could be required.
Rate Plan. Subject to certain conditions, the Rate Plan contained in the
---------
Settlement continues the rate reductions provided for in RG&E's 1996 settlement
("the 1996 Settlement") approved by the PSC. Over the five rate years of the
term, the cumulative rate reductions will be as follows: Rate Year 1: $3.5
million; Rate Year 2: $10.5 million; Rate Year 3: $22.6 million; Rate Year 4:
$32.2 million; and Rate Year 5: $34.8 million. To the extent that "Mandates"
(i.e., governmentally required and external costs imposed on RG&E) are reduced,
- -----
the foregoing reductions may increase in Rate Years 3 through 5.
The Rate Plan permits RG&E to offset against the foregoing total reductions
-----
certain amounts related to a Purchase Power Agreement with Kamine/Besicorp
Allegany L.P. which is the subject of substantial litigation described in the
Company's 1996 Annual Report on Form 10-K. (See Item 8, Financial Statements
under the caption "Litigation with Co-Generator" in Note 10, Commitments and
Other Matters.) To provide for possible settlement of the Kamine litigation,
the Rate Plan permits RG&E to make the following offsets, by "Rate Year": Rate
Year 2: $3.5 million; Rate Year 3: $8.5 million; Rate Year 4: and following
(until payment is completed): $10.6 million. The Settlement also would permit
RG&E to recover the full amount of any difference between Kamine costs currently
included in rates and any increased amount resulting from enforcement of the
purported PPA or judicially required payments. Seven-eighths of this difference
may be added, on a current basis, to the amount already included in rates. To
the extent current recovery is limited, the remaining balance may be deferred
for future recovery.
The Settlement permits recovery of inflation-based increases to certain
Operation and Maintenance ("O&M") expenses above 4.0 percent, permits RG&E to
retain a portion of property tax decreases, and allows RG&E to recover the costs
of certain Mandates to be included in a "System Benefits Charge" and to recover
others to the extent they exceed a $2.5 million threshold. RG&E also would be
permitted to recover the costs of Catastrophic Events and Competition
Implementation Costs (i.e., the cost of transition) to the extent they exceed
----
the same threshold. Low-income and service quality programs, established in
prior proceedings would continue in much their same form. The
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<PAGE>
maximum service quality penalty, however, would be reduced to $1.25 million per
year.
In the event that RG&E earns a return on common equity in excess of 11.80
percent, RG&E would be entitled to retain 50 percent of the excess and to use
the remaining 50 percent to write down accumulated deferred costs or investment
in electric plant and Regulatory Assets (which are deferred costs whose
classification as an asset on the balance sheet is permitted by SFAS 71). If
RG&E's rate of return on common equity falls below 8.5 percent or increases
above 14.5 percent, if the pre-tax interest coverage falls below 2.5 times, or
if certain governmental actions occur which cannot adequately be addressed by
the Settlement as it pertains to Mandates, either RG&E or any party to the
Settlement would have the right to petition the PSC for review of the Settlement
and appropriate remedial action.
Retail Access. Over the five-year term of the Settlement, RG&E will phase
-------------
in a Retail Access Program that will permit customers to purchase their own
electricity and capacity from alternative suppliers. Assuming that certain
operational requirements are met and certain governmental approvals are in
place, on July 1, 1998, customers whose electric loads total 670 Gigawatthours
("GWH") (representing approximately 10 percent of RG&E's total annual Retail
Sales) will be eligible to purchase electricity (but not capacity commitments)
from alternative suppliers. On July 1, 1999, customers with loads totaling up
to 1,300 GWH (approximately 20 percent of total Sales) will be eligible to
purchase energy and capacity commitments from alternative suppliers. As of July
1, 2000, aggregate customer load of up to 2,000 GWH (approximately 30 percent of
total Sales) will be eligible; and, as of July 1, 2001, up to 3,000 GWH
(approximately 46 percent of total Sales) will be eligible. As of July 1, 2002,
all retail customers will be eligible to purchase energy and capacity from
alternative suppliers.
Under the Retail Access Program, delivery of electricity will continue to
be through RG&E's distribution system. The schedule for implementation of the
"Energy and Capacity" stage of the Program (commencing July 1, 1999) assumes
that a Statewide Energy and Capacity Market will be in place by July 1, 1998. If
the operation of that Market is delayed, RG&E may petition the PSC for a delay
in implementation of the Energy and Capacity stage.
During the initial, energy only stage of the Retail Access Program, the
RG&E delivery rate will generally equal the rate for fully bundled service less
the average non-nuclear fuel and purchased power cost of the electric commodity.
During the
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<PAGE>
energy and capacity stage, the rate will generally equal the bundled rate less
the cost of the electric commodity and RG&E's non-nuclear generating capacity.
These commodity and capacity costs, generally referred to as "contestable
costs," are estimated to be $.032 per kilowatt hour ("KWH").
RG&E would not be required to divest any of its generation facilities.
Instead, the phasing-in of the Retail Access Program subjects RG&E's generation
to competition from the market in increments, as described above. "Sunk Costs",
the investment in electric plant as of March 1, 1997, would be included in
electric distribution tariff rates during the term of the Settlement. Future
rate treatment of such costs is to be consistent with the principle that RG&E is
to have a reasonable opportunity to recover such costs.
"To-Go Costs" of RG&E's non-nuclear resources (i.e., capital costs incurred
----
after February 28, 1997, operation and maintenance expenses, and property,
payroll and other taxes) are to be recovered through the distribution access
tariff. The fixed portion of To-Go Costs would be recovered in full through the
distribution access tariff until July 1, 1999 and subject to the market
thereafter in accordance with the phase-in schedule for the Retail Access
program described above. The variable portion of non-nuclear To-Go Costs would
also be subject to the market in accordance with the phase-in Schedule described
above. Upon extension of eligibility for the Retail Access Program to all retail
customers on July 1, 2002, RG&E would be authorized to modify its distribution
access rates, so as to hold constant the degree to which its To-Go Costs are at
risk for recovery through the market. Thus, while the recovery of non-nuclear
To-Go Costs would continue to be through the market, recovery of nuclear costs
would remain recoverable through regulated rates. If, during the operation of
the Energy and Capacity Stage of the Retail Access Program, the market price of
energy and capacity exceeds an average of 3.2 cents per KWH, the pace of the
Retail Access Program implementation schedule could, after discussion among the
Settlement parties, be accelerated.
During at least the first two and one-half years of the Settlement, all
prudently incurred costs associated with the Ginna nuclear plant and RG&E's
share of the Nine Mile Point 2 nuclear facility would be recovered through
regulated retail rates. Future rate treatment of Nine Mile Point 2 would be
determined through good faith negotiations among RG&E, Staff and the other co-
tenants of the facility. It is expected that rate treatment of Ginna would be
similar. No change in such treatment of nuclear facilities may be implemented
prior to January 1, 2000. Shutdown and decommissioning costs would be recovered
-5-
<PAGE>
during the term of the Settlement in a manner consistent with past ratemaking
treatment.
Corporate Structure. The Settlement envisions, and authorizes RG&E to
-------------------
form, a holding company ("HOLDCO") structure and provides standards of conduct
to govern relationships among affiliated entities within that structure.
Formation of the HOLDCO would require a separate petition to the PSC, a form of
which is appended to the Settlement, and approval by shareholders, the
Securities and Exchange Commission, the Federal Energy Regulatory Commission and
the Nuclear Regulatory Commission.
The Settlement would authorize RG&E to initially fund its unregulated
activities, whether conducted through a HOLDCO or otherwise, with $50 million
and would not require a separate authorization by the PSC for such investment.
Miscellaneous. Upon approval of the Settlement by the PSC, RG&E would
-------------
withdraw from an appeal challenging the PSC's Opinion No. 96-12 and would
terminate its petition seeking judicial review of the PSC's decision regarding
the settlement in the previous electric rate proceeding (the 1996 Settlement).
The present Settlement would, upon approval, supersede the 1996 Settlement.
Various incentive and penalty provisions in the 1996 Settlement would be
eliminated.
FERC ISO Filing. On January 31, 1997, RG&E, along with the other New York
---------------
electric utilities submitted a filing to the Federal Energy Regulatory
Commission for approval of a fundamental restructuring of the wholesale
electric market in New York State, including the establishment of an independent
system operator ("ISO"), the New York State Reliability Council ("NYSRC") and a
power exchange called the New York Power Exchange ("NYPE"). As proposed, the
existing New York Power Pool will be dissolved and the ISO will administer a
state-wide open access tariff and provide for the short-term reliable operation
of the bulk power system in the state. The NYSRC will have primary
responsibility for developing, and monitoring compliance with, rules to address
the particular system reliability needs of the state. The NYPE will be
established to provide a vehicle through which buyers and sellers may
participate in the wholesale energy and ancillary services markets.
As proposed, generators of electricity could submit bids to sell energy to,
and load serving entities could submit bids to buy energy from, the NYPE or any
other power exchange. Each power exchange would then submit its delivery
schedules to the ISO which would review them for feasibility and reliability.
-6-
<PAGE>
The energy market would use a "locational-based marginal pricing" mechanism that
takes into account transmission limitations. Generators would also have the
opportunity to enter into bilateral contracts for electricity.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits: See Exhibit Index below.
-7-
<PAGE>
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 hereunto duly authorized.
ROCHESTER GAS AND ELECTRIC CORPORATION
(Registrant)
Date: April 9, 1997 By: /s/ J. B. Stokes
-------------------------------
J. Burt Stokes
Senior Vice President,
Corporate Services and
Chief Financial Officer
Date: April 9, 1997 By: /s/ Daniel J. Baier
-------------------------------
Daniel J. Baier
Controller
-8-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
Exhibit 10 Settlement Agreement dated April 8, 1997 between RG&E, the
Staff of the New York PSC, and other parties, excluding
Schedules. RG&E agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of all Schedules to
the Settlement Agreement, including the following:
Schedule A - Rates
Schedule B - Amortizations
Schedule C - Manufacturing Classifications
Schedule D - Nuclear Decommissioning
Schedule E - Large Customer Credit Program
Schedule F - Low Income Program
Schedule G - Service Quality Performance Program
Schedule H - Retailing Functions
Schedule I - Standards Pertaining to Affiliates and the
Provision of Information
Schedule J - Form of Petition to Form Holding Company
-9-
<PAGE>
Exhibit 10
STATE OF NEW YORK
BEFORE THE
PUBLIC SERVICE COMMISSION
________________________________________________________________________________
CASE 94-E-0952 - In the Matter of Competitive Opportunities Regarding Electric
Service
CASE 96-E-0898 - In the Matter of Rochester Gas and Electric Corporation's
Plans for Electric Rate/ Restructuring Pursuant to Opinion
No. 96-12
________________________________________________________________________________
SETTLEMENT AGREEMENT
April 8, 1997
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
INTRODUCTION................................................. 1
Parties................................................. 1
Subject................................................. 2
Background.............................................. 4
Negotiations............................................ 7
AGREEMENT.................................................... 9
Term ((P)(P) 1, 2)...................................... 9
Rates ((P)(P) 3-9)...................................... 9
Return on Equity ((P) 10)...............................15
Kamine ((P) 11).........................................15
Inflation ((P) 12)......................................16
Property Taxes ((P) 13).................................17
"System Benefits Charge" and Mandate Relief ((P)(P)
14, 15)................................................18
Mandates, Catastrophic Events and Competition
Implementation Costs ((P)(P) 16, 17)...................20
Securitization ((P) 18).................................21
Sunk Costs ((P) 19).....................................22
To-Go Costs ((P) 20)....................................23
Nuclear Facilities ((P)(P) 21, 22)......................24
Shut-Down and Decommissioning Costs ((P) 23)............25
System Reliability and Market Power ((P) 24)............26
Amortizations ((P) 25)..................................27
Post-Employment Benefits ((P) 26).......................27
Ginna Outage Costs ((P) 27).............................27
Excess Earnings ((P) 28)................................28
Environmental Remediation Costs ((P) 29)................28
Amounts Due Customers ((P) 30)..........................28
Incentives Owed RG&E and Amounts Owed Customers Under
Settlements ((P) 31)...................................29
Flexible Tariff Discounts ((P) 32)......................30
Legal Services ((P) 33).................................30
Regulated Rate Design ((P)(P) 34-40)....................31
Large Customer Credit Program ((P) 41)..................32
Low-Income Program ((P) 42).............................32
Service Quality ((P) 43)................................33
Retail Access Generally ((P)(P) 44-51)..................34
Distribution Access Charges ((P)(P) 52-56)..............38
Reciprocity ((P) 57)....................................41
Return to RLSE ((P) 58).................................42
Alternative to Dairylea Program ((P) 59)................42
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
Corporate Structure ((P) 60)............................43
DISCO ((P) 61)..........................................44
GENCO ((P) 62)..........................................44
RLSE ((P) 63)...........................................44
ULSE ((P) 64)...........................................45
HOLDCO and Capitalization of Unregulated Operations
((P) 65)...............................................45
Petition for Relief ((P)(P) 66-68)......................46
Filing Requirements ((P)(P) 69-71)......................48
Dispute Resolution ((P) 72).............................49
Binding Effect of Settlement ((P) 73)...................49
Superseding Prior Settlements ((P) 74)..................50
Modification of Settlement ((P) 75).....................50
Effect of Agreement ((P) 76)............................50
Withdrawal from Litigation ((P) 77).....................53
SCHEDULES
A - Rates
B - Amortizations
C - Manufacturing Classifications
D - Nuclear Decommissioning
E - Large Customer Credit Program
F - Low Income Program
G - Service Quality Performance Program
H - Retailing Functions
I - Standards Pertaining to Affiliates and the Provision of Information
J - Form of Petition to Form Holding Company
</TABLE>
-ii-
<PAGE>
STATE OF NEW YORK
BEFORE THE
PUBLIC SERVICE COMMISSION
________________________________________________________________________________
CASE 94-E-0952 - In the Matter of Competitive Opportunities Regarding Electric
Service
CASE 96-E-0898 - In the Matter of Rochester Gas and Electric Corporation's
Plans for Electric Rate/ Restructuring Pursuant to Opinion
No. 96-12
________________________________________________________________________________
SETTLEMENT AGREEMENT
INTRODUCTION
Parties
- --------
This Settlement Agreement ("Settlement") is entered into this 8th day
of April, 1997 by and among the Staff of the Department of Public Service
("Staff"), Rochester Gas and Electric Corporation ("RG&E" or "the Company"), the
Joint Supporters, the National Association of Energy Service Companies, Inc.,
and Multiple Intervenors, hereinafter collectively referred to as "the Parties."
<PAGE>
2
Subject
- --------
As more specifically described herein, this Settlement is intended to
resolve all issues in the above-captioned proceedings as they pertain to
RG&E./1/ Consistent with the vision articulated by the Public Service Commission
("the Commission" or "the PSC") in its 1996 Opinion in the Competitive
Opportunities Proceeding,/2/ this Settlement will, upon approval by the
Commission, set electric rates for a five-year period (July 1, 1997 through June
30, 2002) at levels that are, overall, substantially below their current levels.
While rates for all customer classes will be reduced, large industrial and
commercial customers will receive the most significant price decreases. Such
decreases are in keeping with the Commission's goal of fostering economic
development and job retention in the State by stabilizing and reducing
electricity prices./3/
In addition to providing for lower prices for the next five years, the
Settlement effects a major restructuring of RG&E's operations to open up the
Company's service area to increased customer choice. On July 1, 1998, the
Company will begin to allow customers to
- -------------------------
/1/ As noted elsewhere herein, certain issues remain the subject of generic
consideration and are, therefore, not resolved in their entirety by this
Settlement. See, e.g., footnote 121, infra.
--- ---- -----
/2/ Cases 94-E-0952 et al., In the Matter of Competitive Opportunities
-- --- ------------------------------------------
Regarding Electric Service, Opinion No. 96-12, Opinion and Order Regarding
--------------------------
Competitive Opportunities for Electric Service, issued May 20, 1996.
/3/ See, e.g., id. at 1.
--- ---- --
<PAGE>
3
choose their own supplier of electric energy./4/ A year later, assuming
implementation of a Statewide Independent System Operator ("ISO") and Power
Exchange ("PE"),/5/ customers will begin to be able to choose their own supplier
of energy and capacity./6/ During this time, RG&E will restructure its
---
operations so as to functionally separate its generation, distribution,
retailing and overall administrative functions. While certain functions, such as
distribution, will remain as regulated monopoly services, others, including
retail service, will be open to competition from third parties./7/ Recognizing
that not all customers will be able (or perhaps willing) to select alternative
suppliers of energy and/or capacity, the Settlement provides for continued
service to such customers by a Commission-regulated functional unit of RG&E.
This Settlement also provides for continuation of a program to assist
low-income customers/8/ and a service quality program intended to maintain safe
and reliable service despite the cost-cutting pressures that accompany increased
competition./9/ Further, this resolution of issues in the Competitive
Opportunities Proceeding responds to the Commission's directive/10/ to
- -------------------------
/4/ See paragraph 45, infra.
--- -----
/5/ The ISO and PE (also referred to as the "market exchange") are described by
the Commission. See Opinion No. 96-12 at 63, footnotes 1 and 2.
---
/6/ See ibid.
--- ----
/7/ See paragraphs 60 through 65, infra.
--- -----
/8/ See paragraph 42, infra.
--- -----
/9/ See paragraph 43, infra.
--- -----
/10/ Cases 96-E-0948 et al., Petition of Dairylea Cooperative Inc. to Establish
-- --- --------------------------------------------------
an Open-Access Pilot Program for Farm and Food Processor Electricity
--------------------------------------------------------------------
Customers, Order Concerning Retail Access Proposals, issued February 25,
----------
1997.
<PAGE>
4
introduce retail access to farm and food processor customers on an expedited
basis./11/ Finally, this Settlement resolves two pending cases involving
judicial review of Commission decisions as they pertain to RG&E./12/
Except as expressly provided otherwise herein, this Settlement will,
upon approval by the Commission, supersede the current Settlement dated May 10,
1996 ("the 1996 Settlement") approved with modifications by the Commission on
June 27, 1996./13/
Background
- -----------
Opinion No. 96-12 is grounded in the Commission's desire to bring to
New York State consumers the innovations and efficiencies of competitive
markets, together with economic development, lower electric prices and greater
customer choice, while, at the same time, maintaining the safety and reliability
of electric service. Toward these ends the Commission's Opinion called upon the
State's utilities to take certain actions and make certain filings.
The Commission adopted a "two-prong approach" to implementation of the
policy directions identified in Opinion No. 96-12. The first prong, an ongoing
collaborative effort
- -------------------------
/11/ See paragraph 59, infra.
--- -----
/12/ See paragraph 77, infra.
--- -----
/13/ Cases 95-E-0673 et al., Rochester Gas and Electric Corporation, Order
-- --- --------------------------------------
Approving Terms of Settlement Agreement With Changes, issued June 27,
1996. The Commission restated its approval with modification in Opinion
No. 96-27, Opinion and Order Concerning Revenue Requirement and Rate
Design, issued September 26, 1996. The Commission's modification of the
1996 Settlement is the subject of an Article 78 proceeding, Rochester Gas
-------------
and Electric Corporation v. Public Service Commission (Sup. Ct. Albany
-----------------------------------------------------
Co. Index No. 6616-96), that will be withdrawn upon approval of this
Settlement. See paragraph 77, infra.
--- -----
<PAGE>
5
among the utilities and other parties, was to continue to "accomplish technical
studies (including addressing market power concerns, the role of energy service
companies, and reporting requirements), necessary FERC [Federal Energy
Regulatory Commission] filings, and public educational forums by October 1,
1996."/14/ The second implementation prong consisted of individual utility
filings also to be submitted by October 1, 1996. These filings were "to address,
at a minimum, the utilities' structure, retail access proposals, long-term rate
plans, public programs, market power and energy services."/15/ The Commission
described the subject matter of the individual filings in greater detail as
follows:/16/
(1) the structure of the utility both in the short and long-term, the
schedule and cost to attain that structure, a description of how
that structure complies with our vision and, in cases where
divestiture of generation is not proposed, effective mechanisms
that adequately address resulting market power concerns;
(2) a schedule for the introduction of retail access to all of the
utility's customers, and a set of unbundled tariffs that is
consistent with the retail access program;
(3) a rate plan to be effective for a significant portion of the
transition that incorporates our goal of moving to a competitive
market, including mechanisms to reduce rates and address
strandable costs;
- -------------------------
/14/ Opinion No. 96-12 at 91.
/15/ Ibid.
----
/16/ Id. at 75-76.
--
<PAGE>
6
(4) identification of the public policy programs, whose funding is
not recoverable in a competitive market, that need special rate
treatment and competitively neutral mechanisms to recover such
costs;
(5) an examination of the load pockets unique to the utility,
identification of potential market power problems, and proposals
to mitigate market power; and
(6) a plan for the provision of energy services, including addressing
the continued provision of customer protections consistent with
an emerging competitive market./17/
In its October 1, 1996 submission to the Commission, entitled
"Competitive Initiative,/18/ RG&E addressed the topics identified by the
Commission, stating what the Company's proposals would be in the event that it
were required to implement the Commission's policies./19/
- -------------------------
/17/ The Company joined with the Energy Association of New York State and six
other utilities in an Article 78 proceeding for judicial review of Opinion
No. 96-12. That proceeding was commenced on September 18, 1996.
The Energy Association of New York State et al. v. Public Service
-----------------------------------------------------------------
Commission (Albany Co. Index No. 5830-96). The case is currently
----------
pending before the Appellate Division, Third Department.
/18/ Also referred to herein as the "October 1 Submission." In August 1996,
during development of the Submission, the Company had held two Public
Forums, open to all customers, and an Issues Forum, for elected officials,
to address matters pertaining to competition and deregulation in the
electric industry. See October 1 Submission at I-19 - I-21.
---
/19/ The only element of the Competitive Initiative that was not contingent
upon the outcome of the Article 78 proceeding (see footnote 17, supra)
--- -----
was the Company's proposal to institute a separate, identified "Public
Policy Charge" ("PPC") for the costs of public policy programs the Company
is expected to undertake.
<PAGE>
7
On October 9, 1996, the Commission instituted Case 96-E-0898 for the
purpose of examining RG&E's October 1 Submission./20/ Under the procedural
schedule established by the October 9 Order, the parties would have a 90-day
negotiation period during which they were encouraged to reach a settlement in
lieu of litigation. In the event that negotiations proved unsuccessful, a
litigation schedule would follow and the record would close within 150 days of
issuance of the October 9 Order. To encourage settlement, the Commission waived
certain elements of its 1992 Procedural Guidelines for Settlements./21/
Public Education Forums and Public Statement Hearings regarding RG&E's
October 1 Submission were held on December 2, 1996 in Canandaigua and on
December 4, 1996 in Rochester./22/
Negotiations
- -------------
Between October 22, 1996 and December 4, 1996, RG&E personnel met on
13 occasions with interested parties./23/ These meetings began with
informational sessions at which Company representatives explained the October 1
Submission in detail and answered questions. Discussions progressed to
settlement negotiations which included exchanges of
- -------------------------
/20/ Case 94-E-0952 et al., Order Establishing Procedures and Schedule
-- ---
("October 9 Order").
/21/ Case 90-M-0255 et al., Proceeding on Motion of the Commission Concerning
-- --- -------------------------------------------------
its Procedures for Settlement and Stipulation Agreements, filed in
------------------------------------------------------------------
C 11175, Opinion, Order and Resolution Adopting Settlement Procedures
-------
and Guidelines, issued March 24, 1992.
/22/ The Stenographic Minutes of the Public Statement Hearings consist of pages
1-150.
/23/ These meetings included ten all-day meetings held in Rochester and Albany
and three lengthy conference calls in which the parities were invited to
participate.
<PAGE>
8
proposals and counter-proposals. These "all-party" meetings were conducted
pursuant to the provisions of the Commission's regulations regarding
settlements./24/ In early December, with the then-current deadline for filing
testimony just weeks away and the parties' determination that they were not
sufficiently close to achieving a settlement, the all-party negotiations were
suspended in order to prepare testimony. Staff and the Company, however,
maintained a dialogue, exploring alternative approaches that ultimately led to
the instant Settlement. Although these discussions were suspended at various
points, the effort continued throughout January, February and March. During
this period, input on certain aspects of the proposals under discussion was
sought and received from the Consumer Protection Board and Multiple
Intervenors.
On March 27, 1997, a nearly complete draft of the Settlement,/25/
together with a summary thereof, was distributed to all parties to Case 96-E-
0898. On the same day, Staff, with assistance from RG&E, made a presentation to
the parties in Albany./26/ Staff and the Company fielded questions on the draft
and solicited further comments. Additional all-party meetings were held on
April 1, 2, and 3, 1997. These negotiations were productive, resulting in the
consideration of comments and suggestions provided by those who participated in
these meetings.
The Parties believe that this Settlement, which constitutes a
carefully balanced resolution of diverse interests is in the public interest,
and should be adopted.
- -------------------------
/24/ 16 NYCRR (S) 3.9.
/25/ Including draft Schedules.
/26/ In addition to Staff and the Company, ten individuals, representing seven
other parties, attended in person. Two parties participated by telephone.
<PAGE>
9
AGREEMENT
The Parties agree as follows:
Term
- -----
1. Except as expressly provided otherwise herein, this Settlement
shall be effective for a period of five Rate Years,/27/ commencing July 1, 1997
and terminating June 30, 2002.
2. In the event that Commission approval of this Settlement occurs
prior to July 1, 1997, the new rates provided for hereunder shall not become
effective prior to July 1, 1997; but, except as expressly provided otherwise in
this Settlement, the Parties shall, upon approval by the Commission, commence
their respective obligations to implement the other measures provided for
hereunder.
Rates
- ------
3. Except as expressly provided otherwise in this Settlement,
electric rates shall be reduced, cumulatively, from the levels in effect as of
July 1, 1996 as follows:/28/
July 1, 1997: $3.5 million;
July 1, 1998: $10.5 million;
- -------------------------
/27/ For purposes of this Settlement, a "Rate Year" is the one-year period
commencing on July 1st of one calendar year and terminating on June 30th
of the following calendar year.
/28/ Each date listed signifies the beginning of the Rate Year to which the
indicated reduction applies.
<PAGE>
10
July 1, 1999: $22.6 million;
July 1, 2000: $32.2 million; and
July 1, 2001: $34.8 million.
Further reductions to rates shall be made to the extent that Mandate Relief/29/
occurs. The Parties anticipate that such further reductions to rates shall
occur in at least the following total annual amounts/30/, listed by rate year:
July 1, 1998: $2.0 million (resulting in a total reduction
of $12.5 million);
July 1, 1999: $3.0 million (resulting in a total reduction
of $25.6 million);
July 1, 2000: $3.0 million (resulting in a total reduction
of $35.2 million); and
July 1, 2001: $3.0 million (resulting in a total reduction
of $37.8 million).
The total annual amounts of the foregoing reductions shall be offset by the
following annual amounts, listed by commencement of rate year, for the recovery
of costs/31/ pertaining to the
- -------------------------
/29/ For purposes of this Settlement, "Mandate Relief" shall have the meaning
described in paragraph 14, infra.
-----
/30/ The base for measuring such further reductions shall be the rates in
effect on June 30, 1997.
/31/ No cost referenced in this Settlement may be considered for recovery,
true-up or deferral unless it is prudent and verifiable.
<PAGE>
11
Kamine/Besicorp Allegany L.P. project ("Kamine") other than those described in
paragraph 11, infra:
-----
July 1, 1998: $3.5 million;
July 1, 1999: $8.5 million; and
July 1, 2000 and continuing at this level until recovery of
the cost of any settlement or other action requiring payment is
complete or June 30, 2002, whichever is later: $10.6
million./32/
RG&E shall be entitled to commence the foregoing offsets regardless of when any
settlement or other action requiring payment to Kamine takes effect. In the
event that the foregoing amounts provided for Kamine cost recovery exceed costs
actually attributable to Kamine, any such excess balance remaining as of June
30, 2002 shall be applied to Sunk Costs, as described in paragraph 19, infra.
-----
4. The allocation of the foregoing rate decreases among customer
groups shall be as described in Schedule A to this Settlement.
5. The allocation of the revenue decreases corresponding to the
foregoing rate decreases shall be applied to the Generation Business Segment/33/
and shall be based upon the
- -------------------------
/32/ In the event that recovery is not, or will not be, complete by June 30,
2002, and RG&E or any other Party believes that circumstances would favor
or permit more rapid recovery of Kamine costs, RG&E or such other Party
shall have the right,
notwithstanding any other provision of this Settlement, to request the
Commission to increase the offset amount.
/33/ RG&E's current utility operations will be functionally separated into
Generation, Transmission, Distribution and Retailing, hereinafter
referred to as "Business Segments." See paragraphs 60-65, infra.
--- -----
<PAGE>
12
relative responsibility of nuclear and non-nuclear generation for Cash
Operation and Maintenance ("O&M")/34/ expense.
6. Except as otherwise provided by contract, beginning July 1, 1999
and continuing through June 30, 2002, Incremental Manufacturing Load/35/
shall be served at an average rate of $0.059 per KWH.
7. Except as otherwise provided in this Settlement, the rates
resulting from the foregoing reductions shall not be modified during the term of
this Settlement to reflect any
- -------------------------
/34/ For purposes of this Settlement, "Cash O&M" shall mean non-fuel O&M
expenses less the amortizations listed in Schedule B. For purposes of
this Settlement, the following allocation shall be used: 65 percent to
nuclear and 35 percent to non-nuclear.
/35/ For purposes of this Settlement, "Incremental Manufacturing Load" shall
mean energy sales meeting both of the following characteristics:
1. The energy is sold to a customer whose Standard Industrial
Classification is in one of the groups listed in Schedule C.
2. The customer adds at least 50 KW of new load by:
(a) constructing a new facility;
(b) expanding an existing facility;
(c) adding facilities or equipment to an existing site; or
(d) adding facilities through the redevelopment of an existing site
which has been vacant for at least six months.
<PAGE>
13
changes in revenues or expenses, including but not limited to changes in O&M
savings (both Cash O&M and Non-Cash O&M/36/), State and local tax reductions/37/
and asset sales./38/
8. Upon filing appropriate documentation with the Commission, the
rates resulting from the foregoing reductions shall be subject to modification
for the following:
a. Kamine recovery as described in paragraph 11, infra;
-----
b. Variations in the levels of Mandate Relief as described in
paragraph 14, infra;
-----
c. Securitization benefits as described in paragraph 18, infra;
-----
d. Deferrals/39/ pursuant to this Settlement, including but not
limited to those provided for in paragraphs 12 through 17,
23 and 29, infra; and
-----
e. Adjustments pursuant to paragraphs 23, 66 and 67, infra.
-----
9. During the term of this Settlement such modifications pursuant to
paragraph 8, supra, shall be made only if the net effect of all such factors
-----
would be a projected cumulative balance, either owed to customers or owed to
shareholders, greater than $30 million
- -------------------------
/36/ For purposes of this Settlement, "Non-Cash O&M" shall mean amortizations
pursuant to Schedule B.
/37/ For purposes of this paragraph, "taxes" shall not include the Gross
Receipts Tax or property taxes.
/38/ Notwithstanding any previous requirement pertaining to such matters, all
savings not reflected in rates as of July 1, 1996 arising from the
operation of the Nine Mile Point 2 and Oswego 6 jointly owned facilities
shall be retained by the Company.
/39/ All amounts deferred pursuant to this Settlement shall bear carrying
charges at the rate of 9.0 percent.
<PAGE>
14
on a pre-tax basis. The amount projected to be greater than $30 million shall
be recovered by adjusting rates, on the next July 1st, for the remaining term
of the Settlement; provided, however, that such rate adjustments shall be
subject to the following:
a. No rate adjustments shall be made in Rate Years 1 or 2 with
the exception of adjustments pursuant to paragraphs 14 and
18, infra.
-----
b. A single Rate Year rate adjustment shall not exceed $7.0
million for any of the final three Rate Years of the
settlement with the exception of adjustments pursuant to
paragraph 18, infra.
-----
c. A rate adjustment shall not be for less than $3.5 million,
subject to Item d.
d. The cumulative effect of all rate increases shall not exceed
$12.1 million per Rate Year.
e. Any amount attributable to items for which changes in
cost are permitted to be recovered pursuant to this
Settlement, but which are not recovered by the end of the
term of this Settlement as a consequence of this paragraph
shall be deferred for recovery beyond the end of such term
and the timing of such recovery shall be determined by the
Commission.
Changes due to the "System Benefits Charge"/40/ and Securitization shall be
reflected without regard to the foregoing limitations.
- -------------------------
/40/ The "System Benefits Charge" is described in paragraph 14, infra.
-----
<PAGE>
15
Return on Equity
- ----------------
10. In the event that RG&E achieves a return/41/ on common equity in
excess of 11.80 percent, as determined for the entire/42/ five-year term of this
Settlement, the Company shall be entitled to retain 50 percent of the amount in
excess of 11.80 percent as earnings and the remaining 50 percent shall be used
to write down accumulated deferrals or Sunk Costs./43/
Kamine
- -------
11. In the event that RG&E becomes obligated to make actual payments
to Kamine or any other party pursuant to either the purported Power Purchase
Agreement ("PPA") or any litigation pertaining to the Kamine project or the
purported PPA, RG&E shall be entitled, subject to paragraphs 8 and 9, supra, to
-----
recover on a current basis in electric rates an additional amount/44/ not to
exceed, on a Rate-Year basis,/45/ the "Net PPA Amount," which shall consist of:
seven-eighths (7/8) of the difference between (i) the amount that would be
payable to Kamine if
- -------------------------
/41/ As used in this Settlement, "return" means the return on a regulatory
basis for regulated operations -- e.g., it does not reflect tax benefits
----
statutorily reserved for the benefit of investors or any disallowed
assets for unrealized tax benefits.
/42/ The actual return on common equity shall be computed annually. See
---
paragraph 69, infra. At the end of the five-year Settlement period,
-----
annual amounts of over-or-under-earnings shall be netted for purposes of
determining any sharing pursuant to this paragraph.
/43/ For purposes of this Settlement, "Sunk Costs" shall have the meaning
described in footnote 65, infra.
-----
/44/ I.e., in addition to the amount attributable to Kamine ($9.6 million) that
----
was included in the rates that were effective as of July 1, 1996.
/45/ Prorated, as necessary, to reflect commencement of recovery at any time
other than the first day of a rate year.
<PAGE>
16
the purported PPA were enforced and Kamine generated and sold to RG&E the
maximum output permitted under the purported PPA,/46/ and (ii) any amount
attributable to Kamine that was included in the rates that were effective as of
July 1, 1996; provided that such Net PPA Amount shall be reduced by:
a. amounts accrued for Kamine costs pursuant to paragraph 3,
supra; and
-----
b. any Securitization benefits otherwise permitted to be used
to mitigate Kamine costs.
Any Kamine costs not recovered currently shall be deferred for recovery in the
subsequent Rate Years of the term of this Settlement/47/ and, if not recovered
by the end of such term, shall be deferred for recovery beyond the end of such
term and the timing of such recovery shall be determined by the Commission.
Inflation
- ---------
12. If, in any Rate Year, inflation, as measured by the actual GDP
Chain-Weighted Price Deflator, exceeds 4.0 percent, RG&E shall be permitted to
defer for future recovery the amount by which any inflation-based increase in
Cash O&M exceeds such 4.0 percent increase up to the percentage increase
determined by the GDP Chain-Weighted Price
- -------------------------
/46/ Whether Kamine actually produces and sells electricity to RG&E or not.
/47/ During the term of this Settlement, however, such deferral and recovery
shall not cause any increase attributable to Kamine costs to exceed the
Net PPA Amount that would apply to the year of recovery.
<PAGE>
17
Deflator./48/ Deferral and recovery of such increased costs pursuant to this
paragraph shall not require further petition to or approval by the Commission
other than filing of appropriate workpapers showing the calculation of the
amount to be deferred.
Property Taxes
- ---------------
13. Changes in property taxes shall be addressed as follows:
a. Fifty (50) percent of any property tax increases over the
Base Level,/49/ described in subparagraph c, below, shall be
deferred for future recovery.
b. Fifty (50) percent of any property tax decreases from the
Base Level shall be likewise deferred for future passback to
customers.
c. The Base Level shall be equal to actual property tax
expenditures over the twelve (12) months ended February 28,
1997, less taxes related to any assets sold after June 30,
1997.
- -------------------------
/48/ For purposes of this paragraph, Cash O&M shall be assumed to be $201
million until the implementation of the Energy and Capacity stage of the
Retail Access Program, described at paragraph 45, infra, at which time
-----
Cash O&M will be assumed to be $176 million. These amounts shall be
reduced by any amounts recovered through the "System Benefits Charge," as
described in paragraph 14, infra. The deferral shall be calculated as
-----
the product of Cash O&M and the difference between actual inflation and
4.0 percent.
/49/ Property taxes pertaining to non-nuclear generating facilities shall be
deducted from the Base Level pursuant to the schedule stated in paragraph
54, infra.
-----
<PAGE>
18
"System Benefits Charge" and Mandate Relief
- -------------------------------------------
14. In the event that the Commission orders the implementation of a
"System Benefits Charge" ("SBC") or a similar charge designed to recover the
costs of mandated programs,/50/ the Parties agree that RG&E's rates will be
adjusted as required to fully recover the costs of these programs./51/ The
Parties shall cooperate to identify, actively pursue and implement savings in
the programs covered by this charge./52/ Such savings will be termed Mandate
Relief for the purposes of this Settlement. Mandate Relief, to the extent that
it occurs, will be reflected in an adjustment to rates to take effect each July
1st during the term of this Settlement. To the extent that the costs related
to the programs covered by the SBC increase during the term of this Settlement,
those increases will be reflected in an adjustment to rates to take effect each
July 1st during the term of this Settlement. Costs not recovered or decreases
not reflected during any particular Rate Year will be reflected in rates in a
future Rate Year,/53/ as soon as practicable. Mandate Relief will be allocated
to voltage classes as shown in Schedule A. Increases in SBC costs will be
allocated as shown for Mandate Relief in Schedule A unless the Commission's
decision in Case 94-E-0952 provides otherwise. Except as otherwise provided in
this Settlement, after June 30, 1997, any Demand Side Management ("DSM") costs
incurred by RG&E shall be
- -------------------------
/50/ The institution of such a charge is currently under consideration in Case
94-E-0952.
/51/ These costs currently are included in bundled rates and, unless different
expenditure levels are approved in Case 94-E-0952, the net impact on
customers would be zero.
/52/ One way of disbursing funds for energy efficiency programs covered by this
charge would be by means of a standard performance contract with
stipulated pricing approved by the Commission.
/53/ Which may include the period immediately following the term of this
Settlement.
<PAGE>
19
recovered through the SBC or similar charge, and the Company shall have
no further obligation pursuant to the 1996 Settlement./54/
15. The costs described as Public Policy Costs in Section VII of
RG&E's October 1 Submission, to the extent permitted to be billed separately as
part of an SBC, or as a Public Policy Charge, under the terms of the
Commission's Order establishing an SBC, may be included in RG&E's SBC. To the
extent that any of such costs are not recovered through an SBC or similar
charge, as described in paragraph 14, supra, such costs shall be otherwise
-----
recovered through distribution access rates. Changes in such costs due to
governmental action of any kind will be considered Mandates, as described in
paragraph 16, infra. The materiality threshold of $2.5 million/55/ will be
-----
applied to aggregated cost changes within each of the seven categories of
Public Policy Costs,/56/ excluding SBC items.
- -------------------------
/54/ In addition, there shall be no denial of recovery of actual DSM
expenditures pursuant to Schedule F to the 1996 Settlement. Due to
contractual commitments under existing DSM programs, discontinuance of
the Company's obligations will not result in immediate cessation of all
expenditures.
/55/ A zero ($0) materiality threshold shall apply to items included in the
SBC.
/56/ These categories are:
1) DSM
2) Low-Income Assistance
3) Obligation to Serve - Incremental Expenses
4) Economic Growth
5) Environmental Initiatives
6) Mandated and Public Policy Research and Development
7) Regulatory Assessments and Expenses
<PAGE>
20
Mandates, Catastrophic Events and Competition Implementation Costs
- ------------------------------------------------------------------
16. In the event that, after the date upon which this Settlement is
executed by the Company and on or before June 30, 2002, one or more
Mandates/57/ is implemented/58/ and/or one or more Catastrophic Events/59/
occurs and, during any Rate Year covered by this Settlement, the cost impact of
any individual Mandate or any individual Catastrophic Event exceeds $2.5
million,/60/ RG&E shall be entitled to defer the entire amount attributable to
such Mandates and Catastrophic Events and to recover or pass back such amount
as soon as possible thereafter, subject to the terms of paragraphs 8 and 9,
supra. Such deferral and recovery or pass-back shall, with the exception of
- -----
Commission-imposed Mandates, not apply to generating facilities that,
- -------------------------
/57/ For purposes of this Settlement, a "Mandate" shall mean (a) any
governmental action, including changes in laws and regulations (including
tax laws and regulations) and orders of regulatory and other agencies
which result in cost changes, and (b) any changes in accounting required
by generally accepted accounting principles. In the event that any such
"Mandate" consists of actions in response to an asserted failure by the
Company to conform to valid legal requirements, the Company shall have
the burden of showing that its conduct which gave rise to such action was
consistent with the best interests of customers.
/58/ "Implementation," as used in this paragraph, shall not be deemed to refer
only to commencement of new Mandates, but shall instead include both
commencement of new Mandates and changes to existing Mandates.
/59/ For purposes of this Settlement, a "Catastrophic Event" shall mean an
event that triggers the designation of part of the Company's service
territory as a disaster area or as being under a state of emergency.
/60/ Such impact shall be calculated only with reference to regulated
operations. The $2.5 million threshold, however, shall not apply to
changes in nuclear decommissioning costs that are the result of Mandates.
<PAGE>
21
pursuant to the Energy and Capacity stage of the Company's Retail Access
Program,/61/ are fully exposed to market pricing.
17. RG&E shall be entitled to defer and to recover as soon as
possible, subject to the terms of paragraphs 8 and 9, supra, the entire amount
-----
of all Competition Implementation Costs/62/ that exceed, in the aggregate in any
Rate Year, $2.5 million.
Securitization
- ---------------
18. The benefits, if any, of any Securitization/63/ that may become
available after this Settlement is executed by RG&E shall, subject to paragraph
11, supra, be used to increase the amounts of the rate reductions identified in
-----
paragraph 3, supra,/64/ and any such further rate reductions shall be allocated
-----
in a manner consistent with the legislation or Commission orders authorizing
Securitization.
- -------------------------
/61/ Described at paragraphs 44-51, infra.
-----
/62/ For purposes of this Settlement, "Competition Implementation Costs" shall
mean all incremental expenditures incurred by RG&E after February 28,
1997, in connection with all regulatory proceedings, legislation,
regulations, and orders pertaining to the implementation of a competitive
market for electric service.
/63/ For purposes of this Settlement, "Securitization" shall mean Commission-
issued rate orders, legislatively authorized or otherwise, that are
specifically intended to create added credit quality for utility
borrowings, allowing assets or utility costs to be financed at more
favorable terms than otherwise available. This reduced cost of borrowing
is the benefit referred to in the text. Securitization shall not be
deemed to include general rate orders or financing orders issued in the
ordinary course.
/64/ Without regard to the limitations of paragraph 9(a) and (b), supra.
-----
<PAGE>
22
Sunk Costs
- ----------
19. All prudently incurred Sunk Costs/65/ as of March 1, 1997 shall
be included in rates charged pursuant to RG&E's distribution access tariff.
The Parties intend that the provisions of this Settlement will allow the
Company to continue to recover such costs, during the term of the Settlement,
under Statement of Financial Accounting Standards No. 71 ("SFAS 71"),/66/ which
provides for certain accounting conventions for regulated companies subject to
cost-based ratemaking. The Parties shall meet prior to July 1, 2001 to discuss
future ratemaking treatment of such costs. Such treatment shall be consistent
with the principle that the Company shall have a reasonable opportunity beyond
July 1, 2002 to recover all such costs./67/
- -------------------------
/65/ For purposes of this Settlement, "Sunk Costs" shall mean all investment in
electric plant and electric Regulatory Assets. A "Regulatory Asset" is a
deferred cost whose classification on the Company's Balance Sheet as an
asset is permitted pursuant to paragraph 9 of SFAS 71.
/66/ Accounting for the Effects of Certain Types of Regulation.
/67/ Such principles of cost recovery shall also apply to the negotiations
referenced in paragraph 22, infra.
-----
<PAGE>
23
To-Go Costs
- -----------
20. The fixed portion of the To-Go Costs/68/ of RG&E's fossil
generating units,/69/ hydroelectric generating units,/70/ gas turbines,/71/ and
power purchase contracts (other than Kamine),/72/ and the fixed portion of the
To-Go Costs of the Company's share of Oswego 6 shall be recovered in full
through the Company's distribution access tariff until July 1, 1999 in
- -------------------------
/68/ For purposes of this Settlement, "To-Go Costs" shall mean all capital
costs incurred after February 28, 1997, O&M expenses and property,
payroll and other taxes. The "variable" portion of such costs shall mean
the costs that vary as KWH output varies at a generating plant, chiefly
fuel expense. The "fixed" portion of such costs shall mean all such
costs not defined as "variable."
/69/ RG&E's wholly owned fossil generating units consist of Beebee Station
(Unit 12) and Russell Station (Units 1-4).
/70/ Stations 2, 5, 26, 160, 170 and 172.
/71/ Stations 3 and 9.
/72/ RG&E currently has the following long-term power purchase contracts:
=============================================================================
Contract Name Contract Capacity (KW) Expiration of Contract
- -----------------------------------------------------------------------------
Niagara Firm 65,000 August, 2007
- -----------------------------------------------------------------------------
Niagara Par. "B" 35,000 August, 2007
- -----------------------------------------------------------------------------
St. Lawrence 55,000 August, 2007
- -----------------------------------------------------------------------------
Hydro Quebec 20,000 October, 1998
- -----------------------------------------------------------------------------
FitzPatrick 12 Month Notice
Winter 44,000
Summer 50,000
- -----------------------------------------------------------------------------
Gilboa 150,000 June, 2002
=============================================================================
<PAGE>
24
accordance with paragraphs 44 and 51, infra. The variable portion of such
-----
To-Go Costs/73/ shall be subject to the market for electricity in accordance
with paragraphs 44 and 45, infra.
-----
Nuclear Facilities
- ------------------
21. All prudently incurred costs of Ginna Station and the Company's
share of Nine Mile Point 2 shall be recovered through retail rates subject to
the provisions of the following paragraph, provided, however, that such costs
shall not be subject to true-up or reconciliation except as otherwise provided
in this Settlement.
22. RG&E shall participate in good-faith negotiations with Staff and
with the other cotenants of Nine Mile Point 2 regarding future rate treatment of
such facility. The Parties anticipate that similar treatment will be applied to
Ginna Station. Such negotiations and any proposed treatment resulting therefrom
shall be consistent with and in furtherance of the following principles:
a. any Commission or other State solution must be consistent
with Nuclear Regulatory Commission ("NRC") requirements;
b. a Statewide solution to treatment of nuclear facilities is
preferable to individual utility-by-utility solutions and
any solution pertaining to RG&E must be consistent with a
Statewide solution;
c. RG&E's nuclear facilities shall remain subject to the
provisions of paragraph 16, supra, during the term of this
-----
Settlement; and
- -------------------------
/73/ See footnote 68, supra.
--- -----
<PAGE>
25
d. no change in the treatment of RG&E's nuclear facilities
shall be implemented until at least January 1, 2000.
In the event that the above-described negotiations should result in any change
in ratemaking treatment, the Parties will meet to discuss the relationship
between the potential impact on the Retail Access Program implementation
schedule, the associated conditions and limitations on customer participation
and the level of To-Go Costs that are subject to the market.
Shut-Down and Decommissioning Costs
- -----------------------------------
23. All prudently incurred incremental costs pertaining to the shut-
down and decommissioning of generating facilities,/74/ whether fully or
partially owned by RG&E, shall be recovered through the Company's distribution
access tariff. Nuclear decommissioning costs shall be as described in Schedule
D. In the event that the estimates of nuclear decommissioning costs contained
in Schedule D change,/75/ RG&E shall submit to the Commission and the Parties a
revised Schedule D, showing such changes and shall, upon request of the
Commission or the Parties, provide reasonable documentation therefor. The
Company, upon Commission approval,/76/ shall thereupon be permitted to change
its distribution access rates to reflect such
- -------------------------
/74/ In addition to the decommissioning costs shown in Schedule D for nuclear
plant, "shut down and decommissioning costs" include transmission and
distribution costs associated with elimination of a particular generating
facility, severance pay resulting from such elimination, and
decommissioning of fossil facilities.
/75/ This provision is intended to address changes in estimates that are not
the result of changes in Mandates, as defined in footnote 57, supra.
-----
/76/ Such approval process shall be based upon a showing of the necessity and
reasonableness
(continued...)
<PAGE>
26
increase or decrease. Other than nuclear decommissioning costs currently
included in rates, the above costs shall be deemed incremental and deferred for
recovery pursuant to the provisions of paragraphs 8 and 9, supra.
-----
System Reliability and Market Power
- -----------------------------------
24. RG&E shall maintain the reliability of its system, including
those portions of the system identified as Load Pockets,/77/ in the most cost-
effective manner, considering a range of alternatives including but not limited
to: transmission and distribution system reinforcements, maintenance of
existing plant, energy efficiency and distributed generation. In connection
with the petition of the Member Systems of the New York Power Pool ("NYPP") to
the FERC to form new wholesale market institutions (the ISO, PE and the New York
State Reliability Council), the Company shall file a market power mitigation
plan with FERC and shall take appropriate action in accordance with the outcome
of such filing. Nothing in this Settlement shall preclude the Commission from
implementing market power mitigation measures for retail service, as
appropriate, after the term of this Settlement.
- -------------------------
(...continued)
of the expenditures.
/77/ For purposes of this Settlement, "Load Pockets" shall have the meaning
described in Opinion No. 96-12 (at 60): "'Load pockets' exist when, due
to transmission system limitations, some generation must be located
within a particular location in order to continue the provision of
reliable service." RG&E's Load Pockets are described in Section V of the
October 1 Submission.
<PAGE>
27
Amortizations
- -------------
25. Schedule B to this Settlement shows the items and the amounts
thereof that will be deemed to have been amortized during the term of the
Settlement. RG&E shall be permitted to record amortizations and unamortized
balances as it deems appropriate over the five Rate Years of the Settlement;
provided, however, that, at the conclusion of the Settlement period, any
unamortized balance for a particular item shall not be greater than it would
have been had the amortization been recorded as shown on Schedule B. For
purposes of computing RG&E's regulatory earnings, the levels of amortization
expenses shall be as indicated on Schedule B.
Post-Employment Benefits
- ------------------------
26. The parties agree that upon approval of this Settlement by the
Commission, and effective as of January 1, 1997, the Commission's policy
statement on accounting and ratemaking for pensions and other post-employment
benefits/78/ shall no longer apply to RG&E and to its accounting policies.
Ginna Outage Costs
- ------------------
27. RG&E shall be permitted, at its option, to book costs associated
with Ginna Station maintenance outages on a levelized basis. Such costs shall
be deemed to have been recovered from customers on a levelized basis.
- -------------------------
/78/ Case 91-M-0890, Statement of Policy and Order Concerning the Accounting
-------------------------------------------------------
and Ratemaking Treatment for Pensions and Postretirement Benefits other
-----------------------------------------------------------------------
than Pensions, issued September 7, 1993.
-------------
<PAGE>
28
Excess Earnings
- ---------------
28. Any excess earnings attributable to the Rate Year ending June 30,
1997 or any prior Rate Year/79/ shall be deemed to have been passed back to
customers as of July 1, 1997.
Environmental Remediation Costs
- -------------------------------
29. RG&E will defer on its books of account and reflect in rates as
prescribed by this paragraph and pursuant to paragraphs 8 and 9, supra, site
-----
investigation and remediation ("SIR") costs/80/ for electric operations in
excess of $2.0 million annually. Any costs deferred under this paragraph will
be net of recoveries of these costs under insurance policies or from third
parties.
Amounts Due Customers
- ---------------------
30. RG&E shall record any Service Quality Performance Program/81/
penalties that become due to customers during the term of this Settlement. To
the extent that these amounts are not offset by amounts due the Company,
excluding Mandates, as described in paragraph 16, supra, they shall be carried
-----
forward to the end of the term of this Settlement and
- -------------------------
/79/ Including any amount, not exceeding $2.5 million, pertaining to excess
collections under the Fuel Cost Adjustment.
/80/ SIR costs are the costs RG&E incurs to investigate, remediate, or pay
damages, including natural resource damages, but excluding personal injury
damages, with respect to industrial and hazardous waste or contamination,
spills, discharges and emissions for which RG&E is responsible.
/81/ The Service Quality Performance Program is described in paragraph 43,
infra.
-----
<PAGE>
29
the ultimate disposition of any such carry-forward balance shall be determined
in a future rate proceeding./82/
Incentives Owed RG&E and Amounts Owed Customers Under Settlements
- -----------------------------------------------------------------
31. Any and all Electric Revenue Adjustment Mechanism ("ERAM")
deferrals and incentive amounts that were due to the Company as of June 30,
1997, including amounts derived from the electric rate settlement approved by
the Commission in Opinion No. 93-19 ("the 1993 Settlement")/83/, shall be
deemed to be eliminated as of the effective date of this Settlement. Any and
all amounts that were due to customers as of June 30, 1997 including amounts
derived from the 1993 Settlement, the "Settlement Agreement - Demand Side
Management Issues" ("the DSM Settlement") approved in Opinion No. 95-20,/84/
the 1996 Settlement and the Nine Mile 2 Settlements shall also be deemed to be
eliminated as of the effective date of this Settlement.
- -------------------------
/82/ Such balance shall bear carrying charges at the annual rate of 9.0
percent.
/83/ Cases 92-E-0739 et al., Rochester Gas and Electric Corporation, Opinion
-- -- --------------------------------------
and Order Approving Settlement, issued August 24, 1993. The referenced
items include DSM, Service Quality, Integrated Resource Management
Incentive ("IRMI") and Ginna Steam Generator replacement cost sharing.
See 1993 Settlement, paragraphs 18-20, 32.
---
/84/ Cases 95-E-0673 et al., Rochester Gas and Electric Corporation, Opinion
-- -- --------------------------------------
and Order Approving Settlement of DSM Issues, issued December 27, 1995.
<PAGE>
30
Flexible Tariff Discounts
- --------------------------
32. During the term of this Settlement, RG&E shall have authority to
provide discounted service pursuant to Service Classification No. 10 ("SC-10")
contracts or similar flexible pricing arrangements, including the Flexible
Distribution Tariff Option described in Appendix A to Schedule A. Lost margins
resulting from all such sales prior to July 1, 2002 shall be deemed to have been
recovered by the Company during the term of this Settlement./85/
Legal Services
- ---------------
33. This Settlement resolves all issues pertaining to the cost of
legal services and is deemed to complete all the recommendations contained in
the final report issued by Mitchell/Titus and Company in November 1993 in the
Statewide Legal Services Study (Case 92-M-0047). Accordingly, there are no
further studies, reports or actions required of the Company in regard to this
matter.
- -------------------------
/85/ This paragraph shall not be construed as limiting RG&E's right to seek
explicit recovery of some or all of the lost margins on sales of
electricity or distribution service made after June 30, 2002, regardless
of when the contracts pursuant to which such sales were made were entered
into.
<PAGE>
31
Regulated Rate Design
- ---------------------
34. Except as expressly provided otherwise in this Settlement, any
change in revenues pursuant to the provisions hereof shall be allocated
uniformly to all service classifications ("SC")./86/
35. For SC-1, SC-2, and SC-4, Schedule I, the monthly customer charge
shall be increased by $1.50 in each Rate Year of the term of this Settlement,
with corresponding decreases in energy rates, as shown in Schedule A.
36. For SC-4, mandatory application to large customers shall be
eliminated.
37. For SC-8, the difference between peak and shoulder period energy
charges shall be eliminated as of July 1, 1997, with a corresponding increase in
demand charges. In subsequent years, energy charges shall be reduced
accordingly, as shown for illustrative purposes in Schedule A.
38. The Company is authorized to modify the eligibility criteria of
SC-10 to eliminate the requirements of item A.3 (energy audits).
39. The Company is authorized to modify the eligibility criteria of
SC-11 to eliminate the energy audit requirement.
- -------------------------
/86/ Reference in this paragraph and in paragraphs 35 through 39, infra, to
-----
"service classifications" shall be to the existing service
classifications in RG&E's Electric Tariff (P.S.C. No. 14), and in RG&E's
Street Lighting Tariff (PSC No. 13). For the purposes of this
Settlement, the projected KWH sales as presented in Schedule A shall be
used.
<PAGE>
32
40. The Company is authorized to make rate design changes to its
other electric service classifications/87/ that are consistent with the
principle of reducing marginal energy prices. Further, during the term of this
Settlement, the Company may at any time petition the Commission for approval to
implement revenue-neutral or de minimis rate or rate design changes, including
changes to the rate design plans described in paragraphs 34 through 37, supra.
-----
Large Customer Credit Program
- -----------------------------
41. RG&E shall continue its Large Customer Credit Program in
accordance with Schedule E to this Settlement, which shall supersede Schedule F
to the 1996 Settlement.
Low-Income Program
- ------------------
42. RG&E shall continue to implement the Low-Income Program included
in the 1996 Settlement (Schedule G) and to recover in Residential Rates/88/ the
amounts specified in the 1996 Settlement (paragraph 45). Prior to June 30,
1999, the Parties shall meet to discuss whether the Program should continue
beyond its scheduled expiration date (June 30, 1999) and, if so, in what form.
The Low-Income Program is contained in Schedule F to this Settlement.
- -------------------------
/87/ SC-3, SC-7 and SC-9.
/88/ For purposes of this paragraph, "Residential" shall mean SC-1 and SC-4
customers.
<PAGE>
33
Service Quality
- ----------------
43. RG&E shall continue its Service Quality Performance Program in
accordance with Schedule G to this Settlement, which shall supersede Schedule H
to the 1996 Settlement./89/ The new Program shall continue through June 30,
1999. The Electric Reliability component/90/ of the Program shall apply only to
RG&E's distribution operations and the Customer Service component/91/ shall
apply only to the Company's Regulated Load Serving Entity ("RLSE")
operations./92/ Prior to June 30, 1999, the Parties shall meet to discuss
whether the Program should continue beyond its scheduled expiration date and,
if so, in what form. Notwithstanding the foregoing, if RG&E determines that
the implementation of competition results in deterioration of performance under
the Service Quality Performance Program,/93/ RG&E shall be permitted,
independent of any other provision of this Settlement, to petition the
Commission for relief from the effects of any component of the Program that is
affected by implementation of competition.
- -------------------------
/89/ The only substantive difference between the 1996 Program and the current
one is in the amounts of the maximum penalties.
/90/ The maximum penalty for the Electric Reliability Component shall be
$750,000, allocated equally between the two items in this component.
/91/ The maximum penalty for the Customer Service component shall be $500,000,
allocated equally among the six items in this component.
/92/ "RLSE" is defined in Section VIII (p. VIII-23) of RG&E's October 1
Submission and described in paragraph 63, infra.
-----
/93/ E.g., complaints due to customer confusion.
----
<PAGE>
34
Retail Access Generally
- ------------------------
44. RG&E shall offer its customers the opportunity to purchase their
own electric energy and capacity and the Company shall deliver such electric
energy and capacity in accordance with the following description of the
Company's Retail Access Program. The Parties acknowledge that RG&E's ability to
undertake the Retail Access Program is contingent upon numerous conditions and
circumstances,/94/ a number of which are not within the direct control of the
Parties. Accordingly, the Parties agree that it may become necessary to modify
the Program to account for such factors, and they agree further to address such
matters in good faith and to cooperate in an effort to propose joint resolutions
of any such matters.
45. The Retail Access Program shall be a "Single Retailer" program,
as described in RG&E's October 1 Submission,/95/ and as such "Single Retailer"
program has been modified pursuant to the terms of this Settlement./96/ For a
period of three years, beginning with the implementation date of the Program, as
described in paragraph 47, infra, RG&E shall offer the option of unbundled
-----
billing services under a tariff to participating Load Serving Entities
("LSEs")./97/ The Program will be phased in, as described in paragraphs 47
through 51, infra. It
-----
- -------------------------
/94/ Including the existence of an adequate market, as described in paragraph
51, infra.
-----
/95/ See Section VIII (pp. VIII-16 - VIII-18).
---
/96/ A list of the retailing functions, the provision of which will be the
responsibility of LSEs participating in the Program, is included in
Schedule H.
/97/ LSEs are described in Section VIII of RG&E's October 1 Submission (pp.
VIII-10 - VIII-11). An individual customer can qualify as an LSE and
procure its combined needs for some or all of its separate accounts.
"Unbundled billing services" include preparation and mailing of a single
bill on the LSE's behalf. The purpose of having RG&E offer such
(continued...)
<PAGE>
35
shall commence on July 1, 1998 by allowing customers to choose their own
supplier of electric energy (the "Energy Only" stage of the Program). During
this stage of the Program, the Company shall continue to provide and be
compensated for the generating capacity required to serve all customers
reliably. On July 1, 1999, subject to the provisions of paragraphs 51 and 66,
infra, customers will be permitted to choose their own supplier of energy and
- -----
capacity (the "Energy and Capacity" stage of the Program)./98/
46. RG&E agrees to cooperate with the Parties to commence work on the
Retail Access Program as soon as the Parties execute this Settlement; provided,
however, that any incremental costs or commitments incurred by the Company in
connection with such work shall be deemed to be included in the Competition
Implementation Costs that are subject to recovery pursuant to paragraph 17,
supra.
- -----
47. Subject to the provisions of paragraphs 44, supra, and 51, infra,
----- -----
the schedule for implementation of the Retail Access Program is as follows and
is contingent upon the events listed in Items a through c:
- -------------------------
(...continued)
service is to permit LSEs to commence operations without having to wait
for development of their own billing systems. The three-year limit is
intended to recognize that this service will ultimately be available on a
competitive basis and, therefore, to give RG&E the option of terminating
this regulated offering after allowing LSEs a reasonable period to make
alternative billing arrangements.
/98/ As the designation indicates, the LSE will be responsible for purchasing
capacity upon commencement of this stage of the Program.
<PAGE>
36
a. Execution of an agreement regarding the functional
requirements of the Program/99/ by May 23, 1997;
b. Development of the form of Operating Agreement/100/ and
filing of proposed tariffs by December 1, 1997;
c. Commission approval of tariffs by February 1, 1998;/101/
d. The Energy Only stage of the Program begins by July 1, 1998,
at which time customers using up to 670 GWH of energy per
year, in the aggregate,/102/ will be eligible to participate;
e. The Energy and Capacity stage of the Program begins by July
1, 1999, at which time customers using up to 1,300 GWH of
energy per year will be eligible to participate;
- -------------------------
/99/ "Functional requirements" will describe the business and/or system
processes needed to implement retail access and unbundled billing.
Subsequent critical components of the system development process, such as
the operating agreement, business procedures, communications, system
specifications and training, will eventually evolve from these
requirements.
/100/ Operating Agreements are described in Section VIII (pp. VIII-24 - VIII-26)
of RG&E's October 1 Submission. The Operating Agreement will be drafted
in consultation with an Advisory Council to be made up of the Parties.
The Operating Agreement will be referenced in the Distribution Access
Tariff and will be on file with the Commission. It is expected that
there may be differences between an Agreement for a single customer
acting as an LSE and an Agreement for an LSE serving multiple customers.
/101/ Except as provided in paragraph 59, infra, these tariffs shall be
-----
effective as of July 1, 1998.
/102/ All references to customer consumption are to aggregated use.
<PAGE>
37
f. As of July 1, 2000, customers using up to 2,000 GWH of
energy will be eligible to participate;
g. As of July 1, 2001, customers using up to 3,000 GWH of
energy will be eligible to participate;
h. As of July 1, 2002, all retail customers will be eligible to
participate.
48. To permit implementation without unnecessary disruption, the
Parties agree that the Retail Access Program scope and functional requirements
will not be changed in a way that substantially alters the administrative and
other changes necessary for timely implementation of the Program. No such
change in scope or functional requirements shall be made without RG&E's consent.
49. To the extent that energy consumption by end-use customers in the
Company's service territory grows beyond a level of 6,714 GWH during the term of
this agreement, the GWH caps on eligibility described in paragraph 47, supra,
-----
will be increased by the amount of additional energy consumption.
50. Eligibility for the Retail Access Program will not be restricted
by customer class.
51. The Parties agree that the existence of a functioning Statewide
Energy and Capacity Market/103/ in which RG&E is able to practicably
participate is a crucial factor in the
- -------------------------
/103/ The "Statewide Energy and Capacity Market" is defined to be a set of
circumstances and conditions such as that identified by the Member
Systems of the NYPP in their January 31, 1997 filing with the FERC to
create new wholesale market institutions in
(continued...)
<PAGE>
38
Company's ability to implement the Energy and Capacity stage of the Program.
If such a Statewide Energy and Capacity Market is not implemented by July 1,
1998, the Company may petition the Commission for a delay in the implementation
of the Energy and Capacity stage of the Program and show cause why relief from
this schedule is required. If the Program is delayed in this fashion, the
provisions of paragraph 55, infra, will apply and the caps on participation
-----
in the Energy and Capacity stage of the Program described in paragraph 47,
supra, will apply.
- -----
Distribution Access Charges
- ---------------------------
52. LSEs will be required to take transmission service under the
Company's FERC Open Access Transmission Tariff,/104/ until such time as that
tariff is superseded by a FERC-approved Statewide open access transmission
tariff. At that time, LSEs will be required to take service under the
Statewide tariff. LSEs will also be required to take distribution service under
a PSC-regulated distribution tariff. Any costs not recovered through the
FERC-regulated transmission tariff will be recovered, to the extent permitted
hereunder, through the PSC-regulated distribution access tariff or a
PSC-regulated retail tariff and any costs recovered through FERC-regulated
tariffs shall not be recovered in PSC-regulated distribution access rates.
- -------------------------
(...continued)
New York. This Market, as thus defined, would include mechanisms for the
wholesale purchase and sale of the electric energy commodity by any
qualified entity, as well as the same or different mechanisms for the
purchase and sale of generating capacity commitments by such entities.
/104/ Filed July 9, 1996 in Docket No. OA96-141-000.
<PAGE>
39
The distribution access tariff charges will be based upon the loads of the
LSE's retail customers aggregated by voltage class.
53. For the Energy Only stage of the Retail Access Program, the rates
charged to LSEs under the Company's tariff for distribution access shall be
approximately equal, on average, to the rates that would apply to bundled retail
service less retailing costs/105/ and the per-unit energy-related cost of all
non-nuclear energy sources.
54. For the Energy and Capacity stage of the Retail Access Program,
the rates charged to LSEs under the Company's tariff for distribution access
shall be approximately equal, on average, to the rates that would apply to
bundled retail service less retailing costs and the per-unit fixed and variable
To-Go Costs of non-nuclear energy sources, exclusive of property taxes. The
property tax component of the per-unit non-nuclear To-Go Costs shall be deducted
from bundled rates as follows: twenty (20) percent upon commencement of the
Energy and Capacity stage of the Retail Access Program; and an additional twenty
(20) percent commencing every twelve (12) months thereafter./106/
55. If the Statewide Energy and Capacity Market is not fully in place
as of July 1, 1998, the Company shall be authorized to charge rates for
distribution access that will be
- -------------------------
/105/ The types of retailing functions to which "retailing costs" pertain are
shown in Schedule H.
/106/ The total per-unit reduction from bundled rates will average 3.2 cents per
KWH. This figure includes both retailing costs and To-Go Costs of
non-nuclear energy sources. Schedule A shows, for illustrative purposes,
the average distribution access revenues per KWH by voltage level, without
accounting for rate design, for each year of the Energy and Capacity stage of
the Program. The actual distribution access rates shall be filed with the
Commission as tariff changes.
<PAGE>
40
approximately equal, on average, to the rates that would apply to bundled
retail service less retailing costs and the per-unit market price of energy and
capacity, as defined at the points at which the Company's transmission system
interconnects with the Statewide transmission system./107/ These rates will
apply to distribution access service for a period no longer than twelve (12)
months after the full implementation of the Statewide Energy and Capacity
Market. The Company will not interfere with or in any way seek to delay the
implementation of the Statewide Energy and Capacity Market.
56. Upon extension of eligibility for the Retail Access Program to
all retail customers on July 1, 2002, the Company shall be authorized to modify
its distribution access rates, so as to hold constant the degree to which its
To-Go Costs are at risk for recovery through the market./108/ The Parties
agree to meet before July 1, 2001 to discuss future ratemaking plans. If,
during the operation of the Energy and Capacity Stage of the Retail Access
Program, the market price of energy and capacity measured at the Company's
interconnections with the Statewide transmission system, exceeds an average of
3.2 cents per KWH on a persistent and sustained basis, the Parties will meet to
discuss the potential acceleration of the Retail Access Program implementation
schedule, the associated conditions and limitations on customer
- -------------------------
/107/ The Company shall file appropriate tariff leaves to effect such change and
the approval process therefor shall be limited to verification of the
changes reflected therein. The same procedure shall apply to changes
pursuant to paragraph 56, infra.
-----
/108/ Recovery of non-nuclear To-Go Costs shall continue to be through the
market, except that property taxes are to be phased out of regulated
rates as described in paragraph 54, supra.
-----
<PAGE>
41
participation and continued recovery of nuclear costs in the event of a
subsequent decrease in market prices, subject to the provisions of paragraph
22, supra.
-----
Reciprocity
- -----------
57. In the event that RG&E is requested to permit access by an
electric utility or affiliate/109/ of such utility where an affiliate of RG&E
would be denied comparable access to the service territory of such other
utility or utility affiliate, RG&E shall have the right to petition the
Commission for an order requiring that such other utility provide the Company's
affiliate comparable access or precluding the other utility or its affiliate
from participating in RG&E's Retail Access Program until such time as access is
provided to RG&E's affiliate./110/ The filing of such petition shall operate
automatically to stay participation in RG&E's Program until the matter is
decided by an order of the Commission on the petition.
- -------------------------
/109/ For purposes of this Settlement, "utility affiliate" shall mean any entity
having any ownership, partnership, joint venture or other common
enterprise interest with a utility in which either entity has more than
five (5) percent ownership in the other or in any of the foregoing
entities.
/110/ The Parties agree that the Commission may be limited by law in the
actions it may take with respect to non-New York State entities and their
programs. To the extent that any such entity may be the object of a
petition, as provided for herein, the Commission shall, to the extent it
is legally able to do so, take action consistent with this paragraph.
<PAGE>
42
Return to RLSE
- ---------------
58. Customers who have participated in the Retail Access Program
shall be permitted to return to service under the Regulated Load Serving Entity
("RSLE")/111/ tariff; provided, however, that RG&E shall be permitted to
establish reasonable measures, including but not limited to time and frequency
limits on switching, to prevent customers from "gaming" the Program. During
the Energy Only stage, RG&E will allow such returning customers to take service
at regulated retail rates. During the Energy and Capacity stage, if the
Company's incremental costs of supplying energy and capacity exceed the costs
of energy and capacity embedded in regulated retail rates, the Company shall be
permitted to charge such customers the equivalent of regulated retail rates
plus the additional incremental costs of procuring energy and capacity on
behalf of such customers. Otherwise, such customers will pay regulated retail
rates. During the Energy and Capacity stage, RG&E shall have no obligation to
maintain capacity for such customers. New customers will pay the same rates
and be allowed to take the same services as such returning customers.
Alternative to Dairylea Program
- --------------------------------
59. The Parties agree, in view of the unique features of RG&E's
Retail Access Program, that good faith efforts on the Company's part to
introduce the Company's Retail Access Program to farm and food processor
customers on April 1, 1998 (three months prior to its starting date for other
customers) and introducing the Program to those customers outside of the
- -------------------------
/111/ The RLSE is described in paragraph 63, infra.
-----
<PAGE>
43
caps which otherwise limit participation in the Retail Access Program satisfies
the intent of the Commission's Order Concerning Retail Access Proposals issued
February 25, 1997 in Cases 96-E-0948 et al./112/ The Company will work, in
-- --
cooperation with interested customers eligible to participate pursuant to the
Order, to implement this provision.
Corporate Structure
- --------------------
60. RG&E shall separate its existing operations, either functionally
or structurally, as indicated, and shall provide for new operations by
establishing the following activity-based units:
a. a functionally separate distribution unit ("DISCO");
b. a functionally separate generating unit ("GENCO");
c. a functionally separate Regulated Load Serving Entity
("RLSE");
d. a structurally separate Unregulated Load Serving Entity
("ULSE"); and
e. a Holding Company ("HOLDCO")./113/
RG&E will develop and provide, by January 1, 1998, the accounting treatment to
be applied to the foregoing units. The Company will meet periodically with
Staff during such development period to keep Staff apprised of progress and to
receive input.
- -------------------------
/112/ Petition of Dairylea Cooperative Inc. to Establish an Open-Access Pilot
-----------------------------------------------------------------------
Program for Farm and Food Processor Electricity Customers.
---------------------------------------------------------
/113/ The HOLDCO may, at the Company's option, be a functionally separate unit
serving essentially the same purposes of a holding company or it may be a
legally distinct entity as contemplated in paragraph 65, infra.
-----
<PAGE>
44
DISCO
- -----
61. The DISCO shall continue to carry on RG&E's transmission and
distribution service which shall be provided to LSEs (Regulated and
Unregulated) pursuant to regulated tariffs. Except as otherwise described in
this Settlement, DISCO rates shall include the costs of RG&E generating
facilities/114/ and all costs identified in Section VII of RG&E's October 1
Submission./115/ Except to the extent that any of RG&E's generating
facilities/116/ are sold to unaffiliated entities, ownership of such facilities
shall remain with the DISCO either directly or through ownership by the DISCO
of the GENCO.
GENCO
- -----
62. Except as otherwise provided in this Settlement, the GENCO shall
be responsible for operating RG&E's generating facilities and for their
associated To-Go Costs.
RLSE
- ----
63. The RLSE shall provide bundled service under tariffs to customers
who elect to continue receiving bundled service or who do not have a practicable
alternative. The RLSE shall continue to serve as a "Provider of Last Resort"
("POLR") until the Commission approves an alternative means of providing such
service. All costs of POLR service that are
- -------------------------
/114/ See paragraphs 19 through 23, 45, 47 and 51, supra.
--- -----
/115/ See paragraph 15, supra.
--- -----
/116/ Including RG&E's interest in any jointly owned generating facilities.
<PAGE>
45
currently included in bundled rates and are not collected directly from
customers of the RLSE shall be collected in DISCO rates consistent with
paragraph 15, supra. The Company will work with Staff after the initial
-----
implementation of the Retail Access Program to devise an experimental
alternative which will entail providing POLR service on a competitive basis.
This experiment will be conducted during the term of this Settlement.
ULSE
- ----
64. The ULSE shall be permitted to function as an energy marketer
and provider of other energy services both within and outside RG&E's utility
service territory. The ULSE shall be permitted to use RG&E in its name and make
known that it is an affiliate of RG&E. The nature of the relationships among
affiliated units or corporations is addressed in the "Standards Pertaining to
Affiliates and the Provision of Information" contained in Schedule I attached
hereto.
HOLDCO and Capitalization of Unregulated Operations
- ---------------------------------------------------
65. The Parties support RG&E's Petition in substantially the form of
Schedule J/117/ to establish a holding company structure in which RG&E would be
permitted to operate through one or more regulated companies and one or more
unregulated companies, including energy service companies ("ESCOs") and LSEs.
Whether RG&E conducts its unregulated activities through a HOLDCO or a separate
subsidiary of a utility parent, it shall be
- -------------------------
/117/ Or a similar petition proposing the formation of a HOLDCO with the same
result, but through a different structure.
<PAGE>
46
permitted initially to fund, through cash, loan guarantees or advances, such
activities in the amount of $50 million. The principles relating to the
inter-company relationships, code of conduct, cost allocations, protections and
restrictions applicable to a holding company or competitive subsidiary are
contained in Schedule I. Authorization to fund such unregulated operations is
granted with the approval of this Settlement. Except for the $50 million of
initial investment, or as otherwise/118/ authorized by the Commission, RG&E's
regulated Business Segments will neither make loans to, nor guarantee or
provide credit support for the obligations of unregulated affiliates, and
RG&E's regulated Business Segments will not pledge any utility assets as
security for loans or financing arrangements for unregulated activities.
Petition for Relief
- -------------------
66. In the event that any of the following conditions occurs or is
likely to occur, RG&E or any other Party to this Settlement shall have the right
to petition the Commission for review of the operation of this Settlement and
appropriate remedial action:
a. Return on equity, determined on a Rate Year regulatory
basis for all remaining regulated operations, falls below
8.5 percent or increases above 14.5 percent;
b. Pre-tax interest coverage falls below 2.5 times;
- -------------------------
/118/ I.e., subsequent to initial investment.
----
<PAGE>
47
c. Governmental action occurs that cannot adequately be
addressed through the provisions of this Settlement
pertaining to Mandates, including but not limited to:
i. Actions taken by FERC with respect to: jurisdiction
over functions traditionally understood as "local
distribution" of electricity; ISO and PE functions and
transactions; and Qualifying Facility and Independent
Power Producer matters.
ii. Actions taken by the NRC with respect to: nuclear
decommissioning; nuclear waste disposal; nuclear power
plant operating and safety requirements; and financial
standards for nuclear power plant operators.
iii. New York State or federal legislation pertaining to:
energy industry restructuring; changes to the Public
Utility Regulatory Policies Act; and changes to the
Public Utility Holding Company Act of 1935.
67. Any Party seeking review pursuant to the preceding paragraph
shall have the burden of showing to the Commission's satisfaction that continued
operation of this Settlement as to the specific basis for that Party's petition
is unjust or unreasonable. In such event, the Commission may suspend or modify
any portions of this Settlement or take or refuse
<PAGE>
48
to take any other action permitted by law under the circumstances as they then
exist, the terms and provisions of this Settlement notwithstanding.
68. The Parties acknowledge that the Commission, pursuant to its
statutory responsibility, on its own motion or on request of any party, reserves
the authority to act on the level of the Company's rates if the Commission
determines that unforeseen circumstances have rendered the Company's rates or
return on investment unreasonable, inadequate or excessive for the provision of
safe and adequate service.
Filing Requirements
- -------------------
69. RG&E shall file with the Commission, not later than September 30
following each Rate Year subject to this Settlement, (a) a calculation of
regulatory earnings on common equity for such Rate Year, which filing shall be
used for purposes of determining whether the Company's earnings exceed or fall
below the 11.80 percent return described in paragraph 10, supra, and (b) a
-----
calculation of any penalties incurred pursuant to the Service Quality
Performance Program described in paragraph 43, supra.
-----
70. RG&E shall not, as of the effective date of this Settlement, be
required to make any of the filings or computations required by the 1996
Settlement.
71. Within 90 days of approval of this Settlement, the Company will
file with Staff a plan outlining the manner in which the Company will carry out
Retail Access Program phase-in. Such a plan should include, but not be limited
to, a customer education plan and a
<PAGE>
49
customer application procedure for each stage of the Retail Access Program.
The Company will consult with Staff and the Parties prior to filing such a
plan.
Dispute Resolution
- ------------------
72. In the event of any disagreement over the interpretation of this
Settlement or the implementation of any of the provisions of this Settlement,
which cannot be resolved informally among the Parties, such disagreement shall
be resolved in the following manner unless otherwise provided herein: The
Parties shall promptly convene a conference and in good faith shall attempt to
resolve such disagreement. If any such disagreement cannot be resolved by the
Parties, any Party may petition the Commission for relief on a disputed matter.
Binding Effect of Settlement
- ----------------------------
73. This Settlement represents a negotiated agreement and, except as
otherwise expressly stated herein, none of the Parties shall be deemed to have
approved, agreed to, or consented to any principle, methodology or
interpretation of law underlying or supposed to underlie any provision hereof,
and this Settlement shall not be cited or relied upon with respect to any
matters other than those specifically addressed herein.
<PAGE>
50
Superseding Prior Settlements
- -----------------------------
74. Except as expressly provided otherwise herein, this Settlement
shall, upon approval by the Commission, supersede the DSM Settlement and the
1996 Settlement.
Modification of Settlement
- --------------------------
75. Approval by the Commission of this Settlement shall constitute
approval of all of its terms. If the Commission approves this Settlement in its
entirety or modifies it in a manner acceptable to the Parties, this Settlement
shall be implemented in accordance with its terms. Because this Settlement is
an integrated whole, with each provision in consideration for, in support of,
and dependent on the others, any attempt to modify its terms may frustrate its
purpose. Thus, if the Commission does not approve this Settlement in its
entirety, without modification, each of the Parties reserves the right to
withdraw its acceptance by serving written notice on the Commission and the
other Parties and to renegotiate and, if necessary, to litigate, without
prejudice, any or all issues as to which such Party agreed in this Settlement;
such Party shall not be bound by the provisions of this Settlement, as executed
or as modified, and this Settlement shall not take effect.
Effect of Agreement
- -------------------
76. This Settlement calls for RG&E to make major, and in some cases
irreversible, commitments for the purpose of furthering the goal of the
Commission to restructure the electric industry and to reduce electric rates in
the State of New York. RG&E, by executing
<PAGE>
51
this Settlement, is making such commitments with the expectation that the
Parties and the Commission shall continue to honor the assurances embodied in
this Settlement. Specifically:
a. As part of this Settlement, RG&E has agreed to make
commitments, as described herein, including but not limited
to the following: (i) agreement to withdraw from the two
Article 78 proceedings described in paragraph 77, infra;
-----
(ii) significant rate reductions; (iii) the restructuring of
the Company's business; (iv) opening of the Company's
service territory to competitors; (v) providing retail
access to customers; and (vi) resolving the Kamine matter
while controlling its impact on rates.
b. RG&E has made each such commitment in return for rate and
other assurances by the Commission, including but not
limited to the following: (i) except to the extent the
Company has expressly agreed herein to place generation at
market risk,/119/ RG&E shall have a reasonable opportunity to
recover all prudently incurred investment and expenses and
to earn a reasonable return on investments; (ii) the Company
shall have a reasonable opportunity to recover transition
costs; (iii) rate treatment for the Company's investment in
nuclear facilities shall be as described herein; (iv) RG&E
shall be afforded a reasonable opportunity to fund and
- -------------------------
/119/ See paragraph 47, supra.
--- -----
<PAGE>
52
to undertake competitive business activities; and (v) the
Company is entitled to recover Kamine costs.
c. The Parties recognize that RG&E's participation in this
Settlement is based on the premise that, in adopting this
Settlement, the Commission will find, in substance, that:
(i) the foregoing commitments and assurances are
inextricably interrelated; (ii) the rates established
pursuant to this Settlement are just and reasonable to both
customers and shareholders through June 30, 2002; (iii) the
reasonable opportunity for RG&E to continue to recover the
prudently incurred costs referred to in subparagraph b,
supra,/120/ beyond the term of this Settlement is justified;
-----
(iv) except as noted herein, this Settlement constitutes
full compliance with the Commission's policies identified in
Opinion No. 96-12;/121/ (v) this Settlement is in the public
interest; and (vi) there is a clear need to reduce the
burdens imposed by Mandates.
- -------------------------
/120/ Other than the future costs of competitive businesses referenced in
subparagraph b(iv), supra.
-----
/121/ Full compliance pertaining to the following tasks outlined in Opinion No.
96-12 has not been effected by this Settlement: (a) a filing to
distinguish and classify transmission and distribution facilities; (b)
the proposed resolution of market power problems as related to Load
Pockets, as discussed in paragraph 24, supra; (c) compliance with future
-----
ESCO requirements (e.g., oversight, metering and billing); (d) compliance
----
with future ISO requirements; and (e) continuation of public forums to
provide education and consumer input related to competition and the needs
within RG&E's service territory.
<PAGE>
53
Withdrawal from Litigation
- --------------------------
77. In consideration for the foregoing, RG&E, upon final approval of
this Settlement by the Commission,/122/ agrees to petition the Appellate
Division of the Supreme Court for permission to withdraw as a party to the
appeal in the Article 78 proceeding brought to challenge Opinion No. 96-12,
Energy Association v. Public Service Commission (Sup. Ct. Albany Co. Index No.
- -----------------------------------------------
5830-96), and to withdraw the Company's pending Article 78 proceeding brought
to challenge the Commission's action with respect to the 1996 Settlement,
Rochester Gas and Electric Corporation v. Public Service Commission (Sup. Ct.
- -------------------------------------------------------------------
Albany Co. Index No. 6616-96). Withdrawal of the Rochester Gas and Electric
--------------------------
case and RG&E's withdrawal as a party to the Energy Association case shall be
------------------
effected through Stipulations of Withdrawal, mutually agreed to by RG&E and the
Commission. Until the aforementioned petition with respect to the Energy
------
Association case is granted, the Company will discontinue its litigation
- -----------
activities to the extent that it is able to do so without prejudicing its
rights in either Article 78 proceeding.
- -------------------------
/122/ I.e., after any appeals from such approval are exhausted or the time to
----
appeal has expired, whichever is later.
<PAGE>
Rochester Gas and Electric Corporation
Cases 94-E-0952 and 96-E-0898
Settlement Agreement
April 8, 1997
The party whose signature follows subscribes to the foregoing Settlement
Agreement.
Staff of the State of New York
Department of Public Service
By: /s/ Robert L. Whitaker
-------------------------------------
Robert L. Whitaker, Director
Office of Regulatory Economics
<PAGE>
Rochester Gas and Electric Corporation
Cases 94-E-0952 and 96-E-0898
Settlement Agreement
April 8, 1997
The party whose signature follows subscribes to the foregoing Settlement
Agreement.
Rochester Gas and Electric Corporation
By: /s/ Roger W. Kober
-----------------------------------------
Roger W. Kober
Chairman of the Board
and Chief Executive Officer
<PAGE>
Rochester Gas and Electric Corporation
Cases 94-E-0952 and 96-E-0898
Settlement Agreement
April 8, 1997
The party whose signature follows subscribes to the foregoing Settlement
Agreement.
Joint Supporters
By: /s/ Ruben S. Brown
-----------------------------------------
Ruben S. Brown
The E Cubed Company
<PAGE>
Rochester Gas and Electric Corporation
Cases 94-E-0952 and 96-E-0898
Settlement Agreement
April 8, 1997
The party whose signature follows subscribes to the foregoing Settlement
Agreement.
National Association of Energy
Service Companies, Inc.
By: /s/ Ruben S. Brown
-----------------------------------------
Ruben S. Brown
<PAGE>
Rochester Gas and Electric Corporation
Cases 94-E-0952 and 96-E-0898
Settlement Agreement
April 8, 1997
The party whose signature follows subscribes to the foregoing Settlement
Agreement.
Multiple Intervenors
By: /s/ Robert M. Loughney
----------------------------------------
Robert M. Loughney
Couch, White, Brenner
Howard & Feigenbaum, LLP
